Q3 2020 Merit Medical Systems Inc Earnings Call
Please standby.
Good afternoon, ladies and gentlemen, and welcome to the third quarter 2020, <unk> earnings Conference call for Merit Medical Systems, Inc.
At this time, all participants have been placed in listen only mode.
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 like to turn the call over to Mr., Fred Lampropoulos Merit Medical systems, founder Chairman and Chief Executive Officer. Please go ahead Sir.
Thank you Dylan and welcome everyone to Merit Medical systems third quarter 2020 earnings Conference call.
I'm joined today on the call by Robert Panora, Our Chief Financial Officer, and Treasurer, and Brian Lloyd, Our Chief legal officer and corporate Secretary.
I am I'd like you to go ahead and take us through our safe Harbor provision.
Thank you Fred.
Before we begin I would like to remind everyone that our remarks today may contain forward looking statements that are based on current expectations of management and involve inherent risks and uncertainties.
That could cause actual results to differ materially from those indicated.
Including the risks and uncertainties described in the Companys filings with the Securities and Exchange Commission, including.
Including item one a risk factors of the company's most recent annual and quarterly reports.
You are cautioned not to place undue reliance on any forward looking statements.
Which speak only as of the date made.
Although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statements.
Whether as a result of any new information future events or otherwise, except as required by applicable securities laws.
This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.
We generally refer to these as non-GAAP financial measures.
Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.
I will turn the call back to Fred.
Thank you Brian.
Let me start with a brief agenda, what we will cover during our remarks today.
I'll start with an overview of our revenue performance in the third quarter, including the improving business trends, which you know we experienced during the quarter.
In the areas of our business to perform well despite the challenging operating environment.
I will then provide an update on our operating progress and highlights during the third quarter.
After my opening remarks, Dror will provide you with a more in depth review of our quarterly financial result.
The formal financial guidance, we reinstituted in this afternoons press release as well as the summary of our balance sheet and financial condition.
After that we will then open the call for your questions.
Beginning with a review of our third quarter revenue performance, we reported total revenue growth of 8.4% year over year in the third quarter.
Driven by 1% growth in sales of our cardiovascular products, which was partially offset by a 12% decrease in sales of our endoscopy products compared to the prior year.
Total sales on the <unk> on a constant currency basis were essentially flat compared to the third quarter of 2019.
Our revenue results increased almost 12% on a quarter over quarter basis, which reflects the overall improvement in business trends that we have experienced in recent months.
Importantly, this sequential growth.
Was well above expectations and exceeded the high end of our sequential growth range, we discussed on our second quarter conference call.
Why we believe we remain in the early days of the global recovery, we're encouraged by the improving trends we experienced during the third quarter, specifically after a difficult April where we saw a sales decline of 20% year over year, we saw modest improvement on a days adjusted basis in may.
Hi.
And then significant improvement in the month of June However, the sales still decrease in the low single digits year over year.
Our business trends were somewhat choppy throughout the month of July and.
We experienced the expected seasonal softness in overall procedure trends during the month of August together.
Together, our total sales for the first two months of the third quarter were down 1% year over year.
Oh September however was a different story, we saw steady improvement in sales trends throughout the month and sales increased in the low single digit year over year against a tougher comparison as well.
No I want to take a minute to dig into the underlying trends we experienced during the third quarter EPS.
I think it may be helpful for investors that are gauging the pace of recovery and marriage business first clearly we are seeing a notable variation in the pace of recovery, depending on what region of the world, where we do business and we are even seeing variation within certain geographic regions.
By the way of reminder, roughly 60% of our total revenues come from business in the U.S. and the sales in the U.S. decreased 8.6% year over year in the third quarter.
Are you watch business is roughly 80% direct with the majority of the remaining U.S. business dedicated to servicing OEM customers importantly, the underlying business trends in each of these two U.S. businesses were notably different in the third quarter.
Understandably the recovery from the pandemic has been more rapid than our U.S. direct business, where sales increased 5% year over year in quarter three.
And in part by the incremental sales contribution from our sample collection and transport kit.
A culture collection and transport system, which is comprised of a nasal prayer Geo Schwab and they transport buyout used to collect specimen with suspected president of COVID-19.
Sales of the culture system were nearly $10 million in the third quarter, which fueled the 29% growth year over year, and our U.S. custom procedural solutions business line this quarter and the 22% increase in worldwide custom procedure solution sales in quarter three.
Conversely, our OEM business, which has been slower to recover as a result of inventory management as our customers adjust to product demand in response to COVID-19 and sales to U.S. OEM customers decreased 21% year over year and decreased 17% worldwide this quarter.
[music].
Our other business lines in the U.S. peripheral innovation at excuse me intervention and cardiac intervention posted strong improvement in sales trends during the third quarter, but were still down year over year sales of the P. I probably from the U.S. were down 1% year over year and sales of the C.I. products.
Right product lines in the U.S. were down 3% year over year in the third quarter.
Turning to a brief review of our sales outside the U.S. totally international sales in the third quarter increased 2% on a reported basis and 0.6% on a constant currency basis.
Our two largest regions outside the U.S., our APAC and EMEA, representing approximately 50% and 43% of our total international sales respectively in the third quarter.
Third quarter total international constant currency growth, a 0.6% was driven by a 3% increase year over year in APAC sales.
<unk> 0.5 per cent decrease year over year in EMEA sales and a 4.5% decrease year over year in sales to the rest of the world.
All international regions had an impact from COVID-19 and are still recovering.
Restrictions or lockdowns or changing constantly across regions, most notably, notably in the European markets, causing some limitations to sales contact and low demand for elective procedures.
Turning to a brief review of our recent operating progress during the third quarter.
We continue our efforts to move products to our facilities in Mexico, and Texas and are on track with a complete transfer of all 14 product lines.
Our Pac business in Australia will be fully close by the end of the year and we were in the process of securing a sub tenant.
Our Temecula side has been closed in production has now moved to our Texas facility.
And our R&D efforts are ongoing and we expect to continue our track record of new product introductions going forward.
Finally, I want to provide a brief update on our clinical studies for the Rhapsody Endovascular stent graft first we had a productive discussions with the FDA in recent months.
And we received <unk> approval for the Rhapsody AB access efficacy study, which we are calling the wave study.
And I D E approval for a smaller study called the Rhapsody Central feasibility study, which we're calling the waves central study.
The wave study is a prospective randomized controlled multi center study comparing the Rhapsody Endovascular stent graft to percutaneous trim is really minimal angioplasty for treatment of Venus outflows circuits to notice or occlusion in hemo dialysis patients.
The study will involve 357 patients and will evaluate the safety and efficacy of our stent among other criteria, which are detailed on the study page on clinical trials Dot Gov.
Start up activities began in mid October and we are currently targeting enrollment for the first patient by the end of the first quarter.
The wave Central study is a 25 patient feasibility study to gain additional safety data surrounding the central venous occlusions. This.
This feasibility study will run in parallel with the wave I'd each study and after we submit the evidence to the FDA and receive approval, we intend to roll this treatment arm into the wave I D.
Start up activities are underway for this feasibility study as well and we are also targeting enrollment for the first patients by the quarter one of 2021.
Now with that said, let me turn the time over to Rahul who would like to take you through a detailed review of our financial results and our 2020 financial guidance, which we reinstated in this afternoons press release.
Hello.
Thank you Fred.
Given Fred's detailed review of our revenue results I will begin with a review of our financial performance across the rest of the piano.
For the avoidance of doubt unless otherwise noted my commentary will focus on the company's non-GAAP results during the third quarter and year to date period.
We have included full reconciliations from our GAAP reported results to the related non-GAAP items in our press release this afternoon.
Gross profit decreased approximately 2% year over year in the third quarter.
Our gross margin was 47% compared to 48.1 in the prior year period.
The 110 basis point decline in gross margin year over year was driven primarily by changes in product mix.
An increase in inventory obsolescence expense.
Which was partially offset by improvements in manufacturing efficiencies.
Third quarter operating expenses decreased 18% year over year.
Our operating margin was 15% compared to 9.2% in the prior period.
The year over year improvement in operating margin was driven by a 17% decrease in ESG in expense.
And to a lesser extent, a 23% decrease in R&D expense compared to the prior year period.
The reduction in that unit expense.
A lot of cost cutting initiatives and other cost management efforts related to the COVID-19 pandemic, including layoffs targeted furloughs and temporary salary reductions.
And lower discretionary spending as a result of.
Reduce travel training shows and conventions among other items.
The reduction in R&D expenses was largely due to lower compensation expenses.
Lower discretionary expenses as a result of cost cutting initiatives and the COVID-19 pandemic.
And more focused research and development program.
Obviously, we are very proud of the operating expense performance in the third quarter as we continue to focus on driving cost out of the business in an effort to enhance our long term profitability profile.
Our third quarter GAAP operating expenses included two noncash expense items that I wanted to call out as well. The first is approximately 20.6 million of noncash intangible asset impairment expenses from certain acquisitions.
Equity method investments and changes in revenue expectations associated with the related product lines and restructure.
The second noncash item impacted our GAAP operating expenses in the third quarter.
It was a contingent consideration benefit of 4.4 million from changes in the estimated fair value of our contingent consideration obligations stemming from our previously disclosed business acquisitions.
Third quarter net income was 24 million or 42 cents per share compared to 15.7 million or 28 cents per share in the prior year period.
We're very pleased with our profitability performance in the third quarter, where we reported growth in net income and delivered diluted earnings per share of 53% and 50.
Year over year.
Respectively in a quarter, where our sales were essentially flat compared to the prior year period.
Turning to a review of our balance sheet and financial condition as of September Thirtyth 2020.
Our stock our strong profitability performance in the third quarter combined with a strong working capital efficiency, resulting in strong operating cash flow generation in the third quarter of more than 55 million.
Our efforts to control our capital expenditures, resulting sequential decrease in capex of roughly 17%, which feels very strong free cash flow generation of more than 45 million in the third quarter.
Our year to date free cash flow generation as a result of great execution from the team and importantly early evidence that we are clearly focused on enhancing the profitability and cash flow profile of our company going forward.
We took advantage of the strong cash flow generation in the quarter and reduced our borrowings by 53 million.
As of September Thirtyth 2020, our cash on hand of approximately 44.6 million long term debt obligations of approximately 358 million.
327 million of available borrowing capacity compared to cash on hand of approximately 44.3 million long term debt obligations of approximately 440 million and available borrowing capacity of 134 million as of December 31st 2019, our net leverage ratio as of September Thirtyth was 1.96 times on.
On an adjusted basis.
Turning to a review of our fiscal year 2020 financial guidance, which we reinstated in this afternoons earnings release.
For the 12 months ended December 31st 2020, the company now expects net.
Net revenue in the range of 950 million to 959 million.
Representing a decrease of approximately three and a half to four and a half year over year as compared to net revenue of $994.9 million for the 12 months ended December 31st 2019.
The fiscal year 2020 revenue guidance range assumes net revenue from the cardiovascular segment of between 921 million to 930 million, representing a decrease of approximately 3% to 4% year over year as compared to net revenue of $961 million for the 12 months ended December 30, Onest 2019.
Net revenue from the Endoscopy segment of between 28.6 million and 28.9 million, representing a decrease of approximately 14 and a half to 15 and a half year over year as compared to net revenue of $33.9 million for the 12 months ended December 30, Onest 2019.
GAAP net loss in the range of 11.8 million to 15 million.
Or 21 cents to 27 cents per share compared to GAAP net income of 5.5 million or 10 cents per share for the 12 months ended December 30, Onest 2019.
Non-GAAP net income in the range of 85.5 million to 88.5 million or a $1.52 to $1.57 per share compared to non-GAAP net income of 82.1 million or $1.46 per share for the 12 months ended December 31st 2019.
For modeling purposes, our fiscal year 2020 financial guidance assumes.
Q4, non-GAAP gross margins of approximately 47%.
And modest increases in our non-GAAP operating expenses in Q4 as compared to Q3, largely driven by higher selling and marketing expenses related to the increase in sales as well as phasing out of temporary salary reductions part.
Partially offset by prudent GNS expense management and approximately flattish other expenses.
A 26% non-GAAP tax rate and similar diluted shares outstanding quarter over quarter.
With that I'll turn the call back to Fred.
Robert Thank you very much that.
That wraps up the our prepared remarks, and we'd now like to turn the time over to our administrator and we'll open up the line for questions. Thank you.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please stand by Lilly composite can a roster.
And our first question will come from the line of Matthew O'brien from Piper Sandler you may begin.
Thanks, So much I afternoon, guys. Thanks for taking the question I guess for starters you know nice Q3 results here I'm curious about what you're seeing out in the field, especially in the U.S. as far as.
You know.
Restocking of inventory that hospital pad versus used through.
Than we thought and then your Q4 implied guidance is roughly the same as what you just did here in Q3 as soon as that healthy level of conservativism is there something specifically that you're trying to call out here.
That we should be mindful of.
Matt. Thank you no I don't think we're trying to call out we're really trying to focus today, Matt on the third quarter and I'm not really looking to filtrete as you're well aware and 10 days I will be talking about a number of things looking forward. So I think you know we may have seen some restocking in preparation.
Ration years, we saw as you know in our covert sales we saw about $10 million.
Revenue up from I think four to five.
So I think.
You know it's kind of.
I don't know that I see enough to be able to comment on anything in terms of storing up stocking and preparation.
Got it thanks for that and then maybe for Rob will just the cost savings in the quarter were a great to see I'm curious again in this environment that we're in how sustainable are some of those savings be it not going to trade shows because theyre not going out or they're happening virtually versus.
In our virtual training et cetera. So how much of this is sustainable versus how you know some of these costs are going to come back in a more normalized environment sometime in 21.
Yeah, and I think we started this discussion really in Q2 quite frankly right. Just just talking about you know trending in that direction and so as as we said in our opening remarks.
Our operating expenses.
You know are going to increase and.
In our Q4 guidance includes that you know that that description of increases. So we've got salary reductions that we did we did some targeted furloughs. So some of those things are going to come back for sure and we've we've planned on those coming back in the fourth quarter Matt.
Okay, but how do.
Any sense for and it's great to hear that those folks are coming back in the salaries or reductions are easing, but is there any way to kind of quantify that for folks as rich as the remodel and thing keep for that even into 21 as well.
Yeah, you know I think we're going to stick with the Q3 numbers and then as we progress.
Our guidance for 2021 will touch base on that but I would just say for for for this year. This years guidance, we do see an incremental increase which we discussed in our opening remarks.
And obviously you saw the cadence from Q2 to Q3.
Already kind of increase in some of those expenses.
Got it thanks guys.
Yep.
And our next question comes the line of Larry Biegelsen from Wells Fargo, you may begin.
Good afternoon. This is actually Kevin on for Larry Congrats on the impressive corridor.
My question is actually on.
Sort of like Matt question, but just just asked in a bit of a different way I guess I was looking at the implied Q4 guide and it's up only 2% sequentially, which would not be typical Q4 over Q3 for married given the seasonality in your business I know you had an 8% organic growth.
Hi, I'm from last year, I guess I'm just curious.
Do you have any incremental comments about your uncertainty on uncoated flare up something else baked.
Baked into that outlook, just curious on how you got to those numbers and I just had one follow up.
Yeah, I think listen I think we're very confident about the guidance as we all know there is a lot going on and from our best Vantage point.
Those are the things that we've included in our numbers as we get more information and move into.
Our guidance for next year, and our foundations for growth conversation, which we will see you know and talk about in 10 days will add more color then roll Yeah. I think you know, we we really in our Q4 expectations, we expect sales to be down roughly.
Roughly 1% year over year to to down to 3% year over year obviously.
Obviously reflect reflects a modest improvement in trends quarter over quarter.
It also includes lower sales contribution from can kultura of approximately $5 million versus nearly 10 million that we did in Q3 and then as you mentioned, Kevin we've got a tougher comp for Q4.
Than we did in Q3, and then international sales you're hearing the noise that we're hearing too so our sales will be down your 3%.
To down 8% year over year in Q4, or 5% to 10% on a constant currency basis is what the implied guidances. So again largely reflects the cautious outlook, we have in the O us markets.
As we said in our prepared remarks.
You know all international regions that had an impact from COVID-19, there are still recovering we're seen restrictions and lockdowns accrue.
Across some regions, most mostly Europe, but I think we're just trying to be as Fred mentioned, just just cautious based on the information we have at hand right now.
Makes sense that's super helpful.
My last one is just spread I'm curious if you know where investors are very focused on the foundations for growth meeting coming up pretty soon here I'm. Just curious if there is any previewed thought.
We head into that meeting you know how far it kind of annual financial goals go anything on the pipeline just you know.
Any opportunity to just speak about what investors can expect thanks, so much.
Yeah, Kevin. Thank you very much the answer is that we have none.
We're here to talk about this quarter we've upgraded.
Our yearly guidance and we're looking forward and we hope that weve.
Picked your interest in that yield that you'll tune in on that day and I think we're looking forward to talking to you.
On the 10th I think well leave it at that.
That sounds perfect. Thank you.
Thank you Sir.
Our next question will come from the line of Jason Bedford from Raymond James You May begin.
Hi, good afternoon, I'll keep it tight cult the Colgate whos going to mispronounce, the now that product, but oh, the coveted contribution going from 10 to five just curious what are you doing from a manufacturing standpoint.
Right.
To ramp that up in front of what I assume is increasing demand.
And I assume the Threeq was a little bit of forward buy in but anything you can you can offer on kind of the manufacturing capacity and where that go where that's going.
Thanks, Jason first of all we are fully integrated.
On our VTM on our vial and on our swap we make everything.
We make some of it in Mexico, we make the rest of it here and we have substantial opportunities from capacity based on our capitation and facilities. So we we have plenty of room, if the demand is there.
A friend is that only being sold in the U.S. or is that something you take globally as well.
We are selling it globally and we are.
Cleared on in essentially all of the major markets. So we we have the capability to move it global.
Globally, there are processes as you're well aware Jason international companies.
Countries in tenders.
That process is much lower than it is in the U.S., but we are engaged in all of those activities.
Okay, and my second question and I don't want to be greedy given all the the information provided.
Was the growth in China in the quarter.
Hello.
Essentially.
Why that it was flat it was flat.
For the quarter so.
It was part of the appendix.
Is the expectation that you'll start to see some some better growth and flat in China I.
I think that our number is included in the guidance for the full year guidance that we've given and Jason not to be evasive, but will cover this in our meeting that's coming up and 10 days, we'll give everybody a fair picture Yep Yep. That's fair. Thanks, gentlemen, congrats on the progress. Thank you Sir.
And your next question will come from the line of Mike Matson from Needham.
You may begin.
Yeah, Thanks for taking my call or questions here so.
The cash flow was pretty impressive so no.
You noted that your Capex was down I think 17% sequentially.
So I just wanted to ask about the sustainability of kind of the pace of free cash flow and that the capex kind of run rate that you are on in the quarter.
Is that kind of a.
Due to temporary reductions or is that something thats more more sustainable.
Yeah listen Mike I think that we are looking at these things R&D has always been important for us for organic growth we continue on that.
It is always a challenge when you have people and just kind of things in all businesses have been going through but I think we're also very much committed as we have said in our previous comments and today into R&D, but also the discipline on Capex I mean, we've heard what investors have said and I think we are very very in tune.
With those needs without penalize the company I mean, we think that we're balancing this and we made a lot of previous investments. So I think I'm comfortable with where we are and and again, we're looking forward to talk to you further about this on the 10th.
Yes I.
Just to give you a little more color. Obviously, you know we hit 90 to 92.8 in free cash flow for the year.
I will point out that we do have an accrued expense in there for the D.O.J. settlement. So if you back that out you're really sitting at 74.6 for year to date on an adjusted basis.
We did have.
Strong operating cash flow generation 128 million year to date a verse.
Versus the 51 or use of 51 year to date 19.
A big component of that was working capital.
We had a.
A target for inventory.
That we.
Came into the year trying to achieve.
We we've surpassed that so so if sustainability that one will eat into a little bit quite frankly, a sales increase.
Receivables actually was kind of the surprise for us in Q3, specifically I think we were planning on on maybe seen some deferred payments as.
As customers faced a cash crunches, but the reality is we continue to collect and some of the initiatives with our with our Salesforce you know working in tandem with them on collecting cash have really paid off and so hats off to them for helping us with that and then again driving the the capex.
Essentially a $22 million delta there and it really the cost of the building which is included in that last year's number.
A big chunk of that so overall.
Overall Super happy with the progress we've made and I think some of the processes, we have in place our to make the sustainable quite frankly, yes. Okay.
Okay.
And then the intangible asset impairment, what with all this up for which acquisition.
You know it was a it was a mixed bag quite frankly.
So let me just pull it up here real quick.
There's probably five of them Lorraine error of Ascs.
So I guess, there's a whole multitude of them as we kind of went through and reevaluated during our impairment testing.
Okay. So it wasn't it was just a it wasn't like a complete redo.
Auction that was just the partial assumption of about it though several of them.
Yes, Theres, probably 10 or so that are part of that.
Okay got it thanks.
Thank you.
Our next question comes from the line of Steven Lichtman from Oppenheimer you may begin.
Hi, Thanks, guys I.
I know well get more details next month, but just on some of the recent operating progress and some of the facility moves have.
Have you seen any of that impact on the PNM al or or is that really to calm as it flows.
Flow through inventory and you pick up more so in 21 yeah.
Yeah. That's a great question it really outside of Temecula, which was closed earlier and you're seeing some impact in the R&D line.
The rest of it is really 2021.
So when we say you know on track to close or some lines of its been transferred you've got to burn through that inventories that we had on hand, and really we won't see the full impact until 2021 for those.
Okay got it and then back thanks, Karl and then secondly role.
The tax rate are becoming an increasing discussion around the election here you guys have.
I run a little higher historically are you actually seeing opportunities to bring that might bring that down I I'm I'm not sure I can be a discussion point next month, but just curious on your views on tax rate and people.
I think the great question, you know I think we're always trying to find opportunities to lower our tax rate I think it makes it really difficult. When you don't know what's going to happen to tax plan and so I think we're kind of in a holding pattern quite frankly to see what we can do what happens here over the next week on the election and then subsequent to that.
If you know depending on who wins.
Where where the direction on taxes goes so I think it's hard to plan.
Sure you know.
There's so many dynamics in play.
Got it.
Great. Thanks for home thanks.
Yes.
And our next question will come from line of Mike Petusky from Barrington Research you may begin.
Hey, guys. Good evening, a couple of I guess, a couple of questions. Fred This is sort of a big open ended once you take it as far as you want to go but.
Feel like a <unk> or.
Are the things that you guys have done right. I mean is it is it processes is it putting it.
People, what's what's worked here over the over the past six months, that's sort of allowed you guys to.
Seemingly managers or so.
So optimally and you know really challenging environment.
I think we have to go back over a year and we sat down and laid out a plan of product movements of plant consolidations.
Research and development.
I think Mike we just had a plan.
Continued to execute that plan and then we're looking forward to.
Two.
Reporting and talking about the future I think there were also incentives in compensation. This year that were big part the board into their credits that these are the things that.
You should focus on and these are the things that investors have been basket asking and by the way it's not that they would just telling US you know we were talking about the things that that shareholders and things very candidly, Mike that you've raised and others have raised and I said you know we sat down to put that plan together, we did have a running start.
Mark.
And so I think thats the important part so by the time you know it.
Everybody became aware of coal would we were already hunker down. So I think it's just been a continuation.
And and our ability to really adapt and.
There's been a lot of talk about sustainability today, and we'll look forward to.
Showing in the future.
That's the whole idea of our our investor.
Investor Day, that's coming up is to show the plan and so I think thats really what it was is that we just stayed focus and you know I think there was a previous question to Mike on this whole sustainability and trade shows and those sorts of things I.
I think fundamentally all of us.
Do you know.
How you talk to investors, where you go merit, our Salesforce I think things are fundamentally change and they will forever in many ways and I think what we have there are things that we're looking at that.
We'll never be the same and we'll keep them that way, they're more economical more effective.
And so I think when these opportunities when these really you know tragedies come upon all the people of the Earth.
To give you a chance to look at your behavior.
Chance to look at the things that have become kind of institutionalized and challenge all of them and I think maybe in as part of going back over a year and then looking where we are today I think we simply challenged everything.
And said Okay. This is where we want to end up and these are the things and what do we believe in what are we going to do about it and it really was this team and I think thats, maybe maybe the most.
From my point of view watching this team and leading this team and watching others emerge and leadership and leading various areas of all this has been.
The part it's like watching a football team come together.
Yes, it's just that everybody's getting their blocks.
Everybody as staying on sides on the account you know there's not a lot of penalties I I mean at that sound me. It may sound, a little simplistic, but it's kind of the way. It is we're just executing and everybody's part of it people are catching the passes and we.
We're just doing all those things and it's a it's Rick.
Rewarding and candidly enjoyable. So I know that May sound, a little funny to you, but I think thats, how we feel about rolled you want to add anything to that no I would just say that I think the executive team is locked in.
I would say that we've got a lot of transparency internally and we're talking about things and.
You know, we're we're all kind of marching that at the same drop you know kind of the same beat so it's really helpful and.
We just want to execute that yes, it and one final thing is our board I mean, I think we have a functional board and we have a we have a management team and we're kind of we're on the same page and we are being challenged we're being questioned.
Questioned but a bit it's all done appropriately in and you know without offending anybody I think thats been the best part is the way that we have come together as a board and as a management team all the way through the organization, Mike all the way through and.
And that's a long answer, but that's all right from the heart that's exactly what we're doing.
Sounds good. Thanks. So first can you just talk about I guess.
Any concerns if you have any around the recent cobot spikes in sort of the very negative trends I guess, most states are seeing right now and I guess in combination with <unk>.
If there's sort of a shift in power in Washington, and the Democrats were to sort of sweep everything and just the idea that maybe lock down.
With cobot spikes in and sort of maybe more sympathy towards.
Locked down do you have any concerns around that or anything you're hearing from hospitals or anything else. Thanks.
Yeah listen you hear lots of things from hospitals and a lot of these trends, but you know we do have some offsets there because we do have some covert type products and.
No I just think you know we're confident in the forecast that we have based on all these factors built in and.
As they change when it's appropriate to do so we'll report that but I think for right now we're confident with our forecast and I think we've tried to measure in all of the factors, Mike as we know them today.
Okay terrific. Thank you.
Thank you Sir.
Thank you once again Thats star one for questions.
Next question comes the line of Jim Sidoti from Sidoti and company.
Maybe again.
Hi, Good afternoon can you hear me.
We sure can Jim.
But your cash flow 45 million in the quarter that that's you know.
Two years for Barry.
Couple of years ago.
That's just an incredible number.
Yes, I'm looking just based on.
June to September sales were up about 20 million yet your inventory was down about 10 million in your accounts receivable up about 3 million. So I mean really really good cash management there.
You know does that come come back a little bit are you able to sustain that level of efficiency.
Well.
I'm going to let ROE level, yes, a great question. Jim you know, we're targeting 90 million in free cash flow for the full year to be honest.
No. If you look at the guidance that we put on on net income loss you know for that for the year.
We've got.
She got them working capital components that will that will go against us in the Q4. Notable is the DJ settlement. So we've already paid a portion of that here a few days ago. So that will go out.
Your.
Similar aer balances I think to the what you're seeing in Q3 quite frankly, right. So we won't get as much leverage there and then.
We did have a target on inventory reduction our operating.
Our team has done an outstanding job on delivering on that and then a little bit more we will see some some of that come back, though as we build up inventory for the shutdown. So we expect to kind of eat into that number. So again capex will be similar to what we didn't Q3 at least that's what we budgeted.
Yet to see if we'll spend that so that's what we're planning on.
No so kind of the expectation as we end up somewhere around 90 million, which is a great year for the sake of clarity role when you're talking about the shutdown you're talking about the Christmas and new year, Yes, Christmas and new year, Yeah, we usually build up inventory make sure. We have a look not enough to cover that and we don't have shortages going forward. So we build up a little bit during that period, and we've always done that.
Yes.
It has been a fantastic year with respect to cash flow and then the other question I had is you at the beginning of the year you had.
You had about nine or 10 or 15, new products that you were you were excited about launching it and I know those all got to.
Pushback, because a co beard and the fact that your sales people already in the hospitals are they starting to contribute yet or do you think it will be another quarter or two before you can really roll out some of these new products that you have in the pipeline yes.
Yes, Jim I don't mean to be evasive, but again in our guidance. We have put the products that are released.
But listen, but let's just be pragmatic here in this environment, it's slower than it would be under normal conditions, but again in terms of that pipeline. All these other things we'll talk all about that in just a short 10 days from now.
Okay all right. Thank you.
All right. Thanks, Jim.
Thank you and I'm not showing any further questions at this time I'd like to turn the call back over to Fred Lampropoulos for any closing remarks, okay, well listen. Thank you very much we appreciate it ladies and gentlemen.
We appreciate the time, we know it's a busy day, we've tried purposely to keep this very tight it's going on about 45 minutes. So we're going to I know, it's a very busy time, we'll look for please join us on the 10.
We'll look forward to seeing you then and I. Thank you for your participation today.
Good night from Salt Lake City.
Good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].