How is the Rhapsody commercial launch progressing in the outpatient setting, and is the $7 million revenue expectation for 2026 a reflection of current trends or a conservative outlook?

The original 2025 Rhapsody revenue expectations were missed. The $7 million guide for 2026 is set with high confidence, reflecting a similar approach to overall company guidance. The product is high-performing, and the market supports a third player, but it is a competitive space. “our original 2025 Rhapsody revenue expectations missed the mark, that that's fair to say. So as we really thought about our guidance for 2026, I mean, I think as you said, we're only about 4 months into our newer strategy for the nonhospital locations, but we really tried to take a similar approach as we thought about our guidance for Rhapsody in a similar way to how we provide guidance for the whole company, right? So we have a high level of confidence in hitting the $7 million revenue number.”

Why is the 2026 free cash flow guidance ($200 million) lower than 2025 ($216 million)? Is this due to conservatism, the divestiture, or increased CapEx?

The $200 million target for 2026 is a minimum, still ahead of the cumulative CGI goal. It includes an expectation of $90 million in capital expenditures for the year, including a new distribution center. There is also a conservative element due to timing-based items that are difficult to predict. “I will say a couple of things. Super happy with the performance in Q4. $216 million of free cash flow for the year is just a really impressive number, I think. So I think we'll continue to focus on free cash flow. $200 million, it's a minimum of $200 million. We do have the building that's going up across the street, and we've got a couple of things that we want to do.”

Was the Q4 OEM destocking observed in both the U.S. and OUS? Is the mid-to-high single-digit growth rate for OEM baked into the 2026 guidance?

U.S. OEM performance was impacted by customer inventory destocking, while OUS OEM was affected by the macro environment, particularly in China. The OEM business remains healthy, and the normalized annual growth profile of mid-to-high single digits is the expectation for 2026. “the U.S. component of OEM is really what we are talking about from a customer inventory destocking. I think when you look outside of the U.S., it's really kind of the macro environment, and it's really kind of centered around China and some of the impacts we're seeing there just related to the macro environment.”

MMSI

Merit Medical Systems (MMSI) Q4 FY25 earnings call: guidance and Q&A

Earnings call· Dec 2025 (Q4 FY25)· Health Care· Feb 24, 2026

Source: earnings call transcript

Executive summary

Merit Medical Systems Q4 FY25 — Record Gross Margin and Strong Free Cash Flow

Merit Medical Systems delivered a strong Q4 FY25, surpassing revenue and profitability expectations with record gross margins and robust free cash flow generation. The company provided solid FY26 guidance, aligning with its multi-year growth initiatives, while navigating headwinds from OEM destocking, China's VBP, and tariff impacts. The new CEO is focused on strategic planning around product platforms and disciplined M&A to drive future growth.

Highlights

Total revenue of $393.9 million, up 11% YoY GAAP and 10% YoY constant currency, exceeding high end of expectations.
Non-GAAP operating margin increased 138 bps YoY to 21%, representing the highest quarterly gross margin in company's history.
Non-GAAP EPS grew 12% YoY, exceeding the high end of expectations.
Generated $74 million of free cash flow in Q4, a 13% increase YoY and a quarterly record.
Full-year 2025 constant currency revenue growth of 11%, non-GAAP operating margin of 20.3%, and free cash flow of $216 million, all exceeding original guidance.

Concerns

OEM product sales decreased 15% in Q4, significantly lower than expected, due to OUS macro environment and U.S. customer inventory destocking.
DualCap product line divestiture represents an estimated 140 bps headwind to total constant currency revenue growth in 2026.
Tariffs were a material headwind to gross margin in Q4, representing a 112 bps incremental impact YoY.
Q1 FY26 organic constant currency revenue growth expected to be 2% to 3%, impacted by continued OEM softness, China VBP, and supply chain challenges.
Q1 FY26 non-GAAP operating margins expected to be 16.7% to 18.5%, down from 19.3% last year, due to tariff impact and higher expense base on smaller revenue.

Guidance & targets

Category	Target	Timeline	Confidence
Total GAAP Net Revenue Growth	6% to 8% year-over-year high materiality	FY26	High
Total Constant Currency Net Revenue Growth	5% to 7% year-over-year high materiality	FY26	High
Total Constant Currency Organic Net Revenue Growth	4.5% to 6% year-over-year high materiality	FY26	High
US Constant Currency Growth	6% to 7% medium materiality	FY26	High
International Constant Currency Growth	5% to 6% medium materiality	FY26	High
Inorganic Revenue Contributions (BioLife and C2)	$13 million to $15 million medium materiality	FY26	High
Rhapsody CIE US Revenue	$7 million medium materiality	FY26	High
DualCap Product Line Divestiture Revenue Headwind	140 basis points medium materiality	FY26	High
Non-GAAP Diluted EPS	$4.01 to $4.15 high materiality	FY26	High
Non-GAAP Operating Margin Expansion	36 to 76 basis points year-over-year high materiality	FY26	High
Tariff Impact on Non-GAAP EPS	$0.07 incremental impact medium materiality	FY26	High
Convertible Debt Dilution on Non-GAAP EPS	$0.01 incremental impact low materiality	FY26	High
Non-GAAP Operating Margins	20.6% to 21% high materiality	FY26	High
Non-GAAP Interest and Other Expense Net	$8 million low materiality	FY26	High
Non-GAAP Tax Rate	23% medium materiality	FY26	High
Diluted Shares Outstanding	62.2 million low materiality	FY26	High
Free Cash Flow	at least $200 million high materiality	FY26	High
Q1 FY26 Total Revenue	$375 million to $380 million medium materiality	Q1 · FY26	High
Q1 FY26 US Sales Growth	6% medium materiality	Q1 · FY26	High
Q1 FY26 International Sales Growth	2% medium materiality	Q1 · FY26	High
Q1 FY26 Inorganic Revenue	$6 million to $7 million low materiality	Q1 · FY26	High
Q1 FY26 Organic Constant Currency Revenue Growth	2% to 3% high materiality	Q1 · FY26	High
Q1 FY26 Non-GAAP Operating Margins	16.7% to 18.5% high materiality	Q1 · FY26	High
Q1 FY26 Non-GAAP EPS	$0.77 to $0.87 high materiality	Q1 · FY26	High
CGI Organic Constant Currency Revenue CAGR	5% to 7% high materiality	3-year period ending December 31, 2026 · FY26	High
CGI Non-GAAP Operating Margin	20% to 22% high materiality	3-year period ending December 31, 2026 · FY26	High
CGI Cumulative Free Cash Flow Generation	more than $400 million high materiality	3-year period ending December 31, 2026 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Cardiovascular Primary driver of total revenue growth in Q4, exceeding high end of expectations.	—	9%	—	—
Endoscopy Came in at the midpoint of expectations.	—	15%	—	—
Cardiac Intervention Largest driver of Cardiovascular segment growth, well above high-end organic growth expectations. Organic growth (excluding acquired products): 12%Organic growth drivers: EP, CRM, angiography, and access products (60% of total CI organic growth)EP/CRM organic growth drivers: Prelude SNAP, Ventrax Delivery SystemAngiography growth driver: High teens growth in sales of wiresAccess products organic growth drivers: Prelude radial sheath, Prelude wave hydrophilic sheath introducer with SNAP Fix technology	—	21%	—	—
Peripheral Intervention Largest driver of organic cardiovascular segment growth, exceeding high end of growth expectations. Growth drivers: Radar localization and delivery systems (increased >25% YoY, 45% of total PI growth)Broad-based strength categories: Embolotherapy, drainage, angiography, and access products (10% growth, >50% of total PI business)	—	13%	—	—
Custom Procedural Solutions Above the high end of expectations. Growth drivers: High teens growth in kit salesOffset by: High single-digit declines in critical care products (impacted by DualCap divestiture)	—	4%	—	—
OEM Significantly lower than expected low single-digit growth in Q4. Full-year 2025 performance was slightly better than original guidance. OUS sales: Impacted by macro environmentU.S. sales: High single-digit decrease YoY (vs low single-digit growth expected), due to customer inventory destockingFY25 constant currency growth: 2%	—	-15%	—	—
US Sales results were at the high end of organic growth expectations. Organic constant currency growth: 8%	—	12%	—	—
International Sales results were at the high end of organic growth expectations. Organic constant currency growth: 4%	—	6%	—	—
APAC Constant currency growth: ~3%	—	—	—	—
EMEA Constant currency growth: ~12%	—	—	—	—
Rest of World Constant currency growth: ~4.5%	—	—	—	—

Deals & partnerships

Not stated Sale of the DualCap product line, which was non-core to the business. $28 million

The DualCap product line was part of the critical care offering, reported in the Custom Procedural Solutions revenue category.

Risks & headwinds

OEM Sales Decline and Destocking Q4 FY25, continuing into Q1 FY26

Q4 OEM sales decreased 15% YoY; U.S. OEM sales decreased in high single digits YoY. FY25 OEM sales up 2% CC YoY.

Mitigation:Management believes the OEM business remains healthy with a normalized mid-to-high single-digit annual growth profile, expecting resolution of destocking and OUS macro impacts over time.

Tariff Impact and Uncertainty Ongoing, FY26

Material headwind to gross margin in Q4 FY25 (112 bps incremental impact YoY). Expected $15 million ($0.19 per share) impact in FY26, up from $9 million ($0.12 per share) in the last 8 months of FY25. Q1 FY26 gross margin impact of ~80 bps or $3 million.

Mitigation:The FY26 guidance is based on tariff policies in place prior to the U.S. Supreme Court decision on February 20, with management acknowledging uncertainty regarding new/additional tariffs or retaliatory actions.

DualCap Divestiture Revenue Headwind FY26

Estimated 140 basis point headwind to total constant currency revenue growth in 2026 (240 basis points for U.S.).

Mitigation:The divestiture is strategic, aimed at freeing up manufacturing capacity and sales/marketing resources to invest in higher-margin, higher-growth products.

China Macro Environment and Volume-Based Purchasing (VBP) Ongoing, particularly Q1 FY26

China sales were down ~2% YoY in FY25. Expected to contribute to softer Q1 FY26 international sales growth (2% CC YoY).

Mitigation:Management continues to deal with VBP impacts, noting that volume in China continued to be up year-over-year. Expects to navigate these challenges.

Supply Chain Challenges Q1 FY26, expected to resolve through 2026

Not quantified, but cited as a primary driver of softer Q1 FY26 organic growth.

Mitigation:Manufacturing and operations groups are working to resolve issues as quickly as possible, including vendor consolidations.

Competitive Market for Rhapsody Ongoing

Not quantified.

Mitigation:Management acknowledges Rhapsody operates in a competitive space and competitors do not stand still, but believes the product is high-performing and the market supports a third player.

Convertible Debt Dilution FY26

Estimated incremental dilution of $0.01 per share on non-GAAP EPS in FY26 (total $0.04 per share) due to approximately 500,000 incremental diluted shares.

Mitigation:Factored into FY26 EPS guidance.

What to watch in Q1 FY26

Q1 FY26 Organic Constant Currency Revenue Growth

Q1 FY26

Current 6.6% (Q4 FY25)

Target 2-3%

Why it matters

This metric will indicate the immediate impact of OEM softness, China VBP, and supply chain issues on the company's underlying business momentum.

Excluding inorganic contributions, our first quarter total revenue is expected to increase in the range of approximately 2% to 3% on an organic constant currency basis.

Find out whether MMSI delivers this. Inve re-checks your case every morning.

Q&A highlights

What are the additional drivers for gross margin improvement, given the significant progress despite tariffs?

Management attributes continued gross margin improvement to a focus on product and geographic mix, new R&D projects, strategic acquisitions, SKU rationalization (including divestitures like DualCap), pricing discipline, cost management, and efficient manufacturing in lower-cost areas.

“It's just more of the same for us. So continue to be focused on mix, whether that's new R&D projects or acquisitions, pushing the geography kind of areas too. I think you saw the divestiture of DualCap. That was a low-margin product.”

asked by Jason Bednar · answered by Raul Parra

2 min read 6 chapters

Detailed narrative

Q4 FY25 Performance Highlights

Merit Medical reported strong Q4 FY25 results, with total revenue of $393.9 million, an 11% GAAP and 10% constant currency increase year-over-year, exceeding expectations. Non-GAAP operating margin reached a record 21%, up 138 basis points, and non-GAAP EPS grew 12%. The company also generated a record $74 million in free cash flow, up 13% year-over-year.

Full Year 2025 Achievements

For the full year 2025, Merit delivered 11% constant currency revenue growth, a 20.3% non-GAAP operating margin (up 131 bps), and nearly $216 million in free cash flow, all surpassing the high end of original guidance despite a dynamic global macro environment. This performance reflects strong execution towards multi-year financial targets.

Strategic Direction Under New CEO

CEO Martha Aronson, 4 months into her role, has focused on a global listening tour, establishing a new executive leadership team and global operating committee, and solidifying a platform structure. The company is streamlining internal planning and reporting to align with external communication, aiming to clarify growth drivers for investors.

Product Portfolio Segmentation

Merit's $1.5 billion revenue is globally diversified, with roughly 40% from outside the U.S. The portfolio is now categorized into "foundational products" (approximately two-thirds of total revenue, 6% compound annual growth rate over the last 3 years) and "therapeutic products" (approximately one-third of total revenue, 19% compound annual growth rate over the last 3 years, with 11% organic CAGR).

This new segmentation will guide future strategy and R&D efforts.

Divestiture and Operational Efficiency

The company divested its non-core DualCap product line for $28 million, effective February 17, 2026. This move is expected to free up manufacturing capacity and sales/marketing resources for higher-margin, higher-growth products, despite creating a 140 basis point headwind to 2026 total constant currency revenue growth.

Rhapsody Commercialization and Outlook

The Rhapsody CIE product is now 4 months into its new commercial strategy for non-hospital locations. While 2025 revenue expectations for Rhapsody were missed, the company has high confidence in achieving $7 million in U.S. Rhapsody revenue for FY26, implying low to mid-single-digit market penetration in the first full year under the new strategy.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.