LeMaitre Vascular, Inc. (



Q2 2011 Earnings Conference Call

July 28, 2011 17:00 ET


J.J. Pellegrino – Chief Financial Officer

George LeMaitre – Chairman and Chief Executive Officer

David Roberts – President


Ethan Roth – WJB Capital

Joe Munda – Sidoti

Larry Haimovitch – HMCC



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Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 LeMaitre Vascular Inc. Earnings Conference Call. My name is (Tahisha) and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a remainder, this conference is being recorded for replay purposes.

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

J.J. Pellegrino – Chief Financial Officer

Thank you, Tahisha. Good afternoon and thank you for joining us for our Q2 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 statement regarding forward-looking information, the information under the caption Risk Factors in our 2010 10-K and subsequent SEC filings including disclosure of the factors that could cause 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 a discussion and reconciliation of non-GAAP financial measures.

I’ll now turn the call over to George LeMaitre.

George LeMaitre – Chairman and Chief Executive Officer

Thanks, J.J. I’d like to use my time this quarter to remark on our five strategic initiatives for 2011. As you may know from our recent announcements we are undertaking the following changes in order to improve our sales growth rate and profitability. Firstly, we are terminating Endologix stent graft distribution. Second, we sold our TAArget/UniFit stent graft business. Third, we are closing our California factory. Fourth, we closed our Italian factory. And fifth, we went direct in Spain and Denmark.

Since these five moves obviously present operational challenges, I am pleased that the company continued to motor along in Q2, posting record sales of $15.1 million and $1.9 million of adjusted operating profit. These five strategic initiatives are ultimately intended to improve profitability and speed up top-line growth. More specifically, they focus LeMaitre Vascular on our larger, faster growing vascular surgery business, consolidate all manufacturing into our Burlington factory and expand our direct hospital sales footprint.

As in the first two initiatives our decision to terminate our Endologix agreement and divest our TAArget uniform platform are intertwined. We exited stent grafts for several reasons. Firstly, we think this will increase our focus on our dominant vascular brands. This will move our focus on selling and research efforts towards our larger, faster growing, higher margin vascular brands. In these niches, we offer leading technology and powerful brands, which provide us with pricing power and enviable gross margins. So, we have made a choice to work in markets, where we dominate and grow faster.

Secondly, we find there is less competition in open-vascular than in stent grafts. Moving away from stent grafts is also realization that in certain competitive markets we might be wise not to keep up with the (indiscernible) nor Medtronic clearly state their claims in the stent graft market.

Conversely, we have found that product development cycles in open vascular niches are more forgiving and demand fewer investment dollars. Indeed so many companies have moved into stent grafts that we now think there is an open field opportunity in the vascular surgery business. We also want to sharpen the focus of our sales force. We wanted over these last six years that there are sales channel problems when you sell $8000 stent grafts alongside $500 (indiscernible). The high price stent grafts distracted our European sales reps from selling our bread and butter vascular products.

You may recall that in 2010, we posted 18% organic sales growth in North America versus 3% growth in Europe. One key difference, the North Americans did not have stent grafts to sell while the Europeans did. Moving forward, we will, once again, have a single unified sales force focused on vascular surgery not stent grafting.

Lastly, we want to sell our higher margin products. From a profitability perspective, our move towards vascular makes good sense. As you may note, self stent graft an additional layer of clinical specialist is necessary. At a high watermark, we had eight such clinical specialists and this is expensive. Also, TAArget/UniFit once occupied two-thirds of our new product development activities and necessitated sizable clinical trial costs. Furthermore, the Endologix stent grafts carried a typical distribution gross margin of 45% to 50% well below our corporate average.

Turing to the third and fourth of our five strategic initiatives for 2011, closing our Californian and Italian factories is a time-tested LeMaitre Vascular strategy. These are our sixth and seventh closures since 2003. We will now manufacture all of our devices under single roof in Burlington. On average, the factories we acquired had 20 employees and typically manufactured just one product line. In my own opinion (indiscernible) economically viable, we closed factories principally because we want to produce efficiently as possible and as a rule of thumb its take about half of as many employees to manufacture Burlington, as I did in the acquired factory. We also found that our products evolve more quickly, when they are physically adjacent to our development engineers.

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