Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the M.S. <unk> third quarter 2019 earnings call in slide deck at this time, all participant lines ARNA listen only mode.
After the speakers presentation, there will be a question and answer session.
The asked the question during the session you any to press Star then one on your telephone.
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I'd now like the hand, the conference over to your Speaker today, Fred Lampropoulos, Chairman and Chief Executive Officer.
Please go ahead.
Good afternoon, ladies and gentlemen, this is Fred Lampropoulos, Chairman and Chief Executive Officer, We are gathered here on a cold wintery afternoon in Salt Lake City, and we want to.
Thank you for joining us.
To begin with will have Brian Lloyd our general counsel read our safe Harbor provision Brian .
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 maybe 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 Securities and Exchange Commission, which are available on our website.
Some of these risks identified in our press release in slide presentation distributed in connection with this call.
Any forward looking statements made in this call are made only as of today's date.
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 generally 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 in this call.
Readers should consider non-GAAP measures in addition to not as a substitute for financial reporting measures prepared prepared in accordance with gap.
These non-GAAP financial measures exclude some items that affect net income.
Additionally, these calculations may not be comparable with similarly titled measures of other companies.
Ryan Thank you very much and once again, ladies and gentlemen, thank you for taking the time to join us.
Today, we're going to outline first of all how we'd like to go through our discussion. A reminder, that we have a slide deck that is on our website that you can view that will give you more insight into some of the products and opportunities that we're going to discuss today.
To start out with I'd like to talk about the third quarter just in general terms as many of you will recall. This is the summer quarter and we are always concerned about the summer quarter each year niche for good and varied reasons.
Yeah, so, particularly.
As really the slow down and.
Procedures.
And even so far as countries that literally shutdown and so it's always a difficult one for us too.
To predict down to discuss now that being said.
We will there were some other advance.
Such as a competitor that we got a bump last year, but rather than the totaling around there. So I'm going to turn the time over to roll in just a moment to discuss sales and earnings in some of these specifics.
Then we're going to come back I will go that I've talked about a number of items that we have accomplished in the third quarter and many of you will recall in some of our previous meetings.
In New York and other locations that we want to talk about things that we have accomplished not things that we're thinking about.
I will then come back to Rob will for guidance.
And then I'll talk about the new products and talk about other issues I think you'll be interested in the theme of our call today.
As is the theme for the company's staff retreat and planning session that it's also going on this week in Salt Lake City.
Is back to basics.
And I think thats very very important for everybody to consider as we talk and contemplate the things that we think are necessary to be able to bring to performance at all of us would like to have well that being said.
Let me turn the time over to Rob will power, our Chief Financial Officer role. Thank you Fred.
Revenue for the third quarter was approximately 243 million as reported an approximate 9.6% increase over the comparable period of 2018 and approximately 4.3% on an organic constant currency basis FX headwinds were approximately 2.4 million. The FX wins are mostly from euro and.
And why in emerging markets.
Additionally, the falling products continue to be behind our forecast for the year as spirit by 3 million defined by 5 million.
Acquired products contributed revenue of 14 million with Scyon end clarifying contributed 11.6 million and 2 million respectively. Both scyon and clarifying fell behind by 4 million and 3 million respectively. We continue to be high on Sienna and a portion of the Miss is due to the delayed CE mark clearance.
Contribution from our sales divisions to our own FCC were as follows worldwide dealers at 17% us direct at 3% sensors at 2% Endotek OEM and EMEA declining nine two and 1% respectively.
In addition during Q3, we also had an abnormally high revenue recognition adjustment amount as compared to prior quarters in relation to our most recent quarter Q2. This amount was higher by approximately 4.6 million had we've been able to recognize this amount our own CCGT would have been 6.4% for the quarter and.
Oh cc for EMEA would have been an increase of temper, 10.2% instead of the decline of 1%.
Normally we don't comment on our revenue recognition, because it's not a material adjustment from quarter to quarter, but in this case the adjustment was significantly higher by a factor of approximately three times than another periods and felt it was necessary to call out.
Gross margin on a non-GAAP basis was 48.1 in the quarter on a performance basis gross margin was down 170 basis points compared to the comparable prior year quarter and flat year to date.
Both clearly behind our expectations. This reflects the margin decline in the quarter as compared to prior year, which was negatively impacted by FX tariffs by 20 basis points freight and manufacturing variances of 100 basis points.
150 basis points, sorry, and offset by favorable product mix of 65 basis points. The two largest components for reducing our expected products mix, where our defining a spare sales, which accounted for 30 and 46 basis points respectively.
CNN clarity continue to help our product mix, which for the quarter was 112 basis points favorable contribution.
Opex, our Q3 operating expense expenses were approximately 38.9 of revenue on a non-GAAP basis expenses were up mostly related to hiring in anticipation of higher revenues, which is not play out as previously discussed the hiring started in Q2 and into the first month of the third quarter.
During our Q2 call, we called out what we would not.
The waiting around for things to improve and we would amelie immediately start looking at ways to improve our operational efficiencies.
We're going to talk about that here in the in a little bit on me, let Fred talk about what we've already done I'll just finish out with a few more things here.
Tax rate on a non-GAAP basis for the quarter was 20.8% compared to 19.4 for the comparable period.
Again, it's is it was driven by stock option exercises.
EPS non-GAAP earnings were 28 cents for the quarter as compared to 47 cents for the comparable period EPS was below our expectations as a result of the lower than expected revenues.
Gross margins and higher operating expenses in FX headwinds.
Two other items for everyone debt balance was 441 million with the cost of debt of approximately 2.9% and our leverage ratio was 2.78 on a gross basis and 2.55 on a net basis. The change from Q2 was driven by contingent payment of 50 million for Sina and two minor acquisitions totaling $17 million.
Working capital was 280 million Capex for the quarter came in at 22 million.
DNA of approximately 23.5 million and stock combo expense of $2.6 million Fred do you want to touch based on what we've done.
Thanks, very much well I think is all of you can see bad.
If we take a look at really the last two quarters, it's been a tough time and but I make a comment in my note that we've been through the crop enough somebody of say, what we've heard that before when I get completed when I complete the discussion about the things that we have done a raw will will then go through the guidance and I would.
Thank you then take a look at the year end guidance in the things we're doing and then measure that against where we are at the end of the third quarter and will really show the improvements that we believe you'll start to see the essence of what I'm, saying as as we have hit the bottom of that trough, we have taken actions.
And let me take what some of those are because I think they're significant.
First of all we have reduced our global headcount by 2% in the quarter, that's about 150 employees.
And that's never very much fun, but they were LTV.
What I would say I'm not going to say non essential because everybody was essential but as we were planning higher growth you hired to staff that the now when that doesn't come then you have to adapt to the conditions and so we have made those permanent changes we have a contingency plan to go up to 5%.
If necessary now I don't think that will be necessary. They will be some future adjustments, but I think that net of what I'm, saying is that we need to get leaner.
And we have done and taken I think some steps already to take up to put that in an effect.
We've shut down our San Jose facility in California, and that was an R&D facility and that's part of this 150 I was part of the define acquisition there were certain R&D activities going on there we took the essential items and move them here to Salt Lake City without.
Any additional hires here and have close that down.
And.
That will be a permanent cost savings.
As we look at the EPS in the aggregate, it's about $15 million in the quarter on an annualized basis.
<unk> expense reduction.
And so when we talked about things were going to do we haven't been sitting by passively. We've been very actively looking at that in addition to that.
We are watching very carefully those discretionary expenses things like travel things like trade shows the things that cost a lot of money. We'll go to the things that are absolutely necessary.
In fact.
This evening I will be traveling to say end up to San Diego to attend the Seeda meeting, which is a hemo dialysis meeting.
And now there are things that we need to do it will continue to do those but those things that.
I would like to do versus the things that you need to do.
And so I think we're watching these things are very very carefully in addition.
There are additional satellite facilities that we will either consolidate into our Texas, our our Mexico facility or here in Salt Lake, we intend sometime in the first quarter to consolidate another facility here in Salt Lake.
And so we have an active plan up doing things to help permanently reduce cost become more efficient and all these will have an effect on the bottom line. So there's no question that as we look forward into the fourth quarter and into next year.
That we will have lower costs.
And and again I understand that when we talk about these things everybody wants hash look backwards and report on that I Hope what comes out of this as people understanding of the things that we've done new products and those things that will talk about in a moment and why we believe that the path forward will be much better than where we've been in the last six.
Lunch and Thats really if theres a metric become today and questions I hope those are the things that we can talk about I'll be happy to discuss the second or excuse me the third quarter, but again as you. All know there were a number of circumstances and without trying to blame or all this and that everybody understands things like.
FX and.
And the of tariffs and then we'll also now ill turn some time over now to Rob will who will talk about guidance in 2020.
As a bit and then we'll come back and I'll talk to you why we're still continue to be very optimistic about the business and the things that we're doing today again I have to report on the past, but I have to live in the present look to the future. So Rob will with that said, let me turn that time over to guidance and where we look out for the future.
Fred.
I think unfortunately, our guidance doesn't reflect how excited we are but what we've done in and how the future looks but needless to say, let's get that out of the way animal. We'll we'll talk more about additional items, we want to hit on so our updated Q3 guidance for 2019 is as follows.
We are adjusting for the FX headwinds that we continue to see in the euro seen wine emerging markets that change in our product mix and our acquisitions are our revised guidance for revenue will be in the range of 986 million to 995 million, which includes the following.
We will bring down our noncore from our previous guidance of 62 to 66 million.
To 52 to 54 million.
Noncore revenue as you guys are all aware is scyon clarifying becton Dickinson nine point in a few other minor acquisitions.
Yes, we estimate our core growth on a constant currency basis for the year will be approximately 7.5% to 8.5%.
We will adjust our reported revenue for FX. The range is now 14 to 15 million for the year.
I want to make clear that the guidance does not contemplate our fluid administration contracts.
Gross margin on an act on on a GAAP basis will be between 43 to and 43 six.
Gross margin on non-GAAP non-GAAP basis will be between 48, four and 48 seven.
The change in our margins is coming from what we have seen.
Year to date, which is FX headwinds tariffs and the demand on our legacy products, which have lower margins than our corporate average along with the.
Which leads into the unfavorable sales mix.
With the current operating efficiencies that we obtained we estimate our opex as a percentage of revenue to be approximately 36% for 2019.
Interest expense of approximately 12 to 13 million, which updates the forecast for current market outlooks and on interest rates.
Our forecast includes a tax rate in the range of 22, and a half to 24 and a half for the year.
Earnings.
S. GAAP will range between 27 cents and 33 cents for 29 team on a non-GAAP basis with the range will be between $1.40 and $1.46, which contemplates the FX headwinds of approximately 46 cents.
The change to sales, our gross margins and the related product mix and that we're seeing and the operating expense.
That we pad and also the operating efficiencies that we expect to see in the fourth quarter.
Okay.
So.
Let me talk about again, where we're heading that we've talked about what we've completed in the challenges that we've had.
And I don't think I need to discuss at least in my comments any further what I do want to talk about how are things that we've also.
Talking about and everything are important first of all we're going to take 2020 guidance off the table in the and let me tell you why.
We want to make sure that we can reach set the expectations to things, where we don't have to do this anymore and that is change, but we think we now have enough visibility and understanding except for the business that comes with.
The.
Premier and a preferred provider opportunity that we're engaged in we are seeing that progress, but remember it was summer and there are things that apt to go through to be redesign that has to be.
People have to be trained so that is moving forward, but there we thought there might be something that might come in the third maybe the fourth but the reality is it's a 2020, however in the last quarter.
We're going to get better visibility as to what that means and it's a it's it's a good opportunity for us, but we want to make sure we get the numbers right.
And make sure that we don't overestimate them or underestimate them. So we think it's best to finish up this year and again I would invite you to take a look at the guidance for this year take a look at where we are through the third quarter and it will show you. The improvement we're talking about and then we'll out will move forward Internet.
Last year in this.
Mode, where we think were again back to basics couple of things that are working.
We continue to work to opt for the CE Mark approval in.
And with the C on a product I personally flowed to Norway to meet with the notified body I think that dialogue helped to open up a really good.
Relationship and understanding.
I am reasonably optimistic that we will have that done.
By the end of the year.
And we are prepared to open that market immediately we are prepared to do that.
I want to remind everybody that as far as becton Dickinson is concern and I made a comment about this in my prepared notes that we have completed.
What was arguably the most difficult trends transaction in our history.
Six sites two companies.
Several countries and we're now up and running product essentially everything that was in that transaction is now being built in one form or the other at our facility and.
Tijuana.
Let me go on to some other things that I think are really important and that is.
As we look forward.
We talked about this robust pipeline of products.
And growth and.
There's a list.
Theres, probably just as many names as I can also put in there, but you'll note that I put over the next six months.
These are just the new products that are coming out that we're all in the developed internally. So one of things you'll see as we come out and we start to give you our forecast in 2020 as we report the full year.
As you will see that we are essentially be at core growth on everything. So the essence of that is we are really slowing down I'm not saying, we couldnt do a transaction, but our focus is on the business as it sits and the opportunities that exist not trying to go out.
And.
Do another deal again, just as I say that something may pop up, but it's not we're not actively seeking those kinds of transactions at this point, we think the important things are as to reduce our debt to.
To make sure that weekend improve the efficiency of the business.
And introduce these new products.
I also talk about the Rhapsody, we have finished the first in man, it's a significant accomplishment.
We are meeting.
With the FDA when we have in fact filed.
For breakthrough technology designation, it's kind of a big deal.
And we hope that sometime in the late first early second we will be able to.
I have approval from the FDA two and to initiate.
The I'd he that moves on to them the PM, a and the pivotal trial for the Rhapsody extent delivery system and we think this is very very important so as we look at.
Where we are we're humbled.
We are engaged.
We have a full pipeline I mean, nothing has stopped and the R&D process, except for a few things and let me explain those to you.
One of things that we've talked about is it is our intention to be able to leverage all aspects of the income statement. So we do expect going forward that we will be able to show you improvements in gross margin. We do believe that we will have less SGN eight costs and that has been something we've held onto and invested for the last several.
Years, as well as R&D costs, so instead of being.
A percentage of sales were going to manage their showed that the bottom line is that we get a higher operating profit at a higher earnings per share. That's our goal that's where we're working on and again the entire business is totally engaged in this process.
So I don't believe that it's ever pleasant to go through these things, but like any humbling experience and any of our lives for businesses.
There is actually very very good things that come out of here. So again I hope that where we end up is that you've looked at the past and say, okay and make your judgments on that and we intend to show to you and prove to you.
The things that we've done and more things that we will do to help get the performance better cash flows reductions in capex going forward better margins, new product introductions and the kind of performance that we're capable of now we are lest anyone think that were not enthusiastic about it it's like Russell said.
Early on in the call.
You have to talk about these things, but it does not tamper our enthusiasm impacted the very honest with you as we looked at it and we looked at the quarter, we said well.
That was.
Yes, it's like it lost again, you should have one and we didnt.
But now it's the new wake and some of your say well I don't know if I believe that you get to decide that but just let me again reiterate the commitment that we have as a company and not just me, but the entire staff to execute and bring back that issue of performance hitting our numbers and doing the best we can to exceed them now I know thats not conversation.
Should happen, we're having this quarter, but my job is to look forward make assessments of the our failures and make sure that we pan for success.
So ladies and gentlemen.
Thats all I have today, we've been on with you now for about a half an hour.
Robin and I will be here for the next.
Several hours, if you need us and one more thing I'm, sorry, I I've got to talking about this net sterilization I make a few brief comments about it but I want to let you know that we are in good shape as far sterilization.
We have backed apps to each of our sterilization sites, either that or approved or in the process of being approved and as I point out. My notes. We also have I think theres a number of opportunities because I think there will be some shortages a number of notes that I read this week coming out from differing analyst and deferring industry.
Review groups have talked about these particular situations as part of our enterprise risk management system. This is something we identified some time ago and we have things in place and so that is not a risk.
Although as capacity shrinks that'll be a challenge for everybody in the medical device area, but we're in very good shape there.
As of this call so with that being said I will go ahead and turn the time over to our administrator and we'll look forward to your questions. Thank you again for attending and I will turn the time now to the administrator.
Let's go.
Thank you.
As a reminder to ask a question you need to press Star then one on your telephone to withdraw your question. Please press the pound cake.
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Our first question comes from the line of Jason Bedford with Raymond James Your line is now open.
Hi, Good afternoon, guys just a couple quick questions.
I guess first just for clarity the fluid management contracts just you didnt recognize any revenue in Threeq, you and you don't expect to in the fourth quarter as well is that correct.
No.
Jason Thank you again for the question.
What we are just starting that process, we've actually had a few conversions and there were a lot of discussions and planning and by that I mean people have to use up their inventory at we have to go at Reno configure structure said prototypes out for approval, it's a process and so it is moving along.
But nothing of any significance, we'll see really the major part of that coming in next year.
Okay, and you mentioned in the release the preferred provider status with the major med device distributor is that just for fluid management are there other products included.
There are a current customer when we sell a lot of Standalone product. So there are many of our safety products that go into that things like our backstop.
Our safety scalpels and syringes. So there's a lot of products that go into that arena, but the primary purpose of that agreement. The biggest change. We've we've always provided these guys, but we've not been the preferred now with the.
With the other situation, where angio sold off there's two medline. It creates an opening for merit and we have executed an agreement.
With that company, Okay, and maybe just a bit of a bigger picture question Fred.
Now at this stage of the business, where you're having to cut some cost here are you comfortable that this cost cutting will not impact your historical organic sales growth.
Well you remember we have the log big numbers to deal with them. We have a lot of other issues like you have in China, where they are looking to do preferred types of things on a national basis. So those are things that are more organic but I think that in terms of capacity and looking at what we're doing we still have.
Capacity in all of our facilities, we have a new facility coming online, where we're consolidating one that we ran into a new technology center across the street that will be ready in December .
And I think our operations group continues to do the lean manufacturing.
And taking products that come out of R&D that are really looked and no offense. My R&D guys that are sitting in the room here, but.
There is to develop products and getting into production, but the efficiency part of it really comes out as we get more volumes go to operations Department. So these are things that you know this morning at 630.
Five of US Matt to talk about a specific situation and making sure that were wise so again.
There are a lot of parts to this we want to make wise decisions and make sure that we have the capacity, we don't want to do anything foolish that we would regret and I think we have enough experience Jason to make sure that we do make the right decisions.
In terms of capacity or consolidation.
We've done this for a long time and I think we'll be fine and I think you will see.
That we will do these correctly like I said in my comments earlier.
The San Jose one was easy it was essentially no production there and it was an R&D facility and it just was not being productive.
So again.
Just some color on that I guess, what I'm just curious, though is off a lower cost base do you still think you can grow this business in the let's call it 7% to 9% range on the topline.
I'm going let Rob will answer that but I have an answer glad level well I mean, I think of Fred referenced our strong product pipeline I think as as we look out I think.
I don't want to up we took 2020 off the table summit and be careful not to give any guidance but.
I think we're feeling optimistic about our pipeline.
Again, I think we have to understand some of these moving parts but.
No.
We still feel very strong about the business and I had him say that Jason because I always feel positive about sales and marketing in growth and.
Those sorts of things. So the answer is yes, we do.
Okay ill jump back in queue. Thanks, Thanks, so much and Jason. Thank you for your note as well that you sent prior growth.
Thank you. Our next question comes from the line of Larry Biegelsen Wells Fargo. Your line is now open.
Hey, guys. Thanks for taking the question I wanted to ask about the the growth outlook from implied in the guidance, but one one high level question Fred.
Yes, I guess the question is how did we get here I mean, it seem like you know last year things were going so well.
And it seems like get out frankly, you know a lot has gone wrong.
This year, so I don't know Fred operationally you know anything do you think you need to change what do you think you got to this place yeah. I think there were a couple of things Larry of course, we can't dismiss.
The.
The items like Brexit, we had we went built a facility and great Britain.
With that cost money and takes time, but we felt we needed to do that if you take a look at a couple of OEM customers.
We had.
Large customer last year doing over $8.5 million at high margin this year's million and a half we didnt know where that would come into play out but it didnt come back we thought it might we also had another player where we were building a vena cava filter and again I don't want to identify the company's but these were OEM. So if you take that.
One in just the other.
OEM customer loan it was somewhere around 10 11 $12 million of revenues that we thought with that come into play and they were high margin. So so that affected it.
I think if you take a look at.
The dollar and again these these sound maybe esoteric but.
When you Havent strong dollar you have the world prices, we did not get.
The revenues that we thought out of our distribution channel that is starting to come back we've seen it one of the one of the orders that we talked about that was deferred was going to the middle East will shift almond there are more orders coming from the middle East we have a lot of activity that was rather quiet in the second and third quarter. So those are coming.
Back now and that's why I think as we look forward, we look at those now let let's go to physician.
We could spend a lot of time on this.
If we go to the the acquisitions.
We thought we did the right thing in terms of keeping the asciano salesforce in effect, we still believe that way, but just the integration.
Both the becton Dickinson the fee on of the vascular insights all of these things.
I was just caught up with us and we thought we were Superman and we found out there were human.
And so I mean, I think looking at where we are today up on basket or insights you know we beat the previous quarter. So the third quarter, even in the summer, which is the slowest quarter for that year beat the previous quarter by over 400000 revenue. So I think that would be on track.
But it's nine or 10 months behind where we thought it would be so they were those factors that came into play it had to do with the.
I think the instability of the marketplace and and as it pertains to our products.
Our own overestimation and forecasting.
So I think there were a number of factors and you all Adam in here, Larry and we are where we are today now all of that being said, we didn't stop R&D projects Weve been continued to progress that pipeline, we've put a bunch new ones up here on our slide deck, which we would refer you to.
Which will be.
Coming forward and just 10 minutes before this call took place we had a physician call and we're sitting here. There's 40 45 people here in the room.
And we had a physician talk about trial that he did today were utilized three new devices and he gave US following remarks and wanted to take the time to call itself back to the main part of the question. There were a lot of factors seminar control in some not in our control and again as I've said I know you guys have to go back.
And report and then try to make an assessment of these guys going to have another quarter. Like this are you going to do this you're going to do that you guys going after make those calls.
But I think.
We feel like we have the business under control, we understand where we need to go we have the plans and promotions and things to put in place to.
Meet our obligations and our commitments and our forecast going forward from here. So.
Let me to answer that.
Go ahead.
That's very helpful. Now I just wanted to focus on on the future outlook Rob will.
If I am doing the math correct is Q4, the implied organic growth about 8% and what drives the acceleration.
You know versus.
Three in the gross margin also Raul it looks like.
I'm doing the math right the midpoint, it's about 50% from 48 or so in the third quarter what drives.
That and I guess, just lastly, any color on 2020. It sounds like you still think this business can grow call at high single digits I'm any other color.
For modeling for updating models today and I'll drop thanks for taking the questions.
Yes.
Thanks, Larry.
So we don't provide quarterly guidance, but I think.
If you're looking at our.
I guess at the midpoint.
We feel like the seven and a half to half that we provide for the year should provide you a good base to calculate what the fourth quarters now, we obviously, there's going to be a low number there in a high number.
I think the.
Obviously, we we hope to and somewhere in the middle there for for the year.
For the gross margin can you repeat your question there I was looking at it looks like the sorry, Hi, I asked a multipart question.
Yes looks like again.
Even with the the guidance implies.
Sequential improvement to about 50% at the midpoint, if I'm doing the math right.
From 48 in the third quarter Im just curious what what drives that improvement and just just to make sure. Your hurdle question I'm sorry again.
Any color commentary on 2020, I know you're not.
Retracted the long.
Range.
Eight inch but.
On the key et al any color commentary would be helpful. Thanks again, yes. So the gross margin I think we have obviously some cost reductions that we did that are going to feed into that we also had some head count reduction.
We you know if you look at the guidance I think if you calculate it out.
You might get to a slightly different number on the low end, where it doesn't it doesn't grow sequentially, but.
Take a look at it we think we're in the.
On the year to date basis were were pretty good we feel comfortable based on the cost cutting initiatives that we did.
Obviously, we'll have increased.
Revenue sequentially, which will also help.
On some of our fixed costs as far as 2020, I think we're going to provide that guidance. When we released our fourth quarter numbers.
Just think with all the moving parts that we have going on I think we think the prudent thing to do is to just wait and make sure that we deliver accurate guidance that we can meet or exceed.
Let me jump fair enough on the fourth quarter just to add little color on we launched a number of new products. We're seeing that those are these are embolic products.
Our mboe Q bark torpedo.
We have.
The convert acts.
That's out there we have the Phd.
So we have a number of products that are showing very strong growth in momentum.
And enthusiasm from the Salesforce on the newer products. So I think with people feel again, that's what we're trying to do here today is to get to a point, where we have confidence in the numbers in the delivery.
And unfortunately with the summer that's a very very difficult to thing thing to do I wish we would have been wiser, but the bottom line is I think we do have that level of confidence and I think in terms of cost overall and again I think the beauty of what we try to do with our call as everybody sitting here and we've had a staff retreat. This week, we're looking at.
The things that we need to do but even on the staff retreat I just have to share this and Larry. Thank you.
Rather than bringing everybody in from all over the World as an example, what we did as we ran a virtual meeting.
Webex with all of the various parties and with the Salt Lake people and literary save hundreds of thousands of dollars. So I think that we're looking at those things and saying how can we do this differently and more efficiently and still have the same type of information that is made available. So there's a lot of things that we're doing that I think are all right on the Mark and then.
One might say well why if those before.
And I think Russell mentioned that net is you build in anticipation of meeting that demand.
And then when it doesnt come in Theres, a lag, but I think we've responded very very quickly in terms of or as best as we can to make these adjustments. So that we can feel confident in the future. This point.
Thank you for taking the questions alright, Thank you Sir.
Thank you. Our next question comes from the line of Matthew O'brien with Piper Jaffray. Your line is now open.
Thanks for taking the question I guess, just just for starters when I look at Q3, you little bit sort in the topline, but Q4 numbers about $15 million to what you had been.
That being said pretty meaningful was and I know kian as part of it and I think it's just a sliver what's the what else is is coming out of Q4.
Unlike stand alone in cap it is pretty weak this quarter.
You want to continue.
To be honest with you, Matt it's a little bit of everything I think we've cut our outlook for acquisitions. So you've got none of that's going to impact that you're going up clarifying that that's going to impact that nine points, a little slow too so thats impacting it.
No the biopsy or starting with the biopsy biopsies in great drainage.
Is struggling so.
Got those factors built into the.
Into the guidance and.
I think it's really just making sure that we we thought through all the input.
In the also there is some FX to that no. We were hoping that FX was going to get a little bit better it didn't.
The CN wise seems to have stabilized a little bit than that 706, hitting been seminal five today, which helps us.
I just I just think we tried to think through all those things that no quite frankly.
We should occur in Q2.
Okay. So taking out virtually everything you can think of that possibly could go wrong in Q4.
So the guidance you provided for this year.
Plus the positive things, we're thinking of right now.
It's not all Doom and gloom I think that I think thats a fair statement.
Okay, and then im a little surprised by the reduction in the outlook for siano based on the CE marks.
I know, there's an opportunity with that product. It just seems like theres a lot of interest here in the states. So it feels like.
Something else is going on there that maybe maybe the integration is it had a little bit of a hiccup or something along those lines.
I would have thought it would do a little bit better than has so far yes.
I'll take that one Matt in terms of all of the SG name expenses and all that stuff Thats all integrated in terms of the manufacturing of the consoles and all of that work Thats all integrated in Salt Lake City, we've been spending our time and make comments previously that we have almost 40 k. all wells in Europe .
Yup.
I want this product.
It has been very candidly very disappointing and its unfortunate I had to fly all the way to Norway to sit down with the president.
But we thought we'd have that in January but I think maybe that more important part of as as we look forward as that we are prepared in all of the countries in Europe I, we're waiting for approval in Saudi Arabia, We've done cases in Singapore and in Hong Kong. So we haven't lost our enthusiasm for the product.
And we would agree with you, but remember historically and maybe this is where.
We should have applied our knowledge generally of.
The facilities or the summer that the slowest time of the year for Ziana is always.
The the biggest slowest time of the year and then also the capital cycle.
So and again.
As we went through this transition there was all this stuff in the pipeline.
Eight transaction is disruptive.
And it takes time.
For all of that to take place and I think now we're starting to see that come back.
You know and those dispose monitors really drive that disposable use so again.
We haven't lost our enthusiasm and again I want to I think on everything we've been talking about.
Please refer to remind that as we do every year. The third quarter is always a difficult quarter and the new products. We acquired had that same struggle.
As well so thats one of the reasons why we're optimistic going forward we've already seen.
Increases in interest in order levels and production all of those things are moving.
The way, we would expect them and what has historically one of the two strongest quarters of the year.
So.
Especially I can answer that.
Okay. That's helpful. And then just Cellmark new look like I think you said you cut about 2%.
At this point in is the potential to go up to 5%.
Might you make that decision as far as.
When you can do that and then I think you said at the $50 million annualized savings is it a linear type of a savings that you go up to 5% would be.
Something in the $37 million savings range. If you read is that do that you know as since we haven't selected where all of those are I don't know how linear it is so I'm going to just kind of not I don't know how to answer the question there, but let's talk about that decision making process.
There are these things are complicated and some things will go to Mexico. So some products will go to Texas.
And we're meeting and looking and we will make some of those decisions before the end of the year, but there will be implemented after the first of the year. So if I wouldn't be surprised if we didnt see some decisions made but you really see the effect of those maybe some in the fourth quarter, but not likely because it's not a very I mean, we've got too much.
It's left and holidays, but probably in the first quarter of next year, they'll actually take effect as we make those decisions now some of those may take several months.
To reduce those headcounts in those consolidations to make sure that we have inventory member. These facilities. In these locations are places, where we're making product in selling it to.
Two.
Customers.
And we can't afford to Miss a beat there. So we have to essentially duplicate it's a complex process, but let me just to surety that were well engaged in this conversation everyday so look at all the aspects of the business in any location. This isn't just to us it's Europe and during the quarter Robert.
And Ron for Austin, I, our Chief operating officer, we're in Europe looking at things at all of our facilities there.
So we have been.
Making assessments of all of the opportunities.
Thats something well I, just I think we again.
We don't we want to make sure that the growth pattern that we've had historically remains and we just want to make sure that we're cautious we're not going to do any knee jerk reactions here. We we want to be focused I think that kind of the mantra.
We want to make sure them when we're looking at the cost that one it's going to be attained attainable for whatever target, we reach and that also to its sustainable over a period of time. So I think we want to make sure that we're not going to do something that we're going to regret and then we're having to spend additional money three for six months from now.
Because we made the wrong decision and we made it too fast well, let me just adds more color to that a number of years ago 10, or 15 years ago. We made some decisions and we actually took too much meet off the bone and we let a bunch of things and made the adjustments and within 60 days, we had to bring back a portion of that and I think we're just.
And to be wise, especially since I mean listen take the numbers that we talked about in growth and applying to a billion dollar business. It's a lot of revenue a lot of things. It has to be built and so we want to make sure that we can hit and again you. All have you guys have folks on the power of asked the same question is can you do these things and still sustain the growth in the answers.
We can but we have to do it with wisdom and Thats, what we want to make sure do but I think maybe the more important issue is is to understand the commitment of really looking at everything you know I can be up strong willed and strong minded and other people here and want to bring forth ideas I think we've been receptive to them some things we sit down.
And we've been able to convince.
I will wait a second you didnt understand this part of it I think it's a process air and people are engaged in it thats a long dialogue that but thats in fact, what we're doing every day started at six o'clock. This morning, and mom pop cafe demonstrate yes.
Got it. Thank you so much okay. Thank you Sir.
Thank you. Our next question comes from the line of Jason Mills with Canaccord. Your line is now open.
Hi, Brad Thanks for taking the questions. So.
I I don't know entitlements to sales growth what was most disconcerting to me is the the awesome de leveraging and the operating on right and the other thing that.
We've been asking about for several quarters gratified to hear you mentioned it.
But has been less than optimal is the cash flow. So.
To me, it's going to start going to be down was 30% 20 bucks or whatever it's going to be down tomorrow for for folks I think to either maintain positions or even think about catching.
I think.
It's fair to say a falling knife in terms of the stock right now let me just putting the suppress tax they're going to have to get comfortable I think less with the sales growth then with your ability to.
So level, our earnings and improved cash flows. So I'm most interested in why how we got here in terms of the de leverage use of the business I understand gross margins being where they are hurt but the deleveraging the business relative to the expectation that were in the guidance and folks might.
Calls, including my own is fairly awesome, and so I'm wondering if in fact $15 million of of costs coming out of the business is enough to be able to grow operating margins going forward.
It's a good question and again.
We don't think recently went on when we talked about.
Additional things that we need to do we will do things that need to be down we didn't want to say, 2%, we were done and we wish it up to 5%.
We need to do those things, but I think it's also both in terms of Capex. What we've said we were going to drop by at least $20 million from this year's level.
And the various things that we think that are helping to generate at both the revenue growth let me start at revenues.
Starts at these other areas that helped to generate that and I think the the ability and the different.
Look that we have now based on all of the leverage points in the income statement. That's another important part as an example, if we were to take I'm just going to use.
Round numbers just to demonstrate so please.
These are so let's just say you went from X gene a expense of 35% so the higher than that right now and you went down 200 basis points. That's a substantial amount of cost reduction on various types of programs and this kind of thing that we believe is also attainable and instead of having.
R&D.
As a percentage of sales and just have a number.
It's going to have to maintain edge.
Growth.
Or edge Department and get project at a number that would be less than what they've had in terms of that increase so essentially have to operate at 2019 levels going forward that means we'll have to be more selective in R&D projects instead of having 50 projects at a pipe.
Line will select those and what we've been doing as looking at those things as to which ones fit tactically and strategically and offer the best opportunities to hit the matrix.
Numbers that we need to hit so will it I actually think Jason that will become more efficient have more people to work on things that are less and it will get things through faster to the marketplace. So.
I think we're looking at all of these do improve operating profits and operating margins and increased earnings per share role you want to add something to that no. I mean, I think it just starts with increasing our earnings. So I mean, I think what we're doing right now is making sure that we we focused on.
Costs that we can reduce and reducing our footprint and making sure that we we generate more earnings and then obviously.
Just being a lot wiser on the capital expenditure side from mentioned the $20 million drop next year I know with increased earnings that should help our free cash flow and let me let me go a little bit further that.
You know you've heard us say that we want to do this can be wise about it we could go out and shop and do this for that we don't think Thats. The right thing to do in this process that we're going through is not one that's going to be done in one quarter. It we're going to be doing this as we go through 2020, Wow try and making sure that we balance it properly.
And Thats why we will why don't you do this and why don't you do that.
We know this business, we know it well and then we will make the best decisions and you will see sequential improvement again, I don't want to get into 2020, but we we've developed a plan.
It's consolidation, it's better efficiencies in the business, it's taking away and doing the things that we don't need to do but that we need that we need to do not the things we want to do I mean, we're serious about it I understand the only thing that counts as you've told me. Many many times is that we have to.
Go out and execute well listen I.
I know, where we've come from no one has been hurt more than this than I have personally.
But we have a plan we have a commitment and we'll just have to prove it to everybody. We understand that we don't expect whatever hair cut we take tomorrow or whatever happens as I think the medicine and we will go out and do what we said we're going to do so we've reset expectations and now it's up to us to prove that we can meet those.
And that will be what we'll do so you just I mean I. Unfortunately this takes time, but we are on that path. It's not like like I've said may have not what we're thinking about it we're doing something here every day, but I have to do at the same time, Jason so as not to scare people, but to make sure that people are at a high level.
Of attentiveness. They I mean, you know what I mean, you can go out.
People get.
We just have to be why it's about how you do these things and we've been through this stuff before and we will be through it again, and we'll look for better days to talk about in the future.
Thanks for all that color for and I. Appreciate it I know, it's difficult difficult afternoon difficult call here for yet not the one that you'd like to do.
Just a few follow ups I'll get back in queue. So I wanted to go back to cash flow I wanted to I wanted to go back to.
Conversion of.
We're going to do with say mid 20, let's say a robust 40 at the low point and pro forma earnings that we sort of use that as proxy for operating cash flow.
Operating cash flow. This year is not going to be anywhere near that how do you close that gap, it's got to be more than cap.
Production I think.
How do you close that gap and you have confidence that you can close that gap next year. So next year, let's just say is 5% growth in in non-GAAP earnings and you'll get whatever Bucks 60, or something next year just to put words in your mouth for a second.
And 120 million.
Operating sort of pro forma operating income will we see higher conversion will we see.
Cash flow from operations, the lease civil and free cash flow, which is just going to reflect cash capital expenditure reduction we see cash flow from operation conversion be better next year can you commit to that.
Yes, I can be rolled wants to discuss it right ROE I mean, I think look we're looking at all aspects is right I mean.
Again, I'll just referenced that first of all of them who comes back to making sure that were more profitable.
And that that we're converting flowing to operate.
More profitability to the bottom line.
And through free cash flow.
We're looking at a number measures on our working capital, we just implemented a new inventory policy.
That.
He is going to go live I think the January onest.
That will take some time, we hope to get some cost out of inventory get our turns up there that's the biggest nut to crack.
No receivables. Unfortunately, you've heard me say this we're growing internationally. So those as long as we can maintain the current days Dsos I think we'll be happy. The reality is when you do business or us it takes longer for them to pay.
So we have to deal with that.
We're also looking at payables.
Squeeze whatever we can there and again I think making sure that if we've reduced our footprint there's less capex at other sites that we have to spend money on.
And then also just we're building a building this year, we're not going to be building to building next year.
So uses that should flow through to create a free cash.
Okay. Okay last question ill get back in Q.
As there as it relates to these acquisitions, Fred and you mentioned, the the analogy of Superman and and you find out your human.
Did you get in Nam merged with these acquisitions in keeping these sales forces which in.
Good day and many of these cases ziana included defined going back a few years, we're specialized sales forces and were different than the Salesforce you employed on or on an organic basis.
And now you're finding out that it's very very difficult if not impossible to maintain all these to spare sales forces, which have various levels of.
Need various levels of expertise from a technical selling standpoint, and what really the question is.
How does how did the trials and tribulations, you're now experiencing impart vis-a-vis these acquisition.
And needing to to.
Streamline them in the Salesforce is specific to them how does that inform how you'll go about M&A.
In the future and I understand you don't have any plans to do M&A, but I know you Fred youre going to be looking for good deals.
How will those deals be consummated differently, yes. Thanks.
During the course really good question.
Let's start with vascular insights essentially that was all through dealers and what we've done is converted that over to our direct salesforce.
And then outside the U.S., we've maintained some of those dealers.
So that one was relatively easy what was painful was that that pipeline got filled up that's another story for another day.
In a different audience, but.
That didnt.
I didn't play out the way that are others have played out in terms of revenue.
But we think we have that on track now.
So let me go to see.
I think on T. on it we're we're okay.
With the folks that we have there and but doesn't you're right. There is complexity and all of these things and we've learned as we've gone long. If we go back to define I don't know that we have any defined salespeople left with us of all out of that original group I think theyre, all gone and I think that that was.
Looking back now at things.
And now and some of you talk to me about this that was probably not the best of acquisition. So we I think of realigned we have our our peripheral intervention our cardiac intervention, we have our endoscopy business, we have our OEM business. So I think we are aligned at this point.
Thanks to the point, where we can be effective in selling that we can be effective in hitting our numbers in our growth.
We have the product, but listen it's a fair statement to say that we didn't execute as what we did fine on the upside.
I have to say if it was any.
Positive stuff on all of this on all of these things operationally, we did quite well it was on the executing that over on the sales and marketing side and you are correct. They are different disciplines different technologies and I think the learning point is the ones that we've been the most successful on are things that are in Asia Pacific.
Bucket, where we don't have all the manufacturing or we can bring him give you. An example of a hero.
That was something we did I think quite well in terms of the transfer we go back to look at our snare business. We go back and look at those sorts of things we did those fine.
We just got little big for our boots.
And we did not understand some things and I mean, clearly they didnt perform the way we wanted to that we haven't given up on all these things, but its take a lot more time and we've had an emerging painful lessons. So that's the best way I can answer your assessment.
Is reasonably correct.
Thank you Brent I'll get back alright, Thank you Sir.
Thank you. Our next question comes from the line of Bob Hopkins with Bank of America. Your line is now open.
Oh, Thanks, and good afternoon can you hear me, Okay. We cancer. Thank you.
Great. So I just have one question and it relates to some of the questions that have been asked.
How much of this over the last six months do you think is.
A series of things that Didnt quite break your way and now you're having to adjust.
Versus more structural problems that require or kind of a a rethinking of the strategy in a way the businesses run on a on a more of a structural basis.
I think it.
Pieces of both of them so let's go on to the.
The things that Didnt break our way Weve I think.
Discuss those almost AD nauseum, but we talked about it in terms of the perfect storm, we have the international business Brexit, you've got things going on in China. You've got tariffs you have all of these things that we're all not to our to our benefit so thats part of it I think on the structural side of it.
I think that whether it be moving things to Mexico, whether I think at.
Maybe a philosophical deal that we want it to maintain.
The R&D capabilities. So as an example people have always it will how come you guys can grow from a a core point of view more than others and part of that answer was well that we had we have an R&D a small facility in Texas, we have R&D going on in Ireland, we have R&D going on France, we have R&D.
Going on in Melbourne, we have R&D, even in Mexico to some extent and in Texas, It's just a lot to manage.
And a lot of I don't want to say disparate groups, but a lot of conflicts there. So I think what we're looking at it now structurally is saying okay.
There's too much expense I think San Jose was a classic example of that good people, but not bringing.
Capabilities to create revenues to help us through the things we've been talking about today and so we made that decision we've executed that.
And I, you know and it's over now we have to look at the other ones and say there may be a little bit more complicated. So I think we are assessing the things that we've done in the past what works what doesn't work and so it was a combination of the to bump.
Great. Just curious are you just as one quick follow up are you.
You're bringing in any sort of outside help to kind of thing through the structural issues in that and maybe some structural changes that might be needed to get on a on a better path or you guys. Tackling. This all in house no no I think like for instance, one of the things that we're on an Oracle system as an example of one issue.
How we work with Oracle and how we grow off with Oracle as they were reaching down we were reaching up and we've been with them long time, but we're looking at the issues in terms of the efficiency of both systems.
The actual structurally in terms of that affects inventories are orders information theres a lot of parts of that and we brought in consultants and other people. We brought in consultants on a lot of things.
To assist us joined floating.
When we are going out and doing the Rhapsody project.
You know we've done.
Studies before.
Where they were existing products looking for specific indications, where the Rhapsody, it's an entirely different deal where it's at a technology that we've developed we think it has high opportunities and when you play in the world of ease and Pmeight there are different animal and so we brought people into a.
Yes, and advisors on the things that we're doing so that we don't make mistakes and say well why didn't we do this so we are bringing people in that can advise us.
On things.
That we think need looking at so we're not trying to say not invented here, we didn't think about it. So it's not a good idea I think we go back to the were being humble and again it just without sounding.
Strange, but as you look at all of your lives My life and we look at.
Businesses, we always find that there's a moment the comes when you understand you weaknesses and then you try to improve those and you find that those weaknesses in fact become strengths. So I think thats, where we are.
Thank you Fred.
Thank you Sir.
Thank you. Our next question comes from the line of Mike Spotanski with Barrington Research. Your line is now open.
Hey, guys.
I guess I wanted to ask.
A few years ago, when you guys sort of really executing at a high level.
The stock from 15 to 60 in a short period of time.
You'd in your press releases you'd have the strategic long term strategic plan you talk about the long term strategic planning you'd say every decisions run through this long term strategic wins.
And there was just a lot of discipline implied in the language that you guys view in terms of Capex in terms of M&A decisions capital allocation decisions. There was just a lot of.
Just.
It seems tough minded a tough minded approach to how you guys were running the business.
And it it just feels like like.
A lot of this is the self inflicted I think you could have survived the FX and the tariff add you guys are kept the same tough minded approach that you'd had three years ago when.
When you were executing and I guess I'm just wondering I mean, when you go back and you look at 20.
Do you say.
We took the stock up four times, when we sort of approach the business. This way, maybe it's time to revisit.
A longer term strategic point.
I, yeah, Mike without any attend to offend I think thats, what weve been talking about for the last hour.
As how we're looking at the logic you you said towards long term strategic plan.
Mike we're looking at.
Tactical and strategic issues that helped us to make sure that we can be predictable. We can be believed and we can accomplish and things that need to be done the business I think we have been engaged.
As an example.
To go to that question, specifically, we meet with the finance team.
Every day now someone can say on valuation that type of thing is waste of time at all we have the finance team come in we have been going through the numbers were looking at the strategies. We're looking at I can tell you in.
A long long time in this business I've never spent an hour to every day with the FP in a group the finance group looking at the things and looking at a strategic plan and the tactics that are necessary to do that we spent time, but we're doing that.
Everyday to look at the things and the effect that they have.
And being wise and I have to also saying no offense to my accounting team.
They're not sales and marketing guys. They don't always understand.
Things, but they do have a certain view of things that we can improve and I think we've come into this negotiating a saying okay. What did you know this now well how about if we modify it to this we're spending a lot of time doing this and so I would say that youve listened into your assessment as we lost sight and this with that I'll accept that but I want you to.
Now that both tactically and strategically we're looking at our facilities are locations are.
Things like automation things like the product mix one other things, we're taking a very hard look at as each of the R&D project has to reach a threshold in order for us to move the dial so as we were coming up and you making acquisitions one of the things that I think that we missed.
As it was kind of the R&D projects, we're taking a back seat to the acquisitions I think what we have to look at now is and what we are looking at now doesn't meet the threshold and where does this fit what projects throughout that will allow us to meet those strategic goals that we may not have spent the time.
I'm on the last two to three years. So instead of as I mentioned previously having 30 40 50 projects, maybe they're 10, but they haven't high impact on the business now and also.
Has high risk.
And so we have to measure the risk of 10.
Yeah, one of the one of the strength of our business as we have all these little products, it's hard to assess all those things one of the weakness is a business as we have all these little products and so I think as we're going through this transition we're looking in that products will have.
A an impact the risk associated with them and make sure. The focuses on those instead of doing business as usual I think thats tactical and I think it fits into our strategic plan.
Robert just real quick I think we'd like long term plans, we just need to make sure that we.
That we.
We we just want to make sure we take the time finish out 2019, and see where we're at.
And then we can we can we can we can talk about a long term plan, but we're not just talking about the quarter, we're talking about EMEA and we're not giving you the 2020 or 21 plan, but from a business point of view, we're looking at all those things as well, we're just trying to calculate their lungs, yeah, Yeah, I'm sorry, what I was really just trying to get out was the there was a.
A lot of focused on a three year plan.
Every quarter, where you guys talk about it a lot and sort of we emphasize hey, that's what we're trying to gross margins were trying to do.
With earnings et cetera, and.
I feel like you guys got away from that I'm. Just wondering one of the I think things that was great about the previous longer term strategic plan was that public and it was out there. It was it wasn't hey, we're doing this still doing this and doing it but there is no numbers attached and I guess, what that's one getting added is there an idea that maybe that's.
Better approach for you guys maybe.
Forces a discipline.
Upon you guys in terms of capital allocation.
Yes, we sat down five years ago.
And sat down and I brought forward to the staff the need to establish credibility have a plan that we could publishing that we can stand behind and we put that plan into effect now I will come to issue with you I don't think it's an issue of whether we survived.
You know.
FX, but I, but I will tell you that things for instance in China are not the same as they were five years ago.
We've got.
Them wanting to buy local and they have initiates you have the currency itself.
You have the government looking for lower prices. So it is a different world today and the best companies in the company's that survive the long haul do adapt to the conditions I mean, Brexit may not seeing I had one analysts say to me not long ago well lesson.
You're the only guys talking about Brexit, but yes, we worthy on I don't know was talking I wasn't listen other people I was talking about when I get a call from the NHS.
Who says please come up and share with US your strategy for making sure that we can get medical devices integrate Britain that caught my attention and with all the noise going on and the battles. We thought we have to do something so we can answer the question and we did so that was the right thing to do and it's going to serve merit very I think.
Positively going forward, so listen I accept your criticism I think you have very good point, you're not right on all the points, however, and we'll be happy to talk about those.
In our call following this meeting, but but I do appreciate you bring topic forward. So that we can talk at about a to everybody. Okay. Thank you. Thanks, so much Mike.
Thank you. Our next question comes from the line of Steven Lichtman with Oppenheimer. Your line is now open.
Hi, guys.
Just on fluid management I know you mentioned obviously not.
Building anything in here in the near term, but can you remind yourself.
How big you think that opportunity is you any type of scaling you can provide would be would be helpful.
Yes so.
Now getting these are the numbers that have been share to me what the opportunity let's go to the Premier deal.
Premier as.
A larger steep GP on the country.
We are the exclusive.
For fluid administration and all of their hospitals.
They have about an 85% compliance rate.
And my understanding is it represented $20 million to $30 million with of annual business.
But again, that's what that level as now and then what we have to do is work into that.
Make the conversions do the training and build the inventories and that sort of thing. So it's not just quite as easy as taking an off the shelf because a good portion of these products are custom.
So that that's the first part on the other part of that.
There is there was a situation where.
Angio was the preferred preferred.
Provider.
For.
A.
A large national distribution end device company.
And.
That business was sold by NGL too.
Medline.
And so this other company of course that have products with their main competitor.
And so they came to us and said, we would like to be able to.
Have you guys be our new preferred provider you have product and in fact, you have a product prouder product offering than.
Then the people we've been using and we have worked through we have contracts. They are in place. They are signed they were signed late September early October so with relatively new and then we have to go through that same process, that's worth somewhere between 10 and $20 million. So again at all.
Depends on what percentage of this do we get.
I am on does it take and that's why I'm going to 2020 until we get a better feel of what it looks like through the end of this quarter and early next that were hesitant to gopro number out there and somehow we miss it.
And we don't meet that number so we need to understand more about it but I think the good news.
Steve is that we this is something we do every day. This is something we build everyday so theres no capital required there's no new facilities required we have capacity for these products, but we just have to let it play out and then you'll see that reflected and we will share.
What we see in that increase and whether it's in fact, what we've been told it is but we haven't built inventory, we're not out there doing things in anticipation, but we do expect.
It's going to be meaningful I will say that I haven't lost my enthusiasm for it's just about the implementation.
Got it thanks, Fred and then maybe a couple of for I will.
You talked today about.
So some new facility consolidation, but can you talk about the Malvern facility move to Mexico, which I believe has been underway where are you in that process and how much could could that save on on Cogs next year.
Yes so.
It's was on its way, we think by Q2.
We should be mostly out of there there's one product line, we're looking at right now.
But for the most part it's on track we started our inventory builds for transition Theres some lines that have already moved.
When we look at the savings, it's approximately $4 million you won't pick up the full benefit next year, though.
Because you're by the time you get all done it how it's going to be halfway through the year. So, but we do expect that benefit to pick up in 2021. So I think is well under underway, it's on track and.
Yes.
Nothing more to say there.
Okay, and then and then just lastly, the to 15 million an annualized cost reduction.
To date here.
You mentioned, how much of that is in Opex and how much of it is is in Cogs about 75%.
Opex.
Ill turn it represent an opex, yes, 75%.
In R&D.
Okay got it Okay. Jimmy just one last thing on to that that is the total number of cost savings that theres. Other things that we've done that are in addition to that so that's the head count reductions and there are other programs and things that we've initiated that will add additional dollars that you want to any light to that one or do you want to say that when.
Closing no I just want to close it I think again I think what we are we talking about the $50 million, it's the 2% plus the San Jose closure, Yes, Yes, Scott and alright. Thanks, guys are done okay, great, Okay, well listen ladies and gentlemen.
It's the longest call we've ever had and appropriately so.
We're going to spend about 10 minutes.
Reviewing with our staff comments and taking questions here internally and then robalo and I will be here to take additional questions and clarification. Following that so thank you very much for your attendance.
We're serious about we're doing I suppose I don't know I'm not going to apologize I don't like in any more than you do.
Watch what we do I think we've taken the steps that we need to there are more steps to take and we'll look forward to reporting the results and our strategies and tactics going forward have a very good evening and good night.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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