Q4 2023 LeMaitre Vascular Inc Earnings Call
Participants
JJ Pellegrino; CFO; LeMaitre Vascular, Inc.
George LeMaitre; CEO and Chairman; LeMaitre Vascular, Inc.
Dave Roberts; President; LeMaitre Vascular, Inc.
Suraj Kalia; Analyst; Oppenheimer & Co., Inc.
Dan Stauder; Analyst; JMP Securities
Rick Wise; Analyst; Stifel Nicolaus and Company, Inc.
Michael Petusky; Analyst; Barrington Research Associates
James Sidoti; Analyst; Sidoti & Co.
Brooks O'Neil; Analyst; Lake Street Capital Markets
Brett Fishbin; Analyst; KeyBanc Capital Markets, Inc.
Presentation
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 call over to Mr. Joseph Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go.
JJ 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 US Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties wherever possible, we will tried 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 27, 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 Romaine.
George LeMaitre
Thanks, JJ. Q4 was an excellent quarter with 19% sales growth of 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, Amea was up 21% in Q4, the Americas, 20% and A-Pac 11% by product. Bovine patches were up 18%, allograft 52%, David Jones 12%, and carotid shunt, 16%. Distribution of porcine patch also added $1.5 million of sales in the quarter to 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 to 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 to in Europe.
We also remain in growth mode. We plan to open a Paris office in Q2, which should improve our connections with France, 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 A-Pac offices in early February. Things were great over there. Our Tokyo branch is celebrating 20 years, and we just opened offices in Seoul and Bangkok. In our first direct here in Korea 2023, sales reached $1.7 million and our profits were $250,000. Both figures exceeded expectations in Thailand, our first full year of direct sales should be about $1.6 million in 2020 for 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 Asia-Pac 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 MDRCE. mark. So this is a considerable undertaking. We currently own three of these new MDR CE marks also in Europe. Our Allegra filings have been made in Ireland and Germany and approval in either of those countries will be our first approval 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 provide safety and strategic optionality.
With that, I'll turn it over to JJ.
Thanks, George.
JJ Pellegrino
2023 was an excellent year. We posted $193 million in sales, an increase of 20% on a reported basis and 17% organically. Our operating income increased 37% on a reported basis of 2022. As our post-COVID rehiring year with 141 ends in 2023 was the hiring constraint year with only 23 units. 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 balances 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 benefits of a larger and more efficient manufacturing team have come onto 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 one-time reversals in Q4 2020 to 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, streamline financial 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.
Question and Answer Session
Operator
(Operator Instructions) Suraj Kalia, Oppenheimer.
Suraj Kalia
Hello, George, Jj, can you hear me? All right? Yes. Gentlemen, apologies for the background noise. So George, let me start out in your prepared remarks. You talked about care, Georgia, maybe for Jay, just comments, but when you split the territory let's say from $2 million to, let's say, $1 billion. Can you walk us through the thought process in terms of sales rep commissions, our retention going to? How do you how does the process go about?
George LeMaitre
Okay, sure. And of course, Suraj, this is completely normal medical device activity, right? So this is how exactly how sales forces grow. They can remember the thing gets big. You've got to cut it in half and it becomes too big for them to handle it. If a rep is running around Ohio, trying to cover $2 million worth of medical device sales. Of course, some of the smaller hospitals start to feel ignored. And so very high level, you would clearly split it and put one guy and ticket bigger city, Cleveland and one guy in Columbus, and they would now split Ohio, if you will. So I think that's sort of the amoeba aspect that is perfectly normal arm and then what else would you like to know about what happens there?
Suraj Kalia
And I was just curious in terms of I understand it's a normal process in the industry for just more crews. Specifically curious in terms usually you encounter any sales force retention issues, hence by definition, any any churn concerns about churn?
JJ Pellegrino
Sure. No, no, I don't have particular concern. I do agree with you anytime you touch anything near the sales force, you sort of get near a higher turnover button, but this is perfectly normal and you have to do it or else, you won't get good service to those surgeons in the hospital. So on And on that score, Suraj, maybe just I know you didn't exactly ask this question, but we're into this thing I read some article recently, it's called the Big stay. I don't know if anyone's heard that. And so as opposed to the great resignation, we're now into the big stay and we made experienced dramatically reduced turnover in last year. I think our number was like 7.5% down from somewhere. I'm going to get it wrong is around 14 or 15% the year before were always three or four points better than our Massachusetts manufacturing colleagues companies or peer companies, and but a major decrease in turnover and notably with the sales force.
One thing to further mention. So I specifically remember last year we had this massive surge in procedures and we grew organically 17%. Usually, let me before that had grown about 9% organically and on as a result, the W. twos and the sales force, how much we paid the sales reps was dramatically higher in 2023. And as a result, they stuck around to get those paychecks. And you would have seen them start leaving January 15th, January 25th when they were getting their final commissions and bonuses. And we haven't seen that at all. I mean, there's been one or two here and there, but we have not seen that at all. And so we're very, very happy time, in my opinion, in the sales force, a great result, commission checks are huge, et cetera, et cetera.
George LeMaitre
And Suraj, part of your question was are the commissions change when you split the territories. And as you recall, we compensate the reps based on their performance versus a gross profit dollars quota. And so when the when the territory split, we obviously commensurately split the gross profit dollar quarters or change down based on whatever the new answer is and then their compensation, their tier that the that it gets paid doesn't change. But what it's linked to dose. So it's kind of quote-unquote, fair when you make the split, there isn't a big topic necessarily around that, that they're obviously also going to make half of what they were making before on that.
Suraj Kalia
Fair enough, gentlemen, I'll quickly ask my two follow-ups to avoid the background noise. So George, I'd love to get your updated thoughts on your M&A strategy looking forward?
And the second question I have is I love to get your perspective. Our Belleville terms grew 12% year over year. Obviously, that was the best CLI study and that has really seen pull through for you guys in terms of growth, are you seeing any counterbalancing going on with the Basel two study again, which gives somewhat opposite results. Just curious if any on your thoughts on that front.
Thank you for taking my questions again through. I'm going to pass or M&A call over to Dave. A question rather over to Dave, and then I'll and I'll come back to the Beltone questions.
Dave Roberts
Hi, Suraj. Great to hear from you and idea with respect to the acquisition strategy, I'd say on the criteria are consistent from previous calls. Of course, we're focused on open vascular targets with more than $5 million of revenue on there, about 25 of them all together on beyond that, where we are and have been hunting in adjacent markets, maybe first, cardiac surgery and endovascular, if anything, I think we learned from the Artegraft acquisition a few years ago that hunting larger is probably a good thing. It will move the needle more.
So we've been looking at a little bit larger targets and also we have more cash of course to do an acquisition with the $105 million of cash and leaving $20 million on the balance sheet, plus maybe three times our $46 million LTM EBITDA we could fund $225 million of purchase price, excluding an equity raise or the target of EBITDA unlevered up. So I think it's we're just consistently looking out in the same hunting grounds where we have been and hopefully someday we'll be able to report back that we've done a transaction.
George LeMaitre
And Suraj, as your best CLI question. Yes, in the first half of the year. I feel like we got excited about the best CLI study as it relates to valvular times. And then, of course, Basel comes out the European study Basel two comes out and it's sort of the antidote to best CLI best deal. I've basically says, Do leg bypasses first open surgery. And then Basel two comes and says no, no, you can do stents and angioplasty are going to get great results that way, too. So in some ways, you do have surgeons that want to do open surgery saying I listen the best CLI and then you have surgeons and anesthesiologists who want to use and angioplasty and stent to come out and say, I heard about Basel two.
So there was a little bit of retrenchment, I would say for the exact fact here, yes, we grew valve tons 12% in dollars that's or 11% organic and units were up 5% last year. In fact, in general across our portfolio units were up 5%. So our 1st year with Basel two, I would say, you know, value terms didn't go crazy good, although that 5% was better than the slightly decreased units of 21 and 22. So 2021 and 22 decrease was around three or 4% in units and then it bounced up again post Basil, I guess I'd say make it what you will. It seems like it was a good thing, but it then got counteracted by Basel two.
Suraj Kalia
Thank you.
George LeMaitre
Thanks a lot, Suraj.
Operator
(Operator Instructions) Dan Stauder, JMP Securities.
Dan Stauder
Yes, Dan, great people. So first off, just wanted to ask on gross margins, very healthy gotten great to see. And you talked about some of the primary drivers there. But as you look out to 2024, could you give us an idea of how much of the contribution is coming from the manufacturing efficiencies versus some of the ASP gains? And then how should we think about cadence for gross margin 2024? Thanks.
George LeMaitre
Yes. So those are the two largest drivers. I would say that those manufacturing efficiencies I have been talking about for two or three quarters and at a time it is going to be an asset that could be. And the ASP.'s, you've heard us talk about those and it was really healthy ASP. or this year. And so I would say those two are battling for sure, the number one, physician, maybe there a third, each of the story or something like that in terms of in terms of the improvement and it depends what your comparison period is material year over year or sequential or whatever.
But at a high level, I would say general deal efficiencies and ASP.s battling through some other lesser lights in there. That said, Tom, maybe I didn't put in the script on that matter as well, like our quality costs are a big part of the story and they had been sort of growing at a pace that was accelerated from really, really wanted to be. And so we started monitoring them putting a little bit of a lid on that. And I think that's helped a lot as well.
And so to the extent that we can keep those quality costs in check that will help the market going forward as well and then restore flows had some really nice operational results on the sort of processing side as it relates to. Hopefully we can keep that going.
Dan Stauder
Great, thanks. And then just one follow-up related to M&A and cash generation has been very healthy this year and in 2022 and 23, just with the announcement of the share repurchase, $50 million, how should we think about the pecking order for use of cash? And does that change how you look at M&A this year? Or do you feel that you would be able to achieve both? And just kind of weighing your options? Any thoughts there would be great. Thank you.
Dave Roberts
Yes, hey, Dan, it's Dave Roberts. I would say I think the doubling of the authorization on the share repurchase is just good. Corporate oatmeal. I mean, obviously, our cash balance is growing, as you mentioned, pretty healthily. So we thought increasing it from 25 to 50 is probably a good idea. But really at the end of the day, we're feeding on, we're taking cash and we're feeding the dividend. Obviously, you heard we just increased the dividend for Q1 from 14 to $0.16. So that's I think our 13th annual increase in a row.
So that's sort of the main stalemate and then excess cash on beyond that is set aside for acquisitions. We've been hunting for a while. On some point, we'll identify one. And if it's larger, we'll use more of the cash and beyond that on their other consumers of cash in terms of running the business, like some capital expenditures or when we buy out distributors as we did a couple of years ago in Korea and last year in Thailand, and those are users as well.
Dan Stauder
Great. Thank you very much.
George LeMaitre
Thanks, Dan.
Operator
Rick Wise, Stifel Nicolaus and Company, Inc.
Rick Wise
Hey, this is John on for Rick. And to start off, I wanted to get a little bit better understanding guidance this year and maybe how prices contributing to the growth outlook in 2024 versus how it contributed in 2023?
JJ Pellegrino
Yes. So and none in 2023. I mean, you've you've heard us talk about it quarterly. And I think George mentioned that for the full year 2023, it's about 1112% pricing answer. And I would say going forward in 2024, you know, maybe our default answer is sort of around five or 6%. Notably, that was kind of the default answer this past year. In 2023, we instituted something a little bit new called pricing floors. And I think we got more traction out of those than we thought we might get. And so maybe we'll do a little bit more of that this year, we'll see where that goes. But I would say if you want to sort of base case answer, it's probably in that mid mid high single digits range.
Rick Wise
Thanks that's helpful. And just looking ahead, just focusing on the gross margin line, you're guiding to 68% for 24. That's pretty strong growth. You're talking a lot about manufacturing increases, manufacturing efficiencies and price increases definitely looked further ahead. I mean, how should we be thinking about the gross margin structure for the business going forward with higher with higher ASPs more efficient manufacturing, could we be thinking about potentially returning to sort of the pre-COVID 70% gross margins here?
JJ Pellegrino
Yes. I mean, obviously, we're not we're not looking out that far with you guys right now on that score, I would say for right now, we're happy with that 68% sort of the next step in the evolution here.
We'll see where it goes from there.
Rick Wise
If you keep getting those, you know, I don't know, call it 10% price hikes. Is that a 5% price hike that does bleed through and that is an incremental benefit that you will get. And if you can keep your direct labor folks efficient on as they are now or maybe a little bit more going forward that obviously is going to help, but there's so much other stuff that goes on a gross margin point on that.
JJ Pellegrino
That's those aren't the only two answers even if they're the biggest cancers. Inventory is a topic for us whenever we do consolidations or or transfers or manufacturing or other issues with excess and obsolete, something gets here for a quarter or two of those issues come and go that quality topic, they expect quality expenses that I talked about.
That's a topic transitions of manufacturing product lines like AMI flow and cardio. So which we've done recently, those can come in and out of it. We've built a couple of clean rooms over the last year or two, and those pieces come through in terms of depreciation and get us there and push the margin down a little bit. So I just I don't want to make it a clear line story for you. There's a lot going on in gross margin. We'll see what happens after this year.
Dave Roberts
But Jay, I'd like to leave John with a little bit. I hope going forward. I think there are several shots on goal in that line item. We're just getting used to what it's like to be 68 again, but we need a lot of studying, et cetera. But I think there's some shots on goal.
Rick Wise
John, appreciate the color, guys. Thanks.
Operator
Michael Petusky, Barrington Research.
Michael Petusky
Thank you. Good evening, CJJ., you get the 300 basis point improvement and people are asking for more than never satisfied. I know that it will last longer than I might have been really good. It wasn't from you had about an hour after that press release came out, I guess kind of hide.So I didn't catch us if you guys mentioned it. Did you guys mention what percentage of the Q4 sales growth was related to price and volume? How that's split out for Q4 specifically?
JJ Pellegrino
We did not. It was 13 price one unit and for the year, again, to repeat, it was 12% price, five units and up.
Michael Petusky
Is it possible? I know you guys don't always do this, but you've occasionally done this? Is it possible to get the Artegraft revenue for the quarter and for the year?
JJ Pellegrino
Yes, of course, some floods, floods tried to find it quickly for you here quarter I have I have Mike, it's Dave.
Dave Roberts
It's a little under $8 million, $7.9 million, up 10% for the quarter, Q4. And what we're seeing for the year on I am going to be around $34 million. Something like that will go into our team and we can get to that while we're on the call.
Michael Petusky
So I will have another question. So obviously, it's been a while and the Autograph steel has been successful. And I know Dave diligently, JJ, in terms of the your comfort level with leverage, you know, obviously, you guys said you could do a $225 million deal potentially. Where do you think you sort of top out in terms of your comfort level? Our leverage ratio growth opportunity from.
JJ Pellegrino
Yes. So you're maybe three, 3.5 times EBITDA, maybe somewhere in that range before you talk about the EBITDA of the acquired company, and that's EBITDA sort of in the 45, 46 ish range these days, I'll maybe answer it. Maybe it's in that sort of one 31, 41, 50, somewhere in there, Mike I would say.
Michael Petusky
Very good. And then just one more quick question. Is this pricing floor initiative? It does seem like it's really, really basis that I just curious, I suspect maybe you went after some of the easiest low-hanging fruit on that and maybe it's tougher going forward? Or is or is that not the case internally in terms of pricing floors and what you can do there.
Dave Roberts
Okay. Yes, that's a good question. And at a high level, what the management team has been trying to do over the last three years, sort of take the pricing lever away from individual reps and bring it back in house because, you know, as the previous questioner asked, the reps don't last forever here and sometimes they cut a deal at a low price, then we're left with it for X years.
So we're kind of pulling back and this this all started, Mike about two years ago in the US with one or two products, and now it's become a full-blown effort. And for the first time ever this year, there's a there's a full set of pricing floors in Europe we've had some pricing floors in Europe before, but for the first time ever, it's drilled into what we call the Playing Card, which is this little goal set that we pass out to every single employee. So we've got a European plank set that has pricing floors. And then also again, for the first time ever being drilled into the Japanese planks and so in Japan, specifically, not all of Asia, just Japan, which is half of our Asia right now.
So we have it on the so I think you've still got some room to go here. I think you'll you'll start learning in nine weeks when we come back to you guys with Q. one as to, hey, what happened in Q. one relating to pricing on, but it's become a full-blown effort and it started with us dribs and drabs 2.5 years ago and now it's real and it's worldwide in my comments again, on your side to just follow up on that.
Michael Petusky
I know you ahead on your Artegraft question. We have a category bovine grafts against nearly all the autograft and so it was $30 million, call it $33 million in the year and it was up 15% on a reported basis. And actually, can I just confirm, George, you were talking fast when you're talking about some of the our US development Artegraft Canada and Australia filings and 24. Is that correct?
JJ Pellegrino
That is correct. And then also we've thrown in roughly five more Asia Pac countries, we'll file over there as well.
Michael Petusky
And then not sure in XenoSure still a 2025.
JJ Pellegrino
Yes, I mean, it just keeps pushing away. But yes, XenoSure, cardiac and peripheral in China 2025.
Michael Petusky
Great. Well, listen, congratulations and particularly congratulations, particularly JJ on that gross margin. I know you've been after that for a while, and congrats. Thanks.
JJ Pellegrino
It's a thankless job, Mike. That's okay.
Operator
James Sidoti, Sidoti & Co.
James Sidoti
Hi, good afternoon and thanks for taking the questions. Can you talk a little bit more about a little bit more about the sales force expansion? You said, I think you're going to add about 14 folks in 2024. So can you break that out internationally and domestically your it feels Jim, this is George.
JJ Pellegrino
It feels largely like it's a domestic thing. We've got a bunch lined up to go in the U.S., less so in Canada, but call it a North American thing. And then a couple over in Asia-Pac where we have some of these newer subsidiaries where why would you start in Korea, if you didn't give the guy three or four sales reps, right, it was not worth going over there. I should do that. So mostly North America a little bit Asia, not much in Europe, oddly this year.
James Sidoti
Okay. And you mentioned you are you opened offices in Korea and Thailand? What we are doing this year with those folks just working them in their home? Or what's what changed? Okay. So and 2023 was our 1st year of full year of operations in Korea?
JJ Pellegrino
No, we were going through a distributor and we sold items to that distributor and then she'll pass them along to Korean hospitals for actually from before I started Jim, 40 years later, she was still doing that. And we finally bought out her distributorship. We set up an office, hire a General Manager and then hired three sales reps for Korea. And now they're in our Seoul office and they've been operating for one year, same drill in Thailand.
James Sidoti
Okay. All right. And for 2024, you guided for about 9% organic growth. Is it is it fair to say that a significant portion of that is from pricing.
JJ Pellegrino
I would say we tried not to guide on pricing because it's so variable what's happening. But if you look back to the 12 and five this past year and 2023, 12% price, 5% units. Maybe that relationship holds until we all know differently.
James Sidoti
Okay. And then the last one. Can you J.J., can you tell me what you're assuming the tax rate will be for 2024 as for Q1 2024?
JJ Pellegrino
I see it but And then Tim, a 24.3 and then for the full year 24.1, well, can you be a little more specific than you had expected, but okay, you took 24 would have been good.
James Sidoti
All right. Thanks.
JJ Pellegrino
Thanks, Jim.
Operator
Brooks O'Neil, Lake Street Capital Markets.
Brooks O'Neil
Yes, hey, good afternoon, guys. This is Aaron on the line for Brooks on. So you know, most of my questions have been addressed, but on. So I guess for 2024, you know, we're second solid pricing in and mainly solid volume. Tight expense control remain key priorities for you guys. Can you just give us a little more color and an updated sense for and the general environment in these areas.
JJ Pellegrino
Sure. And one of the folks on this call from KeyBank, they just pop up, Brett, we see him up on the screen, Keybanc just published a really nice report on about credit card swipes in USA hospitals. And also we're studying staffing in USA hospitals. And I would say it feels good from all the stuff we read we were not revealing what's going on in the business for the first eight weeks of the year, but it feels good mall stuff. We read that this quote return to hospital of staff and patients seems to be stretching out into 2024. And we were happy to see it take place in 2023. And we I feel like it really helped the business in 2023. So maybe more of the same procedure wise.
Brooks O'Neil
Great. Yes, that's helpful. And then last one for me. So you hired aggressively in sales and manufacturing last year, and this has been on brought up, but you plan to add 14 ish, Rob, so if you could just outline some of the priorities for 2024 and how you're thinking about those things priorities in terms of hiring is that we're going to try and track down opened up.
JJ Pellegrino
Okay, great. So and just to sort of get in there on the on the beginning of that question, the big hiring spurt took place at this business in 2022. We put on 141 new headcount. And then in 2023, we really slowed down a lot. We only put in 23 new headcount. So we really put on the brakes last year, we wanted to catch up to all that post-COVID hiring. We think we did that and now we're back at it a little bit. And the other people we plan to hire this year feels like maybe we talk about 15 reps. You add five sales managers. There's 20 in the sales department maybe and maybe there's 2025 elsewhere. And maybe the biggest bucket of that is operations and manufacturing. So something like 40 ish, 50 ish. We're still working that out, but we know we're pretty tight. Vista's weren't a pay as you go plan here, our number one goal here is op income and then stuff come fills in after that.
Brooks O'Neil
Great. Very helpful. Thanks for that clarification, and congrats on the quarter and your guys.
JJ Pellegrino
Thanks a lot.
Operator
Brett Fishbin, KeyBanc Capital Markets.
Brett Fishbin
Yes, hi. This is actually Les on for Brian, thanks for taking the questions. And just to start off with the 9% growth for the year, how should we think about that amongst the different regions and where do you expect to drive them prem?
JJ Pellegrino
Well, it's a good question. I would say generically, we always think Asia-Pac is going to grow faster. Europe is going to grow second fastest in North America is going to be a little bit slower. So that's generically. We don't really make guidance based on which region is going to happen. We'll be thrilled when we show up with that 9% organic growth, regardless of how it happens on 10% reported for the year as well. It's also what we guided on. Does that get at some of your question, Liz?
Brett Fishbin
Yes, that was really helpful. And then if I could ask on op leverage side, how are you thinking of balancing your R&D investments versus SG&A and how should we think about this going forward, right?
JJ Pellegrino
So sort of as all balancing down at some kind of margin numbers or something like that? I mean, R&D, we've been kind of building a little bit on a percent spent. I think we're up at 9% of sales on that. Maybe historically, we were sort of in the eights and now we're in the ninth. So maybe we've been cranking up a little bit on the R&D side. And specifically for us, R&D really means expanded regulatory and clinical efforts, not so much old fashioned R&D with new products. We tend to tried to bring the products in through acquisitions that may cover your R & D thing is a small part of your question, but the bigger part of the question is I think our guidance is implying 21% op margin for the year. Am I getting that right?
Yes, 21% op margin for the year. And I think in 23, that same figure was 19%. And the year before that it was 17%. So I think we're seeing a little bit of operational leverage here, of course, we were helped out in a big way by that gross margin number. If that sticks around should make things pretty easy, not easy, but more doable around here. So a little bit of leverage coming from gross margin and still growing the sales force.
Brett Fishbin
Okay, great. Thanks for taking the question.
JJ Pellegrino
Thanks a lot, Liz.
Operator
Ladies and gentlemen, that concludes today's conference. I would like to thank you for your participation, and you may now disconnect and have a great day.
