ICU Medical Inc (ICUI) 2003 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the ICU Medical Inc. third-quarter 2003 earnings conference call. At this time, I'd like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the Company, we will open up the conference for questions and answers after the presentation. I would now like to turn the conference over to George Lopez. Please go ahead, sir.

This is Frank O'Brien here. Welcome to our quarterly conference call to discuss ICU Medical results for the third-quarter and nine month ended September 30, 2003. I am Frank O'Brien, Chief Financial Officer. Dr. Lopez, our Chairman and President, is here as well.

We're going to limit the call this morning to about 30 minutes duration. Quite frankly, we expect to cover most of your questions at the start of our presentation. On today's call, Dr. Lopez will provide an overview of our operational results for the third-quarter nine months of '03 and I will provide some detailed financial information for the third-quarter and for the nine months as well. And then, Dr. Lopez will make some concluding remarks before we open for questions and answers.

Now before we began, in the event that we touch on forward looking statements on this call please be aware that they are based upon the best information currently available to management and assumptions that management believes are reasonable. Such statements are not intended to be representations of future results and [indiscernible] risks and uncertainties. Further results may differ materially from management's current expectations. We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks as they have a direct bearing on our operating results performance and financial decisions. With that, over to you, Doc.

That said, we believe we are on track for another year of over 20 percent growth in revenues, in spite of losing over 8 million in sales this year due to terminating our relationship with Bede Vaughan (ph) at the end of 2002. As we mentioned to you in the beginning of 2003, 20 percent growth was our annual goal for this year.

Keep in mind because of our customers' buying patterns during the year, our quarterly revenues have always fluctuated from quarter to quarter and will continue to do so. But when you view our Company on a yearly basis our growth has been greater than 20 percent year-over-year for the past 13 years.

We believe our growth in the quarter and for the past 13 years is due to our precise 3 point strategy. One, manufacturing. By using our patented proprietary software, we have designed and built manufacturing processes that can produce products in three days compared to three months it takes our competition.

We are able to deliver I.V. sets to the end customer faster and at less cost than anyone else.

Two, products. Almost every I.V. set we sell becomes proprietary because some part of that set will contain one or more of our patented products making each one of our sets exclusive.

Three, distribution. We have locked up over 50 percent of the distribution channels for I.V. sets through our relationship with Abbott Laboratories and other leading independent distributors. We believe one way to measure the effectiveness of our strategy is through the time it takes us to deliver a product to a customer once the order is placed compared to our competition. We're able to deliver this product to the customer in three days, once the order is placed, compared to two to three months turnaround time it takes our competitors.

Our strategy also allows us to be leaders in the new growth markets such as the custom I.V. sets market. Three years ago we generated over 8 million in sales in this category. This year, we will generate over 23 million in sales making us the global leader in this very fragmented custom I.V. sets market.

Looking forward, we expect this category to achieve approximately 40 percent annual growth.

Also during this quarter, we continued to improve our working capital and balance sheet through the reductions of our DSOs and improving inventory turns. Before I get into greater detail about our achievements for the quarter, I would like to turn the call back over to Frank to review in greater detail our third-quarter and nine-month financial results.

Then I will come back and update you on our current business trends and opportunities we are experiencing and give guidance for the year. Frank.

Thank you, Doc. As Dr. Lopez mentioned, revenue for the third-quarter was 25.5 million versus 20.1 million last year or an increase of 27 percent. Net income was 4.2 million versus 4.3 million in 2002, a small decrease of 2 percent. Earnings per share was 28 cents in both periods on a lower share account this year. For the nine months revenue was 77.6 million vs 63.7 million last year or a 16 percent increase.

Net income was 15.1 million versus 13.8 million in 2002 - or a 10 percent increase and EPS was $1 versus 90 cents for the first nine months of 2002.

Clave sales to Abbott Laboratories were 11.9 million - up 24 percent from 9.6 million for the third-quarter 2002. While we cannot focus just on Clave sales without considering customer sets with Claves on them because so many of our custom sets do have Claves on them.

We estimate over two-thirds of Clave on them with this way (ph), Abbott (ph) Clave sales - including customization systems - were over 14 million as compared to 10.7 million in the third quarter of '03 for a 31 percent increase.

Our gross margin based solely on our product sales and excluding nonproduct (indiscernible) was 47 percent for the quarter and 52 percent for the nine months.

Our current gross margin decreased from our historic 57 percent margin because of a few temporary factors. First in the third-quarter we made a number of production improvements principally replacing smaller cavity molds with larger cavity tooling affording us additional capacity which in the short-term meant underscore overhead but we were able to reduce headcount by at least 46 employees and over the long run this additional capacity will improve efficiencies and margins.

Secondly, inclusion of the product line Punctur-Guard which currently has lower gross margins on the Company's average. This line was acquired in November of '02 - we certainly expect this unit to improve over the next year as we continue to improve sales and fully transition this product line to ICU's manufacturing [inaudible].

Operating margin as a percentage of revenue was 25 percent for the quarter and 32 percent for the nine months vs 32 and 33 percent, respectively, for 2002. The decline in the current quarter was entirely from the drop-in gross margin. Operating expenses in the quarter increased with only half the [inaudible] increase in sales so we were able to offset some of the decline in gross margin by leveraging off [indiscernible] [inaudible].

Cash flow continued to be strong for the third quarter and for the first nine months. We finished the quarter with 71.1 million in cash - an increase of about a million 6 from June 30 '02 (ph) . For the quarter, operating cash flow excluding tax benefits (indiscernible) stock options was 8.1 million.

We spent 2.6 million on capital expenditures and 5 million to purchase our common stock back. Our free cash flow for the third-quarter was about 6.7 million and for the nine months was about 13.5 million. We expect capital expenditures in 2004 to be less than half of 2003's expenditures.

We have finished the upgrading of all our facilities during the past two years and have substantial increase capacity. And the way our business is positioned, most of our capital expenditures 2004 will be to maintain capacity, not for expansion.

EBITDA for the quarter was 8.5 million and 29.7 for the first nine months. This is before depreciation and amortization of 1.7 and 5.1 for the three months and nine months, respectively, and before income taxes of 2.6 and 9.5 for the three months and nine months, respectively.

Annual depreciation and amortization was approximately 6 million for fiscal 2003.

Trade receivables at the end of the third quarter were 15.8 (ph) million down from 17.9 million at June 30, 2003. With the drop-in balances in place of an increase in sales, DSOs - day sales outstanding - quarter end balances improved to 58 at September 30, 2003, a significant improvement of 24 days from the 82 days June 30, 2003.

Inventory September 30, 2003, was down to 4.7 million from 7.3 million at June 30, 2003, and only about $700,000 of that was actually finished goods. Day sales and inventory at September 30, 2003, based on quarter-end balances was 32 compared with 72 at June 30, 2003. And inventory turns has improved to 53 for the third quarter as compared to 39 for the second quarter of 2003.

Now I'd like to turn the call back over to Doc.

I would like to point out that during the third-quarter pricing has remained stable with Abbott and across our distribution channels. So the temporary decrease in margins is not due to pricing pressure. We believe our Company will begin to realize an improvement in gross margins during the fourth-quarter due to our investments in our operations.

Concerning guidance for the remainder of 2003. We expect to achieve over 20 percent growth in revenue compared to last year. And we believe we will meet and or exceed current street expectations on earnings. Furthermore we will provide you with 2004 guidance on the January 2004 earnings call.

We have added more financial information than on past calls because we believe this will help you understand the dynamics of ICU Medical. We will be working under this format going forward and since this is the first time we've introduced this new format, I'd like to take a few moments and highlight some of the numbers that Frank mentioned.

Operating cash flow, 8.2 million. Free cash flow, 6.7 million. Cash, 71.1 million. Stock buyback in the quarter, 5 million. AR, 15.6 million. DSOs, 58 days. Inventory total, 4.6 million. Finished goods, 745,000. Finished good turns, 53. DSIs - days sales inventory - 32. DSI's finished goods, 5 days. CapEx, 2.5 million. CapEx maintenance, 1.5 million. Sales by product group, custom subsource, 3 million. Custom total 6.1 million. Clave with custom, 18 million. Punctur-Guard, 1.9 million. Sales by channel - Abbott, 16.3 million. Domestic distribution, 6.4 million. International, 1.6 million.

Before we go into Q&A I would like to address a few more topics that we feel our quarter (indiscernible) continued strength and to make a few remarks about the exciting opportunities we see with new products market and distribution channels.

First, I'd like to address our financing transaction activity. We did not loan any additional funds during the third-quarter. Our financing unit currently has 6.5 million in loans outstanding. This is less than 4 percent of our assets. Also, we are very very well collateralized.

As we review all of our options to utilizing our balance sheet, we believe at this time it is more prudent to deploy our capital for potential acquisition, buyback shares when appropriate, and further investments in our business that can drive our competitive advantages instead of making additional loans in the finance unit.

We will not be making any additional loans to [indiscernible] now or in the future. During the past two years we have made significant capital investments into our business to drive efficiencies and we believe we are well positioned to reap the benefits of these investments. While some of these investments impacted our gross margins in recent quarters, we expect gross margins to move back to our historical ranges during the next several quarters.

As Frank mentioned, this decrease was primarily due to the installation of large cavity tools replacing much smaller molds which will lead to improved capacity utilization and due to the lower margins experienced in ICU's [indiscernible] division, formerly known as Bio-Plexus, as we work to improve manufacturing efficiencies.

As we look out over the next few years, we expect our capital expenditures to decrease, but we will continue to maximize our operational efficiencies and are confident that our investments will yield the desired results.

At the same time, we plan to continue to introduce new products in our new markets and improve our distribution channels. There are a couple of these areas of opportunity I would like to highlight.

First the growing custom I.V. set market.

We introduce our patented custom I.V. sets three years ago and have since compounded growth of 42 percent. This is a very young and fragmented industry. And we continue to maintain the leading market position due to our proprietary technology and patented manufacturing process. We will make I.V. sets that are specific to the customer but faster and less expensive than anyone in the world can produce.

Based on our competitive advantages, we expect to capture a greater portion of the growing market and expect to see 40 percent topline growth in 2004. Second, [technical difficulty]

Recently Abbott Labs, our most significant partner announced a planned spinoff of its HPD division which is exciting news for ICU. To better understand our relationship, it is important to note that we've been working with Abbott Laboratories for over 8 years and Clave product line sales are currently less than 1 percent of their overall revenue. Clave product lines sales will be approximately 8 to 10 10 percent of the new Abbott HPD revenue going forward.

These are high margin sales and they are significant untapped potential both in North America where Abbott has penetrated only half of the market. And in internationally with needleless IV sets and pumps. Currently International is a very small part of Abbott HPD and ICU's revenue but we're all very excited about the potential of the International market which is over 5 times the size of the North American market.

In addition, I would like to note that the leadership team of Abbott HPD was the same team we have been dealing with at Abbott. We have had a close working relationship with these individuals and we expect that to continue.

Finally, we're working to support the international growth opportunities with a small manufacturing footprint in Italy. We purchased a time facility late in the second quarter and have been getting the management team and work force in place. While this factory is small, it established a base to facilitate aggressive expansion of custom I.V. set business throughout Europe.

In summary I am excited about the future. Our advance manufacturing process enabled us to deliver the quality for proprietary products in record time at the lowest cost to our customers. We control the majority of the distribution channels for I.V. sets and we continue to capture market share. We are the market leader in the growing custom I.V. set market and we are moving into the large and relatively untapped international market.

We also believe that our solid balance sheet is a competitive advantage as it gives us the ability to drive shareholder value through opportunistic share buyback acquisitions and further investments in our businesses that drive efficiencies.

We will continue to focus on our core business, improve our internal efficiencies, and introduce or acquire new products to drive growth. This strategy has helped us achieve 13 consecutive years of over 20 percent growth. And we believe it will continue to drive shareholder value and growth in years to come.

Now I would like to open the call for questions, Operator.

[Operator Instructions] Bruce Cramer (ph) with (indiscernible) Swan.

Can you quantify for us at this -- you mentioned this amorphous uptick in production as I understand it, you are moving to -- sounds like somewhat of a different technology tools instead of molding equipment, but can you quantify for us - No. 1 - how much of what I see is a big cost of goods sold line was kind of this non-recurring or onetime in nature?

Bruce in time it's all going to go away, it is just a matter of how quickly and the stuff that's going to go away in the short term is about two-thirds of the Delta we're talking about and the largest single piece of that related to the overhead absorption [indiscernible] [indiscernible]. The rest of it is basically BioPlexus.

Say that again.

Rest of it is almost all Bio-Plexus - one third of Delta.

So the Delta we're talking about is sequential?

Vs. at [indiscernible]

So lost 10 percent of margin and you're saying.

About two-thirds of that is stuff that will go away very quickly and the other one-third is production issues [indiscernible] [indiscernible]

Okay and so let me ask an ignorant question. Why not capitalize it as expenses instead of just dropping it into (indiscernible).

Couple of reasons. One is we are pretty conservative here. We don't capitalize much more than we have to. The other is in the past when the production was rising rapidly and we had changes like this it was kind of lost in overall absorption - our production was a bit more stable and so the expense became a lot more obvious.

Okay and so you mentioned in the press release you needed more capacity. What level of capacity utilization were you at and post these changes where do you think you are?

Probably at about 50 percent we're sold now. Before that we were (indiscernible) getting close to 80, 90. Here in San Clemente.

So these expenses are all in San Clemente?

Virtually all of it.

You talk about the 20 percent grow for the top line for the year. Just to qualify that - that is total sells not product sales?

That's everything.

And your gross margin expectations, obviously, the fourth quarter are somewhat of an improvement --?

(indiscernible)

Frank I guess it was [indiscernible] the breakout of our product line - you went kind of fast, was it 80 million on the Clave 6 1 custom and 1 9 Punctur-Guard.

18 million on the Clave 6 1 (ph) on custom and custom sets for 3 million. You understand how we're breaking it out now, Bruce?

I guess you're saying the (indiscernible) Clave was 11 9 and that there was a component of Clave that you are now including.

Virtually two-thirds of the majority -- the majority of dollars in two-thirds of the custom sets are Clave sets. We have been putting them in the custom set category, but they are Clave sets and we may change it by one inch, change it by one inch and call it a custom - it is a Clave set and the number is getting too big and now we have to include it into the Clave sale. We expect the custom set to grow considerably with Clave in them, and that will be - we think that is all they will be Clave sets completely and those will continue to grow. So now the number's big enough we have to include it as a Clave set. Because that's what it is. (indiscernible) couple million, 5 million is no big deal.

One last question and I will get back in the queue. You mentioned --

Take your time, ask too many questions (indiscernible) take your time.

I'd like to give other people a shot. Kind of looking at -- I think your comment on HPD, the Abbott business was that they're somewhere around 50 percent penetrated - was that your comment?

We've broken it down into 60, 59, 60 percent of the market [indiscernible] penetration but we sat down with the principals there a couple weeks ago sat down and said give us exactly how much market we have left - these are the people that run HPD - and the answer was 50 percent of the market, you talk about how much opportunity we have to grow Clave it's exactly -- it's right around 50 percent. Forget about two-thirds, forget about remember they're needle free which means they converted the hospitals over to pre-pierced technology but that still means -- use needles they still stick needles through pre pierced. They are switching and going with one system which is the Clave. Simple answer is 50 percent opportunity growth - we will let you know when that goes to 40 and to 39 and 38. We will keep you updated on that but that's a simple way of looking at it. Clave is sold not just an I.V. set, or vial adapters or C1000s or put on catheters. And they are used for accessing devices and such (MULTIPLE SPEAKERS) [indiscernible] 50 percent of the way to think about it and they came right from Abbott two weeks ago from the two principals there.

Are we about including custom set business in there? Or are we talking about we're kind of halfway through 50 percent of Abbott hospitals and sort of a non -- not including the custom pieces I guess is what I'm saying.

Not including customs. (MULTIPLE SPEAKERS) custom or Clave sets in Clave hospital but that doesn't include [indiscernible] [indiscernible]. Does not include custom.

That -- that 50 percent number -- in the press release you talk about the distribution channel --

No that means, independent with strong independent distributors of Abbott, I was concerned that might be a little confusing so thank you for asking. That means we locked up the Baxter (ph) controls about 42 percent of the market Abbott about equal - they fight over a share here and there. We have our independent distributors that gives us a little over 50 percent of the market. So our distribution channel's really bigger than Abbott's or Baxter's because we combine independent distributors plus Abbott. As far as I know we're the only company ever to do this and be successful at it.

And large companies want exclusivity.

(MULTIPLE SPEAKERS)

I understand that. I am just trying not to be redundant here but...?

Now I'm talking 50 percent is as we control the distribution channel. We think we have that locked up as far as our products to go that channel.

But again, we're talking, -- I am just trying to separate the hospital market which maybe this isn't sensible, but I'm trying to distinguish penetration in sort of the Abbott hospital base not including custom set opportunity.

Unidentified Speaker 50 percent.

50 percent

Unidentified Speaker [indiscernible] begin this in controlling distribution channel which is over 50 percent when you have Abbott and independent distributors.

Again, getting back to the custom set market which you also maintained you're sort of locked up 50 percent of that?

I don't think I said that.

We continue to capture a greater portion of the custom I.V. set market and we have currently locked up over 50 percent --

I didn't say that.

I think that was where we have access to half the markets [indiscernible] distribution Abbott and specialty distributors.

(MULTIPLE SPEAKERS)

So on the custom side, let's say you're kind of 50 percent in HPD - 50 percent penetrated -- where do you think you are? What I am trying to gauge is on that custom set business how early days is it there? I assume you're not 50 percent penetrated within that subset.

No.

Keep in mind, Bruce - nobody sees the custom set market - it's a market is a fragmented market. Nobody even sees the market and I hope it continues to be that way but that market doesn't exist has gone from 8 to 23 this year and in 36 months and we see no end in sight. How big is the market? It's a very big market.

As big as we make it actually.

I don't know we're willing to go back and that's a long discussion but basically that doesn't include custom sets.

That's what I was after - thank you.

[indiscernible] Niche Ramgupta (ph) with Sidoti and Company.

Just to clarify I know you talked about revenue growth for the year staying 20 percent. I'm assuming following historical patterns your EPS growth or bottom line also you're looking for 20 percent. If you could comment on that and also with regards to the [indiscernible] conversion that is something you hadn't seen much of in the first half of the year. Is that changed into the second half?

We got some -- I will answer the first part - the second part of the question and Frank will answer the EPS number, because we're giving very clear guidance on that number.

The -- as far as [indiscernible] accounts, we actually just got a very expensive study of the accounts that were [indiscernible] accounts because we had (indiscernible) numbers in the accounts and looked at it and the number came out as of August 31st, we have converted 47 percent of those accounts over to our distributions.

We converted over directly from ICU [indiscernible] distributors to Abbott. GPOs and such, but we converted -- we won back 46 percent. As you remember I said if we made it to 40 percent we'd end up -- anything above 40 percent we'd be ahead - way ahead. And that's why our numbers are growth numbers. We had to dig ourselves out of an $8 million hole from last year just to break even.

So our growth is really above 20 percent this year. We -- as I say we went back 47 percent of the accounts and that was as of August 31st and I know a number of accounts that are going to be switched over or have switched over since then, so that number is higher than 47 percent. Now Frank as far as guidance goes, do you want to say anything very carefully (ph)?

Yes I think reference we're using in terms of expectation - the expectations out there on the street which is actually about 16 percent year-over-year. And that's what we referred to in the press release as where we thought [indiscernible] (MULTIPLE SPEAKERS) about 40 [indiscernible].

We are absolutely confident we will meet that number and or exceed it. We're very very comfortable with that. We have a quarter to go and as we say the margins are dropped because of (indiscernible) overhead. Most of that should reverse because we do have seven (ph) for those, we didn't need those 46 employees so, we reduced our headcount significantly. And we're much more efficient now. So we -- I can tell you that we -- hit that number or exceed that number. Most likely exceed it.

Final question, I guess. In terms of share repurchases you still have an open authorization and I don't know if you could give us a sense as to how much you bought back in the quarter?

(MULTIPLE SPEAKERS)

15 3 so far this year. We spent 5 in the current quarter in the quarter just ended and that was fairly early in the quarter. And we continue to have open authorization [indiscernible].

Whenever it goes on sale.

Linda McDonough (ph) with Manchester Management.

Just to clarify. You're confirming that you feel you might make 48 cents in the fourth quarter? Is that correct?

Yes that's the way the math works.

We said we'll either hit that number or exceed that number.

And the sales number we're looking for is about 27 or 28 million? Is that correct?

Yes, maybe north of that. High probability north of that.

[indiscernible] backing into that you would need a gross margin probably in the 60 percent range to make [indiscernible] (MULTIPLE SPEAKERS)

We just said north.

You need to be aware our fourth-quarter historically is a booming quarter for us. It's when the most people are sick, it's when most people are getting influenza, it's when most patients are in the ICUs so that's usually our booming quarter so we're pretty comfortable that unless something drastically changes we will have a booming fourth-quarter. It will be north of that number you stated. What was your next question?

(indiscernible) breakdown the Clave you said the $18 million Clave including the Customs [indiscernible] (MULTIPLE SPEAKERS) sort of a comparable number for the first and second quarter of this year, Clave including Custom?

Let me give you those numbers. The numbers for last comparable number for last -- last quarter -- second quarter would've been 14.6 million.

And for the first quarter?

Don't have that, Linda, not here.

So, alternatively if I were to look at the quarter - the third quarter - what would have a straight Clave number have been? Straight Clave [indiscernible]

14 million.

Okay. And how about -- how are you including now [indiscernible] Lopez Valve and other venture I think about $2 million last quarter?

We haven't talked about that. I suspect by now that the product line table is on our website. And (indiscernible) just take a look at that. Statistics we normally post should be on there by now.

Actually I am traveling so I don't have Web access right now. But if basic Clave was (indiscernible) and then you had about 6 million of custom sets and SetSource together, that's 20 and then 1.9 for Bio-Plexus that's 21 9 and the balance - I assume - after 25 of those products about $3 million?

Yes that's correct. (MULTIPLE SPEAKERS)

And for the fourth-quarter so we are looking for any comments that run basic Clave business looking for most of the growth to come from custom I.V. and SetSource?

SetSource and Clave business, virtually all those sets have Clave have 1, 2 or 3 Claves on them. They are Clave sales.

I think if you take a look between the standard Clave and the custom Clave obviously most of the growth is going to be right there.

What is the gross margin differential between a basic Clave and a SetSource with a Clave on it?

We can't tell you the SetSource margin because that's confidential, that's a joint venture with Abbott, we don't really want to put that out on the street but margins are very healthy margins.

And as far as the plant in Italy? Any inventory or any sales out of that plant [indiscernible]?

Virtually none. They did have some sales but we pulled off the lines. We're not interested -- the margins they were low margins 22, 25 percent margins. We sold them off before we had to record them and are very happy about that. We bought the plant just as the plant, it will take us down a little bit per quarter so just a little bit to get it up and running (indiscernible) expenses but we fully automated the plant, brought software in and other people are there right now printing now orders in less than a minute which normally takes 30 days to do in a typical company. So we're just switching it over to a custom set manufacturing footprint for us in Italy to join forces with Abbott for international.

Any gain or loss from the sale?

Inventory can be as low as [indiscernible] $100,000 [indiscernible] total inventory. Keep in mind we carry five days of sales of finished goods for a company who does several calculations of over $100 million - that is less than 3/4 of 1 percent. Pretty amazing to have that kind of inventory. And you know what? We can do better. We can do better than that.

One last question. Just any gain or loss on the sale of those lines from the Italian facility?

No.

Adina (ph) Doty (ph) with B. Riley (ph)

Good morning - could you please give us an update on the BCNs?

Yes Dr. Lopez BCNs, (ph) the blood -- let me tell you this, the sales are not -- have not changed drastically. They're about the same. We did about 1. -- let me get the exact number. We did 1.9 million and 1.94 vs. about the same last quarter. But the product line -- we bought the product line and it was a terrible -- terribly mismanaged company and terrible products but the concept and the (indiscernible) policy of the product was good. Product the way it worked. We fixed half the product line called Winged Sets - we made changes to the B stand (ph) which is a blood collection needle was extremely well accepted, we converted a very large (indiscernible) converting account after account within this GPO and we loved the changes. So we think we made all the improvements to the product. We have the manufacturing plant in Connecticut whipped into shape in terms of efficiencies and such, so we -- I believe I've heard criticism of the product line but whoever is criticizing it really does not understand the market. This product is a concept that you can't stop. It's just like the Clave. The Clave was very slow to start but it generates millions of dollars. This product line will generate millions of dollars for our bottom line. Let me put it in perspective. What it is it's a needle you activate in the vein. Every other product you have to pull it out and risk getting stuck and then activate it and make it a safety device. Over 141 million have been used in patients with zero needlesticks.

The competitor which is a very strong competitor by the name of Becton Dickinson is -- has thousands of needlesticks. So vs. 141 million with zero needlesticks so I really believe in the technology. I believe that we corrected all the problems and they love the product.

So I have a lot of faith in it but don't underestimate give it some time. We're 8 weeks behind schedule from where we should be. The biggest thing that's going to happen is once it gets to Abbott which they are qualifying it right now they are a very large distributor and they seem to do very large things with products like this, once the product is perfected. And we think we have it, where we want, should end up. That's my take on that. I think it is going to be a great investment. Couldn't have been a better investment.

So what should we expect in terms of revenues in the fourth-quarter from this product line?

We never -- underpromise overdeliver. I would expect very slow growth in the beginning. Once it gets into Abbott, remember it takes a while to train 550 people and it's just a major undertaking just to go through the training and such. So expect it to go slowly and then as Clave did, take off. I think the potential is very big for this product remember zero needlesticks, 141 million [indiscernible]. I believe in it, I believed in technology -- Clave technology when nobody else did.

So let's -- I think I wouldn't put any numbers in here, just consider slow growth. We're very conservative with our own internal numbers because we want to make sure that everything is perfect on the product as we continue to roll it out. One of the large [indiscernible] we took, you might know [indiscernible] Kaiser -- Kaiser Southern California Northern California and I believe the rest of Kaiser so we're converting one right after as sole source and then as I say once it gets in Abbott, we should see some uptick in sales, how's that? Okay?

I think we have one minute to go.

Thank you, that is all the questions we have time for today so I will turn the conference back to Mr. Frank O'Brien for closing comments.

Okay, ladies and gentlemen, thank you for participating in the call and we will talk to you in three months. Operator.

Ladies and gentlemen, if you wish to replay this call, you may do so by dialing 1 800 428-6051 or 973 709-2089 with an ID number of 306473. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.