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LeMaitre Vascular (LMAT) Q1 2019 Earnings Call Transcript

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LeMaitre Vascular (NASDAQ: LMAT)
Q1 2019 Earnings Call
May. 01, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the LeMaitre Vascular first-quarter 2019 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.

JJ Pellegrino -- Chief Financial Officer

Thank you, Ashley. Good afternoon, and thank you for joining us on our Q1 2019 conference call. With me on today's call is our Chairman and CEO George LeMaitre; and our President Dave Roberts. Before we begin, I will 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, May 1, 2019, and should not be relied upon as representing our estimates or views on any subsequent date.

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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 operating income expectations, excluding certain onetime gains and 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 -- Chairman and Chief Executive Officer

Thanks, JJ. In Q1, we reported sales growth in 11 of our 15 product lines and 16 of our 22 direct countries. Based on 10% Q1 sales growth, we're increasing our full-year 2019 guidance. From a product standpoint, embolectomy catheters, OEM, polyester grafts and carotid shunts were our growth drivers.

Both recent acquisitions are performing ahead of our expectations and contributed $2.2 million of sales in Q1. Geographically, Europe and Asia grew 14% and 52%, respectively, accounting for 42% of total Q1 2019 sales. We continued to invest internationally through acquisitions, regulatory approvals and the ramp of our OUS sales force. We now have one export manager serving the Americas, one in Europe and one in Asia.

Traditionally, we've focused on our direct market, but I hope that this renewed focus on export will allow us to penetrate some of our more far flung geographies. Worldwide, we ended the quarter at a high watermark of 109 sales reps. In H2 2019, we expect to launch our next-generation XenoSure Plus, as well as DuraSure. XenoSure Plus is a thicker version of our current patch, which should help us to compete with our principal competitor, Baxter.

With an additional indication, DuraSure will allow us to enter the neuro and spinal patch markets. We continued to pursue XenoSure approval in the three Asian markets of China, Japan and Korea. Looking further out, our next-generation fast TIPP, powered phlebectomy system should be a 2020 launch. The product will still deliver the same fast phlebectomy procedure, but the unwieldy Trivex control unit and the high upfront capital cost have been largely eliminated.

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

JJ Pellegrino -- Chief Financial Officer

Thanks, George. Our Q1 2019 gross margin was 68.3%, down 2.8% versus the prior-year period. The decline was driven by recently acquired lower-margin product lines, the stronger dollar and the divestiture of the higher-margin Reddick product in 2018. Our gross margin may be range bound for several quarters while we execute integration of cost-cutting measures typical after our acquisitions.

Two of those projects are under way. We have now begun the transfer of Omniflow manufacturing from Australia to Burlington, and we're also transferring the Applied Medical embolectomy catheters to Burlington. We anticipate those transfers to be completed in 2019. In Q1 2019, operating expenses were $15 million, up 10% from Q1 2018.

The increase was driven by 15 additional sales reps, as well as increased product development and regulatory expenses. In Q2, our op income guidance includes a $300,000 one-time charge related to the Omniflow transfer, implying a true sequential drop in operating expenses of $1 million. For H2 2019, our guidance implies a 5% operating expense increase year over year, and we have begun to look for expense reduction opportunities. For the full-year 2019, we expect our operating margin to be 19%.

We ended Q1 with $47.5 million in cash, a decrease of $0.5 million during the quarter. The decrease was driven by working capital uses of $5.8 million and capital expenditures of $800,000. Our latest 12-month EBITDA was $32 million. Separately, our board of directors recently approved an $0.085 dividend implying a yield of 1.2%.

We've increased our full-year sales guidance to $114.1 million, representing a year-over-year increase of 8% on a reported basis and 6% organically. We also expect full-year operating income to be $21.3 million, an increase of 4% at the midpoint, excluding one-time items. With that, I'll turn the call back over to Ashley for questions.

Questions & Answers:


Operator

[Operator instructions] And our first question comes from the line of Rick Wise with Stifel.

Rick Wise -- Stifel Financial Corp. -- Analyst

Another solid quarter. George, you had a couple of quarters now top-line outperformance. In the first quarter of '19, you beat consensus by nearly $600,000. But you're only thinking of full-year guidance, a little less than that beat.

Just help us understand the delta here and maybe help us think through what are the drivers that get you to the top end or potentially exceed your full range? Is it geography, is it sales force, is it product? Just any additional color would be great.

George LeMaitre -- Chairman and Chief Executive Officer

Sure. And so let me focus on the first part of that question, which is I think you're asking, "Hey, you beat by, I don't know, $400,000, $300,000 in Q1, how come you're not raising your guidance by more than that?" Is that a big part of your question at the beginning there?

Rick Wise -- Stifel Financial Corp. -- Analyst

That's one part of the it, yes.

George LeMaitre -- Chairman and Chief Executive Officer

Right. So FX changed an awful lot between when we talked to you guys two months ago. So we lost about $350,000 more for the year than we had anticipated, and so really you're getting a $350,000 plus $100,000 bump of about a real $450,000 bump in the three quarters going forward. So we got it right except we're $450,000 on top of that, but then FX took $350,000 away from that.

I hope that gets to the front of your question. Can you reiterate the back end of your question there?

Rick Wise -- Stifel Financial Corp. -- Analyst

And just talk to -- so ex FX, what would the drivers be that might even drive sales growth even more strongly? Is it some of the new products? Is it some of the -- is it sales -- greater productivity from the sort of steadily expanding sales force?

George LeMaitre -- Chairman and Chief Executive Officer

OK. OK. So the guidance is what it is, right. It's 8% reported and 6% organic for the whole year.

We're excited about that as it relates to last year was a tougher year with sort of 3.8% organic growth. So the guidance is what it is, but if you're looking for, "Hey, possible upside shots on goal," I think the rep surge is always out there as something. I think the recovery of RestoreFlow would be something that I'd put some stock in. We've had a couple really nice real months in March and then April in RestoreFlow.

That's an April number, not a Q1 number. So you've had some good stuff going on there. So I'd say there's a couple of nice shots on goal. In general, I would say, our setup of the Singapore office should be a hint to everyone, well, something good is going on over in Asia.

And so I don't know, we're reporting a number of 52% for growth on a reported basis in Q1 in Asia. I would say the Asia PAC thing for LeMaitre keeps going great. And then Europe also had a record quarter in Q1, and I would say things are going well over there. So maybe OUS, RestoreFlow, stuff like that.

Rick Wise -- Stifel Financial Corp. -- Analyst

Gotcha. Maybe a little more color on the OUS strength. Was there any -- just out of curiosity, was there any stocking or whatever the right word would be that would -- as you open up, like, the Singapore office that might account for the extra special OUS strength or no, good solid execution and demand?

George LeMaitre -- Chairman and Chief Executive Officer

OK. Yes. OK. There is one easy apple and orange there, which is we got $400,000 in Chinese sales in Q1 this year and you got $26,000 in Q1 last year because we were still going through the distribution rearrangement over in China last year.

So there's a $350,000 good guy apple and orange. But in answer to your specific question about the Singapore office, no, there is not -- I mean, we have an office there, and we now have about three employees there, but there's no extra distributors yet, so no. A different way to answer that is, how was export in the quarter? Export worldwide, and now I'm breaking it out in a different way, was up 40%. So we had a really export quarter on a reported basis, but nothing exactly that I would point at and go, well, that was crazy good or not.

So no, not anything. And I think you can see that in our guidance as you go sequentially to Q2. We're guiding then up again from Q1 by $300,000 in additional sales. So if there was something, I don't know, not, sneaky is a bad word, but there was something weird in Q1.

We'd have to know about that as we set up Q2 guidance, and the answer is probably not. Just that one China thing is a little bit weird.

Rick Wise -- Stifel Financial Corp. -- Analyst

Gotcha. Two more things. Maybe just help us think about XenoSure growth from here, especially as you get ready to launch XenoSure Plus. I wasn't 100% clear about the timing and the potential impact on the sales line.

And just last, briefly, I know that it sounds like the shunt business had a good quarter. And maybe talk a little bit about your exposure to carotid endarterectomies with the shunt business and the potential impact, if any, maybe none, from some innovative new technology, called TCAR, that is taking a little different approach to carotids. Help us understand that.

George LeMaitre -- Chairman and Chief Executive Officer

OK. Great. No problem. And Rick -- this is Rick, right?

Rick Wise -- Stifel Financial Corp. -- Analyst

Yes.

George LeMaitre -- Chairman and Chief Executive Officer

OK. Great. So I'm going to split this question up into two. I'm going handle the XenoSure side and then Dave is going to go off on the TCAR side, if that's OK with you.

So on the XenoSure side, yes, so let me paint this in a positive light and then maybe we go at the XenoSure question. I think in Q1, what you saw was we're still making this thing work at a 10% reported growth rate, 7% organic, without any contribution from XenoSure. We haven't talked about this yet, but it was up 1.5% organically worldwide. So I think there's no question that this thing has been slowing down over the last five or seven quarters, yet the mutual fund aspect of LeMaitre Vascular has been able to make it work as we're getting contributions from different places, both organically and reportedly.

If you look at XenoSure, I think the things we're hoping happened are that these launches, DuraSure and XenoSure Plus, as well as, at some point, the contributions from Japan, China and Korea will kick in. We are hoping these things go well. It's all baked into guidance, and we're giving you an 8% reported growth rate guidance for the whole year. But I think it's clear XenoSure is not our favorite product line these days.

Principally, the issue is in the United States, we have additional competition, and the competition we feel is more price-based than it is product performance or product attribute-based. So we're fighting a bit with Baxter and the Synovis patch. So that's what's going on there. It's a little bit less present in Europe.

I think the number was Q1. It was up 6% in Europe and about 70% in Asia. So in Asia, things are going fantastic with the patch. In Europe, I still feel pretty good about it, but in the U.S., there's more competition.

We hope the R&D work that we're doing and the geographic expansion work we're doing helps this issue. I'm going to turn over to Dave for the TCAR topic.

Dave Roberts -- President

Sure. So on TCAR, which, I think, most people know is the procedure being advocated by the folks at Silk Road Medical, and they've done a nice job building that company and getting started there. It's a relatively new procedure, which competes with carotid endarterectomy. It's fundamentally a carotid stent system, but uses a different access point.

And I think as you're well aware, Rick, the new procedure comes with a certain number of contraindications and limitations. For example, it's really only indicated for patients who are at high risk in a carotic endarterectomy procedure. You need to have a five-centimeter clear landing zone for access and for patients who can tolerate anticoagulation. So in terms of the total pool of patients that could have the procedure, there are several limitations, and it's a new procedure.

That being said, I think for the right patients, it's a good procedure. They could capture some percentage of the market over time. It's sort of hard to predict what that will be. And then I'd also just emphasize that, again, as a new type of procedure, and you've seen this very clearly with Endologix and some of the other stent graft companies, sometimes a new procedure is very exciting and then over the span of time, not just months, but years, three years, five years, 10 years, data comes out and people start to question how durable is the procedure, how good, etc.

So I think it will take a little while. The jury will be out for quite some time. But I think for a limited percentage of the patient base, this could be an option.

Operator

[Operator instructions] And our next question comes from the line of Jason Mills with Canaccord Genuity.

David Rescott -- Canaccord Genuity -- Analyst

It's David on for Jason. You can hear me, right?

George LeMaitre -- Chairman and Chief Executive Officer

David, yes, we can.

David Rescott -- Canaccord Genuity -- Analyst

So first question I kind of want to start on recent acquisitions and kind of the top-line contribution. So just trying to think about within the quarter kind of -- how you kind of -- I know you mentioned it was kind of $2.2 million within the quarter. And kind of how you sort of expect those going forward to really impact the top line? And I think specifically, you've kind of mentioned maybe five -- I think $5.3 million within the breakout as far as contribution through the year for the top line. I think kind of our estimates are at least what the estimates in the past have been.

It's maybe around $6.5 million from recent acquisitions. So just trying to figure out that second part of it is kind of what the discrepancy is between kind of the $6.4 million for revenue contribution as well as kind of how you're breaking out, I think, $5.4 million going forward.

JJ Pellegrino -- Chief Financial Officer

Yes. This is JJ. So the $5.4 million you're looking at is in the back of the notes on the earnings release. So that's correct.

So basically what that is -- right, getting you to organic growth. And so those acquisitions happened during the year or the course of the year. So they're not full-year numbers. They're basically through October 23 and through November whatever the dates were of those acquisitions.

So that's why you're seeing $5.2 million or $5.3 million or whatever it is. I think we acquired $6.3 million or $6.7 million or $6.5 million of acquired sales. And as George said in the first quarter and even we saw in Q4 the acquisitions came out really strong. There's an OEM component to what they do particularly at Cardial.

I mean it comes in chunky and so some quarters will be pretty strong and some quarters may be a little bit less. But I think largely unchanged, maybe the view of the sort of annualized sales for those acquisitions, although the Applied piece may be a little bit stronger than we thought. And we'll see there may be some smaller go-direct opportunities related to the Cardial piece that might do set up a little bit as well. But I generally, you can think of it as coming out strong and maybe sort of steady state going forward, but don't reference that $5.3 million that you see in the back.

It's only a partial period.

David Rescott -- Canaccord Genuity -- Analyst

OK. And then one of the points within the relation that you kind of lowered operating margin through the year. And kind of what do you think or what kind of gives you confidence through the rest of the year that either the acquired assets or the higher amount of reps in the bag kind of crossing those opportunities? Do you think they can kind of get you back to that -- or contribute to the rest of the year getting up to the 90% operating margin guidance?

George LeMaitre -- Chairman and Chief Executive Officer

Right. OK. So this is George, David. Thanks for the questions.

Good questions. So of course, we should have better sales in Q2 and Q4, right. So we'll have a better base of sales to start with. We also feel like we're starting to get a hand -- our hands on cutting costs and sort of a gentle belt tightening around here.

You also saw that we're starting to transfer the two product lines. So at some point here, you won't have that Australian factory that will be a little bit less expensive to carry and then the transfer of the product line from -- it's made in California for Applied Medical to Burlington. So within all that, we feel like we're going to get our hands around op expenses. There's a little bit of an up in the gross margin, I think, from 68.3% to 68.7% as the year goes by as well that will give you a little bit of leverage to get you back to where the 16% op margin in Q1, I think, and we're guiding 19% for the year.

So it will get 19% in H2. Is that right?

JJ Pellegrino -- Chief Financial Officer

I think for the year.

George LeMaitre -- Chairman and Chief Executive Officer

For the year. OK. So those items should get you back to that.

David Rescott -- Canaccord Genuity -- Analyst

All right. And then just quickly going into the kind of at least the lower op margin within the quarter, is this kind of due from lower taxes in the year to get to the guidance range, any of that?

JJ Pellegrino -- Chief Financial Officer

Yes. So good question. So actually, if you look back historically, Q1 op margins are historically light in the year. And I think if you go back in the last four years or so, you're hovering in that sort of mid or higher teens.

So you would expect to see lower op margins in Q1. We have sales meetings, and we have all sorts of things that happen during the beginning of the year that sort of add up a little bit and some of them release as the year goes through. So you've got a little bit better margin as you go forward during the year. So I would say, Q1 had some onetime or high expenses, nothing notable to talk about, really, but just sort of run-of-the-mill stuff that we do.

We also had sales meetings in the period. We had higher commissions because we had a nice sales period as well. And so that, combined with the general seasonality of Q1, got to that lower margin. I think if you remember in the script that I was reading earlier, we said that sequentially op expenses were going to go down essentially from $15 million to $14 million.

And so you can see that we're feeling like, yes, there should be a better answer on the opex line as we move forward. David -- does that answer your question, David?

David Rescott -- Canaccord Genuity -- Analyst

Yes.

Operator

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

Joe Munda -- First Analysis -- Analyst

Can you hear me OK?

George LeMaitre -- Chairman and Chief Executive Officer

Yes.

Joe Munda -- First Analysis -- Analyst

So JJ, George and Dave, I'd like to start off, thank you for giving us some color on the growth, U.S. versus international. I was just curious, can you give us some sense of, George, the growth in the quarter, unit growth versus pricing? Any color would be great.

George LeMaitre -- Chairman and Chief Executive Officer

Sure. You know what, we never know which way is better way to quote this thing. So here's the -- of the 7% organic, 5% of it is unit growth and 2% of it is pricing.

Joe Munda -- First Analysis -- Analyst

OK. OK. It's helpful. And then in the quarter, sequentially, it looks like you guys added one rep.

Any idea -- if you could give us any idea where that was, what geography.

George LeMaitre -- Chairman and Chief Executive Officer

Sure. It's a little hard to keep all track of it, but we've got 109 now. We're down three in the Americas from the last time we talked to you, we're up four in Europe, and we're flat in Asia. So they come and they go, and it's always about 10% turnover rate.

So you're losing one or two every month and you're hiring a couple.

Joe Munda -- First Analysis -- Analyst

OK. So I guess, George, as we look out over the year, I mean, are you comfortable with the force -- the size of the force now? Are you going to continue to look to add to that headcount? You talked about opportunity in Asia. Does that include adding reps in those markets as well?

George LeMaitre -- Chairman and Chief Executive Officer

OK. So if I felt comfortable spending all the way down to 0 in op income, which I don't, there's plenty of places to put sales reps for this company. But I do feel like we're always living in a pay-as-you-go world. And so 110 is kind of a OK place to be, can't exactly control it to 110.

Sometimes, there's going to be 113, sometimes there's going to be 107. But yes, in short answer to your question, we feel like we're a great place. We were at about 90 two years ago, and we're up by 20 reps. It feels really nice.

Joe Munda -- First Analysis -- Analyst

OK. It's helpful. And then I guess, in terms of biologics, give us some color on XenoSure. Is it possible you could us some indication what biologics as a total percentage of revenue was in the quarter?

Dave Roberts -- President

Joe, it's Dave. Yes, they were 33%, which is down a little bit from 36%. But on an absolute basis, they were, I'd say, sort of flattish, and the reason the percent went down was because of the two non-biologic acquisitions.

Joe Munda -- First Analysis -- Analyst

OK. And then my last question. I appreciate it. You talked about the recovery in RestoreFlow.

Is that a function of the market growth? Or are you seeing competitive wins in the marketplace, taking share from someone else?

George LeMaitre -- Chairman and Chief Executive Officer

Right. And so Joe, I want to be clear here. So RestoreFlow was down 5% in Q1, but we had a fantastic April. If you put all that together for the four months, I think we're up 6% or 7%.

So the recovery is a four-month -- I realize it's really weird on the Q1 phone call, but it's a four-month thing. To let you know, it does vacillate month to month. I think the recovery is about LeMaitre Vascular. I saw CryoLife's numbers last night.

I think the recovery is about LeMaitre Vascular. And I don't know if you remember this funny story about me growing a beard to protest back orders in RestoreFlow. While the beard got shaved off on January 23 and then on February 1, we started giving all of our 55-or-so domestic sales reps access to what exact inventory we have at our Chicago factory. And I think the two things.

One is getting a lot of supply, and two, letting them see what is behind the curtain, if you will, so they can pick and choose the different products for their various surgeons. Those two things have resulted in exceptional RestoreFlow months in March and April. But again, looking at things by month by month is kind of weird, but there you go, there's your four-month report on RestoreFlow. We feel we're good about that product line.

Operator

And our next question comes from the line of Mike Petusky with Barrington Research.

Mike Petusky -- Barrington Research -- Analyst

So I guess, JJ, what's the tax rate assumption for full year that, I guess, baked into your guidance?

JJ Pellegrino -- Chief Financial Officer

We're at about 23%, Mike, and we had about 22% in Q1. So not too different from that. I think our normal sort of effective tax rate, if you will, is in the 25% to 26% range. But I'm guessing there's going to be some stock option exercises in there along the way and that I'll bring it down a little bit.

Mike Petusky -- Barrington Research -- Analyst

So as you kind of think going forward, I mean -- in out years, I mean, is 25% the right number or something closer to 23% --

JJ Pellegrino -- Chief Financial Officer

Yes. I would hover around that 25%, 25.5%, somewhere in there. That's probably the sort of normal, if you will, these days.

Mike Petusky -- Barrington Research -- Analyst

But 23% for this year makes sense?

JJ Pellegrino -- Chief Financial Officer

Yes.

Mike Petusky -- Barrington Research -- Analyst

Do you, by any chance, have stock-based comp and capex for the quarter handy?

JJ Pellegrino -- Chief Financial Officer

Yes. Stock comp about $750,000 and capex about $800,000.

Mike Petusky -- Barrington Research -- Analyst

OK. Great. And then valvulotomes, I think if you gave it, I didn't hear what growth or non-growth we got from valvulotomes this quarter.

George LeMaitre -- Chairman and Chief Executive Officer

Three percent organic growth for Q1 for valvulotomes.

Mike Petusky -- Barrington Research -- Analyst

Awesome. All right. And George, could you remind me or, I guess, possibly update me your current expectations in terms of regulatory approvals in the three Asian countries for XenoSure. And also, if you have the current enrollment in China for XenoSure, that would be awesome.

George LeMaitre -- Chairman and Chief Executive Officer

OK. Great. So yes, that's a big topic. I would say it's not such a great topic.

It always seems like it pushes over the horizon, but we'll just tell you what we think right now. China approval in 2022. We've got 232 of the 288 patients enrolled. It is slowing down, unfortunately.

Only 12 additional patients between when we spoke to you last time and now, I believe. So it's slowing down a little bit. We're putting all the kings horses and all the kings men to make that happen. And then in Japan, we filed in December and PMDA kicked it right back on our face and said, "We want this test to be done before you can officially file." And so the filing has been put back at us, and we now need to refile it.

And I would say, that's a Q3 filing. What does that mean for approval? I, honestly, don't know. I'm going to say 2022 with that one as well, 2023 maybe, something like that. There's no clinical trial related to Japan -- there's no human clinical trial related to Japan which is nice.

On the Korean side, we actually have the approval now, and that's new news to you guys, but we don't have the reimbursement. And that's still a ways off. So it feels like we might be marketing that product in Korea in about 18 months or so. But there's still stuff to figure out on a way there.

Three important approvals put off in molasses, but we're working as hard as we can on them.

Mike Petusky -- Barrington Research -- Analyst

OK. Great. That's a terrific update. And then just on the unit growth, and maybe I'm just forgetting a quarter, but it seems like that 5% unit growth is one of the better performance in the last couple -- two, three years.

I mean, it feels like that should be encouraging. What would you guys take from that?

George LeMaitre -- Chairman and Chief Executive Officer

Well, the weird thing is we're talking about this for the call. The weird thing is when you get great unit growth, you're excited, but then when you say, "Oh, we don't have pricing power anymore," you get nervous. And so this 7% could get split any way you want and you could make a good thing out of one side and the bad thing out of the other side. I don't know what to make of it.

It is 5% unit growth and 2% pricing and, I guess, it's up to us -- each one of us individually to decide which you'd rather have.

Mike Petusky -- Barrington Research -- Analyst

Right. For what it's worth, I'm encouraged by the unit growth.

Operator

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

Scott Henry -- ROTH Capital Partners -- Analayst

First, just for clarification, the operating income is going down and the EPS is staying the same. Obviously, you just mentioned the tax rate. Is that the whole reason why that math is working out that way? Or are you factoring in perhaps share buyback into that outlook?

JJ Pellegrino -- Chief Financial Officer

No. No share buybacks in that. And I guess, yes, it's a tax rate topic. But for the year, op income growth 4% and -- normalized, excluding sort of onetime risk, and EPS growth 2%.

So really year over year, for the full year, last year had a pretty nice effective rate of, like, 19%, somewhere in that range. And so we're going up to 22%, 23%. So it's actually hurting us a little bit when we go from op income growth to EPS growth year over year, if that's what you're referring to.

Scott Henry -- ROTH Capital Partners -- Analayst

No. I'm just referring to operating income guidance. At least the press release was 22.1% to 23.1%, and it went down, which would normally bring EPS down as well. So --

JJ Pellegrino -- Chief Financial Officer

Yes. Yes. So absolute dollars -- so your gross profit came down maybe by about $800,000 or $900,000 from last guide to this guide. You see that our gross margin guidance went from 69.5% to 68.5%.

And so that's a big chunk of your answer, the 1.4 delta. But FX hurts you by $100,000 or $200,000 as well. And then you had that opex -- sort of the opex missing in Q1. And then I snuck this and you might not have heard, but we've got $300,000 in Q2 for a special sort of onetime charge, severance-related stuff related to closing the Australia plant and bringing it here to Burlington.

George LeMaitre -- Chairman and Chief Executive Officer

JJ, I think I'm following what Scott saying a little differently maybe, which is there is a chance that the effective tax rate that we guided at the beginning two months ago was a straight 25%, and now we're guiding an effective tax rate of 22%, 23%. And maybe in that, there's a pickup on the bottom line and not as much of a pickup on the op income line. Is that what you were asking, Scott?

Scott Henry -- ROTH Capital Partners -- Analayst

Yes, perfectly clear at this point. Shifting gears. Looking at some of the biologic products, with XenoSure, I'm just trying to think about the magnitude of the new products and the new geographies offset against a more competitive backdrop. And the question is, you only think out a year or two, what kind of growth do you think you can get that franchise back to? Is this, ultimately, could have returned to very low double digits? Or is this kind of a mid single-digit grower and that's how we should think of it as the new markets offset increased competition? Just trying to get a sense.

George LeMaitre -- Chairman and Chief Executive Officer

Right. And Scott, I think in the last couple quarters, you're newer to this phone call because someone else is covering it for you guys. But I will say, we've been fairly aggressive about saying we're not going to actually guide on individual product lines. And so I would say our stock answer is that.

I would say, within all of that, this XenoSure growth number has been highly volatile. And so for us to guess is really -- it's beyond my mental capacity to figure out what's going to happen next. We think there's great shots on goal in the things I laid out for you, which is the R&D, as well as the geographic expansion. But it's been real volatile.

I'd rather just come back and be conservative with you guys and say, baked into guidance, we feel comfortable getting you an 8% reported sales number this year, and then beyond that, we're not guiding at all, let alone within product lines. And I know it's not a very satisfactory answer for you.

Scott Henry -- ROTH Capital Partners -- Analayst

No. I appreciate the color, nonetheless.

Operator

And it looks like we have a follow-up question from the line of Joe Munda with First Analysis.

Joe Munda -- First Analysis -- Analyst

JJ, just one follow-up and, Dave, one for you. In regards to the gross margin, the transfer of manufacturing to Burlington, is that expected to close in 2019? Or are we going to see the impact -- you talked about revamp for several quarters. Are we going to see that drift over into 2020?

JJ Pellegrino -- Chief Financial Officer

So operationally, Joe, I think we're keeping Australia open through the end of the year, building sort of safety transition stock, if you will. And then in parallel with that, we'll start building stock here at Burlington, but we won't start selling the stock made here at Burlington until later into maybe Q1, Q2 of next year. So I think that cost piece that translates in a good way through the P&L doesn't start until Q1, Q2 of next year, if you will, when you start selling the Burlington-made product.

Joe Munda -- First Analysis -- Analyst

OK. That's helpful. And then Dave, a question we get from investors all the time, the model is built on acquiring and integrating. I guess if you could give us some color in the number of opportunities potentially, has the pool shrunken, are you seeing more as far as multiples are concerned.

That's the question we get all the time. So any color on M&A landscape would be extremely helpful.

Dave Roberts -- President

Sure thing, Joe. So I would say that the pipeline isn't materially better or worse than it's been on previous calls that I've had with you and the other folks listening in. We have a good number of targets. Of course, it was just six or seven months ago that we closed those two acquisitions.

But as you can hear, they're off to a good start, and the integrations seem to be going well. The types of deals we look at are still very consistent and that we're focused on the vascular surgeon, disposable, implantable devices in niche markets to $20 million or $25 million of revenues. So that hasn't changed. The balance sheet is still very strong.

I would say, valuations are a little bit higher than they've been historically. The IHI index is high. We've seen some M&A like Merit's acquisition of Vascular Insights. That was a fairly high price paid.

But at a high level, the pipeline still looks good. And I mean, the good news for you is you've been observing LeMaitre, and our team do acquisitions for many, many years. And so I would say, same team, same strategy. And one day, I don't know if it would be this year, this week, this month, next year, whenever you'll wake up and there'll be a press release and there'll be another acquisition announced.

Operator

And our next question is also a follow-up question from the line of Mike Petusky with Barrington Research.

Mike Petusky -- Barrington Research -- Analyst

Just a quick question. Longer term, thinking about gross margin, obviously, you guys have had a longer-term history of sort of 70-ish percent gross margin, fall back a little bit this year. I guess just as you think about the business, as you think about recent M&A and even some of the developments you're trying to do overseas, I mean, is 70% longer-term still an achievable number? Or as we think about the out years, should we be thinking about something more sort of similar to what you guys are likely to come in, in '19?

JJ Pellegrino -- Chief Financial Officer

Yes, Mike. Great question. So I would say -- I guess I would start with, if you look backwards over the sweep time annually at gross margins, there were times when you'd say, "Really, guys, can you get back to that 70%, 71%?" And we did by hook or by crook, one way or another. And so I would say, you've had a string of three acquisitions with low gross margins, RestoreFlow and Cardial and Applied.

And we're in the business of fixing those over time, and that's what we do and that's what we have done and that's what we'll continue to do. Unfortunately, it doesn't happen immediately. It does take time. Right now, you see us working on the Australia piece, the Omniflow piece, and that will help.

And the Applied piece we're working on as well. When we start selling Applied devices made here in Burlington, maybe another sort of Q1, Q2 of next year topic, you'll get a benefit there as well. So I think it's a process. When you have an acquisition-based strategy, you're always sort of running in and out of these gross margin pulls and highs and what have you.

But they generally repair over time. So I would say, yes, the long-term answer still feels intact to me if we keep doing the same strategy that we've been doing historically.

Mike Petusky -- Barrington Research -- Analyst

Great. And then just a quick one for George. I didn't catch you if you said when you expect to launch XenoSure Plus?

George LeMaitre -- Chairman and Chief Executive Officer

Right. We're calling both of those H2 launches this year.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

JJ Pellegrino -- Chief Financial Officer

George LeMaitre -- Chairman and Chief Executive Officer

Rick Wise -- Stifel Financial Corp. -- Analyst

Dave Roberts -- President

David Rescott -- Canaccord Genuity -- Analyst

Joe Munda -- First Analysis -- Analyst

Mike Petusky -- Barrington Research -- Analyst

Scott Henry -- ROTH Capital Partners -- Analayst

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