LeMaitre Vascular's CEO Discusses Q2 2012 Results - Earnings Call Transcript

LeMaitre Vascular, Inc. (LMAT)

Q2 2012 Earnings Conference Call

July 31, 2012 5:00 PM ET

Executives

George W. LeMaitre - Chairman & CEO

Joseph P. Pellegrino, Jr. - CFO

David B. Roberts - President

Analysts

Joseph Munda - Sidoti & Company

Larry Haimovitch - Haimovitch Medical Technology Consultants

Presentation

Operator

Welcome to the LeMaitre Vascular Second Quarter 2012 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. JJ Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead sir.

Joseph P. Pellegrino, Jr.

Thank you, [Fab]. Good afternoon and thank you for joining us for our Q2, 2012 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 and the information under the caption Risk Factors in our 2011 10-K and subsequent SEC filings including disclosure of 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 in 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 W. LeMaitre

Thanks, JJ. Q2, 2012 featured some solid numbers. 8% organic growth, five more gross margin points and a 10% operating margin. The quarter was better than we had expected, so I leave the income statement details to JJ.

I like to spend some time relating our Q2, 2012 results to the recently completed 2011 initiatives. And then I will make a few comments about our strategy and 2013 direction. In 2011, we undertook the following initiatives. Refocused our European sales force on our proprietary vascular devices, expand our geographic reach and third consolidate our manufacturing in Burlington. We are now benefiting from these initiatives.

Our European operations were front and center in this transition. Looking back to 2010, 33% of Europe sales were stent grafts and many reps were stent graft only clinical specialist. Fast forward to Q2, 2012 and we now have a 32 reps European sales force focused on vascular surgery.

We’ve also attacked on direct to hospital channels in Spain and Denmark, while increasing the number of French and Italian sales reps by 50%. As a result of our refocusing in sales force expansion, Q2, 2012 organic growth in Europe was 17%. Perhaps the key headline of today’s call is the 480 basis point pick up in gross margin. While the exit from lower margin distributed stent grafts has certainly helped so too have the Italy and California factory closures, as we’ve now fully consolidated into our Burlington factory.

And we’re starting to see our new AlboGraft production lines begin to manufacture more efficiently. Product quality and questions have been answered as well. The U.K. and France rescinded their AlboGraft pro editions in July, following the successful U.K. audit in Burlington. So its safe to say, that the Italy and California transfers are now complete.

From increased European sales growth to a 5 point gross margin pick up to a pair of successful manufacturing transfers, its nice to see the 2011 initiatives producing tangible results on our income statement. So what’s next? Our three strategic direction should come as no surprise. Number one, we will continue to build out our vascular sales force in new countries. Number two, we will develop new vascular devices and line expansion to the R&D and finally number three, we will look to acquire vascular devices to leverage our distribution platform.

Over the last decade we’ve opened direct sales operations in the U.K., Holland, Japan, France, Italy and Spain. We just keep finding that our suite of niche vascular products sells best when paired with a direct sales force. We project we will finish 2012 with about 85 reps. We will continue expanding geographically in 2013, setting up a direct presence in Brazil, Canada and Switzerland. These countries ranked number 6, number 11 and number 19 in terms of GDP.

In Brazil and Switzerland we will likely replace current distributors with Lemaitre reps. In Canada, which has quickly become our fourth largest entity, we plan to open a Toronto sales office and double our existing sales force to six reps. An estimate of rep head count at the end of 2013, might be 90 to 95. And this growing sales force acts like a new product catch basins. The larger becomes, the more product development opportunities it attracts and uncovers.

The Q2, 2012 books show R&D grew 9%. Much of this increase was spend doubling our staff to 13 product engineers. These folks speed to market new platforms, next generation devices and product fixes. The UnBalloon and the Over-the-Wire LeMaitre Valvulotome were both launched in Q4, 2011 and sold at an annualized rate of $600,000 in Q2, 2012. On the drawing board for late 2012 launches are the silicone UnBalloon, the 1.5 millimeter expandable LeMaitre Valvulotome and the second generation Moll MultiTASC [plaque] debulker.

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