ICU Medical Inc (ICUI) 2003 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen to the ICU earnings conference call. (Operators Instructions) I'd now like to turn the conference over to Dr. George Lopez, CEO and Chairman. Please go ahead, sir.

Thank you, operator. Welcome to our year-end 2003 conference call to discuss ICU Medical results for the fourth quarter and year ended December 31, 2003. I'm Dr. George Lopez, Chairman and President of ICU Medical and with me today is our Controller, Scott Lamb. Frank is not here with today - Frank O'Brein, our CFO - he has had an immediate death in his family and is in New York, so Scott will be taking his place today. On today's call Scott will talk about a number of things including the operational results for the fourth quarter. Let me turn it over to you, Scott.

Thank you, Doc. After I complete the operational results for the fourth quarter and year-end 2003, I will then provide -- excuse me, Dr. Lopez will provide operational results. I will then provide detailed financial information for the fourth quarter and year 2003. And then Doc will wrap up our prepared remarks with detail on our target for 2004 and discussion of current business trends before we go to Q&A. The call will be 45 minutes.

Before we begin, in the event that we touch on forward statements on this call, please be aware that they are based on the best information currently available to management, and assumptions that management believes are reasonable. But such statements are not intended to be representation as to future results and are subject to risks and uncertainties.

Future 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 that may have direct bearing on our operating results, performance and financial conditions.

Before we start on the earnings information I want to announce that last Friday, we signed another new contract with Abbott Labs, the one for Abbott to distribute our Punctur-Guard line of blood collection needles in the US and the rest of the world. We have worked hard to improve the Punctur-Guard line and are very pleased to be working with our key partner in worldwide distribution. Now I will turn it back over to Doc.

Thanks Scott. In (inaudible) earnings we passed a significant milestone in achieving over $100 million in revenues for the first time. We had a very strong fourth quarter as expected and had 107.4 million to the year. We were 22% over 2002 inline with our target discussed this time last year. Earnings for the quarter of 48 cents and for the year of 148 are in line with our expectations stated on our October 2003 call.

Over the past 15 years we have delivered solid growth due to our three-point strategy of ever efficient and low-cost manufacturing cost processes. Adding new proprietary products and expanding our deep distribution channels and in 2003 this was no different. This year we continued to shift our product mix towards innovative custom IV sets and ICU has quickly established itself as a global leader in this market.

Three years ago we generated approximately 8 million in custom IV sets sales and in 2003 we generated over 22 million in sales, which was 50% increase over 2002. As we move from selling components to systems and leverage our manufacturing competencies, we significantly reduced the cost and delivery time for our customers and lowered both of our inventory carrying costs. Looking forward we expect this category to achieve approximately 35% annual growth.

We secured more than 50% of the available distribution channels through a combination of our relationship with Abbott Labs and other leading independent distributors. In fact, I believe we are the first medical company to ever successfully combine this hospital base with independent distributors.

Our Punctur-Guard division reached profitability. We acquired the division in late 2002 because of the proprietary products enhanced our various entry for custom sets. When we made the acquisition; Bio-Plexus was running at quarter of million-dollar loss per month. By mid-2003, we began integrating the product line into ICU's manufacturing facilities and it began to generate a profit.

We expect to continue to improve sales and we have identified the number of specific ways to increase margins on this product in 2004, as we fully transition to ICU's manufacturing processes and marketing channels. We expect our geographic reach -- we expanded our geographic reach by acquiring a manufacturing plant in Italy to support our international expansion plans, which I will discuss later in more detail.

We completed a significant expansion of our plant in Mexico, doubling our floor space to 60,000 square feet and adding a $5 million electron beam sterilizer, this will decrease inventory and allow delivery of custom sets one day faster. Through these efforts we generated over a 107 million in revenue despite losing over 8 million in revenue from the termination of our distributor relationship with Bede Vaughan at end of 2002. In 2003 we recorded no claimed revenue with Bede Vaughan.

In short, we have proprietary manufacturing processes that can produce products quickly and exclusively for our customers. We have locked up over 50% of the domestic distribution channels for IV sets through relationship with Abbott Labs and other leading independent distributors.

We are now moving in the same direction internationally and we can deliver innovative custom IV sets to the end customers faster and at less cost than our competition. We believe these efforts and results substantiate our position as the leading manufacturer of safe medical connectors and custom IV systems. Before I get into greater detail about the current business trends and opportunities we see for 2004, I'd like to turn the call back over to Scott to discuss our fourth quarter and year-end financial results. Scott.

Thank you Doc. As Dr. Lopez mentioned our fourth quarter and annual results were in line with the target that we had set earlier in the year. Revenue for the fourth quarter was $29.8 million versus 24.1 million last year, an increase of 23%. Net income was $7.2 million versus 5.9 million in 2002, an increase of 22%. EPS was 48 cents up 26% from 38 cents in the fourth quarter of 2002.

For the year ended December 31, 2003, revenue was $107.4 million, versus 87.8 million last year, or 23% increase. Net income was 22.3 million versus 19.7 million in 2002 and EPS was $1.48 versus $1.28 for the year ended 2002, an increase of 16%.

In 2003, we continue to diversify our revenue by product offerings and breakdown by product line for the year was as follows. Clave products excluding custom sets, 62%, custom sets 22%, Punctur-Guard 7, CLC 4% and other at 5.

Clave sales to Abbott for the fourth quarter was 16.1 million up 252% from 6.4 million for the fourth quarter of 2002. But we can't focus on Clave sales without also considering custom sets with Clave, because about two thirds of our custom IV sets have Claves. Looked at this way, Abbott Clave sales including custom IV systems were about 18.2 million for fourth quarter as compared with 7.8 million in the fourth quarter of 2002.

Look at separately for the quarter, total Clave sales were 17.8 million versus 12.5 million in 2002. Clave sales to domestic distributors were 0.8 million versus 1 million in 2002, and the international accounted for 1 million versus 2 million in 2002. That doesn't tell the whole story. When we add in Clave custom sets, Clave sales to domestic distributors were 2.7 million in the fourth quarter of 2003 versus 1.9 in 2002, and international Clave sales were 1.3 million in fourth quarter of 2003 versus 2 in 2002.

On an annual basis, custom set sales were 22.8 million, compared to 15.2 million in 2002, an increase of over 50%. This growth was offset by the termination of the Bede Vaughan Clave business, which was 3.4 million in the fourth quarter of 2002 and 8.6 million for the full year. We have regained what we estimate to be over half of the business although much occurred in the latter portion of 2003.

It had a noticeable impact on fourth quarter of 2003, though most of the impact of the regained business will not show in our results until 2004. Our gross margin, based solely on product sales and excluding non-product revenue, was 65% for the quarter and 53% for the year ending December 31, 2003.

The 800 basis point recovery in gross margin in fourth quarter surpasses what was generally expected at the end of the third quarter and can be attributed to manufacturing efficiencies and better capacity utilization. Our utilization of our automated production was high and we started realizing the cost benefit of our early investment in the re-tooling. We have identified a number of specific ways to increase margins and we continually seek production efficiencies.

It is important to note that our pricing has remained unchanged with Abbott and the temporary decrease in gross margin in the latter half of 2003 was not due to pricing pressure. We also do not foresee any pricing pressure in 2004.

Operating margin as a percentage of revenue was 35% for the quarter and for the year was 32% versus 36% in 2002. The decline for the year was entirely from the drop in gross margin. Operating expenses increased by only 16% as compared to the 22% increase in revenue. So, we were able to offset some of the decline in gross margin by leveraging our operating expenses.

Our cash flow continued to be strong in the fourth quarter and year ended December 31, 2003. We finished the year with 73.1 million in cash and investments, up 2 million from the previous quarter ending September 30, 2003.

For the quarter, operating cash flow, excluding the tax benefit of the exercise of stock options, was 3.3 million, we spent 0.5 million on capital expenditures, made net advances on the previous finance loan commitment of 2.4 million and received about 1.9 million from proceeds on exercise of stock options and related tax benefits. Our free cash flow for the fourth quarter was 3.2 million and our free cash flow for the year ended 2003 after CAPEX of maintenance level of 6 million, with 16.8 million.

Trade receivables at the end of the fourth quarter were 25.1 million up from 15.8 million at September 30, 2003. DSOs based on quarter end balances were 79 at December 31, 2003, as compared with 75 at the end of 2002. However by the end of January 2004, our receivables were down to about 13.4 million and our DSOs had dropped to approximately 44 days.

Inventory at December 31, 2003 was down to 3.4 million from 4.7 million at September 30, 2003. Base sales in inventory at December 31, 2003 based on quarter-end balances was 24 compared with 33 at September 30, 2003, and finished goods inventory turns has improved to 94 for the fourth quarter compared to 52 in the third quarter.

Now I'd like to turn the call back over to Doc to discuss 2004 targets and current business trends.

First, let me step back and give some perspective. As you know we recently signed two contracts with Abbott, which will give Abbott worldwide distribution of our products including Punctur-Guard line of products. This is new. And as I mentioned earlier, last week we signed another new contract with Abbott to give them worldwide distribution to the Punctur-Guard line of products, as I stated. Our contracts with Abbott now run through 2014. They were previously through 2009. There should be no doubt in anyone's mind about the strength of our relationship with Abbott's hospital products division soon to be spun out into a brand new entity called Hospira.

We are working with Abbott management team, soon to be Hospira's management team, on the rollout of these new contracts as well as expanding our own sales force. The benefits to ICU will be substantial, and both companies are eager to expand distribution quickly, we do not anticipate much, if anything, in Abbott's sales revenue until the latter half of 2004 with larger numbers in 2005 and thereafter. The expansion of our sales force will precede the sales growth.

When ICU acquires or introduces a new product or enters into a new contract such as the new Abbott international and domestic contracts, we have always believed it is prudent to be conservative in our targets for revenue and earnings. We are very excited about the long-term growth opportunities from these contracts but until we start implementation, we are going to take a very conservative stance regarding our targets. We will not anticipate any revenue from these contracts and the targets we tell you about until we begin to actually receive it. We are including all expenses in our budget for 2004.

We expect to ramp up our sales force in order to generate additional sales from our new domestic and international opportunities. We have a highly skilled and trained sales force. When we hire new individuals or introduce new products into our existing force, we are conservative in our forecast of sales and do not expect to generate revenue for at least six months from these new hires.

In terms of growth, excluding the new Abbott agreement, we expect continued good growth in Clave products. Overall, we see custom IV systems and Punctur-Guard having highest percentage growth among our product lines, with both achieving growth of 35% or better. Non-product revenue will be about $700,000 per quarter based on existing agreements. Based on these facts, we are conservatively projecting 2004 top line growth of 15% to about $125 million. Again this is excluding revenue from new contract with Abbott. We are projecting 2004 earnings growth of 15%, also remember this takes into account our increased spending in R&D and sales and marketing.

Our quarterly earnings historically have fluctuated and 2004 may not be an exception. We expect the first quarter of '04 will be about 18% of annual sales with generally increasing sales as the year progresses. Remember our annual result is what we target. Our quarters do fluctuate, most certainly.

Gross margin as you know is an area we were working on and we expect the first quarter to have about 53% to 54% margins improving 200 basis points by year-end. Operating expenses I mentioned will be impacted by increases in sales personnel. We will also be increasing R&D spending. We are targeting increased operating expenses about the same rate as we increase revenue.

The income tax rate will go up slightly because of the termination of our tax credit program in California. We expect strong growth beyond 2004 and believe our investments in 2004 will produce short and long-term value for shareholders. We expect capital expenditures for 2004 to be approximately half of 2003 expenditures.

We upgraded all of our facilities in the past two years to handle a substantial increase in output. So those costs are behind us and the way our business is positioned, most of our 2004 capital expenditures will be for maintenance. Expansion needs are covered by what we spent in 2002 and 2003.

In 2004 we do expect to increase our R&D expense and we will be increasing our sales and marketing expense to ramp up for the long-term growth with new long-term North American and international contracts including our new long-term contract with Abbott. We view these as very important investments for 2005 and beyond, investments we must make to ensure growth we know we are capable of.

The above target for 2004 are based on the business as it is today and could change if we enter into any acquisitions or other changes in the business. I would like to reiterate some important points that highlight our improving efficiencies in our business. We believe our free cash flow, excluding share repurchases, will contribute 25 million to 28 million to our balance sheet in 2004. And I would like to take a few moments to highlight some of the numbers that Scott mentioned. Again, all these numbers are for fourth quarter '03 unless otherwise stated.

Operating cash flow - 4.3 million, free cash flow - 3.3 million, cash and investments - 73.1 million, accounts receivable - 24.9 million, DSOs - 79, inventory total - 3.4 million, finished goods 0.4 - million, finished good turns - 94, Dsi - 24, Dsi's finished goods, sales and inventory finished goods - 2.6 rounded up to 3 days.

Our sales by product group, custom set source - 2.9 million, custom total - 6.6 million, Punctur-Guard - 2.3 million. Sales by channel, Abbott - 20.2 million, domestic distributor - 6.2 million, international - 2.3 million.

Before we go into questions and answers I would like to address a few more topics that we feel are core to our continued growth and make a few remarks about the exciting opportunities we see with the new products.

Firs, I would like to address our financing transaction activity. Our financing unit currently has 8.2 million in loans outstanding or less than 6% of our assets. That up from 6.5 million at the end of September of '03. The increase was due entirely to (inaudible)'s commitments made before we terminated making the new loans during the third quarter. Maximum commitments are 12 million. As we mentioned to you on our third quarter call we will not be making any new loans under the program.

We believe it is more prudent to deploy our capital for potential acquisitions, buy back shares when appropriate and make further investments in our business that can drive our competitive advantages instead of making additional loans in our finance unit. We will not be making additional loan commitments now or in the future. We are out of the business of new lending.

During 2003 and 2004 we have made and will continue to make significant capital investments in our business to drive efficiency and we believe that we are well positioned to reap the benefits of these investments. While some of these investments will temporarily impact our margins, we expect gross margin to move back to historical ranges during the next two years to about 57%.

As I mentioned before, we will be increasing R&D and our sales and marketing during 2004. But even with these increases we are still expecting a very strong year-over-year bottom line growth. At the same time we planned to continue to introduce new products, enter new market and improve our distribution channels. And there are a couple of these areas of opportunity I'd like to highlight.

Before we get into questions there are a few areas, as I said, I'd like to highlight. One, first, the new long-term domestic and international agreement with Abbott. We believe this agreement certainly strengthens our relationship with Abbott and we are excited to partner with such a strong player in the medical field. Abbott will be selling our full range of products in the US and throughout the world. The international aspect is particularly exciting for us as international growth is a focus of both ICU Medical and new Abbott Hospital Products Division Company.

Secondly, our existing relationship with Abbott and their transition as they spin out Hospira. Recently Abbott Labs, our most significant partner, announced a planned spin-off of its Hospital Products Division, Abbott HPD, which is exciting news for ICU. The new company will be called Hospira. To better understand our relationship it is important to note we have been working with Abbott Labs for over 8 years and Clave product line sales are currently less than 1% of their overall revenue.

Clave product line sales will be approximately 8-10% of the new Abbott HPD revenue going forward. These are high margin sales and there is significantly untapped market potential both in North America and internationally. Currently international is a very small part of HPD and ICU's revenue.

Well, we are very excited about the potential of the international market which is potential larger than the North American market. In addition, I would like to note the leadership of the team of Abbott is the same team we have been dealing with with Abbott. We have had a close working relationship with these individuals; I would expect that to continue. At this time we see a fairly seamless transition from Abbott to Hospira.

Next, Abbott pumps sets. As we mentioned to you earlier in 2003, Abbott is very serious about the pump business. In December of 2003, they announced their new Mednet drug delivery software, which expands the functionality of their industry leading medication and fusion system, or PUMP, as some refer to it This innovative software will give hospital caregivers access to the hospital's drug reference library and corresponding those guidelines at the patient's bedside.

To put the importance of Abbott technology combined with our new medical connectors and IV systems in perspective for you, medical errors contribute 98,000 deaths every year, including 7,000 that are due directly to medication errors. Because of the increase in insurance costs and other costs associated with hospital error, hospitals cannot afford these types of errors. The Abbott PUMP, combined with our systems, helps lower these medication errors and help hospital continually enhance the quality of care they provide to their patients.

Third, Vowin (ph) IV set market. We introduced our patented custom IV sets six years ago and have since seen compounded growth of 48%. 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 make IV 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 this growing market and expect to see over 35% top line growth in 2004.

Finally, we are working to support our international growth opportunities with a manufacturing footprint in Italy. We purchased a town facility late in the second quarter and have been putting our manufacturing practices and technology in place to begin to operate in the first half of 2004. This factory establishes a base to facilitate a graphic expansion of custom IV set business through out Europe, which would be working in conjunction with Abbott, as well as other market carriers of our products internationally.

In summary, we like our future. Our advance manufacturing processes enable us to deliver quality (inaudible) products in record time at the lowest cost to our customers. We control the majority of the distribution channels for IV sets and we continue to capture market share. We are the market leader in the growing custom IV set market and we are moving into a larger and relatively untapped international market with a leading marketeer of medical devices, Abbott Labs.

We also believe our solid balance sheet is a competitive advantage as it gives us the ability to drive share holder value through opportunistic share buy backs acquisitions and further investments in our business that will drive efficiency. We will continue to focus on our core business, improve our internal efficiencies and introduce or acquire new products to drive long-term growth for years to come. Now, I would like to turn the call over to questions, operator?

[OPERATOR INSTRUCTIONS] Your first question comes from Bruce Cranna with Leerink Swann, please state your question.

Hi, good morning guys. A little house keeping first, I - you ran through the numbers on the quarter pretty quickly, so I think I missed a couple of them. I am trying to tie into the 30 million on the top line, Doc, and I know you said Clave, I think 17.8 on the quarter, what was the custom number?

Custom was 6.6, paid with custom was 21.9, Clave by self was 17.9.

And you said, Punctur-Guard was 2.3.

2.3, 1.7 last quarter, a year ago, 1. You probably want to know Bruce, the EBITDA, usually after depreciation and amortization. You have those?

Hang on, still missing. What about PLC (ph) - did you mention that number?

It's under other. I think you mentioned the PLC, didn't you, Scott?

PLC is about 4%.

That was on the year.

For the quarter, I don't have that.

All right, so it is just going to drop another. I guess what I would like to do first is, if you don't mind, kind of looking at the '04 guidance, Doc and --

They're not guidance targets.

OK

They are our internal guidance.

You mentioned on the top line, I think 35% growth targets for custom and Punctur-Guard. What were your thoughts on Clave in general?

Top line growth, good healthy top line growth

Can you be a little more specific?

More specific in that Clave in general as a whole including custom sets?

Yeah across all

The reason I have trouble with that, Bruce, is such a large number of (inaudible) custom sets, the custom set consumes 2 or 3 Claves a unit.

OK, How about Clave to Abbott then in a non-custom

15%, 20%, in that range

That would be a good number

Probably closer to the 15.

OK and I want to get your thoughts a little bit --

Do you think -- let me put a thing - do you think Abbott's gonna have pretty sustained growth this year, 2004, converting the accounts. (Inaudible) marketing plans that we have seen -- we think they are going to have substantial growth, so it's going to be good year for them.

So if you're targeting Clave sales to Abbott at about 15% is that - it sounds like that's really US because the effect of OUS via Abbott is much more back end loaded is that correct?

Correct. It's the old thing, counting your chickens when they hatch, look down before they hatch. But, let's be very conservative let's put all the expenses in and then ramp up in terms of, and pump up the R&D for international also, and then as the money comes - as the revenues come in we'll account it but up until then we won't count it.

I understand now but again I just want to - just a kind of push a little bit. The Clave number to Abbott in '04 - I guess there would be somewhat out of keeping with recent experience, so what's your sense there you know, you mentioned pricing is going to be static?

Well we haven't had any pricing pressure and and we don't expect -- we expect no pricing pressure in '04 with Abbott.

So it's really just volume growth, as you further penetrate their US hospital base?

Hospital and international, we're going to be using our footprint in Italy to expand custom sets in Europe and we've revamped our distribution network internationally with Abbott. Where we're strong we put Abbott on where we are not as strong, we have used our independent distributor.

OK and then on the earnings line it sounds like, I am not trying to put numbers in your mouth, but 15% earnings growth for the year so a sort of a $1.70-ish type of number would be I guess targeted

Based on current dilution, yeah.

OK and then just a quick comment if you could and I'll get back in queue, Doc. I know you mentioned obviously more spending this year related to taking advantage of the Abbott situation and I think your comment on the gross margin line was 200 bits or so of improvement as the year -- from let's say Q1 to the end of the year

Yeah.

So what are we looking -- I mean, how we are getting that improvement on the gross margin line?

The acquisition of Bio-Plexus affected when we bought that company because we don't - we haven't bought companies that were accretive. We buy companies that are basically affect (ph) accretive. But, we believe it with good management, we could actually make money - if management can bottle water and make money, tap water or drinking water, we can do it with medical products.

The dilution, the amount of work, or the margin spread alone and the Punctur guideline is significant and works both ways you can dilute you and it also can help you. We think there's a large percentage to pickup job just there, also when we bought the Italian (inaudible) plant they were not making money. I remember back on Punctur-Guard I was very clear, we made a good amount of money in the fourth quarter in Punctur-Guard line. It was a very, it was not break even, it was way beyond our break even.

OK, so its better margins than Bio-Plexus

That's one of the places and we feel margin in the custom-sub business, we are going to make - margins are going to spread in Italy, which will advance (inaudible) a little bit. And then in just in the high-capacity tooling that we have invested in, running that up, that high-capacity tooling will improve the margins also.

When you think about sales and marketing it sounds like again like your '04 plans call for, spending more money on the SG&A line?

Well, if you look at our SG&A, it's more controlled, 23 for the year for this last year and fourth quarter 21 -- probably too tightly controlled. Its very, very tight. I don't know any of medical companies who run at that level.

We are going to add people in the ultimate site, we are going to add people to the hospital in the US, we are going to beef up the (inaudible) site substantially. We are going to add a lot of people internationally. So we just count on those expenses and just not counting on the revenue. We will see what happens when it comes in. We can also update you as it comes in. We suspect it will hit in the later part of 2004, certainly not earlier. Some of this spin-off occurs in March, April.

Right, I understand. So I just kind of, from a macro standpoint, making sure I understand you -- ?

Macro point 15%, 15% go to the Bank.

15%, so I'm making couple of hundreds bits better on the gross margin line, I assume you are spending on the SG&A line.

Correct.

Thank you. OK, and then, can you just tell us briefly, XUS, your relationship with Abbott. Is that more spending to be done in sales and marketing there as well?

XUS? Yes, a large amount spending now.

So a lot of this new SG&A is XUS?

A lot of it is.

And so what is Abbott -- ?

It is also - it's the modification of our existing product, if you look at our R&D budget. If you take questions on all kind of it, its so small, we don't require lot of money in R&D. But we need to modify products for each and every market. They're different, it's just like you can't sell German products in US, they just won't but them. The medical products, medical bags, solutions and such, that they will we sell all products there without modifying them.

So there's a certain amount of -- everything from color to texture to a certain amount of modification that we have to do. So R&D we will be beefed up, plus we are planning to launch a couple of new products this year, and that would beef up R&D product, one will launch in Europe. So we expect that to go up and we expect the S part of SG&A to go substantially.

OK, I understand the R&D. I just want finish off on SG&A here. So the new spend XUS is function of the new contract with Abbott, the new agreement with Abbott?

Absolutely

And so I'm just trying to figure in terms of -- who is doing what exactly, in another words is this the similar situation of the US, where you have product specialists?

Yes, absolutely -- it's been a very successful formula internationally so far on a small scale. With three International salespeople, were 4 people. But it's been very successful, we plan to continue the same formula. Product specialists with ICU working with the Abbott -- the Abbott Hospital reps as a team.

OK. And thank you.

Welcome.

And your next question comes from Mike Meranachui (ph) of Ragnamac Capital (ph). Please state your question.

Yeah. Hi, Doc. I understand the lumpiness of the quarters. But can you just explain why the first quarter is going to be down so much from what people had anticipated? It looks like your guidance of about 22.50 million in revenue and I think in the analysts are north of 30?

I don't - I don't know where the analyst are. But certainly -- if you remember correctly -- we rolled over 4 million last year.

Right, I remember.

So, that's part of it. The second thing is - the second reason is we -- our quarters go up and down, up and down. And in the end, we end up the same, the same growth year to year. That's the best answer I can really give you. That's what we are looking at now.

OK. I guess we have to live with it. Thanks.

Thank you. Our next question comes from Adina Dodi with B. Riley and Company. Please state your question.

Hi. I was looking at the tax rate for the fourth quarter and it was significantly lower than your historical levels. And I understand the reason, you had some tax benefit. What should we except going forward in terms effective kind of tax rate? Should we expect going back to 38%?

Half a percent. I think you look at the tax rate going up about a 0.50%.

Half a percent from the historical level, or this quarter's level?

I'll let Scott jump in, but that's my number.

Yeah. From this year we should - we'll see a little bit of a loss as far as tax credits from the state of California. We were able to do some better tax planning this year and we should expect to see continued better tax rates going forward. But, probably see a 0.50% increase next year.

OK. Where was the contribution to revenues from the client in Italy and is the manufacturing capacity -- ?

It's immaterial in Italy. It was mainly a loss but it's immaterial in terms of revenue.

OK.

We just bought a facility there with maybe 16, 16 employees as a base. I was immaterial to revenue.

OK. What was the share buy back for the year in terms of dollars and number of shares?

We bought -- for the year we bought $15.3 million in stock back.

What was that in terms of number of shares re-purchased?

In terms of shares?

Yes.

I don't know the share count.

It's about a half a million or so.

OK. And the final question on I know there is some overlap between your existing International distributors and Abbott overseas, so when do you expect all that to be finalized?

To finalize now. We've signed -- having locked in the Punctur-Guard contract with Abbott, which we think is very big because that - Abbott's reach is, just in the US alone, is tremendous. Our distribution depth is - we (inaudible) that as tremendous.

Everything is finalized in international. We basically have terminated some of the distributors where Abbott's strong and, based on what we could with the contracts, and Abbott's -- in place for March and April, we are in place to take the product line from that point forward. So, I think our international, Saudi Arabia, everything is lined up, we are very comfortable with where we are with our - again, the combination of independent and Abbott, you can't be strong everywhere. You can be strong in certain places, but you just can be strong everywhere.

OK, finally, can I get a quick read on Punctur-Guard royalties and the safe line revenue share?

Yes, the total number I gave you was -- you can count on that, non-profit revenue was 700,000 per quarter.

Do you have the breakdown for this quarter?

I do not in front of me, if you call me back, I can get it for you in a few minutes, I just don't have that backup in front of me.

OK, thank you.

Thank you, our next question comes from Mitra Ramgopal from Sidoti and Company, please state your question.

Yes, hi guys, couple of questions. Just to clarify the tax rate, I think you said it will be half a percent higher, is that also the full year number or the fourth quarter?

Full year number

OK, and again if you can just mention any potential uses for the cash that you have been building up, I know you have talked about investing in SG&A and R&D etc., is it safe to assume on the acquisition front, you probably will not be doing anything in the near term?

I can't say that, Mitra, I am not a big believer in the creed of acquisitions. I mean, I will buy one of the great company but I believe you invest money, buy cheap and turn the company around and make a lot of profit out of it.

We would do acquisitions, we will do stock buy backs when the stock is on sale whenever it's available. We will buy the stock back, we would buy it back at different levels but as far as acquisitions go, we look very hard at acquisitions but select very few if any, it would not be unusual first not to do any acquisition this year although we might do a small one or, who knows. But right now, we have nothing lined up.

As far as the cash goes, if you do a quick calculation, you will see our cash will deliver a 100 million probably by late through the second quarter, third quarter, should be about a - over a $100 million in cash. That is a lot of cash; there is no question about it.

OK, thanks.

OK. As far as the license fees go, safe line revenue share - 175,000, Punctur-Guard - 250--this is non-product revenue--Punctur-Guard - 250,000 and another company - 235,000. Total - 650,000, approximately 700,000 per quarter.

Thank you, at this time, I would now like to turn the conference back for closing comments.

OK, well, if there will be no other further questions, thank you very much for joining on this yearly conference call. Thank you very much, operator.