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Edited Transcript of LMAT earnings conference call or presentation 19-Feb-19 10:00pm GMT

Q4 2018 LeMaitre Vascular Inc Earnings Call

BURLINGTON Feb 21, 2019 (Thomson StreetEvents) -- Edited Transcript of LeMaitre Vascular Inc earnings conference call or presentation Tuesday, February 19, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David B. Roberts

LeMaitre Vascular, Inc. - President & Director

* George W. LeMaitre

LeMaitre Vascular, Inc. - Chairman & CEO

* Joseph P. Pellegrino

LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director

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Conference Call Participants

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* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Cecilia E. Furlong

Canaccord Genuity Limited, Research Division - Associate

* James Philip Sidoti

Sidoti & Company, LLC - Research Analyst

* Joseph P. Munda

First Analysis Securities Corporation, Research Division - Analyst

* Michael John Petusky

Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst

* Scott Robert Henry

Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research

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Presentation

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Operator [1]

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Welcome to LeMaitre Vascular's Fourth Quarter 2018 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. JJ Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [2]

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Thank you, Ashley. Good afternoon, and thank you for joining us on our Q4 2018 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 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, February 19, 2019, 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 organic sales and growth numbers and EBITDA as well as return on invested capital and operating income growth expectations, excluding, certain onetime gains. 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.lemaitre.com.

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

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [3]

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Thanks, JJ. We posted record sales of $28.4 million in Q4, a 9% increase year-over-year. This was largely the result of our sales rep surge, our 2 recent acquisitions and a 79% quarter in Asia-Pacific. We entered the year with 108 sales reps versus 90 at the end of 2017, a 20% increase. This increase was spread across our 3 major geographies: the Americas, EMEA and APAC. As we look to 2019, we intend to maintain roughly this level of sales reps. We also promoted a 15-year LeMaitre veteran, Chance Kriesel, to the position of VP Sales for the Americas. In January, we began our worldwide installation of salesforce.com.

Our 2 recent acquisitions, applied embolectomy business and Cardial, contributed $1.9 million of sales in Q4. We acquired these products because they're complementary to our current catheter, valvulotome and Dacron graft product lines. They should be nice vascular plug-in acquisitions right out of the LeMaitre playbook. These 2 acquisitions had sales of about $6.9 million in the year prior to their acquisitions.

Asia-Pac sales were driven by 68% organic growth as well as the acquired embolectomy catheters. In Q4, we also established our APAC headquarters in Singapore.

On the XenoSure regulatory front, we obtained Australian approval in September, we have 224 of our 288 patients enrolled in the Chinese clinical trial, and we filed for Japanese approval in December.

From a product perspective, carotid shunt, surgical glue and embolectomy catheters were our top performers in Q4, while XenoSure grew 4% organically -- excuse me, 5% organically.

As a follow-up to the Q3 earnings call, our allograft business posted a record Q4 and grew 18%. And we made significant progress with tissue supply. Valvulotomes also bounced back in Q4 to post a record quarter. I expect our 9% Q4 sales growth to extend into 2019 as reflected in our 8% sales guidance.

With that, I'll turn it over to JJ.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [4]

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Thanks, George. Our Q4 2018 gross margin was 67.7%, down 2.1% versus the prior year period. This was driven primarily by the addition of lower gross margin Cardial and Applied sales and the subtraction of higher gross margin Reddick sales. We did this to further focus our call point on the vascular surgeon. This new lower gross margin may persist for several quarters while we execute integration and cost-cutting measures typical after our acquisitions. As a reminder, the Reddick general surgery divestiture was in April 2018.

We ended Q4 with $48 million in cash, an increase of $2.4 million during the quarter. The increase was driven by cash from operations of $6.6 million in the quarter. For the full year, we generated $19.5 million in cash from operations. Excluding the onetime gains from the Reddick divestiture and Cardial acquisition, our return on invested capital was 20% in 2018.

Our Board of Directors recently approved a 21% increase in our quarterly dividends from $0.07 to $0.085, applying a yield of 1.4%. Our board also authorized a share repurchase program of up to $10 million of our common stock.

Our guidance is detailed in the press release. Highlights include 8% reported and 5% organic sales growth for the full year 2019. We also expect full-year operating income adjusted for onetime gains to improve 9% to $22.6 million at the midpoint.

With that, I will turn it back over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Jason Mills with Canaccord Genuity.

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Cecilia E. Furlong, Canaccord Genuity Limited, Research Division - Associate [2]

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This is actually Cecilia on for Jason. And I just wanted to ask about the recent acquisition and really what drove the strong Q4 performance. And then just looking at guidance for 2018 what are your expectations for the business going forward, just quarterly cadence as well.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [3]

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Okay, lots in there. Maybe we break it down. Maybe, Dave, you take the acquisition part of the question.

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David B. Roberts, LeMaitre Vascular, Inc. - President & Director [4]

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Sure. Thanks, Cecilia, for the question. Yes, you're right to point out that the acquisitions that we completed on September 20, the Applied acquisition and the Cardial acquisition we completed on October 22, are coming in strong out of the gate. The 2 deals combined are running about 6% ahead of our deal model. Cardial, especially, is doing well. It's about 20% ahead of the model. And that was driven by -- we got really a few orders that we didn't expect that quickly. One was a glue order in the Middle East and then also some OEM orders that -- there's a small amount of OEM business at Cardial as well. But at a high level, the transition plan for both Cardial and for Applied, the channel transition is going very smoothly. There's one more material distributor transition with Applied. And so we're just pleased that their performance in Q4 was better than we expected.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [5]

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And then Cecilia, in terms of the quarter, there are a number of things that went well. And coming out of Q3 some of these are important as well. So we talked in Q3 about RestoreFlow being down 5% last quarter. It was an anomaly. It was up 18% this quarter, a nice rebound. And sequentially, up $400,000 or $500,000. So a good story underneath that RestoreFlow sort of bump of Q3s, still coming through in Q4, and hopefully into 2019 as well as we add new customers as we plug that product line into our sort of 50-or-so sales folks in the U.S. We talked about valvulotomes, if you recall, in Q3. And that was down a little bit as well. And sequentially, a really nice rebound in valvulotomes, $4.5 million, maybe up to $5.5 million or so. So back on track, if you will, in valvulotomes. Our export was down in Q3 as well. A nice sequential rebound there. Though there's still an issue year-over-year with sort of growth topics there. And we've talked a lot about those in the last 2 calls. So year-over-year comps in our non-direct sales, still not great, still working on those. We'll get to those, and we'll fix those. But sequentially, from Q3 a nice rebound. And so those topics really repaired nicely in Q4 versus Q3. And then on top of that, the acquired sales that Dave was talking about really led to a nice, strong Q4.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [6]

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Cecilia, you asked about cadence for the quarters also. So we -- at the beginning of the year we usually don't break it out. I would say, as we were going through selecting our guidance and looking at the quarters, it didn't seem like there was anything really that odd about this year. Typically, Q2 and Q4 are our largest quarters of the year.

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Cecilia E. Furlong, Canaccord Genuity Limited, Research Division - Associate [7]

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Okay. And then just looking at OUS trends, just specifically Asia-Pac, kind of what you're thinking going forward through 2019. I realize you don't break out specific sequential numbers, but just kind of overall trends, what you're seeing there and what you think you can do going forward.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [8]

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All right. Maybe I'll look to history to answer that question because you're right, we're trying not to pull apart guidance into 3 regions. But I think when we were looking at this, one of the reasons we're so excited about Asia-Pac is that if you look back over the last 10 years of our business, I think I'm quoting big numbers. But I think organic growth is up like 11% a year for the last 10 years, whereas Europe is kind of 8%, and the Americas is kind of 4% or 5%. So I think there's a material difference between Asia-Pac and the other 2. It should be the place that grows the best. That's why you're seeing us build the Singapore office and start growing the sales force over there a little bit more.

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Operator [9]

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And our next question comes from the line of Joe Munda with First Analysis.

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Joseph P. Munda, First Analysis Securities Corporation, Research Division - Analyst [10]

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So real quick. You talked about a rep surge, and you're at 108. Can you give us a break out, North America, Europe, rest of the world. And then your thoughts -- you're going to stick with the same size force going into '19 here. I'm guessing, maybe you can give us some color on what your expectations are as a result of this recent surge and as it carries over into '19.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [11]

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Okay, great. So breakdown is the Americas or North America, as you're putting it, 57 reps right now. That's up 24% year-over-year. Europe is at 38 reps. That's up 12% year-over-year. And Asia-Pac is 13 reps, which is up 3 people, which is up 30%. So the whole group, as we mentioned, is up 20%. You have the guidance right now, we're saying 8% reported sales growth guidance. We think this is a pretty good foundation for that growth rate. But we don't know and we don't know really when they exactly come on. We just have a feeling things are getting a little better around here every day that we have these reps on. As far as how many reps we're going to have for the year, it's at 108, but we actually have 8 or 9 in the middle of being hired. But there's always what we call breakage, which is some people coming, some people going. And so maybe, 110, 112, 108 is kind of what you can think is going to be happening. But it will go up and down. We're not too focused on it. When we quote misguidance and there's fewer reps than there should be, we don't get that worried about it. When we overdo it, we don't get worried about that either. Something like 110 or so.

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Joseph P. Munda, First Analysis Securities Corporation, Research Division - Analyst [12]

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Okay. And then -- that's helpful. And then JJ, can you give us a split on how much biologics were as a percentage of sales in the quarter, and as a group, how much they were up?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [13]

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I think biologics were about 35% of sales in the quarter, and I think that was a 10% or so increase in the quarter, Joe. And we've got a new entrant in that category. The glue that we acquired from Cardial is now in our biologic category as well.

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Operator [14]

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(Operator Instructions) And our next question comes from the line of Mike Petusky with Barrington Research.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [15]

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A few questions. In terms of the valvulotome, what was the year-over-year comp on that. I didn't catch that if you provided it.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [16]

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Right, I think we didn't say it. We just said it was a record, but I'm happy to say it. I think it was up 2% organically, and it was a record quarter.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [17]

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Okay. And just -- I want to confirm what I think I heard. Was it 244 out of 288 are enrolled in XenoSure trial in China?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [18]

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Yes.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [19]

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224 of 288. 224.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [20]

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224 of 288, got it. Glad I asked. And George, I guess, in terms of the top line guidance, and I'm not asking you to go back to the 10 and 20. But just generally speaking, in the 8% top line, what's assumed there for pricing and if there -- is there M&A assumed in there for -- other than what's already -- the recent transactions?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [21]

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Okay. So easily the answer is no. There's never M&A in our guidance. We always just -- what we've already bought plus what we are. So no M&A in that. And then as far as pricing goes, I would say we'll see what happens with pricing this year. But in general, it feels to me like LeMaitre's a 3% or 4% price hiker each year. I feel like it's been a little bit more challenging in the last couple of years, and we used to be more like a 5% or 6% 5 years ago.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [22]

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Okay, all right. And obviously, some positive unit volume assumption as well.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [23]

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And the balance being unit volume, yes.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [24]

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Yes, okay. And then I guess, JJ, in terms of getting at the efficiencies and maybe this is just me, not quite remembering correctly the last few years, but it feels like you guys have been able to get at efficiencies usually quicker than maybe it seems like you're going to -- you're assuming that you'll get at efficiencies this time in terms of sort of taking the gross margin back toward 70%. Are these recent acquisitions just a little bit tougher to integrate or any comment around that?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [25]

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Yes, there has been -- I think, typically when we do an acquisition that doesn't come with a facility and doesn't have a lot of sort of tribal knowledge or we're learning a new process or about a new product. Things happen a lot quicker when we move that product line into our facility, and off we go. In the case of allografts, that's a pretty complicated logistical challenge, as it turns out. We've figured out a lot about that over the last 1.5 years or so. And so we're starting to improve that part of the equation, but it's taken longer than usual. I think that's generally correct observation. And then what's in the recent 2 acquisitions, they're coming in at pretty low gross margins, in the sort of around the 40%-ish range or so. And so those will drag us down for a while until we figure out how to grapple with those. But I think you can bet that we'll be working on all of those pieces going forward, figuring out how to get efficiencies out of those.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [26]

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Mike, I think it's also germane that we have 4 factories outlying right now. And when you have 4, you can't -- it's impossible to be closing 4 at the same time. So some of them necessarily are going to be open a little bit longer than you might want or you might think that we would keep them open. So as part of that is, hey, we just did 2, therefore you can't -- we don't have infinite bandwidth inside LeMaitre to close 4 factories at once.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [27]

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Got you, got you. And just last one on the sort of surprising recovery, particularly in terms of degree in allografts. It seemed like you guys had sort of set expectations of, "Hey, this may take a while to work through. There's customer loss. There's sourcing difficulties." But it feels like a really quick and strong bounce back. Are you guys on the other side of that or is there still stuff to sort of work through?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [28]

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I feel like, certainly, in the quarter that was a strong bounce back. And I think the big, high-level answer is still very much intact, which is we're acquiring new customers daily in the new larger sales force. Maybe we added 120 or more sort of since the acquisition, and that will essentially take over from that issue that we affected -- that we saw that affected us in Q3. But I would say you might get a little chunkiness. Even though we recovered really quickly in this quarter, maybe it's a little chunky here and there as we go through the year next year. But I think the story, high level, over the next year is still intact as well, which is you can probably expect some decent growth out of that as we continue to grow that customer base.

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Operator [29]

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And our next question comes from the line of Jim Sidoti with Sidoti & Company.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [30]

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Great. I just want to go over a couple of the numbers you put out before. You said Restore was up 18%. XenoSure, I think, you said was up 5%? And then did you give an overall number for the biologics business?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [31]

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Yes, we said up 10%, Jim.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [32]

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10% overall, okay. And you said you improved the situation with tissue supply. Can you give me a little more color on that?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [33]

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Sure. This one's a pretty clean-cut one. I think I said this on the last call, but I forget. So we were having tissue supply problems, and you may remember I grew a beard to protest the back orders for our tissue. I think we talked about this the last time, I don't know. While the beard got shaved on January 23 at our holiday party. And the beard was supposed to represent we want to make sure that we have 10 of the 70-centimeter devices available and 10 of the 80-centimeter devices available at all times for our reps. That had not been the case before the whole back order beard project started. We think we're good to go on that part of the supply issue.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [34]

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All right, thank God it was you and not JJ.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [35]

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Thanks, Jim.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [36]

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It's hard to un-see that.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [37]

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All right. You talked about the Asia-Pac office, the office in Singapore. What's approved right now that you can sell in Asia?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [38]

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So that's always a big topic. The regulatory burdens are a lot heavier over there, but we're going percentages. And on our website, there's a presentation that always shows what percent in each geography. So I'm going to talk out of memory, but you can go find it after you get off the call. I think in Japan about 55% of our sales are approved. I think in Australia about 83% of our sales are approved. And I think in China about 25% of our sales are approved. So in other words, of all the catalog numbers we have, our Chinese sales reps, the 4 of them only can sell 24% or 25% of those catalog numbers. And so they're certainly hamstrung, and there's great blue sky later for those folks. But in Australia, I'd say we largely have it going on. And then each country is different. There is no CE mark for Asia. So then after that, each country is different, and a couple of them are detailed on the website.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [39]

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All right. And then the last couple, it sounds like you expect a little over $5 million from the acquisitions in 2019. Now you said the sales -- 12-month channel sales were close to about $7 million. Is the delta just the difference you did in the fourth quarter?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [40]

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I don't remember saying we're going to do $5 million for these products this coming year. Was that some kind of trick?

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [41]

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Well, it was in the press release.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [42]

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Did we say that?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [43]

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I don't think we did...

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [44]

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You're on the semi-small guidance that we gave at each press release when we bought the products. So that was the initial couple first 3 months. I think we guided, I don't know, [$550,000] for Applied medical, and I think, we guided [$300,000] for Cardial. And those were just in the startup quarter, and that was all we gave, was $550,000 and $300,000 .

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [45]

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All right, if you look on Page 7 of your press release, you have a net impact of acquisitions excluding currency of $5.3 million.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [46]

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So that's the organic -- part of the organic growth calc, Jim. And so if you took an annualized number and then you adjusted it for when you acquired the product line, so you don't adjust out a full year for Applied because you bought it in September, October. And you don't adjust out a full year. And so that's why it's lower than if you took the 2 of them and added them up for an annualized number, you'd come up with, whatever, around $7 million or so. It's lower because you don't adjust out a full year for those. You adjust out as of when they were acquired.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [47]

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Okay. All right, all right. So that's what I was saying because you did about $2 million of revenue from those products in the fourth quarter.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [48]

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Yes. And that was a particularly strong year. So the first question of the call, Dave answered, and we got this huge order from Iraq related to one of the product lines. So it was a bit anomalous, I would say, in Q4 the revenues that we saw on the 2 acquisitions.

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David B. Roberts, LeMaitre Vascular, Inc. - President & Director [49]

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Yes, I wouldn't -- Jim, this is Dave. I wouldn't necessarily take Q4 and multiply it by 4, again, because of the anomalous order to Iraq as well as some OEM business. But even without all that, we felt like it was a healthy start for the 2 acquisitions.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [50]

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Okay, all right. And then last question, it looks like you expect about a $2 million currency headwind in '19. Which currencies are the troublesome ones?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [51]

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The euro is the big bugaboo. So it was [1 18] or so for 2018, and we're now at [1 13] and change or so. So there's like $1.5 million topic from that year-over-year. And then if you bring in the pound and the yen and the Canadian and whatever else, it gets you about $1.7 million or so. So having a stronger dollar.

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [52]

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Low interest rates in Europe, Jim.

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Operator [53]

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(Operator Instructions) And our next question comes from the line of Brooks O'Neil with Lake Street Capital.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [54]

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I have a couple of questions. I am recognizing that there's a lot of moving parts from last year to this year. But how would you characterize kind of the organic EPS growth from 2018 to 2019 if you strip out kind of all the extraneous moving parts, the benefits and costs of acquisitions, and stuff like that? How do you feel about the core earning power of the business that you're running today?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [55]

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Yes, so if you strip out the onetimers year-over-year for our guidance, the EPS growth is sort of flattish. And I would say a lot of the answer is in this gross margin topic. So those 2 recent acquisitions are probably a negative 2% bad guy to the gross margin in that range. And so that's $2-plus million that sort of otherwise would've normally dropped to the bottom line. It doesn't. If you added back that $2 million, you come into a sort of more normalized year-over-year EPS growth number. So a lot of it is that, and then there's another piece, of course, which is Op expenses. And I think we were thinking that they're going to be pretty well in check for 2019, but still growing. So if you're growing, your Op expense is 5%, 6% or something like that, and you still -- your top line is growing 8%, that's not necessarily a ton of leverage, particularly when you run it through a lower gross margin. So that's kind of the dynamic of that answer. And I would say as we repair that gross margin over time, that will certainly help. And as we -- as these investments that we're making now and those operating expenses that I'm talking about start to bring on more sales growth, potentially we'll get good answers there as well on the bottom line.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [56]

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That's great, JJ. And I was listening, but I might have forgotten the answer you said earlier. You think you can get that GM up somewhat in 2019? Or will it take longer than that?

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Joseph P. Pellegrino, LeMaitre Vascular, Inc. - CFO, Treasurer, Secretary & Director [57]

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I would generally think about it as taking longer. We've guided [69.5] for the full year. So anything below [70] is not a great number for us. So I would say that's still in repair during the year.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [58]

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Okay. And then, again, I'm not meaning to pick at this, but I'm just curious, if you strip out the impact of the acquisitions, would you say that you're entering 2019 with accelerating organic growth or is it coming in a little bit lighter than what we saw in the fourth quarter and during 2018?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [59]

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Okay, so fourth quarter of 2018 is a lot different than 2018. 2018, we had 3.8% organic growth, 4% is rounded. So no, the 5% organic growth that we're quoting for next year 2019 seems like an acceleration of organic growth.

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Operator [60]

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And our next question comes from the line of Scott Henry with Roth Capital.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [61]

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Just a couple of questions. First, did I hear you speak about XenoSure having roughly 5% organic growth?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [62]

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Yes, that was in the transcript.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [63]

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Okay. And so my question is when we think about that, it's a pretty large product in the portfolio, when we think about 2019, 5%, maybe another 3% for pricing, is it reasonable to think about that in the range of an 8% to 10% grower in 2019? Not trying to get too line item focused, but it is an important product.

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [64]

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I know. Scott, we really do look at this as a mutual fund of devices, and so the 5% is for the whole portfolio. It is interesting you're bringing it together -- I hadn't really put these together. But you're putting it together that it was a 5% grower in Q4, and then does it match the 5% maybe in next year 2019? I don't know. There's some logic to making that assumption, but I don't know. The product line was 17% in 2018 -- '17, excuse me, and then it was 6% organic in 2018. So there's no question it's decelerated a little bit. But to pull it out for next year, I don't think would be very good at doing that for you.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [65]

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Okay. I appreciate the color on that. And then just one other question. R&D has been trending at a higher rate in the past couple of quarters and into Q4. I guess, the question is could you talk a little bit about where that investment is going and what categories you're targeting?

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George W. LeMaitre, LeMaitre Vascular, Inc. - Chairman & CEO [66]

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Sure, sure. So at a very high level, we could just say the word XenoSure, and then we can also say the CE mark. And the XenoSure side of this is you're hearing a big approval process going on in Japan right now. No clinical trials -- no human clinical trials, but it's a big process. It just launched in December. And you're hearing about the Chinese clinical trial that we're in the middle of a human clinical trial over there. We're also pursuing approval in Korea, and we just good approval in Australia. So a lot of this is regulatory related to that. A lot of this is new products related to XenoSure. We've talked a little bit on these calls about XenoSure 2.0, our next-gen device. We've talked about XenoSure Dura, which is a different indication that we're trying to pursue which other of our competitors have. And we've also talked about XenoSure [fat guy], which is a thicker device. So a lot of R&D and a lot of regulatory dollars, which are classified as R&D dollars on your income statement. So there's that. There's also the CE mark, which I think a lot of our competitors are talking about on their calls, which is the CE folks are moving to a much more serious system. I would say, they used to be a little bit easier than the U.S. FDA 10 years ago, and it's clear to me that in 3 or 4 years they're going to be harder than the U.S. FDA in terms of approvals. Even things that you've already got approvals on, you've now got to go and prove that those actual devices do work in human beings. And so there's a lot of prospective studying that they're asking us to do and retrospective study they're asking us to do. All of those things you're seeing come out as R&D dollars for LeMaitre. We're now at 8% of revenues in R&D dollars. And I feel like it was only 5 or 8 quarters ago that we were at 6% R&D dollars. So some of the difficulties we're having in expanding our Op margin are certainly related to that.

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Operator [67]

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And we do have a follow-up question from the line of Mike Petusky with Barrington Research.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [68]

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I figured I'd give Dave a shot to earn his pay here, get him involved. So David, could you just talk about what you're seeing in terms of assets out there, pipeline for you guys, specifically pricing versus maybe what you were seeing 12, 18 months ago?

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David B. Roberts, LeMaitre Vascular, Inc. - President & Director [69]

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Yes, sure. So it's funny, Mike, it's now been about 4, 5 months since we completed those last 2 deals, and well, on the one hand, we've been very focused on the integration. There's a big team inside of LeMaitre helping with that. Also, the deal team here, we've turned and started moving in the next play. So I would say at a high level, without getting into details, the pipeline does look good. It looks robust. As you, of course, know we've done about a deal a year for a little over 20 years so. We always, I'd say, have a decent-sized pipeline. In terms of valuations, I think there are a couple of ways to look at it. One is public market valuations. If you look at the IHI medical device index, it's at -- it's at its near all-time high. So public stocks, medical device stocks are fairly high. And then in terms of deals that we see in this space, there was a property that traded in our space recently, Vascular Insights was acquired by Merit for about 4x sales. If you include the earnout, it was about 6x. So I would say valuations are high. Although, normally, LeMaitre's not participating in auctions, and we're often in discussions with individual private companies or in carve-outs. So it's very situational dependent. So in that respect, we're always very disciplined in terms of what we pay. And we've been like that in the past, and I would expect that we'll be like that for the foreseeable future as well.

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Operator [70]

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And I'm not showing any further questions at this time.

Ladies and gentlemen, that concludes today's conference. I would like to thank you for your participation, and you may now disconnect. Have a great day.