LeMaitre Vascular, Inc. ( LMAT)

Q3 2010 Earnings Call

October 28, 2010 5:00 pm ET

Executives

J.J. Pellegrino - CFO

George LeMaitre - Chairman & CEO

Dave Roberts - President

Analysts

Mayank Gandhi

Larry Hemowich - HMPC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 LeMaitre Vascular earnings conference call. My name is Latasha, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions).

I would now like to the turn call over to your host for today, Mr. J.J. Pellegrino. Please proceed, sir.

J.J. Pellegrino

Thank you, Latasha. Good afternoon and thank you for joining us for our Q3, 2010 conference call. Joining me on today's call is our Chairman and CEO, George LeMaitre and Dave Roberts, our President.

Before we begin, I would like to read our Safe Harbor statement. Today, we will discuss some forward-looking statements, the accuracy of which is subject to risks and uncertainties. Wherever possible we will try to identity 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 and the information under the caption Risk Factors in our 2009 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 will now turn the call over to George LeMaitre.

George LeMaitre

Thanks, J.J. Top to bottom, I was pleased with Q3. We are growing sales and posting record profits. I'd like to summarize Q3 with three headlines. Number one, we posted record operating profit of $2 million and cash increased by $2.1 million. Number two, we posted sales of $13.7 million, up 6% organically from Q3 2009 and finally number three, we are working on two initiatives to cut cost and increase focus. We are closing Brindisi and reducing our target in units to extend graft investment.

With respect to our first headline operating profit in Q3 2010 was $2 million, a 57% increase versus 1.3 million in Q3 2009. This record 15% operating margin was a result of 6% organic sales growth post-IPO record 76% growth margin and a 1% reduction in operating expenses. Our profitability is starting to become a good habit. Over the last fourth quarters, we've posted operating profits of 1.2 million, 1.3 million, 2 million and now 2 million again. Particularly the large presence in Europe summer usually means a sequential slowdown in sales. So posting a 2 million operating profit in the summer quarter speaks to our growing efficiency. Looked at annually we entered 2010 projecting a $4.5 million operating profit. Thanks to better than expected domestic sales growth and tight expense control we are now targeting $6.9 million of 2010 operating profit, up three fold versus 2009.

Our continued quest to become more profitable is also the driving force behind the two initiatives which I will discuss later in this call. One consequence of increased profits is a healthy balance sheet. Before buybacks we produced $2 million of cash in Q3 2010 and we now hold $26.6 million with no debt. This balance sheet liquidity will be deployed over time into our $5 million share buyback program, acquisitions and international distributor buyouts.

As to our second headline we posted sales of $13.7 million in Q3 2010. Sales increased 6% organically over Q3 2009 led by 15% growth in the Americas. By category Vascular increased 15% organically, General Surgery was up 8% and Endovascular decreased 13%. Q3 2010 marks another impressive quarter for our Vascular business. In fact over the last fourth quarters sales growth in this category has been 25%, 28%, 20% and now 12%. And this category has grown in importance of the company.

In Q3 2010 our Vascular category accounted for 73% of sales versus 67% in the year earlier periods. Our success in this category is due to our broad pallet of gold standard niche devices and our widening sales footprint. Even overseas where our targets in UniFit Stent Graft have struggled our Vascular Surgery business was up 9% in Q3 2010 on a constant currency basis.

At quarter’s end we had 64 sales reps on the payroll. The continued build out of our sales force is a time tested expansion strategy for our company. With our new streamline sales rep model we are now able to grow our footprint even more aggressively. My guess is that we will end 2010 with 70 sales reps worldwide, up from 61 at year end 2009. Going forward we may also expand our direct sales force foot print through international distributor buyouts. Turning to our third headline, we will be closing our 29 employee Brindisi factory and transferring our AlboGraft production to Burlington, Massachusetts. This will be our 6 th factory closure since 2002.

For the first nine months of 2010 sales of our AlboGraft accounted for 4% of our sales. In transferring production to Burlington, we believe we will produce $1 million per year in savings. The closure is anticipated to take place in December 2010. Brindisi employees went on strike on October 4 and returned to work October 20 and have agreed to work while separation terms are negotiated.

Read the rest of this transcript for free on seekingalpha.com