LeMaitre Vascular, Inc. (



Q1 2011 Earnings Call

April 28, 2011 5:00 pm ET


Joseph P. Pellegrino, Jr. – Chief Financial Officer

George W. LeMaitre – Chairman and Chief Executive Officer

David B. Roberts – President and Board Director


Ethan Roth – WJB Capital Group Inc.

Joseph Munda – Sidoti & Company



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Good day ladies and gentlemen, and welcome to the First Quarter 2011 LeMaitre Vascular, Incorporated Earnings Conference Call. My name is Karris, and I will be your operator for today. At this time all participants are in a listen only mode. And later we will conduct a question and answer session. As a remainder this conference this conference is being recorded for replay purposes.

And I would now like to turn the conference over to your host for today, Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre. You may proceed

Joseph P. Pellegrino, Jr.

Thank you, Karris. Good afternoon and thank you for joining us for our Q1 2011 conference call. Joining me on today’s call is our Chairman and CEO George LeMaitre and our President Dave Roberts. Before we begin, I would like to read our Safe Harbor Statement. Today, we will discuss some forward-looking statements, the accuracy of which are subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as belief, expect, anticipate, forecast and similar expressions. Please note these words are not the exclusive means for identifying such statements.

Please refer to the cautionary statements regarding forward-looking information and the information under the caption Risk Factors in our 2010 10-K and subsequent SEC filings including disclosure of the factors that could cause the actual results to differ materially from those expressed or implied. During this call, we may discuss non-GAAP financial measures. Please refer to our earnings release on our website www.lemaitre.com for discussion and reconciliation of non-GAAP financial measures.

I will now turn the call over to George LeMaitre.

George W. LeMaitre

Thanks, J.J. I would like to focus my remarks on the three headlines of the quarter. Number one, we posted record sales of $14.6 million up 6%. Number two, we achieved normalized operating income of $1.4 million. And number three, we’re executing on three initiatives to improve profitability in top line growth; A, the Italian factory consolidation, B, the transition to direct sales in Spain and Denmark, and finally C, the de-emphasis of our TAArget and UniFit Stent Graft business.

As to our first headline, we posted record sales of $14.6 million in Q1, 2011, up 6% over Q1, 2010. The Americas was up 12% while international was down 3%. While sales momentum in the Americas carryover nicely from 2010, Q1 European sales continued to be hampered by our move away from TAArget and UniFit Stent Grafts.

Indeed looking at our worldwide business without TAArget and UniFit, sales grew 9% in Q1, 2011. This already is similar when we look at our product categories; Vascular was up 13% worldwide in Q1 2011, while endovascular decreased 12%, almost exclusively due to the TAArget and UniFit.

With respect to individual product lines, our Valvulotomes, Carotid Patch and AnastoClip drove sales growth in Q1 2011. Also in Q1 2011, we made regulatory submissions in the U.S., Europe, Canada and Brazil for the upgraded UnBalloon, which incorporates a re-sheeting fix and several feature upgrades. Geographically in Q1, the U.S., France and Japan will highlight. We ended Q1 2011 with 66 sales reps versus 61 at the end of Q1 2010.

Regarding our second headline, normalized operating income was $1.4 million in Q1 2011 versus reported operating income of $1.3 million in Q1 2010. The increase was due to higher sales and restrained operating expenses. This is also up sequentially from Q4 2010 due to higher sales and lower operating expenses. As you may remember, our operating income high watermark was $2 million in Q3 of 2010. I expect to re-achieve and surpass this level of profitability as we move through 2011.

Regarding our third headline, we continue to make progress on the three initiatives we have previously outlined, and I am excited about the more profitable higher growth entity, which should emerge in H2 2011. Out Italian polyester graft machines have now been transferred to Burlington. First sale of the graft from Burlington should be shipped to hospitals in Q2. We are now through the lion's share of the Italian below the line restructuring charges, but the start-up of our Burlington factory continues to suppress gross margin.

While the manufacturing start-up is a little slower than planned, eventually we expect 12 employees to be on a Burlington payroll to manufacture these grafts in place of the 29 Italian employees previously. This 17 employee reduction should provide a benefit to the gross margin. Indeed headcount eliminate drop from 255 at year-end 2010 to 232 at March 31, 2011, largely as a result of the Italian closure.

In December, we signed agreements with our long-time Spanish and Danish distributors to go direct in July. We have since hired a Danish sales rep and Spanish country manager and we’ve leased the sales office in Madrid. The majority of cash payments to these two distributors will be made in Q2 and you will see associated charges of about $700,000 on the Q2 P&L.

As a result in Q3, we’ll be directing more than 90% of Western Europe with Switzerland, Norway and Finland, our only distributed market. The effort is for direct sales in Europe is obvious, higher gross margins, more surging contacts and better pricing power. These to buy outs effectively complete our European go-direct project, which began in 1998 with, direct sales to German hospitals.

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