Merit Medical Systems, Inc. (MMSI) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Merit Medical Systems First Quarter 2012 Earnings Conference Call. During today’s presentation all parties are in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] It is now my pleasure to introduce our host for today, Mr. Fred Lampropoulos, Chairman and CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen. We’re delighted to have you with us. Before we get started, we will have our General Counsel, Rashelle Perry read our disclaimer. Rashelle?

Thank you, Fred. In the course of our discussion today, reference may be made to projections, anticipated events, or other information which is not purely historical. Please be aware that statements made in this call which are not purely historical may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties, and other factors that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks, uncertainties and other factors are discussed in our Annual Report on Form 10-K and other reports and filings with the SEC which are also available on our website. To the extent any forward-looking statements are made in this call, such statements are made only as of today’s date, and we do not assume any obligation to update such statements. Although Merit’s financial statements are prepared in accordance with accounting principles, which are generally accepted in the U. S., Merit’s management believes that certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of Merit’s ongoing operations and can be useful for period-over-period comparisons of such operations. The table included in our quarterly earnings release, which will be discussed on this call, sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements. Investors should consider these non-GAAP measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures that exclude some, but not all items that affect net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.

Thanks, Rashelle. Ladies and gentlemen, thank you for joining us. Again, we’re delighted to have you with us today. What we’d like to do today is to talk about our business, the results of our first quarter, where we’re having our successes, where we’re having some softness or areas that I think we’ve already discussed, but we will discuss further. And maybe more importantly, some of the areas where we’re making great strides and some initiatives relative to cost and where we think that will lead us in the future. So we’re delighted to go through and talk to you first about the results of the quarter. If you can read our sales were right about mid-range from our 9% to 12% growth that we had talked about, coming in at about 10.4%, double-digits in what I think is a very difficult market. As you can see from our comments, we’re seeing relatively slow growth in the United States. In fact, I would say it is the slowest growth I’ve seen in many, many, many years. The places where we’ve made investments in the past, in China, Europe and Eastern Europe with our dealers and in our technology companies and some improvement in the areas of Endotek and the technology companies are really what’s driving the growth. And I’m grateful for the investments that we’ve made in the past that allow us to see this double-digit growth. Now I’d like to point out that we’ve done this despite some headwinds, these headwinds being for instance the Laureate guide wire. As I allude to in our note, we had a warning letter from the FDA, we stopped selling the product in the United States in February and we continue to sell it, by the way, in the rest of the world. We have done all the things to comply, we have responded to the FDA, they have come back to us, we’ll respond again in a couple of weeks. And it’s really kind of anybody’s guess when the product will be back on the market. I would think sometime probably in the third quarter, hopefully. But that was one of the fastest growing products we had. In addition to that, we had an issue with another product and it kind of slowed us down a bit. Why we had to do some -- make some -- I don’t want to call them alterations, but there were some issues, well, relative to quality and that slowed us down. So despite those things, we were still able to come in kind of up mid-range in the revenue side. And we particularly saw very, very strong sales in a number of areas of the company. But before I go to those, Kent, you want to comment it all on this?

Yes. Just that the Laureate was -- actually stayed very strong and didn’t decline from last year. And so we’ve stayed even with the growth we saw internationally. Another thing is, is that at 10.4%, we really weren’t far under our 11% top of our rank. So it’s still a strong sales quarter.

Let me go through a couple of, I think, of the highlights on the sales side. And if we go look at, for instance, our Endotek, Endotek was up 41%. Worldwide dealers were up 35.7%. So this is going to be Central South America and that area. China was up 31%. Our technology companies were up almost across-the-board by about 30%. Europe direct not – here’s an area of the world where there is a lot of distress, up 15%, European dealers up 58.5%. This would take into Russia, the Balkan states, Middle East and that area, 58%. I think these are terrific numbers. And I think, again, this is coming from the areas where we’ve made investments in the past in these marketplaces that I think are paying off now and will continue to grow, particularly the Middle East, Gulf State, Eastern Europe is going to continue to be very strong. OEM, when you take out the kyphon business, grew at on the core side of it at 20%. So all the areas of our business are very, very strong. The only laggered would be the United States market in which we saw about 2.4%, 2.5%. Kent?

Yes. And I think the inflation device is worth noting that without the drop in kyphon OEM business, we were up 14% on that. So even that was a strong…

And let me add some color to that as well, Kent. And that is that, as you all know, Merit is the world leader in inflation devices. And as we’re having success with our Blue Diamond, we’re having success with our BIG60 and we’ve got what I think is arguably the best inflation device in the world, which we elude to, called the Merit Touch. The Merit touch is an extraordinary device. We expect to have it on the market by the end of the year, sometime in the near future and particularly in the tradeshows and finance meetings that we’ll be meeting with many of you in the next several months. We will be showing off what I think is a cavalcade of extraordinary products of growth in things that we’ve been working on from balloon catheters, to new inflation devices, to new hemostatic valves, to new snares. So we’ve got a full pipeline, all of which is coming through and coming to provision this year. These are tremendous products and I think they bode well for us as we look forward into the following years. I’d also like to point out that if you take a look at the earnings number, just make sure that you all understand and I know you can read well here, and that is that the shares were up about 17%. So you’ll recall that we did an offering in the second quarter last year, so this is comparing the earnings per share on different numbers here. So we wanted to just make sure that you were aware of that. Let me go over a couple of other highlights in terms of product areas. If you take a look at Endotek sales, as I mentioned, they were up 46%, catheter sales up 23%, standalone devices up 20%. And you look at BioSphere, it was only up 2%. Let me talk a little bit about that because I think that will be of interest for you. If you look at the BioSphere business, you will find that our Embosphere was actually soft. However, our QuadraSphere, which is our drug-eluting sphere, was up 127%. And we’re very excited about the continued momentum that we see across the world on our QuadraSphere, HepaSphere product line. And we expect that, that trend will continue. I should point out, by the way, that this product trades in the area of 85% to 90% gross margin. So as that continues to come forward, we are excited about the opportunities that that would bring. Just a couple of other areas of interest, ASAP Aspiration Catheter up 233%. Our radial sheath business, and I think this is again another extraordinary area, up 50%. And this is particularly, I think, telling that these radial sheaths in which we get much higher profit than on our standard sheaths, happen to be in these areas of the world where our growth is coming from and that’s part of what’s driving it. So in Europe they are going to use and have more radial procedures than they do in the United States. I will tell you that radial procedures in the United States are starting to gain momentum and we think that time will come down the road where you’ll see 30% to 40% of procedures in the United States will be done through radial sheaths. Merit will launch a new sheath later on this year, which will be a new hydrophilic radial sheath. And again we think that that has great prospects and great potential. Kent, do you want to add any color?

Yes. I think that it’s interesting to see that the ASAP Catheters added over 400,000 this quarter and is up 233% over last year. So that’s a nice growth product for us, as well as the Antinero [ph] were, it’s up 23% this quarter. So those are again high-margin products that are really assisting I think in the mix.

Yes. The interesting thing about that, Kent, is last year it was relatively flat around 8%. This year it’s trending higher and we have a new snare product called the ONE Snare. And again as we have a very unique strategy, as we’re out on the road, in the future we’ll discuss this terrific line of new products that are coming forward. But now, you can read the earnings numbers and do all the comparisons. Kent, one thing I would like you to do for a moment is talk a little bit about the tax issue because I think that’s important. As many of you know, we consider the tax strategy of the business to be important, as important as many of the other areas often overlooked and I think undervalued by many. But why don’t you talk a little bit about our tax strategy, Kent?

Yes. Our tax situation this quarter was actually favorable, ahead of what we expected. It came in at 27.5%. And it did have a one-time assist or a help from -- at the rate with, because of our top hat program that’s not tacked the game there. So, but what’s really driving the change and what will in the future is the increased income in a ratio of our total worldwide income in Ireland. Also there is smaller help from some of the other international groups of sales companies in China, but others are growing the business and in lower tax environments. So it’s mostly a ratio of the higher-end income being greater us a percentage of the total income.

Thank you very much. So let me talk a little bit about the business itself and the initiatives that we have and why we think that what we’re going to see as we move down through this year and as we go into next year is, better opportunities in terms of growth and in fact earnings. One of the things that we talked about in our last call was, what we’re doing worldwide. And again, as you can see from our growth, most of our growth is coming from these international markets. We continue to expand those markets. We continue to expand those markets and we’ve put people in place that we have told you about in Russia, in the Balkan states, in the Gulf states. We’ve hired some more people here in the United States and we’ve hired some additional folks in Europe. So we continue to invest in the sales force simply because we have a lot of opportunity, we have a lot of products and these sales guys can’t continue to carry all of these products, so we need to have more people to carry essentially the load of these product introductions. We also are continuing to develop sales models in India and Brazil and other areas where we’ll have the kind of opportunities that we’ve seen in China in the past. Now we have not, although some said, “well you shouldn’t do these things or can’t you defer these things.” The fact of the matter is, no we’re not going to defer them, we think that these are the great opportunities. While other people are deferring them, we believe that it’s the right thing to do in terms of growth in the future. Now, however, it’s important that we also take a look at our business and that we can be critical of ourselves. So let me tell you some of the things that we’re doing that will help to reduce our expenses and help to improve our profitability. We’ve had several, what we think are substantial cost issues -– when I say cost issues, opportunities, one worth about $2.4 million and one worth over $2 million. That’s $4.4 million on 2 initiatives that we expect will be in place this year. And those are substantial savings, improvements in gross margins and bottom line. These will kick in, in the late third quarter of this year for one, for half of that, and another one I just got a report that they’re doing what we call PQs, which means they’re not far away from finishing that up. But I would say third quarter for that as well, because you have to build them and then put those into the inventory system. That’s in addition to the other $5 million worth of cost savings projects that we’ve identified and which we in fact have set as a goal this year. If we’re able to accomplish all of that, we would have over $9 million worth of cost savings programs, which would equivocate to over 200 basis points in gross margins. Now there are input costs and other issues that offset that to some extent, but these are very, very, very big deals. We’ve done some other things. We’ve consolidated some of our R&D. We’ve had a satellite R&D office and when we first initiated that several years ago, it was very effective. As the business has grown, it’s become more isolated. We decided that it did not serve the purpose that we were using several years ago. We’ve shut that down. It was a reduction in head count of 2. We’ve looked internally and there are a number of issues where we’re going and looking very, I think, realistically about the needs of the business but saying things have changed, there are areas here and areas there. So we’ve had another, I’ll call it an adjustment, of about 8 to 10 personnel and we will continue to do that now. These are not fun things to talk about, but these are things that we think are necessary. And in order to pay for some of the other programs, we’ve got to look at the things that will give us the best return. And there are areas where we can tighten our belt. And so we continue to look at those areas in terms of essentially reduction of what we think are non-critical positions. And we will continue one investing in the areas that we think will bring us more growth and higher gross margins in the future. Kent, you want to just maybe add some color?

No, I mean, I think it’s going to be a slower and gradual process of trying to hold the line on many of our cost and increases, and therefore start to get leverage as the sales line can grow faster than the expenses grow. I think that’s the important objective. And I hope as a percentage of sales that our SG&A has reached kind of the peak and now we can hold it there and level it off.

Let me give you an example of another area that we’re looking at. One of the things that we’re doing now that we didn’t have to do in the past is we’re attending more tradeshows. I’ll give you some of them. We attend the SIR Meeting; the GUEST Meeting, which is coming up in New York in a couple of weeks; the Global Embolization Meeting; TCT and the PCR; in addition to the DDW, which is an endoscopy meeting and a few others. But one of the things we have found is that are sometimes the traffic has been a little bit slower. So I have instructed our marketing departments that we should effectively cut our booth space in half. That means that you’ll have less cost, you’ll have less transportation and you’ll have less personnel. We still have a presence, we’ll be much more focused on new products instead of trying to show the whole company. So we’re looking at things that are relatively easy to do. But some of those will not take effect and you won’t see effect of those as Kent pointed out. For instance, if we look at the SIR Meeting, we essentially said that next year that we’ll be about half of where we are today and we’ll have a different focus rather than the whole company. But we won’t see those effects, but those decisions are being put into place, so that we can downsize in some of these areas, but still have the effect that we want in terms of the presence of the company and having a meaningful presence, but still pull back and maybe a little bit more conservative in those approaches. So we’re doing a number of those types initiatives as well. In terms of research and development, we continue to invest and I would like to talk about some of these new products that I alluded to. If we take a look at our EndoMAXX Stent, it’s a relatively new product which we just released. It’s doing very, very well. We talked about the BIG60 Inflation Device and we still have the EndoMAXX EVT and what we call the TIO product which is a new disposable product as well as the dilatation balloons for our endoscopy. Now one of the areas that we’re really doing much better and that we hope we’ll be able to -- we haven’t turned the corner yet, but we’re getting there. If we look at the Endotek business, we’ve reduced our losses in that division from almost $1 million a year ago to about $330,000 for the quarter. We would expect that by the time we get to year-end we’ll be profitable. It might just be one month or 2 months, but we’re going to start to make a profit in this division and next year it’s going to be very profitable. And so it’s taken us longer than we thought, it’s been painful for us and painful for you. But we think that this division has great growth prospects. Gross margins I should mention are approaching 60% and could get as high as 70% as we move down the road. So instead of being a drag, we were just talking about this a couple of calls ago, it’s going to start to be a great contributor. So we’ve worked hard on these divisions and I think this is one that’s making a lot of progress. Last month when we take out inter-company interest expense, it was essentially at almost break even. Now so one month does not a trend make, but we believe that we’re on the right track in this particular division and it’s going to be something that we’ll be able to talk about proudly. We’ve always talked about it proudly and particularly the patients that it serves and the quality of the products. So there is another area that we’re very excited about. In terms of other new products, let me go over them a little bit, I’ve talked a little bit about them. The Elation Dilatation Balloon, very nice market, it’s in our Endotek division; we’ll be filing 5 10-Ks on that product in the next 60 to 90 days. And so then we’ll have to go through the regulatory process, but this is an area that’s a new technology for the company. It’s one we’ve worked very hard on and one that we think will service for a number of other balloon products in other divisions of the company as we now expand our balloon technology. I talked about the Ba6 Touch. It’s an exciting product. As Kent pointed out, we’re doing 13.5% on our inflation device when you take out one of our OEM customers, but this new inflation device is a 30ml device that will have a capacity of 35 to 40 atmospheres in terms of its pressure rating. And it’s an extraordinary device that we’re excited to get into the marketplace. I mentioned the hydrophilic sheaths, I mentioned the ONE Snare, I mentioned the TIO. Let me talk you about our Concierge Guiding Catheters. For a number of years we’ve had a guiding catheter, which we’ve been selling in Europe. But because of patent issues we have not brought those -- that product forward. We’ve developed a new product. In trials, animal trails and bench trials with cardiologists, they’ve rated this product equal to or better than any on the market. It’s a natural fit, will be later on this year, but this is a product that has $150 million to $200 million worth of market in the U. S. alone. We’re very excited about this product and what it means for Merit. We have the Botti [ph], this is kind of an interesting little product and drives a lot of issues. And this will be something that I’ll talk you about on the road. Of course, the Ostial Pro is doing well, we’re opening new accounts. And the thing that’s really exciting about the Ostial Pro is what it does and the access it allows us and the pull through that comes from this. So these are products that we’ve essentially just introduced. We’ve trained our sales force, they’re out there in about and it’s one of those products that nobody else has. Nobody has a product like this anywhere and we’re very excited about what it means in the marketplace. Kent?

I want to just add that April is really the first month we’re getting started with it in the U. S. with training and samples and everything and having the sales force really equipped and internationals to follow. And like you said, the access to it is really interesting and it’s so synergistic with the ASAP catheter and with the Concierge, which is the exact catheter it needs to go through to deliver. So it’s going to be real synergistic I think as we go through the next coming quarters.

And also the Ba6 Touch, it’s something we do in inflation devices that go right along. So it’s nice to have a very strong line up in our cardiology line, which has not been our strongest point over, let’s say, the last 10 years because we’ve focused so much on radiology products. Also we have redefined and made some adjustments to the Centros Catheter, which we acquired which is developed by Dr. Stephen Asch and we’re now introducing that product into the marketplace. I believe and I am told by physicians that it’s the best hemodialysis catheter on the planet. And so we’re very excited that at the recent SIR Meeting we had about 45 or 50 leads just for this product. And so it is now rolling out. So I think you can see that we have products that are exciting in the future. We have markets in which we’ve invested heavily in the past and some of which we are now in the development stage that we are very excited about. We do have this international flavor, which I think, again if we didn’t have that and there are other companies that don’t have it, the US market’s soft and having this breadth that we have is very important. The fact that we believe, you believe, and we all believe that Merit can do better, that we can improve our profitability, we can do better with our expenses and, in fact, that we can control discretionary spending and other areas in the company to get better financial performance are things that are on our mind constantly and things that every person that’s sitting in this room today -- and I’m sitting here with about 25 members of my staff, every one of them know what their call is. Every one of them has either, I don’t want to call the hot seat, but it’s a little bit warm has sat on that seat to talk about areas in which the business needs to adjust. We also are adding additional capacity and we’re going to consolidate. So I think in terms of efficiency, in the future with some automation things we’re doing here, it’s going to help reduce our overall headcount in terms of production. We’ll be much more automated and much more efficient as we move throughout this year. So I think we’re doing all of the things we should be doing. There is more that we can do, but I think that overall I’m very pleased, particularly in the sales organizations and outside the U. S. the technology company sensors, codings and those areas are doing very, very well. So Kent, that’s about all I have, do you want to add some color in terms of the financial side?

Yes. I’d like to add some color to the fact that we have started to control cost. I have another measurement of that. Last year we increased the headcount 200 people. This quarter it’s only up 35 and 23 of those are all in the sales and market area that we talked about when we did our guidance. There are international sales people in large part and some in the U. S. So almost the entire growth is in the areas we said we’d investing and there’s been very little elsewhere, so a little bit in R&D as well. So those areas, the G&A areas and the manufacturing administrative stuff is not -- we’re holding our costs, that’s what, I guess, I’m saying.

And Kent doesn’t talk about things unless he is excited about it and he believes it. I appreciate you mentioned those things. And so we spent about half an hour giving you an overview, let me just do it again in summary, what I think is good growth. I think there is a substantial growth in front of us. We have a great product pipeline. We’re working on the new products. These cost issues -- there were a couple of extraordinary expenses with some severance in other expenses in the quarter, some of those are one-time expenses. So I think all in all it for us, from my perspective, it was an okay quarter, I’m not here to bang the drum and say it was a great quarter. But I think it, as Kent pointed out, is kind of that, okay we built the foundation, we have our marching orders, we have our R&D moving, we have our eyes opening and we’re marching forward and we’ll be able to I think perform better. Our gross margins, by the way, were up 40 basis points quarter-to-quarter. Remember, we’ve promised you 150, so we’ve got a lot of work to do. But as we see the OsteoPro, as we see the snares and some of these other products rollout, we’ll start to see that as they move forward through the year. Kent?

When we take out the amortization, the non-GAAP version of gross margins, were up 60 bps or so.

Okay, all right. That’s helpful. Well, ladies and gentlemen, I think that’s it. I think it’s now time, it’s your turn. We’ll see if we can answer those tough questions that you’ve been formulating. So at this time, we’ll go ahead and turn the time over to our operator and ask that only those who are friendly to us talk to us.

[Operator Instructions] Our first question comes from the line of Larry Solow from CJS Securities.

Just a follow-up Kent, just really quickly. You mentioned last year the head count was about 200 on the upside and this first quarter was, you increased it about 35. Is that a good trend? I know you have talked about some initiatives in the sales force and I imagine that’s still ongoing. But do you expect head count -- anyway you can give us like a full, an outlook for the full-year on what head count, where you think head count might be, plus or minus, I realize it’s not an exact science?

No. I just think it’s slowing in the growth is and we’re holding the lines in many respect and a lot of the salespeople that we committed to have already been hired in this quarter. There are few more to go. So there’s still work to be done in some of the -- India and Brazil and some of the places that we’ve talked about. But the overall head count growth has slowed overall and we watch it every week and it’s leveled off in total.

Right. So I mean, looking at SG&A, I mean, is this sort of a good level to look at? And then obviously as sales increase, you will have that variable comp rise, but which -- is that sort of a fair statement?

Yes. There is going to still be some increases, but as a percentage of sales, we hope to hold this if not lower it a little bit.

Okay. And then as you look at into ‘13, obviously, you talked about a couple of these initiatives. I would imagine if you get half of these initiatives and even you assure you can still grow a little bit, you could get some leverage there. I mean, is that your take on it as well the next year?

Larry, this is Fred. I don’t think there is any question that in order for us to be able to talk about doing better that we’re going to have to get this leverage. That means we’re going to have to control our expenses, make sure we’re focusing on the higher margin products and growing in these marketplaces. But restrained in areas that we in fact, these discretion areas in which we have control over. So I think we understand what we need to do.

If I just clarify, you mentioned there is $2 million I know for the -- you called out in the press release for improved procurement it looks like, and the other $2-whatever million, $2.5 million is that a combined reduction from head count and discretionary spending. Where’s that number coming from?

Let me clarify that and thank you for the question. The one I mentioned in the press release there is one product, our stent products and in which we’re reducing the cost just in that product line. There is a cost of goods on that of about $6 million; we’re going to reduce it by $2 million, now think about that. That’s pretty extraordinary and that’s going to take that product group in terms of gross margin from 60% to 70% or better. So that’s just one. There is another product that cost savings issue on another catheter and the cost savings on that group alone is about $2.4 million. So these are just 2 products. On top of that we have a goal of another $5 million or so of cost savings this year. That’s a big plate of beans, that’s a lot of stuff. Kent?

I do want to say that they will be phased in over some time, both the number of catalog numbers in those catheters will take some time to fully implement and the timing of rolling through the inventory and getting your older, more expensive stuff out first to the cost of sales before the lower-cost items follow behind it. So it won’t be all at once, but you will see the opportunities in the next 12 months at this rolling through.

Yes, but I think the point, Larry -- and then we will move on to any other questions you want -- but as Kent’s pointing out some of these things will come into place in the third quarter. We will have to sell the inventory that is already on the shelf. This probably means that as we move forward into 2013, just on those 2 alone, you are talking about over 100 basis points in gross margin that are coming out of cost.

Right. As soon as those products are flushed through, so it’s good bread [ph]. No, I missed it completely. Just, if I may switch real quickly, the U.S market obviously, I know things have been slowing down over the last few quarters and fortunate for you guys you have a good PCR business outside of the US. Anything in particular, is it just utilization in hospitals that continues to sort of remain lackluster? Or anything -- trends you saw during the quarter or anything that stands out?

It’s hard for us to, just put our finger -- I think utilization is one of it. Monroe, do you have any other thoughts that you are seeing out there now that, I mean other than utilization?

We’re hearing the procedures…

Yes. So it’s basically just procedure and that’s from the guy that’s out on the firing line, our Vice President of Sales. So we’re just seeing those procedures and I think we’re in a tough economy, and it’s going to get tougher in my view. We’ve got the selection, we’ve got these taxes coming up and we’ve got all of these things that people are starting to pull back on and we are just seeing -- and not only that, but it’s amazing that we’re seeing some things, for instance, in certain areas where various government initiatives are starting to slow things down. I’ll talk to you about that off-line, but we’re actually seeing evidence where they’re trying to reduce uses of certain types of products. And we’ll talk about that off-line so that -- anyway for obvious reasons. But, I mean, last year we did 7.5% to 8% I think in the U.S., this year 2.5% at least for the first quarter. Do we think it will get better with the new products? We do. But at the same time, I’m sure glad we’ve made these investments and there is -- we’ve got those dealers and there is China and all these things that we’ve done in the last several years are going to make a big difference in this year and continue to do. Yes. First of all, I think, the companies that didn’t make these investments and have 80% or 90% of their revenues come in the United States are going to have to have faced the music here pretty soon.

And our next question comes from the line of Brooks West with Piper Jaffray.

Couple of questions, BioSphere at 2% and you said I think it was the Embosphere side was soft. Could you go into that a little bit, is that the old Euro-gyn business or what’s going on there and is that the trend we should continue to see?

Yes, I think it is, it’s the area of uterine fibroids, the UFEs. Again, I think, it goes back to this utilization, this is basically a U.S. product and it’s kind of falling right in line with the growth that we’re seeing across-the-board. And if you go to many of the women’s health issues, at least our experience to what we’ve been hearing, is many of those things have been slowing down. So I think this is just in line with that over all. Where we are seeing -- I would also say some of it is focused, because we believe there are great opportunities as well in these other areas particularly on the oncology side and we’ve been focusing in those areas because of some of the disruptions and other opportunities that we see there. So some of it’s focused, but a good portion of it is really the trends and utilization in the marketplace.

So Kent, just to follow up on that, understanding that the oncology beads or the drug delivery beads are doing well. Should we be thinking about BioSphere as kind of a low-to-mid-single-digit grower until the cancer can grow to offset the UFE.

It’s been a little lumpy, I mean, as far as the ups and downs of the bios -- as the uterine fibroid business. But we think there is another growth opportunity, but it’s not really going to be a lot this year. But BPA is just getting a lot of press in Interventional Radiology, was it the serve, we’re seeing it in communications within the industry. That will be, I think, a great opportunity and one we’re really looking forward to for the embolic product being the Embosphere that we’re talking about. But it is not going to be real quick, but it’s coming.

Well, this is on the public record, I know that there will be a live procedure in Sao Paolo that will be broadcast in the United States at the guest meeting which is at the Global Embolization Meeting in New York showing this new procedure. So we’re not here to promote that procedure or that use, we’re just simply saying it’s a trend that’s out there that will be seen other places in the world and eventually like, I believe will be approved in the United States. Another thing, Brooks, just a couple other points. We have a new embolic, we’ve referred to it, we don’t give a lot of -- we don’t talk much about it, but if you look in the press release here, you see there is new product called the Bearing [ph]. It will be out later this year or early first quarter of next year. So we have a new embolic developed by Merit at our BioSphere laboratories. And so, we have something else that will be showing that will be part of this. So even it is mid-digit this year, I believe, it -- as we look forward to next year, my belief is in 2013, with some emerging procedures worldwide, a new embolic and continued growth in the oncology that it would not surprise me at all if you saw it up in the double digits and those products are introduced next year, so this is just a couple of other points. And one last point. The wonderful thing about the business is this pull through, I talk about it a lot. So remember, every one of these embolics that we talk about, whether they use our product or somebody else’s, has to be used and delivered. Our micro catheters are up 80%. Now this isn’t a new product, these are up 80% from the year ago quarter. And I just think that there is a lot of other pieces of the business and then you go back to that 10% plus, 10.4%. The embolics may get a little soft, I think Kent used the word lumpy, that’s a new one for me. But there is a lot of pull through of a lot of these other products that Merit benefits and the micro catheters would be one of the primary beneficiaries of the pull through.

That’s helpful. Let me -- 2 more quick questions. R&D cap was a little light versus our model. I’m wondering is there some timing in that, maybe some spending that’s moving around? And then kind of remind us where R&D should be as a percentage of revenues for the year?

Well, it is dependent on whether you -- we were talking in the low 6% to mid, 6% and -- to 6.5% for what I call core R&D. That’s for the lot of the products Fred’s been talking about in the endoscopic business and some of our other vascular access and drainage and so forth. But the other part of it is the trial, and that has been a little slow and it’s been a little behind depending on how you spread that cost of $3.5 million we’ve talked about in our guidance. So it’s been less than that and that’s part of what’s helped this quarter be ahead of ourselves.

And if I could that’s -- there has been a shortage of doxorubicin, so it’s been a bit slower than we would have liked. But one of the things, Brooks, that I see is continued respect by physicians for the fact that we’re doing the study and how important they think it is. So this shortage has slowed us down a little bit, but we still believe that this is an important study and that will have huge returns on the back end of it. So that’s a little bit of, I think, maybe some of the lumpiness that Kent is talking about.

And it should probably pick up a little more through the year.

Let me just jump in. One of my goals is to offset those costs through these cost reductions through head count, through efficiencies and cost savings. So what I’m working very hard to do, and we won’t see all of that, but I can tell you that these programs are in place. We are not just thinking about them, they are being done. Our goal is to offset not only the cost of that study but additional cost to improve our operating margins across the board, so we’re serious about this, very serious.

Thanks for that. Let me just, last one on tax. You mentioned you had a one-time benefit, Kent, how much was the one-time benefit for this quarter?

It was about 1.5% reduction.

1.5%?

Yes for this quarter, over what it would’ve been. More like 29% is where it would’ve been.

And that goes away after this quarter?

It’s undetermined. It could continue. It has to do with how the investments are out there in our fund that, like a 401K but it’s non-qualified.

So that’s what you’re talking about here is the deferred compensation, but I think it raises another question. Kent, I’m going to ask you this question -- Brooks, if you’ll give me some license here -- and that is, we had talked year-on-year about an effective tax rate. Would you talk about what the current thinking is on our effective tax rate for the year?

Yes, we’re closer to 29% or 30% is where we think we’re going to be for the year based on what the first quarter ran like and what we see projecting and are continuing the plan forward. So the mix could change on that. The transfer pricing is a tricky thing with the international business when you have contract manufacturing in Ireland; that’s particularly where it is because Ireland’s what drives this more than anything else because of the differential between their tax rate and what it is in the U. S. or other places that are much higher. So we’re taking advantage of a structure we’ve worked on for a long time, and that flow of it could be plus or minus a few but we’re thinking we can save a little more on taxes than we originally thought.

And, Brooks, I think again we’ve worked very hard for many, many years to work on this tax strategy, but if you’re talking about 29% versus the U.S. corporate rate of 38% I think we have a very effective plan. And as you know, we have a new facility in Ireland that will be opening up sometime in around mid-May and that would allow us to build more products there in the future and allow us to have a lower tax rate. So this is a trend that you’ll see and continue to see both on the outside, OUS types of business, as well as our manufacturing businesses -- a much lower effective tax rate over time based on our tax strategy.

I mean, even in France the embolic products have a 6% lower tax rate, so as that grows profitability there helps too.

And our next question comes from the line of Jayson Bedford with Raymond James.

Just a couple follow-ups there. The old tax rate when you gave the guidance the assumption was 33%, is that correct?

That’s right.

Okay. And then you talked about the $4.4 million in cumulative savings. That’ll manifest in the cost of goods, the additional $5 million, is that in SG&A or is that just sprinkled through the organization?

It’s kind of sprinkled through the organization. Most of it though is operational stuff, so it’s gross margin stuff. They’re things like automation that we put in place, it will be savings and packaging, it’ll be savings in lots of areas of the business where we focus on reducing prices. Most of that’ll be above the line.

Okay. On the top line you saw a nice step up in standalone sales. And I realize there is a ton of products in there, but what really -- is there any kind of one or 2 products you could highlight that really accounted for the acceleration in growth?

Yes, there is a couple that jump out. This is kind of an interesting -- if you take a look at, for instance, our VacLok, our patented VacLok syringe was up 69%. If you take a look at our -- this is an interesting one, our diagnostic guide wires. These are things have been around for long time, we manufacture them in Ireland, they were up 38%. A lot of this is attributed to the disruption some players who have become weaker or have left various markets -- 38% for what is generally regarded as a very, very mature market.

The biggest one in the group is MAPs. They are up 800,000 28%, talk about a mature market, but a lot of that’s the international, China and stuff keeps growing.

Yes, so MAPs would be hemostatic valves. And there is another segment to that, our Honor Hemostasis Valve, which is again right essentially a MAP, but has its own line item. Our hemostasis valve is up 82.5% over a year ago. These are extraordinary numbers. And this comes a lot from our dealers in Europe and Russia. And these are by the way are 80%, 90% gross margin products. So these are very, very nice products.

The EN Snare, as we said, was a big contributor in that family. The Scion Clo-Sur P.A.D. is also helping out in there, that’s another one that’s added another BioSphere couple hundred grand this quarter in new revenues.

Okay. And just in terms of Ostial Solutions or Ostial Pro, you didn’t see a big impact from that in standalone where I’m guessing that’s where that product gets categorized?

That’s correct. Yes, and we did not -- it was relatively new, we were training and we just -- we’re doing, getting samples out to sales people. So there is very little effect. But I think as I mentioned in my previous comments, we get into places, Jayson, we’ve never been able to get into. We’re sitting there shoulder to shoulder with physicians, teaching them and showing them how it should be used and the techniques and so on, so forth. We’re doing those sorts of things, and it’s that’s amazing, all of a sudden we’re their best friends. It’s really -- I read all the comments from and chatter out of the sales force. It’s just amazing, the confidence it gives them, and that means you’re going to continue to see products across-the-broad be sold. So I love the pull through, and I also like the gross margins of the products selling for $800 with about 75% or 80% gross margin.

And the trend is strong when you look at it from February to March to now in April, it’s like doubling, but it’s in small numbers.

Yes, they will get bigger.

It’s a little. But it’s happening, it’s rolling.

Okay. And then just last 2 quick ones. The old BioSphere business, can you maybe breakout the growth between the U. S. and OUS business? And I guess my specific question is more, did you see any impact from excess inventory in the channel in the first quarter?

Jayson, we don’t have that number in terms of outside the U. S., in that particular thing. But we’ll dig it up and we’ll talk to you after the call and be able to respond to you. It’s not a material in terms of disclosure issues, but we’re happy to break that out and discuss it with you.

Okay. And just maybe, I guess just, and maybe I missed this but U.S. versus OUS in terms of contribution?

Yes. It’s moved up another percent now, it’s 36% of sales for international.

And our next question comes from the line of Chris Cooley with Stephens Incorporated.

Just 2 quick ones. First, you’re doing a phenomenal job on the top line. Can you help us think, when we look at the guidance range for the full-year, what, either as a percentage or in dollar terms, how should we think about the contribution coming from the newer higher-margin products and also the step up in ASP [ph] as you get as you go direct in these emerging markets like China. Just so – I want to think about parsing out the growth in that respect. And then I have a quick follow-up.

The sales this year in most of those conversion areas are still pretty small. We are in a transition period and I’m talking India, I’m talking Brazil, Russia’s a little ahead. It’s actually doing pretty well because we got started little earlier, and we don’t need the infrastructure there with our distribution and customer service already set up in the Netherlands. So it’s relatively small impact as far as on gross margins because the dollar numbers aren’t huge there as we convert over. But we are in that process that will help. I don’t have specific numbers to give you a bps for it, off the top of my top of my head. I can just talk in generalities but it’s in a large impact because we won’t make a lot of dollar sales change this year.

Well and then when you launch those products you have the samples to go out with them in these sort of things. So, I mean I think what we are seeing now is very minimal impact, but on the Ostial Pro, on any of these newer products we do see higher prices in places like Russia. We see higher prices than I think our corporate average or better than U.S prices in many of these marketplaces. In the Middle East we see higher prices there. I think whether it be Brazil, India, the Balkans, Russia that much like we saw in the U.S. when we switched over and went direct in China, you get the contribution both in units. As an example, in the Gulf area today, we are participating in a $8 million tender and these are just the products of Merit. We’ve never been on those tenders before. So, this is going to again continue to be high level of focus for us and they’ll contribute to higher gross margins and overall growth.

I know you like to provide guidance once on an annual basis. But here in the call, you’ve talked about the tax rate now, couple a hundred bps lower. You have talked about a couple of initiatives that are probably going to improve the gross margin line. Any thoughts as it pertains to the earnings guidance that you set out for us after the 4th quarter call?

No, I don’t think so at this point. It’s an interesting question and we looked them. We are not ready -- it’s within the sales range that we said, as Kent pointed around the high side of the -- I think we are at the 9 to 11, so we are on the high side of that. But I think we are just going to stay where we are. We get into the second quarter and again just as kind of heads up it’s always hard even if we have a great second quarter to kind of up it as we go into the summer, because you know that you’re always going to have a reduction in procedure. So you’re always kind of -- it’s a tough place. So I think, what we’ll do is we know that the tax rate and just kind of a general feeling about what’s running through that, we probably too conservative there. Right now, we’ll just stay with the rest of it. But I think, what will be fun and enjoyable is to sit here and talk about the improvements in these operational issues as we move through. That’s the part that has our focus, cost, discretionary cost, above the line, below the line. We’re looking at everything and that’s our job and at the same time, we don’t want to ignore the growth prospects. We don’t want to mortgage the few or sell off the opportunities by trying to get so tight that we can’t grow in these markets like we did in China. I know that some people actually criticized us about the investments we’re making in China. Don’t hear much of that criticism today because it’s been a great success. And we think these other areas, we’re already seeing the success there, it would just accelerate.

Okay. And one final question and I’ll hop back in queue then. When we just think about the initiatives that you articulated here today on the call and you think about the improving margin profile of the top line or the products that you’re selling could be in the top, primary contributors to growth in the top line. Longer-term, should we see a material step up in operating margin? I mean, if I just add the $10 million roughly in cost savings that you’ve talked about which are predominantly on the growth side, would that get you up closer to about a 12%, 13% Op margin , at least off of our assumptions, which is still -- I know you’re outpacing your growth pretty materially, but it’s still pretty significantly lower than your peers at the operating levels. I’m just kind of curious, where you see operating margins going over the course of next 2 years or longer term?

I think the way I’d like to respond to that is that we recognize that we can do better. We think we have to discipline ourselves, but it’s something we have to do. This is and as far as I’m concerned offshore, but something that we have to do and something that we can do. And so, I don’t like being a sub-performer. I don’t like being in a situation where we’re growing and not given those returns, and candidly, I sure as hell don’t like a $12 stock price. So how am I going to share the shareholders? I’m going to grow the top line and we’re going to have to increase those operating margins. And that’s what we’re focusing on. I mean, we’re not just talking about it. It’s like laser focused. We can go around the room here, we can just go one by one and everyone in this room knows what they’re expected to do, what their contribution is, where they need to hold the line and the changes that we didn’t make in our behavior and our business to be, have more success. More success comes from better operating margin. So rather than give you the numbers and throw something out there that will be off the top of my head – listen 12%, 15% very hard to do, 12% is something we’re certainly capable of doing and we should be doing and we will do. And I’m not going to tell you next quarter, next month whatever, but I’m just telling you that’s what we have to do and that’s what we will do.

And our next question comes from the line of James Sidoti with Sidoti & Company.

The one-times in the quarter, now that’s about a penny of those and I assume that’s related to the Ostial acquisition?

Some of that, there are some severance from some changes in areas. There are several other areas of some one-time expenses that are in there, Jim.

Okay. Now you mentioned that the capacity in Ireland should come on line late in this quarter. How quickly does that ramp-up and what is the impact of that on your gross margin?

We are going to -- we have several businesses tht we’re starting up in that particular facility, some that are new, some that we do not want to disclose here for competitive reasons today. But I will assure you and I’ve got the project manager of the facility sitting with us today and we expect that once we get in to the May 4 -- May 17, is that it? So we will have the Prime Minister of Ireland and number of other elected officials in Ireland will open it up in May. You’re going to probably have 30, 60, 90 days of -- we have to set stuff up, so you’re not really going to see anything effective in terms of its production and its effective until we get into the 4th quarter.

But on the other side, could that actually be a drag on gross margin for the part of the second and third quarter?

Jim, we have to start to depreciate the buildings starting probably in the 4th quarter or certainly earlier, that’s going to be a charge there however, where we’re looking at our growth and where we’re seeing the fastest growth and where we need the capacity is there. So by definition you’ll have the expense, but as Kent points out we have new snare products, we have the EN Snare that’s growing, the guide wires we talked about that are built there. The hemostatic valves that we discussed are all built there. The basics to all the products that are growing like crazy are all built there. There will be a lot of absorption opportunities there. So I guess what I’m saying.

Okay. And then last 2 questions. What was the international sales growth for the quarter?

It was mid -- it totaled out to 36, it was $5.7 million was the international growth up 33% of overall. Or 20%, was it? That’s too low, it was higher than that. Anyway, then it was $3.2 million, that was domestic. So I don’t know if that answers your question, but it moved us to a ratio of 36% up from 35%.

Okay. Can I throw something in there too that is sometimes overlooked, and I know, Kent, you’ve commented on in the past, but you have to remember that we threw on 18 months ago, we threw all of this BioSphere, of which about 90% of those revenues were coming from the U.S. If you kind of back that out, and then we looked at what Merit is on the international side, it’s going to go over 40% because you’re backing out almost $30 million worth of revenues that’s essentially were just almost all U.S. So you pull that back out and you see even more dramatic numbers in terms of what our outside OUS numbers are. So, if you back that out -- no, you can’t back that out, but it’s more dramatic than it even appears is what I’m saying to you.

Okay. So, but you if you leave it annually -- I’m sorry for that, I didn’t hear the number, was it 20%?

Yeah, it’s 20.

20%. Okay. And then the last question --

It grew 20% outside the U.S.

My last question is on the debt. Now I assume that went up because of the acquisition. When do you start to use cash to pay that off? Or you come through that level, you think you’ll go up from here or, what are your plans?

Jim, the debt level that we have today, the acquisition costs were paid off BioSphere. We made as you are aware of a couple of acquisitions during the quarter.

$12 million we borrowed basically for that purpose. Most of it was Ostial Pro.

Ostial Pro. And the rest of the capital that is being used in the debt is being accumulated for the Irish facility which will open up, and the new facilities that are being built here in Salt Lake City.

There was $12 million in the building this quarter.

In this quarter, there was $12 million. Just a reminder that we will be actually shutting down one of the -- actually the original facility that Merit leased, we will be shutting that down at the end of the year or early first quarter of next year and consolidating all of that out here and onto our campus here in South Jordan.

Okay. So, what are your plans as far as, assuming no acquisitions for the rest of the year, when you start paying off that debt?

Well, we are going to continue to spend more than our operating cash flow on completing the facilities. There will be little -- a few months left in Ireland and then all of this year and a few months into next year for the other facility. When those facilities are completed, our operating cash flows will exceed our CapEx requirements and we’ll have free cash flows to start paying it down. So, you’ll see that in starting into next year. Midyear, it will start declining. That’s barring transactions or acquisitions of course.

$7.5 million that we will be paying in the second quarter for Ostial and Scion as well.

I think that falls into what Kent said. So it continues to be a net borrow through the end of the year. Those projects will be paid down and then we’ll generate substantial, start paying it off as we move into next year.

And our next question comes from the line of Ross Taylor with CL King.

Just have 2 or 3 questions. You will start some of the cost-saving initiatives you’ve mentioned, I guess totaling about $9 million. Are there any other areas you may invest in that would offset that savings? We don’t see all of that flow to the bottom line overtime?

Well, I mean Ross, we’re working out and looking forward. Are there areas that we’ll invest in? We look at new things every day that walk in, but I want to point something else and to clarify something. We set a goal of $5 million in cost savings, we have these 2 other initiatives that are going on. There are many other areas that have our focus in terms of cost savings. I don’t want to go into all of them, but there is a number of them that are out there. So they are across the board. In terms -- I missed the second, would you repeat the second part of the question, the last part of it? Oh, other investments, yes.

I mean, this capacity is part of it.

I mean, the capacity is the biggest part of it that we’re investing. We’re investing in the R&D part of it. There was CapEx that goes into equipment and automation for the new products that are coming on, for instance, in the balloon products. We bought a lot of equipment last year for balloons. But I don’t see anything major other than the facilities themselves that we’ll be investing in.

Okay. And also just on the gross margin. It sounds like it’s up about 60 basis points year-over-year if you exclude the amortization expense. Given that your annual goal is much higher than that, is that kind of consistent with your thinking for the quarter or is there anything that maybe impacted it or held it back all in the quarter?

Oh boy, it’s a really good question. I will say that I think we can do better than that and in fact we’re going to have to bring a lot of stuff. I think the OsteoPro will add to that. The Clo-Sur hemostatic patch perhaps will add to that. And then many of these newer projects that we’re launching are relatively inefficient, because you’ve got the cost over the manufacturing you’re starting up. So I think as some of these things come online during the year that will help us substantially, as well as these cost savings products are going to help the gross margin line as well. So we’ll be fine. I mean, generally, we’ve been holding onto this 150 basis points as a goal every year. I think last year we may have missed, if you look at the last 5 years or 6 years, we’ve hit it every year. So look at that.

No, we actually made it last year.

Did we make it last year? We’re right on the number.

Yes. If you take out the inventory adjustment for the BioSphere product you did.

Yes, but the point is, is that we haven’t missed this for 5 or 6 years, we will get it.

Okay. And my last question is I don’t know if you can outline your sort of launch or marketing ramp up plans for the Ostial Pro at all and what your expectations for that might be over the next 12, 18 months?

Yes. Well, first of all let me point out that it has been not been approved in Europe at this particular point. And so, any of the stuff that we’re giving is just the U. S. market, it’s not received approval in China, Japan, any place else. We’re just selling it in the United States. We think it will do several million dollars. We had a market, I think, what was it, Kent, about $3.5 million that we’d estimated this year?

Yes, we’ve had a range from $1.5 million to $3.5 million?

Yes. So we’ve got that range, it’s not huge, but then it’ll start. This is a product, like even this day, we’ve had 2 or 3 new accounts opened up just today and it’s something that the sales guys are very excited about because they can get in and sell all their other products. It’s a nice lead product to do it. So and then as we go down the road and get these other regulatory approvals, we’ll have regulatory approval I would say in Europe, sometime probably in the 4th quarter, maybe third quarter late. Third quarter, okay, my guy’s telling me third quarter. So they will start to accelerate as it becomes available in other places on the planet. I will tell you that we were showing it recently in the Gulf states and they are very excited about it there and we’re actually training in the Gulf states right now. In Dubai and other locations, Saudi Arabia, are places where they were using it. There is a need for it right now. There’s also some studies that are coming out, that one of our physicians pointed out that the main study that essentially requires that -- let me just say you would want to make sure you place that stent properly. These are being done by Abbott and other companies, but there are other things we think, will bring more and more attention to the Ostial Pro.

And our next question comes from the line of Gregory Macosko with Lord, Abbett & Co.

Just so I understand, you mentioned early on with regard to Laureate Guide Wire was there another quality issue you mentioned or is it something I wasn’t clear on that, when you’re talking?

No. What happened is that, we received notice from the -- they did an inspection of our Irish facility in the fall. We got a warning letter in early February, mid-February, saying that they thought that we should file an additional 5 10-K. We’d already filed and received approval. And there had not been additional quality problems for the product, and we have complied with their request. In the meantime we are selling it in China; we are selling it in every place in the world.

No, Fred, what I meant was, so it’s all everything you talked about was just with regard to the Laureate, it was nothing else discussed.

Oh, yes, yes, yes, there was and thanks Greg, and now I understand. We had a problem with one of our devices that probably had a charge in the quarter of about 100 and…

Between the Laureate net we had about a $200,000 charge on a 20 basis point…

Okay. There was a $200,000 in charge for these particular issues in the quarter. So I’m not going put on any additional competitive information but a $200,000 charge in the quarter for these particular issues. . .

But it’s been resolved.

But it’s been resolved, yes.

So, there was a second issue but it’s been resolved.

That’s correct. And it did not involve a recall, it did not involve the FDA or anybody. There was just an internal production issue that had to be resolved.

And I don’t think we’ve lost much sales for it. We had to maybe back order it a short time but we’ve refilled those again...

Yes, we had it done and. . .

Okay. With regard to -- you’ve talked about procedures in the United States. Are you saying that procedures slowed down or were you saying that they continue slow because that’s one of the things we had been hearing last year?

I think we would say that they are slowing down even further. As we look at our sales based on our business experience and the sales that we’re seeing in the U. S., our sales force and the numbers would indicate to us that it continues to slow.

Okay. And then I saw that accounts receivable were up 12% sequentially, does that mean anything versus sales being up 5%?

No, I mean it was because of the strong sales at the end of the quarter, and March was really heavily loaded in the quarter. So our days average receivables is only 43 days, 42 I think it was. So we are still healthy there. It means that the collections will go bigger, you’ll watch that drop down in a month or so. Not concerned about it.

Okay. And then finally, when you talked, I believe you talked about it was the Endotek you were talking about with regard to being very profitable or you hope for good profits in 2013, was that the division or group?

Yes. And part of the reason is this that if you take a look at that, that area is going to do about $13 million in revenues this year. And we’re going to pull a full 2000 -- excuse me, $2 million out of $5 million or $6 million cost of sales. We’re going to pull over $2 million, so we’re going to reduce cost of sales by about 40% or so. These are up because of our new stent we are getting about 20% higher prices. So we are essentially when you back out in our company, for us we don’t expect to see much better.

And our last question comes from the line, a follow-up question from Larry Solow with CGS Securities.

Just a couple of quickies. Did you mention any thing about the tender in China and Beijing, is there any update with that?

Yes. There is no update on it.

Okay, That’s fine.

I’ll tell you what has happened now. We’re selling products that are approved. It’s starting not as quickly as it would if the tender were approved, but there are other territories and Laureates and some of these products are starting to sell. But, not as they would be if it were all done.

Could you give us a cash flow of operations numbers and then what CapEx was in D&A for the quarter?

Yes. Cash from operations was 7.5, I think, 7.4. And the total CapEx was -- I remember the buildings were 12, 16.5 was the total. So we had $4 million in equipment, 12 basically, 4.5 and 12 in buildings. So what else did you ask?

And then, I guess, that the CapEx is sort of in line with, I think, the full year numbers are in the 50s, right somewhere there?

Yes, it was 16.5 for the quarter.

Do you have that for D&A, did you get that?

Yes. The total was $4.7 million -- $4.8 million for the quarter.

Okay. In terms of the gross margin, it was pretty much just a line item and I know obviously going out further as you get more products, your higher margin, newer products, you would expect -- hope for the goal was to increase this gross. Do you think in this year is sort of this number a good base in the 47 to 48 range any color on that?

Our goal was to add 150 basis points was our goal for the year. So 47%.

On a GAAP basis.

On a GAAP basis.

Okay. So you still think -- okay, on a GAAP basis, okay. All right, so that would imply there is some upside from Q1. I imagine you expect some improvement as the year progresses. All right.

That is our goal.

And that was our last question. I would like to turn it back over to management.

Well, again ladies and gentlemen we appreciate your time. We will be out to some of the financial conferences. Again I think the issue is I’m going to pick up from Brook’s comments. We’re generally pleased with the top line growth. We are not pleased with the performance. We believe that we can do better. We believe that we will do better. And we are focused on the actions and initiatives that will bring those better results. So I’m not here to bang the drum. But I will, I think the top line is fine, I think we can do better even there. But we’ve got a lot of work to do to build this company, to put capacity in place, to cut costs, to become more efficient, to -- very candidly more efficient in getting our products to the marketplace. And we’re doing this, by the way, I’ve not mentioned this at all today, but in a very, very tough regulatory environment. Not just because we got a leg up, but across the board if you talk to anybody the days to get things approved becoming more and more difficulty. So there will be times for us to have further discussions about those kinds of issues in the fall. We understand what we need to do. I think if there were one issue that I’d like to leave you, we understand the task and we will look forward to reporting the results of our efforts in the future. We again thank you for your attention, your time and we’ll go ahead and sign off now from Salt Lake City, wishing you all a good evening. Thank you very much.

Ladies and gentlemen that does conclude today’s presentation. Thank you for your participation. You may now disconnect.