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Vascular Solutions, Inc. (NASDAQ:VASC)

Q1 2013 Earnings Conference Call

March 23, 2013 4:30 pm ET

Executives

Howard Root - Chief Executive Officer

James Hennen - SVP Finance, Chief Financial Officer and Secretary

Phillip Nalbone - VP, Corporate Development

Analysts

Thomas Gunderson - Piper Jaffray

Deepak Chaulagai - Dougherty & Company

Ben Haynor - Feltl and Company

Charles Croson - Sidoti and Company

Jeffrey Frelick - Canaccord Genuity

Larry Haimovitch – HMTC

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to Vascular Solutions First 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 that time. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, April 23, 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.

Phillip Nalbone

Thank you, [Debona] (ph). Good afternoon everyone. Thank you for joining us for Vascular Solutions first quarter conference call. Today, you’ll be hearing presentations from our CEO, Howard Root; and our Chief Financial Officer, James Hennen, followed by a Q&A session with all three of us participating, 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 www.vasc.com. A replay of the conference call will be available on the Internet shortly after this call is concluded, through Tuesday, April 30. 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

Thank you and good afternoon everyone. This afternoon we issued our press release with financial results for the first quarter of 2013. First I'm going to review the top line results of the quarter including the performance of our three product categories and several of our – and key individual products. Next, James will go through the financial details of the first quarter and provide guidance for the second quarter and full year of 2013. After that, James, Phil and I will take your questions.

Vascular Solutions continues to grow sales and earnings in a challenging medical device market through continuous new product innovation. Following this strategy, we reached another record revenue level in the first quarter with 10% growth in revenue over the year ago quarter to $26.1 million. This was at the bottom end of our guidance of between $26 million and $27 million because of the Guardian product recall that I'll discuss shortly. Without that event, we would have been squarely in the middle of our revenue guidance.

Our geographic mix of product revenue during the first quarter was 86% U.S. and 14% international. Our U.S. product revenue grew by 10% to $21.9 million while our international business, which is predominantly in Western Europe, accelerated nicely this quarter with growth of 9% to $4.1 million.

The underlying strength of our operating performance in the first quarter was masked to a degree by the impact of the recall of our Guardian hemostasis valves in February. This recall was necessitated by a change in performance of the valve component that is manufactured by an outside vendor for our Irish subsidiary, a performance that we did not identify until it had been made into finished products shipped to customers. We estimate that this recall, which did not result in any reported patient injuries, resulted in $350,000 of lost sales during the first quarter and in addition approximately $550,000 in recall expenses.

Clearly, the Guardian product recall did not live up to the high standards for execution that we have set for ourselves and that you have come to expect from Vascular Solutions, but we addressed this problem quickly and we believe we now have it fixed and expect to resume shipments of the Guardian product in June with no additional expense in the second quarter.

Overall, for the full 2013, we remain committed to our goal of delivering a 10th consecutive year of double-digit revenue growth while increasing our bottom line earnings at an even higher rate, and we are very excited about the launch of several new products starting with the global relaunch in the second quarter of the Venture catheter that we acquired from St. Jude Medical last year.

Turning to first quarter sales by product category, our largest product category is catheter products, and here first quarter revenue was up 12% to $16.6 million compared to the $14.9 million in the first quarter of 2012. Once again, our GuideLiner guide extension device was a standout performer in the first quarter with sales of $4.8 million, an increase of 48% from $3.2 million in the year ago quarter and a 16% sequential improvement from the $4.1 million in the fourth quarter.

Since GuideLiner caries one of our highest gross margins, we are pleased to see it moving rapidly towards becoming our highest selling product and we are excited about the third version of the GuideLiner that is in prelaunch clinical evaluations as well as GuideLiner product line extensions that we expect to launch later in 2013.

For now, our highest selling product continues to be the Pronto extraction catheter which is used to remove blood clots, principally in heart attack patients. First quarter Pronto sales were $5.1 million, stable on both a sequential and year-over-year basis. This represented the sixth consecutive quarter 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 intensely competitive and price-sensitive extraction catheter market.

Other catheter products that contributed to strong growth in the category during the first quarter were the Langston dual-lumen pressure measurement catheters which grew 17%, and our Twin-Pass dual-access catheter which grew 19%. Both Langston and Twin-Pass are one-of-a-kind devices that are only available from Vascular Solutions. In addition, sales of our line of interventional guidewires grew 32% during the first quarter and sales of our SuperCross microcatheters increased 51%.

Typically, the Guardian hemostasis valve and related inflation device are important drivers of growth in our catheter product segment. As an example, sales of the Guardian related products grew 16% in the fourth quarter of 2012, but due to the February recall, first quarter sales declined 50% to just under $350,000 compared to $703,000 in the year ago first quarter.

Looking into the second quarter, beyond getting the Guardian back on the market in June, the big event that we are anticipating in our catheter business is the global relaunch of the Venture catheter that we acquired from St. Jude Medical last year for $3 million. During full commercialization of the Venture catheter, St. Jude Medical generated $3 million in annual revenue with about two thirds of that in the United States. There exists a large pent-up demand for the Venture, since essentially all remaining inventory was exhausted while we were transferring and validating the manufacturing processes.

We remain on track to relaunch Venture in May and expect to immediately benefit from the unique nature and performance of the product in some of the toughest interventional cases performed, which we also believe will continue to increase Vascular Solutions' reputation and stature in cath labs worldwide.

Moving beyond our catheter products segment, our second largest product category is hemostat products which include our D-Stat Dry, D-Stat Flowable and Radial products. Hemostat revenues were $5.8 million in the first quarter, down 2% from $5.9 million in the year ago first quarter, but a 6% sequential improvement from $5.4 million in the fourth quarter. We have made excellent progress in the early stages of our new product launches in the fast-growing radial artery catheterization market and we continue to expect this effort to restore growth to our overall hemostat products category during 2013.

Our third product category is vein products and services. Here, first quarter revenue increased 21% to $3.6 million compared to $2.9 million in the year ago quarter benefiting from a $1.5 million contribution from our ClosureFAST reprocessing service that we launched in January of 2012. To date, more than 410 vein clinics have contracted to have their ClosureFAST catheters reprocessed through our service and 65% of these accounts are new customers to Vascular Solutions. Our reprocessing partner, Northeast Scientific, has now successfully reprocessed more than 20,000 ClosureFAST catheters resulting in substantial cost savings and reductions in medical waste for the vein clinics that have elected to use the service.

Regarding future products, I'm pleased to be able to say that our new product pipeline remains full. Our goal has been to launch around 10 new products each year and right now we have more than 40 devices in various stages of development with around 10 of these currently slated for launch before the end of 2013. So, despite the setback in the first quarter associated with the Guardian recall, we think the future continues to be very bright for Vascular Solutions.

Now, I'll turn the call over to James to review the details of the first quarter and to review our guidance for the second quarter and full year.

James Hennen

Gross margin in the first quarter was 66.6%, a decrease from 67.1% in the first quarter of 2012 and a decrease sequentially from 67.2% in the fourth quarter. Costs associated with the Guardian recall were $550,000, equating to 210 basis point reduction in the first quarter gross margin. On an adjusted basis, without the impact of the Guardian recall, the first quarter gross margin would have been a better than expected 68.7%, primarily due to the above forecast sales of our higher gross margin GuideLiner catheter. We expect this to continue in the second quarter. With no further costs expected from the Guardian recall, we forecast gross margins to be between 68% and 69% in the second quarter.

Operating income in the first quarter, adjusted to exclude the effects of the Guardian product recall, was $3.7 million, representing an operating margin of 13.9%. This was an increase of 18% from $3.1 million in operating income and 13.1% operating margin in the first quarter of 2012. The first quarter began a new 2.3% excise tax on U.S. sales of medical devices. This new tax expense was $317,000 in the first quarter, which we have broken out as a separate line item on our income statement. While we continue to hope for a repeal of this tax, we have included the 2.3% tax on U.S. sales of our devices in our guidance for the remainder of 2013.

Sales and marketing expenses were $7 million or 27% of revenue, a decrease of 1 percentage point from 28% of revenue or $6.6 million in the year ago first quarter. Sales and marketing expense remains the key leveraging point for continuing to increase our operating margin as more products are added to our relatively fixed sales cost structure. At the end of the first quarter, we had 91 field sales and sales management employees in U.S., a number that has been stable since the beginning of 2008. We do not expect to add significant headcount to our field sales organization through the remainder of 2013, and therefore, we estimate that the sales and marketing expenses as a percentage of revenue will decline to between 23% and 24% by the fourth quarter of this year.

U.S. product revenue generated per field sales employee was $264,000 in the first quarter or just under $1.1 million annualized. This represents an increase of more than 7% in productivity compared to the $246,000 in revenue per sales employee in the first quarter of 2012. Having surpassed in 2012 our long standing goal of reaching $1 million in annualized U.S. revenue per field employee, we now believe we can continue to leverage our sales organization up to a doubling of our revenue to $200 million with only modest sales headcount additions.

Research and development expenses were $3.4 million or 13% of the revenue in the first quarter compared to $3.1 million or 13% of revenue in the first quarter of 2012. For the remainder of 2013, we expect R&D as a percentage of revenue to be between 11.5% and 12.5%.

Clinical and regulatory expenses were just under $1.2 million in the first quarter or 5% of revenues, compared to $1.1 million in the year ago quarter or 5% of revenues. We expect clinical and regulatory expenses as a percentage of revenue to continue to be between 4% and 5% in each quarter for the remainder of the year.

General and administrative expenses were $2.2 million in the first quarter or 9% of revenue compared to $1.7 million or 7% of revenue in the year earlier quarter. Legal expenses were $200,000 higher than expected in the first quarter, resulting from the previously disclosed patent and trademark lawsuit that was commenced by Terumo Corporation in February and the legal expenses associated with managing the U.S. Attorney's qui tam litigation that began in June 2011. While legal expenses are always difficult to forecast, due to the addition of the Terumo litigation, we now expect G&A expenses to be between 7% and 8% of revenue for the remainder of 2013. In dollar terms, this represents a forecast of an additional $150,000 in legal fees in each quarter.

Amortization expense in the first quarter was $367,000, an increase from $335,000 in the year ago quarter. In the second quarter, we estimate that our amortization expense will be approximately $415,000, and then will increase to $435,000 beginning in the third quarter, reflecting an increase in amortization from several business expansion transactions that we completed in 2012.

Income tax expense in the first quarter was $763,000 on a pre-tax income of $2.9 million, reflecting an effective tax rate of 26%, which was substantially lower than our projected annual rate of 36%. As expected, during the first quarter we recognized $300,000 of research and development tax credits that have been deferred from 2012 pending congressional action which was completed in January.

In the year ago first quarter, our income tax expense was $1.2 million on pre-tax income of $3.1 million or an effective tax rate of 39%. During the remaining three quarters of this year, we expect our effective tax rate to be 38% resulting in a full year average for 2013 of approximately 36%.

With the exception of paying alternative minimum tax, we expect that our $9.1 million of deferred tax assets, reflected on our balance sheet at March 31, will offset all but approximately $2.6 million for income tax expense in 2013 on a cash basis. We expect our NOL to be exhausted before the end of 2013, but at that time we still will have approximately $3.6 million of federal R&D tax credits and AMT tax credits that are not reflected on our balance sheet to be utilized in 2014.

On an adjusted basis, net income in the first quarter was $2.6 million, an increase from $1.9 million in the year ago quarter, while earnings per diluted share were $0.16, an increase of 33% from $0.12 in the first quarter of 2012. On a GAAP basis, net income in the first quarter was $2.1 million and earnings per share was $0.13. The total number of shares used in calculating fully diluted earnings per share in the first quarter was $16.7 million, compared to $16.3 million in the year ago quarter.

Turning to the balance sheet and cash flow; during the first quarter, we generated $4.9 million in cash from operations. We used cash of approximately $1.8 million for capital expenditures, consisting of $0.9 million for facility improvements and $0.9 million for additional manufacturing and R&D capital equipment. For the remainder of 2013, we estimate that capital expenditures will decrease and for the full year will be in a range of $3 million to $4 million. During the first quarter, we used $1.1 million to purchase shares that vested under outstanding restricted stock awards to satisfy income tax withholding requirements.

At March 31, we had $14.1 million in cash and cash equivalents, up from $11.6 million at the end of December. We have no debt and we still have an untapped $10 million line of credit. For 2013, we continue to expect to generate cash flow from operations of approximately $19 million.

Our days inventory in hand at the end of March was 146 compared to 154 at the end of December. We expect our days inventory in hand to be approximately 145 days during the remaining quarters of the year, with a projected inventory balance of $14.5 million by the end of 2013. Accounts receivables days sales outstanding was 52 at the end of March compared to 51 at the end of December.

I'll now turn to financial guidance. Starting with the full year, we're maintaining our revenue guidance of between $106 million and $110 million for 2013. At the midpoint of that range, our growth would be approximately 10% over the $98.4 million in net revenue reported in 2012. Despite this disruption in the first quarter sales caused by the Guardian recall, we believe we have sufficient momentum and new product growth to continue to achieve our previously stated top line sales objective for 2013.

Regarding earnings, adjusted for the impact of the Guardian product recall, we continue to expect earnings per share of between $0.66 and $0.70 for 2013, an increase of 13% from 2012 at the midpoint. On a GAAP basis, including the impact of the Guardian recall, earnings per share projections are between $0.62 and $0.66. Included in both of these earnings per share projections for 2013 are $3.3 million of non-cash stock-based compensation, $1.7 million in amortization of intangibles, between $1.3 million and $1.5 million of new taxes for the U.S. medical device excise tax, and an assumed 36% effective tax rate. As a reminder, to offset the impact of the medical device tax, effective January 1, 2013, we implemented price increases aggregating to approximately $1.4 million on certain of our products which resulted in our improved gross margins starting in the first quarter. We expect this price increase to continue to essentially negate the impact of the excise tax on our operating income during 2013.

For the second quarter of 2013, we expect net revenue of between $26.5 million and $27.5 million. At the midpoint, this represents growth of 9% compared to the $24.7 million reported in the second quarter of 2012. Our earnings per share guidance for the second quarter is $0.16 to $0.17, which at the midpoint represents growth of 12% from $0.15 reported in the second quarter of 2012. Included in the earnings per share projections for the second quarter are $700,000 of non-cash stock based compensation, $400,000 in amortization of intangibles, $350,000 for the new U.S. medical device excise tax, and a 38% tax rate.

Looking beyond the current year, we have a clear plan to place – to achieve $200 million in annual revenues without substantial changes to our business strategy or underlying cost structure. Largely fixed cost structure associated with our large direct sales force in the U.S. and our international distribution network is firmly in place and we do not expect to make substantial additions to either in order to reach $200 million in revenue. Therefore, we expect to continue to derive significant operating leverage as we add more products, and from our expected operating margin of 16% in 2013, our objective is to drive our operating margin to between 23% and 25% at the $200 million annual revenue level.

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

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. In an effort to field as many questions as possible, please limit yourself to one question and a related follow-up. (Operator Instructions) We'll take our first question from Tom Gunderson with Piper Jaffray.

Thomas Gunderson - Piper Jaffray

Two questions. One is, Jim, in the guidance you just gave for Q2 on revenues, does that include Venture starting up in mid-May or a little after?

James Hennen

Yes, it does include Venture, we expect that the Venture sales will start sooner in the quarter rather than later in the quarter but we didn't give an exact date yet.

Howard Root

I think we said May and that's kind of what we expect. So there's a little bit of that. The Venture is about $3 million annualized product, two thirds of that U.S. and we are not going to get that right away but I think we'll have a nice pent-up demand as we launch that because people have been asking for it for quite a while, while we transfer the manufacturing into our facility here.

Thomas Gunderson - Piper Jaffray

Got it. And then the follow-up is, Europe grew 4% in Q4 and bounced back nicely to 9%, and what's still a tough market. Were there any unusual orders, or Howard, how would you explain the good growth in Europe?

Howard Root

Yes, I think fourth quarter was a little bit of a disappointment at 4%, this is more normal at 9%, that's what's we've been doing before. There wasn't anything abnormal in ordering in the first quarter, couple of our distributors came through, solid performance in the GuideLiner which continues to be – international, that is the number one product, and Pronto, we maintained the share with Pronto as well. Last year, the challenge in the international was a couple of our bigger products for growth weren't international products. So, reprocessing for ClosureFAST is a U.S. only product. So that's one of the reasons why we saw a little bit slow down percentage. Now, some of the things that we've got coming on, obviously the GuideLiner is big in international, but some of the other products, the 10 we're launching this year, a majority of those are international products, starting with Venture. So, products and better performance combined I think we got back to where we should be on international sales growth.

Operator

Thank you. We'll take our next question from Deepak Chaulagai with Dougherty & Company.

Deepak Chaulagai - Dougherty & Company

Just a quick question on the ClosureFAST reprocessing, revenue although grew nicely year-over-year, a bit down sequentially just a bit. Is that a function of seasonality or how should we expect that business for the remainder of 2013?

Phillip Nalbone

I'll try that one, Deepak. This is Phil Nalbone. Yes, I think that that dip that you saw sequentially was just a reflection of the normal seasonality that we see in our vein business. In terms of how to think about that overall revenue opportunity for the year, I think if you start with the $1.5 million in revenue that we did in the first quarter and annualize that, that's a very good starting point for the expectations for that program this year that would represent 40% growth from the $4.4 million that we did in the first year with this program.

Deepak Chaulagai - Dougherty & Company

And what about the rest of the vein business outside of the ClosureFAST, that seems to continue to be challenging in – otherwise rest of the revenue you guys put up solid numbers but there, looks like there are still some challenges.

Howard Root

Yes, in the Vari-Lase line as we said, for many quarters now, we don't see that as a growth driver for us. It's partly by choice and partly by market. I think everyone is realizing that endovenous laser, pretty mature area right now, and our competitors are saying the same thing. Also the margins are low, it's a very price conscious thing. So, we – with 70 products and one sales force, we have the choice of where to direct our people and we've been directing in the last couple of quarters into GuideLiner, into radial procedures, things that have high growth potential, and as a result a little bit away from the Vari-Lase line, also into the reprocessing which has been a growth driver for us. So, partly by choice but partly also market. If we were just maintaining that Vari-Lase business steady, that would be great performance. We're a little bit below that and we expect to continue that kind of going forward, but as you can see from this quarter, that really does help the margins as well as we get higher sales from better gross margin products.

Deepak Chaulagai - Dougherty & Company

That makes sense. Thank you.

Operator

We'll take our next call from Ben Haynor with Feltl and Company.

Ben Haynor - Feltl and Company

Given GuideLiner strong performance this quarter, do you think this is the year that GuideLiner sales surpass those of Pronto on the catheter side?

Howard Root

Yes, I think we're almost there now and it wouldn't take much of a projection to say that probably starting Q2 GuideLiner will be our number one product.

Ben Haynor - Feltl and Company

Okay, great. And then, in terms of cath lab procedure volumes and all, just some of the hospitals that have made comments on this, have kind of said that volumes in total are a little bit weak, and if I recall, only last year it sounded like you guys on those stabilizing. Is there anything new that you might be seeing there?

Phillip Nalbone

Yes, I don't think we're seeing anything new or interesting on the utilization front, Ben. In fact, procedure volumes in the United States are probably down a little bit on a year-over-year basis, now consistent with what some of the bigger players are seeing. I think Abbott commented on this in some detail on their conference call last week. They're seeing total PCI volumes in the U.S. down in the low to mid single digits and that's pretty consistent with what our people have been seeing and consistent with our take on the marketplace for the past couple of years. We expect it to be a tough environment in terms of procedure volumes and price, but we're primarily focused on building markets for our own niche products and obviously we were able to put through select price increase this year. So, I think we are kind of bucking the trends.

Howard Root

Just a little addition to that. I think if you look at our strategy, we've always built this around the idea that it's a flat market. So, when other people say that market is declining or flat, that's kind of what we expect. So, when you're dealing with niche products, the benefit there is you don't need market growth to grow. We've demonstrated that for nine straight years and again in the first quarter we did it again. So, I think the market is coming around to where we are and our strategy works very well in that market.

Ben Haynor - Feltl and Company

Great, that's very helpful. Thanks for taking the questions.

Operator

Thank you. We'll go next to Charles Croson with Sidoti and Company.

Charles Croson - Sidoti and Company

Kind of piggybacking off that last question there, for Pronto, you still – same results again but made pretty significant pricing pressure. Can you give us an idea then on what the volumes are like and perhaps maybe taking some share in that space?

Howard Root

In the Pronto market you're talking about?

Charles Croson - Sidoti and Company

Yes.

Howard Root

So, pricing a little bit declining in that market. I mean we're seeing single-digits definitely declines year-over-year right now in pricing for Pronto. We've seen some of the lower competitors, lower market share competitors come and go away. There's always one or two that bubble up and come into the market and then they don't get much and then it goes away. So it's really much more of a mature, what you would expect in a mature market. It's us and it's Medtronic primarily and then – I'm talking about U.S. where I know most of what's going on – and then some smaller players behind that. And I think in the last couple of quarters, we've seen a lot of stability in that area and that's encouraging. The V3 is, we've made some cost improvements to keep our margins where they need to be with the declining ASP, which is the challenge for our manufacturing operation but they've risen to that challenge and performed. So I think that's what we're going to see going forward, a really stable aspiration catheter market for us, maybe a little bit of a decline or a little bit of an increase, but not much either way.

Charles Croson - Sidoti and Company

Okay, alright, that's helpful, and then just one quick one here on the product pipeline. The 10 products that you cited in the release, are those all internally developed or does that account for potential M&A opportunities?

Howard Root

We have about 10 that are internally developed and I think we have one or two – we've got at least 10, I think if I total it up, there might be 12, and two of those we expect to be external products we bring in, and Phil can comment on that, and there's 10 that I'm working on with the internal team to generate those.

Phillip Nalbone

We're definitely not in a position yet to talk about specifics but we are working on a number of things. In fact, presently we have nine active evaluation programs underway and we are hopeful about a couple of those during this calendar year. So, my hope is that I'll be on the call next quarter talking about at least one of those.

Charles Croson - Sidoti and Company

Okay, great, we'll look forward to that, Phil, and thanks again for taking the questions.

Operator

Thank you. We'll go next to Jason Mills with Canaccord Genuity.

Jeffrey Frelick - Canaccord Genuity

This is Jeff filling in for Jason. Thanks for taking the questions. On the international side of the business, looks like your overall contribution has stayed fairly steady in the probably 15% to 17% range for the past couple of years. How should we think about that mix from international market over the next several years as you reach towards the $200 million mark, and are there any countries outside of Western Europe that you feel could be a larger contribution to growth in 2013 and beyond?

Howard Root

Right, so the second half of that question, the one big market that we haven't done much in yet is Japan, and GuideLiner in Japan would be a big thing because the Japanese just do challenging interventions, probably more so on a per capita basis than any other country and the GuideLiner fits perfectly into that mindset. We are still working on getting the Shonan regulatory approval and the reimbursement clearance as well. It's hard to predict when that's going to happen, I would hope it's sooner rather than later, but until we get that approval, we're not going to put Japanese sales in there. So that's a potential upside that's not in the forecast right now.

For the second half of the question, it really is product specific. If you look at it product by product, it varies quite a bit and reprocessing is 100% U.S., GuideLiner is more than 50% international on a unit basis right now and GuideLiner grows faster international than it does in the U.S., both growing substantially higher than our other products but even higher on the international as we expand into other markets because GuideLiner is really a product that should be on the shelf of every cath lab that does challenging interventions in every country in the world and we're kind of using that as our leading-edge to get distributors excited about Vascular Solutions products.

So I think if you looked at it broadly and you said where are we going to be, that current percentage within 1% or 2% either way is kind of where it's going to be over the next couple of years, subject to what happens with new product launches and where those new product launches fit in a U.S. distribution or U.S. acquisition or worldwide kind of catheter that should go to every cath lab in every country.

James Hennen

And also keep in mind that 50% is on a sales basis. On a volume basis, that's 30%. Generally our distributors are going to mark that product up to 100%. So international is about 30% of our (indiscernible) volume basis right.

Jeffrey Frelick - Canaccord Genuity

Okay, perfect, thank you very much for that update. One last question from me. I wonder if you could provide an update on the patent lawsuit filed by Terumo. Are there any dates that we should look out for this year in terms of milestones or anything?

Howard Root

Yes, so that litigation has commenced in February, so it's relatively soon, we can't obviously comment on the substance of it. It's around our R-Band product which is a relatively small product in our radial hemostat, a growing project in our radial hemostat area. We do believe we have a strong legal position and obviously we have contingent plans as well. There is a hearing coming up May 9 on their request and that's something that we're going to respond to and move forward, but being that the lawsuit was filed only in February, it's in very early stages of that litigation.

Operator

(Operator Instructions) We'll take our next question from Larry Haimovitch with HMTC.

Larry Haimovitch - HMTC

I was jumping back and forth between the other conference call, so please forgive me if I'm asking a question that you covered some ground on, but I wanted to just get an update on the radial artery situation. You did touch on the patent suit. Can you tell us what progress you've been making over the last several months and how big of an initiative you look for this to become over a period of time?

Howard Root

So radial hemostats and radial artery catheterization is a big growth area. It's finally coming to the U.S. International has been big for a couple of years but the U.S. is starting to get into that double-digits in terms of the percentage of cardiac catheterizations that are done by the radial artery. We've got a number of products in there. We have the Accumed wrist splint which we acquired last year, we've got our own D-Stat Radial and Rad-Band in the hemostat area, and we have all those 10 new products we expect to launch, a couple of those are in the radial artery market, and then of course we have the R-Band as well. That's really going to be the growth driver for our hemostat products which we think will return to positive growth year-over-year starting in the second quarter. That's because of the radial products growing while our D-Stat Dry, which is used primarily in several artery catheterization probably is going to continue to decline because of the switch from thermal to radial catheterization. Phil, maybe you have something to add to that as well.

Phillip Nalbone

No, I think that pretty much sums it up. You know we were looking at our numbers earlier today and I think basically our radial related business has tripled over the past year. So this remains a very big focus for us. We're looking at a number of things in terms of internally developed products as well as collaborations and potential tuck-in acquisitions and distribution agreements in this area. I think everybody is increasingly on board with the idea that radial access will be a very big component of U.S. PCI procedures.

Larry Haimovitch - HMTC

Have you guys provided any ballpark numbers about where the business is in terms of sales, or can you do that if you already haven't?

Howard Root

In terms of the sales of the radial products?

Larry Haimovitch - HMTC

Yes, on a global basis. I know it's fairly small but…

Howard Root

In terms of our sales or the market sales?

Larry Haimovitch - HMTC

Yours.

Howard Root

Yes, I mean I can give you a ballpark, 5.8 million we did in hemostat products in the first quarter, roughly 1 million of that was radial products, and that 1 million sales had tripled from last year. So that's how you can see that we think growth should be seen starting year-over-year on a basis starting in Q2.

Larry Haimovitch - HMTC

What about the rest of products though, if you total up all the products in radial artery, how big is that right now?

Howard Root

For us? Everything is in that area. So we – just for purposes of clarification, we put all of our radial products into the hemostat products category.

Larry Haimovitch - HMTC

Oh I see, okay, got it.

Howard Root

We don't – other than introducer sheaths, I guess we leave those in catheter products because they are part of our whole introducer sheath line. So when we talk hemostat, it includes the wrist splint, which is a positioning device, obviously the D-Stat Radial and Rad-Band and R-Band which are hemostat devices, and there's some other new ones that are coming in that are radial related, but I want to make sure that we have all the radial products kind of in one bucket and that's in the hemostat area.

Larry Haimovitch - HMTC

And what do you think the penetration rate is now, Phil or Howard, obviously in the U.S. I mean specifically? I know in some markets overseas, in Canada, it's way, way larger. Last time when we talked about this, I think I remember sort of 12% to 15%-ish, is that still correct?

Phillip Nalbone

We think it's somewhere in the 15% to 20% range, and as we talk to more potential collaborators in this area, we're getting a pretty consistent reading around that level. That's up from less than 3% just three years ago, and most people think…

Larry Haimovitch - HMTC

So it's quite (indiscernible) going on actually, isn't it, 3%, 15% to 20% and obviously probably going forward 40% to 50% at some point?

Phillip Nalbone

It is, right. Canada is north of 50%, average for Europe is about 35%, the U.S. continues to lag but is catching up pretty rapidly.

Larry Haimovitch - HMTC

Phil, do you see the growth coming more internally from internally developed products or does it require some more acquisitions to fill out the product line to give you the full complement to compete as effectively as you'd like?

Phillip Nalbone

It's both internally developed and products that are coming to us through active collaborations.

Howard Root

I think if we look at it, I think we've got everything internally that we need in order to continue our double-digit sales growth and higher than that on the bottom line which I think almost leads the market in our area in terms of the company, public company in international cardiology today on a consistent basis certainly. And then on top of that, I think is where we look at the acquisitions. It's not something we need to do by any means, and that's why we don't try – everyone tries to stay away from bad acquisitions but because we're not forced to do acquisitions, of the nine things we're still looking at, I'm sure we won't do half of those for some reason, whether it's not the right fit, it's not the right product, it's not the right price, and we're going to just pull the trigger so to speak on the acquisitions that make sense to us both in terms of product, focus, and economics, and that should lead us above 10% in revenue growth going forward.

Operator

At this time, I am showing no further questions. Mr. Root, please continue with your closing remarks.

Howard Root

I want to thank everyone for participating in our call today. As a reminder, our Annual Shareholders' Meeting will be next Friday, May 3, starting at 1.30 at the Crowne Plaza Hotel here in Plymouth, Minnesota. We look forward to providing you a complete review of the Company's progress at that Annual Meeting and to provide you with additional updates on future conference calls. Thanks.

Operator

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

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