Merit Medical Systems Inc (MMSI) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Merit Medical fourth quarter and year end 2006 conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Fred Lampropoulos, Chief Executive Officer of Merit Medical. Please go ahead, sir.

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos. We're broadcasting from South Jordan, Utah.

With me this afternoon are members of our staff including; Kent Stanger, our Chief Financial Officer; Rashelle Perry, our Chief Legal Officer; Arlin Nelson, our Cheap Operating Officer, did I say cheap? I meant Chief Operating Officer; Anne Marie Wright, our Vice President of Corporate Communications; and other select members of our staff.

I would like to turn the time over to Rashelle Perry, our legal counsel, for a short statement. Rashelle?

Thank you, Fred.

In the course of our discussion today, reference may be made to projections, anticipated events, or other information which is not purely historical. Please be aware that statements made in this call which are not purely historical may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties, and other factors that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks, events, uncertainties and other factors are discussed in our annual report on Form 10-K and other reports and filings with the SEC, which are available on our website. To the extent any forward-looking statements are made on this call, such statements are made only as of today's date and we do not assume any obligation to update any such statements.

Thanks, Rashelle.

The nature of our discussion today is to discuss our fourth quarter and full year results, to discuss the acquisition of two products, one through distribution and one through product line acquisition, and then finally, a discussion about our statement in our press release regarding guidance for 2007.

Let me start first by briefly discussing the fourth quarter. The company reported about $50.8 million of revenues in the fourth quarter, which was a record, and a 19.1% increase over the revenue for the year-ago period of $42.7 million. The earnings for the fourth quarter were $3.1 million, or $0.11 a share. This $0.11 takes in account an expense for 123R, which is essentially the stock options expense, and also a $0.02 impairment charge regarding and relating to the intellectual property assets and equipment from an investment that Merit made in Sub-Q in March of 2005.

Briefly on the Sub-Q issue, we had determined that with the other opportunities in the marketplace that our time was best spent on other projects. This was a device that was used for vascular closure and because of good and varied reasons, we decided that we would abandon that equipment and not start that project up. And you're all familiar, of course, with the issue regarding the stock options expense.

I'm quite pleased that in the fourth quarter we saw the sales of 19.1% increase. That's substantial. For the year, we were at around 14.5% and again, I think that that is substantial. I believe that's up from 11% on a smaller number the year before. And I've heard some people say that Merit had stopped growing and I think all evidence, of course, is to the contrary. In fact, we're quite excited about the future, but we'll discuss that at a later time as we're able to assess the opportunities and our business plan for some of the new acquisitions and other opportunities that Merit is currently working on.

Regarding gross margins, I'm going to just turn it a second and turn some time over to Kent Stanger, our Chief Financial Officer. And Kent, just have you briefly talk about the sales in the categories and talk about some of the absorption issues in the fourth quarter and some of those issues regarding gross margins. Kent?

We saw a lot of growth in some of our lower margin products in the last quarter for trays and so forth and we've had still an opportunity to yet absorb in many of our startup products. So when you look at the Prelude or the Impress or some of the others that we've just introduced, they're still in their initial stages of sales development and really aren't absorbing the overhead quite as quickly as we'd hoped. We also have the continuing absorption needed for all of our facilities.

And we had -- we've had an interesting issue here recently with the unemployment rate being very low in Utah and the need for us to compete, if you will, for direct labor. And so we've had to increase our labor costs in that fourth quarter.

To that point, another discussion that we had in our call was the fact that Merit has one product currently being built offshore and two additional products that will be up during this -- during the late first and early second quarter of next year with substantial cost savings. So it'll help to take some of the pressure off and we're talking about a savings in the neighborhood, just in those two projects, close to $1 million a year.

So we are working very actively to move some of the high labor projects to a Mexican facility where we've been building product now for well over a year. And we hope that as we finish this year that we'd see another four or five projects be moved to that location that'll help take pressure off in terms of the local labor costs and, candidly, a substantial reduction in labor cost and overhead in those particular projects.

Kent, did you want to comment any further?

No, I just wanted to point out that even though our margins did decline in the fourth quarter and then there's still a lot of work to be done there, that we are really working hard on efficiencies right now. It's a high priority for Arlin and for inventory management, as well as for, as Fred mentioned, trying to reduce costs by moving as many of our mature products to a lower cost manufacturing environment.

Okay, Kent. Let me move on now to the next subject matter that'll kind of tie back to this and I'm actually going to move one up in front. And that is the issue of our guidance. We have been working for about the last 60 days on the acquisition of the Proguide dialysis catheter from Datascope. And much of our time has been spent on that particular issue as well as one that we released a few weeks ago regarding the KanguruWeb from Milamy Partners.

We've had our staff committed to that and although we've been doing budgeting as actively as we could, it clearly took a substantial amount of our time to, in a short period of time, to be able to close this transaction, which we discussed yesterday. We feel that it's prudent in light of that and making sure that we don't have to change numbers down the road to make sure that those numbers are accurate. I'd like to point out that last year we gave a range of 185 to 189 in revenues and came in at 190, almost 191.

And on the earnings side we gave a range of 41 to 44. We came in at 44. We had not anticipated the $0.02 impairment charge and so we met and in some cases exceeded the guidance that we gave last year. In terms of our forecast accuracy and everything else for the business, on our internal numbers we were at about 99.9%. So I think we're doing a good job of understanding our business. And as Kent pointed out, we have a lot of projects, a lot of cost saving issues, a lot of offshore issues that we believe will start to pay dividends in the sense of returns for our shareholders going forward.

Now, I'd like for a few minutes to move on and talk a little bit about the recent acquisitions and I'll start first with the Milamy Partners acquisition of the distribution rights worldwide for a product that they call the KanguruWeb. This is a relatively small and emerging market that we think has several opportunities for our company. First of all, the product is a device that is used both in interventional cardiology and interventional radiology in which it helps to secure the abdominal pannus. These are for large overweight patients. Right now they go through the painful and candidly somewhat difficult process of taping patients, which creates a lot of time, a lot of setup time, a lot of discomfort. And in terms of the integrity of the patient, in many cases that's compromised. It's an embarrassing situation for them.

This product was one in which there are really essentially two competitors. It is Merit now and Vascular Solutions. We believe and I believe that our product is the class of the field. It was developed by an interventional radiologist and cardiologist. I think it's [Dr. McKnight]. And this product is one that has at Merit's level better than a 50% gross margin. And one of the, I think, most telling events about the need for this is it sometimes can take around 20 to 30 minutes to tape a patient. And remember, in many cases, obesity is in fact one of the large contributors to cardiovascular disease.

We believe that we're the market leader. We believe this is a product that has not had the opportunity because it was being sold by distributors. We will do a full launch of this product approximately April 1st and that is because we're building inventories, we are Meritizing the product. But as I was alluding to, we were originally at a small tradeshow in Memphis, Tennessee, I believe it was. It was in Tennessee someplace. And we had one rep and one clinical person there and in this small little location in a matter of a day and a half we took 55 leads. One city, one location.

And the great thing about it was is that some of the accounts that we were not able to get into, we were not doing some business or had limited business, were accounts that invited us to come in. And so we believe that this serves a unique need in the marketplace. It's a patented product. It's a product that we're all aware of the costs of obesity and what that means in terms of both the time, the aspects of taping, the pain that the patient goes through. And so we believe that this is a high margin product that will allow us to have a door opening product in interventional cardiology and radiology.

So even though it's not a $10 million product, over time it'll probably end up being a couple of million dollars. And again, at the kinds of margins that are above our corporate average. So we look forward to the opportunity of launching this product. Currently, we are serving and meeting the needs of existing customers. We will launch it along with a new product that will be a sister product to this that'll be launched on April 1st. So we're excited about that.

Now let me move to the hemodialysis and the chronic hemodialysis capital market. Now, this is a market, and again that is exploding and growing rapidly, much of it by the very same issues of larger patients and diabetes and end stage renal failure. There are four or five major players in the market, Medcomp, AngioDynamics, Bard, [Candle], Arrow. And DataScope, which, as you all know, is a great company, had started an interventional division several years ago.

But with the decline of one of their products, they just couldn't support that division any longer and they made a public announcement that they were going to divest themselves of a number of products and shut that division down. They made this announcement in October. We contacted them in early December, candidly we were not aware of it, and we were able to get this all wrapped up, as you know, just yesterday.

What the acquisition includes is all the inventory, the intellectual property, all of the sales and training and marketing materials for a market that we estimate to be in excess of $200 million worldwide. The product and the most recent margins on this product are about 80%. It is at our call point and we would expect that we would have this product, will be maintained to existing customers and new products and new configurations that we talked about in our press release will be ready to be rolled out in the very near future.

So we're quite excited about this. It's in our same customers, the same call point. There's a bunch of training that has to be done. But the inventory has already been shipped. We can ship inventory out of South Jordan today. All of our customers will be contacted. In fact, our largest customer will be contacted this evening because I'm leaving here as soon as we finish to go meet with our largest user and supporter of the product.

And so we're quite excited about what this means. There will be a number of ancillary products that we will launch along with this. And again, it has 80% gross margins and we'll be up there with some of our higher margin products in the company. I believe that over time this will become a major part of our business. We're already involved in this area in terms of the fistulas and other parts of this business with the Fountain catheter, the [DialEze] and other products. So we're already calling on these customers and serving their needs currently.

So we're quite excited about it. It was great to work with DataScope. And in terms of the $3 million purchase price, we believe that with the inventory and everything that it might be -- it may be the best deal we've ever made. It was a great opportunity for us. They wanted to exit the business simply because they were not calling on this point of sale and they had no plans for its furtherance. So it's a -- I think a low cost entry into a high margin, high opportunity business and we're as excited as could be about this product.

So that's the essence of it. I'll go over a few other things with you and then we'll open it up to questions. All of our product lines through the year, all had double digit growth. We have no debt. We had about $10 million on hand at the end of the year. We're working on our margins, as Kent pointed out. We'll address questions you might have. We -- I think that might be my phone that's ringing back there. I thought I turned it off, I'm sorry.

Anyway, that's where we stand today in terms of the opportunities, the fourth quarter. By the end of March we will have a guidance both in revenues and earnings. And I think that pretty well wraps up. Kent, did you want to add anything?

Just a couple of highlights. I wanted to point out that in the SG&A expenses, even though they look fairly high at 23.4 for the quarter and 23.9 for the year, they include that cost where we have to code the cost for the impairment and of course much of our stock option expense is there. So if you -- you're able to compare that on equal terms from last year, it would have been down to 21.1% for the quarter and 22 for the year.

And so we've actually started to see some efficiencies and leverage in our sales force that's now been out there a year and those investments we've made and I'm starting to see some leverage that I was pleased with. Another thing is I've seen that our cash flow from operations improved from $11 million last year to $19 million, so we're beginning to generate more cash again. And I hope we can improve that better this year through better management of inventory and increased top line sales.

Let me just go over that one more time. So in '05 there was $11 million in cash flow, in '06 there was $19 million. Okay. So that's again a very, very positive sign.

Okay, I think it's time to go ahead and turn over the conference call to questions. So we'll turn it to our moderator and have them queue up our calls, if we could please.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Our first question comes from Shawn Fitz from Stephens. Please go ahead.

Fred and Kent, good afternoon and thanks for taking my call.

Hi, Shawn.

Fred, you talked a little bit and you gave some good detail on some of the products that you guys have recently acquired. Could you maybe give us an update on some of the products that you launched as we exited 2007 -- or 2006 rather, and then maybe just internally any additional products we need to be keeping our eye on as the year progresses.

Last year, Shawn, we launched 17 different products internally. These were product line extensions. For instance, if we look at our Prelude introducer sheet, we introduced the 23 cm device and going into this year we'll be introducing our ACT version, we'll be introducing our [marker band] version, radial artery version and what we call our [PreludePro]. By the time we get through halfway of '07, we will have a full line. That's a huge deal because you have a have a full line and yet if you wait to introduce it upfront, you just can never quite get there. So that'll be coming out.

We introduced the ShortStop Advantage here just a week or so ago. We will introduce approximately 17 new products or 18 new products this year into '07. We'll be introducing the biliary ReSolve catheter. That will be sometime in the second quarter I believe. That's coming up here; actually in about 30 days we'll have that product out. We have other drainage catheters. The marker band product, which is a marker band drainage catheter, was released in the fourth quarter, or early January, I don't recall which one but it was recently. We have a great advantage in that product over our competitors.

So we're kind of loaded for bear. We introduced a new needle. We've introduced new introducer sheet products, new drainage catheters. We have a couple of other new products, some I don't want to tip off my competitors who are on the call today. But I looked at a new tray today that has a 65% gross margin on a specific drainage catheter type of product that will be released in about 12 weeks. We have a lot of products going out there. We have a lot in the pipeline and of course now we're going to load it up with both the DataScope product and the KanguruWeb. So we have plenty of product to sell.

We're also going back, Shawn. I think this is important. When you have as many products as a company like Merit has, it's easy on occasion to lose focus on great products because you have all this other stuff coming out. So the other thing that we're doing is we're circling back and concentrating on some other products.

I'll give you an example of one and, again, for competitive reasons I won't mention the product name, but you'll see it showing up in the categories as those categories continue to grow. It's a catheter product. It's something in which we believe we have the best product on the market. Again, but because of focus and other new products, it hasn't received all the attention. And we believe that that product this year will grow at about 100 to 150%. It's a significant opportunity for the company and the interesting part about it is we have to add one person to almost triple the sales of that product.

So those kinds of efficiencies are going to pay off in gross margins and market share for Merit. So that's a lot of language for your question, but we have all the products that we need and we're loaded.

Okay.

Lot of new stuff coming out. But again, some of these are product line extensions, so in the drainage catheter, we have two or three more, and the Prelude vascular access there's several more there. It's filling these lines out so that we can be a competitive factor across the board.

Good deal. Fred, when we think about the new products that you guys put in the marketplace in '06, the new products you're launching this year and the products you've acquired recently, it seem like it would be unreasonable to think that your revenue growth rate would slow from what you saw in 2006. Is that a statement you would agree with?

As I said earlier, Shawn, I'm going to wait until the end of the month to have that discussion and give my marketers and sales force the opportunity to come through and to give me numbers that their compensation is based on and the company. But I think when we went from 11% to 14% and you saw 19%, I can tell you we're not going to see 19% growth on a bigger number. You can get into a numbers game here and eventually you're going to lose the game.

Right, yes. I'm thinking more just from an annual growth rate perspective.

But I will just tell you this, that I'm optimistic about the company's growth and its prospects worldwide and I just have to ask for a little bit more patience so that I can give you the right number. We'll come out and give you a range and our goal, of course, will be to meet or exceed that range.

Fair enough, Fred. Thanks. One last question. Kent, I think -- just to make sure I understood this, you've got two products that you're going to be able to move the manufacturing of those products to Mexico. And did I understand that you're going to save $1 million a year starting in 2007 from that effort?

No. this is Fred.

Right, okay.

We have one product that is being manufactured there today. We have two products, one which has been moved, is being qualified as we speak, and will be up and running there in about another 60 days, and another one that will be up and running in about 90 days from now. And we'll have the benefit of a good portion of that this year.

And the other really neat thing about this, Shawn, is that not only will we have the cost savings, but it's so significant on a unit basis it will help us to increase our overall market share because we know that in one particular product, none of our competitors, and we have a couple of them, are producing it offshore. We can simply produce it for a lot less money, so we'll make more money on our existing products and we'll gain more market share because we can be more competitive and it'll take them a while to catch up.

Hey, Fred, thanks. Congratulations on a strong finish to a good year.

Thank you very much.

Thank you. Our next question comes from Matthew Scalo from Canaccord Adams. Please go ahead.

Hi, guys.

Hi, Matt.

Good quarter here. I wanted to ask a couple of quick questions. I think it ties into gross margin, but also with the custom kit side of the business. You put up 24% growth. I'm looking at the sequential difference just on nominal figures in 2006. It looks like you had about a $1.4 million bump and I look at last year's sequential change between third and fourth quarter, roughly flat. Was there a one-time order in that custom trays business that maybe threw off gross margin and, if so, can you somehow quantify that impact on the gross margin?

I don't think there -- I'm not aware that there was a one-time order. But one of the things that we did see is you'll get a lot of hospitals in that fourth quarter who do not want to run short of their kit or their pack. I mean it's really what allows them to do their procedures. And a lot of times they can call up and order a catheter off the shelf and have it there tomorrow morning. When you talk about these kits or these packs, you can't do that quite as easily. So my belief is we saw that impact in the fourth quarter because everybody's loading up to make sure that during the holidays and then during the startup in early January that they had adequate inventories. And you you'll wait a little bit more in the fourth quarter on that thing.

And that probably is something we're going to have to expect in the future because last year or the previous year the division was really kind of just getting started up. But my anticipation is that in the fourth quarter we'll probably see this phenomenon pop up each year as hospitals try to fill their pipeline and make sure that they have adequate supplies on hand. Again, all of -- a lot of the other products, they have multiple choices and literally can make a phone call and have it there tomorrow morning. But on these things, which are the basic issues to get a procedure done, it's not quite so easy to do that.

Okay.

And some of our [packer kits] get ordered in bulk, too.

Yes, and Kent just pointed out, it might be also that some of our kits might go out to -- you see the same phenomenon maybe going over to some of the other packers in which the customer's requested a Merit kit. So you might see a [Cardinal PHS, Abbott] or some of those other midline, those people that we sell those kits to that then sell to hospitals, they make sure they have adequate inventory. So you have that kind of -- both of those phenomenon kind of all hitting there in that fourth quarter.

Okay. I guess just switching gears to the Proguide, the product you just purchased, would you be willing to give us what the trailing 12 months sales of that product were?

Yes. Well, they were doing about $1 million and they were limited in their ability to sell the product because the product was directed to a niche portion of the market. And this is well known and public information. It has trailed off and I think in the fourth quarter it was about $50,000 a month, so 5 to $600,000. And then of course you have January sales for that too, but I'm going to not share that number.

But the net of it is they announced in October that they were leaving the marketplace and that's the important part. And what our goal will be is to go to the customers who like their catheter. And let me just assure you of this, Matt. In looking at this product, we didn't guess and say or hope that this would be a good product. There are interventional radiologists and nephrologists who love this product and it is their primary catheter of choice. And so I went to numerous interventional radiologists to discuss it and the catheter is well liked. And the fact of the matter is, this catheter can be used both on a replacement or exchange basis or a primary basis.

They simply didn't have the product configured the way that I believe that the market needs it. And so part of what Merit will be doing is configuring it to include all of the products that are needed to both a primary insertion and an exchange. And we can do that relatively quickly. We have a 510k, we have the CE Mark, we have all the work that is either done or can be done very quickly. And so this is a great opportunity for our company. And the advantage that we have over our competitors, without letting too much out the door here, is we have a lot of other products that we can sell that our competitors don't have.

And we also are already calling on these customers. So these are people who are buying our micropuncture, these are people who are buying our Revolution, these are people who are buying our Impress, our kits, our trays, our syringes, our inflation devices. So these are not strangers to us.

Okay. So, Fred, if I could then ask you two questions. Just on the $50,000 per month, are you saying that at that level it's 80% gross margin?

That's correct.

Okay. And then number two is you mentioned being hindered. Can we get a sense of the number of accounts this product was in when you acquired it and how many accounts you currently are in with Merit Medical Products addressing that same call point?

You know, I will tell you that they had shipped or trialed products to about 300 hospitals and that was trialed or shipped. In terms of, and this is a little bit off the top, as I went through the list and looked at all of those customers, I saw five or six hospitals that we weren't doing business in. So there's 294 of those who are Merit's existing customers.

And that 300 base, though, I would assume can expand to 1,000-plus?

I think it would expand worldwide to several thousand. There's over 1,800 or more of these hospitals in the United States. So again, they were out selling VasoSeal and selling other products. They really had only two products they were selling in interventional radiology. They decided to sell it off and shut the division down.

The product is a quality product, patented product, but they neither had the concentration at the sale point and they didn't have any other products to sell along with it. But we have it now in its form, we will take and Meritize it very quickly. We'll support our existing customers and come out, I think, with some dynamite new products to go along with it and candidly combining some of Merit's existing products that our competitors don't have. So I'm very, very optimistic about this opportunity for Merit and the price we paid for it is unbelievable. I mean we have -- it was a great deal for Merit.

Okay. And just I guess the last question is what percent of revenue in 2006 was from products introduced, let's say, in 2005 and beyond?

It's a good question and I have to be very candid with you, I don't have the number here in front of me. But I will call you back with it.

Okay.

I just don't have it in front of me and I don't want to speculate. But I'll call you back with that number.

That's great, Fred. Thank you very much.

Thank you, sir.

Thank you. Our first question comes from Mike Petusky from Thompson & Co. Please go ahead.

Good afternoon.

Hi, Mike.

Hi. Just a couple of housekeeping things that I didn't catch if you mentioned them. Did you give cash flow from ops in Q4?

I did not give that. Kent, do you have that number available?

-- for the quarter. I have it for the whole year. We do it year-to-date, so I have an annual one I can give you --

Yes --

-- subtract it from the third quarter.

I know, Mike, that it was $19 million for the year, up from $11 million the year before. And Kent will get you that number. We'll have your call number once we get our numbers right after and Kent Stanger, our chief financial officer, will call you back on that.

What about the CapEx for the quarter?

You have that there, Kent?

I know what it is for the year again, but I'll have to --

Okay.

-- $14 million for the year.

Okay -- I'm sorry, $14 million for the year?

Yes.

Okay. And did I hear correctly, you said you're targeting 17 to 18 new products in '07, new product launches?

That's correct.

Okay. And I guess I wanted to -- in the press release, and you've talked about it as well in the call, you talked about substantial internal cost savings initiatives. Could you give a little more --

Sure.

-- detail on that and how you guys are thinking there?

Sure. Well, one of the things that we did last year as part of our overall corporate goals is that we wanted to have $5 million worth of implemented cost savings for the year. Now, let me quickly define that. And I'll give you an example of one of those. We had a product in which we would package separately a stopcock and then we would put it into another product. The cost of that because of the volume of the product we were selling was about 150 to $170,000 a year.

When we talked to our clinical folks and our customers about whether they needed to have that in a separate package inside a separate package, they said, "No, of course we don't. We take it, we drop it on the field and candidly it's kind of a hassle because then we have to open it." And so we implemented that in the fourth quarter and that'll have annual cost savings of $175,000.

Now, I'm going to ask [Neil Peterson], and, Neil, you weren't prepared for this, but while you're getting really nervous there and I'm giving you about 10 seconds to think about this, our director of manufacturing engineer is sitting here and, Neil, give me an example of another one in terms of cost savings that we implemented last year that you were responsible for.

Last year we converted about 25% of our kits from a pouch packaging operation over to a Multivac operation. That was an annual savings of about $200,000 a year.

And this is where we'd put it in a [tie-vac] pouch where we have an automated system where you drop it in, it does the sealing and all that sort of thing. That was a couple hundred thousand dollars there.

About 200, $250,000.

And I'm going to ask Greg. You're sitting over there. This is [Greg Barnett], our Chief Accounting Officer. Greg, you kept track of these so does one come to mind for you?

I know that we had some gauge savings with the [YKK] gauge on our Basics inflation device. I thought that was a couple hundred thousand.

Okay. So we had a component we purchased from a company and candidly were having some difficulties with their quality and their deliverability. We made a change to another company. We have less shipping expenses because it's produced in Europe. We then ship it over to our Irish manufacturing facility and that has a cost savings of a couple hundred thousand dollars there. So that would be another example.

Does anybody else have one that comes to mind while we're sitting here, just quickly? I know these guys always get nervous when I do this to you. But there would be an example, Mike, of some things that we -- or the kinds of savings that we're talking about. And then you take a look at this one of $750,000 on our -- the products that we've shipped down to Mexico.

I'll give you one to show you how we go on this. On our news reporting service, when we make a press release, we changed from one group to another group with a cost savings of about $12,000. Now, that's miniscule, but we're very conscientious of looking at all of these types of situations that will save us money.

Okay.

That's just a little sample of a few of them.

Okay, so -- and forgive me, Fred, if you mentioned this, so is there a targeted number for '07 that you guys are shooting for there?

Yes. I'm going to call it my 5X5 program. I'm looking for another $5 million of implemented cost savings in '07. In addition...

$5 million would hit in '08, a full $5 million would hit in '08?

Well, remember, some of these implementations may take -- for instance, if you go to a piece of automation, it may take 12 months to have the equipment built. For instance, I know that we're talking about one piece of equipment. Neil, we have an automatic rotator machine, let's talk about that one. It'll give you kind of an idea, Mike.

We have a rotator assembly machine that's just being finished and bought off this month. It will be in production about June of '07. It will save $650,000 a year in direct labor.

So, Mike, we started that one, though, two years ago so -- I mean because you have to do the design, the build and the qualification. So the goal this year is to have another $5 million -- I'll give you another one that just came to mind, and we can stay on this call for a long time. We have -- when you do injection molding, you have sprews and you have --

Runners.

-- and runners. And you can do a couple of things. Some of that you can regrind and you try to put it into and mix with other products. But when we deal with fluid line and syringes, we have an internal thing that we don't want specs, we want the quality and the beauty of Merit products. But we were essentially giving and selling that off at $0.05 a pound. We now are regrinding that, re-boxing it and selling it to a third party for $0.52 or $0.53 --

[inaudible - microphone inaccessible]

-- $0.60 a pound -- $0.65, excuse me. Can I hear $0.70? And the cost savings on that are in excess of $0.5 million. That will all be in this year. So there's another example. I can give you a list. Neil's got another one.

We're going to purchase and install two Multivac machines to do our rigid trays for inflation, both in Ireland and in Salt Lake. Together that's almost $1 million in savings.

Okay, now let me go through that.

-- in materials.

We buy from a vendor and we buy these rigid trays. And we have been working on designs and this year we'll implement all of that work to be done on a form, fill and seal machine that will be here. Cost savings $1 million a year. So there's -- I mean we've given you six, seven, eight of these things that shows you that we're pretty serious about cost savings and what it'll do I think for the bottom line.

Okay, terrific. And just last question, I guess more for Kent, effective tax rate for '07 for modeling purposes should still be around 36%?

Yes. There's not going to be a significant shift in that that I can see. I would use the same number.

Terrific. Thanks, guys.

Thanks.

Thank you. Our next question comes from Ross Taylor from C.L. King. Please go ahead.

Hi. I just have two or three quick questions. First, can you all quantify at all how much some of the acquisitions you did earlier in 2006 might have contributed to your growth in the fourth quarter? And I guess specifically I'm thinking about things like maybe the MCTec, I don't know if you can quantify that, or like the Safety Scalpel and maybe there were some other acquisitions also.

There were three of them, Mike. I'm going to let Kent go to the numbers here. There were three that we discussed in here, MCTec, which we essentially owned for the whole year. I think the overall growth for that last year was around 20, 25% for the year. And then Kent will give you the fourth quarter number. And then there was the Honor hemostasis valve and the Futura Safety Scalpel. Kent, do you have that?

Yes, it was about -- for the three of them, it was about $1.6 million of sales over a year ago quarter.

About $1.6 million comparatively from the year before.

Okay. All right, good. And let's see, for the dialysis catheter that you're buying, how much training are you going to have to do for your sales force in order to get them up to speed on this new product?

You know, Ross, there's a lot of training. However, let me say that the advantage we have, yesterday we went through, it took us a day, management went through our training with the DataScope people yesterday for the full day. So our people are getting that. If we were going into a new market with new customers and that sort of thing, it'd be a different story. We're already calling on these accounts and I believe, now this is just me today, I believe I could go make a sales call on this catheter today. But I don't want to underestimate the marketing support and what we need to do to train it. So it is going to take some time to train. There's going to be an expense to that.

But one of the advantages we got in this acquisition, we got all the video tapes, we got all the CDs that will go on our website, we have all the animations, we got hundreds of thousands of dollars of marketing materials that we can take and use. We've had their trainers here and we passed that on so we don't have to do this from scratch. And that's the advantage. We can take and pick and choose what we want and tailor the training to get this done. And we also have the available people or access to the individuals to that, including several consultant physicians who were with us yesterday.

So we're -- we've been working on this thing and I don't want to underestimate its -- what it's going to take. There's some big companies out there. When I say big, there's some great companies out there that we're going to compete against. But we feel that with all the other products that we have that match up with this product, that we're going to become a market leader in this product over time. And with great market, great margins and provide things that our competitors can't.

Okay, good. And just a last question. Looking at the inflation devices, that's a good revenue growth number of about 11% in the quarter and I just wondered if you can quantify at all whether there was some pricing there or what the drivers were, international markets, [Kaifon], anything like that?

Yes, I mean we had some. There was some there, Kaifon at the end of the year, but we're pretty well holding our own there. One of the things that we are excited about is that there are several companies like Medtronic and Abbott that are going to be coming onto the market so it's going to take a little bit of the, I'll call it a stranglehold of the competitive environment.

We also have the issue and the ongoing debate of coated versus non-coated. I sat yesterday with an interventional cardiologist that told me that his standard of choice is now a bare metal because he was concerned about the data that was coming out. Now, I'm not a scientist or a cardiologist, I'm just telling what he said. And the question is, is thrombosis a bigger issue than restenosis. But when you take those things and put them together, along with some new products that we're going to introduce in the interventional cardiology area in the interventional part, I think we're going to continue to see growth in that particular area.

But I think Kent did point out that we did have some strong orders from Kaifon in that fourth quarter.

Okay, good. All right, thanks very much.

You bet. Thank you, Ross.

And at this time we have no further questions in queue. I would like to turn the conference back to management for any concluding comments. Please go ahead.

Well, ladies and gentlemen, we appreciate your involvement today. We're clearly excited about the opportunities. Excitement is one thing and execution is quite another thing. Members of the staff are all here and understand that we have a lot of things that have to get done. To implement it is one thing, to execute and complete is another thing.

We are clearly disappointed in the price of the stock. However, we believe that our long term strategy is sound. We have a lot of breadth, a lot of depth. We have people who have been in positions, some for just a year or two but they're coming into their own. We have a great sales force. I think we have a good management team in place and I think we're up to the task.

So we'll look forward to meeting with you, giving you more details in the next less than 30 days or so about as we're able to go through and make sure that we can give you appropriate numbers that you can rely on for our growth and earnings prospects for this next year. We hope to have again some pretty in-depth answers to the questions during that meeting in terms of product introductions, product line extensions, margins and just about everything you need to know to, I think, reignite your interest in our company and we're excited about the prospects for the future.

So with that said, I'm heading to the airport. I'm on a plane to go visit with a champion of our new product who's very excited about it and then up to the SIR meeting where Merit will be showing numerous new products and exciting opportunities at the Society of Interventional Radiology in Seattle. And then off to Europe for some exciting business opportunities in Europe.

So we wish you well. We thank you for your interest and we'll sign off now from Salt Lake City and give you our deepest and sincerest thanks. Good evening.

Ladies and gentlemen, that does conclude the Merit Medical fourth quarter and year end 2006 conference call. We thank you again for your participation today and you may now disconnect.