Merit Medical Systems Inc (MMSI) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you so much for standing by, and welcome to the Merit Medical Third Quarter 2010 Earnings Conference Call. (Operator instructions.)

I will now turn the conference over to Mr. Fred Lampropoulos, Chairman and CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos. We are broadcasting from Salt Lake City. Assembled in our office here are members of our staff. We'd like to start our meeting today by having Rochelle Perry, our General Counsel, read our Safe Harbor provision. Rochelle?

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 on 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 Securities and Exchange Commission, which are also available on our website. To the extent any forward-looking statements are made in this call, such statements are made only as of today's date, and we do not assume any obligation to update any such statements.

Rochelle, thank you very much, and good afternoon, ladies and gentlemen. Our purpose today is to discuss with you the results of our third quarter, as well as to give you an update on our acquisitions and our integration plans.

Now, let's start first by talking about the results for the third quarter in terms of revenues. Our revenues were $73.2 million for the quarter, an increase of 10% over the revenues of [66.8%] a year ago. As we take a look at year-to-date, we're up 13.5%. If we take a look at the first two quarters, which came in at 16% each, I think you would agree with me that a 10% growth rate is comparatively somewhat anemic for the third quarter.

Now, why did we see this sales slowdown? Several reasons. Primarily, I believe it's the first time that we've seen a slowdown because of procedure rates. We just clearly had lower sales in various areas. There are several other reasons, however, that I think are important. With the acquisition of BioSphere, we spent a lot of time during the quarter planning integration. We had a lot of salespeople out in the field. We were doing a lot of training. So we were engaged in doing what was necessary to be done, and that is to integrate this business. And I will discuss that with you in a few moments.

If we can move on just briefly to the issues regarding our performance, during the quarter, we recorded the acquisition accounting cost, of which you are all aware. These are one-time expenses that have to do with issues such as investment banking expenses, legal, accounting, severance and so on and so forth. In the quarter, we took about a 2.1, I believe it was--.

--Point-two--.

--A $2.2 million charge of these one-time expenses. It's important to note that we are mostly through with this. We had some of the expense in the second quarter, some in the third. We have about $400,000 of expense that we expect will come through in the fourth quarter, and this is for our carryover expense where we have a transition team on the ground in the Rockland facility, in a Boston suburb, and this has to do with accounting and some sales and marketing and customer service and the severance associated with those folks to make sure that we have a smooth transition. I will talk further about that transition in a few moments.

Now, there's a charge here that I'm sure you're all very interested in, and that is a one-time charge that was taken for our ENDOTEK Endoscopy division. Let me explain that to you. Once a year, under accounting rules, we are required to take and value all assets. They could be research and development projects. They can be any expenditures, molds, and certainly business, and they fall under the scrutiny of impairment test. The true test of impairment is cash flow.

We have been operating the endoscopy division, which we called ENDOTEK, as a separate reporting unit. By that I mean they have their own sales force. They have their own marketing department, because they call on a different point of sale. And so, consequently, as our accounting staff -- and when I say our accounting staff, our auditors came in. We looked and we evaluated, as prescribed by GAAP at those various accounting units, and as that unit is not profitable at this point.

And so the question was we sat down and did an entire forecast, took it out, put all the new products and did some forecasting on that, but the net result was -- is that, based on the rules of the game, it was not just suggested but was required that we take this one-time charge.

Now there are a couple of things about that charge that are important for you to know, and many of you already know this. This is a non-cash expense. It is a one-time. It hits the income statement, and it then -- and we offset it in the goodwill provision in terms of our key accounting. So, Kent, I'm going to let you go ahead and comment on it because I think it's important, from an accounting point of view, that everybody understand what we were required to do.

Well, I think you've covered it pretty well, Fred. I mean, it's just a matter of you have to value the present value of the cash flows of the business, plus you do some external comparisons. And basically, it's an appraisal of the business. And then, once you have triggered an issue where you have a valuation that's greater than your carrying value, then you have to re-value the whole group of assets.

And the net change occurred in the goodwill, so we had to then adjust our balance sheet to the carrying value, or the current fair market value of this business, and therefore we had to write off the goodwill amount of a little over $8.3 million, which is the entire balance in that count.

Let me give you a little bit more color on this issue, as well. When we acquired Alveolus, our goal was is to build a third leg of our business in the GI or endoscopy business. The purpose for that is that we take a look at our business and look at the opportunities. We felt that we needed additional technology and additional sales avenues for growth in the future.

But there were a couple of things that didn't go quite the way we expected. Let me share some of those with you. One of the things that we, I'm going to say discovered, for lack of a better word, was that there were sales being made in areas that were questionable. And by that, I mean there was a risk to the Company that there were sales that were being made in off-brand uses. And Merit plays by the rules, and Merit is not going to go out and promote and do things which are illegal.

This represented about $2 million worth of sales revenues, which we said we have to walk away from because it was in an area that did not have an indication, and we did it. We didn't anticipate some of the fallout of that, but we didn't think it would be -- because we didn't know what all those numbers were.

I'll also say that, since we made the acquisition, we have essentially retooled the entire sales force there. If we look at the sales force there today, there's probably two or three of the best sales guys that we had, but almost everybody else is turned over, and we've hired additional people to put back in, so they're essentially all Merit people now. And that was one of the issues.

Another one was, if you take a look at the nonvascular stent business, the largest single area there is biliary. And if you take a look at this business, as some of you will recall, we had the esophageal, we had the tracheal-bronchial, and we had the biliary business. We were told by physicians, as they did bench-top demonstrations, that the product was acceptable. However, when we went out in the field and actually performed procedures, we found that it had some limitations, and it wasn't competitive.

So we have retooled. We have changed and are moving in a different direction than we had anticipated. So consequently, we simply hadn't had the revenues that would have come and that we expected to come. So those are issues that we didn't anticipate.

Now, let me talk to you about the other side of the coin, and that is this. We have done a number of things that we believe will lead to profitability in this division and will help to build it. We've done several of these, which I note in our press release.

One, we are tooling a number of products that we believe will have a significant difference. One of them is the inflation device called the [Big 60]. Now, many of you know that Merit is the worldwide leader in inflation devices. We have tooled this device that can be used to inflate esophageal balloons, and we believe that we will become the market leader in inflation devices for esophageal balloons in the next few years. We have a great product that's utilizing our core technology and our capabilities and patented devices that, as we've taken it to doctors, it is going to be very well accepted. And we will launch that product in just the next few weeks.

Interestingly enough, our competitive product has a disposable and a reusable, and so we believe that we have a strategy -- in fact, in a recent account, in talking to a physician, they couldn't wait to get their hands on it because it's so cumbersome of them to go find a reusable piece and a disposable piece. Oftentimes the reusable piece doesn't work. It's misplaced. This way, it's one device. It's disposable, and so we're quite excited about it.

We also will tell you today that we are going to release Merit's own bipolar probes. Now, we made it as part of the acquisition in our endoscopy division, we acquired a small company -- a product line from Hydromer. It included a probe, which we're currently producing for OEM customers. That business has more than doubled in the last two years, and we have the major players in endoscopy who [will] buy that product from us.

What we've done is now improved that product substantially and believe that we have a product that is competitive with the market leader, and we are going to release that product under our own name. These products, both of which I mentioned, carry gross margins in the 65% range.

Additionally, we have, and we'll introduce some time in the late first - early second quarter, Merit's EnVue esophageal dilatation balloon. This is a three-stage balloon that we're very excited about, has very reputable margins, again, back up in those 65% range, is used with this inflation device, is used with our guide wires, and so we believe now that we're building the foundation of a business strategy that can be launched worldwide.

In addition to that product, we are introducing a new novel plastic biliary stent. Now, not a metal stent, but a plastic stent utilizing a unique technology that allows the endoscopist to be able to (inaudible) this product both endoscopically and fluoroscopically. I'm not going to go into any more detail on that, but as we're out on the road in the next few weeks in several conferences, we will show you these products, and I think it'll become readily apparent to you of the advantages these products have.

Additionally, we have some new stent products, and maybe the biggest game-changer is that we're moving down the road for the introduction of the anti-reflux valve, which is delivered endoscopically in a stent that is a game-changer. The reason it's a game-changer, there's not any product that can perform like this, and what it does for patients is extraordinary, where they've had their valves that have been destroyed. They literally can't sleep. They have to sleep standing up, or sitting up, because of this reflux that comes from the stomach back into their throats. So we think this is a big deal. We did a license agreement with Vysera, and we're coming down the road. And so we have that portfolio.

So that's what we're doing to change the game here, is to introduce new products and to put our strategy together. And again, it's very unfortunate that we have to take this charge. It's not something that I was aware of until after we sat down and we went over it and pronounced it and looked at it, and then it came to the table just in the last week or so, and as we analyzed it, and then just recently met with our Board to discuss it. It was necessary for us to take that charge in this quarter. So that's the story with ENDOTEK, and I will field questions to that in a few moments.

Let's go to BioSphere now. I think that on our BioSphere transaction, it has been very successful. Let me tell you what we've done. In just less than two months, we've been able to negotiate with each of our distribution bodies in Europe. So we had a distributor in Ireland, the United Kingdom, the Netherlands, Germany, Belgium, and so on and so forth. In every case, we were able to go to them and work out a deal in which they would transfer their sales history, their pricing, their customer list. They would introduce us to the customers, and there would be no -- we wouldn't miss a beat.

And in fact, I can attest to you that even this very day -- and most of these have just been finished in the last week -- we're receiving orders now that are at retail directly from those hospitals, and it's probably the most successful transition that I've ever seen that allows us to build the rapport with physicians and to make sure that there is no discontinuation or loss of sales to our customers.

Now, another big factor, and I've had probably 10 or 15 phone calls from our sales force, there's a new understanding and a new awareness of Merit in the marketplace, particularly in the IR market, and here's why. As you know, it's a very competitive market, and physicians, just like all of us, are competing for customers. They oftentimes have to compete with interventional cardiologists, vascular surgeons, and others. When we take a look at the UFE market, the Uterine Fibroid market, it is something that is almost uniquely to the IR docs. They know, and they appreciate the fact that Merit is supporting their efforts, bringing patients to them, supporting their training, and they understand that.

So I had a call just last evening from one of our sales guys who said, "When I go into an account, I am welcomed. They want to buy stuff from me. They appreciate the transaction, and it's helping me get additional business." And that's exactly what we had hoped for, but it is exceeding my expectation as to those relationships. And I think that's the key for Merit's business in the future because, where in the past we have worked with technicians, cath lab supervisors, these are physician preference items, and the business is moving in that direction. And it needs to if we are going to build this business to the billion-dollar goal that we have set. And so that's another very, I think, important issue for us.

Another issue is that, at least on a preliminary basis, we have discussion that says that we're going to be able to utilize our entire NOLs. Kent, would you just briefly address that?

Yes. We've had approximately $80 million of NOLs that we were able to carry forward and apply over the next 14 or so years in the US, and another little over $1 million in France that we should be able to utilize. So that will do is benefit us in cash flow, because we'll be able to credit those NOLs against the payments we'd have to make to the government in the form of taxes. If you were to look at those and present-value them back to the present and kind of cash value them in the present, it would be, at 5%, about little over $20 million in value for our cash flow benefit going forward with the NOLs.

So you always hope that you're going to get those, but this is over a 14-year period. But it is a huge cash flow item to us. And we think, from at least our point of view, when we take a look at the cash that we got at closing, when we take a look at this, it moves that value down to about $66 million, which is a couple times sales.

Now, another important thing to understand in this quarter is that we only had the business reportable in the quarter for 20 days. And so you're not going to -- of course, you didn't see much of the effect of that during that 20-day period, but going forward, at least in this quarter now, it will be the entire quarter that we'll have the benefit of the product. So we're very, very excited about that.

Couple of other things relating to the BioSphere transaction. Again, the sales force has been trained. We kept a number of the salespeople from BioSphere. That's been integrated. If we go down and take a look at the office where they were located, we essentially have the office, reduced the expense there immediately, and we've kept essentially all the people that are operating our facility in Roissy, France, which is a suburb of Paris.

Kent and I were having a discussion just earlier today, and I think the model that we now believe is that our gross margins, based on the fact that we're going to be able to have these retail and the growth that we expect, we're going to be about 80%. I think in our initial model, they were around 75%. So we're also seeing higher sales than the $25.7 million, or at least we anticipate that, that we had used in our modeling. And so we're seeing that -- at least we believe that we're going to see higher sales from our initial model.

Now, there is an issue on inventory and another one of these pronouncements, these little accounting issues that we have to deal with regarding inventory in that market. Kent, would you explain that to our listeners?

Yes. The basic concept is, when you purchase a business, you can't buy profits, and so you have to mark all of your assets, including inventories, to their fair market value in their current condition. And that mostly affects finished goods. Finished goods conceptually are valued not at their cost of production, but rather at their wholesale kind of price that a distributor would buy them, conceptually. And it's a complicated calculation, but in theory, that's kind of the application of the idea.

So what you're doing is marking up, in our case, the finished goods at about $2.1 million of additional value of our purchase, which has to come through the income statement in the cost of goods sold. So we're estimating five, maybe six months time it will take to roll those finished goods through the financial statements and therefore impact considerably our gross margins for that time. It's in the range of $450,000 a month we're figuring we're going to have to spend, or use up that inventory that were in the finished goods.

There's also some value added, only about $300,000 more, to the work in process that was over in France and partway through their process.

So, again, those are the rules of the game that we have to live by. So Kent, in terms of gross margins, once that inventory flows through, that $450,000, what would you expect it would do to our gross margins in the aggregate, just on that one part? And the second part to that question is, over this four, five, six months, what affect will it have on us? So before and after, could you just discuss that in your best guesstimate?

Yes. The margins are going to be down in the 55%, 60% range, I believe, for the interim period. Now, carrying on beyond that, we also have to amortize the intangibles that are involved with the manufacturing. So even though our cost standards will be 82%, we're going to have a varying amount, but it's $3.5 million down, slightly declining, that's in addition that isn't in the cost standards because it's an amortization.

And again, these are things that are just required that we have to do. Okay.

There are fixed costs that will affect that overall margin and vary year to year.

Yes. So just a few more things on BioSphere. We were able to reach an agreement with the FDA in terms of some issues that we had on appeal for the study that we hope to do. This study that has been proposed to the FDA would be one that would, if we are successful -- and if the outcome is successful -- allow us to have the only indication for HCC on the planet. This is the use of taking our HepaSpheres, QuadraSpheres, and loading them with doxorubicin. We expect that we will hear from the FDA on their conclusion of this issue by the 23rd or so of this month.

So we have done all of the things that are necessary. The FDA did acquiesce on a number of issues, but we have to wait. So there's no guarantee that they will approve this, and we will let you know how this all turns out some time in the next couple of weeks. I think it's a big opportunity for us, and I am pleased with the steps that we have taken and where we've brought it to at this point.

Let me move on to another really important issue that we've been talking about for a long time, and that's China. We believe -- and if you take a look at the data that's available in the marketplace, I'm looking at a recent study by Hewitt. And the source here is the International Business Observation, which currently ranks the United States as essentially the number one marketplace in the world.

But as we look down into 2020, 10 years out, China will have come from 10th place worldwide on the Pharma and device side to the number two marketplace, passing Japan, Germany, France, Italy, Britain, Spain, Canada, Mexico, passing all of those countries up and moving just behind the United States.

This is a big deal, and Merit has spent a lot of money to set up our operation in Beijing. I'm pleased to report to you that, in our first month of operation, the business was break-even while still providing profit for the products that were sold to Merit.

So let me explain this to you. There's a price in which we transfer it over. We make a manufacturing profit, and then we have an expense over there for offices and personnel, and we make the sales. And with that differential, after we've taken a manufacturing profit, is essentially at break-even the very first month. And in fact, in the second month, our sales went up by almost 50%, just short of 50% in the second month on a direct basis. Now, I don't have the numbers in terms of what the second month would do, but I believe that we will see that that is going to be profitable in its second month of business. And that's an extraordinary effort.

We also believe that, as we look forward to next year, that we could see our business grow in the 40% to 50% range going forward into 2011 in China. So it's going to provide higher gross margins, closer to our customers. We're making money there, and maybe something that's more important than all of this is that we now control the regulatory process. And by that I mean we have at least 10, maybe 20, products that are currently submitted. Right now, we're only selling 20% of our portfolio of products in China. We believe that, as we move through 2011 and 2012, that we'll have a much higher percent. Probably closer to 70% of our products, or 75% will be available for sale there.

The fact that we've controlled that, the fact that we can compete on bids, and as I mentioned to you before, in some cases, the product which we're now just starting to sell, we're getting more than double the price than we were when we were going through the wholesale method. So all the people that worked here in our warehousing and facilities, and particularly Joe Wright in overseeing this and managing this, did a terrific job, but it includes accounting, ops, facilities, transportation. All the guys that did this just did a tremendous job. And we believe that China has huge opportunities.

Let me remind you that China is also the largest market in the world for HCC, the largest market in the world. Over 50% of the new cases reported are from China. Markets like Japan and particularly Korea are also exciting. So Merit has a foothold in Asia, and we are looking west to that opportunity because we think it's huge. And it's going to have a -- I think a big effect on our operations, profits, and certainly on the sales as we go forward.

So those are the things that we want to share with you. Just a few more things on the sales side. One of the things that we saw, and you can see in the base of the information that we've provided to you, is that our kits and trays were very, very strong. And this is really an issue relative to some missteps by a competitor. Now what -- clearly that, as you all know, is a lower margin business, so we didn't see an improvement in our gross margins. Part of that has to do with mix. You'll also notice that, if we take out that OEM customer, that our inflation devices grew at 9%. So there were areas of opportunity and hope and performance that we're very pleased about, going forward.

Also, as we mentioned in our release here, we have released the ASAP catheter in Europe. We've already received orders from it. After doing our trials in Europe, I can say to you that, in every single trial, every physician that used our product said that it was equal to or better than the competition. And so we're very excited about that product. It is currently in the FDA, and we're awaiting approval there. And of course, when we receive that, we will go ahead and let you know.

So Kent, I think that pretty well wraps it up. We talked about the quarter, the sales, again which were a little bit soft, but by the way, I should mention that we had guided to and said, "Guys, we're coming into the summer quarter." We did see, and I'm happy to share this with you, that in October, we had the second largest month in the Company's history, and we were essentially at forecast. So I think that portends that, even though we saw that slower third quarter, we're seeing -- I don't want to call it a -- I guess I could call it a rebound or -- but we're seeing that we're hitting the numbers that we had projected in our overall forecast. So I'm pleased with that.

So I think with that said, that's about a half an hour. That's the best way that we can explain it. Now what we'll do is turn the time over to you to ask questions. And so, to our operator, we'll go ahead and turn the time over, and we'll go ahead and let you field the calls for us and put them forward.

All right, thank you, sir. (Operator instructions.)

[Larry Solo] with CGS Securities.

Hi, good afternoon, guys.

Hi, Larry.

You talked about the customized kit market, and without mentioning the competitor's name, but I know you brought it up last quarter, as well. And I think you had mentioned that you thought there was, like, a $15 million to $20 million in potential sales that were up for grabs. Any update on that, and sort of the dynamics in the market, and has this competitor now seemed to right the ship a little bit?

Yes. We still believe that that opportunity was available and that we in fact captured, on a ramp basis going forward, some of which, by the way, is just starting delivery. So some of those deliveries are just being made where we were supplying small amounts, or they were scrambling, and we believe that that's kind of the annual income that came out of that, going forward.

So that hasn't changed, and we've kept most of that business. I'm not aware that we've lost that business, and so we have kept that. I think things have stabilized there, however, where we're not seeing all the opportunities. I'm looking at one of my ops guys. [Ron], are we still having some of those -- are they still showing up, or has it settled down?

No, it's settled down quite a bit, but they're still showing up.

Okay. So we get them from time to time, but it's not like -- remember now, if you take a look at our inventory, you'll see that we built a number of -- there were some jumps in our inventory because we had to make sure we had the supplies to build this stuff, going forward. So it's settled down. There's still a few opportunities that popped up. And I think we've been able to maintain and retain the business, and the opportunities of the business, that we captured here in the second quarter, late first and early second.

Okay. And then I know you had a number of recent new product introductions, a couple of highlighted products. Any updated, maybe perhaps on specifically how the Laureate guide wire is doing? I know it's sort of early in the game, but maybe anecdotal evidence?

Yes. Yes. I still absolutely feel that the Laureate guide wire is best in class. I can tell you that we have a pretty substantial competitor, actually the market leader. And at a recent trade show, we were surrounded. And by that, I mean they had every one of their engineers over there watching and looking, and it was actually quite flattering.

One of the challenges, there's a reason why nobody's been able to compete for 25 years, and that is this is not easy stuff to do. And so we've had some struggles ramping up. We are, in fact, more than doubling our manufacturing space of the wire capacity in Ireland as we speak. That will be online by the end of the year. And we're trying to fill out the entire portfolio, because there are 150s, 180s, 260s, and then there are 018s, 025s, 035s and 038s. Now I know that's our jangle, but--.

--Regular and stiff.

Regular and stiff, yes. So there are all of these things, and we're just trying to fill this.

But here is the most, I think, revealing, and that is the reorder rate. Once those people buy the products, the orders just keep coming. So what we need to do, though, to take full -- in all candor, what we need to take full advantage of this is to make sure that we can offer the entire product line, and I don't have that on the shelf yet. I'm still opening up new accounts every day. I still believe that it represents a $50 million to $70 million opportunity for the Company. That has not changed. But I would also say that we've had a few struggles in terms of trying to meet the capacity. In fact, the essence of it is is that we're selling everything that we can make, and I think that's the best evidence that's possible.

And would you think that opportunity is sort of a three- to five-year type of horizon, or is that a--?

--Well, you'll see it -- you'll see this business grow at 35%, 50%, 60% per year for the next several years. When we dig in, though, just like we did on this manifold business, stuff that you'd talked about earlier, we've been in the business for 23 years. It took us 23 years to become an equal player in terms of volume in that one segment. So just like this wire business -- and I'm an old Infantry officer -- if we're going to fight the war, we're going to fight it for 100 years. So three to five years we will see this steady growth. Do I think we'll have $70 million in five years? No. Do I think we'll have $70 million in 10 years? The answer is yes.

Right. And then lastly, on BioSphere, you had a few months to (inaudible) that adjusted, and I realize there are several moving parts, and I'm not sure if you care to comment, but I know initially you had thought it would be about $0.05 accretive in year one. Is that still sort of in the ballpark?

Yes. I think there were a couple of things that came out of that that are always interesting. You put forth a plan, then you go out and you test that plan. There were a couple of things that I think that have adjusted.

For instance, we ended up keeping more salespeople than we had anticipated. And the reason we kept them is we talked to their customers, physicians calling us saying, "We love our relationship with these guys. Please do whatever you can to keep them." And I think what we did is we -- and I think we discussed this previously, but let me share it again -- we had eight salespeople that were in the Merit new hires this year. What we did is, rather than hire those eight, we simply substituted keeping those people, and we didn't hire those other eight.

But in terms of our expectation that I started with earlier, we expect that our sales will be larger than the base that we had anticipated, and we said that we would start at $25.7 million, and that we would grow that by 10%. Although I can't give you the numbers today, when we come out with our 2011 forecast, I will tell you that those numbers will be substantially higher than that base, going forward.

And then we had this other adjustment where we had these retail issues, or these wholesale distributors. Now, we had talked about that. It's just that it was very, very successful. I think we approached it correctly with those guys. In other words, we paid money to have that successful transition, but every single one of those guys was in agreement. And the reason was is that it was going to terminate in six months, and we gave them notice, or we said, "We can do this deal. We will help pay a certain amount of those sales if you will help us with this transformation and share this. We can do it A, or we can do it B." And everybody chose B. Kent?

And also eliminated a risk that was there for collecting the receivables. So we were able to offset our receivable against that money we would pay for the sales information and not have that debt write-off problem.

Yes. So I think, in terms of BioSphere to this point, it has met every one of my expectations. But it's not without challenge. There's a lot of work to be done there.

But there's one other important thing. We've also started a new research and development product for a new embolic that we can do with our existing personnel in our existing facility that we think is going to create a substantial surprise for many of our competitors. I won't go into what that embolic is, but I will just simply tell you that the project has been initiated, and other than some manufacturing equipment and that sort of thing, we can do it within the confines of our present facility. So we're excited about the fact that, for the first time in many years, we've started a new research and development project that we think can have an impact on this whole business as it pertains to embolic materials, as well.

Okay, great. Thank you very much.

Thanks very much.

Drew Jones with Stephens, Inc.

Thanks. Good afternoon, guys.

Hey, Drew.

Couple questions on BioSphere. First, what was the revenue run rate for the full quarter for BioSphere, July-August-September? And then secondly, as we think about the sales force, the existing Merit sales force and the guys you brought over from BioSphere, can you quantify the sales days lost in training the Merit reps on the BioSphere products and vice-versa, training the BioSphere reps on the Merit products?

Okay. Let me do the best I can. As you'll recall, I said that we had about 20 days, and in that 20 days, I believe that we did $1.5 million, okay, in that first 20 days. So that's the best information I can give you. That would put you, if you took that at two-thirds, that would be about -- you'd be at about 2.25, something like that, and if--.

--Seven million for the quarter.

I'm sorry?

I think it was about $7 million--.

--About $7 million, I believe.

About $7 million?

Taken. Their part of the quarter added our--.

--Okay. So if you took $7 million, that would start it out at $28 million versus the $25.7 million that we'd indicated that we had used as the starting number. We'll do better than the $28 million. We'll do substantially better than that number, in my view. So anyway, I think -- and that could be as much as $30 million or more, and I expect that -- again, we're going through the forecasting. But if you take a look at that, let's just use $30 million. That's going to be almost 20% higher than the base number that we'd originally used as our starting number. And I think it's going to be even better than that.

So as we're forecasting it now -- and I'll give you an example of a situation. We recently received an order from Russia, and I think that order was for $300,000. The exciting part about it, it was our existing distributor. They had won -- a Merit distributor -- they had won a tender knowing that we were going to bring this product on, and our sales at this point have already tripled from what we were doing in Russia just simply because of the presence we have there and that relationship. So those types of things are happening. There's places like South Africa, lots of places where we see great opportunity for the growth of our embolic materials, our BioSphere product.

Now, to the question of the days lost, this week I've got half of my sales force being trained on the East Coast. I have another group being trained here in Salt Lake City, half of it next week, and we've probably gone through three or four of these type of trainings. So I would say we've probably lost -- to the best of my ability to quantify it, a month of time over the last four months training everybody. So they've been out of the field substantially, but listen, this is complicated stuff, understanding the anatomy, understanding the chemistry, understanding the mixing, understanding all the parts of this. This is not easy stuff.

But I think it is -- they've been invigorated. I think that they're well trained. But it took time, and it took money to do that. That's a third of the quarter, plus on top of that you have summer, plus all the problems we had in Europe with -- we know -- we're all very familiar with all the issues going on and the disruptions that took place in Europe over the last several months.

So those are some of the things that affected, I think overall, and that's my best guesstimate of the amount of time that our people were out of the field.

Okay, and then just a quick one for Kent. Can you quantify what the markup of the BioSphere inventory -- how much that impacted you in the third quarter? And then secondly, how much was amortization of intangibles total for third quarter?

I know the September markup inventory that came through was $117,000, and the amortization -- I have it here for the first year, but not for -- by month.

Do you know what it was?

Just take one of those and divide it by four.

Oh, that's right, by four. So we had about $80,000 in SG&A, and we would have about -- divide that by four, that'd be about 220 for the cost of sales [tech].

All right. Thanks, guys.

Okay, appreciate it. Thank you, sir.

JaysonBedfordwith Raymond James.

Hi, good afternoon, guys.

Hey, Jayson, how are you?

Doing well, thanks. I can't do the math quick enough here on the 220 and cost of goods sold. Can you give us the gross margin on the base business in the quarter?

If we take out the -- on the overall business, taking out the BioSphere?

Right, taking out the markup in inventory, taking out the amortization, the 220 that you mentioned. I'm just trying to get--.

--Jayson, here's what I think is best to do. We're sitting here, and people are scribbling stuff. As soon as this call is over, we'll call you.

Sure.

We'll have the number for you, because I don't want to just speculate. And we'll work it out, and we'll call you as soon as this is over.

Okay. But the point, I guess, is that the gross margin on the base business was higher than 42-7.

Yes.

That's correct.

Okay. Just in terms of the top line, you saw some weakness, or deceleration in catheter sales, and it seems like it's been a great grower for a long time. And I'm just wondering kind of what was the dynamic you saw in the quarter? Can you maybe comment on either competition or pricing in any way?

I don't think it was on pricing. I think some of it has to do with the transfers where we have distributors that we sell a lot of product to, like for instance in China, and so they buy it in a bolus, and we deliver it. In this case, it's going to our warehouse and we're selling a number of products, so that's part of it. You see what I'm saying?

In other words, we have ABC distributor. They order 100,000 catheters. You deliver those catheters. If we send it to our warehouse and they go out to different hospitals, you're not going to have the volume number because they're going out individually versus that large single sale. And there's still a transition between what we had sold the previous quarter that some of our distributors, knowing we were going to direct, bought, and the part that -- so there's still a mix between some of the distributors that we're holding over in China and our direct.

And I would say that the first month it was 50-50, and it's probably 75-25. And we'll still continue to provide some of these products until we get it fully turned over in the next several months.

But here's some things that I think are important that go to your question, because I think most of those are not pricing because these are the lower-priced catheters anyway. But if we take a look in the catheter section and we look for the quarter, Jayson, and look at things like, for instance, our pericardiocentesis, up 30%, if we take a look at our Impress catheters, up 64 percent. If you take a look at our Centesis, up 22%. So most of this, if we look at the decline in catheters, the big -- for instance, there's a multi-pack, and which that was down.

It's a relatively small number. But there are some sub-tracks that came out of this, but the base and core business of the new products -- the sheath business grew at 37%. So many of these things are still growing, but I think it was really that transition between wholesale and direct and a bolus versus dribbling them out to individual customers.

Okay. And it sounds like, from your comments there, it's more international than domestic.

I think that's absolutely true, yes. There were some issues, for instance -- I'll give you another one. I mean, I won't mention the names, but we had one customer, they were on credit hold. And we had a whole bunch of catheters. We didn't ship them until they paid us. We're not going to book a sale and then create a liability or an expense on the other side. They have to pay for them. So there's been some of those issues that continue to dribble through, some from Europe and some from South America.

Okay. Any way you can comment just on US growth versus international growth in the quarter?

I can tell you this anecdotally. The US sales group I think, overall, is up I think about 16% or 18%. So even though they had this time off, they are sitting kind of high on the hog, and the domestic market has done very well. Where we've seen a slowdown this year is in a couple of areas, and one I want to mention, and I'm glad you raised this.

One of them is, of course, with the dealers and distributors in Europe. That is essentially the -- there's two groups that have been lower in sales this year. That's one of them. The second one is in our MCTech division, and this is our coating division that's over in the Netherlands. And in the third quarter versus last year, it was down $700,000. That's pretty significant.

And part of that has to do with a number of issues that I won't go into right now. We think we have straightened that ship, and we understand it was more of a competitive issue and a new player coming into the market. That being said, that's a pretty significant decline in that one little business segment, about $700,000 in the quarter.

And MCTech is in this standalone bucket? Is that right?

Yes. MCTech -- where is it, Kent? It's in the standalone, yes.

Okay, so that contributed to the deceleration there.

Yes. Yes, that's in the standalone bucket.

Okay. And just can you comment maybe on EN snare sales in the quarter?

Yes. Now, I want to preface that by a couple things. You'll recall that in the first quarter and second quarter, we made deliveries to an OEM customer. In the third quarter, our sales were about $1.7 million or $1.8 million versus a couple of million dollars in each of the first two quarters. But if you back out those other two -- that OEM customer, it's about flat.

Now, one thing I will say, and I hope I get -- we'll talk about this at our conferences, but I will disclose to you that Merit is also developing a new snare, not a replacement snare, but a new snare that we hope to introduce some time in the mid 2011 that is going to be a very, very exciting opportunity that we believe that's going to propel Merit as the market leader.

So there is -- we're about even right now with one other player that was recently acquired by Covidian, but we have a great new product that is an adjunct to what we have, addressing a different part of the market, and that product will be introduced. And so if we were sitting here a year from now, we're going to be the market leader in snares.

Okay. Fair enough. I'll just ask a last couple, and then I'll get back in queue. In the $0.19 in adjusted EPS, was there any dilution from BioSphere? And then, also, what was the assumed tax rate in the $0.19 number?

Yes. I'm going to let you, [Greg], talk about the tax, and then I'm going to try to understand what you mean by dilution. So [Greg], do you want to talk about--?

--Just use the 38% tax rate for the non-GAAP disclosure stuff that we did.

Okay. And then, Fred, just in terms of my question, it's more was BioSphere unprofitable in the quarter, and did that drag down on that $0.19 number?

Again, we only had that 20 days, and I don't have the numbers in front of me. But Jayson, I will look at that. But I think we did have some discussion about this. I don't think it was -- we thought it -- break-even, guys, wasn't that correct?

Well, it's speculation in the sense that we don't have separate financial statements for this product. We've integrated it fully into our same sales force. And so to allocate what the sales costs were by product and stuff, unlike the ENDOTEK division, for example, that has it separated, this isn't. So it's not easy to just say what it was. It doesn't have separate financial statement.

So we've integrated. We've integrated with the sales force. We've got the manufacturing facility, again, operating at those gross margins. That was clearly profitable because it's operating at 65% gross margins, and that's just that standalone part, Jayson. So we'll do some work on that, Jayson, and be able to address it, but it is a difficult thing because we don't have separate financial statements for it anymore.

Fair enough. Thank you, guys.

Okay. All right. Thank you.

JamesSidotiwith Sidoti & Company.

Good afternoon, Fred. Good afternoon, Kent.

Hi, Jim, how are you?

Hello.

Good, good. Now, Fred, I think the big question is you're taking a charge tonight, $5 million charge. It's about 40% of what you paid for Alveolus back in February of 2009. But you sound very confident about the BioSphere deal. What gives you that confidence that we won't be here a year and a half from now taking a charge on BioSphere?

Hey, it's a good question. First of all, it's immediately rolled up into Merit, and it will never be considered a standalone operation. It doesn't fall under the same scrutiny as the Alveolus--.

--ENDOTEK--.

--Or the ENDOTEK division. So from an accounting point of view, it's rolled up into Merit, and you won't see that. There could be specific assets, but it's just treated differently because it's part of the Mother Merit versus a standalone division.

Let me also talk about the revenues. If we take a look at the difference between the two, as you'll recall in looking at BioSphere, in 2009 they had revenues of about $30 million. These are products that are the gold standard. These are products that have been in the marketplace with an existing customer base. On the other side of the coin, on the Alveolus side, remember, we had the biliary stent that had not been introduced, which was, if you take a look at the markets, the larger part of that.

So, Jim, I can sit here and tell you that my sales guys are excited about BioSphere products, what it means to guide wires, microcatheters, kits, trays, needles, all of those sorts of things. We have the gold standard on that side of the business, and we're already exceeding the revenue base that we had used, at least our belief is that we'll exceed substantially the revenue base that we used in our modeling. That was not the case where we did not do that because of the reasons I spelled out of not selling into bariatric markets and the difficulty introducing on the other side over at the Alveolus or the ENDOTEK division. So they really are two different bases. Kent, do you want to comment on it?

Yes. There's another major difference, Jim, and that is that we integrated this into our business, and meaning that we had synergies where we could eliminate SG&A expenses. So those guys weren't far from being profitable. They were losing a little bit. But we're able to eliminate a lot of the costs, and it's easier to integrate and financially less risky than a whole new enterprise with its own separate sales force that we knew would lose money in the first part of it, and that's been delayed some.

So it's not at all the same in many respects.

That's a great point, Kent. And again, just to amplify that, again, this has been integrated. They weren't making money, but most of that was below the line because of their SG&A costs and the publicly held company costs, where on the other side you have a distinct sales force that you have to have because it's calling on a whole different point of sale. So it's just two different beasts.

So unlike Alveolus, with this one, the point of sale is similar to the point of sale you have for your current product?

Oh, yes.

That's correct.

Okay.

And that's why when Jayson asked the question, that's why we said that it's just integrated. We can look at the sales, but remember, that salesperson that's carrying that bag or carrying that product is carrying all of our other stuff, too.

Okay. Now the $450,000 charge per month for the markup on the inventory, is that a tax number or pretax number?

Pretax. It's a gross margin effect.

Okay. So it's about $0.03 a share for the next two quarters?

No, no -- yes. Yes, it'll be one quarter mostly, and then it'll have partial in the first quarter.

Okay. All right. And then, the fact that you are taking this charge now to write down the $5.2 million, will that be a positive on your GAAP numbers, going forward, because you won't be depreciating that over time?

No, it wasn't--.

--No. It was in goodwill--.

--Goodwill's not depreciated--.

--And we don't depreciate goodwill.

Okay, so you wouldn't have been--.

--But I like your idea, Jim. I like your idea a lot.

The old rule is it used to amortize, but now it doesn't. It sits there until you do this kind of a review, and then it adjusts.

And by the way, we did just a little bit of research. About a third of all publicly traded companies take an impairment charge, or--.

--For the last three years have--.

--Have had these -- have taken them. So, I mean, we don't like it. I don't like it at all, Jim, but it's just one of those things that these are the rules of the game. I mean, it's like marking up of inventory costs. I don't like the fact that we can't take those profits, but you can't buy profit. So these are the rules that the guys spell out. We're just trying to live by them.

And I think, on this subject, you may not like these things. I don't like them. But I will tell you this, that if you take a look at Merit's balance sheet, you take a look at the things that we've done, we have a clean balance sheet. We do. When I say clean, everything's straight up.

I'll tell you another thing we did. I'll just be straight up with you. In this quarter, I also took another $250,000 charge. Now let me tell you what it's for. We had hoped to enter the venous therapy market. We had developed a bunch of products, and we hoped to go out there, and we hoped to be able to compete with AngioDynamics and with DiaMed and these guys. We had a great product.

Unfortunately, there were these legal issues that jumped up with venous. All that stuff jumped up. And so we have a product that we can't sell until those patents expire. And so the same impairment test came up, and we looked at and we said, "Okay, this asset is impaired." And we did what you should do. It hit the quarter. So we do these things all the time to look at any tooling, any capital equipment, and things that aren't being utilized shouldn't be held on the balance sheet and not written off. So we do the right things.

Okay. And then, as far as the NOLs go, Kent, how will that work? Will you still be reporting a fully taxed earnings, and then you just -- you won't pay it?

Yes. No, so those are earnings that have already been expensed on the income statements previously, but they have a cash value. When you go to pay your taxes, you can offset your tax payments with it. So it becomes an asset on our balance sheet that we sort of amortize or apply to, as we can, through the limitations over those years. And so when we go to pay the taxes, we can pay less than what our expense was on the income statement for our current earnings.

But it doesn't flow through the income statement. It's a (inaudible), and we just take it. But it's $20 million real dollars, real dollars.

Okay, but you'd still be reporting a tax rate in the mid-30s?

That's correct.

That's right.

Okay. Thank you.

Ross Taylor with C.L. King.

Hi, I had a couple questions left. First of all, if you look at inflation devices, if you exclude the impact from that big OEM customer, where are you getting the growth in inflation devices from? I know you're partnered with some other spine products, but just wondered if there's -- if you could talk about where the growth might be coming from.

Well, there's some coming there, although that's still in its early stages, and there will be more growth coming there. I think another part of it is that we talked about earlier today the fact that we had a customer or a competitor who couldn't deliver with the kits and trays. They also make an inflation device for a large medical device company located in the Boston area. And they couldn't deliver, and Merit picked that business up. You will continue to see, by the way, growth in this market on the top line because now we're getting twice the price, or a premium price from where our inflation device was sold before because of China.

So you will see -- it'll show up as revenue. It'll show up as gross margins, but there won't be any more - and you will see unit growth. So you will start to see -- and you'll also see the [Big 60]. So you will start to see -- and it wouldn't surprise me if we weren't back in the double-digit range of growth in that because of the reasons I just spelled out. Where it's been 2% to 3% or 5%, you may very well see it back in double digits.

To support what Fred's saying, the kits were up 14%, and that would be whether it's sold to an OEM or whether it's sold with a combination of other stuff that we have that we put in with it. So that and our basics were particularly strong this quarter.

And that's -- we're the best on the planet on that stuff, so it's nice to have this new [Big 60]. That's going to be a big, big opportunity. We have lots of great opportunities. We just have to deliver, and we've got a bunch of work to do out here.

And what's the timing of the [Big 60] launch again?

We're actually going to have product out of the sterilizer in about 2.5 to three weeks, and we will try to get out -- I'm going to say 1 January just because, as we get close to Christmas, it's difficult. But it's imminent.

Okay. And next question, you talked about some rebound in your business in October. And can you talk at all about what you think the catalyst for that might be? Is it because the integration and training go over, people are more focused? [Has] the market gotten a little better?

Well, yes. Ross, people are still doing training, but I think people are going back to work. One of the things, again, that everybody has to remember, and we say this every year, and that is doctors go on vacation, and patients -- you're going to see a preponderance -- excuse me, that's not the correct term I want to use -- you're going to see a lot of volume as you get into the winter months just simply because you'll just see higher usage then.

So people go on vacations. You had disruptions in France. You had disruptions in Greece. We saw those things going on, and that affects the sales of some of these products. But it's more of a seasonal issue than anything else. And people are back to work, kids are back to school, and there are more procedures being done.

Okay. And last question, it's probably too early to really tell, but are you seeing any benefit from BioSphere pulling through sales of some of your other kind of Merit products at this point?

Yes. I actually commented on that earlier, but let me come back to it because it's really an important thing. I think the biggest intangible of this whole thing, this transaction, which I'm still very, very positive about, again, I think Kent pointed out that, when we talked about the Alveolus, we were right up front and said that we were going to have a dilution of $0.05 to $0.08 in the first year. We hope to be cash flow positive in the second year, which is this year, and we haven't made that.

But as we take a look at this particular situation, we said we would be cash flow positive in the very first year, and I think we'll exceed that. I think my personal view is what that will add to Merit will be better than we thought simply because the base of sales, what we've been able to maintain, and I'd mentioned this issue in Russia, I mean, all the things that are going on with Europe, we'll see higher sales there.

But what the real issue is -- listen, I was at the show in Valencia, Spain, the [CRC], which is the large European radiology meeting. For the first time in the history of our company, our booth was swarmed, swamped, busy, and they're all physicians.

I'll give you an example of one, Ross. I'm sitting there with a guy that I'd met that's one of our big customers for Spheres in Sao Paolo, and the guy was sitting there looking at this and saying, "I didn't know you guys had all this stuff. Why isn't somebody calling on me?" So the relationship that I have, even me personally, with some of the largest and most influential opinion leaders in the world are relationships I haven't had before. So we will see a lot of throughput. Now, that's anecdotal at this point, but I'm hearing it from my sales force.

I mentioned earlier that I've had at least 15 calls. I had one this morning, I had one yesterday -- where my sales guys are telling me, when I go in the lab, we're viewed as guys that are helping these guys where many of our competitors are actually looked at, "Well, they're in here selling me one thing, but the patients are going over to the vascular surgeons." IR docs, which is where our primary emphasis is in these products, are thrilled that we're there because we're helping them build their business. We're attending community health talks. We are sponsoring symposium. We are going to trade shows. We're doing--.

--Advertising--.

--We're advertising for them. We're doing things that bring them patients. And like any of us, we love the farmer because he brings us food, and that's who we are in this transaction. So we're building that relationship and that rapport, and I think that's going to have tremendous benefits, going forward, just terrific, because these are the guys that buy Laureates. They're the guys that buy Vascular Access.

They're the guys that buy catheters. They're the guys that buy microcatheters and aspiration catheters. The doctors buy those things, not their staff. Doctors buy them, and those relationships are going to have a big effect on us, going forward. They buy snares, as well. You don't sell those to the technicians. Doctors buy these products. And that's a big shift in the way things we've done in the past. I don't apologize for the past, but we are in this transition, and it's going to affect us positively.

Okay, that's helpful. Thanks very much.

All right, thank you. (Operator instructions.)

Gregory Macosko with Lord Abbett.

Yes, thank you. Fred, just with regard to the ENDOTEK and the Alveolus, you've put in some new products. What is left from Alveolus in terms of products, et cetera? Is there anything left there?

Yes, of course. It's a good question. They have the biliary stent -- excuse me, the esophageal stent. They have what is considered to be the best airway stent in the world. We were at the Chest meeting this last week in Vancouver, where the AeroStents are considered to be the best in the world. And they still have the basic design and delivery system for the biliary stents.

So those are the things that we bought. We bought three stent platforms, biliary, esophageal, and tracheal-bronchial. The only one that's not on the marketplace is the biliary. And we are going to release that product, but it's been a disappointment to us.

On the esophageal, that's the one that includes this new valve that we're going to introduce, which we think is a game-changer in terms of the esophagus. And I should point out, Greg, that this new inflation device, this new balloon, all go hand-in-hand with that esophageal stent. So they are complementary products to that particular use of that stent. And they also with -- these balloons, also go into this.

So there's substantial stuff there left. But what we have to do is to build out, which we are doing, the inflation devices, the guide wires, the balloons, and those products. And we have others that we will plan to introduce in years ahead.

And then with regard to October, it sounds as if the -- sort of the -- you said you're sort of back to plan, or it's a bit of a rebound. It doesn't sound like it's necessarily procedure-related. I mean, you basically are saying -- and we've heard it from others -- that the procedure growth has slowed kind of across the board in a lot of companies. And so I guess what you're saying with regard to October, it's not -- from that standpoint, it hasn't changed that much?

We are at plan essentially with our base business. This is when we take the other stuff out, so I'm just talking about Merit's base business ex- the BioSphere. We're essentially at plan for October.

But I will say, Greg, that we're not immune to the changes in procedure rates, because that's how our products are used and have to be replaced at that rate. So we felt like that there was probably some of that effect in the summer that's made this quarter a little slow that we're reporting on.

And then finally, just so I understand, and I'm sure it's very simple, but the goodwill charge on the P&L is $8.3 million, and you took $5.2 million in--.

--That's correct.

What is the difference?

One is pre, and one is after tax.

Oh, so the $5.2 million is after tax. I'm sorry.

That's correct.

Yes. When you figure EPS, you use the after-tax.

Okay, fine. I didn't know.

So everything we've talked about, we've tried to take it down to that, to the after-tax effect.

Okay. All right. Thank you very much.

Thanks, Greg.

All right, thank you. And Mr. Lampropoulos, there are no further questions at this time. Please continue with any closing remarks you may have.

Well, ladies and gentlemen, we appreciate the questions -- they're difficult questions in a complex business environment. When you have these transactions, they raise a lot of these issues, whether they are the markup of inventory, the associated one-time costs. All these things are relatively new things for Merit.

But fundamentally, if we go back and take a look at the BioSphere, which is the largest transaction we've ever made, I'm absolutely confident in our ability to become not just the gold standard we are on the Embosphere, but on the HCC side and other embolic materials, going forward, sold at our same point of sale. I'm as confident as I have ever been, in fact more so, that we've integrated.

And I want to, again, close by saying, look, we've done the facility. We've started research and development. We've closed down, or we have modified the issues relative to size. We have taken out all the publicly held costs and accounting, and all those things have all been concluded, and we've been doing the training. And we've done this essentially over the last couple of months. And whether it be IT, customer service fully transferred -- listen, the day we closed the transfer -- this transaction, which was, I think, on a Thursday or Friday, Monday morning we were shipping product from Salt Lake City to customers. We didn't miss a beat.

And we just did that in Europe, too.

And we just did that and moved it from the Paris manufacturing facility to our customer service facility where we're now shipping our product in Maastricht. So I think that we have done -- and people in this room, and I said this before we broadcasted today, have worked extraordinarily hard. They've done a great job of, I think, a very difficult transaction, and we've done that.

Now, have we made mistakes? Has everything worked out the way that it should have -- no -- or I wanted it to? No. Do we give up? No.

I remember just a few years ago I was criticized because we made a business decision to start up in Richmond. And I don't want to sound like sour grapes, but gee, we're making $600,000 a month down there now, and I never hear a word about it. Why was it successful? Because we didn't give up, and we're not going to give up. We're going to make our businesses profitable. We're going to work on them. We're going to integrate them, and these products are going to be sold worldwide.

So we're a bunch of tough cookies out here. At the same time, we understand that we can be criticized. We understand that we are fallible, that we're going to make errors. But on the fundamental issues of our business, the embolic materials is a great strategy, in my view, and I believe that it's bearing fruit already

We take a look at the endoscopy area, it hasn't turned out exactly the way I wanted it to, but I can look at three business segments in this room and think about, for instance, Ireland when it wasn't successful, Richmond when it wasn't successful. MCTech when it wasn't successful, and sensors when they weren't successful, and they are all successful businesses today. Even MCTech, who's had a little bit of a pullback, is profitable despite their sales being down $700,000, they're still profitable and making money. And we have a plan, and we'll be back on course there.

So I'm proud of the people in this room. Their hard work, their loyalty, and candidly, their brilliance. These are smart folks out here. So I know you probably get tired of listening to me and being the optimist and saying it's onward and upward, "Charge," and all that kind of stuff, so this is what I have to say in closing -- it's onward, it's upward, we're going to charge, and we will do all the things we've said, given the appropriate time, and we'll do even more.

Now, I know I'm going to get a call the next time around. "Fred, are we onward? Are we upward? Are you still charging?" And the answer is, as long as I'm standing tall, that's exactly what we're going to do. So we've got a great business, great opportunities, great new pipelines, and I'm excited about our business, as excited as I ever have been.

So thank you to everybody here. Thank you for your questions and your support as shareholders. We look forward to talking to you soon. Kent and I have four or five conferences the next several weeks, and so we'll see you in New York. Greg, I can't wait to see your bow tie.

Thanks, everybody, and good night.

Thank you. And ladies and gentlemen, this does conclude the Merit Medical Third Quarter 2010 Earnings Conference Call. You may now disconnect. Thank you for using [ACC] Conferencing. Have a very pleasant rest of your day.