Executive Summary / Key Takeaways

• Merit Medical Systems delivered robust financial performance in Q3 2025, surpassing expectations with strong revenue growth and record-high gross margins, underscoring the effectiveness of its "Continued Growth Initiatives" (CGI) program.
• Strategic tuck-in acquisitions, including Biolife and the recently announced Pentax C2 CryoBalloon, are expanding Merit's diverse product portfolio and strengthening its market positions in key interventional and endoscopic segments.
• The WRAPSODY CIE, a novel dialysis access device, is gaining traction in the U.S. inpatient setting following new technology add-on payment (NTAP) approval, with the company confident in securing outpatient reimbursement by early 2026 despite an initial procedural delay.
• The leadership transition to Martha Aronson as CEO, with founder Fred Lampropoulos continuing as Executive Chairman, is poised to maintain strategic continuity and drive future growth, leveraging a deep understanding of the healthcare industry.
• Despite macroeconomic headwinds like tariffs and regulatory complexities, Merit's disciplined operational execution and strong free cash flow generation provide a solid foundation for sustained profitability and strategic investments.

Precision Innovation Drives Market Differentiation

Merit Medical Systems, Inc., founded in 1987, has established itself as a specialized developer, manufacturer, and marketer of single-use medical devices for interventional, diagnostic, and therapeutic procedures. Operating across its Cardiovascular and Endoscopy segments, Merit's overarching strategy blends organic innovation with targeted acquisitions, guided by its "Foundations for Growth" and "Continued Growth Initiatives" (CGI) programs. This approach positions the company to capitalize on evolving healthcare needs and maintain a competitive edge in a dynamic industry. The broader healthcare landscape is also seeing the qualitative influence of technological advancements, such as AI, which could eventually shape the development of AI-assisted medical devices, presenting future opportunities for companies focused on innovation.

Merit's competitive standing is rooted in its ability to offer specialized, high-quality products that address specific procedural needs, often differentiating itself from larger, more diversified players like Boston Scientific Corporation (BSX), Abbott Laboratories (ABT), Medtronic plc (MDT), and Teleflex Incorporated (TFX). While these competitors boast broader portfolios and greater scale, Merit excels in providing custom procedural solutions and user-friendly designs that enhance efficiency and patient outcomes. The company's direct sales force and OEM partnerships further bolster its market access and responsiveness, allowing it to cultivate strong customer relationships.

A cornerstone of Merit's strategy is its commitment to technological differentiation, which translates into tangible benefits for both clinicians and patients. The recently launched Prelude Wave hydrophilic sheath introducer, for instance, offers "twice the lubricity, twice the resistance to buckling and kinking and requires 40% less insertion force" compared to a leading competitor. Its "first of-its-kind SnapFix technology provides twice the adhesive strength," with physicians rating its performance and ease of use as superior. Similarly, Embosphere Microspheres, now CE Mark approved for genicular artery embolization (GAE) in the EU, have demonstrated "over 75% of patients treated with Embosphere for GAE achieved clinical success with significant reductions in knee pain sustained through 24 months," showing "consistently higher clinical success with greater improvements at 3 months in pain and quality of life" compared to corticosteroid injections.

Merit's Scout Radar localization technology exemplifies its impact on patient care, having been "used to treat 750,000 patients worldwide" across "50 countries" and "over 1,100 facilities." This technology, which helps physicians "target affected tissue within +/- 1 mm of accuracy," performs "more than 500 cases... each day, totaling 10,000 cases per month." These innovations, coupled with ongoing R&D initiatives focused on therapeutic products, contribute significantly to Merit's competitive moat, supporting higher average selling prices (ASPs), lower manufacturing costs, and ultimately, better margins and long-term growth.

Strategic Expansion and Portfolio Enhancement

Merit's growth narrative is further enriched by a series of strategic acquisitions designed to expand its product offerings and deepen its presence in key therapeutic areas. Following the acquisition of assets from Scholten Surgical Instruments in March 2024, Merit integrated EndoGastric Solutions (EGS) in July 2024, bringing the EsophyX Z device into its Endoscopy segment. The November 2024 acquisition of Cook Medical's lead management business for $210 million significantly bolstered Merit's Cardiac Intervention portfolio, particularly in electrophysiology and cardiac rhythm management (EP CRM) products.

In May 2025, Merit acquired Biolife Delaware, L.L.C. for $120 million, adding patented hemostatic devices like StatSeal and WoundSeal. These products are expected to standardize and simplify post-procedure care across various percutaneous procedures, fitting into "just about every bag that we have" according to management. Most recently, on October 15, 2025, Merit announced the agreement to acquire the C2 CryoBalloon device and related technology from Pentax of America, Inc. for $22 million. This acquisition is strategically important, intended to strengthen Merit's position in the multibillion-dollar gastroenterology market and expand the solutions offered by its endoscopy sales team. Management notes that the Endoscopy segment is "nearing an inflection point in terms of completing our integration and sales force alignment activities," positioning it to "accelerate growth and market share gain in the coming years."

Financial Performance: A Trajectory of Margin Expansion

Merit's financial performance in the third quarter of 2025 showcased strong execution and significant margin expansion. The company reported total revenue of $384.2 million, marking a 13% increase year-over-year on a GAAP basis and 12.5% on a constant currency basis. For the nine-month period, total sales reached $1.12 billion, up 12% from the prior year. This growth was notably driven by the Cardiovascular segment, which saw sales of $366.4 million, a 13.5% increase, propelled by strong performance in Peripheral Intervention (+8.8%), Cardiac Intervention (+29.3%, boosted by acquisitions), and Custom Procedural Solutions (+7.3%). The Endoscopy segment also contributed with $17.7 million in sales, up 4.4%, benefiting from the EsophyX Z device.

A key highlight was the gross profit margin, which expanded to a record 48.5% in Q3 2025, up from 46.4% in Q3 2024. This improvement, described by management as the "highest gross margin in the company's history," was primarily attributable to a favorable product and geographic mix, along with improvements in pricing and freight efficiencies. Despite this, tariffs presented a "nearly 90 basis point incremental impact" to gross margins in the third quarter. Operating expenses, including selling, general, and administrative (SGA) and research and development (R&D), increased by 20.2% and 16.8% respectively in Q3, primarily due to higher labor costs, increased headcount for acquisitions, and elevated regulatory and clinical trial expenses. Consequently, net income for Q3 2025 was $27.8 million, a slight decrease from $28.4 million in the prior year, influenced by these increased expenses and a higher effective tax rate of 28%.

Geographically, U.S. sales grew 11.7% in Q3 2025, driven by direct and OEM businesses. International sales increased 15.2%, with strong contributions from EMEA (+22.3%) and ROW (+18.5%). However, China sales decreased 1% in Q3, attributed to the "broader macro environment" and softer OEM performance, although the impact of volume-based procurement (VBP) was "better than expected."

Liquidity and Capital Allocation: Fueling Future Growth

Merit maintains a robust financial position, characterized by strong liquidity and strategic capital allocation. As of September 30, 2025, current assets exceeded current liabilities by $755.1 million, with cash and cash equivalents totaling $394.6 million. The company generated $198.9 million in net cash from operating activities for the nine-month period, a significant increase from the prior year. Free cash flow reached $142 million for the nine months, including $57 million in Q3, with management projecting "at least $175 million" for the full year 2025. This strong cash generation provides substantial flexibility for internal investments and opportunistic acquisitions.

Capital expenditures are projected to be between $90 million and $100 million in 2025, primarily for the construction of a new distribution center in South Jordan, Utah. This investment aims to enhance operational efficiency and expand capacity, replacing an almost 20-year-old system. While long-term debt, primarily convertible notes, stood at $732.9 million, Merit maintains ample borrowing capacity of approximately $697 million under its Amended Fourth AR Credit Agreement, ensuring financial flexibility for strategic initiatives.

WRAPSODY CIE: A Transformative Growth Driver

The WRAPSODY CIE, Merit's innovative device for hemodialysis vascular access, represents a significant long-term growth opportunity. Having received Breakthrough Designation from the FDA, WRAPSODY CIE is a "novel, differentiated product" that has demonstrated improved dialysis maintenance procedure outcomes, requiring "fewer reinterventions to maintain patency." The company's U.S. commercial strategy, including a premium pricing model, is designed to maximize this potential.

In a significant development, the WRAPSODY CIE became eligible for New Technology Add-on Payment (NTAP) in the hospital inpatient setting effective October 1, 2025, with CMS proposing a maximum add-on payment of $3,770 for a case, supporting an anticipated hospital cost of $5,800. Management has expressed satisfaction with the "initial market response in terms of access, adoption and utilization" in this setting. For the outpatient and Ambulatory Surgical Center (ASC) settings, Merit submitted an application for Transitional Pass-Through (TPT) payment by the September 1, 2025, deadline, confident it meets the required cost criteria with a list price of $8,000. A decision is anticipated in December 2025, with an earliest effective date of January 1, 2026. While an initial misfiling for an APC assignment led to a "2-quarter delay" in expected reimbursement for the outpatient setting, management asserts that this affects only the timing, not the "long-term addressable market in the U.S. for WRAPSODY CIE growth."

Clinical evidence continues to build, with the first patient enrolled in the RAP North America registry study in August 2025, aiming for 250 U.S. and Canadian patients. The RAP global registry study, with 500 patients outside North America, completed enrollment in October 2025, with 6-month patency data expected in mid-2026. The presentation of 24-month data from the WAVE study at the VIVA meeting in November 2025 further underscores the product's clinical efficacy. The Renal Therapies Group is "impressively executing" its commercial strategy, leveraging WRAPSODY CIE to "drive adoption and utilization across the rest of our dialysis product portfolio."

Leadership and Outlook: Sustained Momentum

The recent leadership transition, with Martha Aronson assuming the role of President and CEO on October 3, 2025, and founder Fred Lampropoulos transitioning to Executive Chairman, marks a new chapter for Merit. Aronson brings extensive global healthcare experience, with a focus on fostering "tight cross-functional collaboration and... cross geographic collaboration" to support continued global scaling. Lampropoulos will continue to contribute to evaluating organic and inorganic opportunities, ensuring strategic continuity.

Merit's updated financial guidance for 2025 reflects its strong Q3 performance and strategic outlook. The company projects GAAP net revenue growth of 11% to 12% year-over-year, with constant currency organic growth expected between 5.9% and 6.8%. Inorganic revenue contributions from recent acquisitions are anticipated to be between $59.9 million and $60.5 million. Non-GAAP diluted EPS is guided to be in the range of $3.66 to $3.79, and non-GAAP operating margins are expected to be between 19.7% and 25%. The company also raised its free cash flow guidance to "at least $175 million."

Despite this positive outlook, Merit acknowledges several risks. The leadership transition, while carefully managed, could present challenges. Trade policies and tariffs remain a significant headwind, with a "nearly 90 basis point incremental impact" to gross margins in Q3 and a projected $7.6 million to $16 million tariff-related impact on cost of goods sold for 2025, primarily from retaliatory tariffs on U.S. exports to China. While mitigation strategies are underway, their benefits are largely expected in 2026. Regulatory complexities, such as Europe's Medical Device Regulation (MDR), and potential supply chain disruptions also pose ongoing challenges. However, the conclusion of the SEC inquiry into Merit's China subsidiary with no enforcement action provides a positive resolution to a past uncertainty.

Conclusion

Merit Medical Systems stands at an exciting juncture, demonstrating a compelling investment thesis built on precision innovation, strategic portfolio expansion, and disciplined financial management. The company's ability to consistently deliver strong revenue growth and expand gross margins, even amidst macroeconomic pressures, highlights the effectiveness of its strategic initiatives and the strength of its differentiated product offerings. With the WRAPSODY CIE poised to transform dialysis access care and a robust pipeline of new products and strategic acquisitions, Merit is well-positioned for sustained growth. The leadership transition to Martha Aronson, supported by Fred Lampropoulos's ongoing strategic involvement, provides a clear path forward. While tariffs and regulatory hurdles present ongoing challenges, Merit's strong free cash flow generation and commitment to operational excellence underscore its resilience and potential for long-term value creation, driven by its technological leadership and focused market strategy.