Raul Parra: Yes. And I think also just to highlight a couple of things, right? I think a little bit of the flack that we got too was, hey, look, interest rates are going to be dropping. And we were actually believers that those wouldn’t happen as fast as people were thinking. And come to find out it’s looking that way. Now, you know, we’re not going to run a victory lap yet, but it looks like things are going to be slower than people anticipated. So I think that’s really it. I mean, at the end of the day, I think we did the right thing. We were able to leverage up and get low cost of capital, essentially leverage up, hang some cash on the balance sheet. We’re earning a higher interest rate than we’re paying. And it’s EPS accretive.
Fred Lampropoulos: Well, and you know, Mike, I was listening to the radio this morning. You know, the initial, I think projection for people would see seven rate decreases this year.
Michael Petusky: Yes.
Fred Lampropoulos: I heard one this morning now was one or two.
Michael Petusky: Yes.
Fred Lampropoulos: And inflation, I mean, I’m not an economist, but inflation almost always has two or three legs to it. So all that being said, that was a judgment at the time based on our feelings about things. And as it all works out, I will call a little bit of a headwind, you know, because it wasn’t, you know, someone could have questioned it. But first of all, thank you for your candor. And I’ll accept your apology.
Michael Petusky: Well, I think I owe one to Raul because I may have technically won the bet about them, you guys not quite getting the $300 million, but I think he won the spirit of the best. You know, you were there.
Fred Lampropoulos: We’re usually apologizing to you, so we’re happy to accept one on the other side. Thank you.
Michael Petusky: Hey, so I just want to clarify one issue, and maybe everybody else gets this, but I want to make sure that I get it. Have you guys now seen all the sort of primary endpoint data that you needed to see in terms of WRAPSODY and in terms of moving forward? Are you still waiting for some of that data to come back?
Fred Lampropoulos: All of the patient data is in. It is being organized properly for presentation. So that’s as much as I can say about it, but all of the data from all of the patients is in. And so that’s good news for us. And now it’s the process of going through organizing it, looking at all the various issues to make sure the protocol was — all of those things that you have to do now. Because once it goes in to the FDA, you’ve got to have it right.
Raul Parra: It’s got to be locked and everything.
Fred Lampropoulos: And it’s got to be locked. And I think that’s the process we’re into right now.
Raul Parra: I think at the end of the day, we remain on track, Mike, for everything that we’ve disclosed so far.
Michael Petusky: Okay. Last one and I’ll get off. And I didn’t catch it if you made any comment around Russia in the fourth quarter. I think maybe on the Q3 call you would suggest, and maybe we’ll get a little incremental revenue there, but I know that’s still a mess over there and just any comment there? Thanks.
Raul Parra: You know, I think Russia, based on everything that’s going on, just came in in-line with kind of our updated, I guess, expectations. We were able to get the licenses required to do business in Russia. I think within the second hurdle, not only just getting the licenses, you also have to make sure that you’re able to get paid. So we have a good banking partner that allowed us to make sure that we were able to receive money in the proper way in U.S. dollars. And so I think everything worked out, I’d say the best it could under the circumstances that are happening there, Mike. But I think we were happy with how it all turned out.
Michael Petusky: Excellent. Thanks, guys. Great year. Thanks.
Fred Lampropoulos: Thank you, Mike.
Operator: Thank you. One moment for our next question. Our next question comes from Jim Sidoti with Sidoti & Co. Your line is now open.
Jim Sidoti: Hi, good afternoon. Thanks for taking the question. Now that you’re close to the finish line with WRAPSODY and you’ve finished at least enrollment with the WAVE trial. How should we think of R&D for 2024 and 2025? Are there other projects that will fill in or will you see that number start to come down?
Fred Lampropoulos: Now listen, on R&D, it’s been a hallmark of Merit’s history to continue to invest in projects and opportunities that we see within the budgets that we have allocated. So I’m going to say its business as usual. Some products are more complicated. Some are product line extensions. Some are improvements. So there’s a lot of those sorts of things out there, Jim. But we’re still committed to R&D. It’s always been a hallmark of our success.
Raul Parra: Yes. I think, too, Jim, just to add, you know, I mean, similar to what we did with foundations for growth, I mean, we were able to strategically reinvest some of the efficiencies that we found back into the business. And look, I think we want to do more of the same. As Fred mentioned, there’s going to be more therapeutic products. And so we want to make sure that we are able to fund those to continue to deliver the growth that you guys are all used to, and we’ve been able to deliver. So I think we’re trying to find a balanced approach to that reinvestment and higher cost, really, when it comes to therapeutic products. But I think we’ve done a great job of managing through that. And we’ll continue to do so under CGI.
Jim Sidoti: So it sounds like you think it’ll remain around that 6% of revenue.
Raul Parra: I think it’s fair. Yes.
Jim Sidoti: All right. And then in terms of the AngioDynamics [ph] acquisition, I think you had one product moved over the last quarter, and another one was still yet to be moved over. Has that been completed at this point?
Raul Parra: Yes. Everything is in place in our Mexico facility to produce our products there. So it’s all been moved from Angio and all in place. And I think going back to giving credit, it’s one of the things that Greg Fredde, who, you know, who did our Becton Dickinson transfer. And you know the story there. It was done with absolute precision. And I think we’ve seen the same things in this integration. We actually very candidly do it pretty well, Jim.
Jim Sidoti: All right. Well, there wasn’t too much else to pick on, so I think that’s it for me.
Fred Lampropoulos: Thanks, Jim.
Operator: Thank you. One moment for our next question. And our next question comes from Mike Matson with Needham and Company. Your line is now open.
Mike Matson: Yes, thanks for putting me in. I guess just with regard to the CGI program, I apologize if I missed it, but I think you set some operating margin targets, but I didn’t see anything in there about gross margins. And maybe that was deliberate on your part, but I just wanted to get your thoughts on kind of how the margin expansion just kind of break up between gross and operating leverage?
Raul Parra: Yes. So, you know, similar to what we did with FFG, you know, Mike, we really only focused on a revenue CAGR of at least 5%, operating margins of 20% to 22%, and then the minimum free cash flow of 400. But we didn’t actually give guidance for gross margin and FFG. We did give some modeling considerations, and then I think people tried to turn that into guidance. So, I think this time around, I think we’ve hopefully built up enough credibility that we’re going to get it from wherever we get it, right? I mean, I think, you know, gross margin, like I said earlier, the low end of our operating margin, it really comes from gross margin. The high end, the 22% would really come from not only delivering on the gross margin, but also on operating expense leverage.
But at the end of the day, I think we’ve shown that we can get it from either operating expense leverage and/or gross margin, and we’ll adjust as necessary. What we don’t want to do, similar to what we did with FFG, is get ahead of ourselves and think that we’re going to be covered with just gross margin expansion to get those — hit those levers. And so, we’ll leverage operating expenses if we need to, but our preference is to really re-invest those dollars into the business and get it from gross margin. So, that’s really our focus.
Fred Lampropoulos: Well, three years ago, we said we were going to fine-tune every aspect of our income statement and our balance sheet. I think that’s what we’ve done. So, it’s not one or the other, it’s all of them.
Raul Parra: Yes. But just to give you a little bit of color, I mean, it’s more of the same, Mike. We’re going to have network consolidation. We’ve got lean manufacturing initiatives. We’ve got better human resources, efficiency, sharper on materials, logistics, and everything else that we can throw at gross margin, because that’s what it takes.
Mike Matson: Okay, all right. And then just my only other question really just be around kind of the guidance for ’24, as well as the CGI, the longer-term guidance, particularly for revenue growth. I mean, if I look at what you’ve done over the past few years, you’ve kind of been more high single digits organically, and this guidance has kind of more mid-single digits. And so, I mean, I understand you’re probably trying to be somewhat conservative, but is there, and I saw the call out about the SKU rationalization, but I mean, is there anything else that you would point to in terms of things that have maybe changed or something that would prevent you from being able to grow high single digits potentially? I mean, I’m not asking you to guide there, but just wondering if there’s other headwinds, I guess, that you’re baking in or something there?
Raul Parra: Well, look, I think, look, I think when we threw out, you know, foundations for growth, I mean, I think, none of us anticipated all the headwinds we would have seen, right? I think everything in the kitchen sink was thrown in there from what everybody saw and everybody had to experience. But look, we feel really confident in that low-end a CAGR of 5%. I think, we think it’s realistic and achievable, and it allows us to say no to certain things, quite frankly. And so, I think we feel comfortable with the numbers at 5% to 7%, and I will just leave it at that. I think we always aspire to do better, but 5, you know, a minimum of 5 is what we’re committing to.
Mike Matson: Okay, I understand. Thank you.
Raul Parra: Yes.
Operator: Thank you. One moment for our next question. Our next question comes from Jason Bednar with Piper Sandler. Your line is now open.
Jason Bednar: Hey, guys, thanks for taking the follow-up. Just one quick one and you’ve obviously trained us all well since I don’t think anybody’s asked on China here. So, I’ll do it for the group. You know, the guidance here for 2024, you’re saying China revenue down due to VVP, just more of a fact check or clarification. Is this simply an extension of the VVP that we’ve all talked about from 2023, the second half of 2023, or is it something new that is now developing and hitting here in 2024?
Raul Parra: Yes, so, I mean, we’re not going to give additional color, but I think you’re on the right track there, Jason. Again, we’re not going to provide country-specific growth rates. I think we called out the 4% decline in the APAC region, of which most of it is related to, actually, all of it is related to China. But I will say that, we continue to expect a volume to grow on a year-over-year basis. But obviously, we are seeing a decline due to the continued headwinds related to volume-based purchasing. And it’s just something that we’ve been managing through over the last several years, and it’s baked into our 5% to 7%.
Jason Bednar: Okay, perfect. Thank you.
Operator: Thank you. I’m showing no further questions at this time. I would now like to turn it back to Fred Lampropoulos for closing remarks.
Fred Lampropoulos: Well, again, to everybody, thank you for joining us today. It was a long call with a lot to cover. We appreciate the questions and the opportunity to present to you. Just in closing, a reminder that we put our shoulders to the wheel. We worked hard. We had every single employee in this company aligned with the company objectives, department objectives, and individual objectives. So we are all aligned as a company, and we expect to be able to deliver exactly what we said over our next three-year program, which we didn’t have to do. We felt it actually helped us. We believe being on the line and being accountable is the right thing to do, and we’ll look forward to reporting to you in the future. So best wishes from Salt Lake City.
Just a quick reminder, the SIR Meeting starts in late March. It’s being held in Salt Lake City this year. It’s Merit’s biggest show. We hope you get a chance to go out here and take a look at Salt Lake, the SIR meeting, and even maybe an opportunity to come to Merit. So, best wishes and good night from Salt Lake City.
Operator: That does conclude our conference call for today. Thank you for your participation.
