Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Merit Medical Systems Incorporated Fourth Quarter and Year End 2018 Earnings Conference 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] 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, please begin.

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos. I am joined here with our general staff in Salt Lake City and we want to thank you and appreciate your time this afternoon. I'd like to start our meeting today by asking Brian Lloyd, our General Counsel to 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. Some of these risks are identified in our press release and slide presentation distributed in connection with this call. 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 exclude some items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies.

Brian, thank you very much. And once again ladies and gentlemen, thank you for your time in joining us this afternoon. Well, it's an exciting day. It always is, as we get to this time to talk about our performance and our general thoughts. Today, we are going to discuss the fourth quarter and then we're going to talk about guidance. And we've done an added clarification on this year 2019 and then we've added 2020, but it's kind of a lead up to that discussion. And let me just talk to you about our business. Let me go first to some recent acquisitions, we'll talk about Cianna and Vascular Insights. Of course, Cianna is the largest acquisition Merit has ever made. And I would have to say that, to this point, we're very pleased with the transition. As you may recall, we kept the sales force in place for all intents and purposes, and we think that was not only the appropriate thing to do, but we think that it's part of what we expect will drive our business. And then we will add additional Merit sales people in territories as we move throughout the year. We also have a number of research and development projects moving forward there. And Vascular again a much smaller deal, but nevertheless, I think we're generally satisfied with the overall business. I think our performance, if I could just slip back for a moment. I think our fourth quarter was, I very excited about it. It was a very busy time because of the transactions, the transitions that we were involved in. So we were very, very busy. But I think the numbers speak for themselves. I'll let Raul in just a moment will talk about the significance of those numbers. And those…

Thank you, Fred. I think I'll cover the fourth quarter and the year-end real quick and then we'll move on to the 2019 guidance. If you're okay with it.

I'm fine.

Perfect. So revenue for the fourth quarter was approximately $233 million as reported, a 22% increase over the comparable period and approximately 13% on an organic constant currency basis. Acquired products contributed revenue of $19 million and we had FX headwinds of approximately $2 million. Full year 2018 revenues were approximately $883 million as reported, a 21% increase and just over 11% on an organic constant currency basis. Again, acquired products contributed revenue of $67 million and FX contribution of $5 million for the year. With all our divisions and most of our products and product lines contributing for both the quarter and the year. Moving on to gross margin. Our non GAAP gross margin for the quarter was 49.4% compared to 47.9% for the comparable period. During the quarter, we had a decrease of 44 basis points, due to FX headwinds and a decrease of 33 basis points from our Australia operational variances. That's a 150 basis point improvement from the comparable period. For the year, our non-GAAP gross margin was 48.9% compared to 48.1%, which is an 80 basis improvement over the year. We had a decrease included in that 27 basis points due the FX headwinds and a decrease of 25 basis points from our Australia variances and the integration of BD earlier in the year. Operating expenses both for the quarter and for the full year were in line with our expectation of 35%. Our tax rate on a GAAP basis for the quarter end and year end ended up at 24.7% and 15.2% on a GAAP basis. Tax rate on a non-GAAP basis for the quarter and year end ended up at 15.1% and 18.3% respectively. The reduced 2018 effective tax rate is primarily related to the reduced U.S. corporate tax rate, related Tax Reform…

Yeah. And this is something Raul that is everybody's going to have to deal with. And if I could add that listen there a lot of things out there going on here. We still have the Brexit deal that we think that we prepared for. We have the new MDR and I think we've estimated that's $3 million or $4 million of expense that we put into our numbers. It's just an uncertain world all the time. But what we are certain though is the momentum, the new products, just the overall efficiency in the business and the focus of our operational group. And I think the work that's coming out of our FP&A Group in terms of the discipline. And very candidly, you know, the ability to look and to watch the business and to make sure it's performing and that we're leaning it out, and you know, we're adding left rudder, right rudder, and I'm speaking in aircraft terms, but just making sure that we're on course. Now, we didn't talk about 2020. And I think you probably want to leave that to me, or do you want to take that one, Raul?

I'll let you take it.

Okay. So, you know, we're a couple of months into 2019 and I think we have, you know, pretty good you know, visibility, you know, when you take into account all the various issues that are out there. And we've decided that we'd add this additional year of 2020. And we essentially look at, again, a number of new products, our pipeline, our distribution, wholesale to retail, I mean, I could go through a number of things that we look at where we're comfortable on our 2020 of now saying that we believe that our revenue line on the top line will grow 8% to 10%. We will still sake 100 to 150 basis points of gross margin improvement. This is in addition to the step up that you're seeing this year. And then our bottom line will look at, I think, $0.14 to $0.19. And that's a little bit larger than you know - I mean, that's a change but that's where our guidance is this year and where we think. And I may have said cents, I meant to say percent. So thank you very much, so it's 14% to 19% on the bottom line. So listen, by any measurement in my view, this is an exciting time. Our businesses I said is very robust. I noticed that Raul said it was robust, I think if you can get the CEO saying very robust and the CFO saying robots that you have the right mix. We're excited about the businesses I think you can hear on this call. And I think - Raul, you want to add anything else, maybe I missed. You want anything else to what we said?

No, I just - we continue to see a lot of momentum in our business. You know we're very excited. I know the sales department is very excited. Cianna, there's a lot of excitement around that. I think there's just you know, yeah, these are looking pretty good.

Let me add just a little color on Cianna one more time. We've talked a lot about it on this call, or at least in these comments, but I had the opportunity a few weeks ago to actually scrub into a case and this was down in Dallas. And you know there's nothing quite like being on the battlefield and watching a skilled physician treat a patient. And I think this physician made a couple of comments about how important is technology was. I watched the physician, the surgeon use the Cianna probe at least 30 times as she was exercising a mass on this patient. And you know I became more convinced that this acquisition is an extraordinary opportunity for the company. And so I just want everybody know of our confidence in that. But I also want to make sure that as we look at the kind of a scorecard for last year, look at a standalone devices you know, up you know 33% almost 34%, custom kits, a little bit slower at seven. And that's one of the areas that we're not pushing. So those are the lower margin products. If you look at inflation devices, I think it's just very interesting to note that they were up almost 16% for the year. And we have a couple of new entries into the marketplace for Merit this year, and we believe that our market share is going to continue to grow in that particular area as we look forward. We look at catheters at 22%, and we look at our EP business at 16.5%. The only one that I think you know, maybe needs a little explanation is our Embolization devices. And these are things like our Embosphere and our QuadraSphere. And I think we've had a…

[Operator Instructions] Our first question or comment comes from the line of Matthew O'Brien from Piper Jaffray. Your line is open.

Afternoon, guys, thanks so much for taking the questions. Just for starters on Cianna, would love to hear a little bit more about the integration there, sales force retention, and do we think about that business adding, you know after you get through this year, something on the order of magnitude of 100 to 150 basis points of organic growth going forward? And then, you know, I am sorry for such a long winded question, but, you know, the rest of the business you know this year and next year would still have to be delivering quite a bit of growth. So, where does all that come from, is it emerging markets, you product introductions, et cetera?

Yeah, Matt, thank you very much. Well, there was a lot of stuff there. And I was pondering, you know, your question. On the Cianna business, the integration I think is going as well as to be expected. By that I mean, you know, we are spending a lot of time, I've been down there two or three times to Southern California. We had a team down there yesterday. You know, we've gone order to cash in terms of the sales force, you know, everybody is essentially still online. You know, we recently have President's Club and we invited their best producers to join us at that meeting. They joined us in all of our national meetings and international meetings. You know, I will tell you that when I was in Europe recently, you know, all the sales people over there were coming to me saying that they get two or three inquiries a week as to when will the product be available. You know we're expecting approval at any time, could be late this quarter, but very likely second quarter for the Cianna business, so that's important. So I think everything is working quite nicely. You know the R&D guys, there's - think on the administrative side, some of those physicians have turned over, those have been essentially voluntary where people who have worked in startup companies moved to another startup company. But in terms of the sales force, which ultimately in my view is the most important factor, we've essentially have no turnover in that particular area. I think that's a good start. As I mentioned, you know, when you get out in a procedure, and you see how the physician uses this product, this position said to me in Dallas that this was the greatest innovation in…

No, it's a long question. So I appreciate that Fred. And then as a follow-up question. Just you know, the top line outlook is great, the gross margin outlook is great, I mean, the bottom line outlook in total is great. But it does account for some higher either SG&A or R&D spending than I had modeled. So can you just help us understand where some of that extra spending comes from either those two line items?

Raul, you answer that.

Yeah, operating expenses are in line there about 35% for 2019. Interest expenses is in there too. So you might be picking that up, I'm not sure what the model there. But we do have some additional expenses that we - that I talked about in the guidance and that relates to NDR. We're moving the Malvern facility over to Mexico. We've got some new regulatory requirements, which I just mentioned, MDR and then we also have a clinical studies for us the WRAPSODY. So those are expenses that are being baked in into our guidance.

Yeah, Matt, if I could jump in on that, too. I mean, I think that we've always tried to say that as Merit makes this transition between, you know, the company that we have been in the past to these more therapeutic products that it takes more clinical support, it takes the studies on the R&D line and rather than miss or do this and that on those kinds of operating expenses, we've chosen that for the last several years to keep those maintain, so that we can put those types of structures, clinical training and those things and make sure that they're a priority. So again, what we're really focusing on is making sure that any acquisition we make is into one of our silos that it is you know, a product that helps to be, you know, an improvement in gross margins. And I think we've been able to do that. So the formula that we've used for the last four or five years has worked and worked very, very well. And I think we believe that those things will continue to work in the future. So that's our general. Raul, anything, further?

I think that's fine.

Okay. Very good.

Thanks so much. Appreciate it.

Thank you, sir.

Thank you. Our next question or comment comes from the line of Bruce Nudell from SunTrust. Your line is open.

Good afternoon, guys. And congratulations on a very successful year. Fred, you know, as others have articulated, the guidance it looks great. And I have two pretty simple questions. One, next year organic guidance is 8 to 10, what are kind of the factors that could, you know, kind of push you to low end and conversely, push you to the high end? And secondly, you know, it's kind of unusual, but welcome for company to put out a second of your size to put out, you know, 2020 guidance. And what - you know what gave you the confidence to really take that, you know, forward looking step? That's it. Thanks so much.

Thank you, Bruce. A number of things, Bruce, you know here we are two months into the year. And as we go down another month or so, you know, we're already being asked by analysts what about 2020, you know, what about this and what about that? Then we thought to ourselves, look, we're confident, you know, we've had two or three months now, Cianna's our confidence is built there. I would say the same thing about Vascular Insights, there's opportunities for us there as well. That's a smaller deal. But if I think there are things like the PreludeSYNC, which is you know, this is the wristband and then we've added to it a product that really nobody else has right now and that's the distal radio SYNC and that's a product that you come into the area known as the Snuff Box. It's a different approach. And I remember last night I got a text from someone that was tweeting out about, you know, there's a picture of a bunch of physicians who have just adopted it, it was the first hospital who adopt that system in Louisiana. So that's important. The ideal is probably, you know, and I want to call it a surprise, but the Prelude Ideal which gives us a larger ID in a smaller OD so allows you to take to, you know, put a larger device and give you flexibility. It's a sheet but this sheet is selling for, you know, in the range of $50 to $80. And when you take a product like that, that it's a big hit in Australia. It's a big hit in the Canada. It's - you know, in Canada we've had a little bit of a problem just kind of keeping up with it, we brought…

Yeah, not, I mean I think we've been getting questions since November essentially on what 2020 was going to look like or what we were going to do with our long-term plan. But I think it was only - I think if it made sense just to extend that - originally, I think, Fred, I thought we might do something in June, but we I think felt confident enough in the numbers and our momentum that we went ahead and put out the 2020 guidance.

And then finally...

And I guess just...

Well, go ahead please.

I'm sorry, just - 2019 guidance, 8% to 10% organic, what gets you to 8%, what gets you to 10%?

Yes. These are good questions. So, I think it's - getting our approvals and getting on the market, so you're always sitting here a number of these products that you're seeing on here are scheduled to release, some of them require approvals, some of them [indiscernible] the disruption of Brexit. One of the things that we have found is that in Great Britain having a presence there means brings a big deal in terms of the confidence of customers. We had recently a conversation with - I want to be careful how I say this, but with those who run the healthcare system, who - having that presence and know that we prepared for Brexit by having that facility is a big deal and some companies haven't done that. And so clearly no matter how it goes, they'll work at Merit, as a company that's made a commitment. We've been in Great Britain for a long time. But it's a situation we're seeing a lot of growth in those opportunity. So it's the international business. China - I was slowing down in my own mind on China a little bit, but you know what, it hasn't slowed down at all. In fact, Joe Wright, who is responsible for Southeast Asia and the Pacific Rim, as we look at Vietnam and obviously - so I just think that the momentum, the preparation, the new products, it's not all stats into on silo; these are high margin products. So I think that - and by the way, just it's kind of go through it; if you take a look at what we did, and Raul, once you give us the numbers for our core growth last year - for the year.

11.4 % for the year and then 13.1% for the quarter.

Yes, 11.4% and 13.1%, but - I mean, those were for the year. So we've moved this up because our confidence is grown and our I believe, South Africa, we've gone and now have our own warehouse and our own sales force there, simply because the margins are extraordinary, but getting the product there was always the problem. So now we have a warehouse, we can deliver same day to our customers. That gives us a huge advantage over competitors and we get retail prices instead of wholesale. So, on the downside, because I've always just talked about the upside, we've got - do we miss anything on Brexit? Are there any public policy issues that come to play?

Geopolitical.

Geopolitical disruptions, weather - last year when we had Maria that slowed everything down a bit and that affects us. So it's mostly those kinds of unpredictable issues on the downside and maybe our enthusiasm on the upside, Raul.

Yes, I think the only one thing I will add, you're going direct in a couple markets and just making sure that you understand that if there's any hiccups, we've got a little bit of room there.

Yes.

Thanks so much guys. Congratulations.

Thank you, sir.

Thank you. Our next question or comment comes from the line of Larry Biegelsen from Wells Fargo. Your line is open.

Hi, guys. It's Adam Maeder in for Larry. Congrats on a nice finish to the year. And thanks for taking the questions. I wanted to start with one on the top line, just curious, how should we be thinking about the quarterly cadence of organic growth in 2019? The year-over-year comps look more challenging in the back half and Cianna doesn't anniversary until Q4, but then conversely BD counts as organic growth, as you mentioned, this month and some of the smaller deals roll off throughout the year. So just trying to think through the quarterly progression and recognize you don't give quarterly guidance, but any color there would be helpful. And I had a follow-up.

Yes. I was just kind of talk about the things and talk about the history. If we take a look at the first quarter, I mean, it's always a little slow to get started up out of the international markets; you have Chinese New Year, you have a little bit slower in Europe. And we have a little bit more expense in the first quarter, because of our sales meetings, which we'd like to get done early. So if you look at that, and then you look at the third quarter and summer now this year, we had the Terumo situation that gave us a little bit of a bullish, but, generally, you see the third quarter is a little slower because people shutdown in Germany and in France in different areas, it affects the business. I think if we look at the cadence history, I think you will pretty well find they will fall generally into that same category. Raul?

Yes. I think the only thing that will help us, it would be Q1 is that the FX rates. So just bear that in mind. But again Q1 operating expense heavy, just bear that in mind.

Yes. And that's something we always talk about that first quarter, because of the meetings and Chinese New Year.

Okay, thanks for that. And then my second question is on the gross margin outlook. I think the guidance is roughly 170 basis points to 240 basis points of improvement year-over-year. How much of that is underlying improvement versus accretion from M&A? And can you just remind us of the different levers for gross margin improvement this year? Thanks for taking the questions guys.

Yes, I'd say it's about 50-50 on the gross margin and improvement. Some of the items that will help us there will be obviously operational efficiencies. We always have a goal on where we can get more efficient. We always have a cost-cutting initiative. So we're making sure that we hit those goals. And then also our recent acquisitions will help us in those areas.

Okay. And then just levers - sorry for the year?

So those are the levers, I mean, that's what we expect to do.

Yes, Okay.

Well - and I think we didn't mention mix, but I think if we continue to see the growth and the ideal as this is a product that whenever you start up, you have to apply the overhead and as the volume increases, we start to get some better. So, if we see the same type of performance we saw this year that trending both things are going to be important Embo gel any of these newer products that have higher margins can be leveraged help to improve performance. I think that Raul touched on this, but I think for the last several years our operational group has done such a very nice job in terms of efficiencies, whether it be molding and cavitation, the things that they have in place, the incentive they give internally to reduce cost. I mean, I can tell you - even my lawyers don't like it but I say this but - I mean, this week alone, just in the hallways talking to my operational group, there is over $1 million in savings that have come to me from our - I'm looking at my operations guide as heads going up and down and he is agreeing with me. Over $1 million just this week in earnings or savings that would happen over this year. And those things have to do with resins. They have to do with issues in which rather than going through distributors, we're going directly to the sources. I could give you a number of those kinds of levers that help to produce higher leverage and to help to reduce cost force. And these are active so, mix, operational and many aspects of that moving of Malvern down to Mexico is already started. And those things will help to add opportunity on the upside, if we are able to execute on both those plans.

Thanks for the additional color and specifics.

Thank you. Our next question or comment comes from the line of Jason Mills from Canaccord Genuity. Your line is open.

Hi, this Steve [ph] on for Jason. Can you hear me alright?

We are. Sure, thank you.

Okay, Great. Fred, so first, quick question, I wonder if you could provide any more color at least on your cost of revenue synergy seen kind of through the acquisitions concern over the past year? And how we kind of should think about these acquisitions improving kind of revenue and earnings profile respectively, especially as we move into 2019? And maybe areas where you see within there from the acquired products to see kind of the most upside?

Yes. Well, listen, there's no question that the Cianna, which was merged largest acquisition, has the most opportunity. We're seeing the stability, as I mentioned earlier in the sales force and in the operating staff, and by that, what I mean by stability we haven't lost anybody. And those who have gone been on the operational side that we already have replacements for. So it's not a big deal. But I think the momentum and the enthusiasm from the sales, but what's been interesting is the letters I've gotten and you guys can read those, but people writing to me from that Cianna team saying this is exactly what we had hoped for, it's nice to be part of an organization with this type of culture. And the culture of innovation, we're looking forward to building this business for the long term. Those sorts of things, I'm not going to say that I haven't had those in the past, but I don't know that I've had a more enthusiastic group. Now, there's another thing about Cianna too. The other thing that this does - these are highly trained clinical personnel. All of the sales force or a good majority of them have a higher level and I hope this doesn't like the lot of my sales people on the line, and I don't mean to offend anybody. But there is a higher level of clinical understanding and support. I think we're starting to see that as our products get more complicated. We need to have these folks who know how to sell, interface with surgeons and have a strong knowledge of physiology and anatomy; it's not that our other folks don't, but I going to tell you when someone is holding a scalpel in their hand and try and make the critical decisions about the types of borders and the kinds of areas that you need to have that are going to save somebody's life, whether it's here or even in our electrophysiology areas when we're going and doing work there; these are critical issues. So those things add value and these are the kinds of things I think that are going to drive the business to the upside.

All right, thanks. And maybe just thinking about as we kind of in a much for as far as we anniversarying, competitor product recall, as well as kind of what seems like acceleration in growth and most of the core products, and can you talk a little bit about - I know you mentioned about the cadence but and kind of how we think about your anniversary kind of these stronger comp groups in our 2018 and how you see those playing on 2019? Thanks.

Yes. Look, going back to the issue of the biopsy business, now remember, when we talked about size, we were talking about value and that would cost, but if we take a look at the Becton Dickinson deal, we ended up getting about $35 million to $40 million worth of revenue - I think it was $40 million this year

$42 million.

$42 million and I think that exceeded our expectations, yes, from $36 million to $40 million, but we're just on the high end. I think, as we initially went through just the transition and the disruption is always a big deal, and yet we were able to hold on not only to that business, but we are able to grow that business and beyond the high end of expectations, that is not easy to do.

And it's going to be a contributor to core growth.

Yes. And so that's going to be a big contributor this year and then on top of that the CorVocet, which is our biopsy; Laurane product which came on mid-year, which had already anniversary but had to be transferred, and some of these newer biopsy products. So, I think the biopsy is going to be a big driver this year and very candidly we get to put the Merit name on the product, not right away because they're still building some product, but we've started some production of products and by the time we get to the fall and late this year, everything essentially will be being produced by Merit and Merit labels. And I think the BD labels and their brands has been great. I just simply think that with the new production, new tooling, new CMC automation, the things we're doing, we'll have a better product; we won't have all the disruptions and the worries about product coming out of the Dominican Republic and six other factories, we have not launched the Aspira, this is pleural effusion and peritoneal drainage has not been launched in Europe, we did - we couldn't, because we had to get this part of it done, so that's something we haven't even talked about, I mean you start thinking about the products that have been anniversary but have never been introduced, those sorts of things. And another thing that was just brought to my attention is pulled from you, when we look at ClariVein, you have a device but there's all the vascular access products that go whether these are all cohort, there all the kits and the drapes and especially the IMs that go along with essentially a therapeutic device. And so, we have all of those things that the original a company, the Vascular Insights didn't have or didn't produce and Merit does. We also brought the sales people on for that overseas. So I mean I think we, you have all of this up; yield come back and hopefully with the same enthusiasm that we have. And remember, this is sound - this going to sound funny to you, but we are tempering our enthusiasm, can you believe it? I mean, we're just trying to stay cool here and stay steady, and by that I mean, my job isn't just a stay calm and stay steady and I don't think you've seen that in our business, we have a great opportunity here for Merit Medical.

All right. Thanks, Fred. And then just if I can squeeze in one last one. Specifically on where Cianna and Vascular Insights are going to be reported in the revenue line and whether or there's any contribution from them in the fourth quarter? Thanks.

There was about $6 million in the fourth quarter, and they're going to be on their own separate line when we disclose it in our 10-K and 10-Q, if you look at our product disclosure, it'll be a stand-alone line.

We'll we talking about lot about in other words.

Thank you. Our next question or comment comes from the line of Jayson Bedford from Raymond James. Your line is open.

Hi, good evening. Thanks for taking the question. Just a couple, and I apologize if these are repetitive, I missed part of the call, but Raul, you talked about the additional cost in the business, I think you talked about European MDR $3 million to $4 million, you also talked about moving Malvern down to Mexico and you mentioned there is cost involved. What is the dollar amount of cost related to this move and is that assumed in your 35% OpEx guidance?

It's assumed in our OpEx and it's also assumed in our margin.

Okay. And is it similar cost $3 million or $4 million in the MDR or what is the dollar value?

MDR is about $3 million to $4 million, then the Malvern move is somewhere in the neighborhood of $3 million.

Okay. And so when we look...

Jayson, the essence of that is that all of that $6 million to $7 million is being absorbed and that's pretty significant.

No, I would agree. And then as you complete the move down to Mexico, I think you mentioned that will be $3 million to $5 million in incremental savings in 2020 assuming that that's the completion date. Correct?

Yes. Essentially it will be kind of a wash because some of the lines will be completed this year in 2019, but it will wash some of the expense will have as we do dual manufacturing and location, so the 2020 is when we'll start to see some of the benefit and I'd say probably in the third and fourth quarter.

Okay. And, Fred, just along the last line of questioning, getting approval for some of those BD products outside the US, what's the rough timeline on that?

So those products, the BD products, I think if we were referring to the new manufacturing sites and those sort of things versus the former all of those regulatory things are either in process or have been approved. We've had the BSI and all those things and, Raul, am I correct on this that we've added those to our certificate and that were approved in Mexico to produce these products.

CSI, yes.

BSI, which mean there would be no disruption and essentially they will all stand in place. Any of those who are not where we have to refile, are not significant and that we build adequate inventory is to make sure that with growth in those markets that we have adequate inventory on the shelf, so we booked extra product for let's say a place like China where you have to go back - and it's not a big business in China, but it could be bigger in the future and it will be bigger in the future where we've built product with the existing registrations, as Raul covered, and then we've already filed and we will file on the new one. So those are not material; the material markets of Europe and the United States are all covered. One other thing on this too, and some of our folks aren't going like to hear this, but the other thing is we'll also have coming on over the next couple of years, a number of distribution partners that will go direct. So that is another thing that we will be continued to be essentially wholesale to retail and Merit on its existing biopsy devices will sell both only through our direct sales force. So, eventually those both two rivers will meet and build the grand river. So those other things that give us comfort on our core growth and make sure we maintain the business. And going back to that issue, and I hope everybody caught that is that, when you do these transitions almost all the time when we model these, we pull back and say that you're going to lose some business, and if you look at the way that we modeled the business BD that in fact, I mean, we were on the top side of the expectation. And I think that speaks volumes to the work that we did in the relationship we have with the customers, because it was our sales same sales point, so answer important thing to consider about the strength that Merit is building as a brand and how we can compete with bigger companies.

Okay. I appreciate the question. Thanks.

Okay. Thanks, Jayson.

Thank you. Our next question or comment comes from the line of Mike Matson from Needham & Company. Your line is open.

Hi, Fred and Raul, it's David Saxon on for Mike. Thanks for taking the questions, and I've been jumping around between call, so I apologize if you've answered it. First, I understand you're going to be breaking out the ClariVein and Cianna going forward. Just wondering how much of those two are baked into 2019 guidance?

Yes. So we haven't changed the guidance that we disclosed when the acquisition happened. So, for Cianna, we'll doing $50 million to $56 million; a portion of that is in core growth, anniversaries sometime in mid-November and then ClariVein is $10 million to $11 million that anniversary is in mid-December. Cianna will be on a stand-alone basis, you will be able to see it, but ClariVein will go in stand-alone products.

Okay, understood. And then just with regards to leverage, do you have any targets for where you want to end the year? And then can you just kind of talk about what you're seeing in terms of assets out there and the M&A pipeline? Thanks.

Yes, I think on the leverage, we're going to shoot - a pay down on that is probably going to be about $60 million, $50 million somewhere around there.

And let me pick up the issue on the marketplace. At any given time, we're looking at no less than four or five deals in one form or the other; there are features that come across. There things that we have signed; agreements on the gain further insight and that sort of thing and we have our eye on the number of opportunities. But again, let's go to the criteria because that's important, they have to be scalable; in other words wherever they are, they will be able to grow and they've got to be able to grow and exceed candidly, our core business. I've got to be able to see it has gross margin contribution. I've got to be able to see that it's in our silos and our sales area. I'm not going to go jumping off and maybe more importantly law that, either afford it and be able to manage it and I think like we've done these other opportunities that we've seen, I think they've all worked for us and there continues to be more of these opportunities. But we're not in any hurry. It's interesting, we had one that we were looking at. They decided to go someplace else, and now they're back talking to us. Those types of things happen, you just have to be patient and they have to fit your criteria and you have to pay a reasonable price for the assets and then execute. So I think, we've done a good job of those things. Our people are season data, we have a great business development team, we've got a great operational team, I think, again, I don't know that everybody really appreciates, and I'm sorry to keep going on here, but I don't think everybody really appreciates what it takes to pull off something like the Becton Dickinson deal where you are moving products from six factories in multiple countries to a single location while you're serving those customers and not being - missing a beat, and then hitting us on the high side of expectations while you're developing products to enhance those product lines. I mean, that is a symphony. That's what it is. And again, at the end of the day, we get judged on top line all these improvements. But if you just look at that, it's an extraordinary effort by the people that are sitting in this room to get something like that done that oftentimes isn't individually appreciated, but hopefully it's appreciated when you look at the overall performance of the company. How is that one guys, do you like that one?

Yes, that's very helpful.

I got all smiling faces in the room. So give me another question like that one so I can keep people smiling.

Yes. I appreciate the color and congrats for the year.

Okay. Thank you very much.

Thank you. Our next question or comment comes from the line of Mike Petusky from Barrington Research. Your line is open.

Hi, good evening, guys. Really, really outstanding year. So, Raul, just a couple of questions. I caught that D&A and stock comp, did you give CapEx for the quarter by any chance?

I didn't. But let me get it for you here. CapEx is - sorry, 16.3.

Okay. 16.3, and then what are you guys thinking even in a range for CapEx for this coming year?

Yes. Our CapEx this year, we have an estimated range of $60 million to $65 million.

Okay. All right. As you look at '20 should that come down a bit or will that still elevated?

No and I'll tell you why. If we take a look at the growth of the business and take a look at where we want to head and what we think the opportunities are, we have to add some capacity, whether it be molding - you just can't grow business at these kinds of rates without having capacity. So, we want to make sure least that in our thinking, we do it that way and that we don't get out of sync with people will all of this is going to go to pay down debt or to do this or do that. We have to put things in place to be able to maintain this growth rate. So that's why, we are not going to pull back down. If you'll recall, Mike, if you go back, I'm going to say now probably four years or five years and then come forward, we reduced CapEx after we won on a major building plan that I'm, at the time people got after me about and looking back at it, it was exactly the right thing to do. Thank you for all your notes and letters to that effect after the fact, I appreciate them. But we can't roll a business and add a couple of thousands of people if you don't have a place to house them. So we want to - we're not going to go on building a new city. But we are piece-by-piece, just like we did this year starting projects or adding some capacity or remodeling or doing the various things, so we will be much more disciplined in our approach, but at the same time in order for us to take this business where we think it can go to and now we've got the first $1 billion, the question that I have to ask myself and that I have planned for is how do we get the next billion and over what time frame? And I have my own thoughts on that and I'm planning to make sure I can systematically and discipline put capacity in place to be able to grow the business. So it's a long answer but Raul, do you want to?

No, I think that's exactly right. Yes, I can't add anything.

Okay. Thank you.

Okay. A couple of quick ones.

Yes, please.

What is the interest rate - average interest rate on your debt currently?

On the December - at year-end, 3.25%.

And is that roughly sort of the modeling for '19?

No, we've got two interest rate hikes toward the tail end of the year.

In our model.

In our model.

Okay, all right. That's super helpful. And then just last our FX headwinds assumption for this year?

$5 million to $7 million on the top line and then about $0.02 dilution on the bottom.

Okay. Well, again, congratulations. You guys have really executed these last few years. Great job.

Thank you.

Thanks so much, Mike.

Thank you. Our next question or comment comes from the line of Jim Sidoti from Sidoti and Company. Your line open.

Good afternoon, can you hear me?

We can, Jimmy, how are you?

I'm well, I'm well. [indiscernible] giving your guidance in billions, not millions.

I think that was a compliment, Jim?

Yes, yes. Two quick ones from me. You mentioned briefly the Terumo issue that helped the last quarter, is that resolved at this point?

The Terumo, Okay. No. They have come back on the market, but we continue to take on new business, particularly in our guide wires. So our Laureate guide wires continue to grow. I think last month whatever we produced a record amount to meet this demand. So we still see places, I mean, it's not as hot as it was during the summer, but we've been able to maintain a lot of that business, and I think that's the - important part of all this is, whether it be some of the issues we've seen in the past with opportunities from other companies that led this portion or whether be Terumo, it does nothing but to build our reputation and to give us I think more importantly help customers that are in a kind of in bind them. So that's been a good business for us. It's helped to build our reputation for reliability with our customers. So, no, there - it's still continuing to grow.

Okay. And then any change from the tariffs, has that gotten any better or worse for the last three months?

We added about $1.2 million in tariffs that we thought we would see on the initial round, essentially both are in place and I'll ask Raul in just a second, if those tariffs are still in place. But that was what we are initially saw and then everything else has been put on the back burner since that time. We haven't seen anything, but on another subject, Jim, that I want to throw in, when we look at our 2020, we said this before, but I think it's significant, we've added - and I don't know what other people are doing, but in our 2020, we assume that the medical device tax comes back and we have taken that and we have embedded that into our numbers and added in expense. If that's gets suspended again, I actually think that's what's going to happen to be a trade-off between the Cadillac tax and the medical device tax, but if it doesn't, it's already built into our numbers. So I just wanted to make sure that everybody hears that; it's an important part of, I think this overall conversation. It's about $7 million - $7.5 million of expense that we have loaded into 2020, that may or may not be there. So just to point of interest.

All right. Got it. Thank you.

Okay. So, thank you very much.

Thank you. Our next question or comment comes from the line of Mark McGrath from Kenmare. Your line is open.

Thanks for taking the call and being on so long. Just a question on the balance sheet, it looks like the net debt went by almost $171 million relative to last quarter. And I wonder - I looked at as my read of the press releases for the Cianna and the Vascular deals where that upfront it was $165 million of cash payment. Were there other payments for those deals in the quarter? You already started to pay the contingent?

We have not paid any contingent payments, I'm watching Raul here. Raul going and give that answer.

It's $135 million for Cianna and $40 million for Vascular. So…

It's a $135 million.

Yes.

I see, so that's about the growth. Okay. Okay that answers it. Thank you.

Mark, thank you for your patience. I know you've been in the line there and I thank you for…

You guys are marathon runners.

Thank you.

Thank you. Our next question or comment comes from the line of Christopher Hillary from Roubaix Capital, your line is open.

Hi, good afternoon.

Thank you. Good to have here.

Great, thank you. Just wanted to ask relative to your positive outlook, is there anything that would augment your margin expansion opportunities? And if that were to occur, would you anticipate seeing that come through the P&L or do you anticipate reinvesting that?

Well, I mean, I'll answer that generally is that Merit has always been a reinvestor. And that's been our mode is to in building this billion-dollar business is to reinvest. Now that being said, there are a number of areas, is there some upside opportunity, we hope so. And we hope it's a higher margin products. So listen, I can say this and that is we could grow the business even more if we wanted to, but it would be in lower margin products. And I think that's the important part of us is to meet our commitments and most commitments are that the core growth, the top line, the gross margin expansion. I think we've done a pretty good job. And by the way, some other folks, Christopher may say why do you do this, it really has we have found has been a very, very good tool to keep everybody in this room and there are 40 sitting here with me, focused on what the goals are and how we go about running our business, keeps everybody's eye on the ball and I think we found it's been very, very helpful to do that. So we hope that we get the right mix. We have some high margin products, things like EmboCube, things like Cianna, other products that Merit is coming out with in our mix of products are going to be very, very important. So, I just think if we get lucky, we've got this some new products that are coming on to our DualCap and other things like that the SYNC. So there's plenty of products that could give us the upside - additional upside momentum. So that's where it will come from and most of those are very high-margin products.

Great, thank you so much.

Okay. You want to clarify something Raul?

I do. I just wanted to clarify on the interest rate I got ahead of myself, the interest rate at year end was 3% - approximately 3% and then we've got the two rate hikes that we've built in for 2019.

If you would long withstand the call, the better you get it operating efficiencies, fit for you Raul. Okay. Well, ladies and gentlemen, look - it looks like we have now made all the calls; we've been on now for almost an hour. I want to thank everybody for their time. We want to thank you for your good questions. Raul and I will be here as I mentioned in the next couple of hours. Thank you very much and we wish you a very good evening from Salt Lake City. Good night.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.