Q3 2021 LeMaitre Vascular Inc Earnings Call

October 28, 2021

Welcome to the La vascular <unk> third quarter 2021 financial results Conference call. As a reminder, today's call is being recorded at this time I would like to turn the call over to Mr. J, J Pellegrino, Chief financial officer of <unk>.

Please go ahead Sir.

Thank you operator, good afternoon, and thank you for joining us on our Q3 2021 conference call.

With me on today's call are our chairman and CEO, George Lemaitre, and our President Dave Roberts.

Before we begin I'll read our safe Harbor statement today.

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 are subject to risks and uncertainties.

Wherever possible, we will try to identify those forward looking statements by using words, such as believe expect anticipate pursue forecast and similar expressions.

Our forward looking statements are based on our estimates and assumptions as of today October 28, 2021, and 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.

A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website www dot limit dot com.

I'll now turn the call over to George for me.

Thanks, JJ on today's call I'll cover three topics number one Q3 sales of 38.

Point 4 million were up 5% number two the impact of the Delta variant and finally number three our progress rebuilding head count and the sales force.

Sales of $38 4 million were up 5% versus Q3 2020.

Sales grew 5% in the Americas, 5% in Europe, and 16% in APAC.

Autograph allografts and valve becomes led sales growth.

Autograph sales of $6 $3 million were up 15% year over year.

We also posted record bovine carotid patch sales as the initial CE mark issues resolved in Q3, and our Japanese launch showed momentum.

Biologics comprised 49% of our sales in Q3.

Do the Delta variant, many hospitals deferred elective surgery and prioritized COVID-19 treatments.

Variant may also cause patients to defer procedures.

From a personnel perspective 43 employees have been infected since the pandemic began.

Approximately 85% of our employees are fully vaccinated and we wait osha guidance on the U S vaccine mandate.

As of today, we have 103 sales reps on payroll with six more offer assigned in 17 more territories being recruited.

Soon we will surpass our high watermark of 112 reps.

With 440 employees on our payroll we are now back to pre COVID-19 levels.

Partly due to the competitive hiring landscape, we recently instituted an across the board $20 minimum wage for our North American employees, and we increased our north American entry level sales rep pay by about $10000 a year.

Hiring picked up in September and October.

Possibly due to these two changes.

Despite the chaotic environment in the last 18 months, our businesses emerging stronger and more profitable.

And our business plan remains unchanged, we're growing our sales force maintaining high op margins generating cash and investing in acquisitions.

I'll now turn the call over to J J.

Thanks, George our Q3 2021 gross margin was 64, 8% an increase of two 5% over the prior year period the.

The increase was largely due to Q3 2020 inventory purchase accounting related to the autograph acquisition as well as ASP increases in the current quarter.

These margin gains were partially offset by manufacturing efficient and inefficiencies and unfavorable product mix in Q3 2021.

We posted operating income of $9 $1 million in Q3 2021.

A decrease of 9% versus the prior year quarter increased operating expenses drove the decline as we continued to normalize our head count.

While year over year bottom line comparisons are challenging due to pandemic reduced operating expenses in the year ago quarter, we posted a 24% operating margin this quarter.

We will continue to hire personnel and sales reps, while keeping a close eye on our operating margin.

We ended Q3 2021 with no debt and $67 1 million of cash and investments.

This increase was driven by a $58 $7 million stock offering.

As well as $11 $3 million in EBITDA generated in the quarter.

We used $23 million of our cash to pay down the remaining autograph related debt and have significant excess cash available for investment.

Turning to guidance, we expect Q4 2021 sales of $39 million to $41 million, which represents an increase of 7% at the midpoint versus Q4 2020.

We expect operating income of $8 3 million to $9 $7 million, which represents a decrease of 6% at the midpoint.

Our Q4 2021 EPS guidance of 29 to 34 per share represents a decrease of 8% at the midpoint.

In closing I'd like to welcome Anthony Petrone exact Weiner from Jefferies, who recently initiated coverage on Onemain. In addition, I would like to welcome Olivier Fonseca from Spark capital.

So initiated coverage on Onemain in Q3.

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

Can I ask a question at this time, please press star one on your telephone and to withdraw your question Jess.

Once again it started with the questions.

Our first question a couple of line of Anthony Petrone from Jefferies. You may begin.

Hey, this is Jack on for Anthony Thanks for taking the question.

A few from US can you quantify the delta impact.

In.

The backlog that you're seeing how long do you think it'll take for surgeons to work through that backlog.

Yeah, Hey, nice to have you on this call for the first time Zach This is George welcome to the Jefferies folks.

You know we are we're saying it's about $1 million the guidance mid point Miss was about $1 million and it feels like about $1 million, it's really hard as I'm sure you can understand to be precise on how much. It was as the second part of your question is when does that when does that unwind.

We really don't know it feels like every time, we go through the Covid wave it kind of unwind a little quicker and it's the effect is a little bit less so, but we don't know the future I think whatever we thought about that question. We tried to bake into our guidance for Q4, and I think you can see in Q4.

We're projecting a 7% organic growth rate.

Got it that's helpful and one of the themes that we've heard so far through earnings is the impact of staffing shortages is that anything that you guys have.

Seen on your end.

We may or may not have seen it I guess at my level I haven't to be honest with you I don't know so much about that youre talking staffing shortages at hospitals correct, yes.

Yes.

Procedure volume.

I had to be quite honest, maybe I shouldn't, but I hadn't distinguished between that function and Justin no patients because of Covid patients Ah <unk>.

<unk> function, so I don't know that.

And then one more for us.

On the manufacturing inefficiencies that you referenced that you referenced in your release.

Do you envision them or do you expect them to roll off in <unk> as a headwind that you think will continue to progress through the fourth quarter.

Yes, Zach this is J J.

There's a lot of things going and running through the gross margin line.

And I think you'll see sequentially, we've got a little bit of an improvement baked in.

Some of this topic has been write downs of inventory you know from you know maybe exiting some product lines.

<unk> building up inventory for manufacturing transfers and not getting all the skus quite right.

Maybe a little bit of CE topics in there as well that we've sort of gone through now, but it felt that you know.

As a result come through the P&L and so I do feel like maybe that improves a little bit in the coming quarters.

And that's probably a little bit of a good guy going from Q Q3 to Q4.

There's probably a mixed topic in there to restore flow to the extent.

It does really well that tends to bring down the margin and then Valvulotome and article after the extent that they do well tend to bring up the margin I'm guessing there'll be sort of a favorable product mix shift in.

In Q4, and that's helping the margin as well so there's there's there's a lot of other topics as well for example, how did we do 456 months ago in terms of manufacturing efficiencies in our different departments. Those answers will now come through the P&L in Q4, I think that's going to be a favorable topic for us as well as.

Raw towards Q4, so a lot of puts and takes but I think we got to that.

That that sort of improvement in the margin through those concepts.

And then if we could sneak one last one and it looks like Opex spend is going to step up in <unk> can you just talk about that briefly.

We will of course, you're seeing us talk a lot about those sales reps. So it probably can start them there, but that's happening around the company. We were back to finally at 440 employees to being at what I'll call pre Covid levels and then we're ramping up the salesforce. So a lot of it is embedded in that.

[laughter].

Okay. That's helpful. Thank you.

Our next question comes flying that Rick Wise from Stifel. You may begin.

Hi, Good afternoon, George Hello, everybody.

Terence maybe.

It seems like one of the most thoughtful things Youre talking about Tonight is that sales force expansion.

Now at 103, six more already signed.

So you're going to be.

With any luck 125 or six.

What in the next six months.

Just two questions.

Maybe you could expand on it just sorry to interrupt, but I was going to say it just.

Where are these folks going.

Are you splitting Tory Terry creating new territories.

Our geographies what are you prioritizing.

How do we think about that on the other side of all this.

The potential theoretical all things equal impact on on sales start to see it in the second half of next year or help US just think through all of that thank you. Okay. Okay, great well. That's a question if I Miss any come back and remind me that I missed them, but so I think that the main answer that I'd like to give you is that this is.

Sort of an American thing because we bought autograft in June of 2020, and we needed more sales reps when we bought them and then all of this happen with the lay offs and then also the reps quitting as well. So we've had this fortunate re rack and then we got to choose okay around the world where would you put your reps.

Could start over again and for better for worse, we have that option.

And so this is a big change to the American sales force I know you didn't exactly asked that question, but it does say where do they go and then how did we do that so.

Quick numbers here, we're going from 35, and I think David mentioned, we're going to be up 83% in rep head count in the Americas. When this is all over with at something like I'm doing quick math here at 64 reps. So gone from 35 to 64 Rick.

And so we elected to go there for a very obvious reasons, which is now 67% of our sales, our USA and Canada and it used to be more like 50% and that was because of the acquisition within the Americas within the Americas, How did we do it yes, we're splitting states we're splitting territories.

First we had to go back and fill in back to the 55 territories that we had always seen as 55 distinct places, but then to give you to put some meat on the bone here a state like Michigan. We split we only had Detroit now we have Detroit in Grand Rapids, a state like North Carolina, We split we only had Charlotte now we have.

And we have.

Raleigh, and then a state like Georgia, we split we used to just have Atlanta, now Atlanta, and making and so on and so forth. Those are three very obvious splits that you can understand but.

So going after the Americas and splitting states and.

When you split states I mean, when you place rep.

The driver for US is where are their current sales because you want to be able to service. Those current sales at the very least your sales rep is a is a helpful friendly faces at the hospital, helping take orders at the best there theyre pushing product and and doing things sort of on the offense and.

So we were this nice thing, which is all this autograph revenue I think we're telling you here, we have $26 million of autograph revenue now annualized and so you put that $26 million on top of the American business that used to be.

I can't get the numbers right now, but I've got about $75 million before this Rick so putting them together you have a chance to redo the whole monopoly board. So it's been a nice I mean, it's been a rough go for the regional managers with the lay off some of the hiring but it's been a nice way to re rack and I think we've kind of gotten the right when you move over to.

Europe the changes less extreme it's going from 33 reps at the bottom 244 reps at the top when we're all set and in Europe, it's been a less little bit less about.

Splitting splitting geographies, but it's about going back after those capital cities that we had lost reps and that we always sort of wanted to cover places like Birmingham, UK stuff like Stockholm and stuff like that.

Naples things like that these bigger cities that didn't have coverage. So that is a bit of a ramble. Rick you opened up a big a big topic may.

Maybe you can come back at me and tell me what are the parts of the question you want me to pursue in addition to that.

I think that's it that's incredibly excellent detail I appreciate it George.

How do we think about the time to meaningful impact on the sales line.

I mean do we do we do.

Do we sort of let's.

Let's say pending Covid recovery is it like fourth quarter first quarter and second quarter right not got the similar run rates and then we see sharply up into the right and the.

Second half of next year, all things equal.

These folks start to get productive is that the right way to think about it.

Rick I bet, you've asked me that question and other analysts on this on this group six times over the years and I, probably always give you.

Unsatisfying answer and my real answer is I know and I always do this I apologize for the fifth time, now, but I'm going to give you an unsatisfying answer.

We know you need reps things don't happen in this world without sales reps without franchisees. If you will in these various cities.

You have to have them when do they come on I'll give you a real generic answer quasi six to nine months. After you hired the guy or the woman, but sometimes you get one that jumps out in the Raleigh wrap this fantastic and then sometimes the Raleigh Rep doesn't happen forever.

So I'm going to say at a median 0.6 to nine months, but we don't know I have always found it to be a little slower than people like me and you want it to be but then does happen overtime.

I appreciate that.

Back in the first half of this year.

First quarter was a little slower you have some backlog that helps.

The second quarter I keep wondering whether we're seeing.

Each company is talking about the software third quarter is there a backlog.

Procedures do you have any sense that.

That could possibly.

Familiar to Covid in this quarter.

You gained that back in the fourth quarter.

How are you thinking about that kind of thought.

I think it could it could add some upside to add Bliss I've watched a couple of these press releases from these companies also and I think I could add a little upside to the various medical device companies you probably have a bunch of Ceos that have shell shocked and we came out of our shallow on July 20th. We're all excited to give you guys Q3 guide.

Since we even went and gave your Q4 guidance. We gave you annual guidance and then honestly than it all happened in August and we will have gone Oh Geez is this thing again, so maybe and I would say maybe this is affecting me and Jay who are principally doing the guidance here maybe.

We're a little bit burned from that coming out of our shell in July and now were just like okay. Here's your guidance and we don't know is there another I read in the newspaper that this delta I don't mean to start a room here sorry, but I did read there is this delta plus thing going on elsewhere, and I'm like Oh, gosh, what does that mean.

When we worked our guidance Rick we did not work in anything about a delta plus we just assume things are going to kind of be okay. Over the next three months, but we're also a little bit nervous about what could happen if something bad happens here I think we all every single one of us personally and professionally we know the second we try to guess out.

Covid were wrong and so I don't know what to say at least we only have to guide for one quarter right now.

That's very helpful. Thanks again.

Thanks, Rick.

Yeah.

And our next question comes from China.

Michel <unk> Keybanc.

Begin.

Good afternoon, George Steve do James This is Steve.

My questions were already asked.

Yes.

It really I think continues to strengthen can you give some comments on how the M&A pipeline is currently looking.

And the most potential opportunity.

Yes, Hi, Brett it's Dave good to hear you.

The pipeline looks pretty good right now we've got a few targets they tend to be a.

Little bit larger than some of the ones, we did a while back I don't know.

$5 million to $10 million range or north of that.

And they continue to be sort of in the center of the fairway.

Either open vascular surgery.

Disposables in implants.

But also I think as you know we're trying to look to the left of the fairway, let's say in cardiac surgery or to the right and peripheral Endovascular, we're always focused on niche low rivalry market. So yeah.

Yes.

Processing opportunities I will say valuations are a little bit high these days.

We see that with obviously the IHI is near an all time high in.

Our neighbors down the street.

The scientific they've been.

Buying some things that fairly high multiples et cetera. So.

That's a consideration and we are valuation sensitive, but yeah. We're out looking and it is not lost on us that we issued equity this summer and we've got a good bank account and no debt and a lot of capacity for a larger deal.

So we will we're out hunting and we're going to try to find it but we won't do anything rash.

Alright excellent.

One more from me.

I think you guys mentioned pricing.

Price increases this quarter on the call can you add a little.

Good color on where you were able to implement those.

And then if there is an initial view on how youre looking at the approach to pricing for 2022 versus historical trends.

Thank you.

Sure.

I don't I don't know, what we're talking about about Q4 pricing, we almost always do our price increases on January one.

And so we do have some initial thoughts on that but I feel like it's still.

Being worked on internally none of the hospitals know anything about what the pricing may be so I think I think I'm not supposed to be talking exactly about our pricing right now.

Not particularly.

Secret type stuff and about I don't know when the letters go out to the hospital it feels like about two weeks or so so maybe after that we can get you a copy of the pricing changes to the various analysts if that's important.

All right no worries completely understand thank you very much for taking the questions.

Yeah.

Our next question will come from Javier Francois.

Spartan capital May begin.

Hi, good afternoon. This hydro.

<unk> <unk> from foreign capital. Thanks for taking the question this way.

Regarding our rep, it's been over a year since the acquisition and my pushing to a management is.

Overall, <unk> performed relative to your expectations and could you provide more color on how you expect to perform in Q4 and through 2022 and also could you throw some numbers as far as.

How will our RV outperformed relative to.

<unk> allografts and individuals which were the lead products for quarter three.

Yes, Javier first of all welcome to the <unk> Cogs, great to hear your voices Dave.

<unk> is going very well as you know when we acquired it about 16 months ago. The sales at the hospital level were $18 $6 million and now if you just take Q3 and annualize that it's running in the 25 to 26 range.

Definitely going ahead of the board model.

Q3 sales were up 15%.

Our normal practice on acquisitions is that.

When we get beyond a year after the acquisition, we start to let that let that acquired company and product line hold into the overall math so I'm.

Im not going to necessarily walk through gross margins and operating contributions, but I will say.

As as Arcograph.

Anniversaried.

Gross margin was definitely north of the corporate gross margin and it had an outsized contribution to operating profit. So I would say at a high level.

We are consistent.

We're still consistent with that so I think from the topline perspective, it's going better than planned and from the bottom line perspective, It's also going much better than plan do you want to repeat then.

Next part of your question.

Of course so.

As mentioned earlier on the call that are wrapped together with allograft in the valleys homes, where the key.

Products and driving revenue for quarter three could you put some numbers to those three products. Yeah. So arcograph as we mentioned was up 15%. It was the biggest dollar contributor to growth in Q3.

Allografts were the second largest dollar contributor they happen to be up 28% year over year and then Valvulotome is we're the third largest dollar contributor up 5% year over year.

And could you share like the actual dollar figure that each one of them brought in this quarter.

Do you have any and we know.

0.3.

I've got that all at least already so.

Restore flow was about $2 9 million in the quarter and Valvulotome is about $7 million.

Alright, Thank you very much.

Thanks, a lot Javier.

And our next question will come from the line of Brooks O'neil from Lake Street Capital you may begin.

Good afternoon, guys I guess, the only question I can think of that hasn't been asked and answered his supply chain impact.

The business any disruptions there to speak up.

Okay.

Brooks out there right. This is George that Brooks, Yes, yes, George nice to hear from you Brooks.

Yes.

On the supply chain side.

It's actually been okay. So far the the back orders that we were focused on to our customer for the first eight months of the year were largely CE driven we've had a little bit more of back orders and by the way. The back orders are way down right now based on the CE being solved.

We've had some back orders due to some small that we could say it might be related to supply chain issues, but remember we manufacture almost all of our stuff in.

Burlington, Massachusetts, North Brunswick, New Jersey, and then out in Fox River Grove, Illinois, We only have right now one outside plant that we own in Leon France, and so we're not as affected I think by people that are bringing their products and then shipping them to domestic customers. So I'd say pretty good so far now on the finance side and the.

And the money side J J, maybe commentary on if this is affecting anything inside the gross margin.

There is there is a couple of things that are going on Brooks like we're running out and buying six or nine months worth of laptops and sometimes are running over the target to get them like literally so theres some odd corky areas.

Of our world, where we're trying to find stuff when we can't get it we've largely been able to do that.

With respect more towards raw materials.

And the like.

Got a lot of inventory on hand, Thats, our ammo typically if you look at our balance sheet Youll see why do you have so much inventory and it's it's all geared towards this being a no backorder company and as it turns out that helps you in times like this so when when when you can't get a certain resin or youre looking for a certain piece of night now you can't get it.

You, probably got a decent amount on stock on hand, and it helps you mitigate all of that so I would say, yes. There are topics were running around behind the scenes putting out odd little fires, but nothing thats really raised range.

<unk> itself to the level of this there might be one exception, which is because of the CE mark topics not necessarily because of the supply chain issues Athene assure for US is now being sourced for Europe from Australia, and the shipping for that is more expensive and we felt that.

<unk> come through the P&L and the gross margins one of the things that's pushing the margin down a bit.

Okay.

All that color is very helpful. I did think of one more thing obviously, you mentioned the CE mark coming through and all of that are there any regulatory issues of note.

It seems that are impacting.

Or do you think might impact in the near term.

We're watching one other sort of subsidiary CE issue around this product called omni flow it might be a passing set of back orders in Q1 up to like $300000 Brooks I don't think you'll notice that at your level around this company yet.

And then as we got through the whole <unk> thing you know the official wars Everything's perfect Everything's fine. We all know Thats just the M D D World and everyone's shifting now over this thing called M. D. R and I would say if M. D D. As junior varsity MTR is varsity and we're about to have to switch and see if we can play varsity.

And that's coming at us and that's going to be a big story at all medical device companies through the final transition data I think is may of 2024, so theres a lot of stuff. There's a lot of things that we need to get right. By then, but we think we'll get them right and we think we'll deliver that to the shareholders, but that'll.

That'll be a topic.

Okay. Thanks, a lot for that.

Thanks, a lot Brooks.

And our next question will come from the line of Mike <unk> from Barrington Research you may begin.

Hey, guys good evening.

<unk>.

I didn't catch if you guys said you can assure.

Sure.

The results there was revenue in either growth or decline.

Sure I know, it's obviously an important product.

Yeah, Mike So we have a category called bovine patches.

Grab that.

It's about six and that includes.

Our vast yourself product as well as an issue, but it's largely zeno, it's largely the answer youre looking for $6 4 million in sales up about 5% that was a record bovine carotid patch quarter I think it's notable it didn't make it to the top three product lines, but in and of itself. It was a record quarter.

Has a lot to do with the resolution of the CE issues around genius sure going from Q2, when we got the CE Mark to Q3, when we finally had sellable products. There are as of a week ago. There are no back orders on Z and ensure that the company right now and I would say that was state in Maine for the CE fight.

Four 9% or 15 months.

Excellent.

So JJ I guess this is this.

It is not necessarily a really short term question, but more of a 12 to 24 months question at least in terms of the gross margin you guys at one time and I know the world has changed but at one time was sort of 70% gross margins fairly consistently 69, 70, 71, and I guess I assumed when autograph.

Sort of is fully integrated and sort of the accounting around that.

Annualize that you guys would be pushing a little closer.

To that historical range and now it feels like well, maybe maybe not I was just wondering if you could broadly generally speak about expectations over the next year.

However, long 235 years I mean, what you think.

Realistically.

Really nice question, Mike. Thanks, It's something we've been thinking obviously more and more about here as we've sort of drifted down from the high 60%, 70% say into the mid <unk>.

And there's a lot of topics.

Contributing to this I'm going to reel off five or six of them and then maybe if we can.

Talk about are they here to stay or where do they go going forward in that sort of gives us an idea of maybe where we're headed but.

Certainly higher payroll costs for manufacturing have have a downward pressure on the margin and you heard George say, we've got a $20 minimum wage now.

U S and that applies pretty directly to the manufacturing folks.

As you give them Cole was every year, obviously, that's a topic.

We've increased manufacturing spend outside of payroll as well in general operating expenses like indirect supplies and outside services and you've heard me talk about freight related to Xena sure. We've been building out new clean rooms, and improving clean rooms in that depreciation then sort of comes onto the P&L and so that put some.

Pressure on as well we've done thing number three we've done.

Call it three or four lower margin acquisitions over the last five ish years four three ish years restore flow protocol applied in cardiac and you've heard us talk about those and those are all in.

State of.

<unk> as we go forward and to the extent that we can make good on that that will certainly help the margin going forward, but it depresses it in the meantime.

Quality has been more of a topic for us as well.

So we've spent more on that to make sure that our quality.

Team has all the resources they need and all of the employees that they need and that's obviously pushed on on it as well and then the number six we've talked about that a little bit at the beginning of the call. It feels to me like.

Half of those anyway are transient the manufacturing ones get worked on over time.

And then while that's going on you've got some good guys, helping you as well and so we talked about improving sales for increasing sales prices at the beginning of the year and certainly you know we talked about autograph. This year. When you put a nice healthy 20 plus percent price hike and Artur graph. This year hopefully next year, we can do something.

Robust in terms of price hikes, there and with other product lines like Valvulotome et cetera, and then as those new clean rooms get built out and get used and become more efficient then that'll help our operating folks getting more efficient with sort of the standard cost byproduct line because they are working in sort of nicer cleaner more.

<unk> facilities, if you will.

And then as those transfers are completed like the omni flow transfer that was recently sort of started up some production here in the U S, but really isn't efficient yet and the same with the <unk> and Python in the applied products same topic. There we started production, but not really necessarily efficient yet those will help going forward as well. So there's a lot of sorry on <unk>.

<unk>, Mike, but theres a lot of puts and takes I feel like there's a good answer out there, but we're in a point right now where all of those five or six things that I talked about sort of ganging up on me, but we'll get through pieces of them over time as we move forward.

Okay.

There's a lot there's a lot.

A lot in there.

Okay.

Fair enough.

Okay.

Just a quick one for George.

Let the next person to answer questions or ask a question. So on the sales reps obviously.

For 234 quarters, it felt like not a lot getting done and then all of a sudden bang.

You knocked out.

It feels like more than a dozen and a bunch more to come and all the rest of it I guess my question is.

And you've been you sort of have been inked.

Intimately involved in terms of sales and you know one that part of the business at times and all the rest I mean, when you look at sort of the types of folks that you signed on recently and that are you are in talks with to sign on I mean is this sort of thing.

Typical.

Is it more new folks than you would typically higher our R&D folks people that.

You sort of downside during Covid I'm, just curious as to sort of is there any differences in terms of the hiring.

The types of guys Youre hiring.

Folks are hiring versus historic.

Okay. So at a really high level no not at all and then when we bumped up the starting salary by $10000. There was a hint that maybe we can get after some some better folks and then in very specific answer I think we've rehired of all the people that got terminated or quit.

In the summer of 2020, I feel like about four or five came back, but that's not a lot of people compared to going from 79% to $1 25.

What does that 45 people or something like that so it's not too many people, but yes, we picked up four or five that it had been here before.

No I don't see much of a difference between the ones that were hiring now and the ones we used to hire two years ago or so.

Just a quick one and just going back to that question that you feel like you always give the same answer that nobody is happy with the four to four five that you re highest should they ramp quicker or not really.

Yes, very clearly they should just step right back into their job and those four or five came on two.

Two or three months ago.

Or even longer than that to go.

Alright, very good. Thank you Mike before you go depreciation and amortization to $90 5 million.

Stock based comp 797000, and Capex $1 eight $1 5 million.

You just saved yourself a tax thank you.

No.

[laughter].

Our next question comes along those Scott Henry from Roth Capital you may begin.

Thank you and good afternoon.

First of my questions have been asked I just had one sort of bigger picture question over the first nine months of the year, which are admittedly.

It's a challenging time to figure out trends and whatnot, but when we think about the first quarter you were at the upper end of your guidance the second quarter, you're well above your guidance range.

Now the third quarter Youre below it and even if we add 1 million back.

You are kind of in the middle of it. So I'm just trying to get a sense of why you think it's trending that way or maybe its just noise or perhaps.

You are waiting for the more reps to.

To come in I, just wanted to get your sense of that kind of trend versus expectations and how we should think about it going forward. Okay, Hey, Scott it's good to hear your voice.

And I would say remember when we're back giving Q1 guidance what does that February 15th or something like that February 20th remember where everyone is no one's had a vaccine then and so I think we were really scared about giving guidance in Q1, and so okay. We'd beat it and then I think we're still and we didn't do that.

That well remember Q1, there was still a lot of.

The winter Covid way, particularly in the U S was pretty strong and it was still a lot of muted results here I don't think we had a particularly great actual sales quarter forgetting about how we did it was $35 nine forgetting about how we did against guidance. It was still we were still surprised coming from Q4 to Q1 that Q.

Q1, particularly January was that was that Coleman bad and so I'm getting a little last year, but I would say.

Got to always remember, where you were in terms of vaccines in guidance for that and then and then and then we just blew it out in Q2 versus guidance and versus anything and.

And I think that was we think that that was the rush of people back into these hospitals, and then maybe JJ and I got a little bit over our skis and a little bit overconfident on July 29th thinking that all of that goodness that we saw from Q2 was going to get repeated in Q3, and so yeah. Okay, maybe you could even say well.

Delta just matched our guidance. So maybe we were more confident about our numbers for Q3 and that had been the first time that we had had any confidence about the numbers and certainly that did not apply to Q1 and Q2, we were all quite scared about what was coming at us.

I would say.

As part.

The guidance I, just feel like there's more volatility in these days right and so for a period of time post didn't even want to give guidance and we tried to come back early with guidance for you guys. Because we figured you know at least you can even if we're gonna be wrong at least you can hear what we think and then you can make your own judgments from there.

And so it's just a little bit more hurly, burly and a little bit more chunky I don't know that theres a trend or.

Or anything systemic going on I, just feel like we've taken our best shot and then stuff happens.

And in the volatility sort of wider than it used to be I think it's fair that simple really.

Okay. Thank you for that color.

The trajectory through that it is helpful. Thank you for taking the question.

Thanks, a lot Scott.

Yes, we have a follow up from the line of Anthony Petrone from Jefferies. Your line is open.

Thanks, and thanks for taking the follow up here.

Just wanted to jump back in on our graph two quick follow ups. The first would be just just a recap on how the price increase was sort of.

Yeah.

Viewed in the marketplace and was there any drop off on accounts I suspect. It was not and then secondly, just as we look out for art graft and you think of share between a biologic graft versus synthetic grafts.

<unk>.

Within the hemodialysis.

Sort of landscape, where do you think biologic grafts could go.

As a percent of total.

Versus synthetic grafts over time thanks.

Yes. This is Dave Roberts.

So Arctic graft, obviously, we put a fairly sizable price increases JJ now January one.

2021.

We when we.

Examine the market in our due diligence and we've been watching this product for nearly 20 years in our space.

Felt like there was a pricing opportunity probably the number one competitor is.

Synthetic piece of PTSD with heparin bonded to it which was selling for a much higher price and really didn't have the features and benefits and patency of Arctic graft and so that gave us the confidence to put the price increase in January one I would say maybe in January.

We felt a little bit of a slowdown as hospitals were pushing the price increase through their committees et cetera, but by February and March.

I feel like we didn't lose any customers and we effectively captured the entire price increase so.

And when we did increase the price we didn't really increase it as much as we could have and so we do think there is a little bit more room for a price increase still.

Don't want to.

Be overly aggressive about it but we do think there could be room in January again, so we're examining that right now.

In terms of the algorithm of graphs in AAV official is of course, the number one issue with graphs in.

Which get access and calculated for dialysis.

As infection, those needles going in and out of the grass three times a week and so.

Course, the huge advantage of Arctic graft as a biologic as a xenograft.

Is that its xenograft and biologics are better at preventing and fighting infection than synthetic grafts.

And so we do think over time, we've seen a migration in access to the biologic grafts.

Just like in biologic patches, we were observing that as an after we acquired XE and assure many many years ago.

So we do think that in the long term biologics probably will win and continue to win against PTFE.

However, some surgeons prefer PTFE and so that will be around for a long time, but we believe in the long haul the biologic grafts will win out and within that category. There are xenograft and allografts and the advantage of in xenograft like Arctic class is it's generally about half the price.

<unk> of an allograft, which of course comes from the human cadaver. So we think theres probably.

A compelling proposition to the physician in the hospital when you wrap all of that up.

Very helpful. Thank you.

Okay.

And with that I am not showing any further questions in the queue.

Ladies and gentlemen.

First today's conference call.

Thank you for your participation and you may now disconnect everyone have a great day.

Okay.

Yeah.

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Welcome to the La May vascular <unk> third quarter 2021 financial results Conference call.

Today's call is being recorded at this time I would like to turn the call over to Mr. J, J Pellegrino Chief Financial Officer.

Go ahead Sir.

Thank you operator, good afternoon, and thank you for joining us on our Q3 2021 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 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 are subject to risks and uncertainties.

Wherever possible, we will try to identify those forward looking statements by using words, such as believe expect anticipate pursue forecast and similar expressions.

Our forward looking statements are based on our estimates and assumptions as of today October 28, 2021, and should not be relied upon as representing our estimates or views on any subsequent date.

During this call we will discuss non-GAAP financial measures which include EBITDA.

I'll now turn the call over to George for me.

Thanks, JJ on today's call I'll cover three topics number one Q3 sales of 38 four.

Point 4 million were up 5% number two the impact of the Delta variant and finally number three our progress rebuilding head count and the sales force.

Sales of $38 4 million were up 5% versus Q3 2020.

Sales grew 5% in the Americas, 5% in Europe, and 16% in APAC.

Autograph allografts and valve becomes led sales growth.

Autograph sales of $6 3 million or up 15% year over year.

We also posted record bovine carotid patch sales as the initial CE mark issues resolved in Q3, and our Japanese launch showed momentum.

Biologics comprised 49% of our sales in Q3.

Due to the Delta very many hospitals deferred elective surgery and prioritize COVID-19 treatments.

It may also cause patients to deferred procedures.

From a personnel perspective 43 employees have been infected since the pandemic began.

Approximately 85% of our employees are fully vaccinated and we wait osha guidance on the U S vaccine mandate.

As of today, we have 130 sales reps on payroll with six more offer assigned in 17 more territories being recruited.

Soon we will surpass our high watermark of 112 reps.

With 440 employees on our payroll we are now back to pre COVID-19 levels.

Hiring picked up in September and October, possibly due to these two changes.

Despite the chaotic environment in the last 18 months, our business is emerging stronger and more profitable.

And our business plan remains unchanged, we're growing our sales force maintaining high op margins generating cash and investing in acquisitions.

I'll now turn the call over to JJ.

Thanks, George our Q3 2021 gross margin was 64, 8% an increase of two 5% over the prior year period the.

The increase was largely due to Q3 2020 inventory purchase accounting related to the autograph acquisition as well as ASP increases in the current quarter.

These margin gains were partially offset by manufacturing efficient and inefficiencies and unfavorable product mix in Q3 2021.

We posted operating income of $9 1 million in Q3 2021.

A decrease of 9% versus the prior year quarter increased operating expenses drove the decline as we continued to normalize our head count.

While year over year bottom line comparisons are challenging due to pandemic reduced operating expenses in the year ago quarter, we posted a 24% operating margin this quarter.

We will continue to hire personnel and sales reps.

Keeping a close eye on our operating margin.

We ended Q3 2021 with no debt and $67 1 million of cash and investments.

This increase was driven by our $58 $7 million stock offering.

As well as $11 $3 million in EBITDA generated in the quarter.

We used $23 million of our cash to pay down the remaining autograph related debt and have significant excess cash available for investment.

Turning to guidance, we expect Q4 2021 sales of $39 million to $41 million, which represents an increase of 7% at the midpoint versus Q4 2020.

And I expect the operating income of $8 3 million to $9 7 million, which represents a decrease of 6% at the midpoint.

Our Q4 2021 EPS guidance of 29 to 34 per share represents a decrease of 8% at the midpoint.

In closing I'd like to welcome Anthony Petrone, and Zach Weiner from Jefferies, who recently initiated coverage on Onemain. In addition, I would like to welcome Olivier Fonseca from Spartan capital will also initiated coverage on Onemain in Q3.

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

To ask a question at this time, please press star one on your telephone and to withdraw your question Jess.

Once again Thats star one for questions.

Our first question on the top line of Anthony Petrone from Jefferies. You may begin.

Hey, this is zack on for Anthony Thanks for taking the question.

A few from US can you quantify the delta impact.

Sure.

The backlog that you're seeing how long do you think it will take for surgeons to work through that backlog.

Yeah, Hey, nice to have you on this call for the first time Zach This is George welcome to the Jefferies folks.

We are we're saying it's about $1 million the guidance mid point Miss was about $1 million and it feels like about $1 million, it's really hard as you as I am.

Sure you can understand to be precise on how much. It was as the second part of your question is when does that when does that unwind.

We really don't know it feels like every time, we go through the Covid wave it kind of unwind a little quicker than the effect is a little bit less so, but we don't know the future I think whatever we thought about that question. We tried to bake into our guidance for Q4, and I think you can see in Q4.

We're projecting a 7% organic growth rate.

Got it that's helpful and one of the themes that we've heard so far through earnings and is the impact of staffing shortages is that anything that you guys have.

<unk> seen on your end.

We may or may not have seen it I guess at my level I haven't to be honest with you I don't know so much about that youre talking to staffing shortages at hospitals correct.

Yes.

Procedure volume.

I had to be quite honest, maybe I shouldn't, but I hadn't distinguished between that function and just the no patients because of COVID-19 patients.

Function, so I don't know that.

Got it and then one more for us.

On the manufacturing inefficiencies that you referenced.

Referenced in your release.

Do you envision them or do you expect them to roll off in <unk> as a headwind that you think will continue to progress through the fourth quarter.

Yes, Zach this is JJ.

There's a lot of things going and running through the gross margin line.

And I think you'll see sequentially, we've got a little bit of an improvement baked in.

Some of this topic has been write downs of inventory.

From maybe exiting some product lines.

And are building up inventory for manufacturing transfers and not getting all the skus quite right.

Maybe a little bit of CE topics in there as well that we've sort of gone through now but have felt that.

As a result come through the P&L and so I do feel like maybe that improves a little bit in the coming quarters.

And that's probably a little bit of a good guide going from Q Q3 to Q4.

There's probably a mix topic in there to restore flow to the extent.

It does really well that tends to bring down the margin and then valvulotome and Artur graph to the extent that they do well tend to bring up the margin I'm guessing there'll be sort of a favorable product mix shift.

In Q4, and Thats, helping the margin as well so there's there's a lot of other topics as well for example, how did we do 456 months ago in terms of manufacturing efficiencies in our different departments. Those answers will now come through the P&L in Q4, I think thats going to be a favorable topic for us as well.

Raw towards Q4, so a lot of puts and takes but I think we got to that.

That sort of improvement in the margin through those concepts.

And then if we get to sneak one last one in.

Looks like Opex spending to get a step up in.

<unk> can you just talk about that briefly.

We will of course, Youre seeing us talk a lot about those sales reps. So it probably can start them there, but that's happening around the company. We were backed finally at 440 employees to being at what I'll call pre Covid levels and then we're ramping up the salesforce. So a lot of it's embedded in that.

Okay. That's helpful. Thank you.

Yeah.

Our next question comes from the line of Rick Wise from Stifel. You may begin.

Hi, Good afternoon, George Hello, everybody.

George maybe.

It seems like one of the most notable things Youre talking about Tonight is that Salesforce expansion.

Now at 103 ramped six more already signed seven mid teen market grow youre going to be.

It sounds like with any luck 125 or six.

But in the next six months.

Yes.

Maybe you could expand on it.

But as I say it just.

Where are these folks going.

Are you splitting Tory terry's, creating new territories.

Geographies what are you prioritizing.

How do we think about then on the other side of all this.

The potential theoretical all things equal impact on sales.

Sales start to see it in the second half of next year or help US just think through all of that thank you. Okay. Okay, great well lots of questions. If I Miss any come back and remind me that I missed them, but so I think that the main answer that I'd like to give you is that this is so.

Sort of an American thing because we bought autograft in June of 2020, and we needed more sales reps when we bought them and then all of this happened with the layoffs and then also the reps quitting as well. So we've had this fortunate re rack and then we got to choose okay around the world where would you put your reps.

You could start over again and for better for worse, we have that option.

And so this is a big change to the American sales force I know you didn't exactly asked that question, but it does say where do they go and then how did we do that so.

First we had to go back and fill and back to the 55 territories that we had always seen as 55 distinct places, but then to give you to put some meat on the bone here a state like Michigan. We split we only had Detroit now we have Detroit in Grand Rapids, a state like North Carolina, We split we only had Charlotte now we are.

Charlot than we have.

And then a state like Georgia, we split we used to just have Atlanta now Atlanta in Macon, and so on and so forth. Those are three very obvious splits that you can understand.

So going after the Americas and splitting states.

When you split states when you place reps.

The driver for US is where are their current sales because you want to be able to service. Those current sales at the very least your sales rep is a is a helpful friendly face at the hospital, helping take orders at the best there theyre pushing product and and doing things sort of on the offense and.

So we were this nice thing, which is all of this autograph revenue I think we're telling you here, we have $26 million of autograft revenue now annualized and so you put that $26 million on top of the American business that used to be.

Europe the changes less extreme it's going from 33 reps at the bottom 244 reps at the top when we're all set and in Europe, it's been a less little bit less about.

Naples things like that these bigger cities that didn't have coverage. So that is a bit of a ramble. Rick you opened up a big a big topic may.

Maybe you come back in the <unk> and tell me what are the parts of the question you want me to pursue in addition to that.

I think that's incredibly excellent detail I appreciate it George.

How do we think about the time to meaningful impact on the sales line.

I mean do we.

We do we do.

Do we sort of let's.

Let's say pending Covid recovery is it like fourth quarter first quarter and second quarter right not December.

Similar run rates and then we see sharply up into the right in the second half of next year, all things equal as these folks start to get productive is that the right way to think about it.

Rick I bet, you are asking me that question and other analysts on this on this group six times over the years and I am probably always give you <unk>.

Unsatisfying answer and my real answer is I know and I always do this I apologize for the fifth time, now, but I'm going to give you an unsatisfying answer.

We know you need reps things don't happen in this world without sales reps without franchisees. If you will in these various cities.

You have to have them when do they come on I'll give you a real generic answer quasi six to nine months. After you hire the guy or the woman, but sometimes you get one that jumps out in the Raleigh wrap this fantastic and then sometimes the Raleigh Rep doesn't happen forever.

So I'm going to say at a median 0.6 to nine months, but we don't know I have always found it to be a little slower than people like me and you want it to be but then does happen overtime.

I appreciate that.

Back in the first half of this year.

First quarter was a little slower you have some backlog that helped.

The second quarter I keep wondering whether we're seeing each company is talking about the software third quarter is there a backlog.

Seizures do you have any sense that.

That could positively okay, you lost familiar to Covid in this quarter.

You gained that back in the fourth quarter.

How are you thinking about that kind of thought.

I think it could it could add some upside to add Bliss I've watched a couple of these press releases from these companies also and I think it could add a little upside to the various medical device companies you probably have a bunch of Ceos that have shell shocked and we came out of our shell on July 29th. We're all excited to give you guys Q3 guide.

We even went and gave your Q4 guidance. We gave you annual guidance and then honestly than it all happened in August and we will ask Oh Gee Here's this thing again, so maybe and I would say maybe this is affecting me and Jay who are principally due on the guidance here maybe.

We're a little bit.

Burned from that coming out of our shell in July and now we're just like okay. Here's your guidance and we don't know is there another I read in the newspaper that this delta I don't mean to start a room here sorry, but I did read there is this delta plus thing going on elsewhere, and I'm like Oh, gosh, what does that mean.

Covid were wrong and so I don't know what to say at least we don't have to guide for one quarter right now.

That's very helpful. Thanks again.

Thanks, Rick.

Yeah.

And our next question.

Ms Shang.

Inc. You may begin.

Good afternoon, George Steve do Dave This is Brad.

My questions were already asked.

The balance sheet.

Yes.

Yes, it really I think continues to strengthen can you give some comment on how the M&A pipeline is currently looking.

And the most potential opportunity.

Yes, Hi, Brett it's Dave good to hear you.

The pipeline looks pretty good right now we've got a few targets they tend to be.

A little bit larger than some of the ones. We did a while back I don't know.

$5 million to $10 million range or north of that.

And they continue to be sort of in the center of the fairway.

Either open vascular surgery.

Disposables in implants.

But also I think as you know we're trying to look sort of still left of the fairway, let's say in cardiac surgery or to the right and peripheral endovascular, we're always focused on niche low rivalry market. So.

Yes.

Process opportunities I will say valuations are a little bit high these days.

We see that with obviously the IHI is near an all time high in.

Our neighbors down the street.

Boston scientific they've been up buying some things are fairly high multiples et cetera. So.

That's a consideration.

We are valuation sensitive, but yes, we're out looking and it's not lost on us that we issued equity this summer and we've got a good bank account and no debt and a lot of capacity for a larger deal.

So we will we're out hunting and we're going to try to find out, but we wont do anything rash.

Alright excellent.

One more from me.

I think you guys mentioned.

Price increases this quarter on the call can you add a little.

I'll give color on where you were able to implement.

And then if there is an initial view on how youre looking at the approach to pricing for 2022 versus historical trends. Thank.

Thank you.

Sure.

I don't know what we're talking about about Q4 pricing, we almost always do our price increases on January one.

And so we do have some initial thoughts on that but I feel like it's still.

<unk> worked on internally none of the hospitals know anything about what the pricing may be so I think I think I'm not supposed to be talking exactly about our pricing right now.

Not particularly.

<unk> secret type stuff and about I don't know when the letters go out to the hospital it feels like about two weeks or so so maybe after that we can get you a copy of the pricing changes to the various analysts if thats important.

All right no worries completely understood. Thank you very much for taking the questions.

Yes.

Our next question will come from Javier Francois.

I'm just wondering capital may begin.

Hi, good afternoon.

<unk> <unk> from foreign capital Thanks for taking the question this.

This question is regarding <unk>.

It's been over a year since the acquisition and my question to management is <unk>.

Overall, <unk> performed relative to your expectations and could you provide more color on how you expect autograph to perform in Q4 and through 2022 and also could you throw some numbers as far as how will.

Our EBITDA performed relative to.

Two allografts in value terms, which were the lead product for quarter three.

Yes, Javier first of all welcome eliminate Cogs, great to hear your voices Dave.

Autograft is going very well as you know when we acquired it about 16 months ago. The sales at the hospital level were $18 $6 million and now if you just take Q3 and annualize that it's running in the 25% to 26 range.

Definitely going ahead of the board model the Q3 sales were up 15%.

Our normal practice on acquisitions is that.

When we get beyond a year after the acquisition, we start to let that let that acquired company and product line hold into the overall mass and so I'm.

Im not going to necessarily walk through gross margins and operating contributions, but I will say.

As autograft.

Anniversaried.

Gross margin was definitely north of the corporate gross margin and it had an outsized contribution to operating profit.

I would say at a high level.

We are consistent.

We are still consistent with that so I think from the topline perspective, it's going better than planned and from the bottom line perspective, It's also going much better than plan do you want to repeat then.

Next part of your question.

First so.

As mentioned earlier on the call that are wrapped together with allograft and the values homes with a key.

What's driving revenue for quarter three could you put some numbers to those three products, yes. So autograft as we mentioned was up 15%. It was the biggest dollar contributor to growth in Q3.

Allografts were the second largest dollar contributor they happen to be up 28% year over year and then Valvulotome is we're the third largest dollar contributor up 5% year over year.

And could you share like the actual dollar figure that each one of them brought in this quarter.

Do you have any and we know that it's three I've got that.

I will get that leased already so.

Restore flow was about $2 9 million in the quarter and Valvulotome is about $7 million.

Alright, Thank you very much.

Thanks, a lot heavier.

And our next question comes from the line of Brooks O'neil from Lake Street Capital you may begin.

Hey, good afternoon, guys I guess, the only question I can think of that Hasnt been asked and answered his supply chain impact.

Business any disruptions there to speak up.

That's Brooks out there right. This is George that's Brooks, Yes, yes, George nice to hear from you Brooks.

Yes.

On the supply chain.

Hi.

We've had some back orders due to some small, but we can say it might be related to supply chain issues, but remember we manufacture almost all of our stuff in.

Burlington, Massachusetts, North Brunswick, New Jersey, and then out in Fox River Grove, Illinois, We only have right now one outside plant that we own in Leon France, and so we're not as affected I think by people that are bringing their products and then shipping them to domestic customers. So I would say pretty good so far now on the finance side.

And the money side J J, maybe commentary on if this is affecting anything inside the gross margin.

I mean, there is theres a couple of things that are going on Brooks like we're running out and buying six or nine months worth of laptops, and sometimes they're running over the target to get them like literally so theres some odd corky areas.

Of our world, where we're trying to find stuff when we can't get it we've largely been able to do that.

With respect more towards raw materials and the like.

We've got a lot of inventory on hand, Thats, our ammo typically if you look at our balance sheet, you'll see why do you have so much inventory and it's it's all geared towards this being a no backorder company and as it turns out that helps you in times like this so when when when you can't get a certain resident or Youre looking for a certain piece of night now you can't.

Well, you probably got a decent amount on stock on hand. It helps you mitigate all of that so I would say, yes. There are topics were running around behind the scenes putting out are the little fires, but nothing thats really raised range.

<unk> itself to the level of this there might be one exception, which is because of the CE mark topics not necessarily because of the supply chain issues Athena assure for US is now being sourced for Europe from Australia, and the shipping for that is more expensive and we felt that.

<unk> come through the P&L and the gross margins one of the things thats pushing the margin down a bit.

Okay.

All of that color is very helpful. I did think of one more thing obviously, you mentioned the CE mark coming through and all of that are there any regulatory issues of note.

You see that are impacting.

Or do you think might impact in the near term.

We're watching one other sort of subsidiary CE issue around this product called omni flow it might be a passing set of back orders in Q1 up to like $300000 Brooks I don't think youll notice that at your level around this company yes.

And then as we got through the whole <unk> thing. The official word is everything's perfect Everything's fine. We all know Thats, just the Mgd world and everyone's shifting now over this thing called M. D. R and I would say if MD D. As junior varsity MTR is varsity and we're about to have the switch and see if we can play varsity.

And that's coming at us and that's going to be a big story at all medical device companies through the final transition data I think is may of 2024. So there is a lot of stuff. There's a lot of things that we need to get right. By then, but we think we'll get them right and we think we'll deliver that to the shareholders, but that'll be a topic.

Okay. Thanks, a lot for that.

Thanks, a lot Brooks.

And our next question will come from the line of Mike <unk>.

Barrington Research you may begin.

Hey, guys. Good evening, a few questions on I didn't catch if you guys said xena sure sort of the results there I'd love revenue in either growth or decline on Xena, Sean I know, it's obviously an important product.

Yes, Mike So we have a category called bovine patches.

Grab that.

Just about six and that includes.

Our vascular product as well as ensure but largely it's largely the answer youre looking for $6 4 million in sales up about 5% that was a record bovine carotid patch quarter I think it's notable it didn't make it to the top three product lines, but in and of itself. It was a record quarter.

Has a lot to do with the resolution of the CE issues around <unk> going from Q2, when we got the CE Mark to Q3, when we finally had sellable products. There are as of a week ago. There are no back orders on Xena assured the company right now and I would say that was state in Maine for the CE fight.

For 9% or 15 months.

Excellent.

So JJ I guess.

This is not necessarily a really short term question, but more of a 12 to 24 months question at least in terms of gross margin are you guys at one time and I know the world has changed but at one time or sort of 70% gross margins fairly consistently 69, 70, 71, and I guess I assumed when autograph.

Sort of is fully integrated and so the accounting around that.

Annualize that you guys would be pushing a little closer.

To that historical range and now it feels like well, maybe maybe not I was just wondering if you could broadly generally speak about expectations over the next yes.

However, long 235 years I mean, what you think.

Realistic there.

Really nice question, Mike. Thanks, It's something we've been thinking obviously more and more about here as we've sort of drifted down from the high 60%, 70% say into the mid sixties.

And there's a lot of topics.

Contributing to this I'm going to reel off five or six of them and then maybe if we can.

Talk about are they here to stay or where do they go going forward in that sort of gives us an idea of maybe where we're headed but.

Certainly higher payroll costs for manufacturing have have a downward pressure on the margin and you heard George say, we've got a $20 minimum wage now in the U S and that applies pretty directly to the manufacturing folks.

And as you give them coal is every year, obviously, that's a topic.

Ron as well we've done thing number three we've done.

Call it three or four of lower margin acquisitions over the last five ish years four three ish years restore.

Procol applied and Cardi, Alan you've heard us talk about those and those are all in.

State of <unk>.

<unk> as we go forward and to the extent that we can make good on that that will certainly help the margin going forward, but it depresses that in the meantime.

Quality has been a more of a topic for us as well.

So we've spent more on that to make sure that our quality.

Team has all the resources they need and all the employees that they need and Thats, obviously pushed on on it as well and then the <unk> number six we've talked about that a little bit at the beginning of the call. It feels to me like.

Half of those anyway are transient the manufacturing ones get worked on over time.

Robust in terms of price hikes, there and with other product lines like Valvulotome et cetera, and then as those new clean rooms get built out and get used and become more efficient then that'll help our offer our operating folks getting more efficient with sort of the standard cost byproduct line, because they're working in sort of nicer cleaner more.

<unk> facilities, if you will.

And then as those transfers are completed like the.

The omni flow transfer that was recently started up some production and here in the U S, but really as an efficient yet and the same with the centel in Python. The applied products same topic. There we started production, but not really necessarily efficient yet those will help going forward as well. So there's a lot of sorry, I'm rambling, there, Mike Mike, but theres a lot of puts and takes I feel like.

There's a good answer out there, but we're in a point right now where all of those five or six things that I talked about sort of ganging up on me, but we'll get through pieces of them over time as we move forward.

Okay.

There's a lot there's a lot.

A lot in there.

Okay.

Fair enough.

Okay.

Just a quick one for George.

But the next step person answer questions or ask a question. So on the sales reps obviously.

For 234 quarters, it felt like not a lot getting done and then all of a sudden bang.

You knocked out.

It feels like more than a dozen and a bunch more to come and all the rest of it I guess my question is.

And you've been you sort of have been inked.

Intimately involved in terms of sales and one that that part of the business at times and all the rest I mean, when you look at sort of the types of folks that you've signed on recently and that are you are in talks with to sign on I mean is this sort of thing.

Typical or is it more new folks than you would typically higher our R&D folks people that.

You sort of downside during Covid I'm, just curious as to sort of.

Are there any differences in terms of the hiring.

The types of guys Youre hiring.

Folks are hiring versus historic.

In the summer of 2020, I feel like about four or five came back but that's not a lot of people compared to going from 79 to $1 25.

What does that 45 people or something like that so it's not too many people, but yes, we picked up four or five that it had been here before.

No I don't see much of a difference between the ones that were hiring now and the ones we used to hire two years ago or so.

Just a quick one in.

Just going back to that question that you feel like you always give the same answer that nobody is happy with the four to four five that you re hyatt should they ramp quicker or not really.

Yes, very clearly they should they should just step right back into their job and those four or five came on two.

Two or three months ago.

Even longer than that ago.

Alright, very good. Thank you Mike before you go to <unk>.

<unk> and amortization to 92 5 million.

Stock based comp 797000, and Capex $1 eight $1 5 million.

I mean, you just saved yourself a tax thank you.

No.

Yeah.

Our next question comes from Scott Henry from Roth Capital You May begin.

Thank you and good afternoon.

First of my questions have been asked I just had one sort of bigger picture question over the first nine months of the year, which are admittedly.

Youre kind of in the middle of that so I'm just trying to get a sense of why you think it's trending that way or maybe its just noise or perhaps.

You are waiting for the more reps to.

To come in I, just wanted to get your sense of that kind of trend versus expectations and how we should think about it going forward. Okay, Hey, Scott it's good to hear your voice.

And I would say remember when we're back giving Q1 guidance what is that February 15th or something like that February 20th remember where everyone is no one's had a vaccine then and so I think we were really scared about giving guidance in Q1, and so okay. We'd beat it and then I think we're still and we didn't do that.

That well remember Q1, there was still a lot of.

Q1, particularly January was that was that Coleman bad and so I'm getting a little last year, but I would say.

Got to always remember, where we were in terms of vaccines in guidance for that and then and then and then we just blew it out in Q2 versus guidance and versus anything.

I would say.

As part.

The guidance I just feel like there was more volatility these days right and so for a period of time post didn't even want to give guidance and we tried to come back early with guidance for you guys. Because we figured at least you can even if we are going to be wrong at least you can hear what we think and then you can make your own judgments from there.

And so it's just a little bit more early burley and a little bit more chunky I don't know that theres a trend or.

Or anything systemic going on I, just feel like we've taken our best shot and then stuff happens.

And in the volatility.

Sort of wider than it used to be I think it's fair that simple really.

Okay. Thank you for that color.

The trajectory through that it is helpful. Thank you for taking the questions.

Thanks, a lot Scott.

We have a fall off from the line of Anthony Petrone from Jefferies. Your line is open.

Thanks, and thanks for taking the follow up here.

Just wanted to jump back in on art graph two quick follow ups. The first would be just just a recap on how the price increase was sort of.

Uh huh.

Viewed in the marketplace and was there any drop off on accounts I suspect. It was not and then secondly, just as we look out for art grafts, and you think of share between a biologic graft versus synthetic grafts.

Yes.

Within the hemo dialysis.

Sort of landscape, where do you think biologic grafts to could go.

As a percent of total.

Versus synthetic grafts over time thanks.

Yes. This is Dave Roberts.

So Arctic graft, obviously, we put a fairly sizable price increases as JJ mentioned in January one.

2021.

<unk>.

When we.

Examine the market in our due diligence and we've been watching this product for nearly 20 years in our space.

Felt like there was a pricing opportunity probably the number one competitor is.

Synthetic piece of PTSD with heparin bonded to it which was selling for a much higher price and really didn't have the features and benefits and patency of autograft and so that gave us the confidence to put the price increase in January one I would say maybe in January.

We felt a little bit of a slowdown as hospitals were pushing the price increase through their committees et cetera, but by February and March.

I feel like we didn't lose any customers and we effectively captured the entire price increase so.

And when we did increase the price we didn't really increase it as much as we could have and so we do think there is a little bit more room for a price increase still.

Don't want to.

Be overly aggressive about it but we do think there could be room in January again, so we're examining that right now in.

In terms of the algorithm of graphs in official is of course, the number one issue with graphs in which get access and calculated for dialysis is infection.

Those needles going in and out of the grass three times, a week and so the of course, the huge advantage of Arda graft as a biologic as a xenograft.

Is that its xenograft and biologics are better at preventing and fighting infection than synthetic grafts.

So we do think over time, we've seen a migration in access to the biologic grafts just like in biologic patches, we were observing that as and after we acquired Zane assure many many years ago. So we do think that in the long term.

<unk>, probably will win and continue to win against PTFE.

However, some surgeons prefer PTFE and so that will be around for a long time, but we believe in the long haul the biologic grafts or went out and within that category. There are xenograft and allografts and the advantage of xenograft like Arctic graft is it's generally about half the price.

<unk> of an allograft, which of course comes from the human cadaver. So we think theres probably.

Impelling proposition to the physician in the hospital when you wrap all of that up.

Yes.

Very helpful. Thank you.

Yes.

Okay.

And with that I am not showing any further questions in the queue.

Ladies and gentlemen.

This concludes today's conference call. Thank.

Thank you. Thank you for your questions.

Nation and you may now disconnect everyone have a great day.

Q3 2021 LeMaitre Vascular Inc Earnings Call

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