LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q3 2023 Earnings Call Transcript

LeMaitre Vascular, Inc. (NASDAQ:LMAT) Q3 2023 Earnings Call Transcript November 1, 2023

LeMaitre Vascular, Inc. beats earnings expectations. Reported EPS is $0.34, expectations were $0.31.

Operator: Welcome to the LeMaitre Vascular Q3 2023 Financial Results Conference Call. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] 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.

Joseph Pellegrino: Thank you, Operator. Good afternoon, and thank you for joining us on our Q3 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, November 1, 2023, and should not be relied upon as representing our estimates or views on any subsequent date.

A doctor using a Lumivascular platform to get a closer look at the patient's peripheral arterial disease.

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. Q3 was an excellent quarter. Q3 was similar to Q2 on the top-line, with 16% organic sales growth. But it was better on the bottom line. Through the year, we’ve gained control of op expenses. Spending growth was 26% in Q1, 19% in Q2, and now 14% in Q3. As a result, op income grew 49% in Q3, and EPS was up 36%. Reported sales growth was 21% in Q3, spread across all geographies. APAC was up 30%; EMEA, 24%; and the Americas, 20%. By product, bovine patches were up 22%; valvulotomes was 27%; bovine grafts, 15%; and carotid shunts, 24%. Our bovine patch and carotid shunt businesses continue to excel in Q3 as key competitors have left the market. Valvulotome growth might be due to the recent publication of the BEST-CLI trial, which showed superior results of vein bypass versus stents, angioplasty and endarterectomy.

Hospital procedures remained elevated in Q3 as the 2023 return to hospital continued, and our January 1st price increase has largely been accepted. In the time of high inflation, supply chain disruptions, and the CE mark transition, hospitals are now more attracted to our longstanding no-back order as promised, and price might have become a secondary topic. Our 16% organic sales growth in Q3 was 11% price and 5% units. Feed on the street and our growing international presence also helped. We ended Q3 with a record 136 sales reps, 15% more than a year ago. We generally have posted higher sales growth rates internationally as we keep entering new markets. LeMaitre’s new Bangkok office opened in August and we began selling directly to Thai hospitals.

We also opened a new expanded Madrid office in September, and now we’re planning a French sales office for H1 2024. France is our 6th largest market. For a company with a French name, it’s a bit odd that we’ve never had a dedicated French sales office. Paris will be our 14th sales office and will now be able to serve the 5 largest European countries with dedicated customer service reps in their country and their languages. Previously, our European customer service reps were centralized in Frankfurt. This re-localization of customer service tightens our hospital relationships and likely increases sales. Important regulatory projects underway include our Artegraft and RFA filings in Europe as well as our two Chinese XenoSure filings for cardiac and peripheral.

It’s likely that all four of these fillings will be at their respective regulatory agencies by H1 2024 and would expect approvals 2 years after that. In H2 2024, we’ll also follow for Artegraft approval in Canada and Australia. These filings are in addition to the MDR CE transition in Europe. As you may know, Brussels has extended the MDR deadline to 2027. We have approximately 17 product categories needing this new CE stamp or letters to file, so this is a considerable undertaking. To conclude, 21% sales growth in Q3 and 49% op income growth resulted from price increases, restrained op expenses, and the continued return to hospital by patients and staff. Our profitability and $97 million of cash on hand provide safety and strategic optionality.

With that, I’ll turn it over to J.J.

Joseph Pellegrino: Thanks, George. As George noted, operating expenses in Q4 2023 were up 14% and operating expense growth has slowed from 20% to 25% in H1 to under 15% in H2. If the sales force ramp and post-COVID re-hiring was our mantra in 2022, it’s safe to say that hiring restraint and cost containment has been our 2023 theme. We had 450 employees at the end of 2021, 591 at the end of 2022, and now 613 at the end of Q3 2023. One of our notable internal goals throughout 2023 was to finish the year with fewer than 625 employees. This target seems achievable. Increased sales and cost constraints has improved bottom line considerably. In Q1, operating income growth excluding special charges was 3%, it was 8% percent in Q2, 49% in Q3, and now we’re guiding 44% in Q4.

In Q3, we posted a gross margin of 65%, up 80 basis points year-over-year. The increase was driven by average selling price increases and direct labor productivity improvements. The benefits of a larger and more efficient manufacturing team are starting to come to the P&L. In retrospect, our 2022 manufacturing hiring surge was well timed with the global return to hospital of patients and staff. Units are up and back orders are down. Cash at the end of Q3 2023 was $97 million, an increase of $6.8 million in the quarter. This increase was driven by cash from operations of $11.8 million, which is partially offset by dividends of $3.1 million and capital expenditures of $1.1 million. For guidance, please see our business outlook issued in today’s press release.

But a few Q4 highlights include: reported sales growth of 20%; organic sales growth of 16%; operating income growth of 44%; and EPS growth of 43%. This $600,000 upward revision to our Q4 operating income guidance is largely due to an improved gross margin and tighter expense control. Separately, we have lowered Q4 sales guidance by $1.5 million due to three topics, which have evolved since our last guidance, the strengthening dollar, RestoreFlow output constraints, and the continued U.S. export ban on sales to Russia. And Finally, I would like to welcome two new analyst teams to the LeMaitre story. In September, Suraj Kalia and Shaymus Contorno from Oppenheimer initiated coverage. So, in October, David Turkaly and Danny Stauder from JMP initiated coverage.

Thank you to both teams, and we look forward to working with you. With that, I’ll turn it back over to the operator for questions.

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