LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q4 2023 Earnings Call Transcript
LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q4 2023 Earnings Call Transcript February 27, 2024
LeMaitre Vascular, Inc. beats earnings expectations. Reported EPS is $0.38, expectations were $0.36. LeMaitre Vascular, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the LeMaitre Vascular Q4 2023 Financial Results Conference Call. As a reminder, today’s call is being recorded. At this time, I would like to turn the conference over to Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.
J.J. Pellegrino: Thank you, operator. Good afternoon and thank you for joining us on our Q4 2023 conference call. With me on today’s call is our 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 27th, 2024, 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. 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.
George LeMaitre: Thanks, J.J. Q4 was an excellent quarter with 19% sales growth, a 68.1% gross margin, and 46% op income growth. I'll focus my remarks on the top line, sales force activities, and some regulatory updates. Geographically, EMEA was up 21% in Q4, the Americas 20%, and APAC 11%. By product, bovine patches were up 18%, allograft 52%, valvulotomes 12%, and carotid shunts 16%. Distribution of porcine patch also added $1.5 million of sales in the quarter. The return to hospital by staff and patients, ASP increases, ample product supply, and the growth of our sales force drove Q4 sales growth. We ended 2023 with 136 reps worldwide. By December 2024, we expect to employ approximately 150 reps. To accommodate rep growth in North America, we recently promoted three Regional Sales Managers to become Area Sales Managers.
This additional management bandwidth should enable us to hire, train, and manage more RSMs and reps. The revenues from the 2020 Artegraft acquisition, coupled with recent sales growth, have made our North American territories too large. In 2023, our average North American territory had $2 million in sales. Over the years, we found smaller territories enable tighter relationships with surgeons. So, we've begun dividing some of the larger territories. This should reduce windshield time too. In Europe, we also remain in growth mode. We plan to open a Paris office in Q2, which should improve our connections with French surgeons and hospitals as well as our eight French sales reps. France is our sixth largest country by sales. Turning to Asia. I visited four of the six APAC offices in early February.
Things look great over there. Our Tokyo branch is celebrating 20 years and we've just opened offices in Seoul and Bangkok. In our first direct year in Korea, 2023 sales reached $1.7 million and op profits were $250,000. Both figures exceeded expectations. In Thailand, our first full year of direct sales should be about $1.6 million in 2024. Our Chinese team is also performing well and grew 40% last year. The Artegraft CE file was submitted in December 2023, and we also plan to file for Artegraft approval in Canada, Australia and several other APAC countries this year. We also plan to make XenoSure filings for our peripheral and cardiac products by 2025 in China. And we're also making the MDR transition in Europe. As you know, Brussels has extended the MDR deadline to 2027.
22 of our product categories need this new MDR CE mark. So this is a considerable undertaking. We currently own three of these new MDR CE marks. Also in Europe, our allograft filings have been made in Ireland and Germany, an approval in either of those countries will be our first approval of allograft in the European Union. To conclude, 19% sales growth and a gross margin recovery produced 46% op income growth in Q4. Our growing profitability and cash on hand provides safety and strategic optionality. With that, I'll turn it over to J.J.
J.J. Pellegrino: Thanks, George. 2023 was an excellent year. We posted $193 million in sales, an increase of 20% on a reported basis and 17% organically, while our operating income increased 37% on a reported basis. As 2022 was our post-COVID rehiring year with 141 ads, and 2023 was the hiring constraint year with only 23 is. This headcount control, along with our strong sales results and an improved gross margin led to a 19% operating margin in 2023 versus 17% in 2022. Separately, our cash balance has improved by $22 million in 2023 to $105 million. Turning to the quarter. In Q4 2023, we posted a gross margin of 68.1%, up 450 basis points year-over-year. This increase was driven by higher ASPs, productivity improvements and a weaker dollar.
The benefits of a larger and more efficient manufacturing team have come on to the P&L. Our allograft manufacturing team had a strong Q4 and quality costs remain in check. In retrospect, our manufacturing hiring surge was well timed with the global return to hospital. Operating expenses in Q4 2023 were $23.1 million, an increase of 21% versus Q4 2022. The increase was driven largely by higher sales commissions, more sales professionals and $700,000 of onetime reversals in Q4 2022. Q4 2023 operating income increased 46% year-over-year to $10.2 million, driven by higher sales and an improved gross margin. The operating margin in Q4 was 21%, up from 17% in the prior year period. Separately, we recently went live with a new ERP system in the United States.
This system should improve real-time reporting, streamlined financial processes and provide more sophisticated analytics. Implementation at our overseas entities will take place in 2025 and 2026. We estimate that we will spend approximately $7 million to $8 million on this project, and the annual P&L impact will be approximately $1 million per year. With respect to guidance, we are forecasting improved operating leverage in 2024, driven by restrained operating expense growth and an improved gross margin. Our guidance includes an operating margin of -- in 2024 of 21% versus 19% in 2023 and 17% reported in 2022. For more details, please see our business outlook issued in today's press release, but a few Q1 highlights include, reported sales growth of 10%, gross margin of 68.5%, operating income growth of 33% and EPS growth of 42%.
And for the full year 2024 guidance includes, reported sales growth of 10%, gross margin of 68%, operating income growth of 22% and EPS growth of 23%. With that, I'll turn it back over to the operator for questions.
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