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spk00: Welcome to the LaMate Vascular Q4 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. J.J. Pellegrino, Chief Financial Officer of LaMate Vascular. Please go ahead, sir.
spk07: Thank you, Vanessa. Good afternoon, and thank you for joining us on our Q4 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 risk and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast, and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, February 24, 2022, 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 and organic sales growth. 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.lomate.com. I'll now turn the call over to George Lomate.
spk02: Thanks, JJ. On today's call, I'll cover three topics, Q4 sales, the impact of Omnicron, and finally, our continued headcount growth, including sales reps and production personnel. Sales were up 5% to $39.5 million in Q4. Sales grew 8% in the Americas and 1% in Europe, while APAC was down 3%. Artographed and Xenosure led Q4 sales growth. Artographed sales were up 16% year-over-year to $6.4 million, and we posted record ZenaShare sales. We believe Omicron and associated staffing shortages decreased sales in Q4 as hospitals deferred elective surgeries. At Lemaitre, about 10% of our 450 employees contracted the virus in the last three months. As a result, we implemented additional safety measures, including work from home, free rapid tests, free N95 masks, and $100 booster bonuses. Also for a second straight year, our January sales kickoff meetings were virtual. About 95% of our employees are fully vaccinated and will soon offer on-campus booster clinics. We're currently at a high watermark of 498 employees with most of the increases coming in sales and production. We have 107 reps on payroll today and will likely be adding another 10 in H1. In manufacturing, we continue to hire as we recommit to no back orders and combat any potential supply chain issues. Today's 177 direct labor employees is also a high watermark. Internationally, we continue to grow our sales footprint and our facilities. With the recent hiring of a Korean country manager, we expect to open a Seoul office in Q2. This will enable us to sell Zenasher in Korea in 2022 and most other products to follow in 2023. Korea will join Japan, China, Australia, New Zealand, Singapore, and Malaysia as our seventh direct market in APAC. Korea was our second largest distribution market in 2021. In 2021, we also expanded our warehouse and office facilities in Japan, Italy, and England to ensure adequate product supply and timely delivery. Notably, we installed a cryo-freezer in our Hereford, England facility and in Q1 received UK tissue bank approval for our allografts. The UK will be our third country with an allograft approval, joining the US and Canada. Deliveries to UK hospitals should begin soon. Despite increased headcount and Omicron challenges, we posted a 21% Q4 op margin and end of the year with $70 million of cash. We also increased our dividend for the 11th straight year, underscoring Lemaitre's focus on profitability and cash generation. As you've seen, we like to use this cash for acquisitions, dividends, and distributor buyouts. I'll now turn the call over to JJ.
spk07: Thanks, George. Before I discuss the quarter, I'll say a few words about last year. Sales in 2021 were $154.4 million, up 19% versus 2020. The Americas grew 26%, Europe 8%, and APAC 15%. Increases were driven by a full year of autographed revenues, as well as increased valvulatum and ZenaShare sales. On the bottom line, operating income and net income both grew by 27% in 2021, as sales growth outpaced operating expense growth. We also completed a number of important initiatives in 2021, including restoration of our CE marks, progress on our various production transfers, hiring 23 sales reps, product offering simplifications, increasing the size of our manufacturing team, and the completion of a secondary stock offering. With regard to our Q4 2021 results, Our gross margin in the period was 65.7%, a 70 basis point increase over Q4 2020. The increase was driven by average selling price increases and favorable sales mix, as well as autographed purchase accounting charges in Q4 2020. Q4 operating income was $8.3 million, a decrease of 13% versus Q4 2020. The decrease was driven by increased operating expenses as we continue to reinvest in sales reps and increase our regulatory spend, particularly as Europe transitions to the new MDR CE mark. In order to reduce our manufacturing labor and overhead rates and therefore improve gross margin, we have recently hired about 45 direct labor employees. As we evaluate our gross margin on an annual basis, It is important to note that in 2021, we incurred significant costs rationalizing our product portfolio. In fact, we reduced our SKUs by 18% in the year and began shutting down four small and underperforming product lines. These product line terminations contributed to the outsized inventory write-offs of $3.8 million in 2021. Additionally, manufacturing over time and increased Xenosure freight costs reduced the gross margin in 2021, and these two issues should abate in the coming quarters. We ended Q4 2021 with no debt and $70 million of cash and investments. The $2.9 million cash increase versus Q3 2021 was driven by $10.6 million in Q4 EBITDA, and $1.7 million from stock option exercises. After completing the payoff of both our term loan and revolver last summer, on November 30th, we canceled our lending agreements. This eliminated annual charges of approximately $215,000, but it resulted in a one-time below-the-line non-cash charge of $495,000 in Q4 2021. We'd like to thank our partners at KeyBank, whose $65 million loan to us during the initial COVID crisis facilitated the autographed acquisition. Turning to guidance, we expect Q1 2022 sales of $37.7 million to $39.7 million, which represents an increase of 8% at the midpoint versus Q1 2021 and 10% organically. We also expect operating income of $7.1 million to $8.4 million, which represents a decrease of 3% at the midpoint. Our Q1 2022 EPS guidance of 26 cents a share to 30 cents per share implies a midpoint of 28 cents per share. EPS in the year earlier quarter was also 28 cents per share. For the full year 2022, we expect sales of $162 million to $166 million, which represents an increase of 6% at the midpoint versus 2021 and 8% organically. We also expect operating income of $38.5 million to $41.1 million, which represents an increase of 9% at the midpoint. Our 2022 EPS guidance of $1.35 to $1.45 per share represents an increase of 12% at the midpoint. With that, I'll turn it back over to Vanessa for questions.
spk00: Thank you. We will now begin our question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. And if you're using the speakerphone, please pick up the handset first before pressing the numbers. Once again, with your question, please enter the queue by pressing star, then 1. Please stand by while we allow parties to queue up.
spk02: Vanessa, it's George. Do you think we should let someone ask a question out there? It seems like there's a queue and is it time for a question? Is that what we're trying to do here?
spk00: It looks like we have our first question from Brooks O'Neill with Lake Street.
spk04: Good afternoon, guys. I have a couple questions and I appreciate the opportunity to ask them. So first, you probably read in some of my notes that I refer to something I call the Lamate playbook. Given all the uncertainties and challenges in the world, would you anticipate any fundamental changes to your, uh, execution against the Lamate playbook going forward?
spk02: Brooks, uh, first of all, nice to talk to you again. It's George. Um, Short answer to your question, no, I don't think we're going to change our playbook.
spk04: Great. Secondly, I'm curious. I think David told me that you guys took another price increase on Autograph earlier or either late in 2021 or earlier this year. Could you comment on the reaction in the marketplace to that price increase?
spk02: Sure. It was an 11% price increase in January. And the reaction seems to have been just fine. It was a smaller increase than the year before, Brooks, when it was 25%. Yep.
spk04: Okay. And then one last question, and I appreciate the opportunity again. I noticed I think you guys announced a $20 million share repurchase program after the close. And I'm curious, as you and David and the board look out at the acquisition environment versus the opportunity to buy your stock, would you say you have a particular preference for one or the other, or will you just continue to be fairly opportunistic to try to drive the highest ROIC you can generate?
spk05: Brooks, it's Dave. Good question. We're always looking to drive ROIC. I would say... I mean, as you know, I spearhead acquisitions, so we're always on the hunt looking for good acquisitions, and when we find them at the right price, we will execute. But in the meantime, it's basically good housekeeping, good governance to have a share repurchase program authorized, and as the company gets bigger, we found it appropriate to slightly increase the size of the authorization.
spk04: Yep. Makes sense. Thanks a lot. Again, keep up all the great work. Thanks, Brooks.
spk00: Thank you. We have our next question from Scott Henry with Roth Capital.
spk03: Thank you, and good afternoon. Just a couple questions. First, could you break out biologics versus non-biologics in the quarter?
spk05: Sure. Biologics, Scott, it's Dave here, were 48% of sales, and they were up 10%.
spk03: Great. And then, could you comment on valvulatomes, how they were in the quarter?
spk02: Sure, Scott. This is George. The valvulatomes had a good quarter. We had three big growers in the quarter, Artograph, Valvulatomes, and Zeno. I'm scratching for what the percentage growth was, but I know it was one of the top three growers. We'll get back to you during the call if we find that, okay?
spk03: Okay, I appreciate that. Final question, spending levels were a little higher in the quarter, I think, than trend. Should we think about that as a continuing trend line, or do you think spending might kind of pull off a little bit?
spk07: Thanks, Scott. This is JJ. Good question. Yeah, a little higher than trend. You know we're hiring sales reps. and we're hiring folks in other areas of the business as well, sort of that bounce back and rebuild from the COVID topics of the last year and a half or so. And we'll continue to do that, but there's a seasonal piece of sort of Q4 and Q1 as well. So you might expect to see sort of a higher levels around Q4 and Q1, and then sort of it tapers off as the quarters move on. So... I would say, yeah, that's the trend that we've sort of outlined for you guys. But, you know, cost containment has been a hallmark of the company over time, and we'll keep a close eye on op expenses as we move throughout the year.
spk03: Okay, and maybe if I could just follow up with, specifically on the R&D side, which seemed to be a little more of an outlier in Q4, is that just some kind of noise? Like, as you mentioned, seasonally we're going to see higher and lower quarters Or is there anything going on, a focus on R&D or a specific trial that I should be thinking about?
spk02: Right, Scott. I think what you're seeing inside that number is the continued exceptional expenses around our CE marks, so the MDD CE marks that we were trying to get all of 2021, and we succeeded. And now kicking in is the MDR CE marks, which I would call sort of the varsity-level CE marks that you need to get by 2024, and the spending has begun there. It was a particularly expensive quarter on that stuff, not necessarily repeated every single quarter going forward, but a lot of the R&D money these days going towards European regulatory.
spk03: Okay, great. Thank you for taking the questions.
spk02: Thanks a lot, Scott.
spk00: Thank you. Once again, if you have a question, please enter the queue by pressing star then 1. And we have our next question from Zachary Weiner with Jefferies. Hey, guys.
spk06: Thanks for taking the questions.
spk00: A couple for me.
spk06: First on REC, can you give some color on expected products to be per REC and how long it will take the new RECs? I think you mentioned 10 coming in the first half. How long will it take them to get up to speed? Are those RECs? You know, season's reps are relatively new, and they have a couple of follow-ups as well.
spk02: Okay, so lots of questions in there. I would say we always get asked that question, and we always give an unsatisfactory answer, Zach. And maybe, and this is George, Zach, sorry. Maybe, you know, it feels like if you get a great rep, they're up and running in three months, and some reps never really get going. And so maybe if I could call out a number like six to nine months, that feels okay to me. They don't last forever. The turnover rate is something like 16%, and that would indicate they're sort of, you know, three- or five-year folks, so you've got to get them up and running pretty quickly to make it work for the company. And then the model that you're talking about, you know, when we're looking to put quotas on each of these reps, I'll give you the U.S. model. I think we're asking for roughly, and it changes every year, but we're asking for something like $90,000 to $120,000 in GP addition in the year following, you know, in everyone's plan every single year. So something like that would be the model. You're trying to get them to grow business by that much GP every year.
spk06: And then any color on, you know, getting back to that high watermark in terms of within the company?
spk04: I think...
spk06: my members corrected the high watermark pre-COVID was, I think, 130, maybe 140. So I ain't caught it there.
spk02: Okay. So, Zach, apologies for correcting you, but it's actually 112 or 114 is our high watermark. So we're right there. And I hope at least two times from now when we talk to you, we'll be past the high watermark. But if not, the next time we'll talk to you, we'll be at the high watermark.
spk06: Understood. No, I appreciate the correction. Shifting gears here just to M&A, I know I asked them one of the previous questions, but is there any area of the business that you look to bolster more with M&A, with ArcGIS, and is the biologic space still a focus of the company?
spk05: Yeah, Zach, this is Dave. It's a good question. I mean, obviously the biologics portfolio that we have acquired has done quite well for us. So we certainly continue to look there. I would say at a higher level, we're hunting in the open vascular surgery and dialysis access space. That's sort of the main hunting ground for us. But we've started to expand a little bit, looking at some adjacent markets, for example, cardiac surgery. And we've looked at some biologic products there also. So I think the theme is open surgery, used in hospitals and preferably niche low rivalry markets with revenue. You know, targets need to have, I would say, $10 million of revenue or so or more would be ideal.
spk06: Got it.
spk05: That's helpful.
spk06: And if I could just sneak one last one in here. You know, through COVID, the rep access has been, you know, up. point of contention through the height of COVID, and then as COVID eased, you've gotten more access. I guess, can you just give a little insight on rep access, the last portion of 4Q, and then, you know, how things are going through the first couple of weeks here in the first quarter of 2022? Thanks for taking the time. We really appreciate it.
spk02: Okay, Zach, that's a great question. I'm sure it's something that's on a lot of people's minds. Maybe I answer it in a slightly different manner. Rather than using the word rep access, maybe it's just procedure volumes and feelings in hospitals and I think what we get, what Dave and JJ and I get from our sales reps at our Friday sales calls is that the last week of December and then the full month of January was the tough sledding spot and it was driven of course by Omicron but it was even more driven by staffing shortages in hospitals. Those two things conspired elective surgeries to go down for roughly that five-week period, and then I'm sure you're hearing this from the other companies as well, but I'm happy to report that it seems very much so, and we're 60% USA, our revenues, and it seems very much like, at least in the U.S., things are very much opening up again in terms of February. The full month of February kind of feels like a normal month, and I don't know where Omicron grows, or I don't know where the rest of the crisis goes, but it feels very open right now. Thank you.
spk00: And we have our next question from Javier Monseca with Spartan Capital.
spk01: Hi. Thanks for taking my call. Good to speak with you again. I have a quick question to get more clear as far as the Salesforce. So as you know, previously mentioned on this call and in the previous earnings call of the high watermark of 112 reps, my question is, you know, for the end of the year 2022, what is management's expectation for, you know, the number of sales reps or, you know, can you provide any more clarity as far as, you know, how much you want, how many more people you want to add to your sales force by the end of that year, of this year?
spk02: Sure. Javier, thanks a lot again to hear your voice and I'm glad you launched on this thing. Exciting to have you on these calls. It's George. it feels like if we're at 107 right this moment, it feels like the company's trying to land between something like 115 and 120 or something like that. It is hard, though. Again, there's turnover in these sales forces, so it's not always something that's at my desk to decide. A lot of people just decide to leave at a certain time. So I would say, short answer to your question, 115, 120, something like that.
spk01: Okay, and do you have any specific, how do I say, like drivers or plans to get to that number?
spk02: Very much so, yeah. I mean, we mentioned on the call today that we think another 10 will get hired in H1, so you could add 107 plus 10 and get to 117. Also, sort of breaking that down, we have four reps that are signed right now that don't work here yet, so that's 111. And then we have 10 more requisitions out there where the rep hasn't signed. They're coming on. So it's happening, and we're very – particularly in the U.S., I'd say we've been very aggressive about – we built out to 62 territories this year in our USA plan, and we're chasing that. We're trying to make that happen. We have to watch our nickels and dimes here as well. We try to have a profit around here, but that's been – One of the focus areas of the company is to build back the sales force.
spk01: Awesome. Thank you so much.
spk02: Thanks a lot. How are you?
spk00: And thank you. I'm standing by for further questions. And that concludes our question and answer session. And thank you, ladies and gentlemen. That concludes today's conference. I would like to thank you for your participation, and you may now disconnect. Have a great day.
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