Q4 2020 LeMaitre Vascular Inc Earnings Call
Yeah.
Welcome to day to meet vascular Inc. Q4, total Chinese financial results conference call from them.
Today's call is being recorded at this time I would like to turn the call over to Mr. J J D Pellegrino Chief Financial Officer opening need vascular. Please go ahead Sir.
Thank you Linda good afternoon, and thank you for joining us on our Q4 'twenty 'twenty Conference call with me on today's call are chairman and CEO, George Lemaitre, and our President Dave Roberts.
Before we begin I'll read our safe Harbor Safe Harbor statement today, we will make some forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties.
Wherever possible, we will try to identify those forward looking statements by using words such as believe.
Anticipate pursue forecast and similar expressions.
Forward looking statements are based on our estimates and assumptions as of today February 25, 2021 that should not be relied upon as representing our estimates or views on any subsequent date.
Please refer to the cautionary statement regarding forward looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied.
During this call we will discuss non-GAAP financial measures, which include EBITDA and organic sales growth a.
A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release is available in the Investor Relations section of our website.
W. W Dot one dot com.
I'll now turn the call over to George well Nate.
Thanks JJ.
On today's call I'd like to review a few topics.
Covid impacts on our employees.
Covid <unk> impact on our company.
Our Q4 2020 sales and profits.
Our 10th straight year of annual dividend increases and our recent branding change.
Searches and Covid infection rates in November December and January correlated with our experienced at low mate.
When I last spoke with you in October we knew of 12 employees, who have contracted the virus.
That number has increased to 32 now 8% of our employees with 31, having fully recovered and one still recovering.
Indeed during this recent surge we began to discourage non essential employees from on campus work as an additional way to reduce the spread.
As of February 15th So our employees are once again being told that on campus work is voluntary and not discouraged.
We've also deployed distance sensing wristwatches, and 100% of our buildings worldwide, where we require masks and physical distancing.
Because vaccine administration may not be fully implemented until the summer or fall, we expect the COVID-19 and the measures we implemented to mitigate its spread will remain with us for some time.
With regards to Covid <unk> impact on the company. This recent wave was likely impactful on our sales. So there was no real way to calculate the exact financial effects looking.
Looking at a basket of our peers. However, we saw a 2% decline in their organic sales growth in Q4 2020.
Perhaps this is a general proxy for the impact of Covid on peripheral vascular sales.
And one would expect that the current declines in COVID-19 as well as increasing vaccine rates will start to positively impact hospital based businesses.
Though I find it hard I have found it hard to predict much of anything in the Covid era. Indeed, the guidance, we're giving you today is limited to the current quarter similar to the short guidance. We provided at the start both Q3 2020 in Q4 2020.
As for our financial results, we posted record sales of $37 5 million in Q4, 2020 up 24% versus the year ago quarter.
Geographically sales were up 35% of the Americas, 12% in Asia Pac and 9% in Europe.
The company's reported sales growth was driven largely by the autograft acquisition, while the organic growth came from aggressive valves zone pricing and Embolectomy catheters.
More channel loading the normal probably also took place in December 'twenty 'twenty due to various yearend sales rep contests.
The Q3's Zenith <unk> approval in Japan contributed some sales growth in Q4, and we've increased our expectations around this launch.
Record sales in Q4 and light operating expenses combined to produce strong bottom line results, we generated $9 $5 million of operating income in Q4, EBITDA of $11 9 million and EPS of <unk> 34 cents a share.
Just 94% growth in quarterly profitability allowed us to pay down our long term debt by $21.5 million and increase our quarterly dividend by 16% to 11 cents per share.
With 10 straight years of dividend increases. We believe we are now positioned to enter the various 10 year dividend achiever indices.
Finally, you may notice that our corporate logo is changed.
By dropping the word vascular from our name and eliminating our tag line, we've tightened our branding to just it's pure essence.
And I'm also left the door open to more work in spaces adjacent to vascular surgery, perhaps cardiac surgery or interventional radiology.
In some ways, we had already made this move years ago by choosing our ticker almac and our website low mate Dot com.
With that I'll turn the call over to JJ.
Thanks, George I'd like to say a few words about our gross margin operating expenses Arcograph results debt paid out European regulatory status and close with our Q1 financial guidance from.
Margin in Q4 was 65% down 1% from 66% in Q4 2019.
The decrease was driven largely by Arctic route purchase price accounting as well as lower margins in our cardio settlement Denver line catheter businesses we.
We do expect our gross margin to increase to 66.7%, Inc. Q1, 2021, as autograft accounting normalizes from price increases are implemented.
Operating expenses in Q4 were $14 $9 million down 1% versus Q4 2019.
Selling and marketing expenses were down 21% year over year, driven by fewer reps and less travel.
Decline was offset by a 21% increase in G&A expenses, largely due to autograft amortization.
As well as a 15% increase in R&D expenses, driven by M D G and CE Mark initiatives.
They began releasing hiring requisitions in the latter part of the year as we started to unwind COVID-19 related cost cutting.
We will remain cautious on this front however, as we try to match additional resources with sales.
As of today, we now have 86 sales reps with the increase coming largely in the U S is a natural complement to the autograft acquisition.
At the end of Q4, we had 386 employees down from 454 a year earlier.
Newly acquired Arctic autograph product line continues to perform above expectations and generated a $5 5 million in Q4 revenue.
The $1.2 million of net income.
After interest expense and taxes.
Waits to six cents per share.
In addition, we raised the autograph selling prices on January one.
We ended Q4 2020 with $27 million from cash to decrease of $7 $4 million versus Q3 2020.
The decrease was driven largely by the repayment of 21 $5 million in debt.
Excluding this debt repayment cash increased by $14 $1 million in this quarter.
In relation to our European CE, Mark due to the abrupt exit fire fire notified body from CE, marking we needed <unk> remarks.
In Q3, 2020, we engaged two new notified bodies to accelerate the CE, marking process and in February one of these notified bodies S. G. S issued a CE mark for lifespan as well as an annex to the certificate.
We now expect STS will issue three additional CE marks by May 'twenty 'twenty, one for our flex off for other jobs for what actually Corrado chunk of Napster clubs.
We continue to pursue the other two CE marks for Xena assure in Alba grafts and the hopes that they will issue by May 2021.
Devices, representing 99% of Q4 2020 sales in EMEA are currently available to EMEA hospitals via valve CE marks temporary country specific derogations for sufficient CE Mark inventory.
In Q4, 2020, EMEA EMEA sales accounted for 29% of worldwide sales and 26% of our gross profit.
Separately, we were audited by another one of our notified bodies. He stood in Q4 2020 as part of the Zena sure Apograph CE marketing process and that on it remains open.
20% of the audits findings have been resolved and we continue to collaborate.
But the goal of resolving their maintenance line.
Issuance, a CE mark for gene insurer in Alba graft depend on a successful audit closure.
Together.
We're an outflow graft accounted for 22% of EMEA sales from Q4 2020.
Retention of other T March previously issued by GW might also depend on interest on a successful audit closure.
They represent 42% of EMEA sales.
If any of the CE marks referred to above or not reissued or if the Q4 2020 to be ordered.
Open heart. It does not successfully close then we could lose our ability to sell some of our device. We believe however that we can partially mitigate the impact of these potential issues.
The nation of supplementary inventory production additional or extended derogations and engaging new notified bodies.
Turning to guidance at the midpoint of our Q1, 'twenty, one sales guidance $33 8 million to $36 8 million.
Represents an increase of 16% versus Q1 'twenty 'twenty.
And our Q1 operating income guidance of $6 8 million to $8 $8 million represents an increase of 79%.
At the midpoint, our Q1 2021, EPS guidance 24 cents a share 31 cents per share represents an increase of 78%.
Before I turn it over to the operator for any questions I'd like to welcome Matt be shot in breakfast.
From Keybanc, Matt and Brett recently initiated coverage on one day, and we look forward to working with them in the future.
With that I'll turn it back over to the operator.
As a reminder to ask a question you will need to press, Taiwan other Italian found could we try your question press the pound or hash king.
Again, ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your telephone.
Your first question comes from Rick Wise from Stifel. Your line is open.
Hi, good afternoon, everybody and great to see you.
An encouraging quarter and a nickel in the middle.
All the competition.
Covid.
Let me just start.
Things that start with.
I'm trying to ask every company what.
What are you seeing now I'm sorry, Sir.
George that's bad for.
Weekly trends.
Monthly trends, but do you feel like you know after.
I'm guessing are weaker.
December weaker January than you might've hoped for three months ago.
Do you feel like things have bottomed and they're starting to.
Look better or can you frame it at all.
Where are we now and what are we saying yeah. Okay. Okay, Rick I think I'm going to give 90% of what you want I think I wont dig into January or February, but I think I'm going to get to where you want to go here. Let me we've done this once or twice when he read out to you the organic growth rates of this company from every month starting in April and I know, it's a lot of data, but it might be kind of fun for.
To see where we'd been what our trip was and I would come around to say I sort of think Q3 was sort of like Q4 was sort of like what we think may be Q1 might be like and I would come back to that but here your numbers and maybe you can do a better job, making sense out of them because I certainly cant so starting in April.
<unk> minus 38.
Minus 28 from me I'm going to just go now minus four.
Minus seven.
Zero August minus one plus to minus three and plus nine in December and those are all your COVID-19 months that are on record at our company.
Yeah.
Obviously encouraging.
December.
Thank you for that debt a clear detail.
Arda graft.
Obviously.
No.
<unk> you.
You've got the January one price hike and I'm not trying to be picky I'm just curious.
It did.
$5 4 million and I think if I've got it right in the third quarter and roughly the same amount in the fourth quarter, what do we make of that is that just.
Lot of moving pieces or.
I assume now we would start to see sequential growth all things equal as we proceed.
Through 'twenty, one is that the right way to think about it.
Yeah, Rick it's stable I mean, we're not going to guide very far into 'twenty. One we did see Q4 increase over Q3 from five four to five five.
I think the bottom line result has been a nice pleasant surprise, we beat the guidance. We have provided I think we provided five cents a share and we came in at six cents.
Remember in the back half of 2020, the Arctic route sales reps.
We're not getting commission on any other low made product and will meet lemay sales reps were not getting commission on autograph product. So that was a big change on January 1st and then the other thing that changed on Jet January Force was obviously this price increase so.
I'm not really I'm not really here to tell you exactly what's going to happen throughout 2021, because we don't really guide specifically on product lines, but I can say.
We feel quite good about 2021 obviously.
You know, we're bullish with the price increase we think much of that can stick and so we think.
We are optimistic about where autograph goes in the future.
That's great day.
Maybe two.
Two last ones from me.
Opex, obviously impressively on what words are under control or contained or.
And I appreciate that.
Like so many businesses travel has a lot to with that.
But how do we think about.
Opex going forward, just directionally I mean.
I mean can you pick more profit out of the business is that not the right way to think about it should we assume that as things recover through the year.
As a percentage of sales that's going to go up again, if you could just help us frame it a little bit that'd be awesome.
Yeah sure. This is J J so ex.
As you recall we did.
Some head count reductions back in February and then again, that's COVID-19 came through in April.
And really.
Joost Opex as a result.
Total total head count is 386 now versus 454 455, a year ago Q4 Q4.
And so obviously, we still have a ways to go here I think in terms of hiring back in so I think really the question is.
How do we get back how quickly do we get back and where is that your sales rep. Count is at 80 at the end of the quarter. I think we said 85 or 86. Currently we were at $1 12 in Q4 19, So you've got a ways to go there and wanted to be measured with that we want to match that with access to hospitals.
The sales recovery and all that kind of good stuff.
And then in terms of non sales folks I think.
Theres clearly areas, where during times of a crisis you cut back and people do more work and we don't want that to be happening.
Infant item and so we've begun to release for awhile now we've begun to release a lot of positions in areas that are sort of support positions you've got to get it done type positions and we'll continue to do that so I think the trend the direction for you.
These guys are going to hire back towards some number that the I guess the recent high watermark you would think it was the $4 55, but don't think of us jumping to that right off the bat I think of US doing this at a measured pace throughout all of the areas of the company to try and balance sales recovery with workload with where we need to be in Q.
Three or four months.
Just last from me.
Always it wouldn't be a let me call if we didn't ask about M&A.
Or maybe the question is what they've been up to lately.
But George you called out cardiac surgery, and interventional cardiology, very specifically and you know the name.
The refining of the company's name so to speak.
Should we expect debt, whether it's one or.
Three or 10 over the next year or three it's going to be.
It would be the adjacent spaces.
Let's say more aggressively building out these adjacent spaces, that's the priority now.
Okay. Great question, Yeah, Big thing name change right. So those are the adjacent spaces that we've actually already gotten into I think maybe that's the message here is that we're already low mate and not limit vascular we bought cardio sell as you remember we bought Carty al both of those two names should give you some hints.
And so I think we're already in the spaces.
I don't necessarily think it means we're preferentially going to be acquiring their eye.
I think autograft is our largest acquisition was a really nice play and it was really peripheral vascular and that watch people's actions not their words that was our last big action in June of 2020, So I'd say not necessarily but you want to be open to it and we're already there and I would say I'm going to swag here I think on our website, there's some powerpoint slides to say something.
Like 10% of our sales are already.
Used by cardiac surgeons and some intervention radiology as well so I think we're already there and its a recognition that were already there Dave might have a different take on this since the acquisition related question.
Yeah, No I would add.
George What you said, we're already in cardiac surgery with the cardiac patches and of course, we have launched a cardiac allograft several months ago on.
On the interventional side I think the message there is that there are 14000 vascular surgeons in the world and half of them use our products and but 75% of their procedures in the U S. Let's say are now endovascular, our interventional and so as we think about.
If the sound of the fairway is open vascular surgery and open dialysis access than maybe a little bit to the left is cardiac surgery and a little bit to the right is sticking with our core customer.
But with an interventional our endovascular product line to be able to leverage <unk>.
Nation ships, we already have and of course, we already do offer a handful of interventional devices over the wire Embolectomy catheters with got about the autonomous top of the wire, we've got radiopaque tape. Some other products. So I think we're just trying to build off a little bit there to what we've already started building.
Thanks, a lot everybody.
Thanks, Rick.
Once again to ask a question you want me to press Star one on your telephone.
To be George a question press, the pound or hedge gain.
Your next question comes from Matt <unk> from Keybanc. Your line is open.
Hey, George J J, just Brent Fishman on today from Matt I appreciate the kind introduction and we're happy to be joining the call.
If I can just try one question on the 'twenty 'twenty, one outlook and then maybe one or two follow ups on other topics.
We're not providing full year guidance today, but could you discuss directionally, how you're thinking about a potential revenue progression for 2021 in a base case scenario and what you would maybe want to see before potentially being able to provide full year and at some point in Q2, it with you.
Yes, sure Brad Thanks, very much from welcome.
So I think for the full year I mean, you can kind of read the tea leaves from what we've already said even briefly on this call which is.
Expense wise.
You can expect an increase and the question is how much up fast on the top line I guess more specifically to what you are asking about.
If you think of an organic.
Sort of growth rate that you think is appropriate off of our our 2020 answer and if you've trained net I think can maybe organically historically, where oh about a 6% to 8% organic growth company well what should it be based on what we just went through and may be if you start to normalize through 'twenty one.
Can come up with sort of an organic answer that you think feels right.
And then layer on top of that from FX, because FX has moved a lot I think and if it stays it'll it'll it'll it'll add at a decent chunk to the top line.
Number throughout the year and so if you think of $45 million or so of our of our sales or whatever the number is 40 million go to our keel and look up to the segment the segments geographies and apply an FX change to that and you can add some of that.
And then you've got autograft for a full year piece number three and you didn't have Arctic graph for our full year last year, you acquired it essentially mid year.
So I think those other three chunks that you might think about to try and understand where we might think we're growing this year in terms of revenue.
Thank you asked a second question at the end of that I didn't get it.
Or does it if there would be some signs in the macro that you'd like to see before.
Maybe being able to provide a full year.
Your guidance, maybe next quarter.
We'll be create until we give full year guidance next quarter is that what you're asking.
Or just what you would like to see to be able to do that yeah I mean.
So so it's kind of like reading the tea leaves here. It was kind of challenging enough to talk about Q1, not all of our peers are obviously, giving.
Given quarterly guidance and so if you go down the list, you'll probably find a bunch of them that are it might be unique that we are.
Not entirely sure, but it's certainly not ubiquitous with everyone. So I would say there's still a ton of uncertainty you're telling me were those COVID-19 grafts are going and that'll help a lot.
And so I think when things start to settle down and maybe George rattle through the organic growth rates for the last X months, maybe if we start seeing some normalcy in those monthly organic growth rates, maybe after you get a group of those that feel like they are starting to normalize.
When you start thinking that you can be more predictable in terms of the longer term outlook outlook until then I guess I would say I wouldnt want to lead lead you guys astray and we'll give you guidance that we think is rational and fair and visible, but we don't want to go beyond that.
Alright, that's definitely fair fair enough and then just turning back to the dialysis and market. Our draft was relatively in line with our model at least but did you see an impact from the increased mortality signal of that within that patient population given the commentary from <unk> on its call.
And if not is that a headwind that we should be considered inc. For 'twenty one.
So Brett this day good to hear your voice on this call.
Not so sure we saw that I mean, one of the.
One of the advantages of our <unk>.
Total line graph dialysis access graft that we acquired is that.
Unlike a fistula, which gets implanted into a patient that gets created in a patient that needs that takes a certain amount of time to mature and many of them don't mature.
And so I think maybe there is with respect our biologic grafts, there could be maybe a little bit more of an uptake during COVID-19 than there otherwise would be.
And so and so you know I would say no I do recognize that.
Having end stage renal disease is certainly a comorbidity and a risk factor for Covid.
But I would say in terms of treatment modality.
Think that the open surgery biologic wrapped with something that you can implant and use right away and I think devices like that are a really important sort of at a premium as we go through the pandemic.
Alright, and then last one from me and thanks for that color do you guys have any thoughts on the recent unfavorable outcome from Becton Dickinson recent FDA panel around beachhead indication for PCB and more broadly are you seeing any other new technology and the PTK procedure states that we should be paying attention to.
And thanks very much for taking the questions.
Yeah, I mean, we didn't follow it that closely we knew that they were having the panel, but you know I think I think the high level message that I continue to take away when I see various companies well heeled companies, taking a run at below the knee is that when you.
Net below the knee, you're arterial vasculature bifurcate or Trifurcate, you get into small diameters and low flows it gets pretty difficult for just biases to work down there really what the body wants is your own tissue doing its job and that's I think part of the reason.
Valvular tones have worked so well for so long we're on our eighth generation of Valvulotome.
And we and one of the key attributes to all the generation fleet developed is to make them smaller so they work more further down the leg and then to the foot into the pedal arteries and so.
I have no doubt companies will continue to take a run with drug coated balloons, and atherectomy and this and that but so far I think the technology is not exactly there and that's part of the reason the Valvulotome continues to be the number one product line at low mate.
Alright. Thanks, Thanks, very much that's all from me I appreciate it.
Thanks, Brett.
Your next question comes from Mike <unk> from Barrington Research. Your line is open.
Hey, good evening guys congratulations on a terrific year.
I believe the dollar in earnings with possible if you'd asked me a 11 12 months ago, So fantastic job alright. So.
George I was wondering if you could talk about it I'm assuming at this point.
They actually have a decent sense of what your pricing tailwind for the year is in terms of your product portfolio is that would that be accurate I mean like I mean are we.
You know, 2% to 3% positive tailwind as we look at 'twenty, one or or do you not really have that completely dialed in at this point.
Well I think I won't do.
Dig out so far into 'twenty, one, but I can give you some hard numbers, which is where I think we have up on the website on our corporate presentation for the year, we installed a 5% price hike and I would say going into 'twenty 'twenty. One you could find it at any price list and any American hospital, we've put together another pretty significant.
<unk> price hike, which probably largely speaking as a continuation of that.
Okay. So so so if I'm thinking about the tailwind across your portfolio that could be actually thinking.
Closer to 5%.
Yeah, I'd say that I said last year, it was 5% and we've put a healthy price increase together and it varies by the product line. So theres some of them didn't grow and some of them did grow but maybe a blended you're looking backwards a blended and that number that 5% was a jump a significant jump from the year before in two years before so it was no.
<unk> I tried to call it out in the script here talking about aggressive valve at home pricing and so we continue to work on pricing here. It's just another way to pay the bills.
Underscoring our differentiated devices.
So speaking of autograph theres been a lot of I think talk around the fact that they're there.
And you guys called out that you raise price there as well, but theres a lot of talk that there was some.
Meaningful.
<unk> opportunity in terms of autograph could can you just talk about I mean was it a double digit price increase.
I would love even that level of detail.
Sure.
It's it's out there on price list. So it's around $300 a unit. So it is a little bit north of double digits, Okay terrific great.
All right.
Okay. So then.
In terms of in terms of just the products.
Uh huh.
Mike sort of their.
Their growth rates by product category valve at homes in English or anything else to call out I mean, do you can you quantify the growth or lack thereof of the key products.
Sure maybe I'll go back into Q4, we always say we are happy to give you the information thats already happened, where a little bit less excited about guiding forward, but.
No I was asking more important I was asking about Q4, but if you wanted to if you want to give me the layout for 'twenty, one that's great too.
Yeah, Mike Thanks, a lot I. It is a great question. So I started to do that okay. So the good guys in Q4 valve at homes were up 28%.
Embolectomy catheter was 16%, maybe a little bit tied to COVID-19. They are used as some extra clotting that happens in your body. That's COVID-19 related other cardiac catches were up.
40% reported but it was only 20% organic because we only we bought the product and Nova in October Middle of October of 2019, and then the allo graft product the Chicago product is up 11% those are the cadaver veins. So those I'd say it was a good guys and the bad guys keep struggling with drive ex.
It was down 50% bovine carotid patches were down 5%.
And then someone and so from that if it goes to the major stories that I just gave you what about the you know.
Sure.
Okay. So bovine carotid patches are down 5% inside of that Zeno was down 7% gotcha.
Yeah.
Sort of a strategic question, so you've sort of taken a.
A cautious approach on on on.
Bringing back to the sales Rep I think I remember George at one point last year.
I'm wrong on this please correct me, but I thought you had said hey, we haven't abandoned any territories, even when when you sort of cut it.
As deeply as you've caught it and I guess what I'm.
Question is you guys have done so well.
You know.
In a very very difficult environment do you ever need to go back to 112.
If you're covering all the territories, even if they're more thinly covered do you really need to go back to 112 or are you getting.
The incremental value from from from from that cost.
When I when we were going through all of that in the spring and all this COVID-19 stuff I I kept reminding my sales reps, Hey, Youre boss is addicted to hiring sales reps because he thinks that's me that's how we grow our business. So the short answer to your question is of course someday, we'll be back at 112 No. No question in my mind, but it's just.
You want to be cautious if you wanted to throw out a number we sort of think activity levels are sort of at like 60% of normal right now and I'll go one step further.
Oddly in we just bumped into this no one knew this last April but oddly because the reps can get into fewer hospitals and can do fewer things in each hospital they get into oddly. They can grow they can cover a slightly larger geographic patch and you hear the rep, saying, yeah I can handle in other states because there's not enough to do in Massachusetts.
Yeah give me main or give me, new Hampshire, and things like that so we kind of bumped into that but you know we're back at 86 as of today, we were only at 80 at year end.
And so we're getting there you know our low watermark was 79 and our high watermark was $1 12 about a year and a half ago and so yeah, we'll get back there at some point I think we don't want to race back there, but you know.
I guess I'd put it back to you a little bit is when is this whole thing going to open up and are we thinking of kind of like Q3 or Q4, when things are kind of normal.
And then you know then we start going I suppose I'm not saying, we'll get back there by then but then we start saying hey, we're going to hire a few more potent.
Mike This is J J I'd add one more thing which is I.
I think if you think about the docs and what they're doing now, they're probably still working on backlogs and trying to get to a normalized process and theyre not so much focus on new devices and so maybe there's this window here as well.
It's less likely that somebody's got a switch, particularly from highly differentiated devices into into a different product.
And that gives you a little bit of cover in terms of not hiring back too soon but of course, we're going to watch that and to the extent that we feel that it becomes an exposure and that changes then you want to start re hiring again gotcha.
Gotcha.
Last one and I may have missed it if you touched on this George but any update on China, you know short trial.
Yeah sure actually.
Things are going well believe it or not with the with the bounce back of Covid in China quickly at the end of last year. The patient started showing backup for follow up and so we.
We're now fully enrolled on both sides of the Chinese excuse me of the cardiac and vascular trials. The two different trials, we're running there.
The short very short news is in May we'll be filing with the Chinese FDA for that approval.
That's that's that's a long runway time I think that's another another two years to wait but I think we'll have that in in may.
Okay, Alright, great. Thanks, guys.
Thanks, a lot Mike.
Your next question comes from Jim Sidoti from Sidoti and company. Your line is open.
Hi, Good afternoon can you hear me.
Yeah, and Jim Hi, Jim.
Great great.
I hope everyone's healthy.
Couple of follow ups.
Talked on the last couple of calls about.
The notified bodies and getting.
C marks.
Renewed for some of your products could you just give us a sense.
What that added to R&D costs in the quarter, what do you think that how long do you think those extra costs will continue and.
Is this something that keeps you up at night or are you pretty confident you'll be able to get the switched over to new notified bodies.
Hey, Jim maybe I, maybe I give you some thought bubbles on this and then JJ filled in with some numbers after I'm done with debt.
The answer is it doesn't keep me up at night I'll tell you.
Theres two things now we got a really good track going with one set of folks and we're still kind of struggling and I think you've heard that and Jay Jays a script. It's also it's also in the 8-K.
So we engaged a couple new guys.
In Q3, Q4, I think September October.
And those folks principally this S. G S company, they're moving ahead and they're getting stuff done we got our first CE Mark in 12 months in February for that lifespan product and we feel really good about three more of the total of six that we need those guys control for them.
The on the flip side. The story continues with this to be a notified body there our notified body and we're collaborating with them and we're working with them, but we keep getting a lot of questions and you know where we're two years deepen this what I'll call a struggle.
We're very fortunate in that 13 European governments.
<unk> up for us and they've done what's called the derogation, it's a mini approval with a temporary many approval.
So you know these devices are available in 13 countries.
Based on the state Derogations.
While we continue to struggle with T V. So yeah. It bothers me a lot its very frustrating.
As to the spend unfortunately, it's a very large spend and maybe I've worn down the clock here a little bit so JJ might have some answers on.
A rough ballpark for the back into his question, Yeah, I mean at the high level, Jim as R&D as a percent of sales.
Over the last four quarters, it really wouldnt notice. It next door looking if you were looking at all R&D you know.
Within R&D, we've got product development process engineering, and regulatory and the and the.
Thing that has changed is the mix and so you know.
While the aggregate spend may be in the same ballpark with the regulatory and clinical spend as you know almost doubled sorta kinda from where it was.
And the other two have come down I guess, I'll say and so that mix has shifted within R&D, it's still under control in the aggregate, but we don't like the mix and we don't like spending more on regulatory and less on the other two buckets because those other two buckets are obviously forward forward moving.
Investments and so I think that's the highest level.
Where it's where it's been low contained it's it's.
It's altered that mix within R&D.
Okay Alright.
Alright, and then cash you said you.
If you take out the debt pay down you are your cash is up about 14 billion and you had net income of $7 million. So.
You know were weighted to the balance coming from.
So 7 million of net income working cash from operations. Jim in total was about $14 2 million so call it three points or so from depreciation amortization and stock based comp and other.
Three and a half to four from working capital generally.
Capex was quote unquote, only $1 2 million in the quarter.
And then we had stock option exercise of the $4 $3 million. So maybe that's the missing link for you.
Nice to ensure a healthy chunk of stock from exercises.
Okay and then.
Question also related to cash you announced the bye bye bye.
<unk> buyback.
And you also announced the increase to the dividend.
And I'm just curious you know.
You have still have some debt left over.
From the the autograph deal whats the priority.
Already as you generate cash in 2021 is it to pay the rest of that down to do the stock buyback or they keep increasing the dividend.
Yes.
So I'll take the front of that since dividends are sort of always on my happy list here.
I feel like the dividend usually the cadence of this company's you announced the dividend and it's the first quarterly call and then that keeps playing out I'm not guiding with the board is going to do with the next three quarterly meetings, but that would be the cadence you'd look back yet so that feels like it's set to me.
And it feels like I think roughly speaking Jim that's about a $9 million aggregate payment Jay might close on that.
So about 20 million shares something like that about $9 million place to go you just heard JJ say, we produced $14 seven and a nice quarter, albeit but we produced $14 seven in Q4. So it feels like that's cover Bull and then.
And I'm Gonna get Jay in a second but I would say we've done a tremendous job of being focused on we had a revolver for $25 million starting in June at the acquisition that's been wiped clean already so we've been you can hear we're very focused on that.
Maybe Jay any more color on this for the Bakken I mean, yeah the auction.
The order is what you'd probably think it would be generous generate cash flow paying dividends and pay off debt and then by companies and of course, when we find a good acquisition targets will disrupt that in paint and buying the company will be the number one priority, but on a steady state basis I think that's the answer so we felt.
Pretty good about.
The debt we paid down in the second half of 2020, I think that was a really nice accomplishment and we're going to try and keep that momentum going into 2021.
Alright.
I brought it up is you announced that you have.
Authorization to purchase $15 million of stock.
As of February so where does that today low on that list.
That's interesting so I think the stock repurchases sort of good housekeeping Jim.
Not.
Necessarily a big topic for US right now, but you know in the event that the world came unglued in the stock price dropped we'd like to be able to buy back some shares.
At a bargain at a discount so I think it's just nice corporate helped me out to have that place. The next logical question is would you ever raise equity and pay off debt.
And if the stock price is high that's time to do it obviously.
And that's an interesting question, who knows we could have we could talk about that one for a while but I think.
That's question, if a given our highest stock price could be an interesting one as well.
Okay alright, thank you.
Thanks, a lot Jim.
I am showing no further questions at this time, ladies and gentlemen that concludes today's conference I would like to thank you for your participation and you may now disconnect have a great team.
The momentum.
[music].
Yes.