Fred Lampropoulos - Chairman, President and CEO Brian Lloyd - Chief Legal Officer and Corporate Secretary Bernard Birkett - CFO Joe Wright - CIO.

Larry Biegelsen - Wells Fargo Bob Hopkins - Bank of America Matthew O'Brien - Piper Jaffray Jason Mills - Canaccord David Saxon - Needham & Company Jayson Bedford - Raymond James Jim Sidoti - Sidoti & Company Mike Petusky - Barrington Research Mark McGrath - Kenmare.

Good day, ladies and gentlemen, and welcome to the Merit Medical Systems’ Inc., Q1, 2018 Earnings 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, Fred Lampropoulos, Chairman and CEO. Sir, you may begin..

Good afternoon, ladies and gentlemen, and welcome we’re delighted to have you with us on this beautiful spring afternoon in Salt Lake City. Thank you for taking the time. We look forward to reporting. I’m going to ask Brian Lloyd, our Chief Legal Officer to read our opening statement.

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, and 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 once again ladies and gentlemen, thank you for joining us. To say that it was a busy quarter would be an understatement, it has been very, very active here as we have closed the Becton, Dickinson deal.

We have completed many of the activities of transfers of inventory, developing and putting in the place the appropriate channels for our customers and literally taking the order to pass and inventories for all of the major markets.

In addition to that, we have had our teams and a number of locations preparing for the transition as well as our manufacturing teams completing our clean rooms, ordering equipment and everything is really on track. I know that I've had a number of calls during the quarter about this and I'm happy to report that we are on track.

This is an experienced team. This is a team that is committed to be able to hit all of the schedules and I think we are very candidly doing extraordinarily well in all of this issues.

But I suppose that the order of the day really the numbers, in a few minutes I'm going to turn the time over to Bernard to be able to go over more specifics, but the bottom line is this for the first time. In Merit's history, we went over 200 million in the quarter. I think we beat The Street estimates substantially.

We were able to also beat on earnings and we will explain margins and whole bunch of other details in a few moments.

Couple of other I think important issues as we look forward is the Laurane Medical acquisition which was as now been consolidated into our Irish facility, and now they have capacity there and that product is now building inventories for launch. We literally have not been able to take anymore orders other than our existing customers.

So, this is I think an exciting opportunity for us as we look forward. We received a number of new 510(k). They are in the press release. You can read them, but couple I would like to point out to you that I think very important. One is our Prelude IDeal, now this is a very, very unique vascular sheath.

This product is a flat wire with a top cover as well as a hydrophilic coating and very candidly I believe and many of my customers believe that's the best product in the market. It also has a substantial premium over our existing sheaths.

And it's fun to kind of read the blogs and to read the text of physicians who are talking about the performance of this product. In addition to that, we have also recently received a 510(k) for a distal access SYNC. This is a closure device that is used with radio procedures, but it's done in the area called the Snuff Box.

It’s a procedure that being done in Europe. It was proposed by Dr. Kiemeneij who may be considered to be the father of radio procedures. And to best of my knowledge, I believe we are the only company on the market with this product, also proprietary in terms of process and our patents pending.

When you combine these two products together, it really is going to have a dramatic impact on the Company going forward. We are very excited about this product. The pipeline is full. We have as you know over 50 active R&D products and we have a sales meeting coming up even though we had one in January.

We have more new products coming to the market and so the pipeline is full. The acquisitions and activity are ongoing and there is still a lot of work to do.

The issues of capacities, the issues of making sure that our Chinese operations, our new facilities in Melbourne and Tokyo and the expansion of our facilities to accommodate growth in March I think the Netherland. So it’s a very, very, very active time.

A few more comments and that is on the -- in our notes, you will see this issue of this opportunity that we talked about with NinePoint Medical. NinePoint Medical is located in Bedford, Massachusetts.

I hope that you will look at the slide deck where we have a slide to explain the technology and you will also have an opportunity to go to their website. But as one individual said to me, if I were going to have to have a procedure, this is the technology I would like to use. I think you will find this very interesting.

We think it's a compelling technology. It's part of our long-term strategy to move from accessories to a more therapeutic model. But it's that this has accessories. So it has balloons, probes and other product opportunities that are part of this and fits and resides in our Endotek Division.

So I was able to welcome yesterday the group of sales people that will be coming over. And this is really a technology and opportunity that we will be talking about a lot in the future. So, the net of it is this, our transitions and acquisitions are working well. Our capacities and our initiatives are in place and our pipeline is full.

So, we feel comfortable with our projections. And I think with that said, I’m going to turn the time over to Bernard Birkett, who maybe give us some color and let's start some numbers Bernard for a moment. So let's just go ahead by the way..

Thanks, Fred. So just a quick update on the numbers, from a revenue perspective we did $220 million approximately in the quarter that’s up 18.7% as reported. Organic growth was 10.1% as reported and 7.1% on a constant currency basis.

The main product drivers within that were catheter sales, endoscopy sales, inflation device sales and standalone devices all showed all show considerable growth.

And from a regional perspective, again we saw all our U.S business coming with very strong performance while China, Asia-Pac, Europe, Middle East and Africa and our endoscopy division all contributed to those our overall growth rates.

From a margin perspective, our non-GAAP gross margin was 47.5% for the quarter and just to bear in mind that we had talked about this on our Q4 call that there will be some impact on margin in the first quarter based on the level of integration that we were doing and with the various acquisitions of the completed within Q4 of '17 and the BDX acquisition that the completed in Q1.

We've also said we saw some shift in our mix in the quarter, which contributed to the high revenue number that we've seen.

So I think in line with what we would have expected and from an OpEx point of view, if we exclude the integration costs and the TSA costs again that we have spoken about were pretty much in line and with the Q1 '17 numbers as a percentage of sales, so again OpEx on track for us there.

And then overall from an earnings perspective, EPS at $0.31 compared to $0.28 for Q1 '17 and that also included an increase in our share count in Q1 of '18 of about 13% and when we compare that with Q1 of '17, so again significant improvement in profitability. So all-in-all we’re on track..

I think -- thank you, Bernard. I think that on the revenue side, I mean clearly, a little more than we thought we would. I think the thing that's even may be more surprising, not surprising but interesting about that is that. In this first quarter, we always have a little bit of the kind of get going now from the first of the year.

We had all of our sales meetings and so we have people out of the field for a while. And so I think when you look at all of that and you think about the production getting back to ramp up after the holidays and then look at the numbers, and again I don't think there were any surprises for us loss are generally speaking.

And business is always very active in various things going on, but I think this is what we had talked about. There are some additional costs in this first quarter, there were -- those additional expenses. And so, I think as we look forward to the balance of the year.

I know that I talked to one analyst who was concerned about the jump from the first quarter on their numbers. These are the consensus numbers that they had up to the second quarter, and I think this hopefully will give some people some comfort that we were able to move that forth, but were comfortable with our numbers.

It doesn't mean there's not a lot of work to do because there is, but I think the BD transaction is exactly what we had hoped for. We have other product launch that will complement that particular area. Our inflation devices were very, very strong. Our standalone business was strong.

There were couple of areas that I'm sure you will have questions about, but again the bottom line is the business is robust and were looking forward to future reporting. So there you go, a quarter that I think in my view is extraordinary but you guys get to say and give us your views on that. And of course were here now to answer questions.

So with that being said, we'll turn the time over to our administrator. I know it's a very busy for you and hopefully this has been kept to be in the right amount of time, and we will take your questions.

Following those questions, Bernard and I will be here for a couple of hours to clarify any of the specific issues all off course in compliance with the logs the things that we can share with you. So with that being said, I think it's time to turn it over to our administrator and we will look forward to your questions. Thank you again..

[Operator Instructions] And our first question comes from the line of Larry Biegelsen from Wells Fargo. Your line is now open..

So Bernard, I just wanted to start on the guidance. I didn’t see any guidance in the press release.

Are you just -- should we just assume you are reiterating all the guidance you laid out on the Q4 call?.

That's correct. And based on integrating these and acquisitions that had -- that have taken place and where we decided to just maintain guidance. And again, I think it was strong guidance that we laid out there on the Q4 call. So, it's a compliment that we can end it -- sorry to deliver on that..

The tax rate Bernard came in a little bit lower than we are expecting.

Is there any reason why the tax rate this quarter of 23% wouldn’t hold for the rest of the year?.

It was a little bit lower based on the stock comp benefit that we picked up -- so that was, and about 2.8%. So that is effectively translated about a penny of EPS. If you get back that out than it was within the range that we have guided to..

And Fred you grew 7% organic in Q1, so congrats on a strong start to the year and that's your toughest comp for the year.

How are you feeling about being able to deliver on the 7.5% to 8.5% organic growth for 2018? And what are some of those drivers of that besides easier comps?.

We never look at easier comps. We let you guys do that. I think Larry, the business is robust. It's strong. We did this in a quarter where everybody was very actively engaged in this transaction getting it closed and getting those wheels moving. We have the holiday and we have sales meetings, so things start out little bit slower. We have sales meetings.

We have this transaction. And despite all of that stuff, the business was robust. In terms of organic growth, it's my belief that that will actually be well and probably on the high side of our estimates because of these new products and what we're seeing. So I'm very excited about the business, this is IDeal products by the way that I've discussed.

It's a really big deal. We really have just one competitor. It's a product that's ranges depending on the configuration from $45 up to $85. We have capacity and so we're very excited about that and several other new products that will be rolling out in the inflation device area.

As you can see from the numbers inflation devices continue, this is a legacy product continue to be very, very strong. Just a couple of other points, if you'll just indulge for a moment, it's interesting to note that our Impress catheters. We're up almost 17% in the first quarter. This is essentially the Cook deal.

A lot of peoples asking about Cook is reintroduced their products and yet we're seeing. And I believe we will continue to see Merit continued to take market share. So, there is some new embolic products coming out that are new materials in new products. I’m not going to speak to anything more than that, but we have some new products this year.

So we have a lot of stuffs that’s ready to roll at very active engaged sales force. So I’m excited about the business and for good reasons, I’m always excited. But now I’m even more excited, if you can imagine such thing..

Last for me, so the BDX deal closed a little later than you expected. It sounds like for the integration is gone very smoothly.

Can you share some additional details with us on where you are in that process? And what would have to happen, if you were to come in at the high end of the BDX guidance for sales and EPS this year?.

So, the timeframe really had to be with MOFCOM and the regulatory issues that have to get cleared up and get approved. So, we were in control of any of those things. We just have to sit back and wait and we were shorter than sooner.

But I think maybe the more important issue Larry is, the work that was done and the speed in which our staff was able to really rollover this order to catch. So let me say what I mean by that, so there is no misunderstanding. We are taking all the orders. All of the inventories essentially have been moved to our distribution centers.

There are some outliers that have to do with regulatory approvals, so it's not all done but in Canada, the U.S., Europe and soon in other locations, we will have that total control. So what restraints us is just simply the ability for and the agreement that we have with BD to provide the inventory.

So, we are I think going to be just fine in terms of our range. We're very likely to be on the -- I know it's today at mid range instead of a lower range. And then as I see more of that product is being delivered that may have gone up to the high end of that.

But I also have to have the supplies provided, so I need to have a little bit room here to make sure. But I would say that at this point everything is gone exactly as planned. And I think the Laurane Medical has part to do this. Now, this is the bone biopsy, but these things are kind of handling glove.

And then the core of the set, so I think this whole biopsy business is going to be something that you are going to hear a lot about.

And in addition to all that, in that stack of products that we talked about a new project in R&D, we have new biopsy devices already under development and then things that are going to help to enhance this market, which Merit is very excited about.

So, the real issue now remains to get the manufacturing transferred, so that plan is in place with the very same people that moved all the products. They have our Salt Lake people, but mostly our Mexican facilities and personnel who moved all the products when we move and did the transition to Mexico after the last two to three years.

So, under Ron Frost's guidance and our folks in Mexico, we are ready to go and we've got a great team to do it. So, we are confident in our ability to do that and all that while that wrapped up. And then, we will start to expand even further the offering and the opportunity. So that’s the best answer I can give you and I appreciate the question.

I think we will then now move on to our next question..

And our next question comes from the line of Bruce Nudell from SunTrust Robinson Humphrey. Your line is now open..

This is actually [indiscernible] on for Bruce.

Just first question for modeling, is the expected acquisition dollar and FX that was mentioned previously 37 million to 42 million for BD, 13.5 million for other acquisitions, and FX 5.5 million to 6 million still stands?.

Yes, it does..

Okay, great. CRM and EP came in the lower than expected.

Was there any impact in that segment?.

Which segment I didn’t hear the….

EP..

No, I think it's just part of the same. We did have a little bit delay on some products. We had a one product coming out of the EP area that had some production issues. But other than that for the year as we see it going out I don’t see any issues, it will get in the way..

Okay in the previous call you mentioned that there were licensing and regulatory requirements hurdles in the international markets.

Can you just provide an update how that’s progressing?.

Yes, that’s doing quite well. Some of it was issued that just had to be signed over in China, some issues in Japan and few other places including Australia. All of those are on track or will have been completed we believe in this second quarter. Most of that all will be completed and those things will be behind us..

And our next question comes from the line of Bob Hopkins from Bank of America. Your line is now open..

So I just want to ask a couple of quick questions on the gross margins.

I was wondering if you could quantify the integration costs that manifested here in the quarter and when did those start to fade away here?.

We'd expect to start to see them and gradually shifts at the back end of the second quarter and then into the third quarter. We should start to see the major effect having taken place.

So in the first quarter, we saw 50 basis point effect from all of the on boarding all of the acquisition, and we had talked about that on the Q4 call, so with realigned with our expectations. So you'll see again some in the second quarter and then by the end of the third quarter that we should absorb most of this..

And then, could you just talk a little bit from here what drives margins higher over the course of the rest of the year? And then just maybe if you would mind giving us a sense for the cadence of gross margin over the rest of the year, you'd to go from where you're starting at 475 and ending up somewhere in that guidance range you gave previously of the 49.7 I guess to 50.8, so just maybe the cadence of gross margin over the course of the rest of this year and the big drivers?.

Typically, we don't guide by quarter and but you will see progressive improvement in Q2, Q3 and into Q4. So it will increase quarter-over-quarter.

And the major drivers are as we said earlier improvements in mix and on boarding the BDX assets and then delivering on cost savings initiatives that we have already identified coming from our operations groups. So, there is a number of fronts and we will see improvement in plus.

The introduction of higher margin products coming through our R&D pipeline, so again the Prelude IDeal products, the Corvocet biopsy devices, Laurane Medical Products and starting to gain some traction we'll increase revenue..

The thinking there and you've showed the choice in there for all the power in there, so there is a whole bunch of our product we will contribute to that..

So as I said that the margin improvement that come from a number of different areas..

Okay so basically no real change from what you were saying at the beginning of the year?.

That's correct..

And then lastly for me, I'm sorry if I miss this. But given the slightly lower tax rate that sound like that was sort of just a one quarter thing is the.

Does your expectations for the tax rate for the full year changed?.

No, and so were still within that range of 25 to 27. And as I said we have that 1% benefit in the first quarter and again that's something that's kind of hard for us to predict on the stock size..

And our next question comes from the line of Matthew O'Brien from Piper Jaffray. Your line is now open..

Just a follow-up real quick on Bob's question on gross margins.

Just given the mix dynamics Bernard that you are talking about, should we model for the full year closer to the lower end of the range versus somewhere in the middle?.

I think we're still on track and based somewhat we competed on the midpoint..

And then two questions from me on the top line, the international strength that was seen in the quarter was average the fantastic.

Can you just talk little bit about the, what's driving a lot of that performance and the durability that you are seeing internationally?.

I mean I think some of it is the situations in both Korea, Japan, continued strong growth in China, all of the Southeast Asia. If you look at Vietnam, Thailand, all of those areas are doing well. Canada is doing well off course as well. So, it really has kid of that continued effort that we've seen for a long time.

We've put some more resources in new products registrations that are being approved and coming online in those areas.

Joe Wright, anything you want to add to that?.

Yes, the biggest strength is China continuing still..

Okay, so it's really China. China is the big winner..

And that's where we continue to make investments. We are investing the sales force into Chinese markets and we continue to register new products there and then seeing growth in our legacy products again remaining very strong..

And then Fred, we haven't heard specifically about that the PAE device.

I'm sorry technology and where that's at and what is that contributing here in Q1 to growth and how are the symposiums, which are conducting are they still, still pack? How was the conversion of [Dexter coming into and get trained on that approach to treat the BPH? Are you still bullish as far as were that that's revenue contribution can be any couple of years?.

Matt, I am let me just kind of refresh everybody's memory on the whole PAE process. It is not a large embolic sale. In many cases, you use maybe just one vial versus [UFP] which you could use five or six. That's not the big players. The big part of this thing is really the products like the SwiftNINJA, things like the IDeal, the True Form guide wire.

It's all of those other products that can bring Merit up to third grade or $3,500 per procedure. And the best way for me to talk about the enthusiasm is what we saw at the SIR meeting in Los Angeles just a month ago. And we did of symposia there at our booth. We had 200 to 250 physicians actually blocking some of our competitors and good companies.

We were actually kin kind of moved away from the booth. I mean there were 250 people in front of our booth. I have got video of that in a scan of that, of that. And the dynamics behind Matt are that this is something that really is unique to interventional radiologist.

This is something that because of their emerging capabilities and their knowledge really kind of the -- I’ll tell you the best group of physicians. I’d really like to say the only group of physicians that can really do this well. So, we continue to be very enthusiastic about it.

But again, remind of that a lot of the products that commodities are in the accessories and the catheters. And you will see that show up if you take a look at our catheters that are up 12%, if you take a look from our standalone products to up 21% for the quarter. So that’s where you need to look in those areas.

That’s always been the challenge with this procedure, as you know it's not one big bullet of one product, it’s a number of products. But most of it coming access, accessory and support, wires, catheters, but the embolic was smallest part of that. But I’m still enthusiastic.

We have training classes here on site and we are doing it now offsite and they are filled up I think from now until the end of the year. So, it's still a lot of interest for interventional radiologist and of course that helps us in our entire portfolio of products..

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

Bernard, I want to start with you with just continue on the discussion gross margin, asking in a different way. So gratify me here your commentary about the rest of the year, and it sounds like you're bullish to get to the mid points of that range.

You would imply obviously that you are going to be somewhere in the low 50% maybe 51%, 51.5%, some point in the back half of the year. Investors are obviously investing in the stock to own it, but seem mostly them over the longer term.

And one of the things we hear from those long-term investors is the continuation of margin expansion in this business and something Fred is committed to and talked about.

So I just want to make sure, I know you haven’t given guidance for outer years, but you have sort of given us a multiyear plan here and it's included 100 and 150 basis points of margin improvement a year. So, as we think about the latter part of the year being that 51% maybe 52% range.

How should we think about progression from that level next year?.

As we have already guided and have communicated it's at 100 to 150 basis points improvement year-over-year. And obviously we strive to keep at the high end of that achievement, but our guidance hasn’t changed at this point, it's still 100 to 150.

So our overall targets coming longer term is obviously to get to the mid 50 like mid 50s on gross margin, and you know that we will continue to track towards..

And Fred just talk quite a bit about your product portfolio, it sounds Fred like you think it is one of the best portfolios that you had ever perhaps.

And my question is really two part or maybe to comment with respect to is, breadth both geographically from a product -- from a customer standpoint graphically from a customer base? And then Bernard for you on the margin side, what that product portfolio portends looking forward from a margin perspective? Did it give you more confidence in that higher end of the range? Or in other words, is the product portfolios the new products coming out, they tend to be those higher margin products to give you confidence in your longer term margin assumption? I guess is what I am asking..

Let me take the frontend of that Jason. There's no question that the products that Merit is developing are more difficult to produce. They take more time, but they have more value both to the clinician and to the Company.

It's full and I've used it for lot, but it still holds true it just sticks to stitch, but it doesn't mean that the stick is cheap either. And everything in between is moving up the food chain in terms of its complexity, but the value that it brings that position.

And consequently, we get a higher price marginal and the ideal is -- I think the prime example of that. If you look at sheath, you might be talking about maybe a $10 range, but with these particular sheaths because of their unique capabilities and specifications, you could be talking about $55, $65 $70.

So it’s that kind of movement in products, as you also know the Company is complex with lots of products and its one of the hard things, so I think analyst is so many pieces to all of this. But that being said we continue to add products that our customers need, where we see opportunities broadly.

And so it always takes a little bit more time to get these things overseas, but let’s take an example of China it could take two or three years before the products that were talking about today are going to be there and approve, but that being said, I think that speaks volumes to the sustainability of margin improvement and growth.

So it's something we've done for long time, we have infrastructure in place and many of these locations were reviewed distribution in the past, we now have a direct or modify direct systems there.

So whether it be logistics whether it be the face-to-face with customers and closer to the point of sale, the pipeline itself and let’s not forget things like Rhapsody, which is going to be first in man in August. Now this is a product that we talked a little bit about, you will start to hear more about this.

This is a fully covered central venous stent. So as we start to move down the road, you’re going to see continued therapeutic types of devices that have substantially better margins.

But that's a Merit, when Merit walks into lab, we’re there to help every aspect of that procedure, and I think that's what makes Merit really unique, things with other people ignore we don't. We think there's a huge opportunity for service to our customers and to our shareholders.

So, I couldn’t be more pleased with where we are the Company date, maybe more importantly where were heading..

Yes, R&D and delivering on more therapeutic based products, higher-margin products is a key part of our strategy, and we've outlined that over the last three to four years as a key components in delivering higher margins in the future. But again, we were looking at margins. That's one aspect of it.

There's a number of different drivers that as we already spoken about on this call, but again that will give you confidence that we can hit these higher margins..

Within just few claim funds I'll get back in queue guys I appreciate the color. Bernard, you mentioned to an earlier question FX, FX came to help you more than we were expecting this quarter although you would have beaten nonetheless.

But the FX impact seemed to have to cover what you were sort of modeling for the year and so I'm wondering, what you expect from currency fluctuations for the balance of the year and sort of whether or not you are being little bit conservative with respect to the positive revenue impact? And then looks to that, is it having any negative earnings impact whether it would be to margins or to earnings as you go down on the balance there or the P&L?.

So, on the first part of the question, we have modeled in most of the FX impact to happen in the first quarter, so it's this kind of inline where we had a forecast it to be on the impacts on earnings and on margin pretty and natural impact based on what we've been seeing.

But again a lot of that FX we have predicted in all models that would happen in the first quarter and again its line with our expectations. Now mostly FX impact in the remainder of the year..

And our next question comes from the line of Mike Matson from Needham & Company. Your line is now open..

Hi, this is David Saxon on for Mike.

So first I guess just, can you talk about your leverage ratio and where it was event of the quarter and if you have the target for year-end?.

Correct, quickly I'll now have Bernard to answer that Bernard..

On the leverage ratio, it is 2.7 and on a net basis 1.97 -- sorry, 2.7 on the net basis, 2.91 on growth basis in the quarter..

And do you have a year-end target?.

Typically, we operated within 2.5 to 3 and what will be the range that we will be in..

And I just following off that, I mean would you consider funding an acquisition with stock or you are going hold off until you pay on a little more debt?.

No, listen, if it's the right acquisition and it was that we are able to do with company currency, we'd look at that.

I get asked this question all the time and that is, what you've done or listen we're always looking, there are oppotu8nities that come through us and we look at them and we see they stick within the parameters and our commitments to the shareholders that we've made. So I think all these have to have, they have to fit.

So we certainly are no saying that we have the deal pending leasing like that, we don’t, but what we are saying is that we are always looking and we are engaged in the number of conversations at various levels at any given time..

And then another on PAE, can you talk a little about the referral pathway? And I guess what incentive is to a urologist for referring a patient over to an interventional radiologist?.

Well, it's not my practice to talk about referral patterns. However, what I will say that in listening to people who have the procedure and listen to the positions, so I’m just getting what they have told me. A lot of these things are coming from word-of-mouth.

A lot of these things are people that are hearing about it in various articles and newspapers. So, it starts sound like that because at the many time, physicians don't like to refer away their patients. But that shows me where it's coming and we saw the same thing in USC by the way.

There were not physicians willing to give away their patients, but people heard that there is an alternative. It was less invasive and we're seeing kind of the same patterns. But listen as a man, when you look at the choices, if it's me, I’m having the PAE. I think that’s a good sales slogan..

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

Just a couple, getting back to the margins, Berd, if I head you right, I think you said that OpEx as a percent of sales would have been the same in 1Q '18 as it was in 1Q '17 excluding the integration in TSA cost.

Is that correct?.

Yes, yes that’s correct..

When do those integration and TSA cost lift?.

We will probably see -- again you'll see them in Q2, and then possibly in the first half of Q3, and then they should lift after that..

Inflation devices up, what 20 plus percent, was there anything kind of one-time there? And if not, can you just talk about what's driving that accelerate growth?.

Yes, there was no one-time per se, but as I mentioned on some of the previous calls, now going back probably two to three quarters that we signed a co-exclusive agreement with HPG and couple of other companies where we moved in Merit and ABBOTT where the two winners there.

But I do think that there is some things going on there, and incidentally, this is something as you may be recall Jayson, I have talked about it's at least my belief that not only what you see at this level, but I think that you will actually see with accelerate. Let me tell you why.

We have the Touch product, which I have to tell you is one of the products that gives me the most pleasure because everybody said it was not a good idea. The fact of the matter is, it was a tremendous idea and the number show up. We have now the new DiamondTOUCH, it’s a Blue Diamond with the Touch chassis.

We have two more inflation devices this year and we have another one next year. So Merit is the market leader. Merit has two technologies or several technologies.

And remember these are used in all kinds of procedures, GI, they use in peripheral procedures, they use in coronary, but they are different products in different needs, sizes, pressures and so on so forth. So, I think the thing that we've done is meet the needs of all our customers using a core technology that has different aspects.

So a coronary inflation device and a peripheral, and a peripheral is different than one that you’re going to use in GI case. And then we just like any market, we have several choices for customers; it’s not just the inflation devices but also hemostatic value that go along with them.

And I think it's a wonderful business school started tell about market, not meeting the needs of the conference and not having a one-size-fits-all which is generally without other the Merit and they have one device, there you go good luck. So I think that's what makes their unique and why without having a sense, Merit to global leader. There you go.

Thanks for asking that question. I like those kinds of question..

Last one for me and for my sense that you're kind of -- it’s in the talk about 9.0 a little bit, so I will take debate here. Can you talk about what you're selling? Meaning, is it just imaging device, it’s been a while since I looked at that the Company.

Is there anything else in the portfolio? And then are you also bringing on some selling resources as a little unclear on the comments?.

I haven’t been itching, I've been very calm, I just scroll it in. I think you're itching. So I will go ahead and give you a scratch here. Here we go. NinePoint is the Company that we've known from while. They've been a customer to go to exactly what I just spoke about. They use our inflation device. It’s a different device but using the big 60 on chassis.

So instead of using fluid, it uses air in the esophagus. We’re going to be selling the console. We are going to be selling the balloons and there are several other products and improvements that will be coming shortly and we will be selling those.

The Company has only been selling in the United States and that because they had limited resources, but they have on or we will have -- we will go through the regulatory action and I believe I just to make sure the CE Mark they don't. So they haven't gone to the effort of the CE Mark in Europe for valid reasons but Merit will do that.

So this will be a product that is will be sold globally by Merit and there will be several iterations. I think OCT Technology is the best especially to get into the esophagus. But if you start looking at a number of other areas lung, biliary, color, there's a number of places to including vascular.

Now, these products some of them will actually and could be used after appropriate legal filing. But I am very excited about what this means, I think it falls right in line with the discussion that we had about moving up the food chain. This is a terrific product that came out of MIT and ten out of Mass General Hospital.

They had nine salespeople or nine personnel. Some of them were clinical and some were sales rep, essentially four people selling this product. So when you take this and combine that, that will be both the console and the disposable -- the console sells for about $200,000 and the disposable for somewhere between $1,200 and $1,500.

We think it fits perfectly those resources will come over both clinical and the sales and will continue to build this out over the next several years, and there are new and exciting opportunities on the R&D side. Now if you look at the website for NinePoint, there is a little thing that says, learn more.

If you just click on that and see how this is used, there is a little video in there and it is one of the reasons I'm so excited about it. Generally today, you are going to use what we call while light. You're going to put endoscope, you are going to look at it and you can identify Barrett's esophagus. They will go in and take biopsy samples.

Oh, an interesting word, biopsy samples, how interesting. And then, now you start itch again and then, they will go in and they will use various techniques to take care of that issues. But with our system, we can go in and we can look beneath the layers.

We can then ablate or very at mark with the laser, the areas when the physician goes back down to ablate are use cryo or other therapies, we know where it is we're not guessing.

And so I think that that this -- if you look at this, you'll see this is a great opportunity for the companies, it's a great opportunity for NinePoint and for Merit and for global expansion. And it adds I think a great technology into our Endotek Group.

It will have a lot of pull-through of all of our other products and give us an opportunity there as well. So I hope I've scratched your itch..

Our next question comes from the line of Jim Sidoti from Sidoti & Company..

So in the press release, you talked about some capacity constraints for the sort of relying medical product.

Is that product now in full production? And should we see those levels accelerate through the rest of this year?.

Yes, so when we bought this product, again, this is a product were a number of physicians said, you guys need to have because I love this product, and we developed relationship with the owner and eventually we bought the product.

The problem was is they really can only meet their existing demand and maybe 15%, that was it and it was in a very small facility in Southern France. So what -- and we've talked a little bit about this, but again to refresh everybody's memory, we've said they are not going to be much improvement in revenue we're going to maintain the business.

And then what we are going to do is, we're going to move this entire manufacturing capability to our Irish facility. All of that has been completed and now the Irish facility is building first lots to stock, which will substantially improve our capabilities now to about actually launch the product.

So we take that product along the BD products along with the Merit product, all of the sudden Merit has got a very, very exciting biopsy portfolio. It is really almost unmatched by anybody else.

So it's going to be another, I'm going to say 45 days, maybe 60 days before we're launched and then it will be a full launch we will have full capabilities in capacity. And you'll start to see that particularly down the last half of the year, but there will be launched in this quarter.

And again going back to what I think we do really well, we've got these great teams in Ireland and these are the locations, we'll be able to move products, make sure that they are covered I mean it's complex, You've got to have the CE Mark, you've got to get approvals, you've got to get qualification, but those things are done and they're now producing those for its lots to start.

And it will be thrilling to talk about this in the future..

And then just one to Bernard. Interest expense, I know it was probably a little bit lower than it will beat the rest of the year because of the timing of the BD acquisition.

Where should we expect interest expense so far on a quarterly basis for the rest of the year?.

We are about probably 3 million to 3.5 million I think you should be okay..

And our next question comes from the line of Mike Petusky from Barrington Research. Your line is now open..

Couple of questions, I guess last few years you guys have really executed at a high level, and I guess I’m curious as to what you've learned in terms of capital allocation? I mean is investment internally in R&D, even in the sales or processes? Is that your best use of capital? Is that M&A? What have you guys learned over the past few years of where you have really executed against targets in terms of where your best returns come?.

Well, I’ll answer and then I’ll let Bernard to way in it. I think we have learned a lot of things Mike. I think one of the things that we did is a long time ago is to put a lot of capacity, global capacity and the infrastructure in place. What I learned is, people don’t like that necessarily because those are expenses, but those were investments.

But if don’t do that then you can't perform at this level. So I think at this point we look at, does it fit in our product line, other alternatives. I think this is something that Bernard and his staff have brought. And you look at it this way look at it that way, what is the lowest cost of capital, what fits, what doesn’t fit.

Those sorts of things and does it meet the models that we put forward. I think we have got better in our modeling. You make mistakes that dozen always, but I think if you go back and look at the couple of the last two to three development pretty big. I mean compared to those are the biggest deals. Generally, they have been pretty good.

They haven’t always worked out but I think we've also learned that you never got the Company. You don't do some transformative type of thing that messes up the plan. So I think we looked at that three year plan which is now become a five year plan looked at it and said this, what does this do to allow us to go to stay on track.

And then we're just like anybody else, we see performance in the company. We see that we are rewarded for that. And then what we want to do is we want to keep that going.

So I think those incentives that performance, dialogue around, the kinds of products and the opportunities, so there is a lot of asset, it’s a really -- it’s a good question but it’s a tough question because the lessons are many.

Bernard?.

Yes, it's on the capital allocation side, it's really a diversified approach where we are looking at. Investment in research and development, we are looking at investment in profit improvement in facility improvement, but we are also looking at investment in acquisition and that if you look over the last three years, that’s what we have done.

So we have allocated our capital across each of those areas to drive to the best returns that we can, and also to diversify some of that risk, but also to put into structure and place and in each of those areas to help support the growth rates that we are seeing.

So we are not overly reliant to one area, but it's all about investing the capital across each of those areas to drive continuous growth..

I guess last one just and all that detail was fantastic. But I guess I was wondering is, how you sort of over the past three years seeing the same things. Oh, gosh, when we -- our investment dollars in R&D, our investment dollars for or an M&A or whatever the case might be.

This really does drive a higher ROI than these other two areas or have you seeing anything like that to this point because you have been executed a lot of pretty high level for a while now?.

I think we do look at markets and say should we be doing anything here versus there's opportunity over there and how long does it take it to mature. Yes, I think we go through those exercises. Bernard makes faces at me as his eyebrow goes up, he might not talk to me for a day. I have an idea and I don't want to talk to him about.

I mean it’s the same old stuff, but I think the driving point is the execution of the plan and we're sitting here. Now, every member of the staff is sitting in this room. I think they know what these numbers. They know what their role is.

So I think there are other internal things that we've done to do a better job of institutionalizing the performance and the expectation. I think we've learned that each person has a partner talk about the other three internal cost savings, the automation, the mix, the sales strategies.

We tried and I think we’re doing a much better job on those things which seems like words, but it's like a game plan. If you have a game plan, I'm going to talk about the Utah Jazz. They have a game plan, and they are just whopping those boys from around the Oklahoma City area. Why? They have three members of the Hall of Fame on that team.

But it’s the strategy, it’s the coaching, it’s the team. You can’t win with an individual. You will win with a team and that's what we have here..

Two more, one would be super quick.

Bernard, do you have any comment on your expectation for the CapEx for the year? And if you do have it Handy, what was CapEx in the quarter?.

The CapEx in the quarter was 16.2 more targets for the years from 50 to 55.

On that CapEx, we did have some investments in land and buildings that were, and we had projected that happens and we knew this is going to be a little bit higher in the first quarter and then we also had some CapEx spends regarding adding production lines from the BDX acquisition in our Mexico facility, so for the year 50 to 55..

And then last one for Fred, I don't if it's a quick one. Obviously, you've executed stock has worked, you got multiple -- but they're probably saying release one or two things that you think, hey, investors don't fully appreciate this about the Merit business and the way we transformed it.

Is the one or two -- are there one or two things that you feel like, hey, investors never asked us about this, is it really underappreciated about what we're doing here or what were about to do here.

Can you just speak to that?.

Well, as I mentioned previously, I think it's hard to understand Merit. It's not an easy company to understand because of its breadth of products. And there's a lot of -- we've always talked for years about Merit hits a lot of singles.

Every once a while we had double, but I think we are getting to the point where actually got a little bit of muscle on this and we hit a couple of, oh, there is a couple we can hit all the ballpark. And by that, it's not going to change dramatically, but I'm saying I think we’re getting better at what we’re doing.

But I think it's hard to explain all the little pieces that go to this, and that's the toughest part, I think that when we talk about this or maybe I'll kind of achieve everybody is here. But I think one thing we'd like to do in the future is to maybe have an Investor Day in New York, where we can bring out and show the breadth of products.

So people will understand when they come here, and I will invite anybody that's listening come on out and visit us. I think when you come here you see the depth of technology. You see the depth of the product mix and things like that, if you have a great or appreciation.

I know one of our largest shareholders came out here about four years ago and he was concerned we weren’t doing quite as well we thought we ought to be doing.

But after he left here and can see with his own eyes, the investments that we've made then I think that just kind of changed his whole point of view, and he has been well rewarded that's on has been well rewarded because they hung in there with us. So I think that's part it.

I think the investments that I talked about on this call about building out a global infrastructure. You know it's important and I've always believe that we needed to be at the point of sale and be with your customer.

And the other thing with that products, so all of these products as you don’t put the business at risk, you have one product and if something goes away, you have some problem you don’t have that here. So if I could be so bold, it's to say in many ways we're like a much, much larger company because we can spread the risk.

So it's the products, it's the infrastructure, it's the global presence. And those are going to continue to help us execute our plan for years and years to come. Central South America, warming-up. Look what we've done in Asia, look what we've done Canada, Australia, Russia, Saudi Arabia, the whole Middle-East all of this stuff.

That would have been long-term, one of things I also talk to and you were right, it's not a short. But we talked about a 100 year business plan. That drives people nut because they don't want to talk about 90 day business plans and that's fine too.

But because I cannot tell you the advantages that you have when you really think about things in the long-term, and you build out a plan whether it would be with property, facilities infrastructure, products, full line product development. The idea which you can hear a lot about because it's a big deal, it's a great product with great margins.

But without doing things 13 years ago, there would be no IDeal. So, those are the things that I think that are underappreciated, but I've been seeing most things for years. But I think what is done as we've executed on the plan and we will continue to do everything we can to do what we've said and more. So there you go..

[Operator Instructions] Our next question comes from the line of Mark McGrath from Kenmare. Your line is now open..

Just a quick one. It looks like net debt went up by 106 million in the quarter. I know you've spent about a 100 million for the B&D or the BD acquisition, and then I think there you had about 16 million in CapEx in the quarter.

And I'm just curious as you look through the year, what you are thinking is with regard to free cash flow generation?.

Yes, we expect to see an improvement in that area and we have a big focus on working capital management. And again as I said on the CapEx side with the 60 million was probably close to the high point for the year and so we would expect to see improvement in free cash flow..

Can you characterize it more than just improvement or is that how you like to leave it?.

That’s how we would like to leave. We haven’t really guided on -- we haven’t guided on free cash flow..

Mark, let me if I could just comment. Mark, I want to thank you for your patience. You have been hanging on that line for a long time and we appreciate your patience with it, so thank you..

Thank you. And that concludes our question and answer session for today. I’d like to turn the call back over to Fred Lampropoulos for closing remarks..

Well, that’s amazing gentlemen and thank you for the time. A lot of you've spent, I think it's -- we have now been answering questions for 45 or 50 minutes. Bernard and I will be here.

We appreciate again, your continued support, your interest and very candidly your thoughts that help us to understand better and hopefully explain better a lot here, a lot to talk about in the future. And thank you again, we will be around. We look forward to your calls and we will sign off now.

I am wishing you all a very good evening from Salt Lake City with a final statement of Go Jazz. Good night..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day..