Merit Medical Systems, Inc. (MMSI) Earnings

Management highlights

• Acquisition Integration Progress - Viewpoint Medical (oncology acquisition closed April 2026): All pre-launch workstreams (inventory build, sales/marketing strategy, field team training) for the planned July 2026 U.S. commercial launch of the OneMark lesion localization system were completed on schedule. The launch follows the late May 2026 launch of ScoutMD, creating a comprehensive breast care localization offering covering diagnosis through surgery, with strong initial market reception. Annualized 2026 revenue from BioLife acquisition is now expected to hit ~$23 million, up from the original target of $18-$20 million, after Q2 results exceeded expectations. - C2 CryoBalloon acquisition (from Pentax Medical, November 2025): Production has been fully transferred to Merit's South Jordan facility, with an additional production line added to support future demand. Annualized 2026 revenue is expected to hit $8-$9 million, and Q2 2026 revenue contributions exceeded expectations. The acquisition expands Merit's gastroenterology portfolio and positions the endoscopy platform for future market share gains. • Strategic Planning for 2027-2029 - The company is in the active development phase of its next three-year strategic plan, while remaining on track to hit all targets of the current 2024-2026 Continued Growth Initiatives (CGI) program. Workstreams have been established to evaluate future growth drivers, optimal organizational structure, required leadership capabilities, internal systems/processes, SKU and global registration rationalization, M&A strategy, and capital allocation. The company expects to share finalized plan details and new three-year financial targets after the current CGI program concludes at the end of 2026. • Operational Updates - The Q1 2026 renal product recall issue was resolved before the end of Q2, with the product back on the market. The company expects no material revenue impact from the recall in H2 2026. The company transitioned to new segmented revenue reporting by Foundational and Therapeutic product categories, and will now disclose quarterly revenue results by individual global product platforms for increased transparency. - New board appointment: Scott Ward, a 40-year medical device industry veteran with senior leadership experience at Medtronic and Cardiovascular Systems, was elected to the board and appointed to two board committees, bringing valuable industry and strategic perspective.

Guidance

- Full year 2026 total GAAP net revenue growth guidance is updated to 7.6% to 8.4% YoY, with constant currency revenue growth expected to be 6.9% to 7.6% (the prior organic constant currency guidance range of 6% to 7% was revised upward to 6.9% to 7.5%). This update reflects the stronger than expected H1 2026 results, and assumes 18-20 million in acquisition revenue (up from 17-20 million prior). - Non-GAAP diluted EPS guidance for full year 2026 was raised to $4.25 to $4.35, up from the prior range of $4.01 to $4.15, representing 11% to 14% YoY growth. The guidance assumes $16 million (=$0.21 per share) in total 2026 tariff impacts, up from $15 million prior. - Q3 2026 guidance: Total revenue is expected to be $408 to $413 million, representing 6% to 8% YoY GAAP growth (6% to 7.5% constant currency growth), with organic constant currency growth expected to be 7% to 8%. Non-GAAP operating margin is expected to be 19.6% to 21.5%, and non-GAAP EPS is expected to be $0.98 to $1.08. The wider than usual range reflects uncertainty around evolving tariff policy. The expected step down in growth from Q2 is attributed to normal seasonality, not underlying demand weakness.

Segment performance

Total Q2 2026 GAAP revenue was $418.8 million, up 10% year-over-year (9% constant currency, 9% organic constant currency). - Foundational Products: Total sales increased 6% YoY to $297.8 million, accounting for 71.1% of total Q2 revenue; organic constant currency growth was 7.8% after excluding acquisition and divestiture impacts. Organic growth was driven by Vascular Intervention and Access platforms, with improving 15% YoY growth in OEM sales. Procedural Solutions sales declined 12% constant currency entirely due to the divested Dual Cap product line; organic growth was 5% excluding the divestiture. Renal Therapies sales declined 2% YoY, but grew ~10% excluding the impact of the Q1 2026 product recall. - Therapeutic Products: Total sales increased 14% YoY to $121.0 million, accounting for 28.9% of total Q2 revenue; organic constant currency growth was 11.7% after excluding acquisition revenue. Organic growth was driven by strong performance from Cardiac Therapies, Endoscopy, Vascular Intervention, and Oncology platforms. By geography: U.S. revenue increased 12% YoY (adding $26.1 million in revenue), while international revenue increased 5% YoY (adding $7.3 million in revenue).

Risks & headwinds

- Volatile, rapidly changing tariff policy creates ongoing uncertainty around cost and margin impacts, with frequent changes that are hard to predict in advance. The company already absorbs ~$16 million in annual incremental tariff costs, and policy volatility requires a wider guidance range to account for unknown future changes. - Ongoing geopolitical instability (specifically the Middle East conflict) creates the risk of raw material supply chain disruption, requiring the company to hold higher inventory levels of key inputs to mitigate this risk. - After the Q1 2026 renal product recall, some customer revenue was temporarily lost to competitors, and it will take time to recapture this market share, though the impact is not expected to be material to H2 2026 results. - The OEM business is inherently lumpy quarter-to-quarter, which can create variability in top line results despite consistent full year growth expectations.

Analyst Q&A

• Q: Has Merit seen any procedure volume slowdown tied to U.S. ACA subsidy changes, and do you expect any moderation in H2 2026? Why is the Q3 EPS guidance range wider than usual after the strong Q2 margin result? /

  A: Management confirmed that as of Q2, field checks have not shown any procedure volume slowdown related to ACA subsidy changes, consistent with the quarter's strong results. The wider Q3 guidance range is entirely a response to ongoing, rapidly changing volatility in U.S. tariff policy, with new regulatory updates occurring frequently. Management remains very confident in H2 2026 performance and the full year guidance range.

• Q: What drove Q2's much stronger than expected organic growth, how much was catch-up from Q1, and is the growth sustainable? Why is organic growth expected to step down slightly in Q3? /

  A: The Q2 strength was broad-based across both product categories, driven primarily by a 15% rebound in OEM growth (which was slower in Q1 due to inherent lumpiness) and strong performance from the foundational Access/Vascular Intervention platforms and therapeutic Cardiac/Endoscopy platforms. The expected Q3 step down is purely due to normal seasonality (Q1/Q3 are typically softer quarters, Q2/Q4 are typically stronger for the business), not a decline in underlying demand or loss of momentum, and management remains very confident in full year performance.

• Q: What is driving operating leverage that allows EPS to grow faster than revenue, even after absorbing tariffs and acquisition dilution? /

  A: Operating leverage comes from broad-based improvements across the business: sales force focus on pricing and product mix, higher than expected gross margin performance from recent acquisitions, operational efficiency gains from the completed movement of large manufacturing operations to Tijuana, automation-driven labor efficiencies, and cost savings from shifting more shipping from air freight to lower-cost ocean freight. Cumulative operating margin improvement through CGI has already hit ~850 basis points, and will approach 950 basis points if the company hits the high end of 2026 guidance, with more improvement targeted in the next strategic plan.

• Q: What is the cross-selling and market expansion opportunity for the combined ScoutMD/OneMark oncology portfolio? /

  A: Prior to the Viewpoint acquisition, ScoutMD addressed ~400,000 U.S. localization procedures annually. Adding OneMark expands the total addressable U.S. market to ~1.3 million procedures annually (a 3-4x increase), as OneMark is suitable for all lower-risk biopsies, while ScoutMD is used for higher-risk advanced localization cases, aligned with different physician preferences and price points. Merit's existing oncology sales force already has deep relationships with all relevant customers, enabling immediate cross-selling of the expanded portfolio.