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Merit Medical Systems (NASDAQ:MMSI)
Q2 2018 Earnings Conference Call
Jul. 23, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Merit Medical Systems' 2018 Q2 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions].

And as a reminder, this conference call is being recorded.

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

Fred Lampropoulos -- Chairman and Chief Executive Officer

Good afternoon, ladies and gentlemen. This is Fred Lampropoulos, broadcasting from Salt Lake City. Thank you for taking the time today. We're excited to report our results to you but before we do that, Brian Lloyd, our chief legal officer, will read our safe harbor provision.

Brian?

Brian G. Lloyd -- Chief Legal Officer

Thank you, Fred. During our discussion today, reference may be made to projections, anticipated events, or other information which is not purely historical. Please be aware that statements made in this call which are not purely historical may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, and uncertainties that could cause our actual results to differ materially from those anticipated in such statements.

Many of these risks are discussed in our annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission available on our website.

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

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

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

Fred Lampropoulos -- Chairman and Chief Executive Officer

Thanks, Brian, and again, welcome, everybody. We're assembled here with our staff, and we again appreciate during our earnings season your attendance and interest in the company.

The first thing I'd like to do is introduce Raul Parra. Raul has worked for Merit for approximately nine years. And in that role, he has been the Corporate Controller and the Vice President of Accounting. The statement you've been seeing for many years have been prepared right by Raul.

Prior to his employment with Merit, he was an auditor for Deloitte & Touche. So he knows the business. He knows it well. And Raul, this is your first call.

We've had the opportunity to go out and meet with some shareholders and investors out in the field, I think, in Denver and Kansas City but this is your first one. So introduce yourself and we'll get on with it.

Raul Parra -- Chief Financial Officer

Yes, I'm excited to be here. Thank you for the opportunity.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK, great. Well, by the way, Raul has done a really good job, he stepped in. We haven't missed a beat. I'm getting the information I need, as well as our board.

And so, again, Raul, thank you very much and we appreciate it.

Well, let's talk about this press release now for a moment. And there's a lot of details to talk about and a lot of interesting things going on with the company but as you can see, we beat the consensus number for revenues by about $10 million. We also did that in the first quarter.

And so I think it's fair to say that the business is robust. It's coming globally but I think the thing to do now is, Raul, I'm going to ask you to weigh in here early and maybe talk about where the revenues are coming from and then maybe go through the numbers for the listeners on the call.

So, Raul, here you go.

Raul Parra -- Chief Financial Officer

Sure. So Q2 2018 revenue was approximately $225 million, as reported, a 20.5% increase over the comparable period of 2017. Organic growth was 11.7% or 9.8% on a constant-currency basis. Some highlights include worldwide dealers up 22.5%, EMEA up 10.5%, and OEM up 11.5% on an organic constant-currency basis.

Moving down to the margin for Q2, non-GAAP margin was 48.9%, compared to 48.3% for the comparable period, a 60-basis-improvement over the comparable period of 2017 and 140-basis-improvement from Q1 2018. I like to point out that this was the first sequential improvement in margin since Q4 of 2016.

The improvements came from improved production variances, obsolescence and product mix, and we expect to see continued sequential improvement in the margin for the back-half of the year and are committed to keeping the focus on growing our margins.

Q2 2018 total operating expenses as a percentage of revenue were approximately 35%, in line with our expectations. And on the EPS side, our Q2 non-GAAP EPS was $0.43, compared to $0.36 for the comparable period of 2017. Better than expected top-line revenue, improved margins, and cost discipline continue to help our EPS growth.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, thank you. Listen, just again to reiterate the core growth, I think, we guided 7.5% to 8.5% and we came in at 9.8%. And I'm going to give you some color on that. We've received a number of orders that have come from the Middle East from distributors for our legacy products.

They are not as profitable and have lower margins in some of the product but there's a lot of demand for Merit products globally, and we expect to continue to see that demand as we go forward.

I think the 140 -basis-point improvement on gross margins from the first quarter is significant. And I want to make sure that you understood what Raul said when he said that we expect to continue to have sequential growth in gross margins through the balance of this year.

Now we'll explain a little bit further in a moment about why we're kind of lowering a little bit but, again, I think that you would agree, I hope that you would agree, that there really aren't any multiples put on gross margins. It's one of the factors to show that you can bring more to the bottom line but I think the $10 million in the first quarter, $10 million in the second quarter, and the fact that I believe the consensus number on earnings was $0.40. So we beat the top. We beat the bottom.

We've had a nice improvement in gross margins but as we look forward, there's a bunch of opportunities and other issues on business, we think it's important and we'll have a long-term effect on the business positively that we need to be involved in. So we'll come back to that in just a moment.

So I think overall, the financial performance in my view is satisfactory. In fact, I think, as I mentioned, we beat top and bottom-line numbers. So let's go on if we could for a minute and talk about some other recent developments. These are not what I'll call material issues but a few little things that will be of interest to you.

You're all familiar, of course, with the NinePoint agreement. And we're already starting to see the benefits of NinePoint Medical and that OCT Technology along with our sales force. And you'll see for the quarter and for the year that our revenues now have made a very, very nice move in terms of the growth in the business and we expect to continue to see that. They are playing off each other very, very, very well.

And we've closed some ration accounts at Mass General, the VA and Houston, and other accounts where we're getting the benefit of this technology along with Merit's existing products.

Merit recently purchased the assets or the distribution rights from a company called DirectACCESS. And these assets for these products, which are approved and in the marketplace for the high-pressure PTA Balloons that are used specifically when you're doing work with fistulas, where you have blockages and you need to open up the areas around the anastomosis. It's a business of about $2.5 or $3 million. They really had a very, very small sales force, a couple of people and working through distributors and that will now go into our entire peripheral sales force along with a number of other complementary products that go along with it.

So we're excited about that. And then we became the exclusive worldwide distributor for the Q50 PLUS Stent Graft Balloon. And this is a product that we buy from QXMédical. It has above average gross margins corporate average.

It was being sold by a third-party, one of the larger companies who decided to either bring it in-house or have somebody else produce it. They've been selling it for nine years. It's well accepted in the marketplace.

I'm not aware that there's a lot of international business but with our footprint, we think that we can do a nice job and we're already seeing this business play out very nicely. The other business we're doing, by our records, about $6.5 million to $7 million a year. And again, our goal is to go out and meet the needs of existing customers who can't get that product any longer and who are buying it from us. So these are things that fit into our long-term strategy and we're very excited about it.

I want to talk for a minute about the legacy products and some further color on tenders. We recently participated in a tender in the Middle East. Last year, that tender was about $1.5 of business. This year, we received rights or, at least, an opportunity for $6.75 million.

Now that's a significant opportunity. And in these tenders, being present, having your products in place is really significant for the long-term. Again, these are the legacy products. You might get a little bit lower gross margins but we think that it's better to do that than have to establish the business for other products like, for instance, the HeRO other than that are high margins but having a presence there is important.

So again, we have modified our gross margins and lowered them simply because we believe having these opportunities are important for the business over the intermediate long-term. And I think that if you really understand this and I'm trying to do that, you'll agree that, as I mentioned earlier, that that top line and then the ability to maintain those expenses in the middle are very, very important.

So I want to assure everybody of our discipline that everything is in place that we're committed to growing the business. I think, you all know that but I think in some ways it's been a gross margin story and that's all it's been. And I don't think that's the proper way to look at it. At the same time, we're not abandoning our gross margin goals, we just think there's a mix.

Now, Raul, I'm going to ask maybe if you want to add just maybe a little color to this just from an accounting point of view because there are some cost and expenses in there. Why don't you speak to this?

Raul Parra -- Chief Financial Officer

Yes, I just think the mix has changed and so we need to adjust our margin because of that. We're also seeing some additional costs like shipping and labor costs and that are impacting our margin as we look forward. And we have some opportunities on a customer that you're going talk or a competitor that you're going to talk about that will impact that, too. So as we look forward, we just want to make sure that we got it properly and then move.

We're just people understand what's going on.

Fred Lampropoulos -- Chairman and Chief Executive Officer

So let me move to that then with those comments and that is that there has been a disruption in the marketplace. I want to go back a few years to a previous disruption. And I think there was a lot of concern about well, how much of this you're going to get and then are you going to be able to keep it. It's really interesting to note that that business grew very nicely and then it kind of topped out interestingly enough, instead of going down, it actually continued its growth.

I believe last year was up 18% or 19%. And for the first six months of the year, this year, the Impress catheters, which were part of that recall that you're all aware of have now grown over 21%. And we expect that to continue and very likely to accelerate as we look at that product line.

So I think in some ways, as someone mentioned, this is somewhat the straw. And by that I mean, this particular competitor, which is a great company but they've stubbed their toe. And the interesting part for Merit is this covers our micro-catheters, we have three or four of them, a new one recently introduced called the Pursue, which you'll be hearing more about in the future along with a SwiftNINJA and the Maestro.

It affects our sheet business and not just the new IDeal or the EASE but even the ones that Merit has been selling for a very long time for over 15 years. There's a huge disruption and we're seeing demand globally. We're seeing it for our Guide Wires, our Hydrophilic Guide Wires. Along with those Guide Wires, we're also seeing uptake for our InQwire guide wires.

We've seen these radio sheets that I've mentioned also pick up the Sync business. So literally, the closure product that Merit introduced some six months ago has almost tripled in demand just in the last few weeks. Now in the second quarter, there were only about two weeks of this disruption. This quarter, this summer quarter, we'll see that and I think was appropriate.

There's some of this disruption in this improved forecast but I think we've also been very conservative like we were with Cook. You will recall, we said that we think it could be this or that and we'll update you. I will tell you that business is robust. All a number of our factories in Texas, in Ireland, and Salt Lake City are literally working 24 hours a day and working weekends over time.

We are very, very, very busy in our entire business. It's not just this disruption, well, it covers a lot of products.

So as time goes on, we will keep you briefed. You'll see the results of that in the third-quarter report and it's a significant opportunity for Merit and so all of our products. So I think, there's enough said about that but that being said, listen, the great quarter revenues, earnings, a slight adjustment because of mix and some other issues and now we're going to turn some time over we've talked a little bit about guidance but I want to get specific about that. And Raul, why don't go through our guidance and maybe a little color on where we're going?

Raul Parra -- Chief Financial Officer

Yes, I'll just recap it real quick. So everybody has the opportunity here. Our revised revenue is between $870 million to $880 million, a 20% to 21% increase over the reported revenue of 2017. Gross margin on a GAAP basis will be between 45% and 45.5% and gross margin on a non-GAAP basis will be between 40.9% and 49.4%, an 80- to 130-basis-point improvement over 2017.

On the earning side, EPS GAAP will range between $0.80 and $0.20 for 2018. On a non-GAAP basis, the range will be between $1.60 and $1.70. For our tax rate, we are still forecasting our rate to be between 25% to 27% for the back half of 2018. Fred?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, listen, I think by any measure, the business is growing extraordinarily. I mean, it's doing well. It's robust. We're busy, it's a summer quarter.

Generally, in the summer, we guide down. I think most of the consensus is guiding down and we're going to leave it there but depending on how all this other stuff works out, it will be interesting to look at this third-quarter report.

Well, listen, I think we've covered it. Revenues, opportunities, we haven't talked about new product pipeline but there it's full and new products coming out. Our distribution globally is a huge advantage. I know everybody gets all round up about tariffs and this and that and we've chosen to ignore all of this.

Our customers want our products. We have the capability to produce them. It's all hands on deck. And, first of all, answering your questions on this quarter, we'll look forward in the subsequent quarters of reporting the numbers to you.

Again, thank you for your time. And I think what we'll do now is turn the time back over to our administrator and we'll take your calls, as well as Raul and I will be here for a couple hours after to make clarifications not to add any new information but to make clarifications on the data that's in our press release.

So, that said, let's turn it back over to the administrator.

Questions and Answers:

Operator

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

Jim Sidoti -- Sidoti & Company -- Analyst

Good afternoon. Can you hear me?

Fred Lampropoulos -- Chairman and Chief Executive Officer

We can, Jim. How are you?

Jim Sidoti -- Sidoti & Company -- Analyst

Good, good. Good to hear from you. Just you start right out with the issue you brought up toward the end about some production issues at one of your competitors. If I look at Slide 14 of your deck, it looks like those affecting the micro-catheters, the catheters in the compression device.

And so just a couple of questions. First, can you confirm was that Terumo, that competitor?

Fred Lampropoulos -- Chairman and Chief Executive Officer

The answer is, yes.

Jim Sidoti -- Sidoti & Company -- Analyst

OK. And do you have any sense of how much business they're doing with those products?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Jim, listen, it reminds me a lot of the Cook situation. However, in this situation, as you look at both slides 13 and 14, you'll see that this covers a number of Merit products from Guide Wires to sheaths to micro-catheters, closure devices and someone and so forth.

So, they made an announcement or they sent a letter out to their customers. In that letter, they actually referred them to Merit, our customers to Merit. They've talked about being back on the market in a press release publicly stated in August but what we're seeing, I'm just telling you, you asked the question, I'll tell you that, our best estimates, and this is just a estimate, there's about a $0.5 billion with the market opportunity out there. Merit is currently doing about $50 million in these products.

And I would just simply say that there's a lot of demand I will tell you from what I'm seeing and what's on the order desk and the activities globally. And I think that's, goes back to one of the issues on our margins and the things that we wanted to be cautious about. We have to fill a global pipeline here.

So we're seeing it in Europe, we're seeing in Australia, we see in Canada, we're seeing it in Brazil, and everywhere. And so we have to fill those. Like any of these situations, it's my belief that what this really helps to create is an opportunity, where ideas in the past of having a single source, I think, are really all the ideas.

Hospitals have to make sure they can treat patients and have to be able to deliver those products, it's my belief, a number of people who have bits and pieces of these products but Merit has the broadest product line in my estimation for the ability to fill these needs globally.

So, we essentially have everything that's on that list our products to fill, whether it would be and some of these, by the way, the Impress Catheters that it really goes to the hydrophilic catheters, closure devices, micro-catheters, and the big one is the sheaths and Guide Wires.

So it's the biggest opportunity that very candidly I've ever seen in the 37 years I've been in this business. And I think once that window is open, it will help us across the board globally. So I think I use the term I have a guy sit in the room from the Navy. And I said all hands on deck he got all fired up and was giving me thumbs up but we have another way to say in the army but we'll say with the Navy terms, all hands are on deck and we're very, very busy out here, Jim.

Jim Sidoti -- Sidoti & Company -- Analyst

So if you look, you beat the quarterback about $10 million in revenue. You raised your guidance by about $30 million. So should I assume that the bulk of that is related to this production issue?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Actually, I think, I'm looking at the numbers here but I think the guidance number, Raul, is confirming this. I don't think it's $30 million for the balance of the year, it's less than that, Jim but let me go to say that it's a summer quarter, and summer quarters, as you know, can be interesting, but with the momentum we're seeing, there is part of that that's in that number. And so, Raul, before I go to that what is it?

Raul Parra -- Chief Financial Officer

A prior year, I believe, is what you said.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Oh, you're looking at the prior year, OK. Yes, we're just talking square I think for the balance of the year, we put about another $16 million or so in our forecast.

Raul Parra -- Chief Financial Officer

Yes.

Fred Lampropoulos -- Chairman and Chief Executive Officer

So then, I think you're asking, if we did 10-10 and then to the last half of the year, you say, you're going to do the same, does that late lead to any upside? And the answer is, if this continues to play the latest trade now for a month-and-a-half, then I suppose that's where the upside opportunity is but again, it's our forecast, it's one of the new but I think that there is upside even to that but again, it's always hard for me to raise things into a summer quarter just cause it's so unpredictable.

This one though is a little bit different from anyone we've ever seen. So I don't know how I'll answer to you, Jim. I'm going to say that there is not a whole lot in the second half of the year that's really attributive, there's some but not a whole lot but I think that's where the upside will come if it materializes. [Crosstalk]

Jim Sidoti -- Sidoti & Company -- Analyst

So you indicated this is about $500 million market, you're doing about $15 million in revenue, so you have about 10% on the market. Where do you think that number can grow to?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Boy, that's a tough question. Listen, if there is $25 million to $50 million worth of opportunity for us on an annual basis looking out a full year, and the answer is, yes. Is it more than that, less than that? If I were just looking at it and we've had the benefit of looking at this now for about a month-and-a-half. It really depends on how quickly they can fill the pipeline.

Again but much like other situations, they've already extended out a month beyond what they originally said. But I think maybe the more important issue is not what they do. I think that, as I mentioned, I think they stubbed their toe and the opportunity will be for us to go in and show that we have options. We have micro-catheters, we have devices, we have the sheaths.

And fortunately, for us, we have the PreludeEASE and we have the Prelude Ideal. So these are the best-in-class. So, we don't just have other products. We have great products to compete here, and I think it's going to make a huge difference.

And by the way, these are our existing customers but it really opens up the opportunities in a lot of areas for us, Jim. So it's a great opportunity because we're trying to restrain ourselves but we're really busy.

Jim Sidoti -- Sidoti & Company -- Analyst

And you think you have the capacity to be able to handle it?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Geez, Jim, come on. Give me a break. So listen, we're putting additional capacity in place already. We are already in order to meet the demand working over time but you have to fill the front end of it with raw materials, and you have to move these products out.

And like I said, in Texas, in Ireland, in Salt Lake City, it's all hands on deck, and we'll be able to meet.

Now we have other competitors out there who are also trying to meet the needs but some of them might just have a catheter or a wire but I don't believe there's anybody else out there that have the mix and the breadth of product line that Merit has. So I can say, I think with reasonable confidence that Merit is going to be the big benefactor here. We simply have the goods. And again, if you look at our slide deck on our website, I think, it'll become very apparent to you about what the opportunity is for Merit products.

Jim Sidoti -- Sidoti & Company -- Analyst

All right. Well, it sounds like you've got a lot of work to do, Fred, for what you go?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. All right, Jim. Hey, good to hear your voice. Thank you.

Jim Sidoti -- Sidoti & Company -- Analyst

Thank you.

Operator

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

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

Oh, good afternoon. Thanks for taking the question. Say, Fred, the guide increases $20 million to $30 million on the year, and I know some of that occurred this quarter but of what remains -- and you threw out some numbers for the distribution agreements as well as the Middle East tender as well as the potential for garnering and retaining share from Terumo, and some was undoubtedly organic strength -- could you just a portion how much the raise in the guide is to those various factors, organic spread, the supplier woes, the inorganic ads through distribution, and the Middle East tender?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Let me start with the deals that we talked about. You probably have seen in the last half of the year, $3 million to $4 million, that would be my estimate for those add-ons. Again, we're already halfway through the year.

Some of that business is in place. By the way, this will go into general growth, not organic. So I think that's one thing I want to clarify, that there will be in overall growth and not the organic side.

On the distributors, and by that I mean the tenders and things like this, those are all scheduled to be delivered during this year. That's just again incremental business we've had in the past. However, a few years ago when oil prices were dropping, we had orders like that and they canceled them and moving them into the following year. Now, I don't anticipate that that will happen but these things are always interesting to watch and there are factors that come into play from time to time.

If I were to look at it today based on what I see economically and with oil prices, all of that should be delivered before the end of the year.

So that's the distributors, that's the other amount, doesn't leave a whole lot more. We take just a look at organic growth and then you take a look at this opportunity. So again and listen, there's no question that our forecast in my view is conservative but, again, remember, we're going to enter this into a summer quarter. And last year, I think, we missed it by a couple of million dollars.

So we have not put a lot of this opportunity into the balance of the year. There are some additional costs, as I said. You've got some of these are new products. So they're ramping up and they're not at the full margin but all of this business helps us.

I mentioned one about the Sync. The Sync is a product that's not part of this recall or excuse me, it's not a recall, I'm sorry, I misstated that but it's a shortage but the Sync goes with every one of the sheaths that are part of this issue. So we've added additional capacity. Fortunately, we saw a lot of this coming just for general demand for the product.

We had planned on the IDeal and the Sync to be big growers this year simply because they've better products than our competitors. And fortunately, equipment and these things were already in place but still has to be brought online.

So again, not very much from this. And we'll keep everybody briefed on this. I mean, I wish we could almost give you a weekly report because it's that dynamic but we can't but what I can say is from when it first started, it's accelerating. I don't see it slowing down and the size of the market and the opportunity is substantial for Merit.

And that's the best way I can say it and we'll just have to let it play out and report it but that's the best I can do.

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

And Fred, like when you look at the valuation of the company, you guys clearly outperform on the sales metric on a EBITDA metric, it's been a work in progress. And just with valuation in mind, is there any lever that can be pulled next year now that you've laid the groundwork for these tenders and incremental sources of business, where you could kind of make up some of the lost margin progression that you volitionally gave up this year and maybe make up make a back up, so you can get back on the trajectory that you articulated before?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Well, and I think it's a really good question and I appreciate it. Look, we were 140 basis points sequentially. And I think Raul pointed out that it was the first time that we've had consecutive quarters.

We didn't have a follow-up and it's our commitment to continue to grow gross margins. And I think to be very candid with you that as these products come on and absorb and we start to see more and more ...

Raul Parra -- Chief Financial Officer

Overheads.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes, overhead covered, variances, as I think, we call them here. Those are all going to flow and once you pay those bills. So I think that we have to hire people. So I'm just giving you an example.

I mean, we hired 32 new people today. We hired 40 new people in Ireland last week just in those two plants just in one week to keep up with this demand.

So if you look at that sort of stuff, you're going to have these but would we not do that and not take advantage with the opportunity, the answer is, of course, we would. So I do believe that with mix with absorption, with higher margin products and all of these products because of the volume particularly in some of the new sheaths and those sorts of things and even the guide wires will absorb more and our margins will actually improve on these with these volumes.

I mean, I think that's the economics that we always look at is improvements in volume to absorb the overhead. So the answer to your question is, yes, I do believe that we'll see continued gross margin improvement and that's our goal. I mean, we know that that's what everybody's concerned about.

On the other side of a coin and I pointed this out in my earlier remarks, we can get higher gross margins and not worry about revenues. Is that the right thing for the business? Sure, looks nice for a short period of time. This is a growth business. This is a business that is managed professionally.

We'll control those below the line expenses and we will continue to deliver in my view above the average performance in earnings.

So again, tomorrow morning everybody's going to be sweating this stuff and that's your job. My business and my job is to do all of these things, grow that top line and I think we did an extraordinary job to continue to manage, lowering of costs and improvements and efficiency, and then bring those bottom-line numbers and look for the future to make sure that it's not just last year and this year but into the future.

So I know, again, the past as you've looked at, again, this is a long answer, but people said, "Oh, well, they can do this but they can't do that." The answer is, we can do all of it and we will continue to do that. That's our commitment. Everybody sitting in this room and they know what we need to do but you don't have opportunities like this pop up very often and you've also had, listen, I don't want to --  you've had FX. So looking at the latter half of the year, we're going to get really no benefit as we look at it to maybe $2 million down on FX. On the front end of the year, I believe we had almost $9 million of positive FX.

So we try to account for that and say OK, that helped us. It might be flat and slightly down in the latter half. We don't know but that's how we've done it in our forecast. You've got increased expenses and labor.

We have a 3.1% unemployment -- listen, you're familiar with all of these. You have the cost of fuel.

All of that being said, we believe that the momentum of the business, the acceptance of Merit products, overrides all of this and will give us the returns that we're excited about reporting as we look forward, Bruce.

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

So much, Fred. Have a good day.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK. So thank you.

Operator

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

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Good afternoon and thanks for taking the question. Congrats on the strong quarter and, Raul, congratulations on the promotion.

Raul Parra -- Chief Financial Officer

All right. Thank you, Larry.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Hey, on the organic growth guidance, is 7.5% to 8.5%, I didn't hear an update on that. Did you raise that, Raul?

Raul Parra -- Chief Financial Officer

Yes, it's going to be 10% to 11%.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

So the new guidance is 10% to 11% organic. So that's excluding currency and excluding M&A, is that correct?

Raul Parra -- Chief Financial Officer

That's right, core growth on a constant-currency basis.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's helpful.[Crosstalk]

So year to date, by my math, that was about 8.5%, Raul. And so you're implying a pretty big acceleration in the second-half. Is that fair?

Raul Parra -- Chief Financial Officer

That's fair.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

OK. And Fred, I hate to come back to this but the Terumo contribution in the guidance. I mean, as you threw out a number, Fred, of $16 million, I think earlier there were a lot of moving parts here on these new distribution agreements to tenders. Is that the right way to think about how much you're assuming in the second-half benefits from Terumo, or did I miss here? I'm just trying to get a little bit more precise.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. So again, in our last-half of the year, we raised guidance by about $16 million. Some of that is these distribution deals, it's not a big part of it. Some of it is some tenders.

Some of that is just our standard growth but listen, Larry, I mean, we did $20 million in the first-half growth above our forecast.

We're seeing $16 million in the back and we've got this opportunity not just for this product but our new products that we're introducing. That's what the upside comes from. Again, we're just trying to be conservative and not get out there too far and say OK, I mean, I don't know how to say it other than that because ...

Larry Biegelsen -- Wells Fargo Securities -- Analyst

The past two weeks of visibility.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes, we had two weeks in the quarter and we've got almost a month here. And looking at this, I mean, it's fair to say that I mean, we're ramping. We've got people we've hired. So we're not doing that because we think it's a fluke or short-term.

That being said, it had to materialize and I have to have a number. So I'm not going to come out and say, it could be $25 million this year.

On the other hand, that's where the upside comes, I think, for the balance of the year. So we see strong growth, stronger organic growth. And all of this other stuff, we're not defining it may be as much as you'd like us to because we don't want to be wrong but listen, from what I'm seeing every day and I have watched this now for about 30 business days, it just keeps accelerating and we're also then seeing those customers that with the original orders much like reordering, and that's the business we're in, as we meet customer needs and that's what we're seeing.

I mean, I'll say this that if it gets to a point where we have to adjust it, we'll do that because I don't want to be getting to the end of the next quarter and have something that it's a way out of ... we blew it out. On the other side of the coin, it's summer, Larry, it's summer and you never know what to expect but I'll tell you what looking at July and the momentum that we're in, it's an exciting time for the company. That's the best way I can say it. And as it continues to materialize, we will do our best to keep shareholders informed.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's helpful. So what are you assuming, Fred, on when they'll be back to the market, one question on Q2. Did you see a benefit from to remind Q2 when you're assuming that will come back to the market? And that's it for me. Thanks for taking the questions.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Thanks, Larry. So we only had a couple of weeks. The last two weeks of the quarter, they started popping up.

We saw we have some business from there. Of course, it's continued to accelerate almost every day since that time. Now what I said originally is they will be back in July. That changed to August but as these things generally go, they have a tendency, and I'm talking about Merit's own experience.

They have a tendency to take longer than you think they do but, listen, if it stopped next week or a month, the opportunity has still presented itself. Merit will continue to benefit from this for years.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Understood.

Fred Lampropoulos -- Chairman and Chief Executive Officer

For years.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Thank you.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Thanks for taking the questions.

Fred Lampropoulos -- Chairman and Chief Executive Officer

You bet. Sure. Thank you.

Operator

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

Matthew OBrien -- Piper Jaffray -- Analyst

Afternoon. Thanks so much for taking the questions and I'd like to also add my congratulations to Raul on the permanent CFO position. Sorry, keep harping on this Fred. I'd like to kind of split the performance in the quarter or the question here between sort of the top-line growth goes between both organic performance and what really drove that, which is really, really good because you've raised that quite a bit.

If you can just tease that out a little bit more?

And then you think you said you hired 40 people in Ireland and 32 people this week. I think that was primarily for Terumo specifically, where those temps are permanent hires and if they are either of them, I guess, what that kind of suggests that you're thinking that the impact of that opportunity could be significant for the back-half of this year and then for years to come? If you can just talk a little bit more about how to kind of frame that up?

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK. Let me start with the employment and then I'll let Raul address the issue. Let me add one more to it because not only is it in Salt Lake City, where we had 32 new employees today, and the new employees that we hired in Ireland. We've also hired new employees in Texas, so the number is probably bigger than that.

Generally, it depends on the area. We do hire, in fact, some temps from time to time, not a lot but we do use it as a tool but I will say this that because of the labor pool, where we're looking for permanent employees all the time. And so the employment issue is one that we will use the temporary thing like I said but it's a very small percentage, we're looking full-time employees to work at Merit.

And, as I pointed out, this is what I believe, this is not just an opportunity for this month or next month or for the balance of the year. This is an opportunity for many, many years to come. Why? Why do I say that? And I made comments earlier about this but to maybe reconfirm those.

Hospitals realize they cannot allow themselves to get into a position just to rely on one party. If you do that, listen, in manufacturing, you have to have alternative vendors. You have to have backup plan A, B, and C. And hospitals I think are going to figure out that after the court situation and with this that they have to rethink what they're doing and that's what I believe this is a long-term situation, where people don't have to think about their sources and how do they make sure they can treat patients.

So it's a long-term opportunity.

Now, Raul, I'm going to let you talk a little bit about where the organic products came from. Do you want to go ahead and address that?

Raul Parra -- Chief Financial Officer

Yes, we really thought across all regions. If you look, worldwide dealers was up like we mentioned, what was that? Worldwide dealers was up 22.5%, EMEA was up 10.5%, OEM was up 11.5%. So across all regions, we're seeing a lot of strong sales. On the products, organic constant currency, some of the contributors were in catheters, 19%.

EP, we covered likes. If you remember, last quarter it was kind of flat and this quarter, it's 17.3%. Inflation devices were up 13% and stand-alone devices were up 13.5%. So really we're seeing it across all product lines and across all regions.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, and I should also mention, Matt, that our business for catheter connections, our antiseptic cath [ph], are up about 46% this year. Our business is up on our Argon critical-care business. So our business is up, essentially as Raul pointed out, across the board. So, it's everywhere.

And a couple of you guys, again, I have to make an apology here to Raul.

Over the weekend, Raul was appointed as our chief financial officer and the "interim" went away. It was a unanimous decision by the board and it was one that I supported as well. In fact, it's one that I recommended. So just so we can get that, I think, it's in our 8-K today and you'll see it there, so that we have that all cleared up.

So, Matt, does that answer your question?

Matthew OBrien -- Piper Jaffray -- Analyst

Yes, very helpful. And as my second question just you've guided down about 100 basis points here on the gross margin line. And I know, Fred, that you're thinking about top-line growth and driving things there, it makes total sense to me and we're seeing it on the organic side but can you just, maybe you or Raul, just tease out where that 100-basis-point guide-down for the year comes from, be it the tenders or I'm sorry, the stocking [ph] that you got in the Middle East or the additional labor and shipping costs. And then as we think forward on the three-year outlook for the business, you've committed to 100- to 150-basis-point improvement in that metric.

Is that still on the table? Thank you.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. Let me just weigh in just a little bit before Raul does. So I want to make sure because it's the second time [Inaudible] said the three-year plan. That was the original plan and we added two years, not three.

And we said that our goal was to grow the business 7% to 9%, grow gross margin by 100 to 150, and grow the bottom line 13% to 15%.

So those were those goals, and we thought the appropriate thing to do was to extend those out. Well, now we see these opportunities come up and, of course, nothing stays the same. I mean, nobody thought that oil prices would be up $70 a barrel and those -- and labor, labor costs. Those are legitimate issues in all of our facilities worldwide and they'll continue to be.

So I should say that we'll continue to move additional product lines to Mexico. We'll continue to bring more and more automation in and do those sorts of things to drive margins, but Raul let me go ahead and let you take it from there.

Raul Parra -- Chief Financial Officer

Yes, Matt, I think it's easier to talk about it on a yearly basis. So basically, what we're guiding now is 80 to 130 basis improvement year over year. And we see about 20 to 60 coming from organic, essentially manufacturing efficiencies. And then the remainder is going to be 60, 70 basis points from the biopsy and drainage, and that includes some of the integration expenses.

So we're netting that down a little bit. We previously had guided about 60 to 120, 130 basis points there. So we're bringing that down based on some of the integration expenses that we've had. And then some of the expense that we see in the fourth quarter as we start to manufacture our own product.

Hopefully that helps.

Matthew OBrien -- Piper Jaffray -- Analyst

OK. Yes, it's very helpful, Raul. I appreciate it but just to be specific on the outward year, should we still think about the gross margin improving versus this year close to that 100-basis-point level or something below that?

Fred Lampropoulos -- Chairman and Chief Executive Officer

It will be our goal to have our gross margins at that level, yes.

Raul Parra -- Chief Financial Officer

Yes, we're not shying away from that. I think we've said it several times.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes, I think that's really important that it's not the end of the parade here.

Matthew OBrien -- Piper Jaffray -- Analyst

Yes.

Fred Lampropoulos -- Chairman and Chief Executive Officer

There's a lot more to go. There's, again, once these products and the sales, we get the efficiencies of manufacturing these products and get those costs out and don't have to pay overtime, don't have to -- I mean, we're literally shipping product, guys, almost every day by air, all over the world. I mean, we normally would put it on the sea or there'd be a weekly, but in order to take advantage of the opportunity, we're spending the money and that's going to cost money. That being said, I want to remind you, we're going to be up sequentially next quarter gross margins and the following quarter.

So we will continue to move, even though we have these and what's helping us there is what, these top lines and the upside is the opportunity. So that's the best way I can explain it.

Matthew OBrien -- Piper Jaffray -- Analyst

Got it. Thank you so much.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK.

Raul Parra -- Chief Financial Officer

No problem.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Good to hear your voice. Thank you, sir.

Operator

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

Jason Mills -- Canaccord Genuity -- Analyst

Hi, Fred. Hi, Raul, thanks for taking the question. Can you hear me, OK?

Fred Lampropoulos -- Chairman and Chief Executive Officer

We can, sir. Thank you.

Jason Mills -- Canaccord Genuity -- Analyst

So congratulations on a great quarter, obviously. I'm just adding my $0.02, Fred. So we're all asking about revenue and gross margins separately. And in parts of the call, you talked about the revenue growth, Fred, the organic core revenue growth expectation has increased markedly.

You're still expecting gross margin expansion just maybe not quite as much. And I think we all understand that.

So perhaps if you could, Fred, talk about gross profit dollars because obviously, that will combine the two. And what I'm hearing, just back-of-the-envelope math, is that your expectations for great profit dollar growth has increased markedly perhaps even as much as 300 basis points over what you were expecting before this quarter if we took your prior core revenue growth guidance and your prior gross margin guidance? And I'd like maybe, Raul, if you could level certainly on those numbers and if you indeed are thinking about over the next couple of years your business in those terms in terms of gross profit dollar growth, which will balance both the opportunities you hope to capture on the top line and the gross margin expectations you have to see expansion but perhaps not quite as much as you thought before. However, at the end of the day, your gross profit dollar growth expectations seem to have moved up. Could you talk a little bit about that?

Raul Parra -- Chief Financial Officer

Hey. Jason, I think you said it best. I mean, we see that too the gross profit dollars are definitely there. It's just the percentage won't be there.

So I agree with you. I don't think there's much more I can add other than that we expect those gross margin dollars to be there. And also I'd like to point out that we expect our gross margin should be operating in the range that we had previously provided. So that 49.7 to 50.8, we expect the back half of that of the year to be operating around those areas.

And you're right, we're getting the gross margin dollars.

Jason Mills -- Canaccord Genuity -- Analyst

OK, got it. And Fred, I want to go back to that statement you made about Merit will benefit from this competitive issue for several years. Could you talk about that a little bit more because that's interesting, right? And you're not seeing it, you're not expecting to just see it for a couple of months that notwithstanding, Terumo has talked about being back in July now August and even if it's September, they're going to come back. It sounds like that's your expectation, they're going to come back, what month doesn't really matter or seem to matter to the comment you made about benefiting from this for several years.

So help us understand a little bit more about how you think that's going to benefit you over the next couple of years? I know you've said, if I could caveat just a little bit more, that hospitals may move away from single source to multi-source. Maybe you could give us a bit more granularity there in terms of what geographies you've seen single source being used most often and perhaps you could explain to us whether or not those are the areas that you expect to see the greatest growth, those geographies in particular, because it seems like in the United States, hospitals are fairly sophisticated and have been for a while with respect to dual-sourcing a lot of products. So maybe you could just give us a bit more color there?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, I'm going to start with your last comment because I think there is, in fact, a lack of sophistication in the United States. This is again a personal opinion. I mean, when you saw the situation with Cook, they really weren't set up. There were single source-opportunities there, that's changed.

So and when you have buying groups that are looking to try to make value propositions, they drive a lot of this type of stuff. I think, again, if you're a hospital administrator, in fact, we have a couple members of our board that have been chairpeople of two hospital systems here or near the mountain West [ph], and as we talk to them and talk about these issues, I think, more and more people are thinking, "Wait a second, who are the two top players here and who can provide the product?"

So I just can't give the credit to the systems because there are a lot of other factors like buying groups, BPOs and so on so forth that play into that but I want to go back to maybe some comments that are on the radio revolution that we've talked about for a long time. And if you look back in Europe as you're well aware, we have radio procedures in many cases can be up to 80%, in some countries up to 90%.

That situation started growing. I was told that was not five or six years ago what it was 5%. And I said, this will grow to 80%, that has come out and it's important that these procedures are less expensive into the thousands of dollars and you have better mobility and maybe more important the customer preference is to have something, where you're not messing around with somebody, is going. Those are the facts of the marketplace and we've continued to see that.

Many of the products that are part of this are in fact products that are radio but what we've seen is, it's starting to spill over to all of our standard sheaths. It's spilling over not to just to guide wires that are hydrophilic but all of our guide wires. Now again, it's early but we're starting to see those kinds of trends but here's the bottom line.

If you look at the PreludeEASE and the Prelude Ideal, those are products that in my view are better. We've been told by physicians, they're better than the Terumo products. And Terumo is a great company. So in my view, it's having a better product but the opportunity to show the product.

If that's how it's selling is you've got to have a center you put in the door, once you're there, you can show how you can solve problems and how you can broaden the product offering.

So I think it has to do with on Slide 13 on our website. If you look at this, I think, it's compelling and supports the argument. You take a look at the sheaths, you take a look at the guide wires, you take a look at the micro-catheters, this includes the SwiftNINJA. I mentioned that we have the new Pursue and we have the Maestro.

So all of these we are doing everything we can to meet this demand. And then we throw some of these things outside of that like the Sync and the Impress hydrophilic. So it's not just the Impress catheters but Terumo has a big market share for hydrophilic diagnostic catheters, which get about a 3X pricing over your standard catheter. Those are also in this product.

So again, it's broad as an opportunity as I've ever seen.

Now let's talk about geography. I don't want to get into tactics and strategies but let me just say that people in their movement and trying to solve problems employee various types of tactics and strategies and so does Merit. We're seeing, for instance, in Europe, a much higher demand for sheaths and guide wires than we are seeing in the U.S.

Now in the U.S., we're starting to see some of those trends, so people were moving around this is not an indictment of any sort but people were trying to fill holes. And so initially, we saw this in Europe then we've seen it in the U.S., now we see it pretty much everywhere. So we're seeing it across the board geographically and it started out with something being really strong and maybe even products moved, let's say, we move products from time to time between, let's say, the U.S. if we have shortages we'll move products to fill those need to say in Europe or in China.

So we're seeing some very interesting issues fortunately for Merit. We have manufacturing in these locations and we have this broad product line. So it's changing daily and we see shortages and we see new things pop up that weren't as hot before but what it tells me, as you look across, they're doing the best they can to manage their business with what inventories they have. I don't know when they get back but I'll stand by what I said.

This is something that's going to be beneficial to Merit for years to come because it's like the kid that's sitting on the bench.

Remember that guy by the name of Lou Gehrig, he was sitting on the bench Monday a guy couldn't play and then Lou Gehrig played that for the rest of his career. And I think this is something like that where now the new kids on the block are formidable. We have the product, we have the breadth add something out. I'm sorry to keep going on with this stuff but I had someone to say that we have the day, Jason.

I understand your business for the first time. Well, this is a guy that's owned the Merit stock and been involved for 15 years. And so I thought, we got a bad job if you're just trying to figure it out. He said when I look at this and compare it against that, I can now see why all these little things that you did really add up to something big.

And so if anything, I think, there's better knowledge of the breadth and the strategy that Merit has employed for its corporate history of building out product lines and that is the benefit of time. Merit has taken the time to build the business and build it correctly. And so when something like this pops up, we're ready to respond to it and not very many can, not like we can but just don't have the breadth of products that we do.

So that's the best way I can answer your question.

Operator

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

Jayson Bedford -- Raymond James -- Analyst

Hi, good afternoon and congrats on the success. Just a couple of questions they realized we're bumping up against time here but just to come back to 2Q sales competitor recall occurred in late June you talked about the impact on the business accelerating. I'm still little unclear as to the impact in 2Q. Was there a material impact on revenue in 2Q from those competitive dynamics?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes, first of all, it wasn't a recall it's called a shortage or unavailable. So we're not aware that there's a recall so I want to make that clear. We saw up the last couple of weeks it had no material impact on the quarter whatsoever. They were just stopped there, but it started the tide started rolling, so to speak.

And then it just continues to accelerate essentially every day since. So where are the selling party getting reorders and new orders? So you'll see the effect of it, of course, a big effect of it in this quarter and going forward.

Jayson Bedford -- Raymond James -- Analyst

OK. And just to be clear, if in two weeks your competitor comes back to the market with whole supply you're still comfortable with the guidance you laid out?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes and first of all they said they will be back in August I think it's the end but everything that plays with my staff and said on the first of August it's the end of August. So and I don't even know if they will come back but it really won't make any difference we're very, very comfortable. And I think that's the thing we try to do Jason if they look. Here's what we see I have my own personal view on this.

We're staffing because as I mentioned this is in my view a long-term opportunity. And we'll see benefits for this for years to come. Not just for weeks to come.

Jayson Bedford -- Raymond James -- Analyst

OK, that's helpful. And then just finally for me. What's the expected revenue contribution from the acquired DD assets it looks like acquired revenue came in a bit higher than we were expecting in 2Q? Just out of curiosity how is that business tracking and have your expectations changed for that contribution in 2018?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, go ahead, Raul.

Raul Parra -- Chief Financial Officer

Yes, it's $40 million to $43 million now that's what we're seeing for the year. I think we have previously disclosed 38, 42. So just to give you a general idea.

Jayson Bedford -- Raymond James -- Analyst

Great, thank you.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK. Thanks, Jayson.

Operator

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

Mike Petusky -- Barrington Research -- Analyst

Hi, good evening, guys.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Hey, Mike.

Mike Petusky -- Barrington Research -- Analyst

Hi, thanks for taking all the time tonight and...

Fred Lampropoulos -- Chairman and Chief Executive Officer

Thank you for your patience.

Mike Petusky -- Barrington Research -- Analyst

Sure, sure. So I just briefly want to touch again on gross margin and really specifically dialing in on sort of the second-half guidance and the sequential growth that you guys see there, which to me, it needs to be fairly material from versus the first-half to even get to the lower end of your full-year guidance. And I guess, just if you could walk me through just real quickly the two or three things that sort of drive that sequential improvement in the third and fourth quarters?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes, it's going to be obviously the biopsy and drainage product line.

Mike Petusky -- Barrington Research -- Analyst

Yes.

Fred Lampropoulos -- Chairman and Chief Executive Officer

It will be manufacturing efficiencies.

Mike Petusky -- Barrington Research -- Analyst

Yes.

Fred Lampropoulos -- Chairman and Chief Executive Officer

We expect core manufacturing efficiencies but as we discussed in a couple of headwinds that are going to slow down just a little bit. And that that's really what's driving it.

Mike Petusky -- Barrington Research -- Analyst

OK.

Fred Lampropoulos -- Chairman and Chief Executive Officer

And again, we expect to be operating in the 49.7 to 50.8 range, I believe half of the year.

Mike Petusky -- Barrington Research -- Analyst

OK. All right, great. And then, Raul, if you could just start to dig in, in your cash flow statement there for D&A, stock comp, and capex for the quarter, that really would be helpful? Oh, go ahead, if you have, that's great.

Raul Parra -- Chief Financial Officer

17.5 on depreciation and amortization for Q2.

Mike Petusky -- Barrington Research -- Analyst

Yes.

Raul Parra -- Chief Financial Officer

And $1.6 million stock comp.

Mike Petusky -- Barrington Research -- Analyst

What about capex?

Raul Parra -- Chief Financial Officer

Capex was $15 million.

Mike Petusky -- Barrington Research -- Analyst

OK. All right, great. And then just one last question, Fred. What can you say, if you can say anything, legal expense continues to sort of $1.5 million here, $1.5 million there, starts to add up to real dollars.

I'm just curious if you have any update that you can share there or what you think?

Fred Lampropoulos -- Chairman and Chief Executive Officer

I wish. I did nothing. I mean, we continue to comply whatever they ask for something and we've heard nothing. And that's the whole truth and nothing but the truth, there you go.

Mike Petusky -- Barrington Research -- Analyst

OK. So no sense of when this might wrap, or it's just open-ended?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes.

Mike Petusky -- Barrington Research -- Analyst

OK.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes. I mean, we could spend hours on this but I have a few quiet.

Mike Petusky -- Barrington Research -- Analyst

Yes. There is probably wide for both of us. OK, that's all I had. Thank you.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK, all right. Thank you very much.

Mike Petusky -- Barrington Research -- Analyst

Sure.

Operator

Thank you. And our next question comes from the line of Mike Matson with Needham & Company. Your line is now open.

Mike Matson -- Needham & Company -- Analyst

Hi, thanks for taking my question. I guess, Fred, you made a comment about guiding down for the summer quarter. I think, what you were talking about was the sequential revenue from Q2 to Q3, it's normally down, I guess but it seems like you're almost saying that that the revenues could be up from Q2 to Q3. I mean, am I interpreting your comments away there?

Fred Lampropoulos -- Chairman and Chief Executive Officer

I think, historically, Mike, we have always guided down because of Europe and a lot of places. I mean, I think, historically, it sounds. So we have always guided down. I think right now the guidance from the second quarter to the third quarter is what Raul?

Raul Parra -- Chief Financial Officer

$210

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK, but what's the number? I mean, we ...

Raul Parra -- Chief Financial Officer

$210 million.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK, that's our guidance.

Raul Parra -- Chief Financial Officer

No, that's the Street.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK. So the point is, we almost always guide down. Now that being said, we have this opportunity in front of us and we'll just have to see how that plays out. So the underwriting new guide ... but we don't guide quarterly.

Raul Parra -- Chief Financial Officer

We don't guide by quarter but....

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes.

Raul Parra -- Chief Financial Officer

But we are saying that we expect to have lower sales than we did in Q2.

Fred Lampropoulos -- Chairman and Chief Executive Officer

Yes.

Mike Matson -- Needham & Company -- Analyst

OK.

Fred Lampropoulos -- Chairman and Chief Executive Officer

[Multiple Speakers] So, yes.

Raul Parra -- Chief Financial Officer

Historically, that's what happened.

Fred Lampropoulos -- Chairman and Chief Executive Officer

And historically what's happened.

Mike Matson -- Needham & Company -- Analyst

OK, thanks. All right. And then, Raul, can you just comment on the integration expenses? So how much of that is included in the adjusted EPS number or adjusted margins, I guess? Can you maybe in terms of basis points, basis points it will be helpful, either in terms of the gross margin or operating margin or are you stripping all that out from the adjusted numbers?

Raul Parra -- Chief Financial Officer

We're stripping that up from the adjusted numbers. So that's why it's lower 60 to 70 basis points, right? So we're seeing about approximately 30 basis points is what the impact is on margin. [Cross talk]

Mike Matson -- Needham & Company -- Analyst

Thirty basis points on a GAAP basis or on an adjusted basis?

Raul Parra -- Chief Financial Officer

Adjusted basis.

Mike Matson -- Needham & Company -- Analyst

OK. So there's still 30 basis points in there from acquisition-related stuff?

Raul Parra -- Chief Financial Officer

That's right.

Mike Matson -- Needham & Company -- Analyst

OK. All right. And then I just wanted to go back. Fred, it sounds like you're not too worried about the China potential trade war but I just wanted to get maybe a little more detail there around your thinking on that? I know that I guess, there's been some tariffs on devices coming back to the U.S.

but I don't think that that's really the case with your supply chain but what's the risk that China puts tariffs on some of the products that you're selling, I guess, or you making those on China locally?

Fred Lampropoulos -- Chairman and Chief Executive Officer

Well, as you know, Mike because we were looking back here and we start talking about the border tax several what was that 18 months ago. I mean, I answered a lot of questions and the answer was I have no idea. What we're not seeing anything that limits our ability to do business in China. They want to do joint ventures.

They have a preference for local but that's very different from where it's been in the past.

In fact, I believe, Joe, if this is correct that we not grow at about 30% last quarter, OK. So I mean, business continues to be very, very robust. I'll also say that this situation that we're talking about with a competitor actually helps us there as well because I think in many cases, they prefer to do business with American companies. So I think there is an opportunity for us to grow there as well.

So, listen, we could spend a lot of time what else and what that. We just don't see anything that's affecting our business today. And that's the best answer I can give because we just don't see anything. We read the news.

We listen to the news like you guys do but we just don't see anything there affects our business at all at this point.

Mike Matson -- Needham & Company -- Analyst

OK. All right, that's very helpful. I appreciate it. Thank you.

Raul Parra -- Chief Financial Officer

OK.

Fred Lampropoulos -- Chairman and Chief Executive Officer

OK. Listen, ladies and gentlemen, this is a long call. I hope we have clarified but let me just summarize by saying this. Revenues were up almost $10 million above, I think, consensus.

It's almost $20 million year-to-date. We believe that we have a lot of tailwinds. There are some headwinds, we talked about some expenses, labor. Please don't overlook the cost of labor and fuel on the filling of the pipeline, those issues that are there.

That being said, please do not forget our commitment to growing gross margins, maintaining the discipline in expenses. I mean, what's been interesting on this call is nobody's really asked about Becton, Dickinson, which has other than the one question and no one has really asked about the bottom line. Everybody is concentrating on all these other stuff but please take a look at what this means. We've increased our bottom line and we think that there's upside to a number of these issues based on the circumstances that we talk you about.

If those all play out, then there's going to be extraordinary opportunities for value here.

So again, let's keep our eye on the ball. We are but let's keep our eye on really the important things. And again, as I said in my comments, they don't put multiples on gross margins. It's important, please don't misunderstand me, I'm not diminishing it.

What I'm telling you is that we think that given this quarter to get through these expansions then it's going to have a long-term positive effect on a business in addition to everything else we're doing.

I think when you listen 10% to 11% organic growth, that's terrific. My staff is sitting here. I think it's terrific. We're making more money and we'll continue to make more money.

So I hope again, we'll look at the reports and we appreciate all of the interest. Business is fine, it's growing, it's accelerating. We have tailwinds with just a slight breeze in our case.

So that being said, I thank you for your time, for almost an hour of questions. We'll be around. If you have any more as that yet we're going to hear you guys out, give us a call. We're here and we'll see if we can do to clarify.

Thanks again for joining us and good night from Salt Lake City.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Duration: 75 minutes

Call Participants:

Fred Lampropoulos -- Chairman and Chief Executive Officer

Brian G. Lloyd -- Chief Legal Officer

Raul Parra -- Chief Financial Officer

Jim Sidoti -- Sidoti & Company -- Analyst

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Matthew OBrien -- Piper Jaffray -- Analyst

Jason Mills -- Canaccord Genuity -- Analyst

Jayson Bedford -- Raymond James -- Analyst

Mike Petusky -- Barrington Research -- Analyst

Mike Matson -- Needham & Company -- Analyst

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