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ZOLL Medical Corporation (NASDAQ:ZOLL)

F4Q07 Conference Call

November 15, 2007 10:30 a.m. ET


Richard Packer - President and Chief Executive Officer

Ernie Whiton - Chief Financial Officer


Tim Nelson - Piper Jaffray

Phil Nalbone - RBC


Thank you for holding for the ZOLL Medical Corporation 2007Fourth Quarter and Year-End Results. Today'scall is being recorded at the request of ZOLL Medical Corporation. If anyone has any objections, you maydisconnect now. At this time, allparticipants will be in a listen-only mode and a question-and-answer periodwill follow today's speakers.

At this time, I would like to introduce your host, Mr.Richard Packer, President and Chief Executive Officer. Sir, you may begin.

Richard Packer -President and Chief Executive Officer

Good morning and thank you for joining us to discuss ourresults from Q4 and fiscal year 2007. Bothmyself and Ernie Whiton, our CFO, will make some remarks and then take yourquestions. Before we start, I will askErnie to cover our "safe harbor" statements.

Ernie Whiton - ChiefFinancial Officer

All right. Thank you,Rick. Good morning. The matters we will be discussing today, whichare not historical information consist the forward-looking statements. Reliance should not be placed onforward-looking statements, because they involve risks and uncertainties whichmay cause actual results, performance and achievements of the company to differmaterially from the anticipated future results, performance and achievements,expressed or implied in such forward-looking statements.

Forward-looking statements may contain estimates and actualresults may vary materially from estimates. Factors such as overall economic conditions,demand for the company's products and services, availability of raw materials,manufacturing capacity, risk of non-payment of accounts receivable, risksassociated with foreign operations, risks involved in litigation and otherrisks and uncertainties described from time-to-time in the company's filingswith the Securities and Exchange Commission may cause actual results to differmaterially from management's current estimates and expectations. The company disdains any current intention toupdate forward-looking statements in the event of any changes in the facts,circumstances or expectations that underlie those statements.

Richard Packer -President and Chief Executive Officer

Great, thanks Ernie. Obviously,we are very excited with our results this past quarter and for the fiscal year. Almost every aspect of our business madegreat progress this year. Achieving over20% growth at our size and in our marketplace is certainly strong performance,but not only did we do a good job on today's results, but with the BIO-keyacquisition we discussed last quarter, the hypothermia purchase we will discusstoday, and the progress with the LifeVest business, which is growing strongly,but out of the spotlight, we have also improved our prospects going forward.

Turning to the various markets into which we sell, let meadd to what was in the press release. Inthe international market, we achieved higher than expected growth in thequarter and in the year. The growth wasbroad based in all products in just about every geography. We are seeing very high growth in the areasyou would expect, such as China,where we're up 60%; Russia,we're up 87%; and the Middle East, which wediscussed last quarter, where we're up 40% for the year.

All impressive numbers, but in markets we're just gettingstarted and have limited market understanding. So, there is no reason to believe that wecannot do even better as we gain a bigger footprint in such areas in thefuture.

In the North American hospital market, excluding themilitary for a moment, we had a very strong quarter that built on the momentumwe gained in Q3. Recall, we started slowin this market in the first half of the year, but with the shipment of the newR Series product and gathering momentum on the AutoPulse, we turned in anoutstanding year.

Our marquee win this quarter was the University of NebraskaMedical Center, which we took from Physio-Control for 68 R Series and 59 AEDPros. This was a whole house conversion,which we won on the strength of our resuscitation strategy, specifically RealCPR Help on our defibs and our total focus on CPR. This was the piece of business that was in theworks for a number of years.

We also had great results this quarter in the VA system,where we won over 300 units from half a dozen hospitals. So, perhaps we are seeing some of the militaryspending move to the VA system.

Turning to the military, we did see a strong uptick in Q4that allowed us to exceed our original target of $10 million for the year,after running behind all year. A greatoutcome, but it shows how lumpy and unpredictable this business is for us.

Additionally, we got the California order for their Homeland Securityneeds, which we will include in what will become a military/big government linegoing forward. This order is veryexciting as it shows our growing strength with government business. Ernie will cover the likely shipment and theeconomics of this deal in a moment.

As he will discuss, having this order will allow us to bemore bullish on our outlook for military/big government in '08. But more importantly, if we can tap into thisstream of funding as other states spend similar money, this is potential upsidefor us over the next couple of years.

Turning to the North American pre-hospital market, weperformed strongly here as well. Particularly,strong this quarter, was our AED business, which was up more than 60%; and ourdata business, which was up also over 60% this quarter. EMS resultswere less spectacular, but we are pleased with our continued progresspenetrating the EMS market here in the United States.

In this market, we have added six reps during the course of2007 to our sales force, bringing our total to 51. And in 2008, we are adding a number of fieldengineers who will project a stronger technical presence into the EMS marketplace and help offset the advantages Physio-Controlhas with their large field service force. So, we believe we are making the moves in the EMS market that will allow us to continue to grow thisbusiness again strongly in 2008.

On the AutoPulse front, we completed another good year asthis product continues to gain momentum and our market creation activitiescontinue. It was especially important tomake progress this year in, both the North American hospital and theinternational market, as the North American EMS team has been carrying the loadto this point.

Both the hospital team and the international team did wellthis year and established good momentum. The product is taking hold in France, forexample, with a fire brigade of the region of Val-d'Oise, which is the regionjust north of Paris will standardize on the AutoPulse with the deployment of 72units. This is a very excitingdevelopment in the creation of this marketplace internationally.

Additionally, we've also cranked up our PR efforts, onceagain, on the AutoPulse. We've taken aplanned timeout after the publication of the ASPIRE results last year in our PRefforts to allow the dust to settle. Weare now reengaging our PR efforts once again.

You may have seen the AutoPulse featured on Good MorningAmerica last Thursday. This type ofactivity is important, because as you know, the network of users and the desireto keep up with the other services, especially in the EMSmarket, often drives adoption of new technology.

More good news on the AutoPulse front, we have our firstsite enrolling patients in the CIRC trial. Fox Valley in Wisconsin, a small sitethat has acted as a beta site for the trial training and implementation, hasgotten through IRB and community consultation and started enrollment.

This trial, as you know, is critical to the long-termsuccess of automated CPR. So we havetaken our time and spent heavily to get it right. We expect to have an additional site enrollingthis month, and then depending on community consultation results, have ourbigger site up in January.

Our target is to have approximately 1,500 patients enrolledin 2008, and hopefully, have a result in 2009. I look forward to providing more detailedprogress report in January.

Now turning to the Physio-Control situation, everyone'sfavorite topic. So far, we have beenpretty good at predicting what is happening, what will happen, and the effecton our business.

This quarter, we estimate that around 1,000 to 1,500 AEDsfell to us as a result of Physio's issues.

On the professional defib side, we counted about 200 units,but since it's very difficult to judge, I'll estimate between 200 and 300 unitsas a reasonable range, a business that fell to us from the hospital and the EMS markets. Takentogether, this amounts to around $4 million of business that may have benefitedfrom Physio this quarter or about 4% of our total business.

As we've previously said, the effects would grow over time,which they have, but they would continue to be modest, which they are.

Also as we guessed last quarter, Physio did ship product toboth hospital and EMS customers in theSeptember quarter. So, they are slowlybeginning to ship again. We expect thisto increase during the quarter, in both the hospital and the EMSmarket, and perhaps AEDs will begin shipping again at the end of this quarteror early next quarter.

I remind everyone that Physio has continued to sell in thehospital and EMS markets throughout this period, and I suspect that evenlimited shipments validate their claim with their customers that they will beback shortly, that they will be able to deliver in no time, and therebyenhancing Physio's ability to get customers to continue to wait for delivery.

At this point, we do not expect a grand announcement thatPhysio-Control is back in the market, but rather that they will just continueto ramp up shipments over time and incrementally.

As for the benefit or effect on ZOLL, we continue to seelong-term benefits from this whole situation. I remind everyone that not only does Physioface the need to get fully back into the shipping mode, but following that, thecompany will face a potential spin out or sale from Medtronic. So, it will be a while until Physio is back atfull speed.

We don't expect anything dramatic either way in theshort-term as an impact on our business. As evidenced, I point to you the stronginternational growth we have been achieving without benefit of the Physio stop ship. Clearly, we have lots going on for ushere at ZOLL beyond Physio's issues.

Now looking a little longer term, let me cover a couple ofinvestments we will be making in 2008. Becauseour base business is strong and we are getting some incremental business fromPhysio-Control situation, we feel that we can make these investments and dothese things while still delivering on our goals for both top-line andbottom-line growth.

The first item is in regards to our LifeVest business. As you know, this business has been growingwithin ZOLL and we have not been giving it a lot of visibility for couple ofreasons. Primarily, it is too small tomatter right now and it has not been affecting our bottom line.

However, during the past year, the business grew in excessof 60%, and while we were aiming for a breakeven situation, we actually had abit of a positive bottom line. So we arenow confident that we can grow this business and we have a business model thatcan make money, if we choose.

So on the strength of this knowledge and the strength of therest of the ZOLL business, we are choosing to do two things differently in 2008in regards to this business.

First, we will further accelerate the hiring of sales peoplefor this business and invest some money while these new sales people ramp up.

Second, we will invest in a clinical trial aimed at the MImarket, that is, that in the long-term has the potential to make a wearabledefib, the standard of care for many post-MI patients.

Doing both of these items in 2008 will require the LifeVestbusiness to invest or show a negative in the bottom line of about $2 million. However, if we execute correctly, the businesswill be back to breakeven or profitability by our fourth quarter.

We believe these actions will not only accelerate short-termgrowth for the LifeVest, but also position the product for use in a very largepopulation in the future. We think thisis a very exciting opportunity for ZOLL.

The second area we are making a modest investment in is intherapeutic hypothermia. You saw in the release, we purchased the assets ofRadiant Medical, a company that had delivered the best catheter-basedhypothermia product.

For a variety of reasons Radiant could not make it as astand-alone company, so we were able to buy the assets extremely cheaply. We obtained designs, tooling, some inventory,and an expensive IP portfolio in the hypothermia space.

We have tucked the remains of Radiant into our ZOLLCirculation Division out in Sunnyvale. We intend to spend an incremental $2million or so this year perfecting the catheter design and verifying theconsole designs, so that we can start commercial beta sites in 2009.

The area of hypothermia is very attractive and fits directlyinto our resuscitation strategy, as induced hypothermia is quickly becoming thestandard treatment for resuscitated patients around the world.

Hypothermia also holds promise in many other treatment areasbeyond cardiac arrest, but these areas will need to be proven over time. As an example, I am sure many of you saw theheavy press on the Buffalo Bills football player, Kevin Everett, who wasinjured earlier in the season and whose remarkable recovery from a spinal cordinjury was attributed to a new hypothermia protocol.

In any case, our goals in the area of hypothermia willremain modest and will remain focused and with the cost basis we have, we canafford to move judiciously. We will letothers do the market creation this time and then follow their lead with what webelieve is superior technology.

All up, we think these two moves are very good for ZOLL thatwe can digest them and benefit from them without putting our bottom-line growthat risk.

Now, let me turn it over to Ernie.

Ernie Whiton - ChiefFinancial Officer

Thanks, Rick. Thismorning, I will start with the balance sheet, make a few observations on ourfourth quarter P&L, and then I will move to our forward-looking guidance.

Our balance sheet remains in excellent shape. We've finished fiscal '07 with $57.4 millionin cash and short-term investments, as compared to $62.9 million at the end ofQ3 and $63.4 million at the end of fiscal '06.

During Q4, we generated close to $5 million in cash fromoperations and as Rick noted, we spent almost $6 million in Q4 on theacquisition of the assets of hypothermia company.

Our DSOs and AR of 76 were down from 77 at the end of Q3. They were up four days versus last year end,reflecting the fact that we recorded approximately $4 million receivablerelated to the Californiadeal, but deferred all of the related revenue.

Our inventory turnover was 2.6 times or flat with Q3. It was down from 3.3 last year-end. Included in our ending inventory wasapproximately $5 million or so related to our California order, which we expect togenerate revenue in early '08.

Our inventory was also increased a couple of million dollarsin Q4 in support of our LifeVest business. Recall that over the course of fiscal '08, weincreased inventory levels in response to the Physio situation.

Other assets increased $19 million during Q4. This reflected intangible assets related tothe hypothermia acquisition and accrued earn-out payments related to previousacquisitions.

Now, let met turn to the fourth quarter P&L. First, let me take care of our housekeepingitems, so you don't get confused as you update your models. During Q4, we made an immaterial change to theway we have been classifying amounts from the resale of used trade-in equipmentand recording certain charges to customers for technical services. This change had no impact on net income or EPSfor any period.

Previously, we reported both on a net basis. This meant that we treated the disposal of trade-inequipment we accept from customers on the sale of new equipments as theliquidation of a receivable rather than additional revenue. Similarly, we recorded certain amountsreceived from service customers as a reimbursement of expenses rather thanrevenue.

In general, we considered this treatment to be conservativeand it's the way we have historically always done it. Recently, this treatment has been a point ofinternal discussion on whether it is considered best practice and it appearsthat most other people utilize a gross approach.

Previously, we reported this on a net basis to be internallyconsistent and as it appears that most people are reporting on a gross basis,-- we're moving -- we are moving forward. Although these amounts have been immaterial inthe past, it is possible that in the future they could increase as our businessgrows; therefore, we have determined that prospectively we will account forthese amounts as revenues. Expensesrelated to the cost of these products or services will be included in cost ofgoods sold.

Historically, over the past two years, each of these itemshas approximated about $1 million dollars a quarter. Accordingly, in order to ensure ourapples-to-apples comparison, we have reclassified such prior period amounts inorder to conform to our current and prospective presentation. This has the effect of increasing historicalrevenues and cost of goods sold by approximately $2 million per quarter or so.

It also has the effect of reducing our historical grossmargin percentage by one or two points. Italso drives the minor change in selling expenses. Again, this change had absolutely no impact onoperating income, net income or EPS for any period.

Optically, if we had not made the change, we would havereported 20% sales growth for the year. Withthe change, we are reporting 21% sales growth. So, we do not believe this should change theway you view our business. Managementconsiders this change to be immaterial, but we wanted to point this out. So, as you update your models, you'll not beconfused by these changes to prior quarters.

With respect to the fourth-quarter of P&L, we coveredthe details of our revenue in this morning's release. So, I will not rehash that here. Our gross margins decreased modestly versus Q4of last year. During Q4, we had a highermix of North American hospital business, which typically carries lessfeature-rich defib sales, including monitoring parameters as compared to EMS.

We also had a higher mix of military revenues. The decrease was partially offset by a highermix of data management and LifeVest revenues as these products have highergross margins than our corporate average.

Operating expenses as a percentage of revenue decreased, ascompared to last year, reflecting overall leverage on our sales growth. The $1 increase in selling and marketingexpenses reflected higher commissions on the higher sales levels, expansion ofour LifeVest sales force, and increases in data management and overallmarketing spending.

Increased R&D expenses reflected higher levels ofclinical affairs spending as our CIRC trial moves forward. Our operating income as a percentage of salesincreased modestly from 10.2% to 10.7%. Operatingincome increased 31%. Our tax rate forthe quarter was 36%, and it was 35% for the year. Net income increased 26% for the quarter andEPS was $0.33 for the quarter, up 22% versus last year.

Overall, fiscal 2007 was an excellent year; revenueincreased 21%, gross margin remained consistent, and operating expenses as apercentage of sales decreased a point, reflecting leverage in selling andmarketing expenses.

Operating income increased 46%. Return on sales improved by over a full point. Net income improved 50% over the courseof the year. EPS for the fiscal year was$0.81, up 42% versus last year.

Let me begin our discussion of forward guidance with thediscussion of our California Homeland Security order. During Q4 of '07, we received an awardtotaling approximately $11.5 million from Global Protection, a supplier ofemergency preparedness to the State of California.

This order has multiple elements, including the supply of defibrillatorsand certain services over multiple years. Services include providing preventivemaintenance, replacement batteries and electrodes, and assistance withlogistics and warehousing. Servicesrepresent about $4 million of the total contract value.

As we have now concluded our review of the appropriateaccounting guidance, we anticipate recognizing approximately $7.5 million ofrevenue in Q1 of '08 relating to this contract. We anticipate that the remaining approximately$4 million of revenue will be recognized over the next five years as therelated services are preformed.

As a result of this anticipated accounting treatment, Iwould like to point out a couple of things.

1. Zero revenue was taken on this contractin Q4 of '07.

2. Because $4 million of revenue will berecognized over an extended period of time, we have only included the $7.5million we anticipate recognizing in the early part of 2008 in our $24 millionbacklog at the end of Q4 of '07.

3. Our overall operating margin on thisdeal is in the mid-20s% range, so it is solidly above our corporate averageoperating income as a percentage of sales.

4. The gross margin over the life of thisdeal is well below our corporate average gross margin. We believe the gross margin will be in thevicinity of 30%. This gross marginreflects that this is a large, somewhat unusual deal that includes lower marginservices.

Let me add that because of the singular nature of thecustomer, it carried minimal incremental selling expenses.

All things considered, as Rick said, this is a good deal forZOLL. It may lead to additional businessand it may help offset some of the lumpy nature we have experienced in ourgovernment military business.

As a result of this, and because it is so early in fiscal2008, we do not think it would wise to consider this as incremental businessjust yet. It does, along with the restof our backlog, however, get us off to a terrific start in fiscal 2008.

Now, let me move to our forward outlook for fiscal 2008. With respect to our core business, excludingLifeVest and hypothermia, we see revenue growth of high teens. For the year, we see core business grossmargins about a half a point or so below fiscal 2007 as a result of the California deal.

Core operating expenses should grow towards the low doubledigits relative to 2007. This shouldresult in solid earnings leverage from growth in our core business. We expect to use a portion of this resultingleverage to support investments in our LifeVest sales organization and indeveloping our new hypothermia technology, as Rick described for you.

We also expect some of this leverage to drive incrementalprofitability. At the consolidatedbottom line, we continue to expect EPS of around $1 a share in 2008, reflectingmid-20% growth. We also anticipate a fullpoint of improvement in our operating income as a percentage of sales,improving from 7% in 2007 to 8% in 2008 on a consolidated basis. We believe our tax rate in 2008 will be in themid-30s, say approximately 35% or so.

As Rick mentioned, our EPS outlook anticipates an overall $4million investment in the hypothermia and LifeVest business.

All in all, we expect consolidated annual revenue growth forfiscal -- for ZOLL in 2008 of approximately 20%, and annual operating expensegrowth approaching the high teens. 2008consolidated gross margin should be close to the level in 2007.

By customer class in 2008, we see revenue growth of NorthAmerican hospital, high-teens growth percentage including military and biggovernment of approximately $15 million. North American pre-hospital high 20s% growth,including LifeVest low 20% growth excluding LifeVest. International, mid-teens percentage growth.

Within pre-hospital, we see growth of professional EMS defibrillators, high-teens percentage, public access,public safety, low double-digit percentage growth, and data management,mid-30s% growth. Companywide, we seeAutoPulse growth of approximately 40% or so.

By quarter, we see higher percentage revenue growth earlydue to the Californiadeal. We also see gross marginpercentage starting in the very low 50% range and moving up to the mid-50safter Q1.

As the BIO-key FireRMS asset acquisition occurred in Q3 of'07, the percent expense growth will appear higher early in the year andmoderate later in the year. EPS byquarter might look something like mid-teens in Q1, high-teens in Q2, mid $0.20range in Q3 and $0.40 or a little bit more in Q4.

And now, I will turn the discussion back to you Rick.

Richard Packer -President and Chief Executive Officer

Great. Thank you,Ernie. Jonathan, if you would like toplease moderate the question-and-answer session.



Certainly. Ladies andgentlemen, if you have a question at this time, please press the "1"key on your touch-tone telephone. If your question has been answered and youwish to remove yourself from the queue, please press the "#" key. We'll wait for one moment, while we wait forparticipants to queue up. Our firstquestion comes from Tim Nelson from Piper Jaffray.

Tim Nelson - PiperJaffray

Hi, guys, nice quarter!

Ernie Whiton - ChiefFinancial Officer

Thanks, Tim.

Tim Nelson - PiperJaffray

I would like to focus a little bit, first of all andforemost on your guidance. It seems tobe a pretty healthy set of guidance. Hasit changed at all from Q3, it seems to be about the same?

Ernie Whiton - ChiefFinancial Officer

From a bottom line perspective, it's the same, roughly abuck a share or so, but included in this are the investments in the hypothermiaand LifeVest in business that Rick outlined during the call.

Richard Packer -President and Chief Executive Officer

So the top line is a little bit stronger?

Tim Nelson - PiperJaffray

Little bit stronger. Andsince July, we've seen a lot of concern in the -- in the general market evolveabout municipal finance and health or related to the subprime mortgage crisis andthe impact on property values and tax receipts. I remember a few years ago, you had someissues with your municipal customers running out of or having some budgetbalancing problems and that had an impact on your business in the pre-hospitalsegment. Could you talk about whatassumptions you've made in your guidance relative to that potential risk?

Richard Packer -President and Chief Executive Officer

It's a good question Tim, and you are recalling correctlythat when the states had those unprecedented deficits, it certainly eventuallyfound its way into the EMS market.

In '08, we are not anticipating much of an effect justbecause of the way that these things have a tendency to lag through. And if there is an effect, we expect it to maybekick in at the end and perhaps in '09. Butwe're certainly not seeing anything right now and usually there is a prettygood lag time from when people begin to worry about it to when the EMS agencies actually get affected.

The other thing that may offset that, that's a little bitdifferent than what was going on previously is that there still is asignificant amount of grant money flowing through different parts of theFederal Government that are supporting EMS agencies. And I think that's a little bit different thanwhere we were a few years ago. Thatmoney really hadn't found its way out to the streets, so to speak. So, that may also moderate the effect on thisparticular municipal service.

Tim Nelson - PiperJaffray

And is that FEMA money or is that grant money?

Richard Packer -President and Chief Executive Officer

It all falls under Homeland Security these days as doesFEMA. So, some of it is FEMA, some of itis assistance to Fire Department, some of its Homeland Security. I mean, thereis just a number of different sources for that funding.

Tim Nelson - PiperJaffray

Okay. Will youdisclose at all the level of LifeVest revenues in your pre-hospital businessnow or in your projected guidance?

Richard Packer -President and Chief Executive Officer

This year, we did a little over $16 million.

Tim Nelson - PiperJaffray

$16 million. Okay,great. I will get back in queue. Thanks.


Thank you, our next question comes from Phil Nalbone fromRBC

Phil Nalbone - RBC

Hi, congratulations on a great quarter and a great year! Rick, I was wondering if you could talk alittle bit about the uptake of the R Series and what you are seeing as a resultin your hospital market business. Isthis kind of pushing the high end? Areyou using it to bifurcate your selling effort around price as you did in thepre-hospital market? And what impact isthe availability the R Series is having on margins in that business?

Richard Packer -President and Chief Executive Officer

So far, so good with the R Series, I would certainly saythat the product and the features are being well accepted in the marketplace. As to pricing, we are attempting to execute samemaneuver that we used with the E Series in the pre-hospital market where we arepretty religious about keeping the R Series up at a relatively high pricecompared to the M Series, and we use the M Series as our fighting piece.

The net, net right now is about equilibrium, where the MSeries pricing has come down a little as we use it more aggressively fightingin those places that are price sensitive and the R Series is holding up theaverage pricing.

We're hoping that as we move forward, we can get a littlebit of a lift in that marketplace. Yousaw that we had very strong growth in the core hospital business this year. So, clearly we were after trying to take somemarket share going forward, if disciplined enough I think, we can get the RSeries pricing to be enough of the business and the pricing strong enough thatit could lift the whole pricing there for us.

Phil Nalbone - RBC

Okay, great. You havebeen hinting for quite sometime that you would enter the therapeutichypothermia market. So, this looks likea nice opportunity to do that. Can yougive us a clear understanding of where Radiant stands with regulatory approvalsand what needs to happen between now and '09 when you can start to make that acommercial opportunity?

Richard Packer - Presidentand Chief Executive Officer

So, from a regulatory perspective, Radiant has all of thesame approvals that ALSIUS has or Medivance has in terms of using hypothermiafor a number of different applications. Asyou know, no one has a specific approval for cardiac arrest and the use ofcardiac arrest is driven by physicians as they apply hypothermia where theythink they can apply it. So, Radiant isin good position there. The productneeds to be validated against approval that they have, which is not unusual. The FDA often approves things with theassumption that you are going to execute the the final IEC testing or whatever,the UL testing, various things. So thatneeds to be done.

And the basic status of the product is that it was about tobe commercialized by Radiant at a -- with a catheter that -- whose coststructure I just didn't think, we didn't think would really support a business.So, we are going to step back and redo the catheter for cost, get a catheter bythe end of this year that we think will be commercially viable, and then beginto enter that marketplace.

Phil Nalbone - RBC

Great. Thank you verymuch.


Thank you. Once again, ladies and gentlemen, if you have aquestion at this time, please press the "1" key.

Richard Packer - Presidentand Chief Executive Officer

All right, Jonathan. Asthere are no further questions, we will get everybody off the phone early here. I appreciate the time this morning. A lot of positive things happening here atZOLL, and I hope you share our enthusiasm for the business. We look forward to talking with you in thefuture. Thank you.


Thank you, ladies and gentlemen, for your participation intoday's conference. This does concludethe program. You may now disconnect. Good day.

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