Fred Lampropoulos - Chairman, President and CEO Brian Lloyd - Chief Legal Officer and Corporate Secretary Bernard Birkett - Chief Financial Officer.

James Sidoti - Sidoti & Company Adam Maeder - Wells Fargo Securities Bruce Nudell - SunTrust Robinson Humphrey Matthew O’Brien - Piper Jaffray Jason Mills - Canaccord Genuity Inc. Jayson Bedford - Raymond James & Associates, Inc. Mark McGrath - Kenmare Mike Petusky - Barrington Research.

Presentation:.

Good day, ladies and gentlemen, and welcome to the Merit Medical Systems’ Fourth Quarter and Year-End 2017 Results and 2018 Guidance Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

And as a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Mr. Fred Lampropoulos, Chairman and CEO. Sir, you may begin..

Well, thank you very much and good afternoon, ladies and gentlemen, and welcome to a wintry weather afternoon here in Salt Lake City. We are assembled here with our staff, and are pleased to be able to report to you our fourth quarter and also guidance for 2018. But the first item on the agenda is a pronouncement of our Safe Harbor provision.

Now I’d ask Brian Lloyd, our Chief Legal Officer to present that.

Brian?.

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

We caution you that all forward-looking statements involve risks, unanticipated events, and uncertainties that could cause our actual results to differ materially from those anticipated in such statements.

Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission, available on our website. Any forward-looking statements made in this call are made only as of today’s date.

And except as required by law or regulation, we do not assume any obligation to update any such statements, whether as a result of new information, future events or otherwise. Please refer to the section of our presentation entitled Disclosure Regarding Forward-Looking Statements for important information regarding such statements.

Our financial statements are prepared in accordance with accounting principles which are generally accepted in the United States.

However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations.

The tables included in our release and discussed on this call set forth supplemental financial data and corresponding reconciliations to GAAP financial statements.

Please refer to the sections of our presentation entitled Non-GAAP Financial Measures and Notes to Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call.

Readers should consider non-GAAP measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies..

Brian, thank you very much. And again, ladies and gentlemen, welcome and thank you for taking the time. We’re delighted to be able to report our fourth year and full-year results and talk about the future with you today. A reminder that there are – there is a slide deck presentation.

And if you will go to merit.com, you can follow along with some of the slides on our presentation and some photographs of products and so on and so forth. So they’ll be, I think, some good information at that location for you. Well, let’s get started. The bottom line is this, Merit accomplished all of their 2017 goals.

Our business is healthy, robust, pipeline is full and I think our future is very bright. There’s a lot of momentum and we’re excited about, of course, the Becton, Dickinson transition. And listen, on the Becton, Dickinson deal just so that everybody understands about the process that we’ll be going through and we’ve talked about this before.

But as a reminder, Merit owns the business. Becton, Dickinson will produce the product for Merit over the next six months or so.

During that period of time, Merit is – will be transitioning the business from several locations, where the products are currently being made, but primarily in the Dominican Republic and will be transitioned to our facility in Tijuana, Mexico. As we speak, our teams are on the ground in the Dominican Republic.

The full transition and transfer teams are in place in that location and they will be working on several visits over several weeks, looking at equipment and all the various things that are necessary to transfer this. A reminder that and I hope this comes across like I intended this, we’re pretty good at this stuff.

I mean, we’ve been transitioning and moving products some probably 20 product lines to Mexico and we’ve moved them all over the world. And we have a very seasoned and professional knowledgeable team that will be moving these products. So we’re excited to have the process done and now working in this transition.

And incidentally, it was a very unique transaction. It took time, it took patients, it took regulatory approval, it took a lot of work and there’s a lot of work left to do.

But I think as I’ve said previously, it fits perfectly into our portfolio and then will complement a couple of other products, the Laurane bone biopsy devices and other devices that Merit has and goes to our competency in terms on the – of the drainage side, where we do excursions and we do tunneled catheters.

And so we’re very excited and continue to be about this. In just a few minutes, Bernard will talk about the effects, because the timing on this is something we want to make sure we review with you. We closed a few weeks ago and so we’re going to have some irregular timing of revenues and things like that because of the stub periods.

But that being said, we’re very encouraged by the transaction and we’ll talk further about that in a few minutes. I’ve just returned from Japan, and there are a lot of other things that are going on in the business. In Japan, we have consolidated the Argon business with the Merit business that came out of our distribution channel.

I’ve been into our warehouses, our distribution center, I’ve been into our business offices. And then I just have to say that from probably an analyst point of view, this is kind of business as usual and expected. But I have to speak to the hard work of the staff and putting this altogether and bringing it together in a very, very timely fashion.

I think, we’re going to see extraordinary results going forward out of Japan in terms of growth that we haven’t seen for many years. I also spent time in Singapore.

And that transition of that facility, the Meritization of that facility will pay huge dividends in the future So rather than going to that any of that detail at this point, I just really want to talk to you about what are the efforts that’s been made and all of this been going on, while the work on Becton, Dickinson.

Everybody here has been working very, very hard, as you would expect us to and we – as we would expect of ourselves. So a reminder and I do in our prepared comments talk a little bit about some of the timing of expenses. Bernard will talk about that. But remember, that we’re going to be going through some transition expenses.

These have to do with customer service, with delivery of products, making of products, IT and several other things as you transition all of those capabilities over to Merit. And those are expense items, and some of those are going to fall in this quarter and the next quarter. And I’ll have Bernard go on to that and then going into the guidance.

You’ll need to pay some really close attention today on the guidance. But I’m going to think the critical point is that the core growth, the new product pipeline, the distribution channels, the wholesale, the retail, all of these things are all in SYNC, and we expect the business to continue to grow per our public plan.

And of course, our goal is to try to exceed that. But we’re, I think, looking forward to future reports to talk about the progress that we’ve made. Well, now with that being said, I think it’s appropriate, because there’s a lot of financial data in this report and some clarification that’s necessary.

So with that being said, I’m going to turn the time over to Bernard Birkett. And Bernard, if you would kind of go through and make sure that everybody’s squared away on all this information.

So Bernie?.

Thank you, Fred, and good afternoon. First of all, I’d like to go through our Q4 numbers. In Q4, worldwide revenue was $190.9 million, $188.2 million on a comparable constant currency basis, up 21% as reported and 19.3% on a constant currency basis over Q4 2016.

Q4 2017 core revenue was up 9.4% over Q4 2016/ Our core revenue was up 7.9% on a comparable of constant currency basis. And we just also need to note, there was a one-time return of inventory in the quarter from our Japanese distributor as part of our move to a direct selling model in Japan.

And adjusted for this a one-time return or organic constant currency growth would have been approximately 8.3% in the quarter. And year-to-date, worldwide revenues of $727.9 million, $727.3 million on a comparable constant currency basis, up 20.5% as reported and 20.4% on a constant currency basis over the same period for 2016.

And year-to-date, core revenue is up 8.8% over a core revenue for the same period 2016. Core revenue on a constant currency basis is up 8.7%. And we continue to see a gross margin improvement year-over-year, and for the period, our gross margin was 47.9%.

And just to note also there was a one-time impact related to a transition services agreement that we have in place with ITI. And this affected us by about 20 basis points in the quarter. Adjusted for this, our gross margin would have been 48.1%.

So in the year gross margin is up to 48.1%, compared to 46.9% for the prior year and that’s in line with the projections that we had outlined. In Q4 2017, the EPS on a GAAP basis was $0.13, compared to $0.17 in Q4 2016. In Q4, non-GAAP EPS was $0.33, compared to $0.31 in Q4 2016.

On our GAAP number in Q4, there was an impact for transition tax and tax reform and the impact there was approximately $1.8 million on a GAAP basis. And on the cash flow basis, we’ll see an impact in the first year for a transition tax charge of approximately $400,000..

That’s it?.

That’s it on the Q4 numbers..

Okay. All right. So let’s go to the guidance then..

Okay. Guidance for 2018, our revenue range is between $838 million to $851 million, and up approximately 15% to 17% on a reported basis.

And the composition of that is, there will be a 7.5% to 8.5% organic growth on a constant currency, and then also adding in the acquisitions that we completed at the back-end of 2017 plus the addition of the BD acquisition products.

For that the range there will be between $36.75 million to $42 million and that’s adjusted for the closing of the deal, which took place in mid-February. The gross margin on a GAAP basis, the range will be between 45.6% and 46.5%, and gross margin on a non-GAAP basis, the range will be between 49.7% and 50.8%.

The margin improvement is built up of a number of different components. On an organic basis – on an organic business, we expect to see 100 to 150 basis point improvement over 2017, and then the balance will be made up of the addition of the biopsy and drainage product portfolios, which we have just acquired.

On an EPS basis, the EPS GAAP will range between $0.77 and $0.85 for 2018. On a non-GAAP basis, the range will be between $1.57 and $1.69, that’s a 27% increase at the midpoint.

That’s made up of 13% to 15% increase on EPS on our core business and then layered in – we’ve layered in the increase in EPS from the biopsy and drainage product portfolios we’ve acquired and also the effect of tax reform. On a tax basis, we are forecasting our rate to be between 25% to 27% for 2018.

And that in comparison to our previous guidance prior to tax reform of between 29% and 31%. So we’re picking up some benefit there from tax reform..

Well, that’s a lot of information and it’s all good information. I mean, the net-net of all of this is that the transaction will be beneficial to Merit. The core growth is there. The product pipeline is full. Just as a side note that we’ll be attending the SIR meeting and introducing a number of new products at the end of March in Los Angeles.

This is the Society for Interventional Radiology. It’s one of our biggest shows of the year. We have gross margin improvement, earnings improvement, and all these consistent with our previous discussion and the adding on of the two years that we discussed with you previously. The momentum is here. The business is healthy.

We also will be out over the next five or six weeks. We have a number of conferences coming up, and I think, we sent that notice out. And so we’re going to be busy running our business and making sure that everybody understands all of these numbers. Again, there are a lot of them and a lot of inputs that we haven’t had before.

I just think all in all and I think you can hear this tone. I think, we did what we said we were going to do. We’re confident about the future and we’re prepared. People have worked hard, but I think we’ve positioned the business.

In our selling groups, in our geographic presentations and in our new product pipeline for continued growth, we’ve only talked about the next two years financially and that’s all we’ll talk about today.

But the framework and the products and the research and development are well in place for other products and other things to carry the business into the future. So all in all, it’s – we appreciate your patience with us. I hope that and I believe that you appreciate our discipline, our vision and we’re hard at work.

So that being said, I think we’ll – Bernard, do you have anything else you’d like to add?.

Yes, just one thing on tax reform that I’d like to add is that, we are planning to reinvest some of the benefits from tax reform into OpEx and SG&A to support market growth in the coming year. So about 25% to 30% of that benefit will be reinvested.

We believe that’s important as we continue to scale and grow with these rates to make sure that we have the correct infrastructure in place to deliver on what we have outlined right now and also to be able to continue to scale in the future..

Yes, I think it’s an important point that, you just can’t go out and expect the systems and everything to kind of operate when you keep stacking on more and more of this business. So as Merit has always done, we try to plan for the future to put structure in place and think about things out three, five and 10 years.

And I think – with that being said, Bernard, I was looking at the business going over the numbers and just kind of looking at the past and thinking about. We’ve made a lot of tough decisions over the years. We’ve always thought long-term, and we’ve always tried to invest long-term.

And I think what you’re seeing is a maturation of that thought process and the benefits that come from that kind of thinking. It’s probably one of the biggest advantages that we have is that, we’re not sellers, we’re not flippers.

We simply have a vision of our business, a multibillion dollar business and we have a vision of how we’re going to do that and we’ve executed on that plan then we continue to do so. So I appreciate that comment that we want to be able to give returns to shareholders.

But at the same time, we want to make sure that we have adequate infrastructure – appropriate infrastructure for really substantial growth that you’ve seen and you’ll continue to see going forward. So I think, again, thank you very much for all of that analysis and presentation. Ladies and gentlemen, I think that pretty well wraps it up for us.

I think, what we’d like to do now is turn it over to our administrator. And Bernard and I are here to answer your question, as well as other members of the staff, if appropriate.

And of course, we’ll be here following the Q&A period for, whatever period of time is necessary for clarifications and making sure that issues on the taxes and things that are appropriate to discuss will be clarified for you those who have an interest in doing so. We thank you for your participation. We wish you the very best.

And that being said, we’ll turn the time back now over to the administrator..

[Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open..

James Sidoti:.

Fred Lampropoulos:.

James Sidoti:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

James Sidoti:.

Fred Lampropoulos:.

James Sidoti:.

Bernard Birkett:.

James Sidoti:.

Bernard Birkett:.

Fred Lampropoulos:.

James Sidoti:.

Fred Lampropoulos:.

James Sidoti:.

Fred Lampropoulos:.

James Sidoti:.

Fred Lampropoulos:.

James Sidoti:.

Thank you. And our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open..

Adam Maeder:.

Fred Lampropoulos:.

Adam Maeder:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Adam Maeder:.

Fred Lampropoulos:.

Adam Maeder:.

Bernard Birkett:.

Adam Maeder:.

Fred Lampropoulos:.

Thank you. And our next question comes from the line of Bruce Nudell with SunTrust. Your line is now open..

Bruce Nudell:.

Bernard Birkett:.

Bruce Nudell:.

Bernard Birkett:.

Bruce Nudell:.

Fred Lampropoulos:.

Bruce Nudell:.

Fred Lampropoulos:.

Bruce Nudell:.

Fred Lampropoulos:.

Bruce Nudell:.

Fred Lampropoulos:.

Thank you. And our next question comes from the line of Matthew O’Brien with Piper Jaffray. Your line is now open..

Matthew O’Brien:.

Fred Lampropoulos:.

Matthew O’Brien:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Matthew O’Brien:.

Fred Lampropoulos:.

Matthew O’Brien:.

Fred Lampropoulos:.

Thank you. And our next question comes from the line of Jason Mills with Canaccord. Your line is now open..

Jason Mills:.

Fred Lampropoulos:.

Jason Mills:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Jason Mills:.

Fred Lampropoulos:.

Bernard Birkett:.

Jason Mills:.

Fred Lampropoulos:.

Thank you. And our next question comes from the line of Jayson Bedford with Raymond James. Your line is now open..

Jayson Bedford:.

Fred Lampropoulos:.

Unidentified Company Representative:.

Fred Lampropoulos:.

Jayson Bedford:.

Fred Lampropoulos:.

Jayson Bedford:.

Fred Lampropoulos:.

Thank you. And our next question comes from the line of Mark McGrath with Kenmare. Your line is now open..

Mark McGrath:.

Bernard Birkett:.

Mark McGrath:.

Bernard Birkett:.

Mark McGrath:.

Thank you. And our final question comes from the line of Mike Petusky with Barrington Research. Your line is now open..

Mike Petusky:.

Bernard Birkett:.

Fred Lampropoulos:.

Mike Petusky:.

Fred Lampropoulos:.

Mike Petusky:.

Fred Lampropoulos:.

Mike Petusky:.

Bernard Birkett:.

Mike Petusky:.

Bernard Birkett:.

Mike Petusky:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Mike Petusky:.

Fred Lampropoulos:.

Bernard Birkett:.

Fred Lampropoulos:.

Mike Petusky:.

Fred Lampropoulos:.

Thank you. And that does conclude today’s Q&A session. So I would like to return the call to Mr. Fred Lampropoulos for any closing remarks..

Well, I usually try to keep these calls as short as I can because I know how busy you guys are, but thank you for taking the time.

Again let’s just summarize, we met our goal, we haven’t talked much about the third quarter, but you saw, as we’ve said, we rebounded like we said we would, we exceeded our goals for the year on our 8%, so we shouldn’t forget those sorts of things.

We have a business plan, we have a geographic plan, we have a new product pipeline, I hope if anybody is at LA at the Sur [ph] meeting you’ll come by. We have a lot of really cool things to show you, so we have a lot of momentum, our sales force is aligned down our product lines, incentivize.

Our folks are out there in our teams as we speak in the Dominican Republic, in Mexico executing our plan and like Merit always does and again I want to remind you of all this, we don’t just buy a product line and stuff it into a catalog.

What Merit does is invest at plans geographic expansion and new products to enhance and support and build these businesses, that’s what we do. I mean I go back and try to think about what we did when we bought out the OS, I mean I remember I got scolded for $5 million revenue losing money.

We had a plan, we said we had a plan no one believed that plan, today it’s a $30 million plus business at 70% gross margin and growing at double digits, so that’s what we do.

I want to remind everybody that that’s what Merit does, so you get to decide, we’ll look forward to your comments, but I just want you to know that we have a plan, we have the team, we have the resources, we have a strategy and what we have is good stuff and we’re excited.

I think everybody in this room understands and we’ve made a commitment, we’ve said this is what we’re going to do for the next two years and when you just start to think about that, remember this is all on higher numbers. You know we didn’t back down and say we’ll if you back that out and then you add 8%, that’s not what we’ve said.

We have reaffirmed our top line core business at 8% and we have reaffirmed our increase of gross margins on our core business from 100 to 150, plus we’ll get some benefit and we reaffirm our bottom line and I think it’s been pointed out of the progression that that makes.

So this is what I think we feel comfortable and promising and of course our goal is to over deliver, so that’s our commitment to you is to build this business and continue to lay everything out that we can.

We’ll be here for the next I guess an hour or so, two hours, we’ll be here longer than you’ll be there, so if you just sit around with nothing just give us a call, Bernard and I are here, we’ll answer the questions you have or clarify questions. We’ll stay within the bounds of FT and make sure we do things properly.

We look forward to reporting in the future. Thank you for your interest, your continued interest and signing off now from Salt Lake City, we are wishing you a good evening and good night..

Ladies and gentlemen, thank you for participating in today’s conference. This has concluded the program and you may all disconnect, everyone have a great day..