Merit Medical Systems, Inc. (NASDAQ:MMSI) Q1 2025 Results Conference Call April 24, 2025 5:00 PM ET

Company Participants

Fred Lampropoulos - Founder, Chairman & Chief Executive Officer
Raul Parra - Chief Financial Officer and Treasurer
Brian Lloyd - Chief Legal Officer & Corporate Secretary

Conference Call Participants

Jason Bednar - Piper Sandler
Steve Lichtman - Oppenheimer
Robbie Marcus - J.P. Morgan
Craig Bijou - Bank of America Securities
David Rescott - Baird
Michael Petusky - Barrington Research
Jim Sidoti - Sidoti & Company
Jon Young - Canaccord
Mike Matson - Needham
Jayson Bedford - Raymond James

Operator

Welcome to the Merit Medical Systems First Quarter 2025 Earnings Conference Call. At this time, all participants have been placed in a 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 purposes 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.

Fred Lampropoulos

Thank you, and welcome, everyone. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer; and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you mind taking us through the Safe Harbor statements, please.

Brian Lloyd

Thank you, Fred. This presentation contains forward-looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to 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 the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, April 24 2025, 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.

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. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States.

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

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

Thank you, Brian, and let me start with a brief agenda of what we will cover during our prepared remarks. I will start with a summary of our first quarter 2025 results. Then Raul will provide a more in-depth review of our quarterly financial results and our financial guidance for 2025, which we updated in today's press release.

Then, we will open the call for your questions. Now, beginning with a review of our first quarter results, we reported total revenue of $355.4% million, up 9.8% year-over-year on a GAAP basis and up 10.9% year-over-year on a constant currency basis. The constant currency revenue growth we delivered in the first quarter modestly exceeded the high end of the range of growth expectations that we outlined on our Q4 2024 earnings call. The better-than-expected constant currency revenue results were driven primarily by a 6% constant currency organic growth, roughly 100 basis points better than the 5% high end of the range we outlined in our first quarter guidance.

With respect to our profitability performance in the first quarter, we delivered financial results that significantly exceeded our expectations. We delivered another quarter of significant year-over-year improvement in our non-GAAP operating margin, which increased nearly 230 basis points year-over-year to 19.3%, representing a first quarter record for the Company. We also delivered 15% growth in our non-GAAP EPS, which exceeded the high end of our expectations as well.

This performance was a direct result of our team's continued hard work and commitment to our strategic objectives. We are very proud of the strong execution of our team delivered in the first quarter of 2025. We believe our first quarter results reflect the continued strong momentum in the business, and we are confident in our team's ability to deliver the total revenue guidance for 2025 we reaffirmed in today's press release.

We have also provided updated non-GAAP EPS expectations for 2025, which Raul will review in detail later in the call. In the interim, the key takeaway is that our updated non-GAAP EPS expectations reflect the current estimated impact of tariffs, trade policies, and related actions recently implemented by the United States and other countries. Beside these trade related impacts, we have made no material changes to the operating and financial assumptions for the balance of fiscal year 2025 versus what our non-GAAP EPS guidance range previously assumed.

Despite the continued challenges related to the dynamic and uncertain global macroenvironment, our team is executing well. We remain focused on delivering continued strong execution, solid constant currency growth and strong free cash flow generation in 2025, as well as continued progress in our continued growth initiatives program and related financial targets for the three-year period ending December 31 2026. Now with that said, let me turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2025.

Raul.

Raul Parra

Thank you, Fred. I will start with a detailed review of our revenue results in the first 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.

First quarter total revenue growth was driven by 9% growth in our Cardiovascular segment and 64% growth in our Endoscopy segment. Cardiovascular segment sales exceeded the high end of the expectations we outlined on our fourth quarter call. Our total revenue results include approximately $9.2% million of revenue from our acquisitions of the lead management product portfolio from Cook Medical and approximately $6.6% million of revenue from our acquisition of the assets of EndoGastric Solutions.

Excluding sales of acquired products, segment revenue growth on an organic constant currency basis was 6.2% for our Cardiovascular segment, while organic growth in our Endoscopy segment was essentially flat year-over-year. Turning to a review of our first quarter revenue results by product category. Cardiac intervention product sales increased 12% and represented the largest driver of Cardiovascular segment growth in the period.

Growth was driven primarily by contributions from our acquisition of Cook Medical Products. Excluding the contributions from the sales of acquired products, cardiac intervention product sales increased approximately 2% on an organic constant currency basis, within the range of organic growth expectations we assumed for Q1. Sales of our OEM products increased 21% in Q1, well ahead of the mid-single digit growth our guidance assumed.

The stronger than expected OEM performance in Q1 was substantially driven by customer demand in the U. S, offset partially by sales to OEM customers outside the U.S., which continues to see demand trends impacted by the macroenvironment. Sales of our peripheral intervention or PI products increased 6.8%. Growth in the PI product category was driven primarily by sales of our access, Embolotherapy and Delivery System products, which increased in the mid-teens year-over-year.

Sales of our Custom Procedure Solutions or CPS products decreased 0.3%, which was in line with our expectations. Turning to a brief summary of our sales performance on a geographic basis. Our first quarter sales in the U.S. Increased 14% on a constant currency basis and 9% on an organic constant currency basis, exceeding the high end of our expectations by 170 basis points.

We were pleased to see continued strong demand from our U.S. customers in the first quarter. International sales increased 6% year-over-year and increased 1.9% on an organic constant currency basis. Sales results in the APAC and EMEA regions came in at the high end of our expectations, while sales in the rest of the world region modestly exceeded our expectations.

With respect to China specifically, sales decreased 10% compared to a low single digit growth rate assumed in our guidance. We continue to see quarter to quarter variability in growth trends related to volume-based procurement programs as we have previously cautioned. In the first quarter, however, VBP was essentially in line, and we would attribute the softer than expected revenue results to the broader macroenvironment.

Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the Company's non-GAAP results during the first quarter of 2025 and all growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the related non-GAAP items in our press release and the presentation available on our website.

Gross profit increased approximately 15% in the first quarter. Our gross margin was 53.4%, up 251 basis points. The increase in gross margin year-over-year was driven by favorable product and geographic revenue mix and improvements in pricing, freight and distribution costs.

Operating expenses increased 10.5% year-over-year. The increase in operating expenses was driven by 11% increase in SG&A expense and an 8% increase in R&D expense compared to the prior year period. Total operating income in the first quarter increased $13.5% million or 25% from the first quarter of 2024 to $68.4% million.

Our operating margin was 19.3% compared to 17% in the prior year period, an increase of 229 basis points year-over-year. First quarter other expense net was $1.7% million compared to expense of $0.1% million last year. The change in other expense net was driven by lower interest income associated with lower cash balances, offset partially by lower interest expense compared to the prior year period. First quarter net income was $52.9% million or $0.86% per share, compared to $44.1% million or $0.75% per share in the prior year period.

We are pleased with our profitability performance in the first quarter, where we leveraged stronger than expected revenue results to drive significant expansion in operating margin and strong growth in non-GAAP diluted earnings per share, both of which exceeded the high end of our expectations. Note, our first quarter non-GAAP EPS results included incremental dilution related to our convertible debt that represented approximately $0.02% to Q1 EPS as expected. Turning to a review of our balance sheet and financial condition.

We generated $19.5% million of free cash flow in the first quarter of 2025, down 20% year-over-year. The year-over-year decrease in free cash flow generation was a result of increased capital expenditures compared to the first quarter of 2024, as expected, and investments in working capital, offset partially by growth in net income and other non-cash items. As of March 31, 2025, Merit had cash and cash equivalents of $395.5% million.

Total debt obligations of $747.5% million and outstanding letter of credit guarantees of $2.9% million with additional available borrowing capacity of approximately $697 million, compared to cash and cash equivalents of $376.7% million. Total debt obligations of $747.5% million and outstanding letter of credit guarantees of $2.9% million, which with additional available borrowing capacity of approximately $697 million as of December 31, 2024. Our net leverage ratio as of March 31 was 1.8%x on an adjusted basis.

Turning to a review of our fiscal year 2025 financial guidance, which we updated in today's press release. For reference, we have included a table in our earnings press release, which details each of our formal financial guidance ranges and how those ranges compare to our initial guidance ranges issued on our fourth quarter call in February. Our 2025 guidance assumes the following: GAAP net revenue growth of 8% to 10% year-over-year, which we expect to result from net revenue growth of approximately 7% to 9% in our Cardiovascular segment and net revenue growth of approximately 34% to 37% in our Endoscopy segment and a headwind from changes in foreign currency exchange rates of approximately $4.9% million or approximately 36 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 8.7% to 10.2% in 2025. Among other factors to consider when evaluating our projected constant currency revenue growth range for 2025 are the following items.

First, the midpoint of our total constant currency growth range now assumes 11% growth in the U.S. And 7% growth outside the U.S. The 7% constant currency growth we expect outside. The U.S. Continues to assume low double-digit growth in the EMEA, high teens growth in rest of world region and approximately 1% growth in the APAC region. The modest growth we expect in APAC sales is substantially related to China, where we project growth in unit sales on a year over year basis, but we expect total revenue to face continued headwinds related to volume-based procurement policies.

Second, our total net revenue guidance for fiscal year 2025 also assumes inorganic revenue contributions from the acquisitions of assets from EndoGastric Solutions and Cook Medical, which closed on July 1, 2024 and November 1, 2024, respectively, in the range of $45 million to $46 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 5% to 7% year-over-year. Third, for the full year 2025 period, we continue to forecast U.S. revenue from the sales of WRAPSODY CIE in the range of $7 million to $9 million. Our full year 2025 U.S. WRAPSODY CIE revenue range continues to assume a larger weighting of revenue in the second half of 2025 versus the first half and a larger weighting of revenue in the fourth quarter versus the third quarter.

With respect to profitability guidance for 2025, we now expect non-GAAP diluted earnings per share in the range of $3.29% to $3.42% compared to our prior guidance range of $3.58% to $3.7%. The change in our non-GAAP EPS expectations for 2025 is primarily a result of the projected impact of tariffs, trade policies and related actions recently implemented by the U.S. and other countries, which are expected to increase our cost of goods sold among other consequences. By the way of reminder, our initial 2025 guidance range introduced in February assumed that the 2025 tariff structure will remain substantially unchanged during 2025.

While the tariff situation and potential retaliatory measures by other countries remains highly uncertain and dynamic, we elected to estimate the potential impact on our non-GAAP EPS results this year in the interest of transparency. To that end, our updated non-GAAP EPS expectations now reflect an incremental $26.3% million of tariff related manufacturing costs in our cost of goods line item. This figure includes tariffs on countries from which we import raw materials and products as well as potential additional tariffs on certain exports from the U.S. Roughly 94% of the total expected increase in our 2025 cost of goods is related to our business in China. The majority of which is related to retaliatory tariffs on goods exported from the U.S. into China. The remaining 6% of the total expected increase in our 2025 cost of goods is coming from the 10% tariff rate on goods imported into the U.S. from a number of countries around the world.

Importantly, the $26.3% million figure is based on all available information as of April 24, 2025, and does not include any impact from new and or additional tariffs or retaliatory actions or changes to currently announced tariffs, which could change the anticipated impact to our non-GAAP EPS in 2025. The ultimate impact from new and or additional tariffs or retaliatory actions or changes to currently announced tariffs on our business will depend on the timing, amount, scope and nature of such tariffs, among other factors, most of which are currently unknown. Our team is working hard on potential mitigation strategies to offset the expected potential impact of these new tariffs.

We believe we have a pathway to offsetting up to 45% of the expected annualized tariffs. Although the timing of implementation means these projected benefits are unlikely to be realized in our cost of goods until 2026. We are encouraged by the prospects of leveraging many of our CGI initiatives, specifically in terms of reprioritizing planned efforts to help reduce the costs, improve productivity and optimize production and logistics.

We believe we are well-positioned to navigate the anticipated headwinds related to these new tariffs, given our multi-year focus on margin and profitability enhancing CGI initiatives. This is a rapidly changing situation, which we are monitoring carefully. Given the frequency of recent changes in our tariff policy, we do not intend to provide interim updates in response to each news item or related rumor.

Rather, we will provide updates as we deem appropriate on our quarterly earnings calls or in other public formats, as we gain further visibility and clarity regarding the situation. Returning to a discussion of our updated 2025 financial guidance assumptions. For modeling purposes, our fiscal year 2025 financial guidance now assumes non-GAAP operating margins in the range of approximately 17.6% to 18%, compared to 19.4% to 19.7% previously.

Note the change in our 2025 non-GAAP operating margin expectations is directly attributable to the incremental $26.3% million of tariffs related to cost of goods. Non-GAAP interest and other expense net of approximately $4.8% million compared to non-GAAP income of $1.1% million last year. Non-GAAP tax rate of approximately 21% and diluted shares outstanding of approximately 61 million, compared to approximately 62 million previously.

Note, our weighted average share count assumption now reflects incremental dilution of approximately 0.9% million shares related to our convertible debt facility compared to our prior guidance, which assumed approximately 1.8% million shares. We now estimate incremental share dilution related to our convertible debt facility represents an impact of approximately $0.05% to our non-GAAP EPS in 2025, compared to approximately $0.11% assumed in our prior guidance range. Finally, we continue to expect to generate free cash flow of at least $150 million in 2025, inclusive of the expectation that we invest approximately $90 million to $100 million in capital expenditures this year.

The step up in CapEx investment this year is directly related to construction of a new distribution center in South Jordan, Utah. We would also like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2025. Specifically, we expect our total revenue to increase in the range of approximately 8.6% to 11.1% on a GAAP basis and up approximately 8.7% to 11.2% on a constant currency basis. The midpoint of our second quarter constant currency sales growth expectations assumes approximately 13% growth in the U.S. and 6% growth in international markets. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of $17 million to $18 million.

Excluding inorganic contributions, our second quarter total revenue is expected to increase in the range of approximately 4% to 6% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of 2025, we expect non-GAAP operating margins in the range of approximately 17% to 18.75% compared to 20.1% last year and non-GAAP EPS in the range of $0.80% to $0.90% compared to $0.92% last year. I will now turn the call back to Fred for closing comments.

Fred Lampropoulos

Raul, well done. That's a lot of information. But before we open the call for questions, I just want to add that the U.S. WRAPSODY CIE program is progressing well.

We are pleased with the response following the presentation of 12-month AVF data from our WRAPSODY WAVE trial at the Society of Interventional Radiology on March 30. Adoption and utilization are trending positively, and we continue to forecast U.S. revenue from the sales of the WRAPSODY CIE in the range of $7 million to $9 million in 2025. Our team continues to execute on our reimbursement strategy, which is focused on securing add on reimbursement payment for both the hospital and office-based sites of care.

With respect to recent progress and developments on our NTAP submission, specifically, on April 11, CMS released proposed fiscal year 2026 payment rates for the hospital inpatient prospective payment system, which include updates on our WRAPSODY CIE NTAP submission. We are pleased to see CMS confirm that the WRAPSODY CIE meets the cost criterion and that CMS is proposing to approve the WRAPSODY CIE for new technology add on payments in fiscal year 2026. Importantly, CMS is also proposing that the maximum new technology add on payment for a case involving the use of the Merit WRAPSODY CIE would be $3,770 for fiscal year 2026, which is, if finalized as proposed, would support our anticipated cost to the hospital inclusive of all the components and accessories of $5,800 We continue to anticipate receiving final decisions with respect to NTAP and TPT add on reimbursement status in June 2025.

Now that wraps up our prepared remarks. Operator, we would like to now open up the line for questions.

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jason Bednar from Piper Sandler. Your line is open.

Jason Bednar

Look, a lot of investors focus and questions in the tariff topic. I'll start there to unpack some of the moving parts. And thanks, Raul, for all the color and quantification in the prepared remarks.

Can you give us maybe a bit more color on maybe some of the mitigation efforts you have in mind. Are you able to talk about what some of those are. Have you already started down the path of those mitigation efforts.

And then just so we can think about this appropriately on an annualized basis after mitigation, I hope I don't lose your numbers, but is that $26 million closer to $40 million to $50 million on an annualized basis, but you expect to offset 45% of that through mitigation and that those efforts would be felt that those mitigation efforts are felt at some point in 2026, but probably starting not at the beginning of the year. Sorry, I'm just trying to figure out really how to baseline ourselves, when we look at kind of a full year fully mitigated basis.

Fred Lampropoulos

Yes. No, it's a lot to unpack there, Jason. I'll try and hit on everything.

Yes, look, our mitigating efforts are really centered around some of the CGI initiatives that we had ongoing, product line efficiencies, moving items to lower cost areas, a lot of what we've already been doing. I think we're really lucky that we had CGI that was in place, similar to what happened with when COVID happened. I mean, I think we just put our heads down.

We kept doing what we knew we had to do from an execution standpoint. That's exactly how we're treating this tariff situation here. We've got a punch list of things that we already had on the board that we needed to do.

And so, we're just going to continue to do those items and just stay focused on that. A lot of variability as you know in the tariffs and to try and focus on that specifically would be a pretty daunting task. So again, we've got a punch list of CGI items and initiatives that we had on the Board.

We're going to continue to do those and focus on those. There's things we've already started to do that were quick wins that our operations group did initially. You can redirect shipments from country of origin into the specific country avoiding some of the tariffs.

So, there's things like that or building up of inventory from our Mexican facility. You saw some of that build up in the first quarter, a little bit in the -- you probably didn't notice it as much in the fourth quarter because we did decrease inventory. But there was things we were already working on in the background.

And again, I won't get too much into it. I think the math that you did on your, on the annualized amount, I mean, I can't argue against that, right. I mean, it's the math.

But again, those mitigating control or cost control items have already started. Some of them just take effort and again, some of them were already on our punch list for CGI initiatives.

Jason Bednar

All right. That's really helpful. Thanks for all that.

Yes, I know I appreciate that it's pretty messy right now and not just for Merit. So, I totally get it. I want to come back and a follow-up here on the China market specifically.

The demand situation there, I guess, seemed maybe a bit weaker than what was originally forecasted. It might be hard to tell from, but from where you sit, Fred and Raul, do you think this was all macro related. Was there any demand impact tied to the trade tensions with the U.

S. And then given where everything stands today, I guess, how are you internally thinking about the demand for Merit products in China over the balance of this year.

Fred Lampropoulos

Yes. So, volume-based purchasing, which is one of the ones that we kind of have to deal with from a quarter-to-quarter variability was essentially in line with our expectations. The softer than expected kind of revenue results were really more related just to the overall broader macroenvironment.

Nothing to call out specifically, nothing that really would concern us. I would say that, really, I'd say, they finished the quarter pretty strong and I would add nothing to it. And we haven't changed the full year outlook for China.

I think we continue to be excited about the market. Clearly, we're paying attention to what the tariff situation is, but we're not making any long-term decisions based on what's going on with these tariffs.

Raul Parra

And we are a global company with a long-term strategy. We've been through whether it be COVID or financial crisis and whatever the issues have come in the past. And we'll look at all the issues and measure them as they come along and continue on to what I think has brought us to this point.

And you saw that result in the first quarter. So, I mean, it's strong in a lot of areas, and I think we're hitting the right things. But we're paying a lot of attention to this.

But as you know, it changes, I mean, our biggest concern was just overnight. What changes in terms of what we worked on versus what happens when we talk right now. And it's a moving target, but the strategy is what's important.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Larry Biegelsen from Wells Fargo.

Your line is open.

Unidentified Analyst

Hey, guys. This is Simran on for Larry. Thanks for taking the questions.

Maybe just to follow up on Jason's second question around China. What are some of the items that I guess are underlying the softer demand that you're seeing in China. And do you think that can get worse given sort of the escalating geopolitical tensions that you're seeing in the region.

And how should we think about, sort of the recovery of China throughout the year.

Raul Parra

Yes. Well, we don't get into kind of country specific as far as how we guide and the monthly cadence or quarterly cadence. But just in general, OEM was a little bit soft.

Again, we see variability in OEM from time to time. As you saw, OEM was really strong overall, like over 20% growth. So, there was a little bit of softness in China related to it, nothing that again we would specifically call out.

And again, I'll just highlight that we haven't changed our guidance for China for the full year.

Unidentified Analyst

Got it. That's helpful. And maybe just a follow-up on the tariff color.

Appreciate all the color that you guys have given. Just to dig in on the impact in China, are you willing to disclose like what percentage of sales in China are manufactured in the U.S.. And maybe just more broadly speaking, which manufacturing plants service China.

And how have you guys shifted manufacturing in the interim to sort of help mitigate some of that impact.

Raul Parra

Again, I think we provided a lot of information already. So, I don't know that we're going to provide anything else other than to say of the $26.3% million that's impacting us this year related to the tariffs, roughly 94% of that is China, right. And the majority of that is inventory that we're importing into China, right.

So again, I think that really gives you kind of what you need. And yes, that's all we have.

Operator

One moment for our next question. Next question comes from the line of Steve Lichtman from Oppenheimer. Your line is open.

Steve Lichtman

I guess first question just on the quarter. Last couple of quarters including this one, gross margin coming in well ahead. So obviously great to see heading into this tariff period.

Can you talk a little bit more about sort of what you're seeing as the underlying driver there.

Raul Parra

Steve, I think I owe you lunch for that question.

Steve Lichtman

Dinner.

Raul Parra

Yes, dinner. No, look, thank you for the question. Honestly, we're super excited about the performance of the Company and I'll call it kind of pre-tariff, right.

I mean the business is doing really well as you saw. Q1 was an outstanding quarter. I thought it was a great start to the year and set us up well for the rest of the year.

The underlying business is doing great. Gross margin, as you mentioned, came in very strong. And it's really a combination of everything we're doing, whether it's our sales force, focusing on the acquisitions that we have that we've integrated, the product mix, the focus on higher gross margin products and pricing.

And then, our operations group trying to fight through all the different battles that they have to fight through from an operational kind of efficiency standpoint in product line movement. So, all parts of things that we've done and our punch list of CGI items that we have. So, again, it's a group effort.

It requires everybody to kind of be marching to the same target and we've been doing that now for quite a bit of time and it's really nice to see that gross margin kind of be where it's at. We're super excited about how it came out. As you guys know, we were expecting a lower gross margin for the quarter and the way it came in, I thought was a really good start to the year.

Steve Lichtman

Thanks, Raul. I wanted to ask on the cadence of tariff impact because this goes to the annualization. I've been doing the numbers, apologies if I got this wrong, but it seems like the second quarter impact is not too far off from 3Q and 4Q.

Am I right on that. And if that's the case, then that annualization number would be would actually be lower than sort of what you're looking at.

Raul Parra

Yes. I'll give you the numbers because I think that's a fair question to kind of, I think you should kind of think about it, obviously, in the way our inventory turns, right. And obviously, you're not going to know that, but our inventory turns over five months.

And so, that $26 million as you can expect has been turned through those inventories. As far as the 2025 total impact, roughly 83% of it would be in the second half, assuming things stay as they are today, right. And then about 17% of that would be in Q2.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Robbie Marcus from J.

P. Morgan. Your line is open.

Robbie Marcus

Two for me. First one, another tariff question, one not tariff related. Tariff related, you said earlier in the call you've left your underlying operational expense assumptions alone in the rest of the guide.

And I wonder how much opportunity is there to pull back on planned spending or not invest in certain projects to help minimize the EPS impact this year. And then, I have a follow-up.

Raul Parra

Yes. I think that's a great question, Robbie. Look, I'll just say that we were off to a really good start in Q1, right.

Performed really well. We left our guidance unchanged, the underlying guidance as of now. Again, I think we've got a lot of things that we're throwing at kind of the tariff situation.

Obviously, we had a really good game plan that started essentially, I'd say, a year and a quarter ago, but it's really a combination of the last 6.5% years with foundations for growth and continued growth initiatives. So, there's things we can do. I don't want to get into kind of the whole detailing out of what we're going to do or not do.

But I can tell you that we do have a game plan of and CGI is a big component of that. Happy that we had that program in place. And again, we're just going to keep our heads down and just keep marching.

Fred Lampropoulos

And Raul, I think you said something earlier on, but we had a plan already in place and much like foundations for growth, Robbie, we kind of hit the road running. We were already running when this started with a plan that when you have situations like this, it fits perfectly because we get a little bit of a jump on it. And all the things that you need to do, we're working on in one way or the other as we speak.

Robbie Marcus

Great. And maybe as a follow-up. You reiterated your free cash flow guidance of at least $150 million in 2025, which to me is kind of impressive given the EPS headwind from tariffs.

Maybe speak to that, how you're able to do that, where it's coming from and how you're able to offset the tariff impact on free cash flow. Thanks.

Raul Parra

Yes. Look, I mean, I thought we got off to a good start in Q1, right. $20 million probably doesn't sound impressive to you guys.

To us, in the first quarter when we're paying out bonuses. We're rebuilding inventory from the shutdown in the fourth quarter.

Fred Lampropoulos

Sales meetings.

Raul Parra

Yes, sales meetings. There's a lot of things that hit us. And so, I thought, again, we were pretty happy with that number.

And I'm staring at the eyes of our operation COO here right now. He's looking at the inventory numbers as we speak right now and finding ways to offset some of the headwinds. Some of the things that we're going to do, Robbie, there's things that we can do from a manufacturing standpoint where China has a certain amount of inventory that we can kind of burn through, so we don't have to build certain amounts of inventory. There's all sorts of little things that we can do to help mitigate some of the working capital issues that the tariffs bring on, which we think are again completely manageable.

That's why we held the $150 million in free cash flow. And then there's other things that we're just going to be trying to look at from an offsetting standpoint.

Operator

One moment for our next question. Next question will come from the line of Craig Bijou from Bank of America Securities. Your line is open.

Craig Bijou

I wanted to start with a follow-up on China. And I guess the question is, given the underperformance in Q1, but as you said, Raul, the guidance for the year hasn't changed. I guess, maybe just what's your confidence that it was either something that specifically happened in Q1 and you can recover some of those sales in the subsequent quarters.

Or is it a market issue that may get better throughout the year. Just maybe a little bit more color or understanding on what happened there.

Raul Parra

Yes. No, again, I'll just kind of repeat what I said, right. I mean, the underlying fundamentals of the demand in China were great, right.

I mean they were as expected, I guess I should say. The only item that stood out was the OEM dynamic. And again, we see variability in OEM from time to time that's country, region specific.

It's nothing new to us. We've been in the OEM business for the greater part of Merit's history, and so we're used to it. So, for us, it's really nothing to see.

And probably the most important thing is, we haven't changed our full year outlook for China.

Fred Lampropoulos

And Raul, if you look at last year and look at the OEM business, minus 5%, plus 5%, plus 10%, plus 20%. And we can go through history and you'll see the same type. It's all about timing, not about demand.

Craig Bijou

Got it. It's helpful. And actually, pretty good segue into my second question, which is on the OEM business and the strength, that I think you called out in the U.S. particularly, but 20% plus growth the last two quarters.

I guess what's driving that growth. And maybe more specifically in that question is, have you seen some inventory pull forward or build out from some customers ahead of some of the tariffs. Is that something that may be driving some of that underlying growth.

Fred Lampropoulos

I don't think so, [Rob]. The reason I say that, we did see some of that maybe in certain areas. But on the OEM side, remember, it's going to get into inventory. By the time we send something to OEM, it's going to have to go through their system and probably going to get hit with it anyway.

So, as a practical matter, it's new accounts. It's accounts again building on what we've been doing for years and years and that's the quality, the reliability. That's always what drives Merit's business in OEM and the breadth of market.

It's the same story and fair pricing. It's a good business, but it's again, we don't want to make small of this, but it's what we've been doing for a long time. And you'll see these variations from time to time.

But I don't think that there's anybody out there building inventory now so they can pay a tariff on it. I don't see that at all. In fact, just the opposite.

I mean, for being responsible in the purchasing.

Raul Parra

Yes. And remember, I mean, we signed that our Arcadia deal with Medtronic last year and we're seeing some of that demand too. So again, OEM has always been a high single-digit grower for us.

That's the expectation this year, nothing's changed.

Operator

Thank you. One moment for our next question. Our next question comes from the line of David Rescott from Baird.

Your line is open.

David Rescott

Yes, another one on the tariff kind of commentary here. You called out that 45% number as the potential estimate that you could be able to offset with some shifting around or some investments that you have. Two-part question.

One, I guess, is the 45% related to whatever that $23.6% million annualized number looks like, Is the majority of that again coming from China or is there some pieces in Mexico and elsewhere. And when, you think about like the internal decisions around how you make those investments, I mean, you could come in tomorrow and the expected tariffs could be half of what they are today. So, how do you internally make the decisions around what the go forward timing is on when those investments are made to attempt to offset some of these tariff headwinds.

Raul Parra

I think that's where we're really lucky, David, to be honest with you. Again, we had a punch list of items that we were going to do as part of continued growth initiatives. And so, for us, it's just keep our heads down.

Let's not react to all the tweets and news headlines that are happening on an hourly basis. So, we've got our punch list. Let's just stay focused on that.

Let's make sure we're focused on the performance of the business, which I hope you guys are appreciating what we did in Q1. But we've got things that we were already working on. We'll continue to work on those.

We're not making any long-term decisions based on this, on these tariffs. I mean, I think it's just way too volatile to try and change the direction of the Company or try and do something that's going to be essentially wrong in 24 hours if something changes. So, Fred, do you have anything.

Fred Lampropoulos

Yes. Well, listen, I think we're confident in our plan. We've been through this before.

Everybody remember our compensation is aligned, everything is aligned and they're not new to us. I mean we are battle worn troops. I mean I can't speak to others.

I can just tell you this is a fighting group that goes and gets refreshed and comes back and continues the mission. So that's where we are. We're confident in our targets. We're confident in the long-term plan.

And we look at the day to day, does this change anything. Should we consider this. We meet almost every day to talk about this, not almost every day.

Is there anything here that we need to think about or adjust and adapt. And we go through those things every day. But it's the long-term plan that really essentially covers all this stuff anyway that you would do in your planning.

So, it's I hate to say this, but no I don't actually. It's business as usual. It's what we're used to.

It's what you've been seeing for a number of years now. And that's why we're confident when we throw out a number, we mean it. And I think hopefully we build enough confidence amongst the investing community and our analysts that if we say it that's what we're going to do.

David Rescott

Okay, great. Maybe on gross margins, again, I know it's already been called out, but the gross margins this quarter were obviously significantly ahead of what our street expectations. Well, I think maybe this is the second quarter where you've had really a pretty significant benefit.

Well, I think you said you threw the kitchen sink at it last quarter and that was what drove the upside. So curious for the second part of this year, how you're thinking about that underlying first quarter performance translating to what the otherwise unaffected gross margins by tariffs could have been, meaning that is what you saw or the trends you saw in Q3 and Q1 of just this pretty significant gross margin upside kind of where the business was tracking to ahead of this tariff headwind.

Raul Parra

Yes. Look, I'm going to keep talking about CGI. So hopefully you guys are getting the hint here that we're focused on CGI and the initiatives that we outlet that we drew up last year and it's just a compounding effect of what we're doing.

We're working hard at it. And I think we keep throwing the kitchen sink at the gross margin. That's our approach.

I mean, if you want to know what we're doing, we're doing everything we can. We just need to find more things to throw in the kitchen sink, I guess. But we're doing everything we can.

And it's working. I think it's very motivating to us, because I don't think people understand how hard it is to move that gross margin. And we've been fighting that fight for as long as I've been here, I've been here 15 years.

In the last seven years, it's been really fun to see that gross margin start to get where we think it should be and there's a lot more to be had there.

Operator

One moment for next question. Our next question will come from the line of Michael Petusky from Barrington Research. Your line is open.

Michael Petusky

So, I guess, I would have expected and I'm not going to pretend I know more about China ordering matters than I do, but I guess I would have expected some stocking type orders either late in the quarter or possibly right after the quarter ended in very early April. Did you guys see any evidence of that kind of ordering out of any of the customers in China.

Raul Parra

Well, I think Fred hinted at it a little bit right in one of his comments saying that we did see a little bit of that in certain markets. And I think that was pretty standard, I would say, for most. I mean, we did something similar.

We built up inventory in Mexico in anticipation and brought it over to the U.S. So, yes, I wouldn't say that it was anything material that I would call out or that we were concerned that we all of a sudden fall off a cliff.

Michael Petusky

Did it hit Q1 or did it or was it more in very, very early Q2.

Raul Parra

Yes. I mean, I'm not going to get into Q2. I'll just say that it was towards the tail end of the first quarter.

I'm really good at dancing, Mike.

Michael Petusky

The boxing footwork. Okay. So, I did want to also ask about Endoscopy.

I'm just curious, sometimes you do M&A, meaning generic, you can do M&A and there's some customer loss for whatever reason. I'm just curious, the guide down, is that associated with customer attrition or what's going on there, if you can speak to that.

Fred Lampropoulos

No, I don't think so. I think the plan was, is we'd start integrating the sales forces at the end of the year and then it would come over. Then again, with all the things that were going on, I don't think it's a significant issue at all.

And in fact, if anything, our sales forces, in terms of the two groups now selling the same product is moving along better because we had planned it that way. We didn't want to stuff it down somebody's throat for the last half. We wanted to stabilize it.

All of the product is being built here. We wanted to make sure we could respond to that, in terms of making sure that we had inventories and we were producing at which we are. So, I think it's just, yes, it's part of what the plan.

Raul Parra

Yes, I mean, and you're not privy to obviously our quarterly cadence, Mike, but we anticipated that the second half of the year would be stronger than the first half. And that's just again as Fred mentioned, you've got two sales forces that are coming together. They've got to kind of, even though they've been training on the products for half of the year last year, it just takes a little bit of time and we've been through this before.

We understand that there's always a little bit of disruption. And it's just one of those lessons learned. And I think we planned it that way.

It wasn't a surprise to us.

Michael Petusky

Okay. And then let me sneak one last one. In terms of OEM and I know you're sort of downplaying it and hey, this is sort of what we do and there is some lumpiness to it.

But at the same time, it's been really positive lumpiness here the last couple of two, three quarters. And I'm just curious, is there sort of with the new accounts you guys’ sort of alluded to, maybe a new normal for the nearer term, in terms of sort of growth expectations around that business. I mean, is mid-single-digit growth no longer really the right way to model that at least over the next several quarters.

Raul Parra

I mean, we're expecting high single digit growth for the year.

Michael Petusky

Okay.

Fred Lampropoulos

So, I guess, yes, that would be the wrong way to model it.

Raul Parra

Well, I mean, it was 21% in Q1 though. If you're saying high-single-digit growth, you probably are assuming roughly mid-single-digit growth the rest of the way.

Fred Lampropoulos

Yes. I mean, the figure is unchanged from prior guidance. Again, we continue to be excited about the opportunity that OEM has.

It's one of those things that maybe we don't talk enough about, but every time we launch a product, right, as long as that product is not competing directly with our sales force, our OEM group has an opportunity to go out and get new business. And I think we're vertically integrated in everything we do. We build high quality products.

And I think that word gets out. And there are certain things that other people don't want to do and we're more than willing to do them.

Michael Petusky

Last part of that. Have the brand-new accounts that you guys have signed, have they had an outsized impact on the recent success in that business.

Raul Parra

Not going to get into the customer, but I'll just say we're excited about all the businesses coming our way.

Michael Petusky

Fair enough. Thanks.

Operator

One moment for our next question. Our next question comes from the line of Jim Sidoti from Sidoti & Company. Your line is open.

Jim Sidoti

So, a part of your growth strategy has always been the inorganic growth through acquisitions and your targets are just like you, they're subject to these tariffs. Has the number of targets increased or people more willing to make deals as a result of this.

Fred Lampropoulos

Yes. Jim, listen, there's a lot of activity in the marketplace. I know that if you talk to the bigger firms and I've heard the M&A activity is down, there's a lot of stuff out there and we're engaged and looking as we always have been, but we're busy looking at things. So, yes, there's a lot of stuff out there, People are remodeling their portfolios and this and that.

So, we're busy looking at things.

Jim Sidoti

And with regard to the two deals, you did in the second half of last year, do you think that integration is complete at this point. Are you happy with the way things are working out there. Or do you think there's still more work to do.

Fred Lampropoulos

Well, there's always more work to do. Part of it is, remember, the TSA and the Cook deal, it's going to take more time, but that was all planned. So, it's not a surprise.

And you just integrated the sales force where they're all now selling the same bag on the EGS. And then you had all the sales meetings and things like that. So, I think we are on plan and executing that plan as we've been talking through this entire meeting is that Merit is focused.

We're on plan. We in terms of our CGI, we've reconfirmed our numbers for the CGI program through its life. And it's actually in many ways, Jim, chaos and all this other stuff that's going in the marketplace plays to Merit advantage because we're kind of steady eddy.

I mean, people can rely on us, and I think that's important. So, I think you can I hope you can sense the enthusiasm for the business, and what we're working on. We have plans.

We are not a ship that's adrift.

Operator

One moment for next question. Our next question will come from the line of Jon Young from Canaccord.

Jon Young

Hey, Fred and Raul. Thanks for fitting me in. I want to touch on CGI.

I know a pillar of it has been the SKU rationalization and also the raising prices. So how should we think about your ability to raise prices in this macroenvironment. And how much of that is factored into the guidance.

And also, could you just talk about what percentage of the U.S. Business is sold to GPOs. And are those contracts generally made on a January 1 annual basis.

Raul Parra

Great question, Jon. Look, I think CGI obviously does include pricing. As you guys know, under foundations for growth, we made a significant investment in our pricing department.

And I think they continue to do an excellent job at helping our sales team and the management team with the visibility and contract management and contract compliance. Contracts are a big part of our business. I'm not going to get into the percentages or details of those.

I think probably the underlying question you're trying to get at is, hey, can you raise prices to cover the tariffs. And I'm not going to get into that either, other than to say pricing is one of the levers that we have in our bag as part of continued growth initiatives. And again, we're not going to do anything that is going to be a detriment to our customers when there's very little visibility as to the length or amount or lack of amount, I guess on these tariffs, right. So, we're not going to upset our customers when this thing is changing every day.

Fred Lampropoulos

And Raul, you had a very good point. If you go out and jerk your customers around, you're going to break up everything we spent all these years building and confidence. So, you have to be wise, you have to be measured, but at the same time, you have to be able to pass on what you can and be wise about how you approach it.

And I think that's what we've done. And it's not just the pricing part, but the contract management that Raul mentioned, there's a lot to this. I think it's one of the things that's been a big factor in both foundations for growth and CGI.

Jon Young

Okay, great. And then, if I could sneak just one more in here too. Just any commentary on U.S. WRAPSODY performance this quarter.

I understand that we're waiting for reimbursement, but the device had a strong showing at SIR. I know it is commercially available. So, just any commentary on the outperformance.

Fred Lampropoulos

We continue to be excited about this product, the WRAPSODY, where it's also I think very pleasing to see it come in the cadence and the various things that are happening like the add-ons and the trials and the information, the one-year data. I think we're hitting on all the cylinders. So, the best way to say it is, we continue to be very enthused and excited about that product and what it means for the future of the Company.

Operator

One moment for our next question. Next question comes from the line of Mike Matson from Needham. Your line is open.

Mike Matson

Yes, thanks. So, just one more on China and the tariff situation. So, I think I don't know if you've broken out the percentage of your sales from China lately, but I think it's sort of around 10% and it looks like you're taking your EPS guidance down by about 80%, and that's probably fully for kind of a three-quarter impact.

So, I mean, is it safe to assume at least as long as these tariffs remain in place that you're kind of not really profitable in China, sort of breakeven maybe at best with your Chinese business.

Raul Parra

Again, we're not going to get into all those details. Mike, again the $26.3% million is a gross number. We think we can impact that with some of our CGI initiatives.

And roughly, $26 million, of that $26 million, 94% of it's related to China. And a big chunk of that is the imports going into there. So, other than those details, we're paying attention to what's happening and we'll make adjustments as we deem necessary.

But we've got a good game plan as you can see by the results of the first quarter.

Mike Matson

And then, just one on WRAPSODY. So, good to hear the news on NTAP, but on the TPT, so would that, would there be, should there be something on TPT in the OPPS outpatient proposal when that is published later this year.

Fred Lampropoulos

Yes. Our best estimate of timing and everything is that we'll have all this information hopefully by June, is kind of what our general thinking is. It's up for comment now, but the recommendation has been made.

We satisfy the criteria. I think that's the data speaks for itself. And there weren't that many companies that got these things.

And Merit is one of them. It's breakthrough, as you know, the data has been outstanding and I think will benefit both the physician and the patient. So, as I mentioned previously, Mike, it's on schedule and meeting all of our expectations.

Mike Matson

Okay. And then just the inpatient versus outpatient mix for WRAPSODY, do you have any feel for that. Is it skew one way or the other.

Raul Parra

I mean, we do have a but we're not going to disclose it. I think we continue to be happy. We're not going to provide interim revenue updates on WRAPSODY.

We continue to expect the $7 million to $9 million and are excited about the news that we got.

Mike Matson

No. I understand. I guess what I was getting at is just is it, you know, which setting is it used more in or I mean, I guess, you're not willing to understand, but….

Raul Parra

Yes. I mean, I you know, do you that you it depends on who you talk to, Mike. Some people will tell you 60-40, 50-50.

It just depends. But again, other than just saying those are the kind of things that you hear other people talk about. We don't talk on it because we'll wait until the data -- not the data, but until we get this thing done and get the word from CMS and then we'll pass that on as yes.

Operator

Thank you. One moment for our next question. Next question will come from the line of Jayson Bedford from Raymond James.

Your line is open.

Jayson Bedford

Good afternoon, guys. Thanks for squeezing me in just a few. Just to be clear on the mitigation, are there new initiatives that you're putting in place or just accelerating existing efforts.

Raul Parra

I don't know that we're accelerating anything. We had initiatives that were on the list and we're just attacking that list. I mean that's what we've been doing for the last six plus years and we're just going to continue that.

There's things that we did change that were short in nature as I mentioned earlier, redirecting shipments and that was helpful holding off on sending more inventory to specific locations, since they had plenty of finished goods. So, there's things that we acted on that were very quick. But all the other stuff that time that the things that kind of take time, those are just on the list, Jayson.

And again, as we've mentioned before plenty of times, we throw the kitchen sink at these things. And so, it's just part of the process.

Fred Lampropoulos

And can I just add, Jayson, that another part of this is our counterparts in China. I mean, we listen to what our management team on the ground that are fighting the fight. I mean, we have our view here, but we also, I think, keep people engaged and don't ever try to think we're the only ones who know anything.

In fact, quite to the opposite, our team, which is plentiful and well versed in experience, we get them involved in all these conversations as well to develop a mutual strategy that becomes a single strategy for a company.

Raul Parra

Yes. I mean, we're a team, right. I mean, whatever the political fight that's ongoing, we have a team in China that we hold in high regards and they're doing everything they can to make sure that we can pull through this.

Fred Lampropoulos

They may have a suggestion or an idea and we welcome all of those and talk about them quite often.

Jayson Bedford

Okay. Just on the underlying gross margin, two straight quarters of 53% plus gross margin makes it a trend until tariffs, I guess, but the improvement is notable. Is there anything that kind of hit or inflected here in the last couple of quarters to drive that what is legitimately a step up in underlying gross margin.

Raul Parra

No, I mean, look, again, I think it's just a compounding effort of everything we've done. Whether it's the acquisitions, it's the efficiencies in operations, it's the sales focus on mix and pricing. Again, it just feels really good to see that gross margin come out.

Fred Lampropoulos

And Jason, I've got my Chief Operating Officer and my Head Sales and Marketing guy sitting in the room. I mean, a lot of the credit goes to them and the things that they're doing and their execution and our plans. This is not a surprise to us.

We had hoped, but it has to come along and execution is the key. And that's what we've been doing and there's as I think Raul said earlier, there's more to come.

Raul Parra

Yes. And again, I can't emphasize enough that the core business we've left guidance essentially the same, right, other than the tariffs. But that underlying business is doing great and we're super excited about how we started the Q1.

So, more to come.

Jayson Bedford

Just last one, I realize we're getting on here. WRAPSODY, are you with the U.S. launch, are you seeing any impact internationally, meaning a bit of a halo or anything like that.

Fred Lampropoulos

Well, I'll just simply say that having the data out there and having one year data is always helpful. So, that helps to overcome either objections or compares you with other people who have been on the market before. So, having data out there affects every location, yes.

Operator

Thank you. One moment for our next question. The next question comes from the line of Jason Bednar from Piper Sandler.

Your line is open.

Jason Bednar

Hey, guys. Thanks for taking the follow-up and again sorry for making this even longer. Just Raul, real quick on maybe helping us out with the EPS bridge here, and for the full year guide.

So, where I'm I feel like I'm missing something. So, you had the tariff impact was about $0.33%, $0.34% of the headwind. You took the guide down $0.28%, $0.29% dollars something like that.

It seems like that $0.06% delta is you're picking up and the convert dilution is being less now versus where it was three months ago. But you just beat by $0.12%. And so, I guess I'm wondering where that's coming, where that's shaking out.

And then, yes. Also, I feel like currency is probably a tailwind as well. So, I guess, help me out on what am I missing in the guide.

Raul Parra

Yes. You're not missing anything. Again, Jason, you know how we guide, right.

I mean, Q1, regardless, let's just ignore the tariffs here for a minute. Coming out of Q1, we wouldn't have changed anything. That's just our standard practice.

We've never really changed guidance coming out of the first quarter. Typically, we give it some thought in the second quarter and we'll see how things are shaking out. But typically, we will adjust our guidance in the third quarter, sometimes in the second, but not very frequently and hardly ever in the first quarter.

So, I think your math is right. We've got the $0.05% to $0.06% that's related to the dilution or the convert, I should call it. And then you've got $0.34% for the tariffs.

And then everything else, again, we left our guidance as is. So, anything that you're missing is probably just related to that.

Jason Bednar

Great. So, operational and currency are both upside from where we're sitting here today.

Raul Parra

That's correct.

Operator

Thank you. I'm not showing any further questions. I would now like to turn it back over to Fred for closing remarks.

Fred Lampropoulos

Well, listen, thank you very much for your comments, Raul. Actually, Raul, I've got to go to a -- I won't be at these meetings following because I have to go to a business dinner. So, I'm going to jump on a plane, yes.

Yes. And then I've got to jump on a plane, head down to the heart rhythm showdown in San Diego at 11 o’clock tonight. So, but all that being said, I want to congratulate this team.

They've worked hard. We have a cumulative effect of in compounding, if you will, of the efforts of these programs. Our R&D, our efforts, our pricing, our inventories, our builds, I could go on and on, there are all the things that you would be working on with various adjustments and things.

We're excited about the business. We'll be we're continuing to be excited about both the marketplace and the opportunities there as well as our internal efforts in R&D and other projects, which we won't talk about other than letting you know we're just excited about it. So, it's been a long day.

We appreciate you taking the time and your interest, and we'll look forward hearing from you again soon. Best wishes in signing off from Salt Lake City. Have a very good evening.

Raul Parra

Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Everyone, have a great day.