LeMaitre Vascular, Inc.

Welcome to the LeMaitre Vascular first quarter 2025 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. Dorian LeBlanc, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining us on our Q1 2025 conference call. With me on today's call is our CEO, George LeMaitre, and our President, Dave Roberts. Before we begin, I'll read our safe harbor statement. Today we will make some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify these forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast, and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today May 1, 2025, 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, such as organic sales 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.lemate.com. I'll now turn the call over to George Lemaitre.

Thanks, Dorian. Q1 sales were stronger than our February 27th guidance. 13% organic and 12% reported growth was led by graphs up 17% and carotid chunks up 14%. We posted sales records in all five of our categories, graphs, carotid chunks, catheters, valvetomes, and patches. By geography, EMEA was up 18%, the Americas 11%, and APAC 3%. I'll focus my remarks on three topics. First, the growth of our sales force. Second, our new international sales offices. And finally, our MDRCE marks. We currently have 164 reps on payroll, and we're now targeting 170 at year end. We also employ 34 sales managers versus 31 at our last earnings call. The sales force is our number one asset, so we continue to invest in reps, managers, and sales offices. Our new Alpine regional sales manager started on April 1 and will oversee seven sales reps in Switzerland, Austria, and Czechia. Shipping from our new Zurich office will reduce customs complexity for Swiss hospitals, and our direct offices almost always improve sales performance. Switzerland is Lomate's sixth largest European market. We expect to sign a transition agreement with our Czech distributor shortly and should log our first direct sale in August. And we are currently recruiting two Czech reps. As for Portugal, we hired our Lisbon rep on January 1st signed our distributor transition agreement on March 19th, and on May 1st became direct in Portugal. Also in Europe, we've just received our MDR CE mark for Artograph, and the European launch will begin presently. Artograph, a biologic graft used primarily in AV access and peripheral bypass, was the company's largest U.S. product in 2024 with $37 million in U.S. sales. At previous earnings calls, we've estimated Artograph's current market size to be about $8 million in Europe, and 8 million rest of world. We currently have autographed approvals in New Zealand, South Africa, Thailand, Israel, and Malaysia. We sold $180,000 of autographs internationally in Q1. We also expect to receive approvals in Australia, Canada, Singapore, and Korea by H1 2026. So this is an exciting worldwide launch with plenty of long run upside. Our New Jersey Artograph production facility is currently running a single shift and is capable of meeting this new demand. Separately, we continue to anticipate at least one RestoreFlow Allograft approval in 2025 from Ireland or Germany. As a reminder, Allografts require approval on a country-by-country basis. Approvals from either Ireland or Germany would then expedite our individual European country approvals. Anticipating the Irish approval, we'll be opening a pan-European RestoreFlow distribution facility in Dublin in H2. RestoreFlow is currently approved in the US, the UK, and Canada. Since the 2016 acquisition, RestoreFlow's sales CAGR has been 23%. In summary, Q1 sales momentum, our continued office and Salesforce build-out, and our regulatory progress allow us to increase our 2025 reported sales guidance to $245 million from 239 previously. And our organic sales guidance has advanced to 13% from 10% previously. $303 million of cash also provides strategic optionality. With that, I'll turn the call over to Dorian.

Thanks, George. The LaMate portfolio of niche devices continues to deliver in Q1. As George referenced, we experienced record quarterly sales in graphs, credit shunts, catheters, valvulatomes, and patches. Organic sales growth of 13% over Q1 24 was driven by average selling price increases of 9% and unit increases of 4%. In Q1 2025, we posted a 69.2 gross margin. The 60 basis point increase year over year was driven primarily by higher ASPs and lower inventory scrap offset by product mix. Average selling price increases improved the gross margin by approximately 270 basis points in Q1. Reduced scrap contributed an additional 85 basis points. The shift in product mix, particularly towards grass, negatively impacted the gross margin by 220 basis points. Operating expenses in Q1 2025 were $28.8 million, an increase of 16% versus Q1 2024. The increase was driven largely by higher compensation expenses, including the addition of 21 more sales professionals and higher non-compensation sales-related expenses. Q1 2025 operating income increased 6% year over year to $12.6 million, an operating margin of 21%. Fully diluted EPS was $0.48, up 10%. We ended Q1 2025 with $302.5 million in cash and securities, an increase of $2.8 million in the quarter. Cash from operations generated $9 million in the quarter. We paid $4.5 million in dividends to shareholders and made the final deferred payment of $1.4 million related to our 2019 CardioCell acquisition. As we turn to guidance, there are two additional topics that we have incorporated into our full-year forecasts. First, we have amicably wound down our porcine patch distribution agreement with Aleutia effective April 30th in order to focus on sales of our own biologics. In 2024, our hospital sales of Aleutia patches total approximately $5 million. This product exit will likely improve our organic growth rate and gross margin. Second, we'd like to address Terrace. In summary, we believe the company is comparatively well positioned as it relates to this issue. LeMaitre manufactures 100% of its products in the United States, and therefore we have limited concerns related to U.S. import tariffs. Approximately 25% of our cost of goods sold is for raw materials and components, of which approximately $2 million is paid to foreign suppliers, largely to Australia. Simply stated, we are not big importers. As for the impact of potential retaliatory tariffs, Approximately 40% of our sales are international. Since we generally compete in low rivalry markets, we anticipate low substitution risk, and we believe we can raise prices to offset most potential tariffs. China accounted for less than 1% of our total annual revenue. The Chinese import tariffs currently in place will increase our Chinese cost of goods by almost $825,000 per year. We are implementing price increases on May 15th in China, which would offset half of these costs. We remain committed to a long-term view of our business prospects in China. We generally believe that cooler minds will eventually prevail, and most tariffs will recede in the long run, particularly on life-saving medical devices. Overall, we feel well-positioned with our US-only manufacturing footprint, our US-focused supply chain, and our competitive positioning in foreign markets with our niche products and direct sales model. Therefore, we feel comfortable increasing our 2025 sales guidance despite trade tensions. LeMay continues to deliver broad-based revenue growth with our differentiated products, direct-to-hospital model, and growing commercial organization. We have raised our full-year revenue guidance to $245 million, reflecting a continued robust sales performance and a benefit from the weaker U.S. dollar, offset by the discontinuation of our Aleutia distribution agreement and a weaker outlook for our small China business. We have further updated our annual guidance for a gross margin of 69.6, operating income of 57.7 million, and a midpoint guide on diluted earnings per share of $2.16. For more details, please see today's press release. With that, I'll turn it back over to the operator for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Suraj Kohliya with Oppenheimer and Company. Your line is open. Please go ahead.

Hi, guys. Congrats on a strong quarter. This is Seamus on for Suraj today. Hi, Shaman. Hi. Just to start, you know, you guys had a strong 1Q. You guys beat by a little over 2 million, but you raised the guidance by 7. You know, obviously there's some moving pieces here. You guys have Artograph clearance now, the Elusha, you know, agreement cessation. I guess what's giving you the confidence here, you know, early, especially with kind of, you know, the current things swirling around in the air in terms of tariffs and globally that's giving you the confidence to increase guidance so early in the year?

Thanks for the great question, Seamus. This is George. Yeah, of course, you're pointing out, so what gives us this confidence? There's a bunch of factors here, but maybe the first one that you pointed out was that we beat Q1 by a lot, so you got that going. That's already in the bag. The price hikes also are working better than anticipated. It was a big topic at the last call, but we came out and said we think the US price list was going to increase prices by 8%. And in Q1, we got an 11% in the US. So we got a little bit better than we expected with those pricing floors. Interestingly enough, getting out of the Aleutia business will help organic growth in the year because it was reducing over time. It never really worked that well inside of our bag of goods. And so getting rid of that oddly increases organic growth. You can see also we're sort of, quote, guiding more sales reps than on the last call. We were guiding 165 for the end of this year on February 27th, and now come May 1st, we're guiding 170. So we're putting on more reps, and we think that'll lead to additional sales growth. Obviously, you pointed out also the autographed international, you know, it's starting to work internationally, and then on Tuesday, we got the approval of The big one we've been waiting for, which is the CE mark for autographed. And then, you know, just in general, Europe's going so well these days for a variety of reasons. Both price and units and all these offices we keep putting in seem to help out with growth. So I would say that's a lot. That's a big, long laundry list for your question, but that's sort of why we feel comfortable going from 10 to 13 organic.

Got it. Appreciate all that helpful color. And then just kind of one more, and we'll hop back in queue. Can you give us any update on M&A, what you're seeing? And then, George, I can't help but at least clarify this. You noted that you guys have $303 million of cash, and it provides strategic optionality. So I feel like there's something there that you're maybe hinting at kind of behind the scenes, if you can give us what you may mean by that. Thank you.

Okay, really quickly, I'll say I'm not hinting at anything. I just feel like if you have $300 million in the bank, you can do stuff with it. So there's nothing underneath that. But I'll pass it over to Dave, who usually handles the M&A questions, Seamus.

Hey, Seamus. Great to hear from you. Yeah, the pipeline's in really good shape. Obviously, we're still hunting in the center of the fairway for us, which is open vascular. surgery. There are 22 or 23 targets, over 5 million of revenue. But we're also actively hunting in an adjacent space, cardiac surgery, where there are crossover devices, and some cardiac surgeons do vascular surgery. I say, of course, like I said in previous calls, we're hunting for larger deals. Our last deal was almost five years ago, autographed, and we're obviously delighted with how that's gone, but we're hunting for larger deals, and hence we did the bond offering in December. The sweet spot probably is revenues of $15 to $150 million or something like that worth of revenue.

Thank you.

Thank you. And one moment as we move on to our next question. And as a reminder, if you would like to ask a question, please press star 1-1 on your telephone. Our next question comes from the line of Michael Podeski with Barrington Research. Your line is open. Please go ahead.

Hi. Good evening. George, I'm curious, any view on Xenosure and China and just all the sort of the strain in this relationship? Do you have any concerns that this hangs it up, or is there any intelligence that you might have on that, you know, sort of relative to that issue?

Right. That's a great question, Mike. Thanks a lot. You know, I feel like the whole project just took a I don't know, a five-yard sack, if you will, not just Zenasher, but the whole China Le Maid. And as you can remember, two years ago, we were in here, you know, saying how bad China was. And then in the last year, it sort of really turned around for us. We had a fantastic Q1, if you remember. And so, yeah, it's frustrating. But, you know, we've been there 10 years. We call it the Long March. Ha, ha, ha. We plan to continue being there. It will... hurt us a little bit, but, you know, I bet you in the long run some of this stuff simmers down. I think it'll be okay.

And, Mike, it's Dave. You know, obviously, we were delighted to get that ZenaShare cardiac approval back in December, and so for us, despite all the tariff and trade tension and all that, our team is actively seeking provincial listing approvals in the 31 provinces there. We expect to get most of those In Q4, of course, the material sales wouldn't appear probably until next year sometime. But, yeah, let's just see what happens between the countries. But in the meanwhile, you know, we're preparing to move ahead with that product line.

Okay. All right. Great. And, Dorian, I'm curious if you have this handy. Do you have cash flow for ops and CapEx this quarter by any chance?

Sure, Mike. Cash flow from ops was $9 million, and within that, depreciation and amortization was $2.552 million. Share-based comp was $2.046 million. And capital expenditures for the quarter was $1.383 million.

And cash flow from ops was, like, roughly $9.0?

$9.0 million, correct.

Awesome. Thanks. Thank you so much. JJ always was good with having that handy. I really appreciate you doing the same. I'll get back in the queue at this point. Thank you, guys. Appreciate it.

Thanks a lot, Mike.

And our next question is going to come from the line of Rick Wise with Stiefel. Your line is open. Please go ahead.

Thank you. Good afternoon, everybody. Hi, George. Just to start off on your pricing commentary, I mean, clearly, as you said, price was stronger, better than expected. And maybe I'm misremembering. Please correct me, obviously, if I'm wrong. I feel like that the last call, we were thinking about more of a 6% blended price increase for the year. So, given the first quarter performance and whatever the guidance was before, How do you want us to think about price or price and volume as we break it down and think about the full 25 year?

Okay. And then I know I'm going to come to an unsatisfactory answer to this question, but I'm going to get there in a second. Just to go at, I think the difference between your 6% number and my 8% number that I just mentioned was I'm talking U.S. only. And we were trying to use that as a proxy, as a simple proxy. You might have blended worldwide as 6%. You might remember that from the last call. I do. Regardless of where we remember it, the raw fact is in Q1, it was a 9% price increase and a 4% unit increase. We always have an eye towards having better unit growth, but it's a nice number anyway. So 9 and 4 was what we got in Q1. I sort of talk it through now to just go back to the US. Our list price increase was 8.1% blended in the US, and we think we got an 11. I think we got an 11. So we got a little bit more price discipline than we expected, I guess is what I would say. As for the back of your question about price and volume for the year, it's almost impossible for us to get what the organic growth is. It's so hard. We don't really try to break it between price and units. Perhaps you could assume, you know, status quo as the year goes by. I don't have any reason to think it's not status quo, and that's 9 and 4 is the 13 for Q1, but I don't know about the next three quarters.

Gotcha. That's helpful. And I was hoping you'd expand on the excellent news about the autograph CE mark approval. How do we think about the contribution from Artograph in Europe? What kind of incremental volumes should that offer? What's baked into your guidance? Just maybe some additional color there would be helpful.

Sure. That makes a lot of sense. It's why we gave you that international number, which is without Europe so far. So in the first sort of real quarter of selling internationally, we've got 180,000 We've pumped into our model a number which it's so preliminary, but we wrote it in. It's 350,000 euros for the back three quarters of this year. But honestly, Rick, I think I'd love for you guys to give us a quarter or two to get our sea legs on this product. And then I think we'll be a lot better at guiding perspective on that. And then, of course, as you remember, I'm going to not want to guide on individual devices at some point, but I realize We all need more information around this. What does it mean? Another way to look at it is we keep saying there's an $8 million market in Europe and an $8 million market rest of world. Another way to look at it, which we keep trying to juxtapose with that number, is we sold $37 million of it in the U.S. If you take a really high-level look at it, I don't know, maybe in 10 years you're selling half of that or a fourth of that. I don't know. They have different practice patterns over there. It's a long run. I hope I'm answering part of your question. Do you want to poke away at any of that, Rick? Any other further comments on my answer?

No, no. No, that's a great perspective. I will sneak in another small question about gross margin, if I could. Thank you, Dorian, for the gross margin breakdown. And help us think about the graphed drag. Obviously, price was a positive scrap you know, contributed. But is this mixed drag? Is there anything that's going to change as the year unfolds? And just maybe just give us some color about how gross margins we should think about it as the year unfolds, you know, as the quarters unfold for the year as well. Thank you.

Yeah, and the allograft product in particular, is the component of mix that you can think of as being below the corporate average margin. Obviously, we've continued to see great growth in that product line. George mentioned that we've got a 23% compound annual growth rate since the acquisition there. But it is a little bit different product, the human tissue. And so the great growth there, and we will Hopefully see that as well in 2026 with the approvals that we see coming in Europe, the investments that we're making. So that was the big contributor from a graph perspective on the mix.

Gotcha. Thank you.

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Michael Saccone with Jeffries. Your line is open. Please go ahead.

Good afternoon, and thanks for taking our questions. Just to follow up on Rick's question, just to make sure I'm clear, so just on the 1Q gross margin and operating margin coming in below guidance, is it fair to read that as Allograft kind of performed better than expected, and that's what drove the below guide margins?

Yeah, I think just graphs overall as a category, you know, performing as high as they did is what drove that mixed component.

And, Mike, I would add, it's Dave Roberts. And within that, as Dorian mentioned, Allagraph has been, you know, an important growth driver for us over many quarters. And it did outperform in Q1 by about a million dollars. And so that, I'd say, was the primary reason driver of the gross margin miss from a product standpoint.

Got it. That's helpful. And then just on gross and operating margin for the full year, it looks like the guide came down modestly for gross margin, but you're taking up your operating margin guidance at the midpoint. Can you just kind of elaborate on the moving pieces there?

Yeah, I mean, there's a lot to that, right? We have such a nice sales growth guidance, and yet the operating margin moves down from 25 to 24 for the full year. That's what you're getting at, right, Mike? What's the component of that? So as you already alluded to, we're pulling down our gross margin guidance ever so slightly for the year because we got a 69.2 in Q1. We're a little nervous about what does that mean, and so I think we're now at 69.6 as the guide. Yeah, okay, so 69.6 for the yearly guide. So that's involved in it too. I would, you know, I would go back and think about this 24% op margin is a crazy high op margin and it gets affected, you know, it's pretty rare to see a company with that op margin. So anything you do upsets that op margin. Maybe one thing that you can see us doing here on this call is we've increased our quote guidance, I don't know what you call it, from 165 sales reps at year end to 170. So I think our our sort of bullishness that we're seeing with sales and with the success of this commercial build-out, I think we're saying, hey, let's add five more to this. And I think maybe you're seeing some of that in the op margin. And then finally, of course, a Swiss office doesn't come cheap. We continue to learn. Clearly the most expensive place to operate on the planet besides Tokyo. So you've got a little bit of Swiss office in there, too, and some of these sales reps. Got it. Thank you very much.

Thank you. And one moment for our next question. Our next question comes from the line of Frank Tarkinan with Lake Street Capital Market. You're liking this open. Please go ahead.

All right. Thanks for taking the questions. Congrats on all the progress. I wanted to also start with one on the sales force. Can you just remind us kind of ramp up time and then when we can see that convert to kind of operating leverage? I know the guidance implies that operating income is starting to grow a little quicker through the back half of the year, but typically we've seen that really outpace the top line. So when can we see some of those reps start to contribute and then drive that impressive operating leverage profile you guys have shown?

Thanks for the question, Frank. And just to put some numbers on where you're talking about H2, it looks like We are implying in the guidance that the op income growth gets back to 14% for H2. And I think it's a piece of what you're alluding to. As to how quick the reps get up and running, you know, we've been answering this question for, I've been answering for 20 years. I don't have a great answer. I will say that we've done a lot of what I'll call regression analysis and Salesforce analysis. And God knows we have a lot of data around here now having run the Salesforce for so long. And I used to say to people, oh, it takes a year for people to ramp up. I don't feel that way anymore. I think it's quicker than that. And I think that it's extremely hard to distinguish between a rep that's been here two quarters, this is shocking, and one that's been here for five years. The performance to quota is indistinguishable for those two cadres of employees. So that's an odd answer. It's a surprising answer. But those are the numbers that keep showing up. And we've been looking at this for two and three years now. It's It's not going away. That's what we see. I think it's maybe, unfortunately, I know there's sales reps on this phone call, and I hate to do this, but maybe it's a little bit of the warm body hypothesis. You put a rep in Cleveland, they're going to sell, whether they're six years into this or two months into this thing, they're going to sell stuff. I hope that helps. It's odd data, I will admit.

No, that's helpful. Thank you. And then maybe one for Dave just on the M&A front with kind of MedTech valuations and all that. publicly traded valuations coming in for that matter. Does this change your thought process at all? And maybe you can get a more novel, bigger market device rather than smaller niche products that you've traditionally gone after at a more attractive valuation?

I mean, I would say it doesn't change our strategy so much, Frank. I mean, the types of targets that we're hunting, it all starts with the markets they're in and making sure Those are markets we're in, and there's synergy in all that. Of course, when valuations come down, it makes targets more affordable. So, you know, and we're lucky to have $300-plus million of cash in the bank. So from that standpoint, maybe we can get more with our money. But, you know, in terms of does it, you know, change the types of things we're looking at, I would say no, it doesn't really.

Okay. That's helpful. I'll hop back in queue. Thank you.

Thanks, Frank.

Thank you. One moment for our next question. Our next question is going to come from the line of Jim Sidoti with Sidoti & Co. Your line is open. Please go ahead.

Hi. Good afternoon. Thanks for taking the question. So I'm going to ask the operating margin question a different way. You know, for the quarter that just ended, the margin was about 21%. You're guiding for 24% for the full year. So You know, what changes in the back half of the year that gets that up?

I mean, one of the big topics here is easier comps. Excuse me, that's not, I apologize. I'm off on a different answer here. What changes? I mean, the sales ramp helps you a lot, right? And the gross margin ramp, the implied gross margin ramp. I think the H2 implied gross margin is now 69.9 for the last two quarters. So I think you get a lot in those second two quarters, the last two quarters of the year. Yeah, Dorian can add to that.

And the dropping out of the Aleutia distribution agreement where we only were earning distribution margins, not the full manufacturing margins that we earn on our own biologics, that does have a nice pickup on the gross margin percentage for us in the back half of the year. So that's one of the lifts for us, Jim.

Okay. All right, that makes sense. The other question I had is, you know, in the past when you said you're going to add 10 sales folks in a year. Usually it's maybe one or two at the beginning of the year and it builds up during the year. This year, you seem to add a lot right in the first quarter. Is that due to the transition from distributors to direct? Those folks that have already been selling your product?

Jim, not really. We put in place a big, quote, surge last July. And it really is just that surge kind of coming to fruition. And it's always longer than you think. I would have guessed it would have happened. You remember I was, quote, missing my sales rep guidance in Q4. And I think the bolus of reps came in Q1, not in Q4. And I kind of missed it by three months. So this is just that old surge finally coming to fruition.

All right. All right. And then the last one for me, you have that share buyback program open. Have you started buying shares back?

I don't know how we're supposed to answer that. You know, Dorian? We have not bought any shares back as of today. Okay.

All right. Thank you.

Thank you. And one moment for our next question. Our next question comes from the line of Brett Fishman Whiskey. Key bank capital markets. Your line is open. Please go ahead.

Hey, guys. Good evening. Thanks for taking the questions. Just a couple, like, more clarification ones. So on the tariffs, very helpful in terms of, like, laying out some of the key considerations. And I'm really just trying to clarify what has been incorporated into the guidance. I know you were talking about, like, 825K of extra COGS related to the small China component and then maybe something, like, more modest around the raw materials and components. I'm just curious if that's actually factored in specifically into some of the margin assumptions.

Yes, it has been factored in. That $8.25 was an annualized number for China that we gave you. If you noted, we're increasing prices in China here in two weeks to recoup about 50% of that, where we have the ability to do that on the differentiated products. And that's the real significant impact for us on the back half of the year. We do have the ability to reprice products if we see tariffs, retaliatory tariffs. The timing of that may not be perfect, but we've incorporated our best estimates into the guidance for how we view the rest of the year on this issue.

All right, helpful. And then second question is just on the Alludia, sorry, the pronunciation, the distribution announcement that you're stepping away. And I was just curious how you're looking at that as an organic growth tailwind. Is it more just like extra time, like you're not focusing on that product as much? Yeah, just trying to kind of like figure out how exiting $5 million of revenue becomes a tailwind. Thank you very much.

Sure. I think this is simple, which is the product is declining year over year in our hands, and the sooner we get it out of our hands, the less it's going to negatively impact our organic growth rate.

Yeah, Brett, when we talk about organic and we're not selling in the future because we terminated the relationship or agreed to with Lucia, for the organic math, we pulled the sales a year ago out of the denominator. That helps us. But you're also bringing up a good point, and I think this was part of the issue with the product and LaMate, is that it was the third patch inside of the LaMate bag. So the LaMate reps will be able to focus more on the other products, and that could contribute to organic growth as well.

All right. Thank you very much.

Thanks, Brett.

Thank you. One moment for our next question. Our next question comes from the line of Ross Osborne with Cantor Fitzgerald. Your line is open. Please go ahead.

Hey, guys. Congrats on the strong quarter. So almost halfway through the year at this point, so I'll try and squeeze in some questions on 2026, but we'll stay away from numbers at this point. So starting with autographed, congrats on the e-mark. And so following that approval, you know, what steps do you guys need to take from an operational or, you know, generating incremental clinical data standpoint this year in order to set yourselves up for a strong 2026 ramp?

And you're specific. Thanks a lot, Ross. This is George. And you're specifically referring to the Artograph project? Yes. Okay. Okay, great. Nothing. We don't owe anything to anyone. We're ready to go. This is just a marketing launch. We'll probably do some kind of, you know, just in terms of running clinical looks at it at some point, but we don't have anything planned right now. We're just going at it. It's a nice launch. The device comes to us or came to us in 2020 with lots and lots of clinical data and lots of articles, so there's no real need to go do more of that. In fact, that's probably why the thing went so quickly in the regulatory pipeline and did not require a clinical trial.

Boss, I would add, it's Dave. I think great to hear from you. We actually are shipping. I mean, we're just making our initial shipment from the U.S. to Europe next week because obviously we couldn't ship until we had the e-mark, and now we've got it. So obviously step one is to place inventory over there. We've already begun training with our U.S. sales reps who are expert and facile with Artograph. They've started the training of our European team. But George is right, there's already an enormous amount of clinical data about this product, so there's no generation of clinical data need to launch this product line.

Okay, perfect. And then turning to RestoreFlow, would you walk through any different market dynamics that may exist between the US versus Germany and Ireland? whether that be price or certain training such as the return of the Ross procedure here as we've seen with Mount Sinai. And then how many reps do you think you will need in those markets to support adoption?

Okay, I'll go to the back of the question. It's a lot simpler, which is I think we have the reps already in place. You don't need to hire additional reps. It's the beauty of this thing. It goes down our sales channel. So with that out of the way, I would say we have seen a big difference between the U.S. and the U.K., Sorry, I know you're talking about Ireland and Germany, but we're going to learn about that soon. I feel like they're very different markets. In the U.K., it's very much a cardiac approach. Canada is also more cardiac for us, and the U.S. has been more peripheral vascular. So, yeah, they're all going to be different markets. And I think as we get closer and closer to these launches, we'll be tailoring whether we're going to bring more peripheral over there or more cardiac over there. Inside of this call, we also mentioned there's a nugget in there, which is we're opening up a distribution site in Ireland, in Dublin, in the back half of the year. And that should help us, once we get approvals in other countries, have sort of a pan-European approach to that one product, not the other products, which are generally shipped out of Frankfurt.

Russ, I'd piggyback on George's comments. And by the way, I'd also... say thank you to you and Matt and Cantor for that nice deep dive piece on Restorable Allografts. You guys did a really thoughtful job with that. At a high level, George is right. We've seen a lot of success in the UK, and part of the reason for that is, unlike the US, there aren't companies who are providing allografts and providing them to hospitals. It's a fairly disorganized system in the UK, and we think that's true across Europe more generally. So regardless of the door through which we enter the European market, whether it's Ireland, which opens a lot of countries' doors for us inside the EU, or Germany, which opens fewer but still opens some, the markets that we see ourselves entering are equally fragmented from a supply standpoint. So we do see a lot of opportunity there. Frankly, I believe, as you and I discussed in Chicago a month and a half ago, the biggest challenge for LaMain will be providing enough grass and tissues into Europe to meet the demand.

sounds great thank you for taking our questions and congrats again on progress thanks ross thank you one moment for our next question our next question comes from the line of danny stoddard with citizens jmp your line is open please go ahead yeah great thanks for the questions uh just first one on the sales and marketing spend it was it was up a little bit or quite a bit in the first quarter and i'm assuming that was due to the large step up in the reps but

know i was just curious if there were any expenses that were more one-time in nature there such as signing bonuses or anything like that and you know how should we think about this sales and marketing expense going forward in 2025. thank you sure all right danny thanks for the question this is george so first of all there is a discrete a big guy discrete one which is there's about a million dollar sales meeting almost always that happens in q1 so it's not a year-over-year difference for you but in terms of looking forward into the year is about a million dollars worth of sales meetings, kickoff meetings that you don't need to have for the next three quarters. So there's one thing. And then you alluded to it, but I think maybe it's worth going through here. But at the end of Q1 of 24, we had 137 reps. And today, as I sit here, we have 164 reps. It's an increase of 27. So this is a big change. And I think you can feel that in the Q1 op expenses, particularly around sales and marketing. So you're right to point that out, but those are the numbers that would support what you're pointing out.

Great. Thank you for that. Then just one follow-up, looking at free cash flow. In terms of 2025, you talked about this a little bit, but how should we think about, you know, CapEx and working capital, specifically inventory, as we consider some of these regulatory approvals and geographical expansions? Thank you.

Thanks for the question. I think on CapEx, you can consider this quarter to be a fairly standard quarter for us. Maybe a little more around some of the offices that are coming online and continue to build out for the end of the year, but not a big sequential change. Overall, on free cash flow, continue to deliver cash to the bottom line and

And, you know, Danny, I'd also point out here, you know, we've had this really, I call it lavish policy around here, called no back orders at any time. And we're that guy. We always want to have the devices. And it's led us to have a pretty big inventory closet, roughly $65 million worth of inventory in our, mostly in Burlington here in Massachusetts, but also around the world in our 13 or 15 offices. We're now finally going after that in terms of we're going to try to be a little bit tighter at titrating back orders and the giant inventory balance. So you may see some cash free up from that this year, and it could add to some of this free cash flow.

Yeah, and in Q1, remember that it's usually a light cash flow quarter for us because you have annual bonuses being paid in Q1. And just maybe the last point on inventory is in Q1, we were building inventory, particularly in Artograph and in RestoreFlow. in anticipation of this European launch for Artograph and because we do believe that long-term supply is one of our constraints on growing the RestoreFlow business. Other than those two product categories, we are seeing the inventory progress there and should be able to free up cash flow in the subsequent quarters.

Great. Thank you very much for the questions. Thanks, Danny.

Thank you, and one moment for our next question. We have a follow-up question from the line of Michael Podusky with Barrington Research. Your line is open. Please go ahead.

Hey, thanks so much. Just a couple quick ones. I may have missed this. George, did you say how many of the, I think, 23 MDRCE marks that you're looking to get, where you stand on that? Is it like 17 at this point, 18? I missed it if you said it.

I apologize. You're good.

It is 17 out of 23. Okay, great. And then just one for Dave as well. Dave, in any of the conversations, say, over the last month or so with assets that you're interested in, have you seen anybody where they're essentially saying, hey, we're not doing anything until some of this tariff stuff is resolved, or we're more anxious to do something because of the screwed-up nature of trading relationships? Have you heard any feedback either way? I'm just curious. Thanks.

Yeah, Mike, the short answer is no. I think there's a general sentiment that things are still changing a lot, and so I feel like sellers aren't at one extreme or another saying, we're frozen, we're not doing anything, or let's hurry up and dump this asset. I feel like everybody's fairly circumspect about it, and so far, discussions are generally proceeding, but we've all got an eye on it, no question.

All right, great. Thanks, guys.

Thank you. Ladies and gentlemen, this concludes today's conference call. I would like to thank you all for your participation. You may now disconnect and have a great day.