Q4 2023 Merit Medical Systems Inc Earnings Call

Operator: Welcome to the fourth quarter of Fiscal Year 2023 Earnings Conference Call. Merit Medical Systems. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded, and that the recording will be available on the company's website for replay shortly. 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.

Okay.

Fred P. Lampropoulos: Thank you very much and welcome everyone to Merit Medical's fourth 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.

Brian G. Lloyd: I would like to remind everyone that this presentation contains safe, forward-looking statements that receive Safe Harbor protection under federal securities law. 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 currently anticipated. In addition, any forward-looking statements represent our views only as of today, February 28, 2024, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law.

Brian G. Lloyd: 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 filings with the SEC for discussion of factors that could cause actual results to differ from these forward-looking statements. Our financial statements are prepared in accordance with accounting principles that 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 how.

Brian G. Lloyd: 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. This presentation also contains certain non-GAAP financial measures. The 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 8K. 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. Readers should consider non-GAAP financial measures in addition to, and not as a substitute for, financial reporting measures prepared in accordance with GAAP.

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.

Please refer to the sections of our press release and presentation entitled non-GAAP financial measures for.

For important information regarding non-GAAP financial measures discussed on this call.

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

Fred P. Lampropoulos: 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. I will now turn the call back to Fred.

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.

I will now turn the call back to Fred.

Fred P. Lampropoulos: Thank you, Brian. 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 fourth quarter. I will then discuss our continued growth initiatives program and related financial targets for the three-year period ending December 31, 2026, which we announced in a separate press release this afternoon. 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 2024, as well as a summary of our balance sheet and financial condition as of December 31, 2023. Then we will open the call to your questions.

Fred: Thank you, Brian let me start with a brief agenda of what we will cover during our prepared remarks.

Fred: I will start with an overview of our revenue results for the fourth quarter.

Fred: He will then discuss our continued growth initiatives program and related financial targets for the three year period, ending December 31, 2026, which we announced in a separate press release this afternoon.

Speaker Change: After my opening remarks, <unk> will provide you with a more in depth review of our quarterly financial result, and the formal financial guidance for 2024 as well as a summary of our balance sheet and financial condition as of December 31, 2023.

Speaker Change: Then we will open the call up for your questions.

Fred P. Lampropoulos: Beginning with a review of our fourth quarter revenue performance, we reported total revenue of $324.5 million in the fourth quarter, up 10.6% year-over-year on a gap basis and up 10.3% year-over-year on a constant currency basis. The constant currency revenue growth we delivered in the fourth quarter was stronger than the high end of our range of growth expectations that we outlined on our quarter three earnings call. Specifically, we expressed constant currency revenue growth in the fourth quarter in a range of five to eight percent year over year. Importantly, the better-than-expected constant currency revenue growth in the fourth quarter was driven by strong organic growth, reflecting particular strength versus expectations in our P.I. CPS and OEM product categories, and relatively balanced contributions to the upside in Q4 from both the U.S. and international markets.

Speaker Change: Beginning with a review of our fourth quarter revenue performance.

Speaker Change: We reported total revenue of $324 5 million in the fourth quarter up 10, 6% year.

Fred: Year over year on a GAAP basis, and up 10, 3% year over year on a constant currency basis.

Fred: The constant currency revenue growth, we delivered in the fourth quarter was stronger than the high end of our range of growth expectations that we outlined on our quarter three earnings call. Specifically, we expressed constant currency revenue growth in the fourth quarter in a range of 5% to 8% year.

Fred: Over year.

Fred: Importantly, the better than expected constant currency revenue growth in the fourth quarter was driven by a strong organic growth, reflecting particular strength versus expectations in RPI.

Fred: <unk> and OEM product categories, and relatively balanced contribution to the upside in quarter four from both the U S and international markets.

Fred P. Lampropoulos: With respect to our profitability performance in the fourth quarter, we leveraged the strong revenue results to deliver non-GAAP gross profit and operating profit growth of 13% and 13%, respectively, which resulted in year-over-year margin expansion of 100 basis points and 40 basis points, respectively, and we delivered non-GAAP net income and earnings per share results that modestly exceeded the high end of our expectations as well. Overall, we believe our performance in the fourth quarter resulted in strong financial results versus our expectations and, more importantly, capped off an impressive year of operating and financial performance in 2023, highlighted by nearly 10% constant currency revenue growth, improvements in our profitability profile with an 18.2% non-GAAP operating margin, a 120 basis point improvement year-over-year, and strong free cash flow generation of more than $110 million.

Fred: With respect to our profitability performance in the fourth quarter we.

Fred: We leveraged this strong revenue result delivered non-GAAP gross profit and operating profit growth of 13% and 13% respectively.

Fred: Which resulted in year over year margin expansion of 100 basis points and 40 basis points respectively.

Fred: And we delivered non-GAAP net income and earnings per share result that modestly exceeded the high end of our expectations as well.

Fred: Overall, we believe our performance in the fourth quarter resulted in strong financial results versus our expectations and more importantly capped off an impressive year of operating and financial performance in 2023 highlighted by nearly 10% constant currency revenue growth in <unk>.

Fred: <unk> and our profitability profile with an 18, 2% non-GAAP operating margin, a 120 basis point improvement year over year, and strong free cash flow generation of more than $110 million.

Fred P. Lampropoulos: This performance continues to be a direct result of our team's continued hard work and commitment to our strategic objectives, and we're very proud of the strong execution our team delivered in 2023. Our performance in the fourth quarter of 2023 also marked the completion of the third and final year of our Foundations for Growth program. We are very proud of the team's strong execution and relentless focus on this multi-year strategic endeavor.

Fred: This performance continues to be a direct result of our team's continued hard work and commitment to our strategic objectives and we're very proud of the strong execution our team delivered in 2023.

Fred: Our performance in the fourth quarter of 2023 also mark the completion of the third and final year of our foundation for growth program.

Fred: We're very proud of the team's strong execution and relentless focus on our multiyear strategic endeavor.

Fred P. Lampropoulos: It is because of their efforts that the FFG program has resulted in a constant currency organic revenue kegger of 9.4 percent, a 440 basis point improvement in our non-GAAP operating margin, and cumulative free cash flow generation of approximately $300 million. Notably, when compared to 2019, we delivered a cost and currency revenue kegger in excess of 6%, more than 630 basis points of non-GAAP operating margin expansion and cumulative free cash flow generation of more than $418 million. As announced in a separate press release this afternoon, we have formally introduced the Continued Growth Initiatives Program and related financial targets for the three-year period ending December 31, 2026.

Fred: It is because of their efforts at the FFG program has resulted in a constant currency organic revenue CAGR of nine 4%, a 440 point basis point improvement in our non-GAAP operating margin and cumulative free cash flow generation.

Fred: <unk> of approximately $300 million.

Fred: Notably when compared to 2019, we delivered constant currency revenue CAGR in excess of 6% more than 630 basis points.

Fred: non-GAAP operating margin expansion and cumulative free cash flow and generation of more than $418 million.

Fred: As announced in a separate press release. This afternoon. We have formally introduced the continued growth initiatives program and related financial targets for the three year period, ending December 31 2026.

Fred P. Lampropoulos: Building upon the notable success achieved in our Foundations for Growth program, the Continued Growth Initiative program reflects our commitment to identifying opportunities to better position the company for long-term, sustainable growth and enhanced profitability. As discussed on prior calls, 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. We believe we have executed well over the last three years, and we're all very proud of the progress we have made with FFG. Importantly, we're not done. The CGI program represents the next chapter in our company's development and a continuation of the momentum and commitment to improvement that have defined the company in recent years. To that end, the CGI program was established with three clear objectives in mind.

Fred: Building upon the notable success achieved in our foundation for growth program that continued growth initiative program reflects our commitment to identifying opportunities to better position the company for long term sustainable growth and enhanced profitability.

Fred: As discussed on prior calls 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 historic.

Fred: Holly 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.

Fred: We believe we executed well over the last three years and we're all very proud of the progress we have made with FFG.

Fred: Importantly, we're not done.

Fred: The CGI program represents the next chapter in our company's development and a continuation of the momentum and commitment to improvement that has defined the company in recent years.

Fred: With that in the CGI program was established with three clear objectives in mind.

Fred P. Lampropoulos: First, maintain above-market profitable growth, leveraging our proven ability to innovate together with our customers and deliver unique therapeutic-based solutions to the market; product offering optimization, including further skew rationalization and advancement of pricing initiatives; and prioritizing efficient customer-centric sales and service strategies, including engaging with customers through education. Second, significantly improve our non-gap operating margins through ongoing network consolidation, growing sophistication in forecasting, planning, and tracking, and continued focus on lowering costs and increasing efficiency throughout the organization. And third, to strengthen the Merit Way culture throughout the organization, including targeted programs for enhanced employee engagement, leadership development, and organizational development.

Fred: <unk> main.

Fred: Maintained above market profitable growth leveraging our proven ability to innovate together with our customers and deliver unique therapeutic based solutions to the market.

Fred: Product offering and optimization, including further SKU rationalization and advancement of pricing initiatives, and prioritizing efficient customer centric sales and service strategies, including engaging with customers through education.

Fred: Can we improve our non-GAAP operating margins through ongoing network consolidation growing sophistication and forecasting planning and tracking and continued focus on lowering costs and increasing efficiency throughout the organization.

Fred: Third to strengthen to merit, the merit way culture throughout the organization, including targeted programs for enhanced employee engagement leadership development and organizational development.

Fred P. Lampropoulos: We are prioritizing further investment in our people, with clear individual and functional objectives aligned with the company's strategic plan and key business objectives. We believe strong execution towards this goal is integral to best position the company for sustained success in meeting the evolving needs of changing healthcare markets in the years to come. As we formally kick off our Continued Growth Initiatives program, it is important to understand that we have an organization that is fully committed to both the continued execution of Foundation for Growth activities and the successful execution of the new CGI objectives going forward. Together, we believe our efforts will result in Merit completing the year ending December 31, 2026 with more than $1.46 billion of revenue and non-GAAP operating margins of at least 20%. We also believe our efforts will drive cumulative free cash flow generation of at least $400 million during the three-year period ending December 31, 2026, which will significantly enhance our balance sheet and financial condition.

Fred: We are prioritizing further investment in our people.

Fred: With clear individually and functional objectives aligned with the company's strategic plan and key business objectives.

Fred: We believe strong execution towards this goal is integral to best position the company pushes same.

Fred: Excuse me sustained success in meeting the evolving needs of changing healthcare markets in the years to come.

Fred: Yeah.

Fred: As we formally kickoff our continued growth initiatives program is important to understand that we have an organization that is fully committed to both the continued expectation of foundation for our growth activities and the successful execution of the new CGI objectives going forward.

Fred: Together, we believe our efforts will result in merit completing the year ending December 31 2026.

Fred: With more than $146 billion of revenue and non-GAAP operating margins of at least 20%.

Fred: We also believe our efforts will drive cumulative free cash flow generation.

Fred: <unk> $400 million.

Fred: During the three year period, ending December 31, 2026, which was significantly enhanced our balance sheet and financial conditions.

Raul Parra: With that, let me turn the call over to Raul, who will take you through a detailed review of our fourth-quarter financial results and our 2024 financial guidance, which we introduced in today's press release, as well as a summary of some of the key drivers of growth, profitability improvement, and cash flow generation we project as part of our CGI program.

Fred: With that let me turn the call over to Raul, who will take you through a detailed review of our fourth quarter financial results and our 2024 financial guidance, which we introduced in todays press release as well as a summary of some of the key drivers of growth.

Raul: Profitability improvement and cash flow generation, we projected as part of our CGI program.

Raul Parra: Thank you, Fred. I'll start with a detailed review of our revenue results for the fourth 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 both a year-over-year and constant currency basis. We have included reconciliations from our GAAP reported results to the related non-GAAP item in our earnings release and presentation available on our website. Fourth quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 20% growth in our endoscopy. Our cardiovascular segment was the primary driver of the better than expected revenue results versus the high end of constant currency growth expectations. While our endoscopy segment fails, we're in line with, Sales of our peripheral intervention, or PI, products increased 19%, representing the largest driver of total cardiovascular segment growth again this quarter. Excluding sales of acquired products, P.I. Sales increased 14% on an organic constant currency basis.

Fred: Raul.

Raul: Thank you Fred.

Raul: I'll start with a detailed review of our revenue results in the fourth quarter, beginning with the sales performance in each of our primary primary reportable product categories.

Raul: Note unless otherwise stated all growth rates are approximated and presented on both a year over year and constant currency basis. We have included reconciliations from our GAAP reported results to the related non-GAAP items in our earnings release and presentation are available on our website.

Raul: Fourth quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 20% growth in our endoscopy segment.

Raul: Our cardiovascular segment was the primary driver of the better than expected revenue results versus the high end of constant currency growth expectations.

Fred: While our endoscopy segment sales were in line with expectations.

Fred: Sales of our peripheral intervention or Pi products increased 19%, representing the largest driver of total cardiovascular segment growth again this quarter.

Fred: <unk> sales of acquired products sales increased 14% on an organic constant currency basis.

Raul Parra: Organic growth in the PI product category was driven by sales of our drainage and radar localization products, which increased 19% and 18%, respectively, and together represented a little more than 40% of total PI sales. And by sales of our axis and geography and biopsy products, which together increased 13% and represented nearly one-third of our total PI growth in Q4. Sales of both our cardiac intervention and OEM products increased 6%. And we're also key contributors to our organic growth in the cardiovascular segment this quarter. Cardiac intervention product sales were at the high end of our growth expectations, driven primarily by strong sales of both our hemostasis and EP and CRM products, which increased 35% and 12%, respectively.

Fred: Organic growth in the PDI product category was driven by.

Fred: Sales of our drainage and radar localization products, which increased 19% and 18% respectively.

Fred: And together represented a little more than 40% of total sales growth.

Fred: And by sales of our access and geography, and biopsy products, which together increased 13% and represented nearly one third of our total pie growth in Q4.

Fred: Sales of both our cardiac intervention and OEM products increased 6% and were also key contributors to our organic growth in the cardiovascular segment this quarter.

Fred: Cardiac intervention product sales were at the high end of our growth expectations, driven primarily by strong sales of both our haemostasis in EP, and CRM products, which increased 35% and 12% respectively.

Raul Parra: Sales of our OEM products exceeded the high end of our growth, which we attribute principally to continued solid demand from large customers in multiple categories, with the strongest sales, contributions from access and in geography products, which together increased 29%. Sales of our Custom Procedural Solutions, or CPS, products increased 1%, which was notably better than the mid-single-digit decline we expected in Q4. CPS sales results benefited from higher demand from customers for certain product lines that had been identified for skew rationalization as part of our foundations for growth. Lastly, sales in our endoscopy segment increased 20 percent, which was in line with the range of growth expectations we outlined on our third quarter call. As expected, we continue to see improving sales trends in the fourth quarter, and we're pleased to see this business deliver mid-teens growth in the second half of 2020.

Fred: Sales of our OEM products exceeded the high end of our growth expectations.

Fred: We attributed principally to continued solid demand from large customers in multiple categories with the strongest sales.

Fred: Contributions from axis, and in geography products, which together increased 29% in Q4.

Fred: Sales of our custom procedural solutions or Cps products increased 1%, which was notably better than the mid single digit decline we expected in Q4.

Fred: Cps sales results benefited from higher demand from customers for certain product lines that had been identified for SKU rationalization as part of our foundation for growth initiatives.

Fred: Lastly, sales in our Endoscopy segment increased 20%, which was in line with a range of growth expectations, we outlined on our third quarter call.

Fred: As expected, we continued to see improving sales trends in the fourth quarter and we're pleased to see this business delivered mid teens growth in the second half of 2023.

Raul Parra: Turning to a brief summary of our sales performance on a geographic basis, Our fourth-quarter sales in the U.S. increased 13% on a constant currency basis and 9% on an organic constant currency basis, exceeding the high end of our growth expectations by nearly 300 basis points during the period. Our U.S. growth performance reflects continued strong execution and overall improving trends in the U.S. market during the fourth quarter, particularly in our direct business, which saw impressive growth in sales of both our Prelude Sync Radial Compression Hemostasis device and our Splash Wire Hydrophilic Steerable Guide Wire and Geography. International sales increased 7% on an organic constant currency basis, exceeding the high end of our growth expectations by more than 300 basis points in the quarter.

Fred: Turning to a brief summary of our sales performance on a geographic basis.

Fred: Our fourth quarter sales in the U S increased 13% on a constant currency basis, and 9% on an organic constant currency basis exceeding the high end of our growth expectations by nearly 300 basis points in the period.

Fred: Our U S growth performance reflects continued strong execution and overall improving trends in the U S market during the fourth quarter.

Fred: Particularly in our direct business, which saw impressive growth in sales of both our preludes think radar compression hemostasis device.

Fred: And our splash wire hydrophilic sustainable Guidewire and geography products.

Fred: International sales increased 7% on an organic constant currency basis exceeding the high end of our growth expectations by more than 300 basis points in the quarter.

Raul Parra: The stronger-than-expected organic constant currency growth to customers outside the U.S. was driven primarily by 7% growth in the EMEA region and, to a lesser extent, by 30% growth in the rest of the world region, and by 4% growth in age, which was in line with our expectations, compared to growth that exceeded the high end of our expectations in the EMEA and rest of the world regions in Q4. With respect to China specifically, sales were essentially flat year-over-year and were impacted by the headwinds related to volume-based purchasing tenders, as expected.

Fred: The stronger than expected organic constant currency growth to customers outside the U S was driven primarily by 7% growth in the EMEA region and to a lesser extent by 30% growth in the rest of the world region and.

Fred: And by 4% growth in APAC, which was in line with our expectations compared to growth that exceeded the high end of our expectations in the EMEA and rest of world regions in Q4.

Fred: With respect to China, specifically sales were essentially flat year over year and were impacted by the headwinds related to volume based purchasing tenders as expected.

Raul Parra: Turning to a review of our financial performance across the rest of the year, For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the fourth quarter of fiscal year 2020. We have included reconciliations from our grant-reported results to the related non-GAAP items in our press release and presentation available on our website. Gross profit increased approximately 13% year-over-year in the fourth quarter.

Fred: Turning to a 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 Companys non-GAAP results during the fourth quarter of fiscal year 2023. 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 website.

Fred: Yeah.

Fred: Gross profit increased approximately 13% year over year in the fourth quarter.

Raul Parra: Our gross margin was 50.4%, 96 basis points from the fourth quarter of 2020. The increase in gross margin year-over-year was at the lower end of expectations, as benefits from mix were partially offset by manufacturing variances compared to the prior year. Operating expenses increased 13% from the fourth quarter of 2022.

Fred: Our gross margin was 54% up 96 basis points from the fourth quarter of 2022.

Fred: The increase in gross margin year over year.

Fred: Was at the lower end of expectations as benefits from mix were partially offset by manufacturing variances compared to the prior year period.

Fred: Operating expenses increased 13% from the fourth quarter of 2022.

Raul Parra: The year-over-year increase in operating expenses was driven by an 11% increase in SG&A expense and a 19% increase in R&D expenses, compared to the prior year period. Our operating expense performance in Q4 of 2023 reflected higher commissions on the better than expected sales results and prioritization of investments to support our future growth initiatives, as expected. Total operating income in the fourth quarter increased $6.7 million, or 13% from the fourth quarter of 2020. Our operating margin was 18.2% compared to 17.8% in the prior year period. The 40 basis point increase in operating margin was driven by a 96 basis point increase in our non-GAAP gross margin, offset partially by a 60 basis point increase in our non-GAAP OPEX compared to the prior year.

Fred: Year over year increase in operating expenses was driven by 11% increase in SG&A expense and a 19% increase in R&D expense compared to the prior year period.

Fred: Our operating expense performance in Q4 of 2023 reflected higher commissions on the better than expected sales results and prioritization of investments to support our future growth initiatives as expected.

Fred: Total operating income in the fourth quarter increased $6 7 million or 13% from the fourth quarter of 2000 $22 million to $59 million.

Fred: Our operating margin was 18, 2% compared to 17, 8% in the prior year period.

Fred: The 40 basis point increase in operating margin was driven by 96 basis point increase in our non-GAAP gross margin.

Fred: Partially by a 60 basis point increase in our non-GAAP opex compared to the prior year period.

Raul Parra: Fourth quarter other expense net was $2 million compared to $0.1 million in the fourth quarter of last year; that change was driven by an increase in net interest expense associated with increased borrowings and rising interest rates, as well as lower income associated with realized and unrealized foreign currency losses compared to the prior year, partially offset by an increase in interest income associated with a higher cash balance. Fourth quarter net income was $47.2 million, or $0.81 per share, compared to $46 million, or $0.79 per share, in the prior year.

Fred: Fourth quarter other expense net was $2 million compared to $1 1 million in the fourth quarter of last year the change in other expense.

Fred: Net was driven by an increase in net interest expense associated with increased borrowings and rising interest rates as well as lower income associated with the realized and unrealized foreign currency losses compared to the prior year period parse.

Fred: Partially offset by an increase in interest income associated with a higher cash balances.

Fred: Fourth quarter net income was $47 2 million or <unk> 81 per share.

Fred: Compared to $46 million or <unk> 79 per share in the prior year period.

Raul Parra: We are pleased with our profitability performance in the fourth quarter, where we leveraged our stronger-than-expected revenue results to drive expansion in our gross and operating margins and non-gap diluted earnings per share that exceeded the high end of our expectations. Turning to a reviewer balance sheet and financials, As of December 31st, 2023, we had cash and cash equivalents of $587 million. Total debt obligations of $846.6 million and available borrowing capacity of approximately $626 million compared to cash and cash equivalents of $58.4 million.

Fred: We are pleased with our profitability performance in the fourth quarter, where we leveraged our stronger than expected revenue results to drive expansion in our gross and operating margins and non-GAAP diluted earnings per share that exceeded the high end of our expectations.

Fred: Turning to a review of our balance sheet and financial condition.

Fred: As of December 31, 2023, we had cash and cash equivalents of 587 million total debt obligations of $846 6 million in available borrowing capacity of approximately $626 million compared to cash and cash equivalents of $58 4 million.

Raul Parra: Total debt obligations of $198.2 million and available borrowing capacity of approximately $523 million as of December 31, 2015. Our net leverage ratio as of December 31st was two and a half times adjusted. The change in total debt obligation was driven by the issuance of convertible notes in December of 2020. The notes bear interest at 3% per year, payable semi-annually, mature February 1, 2029, and have an initial conversion price of approximately $86.83 per share. Total gross proceeds from the sale of the notes were $747.5 million, and net proceeds were approximately $659 million after deducting offering and issuance costs and the cost of a related CAP call transaction, which has an effective conversion price of $114 per share.

Fred: Total debt obligations of $198 2 million in available borrowing capacity of approximately $523 million as of December 31, 2022 or.

Fred: Our net leverage ratio as of December 31 was two five times on an adjusted basis.

Fred: The change in total debt obligation was driven by the issuance of convertible notes in December 2023.

Fred: The notes bear interest at 3% per year payable semi annually mature February one 2029 and have an initial conversion price of approximately $86 83 per share.

Fred: Total gross proceeds from the sale of the notes were $747 5 million and net proceeds were approximately $659 million after deducting offering and issuance costs and the cost of the related cap call transaction.

Fred: Which has an effective conversion price of $114 per share.

Raul Parra: Initial use of proceeds was paid out of outstanding debt obligations at higher interest rates, specifically $138 million of revolver borrowings and $50 million of term debt. We generated $55.1 million of free cash flow in the fourth quarter, up 255% from the fourth quarter of 2022 and up 30% from the third quarter of 2020. The improvement in free cash flow generation in the fourth quarter was primarily a result of significant improvements in cash used for working capital, specifically in the areas of inventory and accounts payable. We generated more than $110 million of free cash flow in 2023 and, as Fred mentioned earlier, are extremely proud of the significant free cash flow generation we have delivered as part of our FFG program, totaling nearly $300 million in the three years ended December 31, 2020.

Fred: Initial use of proceeds was paydown of outstanding debt obligations at higher interest rates, specifically $138 million of revolver borrowings and $50 million of term debt.

Fred: We generated $55 1 million of free cash flow in the fourth quarter up 255% from the fourth quarter of 2022 and up 30% from the third quarter of 2023.

Fred: The improvement in free cash flow generation in the fourth quarter was primarily a result of significant improvements in cash used in working capital specifically in the areas of inventory and accounts payable.

Fred: We generated we generated more than $110 million of free cash flow in 2023.

Fred: As Fred mentioned earlier are extremely proud of the significant free cash flow generation, we have delivered as part of our FFG program.

Fred: Totally nearly $300 million in three year in the three years ended December 31, 2023 and.

Raul Parra: Importantly... Not only do we expect strong free cash flow generation to continue, but we expect enhanced free cash flow generation over the next three years. Specifically, we believe our CGI program will generate more than 400 million of free cash flow in the three-year period ending December 31st, 2020. Now, turning to a review of our fiscal year 2024 financial guidance, which we introduced in today's press release. For reference, we have included a table in our earnings press release that details each of our formal financial guidance items and how those ranges compared to the prior year period.

Fred: Importantly.

Fred: Not only do we expect strong free cash flow generation to continue we expect enhanced free cash flow generation over the next three years.

Fred: Specifically, we believe our CGI program will generate more than $400 million of free cash flow and the three year period, ending December 31 2026.

Fred: Turning to a review of our fiscal year 2024 financial guidance, which we introduced in today's press release.

Fred: For reference we have included a table in our earnings press release, which details each of our formal financial guidance items and how those ranges compared to the prior year period.

Raul Parra: We expect gap revenue growth of 4.3% to 5.4% year-over-year. The Gap Net Revenue Guidance ranges, net revenue growth of approximately 4% to 5% in our cardiovascular segment and net revenue growth of approximately 8% to 9% in our endoscopy segment, and a headwind from change in foreign currency exchange rates of approximately 5.9 million or approximately 50 basis points to growth year-over-year. 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 4.8 percent to 5.9% in 2024. There are two items to consider when evaluating our constant currency revenue growth of 4.8% to 5.9% for 2020. First, ongoing FFG and CGI initiatives related to skew rationalization represent a roughly $15 million headwind to revenue and EMEA and to a lesser extent in the US in 2024, representing roughly 120 basis points of impact on our constant currency growth year over year. Second, the midpoint of our total constant currency growth range assumes 7.6% growth in the U.S. and 2.3% growth outside the U.S. Constant currency growth outside the U.

Fred: We expect GAAP revenue growth of four 3% to five 4% year over year.

Fred: The GAAP net revenue guidance range assumes.

Fred: Net revenue growth of approximately 4% to 5% in our cardiovascular segment.

Fred: Net revenue growth of approximately 8% to 9% in our endoscopy segment.

Fred: And a headwind from change in foreign currency exchange rates of approximately $5 9 million or approximately 50 basis points to growth year over year.

Fred: 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 four 8%.

Fred: To five 9% in 2024.

Fred: There are two items to consider when evaluating our constant currency revenue growth of four 8% to five 9% for 2024.

Fred: First.

Fred: Our ongoing <unk> initiatives related to SKU rationalization represent a roughly $15 million headwind to revenue in EMEA and to a lesser extent in the U S. In 2024, representing roughly 120 basis point impact on our constant currency growth year over year.

Fred: Second the mid point of our total constant currency growth range assumes seven 6% growth in the U S and two 3% growth outside the U S.

Fred: Constant currency growth outside the U S is expected to be driven by a high single digit growth in both the EMEA and rest of world regions, partially offset by a 4% decline in the APAC region.

Raul Parra: The expected year-over-year decline in APAC sales is substantially related to China, where we expect to grow sales of units on a year-over-year basis, but we expect total revenue to decline due to continued headwinds related to volume-based... Finally, our total net revenue guidance for fiscal year 2024 also assumes inorganic revenue contributions from the acquisition announced on June 8th, 2023 in the range of 10 to 11 million. Excluding this inorganic revenue, our guidance reflects total net revenue growth on a constant currency, organic basis in the range of approximately 4 to 5 percent year-over-year. With respect to profitability guidance for 2024, we expect non-GAAP diluted earnings per share in the range of $3.28.

Fred: The expected year over year decline in APAC sales is substantially related to China, where we expect to grow sales of units on a year over year basis, but we expect total revenue to decline due to continued headwinds related to volume based purchasing.

Fred: Finally, our total net revenue guidance for fiscal year 2024.

Fred: So assumed inorganic revenue contributions from the acquisition announced on June eight 2023 in the range of $10 million to $11 million in the aggregate. Excluding this inorganic revenue our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 4% to 5% year over year.

Fred: With respect to profitability guidance for 2024, we expect non-GAAP diluted earnings per share in the range of $3 28 to $3 35.

Raul Parra: $3.35, representing an increase of 9% to 11% year-over-year. For modeling purposes, fiscal year 2024 financial guidance assumed, non-GAAP operating margins in the range of approximately 18.65 percent to 18.9 percent of 50 to 75 basis points a year, non-GAAP interest and other expenses net of approximately $1 million compared to $10.7 million, non-GAAP tax rate of approximately 21%, and diluted shares outstanding of approximately $58 Finally, we expect CAPEX in the range of $50 to $60 million and free cash flow of at least $115 million. Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the first quarter of 2024. Specifically, we expect our total revenue to increase in the range of approximately 5.6% to 6.8% year-over-year on a gap in, and up approximately 6.5% to 7%. 7.7% year-over-year on a constant currency basis.

Fred: Representing an increase of 9% to 11% year over year.

Fred: For modeling purposes, our fiscal year 2024 financial guidance assumes.

Fred: non-GAAP operating margins in a range of approximately $18 six 5% to 18, 9% up 50 to 75 basis points year over year.

Fred: non-GAAP interest and other expenses net of approximately $1 million compared to $10 7 million last year.

Fred: non-GAAP tax rate of approximately 21% and diluted shares outstanding of approximately $58 8 million.

Fred: Finally, we expect capex in the range of $50 million to $60 million and free cash flow of at least $115 million.

Fred: Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the first quarter of 2024, specifically, we expect our total revenue to increase in the range of approximately five 6% to six 8% year over year on a GAAP basis and up approximately six 5% to 7%.

Fred: Seven 7% year over year on a constant currency basis.

Raul Parra: The midpoint of our first quarter constant currency sales growth expectation assumes approximately 10% growth year-over-year in the U.S. and approximately 3% growth year-over-year in international markets. Note the midpoint of our first quarter constant currency sales growth expectation also includes approximately $6 million of inorganic revenue. Excluding these inorganic contributions, our first quarter revenue is expected to increase approximately 5% year-over-year. With respect to our profitability expectations for the first quarter of 2024, we expect non-GAAP operating margins in a range of approximately 16.7% to 17% of 60 to 90 basis points year-over-year. Finally, we expect non-GAAP EPS in the range of 70 to 72 cents.

Fred: The midpoint of our first quarter constant currency sales growth.

Fred: Our expectations assumes approximately 10% growth year over year in the U S and approximately 3% growth year over year in international markets.

Fred: Note the mid point of our first quarter constant currency sales growth expectations.

Fred: Also includes approximately $6 million of organic revenue.

Fred: Excluding these inorganic contributions our first quarter revenue is expected to increase approximately 5% year over year.

Fred: Yes.

Fred: With respect to our profitability expectations for the first quarter of 2024, we expect non-GAAP operating margins in a range of approximately $16, 7% to 17% up 60 to 90 basis points year over year.

Fred: Finally, we expect non-GAAP EPS in the range of 70 to 72.

Operator: That wraps up our prepared remarks. Operator, we would now like to open up the line for questions. Thank you, sir. If you'd like to ask a question, please signal by pressing star 1 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

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

Fred: Sure.

Speaker Change: Thank you Sir.

Speaker Change: If you'd like to ask a question. Please.

Speaker Change: Please signal by pressing star one on your telephone keypad.

Operator: If youre using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: 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. And our first question comes from Jayson Bednar, Liz Piper-Sandler, and Yolande Snello.

Speaker Change: We do ask that you limit yourself to one question and one follow up.

Speaker Change: If you would like to ask additional questions.

Speaker Change: I should add yourself to the queue again by pressing star one.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: And our first question comes from.

Speaker Change: Jason Bednar with Piper Sandler Your line is now open.

Jason M. Bednar: Hey, good afternoon. Thanks for taking the questions. Congratulations on a nice finish to the year, and I appreciate all the 2024 and CGI guidance color here. I'll pick up first on CGI.

Jason M. Bednar: Hey, good afternoon, thanks for taking the questions. Congrats on a nice finish to the year and I appreciate all the 2024 and CGI guidance color here.

Jason M. Bednar: I'll pick up first on CGI I don't think any of these ranges would really surprised investors that are close to your story and thats not a criticism or a complement to the predictability here.

Fred P. Lampropoulos: I don't think any of these ranges will really surprise investors that are close to your story, and that's not a criticism or a compliment to the predictability here. The revenue guide here makes sense. Wanted to check to see if there's anything notable to call out as a tailwind or headwind embedded in that 5 to 7% growth outlook on, again, the CGI, new products, regulatory elements, pricing, just anything there to be aware of. And then on the margin side of the equation, I think the math works out to be, you know, something like 60 to 120 basis points of annual margin expansion at the operating line. You know, given what we're looking at for 2024, it looks, you know, maybe at the lower end of that, are there benefits here that skew more towards 25 and 26? I'm sorry to pack a few in here, but how do we think about the balance between gross margin expansion and OPEX leverage?

Jason M. Bednar: The revenue guide here makes sense I wanted to check to see if there was anything notable to call out as a tailwind or headwind embedded in that 5% to 7% growth outlook.

Jason M. Bednar: And then the CGI new products regulatory elements pricing just anything there to be aware of and then on the margin side of the equation I think the math works out to be.

Jason M. Bednar: Something like 60 to 120 basis points of annual margin expansion at the operating line given what we're looking at for 2024, it looks maybe at the lower end of that.

Jason M. Bednar: Are there benefits here that skew more towards 25% and 26 I'm sorry to pack a few in here, but how do we think about the balance between gross margin expansion and Opex leverage.

Fred P. Lampropoulos: Yeah, a lot to unpack there, Jayson, so I'm going to try and hit maybe on the revenue side. So if we kind of think about the key drivers, at least on the 5%, right? We always kind of like to start on the low end and then tell you kind of what the upside would be, you know, depending on what happens. But look, I think it's really more of the same when it comes to the 5%, right?

Speaker Change: Yes, a lot to unpack there, Jason so I'm going to try and hit maybe on the on the revenue side. So if we kind of think on the key drivers at least on the 5% rate, we always kind of like to start on the low end and then.

Jason M. Bednar: You kind of what the upside would be depending on what happens but.

Jason M. Bednar: Look I think it's really more of the same when it comes to the 5% right.

Fred P. Lampropoulos: You know, product introduction, you know, selling the products that we have, we're really kind of hitting on positive CAGRs in each of our reportable product categories, specifically PI and CI, CPS, OEM, and endotech, with really the largest contributors coming from PI and CI. And then, you know, the international CAGR is a little bit less than the U.S. CAGR. So it's really kind of just a follow-on from really what we did with FFG, quite frankly. So that's on the revenue side. As far as the operating margin piece is concerned, we really focused on the operating margin. And I would say that on the low end, the primary driver is going to be gross margin. When you get to the higher end, you're getting more leverage from OPEX than what we would at the low end. So hopefully that gives you a little bit of color.

Jason M. Bednar: Product introduction.

Jason M. Bednar: Selling the products that we have we're really kind of hitting on positive CAGR is in each of our reportable product categories, specifically pie in Ci Cps OEM and Endo Tech with really the largest contributors coming from <unk>.

Jason M. Bednar: And then.

Jason M. Bednar: International CAGR is a little bit less in the U S.

Jason M. Bednar: CAGR, so it's really kind of.

Jason M. Bednar: Really just.

Jason M. Bednar: Follow on is really what we did with FFG quite frankly.

Jason M. Bednar: Okay.

Jason M. Bednar: So that's on the revenue side as far as on the.

Jason M. Bednar: Operating margin piece.

Jason M. Bednar: We really focused on the operating margin and I would say that on the low and the primary driver is going to be gross margin.

Jason M. Bednar: When you get to the higher end Youre really leveraging up youre getting more leverage from Opex.

Jason M. Bednar: And then what we would in the low end. So hopefully that provides you a little bit of color.

Fred P. Lampropoulos: And also, let me add this to that, that the revenue thing does not include new products. That's correct. These are existing products. It does include Rhapsody, which we're currently selling, but no prognostics or any of the new products that Merit may release next year.

Speaker Change: Also let me add to that.

Speaker Change: <unk> revenue thing does not include new products Thats correct. These are existing products. It does include rapidly that we're currently selling but no prognostications or any of the new products.

Jason M. Bednar: Marriott May release next year, and we have a long history of new product releases, but nothing this is our existing business and as they release and when they release then we'll make notice of that yes, that's a good point.

Fred P. Lampropoulos: We have a long history of new product releases, but nothing. This is our existing business. And as they release, and when they release, then we'll make notice of that. Yeah, that's a good point.

Fred P. Lampropoulos: So the Rhapsody, just for a point of clarity, it's really the outside of US sales that we would include in CGI. We're already selling. Rhapsody US sales, where we haven't been approved yet, have not been included, as one would expect, given that we don't know the exact timing.

Jason M. Bednar: <unk> just.

Jason M. Bednar: For a point of clarity its really is the outside of the outside of the U S. Sales that we would include in that we included in CGI, where we're already saw rapid city.

Jason M. Bednar: US sales, where we haven't been approved it have not been included as one would expect given that we don't know the exact timing, but we have we think we know when it's going to happen, but we werent, 100% sure. So we didnt include it.

Fred P. Lampropoulos: But we think we know when it's going to happen, but we weren't 100% sure, so we didn't include it. Okay, very helpful. And yeah, you kind of picked up on what I was hinting at there with RAPCity.

Speaker Change: Okay, all right very helpful and yet you've kind of picked up on what I was hinting that there with <unk>, so that sounds like thats entirely upside and I. Appreciate all the all the details there on CGI.

Jason M. Bednar: So that sounds like that's entirely upside and appreciate all the details there on CGI. Yeah, on the guide for here for 2024, you know, a few different moving parts here, I think, you know, core organic growth would be something like five to 6% if not for that skew rationalization you mentioned. You know, presumably those that skew rationalization have some margin benefits. Can you talk about whether you're realizing these margin benefits here in 2024? Are those and the EPS impact?

Speaker Change: Yes on the guide for here for 2024.

Jason M. Bednar: Few different moving parts here I think core organic growth would be something like 5% to 6% if not for that SKU rationalization you mentioned.

Jason M. Bednar: Presumably those that SKU rationalization has some margin benefits.

Jason M. Bednar: Can you talk about whether you're realizing these margin benefits here in 2024 are those.

Raul Parra: Is that more of like a 2025 dynamic? Yeah, you know, it's a lot, it's very similar to CGI. So, on the low end, you're really talking about gross margin expansion being the main driver of that operating margin expansion as we make some investments in the business, especially as we ramp up for, you know, Rhapsody. And then on the high end, you're getting more operating expense leverage, you know, that gets us to the higher end of that operating margin range. So, hopefully, that helps.

Jason M. Bednar: And the EPS impact is that more like a 2025 dynamic.

Jason M. Bednar: Yes.

Jason M. Bednar: It's very similar to CGI.

Jason M. Bednar: So on the low end Youre really talking about gross margin expansion.

Jason M. Bednar: Is the main driver of that operating margin expansion as we make some investments in the business, especially as we ramp up for Rhapsody.

Jason M. Bednar: And then on the on the.

Jason M. Bednar: And on the high end Youre getting more operating expense leverage.

Jason M. Bednar: That gets us to the higher end of that that operating margin range. So hopefully that helps Jason.

Jason M. Bednar: Yeah, sorry, I was asking, like, has it got the SKU rationalization in particular that's going to be a, I guess, helping or a benefit in 2024? Yeah, I mean, it helps us out, you know, throughout CGI, and it's things we've been working out throughout the last several years, but it's included in the number. All right, very helpful.

Jason M. Bednar: Yes, sorry, I was asking I think on the SKU rationalization in particular that is that's going to be a.

Speaker Change: Helping or a benefit in 2024.

Jason M. Bednar: Yes.

Speaker Change: It helps us out throughout CGI and it's it's things we've been working out throughout the last several years.

Speaker Change: But it is included in the numbers.

Steven Michael Lichtman: Thank you. Thank you. One moment for our next question. Our next question comes from Steve Lichtman with Oppenheimer. Your line is now open. Thank you. Evening, guys, and congratulations on the quarter. I guess a couple of cash.

Speaker Change: Alright very helpful. Thank you yep.

Speaker Change: Yep.

Speaker Change: Thank you.

Speaker Change: For our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from Steve Lichtman with Oppenheimer. Your line is now open.

Steven Michael Lichtman: Thank you evening, guys and congratulations on a quarter.

Steven Michael Lichtman: I guess a couple on cash.

Raul Parra: Is your higher free cash flow outlook, as you look at over the next few years versus the last three, based solely on higher operating income that you're forecasting, or are there working capital levers too that you see playing out? And it looks like for 24, there's a step up in CapEx. Anything to call out specifically on what that spend is directed toward? Yeah, so on the CapEx, you know, specifically around free cash flow. So obviously, we're going to have higher earnings, you know, throughout the CGI program. So we expect that, obviously, to flow through. Now, as far as, you know, the cash flow generation, I mean, it'll come from working capital.

Steven Michael Lichtman: Is your higher free cash flow outlook as you look out over the next few years versus the last three.

Steven Michael Lichtman: Based solely on higher operating income that you are forecasting or are there.

Steven Michael Lichtman: Working capital levers to that you see playing out and it looks like for 2004, there is a step up in capex anything to call out specifically on what that spend is directed toward.

Steven Michael Lichtman: Yes.

Steven Michael Lichtman: So on the Capex, specifically around free cash flow. So obviously, we're going to have higher earnings.

Steven Michael Lichtman: Throughout the CGI programs. So we expect that obviously to flow through now as far as.

Steven Michael Lichtman: The cash flow generation, I mean, it'll come from working capital.

Raul Parra: We do expect CapEx to be somewhere in the 4% to 4.5% of sales over the next several years. We do have, you know, within the CGI three-year program, we will be making a couple of investments that I think we want to highlight just so we don't surprise anybody. One is that there will be a little bit of work that we'll do in our Mexican facility this year as we were able to obtain the other half of the building that we're currently in. So now we have two full buildings. And you know, we did that because, you know, it was advantageous, it was available, and we wanted the space. It's, you know, a lot easier to take it when it's available than when you need it.

Steven Michael Lichtman: We do expect capex to be somewhere in the 4% to four 5% of sales.

Steven Michael Lichtman: Over the next several years, we do have within the CGI a three year program, we will be making a couple of investments that I think we want to highlight just so we don't surprise anybody.

Steven Michael Lichtman: One is there will be a little bit of work that we'll do in our Mexican facility. This year.

Steven Michael Lichtman: As we were able to obtain the other half of the building that we're currently in so now we have the two full buildings and we did that because.

Steven Michael Lichtman: Was advantageous it was available and we wanted the space.

Steven Michael Lichtman: It's a lot easier to take it when it's available then when you need it and we don't want to have to be driving across town to do that so we just were able to act. So there'll be a nominal investment there as we build that out for whatever we need. It there is no immediate plans for it but we have the space and we'll do a little bit of work on it the bigger one would be a distribution center that we're planning on doing.

Raul Parra: Well, and we don't want to have to be driving across town to do that. So we just were able to. So it'll be a nominal investment there as we build that out for whatever we need it for. There are no immediate plans for it, but we have the space, and we'll do a little bit of work on it. The bigger one would be a distribution center that we're planning on doing here in Salt Lake. And that'll be about a $50 million spend that is included in our free cash flow numbers, but I just want to call it out that it is something that we plan on doing. We could get started as early as this year in the fourth quarter, but more than likely, we'll get pushed into next year.

Steven Michael Lichtman: Here in Salt Lake that'll be about a $50 million spend that is included in our free cash flow numbers, but I just want to call it out.

Steven Michael Lichtman: That it is something that we plan on doing.

Steven Michael Lichtman: We could get started as early as this year in the fourth quarter, but more than likely we will get pushed into next year. So just just a couple of callouts, but there are a lot of the drivers is the increased profitability and working capital.

Raul Parra: So just a couple of call outs. But a lot of the drivers are increased profitability and working capital. Great, thanks. And then, given that pre-castile outlook and your solid balance sheet, can you provide just your latest thoughts on M&A, your sort of appetite to do deals? Are you seeing opportunities out there? Any thoughts on that would be helpful.

Speaker Change: Great. Thanks, and then just as a follow up given that free cash flow outlook and your solid balance sheet.

Steven Michael Lichtman: Provide just your latest thoughts on M&A your sort of appetite to do deals are.

Speaker Change: Are you seeing opportunities out there any thoughts on that would be helpful. Thanks, Brett.

Fred P. Lampropoulos: Thanks. Yeah, listen. I think we'll continue to identify opportunities. You know, we look at them all the time. They have to fit and not frustrate.

Brett: Yeah listen I think we'll continue to identify opportunities we'd look at them all the time they have to fit and not frustrate I think if we go back and look at the last three years.

Fred P. Lampropoulos: I think if we go back and look at the last three years, in our opinion, the things that we did were things that we felt would enhance the business. And that's the same as there's no money burning a hole in our pocket. We will spend it when it's right. It's consistent with our sales objectives, our sales force, and it's consistent with our plan. So, and we see things. But that's it.

Brett: In our opinion, the things that we did where things that where we felt that would enhance the business and thats. The same additive there's no money burning a hole in our pocket, we will spend it when it's right. It's consistent with our sales objectives, our sales force and it's consistent with our plan. So.

Brett: And we see things, but that's it I mean, we're just going to keep the same discipline. The same approach that we've done in the past, but we have the cash to do it and.

Raul Parra: I mean, we're just going to keep the same discipline, the same approach that we've done in the past, but we have the cash to do it. And we won't be hesitant if we find the right things. It's just an ongoing process. It is business, but I don't want to call it business as usual. But for lack of a better word, that's exactly what we've been doing. And even to this point, it's been a couple of months, and we didn't have something that we were going to go, you know, do right away. We're looking, and we'll be very patient and find the right things. And also, just as a reminder, the CGI program does not contemplate any M&A activity.

Brett: We won't be hesitant, if we find the right things, but it's just an ongoing process that is business I don't want to call it business as usual, but for lack of a better word that's exactly what we've been doing and even at this point. It's been a couple of months, we didn't have something that we're going to go.

Brett: Do right away.

Brett: Looking and we'll be very patient and find the right things and also just as a reminder, the CGI program does not contemplate any M&A activity Thats a good point.

Steven Michael Lichtman: That's a good point. Yeah, I got it. Thanks, Raul and Fred.

Jayson Tyler Bedford: Thanks. You bet. Thank you. One moment for our next question. Our next question comes from Jayson Bedford with Raymond James. Your line is now open.

Speaker Change: Got it thanks Scott.

Steven Michael Lichtman: Thanks.

Speaker Change: You bet.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

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

Raul Parra: Good afternoon. It looks like the Cumulative Free Cash Flow goal came in 600 grand shy of the goal. I'm not sure if you guys are fans of the movie Glengarry Glen Ross, but I really hope that Raul didn't get a set of steak knives instead of the kind of like El Dorado that he deserves. No, they were actually plastic and wrapped in a wrapper.

Speaker Change: Yes.

Jayson Tyler Bedford: Good afternoon.

Jayson Tyler Bedford: It looks like the.

Jayson Tyler Bedford: Cumulative free cash flow goal came in 600 Grand shy of our goal I'm not sure. If you guys are.

Jayson Tyler Bedford: Fans of the movie going very Glen Ross, but I really hope that rule didn't get a set of steak knives, and instead of the Cadillac Eldorado that he deserves.

Jayson Tyler Bedford: They were actually plastic wrapped in a wrapper. So just a reminder, Jason remember, we had that $12 million that had to be treated slightly different.

Raul Parra: Just a reminder, Jayson, remember we had that $12 million that had to be treated slightly differently from a contingent payment standpoint because of the estimated fair value that we made four years ago or whenever it was. But yeah, you're right; we were just a hair short. But honestly, I think after what we've been through, and all companies have been through from a supply chain standpoint, and everything that happened with COVID and whatnot, I think we're pretty proud of the team for what we were able to accomplish. And to be within a rounding error of that, I think is a great example of kind of the commitment that we've made as an executive team and also our employees for, you know, to Yep, yep, no doubt about that. You should be proud.

Jayson Tyler Bedford: From a contingent payment standpoint, because of the estimated fair value that we made.

Jayson Tyler Bedford: Four years ago or whenever it was but yes.

Speaker Change: Yes, Youre right, we were just a hair short, but honestly I think after what we've been through it all companies have been through from a supply chain standpoint.

Jayson Tyler Bedford: And everything that happened with Covid and whatnot.

Jayson Tyler Bedford: I think we're pretty proud of the team of what we were able to accomplish to be honest and to be within our.

Jayson Tyler Bedford: A rounding error of that I think is a great example of kind of a commitment that freight that we've made as an executive team and also our employees for <unk>.

Jayson Tyler Bedford: The line on everything.

Jayson Tyler Bedford: So, that wasn't my question. That was just a comment. So, just two quick ones here. It looks like the implied organic in cardio is about 4%. I guess it's disproportionately impacted by the skew rationalization, but that's the skew dynamic.

Speaker Change: Yes, no doubt you should be proud.

Speaker Change: So that wasn't my question that was just a comment.

Speaker Change: Two quick ones here.

Jayson Tyler Bedford: It looks like the implied organic in cardio is about 4%.

Speaker Change: <unk>, it's disproportionately impacted by the SKU rationalization, but ex the SKU dynamic and which segment do you expect to see a bit of a bit of a slowdown and you kind of called out Ti in Ci as the drivers.

Raul Parra: You know, in which segment do you expect to see a bit of a slowdown? You kind of called out PI and CI as the drivers. Where are you going to see this anticipated slowdown? Well, a lot of the rationalization, you know, comes from our kits and packs, you know, so that's where we'll see most of the impact. But other than that, I mean, I think, you know, there is a little bit of MDR-related stuff, some of the spine business and whatnot. But, really, I think most of our growth is going to be coming from the US, over 7%, 7.6% growth year over year, and then about 2.3% growth outside of the US.

Jayson Tyler Bedford: Where are you going to see that.

Jayson Tyler Bedford: <unk> slowdown in 'twenty four.

Speaker Change: Well a lot of the rationalization.

Speaker Change: It comes from our kitchen packs.

Jayson Tyler Bedford: So that's where we'll see.

Jayson Tyler Bedford: Most of the impact.

Jayson Tyler Bedford: But other than that I mean.

Jayson Tyler Bedford: <unk>.

Jayson Tyler Bedford: There is a little bit of MTR related stuff some of the spine business and whatnot, but really I think most of our growth is going to be coming from the U S at almost over seven.

Jayson Tyler Bedford: 7% seven six growth year over year, and then about two 3% growth outside of the U S.

Jayson Tyler Bedford: So hopefully that helps. Okay. Okay. Maybe just broadening it out a bit. Revenue growth, I think implied in this CGI, there's basically an acceleration in 2025 and 2026. Is the upper end all due to the success of, or potential success of, Rhapsody?

Speaker Change: So hopefully that helps.

Speaker Change: Okay. Okay.

Speaker Change: Maybe just broadening it out a bit revenue growth I think implied in your CGI. There's there's basically an acceleration in 'twenty five 'twenty six.

Speaker Change: Is the upper end all due to the success of potential success of Rhapsody.

Fred P. Lampropoulos: And just remind us of the anticipated timing here in the U.S. Yeah, Jayson, Fred, look, it is weighted on the back end in almost all programs you see that are three years. It's a little bit slower in the front. It depends on when we get approval on that thing, but remember that that revenue is not in the plan other than the existing ones, but to say it's back-weighted in 25 and 26 is fair. Yeah, and remember, we, you know, as we talked about, we have some skew rationalization that's happening this year, about 15 million, that's 120 basis points for this year. So you know, as we get that behind us, then you start to accelerate, you know, back to kind of what the, you know, to get us back into that five to 7% that you guys are used to.

Jayson Tyler Bedford: <unk> on the anticipated timing there in the U S.

Speaker Change: Yes, Jason.

Speaker Change: It is weighted on the back end and almost all program associated with the three years is still slower than the front it depends on when we get.

Jayson Tyler Bedford: Approval on that thing, but remember that that revenue is not in the plan other than the existing but to say, it's back weighted or in 'twenty five and 26 is fair.

Speaker Change: Yeah and remember.

Speaker Change: As we talked about we have some SKU rationalization, that's happening this year about $50 million, that's 120 basis points for this year. So as we get that behind US then you start to accelerate back to kind of what the.

Speaker Change: To get us back into that 5% to 7% that you guys are used to so.

Fred P. Lampropoulos: So again, I think it's really just a timing thing, at least from a Kager standpoint, that because of the MDR and approaching the finish line for Merit, we will now start applying for those products. They're not in the numbers, but there are other things about these new products that we are selling in the U.S. that we haven't been selling so we could get MDR completed.

Speaker Change: Again, I think it's really just a timing thing.

Speaker Change: From a at least from a CAGR standpoint, yes, and another thing to just recall, we have existing products, we're selling in the U S that because of the MTR and approaching the finish line for merit.

Speaker Change: We will now start applying for those products. They are not in the numbers, but there are other things that these new products that we're selling in the U S. But we haven't been selling so we could get MTR completed yes. So I mean, we feel comfortable with this.

Fred P. Lampropoulos: So I mean, we feel comfortable with this. I mean, I think you can tell that, you know, we feel comfortable with our sales guidance. Yeah, again, I think I can't highlight enough how the 120 basis points were, you know, that's a headwind related to skew rationalization, which again, I think everybody should be happy about that we're, you know, going through the process of doing that because, at the end of the day, it just leads to higher profits. Okay, thank you.

Speaker Change: I mean, I think you can tell that we feel comfortable with our sales guidance, yes, again I think the gist.

Speaker Change: Can't highlight enough to 120 basis points.

Speaker Change: A headwind related to SKU rationalization, which again I think everybody should be happy about that were going through the process of doing that because at the end of the day. It just leads to higher profits.

Speaker Change: Okay. Thank you.

Jayson Tyler Bedford: Thank you. One moment for our next question. Our next question comes from John Young with Canaccord Genuity. Your line is now open.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from John Young with Canaccord Genuity. Your line is now open.

John Edward Young: Hi, good evening, and thanks for taking my questions and congratulations on a strong end of the year here. Maybe just to circle back to RAPCity's follow-up on that question, I believe that you were supposed to complete the, you know, final patient follow-up on February 28th, so just wondering if that was done, and will the final module still be submitted in Q2. Can you characterize the interactions with the FDA so far on this?

John Young: Hi, good evening and thanks for taking my questions and congrats on a strong end of the year here, maybe just to circle back to Rhapsody, Bob for that question I believe that you are supposed to complete.

John Young: Final patient.

John Young: In February 2008, I'm, just wondering if that was done and what the final module there'll be submitted in Q2. Thank you can you just characterize the interactions with the FDA so far on it. Thanks.

Fred P. Lampropoulos: Yeah, listen. We have filed the first three modules, and the final one is the data, which is now being reviewed and populated and making sure that we have it all tidied up the way that the FDA requires it. And we're still on schedule to submit that, per our previous calls, which is, I think, in April or May. But yeah, we're on schedule for everything. And then at that point, John, it's in the hands of the FDA. Okay, great, Fred.

Bob: Yes, listen we have filed the first three modules and the final one is the data, which is now being reviewed and and populated.

Bob: And and making sure that we have at all tightened up the way that the FDA requires it and we are still on schedule.

Speaker Change: Submit that.

Speaker Change: Per our previous calls, which is I think in April or May, but yes. We are on schedule for everything and then then at that point, John It's in the hands of the FDA.

John Edward Young: And then just when I think of the 2024 growth projections, you know, how should we think about pricing power as a function of that growth? Maybe any color on just the contracts we expect to come up for renegotiation this year or just how the skew rationalization could help push to higher-priced products here. Thanks again.

John: Okay great.

Speaker Change: And then just when I think of the 2024 across projection how should we think about pricing power and the assumption of that growth.

Speaker Change: Maybe any color on just contract we expect to come up for renegotiation at year or just how the SKU rationalization could help push.

Speaker Change: The higher price.

Fred P. Lampropoulos: Yeah, thanks, John. As you know, we don't disclose our pricing versus volume. But just to give you guys some general context, I think that, you know, the pricing initiatives that we've set out, we started under Foundations for Growth, they'll continue into CGI, and they're just part of the initiatives that we're working on. And so, you know, we do expect it to be a tailwind for us, but we don't disclose the amount.

Speaker Change: Thanks again, yes.

Speaker Change: Yes, Thanks, John as you know, we don't disclose our pricing versus volume, but just to give you guys. Some general context, I mean, I think that the.

Speaker Change: The pricing initiatives that we set out we started under foundations for growth that will continue into CGI.

Speaker Change: And Theyre just part of the initiatives that we're working on and so.

Speaker Change: We do expect it to be.

Speaker Change: Tailwind for us, but we don't disclose the amount. It is one of the initiatives that we're working on among several others that we have are going to get the CGI goals of at least a minimum of 5% revenue CAGR and a minimum of 20% operating margins.

Fred P. Lampropoulos: It is one of the initiatives that we're working on, among several others that we have going to achieve the CGI goals of at least, or a minimum of, you know, 5% revenue CAGR, and a minimum of 20% operating margin. And John, I think maybe just a little bit of color on that is that we have made it, I think, very clear that going forward, that the things that we learned from Foundations for Growth are not things that have been forgotten; they are ongoing. We have contracts that are coming due for renegotiation, this, that, and the other. So all of those things will come into play. And although we won't go through all the specific numbers, the concept of attention to contracts, pricing, engagement, and all those things are still part of our program that we work on every single day. We have our chief commercial officer in the room, and I'm looking over at him, and he's just nodding his head. So that's his commitment. You can't see it, but I can.

Speaker Change: And John I think just.

John Young: Maybe just a little bit of color on that as we have made it I think.

John Young: Very clear that going forward that the things that we learned from from foundations for growth are not things that are forgotten. They are ongoing we have contracts that are coming due for renegotiation. This that and the other so all of those things will come into play and although we won't go through all the specific numbers the con.

John Young: <unk>.

John Young: Attention to contracts pricing engagement in all of those things are still part of our program that we work on every single day, we have our chief commercial officer in the room and I'm looking over at him and he's just nodding his head so that saves commitment you cant say it but I can and now he has his thumbs up so there you go thanks.

Michael John Petusky: And now he has his thumbs up. So there you go. Thanks, Joe. I appreciate that. All right, thanks. You bet. Thank you. One moment for our next question. And our next question comes from Michael Petusky with Barrington Research. Your line is now open.

Joe: Joe I appreciate that.

Speaker Change: Okay, great. Thanks again.

Joe: You bet.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question comes from Michael participate with Barrington Research. Your line is now open.

Michael: Good evening, good evening guys.

Michael: Congrats so.

Michael: Couple of my questions were asked and answered, but let me let me ask a couple more in.

Raul Parra: So, sort of the wage pressures. www.meritmedical.info Yeah, I- I- No, I think that's a great question, Mike. And I would say, generally speaking, that the wage pressures are, I would call them, global, quite frankly. We've been pretty open about that, you know, throughout the last couple years about, you know, some of the wage pressures that we're seeing, you know, globally. And the belief around at least this table is that we don't think those will go away, right? I mean, I think it's something that, you know, people are gonna have to deal with. We're dealing with wage pressures in Mexico. It's something that, you know, we've been able to overcome. I think we have a good program in our Mexican facility on how we deal with our employees, and it's something that we've been working on to make sure that they're paid, you know, properly. They tend to be at the higher end of things, and so I think the impact is less than it would be for other companies. But yeah, it's something we're dealing with, along with the Mexican peso, like everybody else. But we are hedged, and it will spread over time.

Michael: In terms of.

Michael: In terms of sort of the wage pressure that's going on in in Mexico. I was just wondering if you could comment on that I mean is that is that something that.

Michael: Should should should be weighed or is that sort of immaterial sort of.

Michael: As you sort of thing.

Michael: Yes.

Speaker Change: No I think Thats, a great question, Mike and I would say generally speaking that the wage pressures are I would call them global quite frankly.

Speaker Change: <unk> been pretty open about that throughout the throughout the last couple of years about some of the wage pressures that we're seeing globally and the belief around at least this table is that.

Michael: We don't think those go away right.

Michael: It's something that people are going to have to deal with.

Michael: We're dealing with the wage pressures in Mexico, it's something that we have.

Michael: We've been able to overcome I think we have a good program in our Mexican facility on how we deal with our employees and it's something that we've been working on.

Michael: To make sure that they are paid properly and we.

Michael: Tend to be at the higher end of things and so I think the impact is less so than it would be for for other companies.

Michael: Yes, it's something we're dealing with along with the Mexican peso like everybody else, but we are hedged and it does spread over time, but I think we're we're well aware of it and it's included in the numbers that we gave for CGI and I think that's the important some of this by the way in Mexico was mandated.

Fred P. Lampropoulos: But I think we're well aware of it, and it's included in the numbers that we gave for CGI. And I think that's the important part. Some of this, by the way, in Mexico is mandated, so everybody has to deal with it.

Michael: I mean, everybody has to deal with it.

Raul Parra: We have to follow the law, and we do. And I think the next part of it is, as Raul said, it's in the numbers. We've accounted for those particulars in our best guesstimate of what those numbers would be. And so we've built numbers and increases and things into our models. Fred, when you guys did the... Well, these guys probably have some things teed up. Ralph Vauban, Uh, you know, obviously without getting into any specifics, I mean, did you guys possibly have a couple things that you thought were more on the front burner that now aren't? Yeah, Mike, you know, we would never comment on that. I will say that, as an ongoing everyday issue, there are things that come across our desks and into our business development people's inboxes every day. We look at them; we look initially at them.

Speaker Change: We have to follow the law and we do yes.

Michael: The next part of it is Rob.

Michael: <unk> also had its in the numbers we've accounted in our costs those particular issues in our best guesstimate.

Michael: What those numbers would be in <unk>. So we built numbers and increases in things into our models.

Michael: I guess, Fred when you guys did that confer notes a few months ago, I think probably a few people I'll wrap myself out as one of those people would probably suspect it will probably have some things teed up.

Michael: In terms of external growth opportunities.

Michael: Obviously without getting into any specifics I mean did you guys, possibly have a couple of things that you thought were more front burner to that now arent.

Michael: Maybe in that position yes.

Fred: Yes, Mike you know, we would never comment on that I will say that as an ongoing everyday issue. There are things that come across our desk and into our business development people every day, we look at them. We look initially so it's ongoing some have particular interest that fit I would say 80% of them.

Michael John Petusky: So it's ongoing. Some have particular interests that fit. I would say 80% of them, you know, just thank you very much.

Fred P. Lampropoulos: We just don't sell this stuff. This is not where we operate. So there are a lot of things that come into place for those things. So there's no burning holes.

Speaker Change: Thank you very much we just this is not where we sell this is not where we operate.

Speaker Change: So there are a lot of things that come into place.

Speaker Change: For those things.

Raul Parra: It has to fit the strategy, the financial profile, you know; it has to be prudent and a prudent allocation and be disciplined like we've done in the past. Again, I will defend myself. You know, everything we did during foundations of growth was well thought out and well executed. And I think even the integration parts of that were done well. So it's just, You know, the way that we do things; we just thought it would be good to be ready. We didn't know what was going to happen with inflation.

Speaker Change: So there's no burning holes it has to fit the strategy. So the financial profile has to be prudent and a prudent allocation and be disciplined like we have done in the past again.

Speaker Change: I will defend.

Speaker Change: Everything we did burn foundations of growth I think was well thought out and well executed and I think even the integration parts of that were done well. So it's just.

Speaker Change: The way, we do things, we just thought it would be good to be ready. We didn't know what was going to happen with inflation. So we think that we did the right thing and we continue to do our day to day work and when something fits.

Fred P. Lampropoulos: So we think that we did the right thing and that we continue to do our day to day work. And when something fits, we'll move, but remember, we're competing, in most cases, with other people. We don't have control of all of that. Raul?

Speaker Change: We'll move but remember we're competing in most cases with other people. We don't have control all of that will grow yeah. I think also just to highlight a couple of things right I think a little bit of a flag that we got to was hey look interest rates are going to be dropping and we were actually believers that those wouldn't.

Raul Parra: Yeah, and I think also, just to highlight a couple things, right? I think a little bit of the flack that we got, too, was, hey, look, interest rates are going to be dropping. And we were actually believers that that wouldn't happen as fast as people were thinking. And come to find out, it's looking that way.

Speaker Change: <unk> happen as fast as people were thinking in and come to find out it's looking that way for now we're not going to.

Fred P. Lampropoulos: Now, you know, we're not going to run a victory lap yet, but it looks like things are going to be slower than people anticipated. You know, so I think that's it. I mean, at the end of the day, I think we did the right thing. We were able to leverage up and get a low cost of capital, you know, essentially leverage up, you know, hang some cash on the balance sheet. We're earning a higher interest rate than we're paying, and it's EPS accretive. Well, and you know, Mike, I was listening to the radio this morning, and the initial, I think, projection for people was seven rate decreases this year. Yeah. I heard one this morning, now there are one or two.

Speaker Change: A victory lap yet, but it looks like things are going to be slower than people anticipated.

Speaker Change: So I think that's really it I mean at the end of the day I think we did the right thing we were able to leverage up and get low cost of capital essentially leverage up hang some cash on the balance sheet, we're earning a higher interest rate than where pain.

Speaker Change: And it's EPS accretive.

Speaker Change: But Mike I was listening to the radio this morning, the initial I think.

Michael: <unk> for people, who achieved seven rate decreases this year, yes, I heard one this morning now has one or two yes.

Michael John Petusky: Yeah. And inflation, I mean, I'm not an economist, but inflation almost always has two or three legs to it. So all that being said, that was a judgment at the time based on our feelings about things. And as it all works out, we were, I would call it a little bit of a headwind, you know, because it wasn't, you know, someone could have questioned it. But first of all, thank you for your candor, and I'll accept your apology. Well, I think I owe one to Raul because I may have technically won the bet about them.

Michael: And inflation I mean, I'm not an economist, but inflation almost always has two or three legs to it. So all that being said that was a judgment at the time based on our feelings about things and it all works out.

Speaker Change: I won't call it a little bit of a headwind, but because it wasn't someone could've questioned it but first of all thank you for your candor.

Speaker Change: And I'll accept your apology.

Speaker Change: I think I don't want to roll it because technically won the bet about them not you guys not quite getting to 300 million, but I think he won the spirit of the bed.

Fred P. Lampropoulos: Not, you guys aren't quite getting the $300 million. Well, we're usually apologizing to you, so we're happy to accept one on the other side. Thank you. Hey, so I just want to clarify one issue, and maybe everybody else will understand. Have you guys now seen all the sort of primary endpoint data? Are you still waiting?

Michael: You were there.

Speaker Change: Here's a apologizing to yourself, we're happy to accept one size.

Speaker Change: Hey, So I just wanted to clarify one issue and maybe everybody else gets this but I want to make sure that I get it how have you guys now seen all the sort of primary endpoint data that you needed to see in terms of Rhapsody in terms of moving forward are you still waiting for some of that data that would come back all of the patient data is in.

Fred P. Lampropoulos: All of the patient data is in, and it is being organized properly for presentation. So that's as much as I can say about it. But all of the data from all of the patients is in.

Speaker Change: It is being.

Speaker Change: Organized properly for presentation. So.

Speaker Change: That's as much as I can say about it but all of the data from all of the.

Speaker Change: The patient is in and so thats good Thats good news for us and now it's the process of going through organizing it.

Fred P. Lampropoulos: And so that's good. That's good news for us. Now it's the process of going through, organizing it, looking at all the various issues to make sure the protocol was followed, all of those things that you have to do now. Because once it goes into the FDA, you've got to have it right. It's got to be locked down. And it's got to be locked down.

Speaker Change: Looking at all the various issues to make sure that protocol was fall all of those things you have to do now because once it goes in to the FDA you got to have it right. It's got to be locked in everything it's gotta be locked and I think that's the process we're into right now.

Raul Parra: And I think that's the process we're going through right now. At the end of the day, we remain on track, Mike, for everything that we've disclosed so far. Last one and I'll get off. I didn't catch it. You know, I think Russia, based on everything that's going on, just came in line with kind of our updated, I guess, expectations. We were able to get the licenses required to do business in Russia.

Michael: I think at the end of the day, we remain on track Mike for everything that we've disclosed so far.

Speaker Change: Last one and I'll get off and any I didn't catch it if you made any comment around Russia in the fourth quarter did you did I think maybe on the on the Q3 call. You had suggested maybe we'll get a little incremental revenue there, but I know that's still a mess over there and just any comment there.

Speaker Change: I think Russia based on everything Thats going on just just came in in line with.

Speaker Change: Kind of our updated IHS expectations.

Speaker Change: We were able to get.

Speaker Change: The licenses required to do business in Russia.

Michael John Petusky: You know, I think the second hurdle is not only just getting the licenses, but you also have to make sure that you're able to get paid, you know, so we have a good banking partner that allowed us to make sure that we were able to receive money in the proper way. In U.S. dollars? In U.S. dollars.

Speaker Change: I think within the second hurdle not only just getting the licenses you also have to make sure that youre able to get paid.

Speaker Change: So we have a good banking partner that allowed us to make sure that we were able to receive money in the proper way and U S. Dollar in U S dollars and so I think everything worked out.

Raul Parra: I think, you know, everything worked out, I'd say, the best it could under the circumstances that are happening there, Mike, but I think we were happy with how it all turned out. Thanks guys, great. Thank you, Mike. Thank you. One moment for our next question. Our next question comes from Jim Sidoti with Sidoti & Co., and your line is now open. Hi, good afternoon.

Speaker Change: I'd say the best it could under the circumstances.

Speaker Change: That are happening there, Mike, but I think we were happy with how it all turned out.

Mike: Excellent thanks, guys great year. Thanks.

Speaker Change: Thank you Mike.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from Jim Sidoti with Sidoti <unk> Co. Your line is now.

James Philip Sidoti: Hi, good afternoon, thanks for taking the question.

James Philip Sidoti: Thanks for taking the question. Now that you're close to the finish line with Rhapsody and you've finished, you know, at least enrollment in the WAVE trial, how should we think of R&D for 2024 and 2025? Are there other projects that you'll fill in, or will you see that number start to come down a little?

James Philip Sidoti: Yes.

James Philip Sidoti: Now that you're close to the finish line with Rhapsody and you're finished.

James Philip Sidoti: At least enrollment with the wave two.

James Philip Sidoti: So how should we think of R&D through 2024, and 2025 are there other projects.

Speaker Change: So when you see that number start to come down.

Fred P. Lampropoulos: Now, you know, listen, on R&D, it's been a hallmark of Merit's history to continue to invest in projects and opportunities that we see within the budgets that we have allocated. So I'm going to say it's business as usual. Some products are more complicated.

Speaker Change: No listen on R&D.

Speaker Change: It's been a hallmark of marriage history to continue to invest in projects and opportunities that we see within the budgets that we have.

Speaker Change: Have allocated so.

Speaker Change: I'm going to say, it's business as usual some products are more complicated some our product line extension SUNS our improvements so theres a lot of those sorts of things out there, Jim, but we're still committed to R&D.

Fred P. Lampropoulos: Some are product line extensions, and some are improvements. So there's a lot of those sorts of things out there, Jim, but we're still committed to R&D, and it's always been a hallmark of our success. Yeah, I think, too, Jim, just to add, you know, similar to what we did with Foundations for Growth, we were able to, you know, strategically reinvest some of the efficiency that we found back into the business. And look, I think we want to do more of the same.

Speaker Change: It's always been a hallmark of our success.

Speaker Change: Yes, I think Jim just to add I mean, similar to what we did with foundations for growth I mean, we were able to strategically reinvest.

Speaker Change: Some of the efficiencies that we've found back into the business and look I think we want to do more of the same as Fred mentioned, there's going to be more therapeutic products and so we want to make sure that we are able to fund those.

Raul Parra: As Fred mentioned, there will be more therapeutic products, and so we want to make sure that we are able to fund those to continue to deliver the growth that you guys are all used to and that we've been able to deliver. So I think we're trying to find a balanced approach to that reinvestment and higher costs, really, when it comes to therapeutic products, but I think we've done a great job of managing through that, and we will continue to do so under CGI. So it sounds like you think it'll remain around that, you know, six-ish percent of revenue. I think it's a fair idea.

Speaker Change: To continue to deliver the growth that you guys are all used to and we've been able to deliver so I think we're trying to find a balanced approach to that reinvestment.

Speaker Change: And higher costs really when it comes to therapeutic products, but I think we've done a great job of managing through that.

Speaker Change: We'll continue to do so under CGI.

Speaker Change: So it sounds like you think that will be made around that.

Speaker Change: <unk> percent of revenue.

James Philip Sidoti: Yeah. All right. And then, in terms of the Angel Dynamics acquisition, I think you had one product line moved over last quarter, and another one was still yet to be moved over. Has that been completed at this point? Yeah, everything is in place in our Mexico facility to produce our products there.

Speaker Change: I think it's fair yes.

Speaker Change: Alright, and then in terms of the agent.

Speaker Change: <unk> acquisition I think you had one product moved over last quarter and another one was still yet to be moved over or has that been completed at this point.

Speaker Change: Yes, everything is in place and our Mexico facility to produce our products. There. So it's all been moved from Angio and all in place and I think going back to giving credit it's one of the things that.

Fred P. Lampropoulos: So it's all been moved, from Angeo, and is all in place. And I think going back to giving credit, it's one of the things that Greg Friede, who did our Beckton-Dickinson transfer, and you know the story there, it was done with absolute precision. And I think we've seen the same things in this integration. We actually, very candidly, do it pretty well, Jim. All right, well, there wasn't too much else to pick on, so I think that's it for me. Thank you. One moment for our next question, and our next question comes from Mike Matson with Needham & Company. Your line is now open.

Greg: Greg <unk>.

Greg: Who did our becton Dickinson.

Greg: Transfer and you know the story there it was done with absolute precision and I think we've seen the same things in this integration, we actually very candidly do it pretty well Jim.

James Philip Sidoti: Okay Alright.

Speaker Change: There wasn't too much else to pick on so I think that's it for me.

Speaker Change: Thanks, Jim.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yeah.

Speaker Change: And our next question comes from Mike Matson with Needham <unk> Company. Your line is now open.

Michael Stephen Matson: Yeah, thanks. Thanks for putting me in. I guess just with regard to the CGI program, I apologize if I missed it, but I think you set some operating margin targets, but I didn't see anything in there about gross margins, and maybe that was deliberate on your part, but I just wanted to get your thoughts on kind of, you know, how the margin expansion should kind of break up between gross and, you know, operating leverage. Yeah, so, similar to what we did with FFG, you But we didn't actually, you know, give guidance for gross margin in FFG. We did give some modeling considerations, and then I think people tried to turn that into guidance.

Speaker Change: Yes.

Michael Stephen Matson: In EMEA.

Michael Stephen Matson: I guess, just with regard to the CGI.

Michael Stephen Matson: CGI program.

Michael Stephen Matson: If I missed it but I think you said some operating margin targets, but I didn't see anything in there about gross margins and maybe that was deliberate on your part, but I just wanted to get your thoughts on costs.

Michael Stephen Matson: The margin expansion, just kind of break out between growth.

Michael Stephen Matson: Operating leverage.

Speaker Change: Yes, so similar to what we did with <unk>.

Michael Stephen Matson: We really only focused on on a revenue CAGR of at least 5%.

Michael Stephen Matson: Operating margins of.

Michael Stephen Matson: 20% to 22% and then the minimum free cash flow of 400, but we didn't actually.

Michael Stephen Matson: <unk> guidance for gross margin and <unk>, we did give some modeling considerations and then I think people tried to turn that into into guidance. So.

Raul Parra: And so I think this time around, I think we've hopefully built up enough, you know, you know, credibility that, you know, we're going to get it from wherever we get it, right? I mean, I think, you know, gross margin, like I said earlier, the low end of our operating margin really comes from gross margin. The high end, the 22%, would really come from not only delivering on the gross margin but also on operating expense leverage.

Michael Stephen Matson: I think this time around I think we hopefully built up enough.

Michael Stephen Matson: Credibility that we're going to get it from wherever we get it right I mean, I think gross margin like I said earlier.

Michael Stephen Matson: The low end of our operating margin. It really comes from from gross margin. The high end, the 22% would really come from not only delivering on the gross margin.

Michael Stephen Matson: But also on operating expense leverage but at the end of the day I think we've shown that we can we can get it from either operating expense leverage.

Fred P. Lampropoulos: But at the end of the day, I think we've shown that we can get it from either operating expense leverage or gross margin, and we'll adjust as necessary. What we don't want to do, similar to what we did with FFG, is get ahead of ourselves and think that we're going to be, you know, covered with just gross margin expansion to get those, you know, hit those levers. And so we'll leverage operating expenses if we need to, but our preference is to really reinvest those dollars into the business and get them from gross margin.

Michael Stephen Matson: <unk> gross margin and will adjust as necessary, what we don't want to do.

Michael Stephen Matson: Similar to what we did with FFG is get ahead of ourselves and think that we're going to be covered with just gross margin expansion to.

Michael Stephen Matson: To get those hit those levers and so we'll leverage operating expenses, if we need to but our preference is to is to really reinvest those dollars into into the business and get it from gross margins. So that's really our focus while in three years ago. We said, we were going to fine tune every aspect of our income statement and our.

Raul Parra: So that's really our focus. Well, and three years ago, we said we were going to fine-tune every aspect of our income statement and our balance sheet. I think that's what we've done. Yeah. So it's, you know, it's not one or the other; it's all of them.

Michael Stephen Matson: Balance sheet I think that's we've done yes, I'm sorry, it's not one or the other it's all of them, but just to give you a little bit of color I mean, it's more of the same.

Fred P. Lampropoulos: Yeah. But just to give you a little bit of color, I mean, it's more of the same, you know, Mike. We're going to have network consolidation. We've got lean manufacturing initiatives. We've got, you know, better human resources, efficiency, you know, sharper on materials, logistics, and everything else that we can throw at gross margin, because that's what it takes.

Michael Stephen Matson: Mike we're going to have network consolidation, we've got lean manufacturing initiatives, we've got better human resources efficiency sharper on materials logistics.

Michael Stephen Matson: And everything else that we can throw at gross margin because thats what it takes.

Raul Parra: Okay. All right. And then just my only other question really just being around kind of the guidance for 24 as well as the CGI, the longer-term guidance, particularly for revenue growth. I mean, if I look at what you've done over the past few years, you've kind of been more high single digits organically, and this guidance is kind of more mid-single digits. And so, I mean, I understand you're probably trying to be somewhat conservative, but is there, and I saw the call out about the skew rationalization, but is there anything else that you would point to in terms of things that, you know, have maybe changed or something that would prevent you from being able to grow high single digits, potentially?

Speaker Change: Okay, Alright, and then just my only other question really just be around kind of the guidance for 'twenty four as well as the.

Speaker Change: CGI, but longer term guidance with FERC, particularly for revenue growth I mean, if if if I look at what you've done over the past few years, you've kind of been more high single digits.

Speaker Change: Organically and this guidance is kind of more the mid single digits.

Speaker Change: So I mean, I understand youre, probably trying to be somewhat conservative, but is there and I saw the call out about the SKU rationalization, but I mean is there anything else that you would you would point to in terms of things that.

Speaker Change: Maybe changed or something that would prevent you from being able to grow high single digits potentially I mean, I'm not asking you to guide there, but just wondering if there is.

Raul Parra: I mean, I'm not asking you to guide us there, but just wondering if there are, you know, there's other headwinds, I guess, that you're baking in or something there. Well, look, I think, look, I think when we threw out the foundations for growth, I mean, I think none of us anticipated all the headwinds we would have seen, right? I think everything in the kitchen sink was thrown in there from, you know, what everybody saw and everybody had to experience.

Speaker Change: There are other headwinds I guess that you're baking in or something there.

Speaker Change: Well look I think look I think when we threw out foundations for growth I mean, I think none of us anticipated all of the headwinds we would've seen right I think.

Speaker Change: Everything in the kitchen sink was thrown in there from what everybody saw and everybody had to experience, but look we feel really confident in that low end.

Michael Stephen Matson: But look, we feel really confident in that low end, you know, a CAGR of 5%. I think, you know, we have, we think it's realistic and achievable. And it allows us to say no to certain things, quite frankly.

Speaker Change: AGR of 5% I think we have we think it is realistic and achievable and it allows us to say no to certain things quite frankly.

Raul Parra: And so I think we, we feel comfortable with the numbers at five to 7%. And I will just leave it at that. You know, I think we always aspire to do better, but five, you know, minimum of five is what we're committing to. Okay, I understand. Thank you. [inaudible] Our next question comes from Jayson Bednar with Piper Sandler. Your line is now open. Hey guys, thanks for taking the follow-up. Just one quick one, and you've obviously trained us all well since I don't think anybody's asked about China here, so I'll do it for the group. You know, the guidance here for 2024, you're saying Chinese revenue down due to VVP, just more of a fact check or clarification. Is this simply an extension of the VVP that we've all talked about from 2023, the second half of 2023, or is it something new that is now developing and hitting here in 2024? Yeah, so I mean, we're not going to give you any additional color, but I think you're on the right track there, Jayson. Again, we're not going to provide country-specific growth rates.

Speaker Change: And so I think we feel comfortable with the numbers at 5% to 7%.

Speaker Change: And I would just leave it at that I think we always aspire to do better but five minimum of five years, what we're committing to.

Speaker Change: Okay I understand thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Jason.

Speaker Change: Our next question comes from Jason Bednar with Piper Sandler Your line is now open.

Jason M. Bednar: Hey, guys. Thanks for taking the follow up just one quick one you've obviously trained us all well since I don't think anybody has asked on China here. So I'll do it for the group.

Jason M. Bednar: The guidance here for 2024, you're saying, China revenue down due to <unk> and just more of a backpack.

Speaker Change: Backpack or clarification is this just simply an extension of the Pvp that we've all talked about from 2020 through the second half of 'twenty three or is it something new that is now developing and hitting here in 2024.

Speaker Change: Yes, so I mean, we're not going to give additional color, but I think youre on the right track there Jason again, we're not going to provide country specific growth rates.

Jason M. Bednar: I think we called out the 4% decline in the APAC region, of which most of it is related to, actually, all of it is related to, China. But I will say that we continue to expect volume to grow on a year-over-year basis. But obviously, we are seeing a decline due to the continued headwinds related to volume-based purchasing, and it's just something that we've been managing through over the last several years. And it's baked into our 5% to 7%.

Speaker Change: I think we called out the 4% decline in the APAC region of which most of it is related to actually all of it is related to China.

Speaker Change: But I will say that we continue to expect.

Speaker Change: Volume to grow on a year over year basis.

Speaker Change: But obviously we are seeing.

Speaker Change: Decline due to the continued headwinds related to volume based purchasing and there is just something that we've been managing through over the last several years.

Speaker Change: It's baked into our our 5% to 7%.

Raul Parra: Okay, perfect. Thank you. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Fred Lamprop.

Speaker Change: Okay.

Speaker Change: Perfect. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: I'm showing no further questions at this time.

Speaker Change: I would now like to turn it back to Fred.

Fred P. Lampropoulos: Closing remarks. Well, again, to everybody, thank you for joining us today. It was a long call with a lot to cover. We appreciate the questions and the opportunity to present to you. Just a closing reminder that we put our shoulders to the wheel, we worked hard, and we had every single employee in this company aligned with the company objectives, department objectives, and individual objectives. So we are all aligned as a company, and we expect to be able to deliver exactly what we said over our next three-year program, which we didn't have to do. We felt it actually helped us.

Fred: For closing remarks.

Fred: Well again, everybody. Thank you for joining us today. It was a long call with a lot to cover we appreciate.

Fred: The questions and the opportunity to present to you <unk>.

Fred: In closing reminder, that we put our shoulder to the wheel. We worked hard we had every single employee in this company aligned with the company objective department objectives and individual objectives. So we are all aligned as a company and we expect to be able to deliver exactly what we said over our next three.

Fred: A year program, which we didn't have to do we felt that actually helped us we believe being on the line and being accountable is the right thing to do.

Operator: We believe being on the line and being accountable is the right thing to do, and we'll look forward to reporting to you in the future. So, best wishes from Salt Lake City. Just a quick reminder, the SIR meeting starts in late March and is being held in Salt Lake City this year. It's Merit's biggest show. We hope you get a chance to get out here and take a look at Salt Lake City, the SIR meeting, and maybe even an opportunity to come to Merit. So best wishes and good night from Salt Lake City, www.meritmedical.co.uk. That does conclude our conference call for today. Thank you for your participation. (inaudible)

Fred: And we'll look forward to reporting to you in the future. So best wishes from Salt Lake City. Just a quick reminder, the Sir meeting starts in late March is being held in Salt Lake City. This year. Its merits biggest show. We hope you had a chance to get out here and take a look at Salt Lake the Sir meeting and.

Fred: And even maybe an opportunity to come to merit, So best wishes and good night from Salt Lake City.

Speaker Change: That does conclude our conference call for today. Thank.

Speaker Change: Thank you for your participation.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].