Merit Medical Systems, Inc. (NASDAQ:MMSI) Q3 2023 Earnings Call Transcript

Merit Medical Systems, Inc. (NASDAQ:MMSI) Q3 2023 Earnings Call Transcript October 26, 2023

Operator: Welcome to the Third Quarter of Fiscal Year 2023 Earnings Conference Call for Merit Medical Systems, Inc. At this time, all participants have been placed in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company’s website for replay shortly. I would now like to turn the call over to Mr. Fred Lampropoulos, Merit Medical Systems Founder, Chairman, and Chief Executive Officer. Please go ahead, sir.

Fred Lampropoulos: Thank you, and welcome, everyone, to Merit Medical Systems third quarter of fiscal year 2023 earnings conference call. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer; and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you mind taking us through the Safe Harbor statements, please?

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Brian Lloyd: Thank you, Fred. I would like to remind everyone that this presentation contains forward-looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to unknown risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from those currently anticipated. In addition, any forward-looking statements represent our views only as of today, October 26, 2023, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law.

Please refer to the sections entitled Cautionary Statement regarding forward-looking statements in today’s press release and presentation for important information regarding such statements. Please also refer to our most recent filings with the SEC for a discussion of factors that could cause actual results to differ from these forward-looking 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. This presentation also contains certain non-GAAP financial measures.

A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today’s press release and presentation furnished to the SEC under Form 8-K. Please refer to the sections of our press release and presentation entitled non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today’s press release and our presentation are available on the Investors page of our website.

I will now turn the call back to Fred.

Fred Lampropoulos: Thank you, Brian, and thank you for joining us on a very busy reporting day. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue results for the third quarter followed by an update on a few noteworthy operating highlights in recent months. After my opening remarks, Raul will provide you with a more in-depth review of our quarterly financial results and the formal financial guidance for 2023 that we updated in today’s press release, as well as a summary of our balance sheet and financial condition as of September 30, 2023. We will then open the call for your questions. Now beginning with a review of our third quarter revenue performance, we’ve reported total GAAP revenue of $315.2 million in the third quarter, up 10% year-over-year.

Our total GAAP revenue growth was driven by 14% growth in U.S. sales and 4% growth in international sales. Our total revenue increased 10% year-over-year in the third quarter on a constant currency basis, excluding the 10 basis point headwind to our GAAP revenue growth related to changes in exchange rates compared to the prior year period. The constant currency revenue growth we delivered in the third quarter was significantly stronger than the high end of the range of growth expectations that we outlined on our quarter two earnings call. Specifically, we expected constant currency revenue growth in the third quarter in the range of 5% to 7% year-over-year. Importantly, the better-than-expected total constant currency revenue results in the third quarter was driven almost entirely by strong organic growth, reflecting a broad-based strength across each of our primary product categories, particularly in the U.S. Third quarter total revenue results also included $7.3 million of sales from the portfolio of interventional solutions we acquired from AngioDynamics on June 8, 2023, which notably also came in above the high end of the range we provided on our second quarter earnings call.

Let me now provide you with a more detailed review of our revenue results in the third quarter, beginning with the sales performance in each of our primary reportable product categories. Note, unless otherwise stated, all growth rates are approximated and presented on a year-over-year and constant currency basis. We’ve included reconciliations from our GAAP reported results to the related non-GAAP item in our earnings release and presentation available on our website. Third quarter total revenue growth was driven by 10% growth in our Cardiovascular segment and 11% growth in our Endoscopy segment. In our Cardiovascular segment, constant currency growth exceeded the high end of our expectations for the third quarter, while Endoscopy segment sales came in at the high end of expectations.

Sales of our Peripheral Intervention or PI products increased 16%, representing the largest driver of total Cardiovascular segment growth again this quarter. Excluding sales of acquired products PI sales increased 9% on an organic constant currency basis. Organic growth in the PI product category was driven by sales of our radar localization and drainage products, which increased 19% and 15% respectively, and together represented a little more than half of total PI sales growth. And by sales of our delivery systems and angiography products, which increased 19% and together represented roughly one-third of our total PI growth in quarter three. Sales of our OEM and Cardiac Intervention products were key contributors to our total Cardiovascular segment growth this quarter, increasing 11% and 3% respectively.

Sales of our OEM products exceeded the high end of our growth expectations, which we attribute principally to continued solid demand from larger customers in multiple categories, including angiography, coatings, EP, CRM, intervention and kit products, which together increased 25% in quarter three. Cardiac Intervention products, sales also exceeded the high end of our growth expectations, driven primarily by strong growth in sales of both our access products, which increased 20%, and our angiography and hemostasis products, which together increased 20%. Sales of our custom procedure solutions, or CPS products increased 6%, which was notably better than the low-single digit decline we expected in quarter three. Sales results benefited from higher demand from our customers outside the U.S. for certain kit product lines that we have been identified for SKU rationalization as part of our Foundations for Growth initiatives.

We expect CPS sales to decline in the fourth quarter on a year-over-year basis as demand trends for these kit products lines normalize. But our guidance continues to assume that CPS product category delivers roughly flattish growth over the second half of 2023 compared to the prior year period. Lastly, sales in our Endoscopy segment increased 11%, which was at the high end of the growth range we assumed in our third quarter guidance. As expected, we continued to see improving sales trends in the third quarter, and we continued to expect mid-teens growth in our Endoscopy business in the second half of 2023. Now, turning to a brief summary of our sales performance on a geographic basis. Our third quarter sales in the U.S. increased 14% on a constant currency basis and 10% on an organic constant currency basis, exceeding the high end of our growth expectations by more than 400 basis points in the period.

Our U.S. growth performance reflects continued strong execution and overall improving trends in the U.S. market during the third quarter, particularly in our direct business, which continues to see impressive volume growth in sales of our vascular products. International sales increased 3.5% on a constant currency basis and increased 2.9% on an organic constant currency basis modestly exceeding the high end of our expectations in the quarter. Organic constant currency growth to customers outside the U.S. was driven by low-single digit growth in APAC and high-teens growth in the Rest of the World region, while growth in the EMEA region was flat year-over-year. Growth in the APAC region was at the lower end of our expectations in quarter three.

EMEA was in line with expectations and the Rest of the World region was modestly ahead of our growth expectations. With respect to China, specifically, sales were flat year-over-year and were impacted by the headwinds related to volume based purchasing tenders discussed on our quarter two call as expected. With respect to our profitability performance in the third quarter, we leveraged the strong revenue results in the third quarter to deliver non-GAAP gross profit and operating profit growth of 13% and 25%, respectively, and we delivered non-GAAP net income and EPS growth of 18% and 16%, respectively as well. We believe our third quarter financial results demonstrate that the team’s continued hard work and commitment to our Foundations for Growth program are paying off.

We remain focused and confident in our team’s ability to deliver our financial guidance for the fiscal year 2023, driving continued progress in year three of our Foundations for Growth program and the related financial targets for the three-year period ended – and ending December 31, 2023. Now, before turning over the call to Raul, I would like to share a brief update on several areas of operational progress in recent months. On August 3, we announced the completion of enrollment in the WRAPSODY Arteriovenous Access Efficiency or WAVE pivotal study. The WAVE study is a prospective, randomized, controlled, multi-center study comparing the Merit WRAPSODY Cell-Impermeable Endoprosthesis to percutaneous transluminal angioplasty for treatment of stenosis occlusion in the venous outflow circuit in patients undergoing hemodialysis.

The WAVE study enrolled 244 patients with arteriovenous fistulas in 113 patients with arteriovenous grafts across sites in Brazil, Canada, the United Kingdom and the United States. We are collecting safety and efficacy outcomes throughout the study follow-up period and expect to have primary endpoint data for the last enrolled patient in February of 2024. We currently expect that the monitoring, data cleaning and analysis phase will be completed early in the second quarter of 2024. We plan to complete the clinical study report and be in a position to file primary outcomes with the FDA for Premarket Approval or PMA by the end of the second quarter of 2024. With respect to the two acquisitions we announced in early June, we have made significant progress in integrating their operations.

During the third quarter, we completed sales training and customer KOL engagement efforts. We are transitioning product SKUs to Merit branded packaging, along with launching all related marketing materials and sales tools under the Merit brand. We look forward to continue engagement with existing customers and to leveraging the opportunity to raise awareness among potential new customers at industry events, including The Controversies in Dialysis Access or CiDA and the VEITHsymposium. These are exciting times for Merit Renal Therapies business, we have a clear strategy to leverage our established position in the dialysis and biopsy markets. Built on a differentiated commercialized products like the HeRO graft and the Surfacer Inside-Out Access Catheter system, and of course, our WRAPSODY Cell-Impermeable Endoprosthesis, amongst others.

Together with the recently acquired dialysis catheter portfolio, including the innovative BioFlo DuraMax dialysis catheter with Endexo Technology, the Surfacer Inside-Out Access Catheter system and the BioSentry Biopsy Tract Sealant System, we have an extremely compelling foundation of growing interventional solutions. That will allow us to leverage our physician relationships and the commercial infrastructure to serve more patients in the multibillion dollar dialysis and biopsy markets. Finally, I wanted to share a few thoughts on two items that we know are key focus areas for investors, evaluating the intermediate to longer term investment opportunity in Merit Medical, specifically, executive leadership and financial targets beyond fiscal year 2023.

With respect to executive leadership, succession planning is something our Board takes very seriously, and a formal process was initiated in recent months. Importantly, this is a process that I am not directly involved in. Our lead independent director and compensation and talent development committee of the Board are leading this initiative with the active involvement of all of our independent directors. The Board continues to target having a formal announcement to share with the investment community by the end of 2023. I continue to be fully engaged in the business, and I serve at the pleasure of the Board on behalf of our shareholders. With respect to longer term financial targets, as we approach the end of the final year of our transformational companywide program to evaluate all aspects of our business to better position the company for long-term sustainable growth and enhanced profitability, I would like to reflect on what the team has accomplished in this important Foundations for Growth program.

From the outset, we wanted to use the Foundations for Growth program as a vehicle to think holistically and comprehensively across the business to challenge the status quo and to deliver an ambitious improvement in profitability while preserving our historically market leading growth profile, our legacy of customer driven innovation and the strength of the Merit culture that has served us so well for so many years. By the way of reminder, the Foundation for Growth program was established with three clear objectives in mind. First, to main growth above market designed to preserve our proven ability to innovate together with our customers and deliver unique solutions to the market that fuel our top line growth. Second, to significantly improve our non-GAAP operating margins with operations designed to exploit scale where it exists while preserving autonomy and flexibility where it matters.

And to build a foundation for sustained success, we will continue to invest in our people and we will build new capabilities to meet the evolving needs of our changing healthcare markets. As discussed on each of our earnings calls, since the program was formally announced in November of 2020, we expect that our team’s strong execution of this program would result in significant financial results as outlined by our formal financial targets, including at least a 5% organic constant currency revenue CAGR, and more than 400 basis points of non-GAAP operating margin expansion, ending in 2023 with more than $1.1 billion of revenues and non-GAAP operating margins of at least 18%. We also expected our efforts to drive significant improvements in our balance sheet and the financial addition as we targeted cumulative free cash flow generation of more than $300 million during the three year fiscal years ending December 31, 2023.

We believe the team has executed exceptionally well in the face of many headwinds that were not contemplating when the program was announced in November of 2020, and we are extremely proud that we continue to expect to deliver or exceed the formal growth and profitability targets in our Foundations for Growth program. With respect to cumulative free cash flow target, we have generated $244 million since the end of 2020, not including the $119 million that we generated in fiscal year 2020, and we continue to target generating more than $300 million of cumulative free cash flow by year end. As we discussed on our quarter two call, certain working capital items may push the achievement of this target an additional quarter. Importantly, as we have said throughout the Foundations for Growth program, our efforts to continue to enhance Merit’s foundation for long-term sustainable growth and improving profitability will not end on December 31, 2023.

We continue to believe there are opportunities for further improvement in the years to come. Accordingly, on our fourth quarter earnings call in February, we plan to introduce new formal financial targets for the three-year period ending December 31, 2026. In the interim, we remain exclusively focused on delivering the current targets for our Foundations for Growth program and look forward to discussing future goals, opportunities and financial targets on our call early next year. With that said, let me turn the call over to Raul, who will take you through a detailed review of our third quarter financial results and our 2023 financial guidance, which we updated in today’s press release. Mr. Parra?

Raul Parra: Thank you, Fred. Given Fred’s detailed discussion of our revenue results, I will begin with a review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company’s non-GAAP results during the third quarter of fiscal year 2023. We have included reconciliations from our GAAP reported results to the related non-GAAP items in our press release and presentation available on our website. Gross profit increased approximately 13% year-over-year in the third quarter. Our gross margin for the third quarter was 49.8%, up 140 basis points year-over-year. The increase in gross margin year-over-year was lower than expected due primarily to revenue mix by product and by geography.

Operating expenses increased 7% year-over-year in the third quarter. The year-over-year increase in operating expenses was driven by a 6% increase in SG&A expense and a 12% increase in R&D expense compared to the prior year period. Our operating expense performance in Q3 was better than expected and reflects strong operational leverage, principally due to our continued focus on expense management and prioritization of investments to support our future growth initiatives. Total operating income in the third quarter increased $11.5 million, or 25% year-over-year to $57.7 million. Our operating margin for Q3 was 18.3% compared to 16.1% in the prior year period. The 220 basis point increase in operating margin was driven by 140 basis point increase in our non-GAAP gross margin and by an 80 basis point decrease in our non-GAAP OpEx margin compared to the prior year period.

Third quarter other expense net was $4.5 million compared to $0.8 million last year. The change in other expense net was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates, as well as expense associated with realized and unrealized foreign currency losses compared to income in the prior year period. Third quarter net income was $43.5 million or $0.75 share compared to $37 million or $0.64 share in the prior year period. We are pleased with our profitability performance in the third quarter, where we delivered 18% growth in non-GAAP net income and 16% growth in non-GAAP diluted earnings per share, exceeding the high end of our expectations. Turning to a review of our balance sheet and financial condition, as of September 30, 2023, we had cash and cash equivalents of $58.7 million, total debt obligations of $287.1 million, and available borrowing capacity of approximately $558 million compared to cash and cash equivalents of $58.4 million, total debt obligations of $198.2 million, and available borrowing capacity of approximately $523 million as of December 31, 2022.

Our net leverage ratio as of September 30 was one times on an adjusted basis. We generated $42.5 million of free cash flow in the third quarter, up 115% year-over-year and up nearly fourfold on a quarter-over-quarter basis. The sequential improvement in free cash flow generation in the third quarter was primarily a result of significant improvements in cash used in working capital, specifically in the areas of inventory and accrued expenses offset partially by an uptick in payable stays. We continue to expect to generate strong free cash flow generation in 2023. Turning to a review of our fiscal year 2023 financial guidance, which we updated in today’s press release, we have included a table in our earnings press release which details the updated ranges for each of our formal financial guidance items and how those ranges compared to the prior year period.

We now expect GAAP net revenue growth of approximately 8% to 9% year-over-year. The GAAP net revenue guidance range now assumes net revenue growth of approximately 8% to 9% in our Cardiovascular segment, net revenue growth of approximately 13% in our Endoscopy segment, and a headwind from the change in foreign currency exchange rates of approximately $5.4 million, or approximately 50 basis points to growth year-over-year. Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of 8.4% to 9.1% in 2023. Note the midpoint of this range now assumes approximately 11% growth year-over-year in the U.S. and approximately 6% growth year-over-year in international markets, compared to 9% and 6% respectively assumed in the guidance provided on our second quarter earnings call.

The higher U.S. constant currency growth expectation versus prior guidance reflects the stronger than expected third quarter results and the anticipated contributions from our acquisition, which we now estimate in a range of approximately $14.4 million to $15.4 million of revenue in fiscal year 2023 compared to a range of $13 million to $15 million assumed in our prior guidance. Excluding revenue from these acquisitions, our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 7% to 8%, compared to the 6% to 7% range assumed in our prior guidance. With respect to profitability guidance for 2023, we have updated our GAAP net income and diluted earnings per share ranges driven primarily by the better than expected financial results in the third quarter to $89 million to $92 million and a $1.52 to $1.58 compared to $76 million to $81 million and $1.30 to $1.39 per diluted share previously.

We have updated our non-GAAP net income and diluted earnings per share ranges driven primarily by the better than expected financial results in the third quarter to $171 million to $174 million and $2.93 to $2.99 compared to $1.64 – compared to $164 million to $170 million and $2.81 to $2.92 per diluted share previously. For modeling purposes, our fiscal year 2023 financial guidance now assumes non-GAAP gross margins in the range of approximately 50.5% to 50.7%, up 170 to 190 basis points year-over-year. Non-GAAP operating margins in a range of approximately 18.1% to 18.3%, up 120 basis points to 140 basis points year-over-year. GAAP other expenses of approximately $14 million compared to $13 million previously, and non-GAAP other expense of approximately $12.7 million compared to a range of $11 million to $12 million previously.

The increase in both ranges is primarily related to higher interest expense on outstanding borrowings. Non-GAAP tax rate of approximately 19.4% compared to a range of 21% to 22% previously, and diluted shares outstanding of approximately $58.4 million. Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the fourth quarter of 2023. Specifically, we expect our total revenue to increase in the range of approximately 5.5% to 8.3% year-over-year on a GAAP basis and up approximately 5% to 8% year-over-year on a constant currency basis. The midpoint of our fourth quarter constant currency sales growth expectations assumes approximately 9% growth year-over-year in the U.S. and including approximately $6.6 million of acquired revenue and approximately 2% growth year-over-year in international markets.

Note the revenue growth ranges for the fourth quarter of 2023 implied by our updated full year 2023 guidance are essentially unchanged versus what our prior guidance for 2023 assumed. With respect to our profitability expectations for the fourth quarter, we expect non-GAAP gross margins in the range of approximately 50.5% to 51.3%, up 100 basis points to 180 basis points year-over-year, and non-GAAP operating margins in a range of approximately 18.1% to 18.8%, up 25 basis points to 100 basis points year-over-year. These updated margin expectations are expected to drive a non-GAAP EPS in the range of $0.73 to $0.78, roughly $0.01 lower than what our prior guidance range assumed. That wraps up our prepared remarks. Operator, we would now like it to open up the line for questions.

Operator: Thank you, sir. [Operator Instructions] One moment for our first question. Our first question comes from Jason Bednar with Piper Sandler. Your line is open. Jason, please check your line is open.

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Q&A Session

Raul Parra: Okay, let’s come back then. We’ll go to our next caller, if you wouldn’t mind, please.

Operator: One moment for our next question. Our first question comes from the line of Michael Petusky with Barrington Research. Your line is open.

Michael Petusky: Hey, good afternoon, guys. Really impressive quarter and lot of – across a lot of different aspects. Congratulations. I guess just real quick on China, was that performance this VBP has been talked about to death. But I’m just curious, was that performance about what you guys had anticipated for Q3? Is that sort of shaping up in the second half the way you anticipated? A little better, a little worse? Can you just comment on that?

Fred Lampropoulos: Yes, I think it was about what we expected. It was baked into our numbers. It’s baked into our year end numbers. Again, as we’ve talked about many times, Mike, you’ve talked with Raul about this and that is – that’s today’s I don’t – it changes, but right now it’s in our numbers based on our best estimates of, we think, what China will do.

Michael Petusky: Okay. I feel like this is almost the obligatory question in Q3, but Fred, do you have any thoughts on sort of the weight loss drugs, the GLP-1s, and possible longer term impact on Merit Medical and the space you guys serve?

Fred Lampropoulos: Yes, I appreciate the question. Listen, we take all of these issues very seriously, and we don’t just think they’re passing. If you go back and we talked about things like China, we talked about MDR, we like to stay out in front of these things. In fact, Raul and I yesterday were talking to several advisor physicians who are in our market areas. In fact, one of them was actually taking the drug. So there was a number of issues that came up in terms of the effect that they thought it would have long term. I think they all somewhat indicated that it will be 10 years before you see that, that pricing is going to be one of the things. But in terms of elderly or hypertensive patients for at least and these are people who are doing interventional nephrology types of procedures and in fact one of the comments they made was that 20% of the people that work in the lab were on the drug.

There were a bunch of different things that they talked about in terms of if you take the drug and some of the effects, but the bottom line was that they didn’t see an immediate effect. It’s there, they’re using it. There are some complication issues, but I think all in all it was something we didn’t feel that was immediate, but something that we will continue to do panels, we will go out and meet with our customers and we think that’s the best source of information. So that’s a long response to the question. Raul, do you want to add anything to?

Raul Parra: No, I mean, I guess two things that I would, right, obviously Type 1 diabetes is not going to be impacted these are individuals that are born with the disease and so you won’t get to the kind of the renal – you won’t have a renal stage impact, I guess I’ll say that which would impact our business. So you’re really talking about the Type 2 diabetes patients that would be impacted and that’s really out in kind of the 10 years is kind of the what several doctors kind of threw out as kind of an example of when they would think they would see an impact if they did see an impact. But to Fred’s point, we always try and stay ahead of these things. We’re very aware of risk and we’re very good at pivoting and adjusting as needed.

So we’ll keep an eye on it. But for now our business is not being impacted by it. These drugs – some of these drugs have been in the market since 2017, so they’re not new. I think they are getting a lot more news now, but we’ll keep an eye on it and we’ll adjust as necessary.

Fred Lampropoulos: And I think if I could just might just say, having that ability to talk to physicians who are doing the procedures, who are seeing various patients, looking at pricing and reimbursement and all those things I think gives us a relatively unique look at all the factors that go into that affect our business. These are our customers and our advisors. So we’ll stay on top of it.

Michael Petusky: Yes, great. And let me just confirm, to me it sounds like the commentary around the acquired businesses, particularly Angio, it sounds like you’ve integrated well and it sounds like you’re running maybe a little bit ahead of plan in terms of revenue generation. Is that a fair sort of summary of what you guys tried to communicate there?

Fred Lampropoulos: I think so, and I think a reminder that remember a portion of that is biopsy. And I think sometimes everybody thinks of as just being those dialysis catheters, and I think we’re doing a very good job of integration. We’ve actually moved the BioSentry moved this week or late last week, is actually moving to our Mexico facility. And by the end of this year, maybe early first quarter, we’ll have moved the other product and it’ll be fully integrated. So I think it’s doing just fine for now. I think there’s still upside potential in that business, quite a bit, actually, and I think we’re performing better on the financial side of it than we expected. Raul, do you want to add anything to that?

Raul Parra: Yes, no, I mean, I think if you look at our guidance, we brought up the bottom by about a $1 million. So I think we’re well within the range that we had given the street and again, we narrowed it the range and we brought it up. So I think things are on track and like Fred, integration is going great. Our Mexico team and the Salt Lake City team are doing a great job of integrating that stuff.

Fred Lampropoulos: Well, and just finally on that, Joe Wright, who’s our Chief Commercial Officer, who is sitting in the room with us, I think that’s been another really important part, is the contact with customers. These are existing customers that buy many of the products in our renal therapy group. So I think it wasn’t a reach for us in terms of who the customers were. I think it was 98% of the customers already existed for Merit. So that was another really important factor that we looked at and considered in terms of the commercial outrage.

Michael Petusky: All right, guys, thank you so much. Great job. Thanks.

Fred Lampropoulos: Thank you, Mike.

Operator: One moment for our next question. Our next question comes from Steve Lichtman with Oppenheimer & Co. Your line is open.