Q2 2021 LeMaitre Vascular Inc Earnings Call

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Welcome to build to meet vascular Q2, 2021 financial results conference call.

As a reminder, today's call.

[music] recorded at this time I would like to turn the call over to Mr. J J Pellegrino Chief Financial Officer limit vascular. Please go ahead Sir.

Thank you operator, good afternoon, and thank you for joining us on our Q2.2021 conference call with me on.

On today's call are chairman.

It should be you know George Lemaitre, and our President Dave Roberts.

Before we begin I'll read our safe Harbor statement today, we will make some forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act 1995, the accuracy of which are subject to risks and uncertainties.

Where possible we will try to identify those forward looking statements.

Cameras by using words, such as believe expect anticipate pursue forecast and similar expressions.

Forward looking statements are based on our estimates and assumptions as of today July 29, 2021, and should not be relied on as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward looking information on the.

The risk factors on our most recent 10-K and subsequent SEC filings, including disclosure of 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 non-GAAP outstanding debt.

A reconciliation of GAAP.

Statement GAAP measures as discussed on this call is contained in the associated press release and is available in the Investor Relations section of our website.

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I'll now turn the call over to George from me. Thanks, JJ on today's call I'll cover 3 topics number 1 COVID-19 impact on.

And on lease.

Number 2 record Q2 sales and finally number 3 rebuilding our sales force.

First I'd like to review Covid impact on our team.

38 employees have been infected since the pandemic began with all now recovered.

Thanks to the availability of vaccines are U S and UK staff return.

Our employee office on June 20, <unk>, and our EU and Canadian staff did the same on July 26, and.

And we continue to observe health and safety measures in our facilities.

We posted record sales of $40.7 million in Q2 up 64% versus the Covid affected Q2.2020.

Sales grew 8.

Turning to 3% in the Americas, 36% in EMEA and 30% in APAC by product autograph sales were $6.7 million in Q2, and there were several records valve.

Valves homes, carotid shunts crowded patches and allografts.

APAC benefited in Q2 from $250000 of <unk>.

<unk> sales.

And we expect to submit the <unk> trial results to the Chinese FDA by October <unk>.

<unk> approval is likely in 2023 or 2024.

We ended Q2 with 88 sales reps. Despite 27 open requisitions sales rep hiring has been flow.

We intend.

Japanese who are pre Covid high watermark of 112 reps.

Meanwhile, we are expanding our warehouses in England, Italy, and Japan in order to improve customer connections and speed up order fulfillment.

By October we will be shipping from our warehouses to hospitals in 8 of our 9 largest markets with that I'll turn the call over to JJ.

Thanks George.

Q2, 2021 gross margin was 65, 8% a decrease of 2.7% over the prior year period. The decrease was driven by changes in product mix manufacturing inefficiencies related to our 2020 personnel reductions.

On the inventory write downs largely.

<unk> from our drive ex product line.

We are currently rehiring manufacturing personnel, which should bring manufacturing efficiencies in the coming quarters.

We posted operating income of $11.1 million in Q2.2021 more than 1 third of which was contributed by autograft.

Operating income was also.

So up to to restrained head count growth.

We ended Q2.2021 with 417 full time employees, including 88 sales reps.

To pre Covid 2019 levels of 454 and 112, respectively.

In Q2.2021, our operating margin was 27.

7%.

Cash flow is also improving EBITDA of $13.3 million was up 108% year over year.

We ended Q2, 2021 was $23 million of debt and $21.8 million of cash and investments.

Since the June 2020, Autograft acquisition, we have paid down.

$2 million of debt from internally generated cash and last week. We retired the remaining 23 million net proceeds from our recent $54 million stock offering.

We continue to maintain our $25 million untapped revolving line of credit.

Improved profitability and cash.

$40 have increased our access to debt and equity capital markets.

Turning to guidance for the full year 2021, our sales guidance of $154.1 million to $158.1 million represents an increase of 21% at the midpoint versus the full year 2020.

And our operating income.

Cash flow of 37.7 million to $44 million represents an increase of 36%.

Our full year 2021, EPS guidance of $1.30 to $1.40 per share represents an increase of 30% at the midpoint.

With that I'll turn it back over to the operator for.

Guidance day.

Thank you presenters at this time for participants to ask any question you May Press star 1 on your telephone keypad.

Although Oxford, just a moment to compile the Q&A roster.

We have our first question from Rick Weiss your.

Your line is open.

Hi, good afternoon everybody.

Maybe.

We could dig into a couple of topics.

Obviously, it's great to Covid.

The strong quarterly financials.

And.

You've given us very.

Hi.

For Q interest rate guidance ranges for the third and fourth quarter. Thank you.

It makes it easier maybe just.

Coming out of the second quarter.

If you could help us think about.

Trends in momentum, obviously, it's not surprising to imagine that the third quarter would be slight.

Slightly seasonally slower.

But have trends basically continued have you seen any impact of Covid just in.

In general what are you seeing big picture out there and how do you feel like you're set up for the third quarter.

Hey, Rick This is George Thanks for the Great question, So I'm going to limit my comments. If that's okay to Q2, I really don't want to get into.

On what's going on in Q3 already but as a comment that gets that gets truncated June 30, it was a really strong quarter.

We could feel the customers taking the products away from us during the quarter and we are not trying to take any great credit I think they have been waiting and a lot of these procedures got backlogs and we.

With that in Q2, the big guessing game I think around our company and medical device companies in general would be as you look at Q3, how does that continue if it continues or does it sort of play out in Europe, a little bit more than it plays out in the U S. Maybe its exhausted in the U S. Those are unanswered questions for us.

We felt in Q2, we definitely felt it.

And we will take a cautious wait and see approach to Q3 and see what happens and then it's how much do people take vacations as well in Q3 that people feel like particularly the European tell you where OTA vacation. After all of this time or do they or do they say.

But I want to go back and do my procedures and we'll push the vacations into some other time I don't know the answers the question, but we did our best with our guidance to try to answer those questions inside of our guidance.

Okay.

<unk>.

Maybe this is more for JJ.

As George talked about.

No.

UK staffing and Canadian staff backup facilities.

Talking about.

A hiring if I understood you.

Manufacturing.

<unk> folks.

My sense is you think that can be of manufacturing efficiencies.

How do we think about that.

The potential.

The impact of all that.

It may be lower costs getting everybody back on site.

More manufacturing personnel doing something that helped how do we think about margin the impact on margins going forward.

Thanks for the question. So maybe the first piece of it is in Q1 and Q2.

Rick you got some extra excess in obsolete inventory write downs from product lines that aren't doing well or that we're sort of.

Exiting.

Just sort of struggling a little bit and I think those abate for the second half of the year and so maybe theres a little help there moving forward.

Steve.

Seasonally Q3 is typically a little bit better for gross margins oddly as well. So maybe you get a little help there in Q3.

And then in terms of the direct labor folks.

Did lay off a bunch of folks for and during Covid, along with the other way offset we made.

Efficiencies are coming through now.

And I feel like as you get into Q4.

You start to run away from those and we've been working to hire more direct flavor folks over the last months and maybe you get a benefit from those sort of as you move forward. So it's a combination of all.

All of those things and I think the other piece of it may be Rick is article has been doing really well on harder graft.

A nice strong gross margin and so to the extent that.

We continue to see strong quarterly numbers from Artur graft that will help the margin as well.

Got you and maybe just.

And last from me.

It's.

Given the.

Strength in balance sheet, the greater financial flexibility and strong cash flow.

It's always hard I mean somebody has to ask on I'll take the fall.

Maybe.

Mr Roberts could discuss.

The M&A pipeline and then just.

Does this set the stage for EBIT more activities, just any update any color there David.

Yes, Hi, Rick Thanks for the good question, Yes, I mean, obviously.

Obviously, we're very pleased with that equity offering it was nice to pay off the debt save a little.

Little bit of interest have a clean balance sheet.

Optically for potential sellers, and just frankly to have more dry powder.

In terms of the pipeline itself I would say.

During COVID-19.

Did restrict travel a little bit a lot of the congresses.

<unk> had shut down we're.

Starting to open a little bit in.

And travel is picking up a little bit. So we are pursuing various targets I think maybe an object lesson from the Arctic <unk> acquisition, a little over a year ago was.

For us to be considering larger targets autograft is going very well, obviously as you can tell.

Also to.

Borrow money, we've got a lot of EBITDA, we could leverage that so we are looking at larger targets. These days I would say our focus hasn't really shifted we're still focused really on disposables in implantables used by vascular surgeons, maybe branching out a little.

Bit into endovascular or cardiac surgery.

But we like the niche markets and we can look a little bit larger. So we just wanted to be prepared for that and.

We'll see when a willing seller that meets all of this strength strategic criteria shows up we will be ready for.

And when that time comes.

Thanks very much.

Yeah.

Once again, if you would like to ask a question. Please press star 1 on your telephone keypad.

We have our next question from.

Matthew Mission your line is open.

Great and thank you for taking the.

<unk>.

Just on the second half day look here I understand not wanting to give too much color around around.

Phasing in <unk>, and <unk> and some of the caution here, but yes, I guess on fire.

If <unk> not be better than <unk>.

<unk>.

Even where we're at today.

Yes.

Go ahead.

And you were talking about sales when you're talking about the op income.

Yes.

Okay, sorry, and Youre looking at sequentially.

From Q3 to Q4 or from Q2 into Q3 Q2, I can understand like Q3, and we're still a little bit of a gray area on that.

No no 1 really kind of.

People aren't sure of what people do in the summer, but Q4, it seems like it should be it should be a little bit stronger than what you have what you have implied.

But what you have put out there.

Your guidance.

Matt It's Dave good to hear your voice. Thanks for the question I'll start it and then GA JJ may add in but.

Q2 was a unique quarter for us.

Particularly in the United States, what we saw what we all felt here in the U S was.

The Covid pandemic, maybe lessening a little bit we.

We believe we did feel.

Backlog of cases come through which is why we saw such widespread growth among our product line. So many different products setting records I think it was unprecedented.

<unk>.

But now with.

With the Delta variant and we're hearing about elective surgeries at some hospitals in the southeast shutting down and it's just Q3 and then of course, we know that COVID-19 likes the cold weather, it's really.

We have to be a little bit cautious as we think.

About how to sequence in Q3 and in Q4, so that certainly was a consideration but.

I'll open it up to either George or JJ, if they wanted the quick FX topic as well so we're pretty European business, and we will lose about $200000 of sales going from Q3 to Q2 there is.

<unk>, marking thing Matt there's a little nuance here. So while we were thrilled when we wrote a press release on May 25th to get those 5 CE marks we have continued to put the message out there that there is the.

2 of the products that they approved name and the more important 1 being <unk>. They approved a device that we werent maker.

See before the actual approval they are prudent device 4 years in a slightly different <unk> et cetera, et cetera long story, but we had to start making the product all from new and so we were selling oddly and ironically, we're selling under derogation before May 25, and then as of May 25th you Couldnt do.

King anymore in most markets and so post may 25th <unk> in Europe, you should expect some struggle. So maybe that links up a little bit and then I would say we're trying to figure out my final point would be so FX. The CE marks not really in Q3 being a great thing, but coming back in Q4.

Do that define in Q4 for all the CE issues.

But and so I'd say those are 2 big issues and then.

Pretty European business and normally again, we don't know what's going to happen normally those fixed those folks take vacations in the summer and we usually see a downdraft of I don't know something like 3 or 4%.

From Q2 to Q3, so our normal seasonality would have projected these numbers as well.

Yes.

AD I might add 1 more on this which is.

I'm trying to figure out the COVID-19 pace of recovery in Europe.

In Q4.

And.

Sure.

Probably not something you want to get out on a limb on so maybe if we think theres going to be a bit of an opening there more folks going into hospitals getting treatments, but.

But not a crazy opening like we feel like we felt in Q2 in the U S.

Maybe that's a more sort of prudent approach and at the end of the day that's still.

7% growth rate.

And.

Sort of comps if you will as we got away from Covid last year. So I still feel like it's a pretty it's a pretty nice number.

Okay.

Thank you for all the color on that and then just 1 last question just on the pace.

Hiring.

For the sales force to get back up to where you were before.

How long do you think.

That could take care.

Right, Matt that's a great question.

Is George again.

Yeah, it's been a little bit frustrating, we've only picked up a net to sales reps and 3 months I think the.

So start accelerating.

But the last time, we spoke I had 15 open requisitions I believe at the last call and I have 27 sitting out there right now I've gone a little bit wider geographically, while it's I would say 2 thirds or should be 2 thirds in American issue because of this new autograft the acquisition.

And we've gotten a little bit more okay, well, we can fill in in Japan, We've got that Japanese <unk> approval and some stuff in Europe with the comeback on Xena share in Q4 for Brazilian assure Europe. So I don't know when it does feel like it will start.

Getting a little faster in the meantime, also sort of in terms of teeing up the hiring.

Patient machine, we've got a net add of about 2 new.

Regional sales managers, 1 on Europe, and 1 on the U S and I think that on a number of like 15 or 16, so you've got more higher errors and I think with 27 spots open youll see it pick up but it's tough to guide when people will take.

Hiring and I am sure on all the phone calls <unk> been on so far I'm going to guess folks who are complaining a little bit about hey, it's hard to hire people and I think we're running into that as well.

Every single 1.

Thank you guys.

Thank you very much.

Job again, if you would like to ask a question. Please press star 1 on your telephone keypad.

We have on our next question from Mike Zaremski.

On a surgeon.

Good evening guys.

Couple of questions.

Assuming.

Pro forma balance sheet is something I mean is it essentially zero debt and $50 million cash roughly I mean is that the is that basically the math.

That's directional.

The range was 54.

And.

On Lynch.

6% or so from the banks, we keep the rest take out 23 of that and then you can take the rest of that and put it on the cash balance.

Yes.

Alright.

So Dave I guess I wanted to ask in terms of just some of the targets you're looking at I know some of these conversations go on for several quarters.

Then theres couple years or whatever but.

When you look at sort of the.

Whatever the number of targets or a conversation on that are going on I mean are there sort of arda graft size deals that you are you would say you were in meaningful conversations with at this point.

Yes.

Yes, I mean without.

These discussions can turn on the dime I would say I've got a handful of opportunities the range up to $25 million in revenue at the moment autograph dealer number.

It's trade sales were $15.6 million in the LTM period.

The acquisition, it's hospital sales, Mike were $18.6 million so.

So there are.

There are opportunities that are larger than autograft and there are opportunities that are smaller at the moment.

Okay Alright, great.

George.

If this.

Prior to that variant issue heats up.

Are there things that you all learned just in terms of.

Getting employees back to work in.

Social distancing PPE et cetera.

This variant does sort of become a thing are there things that you.

Learned in 2020 that.

You think will make it easier to keep your folks healthier I know I know nothing full proof, but I guess that's the question.

Sure. Okay. So are there things that we learned.

You know I think they may also maybe more.

So I think it might be the employees themselves and I can't speak for all 400 them, but I think they've all come to terms on COVID-19 and their own way and they are watching us we have all these distancing watches and we check temperatures on the way in where all spread out and all of our facilities and I think they've learned Oh there are no COVID-19.

So there's that.

Within Lemaitre vascular is building I think there was 1 documented spread so I think it's maybe it's more what they've learned about what the risks they're willing to take on weekends of dinners and things like that but.

We've called them back to work, we really didn't get much blow back on that we were happily surprised there's a couple of people.

Spread some some variances from what from what we were selling to everyone, but it's been it's been nice we haven't heard anything about it. So I think for now we're good to go and I think people learning how to handle this thing better, but I think it's more about the employees and their approach to us rather than what we're learning. We're now still doing the same thing we've been doing for 12.

12 months to 14 months with all of these distancing watches and 6 feet and everything like that.

Great.

I'm curious has Arctic graft.

Now past valve at homes.

As a product category interest in terms of top line revenue.

$6.7 as that.

I would say that.

But the whole category of valve, it's homes no. It hasnt passed that but it's gotten past some of the brand some of the individual brands. So we have 2 or 3 brands inside of there, but the whole category no the valve until I'm still the largest category of the company.

Got it.

It's been north of 30 million I don't suspect it north of $40 million.

Hang on a second I am happy to tell you what the Q1. The Q2 number was sorry, let me just forget it J J or Dave do you have that handy.

I have the organic loan growth.

Got it.

<unk>.

7.7.

Okay.

And the autograph just for everyone on falling along is $6.7 in the quarter that includes allocated shipping for both product lines.

Alright, very good thanks, congratulations on the on.

Continued.

Can't believe it.

You told me we'd be here a year.

Year ago, I wouldn't have believed that congratulations thanks.

Thanks, Mike.

There are no more questions at this time presenters.

Okay. Thank you.

Thank you very.

Operator, I guess its time to hang up.

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 day.

Okay.

Yeah.

Much.

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