Q4 2022 LeMaitre Vascular Inc Earnings Call

February 23, 2023

Yeah.

Welcome.

Cause automate basket quarter, Q4, 2020 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 Omega.

Go ahead Sir.

Okay.

Thank you operator, good afternoon, and thank you for joining us on our Q4 2022 conference call with me on today's call is our chairman and CEO , George Lemaitre, and our President Dave.

Robert.

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

Today, we will make some forward looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties wherever possible. We will try to identify those forward looking statements.

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.

During 2003 2023 and <unk>.

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 organic sales growth as well as operating income operating expense and EPS, excluding special charges in gross margin, excluding the impact of foreign exchange.

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 were made dot com I will now turn the call over to George were made.

Thanks, JJ on today's call I'll cover three topics number one organic sales growth was 8% in Q4.

Number two our Salesforce buildout in APAC expansion continued and number three we've largely finished our initial <unk> filings.

We posted sales of $41 million in Q4, and 8% organic increase.

Organic growth was led by APAC up 22%, followed by EMEA up 9% in the Americas up 6%.

By product biologic patches were up 11% carotid jumped about 24% and bovine grafts were up 11%.

These increases were partially offset by omni flow, which was down 55% due to a back order we projected back order will largely be resolved by the end of Q2 2023.

Rep head count stood at a 131 on December 31, 2022 up 27% year over year.

Head count grew 25% in both the Americas, and EMEA and 40% in APAC.

We also added two regional sales managers in 2022.

Territory sizes in our smaller and we think this will lead to better coverage of our vascular surgeon customers.

Notably we held sales kickoff meetings for all three geographies in January 2023.

Our first in person meetings since January 2020.

Looking ahead, we expect to end 2023, with 135 to 140 reps and sales guidance for Q1 suggests a record $43 $8 million quarter or 13% organic growth.

We're also opening new direct countries in Q4, we sold our first products from our new solar Walker.

Our Korean business should be approximately $1 5 million in 2023 sales.

First is about $400000 of net sales through our longtime Korean distributor in 2022.

Korea is our 25th direct market and we now have 12 offices worldwide.

Also in November 2022, we signed a term sheet to buyout, our Thai distributor and we plan to open up a Bangkok office by Q3 2023.

Korea, and Thailand, where previously our two largest international distributors.

Turning to Europe , we were happy to see Brussels passed legislation to defer the MDA MDI deadline until 2027.

However, we are still pressing ahead with the filing of our MDI CE Mark.

We've now filed 12 of our 14 MGIC applications and we will file the final two before the end of 2024.

Indeed in January we received our first MDI CE Mark for the Pruitt <unk> churn.

Q4, 2022 was a record sales quarter for our EMEA team a nice recovery from the somewhat difficult days of the 2020 Slash 2021 CE problems.

Before turning the call over to J J I'd like to highlight several 2022 achievements.

Number one we grew sales 9% organically.

Number two we became a member of the dividend Achievers index.

Number three we built out team will meet with several head count record.

Sales reps and 131 manufacturing personnel of 219 and total employees of 591.

We continue to invest in regulatory approvals, including <unk> applications.

RFA allograft in the UK, and Germany, and Xena share packages in China and Japan.

Number five we continue to build out our APAC direct operations.

And number six we undertook a major factory and warehouse expansion in Burlington.

I look forward to the 2022 initiatives paying off with improved top and bottom line results in 2023 and beyond.

With that ill turn the call over to JJ.

Sure.

Thanks, George Q4, 2022 sales were $41 million, an increase of 4% on a reported basis and 8% organically versus Q4 2021.

FX headwinds continue to be substantial and we lost $1 7 million in sales due to the strengthening dollar in Q4.

For the full year 2022 sales were $161 7 million, an increase of 5% on a reported basis and 9% organically.

$6 $1 million in 2022 sales due to the strong dollar.

In Q4, 2022, we posted a gross margin of 63, 6% a decrease of 210 basis points versus the prior year quarter.

The strengthening dollar decreased our gross margin by 150 basis points versus Q4 2021.

And if we exclude this foreign exchange impact our Q4 2022 gross margin would have been 65, 1%.

We increased our direct labor manufacturing team by 54% in 2022, and we increased our Burlington manufacturing footprint substantially.

This increase in production will help us mitigate any potential issues related to the MTR transition.

Adduct line changes.

Supply chain disruptions and lingering labor force scarcity.

And while we are excited about the increased unit production training, our new and larger staff has been a challenge and their inefficiency has hurt our gross margin.

We expect to correct. This in the coming quarters and this should favorably impact our gross margin as reflected in our guidance.

Q4, 2022, operating income was $7 million, reflecting an operating margin of 17%.

Operating expenses increased 8% in Q4 versus the prior year as we continued to hire and invest in many areas, particularly our sales team.

We finished 2022 was 131 sales reps.

Despite this investment we expect to slow the growth of operating expenses to 11% in 2023 from 15% in 2022 and as a result, we expect operating income growth of 19% for the full year 2023, and an operating margin of 18%.

Head count at the end of 2021 was 450 at the end of 2022 was 591.

And we now expect to end 2023 at approximately 625.

The cash on our balance sheet continues to grow. We ended Q4 2022 was $82 $7 million, an increase of $3 million in the quarter and $12 7 million in the in the year.

The Q4 increase was largely driven by cash from operations of $4 1 million and partially offset by dividends of $2 7 million.

Turning to guidance, we expect Q1 2023 sales of $42 6 million to $45 million, which represents a reported increase of 11% at the midpoint and 13% organically.

We also expect operating income of $6 million to $7 5 million, which represents a decrease of 15% at the midpoint.

Our Q1 2023 EPS guidance of 22 to 27 per share implies a midpoint of 25 per share.

For the full year of 2023, we expect sales of $174 $3 million to a $178 3 million, which represents an increase at the midpoint of 9% on both a reported inorganic basis.

We also expect operating income of $30 6 million to $33 3 million, which represents an increase of 19% at the midpoint and 7% excluding special items.

Our 2023 EPS guidance of $1 11 to $1 20 per share implies a midpoint of $1 16 per share an increase of 24%.

8%, excluding special items.

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

Thank you at this time, we will conduct a question and answer session.

Please standby, while we compile the Q&A roster.

Our first question comes from Michael Sarcone of Jefferies. Your line is now open.

Maybe we move on from Michael unless there.

I don't think he is I will move on please wait a moment why compile our Q&A roster.

Okay.

Thank you. Our next question comes from Matthew Michelle of key your line is now open.

Hey, good afternoon can you hear me.

Yes Matthew.

Okay excellent.

The quarter was so good I can to keep our space.

Okay.

Yeah.

So let me start with the first quarter guidance.

Well actually no let's start with the full year guidance, because I think that's more important.

The 9% growth how would you break it down between between volume and price.

And then what's specifically driving like the night.

A good number.

I can give you a rough a rough estimate on that this is George thanks for the Great question I would say, we think the price hike. We had saw was around 5% to 6% on January one in our various geographies, we'll see how much we get or not but I would say roughly speaking, 556% price and the remainder on volume.

Okay, and then as I think about the different regions like where are you.

Or do you expect to drive.

The most growth or how do you how would you kind of stated that between the Americas Europe and APAC.

Right. So of course on our guidance, we never really break up the future sales by by geographies. It just too hard, but I would say in general what we've seen for the last five years here is that.

APAC, Outgrows, EMEA, which outgrows, the Americas sort of reflecting how new the territory is in Asia Pac, it's a little bit less new in Europe for Us and then it's.

Been here for 40 years in the U S.

Okay.

And then the last question just as I think about gross margin through the course of the course that like 23 do you expect to exit like 'twenty three with with a higher gross margin than I mean, obviously.

Implied in your guidance was 64 eight versus 65 floor, but where do you think you actually hit the fourth quarter that 'twenty two or do you think you exited at a at a pretty good trajectory that that starts to get you back towards that.

Hi, <unk> area.

Yes, I mean, if you could just start fiddling around with that.

Interval of the math that you just mentioned.

Youre going to wind up doing something like that I think but obviously, we're not giving you guidance between quarters, but it's tough to make that math work without sort of doing that one of the big topics for US Matt has been the inefficiency of our pls as we've ramped up the size of that manufacturing group.

Along two fronts. One is utilization are they working the proportionate amount of time that we want them to versus unutilized time, whether or not directly working on something and the others productivity. When they are actually working are they are productive and so the reason I'm telling you. This because its an operational challenge to catch up to that.

<unk>, which we will but it will take a little time to do that so you can sort of reflect that in your numbers as you walk through the quarters of the year, how we might recover from that operationally.

Alright, Thank you very much.

Thanks, a lot.

When long enough that prepare the roster.

Next question.

Okay.

Our next question comes from.

Rick Wise of Stifel.

My phone is now open.

Hi, Good afternoon. This is John on for Rick today.

Just to start off looking at the full year guidance for 'twenty three.

You gave a range there I was just wondering if you could add a little color on what gets you to the higher end.

Is it lower and what are the kind of key headwinds tailwind across terex Youre seeing as you look at it that's fine.

Okay.

I'll try to help with this one this is George.

Things that could make it go better.

If the price hikes all stock you never know when you put a price hike and how much it sticks, maybe how much the turnover would be with the sales force. We've got a lot of new reps here see what that looks like it's been fantastic for the last eight months of very low turnover, but I guess that would push things higher if we had lower turnover and vice versa. If we didn't.

Those are a couple of other things how quickly the Korean subsidiary it takes off it's only up $1 million business, but that's of interest to us as well how long it takes to get the carotid indication in Japan is actually kind of key if we got it in Q1, you'll see Japan accelerating growth and if it takes till Q4, it'll be a little bit worse, but.

I've never really been asked that question that way, but it's a good question and a question to creative question and Theres. So many moving parts that is why we tried to give a range, although how wide the range $4 million is the range.

And you do have a taste of how close we are I think this quarter, we were like within $100000 of the actual numbers. So at least for this quarter or sort of a range finding machine work.

John .

Ill give you maybe another lens to look through it the four or five big product lines driving growth next year or to graft valvular Charles patches shots and restore flow and they each have their own story. So the extent that chicken beyond the right side of all of those stories, you'll be on the higher end.

The range and to the extent that you want you'll be on the lower end of the range. For example, autograft is a story of gaining sort or some unit traction. These days post acquisition and to the extent that we get some of that I think that'll be helpful. Valvular challenges the pricing topic, largely that George talked about there may be some units as well, but mostly pricing et cetera et <unk>.

So there are different product by product stories.

That will drive us higher or lower but those are the five to focus on I think.

Great. That's really helpful color I appreciate it and just one more follow up question, you talked about adding reps in 'twenty, two and you're basically at the level you want to be at now last.

Last year, just to put it from a financial terms sales and marketing grew like 19 ish percent topline is like 8% to 9% organic.

That line for 'twenty duration may be expecting more leverage.

We should be thinking about it as these reps ramp up in <unk>.

It's kind of a longer term expectation for you guys.

SM growth tissue reach a more steady state from a rep perspective, thanks for taking my questions maybe.

Maybe I answered a little bit more generally just talk about opex spinnaker in general because it's the heart of the op expense growth is the Salesforce growth, we feel like last year I don't know employees were up at 31% reps are up 27% GL is up 54%, we really went not cray.

AZ, but we went to the mat to fix all kinds of issues around here, but.

But I think we're all committed inside the building of Hey that was a special year and you can't let op expenses grow as much as we did last year. So we're putting some kind of a clamp on ourselves of 625 is the Max employees at the company. This year and I think that will help start to drive operating leverage I think.

We used to have operating leverage and over the last two or three years, we sort of lost that leverage and I think we're trying to find it back by limiting our growth of head count and hopefully at some point the op expenses grow less than the gross profit grows and we get some leverage.

I think I had said in my script that op expense grew about 15 or 16% last year, we're looking at closer to 10 of our 11%. This year and you can do the same thing. We just did with gross margin look at the Q1 opex sort of guidance that you can impute with the year full year, and then sort of assume a cadence throughout.

The year to get there.

Okay.

Thanks.

Thank you.

Thank you one moment, while prepare the Q and the next question.

Okay.

Our next question comes from Michael potential banking research. Your line is now open.

Mike how are you doing it's George in Burlington.

Okay.

I'm sorry.

Yes, sorry, I did not hear who was supposed to be on sorry I apologize.

Right, Okay fifth call the day.

If I am asking something that has been already asked and answered forgive.

Update on M&A pipeline.

Commentary, there or anything to say.

Yes.

Hey, Mike It's Dave.

I would say no real update we continue to be focused on.

Devices product lines company in the open vascular surgery field with disposables in Implantables.

Over 5% or $10 million of revenue.

Slide two to three dozen legit targets and were.

With them, we like niche.

<unk> low level market, so unwell hunting, we've sort of expanded.

The target area, a little bit, we're looking a little bit in cardiac surgery, a little bit in endovascular as well, but.

I don't think I have anything really material to report.

Obviously, the cash balances growing so we can do larger deals and we are looking I would say on the margin at larger targets. These days so.

Alex hunting, but I don't have anything to report we didn't just sign a deal that I am reporting on today.

So can I just ask on obviously, it's been a while.

Sort of needle moving harder grafts have you gone down the track with any meaningful.

Meaningful assets were just ultimately either something in the product.

If I understand the question correctly, yes.

<unk>.

We have.

Ben we have evaluated we've made bid.

Assets of a reasonable size.

I can think of.

A couple of in particular.

That neither one of them transacted. So there is still out there and they didn't happen for various reasons. So we are.

We are looking but.

We just haven't found anything.

With that what I'd say are perfectly willing seller at a reasonable price and so our feeling is let's just wait for our pitch.

And find something Thats, right, and we will pull the trigger when that happen.

Warren Buffett says alright.

Autograph.

Would you guys be willing to share what type of level of price increase you put through on the ground. This year.

Yes, we would be yard I'm sitting here going.

I think it was less than it was the year before I don't have the exact number right now I really should I think it was like six or 7% and I think the year before was 12%.

<unk> 11 last year 11 last year I know you didn't ask that but I think it was considerably reduced this year to something like five or six I apologize for not have that number at my fingertips I should directionally correct.

Okay, Alright, and J J I was just real curious on.

Our tax rate and then R&D related to MTR. It sounds like you guys have made some great progress in getting the filings does that mean that that R&D sort of flattens or is there a lot of expenses between now and the next year or so.

We talk about it potentially flattening, Mike, but I would say it would be up modestly.

Kind of thing.

As you know, we're not sort of the.

Why that had guys on that like we were a couple of years ago. When are we going to have to spend more under control and it's a little more reserved in terms of the increase but still increasing a little bit I'd characterize it that way and in fact, it and then on that.

Yeah, the tax rate was higher this quarter because.

R R.

Spend on product development was down a little bit this year and so we got less of an R&D credit on that.

Then there were some officers compensation.

That we were not able to deduct at the end of the year for tax purposes. So the Q4 rate was a little higher going forward you can sort of think of us as the 25% to five 5% guys.

Alright, great. Thanks, so much guys appreciate it.

Thanks, Mike.

Thank you one moment appear the next question.

Okay.

Our next question comes from Brooks O'neil from Lake Street Capital Your Mike is now open.

Thank you good afternoon, guys, it's Greg, thereby fingers slower than pitofsky, but I guess.

Got on a little bit late today, because I too was done.

Another call just wanted to say I think last quarter.

Was the event.

George is.

New child come into the World show I Hope things are going well with your family Georgia.

Glad to hear you back on the call this time.

So my question is that correct.

And can you just sort of macroeconomic factors I think I think last quarter the dollar's strength.

Have a big impact on results and you might have said this earlier in the call before I got out but can you just give us a sense for how currency and some of the various macro factors are affecting the business, particularly outside the United States. Thanks a lot.

Brooks I was kind of maybe JJ can handle the currency stuff after I get through this little thing but.

A couple of articles I've been reading about staffing and American hospitals, and I know you asked for international but I think.

Our business is kind of 67% North America now.

I think we are starting to look at while the hospitals are being correctly staffed and fully staffed and I don't it's been a long time since we made an excuse about why sales went up because of Covid and COVID-19 staffing, but I do feel like in the last two or three months or four months.

The staffing levels have been better and we're reporting cases are going off like they always used to go off and it's not being slowed down because they couldnt get a bunch of contract or staffers and to help push the beds around so we're quite excited about that and I think we can feel that when you talk about macroeconomics from us.

And as for the currency, maybe J J has got some insight on that so I'll try and thank you.

I'll try and make it.

Sequential here I guess.

In a way because it is turning on us.

In terms of the dollar.

Weakening, but in Q4, the FX hurt us year over year.

For about $1 7 million reduction in the sales.

And then for the full year last year, it was like $6 2 million something like that.

And then in Q1 of this year 23, maybe it's a $1 1 million or so bad guy year over year, but then Brexit starts to change as last year's rate came down in this year's rates starting to go up those two are starting to cross and so when you get into Q3, it starts to be of help year over year.

Year and by the end of the year you are kind of neutral in 2023. So you can sort of not think about FX for the full year 2023.

Great great great. Thanks, a lot.

Thanks, a lot.

Thank you one moment as I prepare the next question.

Okay.

Our next question comes from Jim Sidoti of Sidoti. Your line is now open.

Hi, Good afternoon, guys. Thanks for taking my question.

Im looking back over the last five years.

Looking back over the last five or six years.

You've never grow in Q1 $2 million off of Q4.

Prior year before is that related to the backlog for Amit.

Yeah.

No it's not precise that related to that that's not that larger factor. It some of it in there but no. We just feel like it's a very good quarter and you are right to pick up the sequential cadence, it's pretty rare that that happens I'm glad you're following us that closely that youre watching that.

Okay, what exactly happened with Audley flowing.

How material is that.

Sure. So army flow is approximately a $5 $5 million product when it's running correctly.

In the transition from Melbourne, we used to make it there and now we make it in Burlington in that transition, we messed up the transfer and some of the qualifications didn't work out we kind of got it started in Q3, and we hit a little bit of a speed bump with some of the sterilization validation.

Those have now been sorted out as of January and we are shipping to our it's most of the European product Jim. So we're shipping to our European headquarters right now.

And we are actually selling devices now so we've broken through the it was basically a shut out for November and December and we have indeed broken through that now and we're selling.

So five $5 million of product line in a great quarter, where does that mean, it's selling 175% or something a quarter.

And I think in Q4, if I remember correctly from the charge I was saying we sold about 700000 $600000 worth of it until we see that we are starting to catch up to that and then go a little further so that's why it isn't such a big difference between Q4 2022 in Q1 2023, because we did sell stuff in October .

And now we're going to sort of February and March were going to be selling stuff against that October sales, so not not exactly because of that its a good quarter.

Don't exactly understand why it's such a good quarter, maybe some of the hospital staffing comment I was making to the last question from Brooks are sort of an indication of what we one of our hypotheses. We also have a pretty robust price hike on one of our valve at home product line called easy site, which had always been sort of prices of junior Valvulotome option.

And now it's priced exactly at parity with the regular Valvulotome. So we got a little price hike thing, there, which may be a nice difference between Q4 and Q1 as well.

Okay, all right and then I hope that actually might act.

Yes, no that's good.

Question was already Gabel, you told me.

Last quarter, you said you had a bit of an air pocket there did that come back to normal levels in the fourth quarter, yes. So yes, thats right great memory. There, yes, I think we call that an air pocket on the call that I wasn't on and then it was up 20% into Q4 sequentially and better news here is that it feels.

<unk> and the start of Q1, so yes, all repaired everything spine, it's better than market sorry.

Okay.

Two for me the guidance.

Implies a pick up in other income it seems to me is that just the global cash balance in the better interest rates.

Pick up in other income.

If you put that.

You put in.

I laid out.

Yes, I can tell you Jim down below op income there's two two larger drivers one is interest income.

Which has been improving for us and so maybe there's a little bit of a pickup there and then in the other there is FX.

Related related to intercompany transactions and other items.

So given the swings in FX.

Had an impact there as well.

Okay, and then last one for me is on <unk>.

PP&E.

Property and equipment.

<unk> of the year.

Yes around $17 million, it dipped down to around $15 million in the third quarter, it's back up to.

<unk> 18 million now is that the new equipment in.

Branded capacity in Burlington, or what's driving that.

Yes, I mean, we've been in the last quarter Q4, we spent $1 2 million on Capex, we have been spending on the.

The expanded clean room that we talked about which is significant.

Yes, that's probably a big piece of it too and I'm trying to think of other larger Katherine in the neighborhood of three or $4 million.

Seeing numbers like $18 million, Jim I would hate to have people walk away thinking that because thats not what you want.

No ended you ended the year with.

18 million total.

Property and equipment.

Okay, you've been spending I mean, I can get back to you at the pieces of that Jim, but I am going to guess clean room build out is a big is a big piece of that answer.

So it feels like you have the people and the capacity in place now.

If demand does.

Continue to grow you can handle it without any major investments.

Yeah.

Yeah, I mean, I think we feel like we're happy already unit growth is positive and so we're glad we have it we know what the backhaul no Backorder company.

So we've had spikes in sort of peaks and valleys in different unit growth areas and we've been able to cover those.

Because of the expanded clean room in the expanded size of the of the.

Factoring folks anything around regulatory issues that gets a little hairy, sometimes those can be covered up with a little bit more inventory made by more folks. So I think strategically not financially necessarily purely but strategically it's been a really nice answer for us that expansion.

So.

If you look back four or five years, you guys have north of 20% on the operating margin and I know you are not going to get there this year, but.

Do you think at some point in the next two or three years.

The revenue growth that you have this infrastructure in place you can get closer to that 20% again.

So Jim if you look at the Q1.

Op margin, 15% and then you look at the full year, 2018%, yes.

You, obviously got to improve from that 15% and then some to get to the full year answer. So I think implied in our guidance is some nice improvement on the op margin.

We're not giving you the interim quarters, but you can play with it and try and figure out where you would get to so I would say, yes, we definitely would expect to get back to 20%.

That's certainly where we want to be in beyond that.

Okay.

Thank you.

Thanks, Jim Thanks, Jim.

Thank you ladies and gentlemen that concludes today's conference I would like to thank you for your participation.

You may now disconnect and have a great day.

The conference will begin shortly two reasons lower Johan during Q&A, you can dial star one one.

[music] okay.

The conference will begin shortly.

Lower Johan during Q&A, you can dial one one.

[music].

Yes.

[music].

Yes.

Sure.

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Sure.

[music].

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Yes.

Great.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Sure.

Okay.

Yes.

Sure.

[music].

Okay.

[music].

Yes.

[music].

Okay.

Yes.

[music].

Thank you.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Thank you.

Okay.

[music].

Yes.

Okay.

Yes.

Thanks.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

Thank you.

Yes.

Okay.

Thank you.

Great.

Thank you.

Yes.

Okay.

Yes.

Thank you.

Yes.

Okay.

Yes.

Thank you.

Yes.

Sure.

Thank you.

Sure.

Okay.

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Thank you.

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

[music].

Thanks.

[music].

Yes.

<unk>.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

[music].

Yes.

Thanks.

[music].

Hum.

Okay.

Yes.

Okay.

Thanks.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Welcome.

To eliminate Baxter quarter, Q4, 2020 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 Omega Vascular go ahead Sir.

Okay.

Thank you operator, good afternoon, and thank you for joining us on our Q4 2022 conference call with me on today's call is our 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 $19 95, the accuracy of which is subject to risks and uncertainties wherever possible. We will try to identify those forward looking statements by using words, such as believe expect anticipate pursue forecast and similar expressions.

Our forward looking statements are based on our estimates and assumptions as of today.

<unk> 2003, 2023, and should not be relied upon as representing our estimates or views on any subsequent date.

I'll now turn the call over to George Lemaitre.

Thanks, JJ on today's call I'll cover three topics number one organic sales growth was 8% in Q4.

Number two our Salesforce buildout in APAC expansion continued and number three we've largely finished our initial <unk> filings.

We posted sales of $41 million in Q4, and 8% organic increase.

<unk> growth was led by APAC up 22%, followed by EMEA up 9% in the Americas up 6% by.

By product biologic patches were up 11%, Colorado jumped about 24% and bovine grafts were up 11%.

These increases were partially offset by omni flow, which was down 55% due to a back order we projected back order will largely be resolved by the end of Q2 2023.

Rep head count stood at 131 on December 31, 2022 up 27% year over year.

<unk> head count grew 25% in both the Americas, and EMEA and 40% in APAC.

Also added two regional sales managers in 2022.

Territory sizes are now smaller and we think this will lead to better coverage of our vascular surgeon customers.

Notably we held sales kickoff meetings for all three geographies in January 2023, our first in person meeting since January 2020.

Looking ahead, we expect to end 2023, with 135 to 140 reps and sales guidance for Q1 suggests a record $43 $8 million quarter or 13% organic growth.

We're also opening new direct countries in Q4, we sold our first products from our new store Walker <unk>.

Our Korean business should be approximately $1 5 million in 2023 sales.

Versus about $400000 of net sales to a longtime Korean distributor in 2022.

Korea is our 25th direct market and we now have 12 offices.

Worldwide.

Also in November 2022, we signed a term sheet to buyout, our Thai distributor and we plan to open up a Bangkok office by Q3 2023.

Korea, and Thailand were previously our two largest international distributors.

Turning to Europe , we were happy to see Brussels passed legislation to defer the MDA MDI deadline until 2027.

However, we are still pressing ahead with the filing of our MDI CE Mark we.

We've now filed 12 of our 14 <unk> applications and we will file the final two before the end of 2024.

Indeed in January we received our first MD, our CE Mark for the <unk> III cryo.

Q4, 2022 was a record sales quarter for our EMEA team.

A nice recovery from the somewhat difficult days of the 2020 Slash 2021 CE problems.

Before turning the call over to J J I'd like to highlight several 2022 achievements.

Number one we grew sales 9% organically.

Number two we became a member of the dividend Achievers index.

Number three we built out team, let me with several head count record.

Sales were up to 131 manufacturing personnel of 219 and total employees of 591.

We continue to invest in regulatory approvals, including <unk> application.

Alright, allograft in the UK, and Germany, and being sure packages in China and Japan.

Number five we continued to build out our APAC direct operations.

Number six we undertook a major factory and warehouse expansion in Burlington.

I look forward to the 2022 initiatives paying off with improved top and bottom line results in 2023 and beyond.

With that I'll call the turn the call over to JJ.

Thanks, George Q4, 2022 sales were $41 million, an increase of 4% on a reported basis and 8% organically versus Q4 2021.

Next headwinds continue to be substantial.

$1 7 million in sales due to the strengthening dollar in Q4.

For the full year 2022 sales were $161 7 million, an increase of 5% on a reported basis and 9% organically.

$6 $1 million in 2022 sales due to the strong dollar.

In Q4, 2022, we posted a gross margin of 63, 6% a decrease of 210 basis points versus the prior year quarter.

The strengthening dollar decreased our gross margin by 150 basis points versus Q4 2021 and.

And if we exclude this foreign exchange impact our Q4 2022 gross margin would have been 65, 1%.

We increased our direct labor manufacturing team by 54% in 2022, and we increased our Burlington manufacturing footprint substantially.

This increase in production will help us mitigate any potential issues related to the MBR transition product line changes.

<unk> changed disruptions and lingering labor force scarcity.

And while we are excited about the increased unit production training, our new and larger staff has been a challenge and their inefficiency has hurt our gross margin.

We expect to correct. This in the coming quarters and this should favorably impact our gross margin as reflected in our guidance.

Q4, 2022, operating income was $7 million, reflecting an operating margin of 17%.

Operating expenses increased 8% in Q4 versus the prior year as we continued to hire and invest in many areas, particularly our sales team.

We finished 2022 with 131 sales reps.

Headcount at the end of 2021 was 450 at the end of 2022 was 591 and we now expect to end 2023 at approximately 625.

The cash on our balance sheet continues to grow. We ended Q4 2022 was $82 $7 million, an increase of $3 million in the quarter and $12 7 million in the in the year.

The Q4 increase was largely driven by cash from operations of $4 1 million and partially offset by dividends of $2 $7 million.

Turning to guidance, we expect Q1 2023 sales of $42 6 million to $45 million, which represents a reported increase of 11% at the midpoint and 13% organically.

We also expect operating income of $6 million to $7 5 million, which represents a decrease of 15% at the midpoint.

Our Q1 2023 EPS guidance of 22 to 27 per share implies a midpoint of <unk> 25 per share.

For the full year 2023, we expect sales of $174 3 million to $178 3 million, which represents an increase at the midpoint of 9% on both a reported inorganic basis.

We also expect operating income of $30 6 million to $33 3 million, which represents an increase of 19% at the midpoint and 7% excluding special items.

Our 2023 EPS guidance of $1 11 to $1 20 per share.

As a midpoint of $1 16 per share an increase of 24%.

8%, excluding special items.

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

Yeah.

Thank you at this time, we will conduct a question and answer session.

Please standby, while we compile the Q&A roster.

Our first question comes from Michael Sarcone of Jefferies. Your line is now open.

It sounds like maybe we move on from Michael unless I'm here.

I don't think he and I will move on please wait a moment why compile our Q&A roster.

Okay.

Thank you. Our next question comes from Matthew Michelle Qi. Your line is now open.

Hey, good afternoon can you hear me.

Yes Matthew.

Okay excellent.

The quarter was so good I guess people are speechless.

Okay.

Yeah.

Yes.

So, let's just start with the first quarter guidance.

Well actually no let's start with the full year guidance, because I think that's more important.

The 9% growth I mean, how would you break it down between between volume and price.

And then whats specifically driving like the night.

Good number.

I can give you a rough rough estimate on that this is George thanks for the Great question I would say, we think the price hike, we install was around 5% to 6% on January one in our various geographies, we'll see how much we get or not but I would say roughly speaking, 556% price and the remainder on volume.

Okay, and then as I think about the different regions like where are you.

Or do you expect to drive.

The most growth or how do you how would you kind of stated that between the Americas Europe and APAC.

Right. So of course on our guidance, we never really break up the future sales by by geographies. It just too hard, but I would say in general what we've seen for the last five years here is that.

APAC, Outgrows, EMEA, which outgrows, the Americas sort of reflecting how new the territory is in Asia Pac, it's a little bit less new in Europe for Us and then it's.

Been here for four years in the U S.

Okay.

And then the last question just as I think about gross margin through the course of course that like 23 do you expect to exit 'twenty three with with a higher gross margin than I mean, obviously.

Implied in your guidance was 64 eight versus 65, four but where do you think you actually hit the fourth quarter at 22 or do you think you exited at a pretty good trajectory that that starts to get you back towards that.

Hi, <unk> area.

Yes, I mean, if you start fiddling around with that.

Interval of the math that you just mentioned.

Youre going to wind up doing something like that I think but obviously, we're not giving you guidance between quarters, but it's tough to make that math work without sort of doing that one of the big topics for US Matt has been the inefficiency of our Del's as we've ramped up the size of that manufacturing group.

So on two fronts. One is utilization are they working the proportionate amount of time that we want them to versus unutilized time, whether or not directly working on something and the others productivity. When they are actually working are they are productive and so the reason I'm telling you. This because its an operational challenge to catch up to that.

Which we will that it will take a little time to do that so you can sort of reflect that in your numbers as you walk through the quarters of the year, how we might recover from that operationally.

Alright, Thank you very much.

Thanks, a lot.

One moment preparing the roster.

Next question.

Okay.

Our next question comes from.

Rick Wise of Stifel.

Your microphone is now open.

Hi, Good afternoon. This is John on for Rick today.

Just to start off looking at the full year guidance for 'twenty three.

You gave a range there I'm just wondering if you could add a little color on what gets you to the higher end prices get lower and what are the kind of key headwinds tailwind crosscurrents youre seeing as you look at 'twenty three.

Hi, Okay.

I'll try to help with this one this is George.

Things that could make it go better.

Now if the price hikes all stock you never know when you put a price hike and how much it sticks, maybe how much the turnover would be with the sales force. We've got a lot of new reps here see what that looks like it's been fantastic for the last eight months, a very low turnover, but I guess that would push things higher if we had lower turnover and vice versa. If we didn't.

I've never really been asked that question that way, but it's a good question, but it's a creative question and there's so many moving parts that is why we tried to give a range, although how wide the range of $4 million is the range.

And you do have a taste of how close we are I think this quarter, we were like within $100000 of the actual numbers. So at least for this quarter are sort of range finding machine work John .

Yes.

I'll give you maybe another lens to look through it the four or five big product lines driving growth next year, Artur graft valvular tomes patches shots and restore flow and they each have their own story. So the extent that chicken beyond the right side of all of those stories, you'll be on the higher end.

The range in that to the extent that you want you'll be on the lower end of the range. For example, Artur graph is a story of gaining sort or some unit traction. These days post acquisition and to the extent that we get some of that I think that'll be helpful. Valvular challenges the pricing topic, largely that George talked about there may be some units as well, but mostly pricing et cetera et cetera.

So there are different product by product stories.

That will drive us higher or lower but those are the five to focus on it I think.

Great. That's really helpful color I appreciate it.

And just one more follow up question, you talked about adding reps in 'twenty, two and you're basically at the level you want to be at now.

Last year, just to put it in from a financial term sales and marketing grew like 19 ish percent topline is like 8%, 9% organic.

That line for 23 should we be expecting more leverage is there a way we should be thinking about it as these reps ramp up.

And what's kind of a longer term expectation for you guys.

<unk> growth as you reach a more steady state from a rep perspective, thanks for taking my questions, maybe yes, maybe I answered a little bit more generally just talk about opex spinnaker in general because it's the heart of the op expense growth is the sales force growth.

We feel like last year I don't know employees were up at 31% reps were up 27% GL is up 54%, we really went not crazy, but we went to the mat to fix all kinds of issues around here.

<unk> op expenses grow less than the gross profit growth and we get some leverage.

I think I had said in my script that op expense grew about 15 or 16% last year, we're looking at closer to 10 or 11%. This year and you can do the same thing. We just did with gross margin look at the Q1 opex sort of guidance that you can impute with the year full year, and then sort of assume a cadence throughout the.

Year to get there.

Okay.

Thanks.

Thank you.

Thank you one moment, while the queue. The next question.

Okay.

Our next question comes from Michael Kaplinsky with Barrington Research. Your line is now open.

Mike how are you doing it's George in Burlington.

I'm sorry my own.

You are yes, sorry, I did not hear who was supposed to be honest alright I apologize.

Great Okay.

The call today.

If I, if I'm asking something that's been already asked and answered forgive.

Date on an M&A pipeline any.

Commentary there anything to say.

Yes.

Mike It's Dave.

I would say no real update.

We continue to be focused on.

Devices product lines company in the open vascular surgery field with disposables in Implantables.

Over 5% or $10 million of revenue, we're probably two to three dozen legit targets and were tasked with them we like niche.

<unk> low level market, so our morale hunting lease sort of expanded.

The target area, a little bit, we're looking a little bit in cardiac surgery, a little bit in endovascular as well, but.

I don't think I have anything really material to report.

Obviously, the cash balances growing so we can do larger deals and we are looking I would say on the margin at larger targets. These days so.

Alex hunting, but I don't have anything to report we didn't just sign a deal that I am reporting on today.

So can I just ask on obviously, it's been a while.

Needle moving harder graft have you gone down a track with any meaningful.

Meaningful assets were just ultimately either something in the product.

If I understand the question correctly, yes.

<unk>.

We have.

Ben we have evaluated we've made bid.

Assets of a reasonable size.

I can think of.

A couple of in particular.

That neither one of them transacted, so theres still out there and they didn't happen for various reasons. So we are.

We are looking but.

We just haven't found anything.

With that what I'd say are perfectly willing seller at a reasonable price and so our feeling is let's just wait for our pitch.

And find something Thats, right, and we will pull the trigger when that happen.

Warren Buffett says alright.

Autograph.

Would you guys be willing to share what type of level of price increase you put through on the ground. This year.

Yes, we would be yard I'm sitting here going.

I think it was less than it was the year before I have the exact number right now I really should I think it was like six or 7% and I think the year before was 12% I think it was.

<unk> 11 last year 11 last year I know you didn't ask that but I think it was considerably reduced this year is something like five or six I apologize for not have that number at my fingertips I should directionally correct.

Okay, Alright, and J J I was just real curious on.

We talk about it potentially flattening, Mike, but I'd say it would be up modestly.

Kind of thing.

As you know, we're not sort of the.

Why would I add guys on that like we were a couple of years ago, we were going to have to spend more under control and it's a little more reserved in terms of the increase but still increasing a little bit I'd characterize it that way and in fact, it and then on that.

Yes, the tax rate was high this quarter.

Our.

Spend on product development.

Down a little bit this year until we got less of an R&D credit on that.

And then there were some officers compensation.

That we were not able to deduct at the end of the year for tax purposes. So the Q4 rate was a little higher going forward you can sort of think of us as the 25% to five 5% guys.

Alright, great. Thanks, so much guys appreciate it.

Thanks, Mike.

Thank you one moment either prepare the next question.

Okay.

Our next question comes from Brooks O'neil from Lake Street Capital Your Mike is now open.

Thank you good afternoon, guys, it's Greg, thereby fingers slower than pitofsky, but I guess.

Got on a little bit late today, because I too was done.

Another call just wanted to say I think last quarter.

What's the event.

Georgia is.

New child coming to the world. So I hope things are going well with your family Georgia.

Glad to hear you back on the call this time.

So Mike Thanks.

Thanks, a lot. Thank you.

Macroeconomic factors that I think last quarter, the dollar's strength.

I had a big impact on results and you might have said this earlier in the call before I got out but can you just give us a sense for how currency and some of the various macro factors are affecting the business, particularly outside the United States. Thanks a lot.

Brooks.

Maybe JJ can handle the currency stuff after I get through this little thing but.

A couple of articles I've been reading about staffing and American hospitals, and I know you asked for international but I think with.

Our business is kind of 67% North America now.

Staffing levels have been better and we're reporting cases are going off like they always used to go off and it is not being slowed down because they couldnt get a bunch of contract or staffers and to help push the beds around so we're quite excited about that and I think we can feel that when you talk about macroeconomics from us.

And as for the currency, maybe J J has got some insight on that so I'll try and thank you.

I'll try and make it.

Sequential here I guess.

Way because it is turning on us.

In terms of the dollar.

Weakening, but in Q4, the FX hurt us year over year.

For about $1 7 million reduction in the sales.

And then for the full year last year, it was like $6 2 million something like that.

And then in Q1 of this year 23, maybe it's a $1 $1 million or so bad guy year over year, but then Brexit starts to change as last year's rate came down in this year's rates starting to go after those two are starting to cross and so when you get into Q3, it starts to be of help year over year.

Year and by the end of the year you are kind of neutral in 2023. So you can sort of not think about FX for the full year 2023.

Great great great. Thanks, a lot.

Thanks, a lot Brook.

Thank you one moment that that prepare the next question.

Okay.

Our next question comes from Jim Sidoti of Sidoti. Your line is now open.

Hi, Good afternoon, guys. Thanks for taking my question.

Im looking back over the last five years.

Looking back over the last five or six years.

You've never grow in Q1 $2 million off of Q4.

Prior year before is that related to the backlog for Ami flow.

Okay, what exactly happened with obviously flowing.

Material is that.

Sure. So army flow was approximately $5 $5 million product when it's running correctly.

In the transition from Melbourne, we used to make it there and now we make it in Burlington in that transition, we messed up the transfer in some of the qualifications didn't work out we kind of got it started in Q3, and we hit it a little bit of a speed bump with some of the sterilization validation.

Those have now been sorted out as of January and we are shipping to its most of the European product Jim. So we're shipping to our European headquarters right now and we are actually selling devices now so we've broken through the it was basically a shut out for November and December and we have indeed broken through that now and we're self.

<unk>.

But so five $5 million product line in a great quarter, where does that mean at selling 175% or something a quarter and I think in Q4, if I remember correctly from the charge I was saying we sold about 700000 $600000 worth of it until we see that we are starting to catch up to that and then go a little further so that's why.

It isn't such a big difference between Q4, 2022, and Q1 2023, because we did sell stuff in October and now we're going to sort of February and March were going to be selling stuff against that October sales, so not not exactly because of that its a good quarter.

Don't exactly understand why it's such a good quarter, maybe some of the hospital staffing comment I was making to the last question from Brooks are sort of an indication what we one of our hypotheses. We also have a pretty robust price hike on one of our valve at home product lines called easy site, which had always been sort of prices of junior Valvulotome option.

And now it's priced exactly at parity with the regular Valvulotome. So we've got a little price hike thing, there, which may be a nice difference between Q4 and Q1 as well.

Okay, Alright, and then hope that actually made.

Yes, no that's good.

That was already Gabel, you told me.

First quarter, you said you had a bit of an air pocket there.

Did that come back to normal levels in the fourth quarter, yes, So yes, thats right great memory. There, yes, I think we call that an air pocket on the call that I wasn't on and then it was up 20% into Q4 sequentially and better news here is that it feels nice and the start of Q1, so yes all.

Everything is fine it's better than fine sorry.

Okay.

For me the guidance.

The pickup in other income it seems to me is that just the global cash balance in the better interest rates.

Pick up in other income.

Just if you put that you put in.

Revenue played out.

Yes, I can tell you Jim down below op income there's two two larger drivers one is interest income.

Which has been improving for us and so maybe there's a little bit of a pickup there and then in the other there is FX.

Related related to intercompany transactions and other items.

So given the swings in FX.

Had an impact there as well.

Okay, and then last one for me is on.

Maybe PP&E.

Property and equipment.

<unk>.

The year.

Yes about $17 million it dipped down to around $15 million in the third quarter with backup.

18 million now is that the new equipment in.

Banded capacity in Burlington or whats driving that.

<unk>.

Yes, I mean, we've been in the last quarter Q4, we spent $1 2 million on Capex, we have been spending on.

The expanded clean room that we talked about which is significant.

Yes, that's probably a big piece of it too and I'm trying to think of other larger Kathryn the neighborhood three of $4 million.

Are you seeing numbers like $18 million, Jim I would hate to have people walk away thinking that because thats not.

Yes.

No ended you ended the year with.

18 million total.

Property and equipment.

Okay spending I mean, I can get back to you at the pieces of that Jim, but I am going to guess clean room build out is a big is a big piece of that answer.

So it feels like you have the people and the capacity in place now.

If demand does.

Continue to grow you can handle it without any major investments.

Yeah.

Yes, I mean, I think we feel like we're happy already unit growth is positive and so we're glad we have it we know what the backhaul no Backorder company.

So we've had spikes in sort of peaks and valleys in different unit growth areas and we've been able to cover those.

Because of the expanded clean room in the expanded size of the of the manufacturing folks anything around regulatory issues that gets a little hairy sometimes those can be covered up with a little bit more inventory made by more folks. So I think strategically not financially necessarily purely but strategically it's been a really nice answer for.

Or is that expansion.

So.

If you look back four or five years, you guys have north of 20% on the operating margin and I know you are not going to get there this year, but.

Do you think at some point in the next two or three years.

Revenue growth now that you have this infrastructure in place you can get closer to 20% again.

So Jim if you look at the Q1.

Op margin, 15% and then you look at the full year, 2018%.

You, obviously got to improve from that 15% and then some to get to the full year answer. So I think implied in our guidance is some nice improvement on the op margin.

We're not giving you the interim quarters, but you can play with it and try and figure out where you would get to so I would say, yes, we definitely would expect to get back to 20%.

That's certainly where we want to be in beyond that.

Okay Alright.

Alright, thank you.

Thanks, Jim Thanks, Jim.

Thank you ladies and gentlemen that concludes today's conference I would like to thank you for your participation.

You may now disconnect and have a great day.

Q4 2022 LeMaitre Vascular Inc Earnings Call

Request a DemoDemo

LMAT

LeMaitre Vascular

Earnings