Welcome to the first quarter of fiscal year 2023 earnings conference call for Merit Medical Systems Inc. At this time, all participants have in place in listen only mode. Please note that the conference call is being recorded and that the recording will be available on the company's website for replay 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, sir. Thank you. Welcome everyone to Merit Medical Systems' first quarter of fiscal year 2023 earnings conference call. 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? Thank you, Fred. I would like to remind everyone that this presentation contains forward-looking statements that receive Safe harbor protection under federal securities laws. Although we believe these forward-looking statements are based on reasonable assumptions, they are subject to unknown 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 those currently anticipated. In addition, any forward-looking statements represent our views only as of today, April 26th, 2023, 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 section entitled Cautionary Statement regarding forward-looking statements in today's presentation for important information regarding such statements. Please also refer to our most recent filings with the SEC for a discussion of factors that could cause actual results to differ from these forward-looking statements. 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 section of our presentation entitled Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers 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 investor's page of our website. I will now turn the call back to Fred. Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue results for the first quarter. After my opening remarks, Raul will provide you with a more in-depth review of our quarterly financial results and the formal financial guidance for 2023 that we updated in today's press release, as well as a summary of our balance sheet and financial condition as of March 31, 2023. We'll then open the call for questions. Beginning with a review of our first quarter revenue performance, we reported GAAP revenue of $297.6 million in the first quarter, up 8% year-over-year. Our total GAAP revenue growth was driven by 12% growth in the United States and 3% growth in international sales. Our total revenue increased 9.8% year-over-year in the first quarter on an organic constant currency basis, excluding the headwind to our GAAP revenue growth related to changes in exchange rates compared to the prior year period. Our first quarter revenue results were notably the stronger than the growth expectations that we outlined on our fourth quarter call. Specifically, we shared our expectation for constant currency revenue growth in the range of 3%-5% year-over-year in quarter one. Now, let me provide you with a more 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 are on a year-over-year and constant currency basis. We have included reconciliations from our GAAP reported results to the related non-GAAP item in our press release and presentation available on our website. First quarter total revenue growth was driven by 10% growth in our cardiovascular segment and 14% growth in our endoscopy segment. While constant currency growth exceeded the high end of our expectations in both segments, our cardiovascular segment drove nearly all of the revenue upside versus the high end of our expectations in quarter one. Sales of our Peripheral Intervention products increased 9%, representing the largest driver of total cardiovascular segment growth again this quarter. Within the PI product category, sales of both our drainage products and our access products increased 13% and together represented roughly 41% of total PI growth year-over-year. Sales of our radar localization biopsy and angiography products increased 10% and together represented roughly 39% of our total PI growth in Q1. Of note, while the portfolio of products in our PI category continues to be the largest driver of growth in our cardiovascular segment, I believe it is important to appreciate the value of contributions to our total PI growth in recent years they come from our highly differentiated SCOUT Radar Localization product line. We have been pleased with the market response to our SCOUT Mini Reflector following the commercial launch in the first half of 2022. Continuing on with a discussion of our Q1 revenue growth drivers, sales of our OEM products increased 24% and were the second largest contributor to our total cardiovascular segment growth year-over-year. These results exceeded the high end of our growth expectations, which we attribute to continued improving demand from larger customers in multiple categories, including our EP and CRM kits and intervention products, which together increased more than 50% over year-over-year in quarter one. Cardiac intervention products sales increased 7% in quarter one, with the three largest contributors to total CI growth coming from a 12% increase in sales of angiography products and a 15% growth in sales of both our access products and our EP CRM products. angiography products growth was driven by strong growth in sales of the InQwire diagnostic guide wires. Access products growth was driven by high teens growth in sales of our Prelude IDeal and Prelude Radial sheaths. EP/CRM products growth was driven by strong demand for our SNAP and our HeartSpan sheaths, as well as our SafeGuard Focus Cool compression device, which is receiving positive market response following the commercial launch in August of last year. Sales of our Custom Procedural Solutions, or CPS products, increased 6%, which was notably better than the mid- to high single-digit growth declines we expected in Q1. This upside was driven primarily by stronger than expected demand for our CPS products from customers outside the U.S., specifically in Germany, the Middle East and China, where sales increased in low double-digits year-over-year in Q1. Finally, sales in our endoscopy segment increased 14%, which was modestly better than the high end of our growth expectations. While we are pleased to see the business return to growth in quarter one as expected, endoscopy results continue to experience business disruption as we continue to navigate material shortages and work on qualifications for our new vendor. However, our guidance continues to assume improving trends as we move through the year, which we expect will result in mid-teens growth for our endoscopy business in 2023. Now turning to a brief summary of our sales performance on a geographic basis. Our first quarter sales in the U.S. increased 11% year-over-year. Sales to U.S. customers came in roughly $5 million higher than the high end of our growth expectations and represented 62% of our total company constant currency growth this quarter. Our U.S. growth performance reflects continued strong execution and overall improving trends in the U.S. market, particularly in the month of March. International sales increased 9% year-over-year, which is strong performance in light of the challenging global macro environment in certain international markets. All three of our major regions posted growth above the high end of our expectation, with sales in the EMEA, APAC and rest of world regions increasing 17%, 2%, and 7% respectively year-over-year. While we are pleased to deliver international growth ahead of what our guidance has assumed, as expected, our international growth was materially impacted by COVID-related headwinds in China, our largest OUS market. Sales in China declined in the high single- digits year-over-year in Q1, which exceeded our expectations due primarily to material improvements in trends in March. Excluding China, our total international growth was nearly 17% in Q1. Now, while we are pleased with all three regions, which contribute to the stronger than expected growth, we saw the most upside versus expectations in the EMEA region, where the region's year-over-year growth was primarily driven by demand in France, Germany, the Middle East and Spain. Excluding China, sales in APAC increased 21%, fueled by mid-teens growth in Japan and strong contributions in growth from sales to customers in both Australia and Korea. Lastly, in our rest of world region, we delivered 7% growth year-over-year, driven by solid growth in Latin America, Brazil, and Mexico, partially offset by high single-digit declines in Canada compared to the prior year period. In summary, we couldn't be happier with the strong start to fiscal year 2023. We are certainly encouraged by the improving growth trends in both the U.S. and international markets. We recognize that the impressive results we delivered in quarter one are a direct result of our team's continued focus on executing our multi-year strategic plan. In a few moments, Raul will review our financial results for the quarter and the updated guidance which we announced in our press release this afternoon. I expect you will share my view that our financial performance in Q1 continues to demonstrate that the team's hard work and commitment to our Foundations for Growth program is paying off. Non-GAAP gross and operating margins of 50.1% and 16.1% respectively, and more than 20% growth year-over-year in both non-GAAP net income and non-GAAP earnings per share. Clearly, we are very, very proud of significant year-over-year improvements in profitability we delivered in the first quarter. That said, we're not losing focus, and we know we have a lot of work yet to do this year. We have updated our 2023 financial guidance to reflect the better-than-expected financial results in the first quarter. Importantly, we remain confident in our team's ability to deliver continued progress in the three-year, and in year three, excuse me, of our Foundations for Growth program and the related financial targets for the three-year period ending December 31, 2023, which call for our constant currency organic revenue growth to increase at a CAGR of at least 5%, non-GAAP operating margins of at least 18%, and cumulative free cash flow of more than $300 million. With that said, let me turn the call over to Raul, who will take you through a detailed review of our first quarter financial results and our 2023 financial guidance, which we updated in today's press release. Raul. Thank you, Fred. Given Fred's detailed discussion of our revenue results, I will begin with a review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the first quarter of fiscal year 2023. We have included reconciliations from our GAAP reported results to the related non-GAAP items in our press release and presentation available on our website. Gross profit increased approximately 13% year-over-year in the first quarter. Our gross margin for the first quarter was 50.1% compared to 47.7% in the prior year period, representing the highest first quarter gross margin in the company's history. The year-over-year increase in gross margin was primarily due to favorable changes in product mix, improved obsolescence expense, freight and distribution, as well as other FFG-related efficiencies. As expected, our first quarter gross margins were impacted by the inflationary headwinds we are seeing in freight, logistics, labor, and raw materials. The 230 basis point increase in gross margins year-over-year exceeded the high end of the expectations we outlined on our Q4 call, which called for gross margins to increase 90 basis points-190 basis points year-over-year, due primarily to fixed cost leverage on the better-than-expected sales performance in the period. Operating expenses increased 11% year-over-year in the first quarter. The year-over-year increase in operating expenses was driven by a 10% increase in SG&A expense and a 14% increase in R&D expense compared to the prior year period. Our operating expense performance in Q1 was better than expected and reflects strong operating leverage due to our continued focus on expense management and prioritization of investments to support our future growth initiatives. Total operating income in the first quarter increased $7.7 million or 19% year-over-year to $48 million. Our operating margin for Q1 was 16.1% compared to 14.6% in the prior year period. The 150 basis point increase in operating margin was driven by a 230 basis point increase in our non-GAAP gross margin, offset partially by an 80 basis point increase in our non-GAAP OpEx margin compared to the prior year period. First quarter other expense net was $0.7 million compared to $0.9 million last year. The change in other expense net was primarily related to decreased expense from realized and unrealized foreign currency losses compared to the prior year period, partially offset by increased interest expense due to higher effective interest rates year-over-year. Note our other expense net line was roughly $1 million lower than what our guidance had assumed as a result of lower non-cash expense realized on foreign currency gain loss in the period. First quarter net income was $37.5 million or $0.64 per share, compared to $30.4 million or $0.53 per share in the prior year period. We are pleased with our profitability performance in the first quarter, where we delivered 23% growth year-over-year in non-GAAP net income and 22% growth year-over-year in non-GAAP Diluted Earnings Per Share, exceeding the high end of our expectations. Turning to a review of our balance sheet and financial condition. As of March 31st, 2023, we had cash and cash equivalents of $57.9 million, total debt obligations of $197.8 million, and available borrowing capacity of approximately $521 million, compared to cash equivalents of $58.4 million, total debt obligations of $198.2 million, and available borrowing capacity of approximately $523 million as of December 31st, 2022. Our net leverage ratio as of March 31st was 0.6x on an adjusted basis. We generated $1.8 million of free cash flow in the first quarter. Cash from operations increased 21% year-over-year in the first quarter, driven by the strong improvements in GAAP net income year-over-year, offset partially by a 11% increase year-over-year in the use of cash for working capital. In recent quarters, we have discussed our strategy to proactively invest in our inventory balances to build the requisite safety stock and ensure high customer service levels. Our free cash flow generation was also impacted by a 34% increase year-over-year in cash invested in capital expenditures. Turning to a review of our updated fiscal year 2023 financial guidance. We have included a table in our earnings press release which details the updated ranges for each of our formal financial guidance items and how those ranges compare to both prior guidance and the prior year period. We now expect GAAP net revenues growth of approximately 6%-7% year-over-year, compared to 4%-5% previously. The updated GAAP net revenue range now assumes a headwind from the changes in foreign currency exchange rates of approximately $3.5 million-$4 million, representing a headwind to our forecasted GAAP growth rate of 30 basis points-40 basis points, compared to our prior guidance range, which assumed $10 million-$11 million and 90 basis points-100 basis points, respectively. The GAAP net revenue guidance range now assumes net revenue growth of approximately 5%-6% in our cardiovascular segment and net revenue growth of approximately 15%-16% in our endoscopy segment. The increase in the low end of both these growth ranges reflects a stronger than expected revenue results from the first quarter. Note, the midpoint of our 2023 constant currency sales growth expectations now assumes approximate 6% growth year-over-year in the U.S. and approximately 7% growth year-over-year in OUS markets. Both of these expectations are roughly 100 basis points higher than our prior guidance assumptions, which again reflect a stronger than expected revenue results from the first quarter. With respect to profitability guidance for 2023, we now expect GAAP net income in the range of approximately $100 million-$105 million, unchanged from prior guidance, and GAAP Diluted Earnings Per Share of $1.71-$1.79 versus $1.72-$1.80 per diluted share previously. And non-GAAP net income in the range of approximately $166 million-$171 million, or $2.83-$2.93 per diluted share, compared to $163 million-$168 million or $2.80-$2.89 per diluted share previously. For modeling purposes, our fiscal year 2023 financial guidance assumes non-GAAP gross margins in the range of approximately 50.7%-51%, reflecting a 30 basis point increase at the low end versus prior guidance assumptions. Non-GAAP operating margins in a range of approximately 18%-18.2%. GAAP and non-GAAP other expense of approximately $6.6 million and $6 million, respectively, both of which reflect a $1 million lower expense versus guidance, which benefited our first quarter results that I discussed earlier. Non-GAAP tax rate in the range of 21.5%-22.5% versus approximately 21% previously, and diluted shares outstanding of approximately 58 million. We continue to expect CapEx in the range of $55 million-$60 million and free cash flow of approximately $115 million. Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2023. Specifically, we expect our total revenue to increase in the range of approximately 4%-6% year-over-year on a GAAP basis, up approximately 5%-7% year-over-year on a constant currency basis. Note that the midpoint of our second quarter constant currency sales growth expectations assumes approximately 6% growth year-over-year in the U.S. and approximately 7% growth year-over-year in OUS markets. With respect to our profitability expectations for the second quarter, we expect to see non-GAAP gross margins increase in the range of 70 basis points-130 basis points year-over-year. We also expect to see non-GAAP operating margin in a range of down 20 basis points to down 60 basis points year-over-year. These margin expectations, combined with higher interest expense year-over-year, are expected to drive a year-over-year change in non-GAAP EPS in the range of flat year-over-year on the low end to up mid-single digits year-over-year on the high end of the range. That wraps up our prepared remarks. Operator, we would now like to open up the line for questions. Thank you, sir. If you'd like to ask a question, please signal by pressing star one one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask any additional questions, we invite you to add yourself to the queue again by pressing star one one. One moment for our first question. Our first question will comes the line of Steve Lichtman from Oppenheimer. Go ahead. Your line is open. Thank you. Evening, guys. Really balanced strength here on the top line in the first quarter. I guess just for my question and my follow-up up front here, just touching on a couple of different areas. One, you know, OEM, very solid again. If you talk about the drivers there and what you think is sort of the sustainable growth looking ahead for that segment. Secondly, just in China, as we think geographically, given the strength in March, you know, how are you feeling overall about the outlook for your business in China? Thanks. Yeah, Steve, hey, thank you very much. Listen, I think the OEM issue really comes down to increased procedural growth rate and, to be very candid with you, reliability. I mean, people buy the product because we can deliver the product. I think you take those two factors, and those really spell out what the OEM opportunity is. In terms of sustainability, we're just gonna stay within our forecast for the year, and if we see other things, we'll discuss that in further calls. As you can see, it, the business is doing well there and, we're very, very pleased with the OEM. Raul, do you wanna pick up the China question? Yeah. Look, I think I'll start off with just saying, you know, our international sales, you know, grew up 9% on a constant currency basis. Essentially all three of our major regions posted above the high end of our expectations, which I think we were really excited about. As expected, you know, our OUS growth was impacted by the COVID-related headwinds in China which we expected. I will call out that, you know, excluding China, our international sales were up, you know, nearly 17% on a constant currency basis. I think we're, you know, excited how China came back in March, and we'll see how the rest of the year pans out. Excited about how our international sales did, you know, excluding that impact. Great. Thanks, Fred and Raul. Thank you. One moment for our next question. Our next question comes the line of Jayson Bedford from Raymond James. Your line is open. Hi, good afternoon and, excuse me, congrats on the success here. Just a couple. On your comments on the strength in March, particularly in the U.S., Fred, you've been doing this for a few years. I'm just curious, why do you think March was so strong and kind of what are you seeing out there, either from a procedure standpoint or even a company-specific standpoint that maybe perhaps you're gaining a bit more share than others? Yeah. listen, I think, Jason, as I mentioned in my previous you know, comments on OEM, a lot of it's reliability and Merit's ability to deliver, while others are maybe still trying to catch up, and the procedure growth rate. I mean, you take those things, it's kinda consistent across the board, globally is our ability to do that, the vertical integration, other things that we do as a business, I think are playing well, have in the past, and we think will play well in the future as well. That's the best way- But, uh- Yeah, go ahead. I guess I'm wondering, do you think there's kind of a catch-up of procedures out there? Is it an access situation here where hospital staffing has come down to allow hospitals to perform these more procedures? I'm just kinda curious from a macro perspective. Yeah. What's driving it? It's the question of the day. You know, we get this all the time. I was talking to another senior executive of a large medical device company. They were still talking about the issues of staffing. We see some trends in staffing. On the other side of the coin, I think that you are seeing, there's some pent-up demand out there, clearly. I think it's gonna be out there for a while. I think all of the factors, all of the macro factors in my view, our view as a company, I think, are playing in Merit's favor. Okay. Just on gross margin, it was clearly quite strong in the first quarter. You lifted the gross margin guide, the operating margin assumption didn't really change for the year. I'm just curious as to where the incremental reinvestment is going. Yeah. I'm gonna pick up the front end and let Raul talk on the back. Listen, we talked about in previous calls about sales meetings. We talked about trade shows and those things. We talked about making those investments in our previous phone calls, saying they were coming as this COVID situation unwrapped. In fact, you know, we have a couple of trade shows this week. It really is trade shows and sales meetings. Just briefly on the sales meetings, I attended them and it's just nothing like getting the team together, talking about their successes, their opportunities and you know, the camaraderie that comes with all of that is important in any type of organization. I've seen it through my military career and my business career. Raul, do you wanna pick up the gross margin part? Yeah. Look, I think on the gross margin, you know, clearly the strong sales, you know, allowed us to better cover our fixed coverage, you know, so that helped the gross margin kind of exceed, you know, where we thought we'd end. Additionally, you know, on the operating margin targets. Look, I think, you know, one of the things that I'll call out, you know, it's kind of Foundations for Growth, right? There is a level of investment that we're making in the business, specifically as this gross margin comes in. We've been, you know, we've continued to talk about that prudent investment, in growth initiatives. I think it's really just about balancing, Jason, the growth that we're seeing, the profitability and our gross margin that we're seeing, and then just making sure that we find the right balance between delivering, you know, increased profitability and just making sure that we have, you know, continued success on the growth side. Okay, thank you. One moment for our next question. Our next question comes the line of Mike Matson from Needham. Your line is open. Yeah, good afternoon. Thanks for taking my questions. I guess I'll start with, you know, gross margin was obviously really strong, and you called out product mix. I was wondering if you could maybe just talk about, you know, what you're seeing there, kind of the categories that are higher margin and maybe growing faster or some ones that are lower margin and maybe growing slower, driving that mix benefit. Yes. You know, I'll call out a couple of things first, right? We saw improved, you know, obsolescence expense. Obviously, the freight and distribution as we shift from ocean, sorry, from air to ocean is helping. We also have some related FFG initiatives that are flowing through that are helping it. On the product mix side, we continue to see growth in our Cianna product line, in our Peripheral Intervention mark areas. OEM was a strong player, too, which has increased gross margins. Just kind of a mix of different things, Mike. Can I add something, Raul, if I could just? I think with our Chief Commercial Officer and aligning all of our global initiatives and support is also something that just overall plays well for the business. That's Joe Wright and his team. I think it's a much more cohesive and effective unit in the commercial side that drives. Because remember, we're all tied, everybody in this company is tied to margins and results. When you line all that up, it's just really interesting to see what happens. Yeah, okay. it's more of a... This is more of a, kind of a deliberate effort on your part as opposed to just kind of something that happened. Oh, yeah. Everything You're deliberately powering this product. Yeah. That is our margin. Yeah. Yeah. Let me just tell you, everything out here is deliberate. Everybody gets undeliberate. They've got somebody in their office that got them in mind. I mean, It's very deliberate. Yeah. Just lastly, Mike, I mean, I think, you know, our guidance, you know, kind of previewed, you know, the gross margin that we were expecting, right? Slightly ahead of where we thought even just from a fixed cost leverage in Q1. Generally, you know, within the guidance that we've given. Okay, thanks. Kind of a related question, I guess, just I feel like when you started the Foundations for Growth program, I think one of the things you talked about was some SKU rationalization, product rationalization, some kind of lower margin categories and things like that. You know, I just wanted to get an update there. Is that sort of been accomplished? You know, is that maybe having an effect on or has that had an effect on gross margins? Yeah, look, it, SKU rationalization is a program. It, it's, quite frankly, a multi-year program, and if we're successful, you shouldn't notice other than gross margin accretion. You know, we've gotten rid of some PAC businesses, you know, in Australia, some PAC business in Ireland, in Europe also. That'll be, you know, that'll be kind of fully, you know, gone here, you know, by mid-year. Generally, it is one of the initiatives that we continue to work on, and again, it's a multi-year approach. Most of it is kind of we've got, you know, better, higher quality and higher gross margin products that we wanna replace it with. You know, Mike, some of it comes in efficiency too, where we might be, we have a catheter that we're selling hundreds of a month, and it might be 5 centimeters longer or shorter. Then we have something that we sell tens of thousands a month, and we move them over. That SKU rationalization comes not only just in low products, but also in margins there, but in the efficiency of manufacturing... Low runners. Yeah, low runners. Mm-hmm. I think we keep our customers happy. They're thrilled that we, you know, talked with them and worked this out and have this transition. That's why, you know, you have to do this in a sequence, and it has to be well-disciplined. You wanna keep your customers happy instead of someone. I've seen this happen with other players. They just go out and knock something off with no input, this or that, and they upset their customers. It's just not a smart way to do business. Yeah. That's what we've tried to do. Okay, great. Thank you. One moment for our next question. Our next question comes the line of James Sidoti from Sidoti. Your line is open. Hi, good afternoon, thanks for taking the questions. you know, there's been a couple of years I looked back where Q1 exceeded Q4, but it isn't very common, especially when you have a slowdown in China due to COVID. it's especially impressive this year. you know, were there any one-time things in the quarter, or is it just the procedures are starting to come back? Listen, I think it's execution. I think it's the coordination of selling organizations throughout the world and messaging. I think part of it is increased procedure growth rates that we talked about, particularly, I know, in later in the first quarter. We're seeing those kinds of things, Jim, but nothing that I'm aware of. Raul? I'm not aware of any one-time anythings. No, I mean, you know, our guidance is built on, you know, things kind of opening up over the year. We'll, we'll see, you know, March is one month and, you know, the quarter's one month. We'll see how the rest of the stuff, you know, but we're excited of how things have trended so far. Has pricing been a factor? You know, I know you have thousands of products, so it's hard to say what your average price increase in, but how much of the growth would you estimate came from pricing? That's a great question, Jim, but you know, I we're not gonna, you know, discuss that on the call, or we just don't we actually don't disclose that publicly. I will say that most of our growth continues to be volume, and pricing is a benefit that we're getting and, you know, continue to expect to get. Okay. on the expense front, R&D up, you know, $3 million or $4 million in the quarter. Is that due to trials or what's going into that? Yeah, trials and just making sure that we invest, you know, continue to invest in the business. Again, I think what we're trying to do is make sure that we're prudent about, you know, the way we deliver profits, but also continue to invest in the business. Okay. Last one for me, inventory. You noted how, you know, that increased from the beginning of the year. Is that all safety stock? Is that anticipation of continued strong growth in the rest of the year? What can we read out of that? Yeah, look, a large part of it is really kind of our strategy just to make sure that we can maintain the customer service levels that we, you know, that our customers expect of us. We've been in a good position that we've been able to deliver product, and we wanna continue to be able to do that. Secondarily, we've got, you know, the shift from air to ocean, which does require a little bit more inventory, you know, as it. The lag. Yeah, in the lag. Then also just, you know, some of the site consolidations and product line transfers that we have. It's a combination of a few things, but mostly it's really just about making sure that we can meet our customer's needs. Do you think you'll see a similar increase in the second quarter? Or do you think you're, you know, you've already built it up to the point where it's gonna be more of a slower increase? You know, we don't give intra-quarter, you know, or intra-month, you know, guidance on free cash flow just because of the timing of things. We haven't changed our free cash flow target of $115 million. I'm gonna leave it at that, Jim, if you're okay with that. Yep. Understood. Got it. Thank you. One moment for our next question. Our next question will come from the line of Jason Bednar from Piper Sandler. Your line is open. Hey, good afternoon. Thanks for taking the questions and congrats to a really nice start to the year, guys. Thanks. You know, apologies in advance, man, this been covered. I've been hopping in between a couple of calls here. Raul, just to start with you, really maybe just trying to understand the components of the full year guide at the revenue line. As we've got 1 Q in the books, we have kind of the 2 Q formal or informal guidance, however you wanna think about it, that's out there now. I think when I put this together and, again, I still need to work through some of the elements of the model, but I think this implies a slight decel in the growth in the second half of the year. I think the comps are actually a bit easier though in the second half. Pricing probably is getting a little bit better. China's probably better in the second half than the first half. maybe just help with the sequencing as we think through the factors influencing like that, the cadence of that organic growth. Yeah, we really didn't change any of the assumptions, you know, from Q2 - Q4. you know, it's really what you're seeing from a guidance perspective or the updated guidance is a strong Q1. Again, what we saw is, you know, January, February in line with our expectations and then a very strong March. We don't wanna go out and get ahead of ourselves, Jason. I think what we wanna see is, you know let's see if this one month turns into, you know, three months and then, you know, six months and then a full year. I think that's where we're at. Again, nothing, not much has changed in the back half. Okay. Yeah, fair enough. On the, on the free cash flow outlook, maybe building on a little bit of Jim's question there in, previously, how do we think about the cadence of the $115 million coming through, you know, working towards moving all the way back to ocean, versus air freight? How should we think about the, the capital allocation here this year? Is it still the working assumption you just continue to pay down debt? Yeah. We'll continue to pay down debt. Again, I think $115 million is still our target for the year. We did talk about some timing-based, you know, items in our Q4 call just a couple months ago, related to Q1. We don't give intra-quarter, you know, information on free cash flow just because it's so tricky on a, you know, timing base. Look, we haven't changed our target yet, I think hopefully that gives you the confidence that, you know, we see in here. Yeah. No, definitely. Okay. Fred or Raul, you know, you're clearly picking up share here in the market, have been for multiple years now. Maybe talk about the competitive landscape as it stands today as we look out across your key geographies, the U.S., Europe, and China. Any shifts or changes that are worth calling out? You know, I think, Jason, that the real factor is our ability to provide product, and the reliability. That's where this comes from, and that goes back to vertical integration and all the things we've talked about for a very long time. It's really the core of Merit's business, is the opportunity you heard Raul say several times on this call is, you know, getting the product to customers and the reliability. Everybody's out there fighting for the same healthcare dollar, and the question is, who does it better? Our goal is to just continually improve to meet that need, and also, as was pointed out, to invest in the business for new products that make it easier for physicians, and technicians to be able to do their job. It's kind of the same thing we've been doing for a long time, but with maybe a little bit more of a sharpened focus. All right. Well, congrats again. Thank you very much. One moment for our next question. Our next question comes from the line of Michael Petusky from Barrington Research. Your line is open. Hey, good evening, guys. I guess slightly beating the dead horse. I just wanna ask the free cash flow generation in the first quarter, and I understand certainly that Q1 is always gonna be the lowest, but I mean, did that come in a little soft even relative to internal or was that actually work, you know, relatively in line? Again, Mike, I think we talked about it being, you know, soft in Q1. I, you know, as a matter of fact, I believe you asked the question, right? You know, "Hey, you know, what's the cadence of free cash flow?" Again, I always call out Q1 because it is lighter- Yeah. than what we expect. I'll just leave it at that. You know, again, we haven't changed our free cash flow target for the year. Hopefully that gives you some confidence of where we're at. Okay. Fair enough. I didn't catch the, the commentary about China in March. It sounded like you said it got better, but did you quantify that or just essentially say, "Hey, China got better in March? Yeah, no quantification. Just China got better. You're right, it exceeded our expectations. You know, so hopefully that'll continue. I guess Fred, in terms of, you know, what you guys are seeing out there in terms of assets, I mean, are you seeing more? What kind of valuations are you seeing? Or, you know, with interest rates where they are, I mean, how has that changed the landscape? I mean, and I guess your thinking about assets? Yeah. You could just talk about that. Thanks. Yeah. Listen, I think it's changed substantially, not enough necessarily, to what we'd like to see. I think there were a lot of very high expectations out there. We see a lot of things coming across our desk. We look at them. Again, the best way we put it, Mike, is that we are looking for things that, you know, fit our sales channels, things that are complementary to our Foundations for Growth, and are, you know, the profitability, all the things that we talked about. We are seeing things though loosen up. As you know, and we've said before on previous calls, things were just simply too expensive. I think that's you know, without getting too prophetic here, I mean, we talked about that, it just didn't make sense to us to be, you know, on these prices. Things are loosening. There's more availability. A lot of them are still those startups or those companies that are not making money. That's not of much interest, but at the same time, there are assets starting to show up, and we'll like, look at them and see if they meet our criteria. Raul? Yeah, I'll just add that, you know, I mean, I think if you look at our growth, you know, we continue to, you know, display pretty strong growth. I think we can continue to exercise patience, and we don't have to do anything because we don't, you know, we're not suffering from a growth. It's a really good point, Raul. We don't have to do anything, but we can be opportunistic. That's right. If the opportunity comes by, so. Just real quick. Let me sneak one more in. One question that I've gotten increasingly the last few months regarding Merit, and I think this is truly a compliment to you guys, and how you've executed 2/3 of the way in or a little more than 2/3 of the way in on the Foundations for Growth. I've had multiple questions from investors about, do I think that Merit will do some other multi-year sort of target plan after 2023 is over? I understand you're super focused, hyper-focused on executing what you've put out there. Do you have any comment on whether it's likely you'll do something similar going forward? Thanks. Yeah. I can tell you that Raul and I would do a duet on this, and it sound, you know, exactly like that. Give him your part of the duet there, Raul, 'cause I have the same answer. Yeah. I mean, I think the way to look at it is, the way we look at it internally is we don't wanna be that wide-open receiver that drops the ball at the one-yard line. We wanna. I understand everybody's, you know, focus of, you know, past 2023, but we are just hyper-focused on making sure we cross that finish line, we score that touchdown, and that's where we're at. Mike, we are all aligned to that goal. Every single person in this company is aligned on that goal in a compensation, goals, company, individual, departments, and so on and so forth. That's eye on the ball until... You know, they talk about football. I'm a baseball guy. I mean, you know, we gotta get the last out in the ninth inning, then you win the World Series. You don't win it in the sixth inning. Or what it would say, well, I guess it would be, if you had four quarters, 12, it's the 11th inning, we're playing extra innings. We just wanna finish it up, and that's what you'll hear us say. I t's very consistent, and then we'll talk about where we go from there. Fred, the only comment I have on that is, given the state of the Red Sox, I'm surprised you're still a baseball fan, but good luck. Thanks. Thanks, guys. Thank you. You know, that's a cheap shot, Mike. Not only that, I got an Orioles guy sitting in the room here with me, and they won six to two today. I'm really hurt. I'm very, very hurt over that comment. I'm sorry, Fred. I'm sorry. Yeah, especially a guy from Chicago. Come on. All right. Thanks, Mike. One moment for our next question. Our next question comes from the line of William Plovanic from Canaccord. Your line is open. Great. Thanks for taking my questions. I just have two. One is, you know, looking at the business today and understanding, you know, everything you've done, what do you think peak operating margins could be for this business eventually? My second question, I'll give it and then I'll, go on mute, is, you know, one of the questions that I get from investors is, you know, Fred, you've built this company since the 80s, you've done a phenomenal job. You know, how should we think about, you know, is there some point which you step down? Is there succession planning, or how do we think about that? Thanks for taking my questions. Yeah, you're welcome. Let me hit that, the last one there. Listen, we have a formal program. We will have an announcement by this year in the second half of the year that lays it out in a public release to everybody. You shouldn't read into that that's the end. I wanna make sure that's clear, but it'll spell out the succession program that's being run by our ESG and our comp committee. That will come out formally and that'll answer your question. In terms of peak performance, we just don't talk about that. Remember that goal line, Bill? It's the home plate, the goal line, the net. That's it. Touchdown. Touchdown. Yeah. We'll cross that bridge when it's time to cross. It's not at this point, and we wanna stay consistent. There was silence. All right. Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Fred for any closing remarks. Well, ladies and gentlemen, thank you very much for your time. There's a lot of calls out there. I know you're busy, we'll just again thank you once again. We appreciate it, and we'll sign off now from Salt Lake City. Raul and I will be available for the next few hours to answer questions, and we'll talk to you then. Thank you very much and good evening. That does conclude our conference call for today. Thank you for your participation. Everyone, have a great evening.