Good afternoon, ladies and gentlemen, and welcome to the Fourth Quarter 2020 Earnings Conference Call for Merit Medical Systems, Inc. . Please note that this 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, Liz, and welcome, everyone, to Merit Medical's Fourth Quarter 2020 Earnings Conference Call. I'm 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 provisions, please?.

Thank you, Fred. Before we get started, 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 upon reasonable assumptions, they are subject to unknown risks and uncertainties.

The realization of any of these risks or uncertainties, including the unpredictable effect of the ongoing COVID-19 pandemic 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, February 24, 2021, 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 disclosure 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.

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 presentation entitled non-GAAP financial measures and notes to non-GAAP financial measures, for important information regarding non-GAAP financial measures discussed on this call.

Readers 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, Fred. Given Fred's detailed review 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 fourth quarter of 2020.

We have included full reconciliations from our GAAP reported results to the related non-GAAP item in our press release this afternoon. Gross profit decreased approximately 1% year-over-year in the fourth quarter. Our gross margin was 47.9% compared to 48.3% in the prior year period.

The approximate 40 basis point decline in gross margin year-over-year was driven primarily by changes in product mix, partially offset by improvements in manufacturing efficiencies. .

the suspension of Merit's distribution agreement with NinePoint Medical in the first quarter of 2020, the closure of the ITL Healthcare procedure pack business in our Australian facility and the disposition of assets related to the manufacturing of Merit's Hypotube product in August 2020.

Together, these businesses contributed revenue of approximately 11.1% -- excuse me, $11.1 million during the fiscal year 2020 and will not contribute to our revenue results in 2021.

Second, our 2020 revenue results benefited from the sales of Cultura nasopharyngeal swab and test kits used to collect and transport samples for COVID-19 testing which we developed, manufactured and distributed beginning in the second quarter of 2020 in response to the critical need as a result of the COVID-19 pandemic.

The Cultura swab initiative was a direct response by our organization to help the state of Utah and our neighbors and to prepare for a swab shortage in April of last year, as we quickly directed resources to the development of this kit and our engineers, technicians and marketers and production staff worked tirelessly, weekends, holidays, to bring this important product to market in 30 days.

We believe this represents a great example of not only Merit's strong R&D and manufacturing capabilities, but our ability to adapt quickly to the changes in our markets and to respond to time-sensitive demand from our customers.

Importantly, Cultura is not a core product line for merit going forward and we expect to gain approximately $1 million to $2 million in sales from this product line in 2021 compared to more than $19 million in 2020. This represents a material headwind to our year-over-year revenue profile for 2021.

The third item I wanted to highlight for investors to consider when evaluating our 2021 revenue growth profile is the key assumption that impacts our APAC revenue over the second half of 2021.

Our revenue guidance includes approximately $11 million to $12 million of headwind related to lower pricing as a result of tenders over the second half of 2021.

Overall, we expect our total revenue in China to increase in the low single digits year-over-year in 2021, despite the expected pricing headwind as a result of strong unit growth during the year.

While we are pleased to see the strong demand driving unit growth such that we were able to offset the expected pricing headwind related to tenders this year, we note that the $11 million to $12 million of lower pricing represents approximately 120 basis points headwind to our total company constant currency growth.

Now I'd just add a little color here. This is, of course, China, and these are the various issues that have to do with more local sourcing and a number of the other initiatives by the Chinese government.

We've built them into our forecast -- whether they come or not, we don't know, but we thought it was really important for us to put this and to talk about this because there's a lot of discussion about these kinds of issues. Not only have we heard this, but from other companies.

Now excluding the revenue contributions in 2020 from exited businesses and the sales of Cultura as well as the expected pricing headwinds from China tenders over the second half, our total revenue guidance for fiscal year 2021 reflects growth in the range of 6.5% to 8.5% year-over-year on a constant currency basis.

Now while we expect to see measured improvements in our operating environment as we move through 2021, fueled by the wider availability of vaccines and an increasing percentage of vaccinated Americans, our guidance assumes no material improvement in the operating environment, access to patient elective procedures over the first half of 2021.

As Raul outlined earlier, while we expect first quarter revenue to decline 5% year-over-year on a GAAP basis and 6% on a constant currency basis, the low end of our guidance still assumes constant currency revenue growth, excluding the impacts of the 3 items we discussed above, a 5.5% year-over-year over the first half of 2021.

Our guidance assumes progressive improvements in these headwinds and a return to normalized year-over-year growth trends in the third quarter of 2021.

We also expect to report improving non-GAAP gross and operating margins and strong free cash flow for 2021, driven by a strong execution and contributions from our multi-year strategic initiatives related to the foundations for growth program. That's a lot of information, but that kind of wraps it up.

And at this time, we'd like to turn the time over to Liz, and we'd now like to open it up for questions..

. And our first question will come from Mike Matson with Needham & Company..

So I guess I'll start with the tenders you're assuming in China, is this based on tenders that you're aware are actually going to be happening? Are you just kind of putting some cushion in there in case they do happen? And then do you expect this to be kind of an ongoing thing that recurs every year over time and maybe rotate through different product categories? Or is this more of a one-and-done type of thing?.

Yes. Thanks, Mike. Well, listen, what we've seen from other players, particularly in PTCA balloons and other types of things are these types of decreases that I think people like Medtronic and other companies have announced.

So looking at this and understanding that they've basically focused on cardiovascular products, we thought it prudent to be able to go through and make sure that we're not making excuses. We don't want to have to be explaining this on the back end of the year when we felt like this is a possibility.

So again, governments and changes in administration can change lots of things. We thought it wise, based on what we're hearing, what we see, but it's not something that we have a tender that's pending or a directive that we've received.

But with so much chatter and the local sourcing going on and what they call the single invoice program, we thought we'd be wise to do this. And so we budgeted this way for the year, and that's the basis for talking about this today..

Okay. And then your guidance also include -- your revenue guidance also includes some of the divestitures, the three that you mentioned or, I guess, business exits that you mentioned in 2020.

But what about in 2021? Are you planning to do any more of that sort of activity? I know that you're -- the long-range plan that you laid out kind of contemplated some of that.

So will we see more of that in '21? And will that potentially lead to guidance revisions if it does happen? Or would it have more of an effect in '22?.

Yes. Mike, we're not talking about that in advance. But it's really part of our 3-year plan and our foundations for growth. So as you know, that's a 3-year plan. We're 2 months into that. We will be moving a number of products to Mexico as part of our foundations for growth this year.

And that will be an ongoing, but we're not going into all of that at this point. If it was imminent or something like that, we had something on the table, we'd certainly lay it out there. But this is really just part of our 3-year plan. There will be more things to come, but nothing to announce or discuss today..

Our next question comes from Matt O'Brien with Piper Sandler..

This is Gerome on for Matt. I just wanted to start out a little bit on COVID. Appreciate the commentary on both the Q4 trends domestically and outside the U.S. We've heard fairly mixed things across medtech as far as Q1. So maybe you could kind of give us a flavor of whether things have gotten a little bit better, a little bit worse since last quarter.

And then you mentioned not assuming any material improvements to the operating environment.

I assume you mean from a patient throughput perspective, is that correct? And then just how material of a drag are you assuming in your guidance for that?.

Yes. Well, listen, we saw business soften somewhat in December and ahead of expectations through the first 2 months of the quarter, they're still locked down. They announced further lockdown in Ireland and this and that and the other. So I think in part of the COVID issue, we still see these locations, particularly in some of the emerging countries.

So I think in looking at this, we do have confidence in the second half of the year. We're seeing -- I mean, some of this is, of course, anecdotal, but like, for instance, we're seeing lower cases, and I think this is part of the national discussion, lower amounts of COVID cases, more people getting vaccinated.

But outside the U.S., there's still a lot of this lockdown there, and some people are talking about initiating even more. So I think that's kind of the way that we looked at it COVID. But -- so it's bumpy. It's -- there's pockets, but it's still not back to the point where it's totally under control, as we all know, and it's going to be a while.

And incidentally, if we could, Steve, I think this has kind of been the way we've been thinking about for a long time. We talked about this last year that we saw -- in the second half of '21. And one other thing that we also saw is the issues in the February weather. So we got hit reasons, not hard, but we suffered somewhat down in Texas.

Our plant was shut down. We had employees. We had to keep people away from work. We all watched this on the news last week, well we have a facility there, and that affects our ability to deliver. So that was another part of this, that we wanted to make sure that we contemplated as we considered the numbers that we wanted to use.

Raul, do you want to add anything to that?.

No. I mean I think you kind of see our reaction to it, right? I mean, for Q1, we've essentially said 5% down year-over-year. A lot -- a big portion of that is, obviously, the COVID related impact. And as Fred mentioned, the weather. So we're, I think, yes, we're expecting it..

Yes.

Does that answer your question, Steve?.

Yes, absolutely. And then on your foundations for growth call a couple of months ago, you were a little bit hesitant to provide a lot of detail on the margin cadence. But now, I guess, with guidance out there, maybe you could help us understand in a little bit more detail. I think the gross margin improvement was the big focus in the near term.

So maybe you could just kind of give us an idea of what you're baking into your 2021 guidance on the gross margin side? And then on the SKU rationalization, that's obviously a big component of it, have you started that process? And I guess, how far along are you and how much more do you have baked in for 2021?.

Yes. I'll answer the question in terms of we started it. The answer is yes, we have. We have met -- first of all, it was a lot of work done in the initial assessment part of that program. It's being driven internally by various teams and silo leaders. They've met with me. We've agreed on how we were going to proceed.

It's aggressive but necessary and something we've been needing to do. I will be meeting with them in a couple of weeks to get an update. So it is in full momentum in terms of SKU rationalization in a number of our business segments. So I'll answer that part, and then I'll turn the rest of it over to Raul to answer the other..

Yes. So on the gross margin, I think maybe to give you some color on how we get to the gross margin guidance for the year. There's really kind of 2 components of revenue mix. And the initial contributions from the FfG initiatives, including the ITL and Malvern activities.

So on the revenue mix, obviously, we're expecting, as the elective procedures come back, higher margins. And we've seen that essentially quarter-over-quarter since the bottom. In addition, geographic revenue mix, the U.S. is growing faster than OUS in 2021. So that contributes.

So I guess, if you kind of break down those 2 items -- at the lower end of the range, roughly 140, 150 basis points, roughly half of it is related to mix. And then the other half is related to FfG or foundations for growth. Obviously, the upper end would be driven by higher sales mix benefits..

Our next question comes from Steven Lichtman with Oppenheimer..

So obviously, as you think about the pipeline, and I appreciate, Fred, the update on WAVE that remains a big long-term target.

Wondering in the near term, what are some of the product lines that you're looking to in terms of sort of above corporate average growth here over the next 12 to 18 months?.

Yes. Thank you. Listen, 1 of the things that we've continued to do during this process is to keep our R&D going.

And we have, I think -- and I hate to say this, but we have about 10 products right now that have to do with inflation devices, electrophysiology products, vascular access and others that are part of things, but it's hard to get to the back committees. It's hard to get into the hospitals. There's still a lot of restrictions.

The good news is the products are -- have regulatory approvals, the products, either CE or the FDA, they have first locks to stock. The other side is we don't want to build inventories until we know that these products can get out there.

So we've not started that, and we expect that, I think I'm just trying to think about the number but let me just say that it would be in cadence, what we've done in previous years of additional new products that are being developed. So we haven't stopped.

We think once these things start to lift, it's going to be a very, very exciting time for the business, which is why we're optimistic, as we said in the second half of the year, because we believe at least our present belief is as things open up, that Merit is going to be in a -- just a terrific position with these new products.

The WRAPSODY itself in Europe is selling and selling well. And then, of course, as I mentioned in our comments, that we hope that in the next few weeks, we will start the trial. We have at least 4 hospitals that are ready to go, another 4 in the queue and many, many more after that for our WAVE study. And we'll be ready to go relatively soon.

So we'll give you more detail on that as we treat our first patient.

Raul, do you want to comment?.

No, no. Just -- I think our next announcement will be when we start enrolling. We'll let out a press release....

As soon as that first patient hits the deck and -- which is very soon -- then we'll go ahead and we'll -- and that's kind of a monumental thing because as you all know, we think a lot of this product and its future at Merit. So it's a big opportunity..

Great. And then just quickly, Raul, on free cash flow, obviously, again, solid in 2020.

What kind of range do you think we could see in 2021 if you're able to provide it or anything relative to inputs, if not, that you can provide in terms of CapEx or anything like that?.

Yes. I mean, look, I think for Capex, I think we were -- we kind of announced maybe a 3-year plan, right? So about $50 million per year, $35 million maintenance, $15 million for FfG related items. I think for free cash flow, we're going to go for approximately $90 million in 2021. We think that's a good number.

I know if you kind of compare it 2020, obviously, we had a big impact from working capital just because we did take inventory down as sales slowed, we didn't want to overbuild. So just as a heads up..

Our next question comes from Jim Sidoti with Sidoti & Company..

I hope you're all well. Just a couple more details on the quarter. I think you said for the year, the sales of the swab were around $19 million. And I'm looking back in my notes, I think you did about $4 million in the second quarter, about $9 million in the third.

So am I safe to assume that fourth quarter for that was about $5 million to $6 million?.

You are..

All right. And then you talked about it a little bit, and you mentioned it in the press release, there was an acquisition you did in the fourth quarter related to the embolic product line.

Can you just give me a little more detail as to what that was? And do you think that's something that will pull-through sales of embolic as well as the device you acquired?.

Yes. Thanks for asking, Jim. Listen, as you know, Merit is one of the leaders in Embospheres, QuadraSphere. These are really very, very small spheres that are used to embolize for UFEs and PAEs and so on and so forth. There are, however, larger areas and larger vessels that have to be blocked off.

You could have, for instance, in a trauma case, splenic artery bleed. I mean this is a critical issue, and you've got to get in there and you've got to block off that vessel. And you need a larger device. What people are doing today, as they oftentimes will take coils, and they will have to take one at a time, and you could see 10 coils in a patient.

Well, that takes time, and each one has to be individually moved. We bought this company that was founded by Kurt Amplatz. Dr. Amplatz -- well, first of all, the Amplatz name in medicine is the Amplatz Goose Neck Snare, the Amplatz Wire, the Amplatz catheter. And mean he was a tremendous innovator and physician, passed away about 15 to 16 months ago.

And he had this small company in which he had licensed out of AGA. Some of you will recall, Jim, that AGA was a company that had PFO devices and others that were sold to St. Jude for over $1 billion. But they licensed back some of these smaller devices and that's what we bought. So it's a license, which now is from Abbott because they acquired St.

Jude, for these devices that would be used for instance, if you're doing Y90, that is an isotope. If those things get into the stomach, the cure is worse than the disease.

So these are -- and you can go to the website, KA Medical, and look at them, and these are these micro -- these very, very small plugs that you would then deploy into these larger vessels and they go from 3 to 6 millimeters. And it takes one, and it usually will block that vessel off in 1 or 2 minutes.

So again, these are things that are used by an interventional radiologist, the same person that uses PVA, our EmboCube, our Torpedos and our Embosphere. And it's a tool that allows them to really get a larger part of this whole embolic market. So we're quite excited about the opportunity here.

And it will be something you'll be hearing more about as we go down the road in terms of how it fits in that hole. And yes, it will pull-through other opportunities, microcatheters, guidewires and other embolics. Because sometimes, they'll use this as a primary and then they'll chase it with, let's say, with PVA or with gelfoam.

So you got me pretty excited about, as you can see, I know a lot about the product, and I worked hard on this acquisition. But we've kept it really kind of quiet until we get the product on the market, but it is a great technology..

And is it fair to assume that the gross margin on this product is above the corporate average?.

I think it would be safe to assume that it's well above the corporate average..

And that seems to be the trend. If you look at the guidance for 2021, you're forecasting about 15% EPS growth on about 3% to 5% top line growth with most of that coming from gross margin.

Is that the way we should think about Merit going forward? Is it a company in that mid-single-digit top line rate, but much better bottom line rate because of gross margin improvement?.

Yes. I think, Jim, you hit the nail on the head. I'm going to let -- Raul, I want to make sure I'll let you go ahead and fire that one..

Well, I think just -- I mean, we set out a 3-year target, right? Foundations for growth contemplate the 5% to 7% CAGR. So just wanted to get that out there, Jim, obviously, 18% to 21% operating margins, I think we gave details there on how we get there.

But yes, I mean, I think it's 5% to 7% is a slightly slower growth rate than we've historically had. And again, we're very focused on making sure we're profitable..

But I think the midpoint of 15% earnings increase is right on target..

That's right..

Yes..

All right. And just to be clear, for this year, you had about $30 million of discontinued products or products that have been phased out and then you have the issue in China.

So without that, your top line rate would have been closer to 6% or 7%?.

That's correct..

That's correct..

Thank you, Jim..

Yes, 6.5% to 8.5%..

Next question comes from Jayson Bedford with Raymond James..

I guess just to follow-up on a few of the growth comments. First, and I apologize if I missed this role.

What's the assumption for FX in '21 on the top line?.

It's about $4 million -- 40 to 50 basis points..

Okay. And then in terms of just getting back to the China dynamic, or let's say, the headwinds that you've disclosed, the strategic divestitures, the COVID-related revenue that's not going to recur.

And then is the China dynamic factored into guidance?.

Yes. And let me give you a little more color on that one, Jayson. These situations really had to do with PTCA, as I mentioned. And of course, one of the things we're concerned about is we're a big inflation device player. Now nothing's come down, nothing's been pronounced.

But if you're going to see it on this side, you may see it on the other side that capability on inflation devices, of which we're a very big player over there. So we wanted to make sure that we just didn't put our head in the sand and that we were wise about this. So we weren't trying to explain why we didn't do it later on.

So we just said in our guidance, we're going to take that particular aspect. Whether it comes or not, if it comes, we'll be prepared. If it doesn't, then it will just be to our advantage, and it will be more of the icing on the cake, so to speak..

Okay. And the impact that I thought I heard was 120 basis points..

Yes. Yes, roughly $11 million to $12 million, Jayson..

And we're just trying to be transparent, so you can glean these things. Yes, that's all. I mean we're....

Appreciated. I guess just the timing on when we'll know? It sounds like the tender hasn't been set.

So I'm just kind of curious as to when will we know?.

So our China management and leadership have indicated that if we see it, it could come in the second half of the year, and that's how we've kind of planned it going forward..

Yes. And then also, Jayson, just on our slide deck, there's a reconciliation to the items we talked about that are impacting the revenue growth. So just as a heads up..

And again, as you already know, these are not things that have happened, but these are things that we're just trying to get ready for in case they do..

Our next question comes from Larry Biegelsen with Wells Fargo..

It's Wei calling in for Larry. I want to start by asking you, I think you mentioned in response to an earlier question that the first couple of months of the year has been ahead of expectations.

Can you give a little more color on that in terms of relative -- is that relative to December relative -- relative to your expectation for Q1? And if there's any color on which business segments have been outperforming..

Yes, I'm going to go ahead and let Raul answer that one..

We're not -- I mean, I think if you look at our guidance for the first 4 months, I mean, it implies 5% decline year-over-year, 6% on a constant currency. So we are seeing softness in our business and have accounted for it. In addition to the item that we mentioned on the weather impact in February..

Okay. And then my second question is just looking at the revenue cadence for the year. So you talked about COVID headwind in the first half, normalized growth in second half, but there's the potential for the China tender impact in the second half.

In that context, can we see sequential revenue growth through the year?.

Yes. I mean, I think if you look at our growth, it essentially implies that, right? I think if you look at our growth for the first half of the year, it implies essentially some growth in Q2. So I think we're -- we do expect that growth to kind of get back to normal as we head out of Q1 and into Q2 and then Q3 and Q4 kind of normalize.

And that's based on today's environment, right? So we'll have to see how that plays out..

And that's, again, assuming the China tender impact is in second half, you would still see that normalized growth?.

That's correct..

Yes. I think -- yes, I mean, we'll -- yes..

. Our next question comes from Mike Petusky with Barrington Research..

I may have missed this earlier, but Raul, did you give a D&A expense for the quarter and stock comp for the quarter by any chance?.

Yes, I can. Just give me a minute here, my computer went to sleep on me for a bit. But I have it here for you for a second here. So let's see. So on D&A, we've got -- let's see..

Mike, while he looks at that.

If you have a second -- another question?.

Sure. Yes, I do. So I was just curious, and again, I may have missed this because I think it was touched on twice.

The Texas facility, how many days was that down for? And is there an estimate of like a quantification of the impact?.

Yes. I think we're back up and running now. We did have some disruption, of course, of employees who had damage in their homes, and that sort of thing. So I'm going to say it was approximately 5 to 7 days of production..

Okay.

I mean, does that actually then show up in the quarter? Or is that just something you catch up on and you move forward?.

Well, no, I mean, if you're not producing product, you'll catch up with it down the road. But in the quarter, you -- I mean, we'll catch up on it down the road, but it's going to show in the quarter..

Yes. I mean, we're trying to make it up. I mean, it is an impact in Q1. Yes. Mike, it was obviously right in front of me, which is why I couldn't find it. So 23.5 on the D&A and then $4.1 million in stock comp..

And I'm sorry, what was CapEx also?.

CapEx was $10.4 million..

$10.4 million.

And did I hear free cash was $26 million in the quarter, correct?.

Yes, $26.5 million, roughly..

And then, Fred, I think you guys mentioned strong demand in China, sort of offsetting the otherwise negative APAC region.

Can you quantify that? I mean, was it up 10%? Or can you just talk about what you saw in China specifically?.

Yes. I don't have the number in front of me..

Give me a second, here we go. China was up 7% year-over-year on a constant currency basis..

In the fourth quarter or for the year?.

For the fourth quarter.

Is that right Fred?.

Yes. Yes, 7% in the fourth quarter..

Okay. And then since I'm at the end here, I'm going to ask one more question. Fred, in terms of M&A, as you think out the next 12 months, next even 3 years, what's your appetite? Obviously, you guys are generating a lot of free cash now and it feels like there's more flexibility to do things, but obviously, you want to be prudent.

Can you just sort of generally talk about what you're seeing out there and sort of your appetite, et cetera?.

Yes. Well, first of all, you're right. We've, I think, really improved our balance sheet. We've taken this free cash flow and paid down our debt. And you also have seen the commitments that we've made over the next 3 years as part of our foundations for growth. We really like the little situations.

And so that was part of the -- KA Medical seemed to be right in our wheelhouse for a product that's in our existing silos. Things are pretty expensive out there. We've had a couple of things that have been shown to us. And some of them that have gone to other companies, but they're very expensive, and they haven't been attractive to us.

I will say that although we were resting for about a year, that we do have our eyes open. There are some, but I think the key is that they have to be able to be bought properly, they have to be able to fit into our global footprint.

And they have to be something that we feel will give us an advantage, but we're certainly not going to go chasing anything. And like I mentioned, with WRAPSODY coming down the road with what we see as improving business trends. Remember last year, Mike, we were the guys that weren't talking about a hockey stick.

We were talking about this gradual improvement. And in our performance, you've seen that. And again, and we've said that we will see it a little bit the first and second quarter, but for the year, and really, I think, substantially improving in the second half of the year, even with these headwinds.

So we have -- we're fine with the growth and the things we're doing but we will be opportunistic for the right deal at the right price, but we don't feel like we have to do anything. If the right thing is around, and we think it fits our long-term strategies then we certainly have going to spend some time and more now than we would have a year ago..

Congratulations on managing through a very challenging year. You guys have really performed well..

Thank you, Mike. Appreciate it..

Thanks, Mike..

Our next question comes from Doug Free with World Capital Group..

So regarding China, you mentioned the single invoice program and more local sourcing as kind of a headwind to consider, along with government initiatives, et cetera.

To what extent have you explored increased partnerships or joint ventures with local market participants to be viewed more as a local solution through a Chinese partner?.

Yes. It's a good question, Doug. Listen, I mean, listen, we could spend a lot of time talking about China. The way that we've chosen to approach in the past is to make sure that the products that we registered were products that had really good IP, and they were really innovative. You think of our SwiftNinja steerable microcatheter, that's approved.

And now we've launched that, and we've also done the Amplatz, speaking of the Amplatz name again, our Amplatz guidewires and some other guidewires over there that are not easy to do and not generally available in the marketplace. So that's what we've done, which is -- these have been looking backwards. I've always been concerned about partnerships.

And I've always been concerned about our IP, and I could go on and on about this stuff, but I'm going to hold back a bit. We've been resistant or reluctant, I think, to look at these other issues because of the fear of losing our intellectual property and our know-how.

I think, though, as in all conditions and in all fairness to your question, I think we have to reexamine that and then take a look if there's ways that we can partner with Chinese companies and be part of a solution to meet the needs of that economy. So we'll probably look at that more than the past.

But again, the things that I've discussed about my concerns in the areas to protect the company for the long-term are also things that have to be considered. So we'll probably spend more time at that now. Someone might say, well, why didn't you do it in the past? And I think I've answered the question.

And listen, we've grown very nicely over there for years, and our model has worked just fine. Now you have these pricing issues. And Merit is probably as good as anybody at adapting to the marketplace and pivoting, but not pivoting wildly.

In other words, we're not just going to say, okay, now everything is going to be produced in China, but we will spend time evaluating this.

Joe Wright, who oversees that area for us and Leon Lam, who is our resident General Manager for the area, and I have spent some time together and we'll be looking and spending more time trying to evaluating this and looking for opportunities going forward..

As a quick follow-up. And I agree with you. That's a high consideration is protecting the IP. So regarding China, the current revenue contribution by Asia PAC is about 36% of the U.S. revenues.

What is your target or guidance on market penetration into the China market in the next 12 to 24 months?.

Yes. Doug, we don't respond. I mean, we just don't comment on that. Other than China has always been important to us, but so has all of APAC. So I'm just unfortunately not going to be able to answer that in any detail..

I'm showing no further questions in queue at this time. I'd like to turn the call back for closing remarks..

Liz, thank you very much. Well, listen, thank you very much. I know there's a lot of stuff out there, a lot of meetings going on and you've had to jump in and jump out. Raul and I are here. We have scheduled calls. We will do the best to give you color that's appropriate to give on the -- from each of you. We'll be here for the next, I think, 3 hours.

So thank you very much. We're looking forward another year of improvement. And we're always, as you always know and have known forever, we're always engaged and excited about this business. Thank you for your support, and we look forward to talking to you soon. Thank you very much, and good night..

That does conclude our conference call for today. Thank you for your participation..