金百利克拉克 (KMB) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the I-Flow fourth-quarter year-end results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded Tuesday, February 20, 2007.

I would now like to turn the conference ever to Don Earhart, Chief Executive Officer of I-Flow Corporation.

Please go ahead, sir.

Thank you, Natasha.

Good morning, everyone, and thank you for joining us for I-Flow's fourth-quarter and 2006 results conference call.

Following our prepared remarks, Chief Financial Officer Jim Talevich and I will be available to answer your questions.

Before Jim and I get into the details of what was another strong quarter of ON-Q sales in our regional anesthesia business, let me begin by providing an update on the pending sale of our InfuSystem subsidiary to HAPC Inc., formerly Healthcare Acquisition Partners Corporation.

HAPC filed its preliminary proxy statement with the SEC in December, and the transaction is currently working its way through the public accounting and SEC review process.

We now expect the deal to close by mid-year.

In the meantime, InfuSystem is reported as a discontinued operation on our financial statements.

The terms of the proposed InfuSystem transaction have not changed.

I-Flow will receive $140 million in the form of cash and a secured note subject to certain purchase price adjustments based on the level of working capital at the time of closing.

We believe that the closing of this transaction will represent an exceptional value to our shareholders, while enabling us to concentrate our efforts on the long-term growth opportunity we see in our proprietary ON-Q franchise.

Our fourth-quarter performance underscores the quality of this opportunity.

Revenue in our regional anesthesia business increased 41% for the fourth quarter of 2006 compared to the fourth quarter of 2005 and was up 36% for 2006 as a whole versus the prior year.

Growth in total revenue from continuing operations, which includes the contribution of our IV Infusion Therapy business, actually exceeded our expectations, with sales up 38% for the fourth quarter and 30% for 2006 compared to the respective year earlier period.

I believe that the strong growth we continued to deliver in our regional anesthesia business reflects the combination of an increasingly competent and productive sales team and the great products that improve patient outcomes.

Our proprietary family of ON-Q products for the relief of postsurgical pain without using narcotics.

The continuing expansion of our ON-Q family, particularly with new products for large incision surgeries where ON-Q has been shown to make the biggest difference in improving patient outcomes, is an important contributor to our momentum.

With the recent introduction of a custom kit program allowing our customers to mix and match any of our products to create a unique package designed specifically for their needs, we expect this growth to continue and possibly accelerate.

Our ON-Q SilverSoaker line of products, which offer enhanced antimicrobial properties as an added layer of protection against the risk of infection, ON-Q tunneling accessories which are expanding the market for our proprietary ON-Q PainBuster by delivering even better outcomes, especially in large incision surgeries, and ON-Q C-bloc, which is proving especially effective in orthopedic surgeries, were particularly strong performers in the fourth quarter as they were throughout 2006.

ON-Q C-bloc sales increased 187% for the fourth quarter of 2006 to $2.313 million from $807,000 for the fourth quarter of 2005 and rose 174% to $6.6 million for 2006 as a whole versus $2.405 million for 2005.

This franchise has grown from meager beginnings in 2004 to now represent almost 10% of our ON-Q brand's sales and a meaningful portion of our share of the competitive orthopedic space.

This quarter, we will extend the C-bloc line with the introduction of two new larger capacity pumps with mechanical rate controllers that we believe will further improve patient outcomes by allowing for longer therapy in certain applications such as total hips and total knees.

The total number of active customers in the fourth quarter of 2006 versus the fourth quarter of 2005 increased by 16%.

The average selling price increased 7% in the fourth quarter versus the prior year quarter and increased 10% for the year as a whole as our sales representatives and customers have gravitated toward larger pump sizes with even better outcomes.

Now I am going to turn the call ever to Jim Talevich to review the financial results in detail.

Jim?

Thanks, Don.

Before we continue, please note that this conference call will include forward-looking statements.

These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management.

These statements are not guarantees of future performance, and actual results may differ materially.

A more detailed discussion of these risks and uncertainties is contained in this morning's press release and I-Flow Corporation's various filings with the SEC.

The statements made during this call are made only as of today's date, and we undertake no obligation to update these statements.

For the three months ended December 31, 2006, revenue from continuing operations increased 38% to $27.433 million from $19.844 million for the fourth quarter of 2005.

The increase included the effect of a 41% increase in regional anesthesia revenues over the prior year quarter.

SG&A expenses from continuing operations increased 3% to $20.631 million for the fourth quarter of 2006 from $19.997 million for the fourth quarter of 2005.

SG&A expenses from continuing operations included stock-based compensation expense of $1.442 million and $5.280 million for the fourth quarter of 2006 and 2005, respectively.

The decrease in stock-based compensation expense during the fourth quarter of 2006 compared to the prior year quarter was due to the stock-based compensation expense recognized during the fourth quarter of 2005 in connection with the upward repricing and acceleration of the Company's out-of-the-money stock options.

The loss from continuing operations before taxes for the fourth quarter of 2006 was $1.597 million, which included stock-based compensation expense of $1.442 million.

This compares to a loss from continuing operations before taxes for the fourth quarter of 2005 of $6.218 million, which included stock-based compensation expense of $5.280 million.

Income from discontinued operations before taxes for the fourth quarter of 2006 was $1.686 million, including InfuSystem divestiture expenses of $261,000.

For the fourth quarter of 2005, income from discontinued operations before taxes was $1.248 million.

The total income before taxes for the three months ended December 31, 2006, including both continuing and discontinued operations, was $89,000, including stock-based compensation expense of $1.665 million.

This compares to a total loss before taxes for the three months ended December 31, 2005 of $4.970 million, including stock-based compensation expense of $6.074 million.

At December 31, 2006, I-Flow reported cash and cash equivalents and short-term investments from continuing operations of $27.4 million compared to $24.7 million as of December 31, 2005.

I-Flow has not yet completed its review of the provisions for income taxes and related deferred income tax calculations for its continuing operations and discontinued operations as of December 31, 2006.

Consequently, the Company has not yet determined the net income of its continuing operations and discontinued operations for the three and 12-month periods ending December 31, 2006.

I-Flow expects to file its audited financial statements on Form 10-Q -- pardon me, on Form 10-K with the SEC on a timely basis.

Don?

Thanks, Jim.

Support for third-party clinical studies has been critical in providing valuable scientific and clinical information regarding the safety and effectiveness of our ON-Q family of products.

So we are very pleased by the validation by an independent landmark meta-analysis published in the December 2006 Journal of the American College of Surgeons, which confirmed the efficacy of continuous wound catheters that deliver local anesthetic, including ON-Q, for postsurgical pain relief.

A meta-analysis is a widely used statistical technique of combining the results of many studies that have researched the same therapy.

This analysis of 44 different randomized clinical trials, which included 2141 patients, clearly identified these devices as providing improved pain relief with consistent evidence of benefits across a wide range of surgical procedures.

The authors from three world-class medical centers -- Cornell University, the Johns Hopkins University and Virginia Mason Medical Center -- encouraged widespread clinical use of the therapy.

They arrived at this conclusion because their study compiled patient outcomes with continuous local anesthetic therapy as compared to narcotics, a longtime standard of care.

Results with the ON-Q therapy were highly statistically significant and included lower pain scores, decreased narcotic intake, reduced narcotic side effects such as nausea and vomiting, higher patient satisfaction scores and a full-day reduction in hospital length of stay.

These outcomes were consistent across a wide range of surgeries and dosing regimens and were accompanied by low incidences of catheter-related complications.

Needless to say, we at I-Flow are excited that the benefits of ON-Q that we have been advocating for years have been recognized in a study of this magnitude with scientific evidence that led to the publication in a prestigious peer-reviewed journal like the Journal of the American College of Surgeons.

We believe that the positive results of this meta- analysis will help surgeons, hospitals, insurance companies, managed care providers and other allied health professionals to better understand how ON-Q redefines recovery and gets patients back to normal faster.

This published study is serving as the foundation for a new ON-Q campaign built around the theme, Proven, that we rolled out to our sales force at the national sales meeting in January.

In another important step toward our goal of established ON-Q as the standard of care for postsurgical pain relief, on January 1, 2007, Medicare began covering ON-Q to treat postsurgical pain under the hospital outpatient payment system, OPPS.

The decision by Medicare to change the designation of the code that includes ON-Q -- that is code A4306 -- signifies that Medicare has recognized this therapy to be a payable covered benefit and, therefore by law, medically necessary.

In addition, CMS not only changed the status indicator for A4306, but actually changed the code description as well.

The new descriptor now encompasses the C-bloc for coverage, whereas the old descriptor only covered the ON-Q PainBuster.

Prior to this, C-bloc was listed as a non-payable code with Medicare.

We estimate that about half of the 15 million surgeries performed annually in the United States where ON-Q can be used to deliver superior outcomes are performed on an outpatient basis.

Because inpatient procedures have been the primary driver of ON-Q's growth to date, this decision by Medicare represents an important new growth opportunity for I-Flow.

As a result of Medicare's decision, hospitals will need to list the ON-Q device code and its cost on outpatient claims so that ambulatory payment classification rates can be adjusted accordingly.

Medicare's recognition that ON-Q is medically necessary should positively influence private insurance companies to follow suit and thus get even more patience back to normal faster following their surgery.Our strategy to redefine recovery and establish ON-Q as the treatment of choice for the relief of postsurgical pain is working.

Looking ahead for 2007, and making the assumption that the InfuSystem sale will close late second quarter, we currently expect growth in regional anesthesia revenue to exceed 30% in 2007 and growth in total revenue from continuing operations to exceed 20%.

Since the full marketing and sales expansion to accelerate the revenue growth will not begin until the sale of InfuSystem is completed, the second half of 2007 is expected to show stronger revenue growth than the first half.

Natasha, we are now ready to take questions.

(OPERATOR INSTRUCTIONS).

Alex Arrow, Lazard Frères.

Did you give us a pro forma tax rate either for this quarter, since it's not officially reported, or what you are advising us to use in '07?

I don't think so.

We don't give -- I don't think we've ever given guidance on taxes.

Okay.

But there are expectations out there.

Do you agree with the assumption that if you had not had the onetime benefit and if InfuSystem wasn't going to be sold off, you could be at about a -- what, a 36% tax rate?

Yes, I think for normal forecasting purposes, you should use something between 35% and 40% from here on out in your modeling.

Okay.

Thank you.

On the OPPS decision, I know when that came out in early January, the idea was the new categorization could have an effect on private insurers since ON-Q can no longer or it doesn't seem to be possible to call it unnecessary given the new categorization.

Have you seen any private insurers, and can you give us any specific examples of private insurers that have now reimbursed as a result of the OPPS decision?

Well, as you know, we have had private insurance companies, and even managed care companies, pay for the product in the past.

What is going to happen, we believe, going forward is that more are going to recognize the product's benefits, and now that it is considered medically necessary will start paying.

We had not announced any specific names, but I can just tell you this, that we are getting paid more often.

On the transition now that InfuSystem is being divested, since they were performing the billing function for your consignment business, can you give us an update on how that transition either is happening or is going to happen?

I mean I know that they were going to continue to build for you even after the divestiture.

What is going on with the consignment business?

Can you tell us how much revenue that is generating and with regard to InfuSystem, please?

Just one moment while Jim looks for the billing, third-party billing number.

But in the meantime I can tell you this -- as part of the purchase agreement, we signed a totally separate agreement with InfuSystem for them to continue to do the work for us in that area.

As I said on previous calls, we keep that area totally separate from the oncology business, and it is actually located in the same building, but on a different floor and all by itself.

So they will continue to manage that business for us, and we will pay them so much a month for that effort.

Our sales in the fourth quarter was approximately $800,000 on that side of the business.

Okay.

And have you disclosed how much you are going to be paying going forward for the service that InfuSystem will continue to do for you?

No, we have not disclosed that.

Should we be modeling any difference in the aggressiveness or the growth of that part of your business after the divestiture?

No, I don't think you should model anything different.

So you are still going to be prioritizing the consignment model in the ambulatory surgery centers?

We stopped prioritizing that from a strong standpoint awhile back.

That is just one more tool in the bag.

With the change now by Medicare, we expect more and more of those surgical centers to begin doing their own billing and getting reimbursed directly from insurance companies, and therefore, there will be less need for our third-party effort.

And so instead of doing a third-party billing for them, we will end up selling them product, which is actually a better deal.

So we do not think we are going to see aggressive growth in that area from a billing standpoint, but we do believe we are going to get aggressive growth from a sales standpoint, which we would love to have.

And what is the reason for the shift in the timing of the InfuSystem closing?

It was going to be first quarter.

Now you are saying late second quarter.

What has to happen before it closes, and then what has changed?

Let me have Jim handle that.

Sure.

It is pretty simple.

They did not file their proxy stay with the SEC until December.

I think they chose to be very thorough with it, which in retrospect is probably a pretty good idea.

Our original expectation was that they would probably file in October, so we were off a couple of months in our projection.

But it is really up to them to handle how they want to do that.

And then last question, you stopped using the word Eclipse, I noticed, with the IV Infusion Therapy.

Have you retired that name?

No, that is still a very importance name, but we have several names which we use across the world.

For example, some of our biggest distributors have their own name.

So Eclipse is one of I think three names we call that pump.

So now we just lump it in as IV Infusion pump.

Raj Denhoy, Piper Jaffray.

I was curious, did you disclose the InfuSystem's revenue in the quarter, even just roughly what it was?

I don't think that is in there anywhere.

Is it possible that we could get that?

Yes.

It is approximately $8.208 million.

And then I guess you guys grew 41%, obviously, which was very good growth.

But I wonder if you could possibly break that down into what the unit growth was in the quarter?

I know you gave the pricing was about 7%, and then obviously the C-bloc revenue increased pretty dramatically.

But on an absolute unit basis for just the ON-Q system, is there any way to break out just sort of what the underlying growth is in that market?

No, we do not give unit growth.

But we did tell you that overall growth in pricing, average selling price increase was 7% in the fourth quarter.

So if we had 41% growth, most of that was unit.

Sure.

But I guess does --

If you subtract 7 from 41, I think you'll get 35% growth in units.

Right, but I guess the C-bloc revenue is in there.

Obviously that has increased and --

That is all part of the average.

And then the silver catheter also, is that included in the 7% pricing?

Everything is included in the 7% -- C-bloc, the catheters, the pumps, everything.

I guess you would have to say our unit growth was about 35%.

Right, right.

Fair enough.

I just wanted to confirm that.

And then lastly -- I'm sorry if you provided this update;

I might have missed it -- but the colorectal study that is ongoing, did you give an update on where that stands and number of patients and timing?

Yes, we have -- I believe we have 225 patients now, and we have 29 centers that have signed up.

Some are still waiting for -- we have 29 that actually have their IRB approved.

Some of them have not started yet, but most of them are involved and are actually treating patients.

And can you remind us what is the absolute number of patients you need?

We still think we need about 1000.

We are still driving to get that number sometime in the third quarter.

And then we could expect the results or at least even a first look at the results maybe first part of 2008?

Well, if we can find a meeting to go to in time, we might be able to do something in the fourth quarter, hopefully no later than the first quarter, be able to announce with a poster presentation.

William Plovanic, First Albany Capital.

A couple questions here.

I think the revenue outperformance I believe was a surprise for everybody.

Congratulations on that.

The only questions we have are the costs.

It seems like the gross margins were not contributing as much as you would expect on an outperformance such as you saw, as well as the operating expenses -- sales, marketing, G&A.

And also kind of for Jim there, can you break out sales and marketing and G&A to help us get a little more color on it?

Hang on a minute.

I do not think I have that at my fingertips, sorry.

Is there a reason why you did not see as much leverage on the GP line or why SG&A was as high as it was?

I can tell you that the gross profit number, or I should say the percentage was affected by the unusual growth in the IV business.

But I am not going to throw that away because the absolute margin dollars are fantastic.

No, but then on the flip side, that should have helped contribute to an even better SG&A lower as a percentage of sales.

I am just wondering what in that line was higher pretty solidly from past?

Well, we know that sales commissions are higher because we had a higher percentage of reps actually make quota.

I think we had over 40% of the sales reps make quota, which is unusual for us.

So that definitely contributed towards the G&A expenses.

Plus, we had a lot of expenses getting ready for the national meeting and stuff.

So there is a lot of things that are in that fourth-quarter number.

But remember now, we are driving for revenue growth, and I think that is what we delivered.

One other nice thing is, as you have noticed, our cash flow has increased.

We have positive cash flow.

Our actual dollars on the balance sheet have increased.

Yes, I did notice that.

And then a follow-up question.

Just in terms of the animal anti-infective trial, is that still ongoing, and have you launched your custom kit?

And then are you seeing any impact from reimbursement yet?

So I guess three more questions.

The first question is the animal study.

We stopped that study a long time ago.

We stopped it early and decided to go straight to a human study.

So we have not done anything with the data that we had.

The data was very small because we stopped it early.

But we think the more important study will be the human study, which, of course, we will take that to the end.

Alright.

And then your second question was what?

Did you launch your custom kit yet?

Yes, we launched that in the first quarter, and in fact, that -- I'm sorry, in the fourth quarter, and in fact, that contributed towards our fourth-quarter results.

We expect that to be very important as we go forward.

Then I do not know if somebody had asked this one earlier, but any impact from the reimbursement change at CMS yet?

Yes.

We are hearing from the field that it is very positive when they present that to a hospital and that now that they know sometime in the future that it could affect their DRGs and actually increase them, we are getting more and more uptick.

And on the ambulatory surgery center side, we are also seeing the same thing.

So it has been very positive in the field.

And strategically going forward, would you say that we are more likely to see a drive towards revenue growth and not see a push toward profitability?

Are you pushing one in lieu of the other, or is it a strategy where if you are able to hit your 30% RA growth and 20% overall growth that we could see you get towards that GAAP EPS positive?

I know cash flow wise you hit it, but just from a GAAP standpoint.

With the pending sale of InfuSystem, in which we will pick up $140 million in cash, it provides us with the resources to accelerate the establishment of ON-Q as the standard of care.

So that is really what our plan is to do, is we have this huge opportunity, we have great resources, and we have an opportunity now to gather more share and grow the revenue even faster.

So our focus will be to drive revenue, but at the same time, we do not expect to have huge losses.

So we expect to do that in a very controlled way, but revenue growth is our focus.

You just know we are never happy (multiple speakers)

I know that.

No matter what we do, we probably will not do exactly what everybody wants, but we think the opportunity is too big and our resources are too great for us not to go after that market and establish ON-Q as the standard of care.

So that is what we are going to do.

Jim Molloy, Oppenheimer.

Have you disclosed the total number of reps in the quarter?

We had approximately 190 quota-carrying reps at the end of the year.

And how many non-quota-carrying reps?

We had approximately 50 that were non-quota-carrying.

That would be clinical specialists and nurses.

That would be the sum total of everyone who is walking into an office selling ON-Q in the quarter?

That includes management; that includes everybody.

Any thoughts on these shares, average shares in the quarter or shares in the fiscal year?

I do not see it in the release.

Shares?

Oh, you mean the weighted average shares for EPS calculation?

That is correct.

Yes, I think for the 12 months, our basic is -- and again, I am going to give you this as an estimate rather than actual, but I think our estimate on basis is 22.887 million shares.

Our estimate on diluted is 24.071 million shares.

Excellent.

Then I guess moving off the accounting stuff, on the competitive front, any new entrants that you saw coming into the market during the quarter, and how do you guys see gaining and losing share in the quarter, anything that you are seeing on that front?

We have not seen any new competitors for quite awhile, and some of the old competitors are almost nonexistent.

So we believe we are taking significant chunks of share away from everybody else, but that is really not our focus.

Our focus is to take share away from narcotics.

That is where we have the big opportunity.

So that is really where our focus is.

But because we do not see the competition nearly as much anymore and several have gone away, yes, we believe that we have gained some share with what market that is penetrated.

Maybe switching over to the InfuSystem's deal, obviously it has just taken a little longer than you had expected.

What would you say would be the biggest hurdle to this deal getting done at this point, and if there were something that would break this deal, what would be that?

We do not like to think in terms of negative things, but of course, as you know, it has got to get through the SEC, and then once it is through the SEC, the shareholders have to vote.

So until the shareholders say yes, we do not any deal.

I believe 80% plus of the shareholders have to say yes.

So those are the hurdles left, and I would like to think that everybody will say yes.

(OPERATOR INSTRUCTIONS).

Kevin Kelly, J.M. Hartwell.

Just wanted to find out how the productivity of the sales force is progressing and how quickly will you be able to ramp the sales force once the InfuSystem is sold?

I think that you can see in the fourth quarter based on the 41% growth, 7% of that being average selling price, so about 35% we think was the productivity growth by the sales organization.

So we think that is pretty good.

We do not know of too many sales forces that can do that.

Ours did it in the fourth quarter.

And again, we had approximately the same number of people carrying quota in the fourth quarter as we did earlier in the year.

Once we close on the InfuSystem sale, then we will reevaluate where we want to add people in the field, and it will be a combination of quota-carrying reps and clinical specialists.

So we have not made that final decision yet, but we have a plan that we are developing as I speak so that we can move fairly quickly.

Have you disclosed yet how many sales reps you may add once the InfuSystem is sold?

We said something on an earlier call that our thought process would be to add maybe 20 -- I am sorry, 10% to 15% of the total number of people, so that can be another 30 to 40 people we might add once we close.

Now that again would be a combination of nurses, clinical specialists and sales reps.

I think that would be at the high-end.

I guess one last question, which is as far as the colorectal study, once you guys get the data in and assuming obviously that it is positive, what are the implications of it?

Well, if we can show a significant difference in the two populations, the population that gets our pump with a local anesthetic bathing the surgical site versus those who get narcotics, if we can show a significant difference in the infection rates, we think that would be very interesting information for hospitals and surgery centers, and could be considered -- our pump could be considered as a prophylactic against infections if it is significant enough.

And, as we all know, that infections is one of the biggest costs, if not the biggest cost that a hospital has been doing surgery.

If they have to treat an infection, it gets to be fairly significant dollars.

So I guess we believe that if we can show there is a significant difference, we might have another claim, and that is that we are prophylactic against infections while we treat the pain.

(OPERATOR INSTRUCTIONS).

Greg Brash, Sidoti & Co.

Just a quick question.

I don't know if I caught it, the diluted share count for the quarter, is that 24.071 million?

I believe that is the number.

So if I was to figure out a pro forma EPS, you would suggest I would use a tax rate somewhere between 35% and 40%?

For what year are you talking about, 2006 or 2007?

For figuring out for this quarter, just trying to get idea of where you would come in.

We really have not given guidance on the quarter specifically, but in theory, you should be using, because of our -- because we have reversed our valuation allowances, in theory, you should be using something like the statutory rate, which is roughly 35% to 40%, including state taxes.

And can you also comment on why -- I mean, this is two quarters in a row where the IV Infusion segment has done very well.

Could you comment on why it has been doing so well, and why your guidance for '07 -- it looks like it calls for actually declining growth in that segment.

We continue to get a very pleasant surprise from the IV business, which was flat for several years, and then in the last two, it started to come alive again.

Again, we are tied to homecare.

So, as homecare grows in the United States, so does our pump.

The same thing is true outside the United States.

What I think we are seeing is we are seeing fewer and fewer competitors in that business, and we are doing a very good job against electronic pumps and against gravity delivery, which was used for years.

Because our pump saves money by eliminating the need for nursing visits in most cases, homecare companies that used to use gravity and/or electronic pumps have begun shifting to a product like ours, which is almost a no-brainer.

It does not take much in the way of in-servicing a patient.

So that is about the only thing I can tell you.

But we are pleasantly surprised about the growth both internationally and domestically with the number of units we are selling.

That is great.

So why for '07 are you looking for flat to declining growth, if everything is looking so great?

Well, you know, we have always been relatively conservative.

And again, we do not have any hard information to lead us to believe that we can continue to take share away from gravity and electronic pumps.

Our fear would be that if we proposed or forecasted a significant growth number, we do not know for sure whether or not we have already captured that share that we have been capturing from electronic and gravity.

There is no good data out there to tell us that.

And is it safe to assume that you mentioned in the quarter the gross profit number was slightly lower than it has been, which is mostly due to a product mix more IV, less -- or more IV in comparison to the ON-Q.

But if we are seeing stronger growth out of ON-Q going forward and less out of IV, is it say to assume we will see gross margin improvement?

Yes.

Again, we are very mix-related when it comes to the percentage.

And now there's only two businesses.

In the continuing operations, we have the ON-Q business, which has very high margins, and then we have the IV business, which has much lower margins.

We don't have the oncology business to mix in there anymore.

And the ON-Q margins have remained pretty steady?

Yes.

(OPERATOR INSTRUCTIONS).

And there are no questions at this time.

Are we ready to close, Natasha?

We presently do not have any more questions at this time.

All right.

In closing, we are energized by the opportunities for growth in our regional anesthesia business and our business in total.

We expect 2007 to be another strong revenue growth year.

We look forward to reporting our first-quarter results in just a couple of months.

As always, we thank you for your continuing support.

Natasha, we are finished.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation, and we ask that you please disconnect your lines.