LeMaitre Vascular, Inc.

Welcome to the LeMay-Vascular Third Quarter 2021 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 LeMay-Vascular. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining us on our Q3 2021 Conference Call. With me on today's call are 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, October 28, 2021, 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 EBITDA. 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.lamate.com. I'll now turn the call over to George Lamate.

Thanks, JJ. On today's call, I'll cover three topics. Number one, Q3 sales of $38.4 million were up 5%. Number two, the impact of the Delta variant. And finally, number three, Our progress rebuilding headcount and the sales force. Sales of 38.4 million were up 5% versus Q3 2020. Sales grew 5% in the Americas, 5% in Europe, and 16% in APAC. Autograph, allografts, and valvetomes led sales growth. Autograph sales of 6.3 million were up 15% year-over-year. We also posted record bovine carotid patch sales as Zenasur's CE mark issues resolved in Q3 and our Japanese launch showed momentum. Biologics comprised 49% of our sales in Q3. Due to the Delta variant, many hospitals deferred elective surgery and prioritized COVID treatments. The variant may also have caused patients to defer procedures. From a personnel perspective, 43 employees have been infected since the pandemic began. Approximately 85% of our employees are fully vaccinated, and we await OSHA guidance on the U.S. vaccine mandate. As of today, we have 103 sales reps on payroll, with six more offers signed and 17 more territories being recruited. Soon, we will surpass our high watermark of 112 reps. With 440 employees on our payroll, we are now back to pre-COVID levels. Partly due to the competitive hiring landscape, We recently instituted an across-the-board $20 minimum wage for our North American employees, and we increased our North American entry-level sales rep pay by about $10,000 a year. Hiring picked up in September and October, possibly due to these two changes. Despite the chaotic environment of the last 18 months, our business is emerging stronger and more profitable, and our business plan remains unchanged. We're growing our sales force, maintaining high op margins, generating cash, and investing in acquisitions. I'll now turn the call over to JJ.

Thanks, George. Our Q3 2021 gross margin was 64.8%, an increase of 2.5% over the prior year period. The increase was largely due to Q3 2020 inventory purchase accounting related to the autographed acquisition, as well as ASP increases in the current quarter. These margin gains were partially offset by manufacturing inefficiencies and unfavorable product mix in Q3 2021. We posted operating income of $9.1 million in Q3 2021, a decrease of 9% versus the prior year quarter. Increased operating expenses drove the decline as we continued to normalize our headcount. While year-over-year bottom-line comparisons are challenging due to pandemic-reduced operating expenses in the year-ago quarter, we posted a 24% operating margin this quarter. We will continue to hire personnel and sales reps while keeping a close eye on our operating margin. We ended Q3 2021 with no debt and $67.1 million of cash and investments. This increase was driven by our $58.7 million stock offering, as well as $11.3 million in EBITDA generated in the quarter. We used $23 million of our cash to pay down the remaining autograph-related debt and have significant excess cash available for investment. Turning to guidance, we expect Q4 2021 sales of $39 million to $41 million, which represents an increase of 7% at the midpoint versus Q4 2020, and expect operating income of $8.3 million to $9.7 million, which represents a decrease of 6% at the midpoint. Our Q4 2021 EPS guidance of $0.29 to $0.34 per share represents a decrease of 8% at the midpoint. In closing, I'd like to welcome Anthony Patrone and Zach Weiner from Jefferies. who have recently initiated coverage on LaMate. In addition, I would like to welcome Javier Fonseca from Spartan Capital, who also initiated coverage on LaMate in Q3. With that, I'll turn it back over to the operator for questions.

Javier Fonseca- To ask a question at this time, please press star 1 on your telephone. And to withdraw your question, just press the pound key. Once again, that's star one for questions. Our first question will come from the line of Anthony Patron from Jefferies. You may begin.

Hey, this is Zach. I'm for Anthony. Thanks for taking the question. A few from us. Can you quantify the delta impact and the backlog that you're seeing? How long do you think it'll take for surgeons to work through that backlog?

Yeah. Hey, nice to have you on this call for the first time, Zach. This is George. Welcome to the Jeffries, folks. You know, we're saying it's about a million dollars. The guidance midpoint miss was about a million dollars, and it feels like about a million dollars. It's really hard, as I'm sure you can understand, to be precise on how much it was. As the second part of your question is, when does that unwind? We really don't know. It feels like every time we go through the COVID wave, it kind of unwinds a little quicker and the effect is a little bit less so. But we don't know the future. I think whatever we thought about that question, we tried to bake into our guidance for Q4. And I think you can see in Q4, we're projecting a 7% organic growth rate.

That's helpful. And one of the themes that we've heard so far through earnings is the impact of staffing shortages. Is that anything that you guys have seen on your end?

We may or may not have seen it. I guess at my level, I haven't. To be honest with you, I don't know so much about that. You're talking staffing shortages at hospitals, correct?

At hospitals, yes.

To be quite honest, maybe I should have, but I hadn't distinguished between that function and just the no patients because of COVID function. So I don't know that.

And then one more for us. On the manufacturing inefficiencies that you referenced, they're referenced in your release. Do you envision them or do you expect them to roll off in 4Q or is that a headwind that you think will continue to progress through the fourth quarter?

Yeah, Zach, this is JJ. There's a lot of things going and running through the gross margin line, and I think you see sequentially we've got a little bit of an improvement baked in. Some of this topic has been write-downs of inventory from maybe exiting some product lines and or building up inventory for manufacturing transfers and not getting all the SKUs quite right. Maybe a little bit of CE topics in there as well that we've sort of gone through now but have felt that, you know, as a result come through the P&L. And so I do feel like maybe that improves a little bit in the coming quarters, and that's probably a little bit of a good guy going from Q3 to Q4. There's probably a mixed topic in there to restore flow to the extent that it does really well. That tends to bring down the margin. And then valvulatomes and artograph, to the extent that they do well, tend to bring up the margin. I'm guessing there'll be sort of a favorable product mix shift in Q4, and that's helping the margin as well. So there's a lot of other topics as well. For example, how did we do four, five, six months ago in terms of manufacturing efficiencies in our different departments? Those answers will now come through the P&L in Q4. I think that's going to be a favorable topic for us as well as we roll towards Q4. So a lot of puts and takes, but I think we got to that sort of improvement in the margin through those concepts.

And then if we could sneak one last one in. It looks like OpEx spend is going to step up in 4Q. Can you just talk about that briefly? Sure.

Well, of course, you're seeing us talk a lot about those sales reps, so it probably can start and end there, but that's happening around the company. We're back finally at 440 employees to being at what I'll call pre-COVID levels, and then we're ramping up the sales force. So a lot of it's embedded in that.

Perfect. That's helpful. Thank you.

Our next question comes from Rick Wise from Stiefel. You may begin.

Good afternoon, George. Hello, everybody. George, maybe it seems like one of the most notable things you're talking about tonight is that Salesforce expansion. Now at 103 reps, six more already signed, 17 more to go. You're going to be, sounds like with any luck, 125 or six, what, in the next six months? Just a couple of questions. Maybe you could expand on it. Sorry to interrupt, but I was going to say, it just You know, where are these folks going? You know, are you splitting territories, creating new territories? What geographies? What are you prioritizing? How do we think about then on the other side of all this, the potential theoretical all things equal impact on sales? Start to see it in the second half of next year or? Help us just think through all that. Thank you.

Okay. Okay, great, Rick. Lots of questions, and if I miss any, come back and remind me that I missed them. So I think that the main answer that I'd like to give you is that this is sort of an American thing because we bought Autographed in June of 2020, and we needed more sales reps when we bought them, and then all of this happened with the layoffs and then also the reps quitting as well. So we've had this fortunate re-rack, and then we got to choose, okay, around the world, where would you put your reps if you could start over again? And for better or for worse, we had that option. And so this is a big change to the American sales force. I know you didn't exactly ask that question, but it does say, where do they go? And then how did we do that? So, you know, quick numbers here. We're going from 35, and I think David mentioned we're going to be up 83%. in rep headcount in the Americas when this is all over with at something like, I'm doing quick math here, it's 64 reps. So going from 35 to 64, Rick. And so we elected to go there for very obvious reasons, which is now 67% of our sales are USA and Canada. And it used to be more like 50%. And that was because of the acquisition. Within the Americas, how did we do it? Yes, we're splitting states. We're splitting territories. First, we had to go back and fill in back to the 55 territories that we had always seen as 55 distinct places. But then to put some meat on the bone here, a state like Michigan, we split. We only had Detroit. Now we have Detroit and Grand Rapids. A state like North Carolina, we split. We only had Charlotte. Now we have Charlotte and we have... Raleigh, and then a state like Georgia we split. We used to just have Atlanta. Now we have Atlanta and Macon and so on and so forth. Those are three very obvious splits that you can understand. But so going after the Americas and splitting states and, you know, when you split states and when you place reps, the driver for us is where are their current sales because you want to be able to service those current sales At the very least, your sales rep is a helpful, friendly face at the hospital helping take orders. At the best, they're there pushing product and doing things sort of on the offense. And so we were this nice thing, which is all this autographed revenue. I think we're telling you here we have $26 million of autographed revenue now, annualized. And so you put that $26 million on top of the American business that used to be I can't get the numbers right now, but I'm at about $75 million before this, Rick. So putting them together, you have a chance to redo the whole monopoly board. So it's been a nice – I mean, it's been a rough go for the regional managers with the layoffs and with the hiring, but it's been a nice way to re-rack, and I think we've kind of gotten it right. When you move over to Europe, the change is less extreme. It's going from 33 reps at the bottom – to 44 reps at the top when we're all set. And in Europe, it's been a little bit less about splitting geographies, but it's about going back after those capital cities that we had lost reps in that we always sort of wanted to cover, places like Birmingham, the UK, stuff like Stockholm, stuff like Naples, things like that, these bigger cities that didn't have coverage. So That's a bit of a ramble, Rick. You opened up a big topic. Maybe you come back at me and tell me what are the parts of the question you want me to pursue in addition to that.

Yeah, I think that's incredibly excellent detail. I appreciate it, George. How do we think about the time to meaningful impact on the sales line? I mean, do we sort of let's say pending COVID recovery, is it like fourth quarter, first quarter, second quarter, not the similar run rates, and then we see sharply up into the right in the second half of next year, all things equal, as these folks start to get productive? Is that the right way to think about it?

Rick, I bet you've asked me that question and other analysts on this group six times over the years, and I probably always give you an unsatisfying answer. And my real answer is, I know, and I always do this, and I apologize for the fifth time now, but I'm going to give you an unsatisfying answer of we know you need reps. Things don't happen in this world without sales reps, without franchisees, if you will, in these various cities. You have to have them. When do they come on? I'll give you a real generic answer of quasi six to nine months after you hire the guy or the woman. But sometimes you get one that jumps out, and the Raleigh rep is fantastic. And then sometimes the Raleigh rep doesn't happen forever. So I'm going to say at a median point, six to nine months. But we don't know. I have always found it to be a little slower than people like me and you want it to be. But it then does happen over time.

Gotcha.

Appreciate that.

Back in the first half of this year, first quarter was a little slower. You had some backlog. That helped the second quarter. I keep wondering whether we're seeing each company that's talking about the softer third quarter. Is there a backlog of procedures? Do you have any sense that that could possibly, you know, okay, you lost a million to COVID in this quarter, that you gain that back in the fourth quarter? How are you thinking about that kind of thought?

I think it could add some upsides. I've watched a couple of these press releases from these companies also, and I think it could add a little upside to the various medical device companies. You probably have a bunch of CEOs that are shell-shocked. We came out of our shell on July 29th. We're all excited to give you guys Q3 guidance. We even went and gave you Q4 guidance. We gave you annual guidance. And then, honestly, then it all happened in August, and we were left going, oh, geez, here's this thing again. So maybe... And I would say maybe this is affecting me and Jay, who are principally doing the guidance here. Maybe we're a little bit, you know, burned from that, you know, coming out of our shell in July. And now we're just like, okay, here's your guidance. And we don't know. Is there another? I read in the newspaper the other day there's this Delta. I don't mean to start a room here, sorry. But I did read there's this Delta Plus thing going on elsewhere. And I'm like, oh, gosh, what does that mean? When we worked our guidance, Rick, we did not work in anything about a Delta Plus. We just assumed things were going to kind of be okay over the next three months. But we're also a little bit nervous about what could happen if something bad happens here. I think we all, every single one of us, personally and professionally, we know the second we try to outguess COVID, we're wrong. And so I don't know what to say. At least we only have the guide for one quarter right now.

Yeah, that's very helpful. Thanks again.

Thanks, Rick.

And our next question comes from Matt Nishan from KeyBank. You may begin.

Good afternoon, George, Dave, J.J. This is for Matt. I think a lot of my questions were already asked, so I'll move to the talent sheet. Really, as it continues to strengthen, can you give some comments on how the M&A pipeline is currently looking and where you might be seeing the most potential opportunities?

Yeah. Hi, Brett. It's Dave. Good to hear you. The pipeline looks pretty good right now. We've got a few targets. They tend to be, you know, a little bit larger than some of the ones we did a while back. I don't know, in the, you know, 5 to 10 million range or north of that. And they continue to be sort of in the center of the fairway, either open vascular surgery, disposables and implants. But also, I think, as you know, we're starting to look sort of to the left of the fairway, let's say in cardiac surgery, or to the right in peripheral endovascular. We're always focused on niche, low rivalry markets. So, yeah, we're processing opportunities. I will say, valuations are a little bit high these days. We see that with obviously the IHI is near an all-time high and our neighbor down the street, Boston Scientific, they've been off buying some things at fairly high multiples, et cetera. So that's a consideration and we are valuation sensitive. But yeah, we're out looking and it's not lost on us that we issued equity this summer and We've got a good bank account and no debt and a lot of capacity for a larger deal. So, you know, we're out hunting and we're going to try to find it, but we won't do anything rash.

All right, excellent. And then just one more from me. I think you guys mentioned some price increases this quarter on the call. Can you provide a little bit of color on where you were able to implement those? And then if there's an initial view on how you're looking at the approach to pricing for 2022 versus historical trends. Thank you.

Sure. I don't know what we're talking about about Q4 pricing. We almost always do our price increases on January 1st. And so we do have some initial thoughts on that, but I feel like it's still being worked on internally. None of the hospitals know anything about what the pricing may be. So I think I'm not supposed to be talking exactly about our pricing right now. It's not particularly state secret type stuff in about, I don't know, when the letters go out to the hospital. It feels like about two weeks or so. So maybe after that, we can get you a copy of the pricing changes to the various analysts, if that's important.

No worries, completely understood. Thank you very much for taking the question.

Our next question will come from Javier Fonsecua from Spartan Capital. You may begin.

Hi, good afternoon. This is Javier Fonseca from Spartan Capital. Thanks for taking the question. This question is in regards to Autograph. It's been over a year since the acquisition, and my question to management is, overall, how has Autograph performed relative to your expectations, and could you provide more color on how you expect Autograph to perform in Q4 and through 2022. And also, could you throw some numbers as far as how well Autograph performed relative to Allograft and Valuetones, which were the lead products for quarter three?

Yeah, Javier, first of all, welcome to the LAMATE call. It's great to hear your voice. This is Dave. Autograph is going very well. As you know, when we acquired it, about 16 months ago, the sales at the hospital level were $18.6 million. And now, if you just take Q3 and annualize it, it's running in the 25 to 26 range. It's definitely going ahead of the board model. The Q3 sales were up 15%. Our normal practice on acquisitions is that we get beyond a year. After the acquisition, we start to let that acquired company and product line fold into the overall lemate mass. And so I'm not going to necessarily walk through gross margins and operating contributions, but I will say as autographed anniversary, its gross margin was definitely north of the corporate gross margin, and it had an outsized contribution to operating profit. So I would say at a high level, you know, we are consistent. We are still consistent with that. So I think from the top line perspective, it's going better than planned. And from the bottom line perspective, it's also going much better than planned. Do you want to repeat then the next part of your question?

Of course. So it was mentioned earlier on the call that ArtoGraph together with Allograft and the value zones were the key products driving revenue for quarter three. Could you put some numbers to those three products?

Yeah, so Artographed, as we mentioned, was up 15%. It was the biggest dollar contributor to growth in Q3. Allografts were the second largest dollar contributor. They happen to be up 28% year over year. And then Valvulatomes were the third largest dollar contributor, up 5% year over year.

And could you share, like, the actual dollar figure that each one brought in this quarter?

Do you have that, Andy?

We know it's 0.3. I've got that. I've got that. That's released already. So, for RestoreFlow, it was about $2.9 million in the quarter, and Valvulatome was about $7 million.

All right. Thank you very much. Thanks a lot, Javier.

And our next question comes from Brooks O'Neill from Lake Street Capital. You may begin.

Good afternoon, guys. I guess the only question I can think of that hasn't been asked and answered is supply chain impact on the business. Any disruptions there to speak of?

That's Brooks out there, right? This is George. That's Brooks? Yes. Yes, George. Nice to hear from you, Brooks. Thank you. On the supply chain side, It's actually been okay so far. The back orders that we were focused on to our customer for the first eight months of the year were largely CE driven. We've had a little bit more of back orders. And by the way, the back orders are way down right now based on the CE being solved. We've had some back orders due to some small that we could say might be related to supply chain issues. But remember, we manufacture almost all of our stuff in Burlington, Massachusetts, North Brunswick, New Jersey, and then out in Fox River Grove, Illinois. We only have right now one outside plant that we own in Lyon, France. And so we're not as affected, I think, by people that are bringing their products in and then shipping them to domestic customers. So I would say pretty good so far. Now, on the finance side and the money side, JJ, maybe commentary on if this is affecting anything inside the gross margin.

Yeah, I mean, there's a couple odd things that are going on, Brooks. Like we're running out and buying six or nine months' worth of laptops, and sometimes we're running over to Target to get them, like literally. So there's some odd, quirky areas of our world where we're trying to find stuff and we can't get it. We've largely been able to do that. with respect more towards raw materials and the like. You know, we've got a lot of inventory on hand. That's our MO typically. If you look at our balance sheet, you'll say, why do you have so much inventory? And it's all geared towards this being a no-backorder company. And as it turns out, that helps you in times like this. So when you can't get a certain resin or you're looking for a certain piece of nitinol, and you can't get it, well, you've probably got a decent amount on stock on hand that helps you mitigate all that. So I would say, yes, there are topics. We're running around behind the scenes putting out odd little fires, but nothing that's really raised itself to the level of this. There might be one exception, which is because of the CE mark topics, not necessarily because of these supply chain issues. Xenosure for us is now being sourced for Europe from Australia. And the shipping for that is more expensive. And we've felt that variance come through the P&L and the gross margin. It's one of the things that's pushing the margin down a bit.

All that color is very helpful. I did think of one more thing. Obviously, you mentioned the CE mark coming through and all that. Are there any regulatory issues of note that you see that are impacting or you think might impact in the near term?

We're watching one other sort of subsidiary CE issue around this product called OmniFlow. It might be a passing set of back orders in Q1 up to like $300,000, Brooks. I don't think you'll notice that at your level around this company. And then as we got through the whole CE thing, you know, the official words, everything's perfect, everything's fine. We all know that's just the MDD world. And everyone's shifting now over to this thing called MDR. And I would say if MDD is junior varsity, MDR is varsity. And we're about to have to switch and see if we can play varsity. And that's coming at us. And that's going to be a big story at all medical device companies through the final transition date, I think, is May of 2024. So there's a lot of stuff. There's a lot of things that we need to get right by then. But we think we'll get them right. And we think we'll deliver that to the shareholders. But that'll be a topic.

Okay, thanks a lot for that.

Thanks a lot, Brooks.

And our next question will come from the line of Mike Petoskey from Barrington Research. You may begin. Hey, guys, good evening.

A few questions on the catch, if you guys said Xenashore, sort of the results there. I'd love revenue and either growth or decline on Xenashore. I know it's obviously an important product.

Yeah, Mike, so we have a category called bovine patches. Let me grab that. It's about six, and that includes our VasqSelf product as well as XenoSure, but it's largely Xeno. It's largely the answer you're looking for. 6.4 million in sales, up about 5%.

That was a record bovine carotid patch quarter. I think it's notable. It didn't make it to the top three product lines, but in and of itself, it was a record quarter. has a lot to do with the resolution of the CE issues around Xenosure going from Q2 when we got the CE mark to Q3 when we finally had sellable products. As of a week ago, there are no back orders on Xenosure at the company right now, and I would say that was state and main for the CE fight for nine or 15 months.

So, JJ, I guess this is not necessarily a really short-term question, but more of a 12 to 24-month question at least. In terms of gross margin, you guys at one time – and I know the world has changed, but at one time we're sort of 70% gross margins, fairly consistently 69%, 70%, 71%. And I guess I assumed when Artograph sort of was fully integrated and sort of the accounting around that sort of annualized, that you guys would be pushing a little closer to that historical range. And now it feels like, well, maybe not. I was just wondering if you could broadly, generally speak about expectations over the next however long, two, three, five years. I mean, what you think is realistic there.

Yeah, really nice question, Mike. Thanks. It's something we've been thinking, obviously, more and more about here as we've sort of drifted down from the high 60s, 70%, say, into the mid-60s. And there's a lot of topics sort of contributing to this. I'm going to reel off five or six of them, and then maybe we can talk about, you know, are they here to stay, or where do they go going forward? And that sort of gives us an idea of maybe where we're headed. But certainly higher payroll costs for manufacturing have a downward pressure on the margin. And you heard George say we've got a $20 minimum wage now in the U.S., and that applies pretty directly to the manufacturing folks. And as you give them COLAs every year, obviously that's a topic. We've increased manufacturing spend outside of payroll as well, and general operating expenses like indirect supplies and outside services. And you heard me talk about freight related to Zenasure. We've been building out new clean rooms and improving clean rooms, and that depreciation then sort of comes on to the P&L, and so that puts some pressure on as well. We've done thing number three. We've done, call it, three or four lower margin acquisitions over the last five-ish years, four, three-ish years, restore flow, pro-call applied, and cardi-AL. And you've heard us talk about those. And those are all in a state of, you know, improvement as we go forward. And to the extent that we can make good on that, that will certainly help the margin going forward. But it depresses it in the meantime. Quality has been more of a topic for us as well. And so we've spent more on that to make sure that our quality team has all the resources they need and has all the employees that they need. And that's obviously pushed on it as well. And then the E&O number six, we've talked about that a little bit at the beginning of the call. It feels to me like half of those anyway are transient. The manufacturing ones get worked on over time. And then while that's going on, you've got some good guys helping you as well. And so We talked about improving sales, increasing sales prices at the beginning of the year, and certainly you know we talked about Artograph this year. We put a nice, healthy 20-plus percent price hike on Artograph this year. Hopefully next year we can do something sort of robust in terms of price hikes there and with other product lines like valvulatomes, et cetera. And then as those new clean rooms get built out and get used and become more efficient, then that will help our operating folks get more efficient with sort of the standard cost by product line because they're working in sort of nicer, cleaner, more efficient facilities, if you will. And then as those transfers are completed, like the OmniFlow transfer that was recently sort of started up some production here in the U.S. but really isn't efficient yet, and the same with the Sintel and Python, the applied products, same topic there. We've started production but not really necessarily efficient yet. Those will help going forward as well. Sorry I'm rambling there, Mike, but there's a lot of puts and takes. I feel like there's a good answer out there, but we're in a point right now where all of those five or six things that I talked about are sort of ganging up on me, but we'll get through pieces of them over time as we move forward.

Okay. There's a lot going on.

I know. There's a lot in there. Okay. Fair enough.

And just a quick one for George before I let the next person ask a question. So on the sales reps, obviously, you know, for two, three, four quarters, it felt like not a lot getting done. And then all of a sudden, bang, you know, you're knocked out, you know, feels like more than a dozen and a bunch more to come and all the rest of it. I guess my question is, you know, and you've been, you sort of have been, you know, intimately involved in terms of, sales and, you know, run that part of the business at times and all the rest. I mean, when you look at sort of the types of folks that you've signed on recently and that are, you know, you're in talks with to sign on, I mean, is this sort of typical or is it more new folks than you would typically hire? Are any of these folks people that, you know, you sort of downsized during COVID? I'm just curious as to if there are any differences in terms of the hiring, the types of guys you're hiring, sales folks you're hiring versus historic. Thanks.

Okay. So at a really high level, no, not at all. And then when we bumped up the starting salary by $10,000, there's a hint that maybe we can get after some better folks. And then in very specific answer, I think we rehired – Of all the people that got terminated or quit in the summer of 2020, I feel like about four or five came back. But that's not a lot of people compared to going from 79 to 125. What is that, 45 people or something like that? So it's not too many people. But, yeah, we picked up four or five that had been here before. No, I don't see much of a difference between the ones we're hiring now and the ones we used to hire two years ago or so.

Just a quick one, and just going back to that question that you feel like you always give the same answer that nobody's happy with.

The four or five that you rehired, should their ramp be a lot quicker or not really?

Yes, very clearly. They should just step right back into their job. And those four or five came on two or three months ago or even longer than that ago.

All right, very good. Thank you.

Mike, before you go. Depreciation and amortization, $2.925 million. Stock-based comp, $797,000. And CapEx, $1.815 million.

You just saved yourself a text.

Thank you.

Our next question will come from Scott Henry from Roth Capital. You may begin.

Thank you, and good afternoon. Most of my questions have been asked. I just had one sort of bigger picture question over the first nine months of the year, which are admittedly a challenging time to figure out trends and whatnot. But when we think about it, the first quarter, you were at the upper end of your guidance. The second quarter, you were well above your guidance range. And now the third quarter, you're below it. And even if we add a million back, you're kind of in the middle of it. So I'm just trying to get a sense of why you think it's trending that way, or maybe it's just noise, or perhaps you're waiting for more reps to come in. I just wanted to get your sense of that kind of trend versus expectations and how we should think about it going forward.

Okay. Hey, Scott, it's good to hear your voice. And I would say, Remember when we're back giving Q1 guidance, what is that, February 15th or something like that, February 20th? Remember where everyone is. No one's had a vaccine then. And so I think we were really scared about giving guidance in Q1. And so, okay, we beat it. And then I think we're still – and we didn't do that that well. Remember Q1, there was still a lot of – the winter COVID wave, particularly in the U.S., was pretty strong there. and there was still a lot of muted results there. I don't think we had a particularly great actual sales quarter, forgetting about how we did, yeah, it was 35.9, forgetting about how we did against guidance. It was still, we were still surprised coming from Q4 to Q1 that Q1, particularly January, was that cold and bad, and so I'm getting a little lost here, but I would say you got to always remember where we were in terms of vaccines and guidance for that, and then And then we just blew it out in Q2 versus guidance and versus anything. And I think that was, we think that that was the rush of people back into these hospitals. And then maybe JJ and I got a little bit over our skis and a little bit overconfident on July 29th, thinking that all that goodness that we saw from Q2 was going to get repeated in Q3. And so, yeah, okay, maybe you can even say, well, without Delta, we just matched our guidance So maybe we were more confident about our numbers for Q3, and that had been the first time that we had had any confidence about the numbers, and certainly that did not apply to Q1 and Q2. We were all quite scared about what was coming at us.

And, Scott, I would say, as part author of the guidance, I just feel like there's more volatility these days, right? And so for a period of time, folks didn't even want to give guidance, and we tried to come back early with guidance for you guys because... We figured, you know, even if we're going to be wrong, at least you can hear what we think, and then you can make your own judgments from there. And so it's just a little bit more hurly-burly and a little bit more chunky. I don't know that there's a trend or anything systemic going on. I just feel like we're taking our best shots, and then stuff happens. And the volatility is a lot sort of wider than it used to be. I think it's that simple, really.

Okay, thank you for that color and for reviewing the trajectory through that. It is helpful. Thank you for taking the question. Thanks a lot, Scott.

Thank you. We have a follow-up from the line of Anthony Patron from Jefferies. Your line is open.

Thanks, and thanks for taking the follow-up here. I just want to jump back in on ArtGraph, two quick follow-ups. The first would be just the recap on how the price increased you know, was sort of, you know, viewed in the marketplace, and was there any drop-off on accounts? I suspect there was not. And then secondly, if just as we look out for art graph and you think of share between a biologic graph versus synthetic graphs within the hemodialysis sort of landscape, where do you think biologic graphs could go as a percent of total versus synthetic grafts over time. Thanks.

Yeah, this is Dave Roberts. So ArtiGraft, obviously we put a fairly sizable pricing sheet with JJ Manson on January 1st of 2021. When we examine the market and our due diligence, and we've been watching this product for nearly 20 years in our space, We felt like there was a pricing opportunity. Probably the number one competitor is a synthetic piece of PTFE with Hepburn bonded to it, which was selling for a much higher price and really didn't have the features and benefits and patency of Artographed. And so that gave us the confidence to put the price increase in January 1. I would say maybe in January we felt a little bit of a slowdown as hospitals were pushing the price increase through their committees, et cetera. But by February and March, I feel like we didn't lose any customers and we effectively captured the entire price increase. And when we did increase the price, we didn't really increase it as much as we could have. We do think there's a little bit more room for a price increase still. We don't want to be overly aggressive about it, but we do think there could be room in January again, so we're examining that right now. In terms of the algorithm of grafts in AV fistulas, of course, the number one issue with grafts which get accessed and cannulated for dialysis is infection, those needles going in and out of the grafts three times a week. And so, of course, the huge advantage of Artagraft as a biologic, as a xenograft, is that xenografts and biologics are better at preventing and fighting infection than synthetic grafts. And so we do think over time we've seen a migration in access to the biologic grafts. Just like in biologic patches, we were observing that as and after we acquired Xenosure many, many years ago. So we do think that in the long term, biologics probably will win and continue to win against PTFE. However, you know, some surgeons prefer PTFE, and so that will be around for a long time. But we believe in the long haul the biologic graphs will win out, And within that category, there are xenografts and allografts. And the advantage of a xenograft like Artagraft is it's generally about half the price of an allograft, which, of course, comes from a human cadaver. So we think there's probably a compelling proposition to the physician and the hospital when you wrap all of that up.

Very helpful. Thank you.

Thank you. And with that, I'm not showing any further questions in the queue. Ladies and gentlemen, this concludes today's conference call. I would like to thank you for your participation and you may now disconnect. Everyone have a great day.