Q1 2006 Merit Medical Systems Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by, and welcome to the 2006 first quarter earnings call and discussion about recent acquisition and cost containment plan. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will be given at that time.

[OPERATOR INSTRUCTIONS]

As a reminder, this call is being recorded today, Thursday, April 27th, 2006.

And I would now like to turn the conference over to Mr. Fred Lampropoulos, CEO of Merit Medical. Please go ahead, sir.

FRED LAMPROPOULOS, CHAIRMAN AND CEO, MERIT MEDICAL SYSTEMS, INC.: Thank you, and good afternoon, ladies and gentlemen. This is Fred Lampropoulos with members of my staff. We're broadcasting from South Jordan, Utah. Thank you for joining us this afternoon. As we had previously indicated, Merit today reported revenues for the first quarter of $45 million. And we'll go into all of the specific details, but first, we'll go through and have [Rashelle Perry], our General Counsel, read a Safe Harbor provision.

RASHELLE PERRY, GENERAL COUNSEL, MERIT MEDICAL SYSTEMS, INC.: 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 involves 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, events, uncertainties and other factors are discussed in our annual report on Form 10-K and other reports on filings with the Securities and Exchange Commission. 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 obligations to update any such statements.

FRED LAMPROPOULOS: Rashelle, thanks a lot. I appreciate that. As I had indicated, we reported today revenues for the first quarter of $45 million, versus 40.3 million for the first quarter of last year, a 12% increase. Net income was 2.4 million or $0.09 per share. That took into effect the 250,000, net of tax, for the adoption of 123(R).

As you can see, of course, our income was down from the previous years, and this was in line with our discussion that we had with you just a few weeks ago. We continue to believe that our business is on track. We believe that our revenues will accelerate as we go through the year. And as you know, we had talked about a range of 1.81, I believe, to 1.85. And as far as we're concerned, we are on line with those particular projections.

A couple of things that will be of interest to you is that as we discuss in our release, we are doing -- making a change regarding how we categorize our products. We have moved the custom kit business and the procedure tray business, the Richmond business, into one category. Let me give you a reason and an explanation of why we've done that. As you know, that general area is the lowest area of gross margins for the Company. We have, however, transferred a small amount of product that will transfer several million dollars -- a couple of million dollars worth of additional trays that are being produced here, which we believe can be produced in Richmond much more efficiently in a business that's aligned to do that.

And so, you would have revenues leaving here and going to that other area, and we believe that it would be better represented to show the overall growth in that area. If we would have pulled that back in this quarter, we would then have, actually, a reduction in custom kits, and then a substantial increase in custom trays. So we believe that the fairest and most logical way to present this in the future, starting this year, will be to combine those two together because of the movement of this particular product.

Catheter sales, as you can see, increased 29%. We believe that that trend will continue and, in fact, grow stronger. Inflation devices rose 14%. That was pleasing to us. Stand-alone devices grew at 9, and when you combine the custom tray and the kit sales, and combine them together, it grew 7%. Gross margins were down from the 43.4% last year, down to 37.9. And as we've indicated in previous conversations, we believe that we are at the bottom of the trough here in terms of our gross margins, particularly, as we now start to produce product in higher quantities of new products that have been released and other new products with high gross margins. I'm going to share with you a few ideas on that in just a moment.

Research and development expenses as part of our restructuring expense were 4.6% of sales versus 3.8. But the exciting part about that is that new products are rolling out at an unprecedented rate. In fact, as I've indicated in the past, we're really loaded with new products. I'm going to briefly share with you a story that we're very excited about. These are kind of breaking events.

As you all know, we've been very excited about a product called the Revolution. We released that product several weeks ago to do some in-service training, to learn some more things about packaging, and have now released it to 16 of our salespeople. We'll release it to the entire sales force in about two weeks as we're now ramping production. I can tell you that this is the most enthusiastically received product, a product that has nine US patents pending, a product that's going to get 70% gross margins. We are selling and taking orders today, all of that 70% margin level or thereabout.

And as I shared with you not long ago, as we went to the SIR Meeting, the Society for Interventional Radiology, we were …