Merit Medical Systems - Q2 2023
July 25, 2023
Transcript
Operator (participant)
Please stand by. Welcome to the Q2 of fiscal year 2023 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 would now like to turn the call over to Mr. Fred Lampropoulos, Merit Medical Systems Founder, Chairman, and Chief Executive Officer. Please go ahead, sir.
Fred Lampropoulos (CEO)
Thank you. Welcome everyone to Merit Medical's Q2 of fiscal year 2023 Earnings Conference Call. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer, and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you mind taking us through the Safe Harbor statements, please?
Brian Lloyd (Chief Legal Officer and Corporate Secretary)
Thanks, Fred. I would like to remind everyone that this presentation contains forward-looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to unknown risks and uncertainties. The realization of any of these risks or uncertainties, as well as extraordinary events or transactions impacting our company, could cause actual results to differ materially from those currently anticipated. In addition, any forward-looking statements represent our views only as of today, July 25, 2023, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law. Please refer to the sections entitled "Cautionary Statement Regarding Forward-Looking Statements" in today's press release and presentation for important information regarding such statements.
Please also refer to our most recent filings with the SEC for a discussion of factors that could cause actual results to differ from these forward-looking statements. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-K. Please refer to the sections of our press release and presentation entitled "Non-GAAP Financial Measures" for important information regarding non-GAAP financial measures discussed on this call.
Readers should consider non-GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Fred.
Fred Lampropoulos (CEO)
Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue results for the Q2. After my opening remarks, Raul will provide you with a more in-depth review of our quarterly financial results and the formal financial guidance for 2023 that we updated in today's press release, as well as a summary of our balance sheet and financial condition as of June 30, 2023. We will then open the call for your questions. Now, beginning with a review of our Q2 revenue performance, we reported total GAAP revenue of $320.1 million in the Q2, up 9% year-over-year. Our total GAAP revenue growth was driven by 9% growth in U.S. sales and 8% growth in international sales.
Our total revenue increased 9.1% year-over-year in the Q2 on an organic constant currency basis, excluding the headwind to our GAAP revenue growth related to changes in exchange rates compared to the prior year period, and contributions from the 2 acquisitions we announced on June 8, 2023. Our Q2 revenue results were notably stronger than the growth expectations that we outlined in our quarter one earnings call. Specifically, we shared our expectations for organic constant currency revenue growth in the range of 5%-7% year-over-year in Q2. Let me now provide you with a more detailed review of our revenue results in the Q2, beginning with the sales performance in each of our primary reportable product categories. Note that in...
Unless otherwise stated, all growth rates are approximated and are on a year-over-year and constant currency basis. We have included reconciliations from our GAAP reported results to the related non-GAAP item in our press release and presentation available on our website. Q2 total revenue was driven by 9% growth in our cardiovascular segment and 6% growth in our endoscopy segment. Constant currency growth exceeded the high end of our expectations in our cardiovascular segment, while endoscopy sales were softer than expected in the Q2. Sales of our peripheral intervention products increased 14%, representing the largest driver of total cardiovascular segment growth again this quarter.
Within the PI product category, sales of our access, radar localization, and embolic products increased 19%, and together represented nearly 60% of total PI growth year-over-year, and sales of our drainage and angiography products increased 12%, and together represented roughly one quarter of our total PI growth in Q2. We are proud of the continued strong performance across a number of key products in our PI category, though I would be remiss if I didn't call out the largest contributor to our total PI growth again in Q2, our highly differentiated SCOUT radar localization product line. We have been pleased with the market response to our SCOUT Mini Reflector as well during the first full year post-commercial launch.
Continuing on with a discussion of our Q2 revenue growth drivers, sales of both our cardiac intervention products and our OEM products were key contributors to our total cardiovascular segment growth this quarter, increasing 6% and 14% year-over-year, respectively. CI product sales come in roughly in line with the high end of our expectations, driven primarily by strong growth in sales of both our angiography and hemostasis products, which increased more than 20% year-over-year. Sales of our access and our EP CRM products increased in the mid-single digits, which offset low single-digit declines of our intervention products. Sales of our OEM products exceeded the high end of our growth expectations, which we attribute principally to continued improving demand from larger customers in multiple categories, including EP, CRM, coatings, and kits products, which together increased 50% year-over-year in Q2.
Importantly, Merit's demonstrated ability to meet this growing demand is a key driver of this track record of growth. Sales of our custom procedural solution products increased 1%, which was notably better than the mid to high single-digit declines we expected in Q2. This upside was driven primarily by stronger than expected demand of our CPS products from U.S. customers, which offset mid-single-digit declines in our sales of our CPS products to customers outside the U.S. Finally, sales in our endoscopy segment increased 6%, which is below the growth range we assumed in our Q2 guidance. While we are pleased to see the underlying growth trends in our endoscopy business improve in Q1, as expected, endoscopy results continued to experience business disruption as we continue to navigate material shortages, supply chain constraints, and work on qualifications for a new vendor.
As discussed on our Q1 call, we had anticipated improving trends as we moved through the year and mid-teens growth for our endoscopy business in 2023. Our updated guidance reflects the softer than expected sales results in Q2. We are cautiously optimistic that we will continue to see improving trends and mid-teens growth in our endoscopy business in the H2 of 2023. Turning to a brief summary of our sales performance on a geographic basis. Our Q2 sales in the U.S. increased 9% year-over-year. Sales to U.S. customers came in roughly $4 million above the high end of our growth expectations. Approximately $3 million of this was better than expected organic growth in the period.
Our U.S. growth performance reflects continued strong execution and overall improvement trends in the U.S. market during the Q2, particularly in our direct business during the months of May and June. International sales increased 10% year-over-year, exceeding the high end of our expectations in the quarter. APAC was the primary driver of the better-than-expected results, although both the EMEA and rest of world regions were at the upper end of our growth expectations in Q2. APAC growth was driven by sales in China, which increased 23% year-over-year, as the improving trends in March that we discussed on our Q1 call continued into the Q2. In summary, we are extremely pleased with the strong execution in the Q2 and throughout the H1 of 2023.
The overall environment remains challenging, but is improving overall, and our team is executing well and remains focused on our multi-year strategic plan. With respect to our financial performance in the Q2, we believe the results continue to demonstrate that the team's hard work and commitment to our Foundations for Growth program are paying off. non-GAAP gross and operating margins of 51.4% and 19.9%, respectively, for the quarter, and 50.8% and 18.1% for the H1 of 2023, these are impressive improvements in our profitability. While we are not losing focus and we may remain confident in our team's ability to deliver our financial guidance for fiscal year 2023 and continued progress in the 3-year-...
In year three of our Foundations for Growth program and the related financial targets for the three-year period ended December 31, 2023. Before turning the time of the call over to Raul Parra, I would like to take a few moments discussing the strategic acquisitions, which we announced last month. On June 8, we announced two acquisitions. The first was a portfolio of dialysis catheter products and the BioSentry Biopsy Tract Sealant System from AngioDynamics for a total cash consideration of $100 million. Acquiring these assets broadens our therapeutic platforms, it strengthens our position in the dialysis and biopsy markets, and expands the foundations of our growing specialty dialysis device offering, which includes the WRAPSODY Cell-Impermeable Endoprosthesis, the HeRO Graft, and the Surfacer Inside-Out Access Catheter System. Many dialysis patients rely on these solutions to receive vital therapies.
We believe that by combining this portfolio of interventional solutions within Merit will allow us to leverage our physician relationships, our commercial infrastructure, to serve more patients in the multibillion-dollar dialysis market. The acquired dialysis catheter portfolio includes the innovative BioFlo DuraMax dialysis catheter with Endexo technology, a proprietary material more resistant to thrombus accumulation in vitro compared to conventional non-coated dialysis catheters. Thrombus formation can block blood flow through a catheter, preventing adequate dialysis treatment. In addition to the dialysis portfolio, we also acquired AngioDynamics' BioSentry Biopsy Tract Sealant System, which again, we believe strengthens our position in the biopsy market. The BioSentry is designed specifically to reduce the incidence of biopsy-related pneumothorax. Pneumothorax is a potentially life-threatening complication that can extend hospitalization, and it occurs in approximately one-quarter of patients undergoing lung biopsy.
The second acquisition we announced was an asset purchase agreement completed in May to acquire the Surfacer Inside-Out Access Catheter System from Bluegrass Vascular Technologies for a total cash consideration of $32.7 million. Bluegrass Vascular is a privately held company that Merit knows well, having established an equity investment in the company and serving as the exclusive global distributor of the system from 2016 through 2022. The Surfacer is a unique device designed to obtain right-sided central venous access in patients with venous obstructions, providing this population with access to life-saving therapies, including hemodialysis and chemotherapy. Importantly, these acquisitions of assets from AngioDynamics and Bluegrass Vascular are consistent with our stated objective to selectively invest to expand our product portfolio in key strategic markets that leverage our existing commercial footprint.
In addition to the strong strategic rationale, we believe the financial profile of these acquisitions is compelling. We expect these acquisitions to add approximately $30 million of revenue on an annualized basis and to be accretive to both our non-GAAP net income and non-GAAP earnings per share in the first full year post-closing, and accretive to our non-GAAP gross and operating margins, non-GAAP net income, and non-GAAP earnings per share in the second full year post-closing. The integration is underway, we expect to continue these assets to contribute approximately $13 million-$15 million of revenue in fiscal 2023. With that said, let me turn the call over to Raul, who will take you through a detailed review of our Q2 financial results and our 2023 financial guidance, which we updated in today's press release. Raul?
Raul Parra (CFO)
Thank you, Fred. Given Fred's detailed discussion of our revenue results, I will begin with a review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the Q2 of fiscal year 2023. We have included reconciliations from our GAAP reported results to the related non-GAAP item in our press release and presentation available on our website. Gross profit increased approximately 13% year-over-year in the Q2. Our gross margin for the Q2 was 51.4%, compared to 49.3% in the prior year period, representing the highest Q2 gross margin in the company's history.
The increase in gross margin year-over-year was primarily due to favorable changes in product mix, improved freight and distribution expenses, as well as other FFG-related efficiencies. As expected, our Q2 gross margins were impacted by the inflationary headwinds we are seeing in freight, logistics, labor, and raw materials. With respect to freight, specifically, we're still seeing the headwinds to gross margin as expenses are still higher than pre-COVID, but freight expenses have significantly improved compared to the prior year period. The 200 basis point increase in gross margins year-over-year exceeded the high end of the expectations we outlined on our Q1 call, which called for gross margins to increase 70-130 basis points year-over-year, due primarily to fixed cost leverage on the better-than-expected sales performance in the period.
Operating expenses increased 13% year-over-year in the Q2. The year-over-year increase in operating expenses was driven by a 14% increase in SG&A expense and an 8% increase in R&D expense compared to the prior year period. The increase in SG&A expenses was primarily due to increased labor-related costs associated with headcount, as well as increased travel and marketing costs to promote sales as restrictions continue to lift post-pandemic. Our operating expense performance in Q2 was better than expected and reflects strong operating leverage, principally due to our continued focus on expense management and prioritization of investments to support our future growth initiatives. Total operating income in the Q2 increased $7.1 million, or 13% year-over-year, to $63.6 million.
Our operating margin for Q2 was 19.9%, compared to 19.1% in the prior year period. The 70 basis point increase in operating margin was driven by a 200 basis point increase in our non-GAAP gross margin, offset partially by a 130 basis point increase in our non-GAAP OpEx margin compared to the prior year period. Q2 other expense net was $3.4 million, compared to $1.1 million last year. The change in other expense net was primarily related to an increase in interest expense associated with increased borrowings and rising interest rates, increased expense associated with realized and unrealized foreign currency losses. Q2 net income was $47.6 million, or $0.81 per share, compared to $42.3 million, or $0.73 per share in the prior year period.
We are pleased with our profitability performance in the Q2, where we delivered 13% growth year-over-year in non-GAAP net income and 11% growth year-over-year in non-GAAP diluted earnings per share, exceeding the high end of our expectations. Turning to a review of our balance sheet and financial condition. As of June 30th, 2023, we had cash and cash equivalents of $72.1 million, total debt obligations of $340 million, and available borrowings capacity of approximately $507 million, compared to cash and cash equivalents of $58.4 million, total debt obligations of $198.2 million, and available borrowing capacity of approximately $523 million as of December 31st, 2022. Our net leverage ratio as of June 30th was 1.2 times on an adjusted basis.
We generated $11.5 million of free cash flow in the Q2. Cash from operations decreased 55% year-over-year in the Q2, as a strong improvement in GAAP net income year-over-year was offset by a material increase year-over-year in use of cash for working capital. There were two primary drivers of the increase in working capital year-over-year. One, that we have talked about in recent quarters, the other is non-recurring in nature. Specifically, the increase in Q2 working capital use was due, in part, to a decrease in accrued expenses related to payment of the final Cianna Medical milestone payment of $13.3 million, $12.5 million of which impacted operating and free cash flow in the period.
This is a result of an accounting rule that required treatment of this specific final payment as cash flow from operations versus cash flow from financing. The other notable driver of working capital use in Q2 was related to the strategy we have discussed on prior calls to proactively invest in our inventory balances to build the requisite safety stock and ensure high customer service levels. We continue to expect to generate strong free cash flow generation in 2023, the majority of which we continue to expect will be generated over the H2of the year. Turning to a review of our fiscal year 2023 financial guidance, which we updated in today's press release. We have included a table in our earnings press release, which details the updated ranges for each of our formal financial guidance items and how those ranges compare to the prior year period.
We continue to expect GAAP net revenue growth of approximately 7%-8% year-over-year. The GAAP net revenue guidance range now assumes net revenue growth of approximately 7%-8% in our cardiovascular segment, net revenue growth of approximately 12%-13% in our endoscopy segment, and a headwind from the changes in foreign currency exchange rates of approximately $4 million. Excluding the impact of changes in foreign currency exchange rates, we expect total net revenue growth on a constant currency basis in a range of 7.3%-8.5% year-over-year in 2023.
Note, the midpoint of this range now assumes approximately 9% growth year-over-year in the U.S. and approximately 6% growth year-over-year in international markets, compared to 6% and 7% respectively, assumed in the guidance provided on our Q1 Earnings Call. The higher U.S. constant currency growth expectation versus prior guidance reflects the stronger-than-expected Q2 results and the anticipated contributions from the aforementioned acquisitions. The lower international constant currency growth expectation versus prior guidance is driven by the EMEA and APAC regions, specifically in Russia and China. We have revised our outlook for sales in Russia over the H2 of 2023 in response to the Department of Commerce's announcement in late May that they are strengthening existing sanctions under the Export Administration Regulations against Russia and Belarus.
The additional rules and approval process defined by the Department of Commerce has challenged our ability to meet the revenue expectations in these countries versus what we had assumed in our original guidance for 2023. With respect to China, sales results have modestly exceeded expectations over the H1 of 2023. We have moderated our growth expectations in China for the H2 of 2023, as we expect headwinds to growth related to recently announced VBP programs later this year. Our total net revenue guidance continues to assume contributions from the acquisition announced on June 8, 2023, from their respective closing dates through December 31, 2023, in the range of $13 million-$15 million.
Excluding revenue from these acquisitions, our guidance reflects total net revenue growth on a constant currency organic basis in the range of approximately 6%-7% year-over-year. With respect to profitability guidance for 2023, we have updated our GAAP net income and diluted earnings per share ranges up to $76 million-$81 million and $1.30-$1.39, compared to $87 million-$92 million and $1.49-$1.57 per diluted share previously. Our non-GAAP net income and diluted earnings per share ranges remain unchanged. For modeling purposes, our fiscal year 2023 financial guidance now assumes non-GAAP gross margins in the range of approximately 50.7%-50.9%, up 200-220 basis points year-over-year.
Non-GAAP operating margin in the range of approximately 18%-18.2%, up 110-130 basis points year-over-year. GAAP other expense of approximately $13 million compared to $6 million previously, and non-GAAP other expense in the range of $11 million-$12 million, compared to approximately $6.6 million previously. The increase in both ranges is primarily related to higher interest expense on incremental borrowings related to our acquisitions in June 2023. Non-GAAP tax rate in the range of 21%-22%, compared to 21.5%-22.5% previously, and diluted shares outstanding of approximately 58.5 million. Lastly, we would like to provide additional transparency related to our growth and profitability expectations for the Q3 of 2023.
Specifically, we expect our total revenue to increase in the range of approximately 5.5%-7.5% year-over-year on a GAAP basis, and up approximately 5%-7% year-over-year on a constant currency basis. Note, the midpoint of our Q3 constant currency sales growth expectations assumes approximately 8.5% growth year-over-year in the U.S., including approximately $6 million of acquired revenue and approximately 3% growth year-over-year in international markets. With respect to our profitability expectations for the Q3, we expect non-GAAP gross margins in the range of approximately 50.3%-50.6%, up 190-220 basis points year-over-year.
Non-GAAP operating margins in the range of approximately 16.6%-17.1%, up 50 to 100 basis points year-over-year. These margin expectations, combined with the higher interest expense year-over-year, are expected to drive a year-over-year change in non-GAAP EPS in the range of down 5% year-over-year on the low end, to up 3% year-over-year on the high end of the range. That wraps up our prepared remarks. Operator, we would now like to open up the lines for questions.
Operator (participant)
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again, by pressing star one. Please stand by for our first question, which comes from the line of Steven Lichtman of Oppenheimer and Company.
Steven Lichtman (Managing Director, and Senior Research Analyst)
Thank you. Evening, guys. I guess the first question on the AngioDynamics product acquisition, wondering if you could talk about sort of the early feedback from the field and, you know, what you see as the key opportunities to accelerate the sort of underlying growth of those products now under the Merit umbrella?
Fred Lampropoulos (CEO)
Yeah. Steve, this is Fred, thanks for the question. First of all, the strategy has always been to be able to strengthen and get ready for the WRAPSODY, which, you know, will be around here in the near future. To take a look at the Surfacer, the HeRO, and then how all of those products, and then to align a sales force along with that and be prepared for it. That is the basic thinking, and we think it's sound. I mean, we wouldn't have done the deal. We also are, of course, transferring the product to Mexico, and we have, you know, the guy that did our Becton, Dickinson deal, Greg Frede, who's sitting in the room with us, and he's running that program.
I think that it's an area that we know. Our customers are I think 99% or 98% were existing Merit customers. We feel strongly. I think the program is coming along as planned. Going to the question of growth, and without criticizing anybody else, essentially, on the biopsy side, there was 1 product sold in Europe, from the company we bought it from Angio. Merit has a broad, direct sales force. All of it is all distribution. And very candidly, it's something that we felt like we now have that full portfolio, which I ought to say, by the way, is something that nobody else has.
to be able to have the percutaneous, the acute, the chronic, the Surfacer, the HeRO, the WRAPSODY. I mean, who wouldn't wanna have that? The positive thing, I think, from customers is we love having all these pieces and all the access part of it, and we appreciate it. We've reached out to all those customers. We went order to cash almost immediately, and we're in the process of now transitioning over to our facility in Mexico. I think we continue to be optimistic about the opportunity and the ability to use this product to get growth out of it, because you're right, it was something that unfortunately, from they didn't do it, they just didn't focus.
For us, it's an exciting opportunity, one of the best I've seen, and we'll look forward to reporting, I think, this and the success of this in the future. I hope that answers your question.
Steven Lichtman (Managing Director, and Senior Research Analyst)
Yeah. Yes, thanks, Fred. just, you know, secondly, following up on your comments on the end markets, Fred, you talked about improving end markets. you also talked at another point about, you know, so, you know, some challenges out there, having come in better than expected here in the H1. as you look back, what are the biggest improvements you've seen in the end markets here over the last, you know, 6 months plus? you know, what are still some of the challenges that you think you need to navigate? Thanks.
Fred Lampropoulos (CEO)
Yeah, I'll hit a couple of these. I'll ask Raul to weigh in on these. You know, listen, I think the U.S. market is doing fine, and we continue to be challenges in other areas, but we still see growth across the entire gamut of our product lines. You can see the numbers on OEM, where, again, reliability becomes such an important factor. People buy from us because they're reliable, we're reliable, and that goes a long ways. Other people have had shortages. Now, we're not without headwinds and that sort of thing. Raul, let me give you a few minutes or seconds or whatever you want to do. Just do you wanna comment on that?
Raul Parra (CFO)
Yeah, no, look, I think we continue to be excited about the business. You know, Steve, obviously had, you know, great results for Q2. I think when you look at the back half of the year, you know, the implied, you know, organic constant currency revenue growth is, you know, 6%-7%. I think it's important to call out that we did let some of that beat flow through into the U.S. market. You know, that growth is gonna go 7%-8% versus the 6%-7% we previously had. I think when you look at the international market, you know, there's still some, you know, kind of noise out there, and we've accounted for it there, which is why we didn't raise revenue guidance.
You look at the international, you know, organic constant currency growth, it's approximately 5%-7% versus the 7%-8%. That's really due to two specific issues. One was the EMEA, kind of the Russia issue, right? There's different requirements now to sell into Russia, which we've accounted for as part of our guide. Then the APAC region, we got additional volume-based purchasing out of China that'll hit us in the Q4 of this year, or could. We haven't been very good at guessing this stuff, but it's accounted for in our forecast. So, those are really the two things. We're excited about how the business is doing, quite frankly.
Steven Lichtman (Managing Director, and Senior Research Analyst)
Agreed. Great. Thanks, Fred and Raul.
Raul Parra (CFO)
Yep.
Fred Lampropoulos (CEO)
Thank you, Steve.
Operator (participant)
Thank you. Our next question comes from the line of Jayson Bedford of Raymond James.
Jayson Bedford (Managing Director, Equity Research)
Good morning, guys. Can you hear me? Good afternoon, guys. Can you hear me okay?
Fred Lampropoulos (CEO)
Yeah, we can hear you, Jason. It's good to hear your voice. Thank you.
Jayson Bedford (Managing Director, Equity Research)
You too. Just picking up maybe on the China comment. Strong 2Q, I imagine it was probably a bit of a catch up there. I'm just more interested in the VBP commentary. The guide assumes an impact in the Q4. I guess I'm just curious, are these VBP programs in place now, or does the guide reflect what you think may happen to announce VBP programs?
Raul Parra (CFO)
They are announced VBP programs that the Chinese government has announced that'll happen in the H2 of 2023, Jason. As you know, we did have an impact, you know, that we had already included in our guidance, you know, for the year, our original guidance that we put out, you know, in Q1. This is incremental to that. Again, given that we had strong results, we didn't really have to change our guidance, just given that we had such a strong beat that we, you know, we're able to kind of maintain our guidance.
Fred Lampropoulos (CEO)
It's reflected in our APAC, numbers.
Raul Parra (CFO)
Exactly.
Fred Lampropoulos (CEO)
as well. It's in our model.
Jayson Bedford (Managing Director, Equity Research)
Okay. To be clear, the expectation, it starts in 4Q, not 3Q?
Fred Lampropoulos (CEO)
Yes, in the H2. Look, I mean, with China, it'll change tomorrow, Jason. I mean, I'll just say the H2, and I think that'll account for, you know, any changes there.
Jayson Bedford (Managing Director, Equity Research)
Okay. Just on the Q3 gross margin, you know, very strong 2Q, and I realize it always, I think, trends down sequentially. Is there an impact from the acquired assets that's weighing on the Q3 or Q4 GM, for that matter?
Fred Lampropoulos (CEO)
For the Q3, look, it's all, it's all in, right? What we think is gonna happen, most of what you're seeing is the impact from just, you know, reduced revenue. We've got, you know, fixed costs, you know, that we have to cover. And really, that's what's driving it. We, you know, we always see a decrease in revenue in the Q3. We always typically see a decline in the gross margin also, and also in operating margin and earnings, for that matter. You know, as you, as you know that, Jason, that's really what's driving those, that impact.
Jason Bednar (Managing Director, Senior Research Analyst)
Okay. Just maybe last one for me. In terms of endoscopy, that was probably the only wrinkle, I'd say in 2Q. Yeah, how confident it sounds like it's more of a supply issue than a demand issue, just the level of confidence here that you kind of have this fixed and under control over the next quarter or two?
Fred Lampropoulos (CEO)
Yeah. you know, listen, Jason, we finished, I think, 80%. I mean, we got all the other things done in one of the units. there's more work to be done, and, we just wanna make sure they're right.
Jason Bednar (Managing Director, Senior Research Analyst)
Yeah.
Fred Lampropoulos (CEO)
The vendor, we have absolute confidence in. I mean, they've done extraordinary work in transferring this over. I think we handled it as well as we could. And I think, what, last quarter was, what? 12%, 13%, 14%?
Raul Parra (CFO)
I mean, I think really, it's really just these final qualifications...
Fred Lampropoulos (CEO)
Yeah.
Raul Parra (CFO)
-that we're kind of waiting on, Jason. I think we have a, you know, we have a pretty good, robust plan. Just this is one of the issues that Fred was talking about a little bit earlier with Steve's question, right? There's still this kind of noise out there with supply chain and just, you know, availability of product. This is just one of the one areas that kind of hit us.
Fred Lampropoulos (CEO)
A lot of these little things.
Raul Parra (CFO)
Yeah.
Fred Lampropoulos (CEO)
-out there. Yeah, I hope that helps you, Jason.
Jason Bednar (Managing Director, Senior Research Analyst)
It does. Thank you.
Raul Parra (CFO)
You bet.
Operator (participant)
Thank you. Our next question comes from the line of Larry Biegelsen of Wells Fargo.
Larry Biegelsen (Senior Analyst)
Good afternoon. Thanks for taking the question, and congrats on a nice quarter here. Raul, I'm just, I have to admit, I'm a little confused on the numbers. I thought I heard you say the H2 implied organic growth is 6%-7%. Isn't it 6%-7%, still organic for the full year?
Raul Parra (CFO)
Yes.
Larry Biegelsen (Senior Analyst)
Okay. If it's 6%-7% for the full year, and you did, I think, about 9.5% in the H1, if, tell me if I'm wrong, the H2 implies about 4%. Is that right?
Raul Parra (CFO)
That's correct, Larry.
Larry Biegelsen (Senior Analyst)
Okay.
Raul Parra (CFO)
It does go down sequentially. Yeah.
Larry Biegelsen (Senior Analyst)
Okay. On the China and Russia headwinds, Russia, what % of sales are from Russia for Merit, and what is the, you know, the implied impact in the, you know, the H2 guidance? On China, could you tell us the same thing, which areas? Last time you had a VBP impact, you told us, you know, how much it was and in what area. Can you tell us what you're assuming, and for China, the amount and in what areas?
Fred Lampropoulos (CEO)
Yeah, we're not gonna give that detail, Larry. I think the last time we did this was, you know, a year ago, and we spent, you know, the better part of that year explaining $10 million. I think you can just... You know, it's implied in our guidance, you know, and it's, you know, 1% of the APAC growth change reflected in our guidance, if that helps.
Larry Biegelsen (Senior Analyst)
Okay. Russia, have you disclosed the % of sales for Merit? I can't remember.
Fred Lampropoulos (CEO)
Yeah, we won't disclose that. You know, it's baked into our guidance. Yeah.
Larry Biegelsen (Senior Analyst)
I got it. Okay, fair enough. Fred, I'm just curious, what's your view of catch-up or deferred procedures? You know, some areas you're seeing that. Does Merit have areas that you think would benefit from procedures that were deferred during the pandemic? What are you assuming in the guidance? Thanks.
Fred Lampropoulos (CEO)
Yeah. Larry, I think you stated it properly. That is, there are some areas, I think I stated last time we visited, that, you know, they're having problems staffing OBLs, let's say, in Texas, and maybe in the Midwest someplace. Here, in Utah, as an example, that's not a problem. In other areas, it's, you know, they've been able to solve it. It's spotty, but higher, but we do believe there's a lot of pent-up demand out there.
Larry Biegelsen (Senior Analyst)
Fair enough. Thanks for taking the questions.
Fred Lampropoulos (CEO)
You bet. Thank you.
Raul Parra (CFO)
Thanks, Jason. Thanks, Larry. I'm looking at Jason.
Operator (participant)
Thank you. Our next question comes from the line of Jason Bednar of Piper Sandler.
Jason Bednar (Managing Director, Senior Research Analyst)
Hey, good afternoon. Thanks for taking the questions, and all heck of the congrats here on a strong result here. Wanted to, you know, maybe follow up on one item of strength that just really stood out to us in the quarter, and it's really for the H1 of the year, but we'll focus on Q2, and that was gross margins. These aren't just moving higher on a sequential basis, but you're hitting new record highs in gross margin, which is just really extremely impressive in this environment. Not a lot of companies can say that, just given inflationary pressures. Understand the guidance here for Q3, but could you elaborate, you know, maybe with quantifying some of the contributors here that you're seeing in the Q2 on gross margins?
Also talk about your level of confidence and sustainability, of those gross margin levels beyond this year. Anything there on, you know, to what extent we might be able to consider additional upside that could materialize through, you know, additional pricing actions or benefits from these product line transfers to Mexico, anything like that?
Raul Parra (CFO)
Yeah, thanks. Look, you know, it's a great question. You know, we expect strong gross margins expansion in 2023, despite, you know, all the headwinds that are out there. I think we were very vocal when we gave our initial guidance, we continue to be, you know, happy with the way it's progressing. A lot of the contribution is really coming from our FFG initiatives, which include pricing. It also includes, you know, covering some of our fixed cost leverage. Tailwinds, you know, to gross margin that we're really getting, you know, the freight and logistics, which we've really focused on, you know, and have been very vocal about, you know, making sure that we can get, you know, things back on the ocean.
As far as, you know, you know, beyond 2023, you know, we're not going to talk about that. As you can imagine, you know, things are, you know, we'll continue to do work, and there's transfers and things that continue to happen. I'll leave it at that.
Fred Lampropoulos (CEO)
you know, I don't want to rehash what you just said because I agree with it all. I think, Raul made a comment, on our opening comments, and that is, it's working. FFG has worked, and we're now just starting to see some of the benefits of that. You know, it's not you make a decision and overnight it changes. Takes time for these things to work through our system and through our business, and it's working, and it will continue to work.
Raul Parra (CFO)
Yeah. Jason, the reason we've been so confident in the gross margin is because we've been working on some of these programs for, you know, not a month or two, I mean, years-
Fred Lampropoulos (CEO)
Years.
Raul Parra (CFO)
you know, in certain cases. again, we still got another six months to go, but the plan does call for, you know, for gross margin expansion.
Jason Bednar (Managing Director, Senior Research Analyst)
Okay, perfect. That's really helpful, guys, really comprehensive, too. Maybe to shift gears a little bit, you know, the recent transaction you executed with Angio, it looks like a fairly low-risk move, one that, probably has some nice operating margin upside and also even revenue growth upside you talked about earlier in the call. You know, on the deal, glad to see you're able to find an asset to your liking. Can you talk about, maybe philosophically, about how you're approaching the potential for additional M&A from here? Is there still an appetite? Do you need to get through a certain portion of the digestion period with Angio before taking that next M&A step? Have you identified procedural gaps that you'd like to fill externally, as you did with Angio on dialysis and biopsy?
Fred Lampropoulos (CEO)
Yeah. Well, thank you. I think we did a lot of work to sort this out and find it, and then to execute it. I'm very confident in our ability, in the transition agreements and things like that, of the people that are engaged in it. I mentioned Greg earlier, and the history we've had in the past, and very candidly, our associates in Mexico, very, you know, these guys know what to do. I think that there are opportunities out there. I think that being patient and being wise and not frustrating what we're doing, has been the key to it. I mean, there's a lot of stuff out there, a lot of people looking for money, but it has to fit the things and the criteria that we've set.
If it doesn't do that, it might be a great technology, but it's just not going to work for us. We like what has worked, but I think it's to do the things that we want, I think is maybe more difficult. I think our shareholders are going to have to be patient. I think you hit the nail on the head. I think the risk factor for this transaction was one that we felt that we could digest. I've also learned from the past, and that is when you try to do two, three, you know, big deals or product transfers, it really thins out your resources and capabilities. I think we've learned from that, and we all know about that period of time.
Aligning the sales forces and having a chief commercial officer and doing the changes that we've made over the last several years will be very, very helpful. Patience, and that patience will be rewarded, you know, from, I think, just good and wise choices. Raul?
Raul Parra (CFO)
I'll, you know, I'll add that we're well capitalized with, you know, sizable borrowing capacity, and we're only at 1.2, you know, on a, on a net leverage standpoint.
Fred Lampropoulos (CEO)
Yeah.
Raul Parra (CFO)
Yeah.
Jason Bednar (Managing Director, Senior Research Analyst)
All right. Appreciate that and, yeah, really helpful perspective. If I could just squeeze in one more, just, yeah, how much pricing might have added in the quarter, and then any views you have on what pricing might be within the H2 of the year and your guidance? Thanks, guys.
Fred Lampropoulos (CEO)
Yes. We're not going to disclose that. You know, we don't want to get into the volume versus pricing discussion, but, you know, I appreciate the question, but just know that it is having an impact.
Raul Parra (CFO)
it is one of our Foundations for Growth-
Fred Lampropoulos (CEO)
Yeah.
Raul Parra (CFO)
pillars.
Fred Lampropoulos (CEO)
Yeah.
Raul Parra (CFO)
Yeah.
Jason Bednar (Managing Director, Senior Research Analyst)
All right. Understood. Thanks.
Fred Lampropoulos (CEO)
Good. Thank you, sir.
Operator (participant)
Thank you. Our next question comes from the line of Mike Matson of Needham & Company.
Mike Matson (Senior Equity Research Analyst, Managing Director)
Yeah, good afternoon. I guess I'll start with the acquisitions as well. You know, looking at the products that you acquired, the dialysis products specifically, you know, in the slides, it did look like there was a little bit of overlap maybe between some of the acquired products and some of the catheters that Merit was already selling. Is that the case? And, you know, is there any risk of any kind of cannibalization or dyssynergies or anything there?
Fred Lampropoulos (CEO)
Yeah, Mike, thank you. listen, they have a number of catheters, let me point out a couple of things that are very, very important. One, as part of one of those catheters, we end up with an acute catheter. Remember, Merit's products are all chronic. These are the ones that have a cuff. Oftentimes in different types of accidents, where someone has renal failure, this and that, you'll do these other products. Merit didn't have that. That is really an addition, a smaller part of the revenues, but nevertheless, an addition. I think what we'll do is to go through and look at all this stuff, just like any of our other product lines and the things that we've talked about, we will do that as well.
I will say this, but I think that one of the things that I'm very excited about, and have been for a long time, is this Endexo, I'll call it a component, of the BioFlo. The BioFlo is a big deal. We just don't think that it has been promoted. I think that is something, and we will look at this like anything else, and try to come up with the right mix over time. I think for right now, it's getting this transferred, going through that transition, getting in place, meeting customer needs, getting our biopsy work done. By the way, it's very complementary, as we've talked about to biopsy, 'cause they didn't, you know, they didn't have biopsy products. Merit does have biopsy products.
When we look at all the little tactical issues and how they fit into the strategy overall, we think that it's going to be a great opportunity. Raul, you wanted to add something?
Raul Parra (CFO)
Just, I mean, if there's any overlap whatsoever, really, it's already in the numbers, you know. We would call it minimal.
Fred Lampropoulos (CEO)
Yeah. Just to that point, whatever overlaps will be replaced with something, and so we don't look at it as a cannibalism or a loss-
Raul Parra (CFO)
Yeah
Fred Lampropoulos (CEO)
of revenue.
Raul Parra (CFO)
Yeah.
Mike Matson (Senior Equity Research Analyst, Managing Director)
Okay, understand. Just on the Bluegrass Surfacer product, I don't recall the slides having any kind of estimate of, like, the market opportunity for that. Like, I mean, is this something that could ultimately be, you know, tens of millions of dollars of revenue? You know, is it also kind of a, I mean, where's the gross margin? Is it kind of significantly higher than your overall margins, or is it in line, or?
Fred Lampropoulos (CEO)
Yeah, Mike, let me answer that by saying that we think it is a contributor to gross margin. We've been selling this product for four or five years, but it was right in the middle of COVID. It was approved in Europe, and then we had to get some work done in the U.S. It was a difficult time to introduce a product like this. All of that being said, I wanna go back to the strategy. It's what it fits into, what it leads to, how it's complementary to the HeRO, and very candidly, a lot of input from physicians on how they liked one group representing, and they...
We listened to what they said over the years, and when our distribution rights went away, we looked at it and said, "This fits in this strategy." Particularly, as we moved in and looked at the chronic and acute dialysis products and biopsy and put all this together, there was a lot of thought that went into, look how these will work and how will we market this, and how does it differentiate the company? I won't go into all of the specific products other than to say, it is a product that we think will do very well and complement the strategy of the whole, of this whole process, which I think, is what we wanna focus on, is not one product, but the whole because there's a lot of subtle things, like I said, acute versus chronic.
Things that, you know, generally might not be understood by the investing public, but the strategy is one that's worth talking about because it's so much work went into it. I'm very pleased with the work and the thought that we did to come to that conclusion and in how we approached it. I think it was a relatively unique transaction.
Mike Matson (Senior Equity Research Analyst, Managing Director)
Yeah. Okay. All right. Thanks, guys.
Fred Lampropoulos (CEO)
You bet. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Jim Sidoti of Sidoti & Company.
Jim Sidoti (Senior Equity Analyst)
Good afternoon. Thanks for taking the questions, Fred and Raul.
Raul Parra (CFO)
Yeah, good to hear your voice, Jim.
Jim Sidoti (Senior Equity Analyst)
Again, I guess, everybody's focused on the transaction because it has been a while since you did one. You, when you completed the deal about six weeks ago, you thought you'd see about $15.2 million in transaction costs, about $3.5 million in interest expense. You know, six weeks later, are those still good numbers, or, you know, what are you thinking there?
Raul Parra (CFO)
Yeah, the interest that's expected or implied is about $6 million or about $0.04-$0.05 for the year, Jim. Then you would have had some amortization, which I think you're capturing in that $15 million, 'cause the transaction costs won't be that significant. A big portion of it will be amortization that obviously comes on as you fair value all the assets.
Jim Sidoti (Senior Equity Analyst)
Of that $15 million, it sounds like, the majority of that will be in the H2 of the year.
Raul Parra (CFO)
Yeah, the number I have is roughly about $11 million, just as a heads up.
Jim Sidoti (Senior Equity Analyst)
That's for amortization?
Raul Parra (CFO)
Yeah, just all in for, you know, the expenses.
Jim Sidoti (Senior Equity Analyst)
Oh, that's all in?
Raul Parra (CFO)
Amortization. Yeah.
Jim Sidoti (Senior Equity Analyst)
Okay. All right.
Raul Parra (CFO)
We might have gave you that number last time we talked, Jim, you know, or, yeah, we show $11 million.
Jim Sidoti (Senior Equity Analyst)
Okay.
Raul Parra (CFO)
Including the amortization. Amortization, yep.
Jim Sidoti (Senior Equity Analyst)
How much was in the Q1? Q2, sorry.
Raul Parra (CFO)
Oh, it would've been probably about $6 million, somewhere around there, $5 million-$6 million.
Jim Sidoti (Senior Equity Analyst)
Okay.
Raul Parra (CFO)
It would have been amortization, and then we would add some banking fees.
Jim Sidoti (Senior Equity Analyst)
Right. Okay. All right, you know, in terms of pricing, I know you don't wanna get too specific, but is it fair to say that the price increases that you've put in place are sticking?
Fred Lampropoulos (CEO)
Yes.
Raul Parra (CFO)
Yes.
Jim Sidoti (Senior Equity Analyst)
I think you said in the earlier that continued price increases is, it's part of the Foundations for Growth plan, you'll continue to put in price increases in 2023 and 2024? Or 2024 and 2025.
Fred Lampropoulos (CEO)
We have a program of pricing, that's an ongoing program. You know, some of these, various issues were contracts that will come to, but it is a pillar of Foundations for Growth, and it will be a pillar of consideration and growth going forward. It's not gonna go away.
Raul Parra (CFO)
Yeah, I think when I think of these, you know, Foundations for Growth, I always think of the foundational. There's a lot of things that we've changed, you know, what we do or how we do it at Merit, and this is just one of those pillars that Fred just talked about. You know, obviously, additional things, those things don't end on, you know, December of this year. They'll obviously help us, you know, in subsequent years.
Jim Sidoti (Senior Equity Analyst)
All right, the last one for me on China. You know, if I recall correctly, at the beginning of 2022, you were expecting some pretty significant hits in China because of the volume pricing, and as we went through the year, they didn't materialize. You know, you're expecting them again, but what, you know, how confident are you that they'll actually happen? Is there a chance that the same thing could happen, and they don't materialize in the back of this year?
Raul Parra (CFO)
Well, look, I mean, first of all, we are feeling the impacts of volume-based purchasing. It is, you know, within our, you know, P&L, and, you know, obviously, it's kind of hidden a little bit because we just continue to execute at such a high level, and the gross margin expansion, you know, continues. You know, I just want to make clear up that we are seeing the impacts. You're right. You know, Jim, we haven't been, you know, very good at kind of, you know, estimating the exact start of these things, but we do know that they're impacting us. China changes from day to day.
Fred Lampropoulos (CEO)
By the way, about the same as everybody else on the planet.
Raul Parra (CFO)
Yeah. Exactly.
Fred Lampropoulos (CEO)
We've never been able to figure it out.
Raul Parra (CFO)
I think what we have been trying to do, and I think we've done a pretty good job of, is just making sure that we're transparent with our investors, that and you guys know that, look, there's additional impacts that we hadn't accounted for, and we're just letting you know about those.
Jim Sidoti (Senior Equity Analyst)
Yeah, I guess the reason I'm confused is, you just had a very good Q2. You're guiding some revenue for the Q3, and pretty good as well. You know, it implies that the Q4 will be significantly slower growth, and I'm just trying to, you know, get my hands... Is that because of China or Russia, or, you know, I'm just... Are you being conservative? Just trying to understand what's going on.
Raul Parra (CFO)
Again, I think we'll just kind of stick to our guidance that, you know, we feel over, you know, pretty good about our guidance that we've given and the growth rate that we expect, you know, for the year, which is, you know, 6%-7%. The growth expectations in the U.S. have not changed versus what our prior guidance had assumed. It's really kind of those, you know, impacts that we're feeling from EMEA and APAC.
Jim Sidoti (Senior Equity Analyst)
Okay. All right. Thank you.
Fred Lampropoulos (CEO)
All right, Jim, thank you.
Operator (participant)
Thank you. Our next question comes from the line of Michael Petusky of Barrington Research.
Michael Petusky (Managing Director, Senior Research Analyst)
Hey, good evening, guys. Nice quarter. I guess I wanted to ask Raul, on the expectations for CapEx in the H2. I mean, that was up at $55 million for the full year, and it certainly seems like that is unlikely to come in that high. Can you just comment on what your thoughts are on CapEx for the full year?
Raul Parra (CFO)
Yeah, we've, you know, obviously have seen an increase in working capital, and we're very focused on our, you know, free cash flow target for the year. We have slowed down some of the CapEx, and, you know, that'll feed through, you know, the rest of the year, Mike. Our expectation is still to, you know, you know, we're still shooting for that $300 million of free cash flow.
Michael Petusky (Managing Director, Senior Research Analyst)
Okay, I mean, in terms of CapEx, I mean, it, I think at one point, forgive me, I may, I may be getting this wrong, but hadn't you said that CapEx would probably be somewhere around $55 million, or am I maybe misremembering that, or, like, I?
Raul Parra (CFO)
No, you're right. We haven't changed that. I guess I'm saying that, you know, we did slow it down in the Q2, and so that'll, you know, kind of feed through, right? We haven't changed the guidance. We haven't changed any guidance for free cash flow, for that matter.
Fred Lampropoulos (CEO)
CapEx.
Raul Parra (CFO)
CapEx.
Fred Lampropoulos (CEO)
It slowed down for the quarter.
Raul Parra (CFO)
Yeah
Fred Lampropoulos (CEO)
For the year, we haven't changed anything.
Raul Parra (CFO)
There's a lot of timing-based things that happen with, you know, capital expenditures and just free cash flow in general, to be honest.
Michael Petusky (Managing Director, Senior Research Analyst)
Okay. Okay. All right. So, in terms of the earnings guide for Q3, sort of the possibility that maybe you have a couple pennies negative comp or a couple pennies positive comp, essentially. I mean, it is a big, meaningful part of that around whether endoscopy sort of really continues to lag, or what essentially is sort of the delta between the two?
Raul Parra (CFO)
It's really just the revenue, right, that'll drive it.
Michael Petusky (Managing Director, Senior Research Analyst)
Sure
Raul Parra (CFO)
The gross margin, right? I mean, I think we've got the operating expenses that we've increased incrementally, you know, from quarter to quarter. We've got the incremental interest expense that's going up. It's really what impacts our Q3 every year from an earnings perspective and Op margin perspective, is really that revenue and how much we can, you know, where we end up on that, you know, between the high and the low of the guidance, you know, of the commentary we gave.
Michael Petusky (Managing Director, Senior Research Analyst)
Okay. Just one housekeeping, I probably should be able to figure this out, but I just want the extra sort of handholding. In terms of interest expense that you expect in the H2, I mean, is that roughly, you know, like seven and a half million for the H2, something like that, or is it-?
Raul Parra (CFO)
I mean, it's $0.04-$0.05, Mike, is the best way to kind of, you know, put it. Obviously, you know, a big portion of that's gonna happen in the back half of the year.
Michael Petusky (Managing Director, Senior Research Analyst)
Okay. All right. Well, very good. Thank you, guys. Appreciate it.
Raul Parra (CFO)
All right. Thanks, Mike.
Operator (participant)
Thank you. Our final question comes from the line of Bill Plovanic of Canaccord Genuity.
Speaker 11
Hi, this is Zachary in for Bill. Thank you for taking the question. Again, just on the free cash flow, you sort of touched on it there, but given you're at just over $13 million from the H1 and the goal for the year was $300 million, can you provide a little more color on how you're looking to specifically get there? Is it really just the CapEx, or is there anything else you can give us? Thank you.
Raul Parra (CFO)
Yeah, there's also some work being done on inventory. As you know, we've tried to move, Well, we haven't tried. We've actually done a pretty good job of moving our freight from ocean or from air to ocean. That, you know, obviously creates more inventory. We do have a plan in the back half to, you know, to start to eat into that inventory, so it becomes, you know, an addition to free cash flow as opposed to taking away. In addition, you know, we're just... I'll call out that, you know, one of the things that happened in the Q2, and it's not an excuse, but there is a kind of an accounting, you know, issue that happens when you originally fair value your contingent payments.
Anything that exceeds that fair value is actually, it moves from financing and into operating cash flow. That impact was $12.5 million. Really, in my eyes, you know, we hit about $25 million in free cash flow. I wanna call that out because it's kind of a unique thing. As you can imagine, we fair valued this contingent payment 5 years ago, you know, you know, before COVID and everything else that happened. You know, it's a good thing that we're paying the contingent payment, you know, above what we thought we would pay, because that means that Cianna is doing much better than we anticipated, which is good for us. You know, I did wanna call that out.
Just as a, you know, highlight, I guess, you know, we've generated over $200 million in free cash flow in the first 2 and a half years of FFG, despite, you know, all the headwinds in the global macro environment, supply chain, raw material costs, freight and distribution expenses, et cetera. Overall, you know, I'm pretty excited, and we're still focused on that $300 million of cumulative free cash flow. So, you know, we'll continue to work towards that. I think we've demonstrated, though, that, you know, this business is really capable of generating strong free cash flow, and we continue to expect this not only for this year but into the future.
Speaker 11
Great. Thank you very much.
Operator (participant)
Thank you. I would now like to turn the conference back to Fred Lampropoulos for closing remarks. Sir?
Fred Lampropoulos (CEO)
Yeah. Well, okay, everybody, thank you very much. For the staff, thank you for your preparation. Raul and I will be around for the next couple of hours to do our one-on-ones. We appreciate you taking the time on a busy earnings season. All best wishes from Salt Lake City. Good night.
Operator (participant)
That does conclude our Conference Call for today. Thank Thank you for your participation. You may now disconnect.