Merit Medical Systems Inc (MMSI) 2014 Q4 法說會逐字稿

(Operator Instructions)

Good day, everyone, and welcome to the MMSI's fourth-quarter 2014 earnings conference call.

At this time I would like to turn the conference over to Fred Lampropoulos, Chairman and CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and thank you very much for taking the time to join us this afternoon.

We are broadcasting from Salt Lake City at our corporate headquarters where we have about 30 members of our general staff that are located here and we will start our meeting today by having Rashelle Perry, our General Counsel, read our disclaimer. Rashelle.

Thank you, Fred.

During our discussion today, reference may be made to projections, anticipated evens, or other information which is not purely historical. Please be aware that statements made in this call may be considered forward-looking statements.

We caution you that all forward-looking statements involve risks, unanticipated events and uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the SEC available on our website. Any forward-looking statements made in this call are made as of today's date and we do not assume obligations to update such statements.

Although Merit's financial statements are prepared in accordance with accounting principles generally accepted in the United States, Merit's management believes that certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of Merit's ongoing operations and can be useful for period-over-period comparisons.

The table included in our release and discussed on this call sets forth supplemental financial data and corresponding reconciliations of GAAP financial statements. Investors should consider these non-GAAP measures in addition to not as a substitute for financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some but not all items that affect net income.

Finally, these calculations may not be comparable with similarly titled measures of other companies.

Rashelle, thank you very much. And, again, welcome, we are delighted to have you with us.

As you can see from our press release that we had what we believe is a continuation of our third-quarter results and I think that we reported solid results across the board. If you will take a look at our growth and you will notice that we are in the double digits and I think that is very respectful. Either the core was 11% and 12% respectively, 14% overall and we are I think we are very pleased.

I would like to say essentially from the onset that last year we reported to you our guidance and, of course, we changed that in the first quarter and we upped the revenues and lowered the earnings amount. The bottom line is, is that Merit hit everyone of its original numbers, save the updated sales forecast, which we missed by $1 million but it still ended up by almost $12 million above our forecast. So, I think that overall I am pleased.

We have a lot of programs going on that we will discuss with you today. And then we are looking forward either having you in person or to participate or listen to our webcast which we plan on having on March 5. We think, and I believe, that it will be very insightful to Merit's business plans that essentially talk about how we believe this business is going to grow and increase in profitability over the years to come.

You know, some people -- there are various points of view. We understand that there is some risk involved in a three-year plan, but we think that it is important for you to understand that plan in order to get some insight on this year and where we are taking the business.

The net of it all is that you -- and we believe that we can continue to grow the business, that we can improve all of its operating metrics and bring higher profitability to the company and then we believe and we hope that that translates into higher value for our shareholders. So, we are excited about that.

If we take a look at our business overall and take a look at the various segments, we can take a look at strength for the year in our inflation devices. We can take a look at kits, which were a little bit lower and we expect that looking forward that our kits will have less attention.

By plan, if you take a look at our stand alone products, and I suppose that the outstanding area were our embolics, which were aided by the things that we are doing in China and those things that are going on in Europe. We had a huge improvement in embolic sales in Europe, and of course in Japan.

And China.

And China. I think I mentioned that. So --

But if you take a look at our Malvern, which is Thomas Medical and you look at our catheters, just across the board you will see that we had what we believe is just outstanding growth for the business. The numbers speak for themselves. They are improved, they are improving and they will continue to improve.

So, I think we have a solid business plan. I think that sales, I think margins, we are able to maintain and to control and in some areas reduce our expenses. Our operating profits are improving.

I don't want to call it a negative because I don't believe it is, in fact I think it is in fact a -- shows some of the strength in the US market, but that is that we had a higher tax rate this year. And we are going to have Kent explain that in just a moment. But that really is a reflection of stronger US sales and the improvement in those sales.

We had, in terms of regions, I think that's another very important part of our business and that is that our international markets continue to grow, and grow very smartly. Our overall EU dealers and direct grew at around 25% last year.

The star once again was China. And China grew at 27% last year. And we continue to make inroads into these markets.

And part of our overall growth plan is new products, differentiating older products by essentially remodeling some of those products and again continued geographic expansion and opportunities like we are making in Brazil, like we are making in Australia, and that we will continue to look at those markets where different distribution models giving us higher margins and a larger presence in these geographic areas have helped the business, which has been part of our plan for many years.

So it's a continuation of some of those plans in areas like Spain and other areas that we will talk about more and more going into the future.

I think -- Kent, let me just turn a little bit of time over to you and have you comment on your views on our financial performance.

Yes, I would like to highlight on something you have already said, the embo therapy has really increased. Our QuadraSphere, our highest gross margin product in our line, is up 77% this year as well as our core product for that, the Embosphere is up 21%. So those are really helpful in what I think our future is and in helping our gross margins.

Another thing I want to point out is that we have improved throughout our financial statements. We have seen the gross margins go up. We are seeing improvements sequentially in our control of the operating expenses and the improvement of our operating income.

So we are beginning to see the leverage we promised through, not only increased top line growth, we are seeing gross margin improvement, we are seeing improvement as a percentage of sales in our operating expenses, we are seeing a reduction of interest. We were able to pay our line of credit down $14 million this quarter alone and able to reduce our leverage ratio of EBITDA to earnings ratio to debt and that is down at 286.

So we went from 324 to 286 in one quarter. I think that's pretty remarkable.

And, of course, we are fortunate that we have a good portion of our debt that is hedged. Now -- there were some statements by the fed today and it seemed to be somewhat dovish and that sort of thing. We can't predict those things but I think the way we have managed the business and structured it, is that we have a minimal amount of risk based on our structure.

I would like to, for just a moment, talk a little bit about the FX affect and, again, I will have Kent weigh in in just a moment because we think that is a -- an issue -- um -- an issue. In the fourth quarter alone I think it affected our revenues by about $1.1 million. And we are going to talk in just a minute about our 2015 and will talk I think in more detail about foreign exchange.

But I will say this, because I think it's actually quite fascinating and interesting at least for me and hopefully I am sure for you, and that is with the FX effect and what it does to the top line, we have a very interesting situation because of our manufacturing and our expenses and the various things that we do in Europe, but if we maintain sales at the levels that we have predicted here, it actually has a positive affect on the company on earnings. And it's really kind of an interesting deal.

So, Kent, just on the overall FX affect whether it be this year but certainly where we are, and we will talk about what we pegged our results to next year, but can you discuss a little bit that phenomenon that I just discussed?

Yes, I'd be happy to do that.

And it's probably more germane as we look forward to the future because that's where -- the euro has just begun to really follow a lot since the end of the year. It began late last year but it's been pretty dramatic and we have seen that in other currencies as well. And so as we fell in those currencies, obviously it is affecting our total sales.

Fortunately we are naturally hedged, in fact, favorably hedged in this case because our expenses are about $3.6 million greater than the almost $12 million we are saying is the change in the top line. So, the net of that is a couple of million dollars of benefit to us in the forecast for next year.

So it's a nice range. You have your manufacturing facilities, three of which the largest is the one in Galway, Ireland, and then you have your distribution facility in support for the sales force and you have the sales force itself. Then the expenses that go with it, you have input costs, in other words materials you purchased, you have the labor and you have the overheads of rents and everything that it takes to operate the facilities and the operation that are denominated in euros, plus the sales force that have travel and other expenses and benefits.

So, take all that together and we are one of the few companies that they are going to find out there that they can say the euro dropping is actually helping their income statement.

And one other thing that Kent just mentioned -- a little bit of discussion, that is with our presence in many of these foreign countries in Brazil, Mexico, China and so on and so forth, there are other effects that come into place from a lot of these countries as the dollar has strengthened here. But again, overall, as we throw that all in the soup pot here we find out that it is actually is going to benefit.

So you will see lower revenues and, in fact, as we now move -- I think -- I mean the numbers are there. You can look at them. I hope you are pleased with them. We are somewhat pleased. Not totally pleased and by that I mean we can always do better.

But I think that the one thing that you can expect here, we have I think worked very hard on improving our budgeting process and our accountability. We are serious about what we are doing. We are committed to what we are doing and we want to make sure that you not only come away with that feeling but we have support and you can see empirically the things that we are doing to improve the business overall.

Let me if I could just for a minute move to the pipeline. I talk about it and one of the things that you'll be able to see is that on the 4th of March, Merit will file its 10-K. This will be one day before our conference. And in that document we will talk about some new products and some things that we think are going to have an impact on the Company in the future.

And at our conference we will show some of those products and we will have some discussions about what they do and what the market sizes are and so on and so forth. We will also make that part of our webcast so that everybody will be in the loop in terms of these opportunities.

But one of the things the Company is doing and I have discussed this at many of the conferences in the past and that is that many of the projects are longer-term projects now than they have been because they have more opportunity. As an example, we will talk about -- again -- and without letting the cat out of the bag until that document is filed, there are these longer-term projects.

So where in the past a project might take 15 to 18 months or two years, we have -- we certainly have a number of both but we have other products that are now three years and some that are out as long as five years that are in our R&D numbers and things that we are working on that have substantial market opportunities and this is part of the transformation of the Company into higher margin and higher market opportunities worldwide that we are looking forward to talk to you about.

So, again, that pipeline is full and we are doing something a little bit different that we have done it in the past. But we are doing it maybe a little bit more and that is one of the things that the change in the market place has brought about is that there is not as much private equity and venture in many of the medical device companies as there have been in the past.

So, there is a lot of smaller companies out there and Merit is engaged in a number of R&D contracts that are relatively small and I am going to say immaterial to the business overall but projects that we will be able to talk to you about when you come out here that have to do with vascular access and have to do with things that we think are pretty important as the devices that we have been using on a legacy basis are becoming more sophisticated and help I think with better outcomes. And some of those things that we will talk to you about when you are here and as part of our webcast.

I think that pretty well covers it. You know, the numbers are there and again I think they are consistent with our efforts and a lot of opportunity for improvement in the future and that's something that I think we are looking forward to.

Let me talk -- a couple of things here that I think are important as we move forward. Now, many of you will recall that we have had some discussions about Mexico. And as many of you know, we have a contract manufacturer in Mexico and we have been involved with that vendor for about 10 years.

Merit made a decision a few months ago in which we have leased, not bought, but leased a facility in Tijuana, Mexico, that should be up and operational on or about July 1, give or take. And on that date we will start moving in a number of product lines that are currently being produced by our vendor in Mexico.

However, as of May 1, Merit will take control of that existing facility and its employees and we think this is actually really quite exciting because what it does for us is that it allows us too have people that know how to build the product, it has people who have that experience and our hope is to retain those employees. And we just -- as we have discussed it as a management team, we think that this is the appropriate course rather than going and starting up a business from scratch and having to hire and having to train people, we think this will help us with a much smoother transition.

Over the next two to three years we will have as many as 500 employees. Our current facility there employs about 150 people and our plan of consolidation will continue. So, as you know, over a year ago, we successfully and without interruption to customers shut down our original facility in Salt Lake City and consolidated it into our new facility here.

By September of this year, we will also shut down and consolidate another facility here in Salt Lake City that we affectionately call AD40. It is about two miles from our facility and of course the efficiency that comes from that is always significant. You don't have to transport parts.

We will take and look at the products that we think will fit best and some of those will go to our Texas facility, some of them will come to South Jordan and some of them will go to Mexico. This consolidation will continue to be evaluated over the next -- I'm going to say months and maybe the next year or so as we bring the new Mexico facility online. We expect that by -- or about the 1 of September, give or take 30 days, that the existing manufacturing that is in a facility that Merit will take control of and then will vacate and move, will then be into our new facility in Mexico.

We think this is going to have a substantial cost savings benefit. We think that it could add substantially to gross margins and profitability. We will talk about this in a lot of detail in our conference because it spreads over three years as we fill this up.

So we talked to you today about the fact that this is going to be taking place. It is in our numbers that we will now talk about for 2015 and we will then talk about it and expand that out over the next three years in our meeting that's coming up.

So, let me if I could move forward to discuss our forecast or at least our guidance for this year and put a little I think color on that. You'll notice that we have a sales forecast of 5% to 7%.

Now if you look at this year and you take a look at, you know, pick a number, 12% to 14% core and otherwise, this will of course take out a couple of percentage points because that was part of this year into the McKay transaction for our SafeGuard product. And so if we go to the core number and then you take the 2.5% or so that would come out just from the currency, I would say that this is a conservative number. I think last year, if my memory serves me correctly, we did 7 to 9 or 8 to 10, and of course we outperformed that.

But we want to be reasonably cautious but I also want to make sure that you understand that we are not negative on the business. In fact it's quite the opposite. We believe that the business will improve dramatically.

In fact I can say as you look at these numbers for next year, every one of our parameters are expected to improve. Gross sales, gross margins, operating profit, both GAAP and non-GAAP earnings, across the board, everything will improve based on our budgets that we spent a lot of time on and the commitment that we have from our staff. And so that is I think probably the most important thing.

You'll take a look and take a look at the earnings numbers and, of course, we give a range and we hope that we can do better, but this is what we believe that we can commit to, and then -- and this does have baked into it some of the start-up costs that are associated with our Mexico facility.

So, Kent, do you want to maybe give a little more color on the range for next year?

Yes, I mean the top line I think is, again, conservative but something that we feel like we need in spite of the lower FX affects. We are improving our GAAP earnings in the range of -- let me get that out and then also 12% on our non-GAAP which is more -- a more consistent way we've looked at it. I think everybody does. So when you can look at the GAAP version it is up 22%.

So we believe that we are going to have the discipline we need in our operating expenses and in our gross margin. The operations of our lean manufacturing. There's going to be some transitional costs here due to the setting up of the Mexico and the movement of product lines over there and some would call moving costs or temporary costs in the SG&A.

But, overall, we are setting ourselves up for even as we are going to talk more in nine days about what the future can bring for having put in place this infrastructure and capabilities for offshore manufacturing at lower costs. Both labor and overhead are going to be reduced.

And it's not just Mexico. I mean it's not like it's a one trick pony here. It's the consolidation of existing facilities, it's better efficiency, inventory turns, I mean I could go on and on about the metrics that we are using and automation.

You know in our automation center which we are looking forward to showing people -- I will give an example of one piece of equipment. We currently have a piece of equipment producing a product that I think currently runs at one unit every -- Neil, this on the one, I'm not going to say the name of the product but one every --

Seven parts per minute.

Seven parts per minute. So you can do the math on that.

Now we have a new piece of automated equipment that is here, will be put into affect in about the next -- oh I am going to say 30 days be operational, that now moves it from 7 to 30 and reduces the overhead or the headcount there by over 14 individuals. Now, those people will be retained in other jobs and other growth, but the point is, that we now are getting our business to a certain mass that allows us to really invest in these areas that help to bring our cost down to make us competitive in markets that have been marginal.

When I say marginal, simply make more money. And I could go on and on about these things but, again, we will hopefully be able to talk to you about what some of those projects are and those cost savings.

Now, as you know, we do not talk about quarters. However, we think it would be appropriate to put a little bit of color so that we don't go through what we went through last year and people understand that the bottom line is, and that's what we are all here for, is that we are going to have we believe a substantial improvement of our earnings over the year ago period. But there are things that affect us in the first quarter that I want to make you aware of so it's not a surprise to anybody. And here are some of the things that we do.

We started out the year by having sales meetings of all the divisions and we do that through the month of January and early into February in which we go through and we train and we launch and we find it's much better to do that and to get a fresh start and that's why the SG&A line sometimes in that first quarter is a little bit heavy. But it goes and it balances out during the year.

So you will see and continue to see, I'm going to call it, for lack of a better word, some seasonality. But that seasonality with substantial improvement over where we were last year. Let me give you some other ideas.

As we start up the business and close out the year and we had a very strong close, then what happens is it has to start up but you don't really earn the application until it goes to the sterilizer so you have a couple of weeks of delay and then you have the negative variance in January. But we have that every year but we want to make sure people understand. You have increased healthcare costs.

We are now going to be carrying the rent for this Mexico facility that, even though we got seven months free rent, give or take, that, as part of the accounting rules, we have to take it over the term of the lease, even though there is no cash going out.

So there are all of these little things that we want to make you aware of, and I guess our concern is, and the reason we are sharing this with you, is we don't want in the first quarter to have a situation where we come out and we come out with numbers and all of a sudden they said well there they go again and because it's quite the opposite from that. And we want to make sure that again this seasonality, you will see it ramp during the year. You've seen at the last several years and you'll see it again this year.

But we still believe that those numbers will be substantially improved over last year. So I think from a comparative point of view, I think you will be pleased, but you need to understand how this thing ramps up and why those things exist.

Kent, do you want to talk, maybe a little more color on it?

Yes, I mean there is certain of our overhead costs like payroll taxes, that start up early in year and the matching of those. We have some other increases, healthcare, for example, gets kicked in and steps up. It is fixed for the year but it is higher right at the start of the year as a percentage of sales. This all will affect the net income and the operating income of the Company.

So, yes, we are a little concerned about just making sure people -- that we are conservative in guarding that there is a seasonality to our sales. It seems to be increasing, as well as our earnings.

And, by the way, we see that, as we start this first quarter, we see that the numbers that we are projecting here are being met or exceeded. So I think we are on track for being able to deliver solid results to you next year and bringing this Mexico facility, shutting down other facilities, increasing our automation and doing a lot of things we are doing here to reduce costs. And there are a lot of them. We will talk about some of these at our conference of things that we are doing differently.

Listen, old habits die hard, but I think there are a number of things that we are doing here, whether it be from promotions and presidents' club to healthcare, wellness, we are doing a lot of things that will improve this business and I think you'll see, again as I mentioned early, improvements in every -- again in what I believe in every significant portion of financial reporting you will continue to see that, although it will ramp during the year, start out -- so we want to just make sure that everybody just kind of stays calm and collective.

We don't expect blind faith but we expect that we will be able to show those improvements in the first quarter, in the second quarter and throughout the year and that we will get the kind of performance that we hope will translate into shareholder value as we go through the year.

So, I think that's the essence of it, ladies and gentlemen. Just in summary, a strong finish to last year. One interesting little point -- I know it doesn't mean maybe a lot to some of you, but I have to tell you, in the month of December, in which we did about $48 million in revenue, we operated at a 14.7% operating profit.

Now, it shows that we can get balance and we can get leverage on these statements. As Kent pointed out, if you take a look at the top-line growth and look at this bottom-line growth you'll see there's substantial leverage in the earnings percentages as they come off these sales numbers that we are giving you. And they are significant.

So, again, we will be able to show that to you in a plan with more detail on the guidance here and how we are going to get there in our webcast again as Kent pointed out in just nine short days.

We are excited about having those of you who are coming to Salt Lake City. We hope that maybe even through this call that it will maybe ignite and some of you to come join us.

We know that we are going to have a lot of people on the webcast. We know that we are going to have a number of you here and we are excited to have you and show you what we are doing in our business plan.

So I think with that being said, we will now turn the time over to you and we will go ahead and let the operator come in and fire away, ladies and gentlemen.

Thank you.

(Operator Instructions)

We'll take our first question from Tom Gunderson with Piper Jaffray.

Hi, good afternoon, guys. So I just have a -- I just have couple of numbers questions since I think a lot of the strategic stuff will be covered in early March but I want to double check what I heard. $1 million to $2 million positive impact from foreign exchange on the earnings line in 2015? Is that right, Kent?

Yes, that's correct.

Closer to $2 million, yes.

Okay and then I thought I heard Fred say 2.5% top line currency that comes out to like $10 million or $11 million, is that right?

Yes, it's more like $12 million.

I think it's $11.8 million, but it's pretty close, yes sir.

And then, Fred, you also said just maybe in the last paragraph or two of your comments that you are comfortable with Q1 that's out there, is that revenue or in earnings or both?

Well, what I said is that our plan, our budget and we were operation -- I have only seen a month, but we are comfortable that we are on track and doing just fine.

He's referring to our internal forecasts, and budgets and stuff.

Yes.

Oh, I see. Okay. And then per that Q1 commentary that you made and seasonality, one way to get around that, that we use on our side of the table sometimes, is just take -- if you're going to get 6% growth on the topline and whatever on the bottom line we can just apportion that 6% every single quarter and then the seasonality that you saw last year is reflected in that. Do you see any seasonality, any special in 2015 that would upset that kind of math?

You know, I would have to, Tom, I would have to take a look at that and look at the numbers and see how you spread that out. I think you hit the nail on the head. That is your side of the table and I would be I think reluctant to comment on things on your side of the table. If you want to talk about my side I will talk about that but I don't want to comment on how you might look at it.

Okay, but there is no change (multiple speakers). It was a long way of saying there's no change in seasonality.

What I was trying to do is -- no change in seasonality? I mean we expect to have momentum but as Kent pointed out and I did you have these -- it's loaded the expense side for the reasons I mentioned. Healthcare and sales meetings.

Earnings are going to ramp.

So earnings are going to ramp just like what you saw this year but on higher revenues and we think improved margins.

Generally I think we are agreeing with what you are saying that there is going to be a similar pattern by the quarters. I think that is what you are asking.

Yes.

And yet it seems to be amplifying a little bit I would just say that.

Yes.

And what we did not want to do is -- our goal is to out perform of course the first quarter of last year and we think that we are -- I believe that we will do that. I don't want to get into -- substantial for me means -- it might mean something different for you. But we're going to beat it -- hopefully over last year's substantially. But again, sometimes when you look at a first quarter or a second quarter and say -- how are you going to make the year?

I am just confident that -- and our planning and short of anything that I don't see coming at me I am confident that we're going to be able to meet and our goal of course will be to exceed the numbers. But we are -- much more comfortable this year. The staff and our planning and everything that we are doing, we are just -- we are just kind of in shape. We are in shape.

Sounds good.

We have been working out.

That's it -- that's it on my end. I will see you in Salt Lake in a couple of weeks.

We look forward to it, Tom. Thank you, sir.

(Operator Instructions)

We will move next to Jayson Bedford with Raymond James.

Good evening, can you hear me okay?

We can, Jason. Thank you.

Okay. So, just in gross margin it looked quite strong in the fourth quarter. It is fair to assume you didn't really see any benefit in the fourth quarter from FX. I guess that's my first question and then secondly, when we look to 2015, you are assuming that gross margin expands as we look at the 2015 guidance, correct?

That's correct. That's correct. We had about 18 bips helped in our gross margins in the fourth quarter to answer your question on the FX affect.

Okay. And then maybe, can you give us a little bit of guidance here on the middle part of the P&L? You've given us the top and the bottom, just wondering how you see the gross margin, SG&A and R&D lines shaping up for the year?

Yes, Kent?

So, on a GAAP basis we are thinking we can get up towards 44.5% to 45.5%, in that range and on it -- .

Gross margin?

Gross margin. Yes (multiple speakers).

And that's on a GAAP basis just to be clear?

Yes, so I want to be clear because that's how I primarily modeled our numbers first and then we talk about adjusting them. But the -- then the range for SG&A we think is 28%, 29%, you know, in that -- we should be able to do that on a GAAP basis.

R&D?

Yes, R&D is going to be around 7% and then we are going to have about 0.6%, so somewhere in the low 7%s and then you've got to add clinical trial stuff that's 0.5% give or take a little bit.

Okay, that's helpful. And then I guess can you talk a little bit about the radial strategy? You made some deals -- a couple of deals late last year. I know you were high on that, can you just talk about how that is progressing? And maybe, I don't know if there's a way to quantify the progress, but if you just comment on the radial efforts?

Yes, let me tell you what we are doing, Jason, and we appreciate the question. And by the way I think there is something emerging out there that we've been part of. And that is we are starting to see radial doc's starting to take a look at how to use the radial approach for doing (inaudible) for instance left gastric artery embolization and those sorts of things.

And so that's kind of a little kicker in there that we are starting to see some trends on. We have some specialty boards that are used for patients and that business is growing for us. We have a new radial sheath that is out on the marketplace and we are seeing that starting to ramp up as well.

I think maybe the biggest indicator is we have our Think Radial program. And in that particular situation here a couple of weeks ago, we had I think it was 15 doc's that were here. We had cadavers. We did the training. And there are multiple benefits that come from that, not just on the procedure itself but the familiarization that we develop and the training and the goodwill that we develop with physicians.

I will give an example of one, Jason, and that is we had one of the guys literally come out of the course and say this is the best course I have ever been to would you please have your salesman call on me next week. I mean, that is music to my ears, but we are able to train the partners but there are a lot of other peripheral benefits that come out of this. Now, we have a program coming up, Liz, in April.

Yes.

And because of the demand right now, just give me the quick numbers and I'll repeat them over here.

Forty-nine doctors on the list that want to sign up.

Yes. So 49 doc's want to come to the class that are already signed up and trying to get in. And I think we are actually going to expand the number, which has generally been around 12 to 15 up to about 20.

So, that means that we can accommodate just a portion. So, we are seeing that increased interest for training. We are seeing -- and I think we will see the same benefits that are coming for that. We are working on some new radial artery catheters and shapes and all kinds of things that help to fulfill this need.

Now there are some who believe, in fact, I read a report and had a comment just recently where someone said -- well, it's topped out it's done. Well, not only do I not believe that, I believe that the evidence that we are seeing is just the opposite of that. That we believe that this will continue to expand.

And one of the very interesting parts just as a side note is one of the areas that hasn't caught on his California. And so we are going to make a special effort to try to expand the presence of the radial approach in California. But in a number of other areas in the eastern part of the country and the mid-Atlantic areas we are seeing continued strong growth there.

So, we have the products. We have interest in physicians. And at the end of the day when they want to come and they want to learn how to do it, I think that is the best indicator.

And so I think we are very pleased with it and I think it's going to be, again, a key driver to our business going forward.

Okay, thanks. I'll leave it at that and I look forward to seeing you guys next week.

Great. Thanks Jason.

(Operator Instructions)

We will move next to Jim Sidoti with Sidoti & Company.

Good afternoon, can you hear me?

We can, Jim. Good to hear your voice.

Great. It is good to hear you too, Fred.

Thank you, sir.

With this new facility in Mexico, I just want to be clear, is this facility nearby the facility where you are actually buying the parts now or is it the same facility or where is it located?

It's a -- Well, it's -- first of all, it is within 5 miles. So it's relatively close. It is a new facility that is -- and part of an [existence]. So it's a business park in which we have 140,000 square feet of a new facility.

And then we are taking 60,000 square feet of an existing facility which will be for warehousing and that sort of stuff. Combined about 200,000 square feet. We will be moving a business right now that's in about 40,000 to 50,000 square feet -- we'll be coming into it immediately.

And then throughout the next 18 months from starting in about May of this year, over the next 18 months we believe that we will have 450 to 500 employees there. So it's -- in those products in which we have high labor and low engineering requirements, although we will have a full cadre of engineers, but I think maybe equally important and I want to mention is, we have a fellow who is a seasoned veteran and a former co-worker with one of our plant managers, a fellow by the name of Carlos Santos.

And Carlos has years and years of experience. And I think the key to any of these things that we have found in all of our facilities, Jim, is that general manager, that managing director, is the key guy. And this is a guy who is well known in the area and we are just absolutely delighted to have him on board. He has been onboard now for three, four or five months with us and so that transition will be so much easier with a guy with that experience.

And remember we have an existing business there that we'll move. We also have an existing engineer core living in San Diego that support that. So we are in pretty good shape here in terms of this venture. This isn't something where we are stepping into something we know nothing about.

We are there and we have been operating out of there now for over 10 years. But we think it's time again to consolidate and to take advantage of just a wonderful work force and we are excited about this opportunity.

Okay great. And then I just wanted to follow-up, too, on the biosphere growth in the quarter. You know, is the new products in China really feeling that or what's responsible for that and where do you think (multiple speakers).

Yes a lot of that is coming out of our relationship in Japan, growth in China. We are growing in Southeast Asia. We are growing in Europe. We have growth in the United States. I mean just kind of across the board we are having growth out of some products that were designed and developed after Merit purchased BioSphere. Those products are growing.

There is also some wires and catheters that use in delivering those products as well. But -- and we have new products that are under development. New embolic materials. I am not going to go into a lot of discussion there right now but there -- we just continue to believe that it's a great area to be in.

I will mention something to you just because it comes to mind and it's on the public record, but just last Friday, we received approval from the Brazilian government for our HepaSphere and our Bearing PVA products and we are already approved for our Embosphere.

So all of our embolic products which are of course are our highest margin products are now approved and Merit has direct authority and licensing capability in Brazil. We think that's a significant. And so we expect a lot of big things out of that capability as well.

Now, in addition to that, remember that these have to be delivered by microcatheters. And those microcatheters are produced by Merit and that's a business that we believe also is going to have great opportunity. So, we continue to be very excited about the embolic business and of course the products -- the vascular access products that you have to have to deliver those products.

And then the trial that Kent referenced before when he talked about the R&D budget, I assume that's for the embolics here in the US. Can you just give us an update on where you are with that trial?

Yes, I will give you a 30,000 and we will go into a lot more detail on this and [parse] this out when we have our meeting. But we actually have I think three trials underway. Let me go over them.

We have the high-quality study and we are expanding enrollment of that product and that is for the combination of our HepaSphere product in combination with Doxorubicin and that particular trial we are now expanding into Asia.

Yes, it's always a little bit tough because the enrollment is over 500 patients, but it's progressing. I think we have right now a little over 200, 250. Given a number like that, pretty close? How many? 175. 175 people that are enrolled in that study. So, we are making progress. We have the PAE study. I think we call that the best study and this is the one in which we are using Embosphere and this is for embolization of the prosthetic artery.

And this is for patients with BPH and other issues involved around that and that's coming along very nicely and again it all has to be delivered. We have centers of excellence and that's moving along. One that has also now started is our new study and I am forgetting the name of it. The evolve -- is that -- .

The valve.

Yes, but what is the name of the study?

Evolve.

Evolve. So I was right. So -- and what this is, is the esophageal stent with a built in valve to overcome reflux. And I think we have to enroll 50 patients.

60.

60. Well okay guys, 60. And it is a randomized -- .

Two-armed study.

Two-armed study. Thank you. And one of the arms is with a valve and one of them is with our EndoMAXX and we have already enrolled 6 patients but it is starting to gain momentum and we have only been doing this for couple of weeks.

And so we are very excited about what this means, to get this study moving forward. So those are the three studies that are going. And when you are out here and hopefully you are coming, Jim.

We will show you the products. We will show you some of the information on the studies and we are looking forward to having that conversation with you when you are out here. So, that's the best I can do right now for the update on the studies.

All right great. And, yes, I will be there next week so hopefully we can dive into it a little deeper. Thank you.

Great. Thanks so much, Jim.

(Operator Instructions)

It appears we have no further questions in our queue at this time.

Well, okay then. Guys we have got a lot of work to do. I think we have delivered solid results in the fourth quarter and I hope you feel that way as well. I think the numbers again speak for themselves.

We have a plan. We are executing that plan. We believe that as we are able to show you this three-year plan, we believe that and it is my hope that you will have the same optimism for the future of this business, it's profitability and what that means in terms of creating shareholder value.

So, we are really looking forward to that conversation with you and having you and hosting you here in Salt Lake. And if you can't get here, then we are know because we have been told we are going to have a large audience on our webcast and so we are excited about that as well and we will provide slides on that webcast.

But listen, there is nothing like being with me. You need to be here. Kent feels bad because you always want to talk to me and he wants to see you.

Yes.

We have members of our staff here. And for those of you who have been here and have seen this place, we have some new things to show you and we have things that I think that you will understand the vision. You can understand where the growth is going to come from and you will be able to see with your own eyes about where profits are going to improve and increase and why you should have continued interest in Merit. So, Kent, you want to add something?

Just that I think that there is real value in seeing the infrastructure, capabilities, capacities, technologies, and the infrastructure we have to be able to grow the company without adding a lot of overhead so that we can leverage.

And I think that's the biggest message. I want to point out that the numbers at the bottom line of our projections for next year are double the growth rate of the top line and that is something that I think is refreshing and exciting to see for our future and it is going to accelerate beyond that and we will talk more about it later.

And we are going to show you some new products that -- and some things that we will disclose in our 10-K. You can read those on Wednesday and you can come and see them on Thursday. And we will show some of those and they will be part of our webcast. Things that are very exciting and have great opportunities.

So, ladies and gentlemen, you know businesses are interesting and they are challenging and we live in challenging times and difficult times and yet here we are with what I think, as I said earlier today, we are in the best position we have ever been as a company. We are looking forward to presenting that either in person or through the webcast.

And it's exciting times but that excitement is not just high school-ish. This is serious. And again, I've said it three or four times, is the commitment that we have and the need we have to improve the profitability and the returns and creating this shareholder value, some of which we have seen but there is a lot more to go and we are excited to have you involved in it.

So, thank you for your time. We have gone just about an hour and we want to again thank you for your interest in the company and we will look forward to seeing you here next week and boy have we got some great things for you to see. You will have a much better understanding of what we are going to do to create this value which we believe will be substantial. So, I look forward to seeing you next week. Again thank you for your time and with that said we will sign off from Salt Lake City and wish you a very good evening. Good night.

And everyone, that does conclude our conference call for today. We do thank you all for your participation.