LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q4 2022 Earnings Call Transcript
LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q4 2022 Earnings Call Transcript February 26, 2023
Operator: Welcome to LeMaitre Vascular Q4 2022 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 LeMaitre Vascular. Go ahead, sir.
J.J. Pellegrino: 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 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 23, 2023, 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 growth as well as operating income, operating expense and EPS excluding special charges and gross margin, including 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.lemait.com. I will now turn the call over to George LeMaitre.
George LeMaitre: Thanks, J.J. On today's call I'll cover three topics. Number one, organic sales growth was 8% in Q4. Number two our sales force build-out and APAC expansion continued. And number three we have largely finished our initial MDR CE filings. We posted sales of $41 million in Q4, an 8% organic increase. Organic growth was led by APAC, up 22%, followed by EMEA, up 9%; and the Americas, up 6%. By product, biologic patches were up 11%, carotid shunts were up 24% and bovine grafts were up 11%. These increases were partially offset by Omniflow, which was down 55% due to a back order. We project this backorder 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.
Rep headcount grew 25% in both the Americas and EMEA and 40% in APAC. We 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 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 Seoul office. Our Korean business should be approximately $1.25 million in 2023 sales versus about $400,000 of net sales to our long-time Korean distributor in 2022.
Photo by Olga Guryanova on Unsplash
Korea is our 25th direct market, and we now have 12 offices worldwide. Also in November 2022, we signed a term sheet to buy out 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 pass legislation to defer the MDA MDR deadline until 2027. However, we're still pressing ahead with the filing of our MDR CE marks. We have now filed 12 of our 14 MDR C applications, and we'll file the final 2 before the end of 2024. Indeed, in January, we received our first MDR CE mark for the Pruitt F3 carotid shunts. Q4 2022 was a record sales quarter for our EMEA team, a nice recovery from the somewhat difficult days of the 2020/2021 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 LeMaitre with several headcount records, sales reps of 131, manufacturing personnel of 219 and total employees of $591. We continue to invest in regulatory approvals, including MDRC applications, RFA albografts in the UK and Germany and XenoSure patches 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 these 2022 initiatives paying off with improved top and bottom line results in 2023 and beyond.
With that, I will turn the call over to J.J.
J.J. Pellegrino: 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. We lost $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 MDR transition, product 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 continue to hire and invest in many areas, particularly our sales team. We finished 2022 with 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%. 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 with $82.7 million, an increase of $3 million in the quarter and $12.7 million 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 $0.22 to $0.27 per share implies a midpoint of $0.25 per share. For the full year of 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 and organic 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% and 8%, excluding special items. With that, I'll turn it back over to the operator for questions.
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