Merit Medical Systems' (MMSI) CEO Fred Lampropoulos On Q4 2017 Results - Earnings Call Transcript

Merit Medical Systems, Inc. (NASDAQ:MMSI) Q4 2017 Earnings Conference Call February 28, 2018 5:00 PM ET

Executives

Fred Lampropoulos - Chairman, President and CEO

Brian Lloyd - Chief Legal Officer and Corporate Secretary

Bernard Birkett - Chief Financial Officer

Analysts

James Sidoti - Sidoti & Company

Adam Maeder - Wells Fargo Securities

Bruce Nudell - SunTrust Robinson Humphrey

Matthew O’Brien - Piper Jaffray

Jason Mills - Canaccord Genuity Inc.

Jayson Bedford - Raymond James & Associates, Inc.

Mark McGrath - Kenmare

Mike Petusky - Barrington Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Merit Medical Systems’ Fourth Quarter and Year-End 2017 Results and 2018 Guidance Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. And as a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Fred Lampropoulos, Chairman and CEO. Sir, you may begin.

Fred Lampropoulos

Well, thank you very much and good afternoon, ladies and gentlemen, and welcome to a wintry weather afternoon here in Salt Lake City. We are assembled here with our staff, and are pleased to be able to report to you our fourth quarter and also guidance for 2018.

But the first item on the agenda is a pronouncement of our Safe Harbor provision. Now I’d ask Brian Lloyd, our Chief Legal Officer to present that. Brian?

Brian Lloyd

Thank you, Fred. During our discussion today, reference may be made to projections, anticipated events, or other information which is not purely historical. Please be aware that statements made in this call which are not purely historical may be considered forward-looking statements.

We caution you that all forward-looking statements involve risks, unanticipated events, and uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission, available on our website.

Any forward-looking statements made in this call are made only as of today’s date. And except as required by law or regulation, we do not assume any obligation to update any such statements, whether as a result of new information, future events or otherwise. Please refer to the section of our presentation entitled Disclosure Regarding Forward-Looking Statements for important information regarding such statements.

Our financial statements are prepared in accordance with accounting principles which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. The tables included in our release and discussed on this call set forth supplemental financial data and corresponding reconciliations to GAAP financial statements.

Please refer to the sections of our presentation entitled Non-GAAP Financial Measures and Notes to Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some items that affect net income. Finally, these calculations may not be comparable with similarly titled measures of other companies.

Fred Lampropoulos

Brian, thank you very much. And again, ladies and gentlemen, welcome and thank you for taking the time. We’re delighted to be able to report our fourth year and full-year results and talk about the future with you today.

A reminder that there are – there is a slide deck presentation. And if you will go to merit.com, you can follow along with some of the slides on our presentation and some photographs of products and so on and so forth. So they’ll be, I think, some good information at that location for you.

Well, let’s get started. The bottom line is this, Merit accomplished all of their 2017 goals. Our business is healthy, robust, pipeline is full and I think our future is very bright. There’s a lot of momentum and we’re excited about, of course, the Becton, Dickinson transition. And listen, on the Becton, Dickinson deal just so that everybody understands about the process that we’ll be going through and we’ve talked about this before. But as a reminder, Merit owns the business.

Becton, Dickinson will produce the product for Merit over the next six months or so. During that period of time, Merit is – will be transitioning the business from several locations, where the products are currently being made, but primarily in the Dominican Republic and will be transitioned to our facility in Tijuana, Mexico.

As we speak, our teams are on the ground in the Dominican Republic. The full transition and transfer teams are in place in that location and they will be working on several visits over several weeks, looking at equipment and all the various things that are necessary to transfer this.

A reminder that and I hope this comes across like I intended this, we’re pretty good at this stuff. I mean, we’ve been transitioning and moving products some probably 20 product lines to Mexico and we’ve moved them all over the world. And we have a very seasoned and professional knowledgeable team that will be moving these products.

So we’re excited to have the process done and now working in this transition. And incidentally, it was a very unique transaction. It took time, it took patients, it took regulatory approval, it took a lot of work and there’s a lot of work left to do. But I think as I’ve said previously, it fits perfectly into our portfolio and then will complement a couple of other products, the Laurane bone biopsy devices and other devices that Merit has and goes to our competency in terms on the – of the drainage side, where we do excursions and we do tunneled catheters. And so we’re very excited and continue to be about this.

In just a few minutes, Bernard will talk about the effects, because the timing on this is something we want to make sure we review with you. We closed a few weeks ago and so we’re going to have some irregular timing of revenues and things like that because of the stub periods. But that being said, we’re very encouraged by the transaction and we’ll talk further about that in a few minutes.

I’ve just returned from Japan, and there are a lot of other things that are going on in the business. In Japan, we have consolidated the Argon business with the Merit business that came out of our distribution channel. I’ve been into our warehouses, our distribution center, I’ve been into our business offices. And then I just have to say that from probably an analyst point of view, this is kind of business as usual and expected. But I have to speak to the hard work of the staff and putting this altogether and bringing it together in a very, very timely fashion. I think, we’re going to see extraordinary results going forward out of Japan in terms of growth that we haven’t seen for many years.

I also spent time in Singapore. And that transition of that facility, the Meritization of that facility will pay huge dividends in the future So rather than going to that any of that detail at this point, I just really want to talk to you about what are the efforts that’s been made and all of this been going on, while the work on Becton, Dickinson. Everybody here has been working very, very hard, as you would expect us to and we – as we would expect of ourselves.

So a reminder and I do in our prepared comments talk a little bit about some of the timing of expenses. Bernard will talk about that. But remember, that we’re going to be going through some transition expenses. These have to do with customer service, with delivery of products, making of products, IT and several other things as you transition all of those capabilities over to Merit. And those are expense items, and some of those are going to fall in this quarter and the next quarter.

And I’ll have Bernard go on to that and then going into the guidance. You’ll need to pay some really close attention today on the guidance. But I’m going to think the critical point is that the core growth, the new product pipeline, the distribution channels, the wholesale, the retail, all of these things are all in SYNC, and we expect the business to continue to grow per our public plan. And of course, our goal is to try to exceed that. But we’re, I think, looking forward to future reports to talk about the progress that we’ve made.

Well, now with that being said, I think it’s appropriate, because there’s a lot of financial data in this report and some clarification that’s necessary. So with that being said, I’m going to turn the time over to Bernard Birkett. And Bernard, if you would kind of go through and make sure that everybody’s squared away on all this information. So Bernie?

Bernard Birkett

Thank you, Fred, and good afternoon. First of all, I’d like to go through our Q4 numbers. In Q4, worldwide revenue was $190.9 million, $188.2 million on a comparable constant currency basis, up 21% as reported and 19.3% on a constant currency basis over Q4 2016.

Q4 2017 core revenue was up 9.4% over Q4 2016/ Our core revenue was up 7.9% on a comparable of constant currency basis. And we just also need to note, there was a one-time return of inventory in the quarter from our Japanese distributor as part of our move to a direct selling model in Japan. And adjusted for this a one-time return or organic constant currency growth would have been approximately 8.3% in the quarter.

And year-to-date, worldwide revenues of $727.9 million, $727.3 million on a comparable constant currency basis, up 20.5% as reported and 20.4% on a constant currency basis over the same period for 2016.

And year-to-date, core revenue is up 8.8% over a core revenue for the same period 2016. Core revenue on a constant currency basis is up 8.7%. And we continue to see a gross margin improvement year-over-year, and for the period, our gross margin was 47.9%. And just to note also there was a one-time impact related to a transition services agreement that we have in place with ITI. And this affected us by about 20 basis points in the quarter. Adjusted for this, our gross margin would have been 48.1%.

So in the year gross margin is up to 48.1%, compared to 46.9% for the prior year and that’s in line with the projections that we had outlined. In Q4 2017, the EPS on a GAAP basis was $0.13, compared to $0.17 in Q4 2016. In Q4, non-GAAP EPS was $0.33, compared to $0.31 in Q4 2016.

On our GAAP number in Q4, there was an impact for transition tax and tax reform and the impact there was approximately $1.8 million on a GAAP basis. And on the cash flow basis, we’ll see an impact in the first year for a transition tax charge of approximately $400,000.

Fred Lampropoulos

That’s it?

Bernard Birkett

That’s it on the Q4 numbers.

Fred Lampropoulos

Okay. All right. So let’s go to the guidance then.

Bernard Birkett

Okay. Guidance for 2018, our revenue range is between $838 million to $851 million, and up approximately 15% to 17% on a reported basis. And the composition of that is, there will be a 7.5% to 8.5% organic growth on a constant currency, and then also adding in the acquisitions that we completed at the back-end of 2017 plus the addition of the BD acquisition products. For that the range there will be between $36.75 million to $42 million and that’s adjusted for the closing of the deal, which took place in mid-February.

The gross margin on a GAAP basis, the range will be between 45.6% and 46.5%, and gross margin on a non-GAAP basis, the range will be between 49.7% and 50.8%. The margin improvement is built up of a number of different components. On an organic basis – on an organic business, we expect to see 100 to 150 basis point improvement over 2017, and then the balance will be made up of the addition of the biopsy and drainage product portfolios, which we have just acquired.

On an EPS basis, the EPS GAAP will range between $0.77 and $0.85 for 2018. On a non-GAAP basis, the range will be between $1.57 and $1.69, that’s a 27% increase at the midpoint. That’s made up of 13% to 15% increase on EPS on our core business and then layered in – we’ve layered in the increase in EPS from the biopsy and drainage product portfolios we’ve acquired and also the effect of tax reform.

On a tax basis, we are forecasting our rate to be between 25% to 27% for 2018. And that in comparison to our previous guidance prior to tax reform of between 29% and 31%. So we’re picking up some benefit there from tax reform.

Fred Lampropoulos

Well, that’s a lot of information and it’s all good information. I mean, the net-net of all of this is that the transaction will be beneficial to Merit. The core growth is there. The product pipeline is full. Just as a side note that we’ll be attending the SIR meeting and introducing a number of new products at the end of March in Los Angeles. This is the Society for Interventional Radiology. It’s one of our biggest shows of the year.

We have gross margin improvement, earnings improvement, and all these consistent with our previous discussion and the adding on of the two years that we discussed with you previously. The momentum is here. The business is healthy. We also will be out over the next five or six weeks.

We have a number of conferences coming up, and I think, we sent that notice out. And so we’re going to be busy running our business and making sure that everybody understands all of these numbers. Again, there are a lot of them and a lot of inputs that we haven’t had before.

I just think all in all and I think you can hear this tone. I think, we did what we said we were going to do. We’re confident about the future and we’re prepared. People have worked hard, but I think we’ve positioned the business. In our selling groups, in our geographic presentations and in our new product pipeline for continued growth, we’ve only talked about the next two years financially and that’s all we’ll talk about today. But the framework and the products and the research and development are well in place for other products and other things to carry the business into the future.

So all in all, it’s – we appreciate your patience with us. I hope that and I believe that you appreciate our discipline, our vision and we’re hard at work. So that being said, I think we’ll – Bernard, do you have anything else you’d like to add?

Bernard Birkett

Yes, just one thing on tax reform that I’d like to add is that, we are planning to reinvest some of the benefits from tax reform into OpEx and SG&A to support market growth in the coming year. So about 25% to 30% of that benefit will be reinvested. We believe that’s important as we continue to scale and grow with these rates to make sure that we have the correct infrastructure in place to deliver on what we have outlined right now and also to be able to continue to scale in the future.

Fred Lampropoulos

Yes, I think it’s an important point that, you just can’t go out and expect the systems and everything to kind of operate when you keep stacking on more and more of this business. So as Merit has always done, we try to plan for the future to put structure in place and think about things out three, five and 10 years.

And I think – with that being said, Bernard, I was looking at the business going over the numbers and just kind of looking at the past and thinking about. We’ve made a lot of tough decisions over the years. We’ve always thought long-term, and we’ve always tried to invest long-term. And I think what you’re seeing is a maturation of that thought process and the benefits that come from that kind of thinking.

It’s probably one of the biggest advantages that we have is that, we’re not sellers, we’re not flippers. We simply have a vision of our business, a multibillion dollar business and we have a vision of how we’re going to do that and we’ve executed on that plan then we continue to do so.

So I appreciate that comment that we want to be able to give returns to shareholders. But at the same time, we want to make sure that we have adequate infrastructure – appropriate infrastructure for really substantial growth that you’ve seen and you’ll continue to see going forward.

So I think, again, thank you very much for all of that analysis and presentation. Ladies and gentlemen, I think that pretty well wraps it up for us. I think, what we’d like to do now is turn it over to our administrator. And Bernard and I are here to answer your question, as well as other members of the staff, if appropriate. And of course, we’ll be here following the Q&A period for, whatever period of time is necessary for clarifications and making sure that issues on the taxes and things that are appropriate to discuss will be clarified for you those who have an interest in doing so.

We thank you for your participation. We wish you the very best. And that being said, we’ll turn the time back now over to the administrator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.

James Sidoti

Good afternoon. Can you hear me?

Fred Lampropoulos

We can Jim. How are you?

James Sidoti

Good. Good, Fred. When you discussed the integration with Becton, Dickinson’s products, I think, you used the term irregular. Is that something to describe the top line or is that the bottom line? And can you just give us a little more color what you mean by that?

Fred Lampropoulos

Sure, Jim. Thank you. What I was trying to spell out there, as Bernard pointed out, that we closed in the middle of February when we originally announced the deal we gave you annual numbers. And so we want to just make sure that everybody knows that there’ll be about a quarter-and-a-half or excuse me, about a month-and-a-half associated on the revenue stream, so that’s part of it.

The other part is the transition. So right now, BD is taking orders. They continue to do so. And we will start transitioning out of this as we go through the weeks and the months ahead as we’re prepared. As an example, in the U.S., we believe that it’s about in the middle of March give or take, inventory will be moved. We will then take the orders and deliver the orders.

But on an international basis because of licenses and regulatory requirements, BD will continue to ship in those markets until we make sure that we have everything in order from a regulatory point of view. And what really drives this, Jim, is making sure that our customers are served and they get products. So – but there’s a cost to this. And many of these transactions are these transitions agreement. There’s IT. There’s data going back and forth. There’s the daily call sheets. There’s shipping and handling and all of these sorts of things and all these things hit the expense line.

When – as we transition out over these things and our business development department and Greg Fredde in our Accounting Department will work through all of this. So what I was really trying to point out is that, there’s expenses associated with this, but they’re not rolled back up, they are pure expense. And so that will hit the P&L.

But the more important part and what I was trying to say that as you look at the numbers and look for the year, I think, you would agree that as you look for the full-year, we’ve taken into account these expenses. And we can use the word lumpy, irregular, but they were like stub periods. And I just want everybody to kind of be aware that there are all these things and make sure that everybody understands the 12-month picture.

I understand we have quarterly reports and update, but that was really what I was trying to point out. And Bernard, do you want to maybe add a little bit that to what some of those expenses are? And again, it’s not the concern everybody, but just to know that this is the process that we have to go through to get the benefits of the transaction.

Bernard Birkett

So all of these – obviously, these expenses are built into the guidance that we just provided. And so we’ve taken the local with 12-month period. But the initial part of the transaction we’ve got these TSA services that we’re going to have to pay for over a six-month period and they will vary. And we’ve also concern everybody – we’ve been hiring people, onboarding people for BD and Aspira products and both from a manufacturing point of view to make sure that we have people trained and that we’ve had the right sales infrastructure and operational structure in place.

We began that process at the back-end of 2017 just to make sure that we’re ready to onboard. And so those expenses are in place already. But we’ve already they’re factored into umbers, but we just want people to be aware then what they see those expenses coming through in the first quarter that they’re planned for.

Fred Lampropoulos

And if you know, Jim, we don’t give quarterly guidance. But we want to again make sure that everybody understands that, for instance, you can hire people after the deal is done. We had hoped that it would be done by the end of the year by mid-December, and it would made it so much easier. But that’s not what happened. We have to go through, as you know, the FTC. We have to go through the EC, we have to testify this group, we have to go through MOFCOM after the BD Bard deal closed to get approval from that that side of the pond. And so we just want to let people kind of know that both and we hire people.

So we’ll have some expense in that first quarter. However, if you take a look at the back-end of the full-yea, we’re confident on as I mentioned in the pipeline, the cost reduction initiatives, the mix all of the factors that will give us the performance the improvement in gross margins, the core growth and then the overall growth for the year, which I think that you would agree.

I hope you would agree that. As you look at the numbers and at the year that those are pretty extraordinary numbers. But a lot of work to get done to get there, but we’re confident that we’ll be able to do that. So I appreciate the question and allowing us to make it clarify it little bit, Jim.

James Sidoti

So basically, it sounds like the first-half of the year is going to look a little different from the second-half in 2018 in 2018?

Fred Lampropoulos

Yes, and you’ll get some of that wholesale, the retail, there’s distribution. We’ll be – we have to get license in Australia, we have to go to Europe, there are some distribution partners. Yes, there’s all these things that have to be worked out in this kind of transaction.

Just to remind you though, remember this was a business that Becton, Dickinson didn’t want to sell. They wanted this business, it was a requirement from the FTC and from the other regulatory bodies that these assets be sold. And all of these by the way, everything we’re talking about is all planned for. So we try to point that out in our numbers, and in our prepared statements, we’re pointing out now that as we look at the – this isn’t a surprise, it’s not meant to frighten everybody? In fact, what it’s done is just to clarify and set the stage.

James Sidoti

Okay. And then on the bottom line guidance, Bernard, there’s about an $0.80 difference between the GAAP and the non-GAAP number. And I assume a portion of that is the non-cash amortization. Can you tell me how much that is and what the rest of that $0.80 is?

Bernard Birkett

And so it is made up of a number of factors. So you’re going to have – we have a markup on inventory that will come into BD deal and we increased amortization that’s going to come onboard. And when we onboard that and then we’ve also got some other expenses, some legal expenses that we’re going to pick up in the year.

James Sidoti

Okay. How much will the amortization be on an annual basis?

Bernard Birkett

Approximately the $0.59.

Fred Lampropoulos

Okay, I appreciate that.

James Sidoti

All right, Fred.

Fred Lampropoulos

Okay.

James Sidoti

It looks like $1 billion is not that far away.

Fred Lampropoulos

We’re working that number, too. So we’re working towards.

James Sidoti

All right.

Fred Lampropoulos

All right. Thanks for your call, Jim.

James Sidoti

Thank you.

Operator

Thank you. And our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open.

Adam Maeder

Hi, guys. It’s Adam Maeder in for Larry. Thanks for taking the questions. I guess, I wanted to…

Fred Lampropoulos

Hey, Adam.

Adam Maeder

Hey, Fred. I guess, I just want to start with the top line. Can you walk us through some of the different puts and takes on top line growth in 2018? And maybe share your expectations for the different business lines, what gets better, what gets worse, et cetera?

Fred Lampropoulos

Yes, nothing gets worse. So I’ll start out with that. You have some wholesale to retail in Japan, that’s going to be transitioning throughout the year, that’s part of it. The new products – some products like the SYNC that we launched last year is ramping very, very nicely. We’re very pleased with that.

As I mentioned, we have a number of new products. But all of these products kind of pull together. There’s an awful lot of pull-through. When you sell a SYNC, you’re generally selling a sheet, you’re doing the vascular access and then you’ve got to put something in there.

So if you look at endoscopy, if you look at vascular access, if you take a look at our cardiac business, if you take a look at our peripheral business, our OEM business, our sensor business, everything that’s on the board is going to improve during the year. So, one of the other things that I think that’s also interesting, we’re getting a lot of requests. It’s interesting when you have a transaction like BD and Bard.

And then all of a sudden, now BD have some capabilities that they maybe didn’t have before. A lot of OEM costumers now start to line up for various types of products like inflation devices, like a 40 atmosphere inflation device that they now have to compete with that Merit has. So there’s a lot of things like that. But Bernardo I’m going to let you maybe address a little bit of that, maybe more specifically. Could you get that broken down in front of you.

Bernard Birkett

Yes. As I mentioned earlier, you’ve got the organic constant currency growth of 7.5% to 8.5%, And we’re seeing strong growth across all geographies and continued growth across all product lines. And so there isn’t one that we need to specifically call out and there isn’t really one area of concern for us. And then you’ve also got a number of acquisitions that will be layered in, so you’ve got BD, which I’ve called out earlier on adjusting for the 10.5 months, so that’s, say, between $37 million and $42 million. And then you – you’re going to have all gone for a month in the first quarter DualCap and then Laurane [indiscernible] to be layered in. Fred?

Fred Lampropoulos

Yes. So just another thing, just as a reminder, you’ll recall that we did an acquisition, I think, in the late third, early fourth quarter of Laurane Medical. And this is a bone biopsy business. We stayed in some of our previous calls, Adam, that we really couldn’t go to market with that product for additional customers, because they simply didn’t have the capacity.

As of today, all of that has been moved and is in place in Ireland. And I can’t tell you how much work that was. So pick up that business, move it up from a small operation and then put it into Ireland, we’ll now be building first lots to stock, so that we’ll be able to launch that business in the U.S. I think, we’re – we’ve had people literally begging us for product. But we didn’t want to cut our other customers short. I mean, these guys had no distribution.

So there’s a product that is going out called that one out, because that’s going to be a very nice thing. And you take that along with the kind of a launching of the Corvocet and then you take the biopsy lines from BD and put all that together plus several other products. I’m not going to disclose those today, but let me just assure you that Merit has other products and services that go along with this biopsy business.

So it’s not just another device, we think we have a number of things that we can add that will enhance the business and, in fact, differentiates our business. Another would be a really interesting product, the basixTAU. In our slide deck, we showed this new inflation device, nothing like it on the market and it allows you to essentially inflate a balloon twice as fast as traditional methods. It’s a patented device and again, you can look at it in the slide deck.

Another product is the new Nephrostomy Catheter. It’s in there along with a new product called FastBreak. I can go on and on about the products. There’s a lot of them and then let me just quickly go to geography. One of the areas that we grew a lot last year was in Brazil. And we grew at 20% last year in Brazil and then with currency, we did almost 40% in Brazil.

But the infrastructure we’re going more and more direct out to our customers, we have our own warehouses. And that closeness to the customer brings us more capabilities. It does a lot of things, as you guys have seen over the years. Let me slip over to Australia, where we’re direct still gaining momentum there all of Southeast Asia, Thailand, Vietnam, Malaysia, Indonesia, all of those places it’s the fastest growing part of our business, and we’re well situated both to manufacturer, to deliver product to our customers and to serve those, including Japan, which we mentioned earlier. So that’s the geographic part.

Let me come back just by quickly to some of the new products that are on the slide deck. One of them that you look at that’s on Page 9. It is a distilled radio compression device. To the best of my knowledge, we’re the only people in the world that have this product. It’s not cleared in the U.S. yet. But from inception to completion and the sign off today, it took us 90 days.

I’ll just throw out a couple of little words that will be of interest. This is a snuff box approach. So again, I don’t want to get too – seem corny here. But if you take and you think about – if you had someone that would put snuff in between their thumb and their index finger, they’re actually now approaching the essence that if you’re having your hand up and coming through a standard radio approach. This is catching on fire in Europe.

We developed this with the father of radio procedures and that product will be overdoing trials in Europe, a 90-day turnaround. The magic, if you will, and thank you for allowing me to say it, but the magic, Larry, of all of this is the ability that we have to turn products around, not one you’ll see there is a product called the choice.

Snuffs on to vascular access products allows the physician to be able to put more than one device down a sheath and then the prelude ideal. We’ve done over 100 to 150 – somewhere around 100 to 150 cases, this is a brand-new reinforced sheath hydrophilic that does not collapse, does not move, and that’s going to be launching here in the next couple of weeks.

So we have plenty in this pipeline and they’re all tied together. It’s not like one product, it’s several products that we go and that’s in the bag of our salespeople. In these particular areas that we play in, it’s just unmatched. So we have all of that go along with it too. So there’s a lot of discussion. But there’s, as you can see from my voice, I’m always excited, but I’m trying to restrain myself.

Adam Maeder

No, that’s helpful. Thank you. And then I guess, I recognize you don’t give quarterly guidance. But can you help us think through the quarterly cadence for the top line this year?

Fred Lampropoulos

I wish I could, but it’s not our policy to do so. I think, we’ve tried – if you take – I mean, I think you can do the math. I mean, I don’t mean to insult you. Please don’t be angry on me. But if you take a look at the core growth, it will in fact move out during the year. So you might have, I don’t want to say a little bit, I don’t think I want to get into this.

But the bottom line is, it will ramp up through the year. It will be back-end loaded because of all the efforts on the BD thing. But we’re very confident about our ability to meet our numbers and again, our goal is to exceed them. So that’s the best I can do, I’m sorry.

Adam Maeder

Okay. Thanks, Fred. And then if I can sneak in one more, I want to ask about the bottom line. Can you walk us through the non-GAAP EPS bridge from 2017 to the 2018 guidance. I know I think we started to go through that on the call. I may be just missed a component or two. But the underlying growth of 13% to 15%, I think I missed the BDX accretion, and then you have a lower tax rate and then not sure if anything is assumed for FX. So if you could take us through those different pieces, that would be helpful? Thanks for taking the questions.

Bernard Birkett

On the organic, so it’s like, as you said 13% to 15%, so that gets you to between 1.45 and 1.47. BD acquisition, we adjusted the numbers there for the just related to when the deal closed. So that’s $0.09, $0.17, and then tax reform we estimate between $0.06 and $0.07 and that gets you to the guidance range.

Adam Maeder

That’s perfect. Thanks.

Fred Lampropoulos

Okay. Thanks so much.

Operator

Thank you. And our next question comes from the line of Bruce Nudell with SunTrust. Your line is now open.

Bruce Nudell

Oh, thanks very much. Good afternoon, everyone. I just, Bernard, just for precision, what is the presumed acquisition dollar and FX dollar contribution for the year?

Bernard Birkett

And so on the acquisition and if you’re looking for BD, it’s about $37 million to $42 million then approximately $13.5 million for the other acquisitions and then FX I’m looking at between 5.5 and 6.

Bruce Nudell

What was that, I’m sorry, I missed that.

Bernard Birkett

Between $5.5 million and $6 million for the FX piece.

Bruce Nudell

Okay, perfect. And then, Fred, just from this year with around $50 million of acquisition growth, it looks like it’s about 7% contributor to the year. Should we be thinking that that’s going to be the pattern for the foreseeable future that there’s going to hefty supplement of the 8% core with 5 to 10 points of acquisition or inorganic growth?

Fred Lampropoulos

Well, one of the things that we do in our forecast is, we really go easy on new products. And the reason we do that is whatever uncertainty have in terms of the regulatory environment and that sort of thing in the ramp up, we’ve just found that instead of trying to protect those things out at a brand-new and they’re just coming to the market as much as confidence that we have when we show these products. That’s kind of – what’s the word here? Kind of the queen, so to speak, a good portion of this are things that we think may very well be in addition to.

Bruce Nudell

Okay. And…

Fred Lampropoulos

Yes, go ahead.

Bruce Nudell

And Fred, the – in the fourth quarter, you alluded to a potential kind of windfall associated with Pressure Transducers and that it might be a durable effect as was the case with Cook supply issues. Did that, in fact, manifest itself or did you anticipate it to manifest itself? Thank you.

Fred Lampropoulos

I’m glad you asked that question, because it did not manifest itself. They were able to recover, they were able to fill. But that being said, we have put a program in place, because we produce those same products. They’ll continue to transform the business over to a Merit -produced product. So that if we have other incidents in the future like this. these natural disasters that we’re not going to be subject to ever being at risk.

So it did not develop on that transducer side. That being said, I think that our business for the Argon transaction actually exceeded our expectations for the year. And that we see that business continuing to grow and we’ve never really launched that product line in the United States, which we plan on doing.

But – and remember, that was withdrawn years ago when offshore the majority of that business goes to Europe and to Japan. But it’s still our intention to launch that project if one-time that business alone in the United States was better than $100 million.

Now that being said, there’s a lot of water onto the bridge, Bruce. And we’re so busy on the other side with the higher-margin products that we may not get even get to launching that product line until 2019 just because we are just so busy. And we have so many other things that really can you give us a little – give us higher returns. So that’s the essence of the transducer and the effects of the transducer business.

Bruce Nudell

Thanks so much, Fred.

Fred Lampropoulos

Okay. Bruce, thank you. Good to hear from you.

Operator

Thank you. And our next question comes from the line of Matthew O’Brien with Piper Jaffray. Your line is now open.

Matthew O’Brien

Good afternoon. Thanks so much for taking the question. So two for me Fred and Bernard. The first one is on and as I think is investors are thinking about the story now with a lot going on with a lot of moving parts here. I think it might be helpful to characterize how you view the risk of the BDXacquisition from an integration perspective, because historically, you’ve bought assets that were standalone that you just took and you over took.

Now you’re kind of extracting one that’s got some very long relationships with a big company. So just – can you help us understand how the integration risk compares versus other deals that you’ve done and then how you keep the organization focused on the core business at the same time?

Fred Lampropoulos

Yes, it’s a really good question, Matt, and I’m glad. I’m going to talk about it in two segments. One is the manufacturing. So one of the reasons this was an attractive deal to us, because if you look at the drainage side of it, which was about $20 million or so, we already extrude catheters. We build those things in our facility in Houston in our Peritoneal Dialysis. Now this is a little bit different, but it’s the same materials in the same general processes. So that’s part of it.

The other part of the reason was attractive to us is, we’re in the biopsy business. We understand, to some extent, how that works. I mean, there are going to be things that we don’t know about their products. But that’s why we hit the ground running, as I mentioned in my previous comments, we have teams on the ground. We have an integration plan.

Our guys in Mexico have a long history with Medtronics, Covidien, Smith, I mean, that’s what their backgrounds are when they’ve moved all these products. It involves molding, insert molding, and skill sets that Merit already has in its – within its capability, including injection molding.

So all of the skill sets are there. And maybe to give you a little bit more comfort. As I mentioned, this transaction was unique anything I’ve ever done in my career and very few companies ever get involved with these forced divestitures. I mean. they happen. But they’re not the normal run of the middle type of transaction. I think that the regulatory bodies felt out of all the people who had pursued this opportunity that the best prepared, the best that we have capacity, we have the skill sets, we have the knowledge, and we have the capabilities, we were selected.

There were a lot of other factors. I think the marketing, the geographic position, and so on and so forth. But those bodies look at us and looked at us part. We testified in front of them. We presented to them. We had to sell what we had, and then they did a lot of deep diving in terms of the capabilities and they selected us or at least approved us as a worthy competitor to Boston – excuse me, not Boston, Becton, Dickinson. So that’s another part of it.

So that’s the – I think the manufacturing part and the regulatory part and the review process for our capabilities. In terms of the market, in some ways, we actually have a distinct advantage, because in many of these products, which came from the CareFusion purchased by Becton, Dickinson, there was a lot of distribution. And so the thing that we bring to that portfolio is, we have a lot more products to go to the users.

So if you’re going into an intervention radiology, we really have this drainage and process, if you’re talking about Centesis, Paracentesis. If you go to compartmental drainage and so on so forth, Merit has that whole portfolio, whereas previously as it was structured, they didn’t. And then we have the full core biopsy and we have bone biopsy.

So from a product point of view and approval, there’s a lot of opportunity there, because we have a lot of pull through products. And almost every one of those customers are already Merit customers. So I think what would you say, Bernie/ 90% of their existing base of customers are already our customers. So that’s kind of a big deal. They’re familiar with us, they know us, and so on so forth.

If I can go over to the drainage, this is peritoneal and pleural effusion. We’ve already started research and development programs for new products that will come out over the next 12 to 18 months. So we’ve already started on both. The other big advantage there is they were only selling that product in the United States. And other than that they really didn’t have a presence. Merit has a global network, and these products are eminently sellable in Japan, China, all of Europe and South America – Central South America.

So there’s a huge growth opportunity in an area, where we put these direct models. So the things that we did in Australia, Brazil, Japan, China, Singapore, these programs that we’ve paid for and put into place and staff over the last several years are in place to support the growth of that business as well outside the United States were the only place.

So the attractiveness for us was the growth opportunity. And I think another reason why we were selected by and approved by these bodies is, because we can’t compete. We compete effectively against these guys. And listen, they’re big companies. But listen, big companies, big deal. I’ve been competing against Boston, Medtronics, Cook, ABBOTT, we’ve built our business on competing with these guys.

So I think, I like to compete and I think we’ve competed effectively and those are the areas geographic, product line mix, pull-through and existing customer base. So that’s why we were very excited why we worked very hard and then I have the people.

We’ve built almost $1 billion business and you don’t build it with the second team. I’ve got Airborne Rangers that work here. I have people with experience internationally and domestically. So we’ve got the goods and we’ll perform. So that’s the best way I can answer. It’s kind of bold to say the things I’ve said, I believe every single word of my comments.

Matthew O’Brien

That’s very fair and encouraging to hear, Fred. And then secondly, as far as the outlook in the business goes, excuse me, you’d said that you thought – you provided some guidance for us as we look out. But this was before you’ve done the Becton deal, this was before tax reform.

So can you just help us understand some of the benefits that you should be able to get beyond what you’ve communicated on the gross margin line, or from the extra investment in terms of reinvesting some of the tax savings in the business. Can that help accelerate core growth? Can we get some gross margin benefit, maybe beyond what we had been expecting originally?

Fred Lampropoulos

Well, I think, Matt, we’ve talked about this in the past and I’ve talked with many of the other analysts about this that we have an intermediate term goal of 55%, that’s down the road. We think that we can add just 100 to 150 basis points from our core business. We’ve talked the benefits that come from the BD acquisition, and I think the product mix I think one of the things that we’re doing and continue to do is really look at the mix and really make sure that we have the structures in place to support more difficult products, the HeRO, as an example, continues to grow.

There are number of things on these more complex products that when we start talking about this move essentially from accessories into primary use, there’s – that continues to be a big focus for us. And part of these pleural effusion, peritoneal products and other products in our pipeline are moving in that direction.

One of the products we talked about is the Rhapsody. This is a Merit’s first entry into the vascular area with stents, and that’s going to be introduced we think late this year in Europe. And those kinds of things give me plenty of confidence in terms of our transition, our market presence, our pull-through, a fresh line of new products. I mean, that’s what we’ve been known for, things like the ideal. This is a big deal. The ideal is a big deal, our new sheath. So I mean, I just – the best way for me to answer is that, we have plenty of strategies, plenty of products geographically. We have strategies in terms of market penetration. We have more clinical depth and the company just continue to put on more muscle and capability. So do you want anything add to that Bernard?

Bernard Birkett

I think, as we said, it’s investment to ensure that we can continue to scale at the rate that we have been doing and that’s important. And I think the guidance range we’ve given a wide enough and that investments we believe is required and we will get a return on us over time.

Fred Lampropoulos

Let me add one other thing too. In this process, I cannot tell you about how much effort went in from essentially July all the way to we made the announcement updating the deal done to actually closing the deal. It was six or seven months. There was a tremendous amount of attention that was necessary to get this deal done. I think that actually cost us in terms of focus and because we focused on what we needed to.

But it took a lot of time and effort for that. Now that we have the deal done. We have the teams out. And by the way, we are well prepared. I mean, we didn’t just wake up one morning and say, let’s think about this. We were well prepared on our business development, on our transition teams, they’ve been assigned. There’s all of that work going on and then there’s all of the new products.

But from a management point of view and a sales point of view, our guys are out there. We know the accounts are. They’re transitioning into these new markets to these new accounts that are already Merit customers with new products. So when we walk in, we’re sitting there with the Corvocet, we’re sitting there with the Alliant products, we’re sitting with the BD products.

And one of the kind of interesting part to this. And again, this is addition to everything else, such as the ability to walk in. And if you take a look at a biopsy procedure, there are a lot of things that go along with that. You have to prep it, you have to do the device, the scalpels, all these syringes, there’s things that Merit already does to be able to deliver service to the institution that many of our competitors simply can’t do. That’s where the custom business and some of the other skill sets come into place where we can add services and capabilities that our competitors simply don’t have and it’s not new for us, we’ve been doing it for 30 years. So that ability to customize.

Matthew O’Brien

Got it.

Fred Lampropoulos

…deliver things is kind of a big deal.

Matthew O’Brien

I appreciate all the color. Thank you so much.

Fred Lampropoulos

All right, sir. Thank you so much, Matt.

Operator

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

Jason Mills

Great. Thanks. Fred, can you hear me, okay?

Fred Lampropoulos

I can, Jason. Good to hear your voice.

Jason Mills

Congratulations on a great year. So I want to make an observation and love for you and Bernard to weigh in. I really has to do with the leverage in the business. So, yes, tracking this business for a while, it’s not lost for me, this is the first year of your operating margins – pro forma operating margins have had a one three handle on it. You get 11% and 12% multiple years and you’ve always, Fred, talked about the top line and the new products we continue to do on this call. It sounds like the pipeline is full.

We allowed to have happen, if you will, black and better way to put it is, is for more margins drop through and perhaps it’s a scale in the business, perhaps it’s more disciplined. I’m not sure, I’d love for you to comment on that. But it looks like as we look forward into 2018, so back in the envelope in your guidance, Bernard, if you could confirm this, you’re looking at 14.5 handle perhaps even maybe up to 15% operating margins for the Becton, Dickinson acquisition providing some uplift to that. Where do you – maybe talk about that discipline that change in the business – positive change in the business and and where you see the leverage going over the intermediate period timeframe?

Fred Lampropoulos

Yes. Well, thank you. It’s a good question. Jason, I have a friend, an analyst who once said to me, it’s all about delivering, it’s all about progression, it’s all about doing those sorts of things. And I think, our goal is again, these are longer-term goals but always been to be able to have an operating margin in that 18% to 20% range. But that that’s part of where you have to work for. And I think as we look at and of the great things that I think, Bernard has brought to the business and his staff who are sitting in this room is the assistance they’ve given us.

You look around your shoulder and you look over it, there’s one of those FNAs sitting there, wanting to help us in the guidance operationally, over an operation, making sure we keep those numbers in place that there’s that gross margin that even in the evaluation and this also goes to our Board, our capital and the efficiency of that.

So we’re mindful. I think that’s the maturity that we’ve gained over the last couple of years – several years. But again, one of the things we did in the past, as I mentioned is, we put the basic infrastructure to build this business. We made the investments. And at the time, there were some – guys can do the top line, but can’t do the bottom line. But here’s the bottom line now, we can do the top line and the bottom line. We have focuses and focus on these opportunities that help you give us a kind of returns.

So that we get that progression and we bring value to our shareholders. I mean, that’s that’s what we think about every day here. It’s what we drive to, and what everybody’s compensation very candidly is based on the ability to do that. So I appreciated the compliment and I just want to know about our laser focus on accomplishing that and building value and returns for all of our stakeholders. So Bernard?

Bernard Birkett

Yes, that’s where the focus has been. So if you look at our OpEx over the last only two to three years, it’s been pretty consistent as a percentage of sales. And that’s deliberate to allow the improvement in gross margin, as you said, to fall to EPS. And that’s what we’ve communicated through this three-year strategy that was outlined in 2015 and we constantly reinforce that message and again reinforced for 2018 and 2019. So that that’s where we’re seeing the increase in probability coming from.

Looking at operating margin for 2018, yes, you’re right 14.5-plus is the target. And again, it’s down to the same level of focus and discipline on managing that OpEx line, but also really focusing on expanding gross margin and that’s the key.

Fred Lampropoulos

Yes, the key is that gross margin which has to do with the mix and our approaches on the products. And then, Jason, I think, on the same thing that some might say, well, you’re not getting every leverage on the SG&A line. And what we’ve said in the past and we’ll continue to say there really is that gross margin line. But in order to continue this transformation from accessories to primary, it requires more investments in our clinical staff. We have more people out there. Even internally, we have – it’s a more clinical company.

So we’ve chosen not to try to leverage that up and use that money to make these investments. So that’s all in the numbers. That’s all baked into what we’re doing. And at some point, we’ll actually, I would say, two or three years – well, I’m not going to say. We’re going to continue to build a business and there’s that top line of the new products that really drive this and drive the margin.

So, we’ll say the same thing. In R&D, I’m going to continue to spend money in R&D, but at a disciplined level. And I think that’s again the help that we’ve had from our accounting staff and from Bernard, they help us. And we with this, I think, are doing a much better job of that today than we’ve ever done in the past. So that we can, in fact, get on these calls and we can deliver the results that that our shareholders expected us.

Jason Mills

Right. Fred, that’s helpful and thanks, Bernard, as well. It’s actually that this year, while it’s a transition year for you still showing some tremendous Bernard’s point 14.5%-plus, but you’re also talking about the fact that you’re going to have some expenses in transitioning this business that you wouldn’t necessarily have on an incremental basis in 2019 and 2020. What’s more you get the benefit of tax reform and you’re deciding to reinvest 25% to 30% of that.

My guess is, given that you know that tax rate is going to be in place next year, you’re not going to spend an additional 25% to 30%. Where I’m going with this is, it sounds to me like the potential is that on an incremental year-over-year basis, margin expansion is going to be good this year. It could be even better in 2019 and 2020. And I want to make sure, I’m not thinking about this thing correctly?

Fred Lampropoulos

No, I think those are our goals. Bernard, check me on that?

Bernard Birkett

Yes, there’s a lot of opportunity there. We’ve given guidance for 2018 and 2019, obviously, the preliminary guidance for 2019. I think there is opportunity there, but we got to manage the business to make sure that we can continue to grow and continue to scale.

Jason Mills

Sure. Those were the primary questions for me. I can follow-up with you guys. Thanks and I’ll let others jump in. Thanks.

Fred Lampropoulos

Okay. Jason, good to hear your voice. Thank you very much.

Operator

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

Jayson Bedford

Hi, good evening, guys. Thanks for taking the questions. I’ll just ask a couple of quickies here. Just as a follow-up, the acquired BD drainage products 100% U.S., they take it international, do you have all the regulatory clearances you need or will there be a process here where you need approval in certain geographies?

Fred Lampropoulos

Yes. We will need approval in certain geographies. But the good news there is that, again, part of our structure that we’ve handled over the years, we have a full regulatory staff and we’ve already started on this process in Europe. We have regulatory staffs in Asia. So we do have to get this work done.

I’m going to say just kind of off the cuff and I’m looking at my regulatory officer here that that’s going to be six to nine months give or take Glenn, [ph] is that sound reasonable to you as we start in the bigger markets in Europe. Is that sound reasonable?

Unidentified Company Representative

They’re reasonable.

Fred Lampropoulos

Yes. It will – but yes, there’s going to be very nice, but again, we really couldn’t start on until we owned it, but we had planned it out. We will work in those markets, and we think there’s tremendous opportunities in Europe.

There’s essentially on the drainage side, there’s two competitors, one is BD and the other one is – well, there’s another competitor over there. But we believe that we have a – as I mentioned previously, more breadth in our product line and in our distribution, our direct sales, all of that stuff is in place, we don’t have to hire to do that, it’s all there.

So we’ll go through the regulatory process. We’ll probably get some benefit of that this year. I think, we’ll have a tremendous benefit in that product group as we move into 2019. So I think you’re going to see the big move in 2019 in that area. As well as even here in the U.S., there’s a lot of opportunity here, because some of the current work was done in distribution here where we have that direct sales force out here in all these locations.

So I think that drainage side of things is one of the areas where I think both of them have potential. But clearly, that one from a percentage point of view, probably it’s going to be the bigger player as a percentage, simply because we have all of that geographic opportunity.

Jayson Bedford

Okay, that’s helpful. And just as kind of a related follow-up. The BD manufacturing transition, I was a little unclear. Is that going to impact revenue in the near-term, or is it more of a cost dynamic? And then is there anyway you can kind of give us a little bit of guidance as to how the 37 to 42 will trend throughout the year meaning how much of that is kind of back-end loaded? Thanks.

Fred Lampropoulos

Yes. So right now this day and for, say, the next 30 days or so, orders are going into Becton, Dickinson. They’re being sell-through Becton, Dickinson everyday, and of course, that’s in our system. 30 days from now in the United States, we will transition to our product in our warehouses, orders coming into our business.

So that’s the order. So I don’t expect that you’ll have much effect on revenue that way other than the stop periods, okay? So whatever that business was, I believe that. Now where the real fun comes as once we get that over and once we’re manufacturing the product and we know that we have secure capabilities. In other words, it’s not in the Dominican Republic, it’s – we’ll move it to our facility where we have control on it. It will start to trend up as we get some air under our wings so to speak.

Once we control it, we could be more aggressive in the international markets and launching and building and managing that. So right now, they have to produce a certain amount of inventory. They have to produce it by contract. And – but once we have it, we’ll have even some newer products to introduce along with it. We’ll have that capability. So it’s going to trend up during the year. And particularly as the geographic parts come over once it’s built in Merit product then we will spread those wings and we’ll have a longer runway at that point.

Jayson Bedford

Okay, that’s helpful. Thanks, guys.

Fred Lampropoulos

Okay. All right, Jayson. Thank you very much.

Operator

Thank you. And our next question comes from the line of Mark McGrath with Kenmare. Your line is now open.

Mark McGrath

Thanks. Just a couple of quick ones for Bernard. It looks like $0.82 of difference between the GAAP guide versus the adjusted, I think you said $0.59 is amortization, how much of the remaining $0.23 is other versus inventory markup?

Bernard Birkett

Am, I would think about a charge of it is inventory markup, Am, I mean the balance Am will come from others.

Mark McGrath

Okay and then can you give us a sense for CapEx for 2018?

Bernard Birkett

50 to 55.

Mark McGrath

Okay, thank you.

Operator

Thank you. And our final question comes from the line of Mike Petusky with Barrington Research. Your line is now open.

Mike Petusky

Hey guys, thanks for taking all this time and I really appreciate it. Hey Bernard, you may have to dig for this, you may not, but do you have D&A stock comp and CapEx for the quarter and if you have to dig for it all, I have my next question.

Bernard Birkett

We’ll get it for you Mike.

Fred Lampropoulos

Yes, we are digging that, go ahead and ask your next question and then we’ll pull that up.

Mike Petusky

Okay, around the transition of some of the BD products to Tijuana, I guess my question is, what’s the capacity now and what will it be post that transition?

Fred Lampropoulos

For the BD products?

Mike Petusky

Yes, essentially I mean how much can you continue to – I guess, how much work is being done there relative to how much work can be done there and after you to move BD down there, is there still excess capacity due to other things or you kind of filled?

Fred Lampropoulos

So let me work it backwards and say that we are at about 50% capacity at this point in our facility. And again, I think one of the capabilities that we – that helped us to get the deal is that we in fact had a, we had a facility that was competitively priced with the existing facility and then we add capacity. And when we built Mexico and built those facilities out, we had expansion, we did more than we needed because of situations and opportunities, the growth of our business moving things from Salt Lake or other places in the Merit manufacturing system, so there’s plenty of room down there and we’ll still have room when this is done.

I would say this is going to take up 10% to 15% of that and we’ll be at 65, and then we’ll be – through the year we’ll be moving additional products into our Mexico facility. I mean again as a reminder in Utah we have a 3.1% unemployment rate and so for us we do get lower cost but the more important thing is the availability of labor and because of the way we’ve done things down there, we’re the company of choice. We have I think 200 down in Louise, 200 to 300 people that are in the queue that want to come to work for us. Our competitor is not very happy about it, we’re thrilled.

Mike Petusky

That’s good, that’s good. I guess the next – I don’t want to distract Bernard from digging, but the next question really goes to…

Bernard Birkett

I’ve got them for you.

Mike Petusky

Okay.

Bernard Birkett

The D&A is about 14.2 and the stock was 1.2.

Mike Petusky

And CapEx for the quarter?

Fred Lampropoulos

It’s about $8 million, I think.

Bernard Birkett

$8 million I think.

Fred Lampropoulos

Hold on, I’ll start here.

Bernard Birkett

$9.1 million.

Fred Lampropoulos

$9.1 million

Mike Petusky

Okay great, all right thanks guys. And then just the in terms of – and again I realize you don’t get quarterly guidance, but I do suspect you don’t want analysts way too optimist from a quarter and I think you’ve done a good job of giving a sense, but would you be willing to say, I mean would you expect the down comparison versus the 2017 first quarter in terms of adjusted EPS due to all the noise around the BD transition, I mean I think you did adjusted EPS of around $0.28 in Q1 2017, I mean would you expect a somewhat down comparison?

Fred Lampropoulos

Yes, first of all I don’t think that’s the case and if I walk into that, I don’t want to call it, listen if I comment on it, I would remind you that we had some delusion from last year because of shares, but I just want to remind everybody about that because we issued out, I think, 4.4 million shares so we had that and then also recall that we – 4.2…

Bernard Birkett

5.2.

Fred Lampropoulos

Okay 5.2 okay. And then we still – even with that delusion we increased our guidance, you’ll recall all of those particular issues and then again I don’t want to walk down the path of trying to predict or to lay out the saying and walk into a boxed canyon. So we’ll stick with what we said and stick with the year, I think we tried to just make everybody aware that you do have some of these things that are going to be one time, but they are going to be expensed and by that I mean they are not going to be non-GAAP, we have to take those expenses.

So that’s really the – the issue here is those are pure expense on a GAAP side and we want to make sure we kind of set the – now we’ll break out what those expenses are and kind of maybe have some conversation about, we just delaying that did we disappoint and so, we are just trying to say, well, if we look at the year, look at the increase in operating margin, look at the increase what we have in our earnings-per-share at the midpoint on a non-GAAP basis of 27%, look at the goal of what we set out and if you look at all of those things you guys get to make the call on what you think about that. But I think what it held, from my point of view, I think it sets us up for a year of extraordinary performance, we did everything we’ve said we were going to do and it’s our intention to do that going forward. Other than the, the somewhat the lumpiness because of the transaction which I hope we’ll credit for, not discredit, but that’s up to your guys and shareholders to determine.

Mike Petusky

Right okay, well, listen guys, congratulation not just on the year, but really on the execution of that longer term plan, I think you guys deserve a lot of credit for putting that out there and then I think generally executing beyond what you put out there, so congratulations on that, thanks.

Fred Lampropoulos

Thanks Mike, we appreciate it, we appreciate it very much.

Operator

Thank you. And that does conclude today’s Q&A session. So I would like to return the call to Mr. Fred Lampropoulos for any closing remarks.

Fred Lampropoulos

Well, I usually try to keep these calls as short as I can because I know how busy you guys are, but thank you for taking the time. Again let’s just summarize, we met our goal, we haven’t talked much about the third quarter, but you saw, as we’ve said, we rebounded like we said we would, we exceeded our goals for the year on our 8%, so we shouldn’t forget those sorts of things. We have a business plan, we have a geographic plan, we have a new product pipeline, I hope if anybody is at LA at the Sur [ph] meeting you’ll come by. We have a lot of really cool things to show you, so we have a lot of momentum, our sales force is aligned down our product lines, incentivize. Our folks are out there in our teams as we speak in the Dominican Republic, in Mexico executing our plan and like Merit always does and again I want to remind you of all this, we don’t just buy a product line and stuff it into a catalog. What Merit does is invest at plans geographic expansion and new products to enhance and support and build these businesses, that’s what we do.

I mean I go back and try to think about what we did when we bought out the OS, I mean I remember I got scolded for $5 million revenue losing money. We had a plan, we said we had a plan no one believed that plan, today it’s a $30 million plus business at 70% gross margin and growing at double digits, so that’s what we do.

I want to remind everybody that that’s what Merit does, so you get to decide, we’ll look forward to your comments, but I just want you to know that we have a plan, we have the team, we have the resources, we have a strategy and what we have is good stuff and we’re excited. I think everybody in this room understands and we’ve made a commitment, we’ve said this is what we’re going to do for the next two years and when you just start to think about that, remember this is all on higher numbers. You know we didn’t back down and say we’ll if you back that out and then you add 8%, that’s not what we’ve said.

We have reaffirmed our top line core business at 8% and we have reaffirmed our increase of gross margins on our core business from 100 to 150, plus we’ll get some benefit and we reaffirm our bottom line and I think it’s been pointed out of the progression that that makes. So this is what I think we feel comfortable and promising and of course our goal is to over deliver, so that’s our commitment to you is to build this business and continue to lay everything out that we can.

We’ll be here for the next I guess an hour or so, two hours, we’ll be here longer than you’ll be there, so if you just sit around with nothing just give us a call, Bernard and I are here, we’ll answer the questions you have or clarify questions. We’ll stay within the bounds of FT and make sure we do things properly. We look forward to reporting in the future. Thank you for your interest, your continued interest and signing off now from Salt Lake City, we are wishing you a good evening and good night.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This has concluded the program and you may all disconnect, everyone have a great day.