Vascular Solutions' CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Vascular Solutions, (VASC)

Vascular Solutions, Inc. (NASDAQ:VASC)

Q4 2012 Earnings Call

February 05, 2013, 04:30 pm ET


Phil Nalbone - VP, Corporate Development

Howard Root - CEO

James Hennen - SVP, Finance & CFO


Deepak Chaulagai - Dougherty & Company

Charles Croson - Sidoti & Company

Ben Haynor - Feltl & Company

James Terwilliger - The Benchmark Company

Larry Haimovitch - HMTC


Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to Vascular Solutions Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at the time. (Operator Instructions) As a reminder ladies and gentlemen, this conference is being recorded today, Tuesday, February 5, 2013.

I would now like to turn the conference over to Phil Nalbone, Vice President of Corporate Development at Vascular Solutions. Mr. Nalbone, you may begin.

Phil Nalbone

Thank you, Nancy. Good afternoon everyone. Thank you for joining us for Vascular Solutions fourth quarter conference call. You’ll be hearing presentations today from me, our CEO, Howard Root and our Chief Financial Officer, James Hennen; but first, the necessary preamble.

This conference call is being webcast to the public and is completely open to members of the media, Vascular Solutions shareholders and other interested parties. Today’s conference call is a proprietary Vascular Solutions presentation and is being recorded by Vascular Solutions. No other recording, reproduction, transmission or distribution of today’s call is permitted without Vascular Solutions consent. This call is being audio simulcast on the Internet via our company website at A replay of the conference call will be available on the Internet shortly after this call is concluded, through Tuesday, February, 12th. To listen to the replay, visit the Investor Relations section of our website.

Forward-looking statements made in the course of this conference call and webcast are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements can be identified by words used such as may, will, expect, continue or other similar expressions. There are certain important factors that could cause the company’s actual results to differ materially from those anticipated by the forward-looking statements as described in our annual report on Form 10-K and other recent filings with the Securities and Exchange Commission. Forward-looking statements are made based on our analysis as of today’s date and we undertake no duty to update the information provided on this call.

I’ll now turn the call over to Howard Root.

Howard Root

Thanks Phil. This afternoon we issued our press release with financial results for the fourth quarter and for the full-year 2012. It was another excellent quarter and year for Vascular Solutions. We are very proud of our company's achievements over the past year and we are very excited about our outlook as we begin 2013.

In the fourth quarter, our net revenue was within our guidance range and our earnings per share exceeded our guidance and Street expectations. We delivered a record level of quarterly revenues and in doing so we surpassed our long-term milestone of attaining $100 million in annualized revenues.

For the full-year, we reported our ninth consecutive year of double-digit product revenue growth. We once again demonstrated the operating leverage that’s built-in to our business model by delivering strong expansion of our operating margin. We had a record level of operating cash flow and we ended the year with $11.6 million in cash and no debt after making continued investments throughout the year in our future growth.

I am going to first review the topline results of the fourth quarter, including the performance of our three product categories and several of our key individual products. Next, Phil will provide an update on our business expansion and our acquisition activities. Then James will go over the financial details of the fourth quarter and provide guidance for the first quarter and for the full-year 2013. After that, we will open up the call for your questions.

Net revenue in the fourth quarter was $25.3 million, an increase of 14.5% from the $22.1 million in the fourth quarter of 2011. Our guidance for the quarter, called for revenues of between $25 million and $26 million, so our result came within our expected range.

Our geographic mix of product revenue during the fourth quarter was 85% U.S. and 15% international. Our U.S. product revenue grew by 17% to $21.4 million, while our international business, which is predominantly in Western Europe, grew by 4% to $3.8 million in a challenging market.

Our largest product category is catheter products and here fourth quarter revenue was up 14% to $15.6 million, compared to the $13.7 million in the year earlier quarter. Sales of our Pronto extraction catheter were $5 million, stable on both a sequential and a year-over-year basis. This represented five consecutive quarters of stable sales performance for Pronto which is what we have been aiming for with this mature product. Our sales force and distributors continue to do an excellent job of selling the distinct features and benefits of Pronto and as a result, Pronto has maintained its leading position in the extraction catheter market.

During 2012, we also began to broaden our extraction catheter product offerings with a launch early in the year of a new line of extraction catheters called the XL, which target large vessels and the treatment of clot dialysis access grafts. More extraction catheter products are planned over the next couple of years.

Our GuideLiner or guide extension device was once again a standout performer in catheter products for us in the fourth quarter with sales growth of 57% to $4.1 million compared to the year ago quarter or all of 2012 which was the GuideLiner’s third year on the market revenue grew 51% to $14.7 million from $9.8 million in 2011. Doctors continue to install the unique clinical advantages of the GuideLiner in a sense it carries one of our highest gross margins, we are pleased to see it moving rapidly toward becoming our highest selling catheter product.

Other catheter products that contributed to the strong growth during the fourth quarter were the Guardian hemostasis valve and related inflation device which grew 16%, our Micro-Introducer Kits which also grew 16% and our SuperCross Microcatheters which grew 160%. The growth for SuperCross was off a small base, but this product is emerging as an important overall growth driver for us and fits in our objective of offering a range of solutions for treating complex interventional procedures.

Our second product category is hemostat products which includes D-Stat Dry, D-Stat Flowable and D-Stat Radial. Hemostat revenue was $5.4 million in the fourth quarter, down just over 1% from the $5.5 million in the fourth quarter of 2011. The femoral hemostat patch market is mature with multiple competitors and ongoing pricing pressures. We do not expect our femoral hemostat business to grow, but it is a very high margin business for us and we expect to maintain our market leadership with D-Stat and Thrombix due to the clinical advantage of these thrombin-based products. Instead, in 2013, the key to restoring growth in hemostat products is new products and we have a decisive undertaking in radial artery access that is well on its way to accomplishing this goal which Phil will discuss shortly.

Our third product category is vein products. Here, fourth quarter revenue increased 48% to $4.1 million compared to the $2.8 million in the year ago quarter benefiting from $1.7 million contribution from our ClosureFAST reprocessing service that we launched in January of 2012 and Phil will discuss shortly.

As we begin 2013, I am happy to be able to say that our new product pipeline continues to be full. Our goal has been to launch around 10 new products each year and right now we have approximately 30 devices in various stages of development with 11 of these currently slated for launch before the end of 2013. So the future continues to be very bright for Vascular Solutions.

Now I’ll turn the call over to Phil to summarize some of our recent business expansion activities.

Phil Nalbone

Thank you, Howard. Vascular Solutions had another productive year of new product launches in 2012 and we achieved a very good balance among the three product categories. Of the 11 new products in 2012, six were in the catheter segment, three were in the hemostat area and two were in our vein segment. We also demonstrated a good balance between devices that were developed internally and revenue opportunities that we were able to bring in from the outside.

Of those 11 new products, six were developed internally and five were the result of licensing agreement or tuck in acquisitions. By far, the most important of these new revenue opportunities that came to us from outside the company during 2012 was the ClosureFAST reprocessing service that we launched in January in collaboration with Northeast Scientific.

ClosureFAST reprocessing has been a very big success for Vascular Solutions and contributed $4.4 million in revenues in 2012. Beyond the revenue, the reprocessing service has allowed us to significantly broaden our customer base among US vein therapy practices. This expansion of our customer base will allow us to sell more of our other products that are used in vein procedures.

We launched the ClosureFAST reprocessing service on January 16 of 2012 and here are some of the statistics associated with the program to-date.

Nearly 400 vein practices have contracted with Vascular Solutions to have their ClosureFAST catheters reprocessed by NES, resulting in significant cost savings and reduced medical waste for these clinics.

Approximately 65% of those reprocessing customers are entirely new accounts for Vascular Solutions. NES has now successfully reprocessed more than 15,000 ClosureFAST catheters and returned them to customers for reuse. We think this says a great deal about the growing popularity of reprocessing and it is a reflection of the effectiveness of NES’s reprocessing procedures in particular.

Also to bolster our vein business in 2012, in July we announced the licensing agreement with VueTek Scientific to market the Veinsite vascular imaging system. Veinsite is the only truly hands-free portable system for locating veins and it’s a powerful tool for performing sclerotherapy and phlebotomy procedures.

We restored significant growth to our vein business in 2012 and we expect to add additional new products in 2013 that will give that business another big boost. As Howard indicated, [Technical Difficulty] for 2013 is to restore growth to our hemostat business.

Last year, we took two big steps toward achieving that goal and both involved products that catered to radial artery access which is quickly gaining acceptance in the US. First, in June we acquired the Accumed Radial Artery Access Wrist Splint. This device is designed to simplify arterial access during radial procedures and to facilitate the placement of hemostatis band to spot bleeding after the procedure.

And then in October, we announced that we had obtained exclusive distribution rights in the US from the Lepu Medical Technology, our partner in China for the R-band a radial hemostasis band. It just so happens that our band works very nicely alone or in combination with the Accumed Wrist Splint.

We launched our band at PCT and it has been a major focus of our sales force since then. Adoption is off to a very good start and we expect R-band to be a significant growth driver this year, not only for our hemostat business segment but for the company overall.

Finally, I‘ll mention the product that we acquired from St. Jude Medical in August. This is the Venture deflectable-tip catheter that is used to control guidewires in challenging interventions. We purchased the Venture Catheter for $3 million. At the time, St. Jude discontinued production in 2011; the device was generating $3 million in annual worldwide sales, including approximately $2 million in the US.

The integration of production into Vascular Solutions has been going smoothly, and therefore, we continue to target the completion of qualification of manufacturing and the global relaunch of Venture in May. We anticipate rebuilding Venture sales to the $3 million annual level over the next three years.

While Venture is not a big product in terms of revenue, it is a very important product in terms of providing a unique clinical solution in some of the toughest interventional cases. We're committed to products that provide solutions in complex interventions and Venture fits very well with products in that category that have been developed internally such as GuideLiner and SuperCross.

In 2013, we expect to continue the corporate development strategy that served us well over the past year. We continue to look for opportunities to supplement our internally developed products with tuck in acquisitions and distribution agreements. We will remain focused on our existing call points in interventional cardiology, interventional radiology, electrophysiology and the vein practices. And we expect to continue to get a lot of financial leverage from our existing US direct sales force and overseas distribution network.

Now, I will turn the call over to James.

James Hennen

Gross margin in the fourth quarter was 67.2%, an improvement of 150 basis points from 65.7% in the year ago fourth quarter and a 50 basis point improvement on a sequential basis from 67.7% in the third quarter of 2012. The year-over-year improvement in gross margin was mainly due to increased sales of our higher margin GuideLiner catheter and the January 2012 purchase of intellectual property rights associated with the Pronto extraction catheters which eliminated the royalty payments on the Pronto products.

For the first quarter of 2013, we expect our gross margin to be between 67% and 68%. And for the full year of 2013, we are targeting a gross margin of between 66.5% and 67.5%.

Operating income in the fourth quarter was $4.7 million, an increase of more than 35% from the $3.5 million in the year ago quarter. Our operating margin in the most recent fourth quarter was 18.5% compared to 15.6% a year ago. Because of the typical first quarter added expenses, we expect our operating margin to be approximately 40% in the first quarter and to come in at approximately 17% for the full year 2013.

Collaboration expenses were zero in the fourth quarter of 2012. In 2013, we expect to recognize approximately $400,000 of collaboration revenue as a result of a development agreement with entered into Pfizer to develop a new hemostatic device. We expect the corresponding collaboration expenses to be approximately $300,000 for the year.

Sales and marketing expenses were $6.5 million or 25.7% of revenue, compared to $5.8 million or 26.3% of revenue in the year ago fourth quarter. Sales and marketing expense remains a key leverage point for improving our operating margin overtime as more products are added to this relatively fixed cost structure. At end of the fourth quarter, we had 92 field sales and sales management employees in US, a number of that has been stable since the beginning of 2008.

We do not expect to have significant headcount to our field sales organization. And therefore, we estimate the sales and marketing expenses as a percentage of revenue will be approximately 26.5% for the first quarter and approximately 24% to 25% for the full year. US product revenue generated per field sales employee was $259,000 in the fourth quarter or just over $1 million annualized.

This $259,000 of revenue per employee represents the increase of more than 14%, and productivity compared to the $227,000 in revenue per employee in the fourth quarter of 2011.

Now that we have surpassed our long standing goal of $1 million in annualized US revenue per field employee. We believe we can achieve our stated goal of doubling our revenue to $200 million with only modest sales headcount additions.

Research and development expenses were $2.9 million or 11.5% of revenue, compared to $2.7 million or 12.2% of revenue in the fourth quarter of 2011. For the first quarter, we expect R&D as a percentage of revenue to be approximately 12% to 13% and for the full year, we expect this ratio to be approximately 11% to 12%.

Clinical and regulatory expenses were just over $1 million in the fourth quarter or 4% of revenues, compared to $1 million in the year ago quarter or 4.5% of revenues. We expect clinical and regulatory expenses as a percent of revenue to be approximately 4.5% in the first quarter and to remain very constant at that level for the full year.

General and administrative expenses were $1.5 million in the fourth quarter or approximately 6% of revenue compared to $1.3 million or 6% of revenue in the year earlier quarter. We expect G&A to come in at approximately 7.5% in the first quarter and to average approximately 6.5% to 7.5% for the full year. Amortization expense in the fourth quarter was $361,000, an increase from $210,000 in the year ago quarter.

The increase reflects several business expansion transactions during 2012, the licensing is of ClosureFAST reprocessing rights for $900,000 that has been amortized over the five year term of that agreement, the $3.25 million that we paid for the Pronto intellectual property rights that has been amortized over the 10 years remaining on those spends, the $1.5 million that we paid to acquire the Accumed Wrist Splint that we will be amortizing over the 9 to 10 years, and the initial payment of $2.25 million for the purchase of Venture Catheter that will be amortized over nine to 10 years. And the final payment of $500,000 that we paid in the acquisition of the AngioAssist and Teirstein Edge products that will be amortized over nine to 10 years as well.

Based on these items, we expect our amortization expense to be approximately 1.5% of revenues in each quarter of 2013. Income tax expense was $1.6 million on pretax income of $4.7 million, reflecting an effective tax rate of 35% for the fourth quarter. The fourth quarter effective tax rate was lower than our annual rate of 38%, as we executed an R&D development agreement with the IRS subsidiary during the fourth quarter that resulted in revenue in Ireland which has an effective tax rate of 12.5%.

In the year ago fourth quarter, our income tax expense was $1.3 million and pretax income of $3.5 million or expected tax rate of 37%. With the exception of paying [A&T], we expect that our $8.8 million of deferred tax assets reflected in our balance sheet will offset all but approximately $3 million of our income tax expense in 2013 on a cash basis. We expect our NOL to be exhaustive in 2013. But we will have approximately $3.6 million of remaining federal R&D credits and A&T credits to be utilized in 2014.

Net income in the fourth quarter was $3.1 million, an increase of 41% from $2.2 million in the year ago quarter. Earnings per fully diluted shares were $0.18 above our guidance and an increase of 39% from the year earlier of $0.13. The total number of shares used in calculating fully diluted earnings per share in the fourth quarter was $16.5 million, compared to just under $17 million for the year ago quarter. During 2012 we repurchased just over 425,000 shares at an average price of $11.20 per share under our stock repurchase plan that expired at the end of 2012.

Turning to the balance sheet and cash flow, during the fourth quarter we generated $5.2 million in cash from operations. We used cash of approximately $775,000 for capital expenditures, $500,000 for the acquisition of AngioAssist and Teirstein Edge products and approximately $8 million to purchase an office building next to our manufacturing facility as part of our expansion plan.

For the full year we generated cash from operations of $19.2 million, a record level for us and a 32% increase over the $14.6 million in cash generated from operations in 2011. For the full year, we use cash of $3.1 million for capital equipment, $5.4 million for the share repurchases, $8 million for the purchase of the office building, and approximately $7.5 million for product acquisitions and licenses. In 2013, we expect to generate cash from operations of approximately $19 million.

We estimate that capital expenditures for the year will once again be approximately $3 million. Our days inventory in hand at December 31, was 154 compared to 158 at the end of September. We expect our days inventory in hand to remain at around 156 days during the first quarter, with a projected inventory balance of $50 million by the end of the year. Accounts receivables days sales outstanding was 51 at December 31, compared to 53 at the end of September.

I will now turn to financial guidance. Starting with the full-year, our 2013 revenue guidance is between $106 million and $110 million. At the midpoint of that range, our growth would be approximately 10% over the 98.4 million net revenue reported in 2012. Our 2013 EPS guidance is for between $0.66 and $0.70 per share, which at the midpoint, which represent growth of 13% over the $0.60 reported in 2012.

Included in the EPS projections for 2013, are 3.1 million in non-cash stock-base compensation, $1.7 million in amortization of intangibles, $1.4 million for the new US medical devices excise tax and an assumed 36.5% tax rate. As we've discussed previously, the Obamacare legislation imposes a 2.3% excise tax on US sales on medical devices, which became effective on January 1, 2013. It's important to note that tax applies only to medical devices sold in the US. So our international sales, service revenues including our ClosureFAST reprocessing service and freight charges are excluded from the tax. This new tax will result in between $1.3 million and $1.5 million of additional expense, which we listed as a separate line item called medical device tax having operating expense on the income statements, which represents approximately 1.3% of our 2013 expected net revenue.

To offset the impact of this tax effective January 1, 2013, we implemented price increases aggregating approximately $1.4 million on certain of our products. We expect this price increase to negate the entire impact at the excise tax on our operating income. For the first quarter, we expect net revenue of between $26 million and $27 million. At the midpoint that represents growth of just over 11% compared to the $23.8 reported in the fourth quarter of 2012.

Our EPS guidance for the first quarter is between $0.15 and $0.16 which would represent growth of between 25% and 33% from the first quarter of 2012. Included in the EPS projections for the first quarter of 1 million in non-cash stock based compensation, 0.4 million in amortization of intangibles, 0.3 million for the new US medical device excise tax and a 30% tax rate.

The first quarter effective tax rate is lower than our expected annual rate of 36.5% due to the previously disallowed 2012 R&D credits which are now required to be utilized in the first quarter of 2013 due to fiscal cliff legislation. Looking beyond the current year I want to conclude with a comment about our expectations for ongoing operating leverage at our business model over the next several years. As Howard mentioned with our fourth quarter results Vascular Solutions has now crossed $100 million in annualized revenue mark.

We have already set our sights in achieving indelibly our revenue base to $200 million and we have planned what it would take operationally to get there and what our cost structure will look like when we do. We keep inclusion that we think we can achieve $200 million in annual revenue without having to change our business strategy or underlining cost structure. Essentially fixed cost structure associated with our large direct sales force in the US in our international distributor network is firmly in place, and we do not expect the need to make substantial editions to our sales force or to our international distribution strategy in order to reach $200 million in revenue.

Therefore we expect to continue to drive significant operating leverage as we add more products, and from an expected operating margin of 17% in 2013 our objective is to drive the operating margin to the 23% to 25% level once we have reached $200 million in the annual revenue.

With that I will turn the call over to the operator for the question and answer portion of our call.

Question-and-Answer Session


(Operator Instructions) We will take the first question from Deepak Chaulagai with Dougherty & Company.

Deepak Chaulagai - Dougherty & Company

The ClosureFAST reprocessing business to exceed expectations, you guys didn't well over what we were looking for, what are the some of the indicators where you think this momentum will continue other than you know you already mentioned before on the clients 65% of them not new to Vascular Solutions, any other underpinnings that we should think about as we project that business forward?

Hi Deepak, this is Phil. I think the key thing here is that despite the fact that we did very well in our first year with the program we are really just getting started in terms of penetration. So with roughly 400 customers for the reprocessing service currently that represents only about 20% of the roughly 2,300 or so US main practices that are currently using ClosureFAST. If you look at it on a procedure volume basis, we believe that we ended the year at a run rate that represents only about 30% of our current market opportunity. So we see a lot of room to run with this. As we mentioned, any assets now reprocess more than 15,000 catheters and I think that's under very powerful message to the marketplace that this service works very well as some of the main clinics who might have been uncertain about reprocessing look at the ongoing success of this program, we think more and more will elect to contract with us for this service.

Deepak Chaulagai - Dougherty & Company

And I am not asking for guidance but, sort of thinking about now that you have 400 or so clients and as you said more to come, what kind of growth should we expect in year number two?

Phil Nalbone

A lot; I don't know if we give a lot of details, but we are going to be cautious and thoughtful and conservative in all of the guidance we provide I think one metric you could look at is where we ended the year on a run rate basis; I think that represents $6.8 million in annualized revenues; I think it would be wise to dial in something less than that for the sake of some cushion in your models, but we certainly think that we will continue on this trajectory.


We will go to the next question and it comes from Charles Croson with Sidoti & Company.

Charles Croson - Sidoti & Company

Howard, one question for you and I don't mean to take away from the great quarter-ish, just kind of see that there is potential there. On the international side, it seems to be a little bit lower than what your peers are doing and in all fairness I think they probably have more of a direct model overseas. But, and you didn't really, and you said in your plans you don't really have any changes to the strategy in terms of your distributor model over there. Do you think you could get that growth rate above where the US is for the international side or are you mostly just going to focus on the US?

Howard Root

Yeah, I mean we focus on international and the US, but you kind of have to look at it by product. So when you look at international it does not have reprocessing. Reprocessing is solely a US, so that's one of the growth drivers we had this year. And then you look at it quarter-over-quarter, but distributors you have some stocking orders, so the fourth quarter of 2011 we had a large initial stocking order from Japan on the Twin-Pass, then to repeat obviously the stocking order this year. And then a couple of country-by-country, Brazil, we did not get an order from Brazil in the fourth quarter, so that was about $100,000 there and just that's normal ordering patterns with a little bit of disruption by our distributor which is back on now in the first quarter.

So if we look forward, what's the big drivers international? Well, I think GuideLiner should be on every shelf of every cathlab in every country and I think our distributors are leading with that. We are trying to focus them more on that. We do have a heavy presence in Western Europe, so Spain, Italy, Greece, are big countries for us and we are not going to see a rejuvenated huge growth in those countries but we can do a lot better and some of the developing nations as well, whether it's Brazil or India or China our three areas that we think we'll do better in.

So, we are certainly going to be looking at increasing it and then Japan is one other area where the GuideLiner, especially when we get down that on the market, that could be a big material market just for that one product. So, we're not deemphasizing international by any means. It was just a tough quarter international for a couple different reasons, but something that we expect to bounce back from 2013.

Charles Croson - Sidoti & Company

Okay, that’s helpful and then just following up on that real quick. Do you see GuideLiner potential than kind of somewhere in the range of maybe half to one times size of what you guys have quoted in the past for that or somewhere between there?

Howard Root

Well, the GuideLiner we’ve said, we think it's around $30 million market opportunity for that product. I mean when we originally launched it three years ago, we thought it me a $15 million opportunity, maybe $20 million and it's grown because the clinical utility of the product has grown. There is more benefits for using it in simple terms.

As we look forward, that right now, that $30 million opportunity would be roughly a 5% penetration that 5% of the coronary interventions they would use a GuideLiner in and we're comfortable with that being a real estate market. You know, could that be a 10%. That’s possible, that would be couple of years out. That will be double the opportunity from $30 million to $60 million. But I am not really betting on that.

I think, in the $30 million opportunity that’s kind of where we look at it being in. We're roughly half the way up there with the only product on the market in that segment. So I think we can have another great year in 2013 but in that ballpark. There is a top end of this to the GuideLiner sales growth. But I think 2013 would be another nice growth year for us with that product.


(Operator Instructions) We will go next to Ben Haynor with Feltl & Company.

Ben Haynor - Feltl & Company

What part of 2013 do you expect to start the clinical studies on (inaudible)?

Howard Root

Yeah, we are looking at (inaudible) at being like a fourth quarter product for us. We still have some animal work to do and that fourth quarter would be a first in human in Europe likely clinical evaluation before the end of the year I would say.

Ben Haynor - Feltl & Company

So you think that may be in the second half of 2014 we could may be see our first sale of that product?

Howard Root

While we haven’t forecasted it out like that, when you are going to do your first in human you don’t want to get too far ahead of yourself. I think we haven’t build it into any kind of revenue forecast nor should you do that, but it would take a year from the time you do the first clinical that you have on the market so that’s a possibility but I am saying we are not expecting that.


And we will move next to James Terwilliger with The Benchmark Company.

James Terwilliger - The Benchmark Company

Congratulations on a nice quarter and nice guidance. Thanks for taking my questions. I have got two quick questions, most of my questions have been answered. The first one might be more for James. James I have got I was popping in between calls, did you say the company will start to pay taxes in the fourth quarter of 2013?

James Hennen

Yeah, so due to AMT purpose reasons we are going to have pay taxes in 2013. We expect to pay around $3 million total in 2013. In 2012, we paid around a $1 million due to AMT taxes in certain state jurisdictions they require that. And so 2013 will be around 3 million in cash taxes which will leave some of our AMT and R&D tax credits to be utilized in 2014.

James Terwilliger - The Benchmark Company

On the tax rate for 2013, did you say 36%, 36.5% I am sorry?

James Hennen

Correct, yeah, 36.5% and the main reason is for that because of the Obamacare [had] the fiscal cliff legislation which push those R&D credits from 2012 into the first quarter of 2013, that's the main driver of that decrease.

James Terwilliger - The Benchmark Company

Okay, excellent. And then Howard, this question is more for you. Can you talk a little bit and provide some color in term of the tone of your customers, I know its an open ended question but you guys respond with the price increase which I think was well played, but as James said we had a certainly had a fiscal cliff coming into the fourth quarter, medical device tax coming into the fourth quarter or presidential election of Obamacare. Can you talk to me a little bit about the tone of your customers out of the United States?

Howard Root

Well, I think the hospitals in general are under intense cost pressure, I mean everyone have seen that. They are also under scrutiny from the utilization of devices and procedures that are being done. I don't think that's gone away, but little bit of stability now and the elections done and fiscal cliff is over, but the next one is just around the corner. So, no one is expecting kind of smooth sailing going forward.

But there is a little bit of more of a adjustment I think into the extend, just viewing it from my perspective is a little more acceptance of where it is and what is going to happen, and what is going to go forward and there is no panic. I think maybe a little bit of year two ago, drug eluting stems coming down, ICD is coming down, there was a panic of where its all going to end.

Now, there is a little bit more of acceptance of this is kind of the new normal and maybe we are not going to have huge growth in healthcare procedures in the US and I am focused mainly on the US because that's what I see more often but also no one is out there saying the sky is falling going forward and that's kind of a my best guess of a tone of our customers.

James Terwilliger - The Benchmark Company

So going into 2013 is it fair to say you believe that the market’s stable, to some degree to the best of your ability things are stable in the United States.

Howard Root

Yeah much more stable than it was. And I’d say stable is probably a pretty good word. I don't see huge growth, but I also don't see a desperation or a decline.


(Operator Instructions) We will go next to Larry Haimovitch with HMTC.

Larry Haimovitch - HMTC

Congratulations on being very astute at buying your stock average price of $11 something. You guys want my portfolio.

Howard Root

With vast stock that would have been a good investment over the last few years.

Larry Haimovitch - HMTC

I'm there as you know. Howard so in terms of the buyback is there still any left in place and with the stock up in the year well its nearest highs for the year and for several years are you still buying the stock or what can you say about the buyback at this point.

Howard Root

Yeah, on the buyback that expired at the end of 2012 we do it year by year. We didn't can't go back to the board and ask for a new stock repurchase plan obviously they can do that at anytime during the year.

Larry Haimovitch - HMTC

So the buyback is finished at this point.

Howard Root

(Inaudible) right.

Larry Haimovitch - HMTC

How much cash did you spend approximately in buyback in 2012?

Howard Root

The total amount was $5.4 million.

Larry Haimovitch - HMTC

Okay, great so all other things being equal if you don't do the buyback this year you are going to have more cash for other operations and acquisitions and things like that.

Howard Root

Yeah, and we never skimped on acquisitions, we buy whatever we find that works and fits. I mean we have to search through a lot of things to find the ones that we want and get them at the right prices, and so we could do a buyback obviously even with all the acquisitions that we can think that we could do this year. But we also don't mind building up a little bit of a cash balance in order to do bigger acquisitions if they are offered.

Larry Haimovitch - HMTC

Anymore color Howard or Phil on radial artery I know that that could be a very, very nice business for you down the road and anymore color that you would like to provide us that might be helpful.

Howard Root

I can kind of give you a little bit, I mean the radio on the international market has far outstripped the US, I mean as you saw in UK I think its at 55%, 56% of the coronary procedures are do one radial up from 110% five years ago. In the US it might be doubling now but that would be going from 5% to 10%. I think we've crossed the 10% threshold and we certainly see that being a momentum that's not going to go backwards and then you've got to look at what products are they using and where we are fitting in that and obviously the hemostasis area is the first thing we jumped in.

We had the (inaudible) radial before and at the R band added the Accumed Wrist Splint and I think there's a couple of other little products to add in that area and then there's some other aspects of the radial artery that are different than the femoral artery both from the catheters they use, the access they gain, the tools they use for that. They are relatively small by industry standards. I mean these are under a $100 products, but for us with that kind of growth in that market and that price, that's still a very material product. So I think you will see one or two more radial products that we are going to launch out of those 11 that we expect to launch in 2013, and I think that will be one of the bigger growth drivers for our catheter products in the year.


And at this time, I'm showing no further questions. Mr. Root, please continue with your closing remarks.

Howard Root

I want to thank everyone for joining the presentation. We appreciate your interest in the company and we look forward to providing you with future updates and the company’s progress and our continued growth starting in the first quarter. Thanks.


Ladies and gentlemen, that concludes our conference for today. Thank you for participating in Vascular Solutions fourth quarter conference call. You may disconnect.

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