Fred Lampropoulos - Chairman and CEO Kent Stanger - CFO, Secretary and Treasurer Joe Wright - President Rashelle Perry - Chief Legal Officer.

Tom Gunderson - Piper Jaffray Jayson Bedford - Raymond James & Associates Inc. James Sidoti - Sidoti & Company.

Good day and welcome to the Merit Medical Systems, Incorporated 3Q 2015 Conference Call. At this time I would like to turn the conference over to Mr. Fred Lampropoulos. Please go ahead, sir..

Good afternoon, ladies and gentlemen and thank you for joining us. We are gathered here all 50 of us in Salt Lake City, and we appreciate you taking the time. We will start our meeting by having Rashelle Perry, our Chief Legal Officer read our -- it is the ….

Legal disclaimer..

Legal disclaimer, thank you..

Thank you, Fred. During our discussion today reference may be made to projections, anticipated events or other information which is not purely historical. Please be aware that the statements made in this call which are not historical may be considered forward-looking statements.

We caution you that all forward-looking statements involve risks, unanticipated events and uncertainties that could cause our actual results to differ materially from those anticipated. Many of these risks are discussed in our Annual Report on Form 10-K and other reports and filings with SEC available on our Web site.

Any forward-looking statements made in this call, are made only as of today's date and we do not assume obligation to update any such statements.

Although, Merit’s financial statements are prepared in accordance with accounting principles which are generally accepted in the 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, set 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 exclude some items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies..

Rashelle, thank you very much. I suppose that some would like to call this based on our last call, once we talked about twist and shout, some of this would like -- some would like to call this summer time blues. I would prefer to call it here we go again.

So that said, let me go ahead and get started on our call and let me -- another little snip it if I could, I just left our facility, or R&D and administrative facility where we currently have a think radio program which just started about 15 minutes ago.

We have 22 physicians there, all 11 interventional radiologist and 11 interventional cardiologist. It’s the first time we’ve had a mix of those individuals.

Now why is this a big deal and why would I start my call with it, because recently at the CIRSE Meeting in Lisbon, we had a symposia in which we had 500 interventional radiologists there and I think it would be fair to say that we had the busiest booth in the entire trade show.

So I will come back to this a little bit later on as we talk about things that Merit is doing. And let’s start out by talking about revenues. Our revenues were up 6% adjusted for FX. I think it’s about 200 basis points more than that. And I did read one headline that said that we miss the revenue number. I just did a calculation; it was one-tenth of 1%.

So I apologize for that miss. In baseball we call that just basically touching the outside corner. So I’m going to call it a strike. But you will all have your own opinions on that. It was summer time and in the summer as I explained we would be sequentially lower and it’s not an unusual phenomenon for Merit.

We did have some interesting one-time events that if you take a look at the income statement, you will see that we had a situation where we took a $1 million hit. This is our GAAP basis and that was because of a deal that we signed to have the exclusive right for a steerable snare. Not a steerable microcatheter, a steerable snare.

Incidentally its $250,000 a year, for Merit have the rights to that product, we can opt out if we want to after the first year.

So even though we only put up 250, for what I think is a great technology, we -- according to our good friends and our accounting officers we have to take the entire hit even though we may not be obligated beyond this year to spend that money. I hope that we do, but I think this is another in our snare portfolio.

We have some very exciting areas, Endotek continue to -- sales were up 11%. They stood at 16% year-to-date. I’m sitting here with Darla Gill, who is the president of that division and one of the founders of Merit.

And today alone we opened a new Elation Balloon account and you’re going to continue to hear about the Elation Balloons and this division which I can think can grow in the 20s, as this comes forward with new products.

At the first of next year there were a bunch of OEM products that are sold like bipolar products, probes and other products, and we’re going to start to break this out as a separate division because we think its something you really need to keep your eye on and we’re going to pull all the products of the division in there.

And that’s going to start next year. If we put that number in there, it’s going to had about another 500 basis points to grow for this quarter, give or take. Anyway, that’s something that we think is important. Couple of other things that we want you to know about are the Centros Catheter.

I was looking at some of the numbers earlier today on the Centros Catheter and interestingly enough that catheter is up somewhere around -- I’m sorry, I lost it, but I will find it here shortly. Well, I will just give you the number, something like 76% for the year. This is the Centros Catheter..

You’re right..

Am I on? Okay, 76% for the year, this is a dialysis catheter. And for the quarter was up even higher than that. It was up by 289 -- excuse me 167%. So this is a product that’s getting a lot of traction and we’ve been waiting now almost two years to get all of the appropriate approvals in Europe and we will launch that product very shortly in Europe.

So we’re very excited about lot of the products. I’m going to come back to that, but I’m going to let Kent go ahead and give you a little bit of information on some of the numbers and margins and that sort of things. So Mr. Stanger, you have the floor..

Yes, I also want to talk about growth in some of our geography. So we’ve got besides Endotek, we’ve had 18%, 19% growth for the Pacific RIM, distributors other than Japan and China. China itself was 24% up. So those are some of the high spots of where our growth is coming from on international scene. We talk about gross margins. Gross margins were 45.5%.

So we lag a little bit there. We’ve had some challenges, for example in getting our Mexico facility up. It’s on schedule. Its working fine, but its carrying overheads for limited production quantities right now, as we’ve transferred over the six products that were with our contract manufacturer.

We’ve now moved another group of products down there and we have scheduled another set before the end of the year. So we’re on our way into next year of being able to start absorbing the fixed overheads it takes to operate in new facility of that size and capacity.

And so we’re excited about the future of that, how that’s going to help us in the ’16 and even more in the ’17 as we are able to load the facility with products that we can then consolidate out to our other facilities, reduce not the labor costs and eventually overheads as we can eliminate the positions.

And so another area of this is it just absorbing our overall capacity. And once the excess capacity as we’re ramping up and transferring products into Texas and as we increased capacities in our Paris [ph] facility for our embolic. So those are some of the areas where we’ve had overheads that are excess of our standard costs..

Let me talk about China as you all know there was a lot of concern by Wall Street on many international companies and with the devaluation. So we even had a hit in the quarter on that which I think costs about $200,000 $300,000. There is about $500,000 overall that we were hit in the real and the renminbi which is also the Yuan and in the peso.

Now, we all going forward, all of that is being hedged. So going forward now those currencies are hedged and we shouldn’t see that again, which is one of those things were your -- everybody got copy, we talk to a couple of banks and they get caught. No one really expected that devaluation of the currency.

That being said, we just reviewed next year’s forecast and I will just tell you that the growth figures are in excess of 20%. I’m not going to go into the entire forecast for next year, but least we’re very excited and continue to be excited about the opportunities in China with Merit’s product.

I will make you aware -- I will go to -- now little bit more color on Kent’s comment with Mexico. So we did have those legacy products. We’ve now had made the first transfer of other new products to the facility. Those will put in place two or three weeks ago.

And now they will ramp up and then either like this year or early next year, we will take the next tranche of products down there. When those products are in place, and up and running based on our best calculations today some time in that first quarter we’re going to now absorb all those expenses of that new facility.

That would have been somewhere around nine months or so for when we open the facility, so we’ve full absorption. From that point on, it’s going to give us a tremendous improvement in gross margin. In fact today we had 20 or so of our employees from Mexico that were here, I had an opportunity to visit who are the next tranche recipient.

They will receive these next products and they’re here being trained. So it is interesting that here it is October 22, and we’re training people for something that will take place and I guess December or early January. Okay. So anyway, it’s kind of a big deal.

And its one of the reasons we put our three year plan together and for say that, because we wanted to make sure that as we went through this transition this year, that you can see both sides of the equation. So we continue to be very excited about Mexico. In fact, I will say that I believed, all of us believed that has exceeded our expectations.

And by that, I mean, the transfers were done without a flaw. Without missing a beat are creating any problems for our customers. The start ups worked extraordinarily well and they have at least on the products there, met or exceeded the previous REs or reasonable expectancies from the other plant. And we think that productivity will continue.

So when you look at these facilities and the opportunities here, they’re really extraordinary. One of the points again, I don’t want to miss, because it’s something that in the long-term of things is important and that is we’ve opened a warehouse. We’ve hired people and this expands these employees is in this quarter of our new Australian facility.

We will be going direct in fact there is very day the initial inventory has arrived to that facility and honor about one January, Merit will go direct sales which will then take us from wholesale to retail. And we think that there is a great opportunity in Australia.

Again, there was still work to be down, but the facilities in place, system [ph] are in place, people have been hired, sales people have been hired and inventories on hand. So that will be something that will add both to our growth and to the opportunities in terms of margins going forward.

I would like to talk a little bit, if I could, about the Steerable Microcatheter. Now we made an announcement about this and [indiscernible] just a Merit, another product. Merit has lots of products. What’s the big deal? Well, let me tell you what the big deal is.

First of all, this is a product that came from Sumitomo Bakelite, which is a company -- a great company in Japan. We were able to -- without any expense to Merit retain an exclusive world wide distribution agreement. Then why? Well it’s because of our performance in Japan.

It’s because of our performance of our other micro catheter that we now produce in our facility, but this is unique. That’s the only catheter that I’m aware of that you can steer. And when we’ve shown this to physicians here and as we introduced it in, in Lisbon, the response was over whelming. Let me adjust a little bit more flavor to this.

We will miss this product at about $1,500. That’s about five X of our cxisting product. Now why would somebody paid five times that amount. And the answer is you can go places that you simply can get to with a standard micro catheter. We took orders on the floor, for over $1000 from one of our distributors in South America.

And our cost is somewhere I think its about R314, based on an order that we placed with Sumitomo today. So even on the distribution level, there is substantial profitability. We think that we will be close to [indiscernible] $1,250 to $1,300 ASP. And the exciting part is that it has a lot of pull through.

Any [indiscernible] wish product, it’s always fun when you have a product like this that nobody has ever seen before and they want to use it. Now they won’t use it in every case. I estimate about 25% of the cases that are used in the IR Lab will use and have a need for products like this. It uses our various symbolic materials.

And so again, that I add this in looking at China, Its probably the fastest growing area in the world and as we looked at our business in China, the embolic business, the AmmoSphere business is growing extraordinarily fast. Joe, can you give me few of those numbers..

Okay. 43% year-to-date. This is Joe Wright, which our Vice President of International – President of the International Group and its up 43% in China this year. So I guess the message I want to deliver is that -- again, as said, the summer is over. We have a full market of products, our [indiscernible] which will release in just a month and a half.

Our new 40 atmosphere Inflation device, our new power planner, I can go into our new [indiscernible] set. And incidentally I had a physician here yesterday, who came in and was doing testing on this new product. Sat with me and to sit right I don’t think you guys realize it have either.

Then I said no, if you will excuse me sir, I do we worked three long years to be able to design this product which has multiple patents. And we’re close to release on that product. Its going to be late fourth -- early first quarter of next year when release this product. So, we have all of those products in the hopper and many others.

And we are doing another transfers opening up the new direct, watching our expenses, I think that’s been I think the big news this year, is that we’ve -- we really I think done a pretty good job of controlling the expenses below the line.

And I don’t want to be an overlook to gross margins, but I think with a Mexico issue and these higher gross margin products going, we are going to see the kind of improvement that we all want on the gross margin side. Certainly on the revenue side, we’re going to see a plan that will at least meet our three-year plan.

Kent do you want to add anything else?.

No, I would just say what you’re saying, we are [indiscernible] an increase particularly in this quarter in research and development expenses.

We’ve accelerated some of our projects for CVO spend for some balloons and [indiscernible] some of these important product that we see for our future, so I have -- that’s right on the [indiscernible] expenses are kind of a, but we’re investing in the future..

And we always have. We always have. So we believe that we will continue to be -- from your company in terms of growth, we’re extremely aware the requirements for us to have operating performance. And I hope that as you consider the things that we’ve said yes, I understand you have to report on the quarter.

Its in the rear view mirror, in fact looks like one of those cities out here in Utah, you drive pass it, its about 40 seconds you cannot even see the lights.

So we’re here today and as soon as we’re done with this call, we will answer other questions and give a little more clarity for those of that interest, but its on down the road and we will finish up our year and I think in good order and then thrust of the future. So we want to thank you again for your interest.

We want to now open the lines up and already you guys fire way, just be reminded that I’ve all of my -- I gear on, and protected for all the spears or any of the arrows that may come and I do swing back. So here we go.

Operator?.

Thank you. [Operator Instructions] We will take our first question from Tom Gunderson with Piper Jaffray. Your line is now open..

Hi. Good afternoon, everybody..

Hey, John..

Fred, maybe I will start a little bit on Q3 and then move as you said to Q4. But on Q3 the operating expenses, you guys have done as you said in your remarks; you’ve done a good job of watching your expenses this year, but I noticed a little bit of a shift in that.

I looked in the last three years; you have had your operating expenses go down sequentially Q2 to Q3.

And this year they went up, was there anything unusual about this year and your expenses on SG&A and R&D that would account for that increase in dollar expense?.

Yes, Tom, as I mentioned it was the R&D first. We’ve all of these products that are at the door step and so to start to gear up for the production and get the production lines in place, we’ve had to hire few more people. We will also -- we had some other projects one of which I mentioned that was an expand [ph].

So, I think that’s part of it, but we also had some other stuff and that is on the studies. So one of the things that’s on the high quality study and that’s sort of thing, some of the monitoring and assessment of that program are -- there were some expense from there, that you wouldn’t have seen last year. So that that’s another part of that.

Again, on the SG&A side, you’re going to see a little higher expense because of these radio programs.

The one that I’m talking about that we’re doing here, the one that we did recently in Miami, another one that we did hear a few months ago, so those programs when we’ve done the metrics on it, lead to 80% of the people that come here end up buying Merit products.

So we’ve found this to be very, very successful and we’re investing that money because of the product sales that will come out of that. So that would be another one.

Kent you want to add to that?.

Well, we’re seeing a variety. We’ve had headcount increases in various areas of SG&A and particularly in R&D. So we’re stepped up for growth and for infrastructure there..

But Tom -- and I agree with you that its something that we have to make sure that doesn’t get our control. I will give you an example one of the things that we put in place yesterday and it wasn’t other than I think we get really unproductive with new hires.

And so I’ve put -- not a hiring freeze on for the Company, but I will not entertain anymore hiring until we get into next quarter in these areas. But we have invested the money and I don’t want to hire anybody else in these areas from now till the end of the year.

So its -- but we do this and I think it’s -- I think as far as I’m concerned its a good management tool, because you don’t want to bring people in this time of the year. Everybody has -- and just another 10 days, everybody starts thinking about a whole bunch of other things. So that’s the best way that we can answer that question for you..

Thanks. And then a quick one on Q3 and then I’ll go to Q4, and that is tax rate. Tax rate looked a little below the 31% that you’ve been running at.

Is that what we should look at going forward or is there something going on in Q3 that made it that way?.

The third quarter traditionally and you can see it last year too is lower because we have discrete items like the 1048 reserve for an audit, that expires because the statute of limitation runs on a reserve for that. So we’re able to flush that out.

And so, third quarter has -- always has a bump downward, but we’re not changing the total for the year, no..

Okay. And then speaking of not changing the total for the year.

Fred, do you want to give your thoughts about how the year looks which I guess is Q4 and your confidence in the guidance that you gave us earlier in the year?.

Yes, we’ll reaffirm our top line and our bottom line.

I will say and I think based on the first three quarters you may see a little mix, a difference in the gross margins as you’ve seen in this quarter and others, and then a maintenance and below the expectations on the SG&A side and probably a little moderation in the fourth quarter on the downside in terms of R&D.

But we’ll finish up the year at or above what we said and then we’ll start looking to next year. And again, I don’t want to get too far yet Tom, but I think you can see -- I will say this that without reservation that 2016 will be the best year in Merits history without any doubt.

No doubt about where we’re going with the products, the excitement, the Microcatheters, the new drainage products, the new biopsy products. I mean, we have never had that type of portfolio.

But we have to invest in them and we have invested in them, but its going to be a very exciting time for the company going forward, gets so exciting as I sit here today. I mean its not like some how its going to pop-up out of the ground. Its there, its very exciting where we are..

Got it. I’ll let some others ask questions. Thank you guys..

Okay. Thanks, Tom..

We’ll go next to Jason Bedford with Raymond James. Your line is now open..

Hi, Jayson..

Hi, Fred..

So a few questions. First, on gross margin you listed a few things in the release to explain the year-over-year decline in gross margin. I’m guessing that the start up in Mexico had the biggest impact.

One, is that correct? And then two, is there any way to quantify the impact of Mexico on gross margin?.

Yes, I mean it is one of the issues, another one that hit us and I think Greg you might want to address this but I think this is where it goes on that revaluation wasn’t there in gross margins as well. Now, I think you might want to comment on this, Kent..

I got it here..

So we also had some production in our embolics in France that was down as well that affected our gross margins..

Let me just add, -- I’m sorry to interrupt you Greg; by the way this is Greg Barnett our Chief Accounting Officer. So we’ve expanded the facility in France for the production of new Microspheres which we’ll introduce next year that we -- that’s about all we’re going to say today and but also for our gel foam that we have talked about before.

So that’s one of the issues. Remember last year in this quarter we were making our initial deliveries to Nippon Kayaku, and it was over $1 million difference in the quarter at those higher margin. So that’s another factor both on the revenue side and the gross margins. Please, Greg..

And then we did for the quarter have almost a percent favorable pickup for the affect of the Euro. So we had the manufacturing variances that we’ve talked about both in our embolics in France as well as our operation in Mexico. And then we also have the sales discounts that we talked about in Russia as the Ruble continues to devalue..

Yes, let me address that one. I think almost everybody that you talk to Jayson will tell you that whether it be the Real, whether it be the Yuan and the devaluation or whether it be the Ruble. Those things clearly have affected and had some effect on these things in terms of discounting to make sure that we work with our business partners there.

We don’t expect them to take all of the burden and so what we do is we evaluate this and we have a various, what's the word I want to use, kind of kickers that at a certain point prices will increases and we have taken some haircuts there to make sure that they can stay competitive -- stay in business. So that’s another part of it.

And I think everybody will kind of in the industry that has an international presence will kind of affirm that, that’s everybody faced this year in those international markets..

Okay. Just getting back to the question. Now lets just assume Mexico didn’t exist in the quarter and you were still manufacturing or stopped getting product from that third party group. Was there not -- what would gross margin have been. I’m just still trying to figure out kind of the ….

Okay, there was about $500,000 worth of expense that was not absorbed in the quarter..

Okay, that’s helpful..

Okay..

Okay. And then, I don’t want to be critical with the question here, but one of the concerns for investors I think getting to Tom’s earlier question will be the bump in operating expenses. You guys have done a pretty good job over the last four quarters of keeping the expenses in check.

They weren’t as in check lets call it for the third quarter, and I realize you want to spend but there’s an appropriate balance there.

So what do you say to those investors who are thinking Oh, geez, they’re kind of back to their old ways on spending?.

Well, if I’m going to go out and launch products, I’ve got to train people. I’ve got to have samples. I’ve got to develop the support and all of the products in terms of literature and videos and all of that sort of thing or I’m not going to get the other side of it, and those are on the door step, so I can't spend that after I don’t get the revenues.

So I’ve got to have the horse to pull the cart. So that hurts me when you say you’re back to your old ways, but that’s fine..

No..

No, no its okay -- you can say it and you can preface it if you want to, that’s your prerogative. I answered the question, we have to prepare for those types of things and get ready to launch products and when you have to launch, six, seven, eight, ten products that costs money to get ready to do that.

So that’s what we’ve been doing and then what we’ll do is in a very short order we’ll see the returns. Its not three years or five years or the following year its -- but you have to -- what's the old saying, you have to spend money to make money. Now if you spend it irresponsibly, that’s a different story.

But I think on the SG&A side, I don’t think we’re doing that. But the rest of it is what it is and you can call it what you want. I have no different take on it, but you’re the analyst, I’m not..

Okay.

Is there -- I guess, another way of asking it, it is -- is the commitment to improving margins and improving the profitability still there and does the quarter like this kind of cause you to waver that all or your long-term goals that you laid out back in February?.

So, I’ve reaffirmed this year. I’ll reaffirm our three year plans. I’ll reaffirm all of our commitment. We’ll stand by that. We look at things which you know year-by-year, and I don’t see any reason why we won't meet or exceed everything that we said we would do, and we have done that and we will continue to do that.

So I will answer that as straight forward to you. So I think that’s a straight forward answer..

That is -- that is. Kent, can you just breakout U.S. growth versus international growth if you could and I’ll drop..

So, U.S. growth in the quarter was 6.4%, it totaled $82.9 million, international was $53.2 million up 4.4%..

So that’s interesting Jayson, that domestic sales on a real basis or cash basis, I guess I’ll call it and adjusted are actually exchanging international. Now if summer that’s what you would expect to see I think in the third quarter anyway, its not a surprise to us but -- and remember, that’s adjusted for about an 18% to 20%.

So I think on direct sales adjusted for FX were up 21% in Europe, so but take a pretty big haircut. The other side of that as Kent mentioned now is we get the input cost on the FX side that helps on the other side of it. So we take a haircut here, but we get some contribution on the growth margin side..

And on the SG&A side. I’d say bigger than, its pretty large. It helps..

That’s correct. Yes..

Okay. Thanks guys..

Okay. Thanks, Jayson..

[Operator Instructions] We’ll take our next question from James Sidoti with Sidoti & Company. Your line is now open..

Good afternoon.

Can you hear me?.

We can, Jim..

Great. So, can you explain to me why is the BioSphere business so lumpy, was up double digits last quarter up, adding 1% this quarter.

And you mentioned some production variations in that facility you’re chasing is out in France?.

Yes, I think the real issue on the revenue side is that remember we had that, I’ll call it pipeline filling. But we had the big orders, the initial stocking orders from Nippon Kayaku which really is our distributor in Japan last year and we didn’t -- it was over $1 million for the quarter.

And then as I mentioned on the other side, we have and continue to have substantial interest and development going on in the embolic here. And one thing to consider too Jim is that, if you look at the -- the whole BioSphere business I think we’ve been into that business now five years or so.

And the facility up to this point was exactly the old facility and building things for the PVA and building things for gel foam and working on other embolic materials, we’ve literally had to put mezzanines into the facility, and we don’t have anymore room for those mezz -- the building I mean, literally from the floor to the ceiling was filled.

And so what we did is, a unit became available next door and so because we see this area still expanding and I think by the way since we bought it at around $24 million or something like that its like $40 million business or plus that. So its grown by 50% since we bought it and we ran out of facility.

So we put this and understand its a leased facility but we put some leasehold improvements into it and we have to start to amortize that. So we don’t have any other building projects ongoing, that’s -- I think the we had a talk about it, if you’ll just indulge for a minute. Last year or other -- we were using a lot of capital.

Our CapEx will continue to drop even though we build and replaced equipment. We don’t have those huge expenditures for cash that we’ve had in the past and we don’t have any construction projects other than remodeling with this and that and the expansion of the facility lets say in France. But we have a lot of capacity.

We have a lot of capacity in Mexico. We have a lot of capacity in France. We have capacity in our warehouse in Maastricht. We have a lot of these kinds of capabilities where we don’t have to us capital. We don’t have those expenses and that’s kind of a big deal. So I’m in a -- one of the callers said we’re back to our old ways.

I would say, maybe we have some new ways on capital spending. But no one wants to ask that question. So I’ll answer it and there it is. Higher cash flows, now more expenditures at least for five years or that we’ve seen on facilities, but nobody every asked the positive questions about the things we’ve accomplished. So there you go..

You want to talk about the FDA?.

Yes, one more. No one cares about this except everybody that cares about their job here. We just finished, listen to this -- this will get no notes whatsoever. So please don’t write about it. We just finished a five day general inspection with the Food and Drug Administration with no, none, zero non conformances, not one.

Five days full inspection, nothing. We also just had our facility in Salt Lake and in Mexico and I believe in Texas, we’ll be certified in full compliance with BSI.

Now that’s, I guess the cost of doing business and maybe nobody cares about it, but its just a really big deal and I want to really talk to my staff and thank them for what I think is an extraordinary effort and I think a reduction of risk to shareholders. We’re complying with the loss and we’re doing things that should be done.

So I think that is a great thing for us to talk about. We don’t have to go spend money on run around fixing things, we continue to improve and watch things carefully, but it’s a big deal, but again, nobody really cares about it except for the people in this room. Okay, there you go, I’m done pontificating..

All right.

And then, can you just remind me once you get Mexico up to speed, where do you expect gross margins to be late 2016 early 2017?.

We think that we can add between a 100 and 150 gross margin points just based on the input in Mexico. That’s been our belief in the beginning. That’s what we believe will continue to play out in our three year plan. And I think as I mentioned Jim, Mexico is not missing the mark, its actually exceeding the mark. They’re receiving the products.

Their productivity is better than it was in the previous facilities. Our transfer teams have transferred the product. The second -- I’ll call them the new products because everything else was legacy. It was transferring from Mexico and then another tranche of products will start moving over there in another 30 days or so.

So those are significant and its going to be significant for the business. Now that being said, we’re at 20% capacity today and even we get all of this done, we might be at 30% or 35% capacity and yet we will absorb all of the overhead expenses and it will start to contribute in the first quarter of next year going forward.

It gives us a significant upside and a significant opportunity to be more competitive. Its not just about the margins, that’s nice if we make more money, that’s great but it improves our competitive profile while not lengthening our supply chain.

Like I said, we can be there when I hang up I can call you from Tijuana in about an hour and half from right where I’m sitting right now. So it has a significant opportunity to help the company but again, I don’t overlook not just the gross margin but the opportunity to compete is a big deal..

Thank you, Fred..

Okay. Thank you, Jim..

And it appears we have no further questions at this time..

Well I’m disappointed. I’m just getting going, but I guess we’ll have our own party. Listen, we’re available. Kent and I will be here for the next two or three hours. Again before we leave though, again summer is over and we’re all back to work.

I think we took -- I took three days, was it three days that we took this summer? But we’re all back to work, everybody has been working, you don’t have to come back to work hear. But the docs are back to work, that’s the critical issue. Procedures will be improving particularly in Europe.

The new products are there and I hope, I want you to text me, I cannot wait until our first quarter call of next year, yes we’ll have our fourth quarter but I’m really looking forward to that first quarter call next year so that we can talk to you about the success and the other things that we’re seeing -- things I’m talking about today.

But listen, we appreciate your interest. We’ll be available for your calls, and we’ll go ahead and sign off from Salt Lake City wishing you a good evening. Thank you and good night..

This does conclude today's teleconference. You may now disconnect. Thank you and have a great day..