Merit Medical Systems, Inc. (MMSI) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Merit Medical Systems Inc. Fourth Quarter and Year End 2013 Earnings Conference Call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) I would now like to turn the conference over to Mr. Fred Lampropoulos, with -- the Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen. We are broadcasting from Salt Lake City where we have assembled our staff and what I think is very favorable 60 degree weather out here on what is almost a spring day. We will start our meeting today with giving and thanking you for joining us and we will have Rashelle Perry, our Chief Legal Officer read our Safe Harbor comments.

Thank you, Fred. During our discussion today, reference maybe 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 historical maybe 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. Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the SEC available on our website. Any forward-looking statements made in this call, are made 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 generally accepted in United States, GAAP, Merit's management believes that certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of Merit's ongoing operations and can be useful for period-over-period comparisons. The table included in our release and discussed on this call, sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements. Investors should consider these non-GAAP measures in addition to and not as a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some but not all items that affect net income. And finally, these calculations may not be comparable with similarly titled measures of other companies.

Thank you, Rashelle. And she did all that from memory and I think that’s terrific. She will now recite the Gettysburg Address. Okay. Thank you, Rashelle. Appreciate that. Ladies and gentlemen, again, we’re delighted that you have joined us, just a couple of issues and some housekeeping things. We had initially intended to discuss our guidance and business plans for 2014 today. However, because of some scheduling issues with the Board and some travel, Presidents club and number of issues, we still have a few things that we need to get together for our Board and we are planning on meeting on Friday. We have scheduled the meeting for 1 o’clock on Monday. Excuse me, 3 o’clock Salt Lake time on Monday to go through a complete business update for the year. We apologize for the inconvenience. But again as a matter of policy we think it's only prudent to make sure that the Board, we have to see this and this Board meeting is scheduled for Friday. By the way that Board meeting has been schedule for awhile and there are lot of these other issues people having surgery and this and that, and we just could not get everybody together to get a final review done and so as much as I -- I am sorry to disappoint you with that. I think one week is prudent and we will have that done. Kent will be traveling to Orlando to attend a Medical Device Conference the following day and we will be able to discuss those results, as well as questions on the call. So we appreciate your understanding and we are sorry to disappoint you in terms of the timing. We are here today to talk about the fourth quarter and the year, and I think there…

Is that we ended up over $28 million in that business and we -- when we reforecasted after in April we had $26, so we beat that forecast for the year.

Yeah. And I think that leads me into the next broad discussion and that is, when we go back and look at our guidance, we are going to talk about our old 2013 guidance and then we came out in April with new guidance. The very interesting thing to note is that if we look at all those numbers on the old guidance we hit every parameter except for the sales number in which we fell about $5 million short and on the new forecast that we came out within April we hit every one of those parameters. So all the parameters and forecast and things that we gave last year saved the one revenue number which we had reduced because of this situation, which I just discussed, we hit every one of those numbers that we have forecasted. So I think that speaks for itself that despite starting out really, I don’t want to say on the wrong foot but a little flat foot, I think, we made substantial improvements during the year. You also recall that we moved into a 275,000 square foot facility shutdown and consolidated facility and I think we did that very, very well. I also believe that the SAFEGUARD transaction, which we did with Maquet was also essentially seamless. And by that I mean that that particular business never had an interruption to customers, so the best of my knowledge, we didn't lose any customers and we are able to integrate it into Merit sales bag and we think that there is going to be some opportunities that we will talk about next Monday in regards to the new radial product line and our whole radial initiative that are starting to gain more momentum. The fourth quarter was interesting from the standpoint that our core growth in the fourth quarter was up 12%. For the year, revenues were up 17%, for the quarter up 14% for the year and I think that from a sales point of view that you would all agree, we hope that you agree that short of the issue that came up that first quarter on the Thomas deal that the revenues were pretty impressive. In fact, for the fourth quarter, while the concerns I have now, I express this in my comments following our third quarter call was, can we beat the number that was already $5 million ahead of what we had proposed or suggested. In fact we have guided down, if you recall in the third quarter, because of the summer quarter and ends up having this, what we think is a terrific quarter and it raised concern of our ability to do that and to beat that quarter and we did. We beat it by almost $5 million in the fourth quarter and I think had a relatively strong finish overall. Kent, do you want to comment on that?

No. I think that, and the other thing is nice is how broad-based it was, we did in the first quarter, I mean, the third quarter, we see sequential revenue momentum in almost all the product groups and geographies. So it's nice to see how broad-based it is to across the breadth and the line.

Now, we are able to do this when, of course we have the Affordable Care Act that cost us in excess of $4 million last year. But again, more than the other I think, important things is to take a look at Merit’s breadth of product sales across the planet. Almost, 40% of our revenues come from international markets and we continue to believe that from a manufacturing point of view, our facilities in Europe as well as our sales. If you take a look at the sales of direct products, in Europe, our direct sales were up almost 20% last year and EU directive -- dealers were up 22%. So as we look -- if we look at direct, our ’13, that’s correction it’s 13 and dealers in Europe, which also include the Middle East that’s almost 22%. China continues to be a star and that was almost 20% growth in China last year and our direct sales is 41%. And some of you recall that we have some dealers, resellers in the United States that sell that, but our direct effort was up over 40% last year. So there are places in the business that I think performed well. Even our Endotek division, which started out relatively slowly as we moved out through the year, started to regain some of its momentum once again. I believe that was 9% for the year

Yeah, 9% for the year and 25% for the quarter.

Yeah. So the fourth quarter was very strong. So, a lot of I think very interesting sales numbers, interesting product drivers like our micro catheters and either embolics, our QuadraSphere last year grew very, very nicely. And that business now is almost $8 million from really $0 million when we made the acquisition, so I'm pleased with that. Now, on the other side of the current, we did see a slowdown in gross margins in the fourth quarter as compared to the second and third quarter. You'll recall that we had promised that we would deliver 60 basis points per quarter for the next six quarters and we delivered 140 in the second, 150 in the third, but we only grew at 20 basis points in gross margin in the fourth, that’s 310 as opposed to 180. So, I mean, we beat it, I think significantly in terms of improvements in gross margins. We of course will talk about these products and everything going toward next Monday, We reduced our debt by about almost $25 million in the fourth quarter and pay down our debt. So, I think we have that. All of our covenants, Kent, I want to make sure that that’s correct. Everyone of our covenant, everyone were above our expectations are in line with the bank. And again, I will remind everybody that on the Maquet acquisition, it was the bank that stepped up for what I feel is very equivalent to our snare products that we acquired several years ago. This is an 80% patented product that we think fits very well into our strategy for the future, which will again as I mentioned talk about next week. Let’s see, Kent, do you want to just add anything that comes to mind here?

No, I think we can talk about some of the star products that we had. I think the Laureate is an exciting one. It was up almost $4.5 million of new revenues contributed, our trays added $5.6 million. We had some good gains in some of our catheters. For example, the Radial sheathes were really strong. The Peritoneal Dialysis was a new product that added a lot. So we got again, broad-based products at the EndoMAXX stent and the endoscopy business was strong and was well accepted by the market.

Couple of other financial issues that I think were important, even when you take into account the acquisitions and particularly, the Maquet deal in early October and with the growth, we were still able to decrease inventories last year by $2.3 million while growing the business substantially. I think that's a big accomplishment and our inventory turns change from about 2.75 up to over 3, so it’s about 3.05. So, I feel like we did a good job there in terms of managing those particular issues while keeping in line after the quarter generally, our SG&A and R&D expenses which you can see are stated in the statements. Just a couple more thoughts. Our trailing EBITDA is about $70 million, DSOs at about $46 million. As I mentioned, we did move into our new facility here and we have completed the facilities in Pearland, Texas and we are in the process over the next several months of moving into that facility and that's going to be a significant opportunity for the company in terms of our capacities and maybe more importantly through some of those who may or may not recall this. But we had a situation when Hurricane Ike came through several years ago, that created a bunch of havoc and a bunch of challenges. It essentially shut the business down for a month, as we have to go through and had to make repairs to the roof and other things. This is a 60-year-old facility that was essentially a shopping, a strip center. And I'm just grateful that we have got what I think is a boat there. And so we're into this new facility that will expand I think winds up to a 155 miles an hour and closer to here, both from an improvement point of view and from a weather point of view and a capacity point of view, it's going to be a facility that will service well into the future. Kent?

Another point on weather and so forth is one of the biggest dangers is flooding and making how often biggest storms down there with also high winds, and we got a building that's basically on a pedestal and so like you lifted out of the flood and I think that’s important

So, again, I think when you're looking at performance and all the numbers, one of the things we look at out here, more things that our Board requires us to do is to really make a risk assessment of where a work how business be heard and what are the challenges. And one of them, that was right up on the top was the issue relative to this facility and had that storm been 25 miles to the west, there wouldn’t have been Angleton facility lag, it would have leveled it with those types of winds. So we were fortunate to escape. I think from that point, we said we’ve got to do something to improve where we are and to update the facility. So that has been completed. We have a number of new products. Our pipeline continues to be full. Again, we'll talk about that in detail next week. And I think the numbers speaking themselves. They are a little bit, I don’t want to say confusing but they are little bit difficult because you have a lot of transactional costs that all written because of the Thomas deal and lot of issues both on GAAP and non-GAAP. We will let you sort through those, but I think one important number is that our non-GAAP number for the fourth quarter was up 52% from the fourth quarter of 2012. That is a significant I think accomplishment to see that type of improvement. Kent, you want to talk anything financially before I turn the time over?

I wanted to mention the progress we’ve made in the SG&A expenses that they were down significantly. If you look at the non-GAAP numbers for example, we were down to 26.7% compared to 28.9%. So when you compare those quarters, that's over 220 basis points comparison year to year and it's really nice to see that progress. And for the year, we were 27.1% compared to 29.2%. So again, 210 for the year and in the quarter, so that was part of why we made such progress in our bottom line with our SG&A expenses really were coming down and we are getting leverage there.

We are through our building cycles so to speak. We have a few things that we have to finish up and some smaller projects but we spent a lot of money adding capacity and capabilities over the last two to three years. And I think we’ll talk about this in more detail. But I think generally we’re looking to create about $51 million or better than $50 million worth of cash flow, we’re going to reduce that next year. And again, that's a significant number and we have very, very low rates and very hedge rates. In fact, our rates will be dropping as of the first week of May pretty substantially. And I will go into those details now but we're looking forward to having a conversation with you next week. We’ll give you detail about the business forecast earnings opportunities, challenges, and so on so forth. So I think that’s pretty well covered. So again in summary, a year that started out a little tough, one in which I think we focused on the things that needed to be done. We moved, we build, we developed and I think we ended up I think salvaging the year. This is my opinion despite a number of challenges including the Affordable Care Act. So that’s it. I think from this side, we’ll go ahead and now open it up for questions. And so operator we’ll go ahead and let you line up for us. Thank you.

Thank you. (Operator Instructions) And our first question comes from the line of Tom Gunderson with Piper Jaffray. Please go ahead.

Hi. Good afternoon guys.

Hey Tom, how are you?

I’m good, thanks. I have three, I think, quick questions. I'll start with the quickest. Kent, headcount at the beginning of ‘13 and at the end of ‘13, I thinker you’re going to try after the discussion in April to reduce. How did that go?

Do we have the number here?

Total in there.

Okay. Let me just look at. Tom, I going to answer that sitting here.

Didn’t go down.

It didn’t go down. It looked like we added about 120 people give or take.

Lot of those were in Ireland and China and …

So let me give. Manufacturing was almost 80 of those individuals. Regulatory 1, R&D add 15, that was again. But we did not -- we didn’t reduce the number. Now hopefully, with the new facility and some of the things that we’re doing for efficiency that will slow them. But I will have to tell you, I just had a conversation Tom before the meeting and it's a challenge for us to make sure that we can keep these numbers. So I'm glad to ask the question because we were having these conversation just before we went online. So that’s the answer.

Got it. Thank you. And then a broader question, I've been picking up anecdotally few cath labs around the country. The things are particularly busy. There's a seasonal busyness at the beginning of the year because of the winter et cetera. The things according to the docs I was talking to are particularly busy and I’m not sure if it’s flu or ACA or something else. But I was just wondering if you were picking up any of that and if you had any macro thoughts on busyness in the cath lab?

Well, the answer to that is we're not seeing that. I mean we are seeing growth but I don't think we’re seeing extraordinary types of things that you’re suggesting that we're not.

Okay. And third and last question for this round is I may have missed the news announcement but maybe give us an update on the HepaSphere and China?

Yeah. Let me back up for a second. When I come back to that previous question, if we look back to the third and fourth quarter, I think that’s in fact exactly what we saw. If we take a look at January, specifically and I want to be clear, if I don't step over the line year, I wouldn’t say I saw that same type of explosive growth in one month. Now that's not unusual because you usually have a startup kind of get through the year and then kind of get going about 10 January or so. So we did see in the third and fourth quarter, I think that what these numbers reflect. Let me go to the -- specifically a question on the HepaSphere We have received our license for -- our dealer received their license for HepaSphere. I think one of the areas that we’re very pleased with it is on the Embosphere. We are seeing, I think substantial demand for that product. And we believe it will start to make initial delivery because we are transferring the license from the distributor into Merit direct as we speak. We have great hopes and aspirations for China on the HepaSphere. We are seeing HepaSphere in Taiwan growing dramatically. And we're also seeing dramatic increases in HepaSphere in Japan. In fact, I can't say that many of the orders from our distributor have -- they have actually moved May orders up for delivery in February. So I think that the HepaSphere is going to be a product this year that is going to see substantial growth and we’ll talk about that and the actual numbers -- may be since you asked the question today, we’ll talk a little bit more specific about that next week. But it's a pretty substantial opportunity. Again I would remind everybody that when we bought that business, the numbers were centrally zero and this year, I think it finished at just under $8 million and we should see substantial growth going forward.

That’s it for me. Thank you.

Thanks Tom.

Thank you. Our next question comes from the line of Jim Sidoti with Sidoti & Company. Please go ahead. Jim Sidoti - Sidoti & Company: Good afternoon Fred. Can you hear me?

I can Jim. It’s nice to hear your voice. Jim Sidoti - Sidoti & Company: Great. Great. A follow-up on the employee headcount specifically the sales force. Can you give us some indication, are you happy with the size you have now in the U.S. and outside U.S. we will be adding people in 2014?

We will add some people in 2014, but I think Marty and Joe probably maybe a total of about four or five in U.S. and then will add some other support personnel in Europe. So I would say that I will probably add 10, maybe worldwide. So I guess I would answer it by saying that you never have enough sales people as many as you'd like to have. But I think we'll probably be looking at no more than 10 worldwide this next year. So I don't think that's a significant increase. It’s under 5% and again without getting into what the growth is, it’s substantially below what we would expect to grow. So I mean that -- that's the way to answer that. Jim Sidoti - Sidoti & Company: Okay. And then on the R&D side, I know you had a pretty significant step-up in cost over the past couple of years with the clinical trials you’ve started for the biology products. Can you see that starting to run a loss at this point or do you think with things like new BPH trial that you will continue to see R&D cost accelerate?

No, I think what we want to try to be able to do, Jim, is to keep it in that 7% to 7.5% range. You could see maybe a top a little bit and then drop back like we saw in the fourth quarter. I think -- I don't have it right in front of me but if my memory serves me correctly, it was a little bit lower than the fourth quarter as a percentage of sales. So I think we have a full plate of new products. We've got plenty and we don't see any significant step ups. I will say this and I discussed this in the past. I've said this before we start the first $1 billion in this business as I look back at from where we are today was relatively easy. And by that mean, a lot of sweat and toil from lot of people. The next $0.5 billion starts to cadence with some of the flush of our competitors. And so it’s going to be a lot tougher. So one of the things that we have done here as part of this R&D spend is that we’re looking at projects and working on a couple of projects and this is not the trials, but these are projects that have the potential of the $50 million to $100 million worth of revenue a year. Some of these projects are 5 years out. Those expenses are included in this number. It's not just short-term products and very candidly Jim it’s not parts and pieces. Merit has to look and has been more focused on systems and other products, like our EVT stent -- our EndoMAXX EVT stent and some other stent products that we hope to bring out that we think fill niche markets. And…

It is, but I do hope that I might see -- you never know when you might get one of these little Safeguard deals or Snare, these aren’t major acquisitions, but they are major contributors. So I don’t want to go on the record and say we are not going to do anything, I would say the major focus is to pay this down to give us more opportunity. We think there's a reasonable level of debt, but it's probably no more than half of where we are today and we would like to pay this thing down. There maybe as you know, like I said if I don’t get the Snare and I take a look at the Safeguard that will generate about $20 million of revenue give or take this year at 80% gross margins. So if one of those comes along and it’s adjustable, it would be something I would look at, but you won’t see any major acquisitions beyond that kind of structure if something comes along, the may or may not. Jim Sidoti - Sidoti & Company: Thank you.

Thank you, Jim.

Thank you. Our next question comes from the line of Jayson Bedford with Raymond James. Please go ahead.

Hi, good afternoon. Thank you guys for taking the questions.

You are welcome, Jason.

Just following up on the last questions on hemostasis line, have you launched the radial device I don’t know if you are still calling it AIR-BAND or not?

Yes, we are now calling it the Safeguard Radial so we have the Safeguard product. It was launched effectively in our sales meeting in locations that in Europe and in the U.S., but essentially just getting started in January. So it’s just -- I will say and presumably that we are growing it higher Safeguard business. So we forecast if you will recall in our initial discussion of the acquisition that we used I think 8%. I think we are going to see substantially higher opportunities with those products, particularly bundled with our entire radial product line. And we did last week we did trials of our hydrophilic sheath in South Africa and I would say that best way to describe it was very, very successful. So we will be launching that product first in Europe and we will be filing for regulatory clearance in United States and again we will go into all of this detail. To answer your question we have launched the Safeguard Radial in United States and worldwide.

Okay. When you look back into ’13, we back up the Thomas deal, low single digit growth in the first half of the year, double digit growth organically in the second half of the year, necessarily given that’s sustainable, but why do you think growth was so much better in the second half than the first?

That is the question of the day. We asked something -- we were surprised with the growth in the third quarter, we were stumped. It was just something we hadn’t expected. We always kind of hedged that because of the summer. I do think they were doing some things in terms of our business in Russia, the Middle East, clearly in China. Those areas are really driving the growth, but we saw a substantial improvement in the second half of the year on our domestic sales as well. So it was very slow the first half, the second half that increased. Net of that all together, I think, I will say this that having a direct presence in terms of leadership in Europe, I think it's also made a difference and that’s why you're seeing some of those numbers. And this clearly have boots on the ground. Now will that continue? Look at despite all of the issues in Egypt which has been a big market for us, Tunisia, Libya, all of the stuff in the Middle East, including Syria where we sell product, all legally under the guidance of the Treasury Department. I should mention I thought that that would have an effect. I’ll tell you where the area of the most concern is right now and that is what's going on in places like Venezuela, Brazil and Argentina. And I think anybody that's in the medical device or any business right now. Now, those aren’t significant contributors like Russia or China, but they all kind of added to that part. And that’s an area that I think is going to be of some concern. I’ll give you an example I showed this in one of those countries, our dealer wanted to place at $1.7 million order. The government with all -- this is of kind of interest in god bless America because the government will only let them order a 170,000. And then they have had the issues of currency, they couldn’t get it. So I’ll say those are the kinds of challenges that I think exist out there in the world sometimes and fortunately is living in America and maybe European countries will have those issues, but some of those countries are struggling and it’s going to affect, for our business next year it’s really one of the areas of concern, but not a significant factor will rob it, nevertheless our concerned. Joe, is that a fair statement. I mean, I was just referring to Joe right to runs that particular area going for us.

Inflation devices look strong in the quarter. Is this the start kind of a bigger contribution from the basic touch?

I think that the basic touch is the best inflation device in the world. I don't think -- there are other inflation devices, but I do not think that there is anything better than this device, both in terms of expression range and its performance. So I think that's important point. One other things Jason going forward is that we will be over time and we say this over the next 12 to 18 months, we will essentially be putting that platform, it will at least be available on our IntelliSystem, digital and on our analog. So, I think that’s important issue. There’s also a new thing hemostasis valve that we hope to introduce, call the PhD in Europe and that will have a significant impact on inflation devices as well. In addition, that's why the highest gross margin product in the company are all hemostasis line is very big. So and the other pleasant issue is that we’re seeing, I don’t want to color the resurgence because that would be maybe overstated. But I think we are very, very pleased that we’re starting top see a little bit of a revival in one of our OEM customers, a little more than we thought. So which essentially has been in a pretty steep decline over the last several years, but all of a sudden we're starting to see a little bit of improvement instead of decline. So maybe it's leveling often and maybe finding a little higher level. So that’s part of it that we’ll see kind of going forward.

I guess last for me and I will jump back in line here. On the margin side, are you still capturing kind of incremental margins from the new facility in Salt Lake?

Let me -- I think to answer that is I think that kind of initial surge because we dropped off some, but we're still putting into place as an example a delivery system that will be in place in April. This is to deliver goods out of the automated warehouse to the trucks that are leaving. And we won’t see that until April. And I think, one of the other things that we saw is that there was this new dramatic system and all these things. I think people, it’s taking them some time. So where we see more, I believe absolutely that is substantially more. I think we saw initial search, I think that leveled out. And then I think what we do now is we’ll start to see that improve throughout this year and then we’ll go to the issue of headcount, then we’ll go to the issue of margins. So one other area that I think is one that we hope to talk about next week and I will plant the seed right now. And that’s the one is that the company is in the process of switching to a digital work orders, digital systems that eliminate paperwork completely from our operational systems. That’s a two or three year of process. I actually went through the first production line last week or two weeks ago, But that's another significant contributor where you don't have to have 15 people signing off a work order, it’s done from station to station. Now that has to go through FDA approval and validation within the process of doing that. It's with existing headcount. So we're not hiring new people to do that. In fact what you do is you’ll see a decrease in headcount coming from that, those things. So those are significant that but all it would really have to do with your question is that, is the new building and its capabilities, do we see more opportunity there and the answer is yes.

Okay. Thank you.

I hope your cold goes away.

Thanks.

I think all of us in this room had it. So we’re glad to see it’s moved to Florida. Hoping you get well soon.

Thank you, ladies and gentlemen. (Operator Instructions) Our next question comes from the line of Mike Petusky with Noble Financial. Please go ahead.

Good afternoon guys.

Hey Mike.

Hey, so Fred, I guess, you maybe sort of answered it, I just want to make sure. So, in terms of the radial opportunity that you see longer term, it sounds like you're probably just as excited at least as you were a few months ago. I mean is that fair to say?

Yeah, no, Mike, I would say, I’m more excited. The reason is that we’ve essentially validated our new product and there is still work to do out there. But we have that new hydrophilic sheath, that's a significant issue. And I think with just the release of the Safeguard Radial, which use to be called AIR-BAND. That’s just getting started and we’re going to continue to see this growth rate. Again some people will see 16% to 20% in U.S., I believe that over the next five years that very well could approach 50% in the United States. And we’re seeing it because physicians are contacting us. There is more training. There are most seminars and more and more people are looking into it. And another one just popped up this week and this is one that I think is also significant. Interventional radiologist are now starting to talk about how they can do things like liver embolization and to do other things by doing it through the radial artery too. So this is a movement, this is a significant issue and opportunity. So I would say that the opportunity is increasing. Kent, you want to answer on that?

I just want to add that the Rad board has been a surprise, pleasant surprise, at the interest in that. And then it’s a small item in revenues but I think it’s important to the whole procedure.

Yeah. And we got a couple of thousand dollars and again we ran an article this month in Cath lab digest. And in fact Mike, we’ll send you a copy of it, if we can later on. I think we can do that. But it shows this lineup of radial products and it’s significant, whether it be from the set up to the board, to the sheath, access, closure and the catheters that are used to do the procedures. So we have I think a significant product line. And I think next to our there, is one other meeting, Japanese company that has really been the leader here for a number of years and we have everything they have and more. So I am pretty excited about that opportunity.

Okay, great. Kent, do you by any chance have -- because I didn't see it, and if you mentioned it earlier, forgive, but what was the breakout between domestic and international revenues? Do you have those percentages just overall?

Yeah. It’s 38. This showed 40% that’s kind of a round number, just about 40%.

All right great and then do you have a CapEx number for the quarter?

Kent, do you have capital for fourth quarter?

Fourth quarter? No that’s an extract from the third quarter of the year.

Okay.

I don’t have with me.

Okay. Mike, Kent will call you back on that number. He doesn’t have right in front of him. He will call you back on it.

Okay. And let me just a last question just circling back on the basixTOUCH. So there is certainly an element I guess of cannibalization there. Fred, what do you believe kind of wholly maturing, a few years down the road. I mean how much incremental. like true incremental revenue do you think you can get out of that product?

Mike, let me tell you what has been going on, just give you a just little history of how they started. When angioplasty first came about, we were talking about devices that operated at 10 to 15 atmospheres. Then they went to 20, 25 to 30, 35. 40 is now the kind of the new horizon and the reason is that they have a device that you can use at hospital to built a PTCA, do a PTA or you can do these fistulas. They all required high pressures and some of those will go as a high as 30 atmospheres. I am aware of the product over in Europe in which they have a coronary balloon that goes to 40. And I believe that the horizon that’s out there is somewhere around 55 atmospheres. That being said you go on the lower side and get down into the endoscopy business and you are talking about 8 atmospheres and this is our big 60 and our big 60 last year. Again, we lump that over the endoscopic side but Kent what’s the number on the big 60 for growth last year?

I have the other number if you want me to...

But it should be on this sheet right here on the 2013.

The uptake for the year was $1 million.

Yeah but what was the growth?

The growth is 95%.

There you go. So 90% in this one segment and then again, what I think with the products that we have, the breadth that we have and the fact that we are staying out in front of it, I know a number of my competitors. These are a part of big four, devices that go 25 to 30. And we believe the pressure we are going to continue to move higher as was the down the road. I mean I think that is what history would teach us and Merit is out in front of that not behind that. So, I have said a couple of years ago that I believe that the touch platform could be one of the largest products in terms of percentage of revenues for Merit, and it’s almost $100 million a year in terms of our inflation device business. So it’s a pretty significant part of that. I also said that I believe that we could grow our market share from about 55% to closer to 65% over the next several years. So, I think that’s about a 20% increase, could take us up another $20 million to $30 million in revenues. Now when we talk about cannibalization, it’s kind of an interesting question because what we see is there are lot of the emerging markets that have very low prices and we can still satisfy that with our basics compact. So we have not seen, I think it’s just fair but Kent please if you disagree, jump in. I don’t think we have seen cannibalization of our compact business at this point that essentially the touch business is incremental and taking market share from our competitors. Is that a fair statement?

Well, I know in the quarter, the fourth quarter, it was about 16% and over a $1 million in the basics and the touch was $268,000 in that same period. So it certainly, didn’t slow it down in overall.

And it’s just getting started.

Yes, it’s just getting started.

So again, Mike, to your question, we are not seeing the cannibalization, we aren’t seeing incremental growth and because we actually, we can hit the low end of the market and we can go to the higher, call it more premium end of the market and we have products that fit both. Interestingly, I should point out the basic touch cost a little bit more money to make. It’s got some additional stuff on it, but we have reduced the cost of the basics compact because of some improvements that we have made in manufacturing efficiencies. So, I think we kind of have both ends of it and I think that’s a major opportunity where many of our competitors have one device and they don’t have a range and that’s always been Merit’s strength by the way is the way of digital. We have analogue and we have a spread of number of products in the emplacing device area. Kent?

So, I have the third quarter file behind me. I was able to pull that out for you. So the change in capital expenditures for the fourth quarter was about $11.5 million in additional expenditures and so that’s actually slowing down now compared to the year because the year was nearly $60 million.

Yeah. So obviously, if you take essentially from a ramp up, so if you take that you would have spent $49 million in three quarters or about $16 plus million. So about a $5 million reduction in the fourth quarter and I think that will continue to move a little bit lower as well so.

All right, guys. Thank you so much. Nice finish to the year.

Thanks Mike. I appreciate you are hearing from me. Thank you, sir.

Thank you. Our next question comes from the line of Ross Taylor with CL King. Please go ahead.

Hi. I’ll start with just two simple modelling questions. I don’t know if you can give depreciation expense or depreciation and amortization expense for Q4. And I don’t want to get ahead of your call for next week, but can you give any comments on what you think capital spending might be in 2014?

We do have those numbers for next year. But we will have to hold off till next Monday, but Kent could you answer this one or is this a call back?

No, I can answer.

Hold on one second. Okay. Here we go.

For amortization for, what you want the quarter?

Yes, just Q4 is good enough, yes.

All right. So we have year-to-date Q4 here we go. So for SG&A, it was $1.1 million and for cost of sales, it was $2.7 million for this year.

Okay. And then depreciation, do you have that amount as well?

That’s the amortization and intangibles…

You know what, Ross, we are going to have to call you back on this right after the call.

Okay.

Yeah, that’s fine.

If that’s okay I apologize.

That’s fine. And last question and I apologize if you did make some remarks about this already. But can you comment at all about what growth in the U.S. was if Europe, kind of core business, I’m just trying to figure out how much of the growth came from the U.S. versus overseas?

Yes, we can, Kent.

So, the growth for the U.S. in the quarter without the acquisition included is 5.5% and 7.5%, and that’s not fair actually in one way because most of that difference is direct sales conversion. So, we really didn’t buy that business, we went out and got it this year so I almost thought we would give you little bit insight.

What was the growth for the year in the direct sales force?

So the growth for the year was 7.4%, okay

Okay.

And that does include Malvern product, but again, they didn’t get any at the beginning of the year.

And what was it for the fourth-quarter core growth, because it accelerated in the fourth quarter?

It was 11.5% overall.

Overall?

And that includes Malvern products that they had earned direct sales on this year so.

Does that answer your question, Ross?

Yes, that helps. Thank you.

Okay. All right.

Thank you. And I’m showing no further questions in the queue at this time. Please continue.

Well, it’s approaching about one hour and that we certainly appreciate the questions. Kent and I will be available for the next hour or two to answer questions for you. We thank you and again, I apologize once again for having to move this out a week, but our policy is to make sure we get to review by our Board. We have had a scheduled Board Meeting and we try to move it and we just couldn’t get everybody together with everything that was going on, so my apologies for that. We look forward to talking to you next week on Monday at 3 o’clock, Mountain Time and wishing it a very best. And thank you again for your interest in the company, and we will go ahead and sign off now from Salt Lake City, wishing you a good evening. Thank you.