Q3 2023 Merit Medical Systems Inc Earnings Call

Speaker 1: Welcome to the third quarter of fiscal year 2023 earnings conference call for Merit Medical Systems, Inc.

Welcome to the third quarter of fiscal year 2023 earnings Conference call for Merit Medical Systems, Inc.

Speaker 1: At this time, all participants have been placed in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

At this time, all participants have been placed in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

Then here an automated message advising your hand is raised please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Speaker 1: Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Speaker 1: I would now like to turn the call over to Mr. Fred Lampropoulos, Merit Medical Systems founder, chairman, and chief executive officer. Please go ahead, sir.

I'd now like to turn the call over to Mr. Fidler, and Propolis Merit Medical systems, founder Chairman and Chief Executive Officer. Please go ahead Sir.

Speaker 2: Thank you and welcome everyone to Miracle Systems 3rd quarter of fiscal year 2023 earnings conference call. I am joined on the call today by Raul Paara, our chief financial officer and treasurer, and Brian Lloyd, our chief legal officer and corporate secretary. Brian , would you mind taking us through the safe heart of the statement?

Thank you and welcome everyone to Merit medical systems third quarter of fiscal year 2023 earnings Conference call I'm joined on the call today by Raul Parra, Our Chief Financial Officer, and Treasurer, and Brian Lloyd, Our Chief legal officer and corporate Secretary.

Brian would you mind, taking us through the Safe Harbor statements. Please.

Thank you Fred.

Speaker 3: I would like to remind everyone that this presentation contains forward looking statements that receive safe harbor protection under federal securities law.

I would like to remind everyone that this presentation contains forward looking statements that receive safe Harbor protection under federal Securities laws.

Speaker 3: Although we believe these forward looking statements are based upon reasonable assumptions, they're subject to unknown risks and uncertainties, the realization of any of these.

Although we believe these forward looking statements are based upon reasonable assumptions they are subject to unknown risks and uncertainties.

The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from those that currently anticipated.

Speaker 3: as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from those currently anticipated.

Speaker 3: In addition, any forward-looking statements represent our views only as of today, October 26, 2023, and should not be relied upon as representing our views as of any other date.

In addition, any forward looking statements represent our views only as of today October 26, 2023, and should not be relied upon as representing our views as of any other date.

Speaker 3: We specifically disclaim any obligation to update such statements, except as required by applicable law.

We specifically disclaim any obligation to update such statements, except as required by applicable law.

Speaker 3: Please refer to the sections entitled Cost Cautionary Statement regarding forward-looking statements in today's press release and presentation for important information regarding such statement.

Please refer to the section entitled cautionary statement regarding forward looking statements in today's press release and presentation for important information regarding such statements.

Speaker 3: But it's also referred to our most recent findings with the SEC for discussion of factors that could cause actual results to differ from these forward looking statements.

Please also refer to our most recent filings with the SEC for a discussion of factors that could cause actual results to differ from these forward looking statements.

Speaker 3: Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States.

Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States.

Speaker 3: However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations.

However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period over period comparisons of such operations.

Speaker 3: This presentation also contains certain non-GAAP financial measures.

This presentation also contains certain non-GAAP financial measures.

Speaker 3: A reconciliation of non- GAAP financial measures to the most directly comparable US GAAP measures is included in today's press release in presentation furnished to the SEC under form 8k.

A reconciliation of non-GAAP financial measures to the most directly comparable U S. GAAP measures is included in today's press release and presentation furnished to the SEC under form 8-K.

Speaker 3: Please refer to the sections of our press release and presentation entitled Non- GAAP financial Measures for important information regarding non- GAAP financial measures discussed on this call.

Please refer to the sections of our press release and presentation entitled non-GAAP financial measures for important information regarding non-GAAP financial measures discussed on this call.

Speaker 3: Readers should consider non-GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP.

Readers should consider non-GAAP financial measures. In addition to not as a substitute for financial reporting measures prepared in accordance with GAAP.

Speaker 3: Please note that these calculations may not be comparable with similarly titled measures of other companies.

Please note that these calculations may not be comparable with similarly titled measures of other companies.

Speaker 3: Both today's press release and our presentation are available on the investors page of our website. I will now

For today's press release, and our presentation are available on the investors page of our website.

I will now turn the call back to Fred.

Speaker 2: Thank you, Brian , and thank you for joining us on a very busy reporting day. Let me start with a brief agenda of what we will cover during our prepared remarks.

Thank you, Brian and thank you for joining us on a very busy reporting day.

Let me start with a brief agenda of what we will cover during our prepared remarks.

Speaker 2: I will start with an overview of our revenue results for the third quarter, followed by an update on a few noteworthy operating highlights in recent months.

I will start with an overview of our revenue results for the third quarter, followed by an update on a few noteworthy operating highlights in recent months.

Speaker 2: After my opening remarks, Raul will provide you with a more in-depth review of our quarterly financial results and the formal financial guidance for 2023 that we updated in today's press release, as well as a summary of our balance sheet and financial condition as of September 30, 2023. We will then open the call for your questions.

After my opening remarks, I will provide you with a more in depth review of our quarterly financial result, and the formal financial guidance for 2023 that we updated in today's press release as well as a summary of our balance sheet and financial condition as of September 32023.

We will then open the call for your questions.

Speaker 2: Now beginning with a review of our third quarter revenue performance, we reported total GAAP revenue of $315.2 million in the third quarter, up 10% year over year. Our total GAAP revenue growth was driven by 14% growth in U.S. sales and 4% growth in international sales.

Now beginning with a review of our third quarter revenue performance.

We reported total GAAP revenue of $315 2 million in the third quarter up 10% year over year.

Our total GAAP revenue growth was driven by 14% growth in U S sales and 4% growth in international sales.

Speaker 2: Our total revenue increased 10% year-over-year in the third quarter on a constant currency basis.

Our total revenue increased 10% year over year in the third quarter on a constant currency basis.

Speaker 2: excluding the 10 basis point headwind to our gap revenue growth related to changes in exchange rates compared to the prior year period.

Excluding the 10 basis point headwind to our GAAP revenue growth.

Later to changes in exchange rates compared to the prior year period.

Speaker 2: The constant currency revenue growth we delivered in the third quarter was significantly stronger than the high end of the range of growth expectations that we outlined on our quarters in earnings call. Specifically, we expected constant currency revenue growth in the third quarter in the range of 5 to 7 percent year over year.

The constant currency revenue growth, we delivered in the third quarter was significantly stronger than the high end of the range of growth expectations that we outlined on our quarter two earnings call. Specifically, we expected constant currency revenue growth in the third quarter in the range of 5% to 7% year over.

Speaker 2: important lane the better than expected total constant currency revenue results in the third quarter was driven almost entirely by strong organic growth reflecting a broad-based strength across each of our primary product categories particularly in the US

Year.

Importantly, the better than expected total constant currency revenue results in the third quarter.

Was driven almost entirely by strong organic growth.

<unk>, a broad based strength across each of our primary product character product categories, particularly in the U S.

Speaker 2: Third quarter total revenue results also included $7.3 million of sales from the portfolio of interventional solutions we acquired from AngioDynamics on June 8, 2023, which notably also came in above the high end of the range we provided on our second quarter earnings call.

Third quarter total revenue results also included $7 $3 million of sales from the portfolio of Interventional solutions, we acquired from Angio dynamics on June eight 2023, which notably also came in above the high end of the range. We provided on our second quarter earnings call.

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Speaker 2: Let me now provide you with a more detailed review of our revenue results in the third quarter, beginning with a sales performance in each of our primary reportable product categories.

Let me now provide you with a more detailed review of our revenue results in the third quarter, beginning with our sales performance in each of our primary reportable product categories.

Speaker 2: Note, unless otherwise stated, all growth rates are approximated and presented on a year-over-year and constant currency basis.

Note unless otherwise stated all growth rates are approximated and presented on a year over year and constant currency basis.

Speaker 2: We've included reconciliations from our GAAP reporter results to the related non-GAAP item in our earnings release and presentation available on our website.

We've included reconciliations from our GAAP reported results to the related non-GAAP item in our earnings release and presentation available on our website.

Speaker 2: Third quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 11th percent growth in our endoscopy segment. In our cardiovascular segment, constant currency growth exceeded the high end of our expectations for the third quarter, while endoscopy segment sales came in at the high end of expectation.

Third quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 11% growth in our endoscopy segment in our cardiovascular segment constant currency growth exceeded the high end of our expectations for the third quarter, while in Endoscopy segment.

Sales came in at the high end of expectations sale.

Speaker 2: Sales of our peripheral intervention, or PI products, increased 16%, represented the largest driver of total cardiovascular segment growth again this quarter. Excluding sales of acquired products.

Sales of our peripheral intervention or Pi products increased 16% represented the largest driver of total cardiovascular segment growth again this quarter.

Excluding sales of acquired products.

Speaker 2: PI sales increased 9% on an organic, constant currency basis.

<unk> sales increased 9% on an organic constant currency basis.

Speaker 2: Organic growth in the PI product carry was driven by the sales of our radar localization and drainage products, which increased 19 and 15 percent respectively, and together represented a little more than half of total PI sales growth.

Organic growth in the PDI product carried was driven by sales of our radar localization and drainage products, which increased 19, and 15% respectively and together represented a little more than half of total <unk> sales growth.

Speaker 2: and by sales of our delivery systems and angiography products, which increased 19%, and together represented roughly one-third of our total PI growth in quarter three.

And by sales of our delivery systems, and and geography products, which increased 19% and together represented roughly one third of our total pie growth in quarter three.

Speaker 2: Sales of our OEM and cardiac intervention products were key contributors to our total cardiovascular segment growth this quarter, increasing 11 and 3% respectively.

Sales of our OEM and cardiac intervention products were key contributors to our total cardiovascular segment growth this quarter, increasing 11% and 3% respectively.

Speaker 2: Sales of our OEM products exceeded the high end of our growth expectations, which we attribute principally to continued solid demand from larger customers in multiple categories, including angiography, coatings, EPCRM, intervention, and kit products, which together increase 25% in quarter three.

Sales of our OEM products exceeded the high end of our growth expectations, which we attribute principally to continued solid demand from larger customers in multiple categories, including angiography coatings.

CRM intervention and kit products, which together increased 25% in quarter three.

Speaker 2: Cardiac intervention products sales also exceeded the high end of our growth expectations driven primarily by strong growth and sales of both our access products which increased 20% and our angiography in hemostasis products which together increased 20%

Cardiac intervention product sales also exceeded the high end of our growth expectations, driven primarily by strong growth in sales of both our access products, which increased 20% and our angiography and hemostasis products, which together increased 20%.

Speaker 2: Sales of our Custom Procedures Solutions, or CPS products, increased 6%, which was notably better than the low single-digit decline we expected in Q3.

Sales of our custom procedure solutions or Cps products increased 6%, which was notably better than the low single digit decline we expected in quarter three.

Speaker 2: Sales results benefited from higher demand from our customers outside the U.S. For certain kit product lines that we have been identified for skew rationalization as part of our foundations for growth and issues.

Sales results benefited from higher demand from our customers outside the U S for certain kit product lines that we have been identified for SKU rationalization as part of our foundation for growth initiatives.

Speaker 2: We expect CPSA to decline in the fourth quarter on a year-over-year basis as demand trends for these kit products lines normalized. But our guidance continues to assume that CPS product category delivers roughly flatish growth over the second half of 2023 compared to the prior year period.

We expect Cps sales to decline in the fourth quarter on a year over year basis as demand trends for these kit products lines normalized but our guidance continues to assume that Cps product category deleverage roughly flattish growth over the second half of 2023 compared to the prior year period.

Speaker 2: Lastly, sales in our endoscopy segment increased 11 percent, which was at the high end of the growth range we assumed in our third quarter guidance. As expected, we continued to see improving sales trends in the third quarter, and we continued to expect mid-teams growth in our endoscopy business in the second half of 2023.

Right.

Lastly, sales in our Endoscopy segment increased 11%, which was at the high end of the growth rate, we assumed in our third quarter guidance.

As expected, we continued to see improving sales trends in the third quarter and we continue to expect mid teens growth in our endoscopy business in the second half of 2023.

Speaker 2: Now turn to a brief summary of our sales performance on a geographic basis.

Now turning to a brief summary of our sales performance on a geographic basis, our third quarter sales in the U S increased 14% on a constant currency basis, and 10% on an organic constant currency basis.

Speaker 2: Our third quarter sales in the U.S. increased 14% on a constant currency basis and 10% on an organic constant currency basis, exceeding the high end of our growth expectations by more than 400 basis points in the period.

<unk> the high end of our growth expectations by more than 400 basis points in the period.

Speaker 2: Our U.S. growth performance reflects continued strong execution and overall improving trends in the U.S. market during the third quarter, particularly in our direct business, which continues to see impressive volume growth in sales of our vascular products.

Our U S growth performance reflects continued strong execution and overall improving trends in the U S market during the third quarter, particularly in our direct business, which continues to see impressive volume growth and sales of our vascular products.

Speaker 2: International sales increased 3.5% on a constant currency basis and increased 2.9% on an organic constant currency basis, modestly exceeding the high end of our expectations in the quarter.

International sales increased three 5% on a constant currency basis and increased two 9% on an organic constant currency basis modestly exceeding the high end of our expectations in the quarter.

Speaker 2: Organic constant currency growth to customers outside the U.S. was driven by low single-digit growth in APAC and high teens growth in the rest of the world region, while growth in the EMEA region was flat year over year.

Organic constant currency growth to customers outside the U S was driven by low single digit growth in APAC and high teens growth in the rest of the World region.

While growth in the EMEA region was flat year over year.

Speaker 2: Growth in the APAC region was at the lower end of our expectations in quarter three. EMEA was in line with expectations and the rest of the world region was modestly ahead of our growth expectations.

Growth in the APAC region was at the lower end of our expectations in quarter. Three EMEA was in line with expectations and the rest of the World region was modestly ahead of our growth expectations.

Speaker 2: With respect to China specifically, sales were flat year over year and were impacted by the headwinds related to volume-based purchasing tenders discussed on our quarter two call as expected.

With respect to China, specifically sales were flat year over year and were impacted by the headwinds related to volume based purchasing tenders discussed on our quarter two call as expected.

Speaker 2: With respect to our profitability performance in the third quarter, we leveraged the strong revenue results in the third quarter to deliver non-GAAP gross profit and operating profit growth of 13 and 25 percent, respectively, and we delivered non-GAAP net income and EPS growth of 18 percent and 16 percent, respectively, as well.

With respect to our profitability performance in the third quarter, we leveraged the strong revenue results in the third quarter to deliver non-GAAP gross profit and operating profit growth of 13 and 25% respectively.

And we delivered non-GAAP net income and EPS growth of 18% and 16% respectively as well.

Speaker 2: We believe our third quarter financial results demonstrate that the teams continue hard work.

We believe our third quarter financial results demonstrate the team's continued hard work.

Speaker 2: and commitment to our Foundations for Growth program are paying off.

And commitment to our foundation for growth program are paying off.

Speaker 2: We remain focused and confident in our team's ability to deliver our financial guidance for the fiscal year 2023, driving continued progress in year three of our Foundations for Growth program and the related financial targets for the three-year period ended and ending December 31, 2023.

We remain focused and confident in our team's ability to deliver our financial guidance for the fiscal year 2023, driving continued progress in year three of our foundation for growth program and the related financial targets for the three year period ended ending December 31 2023.

Speaker 2: Now before turning over the call to Raul, I would like to share a brief update on several areas of operational progress in recent months.

Now before turning over the call to Robert I would like to share a brief update on several areas of operational progress in recent months.

Speaker 2: On August 3rd, we announced the completion of enrollment in the Rhapsody Arteriovenous Access Efficiency, or WAVE, pivotal study.

On August <unk>, we announced the completion of enrollment in the Rhapsody arteriovenous access sufficiency or waived pivotal study the.

Speaker 2: The WAVE study is a prospective, randomized, controlled, multi-center study comparing the Merit-Rhapsody cell in permeable endoprosthesis to percutaneous transluminal angioplasty for treatment of stenosis occlusion in the venous outflow circuit in patients undergoing hemodialysis.

The wave study is a prospective randomized controlled multicenter study.

<unk> the merit Rhapsody sell impermeable Endo prosthesis to percutaneous clans luminal angioplasty.

For treatment of stenosis exclusion in the venous outflow circuit in patients undergoing hemodialysis.

Speaker 2: The WAVE study enrolled 244 patients with arteriovenous fistulas and 113 patients with arteriovenous grafts across sites in Brazil, Canada, the United Kingdom, and the United States.

The wave study enrolled 244 patients with our carrier being a Swiss shows in 113 patients with arteriovenous grafts across sites in Brazil, Canada, the United Kingdom, and the United States.

Speaker 2: We are collecting safety and efficacy outcomes throughout the study, follow-up period, and expect to have primary endpoint data for the last enrolled patient in February of 2024. In February of 2024, we are collecting safety outcomes throughout the study, follow-up period, and expect to have primary endpoint data for the last enrolled patient in February of 2024.

We are collecting safety and efficacy outcomes throughout the study follow up period and expect to have primary endpoint data, but the last enrolled patient in February of 2024.

Speaker 2: We currently expect that the monitoring, data cleaning, and analysis phase will be completed early in the second quarter of 2024. We plan to complete the clinical study report and be in a position to file primary outcomes with the FDA for premarket approval or PMA by the end of the second quarter of 2024.

We currently expect that the monitoring data cleaning and analysis phase will be completed early in the second quarter of 2024.

We plan to complete the clinical study report and be in a position to file primary outcomes with the FDA for pre market approval or PMA by the end of the second quarter of 2024.

Speaker 2: With respect to the two acquisitions we announced in early June , we have made significant progress in integrating their operation.

With respect to the two acquisitions, we announced in early June we have made significant progress in integrating their operations.

Speaker 2: During the third quarter, we completed sales training and customer KOL engagement efforts. We are transitioning product SKUs to Merit-branded packaging, along with launching all related marketing materials and sales tools under the Merit brand.

During the third quarter, we completed sales training and customer engagement efforts, we are transitioning product skus to merit branded packaging, along with launching all related marketing materials and sales tools under the Marriott brand.

Speaker 2: We look forward to continuing engagement with existing customers and leveraging the opportunity to raise awareness among potential new customers at industry events, including the controversies and dialysis access or SIDA and the beef

We look forward to continue engagement with existing customers and to leveraging the opportunity to raise awareness among potential new customers at industry events, including the controversies in dialysis access or SEDAR.

And the Veith symposium.

Speaker 2: These are exciting times for marital renal therapies business. We have a clear strategy to leverage our established position in the dialysis and biopsy market.

These are exciting times for marriage renal therapies business, we have a clear strategy to leverage our established position in the dialysis and biopsy market.

Speaker 2: Those on a differentiated commercialized products like the HEROGRAPT and the surfacer inside out access catheter system. And of course, our RAPCITY cell and permeable endoprostasis amongst others.

Built on a differentiated commercialized products like the hero graft and the surface or inside out access catheter system and of course, our Rhapsody selling permeable endo prosthesis amongst others.

Speaker 2: Together with the recently acquired dialysis catheter portfolio, including the innovative BioFlow Duramax dialysis catheter with Indexo technology, the Surfacer inside-out access system, and the BioSentry biopsy tract sealant system, we have an extremely compelling foundation of growing interventional solutions.

Together with the recently acquired dialysis catheter portfolio, including the innovative bio flow Duramax dialysis catheter with <unk> technology, the surface or inside out access system and the bio century Biopsied tract sealant system, we have an extremely compelling foundation of growing interventional.

Speaker 2: that will allow us to leverage our position relationships and the commercial infrastructure to serve more patients in the multi-billion dollar dialysis and biopsy.

<unk> solutions that will allow us to leverage our physician relationships and the commercial infrastructure to serve more patients in the multibillion dollar dialysis and biopsy markets.

Speaker 2: Finally, I wanted to share a few thoughts on two items that we know are key focus areas for investors evaluating the intermediate to longer-term investment opportunity in Merit Medical.

Finally.

I wanted to share a few thoughts on two items that we know are key focus areas for investors evaluating the intermediate to longer term investment opportunity and merit medical.

Speaker 2: Specifically, executive leadership and financial targets beyond fiscal year 2023.

Specifically executive leadership and financial targets beyond fiscal year 2023.

Speaker 2: With respect to executive leadership, succession planning is something our board takes very seriously and a formal process was initiated in recent months. Importantly, this is a process that I am not directly involved in. Our lead independent director and compensation and talent development committee of the board are leading this initiative with the active involvement of all of our independent directors.

With respect to executive leadership succession planning is something our board takes very seriously and a formal process was.

<unk> initiated in recent months importantly, this is a process that I am not directly involved in our lead independent director and compensation and talent Development Committee of the board are leading this initiative, where the active involvement of all of our independent directors. The board continues to target having a formula.

Speaker 2: The board continues to target having a formal announcement to share with the investment community by the end of 2023. I continue to be fully engaged in the business, and I serve at the pleasure of the board on behalf of our shareholders.

Announcements to share with the investment community by the end of 2023 I continue to be fully engaged in the business and I serve at the pleasure of the board on behalf of our shareholders.

Speaker 2: With respect to longer-term financial targets, as we approach the end of the final year of our transformational company-wide program to evaluate all aspects of our business to better position the company for long-term sustainable growth and enhanced profitability, I would like to reflect on what the team has accomplished in this important Foundations for Growth program.

With respect to longer term financial targets as we approach the end of the final year of our transformational companywide program to evaluate all aspects of our business to better position. The company for long term sustainable growth and enhanced profitability I would like to reflect on what the team.

<unk> has accomplished in this important foundations for growth program.

Speaker 2: From the outset, we wanted to use the Foundations for Growth program as a vehicle to think holistically and comprehensively across the business to challenge the status quo and to deliver an ambitious improvement in profitability while preserving our historically market-leading growth profile, our legacy of customer-driven innovation, and the strength of the merit culture that has served us so well for so many years.

From the outset, we wanted to use the foundations for growth program as a vehicle to think holistically and comprehensively across the business to challenge the status quo and to deliver an ambitious improvement and profitability, while preserving our historically market leading growth profile our legacy of.

Customer driven innovation and the strength of the Merit culture that has served us so well for so many years.

Speaker 2: By the way of reminder, the Foundation's growth program was established with three clear objectives in mind. First.

By the way of reminder, the foundation for growth program was established with three clear objectives in mind first to.

Speaker 2: To main growth above market, designed to preserve our proven ability to innovate together with our customers and deliver unique solutions to the market that fuel our top line growth. Second.

Main growth above market designed to preserve our proven ability to innovate together with our customers and deliver unique solutions to the market that fuel our topline growth second.

Speaker 2: to significantly improve our non-gap operating margins with operations designed to exploit scale where it exists while preserving autonomy and flexibility where it matters. And.

To significantly improve our non-GAAP operating margins with operations designed to exploit the scale, where it exists while preserving autonomy and flexibility where it matters and.

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Speaker 2: To build a foundation for sustained success, we will continue to invest in our people, and we will build new capabilities to meet the evolving needs of our changing healthcare market.

To build a foundation for sustained success, we will continue to invest in our people and we will build new capabilities to meet the evolving needs of our changing healthcare markets.

Speaker 2: As discussed on each of our earnings calls since the program was formally announced in November of 2020, we expect that our team's strong execution of this program would result in significant financial results as outlined by our formal financial targets, including at least a 5% organic cost and currency revenue kegger and more than 400 basis points of non-GAAP operating margin expansion.

As discussed on each of our earnings calls since the program was formally announced in November of 2020, we expect that our team's strong execution of this program would result in significant financial results as outlined by our formal financial targets, including at least a 5% organic constant currency revenue.

<unk> CAGR and more than 400 basis points of non-GAAP operating margin expansion.

Speaker 2: ending in 2023 with more than 1.1 billion of revenues and non-GAP operating margins of at least 18%.

Ending in 2023 with more than $1 1 billion of revenues and non-GAAP operating margins of at least 18%.

Speaker 2: We also expected our efforts to drive significant improvements in our balance sheet and the financial condition as we targeted cumulative free cash flow generation of more than $300 million during the three-year fiscal years ending December 31, 2023.

We also expected our efforts to drive significant improvements in our balance sheet and the financial condition as we targeted cumulative free cash flow generation of more than $300 million. During the three year fiscal years ending December 31 2023.

Speaker 2: We believe the team has executed exceptionally well in the face of many headwinds that were not contemplating when the program was announced in November of 2020. And we are extremely proud that we continue to expect to deliver or exceed the formal growth and profitability targets in our foundations for growth programs.

We believe the team has as executed exceptionally well in the face of many headwinds that were not contemplated when the program was announced in November of 2020, and we are extremely proud that we continue to expect to deliver or exceed.

The formal growth and profitability targets and our foundation for growth program.

Speaker 2: With respect to the cumulative free cash flow target, we have generated $244 million since the end of 2020, not including the $119 million that we generated in fiscal year 2020. And we continue to target generating more than $300 million of cumulative free cash flow by year end, as we discussed on our quarter two call.

With respect to cumulative free cash flow target, we have generated $244 million since the end of 2020, not including the $119 million that we generated in fiscal year 2020, and we continue to target generating more than $300 million of cumulative free.

Cash flow by year end as we discussed on our quarter two call.

Speaker 2: Certain working capital items may push the achievement of this target an additional quarter. Importantly, as we have said throughout the Foundations for Growth program, our efforts to continue to enhance marriage foundation for long-term sustainable growth and improving profitability will not end on December 31st, 2023.

Certain working capital items may push the achievement of this target and additional quarter importantly.

As we have said throughout the foundations for growth program. Our efforts to continue to enhance marriage foundation for long term sustainable growth and improving profitability will not end on December 31 2023.

Speaker 2: We continue to believe there are opportunities for further improvement in years to come. Accordingly, on our fourth quarter earnings call in February , we plan to introduce new formal financial targets for the three-year period ending December 31, 2026.

We continue to believe there are opportunities for further improvement in years to come Accordingly on our fourth quarter earnings call in February we plan to introduce new formal financial targets for the three year period, ending December 31 2026.

Speaker 2: In the interim, we may exclusively focus on delivering the current targets for our foundations for growth program and look forward to discussing future goals, opportunities, and financial targets on our callery next year.

In the interim we remain exclusively focused on delivering the current targets for our foundation for growth program and look forward to discussing future goals opportunities and financial targets and our call early next year.

Speaker 2: With that said, let me turn the call over to Raul, who will take you through a detailed review of our third quarter financial results and our 2023 financial guidance, which we updated in today's press release.

With that said, let me turn the call over to Ralph who will take you through a detailed review of our third quarter financial results and our 2023 financial guidance, which we updated in today's press release.

Mr Parra.

Speaker 3: Thank you, Fred. Given Fred's detailed discussion of our revenue results, I will begin with a review of our financial performance across the rest of the P&L.

Thank you Fred.

Given fred's detailed discussion of our revenue results.

I will begin with a review of our financial performance across the rest of the P&L.

Speaker 3: For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-gap results during the third quarter of fiscal year 2020.

For the avoidance of doubt unless otherwise noted my commentary will focus on the Companys non-GAAP results during the third quarter of fiscal year 2023.

Speaker 3: We have included reconciliations from our Gap reported results to the related non-Gap items in our press release and presentation available on our website.

We have included reconciliations from our GAAP reported results to the related non-GAAP items in our press release and presentation are available on our web site.

Speaker 4: Gross profit increased approximately 13% year over year in the third quarter.

Gross profit increased approximately 13% year over year in the third quarter.

Speaker 4: Our gross margin for the third quarter was 49.8% up 140 basis points U over U.

Our gross margin for the third quarter was 49, 8% up 140 basis points year over year.

Speaker 4: The increase in gross margin year-over-year was lower than expected due primarily to revenue mix by product and by geography.

The increase in gross margin year over year was lower than expected due primarily to revenue mix by product and by geography.

Speaker 4: Operating expenses increased 7% year over year in the third

Operating expenses increased 7% year over year in the third quarter.

Speaker 4: The year-over-year increase in operating expenses was driven by a 6% increase in the SGNA expense and a 12% increase in R&D expense.

The year over year increase in operating expenses was driven by a 6% increase in SG&A expense and a 12% increase in R&D expense.

Compared to the prior year period.

Speaker 4: Our operating expense performance in Q3 was better than expected and reflects strong operational leverage, principally due to our continued focus on expense management and prioritization of investments to support our future growth.

Our operating expense performance in Q3 was better than expected and reflects strong operational leverage principally due to our continued focus on expense management and prioritization of investments to support our future growth initiatives.

Operator: Welcome to the third quarter of fiscal year 2023 earnings conference call for Merit Medical Systems Inc. At this time, all participants have been placed in listen only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker 4: Total operating income in the third quarter increased 11.5 million or 5% year over year to 57.7 million.

Total operating income in the third quarter increased 11, 5 million or 5% year over year to $57 7 million.

Speaker 4: Our operating margin for Q3 was 18.3% compared to 16.1% in the prior year.

Our operating margin for Q3 was 18, 3% compared to 16, 1% in the prior year period. The 220 basis point increase in operating margin was driven by 140 point.

Operator: Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Speaker 4: The 220 basis point increase in operating margin was driven by 140 points.

Speaker 4: a 140 basis point increase in our non-GAAP gross margin, and by an 80 basis point decrease in our non-GAAP OPEX margin compared to the prior year.

Fred Lampropoulos: I would now like to turn the call over to Mr. Fred Lampropoulos, Merit Medical Systems founder, chairman, and chief executive officer. Please go ahead, sir. Thank you and welcome everyone to Merit Medical Systems third quarter of fiscal year 2023 earnings conference call. I am joined on the call today by Raul Parra, our chief financial officer and treasurer and Brian Lloyd, our chief legal officer and corporate secretary.

140 basis point increase in our non-GAAP gross margin and by an 80 basis point decrease in our non-GAAP opex margin compared to the prior year period.

Speaker 4: Third quarter other expense net was $4.5 million compared to $0.8 million last year.

Third quarter other expense net was $4 5 million compared to $1 8 million last year. The change in other expense net was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates as well as expense associated with realized and unrealized foreign currency losses compared to income.

Speaker 4: The change in other expense, net, was primarily related to an increase in interest expense associated with increased borrowings and rising interest.

Speaker 4: as well as expense associated with realized and unrealized foreign currency losses compared to income in the prior year period.

Brian Lloyd: Brian, would you mind taking us through the safe harbor statements, please? Thank you, Fred. I would like to remind everyone that this presentation contains forward-looking statements that receive safe harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to unknown risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results of different material from those that currently anticipated.

<unk> in the prior year period.

Speaker 4: Third quarter net income was $43.5 million, or $0.75 per share, compared to $37 million, or $0.64 per share in the prior year.

Third quarter net income was $43 5 million or <unk> 75 per share compared to $37 million or <unk> 64 per share in the prior year period.

Brian Lloyd: In addition, any forward-looking statements represent our views only as of today, October 26, 2023, and should not be relied upon as represented in our views as of any of the date. We specifically describe any obligation to update such statements except is required by applicable law. Please refer to the sections entitled cautionary statement regarding forward-looking statements in today's press release and presentation for important information regarding such statements. Please also refer to our most recent findings with the SEC for discussion of factors that could cause actual results to differ from these forward-looking statements.

Speaker 4: We are pleased with our profitability performance in the third quarter, where we delivered 18% growth in non-GAAP net income and 16% growth in non-GAAP diluted earnings per share, exceeding the high end of our expectation.

We are pleased with our profitability performance in the third quarter.

Where we delivered 18% growth in non-GAAP net income and 16% growth in non-GAAP diluted earnings per share exceeding the high end of our expectations.

Speaker 4: Turning to a review of our balance sheet and financial condition, as of September 30, 2023, we had cash and cash equivalents of $58.7 million, total debt obligations of $287.1 million, and available borrowing capacity of approximately $558 million. Compared to cash and cash equivalents of $58.4 million, total debt obligations of $198.2 million, and available borrowing capacity of approximately $523 million as of December 31, 2022. Our net...

Turning to a review of our balance sheet and financial condition as of September 32023, we had cash and cash equivalents of $58 7 million total debt obligations of $287 1 million in available borrowing capacity of approximately $558 million compared to cash and cash equivalents of $58 4 million.

Total debt obligations of $198 2 million in available borrowing capacity of approximately $523 million as of December.

At December 31, 2022, our net leverage ratio.

Speaker 4: As of September 30th was one times on an adjust.

As of September 30 was one times on an adjusted basis.

Speaker 4: We generated $42.5 million of free cash flow in the third quarter, up 115% year-over-year, and up nearly four-fold on a quarter-over-quarter basis.

We generated $42 5 million of free cash flow in the third quarter up 115% year over year and up nearly four fold on a quarter over quarter basis.

Brian Lloyd: Our financial statements are prepared in accordance with accounting principles which are generally accepted in the United States. However, we believe certain non-gap financial measures provide investors with useful information regarding the underlying business trends and performance of ongoing operations and can be useful for period over-period comparisons of such operations. This presentation also contains certain non-gap financial measures. A reconciliation of non-gap financial measures to the most directly comparable US gap measures is included in today's press release and presentation furnished to the SEC under form 8K.

Speaker 4: The sequential improvement in free cash flow generation in the third quarter was primarily a result of significant improvements in cash used in working capital, specifically in the areas of inventory and accrued expenses, offset partially by an uptick in payable spending.

Sequential improvement in free cash flow generation in the third quarter was primarily a result of significant improvements in cash used in working capital specifically in the areas of inventory and accrued expenses offset partially by an uptick in payables days.

Speaker 4: We continue to expect to generate strong free cash flow generation in 2020.

We continue to expect to generate strong free cash flow generation in 2023.

Speaker 4: Turning to a review of our fiscal year 2023 financial guidance, which we updated in today's pressure.

Turning to a review of our fiscal year 2023 financial guidance, which we updated in today's press release.

Speaker 4: We have included a table in our earnings press release which details the updated ranges for each of our formal financial guidance items and how those ranges compare to the prior year period.

We have included a table in our earnings press release, which details the updated ranges for each of our formal financial guidance items and how those ranges compared to the prior year period.

Brian Lloyd: Please refer to the sections of our press release and presentation entitled non-gap financial measures for important information regarding non-gap financial measures discussed on this call. Readers should consider non-gap financial measures in addition to not as a substitute for financial reporting measures prepared in accordance with gap. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the investors page of our website.

Speaker 4: We now expect GapNet revenue growth of a approximately 8 to 9% year over year. The GapNet revenue guidance range analysis, net revenue growth of a approximately 8 to 9% in our Cardio Vascular Stagman.

We now expect GAAP net revenue growth of approximately 8% to 9% year over year.

The GAAP net revenue guidance range now assumes net revenue growth of approximately 8% to 9% in our cardiovascular segment.

Speaker 4: net revenue growth of approximately 13% in our endoscopy segment and a headwind from the change in foreign currency exchange rates of approximately 5.4 million or approximately 50 basis points to growth year over year.

Net revenue growth of approximately 13% in our endoscopy segment and a headwind from the change in foreign currency exchange rates of approximately $5 4 million or approximately 50 basis points to growth year over year.

Speaker 4: Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of 8.4 to 9.1 percent in 2020.

Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of $8 four to nine 1% in 2023.

Fred Lampropoulos: I will now turn the call back to Fred. Thank you, Brian and thank you for joining us on a very busy reporting day. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue results for the third quarter followed by an update on a few noteworthy operating highlights in recent months. After my opening remarks, I will provide you with a more in depth review of our quarterly financial results and the formal financial guidance for 2023 that we updated in today's press release as well as the summary of our balance sheet and financial condition as of September 30, 2023.

Note the midpoint of this range now assumes approximately 11% growth year over year in the U S and approximately 6% growth year over year in international markets compared.

Speaker 4: compared to 9 percent and 6 percent respectively assumed in the guidance provided on our second quarter.

Compared to 9% and 6% respectively assumed in the guidance provided on our second quarter earnings call.

Speaker 4: The higher US constant currency growth expectation versus prior guidance reflects the stronger than expected third quarter results and the anticipated contributions from our acquisition, which we now estimate in a range of approximately 14.4 to 15.4 million of revenue in fiscal 2023, compared to a range of 13 to 15 million assumed in our prior guys.

The higher U S constant currency growth expectation versus prior guidance reflect the stronger than expected third quarter results and the anticipated contributions from our acquisition, which we now estimate in a range of approximately $14 four to $15 4 million of revenue in fiscal 2023 compared to a range of $13 million to $15 million.

Assumed in our prior guidance.

Fred Lampropoulos: We will then open the call for your questions. Now, beginning with a review of our third quarter revenue performance, we reported total gap revenue of 315.2 million in the third quarter up 10% year over year. Our total gap revenue growth was driven by 14% growth in U.S, sales and 4% growth in international sales. Our total revenue increased 10% year over year in the third quarter on a constant currency basis, excluding the 10 basis point headwind to our gap revenue growth related to changes in exchange rates compared to the prior year period.

Speaker 4: Excluding revenue from these acquisitions, our guidance reflects total net revenue growth on a constant currency, organic basis, in the range of approximately 7 to 8 percent compared to the 6 to 7 percent range assumed in our prior guidance.

Excluding revenue from these acquisitions our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 7% to 8% compared to six 2% to 6% to 7% range assumed in our prior guidance.

Speaker 4: With respect to profitability guidance for 2023, we have updated our gap net income and diluted earnings per share ranges, driven primarily by the better than expected financial results in the third quarter to $89 million to $92 million and $1.52 to $1.58, compared to $76 million to $81 million and $1.30 to $1.39 for diluted share.

With respect to profitability guidance for 2023, we have updated our GAAP net income and diluted earnings per share ranges driven primarily by the better than expected financial results in the third quarter to 89 million to $92 million and $1 52 to $1 58, compared to 76 million to $81 million and $1 30 to one.

<unk> 39 per diluted share previously.

Fred Lampropoulos: The constant currency revenue growth we delivered in the third quarter was significantly stronger than the high end of the range of growth expectations that we outlined on our quarters in earnings call. Specifically, we expected constant currency revenue growth in the third quarter in the range of 5% to 7% year over year. Importantly, the better than expected total constant currency revenue results in the third quarter was driven almost entirely by strong organic growth, reflecting a broad-based strength across each of our primary product categories, particularly in the U.S. Third quarter total revenue results also included $7.3 million of sales from the portfolio of interventional solutions we acquired from angiodynamics on June 8, 2023, which notably also came in above the high end of the range we provided on our second quarter earnings call.

Speaker 4: We have updated our non-GAAP net income and diluted earnings per share ranges driven primarily by the better-than-expected financial results in the third quarter to $171 million to $174 million and $2.93 to $2.99 compared to $1.64 million to $170 million and $2.81 to $2.92 per diluted share previously.

We have updated our non-GAAP net income and diluted earnings per share range is driven primarily by the better than expected financial results in the third quarter to $171 million to $174 million and $2 93 to $2 99 compared to $1 64.

Compared to $164 million to $170 million and $2 81 to $2 92 per diluted share previously.

Speaker 4: For modeling purposes, our fiscal year 2023 financial guidance now assumes non-GAAP gross margins in the range of approximately 50%.

For modeling purposes, our fiscal year 2023 financial guidance now assumes non-GAAP gross margins in the range of approximately 50.

Speaker 4: 0.5% to 50.7% up 170 to 190 basis points

5% to 57% up 170 to 190 basis points year over year non-GAAP operating margin in a range of approximately 18, 1% to 18, 3% up 120 to 140 basis points year over year GAAP other expenses of approximately $14 million compared with $30 million previously.

Speaker 4: non-gap operating margins in the range of approximately 18.1 to 18.3 percent of 120 to 140 basis points year over year.

Speaker 4: gap other expenses of approximately $14 million compared to $13 million previously, and non-gap other expenses.

And non-GAAP other expense of approximately $12 7 million compared to a range of $11 million to $12 million previously the increase in both range is primarily related to higher interest expense on outstanding borrowings.

Speaker 4: of approximately 12.7 million compared to a range of 11 to 12 million previous.

Speaker 4: The increase in both ranges is primarily related to higher interest expense on outstanding borrowing.

Fred Lampropoulos: Let me now provide you with a more detailed review of our revenue results in the third quarter beginning with the sales performance in each of our primary reportable product categories. Note, unless otherwise stated, all growth rates are approximated and presented on a year over year and constant currency basis. We've included reconciliation from our gap reporter results to the related non-gap item in our earnings release and presentation available on our website. Third quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 11% growth in our endoscopy segment.

Speaker 4: non-GAAP tax rate of approximately 19.4 percent compared to a range of 21 to 22 percent previously and diluted shares outstanding of approximately 58.4 million.

non-GAAP tax rate of approximately 19, 4% compared to a range of 21% to 22% previously.

And diluted shares outstanding of approximately $58 4 million.

Speaker 4: Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the fourth quarter of 2023. Specifically, we expect our total revenue to increase in the range of approximately 5.5% to 8.3% year-over-year on a gap basis and up approximately 5% to 8% year-over-year on a constant currency.

Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the fourth quarter of 2023 <unk>.

Specifically, we expect our total revenue to increase in the range of approximately five 5% to eight 3% year over year on a GAAP basis, and up approximately 5% to 8% year over year on a constant currency basis.

Speaker 4: The midpoint of our fourth quarter constant currency sales growth expectations assumes approximately 9% growth year over year in the U.S., including approximately 6.6 million of acquired revenue and approximately 2% growth year over year in international markets.

The midpoint of our fourth quarter constant currency sales growth expectations assumes approximately 9% growth year over year in the U S, including approximately $6 $6 million of acquired revenue and approximately 2% growth year over year in international markets.

Fred Lampropoulos: In our cardiovascular segment, constant currency growth exceeded the high end of our expectations for the third quarter, while endoscopy segment sales came in at the high end of expectation. Sales of our peripheral intervention or PI products increased 16 percent, represented the largest driver of total cardiovascular segment growth again this quarter, excluding sales of acquired products, PI sales increased 9 percent on an organic, constant currency basis, organic growth in the PI product carry was driven by sales of our radar localization and drainage products, which increased 19 and 15 percent respectively, and together represented a little more than half of total PI sales growth, and by sales of our delivery systems and angiography products which increased 19 percent, and together represented roughly one third of our total PI growth in quarter three, sales of our OEM and cardiac intervention products were key contributors to our total cardiovascular segment growth, both as quarter increasing 11 and 3 percent respectively, sales of our OEM products exceeded the high end of our growth expectations, which we attribute principally to continued solid demand from larger customers in multiple categories, including angiography, coatings, EPCRM, intervention and kit products, which together increased 25 percent in quarter three, cardiac intervention products sales also exceeded the high end of our growth expectations, driven primarily by strong growth in sales of both our access products, which increased 20 percent in our angiography and hemostasis products, which together increased 20 percent.

Speaker 4: Note the revenue growth ranges for the fourth quarter of 2023 implied by our updated full year 2023 guidance are essentially unchanged versus what our prior guidance for 2023 assumed.

The revenue growth ranges for the fourth quarter of 2023 implied by our updated full year 2023 guidance.

Essentially unchanged versus what our prior guidance for 2023 assumed.

Speaker 4: With respect to our profitability expectations for the fourth quarter, we expect non-GAAP gross margins in the range of approximately 50.5% to 51.3%, up 100 to 180 basis points year over year, and non-GAAP operating margins in the range of approximately 18.1 to 18.8, up 25 to 100 basis points year over year.

With respect to our profitability expectations for the fourth quarter, we expect non-GAAP gross margins in the range of approximately 55% to 51, 3% up 100 to 180 basis points year over year and non-GAAP operating margins in the range of approximately 18, 1% to $18 825 to 100 basis points year over.

Speaker 4: These updated margin expectations are expected to drive a non-gap EPS in the range of 73 to 78 cents. Roughly, one cent lower than what we, what our prior guidance range...

Year.

These updated margin expectations are expected to driving non-GAAP EPS in the range of 73 to 78.

Roughly <unk> <unk> lower than what we what our prior guidance range assumed.

Speaker 4: That wraps up our prepared remarks. Operator, we would now like it to open up the line for questions.

That wraps up our prepared remarks, operator, we would now like to open up the line for questions.

Speaker 1: If you'd like to ask a question, please signal by pressing star 11 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.

Thank you.

Your question. Please take note by pressing star one one on your telephone keypad.

We're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Would you ask that you limit yourself to one question and one follow up.

Speaker 1: If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 11. One moment for our

I would like to ask additional questions. We invite you to ask yourself to the queue again by pressing star one one.

One moment for our first question.

Speaker 1: Our first question comes from Jason Bednar with Piper Sandler. Your line is open.

Our first question comes from Jason Bednar with Piper Sandler Your line is open.

Okay.

Jason Please.

And as open.

Yes.

Fred Lampropoulos: Sales of our custom procedure solutions or CPS products increased 6 percent, which was notably better than the low single digit decline we expected in quarter three. Sales results benefited from higher demand from our customers outside the US for certain kit product lines that we have been identified for skew rationalization as part of our foundations for growth initiatives. We expect CPS sale to decline in the fourth quarter on a year over year basis as demand trends for these kit products lines normalized, but our guidance continues to assume that CPS product category delivers roughly flatish growth over the second half of 2023 compared to the prior year period.

Speaker 2: Okay, let's come back then. We'll go to our next caller, if you wouldn't mind, please. One moment for our next question.

Okay.

Come back then we'll go over to our next caller if you wouldn't mind. Please one moment our next question.

Speaker 1: The first question comes from the line of Michael Patusky with Barrington Research. Your line is open.

Our first question comes from the line of Michael <unk> with Barrington Research. Your line is open.

Speaker 5: Hey, good afternoon guys. Really, really impressive quarter and a lot of a lot of across a lot of different aspects. Congratulations.

Hey, good afternoon guys.

Really really impressive quarter and a lot of a lot of <unk>.

A lot of different aspects congratulations.

Speaker 5: I guess, just real quick on China, was that performance, you know, the VVP has been talked about to death, but I'm just curious, was that performance about what you guys had anticipated for Q3? Is that sort of shaping up in the second half the way you anticipated, a little better, a little worse? Can you just comment on that?

I guess just real quick on China.

Was that performance.

No.

<unk> has been talked about to death, but I'm. Just curious was that performance about what you guys had anticipated for Q3 is that sort of shaping up in the second half the way you anticipated a little better a little worse can you can you just comment on that yes.

Fred Lampropoulos: Lastly, sales in our endoscopy segment increased 11 percent, which was at the high end of the growth range we assumed in our third quarter guidance. As expected, we continued to see improving sales trends in the third quarter and we continued to expect mid teams growth in our endoscopy business in the second half of 2023. Now, turning to a brief summary of our sales performance on a geographic basis, our third quarter sales in the US increased 14 percent on a constant currency basis and 10 percent on an organic constant currency basis exceeding the high end of our growth expectations by more than 400 basis points in the period.

Speaker 2: Yeah, I think it was about what we expected was baked into our numbers. It's baked into our year end numbers. You know, again, as we've talked about many times, Mike, you've talked with Raul about this. And that is, that's today's I don't, you know, it changes, but right now it's in our numbers based on our best estimates of we think what China will do.

Yes, I think it was about what we expected it was baked into our numbers thats baked into our year end numbers.

Again, as we've talked about many times Mike.

You've talked with Rob all about this.

And that is that's today is I don't.

It changes, but right now it's in our numbers based on our best estimates of where you think about China will do.

Speaker 5: I feel like this is almost a obligatory question on in Q3, but Fred, you have any thoughts on sort of the weight loss drugs, the GLP ones, and you know, possible longer term impact, you know, on merit medical and the space you guys serve.

Okay.

Feel like this is almost the obligatory question.

Hi.

In Q3, but Fred.

You have any thoughts on sort of the weight loss drugs, DLP ones and possible longer term impact.

Fred Lampropoulos: Our US growth performance reflects continued strong execution and overall improving trends in the US market during the third quarter, particularly in our direct business, which continues to see impressive volume growth in sales of our basket product. International sales increased 3.5% on a constant currency basis and increased 2.9% on an organic constant currency basis, modestly exceeding the high end of our expectations in the quarter. Organic constant currency growth to customers outside the U.S, was driven by low single-digit growth in APEC and high teens growth in the rest of the world region, while growth in EMEA region was flat year over year.

On on Merit medical in the space you guys serve.

Speaker 2: Yeah, I appreciate the question. Listen,

Yes.

Appreciate the question.

Speaker 2: We take all of these issues very seriously, and we don't just think they're passing. If you go back and we talked about things like China, we talk about MDR. We like to stand in front of these things. In fact, we're alumni yesterday. We're talking to several advisor physicians.

We take all of these issues very seriously and we don't think they're passing.

If you go back and we talked about things like China, we've talked about MTR wed like to stay out in front of these things in fact, <unk> yesterday, we're talking to several advisor of physicians, who are in our market areas. In fact, one of them was actually taking the drug so.

Speaker 2: who are in our market areas. In fact, one of them was actually taking the drugs. So, you know, there was a number of issues that came up in terms of the effect that they thought it would have long-term. I think they all somewhat indicated that it will be 10 years before you see that, that pricing is gonna be one of the things.

There was a number of issues that came up in terms of the effect that.

They thought it would have long term I think they are somewhat indicated that it will be 10 years before you see that.

That pricing is going to be one of the things that but in terms of elderly or hypertensive patients for at least that and these are these are people who are doing.

Fred Lampropoulos: Growth in the APEC region was at the lower end of our expectations in quarter-three. EMEA was in line with expectations and the rest of the world region was modestly ahead of our growth expectations. With respect to China specifically, sales were flat year over year and were impacted by the headwinds related to volume-based purchasing tenders discussed on our quarter to call as expected. With respect to our profitability performance in the third quarter, we leveraged the strong revenue results in the third quarter to deliver non-gap growth profit and operating profit growth of 13 and 25% respectively, and we delivered non-gap net income and EPS growth of 18% and 16% respectively as well. We believe our third quarter financial results demonstrate that the team's continued hard work and commitment to our foundations for growth program are paying off.

Speaker 2: that, but in terms of elderly or hypertensive patients, for at least, and these are people who are doing interventional nephrology types of procedures.

Interventional.

Nephrology.

I've types of procedures.

Speaker 2: And in fact, one of the comments that made was that 20% of the people, the work in the lab, were on the drug. There were a bunch of different things that they talked about.

And in fact, one of the comments I made was that 20% of the people to work in the lab were on the drug there.

There were a bunch of different things that they talked about in terms of if.

Speaker 2: in terms of if you take the drug and some of the effects.

If you take the <unk>.

<unk> and some of the effects, but the bottom line was is that they didn't see an immediate effect. It's there they're using it there are some comparable.

Speaker 2: But but the bottom line was is that they didn't see an immediate effect. It's there. They're using it. There are some, you know, some complication issues.

Some complication issues.

Speaker 2: But I think all of now...

But I think all in all.

Speaker 3: It was something we didn't feel that was immediate, but something that we will continue to do panels, we will go out and meet with our customers, and we think that's the best source of information. So that's a long response to the question. Raul, do you wanna add anything to that? No, I mean, I guess two things that I would add, right? Obviously, type 1 diabetes is not gonna be impacted. These are individuals that are born with the disease, and so.

It was something we didnt feel that was immediate but something that we will continue to do panels. We will go out and meet with our customers and we think thats the best source of information So I'll.

Fred Lampropoulos: We remain focused and confident in our team's ability to deliver our financial guidance for the fiscal year 2023, driving continued progress, and year three of our foundations for growth program, and the related financial targets for the three-year period ended in ending December 31, 2023.

That's a long response to the question Raul do you want to add anything to that no I mean, I guess two things that I would add.

Obviously type one diabetes is not going to be impacted these are individuals that are born with the disease and so you won't get to the kind of arena.

Speaker 3: We won't get to the kind of the Reno, you won't have a Reno stage impact, I guess we'll say that which would impact our business.

Have a renal stage impact I guess, I will say that which would impact our business.

Speaker 4: So you're really talking about the type 2 diabetes patients that that would be impacted and you know that's really out and kind of the you know, 10 years is kind of what several doctors kind of threw out as kind of an example, you know when they would think they would see an impact.

So youre really talking about the type two diabetes patients that that would be impacted.

Fred Lampropoulos: Now, before turning over the call to Rahul, I would like to share a brief update on several areas of operational progress in recent months. On August 3rd, we announced the completion of enrollment in the Rhapsody Arturia Venus Access Subficiency or Waved Pivotal Study. The Waved Study is a prospective, randomized, controlled multi-center study comparing the merit Rhapsody, cell and permeable endopostasis to percutaneous, transluminal, angioplasty for treatment of stenosis, occlusion, and the Venus outflow circuit in patients undergoing hemodialysis.

That's really out in kind of 10 years is kind of what several doctors kind of threw out as kind of an example of when they would.

I think they would see an impact if they did see an impact.

Speaker 3: But to Fred's point, you know, we always try and stay ahead of these things. We're very aware of risk, and we're very good at pivoting and adjusting as needed. So we'll keep an eye on it. But for now, our business is not being impacted by it. You know, these drugs, some of these drugs have been in the market since, you know, 17. So they're not new. I think they are getting, you know, a lot more news now. But we'll keep an eye on it, and we'll adjust as necessary.

But to Fred's point.

We're very aware of risk and we're very good at pivoting and adjusting as needed. So we'll keep an eye on it but for now our business is not being impacted by these drugs. Some of these drugs have been in the market since 2017.

They're not new I think they are getting a lot more news now, but we'll keep an eye on it and we'll adjust as necessary.

Speaker 2: And I think if I could just, Mike, just say, having that ability to talk to physicians who are doing the procedures, who are seeing various patients, looking at pricing and reimbursement, all those things, I think gives us a relatively unique look at all the factors that go into, that affect our business. These are our customers and our advisors. So we'll stay on top of that.

Fred Lampropoulos: The Waved Study enrolled 244 patients with our Curio Venus Fist Shows and 113 patients with our Curio Venus Graps across sites in Brazil, Canada, the United Kingdom, and the United States. We are collecting safety and efficacy outcomes throughout the study, follow-up period, and expect to have primary endpoint data for the last enrolled patient in February of 2024. We currently expect that the monitoring, data cleaning, and analysis phase will be completed early in the second quarter of 2024. We plan to complete the clinical study report and be in a position to file primary outcomes with the FDA for pre-market approval or PMA by the end of the second quarter of 2024.

And I think if I could just Mike just say, having that ability to talk to physicians, who are doing the procedures. So we're seeing various patients looking at pricing and reimbursement and all of those things I think gives us a relatively unique look at all the factors that go into that effect out.

Our business. These are our customers and our advisors. So we'll stay on top of it yes.

Speaker 5: Right. And let me just confirm, to me, it sounds like the commentary around the acquired, uh, the acquired businesses, particularly Angio, it sounds like it's run, you know, you've integrated well, and it sounds like you're, you're, you're running maybe a little bit ahead of plan in terms of revenue generation. Is that a fair sort of summary of what you guys tried to communicate there?

Let me just confirm to me it sounds like the commentary around the acquired the acquired businesses, particularly angio it sounds like it's Ron.

You've integrated well and it sounds like you're running maybe a little bit ahead of plan in terms of revenue generation is that a fair sort of summary of what you guys are trying to communicate there.

Speaker 2: I think a reminder that member of portion of that is biopsy. I think sometimes everybody thinks of it just being those dialysis catharsis.

I think so and I think a reminder, that remember a portion of that is biopsy.

Fred Lampropoulos: With respect to the two acquisitions we announced in early June, we have made significant progress in integrating their operations. During the third quarter, we completed sales training and customer KOL engagement efforts. We are transition product skews to Merit branded packaging, along with launching all related marketing materials and sales tools under the Merit brand. We look forward to continuing engagement with existing customers and leveraging the opportunity to raise awareness among potential new customers at industry events, including the controversies and dialysis access or SIDA and the VIT symposium.

And I think sometimes everybody thinks of us just bring those dialysis catheters and I think we're doing a very good job of integration, we've actually moved.

Speaker 2: And I think we're doing a very good job of integration. We've actually moved.

Speaker 2: The BioSentry moved this week, or late last week, is actually moving to our Mexico facility. And by the end of this year, maybe early first quarter, we'll have moved the other product and it'll be fully integrated. So I think it's doing just fine for now. I think there's still upside potential.

<unk> moved this week.

Our late last week is actually move into our Mexico facility and by the end of this year, maybe early first quarter will have moved the other product and it will be fully integrated so I.

I think it's doing just fine for now I think there's still upside potential.

Speaker 4: In that business quite a bit actually and I think we're performing better on the financial side of it than we expected Roll you want to add anything? Yeah. I mean, I think if you look at our guidance We brought up the bottom by about a million dollars, you know So I I think we're well within the range that we have given the street and again We narrowed at the range and we and we brought it up So I think things are on on track and like Fred integration is going great our Mexico team And the Salt Lake City team are doing a great job of integrating that stuff

In that business quite a bit actually and I think we're performing better on the financial side of it than we expected rolling you want to add anything to that.

You look at our guidance, we brought up the bottom by about $1 million. So I think we're well within the range that we've given the street and again, we narrowed the range and we brought it up so I think things are on track and like Fred integration is going great Our Mexico team.

Fred Lampropoulos: These are exciting times for Merit Regional Therapy's business. We have a clear strategy to leverage our established position in the dialysis and biopsy markets. Builds on a differentiated commercialized products like the hero graft and the surfacer inside out access catheter system, and of course our rhapsody selling permeable endopostesis amongst others. Together with the recently acquired dialysis catheter portfolio, including the innovative Bioflow Duramax dialysis catheter with index of technology, the surfacer inside out access system and the biosentry biosystem. We have an extremely compound foundation of growing intervention solutions that will allow us to leverage our position relationships and the commercial infrastructure to serve more patients in the multi-billion dollar dialysis and biopsy markets.

And the Salt Lake City team are doing a great job of integrating that stuff well and just finally on that Joe Wright, who is our chief commercial officer, who is sitting in the room at this.

Speaker 2: Well, and just finally on that, Joe Wright, who's our chief commercial officer, who was sitting in the room with us.

Speaker 2: You know, I think that's been another really important part, is the contact with customers. These are existing customers that buy many of the products in our renal therapy group. So I think

I think thats been another really important part is the contact with customers. These are existing customers that by many of the products in our renal therapy group. So I think it wasn't a reach for us in terms of the customers, where I think it was 98% of the customers already existed for merit. So that was another really important factor.

Speaker 2: It wasn't a reach for us in terms of who the customers were.

That we looked at and considered in terms of the commercial outreach.

Alright, guys. Thank you so much great great job. Thanks.

Thank you Mike.

One moment for our next question.

Speaker 1: Our next question comes from Steve Lickman with Oppenheimer & Co. Your line is open.

Fred Lampropoulos: Finally, I wanted to share a few thoughts on two items that we know are key focus areas for investors evaluating the intermediate to longer term investment opportunity in Merit Medical. Specifically, executive leadership and financial targets beyond fiscal year 2023. With respect to executive leadership, a succession plan is something our board takes very seriously and a formal process was initiated in recent months. Importantly, this is a process that I am not directly involved in are lead independent director and compensation talent development committee of the board are leading this initiative with the active involvement of all of our independent directors.

Our next question comes from Steve Lichtman with Oppenheimer <unk> co. Your line is open.

Speaker 3: Thank you. Congrats on the quarter, guys. Fred, I wanted to ask about Rhapsody. Obviously, we still have a little bit of time here, but with the completion of the trial, getting closer and closer into view, can you update us on your thoughts on the market opportunity there, particularly as we get closer to filing?

Thank you congrats on the quarter guys.

Fred I wanted to ask about Rhapsody, obviously, we still have a little bit of time here, but with the with.

With the completion of the trial getting closer and closer into the U can you sort of update us on your thoughts on the market opportunity there, particularly as we get closer to filing here.

Speaker 2: Yeah, listen, we started this project, as you know, a number of years ago, it's a product that's vertically integrated. I think that we are going to, we've closed the enrollment, as you know, the last patient will roll out on the in February of some time.

Yes.

We started this project as you know a number of years ago. It's a product that's vertically integrated I think that.

We are going to.

We've closed the enrollment as you know.

Fred Lampropoulos: The board continues to target having a formal announcement to share with the investment community by the end of 2023. I continue to be fully engaged in the business and I serve at the pleasure of the board on behalf of our shareholders.

The last patient will rollout rollout on the in February of some time.

Speaker 2: And we expect that we will then monitor, do the data cleaning and analysis phase early in the second quarter of 2024. And we plan to complete the clinical study report and be in position to file with the FDA.

And we expect that.

We will then monitor the data cleaning and analysis phase.

Early in the second quarter of 2024, and we plan to complete the clinical study report and to be in position to file with the FDA PMA by the end of the second quarter in 2024, once we get to that point, then it's up to the FDA to go through their process.

Fred Lampropoulos: With respect to longer term financial targets as we approach the end of the final year of our transformational company wife program to evaluate all aspects of our business to better position the company for long term sustainable growth and enhanced profitability. I would like to reflect on what the team has accomplished in this important foundations for growth program. From the outset, we wanted to use the foundations for growth program as available to think holistically and comprehensively across the business to challenge the status quo and deliver an ambitious improvement in profitability while preserving our historically market leading growth profile or legacy of customer-driven innovation and the strength of the merit culture that has served us so well for so many years.

Speaker 2: PMA by the end of the second quarter in 2024. Once we get to that point, then it's up to the FDA to go through their process. I think we can say that we've always been very excited about the product, but I think, again, without trying to avoid the question, I'd rather wait until we have our update in February to lay it out as we get closer to the data to be able to lay out what we're gonna do and what our thoughts are as we present our plan for next year.

We can't say that we've always been very excited about the product, but I think again without trying to avoid the question I would rather wait until we have our update in February to lay it out as we get closer to the data to be able to lay out what we're going to do and what our thoughts are.

As we present our plan for next year, Yes, we're really focused on just making sure that the filing goes according to plan.

Speaker 4: Yeah, we're really focused on just making sure that the following goes, you know, according to plan. I think from a revenue and market opportunity standpoint.

I think from a revenue and market opportunity standpoint.

Speaker 4: We'll talk about that, I think, post-PMA approval. Yeah. Super excited about that, and super excited about the call.

We'll talk about that I think post PMA approval.

Super excited about that.

Super excited about the quarter, just yes, yes, yes.

Fred Lampropoulos: By the way of reminder, the Foundation's growth program was established with three clear objectives in mind. First, to main growth above market designed to preserve our proven ability to innovate together with our customers and deliver unique solutions to the market that fuel our top line growth. Second, to significantly improve our non-gap operating margins with operations designed to exploit scale. And to build a foundation for sustained success, we will continue to invest in our people, and we will build new capabilities to meet the evolving needs of our changing healthcare markets.

Speaker 3: Great. And then just secondly, you talked about your bullishness on continued free cash flow and your net leverage ratios remain low here. Just thinking about M&A looking forward, obviously, you were quite acquisitive already near the date. But given valuations, should we expect a little more additional activity looking ahead at Amerit?

And then just.

Secondly.

Can you talk to your bullishness on continued free cash flow and your net leverage ratios.

<unk> remained low here.

Just thinking about M&A looking forward, obviously, you are quite acquisitive already year to date.

But.

Given valuations or should we expect a little more.

<unk> activity.

At at a merit.

Speaker 2: Well, listen, I think we all understand that the world has changed. The cost of capital is higher.

Well listen I think we.

We all understand that the world has changed our cost of capital is higher.

Speaker 2: We see that I mean I don't know what the Fed's going to do but we saw what the economic activity was which was positive today Values have come down. I think a lot of the other institutions that would be helpful To you know start-ups and companies like that or I have a

We see that.

What the fed's going to do but we saw what the economic activity was what towards positive today values have come down I think a lot of the other institutions that would be helpful too.

Fred Lampropoulos: As discussed on each of our earnings calls since the program was formally announced in November of 2020, we expect that our team's strong execution of this program would result in significant financial results as outlined by our formal financial targets, including at least a 5% organic, constant currency revenue, kegger, and more than 400 basis points of non-gap operating margin expansion. Ending in 2023 with more than 1.1 billion of revenues and non-gap operating margins of at least 18%.

Start ups and companies like that.

Speaker 2: Quite a bit different view than they maybe did a year ago or even two years ago. Values are starting to come into place as you'll recall.

Quite a bit different view than they may we did a year ago or even two years ago values are starting to come into place as youll recall.

Speaker 2: we're i think we're very disciplined uh... and you know in some ways i don't think criticize but we were very uh... cautious we didn't want to overpay now all that

I think we're very disciplined.

And in some ways I don't want to say criticize but we were very.

Im cautious we didn't want to overpay now all that being said, we're probably seeing as much activity and opportunities. We've just returned from TCT. There are a lot of opportunities out there, but the really important thing is we have a plan we have requirements that we want to hit we have a commercial team.

Speaker 2: We're probably seeing as much activity and opportunities. We've just returned from TCT. There are a lot of opportunities out there, but the really important thing is we have a plan, we have requirements that we want to hit, we have a commercial team, and things have to fit for us. We don't need to do anything. We can just do our organic. You know, we have Rhapsody.

Fred Lampropoulos: We also expected our efforts to drive significant improvements in our balance sheet and the financial condition as we targeted cumulative free cash flow generation of more than $300 million during the three year fiscal years and in December 31, 2023. We believe the team has executed exceptionally well in the face of many headwinds that were not contemplating when the program was announced in November of 2020, and we are extremely proud that we continue to expect to deliver or exceed the formal growth and profitability targets in our foundations for growth program.

And things have to fit for us we don't need to do anything we can just do our organic we have rapidly coming.

Speaker 2: If they're the right products in the right channels of our product and meet the criteria.

If they're the right products in the right channels of our product and meet the criteria and there are some that we think they can do that so there is a lot of stuff out there and we expect not that necessarily that we're going to be very active and do anything but that if it meets that and meets the discipline that we require.

Speaker 2: And there are some that we think they can do that. So there's a lot of stuff out there and we expect not that necessarily that we're gonna be very active and do anything but that if it meets that and it meets the discipline that we require.

Speaker 6: we'll look at those opportunities, and they will be there. I have no doubt about that. Appreciate it. Thanks, guys.

We'll look at those opportunities and they will be there I have no doubt about that.

Fred Lampropoulos: With respect to cumulative free cash flow target, we have generated $244 million since the end of 2020, not including the $119 million that we generated in fiscal year 2020, and we continue to target generating more than 300 million of cumulative free cash flow by year end. As we discussed on our quarter-two call, certain working capital hybrids may push the achievement of this target in an additional quarter. Importantly, as we have said throughout the foundations for growth program, our efforts to continue to enhance marriage foundation for long-term, sustainable growth, and improving profitability will not end on December 31, 2023. We continue to believe there are opportunities for further improvement in years to come.

I appreciate it thanks guys.

You bet.

One moment our next question.

Speaker 1: Our next question comes from Jason Bedford with Raymond James. Your line is open.

Our next question comes from Jayson Bedford with Raymond James Your line is open.

Hey, good afternoon guys.

Speaker 7: Congrats on the quarter. Nice result. I apologize if I missed some of this. I got on a little late. Was Russia a headwind to growth in 3Q?

Congrats on the quarter nice results.

James if I missed some of this I got on a little late.

Was Russia headwind to growth in <unk>.

Speaker 2: Listen, we were able to get our licenses approved in late August , and we started making some shipments.

Listen we were able to get our license is approved in late August and we started making some shipments.

Speaker 2: in September . So we had a small benefit, very small, but really those things you can roll into this fourth quarter. But the point is...

In September so we had.

A small benefit very small but really.

Those things are going to roll into this fourth quarter.

Fred Lampropoulos: Accordingly, on our fourth quarter earnings call in February, we plan to introduce new formal financial targets for the three year period ending December 31, 2026. In the interim, we may exclusively focus on delivering the current targets for our foundations for growth program, and look forward to discussing future goals, opportunities, and financial targets on our call over the next year.

Speaker 2: We have our licenses, I think, somewhere around 90% or 95% of our Russian licenses have been approved by the United States government. And so we will see that those will come back online to some extent. Now, with all the things that are going on, Jason, in Russia and the Middle East, we built all these things into our numbers.

But the point is we have our licenses I think somewhere around 90% or 95 of our Russian licenses have been approved by the United States government.

And so.

We will see that those will come back online to some extent now with all the things that are going on Jason and Russia, and the middle East.

We built all of these things into our numbers, but.

Raul Parra: With that said, let me turn the call over to Raul, who will take you through a detailed review of our third quarter financial results and our 2023 financial guidance, which we updated in today's press release Mr. Parra. Thank you Fred. Given Fred's detailed discussion of our revenue results, I will begin with the review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-gap results during the third quarter of fiscal year 2023.

Speaker 3: But there will be some Russia as we go forward. Yeah, I think just generally speaking, EMEA was...

There will be some Russia as we go forward, Yes, I think I think just generally speaking.

EMEA was.

Speaker 4: In line with expectations, Jason, and I think even with Russia coming back, we did have some skewer rationalization products that sold through in the third quarter, which also helped. We won't have those in the fourth quarter, so it makes should be a little bit better. But yeah, I think generally we came in kind of in line with expectations.

Bob.

In line with expectations.

Jason I think.

Even with Russia coming back.

Did have some SKU rationalization products that sold through.

In the third quarter, which also helped.

We won't have those in the fourth quarter, so mix should be a little bit better but.

Yes, I think generally we came in kind of inline with expectations.

Speaker 7: Just on gross margin, did the move from the acquired products moving from upstate New York down to Mexico, did that have an impact on gross margin?

Okay.

Raul Parra: We have included reconciliation from our gap reported results to the related non-gap items in our press release and presentation available on our website. Gross profit increased approximately 13% year over year in the third quarter. Our gross margin for the third quarter was 49.8% of 140 basis points year over year. The increase in gross margin year over year was lower than expected due primarily to revenue mix by product and by geography. Operating expenses increased 7% year over year in the third quarter.

Just on gross margin did the move from the.

Acquired products moving from upstate New York done in Mexico to do that.

Have an impact on gross margin.

Speaker 4: Now, those won't have an impact until next year, Jason, as you can imagine, we build bridge inventory just to make sure that things go accordingly. And as Fred mentioned, we are just in the process of moving things. We had the biopsy device just left last week on a truck and the rest of the products will continue to move over the next three to three months over to our Mexican facility. So really, it's a twenty twenty four impact.

No those won't have an impact until next year, Jason as you can imagine we build bridge inventory just to make sure that things go up accordingly, and as Fred mentioned, we are just in the process of moving things we had the biopsy device just left.

Last week on a truck and the rest of the products will continue to move over the next three months over to our Mexican facility. So really it's a 2024 impact that youll see.

Raul Parra: The year over year increase in operating expenses was driven by a 6% increase in SGNA expense and a 12% increase in R&D expense compared to the prior year period. Our operating expense performance in Q3 was better than expected and reflects strong operational leverage principally due to our continued focus on expense management and prioritization of investments to support our future growth initiatives. Total operating income in the third quarter increased 11.5 million or 25% year over year to 57.7 million.

Speaker 7: And I think you mentioned geography as a bit of a pressure on gross margin. Is that not much?

Okay.

I think you mentioned geography is a bit of a pressure on gross margin.

Is that not much.

Speaker 7: But is that a dynamic of mix? Or is that more a comment on the inflationary dynamics in Mexico?

Is that a.

Dynamic of mix or is that more a comment on the inflationary dynamics in Mexico.

Speaker 4: No, it's really product mix. So we had some products, some SKU rationalization related to FFG, specifically our PAC business. So you'll see that our CPS products were up. Normally, they're flat. That really related to that business that we're exiting just because the gross margins aren't what we want them to be.

No it's really it's really.

Really mix product mix right. So we had some.

Our products, some SKU rationalization related to FFG.

Raul Parra: Our operating margin for Q3 was 18.3% compared to 16.1% in the prior year period. The 220 basis point increase in operating margin was driven by a 140 point, a 140 basis point increase in our non-gap gross margin. And by an 80 basis point decrease in our non-gap object margin compared to the prior year period. Third quarter other expense net was 4.5 million compared to 0.8 million last year. The change in other expense net was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates as well as expense associated with realized and unrealized foreign currency losses compared to income in the prior year period.

Specifically, our Pac business, so youll see that our Cps products were up.

Normally they are flat that that really related to that business that we're exiting just at the gross margins aren't what they what we want them to be.

Speaker 7: And we haven't talked about the move from air to water in a while. Just kind of where are you in that? And is that a bit of a tailwind to margin as we look to 24?

Okay and.

We haven't talked about the move.

From air to water in a while just kind of where are you in that and is that a bit of a tailwind to margins as we look to 'twenty corn.

Speaker 6: Yeah, listen, Jason, our team has executed to plan. We still have more to go, but I think it'll be a benefit to us moving forward, and our team has executed well on that. So yeah, I mean, I'd say they're based on, you know, they're on pace for what we've forecasted. Yep, it's included in our numbers. Okay, that's great, thank you.

In addition, our team has executed to plan, we still have more to go.

But I think it'll be a benefit to us moving forward and our team has executed well on that so.

Yes, I mean, I'd say, they're based on their own pace for <unk>.

Raul Parra: Third quarter net income was 43.5 million or 75 cents per share compared to 37 million or 64 cents per share in the prior year period. We are pleased with our profitability performance in the third quarter where we delivered 18% growth in non-gap net income and 16% growth in non-gap deluded earnings per share exceeding the high end of our expectations. Turning to a review of our balance sheet and financial condition as of September 30, 2023, we had cash and cash equivalence of 58.7 million total debt obligations of 287.1 million and available borrowing capacity of approximately 558 million compared to cash and cash equivalence of 58.4 million total debt obligations of 198.2 million and available borrowing capacity of approximately 523 million as of December 31, 2022.

Forecasted capex included in our numbers.

Yes.

Okay. That's great. Thank you.

Alright, Thanks, Jason.

Our next question.

Speaker 1: Our next question comes from John Young with Canacor Genuity. Your line is open.

Our next question comes from John Young with Canaccord Genuity. Your line is open.

Speaker 8: Hi, it's actually one for John today. Thank you for taking my question. Congrats on the quarter. I know you guys talked about the Rhapsody commercial efforts and you're waiting on that a bit. But do you have any insight on what reimbursement could look like or the timing of that with the launch just the reimbursement stuff in particular, if there's any color. Thank you.

Sure.

Hi, its actually on for John today. Thank you for taking my question and congrats on the quarter. I know you guys talked about the Rhapsody commercial efforts and youre waiting on that a bit but do you have any insight on what reimbursement could look like or the timing of that with the launch of the reimbursement stuff in particular, if theres any color. Thank you.

Speaker 2: Yeah, I think the only color is first of all, we'll talk about that whole program as we get closer and we file. It is a breakthrough product. I'll just leave it at that. But we'll discuss all of this as we get closer to and we actually file the product and then have a, you know, an expectation of a window, you know, because all relying on the FDA. So we'll do a full review of the product and, you know, all the things we've seen globally as we get into next year.

Yes, I think the only color is first of all we'll talk about that whole program as we get closer and we file.

It is a breakthrough product, obviously, but at that but we'll discuss all of this.

Raul Parra: Our net leverage ratio as of September 30th was one times on an adjusted basis. We generated 42.5 million of free cash roll in the third quarter, up 115% year-over-year and up nearly fourfold on a quarter-over-quarter basis. The sequential improvement in free cash roll generation in the third quarter was primarily a result of significant improvements in cash used in working capital, specifically in the areas of inventory and accrued expenses, offset partially by an uptick in payable states. We continued to expect to generate strong free cash roll generation in 2023.

As we get closer to when we actually file the product and have an expectation of a window to all relying on the FDA. So we'll do a full.

A review of the product.

All of the things that we've seen globally.

As we get into next year's plan.

Speaker 6: Right now, the goal is let's finish this year, let's finish this foundations for growth. And as you all know, we have been just laser focused on this and I'm proud about the team. But we're not at the finish line and we still have a couple of months to go. And so that's where we're focused. We will, though, I think, discuss in depth Rhapsody at the appropriate time. Great, thank you, that was all.

Right now the goal is let's finish this year, let's finish this foundation for growth as you. All know we have been just laser focused on this and.

I'm proud of what the team, but we're not at the finish line and we still have a couple of months to go and so that's where our focus and we will I think discussed.

Raul Parra: Turning to a review of our fiscal year 2023 financial guidance, which we updated in today's press release. We have included a table in our earnings press release which details the updated ratings for each of our formal financial guidance items and how those ranges compared to the prior year period. We now expect gap net revenue growth of approximately 8 to 9% year-over-year. The gap net revenue guidance range analysis, net revenue growth of approximately 8 to 9% in our cardiovascular segment, net revenue growth of approximately 13% in our endoscopy segment, and a headwind from the change in foreign currency exchange rates of approximately 5.4 million or approximately 50 basis points to growth year-over-year.

In depth Rhapsody at the appropriate time.

Great. Thank you that was all I had.

Alright, Thank you Sir.

Our next question.

Speaker 1: Next question comes from Jim Sudody with Sudody and Co. Your line is open. I good afternoon.

Our next question comes from Jim Sidoti with Sidoti <unk> Co. Your line is open.

Hi, good afternoon, thanks for taking the questions.

Speaker 9: Um, you know, overall, you know, really strong quarter. Uh, the 2 things that jumped out to me with, um, 1 was the SG and expense. Uh, it's down year over year. It's down a quarter of a quarter. I know you had an insurance.

You bet Jim.

Overall really strong quarter.

The two things that jumped out to me with.

One was the SG&A expense, it's down year over year, it's down quarter over quarter I know you had in insurance.

Raul Parra: Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of 8.4 to 9.1% in 2023. Note the midpoint of this range now assumes approximately 11% growth year-over-year in the US in approximately 6% growth year-over-year in international markets. Compared to 9% and 6% respectively, assumed in the guidance provided on our second quarter earnings call. The higher US constant currency growth expectation versus prior guidance reflects the stronger than expected third quarter results and the anticipated contributions from our acquisition, which we now estimate in a range of approximately 14.4 to 15.4 million of revenue in fiscal 2023 compared to a range of 13 to 15 million assumed in our prior guidance.

Speaker 9: payment there, we found that was that one of the all sets of S.G.N.A. But even with that, it seemed like it was down pretty significantly. What's driving that and it's sustainable?

Payment their refund was that one of the offsets with SG&A, but even with that it seemed like it was down pretty significantly what's driving that and is it sustainable.

Speaker 4: Yeah, just to clarify on that reimbursement, because we had added that back as a non-GAAP item, we actually added it back, so we actually didn't get credit for that reduction, Jim, just on a non-GAAP basis. On a GAAP basis, you're absolutely correct.

Yes, just from a just from a.

Just to clarify on that on that reimbursement because we had added that back as a non-GAAP item, we actually added it back so we actually didn't get credit for that reduction Jim just on a non-GAAP basis on a GAAP alright, so youre absolutely correct.

Speaker 4: But just to clarify, look, I think we've been pretty.

But just just to clarify look I think we've been pretty pretty open about making sure that we leverage our operating expenses. We also said that we wouldn't spend ahead of the gross margins are coming in I think the third quarter for us is always a little tricky because we do see.

Speaker 4: pretty open about making sure that we leverage our operating expenses. We also said that we wouldn't spend ahead of the gross margin not coming in. I think the third quarter for us is always a little tricky because we do see a seasonal decline in the business, you know, sequentially from Q2. And so we're always a little bit more cautious in the spend. And then just making sure that, you know, that we understand kind of what the gross margin is going to do, just giving us, you know, we are deleveraging from a revenue standpoint. So I think we were a little cautious.

A seasonal decline in the business sequentially from Q2, and so we're always a little bit more cautious on the spend.

Raul Parra: Excluding revenue from these acquisitions, our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 7 to 8% compared to 6 to 7% range assumed in our prior guidance. With respect to profitability guidance for 2023, we have updated our gap net income and deluded earnings per share ranges driven primarily by the better than expected financial results in the third quarter to 89 million to 92 million and $1.52 to $1.58 compared to 76 million to 81 million and $1.30 to $1.39 per diluted share previously.

And then just making sure that.

That we understand kind of what the gross margin is going to do just given.

We are de leveraging from a revenue standpoint, so I think we were a little cautious.

Speaker 4: And we just continue to exercise that expense management that we've built up over the last few years.

And we just continue to exercise that expense management.

That we've built up over the last few years.

Speaker 9: Okay, and then the other thing that stood out was the cash flow generation and the fact that you put a lot of that towards debt pay down. Can you tell, you know, what, which debt did you pay down and what's the blended right now for the debt?

Okay and then the other thing that stood out was the cash flow generation and the fact that you had put a lot of that towards debt paydown.

Can you tell.

Debt did you pay down or what's the blended right now to do that.

Speaker 4: Yeah, look, we continue to pay down our debt, for many free cash flow that we generate. That's been the goal. We did talk about having a pretty strong free cash flow for the back half of the year, just giving what our goal is for foundations for growth, the minimum of $300 million.

Raul Parra: We have updated our non-gap net income and deluded earnings per share ranges driven primarily by the better than expected financial results in the third quarter to 171 million to 244 million and $2.93 to $2.99 compared to $1.64 compared to $1.64 million to $1.70 million and $2.81 to $2.92 per diluted share previously. For modeling purposes, our fiscal year 2023 financial guidance now assumes non-gap growth margins in the range of approximately 50.5% to 50.7% up 170 to 190 basis points year over year.

Yes look we continue to pay down our debt.

From any free cash flow that we generate.

That's been the goal.

We did talk about having pretty strong free cash flow for the.

Back half of the year, just given what our goal is for foundations for growth of 300, and the minimum of $300 million.

Speaker 3: I can tell you that I'm coming out of the second quarter given the amount of free cash flow we had generated.

I can tell you that.

Coming out of the second quarter, given the amount of free cash flow we have generated.

Speaker 4: you know, my, you know, my confidence was was a little low. And now, you know, heading into the third quarter with this, you know, huge, you know, free cash flow number 42, five, my confidence is a little bit higher. But we've still got some work to do here for the next little bit of time. And, you know, we'll go ahead and continue to pay down our debt, our blended rates somewhere around 5.5 on the on the debt.

My my confidence was a little low and now heading into the third quarter with this huge free cash flow number of 42 five my confidence there is a little bit higher but we've still got some work to do here for the next little.

Raul Parra: Non-gap operating margins in the range of approximately 18.1 to 18.3% of 120 to 140 basis points year over year. Gap other expenses of approximately $14 million compared to $13 million previously and non-gap other expense of approximately $12.7 million compared to a range of 11 to $12 million previously. The increase in both ranges is primarily related to higher interest or expense on out and bottom. Non-Gap Tax Rate of Approximately 19.4% compared to a range of 21 to 22%, previously, and diluted shares outstanding of Approximately 58.4 million.

At a time and.

We'll go ahead and continue to pay down our debt our blended rates somewhere around.

Five five.

On the on the debt.

Speaker 9: All right, and then, let's think of me, you know, the endoscopy business has been a bit of a headwind in past few quarters. It sounds like, you know, this quarter was, it was a good quarter. Are you, are you pass this, quite a chain of issues for that business? And, you know, should we get to that?

Alright, and then last thing for me.

The endoscopy business has been a bit of a headwind in the past few quarters. It sounds like this.

This quarter was it was a good quarter or are you where you.

Passes quarry chain issues for that business.

Sure.

Speaker 2: Yeah Jim, we're on the final part. There's still a small part of it. So we still have a backward. Remember the issue was.

Yes, Jim Murren.

We're on the final part of there is still a small part of it. So we still have a bad quarter remember the issue was we had a vendor that just stopped doing the work that we needed on the coatings, we shifted which I think was the right thing to do clearly.

Raul Parra: Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the fourth quarter of 2023. Specifically, we expect our total revenue to increase in the range of Approximately 5.5% to 8.3% year over year on a gap basis and up Approximately 5 to 8% year over year on a constant currency basis. The midpoint of our fourth quarter, constant currency sales growth expectations assumes approximately 9% growth year over year in the U.S., including approximately 6.6 million of acquired revenue and approximately 2% growth year over year in international markets.

Speaker 2: We had a vendor that just stopped doing the work that we needed on the coatings. We shifted, which I think was the right thing to do, clearly, to a U.S. company, and they're in the final qualification of the final product. So we're coming down the backstretch on that one.

To a U S company and they are in the final qualification of the final product. So we're coming down the backstretch on that one.

Speaker 2: And then I think there's a lot of other products in that portfolio, like our balloons and other things that have helped that. So we expect.

And then I think theres a lot of other products in that portfolio like our balloons and other things that would help that so.

Speaker 2: see that business continues to grow very nicely going forward.

We expect to see that business.

To grow very nicely going forward.

Speaker 9: Great, that was it for me. Thank you guys. Okay, thanks Jim.

Great Alright that was it for me. Thank you guys.

Raul Parra: Note, the revenue growth ranges for the fourth quarter of 2023, implied by our updated full year 2023 guidance, are essentially unchanged versus what our prior guidance for 2023 assumed. With respect to our profitability expectations for the fourth quarter, we expect non-Gap growth margins in the range of Approximately 50.5% to 51.3% up 100 to 180 basis points year over year and non-Gap operating margins in the range of Approximately 18.1 to 18.8 up 25 to 100 basis points year over year. These updated margin expectations are expected to drive a non-Gap EPS in the range of 73 to 78 cents, roughly one cent lower than what our prior guidance to range assumed.

Okay. Thanks, Jim.

Speaker 1: Thank you. As a reminder, if you'd like to ask a question, please signal by pressing star 11 on your telephone keypad. One moment for our next question.

Thank you as a reminder, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad one.

One moment our next question.

Okay.

Speaker 1: Our next question comes from Mike Matten with Newdham and Company. Your line is open.

Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.

Speaker 10: Yeah, thanks for taking my questions. I did join the call a little late. I apologize if you've already addressed this, but I did want to ask one about China. Just given the salt floor growth in the 3rd quarter, what are you assuming for the 4th quarter? And then I know you're not giving guidance overall for 24 yet, but just your general thoughts on the outlook there. Can you get back to decent growth next year in that market, or is there going to continue to be headwinds?

Yes, thanks for taking my questions that joined the call a little late I apologize if you've already addressed this but I did want to ask one about China.

Just given your portfolio growth in the third quarter.

What are you assuming for the fourth quarter and then either.

We're not giving guidance overall for 2400, yet, but just your general thoughts on the outlook. There can you get back to decent growth next year in.

And that market is that going to continue.

Operator: That wraps up our prepared remarks operator.

These headwinds.

Speaker 3: Yeah, so I'll start with the last part of the question. But 2024, you're right, Mike, we're not going to talk about that. We'll give you our thoughts.

Operator: We would now like to open up the line for questions. Thank you very much for the question. Please signal by pressing star 11 on your telephone keypad. If you're using a speaker phone, 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 11. One moment for our first question.

Yes.

I'll start with the with.

The last part of the question, but 2024 Youre right, Mike we're not going to talk about that we will give you our our thoughts.

Speaker 4: you know, when we give our guidance, you know, sometime in February . And so, you know, I'll kind of take that one off the table. But as far as, you know, China, that came in, you know, within the expectations of what we thought. Obviously, we'll still have, you know, some sort of impact in the fourth quarter. We talked about that. It's, you know, and so I'd say generally China, you know, came in at expectations.

When we give our guidance sometime in February.

So I'll kind of take that one off the table, but as far as <unk>.

China that came in within the expectations of what we what we what we thought.

Obviously, we will still have some sort of impact in the fourth quarter, we talked about that.

And so I'd say generally.

China came in at expectations.

Speaker 10: Okay, got it. And then just with the updates are the extension, I guess the foundation for growth targets. Well, I know you're not gonna say what that is right now, but just in terms of the framework, in terms of giving guidance around, for revenue growth on margin targets and cash flow targets. I mean, is that kind of, it should look similar to what you gave before, just sort of newer numbers essentially.

Okay got it and then just put.

Jason Bednar: Our first question comes from Jason Bedner with Piper Sandler. Your line is open. Jason, please turn your line as open.

The update or the extension I guess of the foundation for growth targets.

I know youre not going to say what that is right now, but just in terms of the framework in terms of giving guidance around what sort of revenue growth.

Margin targets and cash flow targets, I mean is that kind of.

It should look similar to what you gave before just with sort of newer numbers essentially.

Operator: Okay, let's come back then. We'll go to our next caller if you would mind please. One moment for our next question.

Speaker 4: Well, look, Mike, you know, I appreciate the question here. Here's here's a really good here's where we're at. You know, and I'm just going to use a football analogy here. We are at a full sprint right now. You know, we've got 15 yards, you know, to score a touchdown. And we are just not going to drop the ball. Right. We do not want to drop the ball. And so we're going to we're going to we're going to punt on that, you know, response, you know, to to the you know, to the next quarter when we give you our updated guidance for twenty twenty four. But look.

Well look.

Mike.

I appreciate the question here.

Yeah, we're at.

Michael Batuski: Our first question comes from the line of Michael Batuski with Barrington Research. Your line is open. Okay, good afternoon guys. Really impressive quarter and a lot across a lot of different aspects. Congratulations. I guess just real quick on China. Was that performance, you know, the VBP has been talked about to death, but I'm just curious. Was that performance about what you guys had anticipated for Q3? Is that sort of shaping up in the second half the way you went?

I'm just going to use a football analogy here, we are at a full sprint right now.

We've got 15 yards to score touchdown and we are just not going to drop the ball right. We do not want to drop the bonds. So we're going to we're going to we're going to put on that.

Response to.

To the to the next quarter when we give you our updated guidance for 2024, but look.

Speaker 4: We'll talk about the framework and what we're thinking there. Right now we're just really focused on finishing the FFG. Look, we're just super excited about how the business is done. I think you look at this quarter. We had almost 10% organic constan currency growth. We had strong growth, smart and expansion. We leveraged operating expenses. It was just honestly a really perfect P&L and with really strong free cash.

We will talk about the framework and what were thinking there right now we're just really focused on.

On finishing the FFG.

Look we're just super excited about how the business has done I think you look at this quarter, we had almost 10% organic constant currency growth. We had strong gross margin expansion. We leveraged operating expenses. It was just honestly it really perfect P&L and with really strong free cash flow. So we're just going to continue to stay focused on the fourth quarter.

Michael Batuski: Dispated, a little better, a little worse. Can you just comment on that? Yeah, I think it was about what we expected was baked into our numbers. It's baked into our year-end numbers. You know, again, as we've talked about many times, Mike, you've talked with Roy Wool about this and that is that's today's. I don't, you know, it's the changes, but right now it's in our numbers based on our best estimates of what China will do.

Speaker 4: So we're just going to continue to stay focused on the fourth quarter and finish off FFG. And then we're excited to talk about what comes next. OK.

<unk>.

And finish off FFG.

And then we're excited to talk about what comes next.

Okay I understand thank you.

Alright, Mike.

Speaker 1: Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Mr. Fred Lampropoulos for closing remarks.

Thank you that concludes the question and answer session. At this time I would like to turn the call back to Mr. Fred Lin Propolis for closing remarks.

Michael Batuski: Okay, I feel like this is almost a obligatory question in Q3, but Fred, you have any thoughts on sort of the weight loss drugs, the GLP ones, and you know, possible longer-term impact, you know, on Merit Medical and the space you guys serve? Yeah, and I appreciate the question. Listen, we take all of these issues very seriously, and you know, we don't just think they're passing, you know, if you go back and we talked about things like China, we talk about MDR, we'd like to stand in front of these things.

Speaker 2: Well listen, it's a busy day. Everybody's very busy. A lot of stuff going on with trade shows and a lot of people reporting. We appreciate you taking the time. Raul and I will be available for the next several hours to talk to you and clarify issues that you have interest in. We appreciate it. Thank you very much. And best wishes from snow in the mountains and colder temperatures. And so I'd like to say to you, Tau, good evening.

Well listen it's a busy day everybody is very busy a lot of stuff going on with trade shows and a lot of people reporting. We appreciate you taking the time Raul and I will be available for the next several hours to.

Talk to you and clarify issues that you have interest in we appreciate it. Thank you very much.

And best wishes from snow in the mountains and colder temperatures in Salt Lake City, Utah Good evening.

Michael Batuski: In fact, Raul and I yesterday were talking to several advisor physicians who are in our market areas. In fact, one of them was actually taking the drugs. So you know, there was a number of issues that came up in terms of the effect that they thought it would have long-term. I think they all somewhat indicated that it will be 10 years before you see that, that pricing is going to be one of the things, but in terms of elderly or hypertensive patients, for at least, and these are people who are doing interventional nephrology, a type of procedures.

Speaker 1: That does conclude our conference call for today. Thank you for your participation.

That does conclude our conference call for today. Thank you for your participation.

Okay.

[music].

Okay.

Okay.

Michael Batuski: And in fact, one of the comments that made was that 20 percent of the people that work in the lab were on the drug. There were a bunch of different things that they talked about in terms of if you take the drug and some of the effects, but the bottom line was is that they didn't see an immediate effect. It's there, they're using it, there are some you know, some complication issues, but I think all in all, it was something we didn't feel that was immediate, but something that we will continue to do panels.

Michael Batuski: We will go out and meet with our customers, and we think that's the best source of information. So that's a long response to the question, Raul, do you want to add anything to that? No, I mean, I guess two things that I would add, right? Obviously type one diabetes is not going to be impacted. These are individuals that are born with the disease, and so you won't get to the kind of the renal, you won't have a renal stage impact, I guess, we'll say that which would impact our business.

Michael Batuski: So you're really talking about the type two diabetes patients that would be impacted, and you know, that's really out in kind of, you know, 10 years is kind of what several doctors kind of threw out as kind of an example, you know, when they would think they would see an impact, if they did see an impact, but to Fred's point, you know, we always try and stay ahead of these things. We're very aware of risk, and we're very good at pivoting and adjusting as needed.

Michael Batuski: So we'll keep an eye on it, but for now, our business is not being impacted by it. You know, some of these drugs have been in the markets since, you know, 17, so they're not new. I think they are getting, you know, a lot more news now, but we'll keep an eye on it, and we'll adjust as necessary. And I think if I could just might just say, having that ability to talk to physicians who are doing the procedures who are seeing various patients looking at pricing and reimbursement, all those things, I think gives us a relatively unique look at all the factors that go into, that affect our business.

Michael Batuski: These are our customers and our advisors. So we'll stay on top of that, with it. Yeah. Right. And let me just confront. To me, it sounds like the commentary around the acquired the acquired businesses, particularly NGO. It sounds like it's run, you know, you've integrated well, and it sounds like you're running maybe a little bit ahead of plan in terms of revenue generation. Is that a fair sort of summary of what you guys tried to communicate there?

Michael Batuski: I think so. And I think a reminder that you guys have to remember a portion of that is biopsy. And I think sometimes everybody thinks it was just being those dialysis catheters. And I think we're doing a very good job of integration. We've actually moved the biosentry, moved this week, or late last week is actually moving to our Mexico facility. And by the end of this year, maybe early first quarter, we'll have moved the other product, and it'll be fully integrated.

Michael Batuski: So I think it's doing just fine for now. I think there's still upside potential in that business, quite a bit actually. And I think we're performing better on the financial side of it than we expected. Role, do you want to add anything to that? Yeah, no, I mean, I think if you look at our guidance, we brought up the bottom by about a million dollars. You know, so I think we're well within the range that we have given the street.

Michael Batuski: And again, we narrowed it the range and we brought it up. So I think things are on track. And like Fred integration is going great, our Mexico team, and the Salt Lake City team are doing a great job of integrating that stuff. Well, and just finally on that, Joe Wright, who's our chief commercial officer who was sitting in the room with us, you know, I think that's been another really important part is the contact with customers.

Michael Batuski: These are existing customers that buy many of the products in our renewable therapy groups. So I think it wasn't a reach for us in terms of who the customers were. I think was 98% of the customers already existed for merit. So that was another really important factor that we looked at and considered in terms of the commercial outreach. All right, guys, thank you so much. Great job. Thanks. Thank you, Mike. One moment for our next question.

Steve Lichtman: Our next question comes from Steve Lickman with Oppenheimer and Co. Your line is open. Thank you.

Steve Lichtman: We're asking the quarter, guys. Fred, I wanted to ask about Rhapsody. You know, obviously we still have a little bit of time here, but with the completion of the trial, getting closer and closer interview. Can you sort of update us on your thoughts on the market opportunity there? You know, particularly we get closer filing here. Yeah, listen, we started this project as you know, a number of years ago. It's a product that's vertically integrated.

Steve Lichtman: I think that we are going to. We've closed the enrollment, as you know, the last patient will roll out roll out on the in February of some time. And we expect that we will then monitor to the data cleaning and analysis phase early in the second quarter of 2024. And we plan to complete the clinical study report and be in position to file with the FDA PMA by the end of the second quarter of 2024. Once we get to that point, then it's up to the FDA to go through their process. I think we can say that we've always been very excited about the product.

Steve Lichtman: But I think, again, without trying to avoid the question, I'd rather wait until we have our update in February to lay it out as we get closer to the data to be able to lay out what we're going to do and what our thoughts are as we present our plan for next year. Yeah, we're really focused on just making sure that the filing goes, you know, according to plan. I think from a revenue and market opportunity standpoint, we'll talk about that. I think, you know, post a PMA approval. Yeah, super excited about that. And super excited about the quarter. Yeah.

Fred Lampropoulos: Great. And then just about secondly, you talk to you bullishness on continued free cash flow and your net leverage ratios remain low here. Just, you know, thinking about M&A looking forward, you know, obviously you were, you know, quite acquisitive already your date. But, you know, given valuations or should we expect a little more additional activity, looking ahead at Amerit. Well, listen, I think we all understand that the world has changed. The cost of capital is higher.

Fred Lampropoulos: We see that, I mean, I don't know what the feds are going to do, but we saw what the economic activity was, which was positive today. Values have come down. I think a lot of the other institutions that would be helpful to start up and companies like that. I have a quite a bit different view than they maybe did a year ago. Or even two years ago, values are starting to come into place as you'll recall.

Fred Lampropoulos: I think we're very disciplined. And you know, in some ways, I don't want to say criticize, but we were very cautious. We didn't want to overpay. Now, all that being said, we're probably seeing as much activity and opportunities. We've just returned from TCT. There are a lot of opportunities out there, but the really important thing is we have a plan. We have requirements that we want to hit. We have a commercial team and things have to fit for us.

Fred Lampropoulos: We don't need to do anything. We can just do our organic. You know, we have rap city coming. If they're the right products in the right channels of our product and meet the criteria. And there are some that we think they can do that. So we are there's a lot of stuff out there and we expect not that necessarily that we're going to be very active and do anything, but that if it meets that, it meets the discipline that we require when look at those opportunities. And they will be there. I have no doubt about that.

Fred Lampropoulos: Appreciate it. Thanks, guys. You bet.

Operator: One moment for our next question.

Jason Bedford: Our next question comes from Jason Bedford with Raymond James. Your line is open. Hi, good afternoon, guys. Congrats on the quarter. Nice result. I apologize if I missed some of this. I got on a little late.

Jason Bedford: Was Russia headwind to growth in 3Q? Listen, we were able to get our licenses approved in late August and we started making some shipments in September. So we had a small benefit, very small, but really those things are going to roll into this fourth quarter. But the point is we have our licenses. I think somewhere around 90% or 95 of our Russian licenses have been approved by the United States government. And so we will see that those will come back online to some extent now with all the things that are going on Jason in Russia in the Middle East.

Jason Bedford: We built all these things into our numbers, but there will be some Russia as we go forward. Yeah, I think just generally speaking, you know, EMEA was, you know, in line with expectations. Jason and I think, you know, even with Russia coming back, you know, we did have some skewed rationalization products that sold through in the third quarter, which also helped. We won't have those in the fourth quarter, so you know, makes should be a little bit better. But yeah, I think generally we came in kind of in line with expectations.

Jason Bedford: Just on Gross Margin, did the move from the acquired products moving from upstate New York down to Mexico? Did that have an impact on Gross Margin? No, those won't have an impact until next year Jason. You know, as you can imagine, we build bridge inventory just to make sure that things go, you know, accordingly. And as Fred mentioned, we are just in the process of moving things. You know, we had the biopsy device just left, you know, last week on a truck. And the rest of the products will continue to move over the next three, three, you know, three months over to our Mexican facility. So really it's a 2024 impact that you'll see.

Jason Bedford: Okay. And I think you mentioned geography as a bit of a pressure on Gross Margin. Is that not much, but is that a dynamic of mix, or is that more common on the inflationary dynamics in Mexico? No, it's really, it's really, really mix product mix, right? So we had some products, some skew rationalization related to FFG, specifically our PAC business. So you'll see that our CPS products, you know, we're up, you know, normally they're flat. That really related to that business that we're exiting just as the Gross Margin, so you know, aren't what they, what we want them to be. Okay.

Fred Lampropoulos: And we haven't talked about the move from air to water in a while. Just kind of where are you in that? And is that a bit of a tailwind to Margin as we look to 24? Yeah, listen, our team has executed to plan. We still have more to go. But I think it will be a benefit to us moving forward and our team is executed well on that. So yeah, I mean, I say they're based on, you know, they're on pace for what we forecasted. Yes, including our numbers.

Jason Bedford: Okay, that's great. Thank you.

Operator: All right. Thanks Jason.

John Young: Moment for our next question. Our next question comes from John Young with Canacorn Genuity. Your line is open.

John Young: Hi, it's actually wanted to join today. Thank you for taking my question. Congrats on the quarter. I know you guys talked about the Rhapsody commercial efforts and you're waiting on that a bit. But if you've any insight on what reimbursement could look like or the timing of that with the launch just the reimbursement stuff in particular. There's any color. Thank you. Yeah, I think the only color is first of all, we'll talk about that whole program as we get closer and we file.

John Young: It is a breakthrough product. I'll just leave it at that. But we'll discuss all of this as we get closer to and we actually file the product and then have an expectation of a window, you know, because all relying on the FDA. So we'll do a full review of the product and all the things we've seen globally as we get into next year's plan. Right now, the goal is let's finish this year.

John Young: Let's finish this foundations for growth. I mean, as you all know, we have been just laser focused on this. And I'm probably about the team, but we're not at the finish line and we still have a couple months to go. And so that's where focus we will. Well, I think discussed in depth. Rhapsody at the appropriate time.

Operator: Great. Thank you. That was all I had. All right. Thank you, sir. One moment for our next question.

Jim Sidoti: Our next question comes from Jim Sidoti with Sidoti and Co. Your line is open. Hi, good afternoon. Thanks for taking the questions. You bet, Jim. You know, overall, you know, we're all strong quarter. The two things had jumped out to me with one with the SG&A expense. It's down year over year. It's down quarter over quarter. But I know you had an insurance payment there. We found that was that one of the assets of SG&A, but even with that, it seemed like it was down pretty significantly.

Raul Parra: What's driving that and it's sustainable. Yeah, just from just to clarify on that on that reimbursement. Because we had added that back as a non-gap item, we actually added it back. So we actually didn't get credit for that reduction. Jim, just on a non-gap basis on a gap. You're absolutely correct. But just to clarify, look, I think we've been pretty, pretty open about making sure that we leverage our operating expenses. We also said that we wouldn't spend a head of the gross margin not coming in.

Raul Parra: I think that third quarter for us is always a little tricky because we do see seasonal decline in the business sequentially from Q2. And so we're always a little bit more cautious in the spend. And then just making sure that, you know, that we understand kind of what the gross margin is going to do, just giving us, you know, we are de-leveraging from a revenue standpoint. So I think we were a little cautious. And, you know, we just continue to exercise that expense management, you know, that we've built up over the last few years.

Raul Parra: Okay. And then the other thing that stood out was the cash flow generation. And the fact that you put a lot of that towards debt paydown. Can you tell, you know, what's debt did you pay down? And what's it blended right now for the debt? Yeah, look, we continue to pay down our debt, you know, from any free cash flow that we generate, you know, that's been the goal. You know, we did talk about, you know, having a pretty strong free cash flow for the, you know, back half of the year, just giving what our goal is for foundations for growth at 300, you know, the minimum of 300 million dollars.

Raul Parra: I can tell you that I'm, you know, coming out of the second quarter given the amount of free cash flow we had generated. You know, my, you know, my confidence was a little low. And now, you know, heading into the third quarter with this, you know, huge free cash flow number 425. My confidence is a little bit higher, but we've still got some work to do here for the next little bit of time. And, you know, we'll go ahead and continue to pay down our debt.

Fred Lampropoulos: Our blended rates are somewhere around 5.5 on the debt. All right. And then, let's think of me, you know, the endoscopy business has been a bit of a headwind in past few quarters. It sounds like, you know, this quarter was, it was a good quarter. Are, are you, are you pass this quite a chain of shoes for that business? And, you know, should we have that? Jim, we're on the final part.

Fred Lampropoulos: There's still a small part of it, so we still have a backward. Remember the issue was we had a vendor that just stopped doing the work that we needed on the coatings. We shifted which I think was the right thing to do clearly to a US company and they're in the final qualification of the final product. So we're coming down the backstretch on that one. And then I think there's a lot of other products in that portfolio. We don't really like our balloons and other things that have helped that. So we expect to see that business continues to grow very nicely going forward.

Operator: Great. Alright, that was it for me. Thank you guys. Okay. Thanks, Jim. Thank you. As a reminder, if you'd like to ask a question, please signal by pressing star 11 on your telephone keypad. One moment for our next question.

Mike Matson: Our next question comes from Mike Matten with Needham and Company. Your line is open. Yeah, thanks for taking my questions.

Mike Matson: I did join the call a little late apologize if you've already addressed this, but I didn't want to ask one about China. Just given you saw for the third quarter, you know, what are you assuming for the fourth quarter. And then I know you're not giving guidance over all for 24 yet. But just your general thoughts on the outlook there. Can you get back to decent growth next year in that marketers are going to continue to be headwinds, you think.

Mike Matson: Yeah, so I'll start with the last part of the question, but you know, 2024, you're right, Mike. You know, we're not going to talk about that. You know, we'll give you our thoughts. You know, when we give our guidance, you know, sometime in February. And so, you know, I'll kind of take that one off the table. But as far as China, that came in, you know, within the expectations of what we what we thought. Obviously, we'll still have, you know, some sort of impact in the fourth quarter. We talked about that. It's, you know, and so I'd say generally China, you know, came in at expectations. Okay, got it.

Fred Lampropoulos: And then just with the updates are the extension. I guess the foundation for growth targets. Well, I know you're not going to say what that is right now, but just in terms of the framework, in terms of, you know, giving guidance around for revenue growth on margin targets and cash flow targets. I mean, is that kind of should look similar what you gave before just sort of newer numbers, essentially. Well, look, I might, you know, I appreciate the question here.

Fred Lampropoulos: Here's a run of your words, you know, and I'm just going to use a football analogy here. We are at a full sprint right now. You know, we've got 15 yards, you know, to score a touchdown. And we are just not going to drop the ball, right. We do not want to drop the ball. So we're going to we're going to put on that, you know, response, you know, to the, you know, to the next quarter when we give you our updated guidance for 2024.

Fred Lampropoulos: But look, we'll talk about the framework and what we're thinking there. Right now, we're just, you know, really focused on, on, on finishing the FFG. Look, we're just super excited about how the business is done. I think you look at this quarter. We had almost 10% organic constant currency growth. We had strong growth, margin expansion. We leveraged operating expenses. It was just honestly a really perfect PNL and with really strong free cash flow. So we're just going to continue to stay focused on the fourth quarter and finish off FFG. And then we're excited to talk about what comes. Section.

Mike Matson: Okay, I understand. Thank you. All right, Mike. Thank you.

Fred Lampropoulos: That concludes the question and answer session. At this time, I would like to turn the call back to Mr. Fred Lampropoulos for closing remarks. Well listen, it's a busy day. Everybody's very busy. A lot of stuff going on with trade shows and a lot of people reporting. We appreciate you taking the time. Raul and I will be available for the next several hours to talk to you and clarify issues that you have interesting. We appreciate it. Thank you very much. And best wishes from snow in the mountains and colder temperatures in Salt Lake City, Utah. Good evening.

Operator: That does conclude our conference call for today.

Operator: Thank you for your participation.