Merit Medical Systems, Inc. (MMSI) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Merit Medical Systems’ 2018 Q2 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Fred Lampropoulos. Sir, you may begin.

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos, broadcasting from Salt Lake City. Thank you for taking the time today. We’re excited to report our results to you. But before we do that, Brian Lloyd, our Chief Legal Officer, will read our Safe Harbor provision. Brian?

Thank you, Fred. During our discussion today, reference may be made to projections, anticipated events, or other information which is not purely historical. Please be aware that statements made in this call which are not purely historical may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, 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 Securities and Exchange Commission available on our website. Any forward-looking statements made in this call are made only as of today’s date and except as required by law or regulation, we do not assume any obligation to update any such statements, whether as a result of new information, future events or otherwise. Please refer to the section of our presentation entitled Disclosure Regarding Forward-Looking Statements for important information regarding such statements. Our financial statements are prepared in accordance with accounting principles which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. The tables included in our release and discussed on this call set forth supplemental financial data and corresponding reconciliations to GAAP financial statements. Please refer to the sections of our presentation entitled Non-GAAP Financial Measures and Notes to Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures include – exclude some items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies.

Thanks, Brian, and again, welcome, everybody. We’re assembled here with our staff, and we again appreciate during our earnings season your attendance and interest in the company. The first thing I’d like to do is introduce Raul Parra. Raul has worked for Merit for approximately nine years. And in that role, he has been the Corporate Controller and the Vice President of Accounting. The statements you’ve been seeing from him here have been prepared by Raul. Prior to his employment with Merit, he was an auditor for Deloitte & Touche. So he knows the business. He knows it well. And Raul, this is your first call. We’ve had the opportunity to go out and meet with some shareholders and investors out in the field, and I think in Denver and Kansas City, but this is your first one, so introduce yourself and we’ll get on with it.

Yes, I’m excited to be here. Thank you for the opportunity.

Okay, great. Well, by the way, Raul has done a really good job, he stepped in. We haven’t missed a beat. I’m getting the information I need, as well as our Board. And so, again, Raul, thank you very much and we appreciate it. Well, let’s talk about this press release now for a moment, and there’s a lot of details to talk about, a lot of interesting things going on with the company. But as you can see, we beat the consensus number for revenues by about $10 million. We also did that in the first quarter. And so I think it would be – it’s fair to say that the business is robust. It’s coming globally, but I think the thing to do now is, Raul, I’m going to ask you to weigh in here early and maybe talk about where the revenues are coming from and then maybe go through the numbers for the listeners on the call. So, Raul, here you go.

Sure. So Q2 2018 revenue was approximately $225 million as reported, a 20.5% increase over the comparable period of 2017. Organic growth was 11.7% or 9.8% on a constant currency basis. Some highlights include world-wide dealers up 22.5%, EMEA up 10.5%, and OEM up 11.5% on an organic constant currency basis. Moving down to the margin for Q2, non-GAAP margin was 48.9% compared to 48.3% for the comparable period, a 60 basis improvement over the comparable period of 2017 and 140 basis improvement from Q1 2018. I’d like to point out that this was the first sequential improvement in margin since Q4 of 2016. The improvements came from improved production variances, obsolescence, and product mix, and we expect to see continued sequential improvement in the margin for the back-half of the year and are committed to keeping the focus on growing our margins. Q2 2018 total operating expenses as a percentage of revenue were approximately 35%, in line with our expectations. And on the EPS side, our Q2 non-GAAP EPS was $0.43, compared to $0.36 for the comparable period of 2017. Better than expected top line revenue, improved margins and cost discipline continued to help our EPS growth.

Well, thank you. Listen, just again to reiterate the core growth, I think, we guided 7.5% to 8.5% and we came in at 9.8%. And I’m going to give you some color on that. We’ve received a number of orders that have come from the Middle East from distributors for our legacy products. They are not as profitable, have lower margins in some of the products, but there’s a lot of demand for Merit products globally, and we expect to continue to see that demand as we go forward. I think, the 140 basis point improvement on gross margins from the first quarter is significant, and I want to make sure that you understood what Raul said, when he said that we expect to continue to have sequential growth in gross margins through the balance of this year. Now, we’ll explain a little bit further in a moment about why we’re kind of lowering a little bit. But again, I think, that you would agree, I hope that you would agree that there really aren’t any multiples put on gross margins, it’s one of the factors to show that you can bring more to the bottom line. But I think the $10 million in the first quarter, $10 million in the second quarter, and the fact that I believe the consensus number on earnings was $0.40. So we beat the top, we beat the bottom. We’ve had nice improvement in the gross margins. But as we look forward, there’s a bunch of opportunities and other issues on business we think is important and will have a long-term effect on the business positively that we need to be involved in, so we’ll come back to that in just a moment. So I think overall, the financial performance in my view is satisfactory. In fact, I think, as I mentioned, we beat top and bottom line numbers. So let’s go on if we could for a minute and talk about some other recent developments. These are not what I’ll call material issues, but a few little things that will be of interest to you. You’re all familiar, of course, with the NinePoint agreement, and we’re already starting to see the benefits of NinePoint Medical and that OCT Technology along with our sales force, and you’ll see for the quarter and for the year that our revenues now have made a very, very nice move in terms of the growth in the business, and we expect to continue to see this. They are playing off each other very, very, very well, and we’ve closed some recent accounts at Mass General, the VA in Houston, and other accounts where we’re getting the benefit of this technology along with Merit’s existing products. Merit recently purchased the asset or the distribution rights from a company called DirectACCESS. And these assets or these products, which are approved and in the marketplace for the high pressure PTA balloons are used specifically when you’re doing work with fistulas, where you have blockages and you need to open up the areas around the anastomosis. It’s a business of about $2.5 million or $3 million. They really had a very, very small sales force, a couple of people working through distributors and that will now go into our entire peripheral sales force along with a number of other complementary products that go along with it. So we’re excited about that. And then we became the exclusive worldwide distributor for the Q50 PLUS Stent Graft Balloon. And this is a product that we buy from QXMédical. It has above average gross margins corporate average. It was being sold by a third-party, one of the larger companies who decided to either bring it in-house or have somebody else produce it. They’ve been selling it for nine years. It’s well accepted in the marketplace. I’m not aware that there’s a lot of international business. But with our footprint, we think that we can do a nice job and we’re already seeing this business play out very nicely. The other business was doing by our record is about $6.5 million to $7 million a year. And again, our goal is to go out and meet the needs of existing customers who can’t get that product any longer and who are buying it from us. So these are things that fit into our long-term strategy and we’re very excited about it. I want to talk for a minute about the legacy products and some further color on tenders. We recently participated in a tender in the Middle East. Last year, that tender was about $1.5 of business. This year, we received rights or, at least, opportunity for $6.75 million. Now that’s a significant opportunity. And in these tenders, being present, having your products in place is really significant for the long-term. Again, these are the legacy products. You might get a little bit lower gross margins, but we think that it’s better to do that than have to establish the business for other products like, for instance, the HeRO other than that are high margins, but having a presence there is important. So again, we have modified our gross margins and lowered them simply because we believe having these opportunities are important for the business over the intermediate long-term. And I think that your – if you really understand this and I’m trying to do that, that you’ll find – that you’ll agree that, as I mentioned earlier, that that top line and then the ability to maintain those expenses in the middle are very, very important. So I want to assure everybody of our discipline that everything is in place that we’re committed to growing the business. I think, you all know that. But I think in some ways it’s been a gross margin story and that’s all it’s been. And I don’t think that’s the proper way to look at it. At the same time, we’re not abandoning our gross margin goals, we just think there’s a mix. Now Raul I’m going to ask maybe if you want to add just maybe a little color to this just from an accounting point of view, because there are some cost and expenses in there. Why don’t you speak to this?

Yes, I just think the mix has changed and so we need to adjust our margin because of that. We’re also seeing some additional costs like shipping and labor costs and that are impacting our margin as we look forward. And we have some opportunities to – on a customer that you’re going talk or a competitor that you’re going to talk about that will impact that, too. So as we look forward, we just want to make sure that we got it properly and then move. We’re just people understand what’s going on.

So let me move to that then with those comments and that is that, there has been a disruption in the marketplace. I want to go back a few years to a previous disruption. And I think there was a lot of concern about well, how much of this you’re going to get and then are you going to be able to keep it. It’s really interesting to note that that business grew very nicely and then it kind of topped out interestingly enough, instead of going down, it actually continued its growth. I believe last year was up 18% or 19%. And for the first six months of the year, this year, the Impress catheters, which were part of that recall that you’re all aware of have now grown over 21%. And we expect that to continue and very likely to accelerate as we look at that product line. So I think in some ways, as someone mentioned, which they – this is somewhat the straw. And by that I mean, this particular competitor, which is a great company, but they’ve stubbed their toe. And the interesting part for Merit is this covers our microcatheters, we have three or four of them, a new one recently introduced called the Pursue, which you’ll be hearing more about in the future along with a SwiftNINJA and the Maestro. It affects our sheet business and not just the new IDeal or the EASE, but even the ones that Merit has been selling for a very long time for over 15 years. There’s a huge disruption and we’re seeing demand globally. We’re seeing it for our Guide Wires, our Hydrophilic Guide Wires. Along with those Guide Wires, we’re also seeing uptake for our InQwire guide wires. We’ve seen these radio sheets that I’ve mentioned also pick up the Sync business. So literally, the closure product that Merit introduced some six months ago has almost tripled in demand just in the last few weeks. Now in the first quarter or – excuse me, second quarter, there were only about two weeks of this disruption. This quarter, this summer quarter we’ll see that and I think was appropriate. There’s some of this disruption in this improved forecast. But I think we’ve also been very conservative like we were with Cook. You will recall, we said that it would – we think it could be this or that and we’ll update you. I will tell you that business is robust. All a number of our factories in Texas, in Ireland and Salt Lake City are literally working 24 hours a day and working weekends over time. We are very, very, very busy in our entire business. It’s not just this disruption, well, it covers a lot of products. So as time goes on, we will keep you briefed. You’ll see the results of that in the third quarter report and it’s an significant opportunity for Merit and so all of our products. So I think, there’s enough said about that. And – but that being said, listen, the great quarter revenues, earnings, a slight adjustment because of mix and some other issues and now we’re going to turn some time over we’ve talked a little bit about guidance, but I want to get specific about that. And Raul, why don’t go through our guidance and maybe a little color on where we’re going?

Yes, I’ll just recap it real quick. So everybody has the opportunity here. Our revised revenue is between $870 million to $880 million, a 20% to 21% increase over the reported revenue of 2017. Gross margin on a GAAP basis will be between 45% and 45.5% and gross margin on a non-GAAP basis will be between 40.9% and 49.4% and 80 to 130 basis point improvement over 2017. On the earning side, EPS GAAP will range between $0.80 to $0.20 for 2018. On a non-GAAP basis, the range will be between $1.60 and $1.70. For our tax rate, we are still forecasting our rate to be between 25% to 27% for the back-half of 2018. Fred?

Well, listen, I think by any measure, the business is growing extraordinarily. I mean, it’s doing well. It’s robust. We’re busy, it’s a summer quarter. Generally in the summer, we guide down. I think most of the consensus is guiding down and we’re going to leave it there. But depending on how all this other stuff works out, it will be interesting to look at this third quarter report. Well, listen, I think we’ve covered it. Revenues, opportunities, we haven’t talked about new product pipeline, but there it’s full and new products coming out. Our distribution globally is a huge advantage. I know everybody gets all round up about tariffs and this and that and we’ve chosen to ignore all of this. Our customers want our products. We have the capability to produce them. It’s all hands on deck and we’ll look forward – first of all of answering your questions on this quarter and we’ll look forward in the subsequent quarters of reporting the numbers to you. Again, thank you for your time. And I think what we’ll do now is turn the time back over to our administrator and we’ll take your calls, as well as Raul and I will be here for a couple hours after to make clarifications not to add any new information, but to make clarifications on the data that’s in our press release. With that said, let’s turn it back over to the administrator.

[Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.

Good afternoon. Can you hear me?

We can, Jim. How are you?

Good, good. Good to hear from you. Just you start right out with the issue you brought up towards the end about some production issues at one of your competitors. If I look at Slide 14 of your deck, it looks like that has affected the microcatheters, the catheters, and the compression devices. And so just couple of questions. First, can you confirm was that Terumo, that competitor?

The answer is, yes.

Okay. And do you have any sense on how much business they’re doing with those products?

Yes. Jim, listen, this is – it reminds me a lot of the Cook situation. However, in this situation, as you look at both Slides 13 and 14, you’ll see that this covers a number of Merit products from Guidewires to sheaths to microcatheters, closure devices, and so on and so forth. So, they made an announcement or they talked to – sendt a letter out to their customers. They – in that letter, they actually referred them to Merit, or customers to Merit. They’ve talked about being back on the market in a press release, publicly stated in August. But what we’re seeing, I’m just telling you what the – you asked the question, I’ll tell you that, the – our best guesstimate, and this is just a guesstimate. There’s about a $0.5 billion worth of market opportunity out there. Merit is currently doing about $50 million in these products. And I would just simply say that there’s a lot of -- I will tell you from what I’m seeing and what’s on the order desk and the activities globally, and I think that goes back to -- one of the issues on margins and the things that we wanted to be cautious about, we have to fill a global pipeline here. So we’re seeing it in Europe, we’re seeing it in Australia, we see it in Canada, we’re seeing it in Brazil, and everywhere. And so we have to fill those. Like any of these situations, it’s my belief that what this really helps to create is an opportunity, where ideas in the past of having a single source, I think, are really old ideas. Hospitals have to make sure they can treat patients and have to be able to deliver those products, it’s in my belief. Merit – there a number of people who have bits and pieces of these products, but Merit has the broadest product line in my estimation for the ability to fill these needs globally. So, we essentially have everything that’s on that list of products to fill, whether it would be and some of these, by the way, the Impress Catheters, but it really goes to the hydrophilic catheters, closure devices, microcatheters, and the big one is the sheaths and Guidewires. So it’s the biggest opportunity that very candidly I’ve ever seen in the 37 years I’ve been in this business. And I think once that window is open, it will help us across the board globally. So we are – I think I use the term I have a guy sitting in the room from the Navy. And when I said all hands on deck, he got all fired up and was giving me thumbs up. But we have another way to say it in the army, but we’ll say with the Navy terms, all hands are on deck and we’re very, very busy out here, Jim.

So if you look, you beat the quarter by about $10 million in revenue. You raised your guidance by about $30 million. So should I assume that delta – the bulk of that is related to this production issue?

Yes. Actually, I think, I’m looking at the numbers here, but I think the guidance number, Raul, is confirming this. I don’t think it’s $30 million for the balance of the year, it’s less than that, Jim. But let me go to say that it’s a summer quarter, and summer quarters, as you know, can be interesting. But with the momentum we’re seeing, there is part of that that’s in that number. And so, Raul, before I go to that what is it?

You are just comparing to it the prior year, I believe is what you said.

Oh, you’re looking at prior year, okay. Yes, we’re just talking square I think for the balance of the year, we put about another $16 million or so in our forecast.

Yes.

So then, I think you’re asking, if we did 10-10 and then to the last half of the year, you say, you’re going to do the same, does that late lead to any upside? And the answer is, if this continues to play the latest trade now for a month-and-a-half, then I suppose that’s where the upside opportunity is. But again, it’s – our forecast, it’s one of the new, but I think that there is upside even to that. But again, it’s always hard for me to raise things into a summer quarter just gives it so unpredictable. This one though is a little bit different from anyone we’ve ever seen. So I don’t know how I’ll answer to you, Jim. I’m going to say that there is not a whole lot in the second-half of the year that’s really attributable, there are some, but not a whole lot. But I think that’s where the upside will come if it materializes. [Multiple Speakers]

So you indicated this is about $500 million market, you’re doing about $15 million in revenue, so you have about 10% on the market. Where do you think that number can grow to?

Boy, that’s a tough question. Listen, if there are $25 million to $50 million worth of opportunity for us on an annual basis looking out a full-year, and the answer is, yes. Is it more than that, less than that? If I were just looking at it. and and we’ve had the benefit of looking at this now for about a month-and-a-half. It really depends on how quickly they can fill the pipeline. Again, but much like other situations, we’ve seen – they’ve already extended out a month beyond what they originally said. But I think maybe the more important issue is not what they do. I think that, as I mentioned, I think they stubbed their toe and the opportunity will be for us to go in and show that we have options. We have microcatheters, we have devices, we have the sheaths. And fortunately, for us, we have the PreludeEASE and we have the Prelude Ideal. So these are the best-in-class. So, we don’t just have other products. We have great products to compete here, and I think it’s going to make a huge difference. And by the way, these are our existing customers, but it really opens up the opportunities in a lot of areas for us, Jim. So it’s a great opportunity. But again, much like the – because we’re trying to restrain ourselves, but we’re really busy.

And you think your have capacity to be able to handle it?

Yes, that’s another really – geez, Jim, come on, give me a break. So listen, we’re putting additional capacity in place already. We are already in order to meet the demand working over time, but you have to fill the front end of it with raw materials, you have – and you have to move these products out. And like I said, in Texas, in Ireland, in Salt Lake City, it’s all hands on deck, and we’ll be able to meet. Now we have other competitors out there who are also trying to meet the needs. But some of them might just have a catheter or a wire, but I don’t believe there’s anybody else out there that have the mix and the breadth of product line that Merit has. So I can say, I think with reasonable confidence that Merit is going to be the big benefactor here. We simply have the goods. And again, if you look at our slide deck on our website, I think, it’ll become very apparent to you about what the opportunity is for Merit products.

All right. Well, it sounds like you’ve got a lot of work to do, Fred, for what you go?

Yes. All right, Jim. Hey, good to hear your voice. Thank you.

Thank you.

Thank you. And our next question comes from the line of Bruce Nudell with SunTrust. Your line is now open.

Oh, good afternoon. Thanks for taking the question. Say, Fred, the guide increases $20 million to $30 million on the year, and I know some of that occurred this quarter. But what remains and you threw our some numbers for the distribution agreements, as well as the Middle East tender, as well as the potential for retaining – garnering and retaining share from Terumo and some was undoubtedly organic strength. Could you just a portion how much the raise and the guide is to those various factors, organic spread, the supplier woes, the inorganic ads through distribution, and the Middle East tender?

Yes. Let me start with the deals that we talked about. You probably have seen in the last half of the year, $3 million to $4 million, that would be my guesstimate for those ad-ons. Again, we’re already halfway through the year. Some of that business is in place. By the way, this will go in general growth, not organic. So I think that’s one thing I want to clarify that there will be an overall growth and not the organic side. On the distributors and by that I mean, the tenders and things like this, those are all delivered – are scheduled to be delivered during this year. That’s just again incremental business where we’ve had in the past. However, a few years ago when oil prices were dropping, we had orders like that and they canceled the moving into the following year. I don’t anticipate that that will happen, but these things are always interesting to watch and there are factors that come into play from time to time. If I would look at it today based on what I see economically and with oil prices, all of that should be delivered before the end of the year. So I think first – so that’s the distributors, that’s the other amount doesn’t leave a whole lot more. We take just a look at organic growth and then you take a look at this opportunity. So again and listen, there’s no question that our forecast in my view is conservative. But again, remember, we’re going to enter this into a summer quarter. And last year, I think, we missed it by a couple of million dollars. So we have not put a lot of this opportunity into the balance of the year. There are some additional costs, as I said. You’ve got some of these are new products. So they’re ramping up and they’re not at full margin, but all of this business helps us. I mentioned one about the Sync. The Sync is a product that’s not part of this recall or excuse me, it’s not a recall, I’m sorry, I misstated that, but it’s a shortage. But the Sync goes with every one of the sheaths that are part of this issue. And that has just – so we’ve added additional capacity. Fortunately, we saw a lot of this coming just for general demand for the product. We saw – so we had planned on the IDeal and the Sync to be big growers this year simply, because they’ve better products than our competitors. And fortunately, equipment and these things were already in place, but still has to be brought online. So again, not very much from this. And we’ll keep you – we’ll keep everybody briefed on this. I mean, I wish we could almost give you a weekly report, because it’s that dynamic, but we can’t. So – but what I can say is from when it first started, it’s accelerating. I don’t see it slowing down and the size of the market and the opportunity is substantial for Merit. And that’s the best way I can say it and we’ll just have to let it play out and report it, but that’s the best I can do.

And Fred, like when you look at the valuation of the company, you guys clearly outperform on the sales metric on a EBITDA metric, it’s been a work in progress. And just with valuation in mind, is there any lever that can be pulled next year now that you’ve laid the groundwork for these tenders and incremental sources of business, where you could kind of make up some of the lost margin progression that you volitionally gave up this year and maybe make up make a back up, so you can get back on the trajectory that you articulated before?

Yes. Well, and I think it’s a really good question and I appreciate it. Look, we were 140 basis points sequentially. And I think Raul pointed out that it was the first time that we’ve had consecutive quarters. We didn’t have a follow-up and it’s our commitment to continue to grow gross margins. And I think to be very candid with you that as these products come on and absorb and we start to see more and more…

Overheads.

…yes, overhead covered, variances, as I think, we call them here. Those are all going to flow and once you pay those bills. So I think that we have to hire people. So I’m just giving you an example. I mean, we hired 32 new people today. We hired 40 new people in Ireland last week just in those two plants just in one week to keep up with this demand. So if you look at that sort of stuff, you’re going to have these. But would we not do that and not take advantage with the opportunity, the answer is, of course, we would. So I do believe that with mix with absorption, with higher margin products and these – all of these products, because of the volume particularly in some of the new sheaths and those sorts of things and even the guide wires will absorb more and our margins will actually improve on these with these volumes. I mean, I think that’s the economics that we always look at is improvements in volume to absorb the overhead. So the answer to your question is, yes, I do believe that we’ll see continued gross margin improvement and that’s our goal. I mean, we know that that’s what everybody’s concerned about. On the other side of a coin and I pointed this out in my earlier remarks, we can get higher gross margins and not worry about revenues. Is that the right thing for the business? Sure, looks nice for a short period of time. This is a growth business. This is a business that is managed professionally. We’ll control those below the line expenses and we will continue to deliver in my view above the average performance in earnings. So again, tomorrow morning everybody’s going to be sweating this stuff and that’s your job. My business and my job is to do all of these things, grow that top line and I think we did an extraordinary job to continue to manage, lowering of costs and improvements and efficiency and then bring those bottom line numbers and look for the future to make sure that it’s not just last year or this year, but into the future. So I know, again, the passage you’ve looked at this is a long answer, but people said oh, well, they can do this, but they can’t do that. The answer is, we can do all of it and we will continue to do that, that’s our commitment. Everybody sitting in this room and they know what we need to do. But you don’t have opportunities like this pop up very often and you’ve also have us. And I don’t want to – you’ve had FX. So looking at the latter half of the year, we’re going to get really no benefit as we look at it to maybe $2 million down on FX. On the front-end of the year I believe we had almost $9 million of positive FX. So we try to account for that and say okay, that helped us. It might be flat and slightly down in the latter-half. We don’t know, but that’s how we’ve done it in our forecast. You’ve got increased expenses and labor. We have a 3.1% of unemployment this and you’re familiar with all of these. You have the cost of fuel. All of that being said, we believe that the momentum of the business, the acceptance of Merit products overrides all of this and will give us the returns that that we’re excited about reporting as we look forward, Bruce.

So much, Fred. Have a good day.

Okay. So thank you.

Thank you. And our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open.

Good afternoon and thanks for taking the question. Congrats on the strong quarter and Raul congratulations on the promotion.

All right. Thank you, Larry.

Hey, on the organic growth guidance of 7.5% to 8.5%, I didn’t hear an update on that. Would – did you raise that, Raul?

Yes, it’s going to be 10% to 11%.

So the new guidance is 10% to 11% organic. So that’s excluding currency and excluding M&A, is that correct?

That’s right, core growth on a constant currency basis.

That’s helpful.

Yes, so you’ve gotten it.

So year-to-date, by my math, that was about 8.5%, Raul. And so you’re implying a pretty big acceleration in the second-half. Is that fair?

That’s fair.

Okay. And Fred, I hate to come back to this, but the Terumo contribution in the guidance. I mean, as you threw out a number Fred of $16 million, I think earlier there were lot of moving parts here on these new distribution agreements to tenders. Is that the right way to think about how much you’re assuming in the second-half benefits from Terumo, or did I miss here. I’m just trying to get a little bit more precise?

Yes. So again, in our last-half of the year, we raised guidance by about $16 million. Some of that are these distribution deals, it’s not a big part of it. Some of it are some tenders. Some of that is just our standard growth. But listen, Larry, I mean, we did $20 million in the first-half growth above our forecast. We’re seeing $16 million in the back and we’ve got this opportunity not just for this product, but our new products that we’re introducing. That’s what the upside comes from. Again, we’re just trying to be conservative and not get out there too far and say okay, I mean, I don’t know how to say it other than that because…

The past two weeks of visibility.

Yes, we have – we had two weeks in the quarter and we’ve got almost a month here. And looking at this, I mean, it’s fair to say that I mean, we’re ramping. We’ve got people we’ve hired. So we’re not doing that, because we think it’s a fluke or short-term. That being said, it had to materialize and I have to have a number. So I’m not going to come out and say, it could be $25 million this year. On the other hand, that’s where the upside comes, I think, for the balance of the year. So we see strong grow, stronger organic growth. And all of this other stuff, we’re not defining it maybe as much as you’d like us to, because we don’t want to be wrong. But listen, from what I’m seeing every day and I have watched this now for about 30 business days, it just keeps accelerating and we’re also then seeing those customers that with the original orders much like reordering, and that’s the business we’re in, as we meet customer needs and that’s what we’re seeing. So if it – I mean, I’ll say this that if it gets to a point where we have to adjust it, we’ll do that, because I don’t want to be getting to the end of the next quarter and have something that it’s a way out of – we blew it out. On the other side of the coin, it’s summer, Larry, it’s summer and you never know what to expect. But I’ll tell you what looking at July and the momentum that we’re in, it’s an exciting time for the company. That’s the best way I can say it. And as it continue to materialize, we will do our best to keep shareholders informed.

That’s helpful. And then I did have – so what are you assuming, Fred, on when they’ll be back to the market, one question on Q2. Did you see a benefit from to remind Q2 when you’re assuming that will come back to the market? And that’s it for me. Thanks for taking the questions.

Yes. Thanks, Larry. So we only had a couple of weeks. The last two weeks of the quarter, they started popping up. We saw we have some business from there. Of course, it’s continued to accelerate almost every day since that time. Now what I said originally is they will be back in July. That changed to August. But as these things generally go, they have a tendency, and I’m talking about Merit’s own experience. They have a tendency to take longer than you think they do. So – but listen, if it stopped next week or a month, the opportunity has still presented itself. Merit will continue to benefit from this for years.

Understood.

For years.

Thank you.

Okay.

Thanks for taking the questions.

You bet. Sure. Thank you.

Thank you. And our next question comes from the line of Matthew O’Brien with Piper Jaffray. Your line is now open. Matthew O’Brien: Afternoon. Thanks so much for taking the questions and I’d like to also add my congratulations to Raul on the permanent CFO position. Sorry, keep harping on this Fred. I’d like to kind of split the performance in the quarter or the question here between sort of the top line growth goes between both organic performance and what really drove that, which is really, really good, because you’ve raised that quite a bit. If you can just tease that out a little bit more? And then you think you said you hired 40 people in Ireland and 32 people this week. I think that was primarily for Terumo specifically, where those temps are permanent hires and doesn’t if they are either of them, I guess, what that kind of suggests that you’re thinking that the impact of that opportunity could be significant for the back-half of this year and then for years to come? If you can just talk a little bit more about how to kind of frame that up?

Okay. Let me start with the employment and then I’ll let Raul address the issue. Let me add one more to it, because not only is it in Salt Lake City where we had 32 new employees today and the new employees that we hired in Ireland. We’ve also hired new employees in Texas. So, the number is probably bigger than that. Generally, it depends on the area. We do hire, in fact, some temps from time to time, not a lot, but we do use it as a tool. But I will say this that because of the labor pool, where we’re looking for permanent employees all the time. And so the employment issue is one that we will use the temporary thing, like I said, but it’s a very small percentage, we’re looking full-time employees to work at Merit. Now on the – and as I pointed out this is what I believe, this is not just an opportunity for this month or next month or for the balance of the year. This is an opportunity for many, many years to come. Why? Why do I say that? And the answer is – and I made comments earlier about this, but to maybe reconfirm those. Hospitals realize they cannot allow themselves to get into a position just to rely on one party. If you do that, listen, in manufacturing, you have to have alternative vendors. You have to have backup plan A, B and C. And hospitals I think are going to figure out that after the court situation and with this that they have to rethink what they’re doing and that’s what I believe this is a long-term situation, where people don’t have to think about their sources and how do they make sure they can treat patients. So it’s a long-term opportunity. Now, Raul, I’m going to let you talk a little bit about where the organic products came from. Do you want to go ahead and address that?

Yes, we really thought across all regions. If you look worldwide dealers was up, like we mentioned, what was that? Worldwide dealers was up 22.5%, year-on-year, it was up 10.5%, OEM was up 11.5%. So across all regions, we’re seeing a lot of strong sales on the products, organic constant currency, some of the contributors were in catheters saw 19%. EP, we covered likes. As you remember, last quarter it was kind of flattened. This quarter, it’s 17.3%. Inflation devices were up 13% and standalone devices were up 13.5%. So really we’re seeing it across all product lines and across all regions.

Well, and I should also mention, Matt, that our business for catheteror connections are up about 46% this year. Our business is up on our Argon critical care business. So our business is up essentially as Raul pointed out across the Board. So yes, it’s everywhere. And a couple of you guys, I have to make an apology here to Raul. Over the weekend, Raul was appointed as our Chief Financial Officer in the interim went away. It was a unanimous decision by the Board and I think it was – and it was one that I supported as one. In fact, it’s one that I recommended. So just so we can get that, I think, it’s in our 8-K today and you’ll see it there, so that we have that all cleared up. So, Matt, does that answer your question? Matthew O’Brien: Yes, very helpful. And as my second question just you’ve guided down about 100 basis points here on the gross margin line. And I’m afraid that you’re thinking about top line growth and driving things there makes total sense to me and we’re seeing it on the organic side. But can you just maybe you or Raul just tease out where that 100 basis point guide on for the year comes from be it the tenders or I’m sorry, the stocking that you got in the Middle East or the additional labor and shipping costs. And then as we think forward on the three-year outlook for the business, you committed to 100 to 150 basis point improvement in that metric. Is that still on the table? Thank you.

Yes. Let me just weight in this a little bit before, Raul there. So I want to make sure, because it’s the second time if I were to say the three-year plan. That was the original plan and we added two years, not three. And we said that our goal was to grow the business 7% to 9% go gross margin by 100 to 150 and grow the bottom line 13% to 15%. So both of those goals and we thought it was the appropriate thing to do to extend those out. Well, now we see these opportunities come up and, of course, nothing stays the same. I mean nobody thought that oil prices would be up $70 a barrel and those are labor costs. Those are legitimate issues in all of our facilities worldwide and they’ll continue to b. So I should say that we’ll continue to move additional product lines to Mexico. We’ll continue to bring more and more automation in and do those sorts of things to drive margins, but Raul why don’t you go ahead and let you take it from there.

Yes, Matt, I think it’s easier to talk about it on a yearly basis. So basically, what we’re guiding now is 80 to 130 basis improvement year-over-year. And we see about 20 to 60 coming from organic, essentially manufacturing efficiency. And then the remainder is going to be 60, 70 basis points from the biopsy and drainage. And that includes some of the integration expenses. So we’re netting that down a little bit. We previously had guided about 60 to 120, 130 basis points there. So we’re bringing that down based on some of the integration expenses that we’ve had. And then some of the expenses that we see in the fourth quarter as we start to manufacture our own product. Hope you got it. Matthew O’Brien: Okay. But just to be – yes, it’s very helpful, Raul, I appreciate it. But just to be specific on the out – the outward year, should we still think about the gross margin improving versus this year close to that 100 basis point level or something below that?

It will be our goal to have our gross margins at that level, yes.

Yes, we’re not shying away from that. I think we’ve said it several times.

Yes, I think that’s really important that it’s not the end of the parade here. Matthew O’Brien: Yes.

This is – there’s a lot more to go. There’s again, once these products and the sales, we get the efficiencies of manufacturing these products and get those costs out and don’t have to pay overtime, don’t have to. I mean, we’re literally shipping product guys almost every day by air all over the world. I mean, we normally would put it on the sea or there’d be a weekly. But in order to take advantage of the opportunity, we’re spending the money and that’s going to cost money. That being said, I want to remind you, we’re going to be up sequentially next quarter gross margins and the following quarter. So we will continue to move even though we have these and what’s helping us there is what these top line and the upside is the opportunity. So that’s the best way I can explain it. Matthew O’Brien: Got it. Thank you so much.

Okay.

No problem.

Good to hear your voice. Thank you, sir.

Thank you. And our next question comes from the line of Jason Mills with Canaccord Genuity. Your line is now open.

Hi, Fred. Hi, Raul, thanks for taking the question. Can you hear me, okay?

We can, sir. Thank you.

So congratulations on a great quarter obviously. I’m just adding my $0.02, Fred. So we’re all asking about revenue and gross margins separately. And in parts of the call, you talked about the revenue growth, Fred, the organic core revenue growth expectation has increased markedly. You’re still expecting gross margin expansion just maybe not quite as much. And I think we all understand that. So perhaps that’s – if you could Fred talk about gross profit dollars, because obviously, that will combine the two. And what I’m hearing just back to the envelope math is that, your expectations for great profit dollar growth has increased markedly perhaps even as much as 300 basis points over what you were expecting before this quarter if we took your prior core revenue growth guidance and your prior gross margin guidance? And I’d like maybe, Raul, if you could level certainly on those numbers and if you indeed are thinking about over the next couple of years your business in those terms in terms of gross profit dollar growth, which will balance both the opportunities you hope to capture on the top line and the gross margin expectations you have to see expansion, but perhaps not quite as much as you thought before. However, at the end of the day, your gross profit dollar growth expectations seem to have moved up. Could you talk a little bit about that?

Hey. Jason, I think you said it best. I mean, we see that too the gross profit dollars are definitely there. It’s just the percentage won’t be there. So I agree with you. I don’t think there’s much more I can add other than that we expect those gross margin dollars to be there. And also I’d like to point out that we expect to be operating – our gross margin should be operating in the range that we had previously provided. So that 49.7 to 50.8, we expect the back-half of that of the year to be operating around those areas. And you’re right, we’re getting the gross margin dollars.

Okay, got it. And Fred, I want to go back to that statement you made about Merit will benefit from this competitive issue for several years. Could you talk about that a little bit more, because that’s interesting, right? And we’re just – you’re not seeing it, you’re not expecting to just see it for a couple of months that notwithstanding Terumo has talked about being back in July now August and even if it’s September, they’re going to come back. It sounds like that’s your expectation, that’s going to come back what month doesn’t really matter or seem to matter to the comment you made about benefiting from this for several years. So help us understand a little bit more about how you think that’s going to benefit you over the next couple of years? I know you said if I could caveat just a little bit more that hospitals may move away from single source to multi-source maybe you could give us a bit more granularity there in terms of what geographies you’ve seen single source being used most often and perhaps you could explain to us whether or not those are the areas that you expect to see the greatest growth those geographies in particular, because it seems like in the United States, hospitals are clearly sophisticated and have been for a while with respect to dual sourcing a lot of products. So maybe you could just give us a bit more color there?

Well, I’m going to start with your last comment, because I think there is, in fact, a lack of sophistication in the United States. This is again personal opinion. I mean, when you saw the situation with Cook, there – they really weren’t set up. There were single source opportunities there, that’s changed. So and when you have buying groups that are looking to try to make value propositions, they drive a lot of this type of stuff. I think, again, if you’re a hospital administrator, in fact, we have a couple of members of our Board that have been a Chair people of two hospital systems here near in Mt. West. And as we talk to them and talk about these issues, I think, more and more people are thinking wait a second, who are the two top players here and who can provide the product. So I just can’t give the credit to the systems, because there are a lot of other factors like buying groups, BPOs and so on so forth that play into that. But I want to go back to maybe some comments that are on the radio revolution that we’ve talked about for a long time. And if you look back in Europe as you’re well aware, we have radio procedures in many cases can be up to 80%, in some countries up to 90%. That situation started growing. I was told that was not five or six years ago what it was 5%. And I said, this will grow to 80%, that has come out and it’s important that these procedures are less expensive into the thousands of dollars and you have better mobility and maybe more important the customer preference is to have something where you’re not messing around with somebody is going. Those are the facts of the marketplace and we’ve continued to see that. Many of the products that are part of this are in fact products that are radio. But what we’ve seen is, it’s starting to spill over to all of our standard sheaths. It’s spilling over not to just to guide wires that are hydrophilic, but all of our guide wires. Now again, it’s early, but we’re starting to see those kinds of trends, but here’s the bottom line. If you look at the PreludeEASE and the Prelude Ideal, those are products that in my view are better. We’ve been told by physicians, they’re better than the Terumo products. And Terumo is a great company. So in my view, it’s having a better product, but the opportunity to show the product. If that’s how it’s selling is you’ve got to have a center you put in the door, once you’re there, you can show how you can solve problems and how you can broaden the product offering. So I think it has to do with on Slide 13 on our website. If you look at this, I think, it’s compelling and supports the argument. You take a look at the sheaths, you take a look at the guide wires, you take a look at the microcatheters, this includes the SwiftNINJA. I mentioned that we have the new Pursue and we have the Maestro. So all of these we are doing everything we can to meet this demand. And then we throw some of these things outside of that like the Sync and the Impress hydrophilic. So it’s not just the Impress catheters, but Terumo has a big market share for hydrophilic diagnostic catheters, which get about a 3X pricing over your standard catheter. Those are also in this product. So again, it’s broad as an opportunity as I’ve ever seen. Now let’s talk about geography. I don’t want to get into tactics and strategies, but let me just say that people in their movement and trying to solve problems employee various types of tactics and strategies and so does Merit. We’re seeing, for instance, in Europe, a much higher demand for sheaths and guide wires than we are seeing in the U.S. Now in the U.S., we’re starting to see some of those trend, so people were moving around this is not an indictment of any sort, but people were trying to fill holes. And so initially, we saw this in Europe then we’ve seen it in the U.S., now we see it pretty well – pretty much everywhere. So we’re seeing it across the Board geographically and it started out with something being really strong and maybe even products moved, let’s say, we move products from time to time between, let’s say, the U.S. if we have shortages we’ll move products to fill those need to say in Europe or in China. So we’re seeing some very interesting issues fortunately for Merit. We have manufacturing these locations and we have this broad product line. So it’s changing daily and we see shortages and we see new things pop up that weren’t as hot before. But what it tells me, as you look across, they’re doing the best they can to manage their business with what inventories they have. I don’t know when they get back, but I’ll stand by what I said. This is something that’s going to be beneficial to Merit for years to come, because we now – it’s like the kid that’s sitting on the bench. Remember that guy by the name of Lou Gehrig, he was sitting on the bench Monday a guy couldn’t play and then Lou Gehrig played that for the rest of his career. And I think this is something like that where now the new kids on the block are formidable. We have the product, we have the breadth add something out. I’m sorry to keep going on with this stuff. But I had someone to say that we have the day, Jason. I understand your business for the first time. Well, this is a guy that’s owned the Merit stock and been involved for 15 years. And so I thought, we got a bad job if you’re just trying to figure it out. He said when I look at this and compare it against that, I can now see why all these little things that you did really add up to something big. And so if anything, I think, there’s better knowledge of the breadth and the strategy that Merit has employed for its corporate history of building out product lines and that is the benefit of time. Merit has taken the time to build the business and build it correctly. And so when something like this pops up, we’re ready to respond to it and not very many can, not like we can, but just don’t have the breadth of products that we do. So that’s the best way I can answer your question.

Thank you. And our next question comes from the line of Jayson Bedford with Raymond James. Your line is now open.

Hi, good afternoon and congrats on the success. Just a couple of questions they realized we’re bumping up against time here. But just to come back to 2Q sales competitor recall occurred in late June you talked about the impact on the business accelerating. I’m still little unclear as to the impact in 2Q. Was there a material impact on revenue in 2Q from those competitive dynamic?

Yes, first of all it wasn’t a recall it’s called a shortage. Or unavailable. So we’re not aware that there’s a recall so I want to make that clear. We saw up the last couple of weeks it had no material impact on the quarter whatsoever they were just stopped there. But it started the tide started rolling so to speak. And then it just continues to accelerate essentially every day since. So where are the selling party getting reorders and new orders. So you’ll see the effect of it of course a big effect of it in this quarter and going forward.

Okay And just to be clear if in two weeks your competitor comes back to market with whole supply you’re still comfortable with the guidance you laid out?

Yes and first of all they said they will be back in August I think it’s the end but everything that plays with my staff and said on the 1 of August it’s the end of August. So and I don’t even know if they will come back, but it really won’t make any difference we’re very, very comfortable. And I think that’s the thing we try to do Jason if they look. Here’s what we see I have my own personal view on this. We’re staffing because as I mentioned this is in my view a long-term opportunity. And we’ll see benefits for this for years to come. Not just for weeks to come.

Okay that’s helpful. And then just finally for me. What’s the expected revenue contribution from the acquired DD assets it looks like acquired revenue came in a bit higher than we were expecting in 2Q. Just out of curiosity how is that business tracking and have your expectations changed for that contribution in 2018?

Well go ahead Raul.

Yes it’s $40 million to $43 million now that’s what we’re seeing for the year. I think we have previously disclosed 38, 42. So just to give you a general idea.

Great, thank you.

Okay. Thanks Jason.

Thank you. And our next question comes from the line of Mike Petusky with Barrington Research. Your line is now open.

Hi, good evening, guys.

Hey, Mike.

Hi, thanks for taking all the time tonight and…

Thank you for your patience.

Sure, sure. So I just briefly want to touch again on gross margin and really specifically dialing in on sort of the second-half guidance and the sequential growth that you guys see there, which to me, it needs to be fairly material from versus the first-half to even get to the lower-end of your full-year guidance. And I guess, just if you could walk me through just real quickly the two or three things that sort of drive that sequential improvement in the third and fourth quarters?

Yes, it’s going to be obviously the biopsy and drainage product line.

Yes.

It will be manufacturing efficiencies.

Yes.

We expect core manufacturing efficiencies, but as we discussed in a couple of headwinds that are going to slowdown just a little bit. And that that’s really what’s driving it.

Okay.

And again, we expect to be operating in the 49.7 to 50.8 range, I believe half of the year.

Okay. All right, great. And then, Raul, if you could just start dig in, in your cash flow statement there for D&A, stock comp and CapEx for the quarter, that really would be helpful? Oh, go ahead, if you have, that’s great.

17.5 on depreciation and amortization for Q2.

Yes.

And $1.6 million stock comp.

What about CapEx?

CapEx was $15 million.

Okay. All right, great. And then just one last question, Fred what’s – what can you say if you can say anything legal expense continues sort of a $1.5 here, $1.5 million there, starts to add up to real dollars. I’m just curious if you have any any update that you can share there or what you think?

My – I wish, I did nothing. I mean, we continue to comply whatever they ask for something and we’ve heard nothing. And that’s the whole truth and nothing, but the truth, there you go.

Okay. So no sense of when this might wrap, or it’s just open ended?

Yes.

Okay.

Yeas. It’s – yes, I mean, we could spend hours on this, but I have a few quiet.

Yes. There is probably wide for both of us. Okay, that’s all I had. Thank you.

Okay, all right. Thank you very much.

Sure.

Thank you. And our next question comes from the line of Mike Matson with Needham & Company. Your line is now open.

Hi, thanks for taking my question. I guess, Fred, you made a comment about guiding down for the summer quarter. I think, what you were talking about was the sequential revenue from Q2 to Q3, it’s normally down, I guess. But were you – it seems like you’re almost saying that that the revenues could be up from Q2 to Q3. I mean, am I interpreting your comments away there?

I think, historically, Mike, we have always guided down because of Europe and lot of places. I mean, I think, historically, it sounds. So we have always guided down. I think right now the guidance from the second quarter to the third quarter is what Raul?

$210

Okay, but what’s the number? I mean, we…

$210 million.

Okay, that’s for the – that’s our guidance.

No, that’s the Street.

Okay. So the point is, we almost always guide down. Now that being said, we have this opportunity in front of us and we’ll just have to see how that plays out. So the underwriting new guide – but we don’t guide quarterly.

We don’t guide by quarter, but….

Yes.

But we are saying that it’s going to – we expect to have lower sales than we did in Q2.

Yes.

Okay.

[Multiple Speakers] so, yes.

Historically, that’s what happened.

And historically what’s happened.

Okay, thanks. All right. And then, Raul, can you just comment on the integration expenses? So how much of that is included in the adjusted EPS number or adjusted margins, I guess? Can you maybe in terms of basis points basis points it will be helpful, either in terms of the gross margin or operating margin or are you stripping all that out from the adjusted numbers?

We’re stripping that up from the adjusted numbers. So that’s why it’s lower 60 to 70 basis points, right. So we’re seeing about approximately 30 basis points is what the impact is on margin. [Multiple Speakers]

30 basis points on a GAAP basis or on an adjusted basis?

Adjusted basis.

Okay. So there’s still 30 basis points in there from acquisition-related stuff?

That’s right.

Okay. All right. And then I just wanted to go back. F,red it sounds like you’re not too worried about the China potential trade war. But I just wanted to get maybe a little more detail there around your thinking on that? I know that I guess, there’s been some tariffs on devices coming back to the U.S., but I don’t think that that’s really the case with your supply chain. But what’s the risk that China puts tariffs on some of the products that you’re selling, I guess, or you making those on China locally?

Well, ass you know, Mike, because we were looking back here and we start talking about the border tax several what was that 18 months ago. I mean, I answered a lot of questions and the answer was I have no idea. What we’re not seeing anything that limits our ability to do business in China. They want to do joint ventures. They have preference to local, but that’s very different from where it’s been in the past. In fact, I believe, Joe, if this is correct that we not grow at about 30% last quarter, okay. So I mean, business continues to be very, very robust. I’ll also say that this situation that we’re talking about with a competitor actually helps us there as well, because I think in many cases, they prefer to do business with American companies. So I think there is opportunity for us to grow there as well. So, listen, we could spend a lot of time what else and what that. We just don’t see anything that’s affecting our business today. And that’s the best answer I can give, because that’s – we just don’t see anything. We read the news. We listen to the news like you guys do, but we just don’t see anything there affects our business at all at this point.

Okay. All right, that’s very helpful. I appreciate it. Thank you.

Okay.

Okay. Listen, ladies and gentlemen, this is a long call. I hope we have clarified, but let me just summarize by saying this. Revenues were up almost $10 million above, I think, consensus. It’s almost $20 million year-to-date. We believe that we have a lot of tailwinds. There are some headwinds, we talked about some expenses, labor. Please don’t overlook the cost of labor and fuel on the filling of the pipeline, those issues that are there. That being said, please do not forget our commitment to growing gross margins, maintaining the discipline in expenses. I mean, what’s been interesting on this call is nobody’s really asked about Becton, Dickinson, which has other than the one question and no one has really asked about the bottom line. Everybody is concentrating on all these other stuff. But please take a look at what this means. We’ve increased our bottom line and we think that there’s upside to a number of these issues based on the circumstances that we talk you about. If those all play out, then there’s going to be extraordinary opportunities for value here. So again, let’s keep our eye on the ball. We are, but let’s keep our eye on really the important things. And again, as I said in my comments, they don’t put multiples on gross margins. It’s important, please don’t misunderstand me, I’m not diminishing at. What I’m telling you is that we think that given this quarter to get through these expansions then it’s going to have a long-term positive effect on a business in addition to everything else we’re doing. I think when you listen 10% to 11% organic growth, that’s terrific. My staff is sitting here. I think it’s terrific. We’re making more money and we’ll continue to make more money. So I hope again, we’ll look at the reports and we appreciate all of the interest. Business is fine, it’s growing, it’s accelerating. We have tailwinds with just a slight breeze in our case. So that being said, I thank you for your time for your questions, an hour – almost an hour questions will be around. If you have any more as that yet we’re going to hear you guys out. So give us a call. We’re here and we’ll see if we can do to clarify. Thanks again for joining us and good night from Salt Lake City.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.