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Executives

Phil Nalbone - Vice President, Corporate Development

Howard Root - Chief Executive Officer

James Hennen - Chief Financial Officer

Analysts

Tom Gunderson - Piper Jaffray

Jason Mills - Canaccord Genuity

Larry Haimovitch - HMTC

James Terwilliger - Wunderlich Securities

Vascular Solutions, Inc. (VASC) Q3 2013 Earnings Conference Call October 22, 2013 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to Vascular Solutions’ Third 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, October 22, 2013.

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

Phil Nalbone - Vice President, Corporate Development

Thank you, Elise. Good afternoon everyone. Thank you for joining us for Vascular Solutions’ third quarter conference call. You will be hearing presentations today from our CEO, Howard Root and our Chief Financial Officer, James Hennen and I will be available again later during the Q&A portion of this call, 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, October 29. 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 will now turn the call over to Howard Root.

Howard Root - Chief Executive Officer

Thanks Phil. This afternoon, we issued our press release with financial results for the third quarter of 2013. First, I will review the top line results of the quarter and talk about some of the major developments that relate to our performance and outlook. Then, James will go through the financial details of the third quarter and provide our guidance for the fourth quarter and full year 2013. Finally, James, Phil and I will answer your questions.

The third quarter was a period of exceptionally strong performance for Vascular Solutions. Both our sales and adjusted earnings exceeded our guidance range and Wall Street’s expectations. We once again achieved double-digit sales growth and improved operating margins, net of our recent litigation settlement. All three of our product categories demonstrated growth as a result of our strategy of new product innovation to bolster our position in all of our target markets. Our direct sales force in the U.S. and our network of distributors outside the U.S. have continued to do a great job of expanding the markets for our products.

We are very proud that we are on track for 2013 to be our 10th consecutive year of double-digit sales growth. We don’t know of any other public medical device company that has that record of sustained sales growth in the last 10 turbulent years in the healthcare economy. We think our track record clearly reflects a very successful and durable business model that will continue to serve us well as we work toward our next goal of surpassing the $200 million annual revenue mark.

During the third quarter, our net revenue increased 14% to a new record quarterly level of $28 million compared to $24.6 million in the year ago quarter. Our guidance had called for third quarter revenues of between $26.5 million and $27.5 million. So we exceeded the top end of our guidance range by a good amount.

Our geographic mix of revenue during the third quarter was 85% U.S. and 15% international. Our U.S. product revenue grew by 16% to $23.9 million compared to $20.7 million in the year ago quarter, while our international revenue increased 6% to $4.1 million compared to $3.9 million in the year ago quarter.

Growth in our international business reaccelerated nicely during the third quarter compared to the second quarter when our sales were basically flat on a year-over-year basis. As expected, two factors contributed to the improved international performance. First, during August, we began the staged re-launch in Europe of our Venture catheter and second, also during August, we resumed sales and shipments worldwide of our Guardian hemostat valve, which had been the subject of a recall in February. By the end of this year, we anticipate our international sales should get a further boost once we commence sales of the GuideLiner catheter in Japan. Our Japanese distribution partner, Japan Lifeline, is awaiting the Shonan regulatory approval that is expected in this fourth quarter.

Now, I will cover some of the key performance factors in each of our three product segments. Our largest product category is catheter products, which represented more than 64% of our total sales during the third quarter. Sales in this category were up 17% to $18 million compared to $15.3 million in the third quarter of 2012. Our GuideLiner guide extension catheter was once again a standout performer. During the second quarter, GuideLiner became our top selling product out of our more than 75 products. And during the third quarter, GuideLiner continued to make a major contribution to our growth with sales up 40% to $5.2 million compared to $3.7 million in the year ago quarter.

When we launched the first generation of the GuideLiner in late [2009] (ph), we created an entirely new market with an interventional cardiology called rapid exchange guide extension, which improves guide placement and stent delivery. We are now on our third generation version of GuideLiner with the V3 that underwent pre-launch clinical evaluations during the second quarter with excellent customer feedback. During the third quarter, we began rolling out the GuideLiner V3 to our worldwide customer base and we are seeing superior clinical performance. During the third quarter, our GuideLiner encountered its first competition with Boston Scientific launching its Guidezilla catheter.

As we previously reported, in May we filed a lawsuit in U.S. District Court for the District of Minnesota alleging that Boston Scientific has infringed three patents owned by Vascular Solutions concerning rapid exchange guide extension technology. In June, we brought a motion for preliminary injunction to stop U.S. sales and manufacture of Guidezilla while our case proceeds. And we are still awaiting the judge’s decision on our motion. The underlying litigation is currently scheduled to be ready for trial on or after March 2015. While we continue to believe we have a strong case, rulings and timing in patent litigation are always unpredictable. Irrespective of the results of that litigation, we believe that we are well equipped to deal with any competitor with our new V3 version.

It’s important to note that while Boston Scientific is not to be underestimated, we have faced similar competition before on some of our largest products, including competition with our Pronto extraction catheters from both Boston Scientific and Medtronic. In fact, Boston Scientific was on the market with an aspiration catheter called the Rio back in 2006 and pulled the Rio product from the market within a year of launching. We are confident in our GuideLiner V3 product and our sales force’s ability to meet the competitive challenge and continue to grow GuideLiner sales.

Also in our catheter product segment, the Pronto extraction catheter is our second largest selling product on a companywide basis. Third quarter sales of $5.1 million were once again stable sequentially and up 2% on a year-over-year basis. This represented eight consecutive quarters of steady sales for Pronto, which has been our objective in this mature product category. Our sales force and distributors continue to do an excellent job of highlighting the distinct features and benefits of Pronto. And as a result, Pronto remains the market leader in the intensely competitive and price sensitive extraction catheter market.

Another major contributor to third quarter growth in our catheter business was the Venture catheter, which we acquired last year from St. Jude Medical. We re-launched Venture in the U.S. on April 29 and we began a country-by-country rollout in international markets during August. During the third quarter, sales of Venture were slightly above $500,000. We are off to a very strong start with this important device and physicians who have relied on Venture in challenging interventions are glad to see this product back on the market.

The recall of our Guardian hemostasis valve hurt our sales of catheter products during the first nine months of the year as this product typically has been one of the important growth drivers in our catheter mix. We have resumed the shipments of Guardian in August and during the remainder of the third quarter, Guardian sales were $488,000, down 24% from the $643,000 in the year ago third quarter. We believe that sales of Guardian will continue to ramp back up towards more normal levels in 2014. Other catheter products that contributed to our strong growth in this category during the third quarter were our line of guidewires for interventional procedures, which grew 51%, our Langston dual-lumen pressure measurement catheter, which grew 22%, our micro-introducer kits, which grew 16%, and our SuperCross line of microcatheters which gained 14%. Our second largest product category is hemostat products, which includes our D-Stat Dry, D-Stat Flowable and radial products. Third quarter hemostat sales were $6 million, representing a 7% increase from the $5.6 million in the year earlier third quarter.

One of our major objectives for 2013 was to restore year-over-year growth to our hemostat category after a couple of years of negative comparisons. We achieved that goal during the second quarter with 4% year-over-year growth and we are pleased to see the growth rate accelerate in the third quarter. We achieved this goal by focusing our new products that cater to the rapid growth in the radial catheterization market in the U.S. Last June, we acquired the Accumed wrist positioning splint. And last October we launched a radial hemostasis band under a distribution agreement with Lepu Medical of China.

We now call that radial hemostasis device the Vasc Band and combined with the Accumed wrist splint; these products drove the improvement in our overall hemostasis sales during the third quarter with combined sales of $859,000. While this focus on radial access products has clearly begun to payoff, we are still in the very early stages of implementing our expanded product strategy in this category. We have several additional radial products targeted for launch over the next year and beyond.

Within the radial hemostat area, today we also announced that we have settled our patent and trademark litigation with Terumo Corporation. Under the terms of the settlement agreement, we agreed to pay Terumo a one-time lump sum payment of $812,500 in October. And Terumo agreed to dismiss all current and potential future claims against our Vasc Band radial hemostat. We are pleased to put this distraction and legal expense behind us.

On the traditional femoral hemostasis side, although the patch market remains intensely competitive and price-sensitive, it is important to point out that we maintain our dominant position in the patch market due to the superiority of our thrombin-based products, D-Stat Dry and Thrombix.

Our third product category is vein products and services. Here third quarter revenues increased 11% to $4 million compared to $3.6 million in the year ago quarter. This growth was driven by 71% increase in revenues from our ClosureFAST reprocessing service to $2.1 million in the third quarter compared to $1.2 million in the year ago quarter. We launched our reprocessing service for the ClosureFAST catheter in January of last year. So far more than 470 vein clinics have signed up to have their ClosureFAST catheters reprocessed through our service. Approximately 65% of these reprocessing accounts represent entirely new vein clinic customers for Vascular Solutions. To-date our reprocessing partner, Northeast Scientific has successfully reprocessed more than 30,000 ClosureFAST catheters, establishing a track record for reliability among our customers. From this space, one of our continuing objectives is to boost our sales of ancillary products to this expanded list of vein clinic customers. During the third quarter we launched our 25,000th guidewire which is commonly used during RF ablation procedures to facilitate placement of the catheter in the vein. We now offer the full range of accessory products that are needed to perform RF vein ablation procedures.

Reprocessing has proven to be an extremely popular option with our customers, because it’s reliable, saves a lot of money, and cuts down on medical waste substantially. We are big believers in the future of reprocessing. It’s already one of the fastest growing segments of the medical device sector and it’s only going to accelerate with the cost reduction initiatives of hospitals and other providers. Over the past year, we have been evaluating additional reprocessing opportunities beyond ClosureFAST. We have rejected some, we have gotten excited about others, but in the third quarter we finally identified one that fits the objectives for both us and our reprocessing partner, Northeast Scientific.

This new reprocessing service for an existing medical device still needs to be reviewed by the FDA. So we are not going to disclose the product name until it launches, except to say that it fits within our existing customer call points, it currently is not being reprocessed by anyone in the U.S., and the reprocessing revenue potential is larger than the ClosureFAST opportunity. During the third quarter, we paid $500,000 to NES to secure exclusive distribution rights to this new reprocessing service for eight years following approval. NES expects to submit the five – the FDA application by the end of this year. And we hope to rollout this new reprocessing service before the end of 2014.

Finally, on the subject of new products, continuous innovation is the key to our success. Our goal has been to launch around 10 new products each year and we are maintaining that pace. Right now our internal pipeline remains full. We have approximately 40 devices in various stages of research and development. Beyond the internal pipeline, we have a strong balance sheet that supports an active program to evaluate tuck-in acquisitions and product distribution opportunities.

Our large direct sales force makes us a highly attractive distribution partner for companies that lack direct sales capability. And we remain committed to acquiring the right products that fit within our existing call points. At any given time, we are evaluating numerous opportunities. We are careful in our evaluations. We are patient, and we refuse to overpay. So we will only act on these outside opportunities when it makes sense to do so.

Now I will turn the call over to James to review the details of the third quarter and to review our guidance for the fourth quarter and for the full year.

James Hennen - Chief Financial Officer

Gross margin in the third quarter was 67.2%, an improvement from 66.7% in the third quarter of 2012. On a year-over-year basis, our gross margin has been benefiting from higher proportion of sales from GuideLiner and other high margin products. For the fourth quarter, we forecast gross margins of between 67% and 68%. On an adjusted basis, which excludes the $812,500 litigation settlement with Terumo, operating income in the third quarter was $4.8 million, an increase of more than 16% from $4.2 million in the year ago quarter.

Our adjusted operating margin improved to 17.3% from 16.9% in the year ago quarter. The new 2.3% excise tax on U.S. sales of medical devices under the Affordable Care Act resulted in nearly $339,000 of expense during the third quarter. Without the new excise tax, our adjusted operating income would have grown by 24% and our operating margin would have improved by nearly 160 basis points to 18.5%. On a GAAP basis, our operating income in the third quarter was $4 million, representing an operating margin of 14.4%. For the fourth quarter, we expect our operating margin to once again exceed 17%.

Sales and marketing expenses were $6.7 million or 24% of revenues, an improvement from 25% of revenues or $6.2 million in the year ago third quarter. Sales and marketing expense remains the key leveraging point for ongoing improvements in our operating margin as more products were added to our relatively constant field sales organization. At the end of the third quarter, we had 94 field sales and sales management employees in the 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 sales and marketing expenses as a percentage of revenue will decline by 100 basis points compared to the year ago fourth quarter.

U.S. product revenue generated per field sales employee was just over $290,000 during the third quarter, or nearly $1.2 million annualized. This represents an improvement in productivity of more than 14% compared to the $254,000 in revenue per rep during the third quarter of 2012. We believe we can continue to leverage our existing sales organization to double our annual revenues to $200 million with only modest sales headcount additions.

Research and development expenses were $3.1 million or 11% of revenue in the third quarter compared to $2.9 million or 12% of revenue in the year ago quarter. During the fourth quarter, we expect R&D as a percentage of revenue of between 11% and 12%.

Clinical and regulatory expenses were just under $1 million or 4% of revenue in the third quarter compared to just over $1 million or 4% of revenue in the year ago quarter. We expect clinical and regulatory expenses as a percentage of revenue continue to be approximately 4% during the fourth quarter.

General and administrative expenses were $2.4 million or 8% of revenue in the third quarter compared to $1.7 million or 7% of revenue in the year ago third quarter. The increase in the ratio mainly reflects $300,000 of added legal expenses due to the Boston Scientific and Terumo patent cases. While legal expenses are always difficult to forecast based on our assumptions about these lawsuits, we expect our G&A level to be between 8.5% and 9% of revenues during the fourth quarter. Litigation expense was $812,500 in the third quarter as a result of our settlement on the patent litigation with Terumo. We expect to pay the $812,000 in the fourth quarter.

Amortization expense was $404,000 during the third quarter, an increase from $359,000 in the year ago quarter. We expect our amortization expense to be approximately $410,000 in the fourth quarter. Income tax expense in the third quarter was nearly $1.4 million on a pre-tax income of $4 million, representing an effective tax rate of 34%. The effective tax rate was lower than our projected effective tax rate of 38% primarily due to the higher than expected stock option exercises and the impact of the domestic manufacturing deduction, which has been limited in prior years by alternative minimum taxes, but will now be available to us going forward as long as deduction is allowed.

In the third quarter of 2012, our tax expense was $1.6 million and pre-tax income of $4.2 million, which represented an effective tax rate of 38%. For the fourth quarter, we expect an effective tax rate of between 34% and 35%, resulting in a full year average for 2013 of approximately 33%. We expect that our $7.8 million of deferred tax assets reflected on our balance sheet at September 30 will offset all, but approximately $2.3 million of our income tax expense in 2013 on a cash basis. We expect our NOL to be exhausted in 2013, but we have an additional approximately $3.6 million of federal R&D tax credits and AMT credits that are not reflected on our balance sheet that we plan to utilize and offset tax payments into 2014.

On an adjusted basis, net income in the third quarter was $3.2 million, an increase of more than 24% from $2.6 million in the year earlier quarter. On a GAAP basis, net income increased to $2.7 million. Adjusted earnings per diluted share during the third quarter were $0.19, an increase of nearly 19% from $0.16 in the third quarter of last year. On a GAAP basis, EPS in the most recent third quarter was $0.16. The total number of shares used in calculating fully diluted earnings per share in the third quarter was 17,067,000 compared to 16,389,000 in the year ago quarter.

Turning to the balance sheet and cash flow. During the third quarter, we generated just over $4.7 million in cash from operations. Our major uses of cash during the quarter were just over $665 for capital expenditures and $500,000 as a licensing payment to Northeast Scientific for the new reprocessing service that Howard discussed earlier in the call. For the full year, we estimate that capital expenditures will be approximately $4 million. At September 30, we had $24.1 million in cash and equivalents, up from $19.7 million at June 30. We have no debt and we still have an unused $10 million line of credit. For the full year, we continue to expect to generate cash from operations of approximately $20 million.

Our days inventory on hand at the end of September was 150 compared to 147 at the end of June. We expect our days inventory on hand to be approximately 149 days during the fourth quarter. And we continue to project an inventory balance of approximately $14.5 million by the end of the year. Accounts receivable days sales outstanding was 49 days at the end of September compared to 51 days at the end of June.

Now, I will turn to financial guidance. Starting with the full year, we are raising our revenue guidance range to between $109.4 million to $110.4 million. Previously, our revenue guidance for 2013 had been $107 million to $110 million. At the midpoint of our revised guidance range, it represents growth of nearly 12% from $98.4 million in revenue in 2012. For 2013 earnings, we are also raising our guidance, on an adjusted basis, which excludes the effect of the Guardian product recall during the first quarter and the Terumo litigation settlement in the third quarter. We are now estimating earnings of $0.70 to $0.71 per fully diluted share. This would represent growth of 17% to 18% from the $0.60 per fully diluted share we earned in 2012.

On a GAAP basis, this adjusted earnings guidance corresponds to net earnings of between $0.64 and $0.65 per fully diluted share. Previously, our guidance for the full year had been in the range of $0.66 and $0.70 on an adjusted basis and $0.62 to $0.66 on a GAAP basis. Included in our revised earnings per share projections for 2013 are $3.4 million in non-cash stock-based compensation, $1.6 million in amortization of intangibles between $1.3 million and $1.5 million in expenses associated with the U.S. medical device excise tax and an assumed 33% tax rate for the year.

Looking at the fourth quarter, we are providing revenue guidance of between $28 million and $29 million. At the midpoint that represents growth of approximately 13% from the $25.3 million in revenues in the fourth quarter of 2012. We expect net earnings for the fourth quarter of 2013 of between $0.19 and $0.20 per share. In the year ago fourth quarter, we reported earnings per share of $0.18. Our net earnings guidance for the fourth quarter this year includes $800,000 of non-cash stock-based compensation, $400,000 in amortization of intangibles, $350,000 for the U.S. medical device excise tax and a 34% to 35% tax rate.

With that, I will turn the call over to the operator for 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. (Operator Instruction) Our first question comes from Tom Gunderson with Piper Jaffray. Please go ahead.

Tom Gunderson - Piper Jaffray

Hi. Good afternoon guys.

Howard Root

Hi Tom.

Tom Gunderson - Piper Jaffray

So my two questions on this round will be on TCT and international. Let’s go with international first, up 6% after a flat Q2 and you gave the reasons, Howard, sort of a reversal of what made Q2 flat. I am curious what you think is the overall market health out there internationally, particularly Europe? And were there any – was there restocking that may have inflated a little bit in Q3? Was there anything unusual going on or should we look at 6% as kind of ongoing for international?

Howard Root

Yes, I think as far as the bits and parts of that on the restocking idea, I don’t think there was any restocking going on, it was more of a resumption. I think the Q2 was down, because we didn’t have any sales of Guardian being the big product there and that’s back now in Q3. And so we are back up. Now, we sell to distributors as distributors sell to the hospital. So there is a little bit of lumpiness there, but we don’t look at V3 as being a lumpy high quarter as more V2 was lumpy low quarter on that way. So we aren’t giving guidance out going forward beyond the fourth quarter, but I certainly don’t think that 6% is a stretch for us in the international markets. Now, you look at a little bit more detailed product by product, because international differs quite a bit for us than the U.S. U.S., we have the benefit of the ClosureFAST reprocessing which we don’t do outside of the U.S. and the Vasc Band which is U.S. only as well. But on the international side, we have some other countries we can open up, most notably the Japan with the GuideLiner. And you are undoubtedly familiar with the Japanese interventional cardiology market that GuideLiner fits nicely into that. And we don’t know how big that’s going to be. Our distribution partner is excited about it and we hope to have it approved with reimbursement approval by the end of this year, in this quarter. And that would be a significant driver for next year. So again, overall international I don’t think the 6% was a high number and I think we can continue to do something at least that well going forward.

Tom Gunderson - Piper Jaffray

Thanks for that. And then on the second question, TCT coming up next week and radial access, you were one of the first to get new products out and to focus on this to specialize on radial access specialty products, if you will. Others are starting to come in as well, but we have had a number of publications that are starting to make this seem more like growth will be there for a while, at least in the U.S. So with all of that as a preamble, I am curious do you have any papers, presentations, new product launches that we should be looking for next week in the radial access area?

Howard Root

Yes, I think on the overall radial market it’s kind of one of those things that was a quick hit after only 10 years of preparation for the U.S. I mean…

Tom Gunderson - Piper Jaffray

It was an overnight success.

Howard Root

Yes, after 10 years, yes. And I think people are waking up to it. The thing that’s unique about it is that there aren’t that many different products. You use the same stents, you use the same guidewires and guides and a little bit of twists and a tweak there, but it gets down to the sheath and it gets down to the hemostasis device and some of the procedural equipment. But the hemostasis band is a place we are entering quickly. And those products aren’t big clinical data drivers. I mean you don’t do clinical data on the introducer sheath. It’s more of a field type thing. It’s also a pricing type deal. They aren’t the high priced items in there. So we don’t have anything at TCT that is going to highlight that area. And when you do see clinical data on – in the medical meetings it’s generally around the concept of the throughput of the lab or the lack of complications. So when you go radial, people can get up immediately. They don’t have to lie flat on their back for two to three or six hours. And they don’t need to use a $200 sealing device and it’s much more comfortable for the patient. So those are the things that they are looking at.

And then they are always trying to lower the rate of artery occlusion. Radial artery occlusion is one of the potential complications. And for that they are talking about patent hemostasis, which requires you to have a good hemostasis band, one that’s applied the right way with the right protocols. And we are working with our clinician customers on optimizing the Vasc Band for that optimal pressure. Not too strong, so it becomes an occlusive compression, but not too weak that you get any complications from bleeding. And that’s more of an incremental type approach. So I think that’s where we see it. But as far as breakthrough science being presented, that’s just not where radial is today.

Tom Gunderson - Piper Jaffray

Thanks for that.

Howard Root

Thanks, Tom.

Operator

Thank you. We will go next to Jason Mills with Canaccord Genuity. Please go ahead.

Jason Mills - Canaccord Genuity

Thanks Howard, James and Phil. Congrats on another great quarter. Can you hear me okay?

Howard Root

Yes, we can hear you, fine. Thanks.

Jason Mills - Canaccord Genuity

Wanted to start with my first question Howard on GuideLiner, another great quarter in the face of competition, I am just wondering in the marketplace, just what you can glean in terms of what sales Boston Scientific has been able to put forth out there. And I am assuming your guidance, and as far as you have given it through the balance of the year includes an expectation that you are not going to get the preliminary injunction, just wanted to get the clarity on that one. And I have a follow-up?

Howard Root

Sure, yes. So on the second part of that question, our assumptions going forward, what we build into our model assumes that we will have competition and then its upside if we get the preliminary injunction. But not getting the preliminary injunction would not cause us to lower our guidance. Then when we look at Boston Scientific competing with really what is a knockoff product, if you will, it is almost identical to our first version of the GuideLiner, what have we seen with that product out there. They have gone past evaluations now. We have seen it in full launch mode. It’s both in the U.S. and outside the U.S. we are selling it with a CE Mark out in Europe. It’s obviously not one of their biggest products. It’s one of the smaller products in the coronary bag for them. But they have some parts of their sales force that’s out there promoting products for these challenging intervention cases. The old bridge point sales force is out promoting it more actively than the standard coronary sales rep. So in some of the accounts where they have the best Boston Scientific relations, that’s the place we see them getting the most traction. We do see some fair amount of free sampling and we see some lost accounts, and every account that they get is an account that we wouldn’t get because it’s the only two products out there and they are direct competitors.

Having said that, the V3 countering that is a superior product. I think we have seen that in substantial clinical use now. The half pipe or U channel design of the collar of that which is really the critical factor and feature of the product really does improve the deliverability, the stent interaction and the ability to really use it to the full potential. And the Guidezilla, being a copy of our V1, is two generations behind us. So when we can get in there and talk to the physician about the clinical utility and the design features and what we have learned over three years of designing and working with this product, I think we win a majority of those cases. But we still factor in that Boston Scientific is going to get a share of that market going forward.

Jason Mills - Canaccord Genuity

That’s helpful. My second question has to do with 2014, understanding you are not prepared at this point, unless you would like to give me your 2014 guidance. I would just ask it another way which is to ask next year what sort of volume of growth do you expect from new products, products that you aren’t currently selling right now or you just mentioned into Tom’s question the potential for GuideLiner in Japan, so extension of existing products into new geographies. So what sort of volume of revenue or if you want to answer in terms of growth, you may expect from things that aren’t contributing to this year’s find in success. And then maybe we could do our own work in terms of what we expect here your base business is to grow?

Howard Root

Right, yes. As you know I mean our budgeting process for 2014 is just now getting underway. So we are not giving guidance, formal guidance of the year on this call. The things that we can say is that we are aware of the analyst estimates for both the sales and for the earnings. And in general terms we are very comfortable with the growth rates that those imply, based off of actual 2013 numbers and where we should come in for the year. And when we look at the top line on sales, we are getting more refined each year on how we do the forecast. And with the broader range of products and more experience, I think we get even better at how we do our forecasting. And when we are looking at our numbers for next year and the guidance that we will give on our next conference call here at the end of the fourth quarter, we factor in nothing for acquisitions. We factor in nothing for new distribution agreements including nothing for this new reprocessing service that we hope and really kind of expect to have on the market by the end of next year. And we have really nothing in for products that we will launch in 2014, because we have just learned that it’s just too hard to forecast that and we’d like to have some upside as well, so all of those things are upside.

So what do we have built in? Obviously it’s the existing products and things that launched in 2013 and looking at continued growth and in fact continued decline in some of our products that are more mature. So the growth drivers, most of them will be the same things you have seen so far, which is Vasc banding, a second year completely on the market, GuideLiner continuing to grow nicely, Venture being fully on, Guardian coming back after the recall and back to normal sales and growing. And I think the SuperCross is one that is just getting into material sales now with some of the new launches and can have a material effect next year. And there are some other ones too there as well, but kind of overall if you look at it, when we are giving guidance we are looking at existing business, existing products and expected growth rates and expected growth declines of things like patches and how we can offset that. And then it’s going to be upside to the extent that we can get acquisitions and new distribution agreements and new services and reprocessing.

Jason Mills - Canaccord Genuity

Couldn’t have asked for a better answer? Thanks Howard.

Howard Root

Great. Thanks.

Operator

Thank you. We will go next to Larry Haimovitch with HMTC. Please go ahead.

Larry Haimovitch - HMTC

Good afternoon. Congrats on another solid quarter.

Howard Root

Hi, Larry. Thanks.

Larry Haimovitch - HMTC

Howard, you tantalized us with the new initiative with your reprocessing. I understand you don’t want to talk about it in detail, certainly appreciate that. However, I don’t know if you said this in the call, do you think that market potential, sales potential for Vascular Solutions with that new initiative would be larger than what you currently are doing with the current product line?

Howard Root

Yes. I think what I said is and obviously I mean everybody knows why we wouldn’t name the product, because you don’t want to announce the competition before you get out there.

Larry Haimovitch - HMTC

Of course.

Howard Root

But this is – and it’s a U.S. reprocessing, it’s to our same target market, which it means is to customers that we currently sell products to. It’s a medical device that is not currently being reprocessed in the United States. And to answer your question, yes it’s a larger opportunity for Vascular Solutions than our current ClosureFAST reprocessing opportunity.

Larry Haimovitch - HMTC

And should we expect the margins that you are achieving currently would be about the same for the new product?

Howard Root

Yes. Reprocessing is always in that 50% range.

Larry Haimovitch - HMTC

Yes.

Howard Root

It’s kind of where we are and that’s where we need to be, but I mean, that’s a healthy profit for us just based on the economics where we don’t have any inventory. It’s a reprocessing service.

Larry Haimovitch - HMTC

So the contract is now signed. It’s a matter of getting FDA approval and ramping up the capacity. Is that correct?

Howard Root

Just – yes, it’s a matter of getting FDA approval. The capacity will be there from day one.

Larry Haimovitch - HMTC

Yes. And you said launch before end of 2014, I think?

Howard Root

Yes, that’s what we are projecting, but as you know with the FDA you can project, you can hope and you can plan, but you just don’t know for sure until you get the paper.

Larry Haimovitch - HMTC

Yes. Is it a 510(k) filing? And what class of 510(k) if it is a 510(k)?

Howard Root

Yes. I am not going to go into that. It’s a reprocessing application.

Larry Haimovitch - HMTC

Okay.

Howard Root

So beyond that we are not going to get into the specifics.

Larry Haimovitch - HMTC

Alright, I have tried. Thank you.

Howard Root

Thanks, Larry.

Larry Haimovitch - HMTC

Thanks. Good afternoon.

Howard Root

You too.

Operator

Thank you. (Operator Instructions) We’ll go next to James Terwilliger with Wunderlich Securities. Please go ahead.

James Terwilliger - Wunderlich Securities

Hey, Howard. Can you hear me?

Howard Root

Hi, James. Yes, I can hear you fine.

James Terwilliger - Wunderlich Securities

Hey, first of all, congratulations on a very nice quarter. Just real quick and I apologize I did miss some of your call. When you look at the basically your wound closure business from the Cath Lab, the hemostat business, what’s really driving that? That was a great number in terms of what you have done, growth and we have looked at that business over the years. I know there is a shift to the radial procedures. Is it an increase in volume, I know pricing is pretty steady, what’s driving that 6% increase?

Howard Root

Yes, you are right. It’s all based on increase in volume based on shift from femoral to radial. So if we look at it, $859,000 of our third quarter sales were combined between the Accumed wrist splint and the Vasc Band radial hemostat band. And that’s where the growth is. We realized just a while ago that the patch market which is our D-Stat Dry and Thrombix products used to stop bleeding in the femoral access site was a mature market under significant cost constraints and competition. And we could maintain that, but we are not going to price it down to where we are trying to take 80% share of that market and drop our selling price. So instead of looking at it that way, we wanted to continue to harvest that product and manage our customers with it, but look for growth in other places within hemostats and the obvious place was radial. So with the Vasc Band now on the market and doing great numbers as well as Accumed’s products getting acquired into the company, we really have a good portfolio of radial access products and that is a huge growth area in U.S. catheterization procedures. Not in the number of procedures overall, but the number of procedures that are shifting from femoral access to radial access and we think that will clearly continue over the next several years.

James Terwilliger - Wunderlich Securities

So but on a different level though, to some degree you would be cannibalizing some of your own business, but to have that type of mid single-digit growth rate, you have to be taking share from competitors who don’t offer the radial product. Am I thinking about that correctly?

Howard Root

Well, there is certainly some decrease in femoral access when you go to radial access. But a lot of the change from femoral access to radial access is to get rid of the use of a complete sealing device like say an Angio-Seal or a Perclose. Those are cases, where we are not using our patches. So on those cases, it would be an incremental pickup for Vascular Solutions and a decline for other companies. So a little bit of a cannibalization from femoral to radial based on D-Stat Dry to Vasc Band, but much more of it is a new sale for Vascular Solutions, because they are not using invasive sealing device with radial procedures.

James Terwilliger - Wunderlich Securities

And so on that logic then you have to be taking share within this wound closure market?

Howard Root

Yes, if you looked at it as an overall market, but we really look at the markets closer than that. We look at radial closure, we look at femoral closure, we look at femoral patches, three separate markets. And we don’t play in the femoral closure market since we stopped selling the DUET a couple of years ago. And in the femoral patch market, we have the leading share and do nicely with that and then in the radial hemostat market, we are quickly coming up. We are probably I think the second largest player in that, but a long way to go before we surpass the number one player in the U.S. side on the radial hemostat market.

James Terwilliger - Wunderlich Securities

Okay, excellent. Well, again, congratulations on a good quarter and thanks for answering those questions. Thank you.

Howard Root

Thanks, James.

Operator

Thank you. (Operator Instructions) At this time, I am showing no further questions. Mr. Root, please continue with your closing remarks.

Howard Root - Chief Executive Officer

I just want to thank everyone for joining us on this presentation. We appreciate your interest in Vascular Solutions and we look forward to continuing to present these types of results in quarters to come. Thanks.

Operator

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

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