JJ Pellegrino - CFO George LeMaitre - Chairman & CEO Dave Roberts - President.

Drew Ranieri - Stifel Jason Wittes - Brean Capital Jason Mills - Canaccord Genuity Jim Sidoti - Sidoti & Co Mike Petusky - Barrington Research Larry Haimovitch - HMTC.

Welcome to the LeMaitre Vascular Q4 2015 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..

Thank you, Elaine. Good afternoon and thank you for joining us on our Q4 2015 conference call. Joining me on today's call is our Chairman and 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, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those 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, February 24, 2016 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 which will include organic sales and growth numbers as well as EBITDA. A reconciliation of GAAP to non-GAAP measure discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website, www.lemaitre.com.

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

Thanks, JJ. Q4 2015 was another strong. Our focus on three headlines, first we posted record sales of $20.5 million up 14% organically. Second, our biologic products continue to drive growth principally XenoSure and third we generated record net income of $2.5 million in Q4 up 32%.

As to our first headline, Q4 sales increased 10% reported and 14% organically to a record $20.5 million this is our first quarter over $20 million. Geographically the Americas were up 11% outpacing international which was up 8%. We finished 2015 with 86 sales reps and we planned out 95 on the payroll by year end 2016.

While this is a considerable investment we expect this rep surge to drive sales growth in 2016. As to our second headline, sales of biologics continued to underpin our growth. Many vascular surgeons believe the biological patches and grafts reduce infection. Our XenoSure biologic patch grew 30% in the quarter and 29% in the year.

In addition OmniFlow biosynthetic graft finished the year with 3.9 million in sales considerably above pre-acquisition levels. As to our third headline we generated record net income of 2.5 million in Q4 up 32% in the quarter. This translated into record earnings per share of $0.13 up 25% versus the prior year.

Strong sales, improved gross margins and a reduced tax rate drove the bottom line. EBITDA of $4 million in the quarter was a record and underscores our ability to generate cash. Perhaps a few words at a slightly higher level are now appropriate. Over the last couple of years I think we've been relatively clear about our financial goal.

We're pursuing 10% sales growth and 20% profit growth. In full year 2015 we grew the top line by 10% and the bottom line by 82%. Driven by exceptional sales in Europe 2015 was a year of operational leverage at LetMaitre Vascular. With that I will hand the call over to JJ. .

Thanks, George. Gross margin in Q4 2015 was 70.3% up a 160 basis points from the year earlier period. The increase was primarily driven by reducing share manufacturing costs and ASP increases related to the HYDRO rollout. This was partly offset by unfavorable changes in FXrates.

We expect the gross margin to be 71% in Q1 as well as for the full year 2016. Foreign Exchange had a significant impact in our year-over-year comparisons reducing our full year 2015 sales by $5.5 million. Our gross margin by 170 basis points and our operating income by $2.8 million.

If rates remain where they are today FX impact in 2016 will be markedly reduced. Effective tax rate in Q4 2015 was 19% while the effective tax rate for the full year 2015 was 32%. The full year effective tax rate was 6% lower than in the prior year and the decrease was primarily driven by Federal and State R&D credits.

Stock option exercises and an increase in profits at our international subsidiaries was comparatively lower tax rates. We expect our 2016 effective tax rate to be approximately 37%.

Cash at December 31, 2015 was $27.5 million a recent high watermark and an increase of $8.8 million from a year earlier and an increase of $3.8 million from September 30, 2015. On February 22, 2016 our Board of Directors approved an increase in the quarterly dividend to $0.045 per share. The dividend will be paid in April 4, 2016.

Turning to guidance we expect Q1 2016 sales of $20.2 million or reported increase of 7% versus Q1 2014 and up 8% organically. We expect the Q1 2016 gross margins of 71%. We also expect Q1 2016 operating income of $2.9 million. A 26% increase versus Q1 2015.

For the full year 2016 we expect sales of $84.7 million a reported increase of 8% versus 2015 and up 9% organically. We expect the gross margin of 71% and we also expect full year of 2016 operating income to increase by 23% to $14.2 million.

Before opening up a call to Q&A I want to first welcome Jim Sidoti of Sidoti & Co who initiated coverage in January.

I'd also like to remind listeners that LeMaitre Vascular will be presenting at four upcoming conferences including the BTIG MedTech Conference at Snowbird on Friday, [Indiscernible] in March and Sidoti's Emerging Growth Conference in New York City in March and the Needham Health Care Conference in New York City in April.

With that I'll turn the call back over to our operator for Q&A..

[Operator Instructions]. Our first question comes from the line of Rick Wise with Stifel..

It's Drew in for Rick. Just to start on guidance, can you talk about what 2016 guidance assumptions you're assuming for pricing, volume and mix and just more specifically on pricing power. I believe before you released HYDRO. You were getting price increases of mid-single digits on an annual basis and since U.S.

hydro conversion I believe left in November.

I mean what other opportunities does LeMaitre for pricing increases from existing products or will be driven by the new product introductions?.

So looking backwards for a second of the 13% organic growth rate last year 2/3rds of that was pricing reflecting the hydro that we're talking about and 1/3rd was unit and looking forward here the 8% organic growth guidance that we've given you is cut exactly in half, 4% pricing and 4% units to where do we get our pricing.

We get it everywhere of course that it did helpful everyone so while they have a hydro come along but I think if you look back on our investor presentation on the web you will see last 10 years we're sort of in the sixes to fours in terms of annual price hikes. So it's part of our plan and we will do it every year..

And with operating margins I mean 17% 2016 operating margins were kind of well above our projections.

I mean is 17% kind of a new baseline of how we should think about your future margin expansion opportunities or maybe is 2016 more of a transitory benefit year? I mean what factor should we be aware of?.

So you can see our margins bouncing around sort of within the range over the quarters of 2015 from sort of 12% to 17% and I think we're guiding about 14% in Q1 and then as you say 17% for the year.

I would say you know our mantra is 10% top line growth and 20% bottom line growth and so you can impute from that where you think that will get us over the next 2,3 years but I think we feel pretty comfortable in the 17% for next year that we've guided I think we've got a good handle on OpEx and the top line piece George started talking about here and I'm sure we will talk some more about that but there's opportunities there as well.

And I think there is a gross margin piece that we're talking about for a little bit of an expansion there getting the 71% on the gross margin.

So I think there are opportunities up and down the P&L to sort of get there and I think we feel comfortable about that for the year but going forward beyond that I think you can just think about the 10,20 and get yourself from here to there..

And just one last one, just looking across your product lines. You're going to be releasing the Pruitt [indiscernible] later in the year.

I mean are there additional opportunities to add some type of diagnostic or monitoring components to any of your other products?.

Okay, so in short answer to that yes there is opportunity to add that type of monitor to other products. The Pruitts [indiscernible] has been delayed to a certain extent.

We're running at some technical issues, we think [indiscernible] but it's been delayed to a certain extent and so we haven't set first in man on that product yet and that’s a bit of a setback from the last phone call. .

Your next question comes from the line of Jason Wittes with Brean Capital. Please proceed..

Just wanted to maybe follow up on the question about the Pruiit delay.

Do you have a sense of how long that delay will be? And if I look at the guidance to provide it sounds like it's -- there's no inclusion for that launch in the guidance, is that the right way to think about it?.

Right. So I mean every launch that we do is always sort of baked into guidance and so we're not separating that. We do feel as though we owe you a 10, 20 regardless of when the Pruitt chunk monitor launches. No I don't have further clarity on when that will launch and/or when we'll get over the technical hurdle..

Okay. But it sounds like you're still pretty confident in the guidance to provide it with or without Pruitt? It sounds like just to clarify..

Very much, so, yes..

And then just to kind to understand the drivers I mean obviously you mentioned this quarter's you know sure again of course which is great and Trivex I assume much of that is from China.

Are those going to continue to be drivers into '16 that we should look for or how would you kind of -- how should we be thinking about sort of the product cascades you have set for this year sure tahts 8% to 9%..

So the drivers in Q4 as you're mentioning is good of you to pick that up is Trivex China is XenoSure, the shunt had a good quarter and the Valvulotome had a good quarter as well. Looking forward into 2016 I would say the excitement around here is about XenoSure, it continues to just keep going from strength to strength.

It's about the gross profit story inside of XenoSure which is about to become more clear and will help drive the bottom line and also Jason it's rep surge, so effectively you had 81 reps mid-2015 and at least by the end of the year if not sooner you'll have 95 reps here.

So that's a pretty big build of '16 or '17 of rep months that are going to be taken place each month. So those are the exciting things that we’re looking forward to in 2016..

And by the way those reps are I assume mostly U.S.

reps that you're talking about?.

No actually it's fairly well dispersed around the world going from 41 to about 48 North America and 31 to about 36 Europe and then 9 to 11 over in Asia I hope I got up to 95 or so?.

I think you did. Thank you. I will jump back in queue..

Your next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed..

So qualitative question George here, since I guess notwithstanding the fantastic results which seem to be arguable as well as guidance which is above expectations seems, it seems very concise prepared remarks. Excuse me if I'm missing something but for March you’re seeing somewhat less enthusiastic than normal.

What I'm missing? It's a weird question..

So there is two parts of that, first of all I hope I sounded optimistic as ever we just closed a record quarter up and down the P&L and I really do live to make these quarters great. So I'm just thrilled to what just happened and I'm thrilled with the 10, 20 type guidance that we just gave you.

That concise aspect of the press release as well as the transcript that we just read to you -- the transcript is six pages usually, it's four pages this time. We always feel like the better the quarter the more concise it can be. So we can get your guys' questions.

If you guys want to make these things like long we love to sit here and talk to you about our business because we're thrilled about the business but my sense is guys like you got out of phone call to get to as long as your company is doing well..

That's what I wanted to hear. Certainly the result will reflect the business is never been on a more solid footing. So let's turn to more specifics. You talked a little bit about some aspects of the business that I want to start with XenoSure.

When you took that business over correct me if I'm wrong George, but the gross margins were despite to say well below average, production cost per unit were quite high. I think you had a goal of cutting those into half exiting the year.

Have you done that? And with respect to XenoSure and gross margins in general do you have more to go?.

When we started with XenoSure I would say the margins were in the mid to high 60% range the unit cost was sort of in the $55 plus range maybe a little bit more as you ramp up your integration and start building that product here in Burlington.

You know you go through some growing pains and things sort of get a little choppy but since then we've done a lot of really nice work in terms of reducing cost of XenoSure and I think we've gotten to about an 80% gross margin business or so and I would say yes there is probably more room to go particularly even if we didn't cut any cost as units continue to grow in the 30% plus range you're leveraging your fixed costs over more and more units and that's helpful in and of itself and then beyond that as we figure out more ways to be more efficient in the room then we're certainly going to get more savings on top of that.

So I think there's more room to go and then notably as XenoSure takes up a larger portion of our sales with an improving gross margin that's obviously going to have a nice tailwind effect on the margin and profits..

Jason if I could do an addendum to that on the gross margin last year. So if you strip out the FX of the strong dollar last year we put 260 points on the board year-over-year and so we had a tremendous gross margin year last year.

Some of that’s about what JJ is talking about with XenoSure and we feel like I don't know we're in the fourth inning or sixth inning or fifth inning about cutting costs with XenoSure so we have a long way to go which is why when people ask me what's exciting about 2016 one of the first four things I will always say is XenoSure gross profit.

There's a long way to go here I think..

Sticking with XenoSure, simply biologics more in general, there seems to be and I think you have alluded this in the past year George that LeMaitre is becoming much more of a biologics play.

Talk about both internally what we should look at and obviously the biggest part of XenoSure but in addition to that, [indiscernible] etcetera and then externally how you could augment that over time and I guess that sort of builds into an M&A question to some extent..

Right. So I will table the M&A question to Dave but the international stuff that's going on right now there's a lot of -- I'm glad you brought that up. So OmniFlow is the Australian Biosynthetic Graft. We're starting an R&D program around that may be different diameters on that device may be different permutations of that device.

We're starting on XenoSure as sure as well, there are product changes sizes and shapes that you can do with XenoSure, there is a whole program to work on on that and then also from a regulatory perspective Jason you really still need Chinese, Australian and Japanese approvals for XenoSure.

The big news here is that the Board has green lighted the Chinese clinical trial for XenoSure. It's a long road, it's three or four years but it's certainly the way to go and we also have -- are very close to refiling in Australia for that XenoSure piece.

We have not yet green lighted the Japanese XenoSure clinical trial, that sounds like a tough road but it's not to say that we’re not going to do We just haven't done it yet. So a lots going on around those two platforms and right now biologics make up about 21% - 22% from doing that right of our annual revenues looking backwards in 2015..

And Jason this is Dave. Yes certainly with respect to M&A. We are looking for biologics out there, of course we’re looking to compliment what we have internally. XenoSure has been such a home run for us and OmniFlow also is doing really well.

We don't talk about it as much because it's not as big but in constant currency it's up 33% over the acquisition model and even in Q4 it grew 33% over the year before but what would we look for. We can look at complimentary patches for example decelluloid patches could be of interest to us.

We saw OmniFlow in Europe but we don't have a biological graft in the U.S. so something that could be AV Access Graft or even a peripheral bypass graft in the U.S.

They are also larger diameter grafts which could be of interest as you get more into the Arctic area and then there are places next door to these spaces like cryopreserved products which we don't have experience with but that’s an adjacent market.

And then of course there are patches which are used less and peripheral vascular maybe more cardiac or for dural repair, [indiscernible]. There are a lot of adjacent spaces we could look at but we like the biologic space.

We feel like we’re pretty far up the curve understanding the products with manufacturing and so we feel like we can leverage that knowledge and expertise hopefully in another adjacent niche market..

Your next question comes from the line of Jim Sidoti with Sidoti & Co. Please proceed..

The OmniFlow, you talked a lot about XenoSure, what's going on with that in terms of getting it into other markets.

Can you just remind me what markets you're in with OmniFlow and what the potential is there internationally to expand it?.

So OmniFlow has limited regulatory approvals, we've got Australia, New Zealand. We have Europe. We have Canada. We have a couple other select markets like Turkey and Korea but you don't have the U.S. with the OmniFlow and right now we have not green lighted the trial in the U.S. for OmniFlow..

Okay.

Are there any other international markets where you can introduce that?.

There are although I would say the big question has to be the U.S. and maybe Japan after that although I think Japan's it may be a bridge too far in that device..

Right.

And then in your 2016 revenue guidance are there any one time unusual items that you think are going to help boost revenue in 2016 or is this the kind of growth you think you can sustain in 2016?.

This is business as usual but to pull out an unusual item you can look backwards, we sold $600,000 worth of for private label VascuTape last year. So the true organic growth rate might be a little bit better than the nine that we're giving you if you strip that out from 2015..

And we did buy -- we did an acquisition in 2015 small Valvulotome that’s sold in Europe and so there's a little piece there as well..

Your next question comes from the line of Mike Petusky with Barrington Research. Please proceed. .

A couple house-keeping right up front I don’t know if you’ve a cash flow statement in front of you but do you guys have the CapEx and stock comp for the quarter by any chance?.

CapEx in the quarter was about little over 700,000 and stock comp I think about 300,000 to 400,000..

And then if you mentioned this, I missed it, what was the actual growth on a comparable for both the Valvulotome and XenoSure?.

So organic growth in XenoSure in the quarter Q4 was 37% and for the year it was 38%. The reported numbers for both of those are either 29 or 30 I forget which and then for the Valvulotome for the year the organic growth rate was 17.5%--.

11% in the quarter..

Sorry, 11% in the quarter..

Does your guidance for '16, does that anticipate any I know over the year or so you guys are trying to get a few product approvals in China, does it anticipate any of that are or would that be incremental to your peer guidance?.

No that's all baked into the guidance and you should see approvals for our crowded shunt and our Single Lumen Embolectomy Catheters coming out of China over the Q2, Q3, Q4 period..

But I would say Mike it's sort of trying to answer a question in a different way, if we didn't get those approvals you wouldn't see us come out and say we’re are revising our guidance down, but not a big part of the answer that we just gave you..

And then just I guess another question on Trivex the estimated value when you guys spoke last time was just under $8 million and you had said essentially that would flow through maybe starting at 1.3 million and then kind of ramping slightly from there over the next few years.

There's still the expectation?.

Mike I apologize I'm not quite understand the question, Dave maybe you got it?.

Mike, you might be referring to the contract that we signed the $7.8 million contract and we do think the sales in year one of the contract which is already started is around 1.3 million or so and I think if you take the 7.8 and divide it by 5 you come up with a little bit bigger number than that.

So I think that it will ramp a little bit over time but nothing has changed since the last quarter. We did make a couple shipments in Q4 of Trivex but that schedule stays the same. .

Okay.

And then just a last question given your aggressive goals in terms of adding sales [Technical Difficulty] as you guys are internally modeling '16, that there's probably not any leverage and maybe even that percentage -- as percentage of revenue maybe that sales and marketing line actually bumps up a little bit versus '15 is that fair? No operating leverage on that line?.

I'm looking more at the whole company Mike, and there is some leverage you're growing sales by 9% organically and I think OpEx comes up 23% for the year.

But I would generally -- I understand your direction with the question I generally say yes we’re putting a lot of money on the sales force and will be getting leverage out of places like the gross margin line and the G&A a little bit more..

Your next question comes from the line of Larry Haimovitch with HMTC. Please proceed..

So George kind of a high level question, if you look back in 2015 and you had to single out one think that made you feel particularly proud of the company's year, what would that be?.

We doubled earnings..

Okay.

Anything that you'd say was a disappointment or you didn't achieve goal you had said for you or the company?.

I mean the stock more than doubled, earnings double and we had organic sales growth of 13% for the year, so no it was round start to finish for LeMaitre versus what sort of LeMaitre is used to. So it was terrific..

JJ, just a housekeeping question.

You’ve got the medical device tax coming off this year and next year, how much is that amount to for this year and where will we see it? Will it be spent or will it be going to the operating income line or how's that going to work?.

Well it's about $750,000 in 2015 and I would say yes, we're going to spend some of that maybe it's about 50:50 we're going to invest certainly in more sales reps and sales ramp we told you about getting to 95 folks.

So certainly a chunk of it going there and then maybe a little bit more going into R&D as well, so I would say we'll spend some and maybe we will pocket a little bit..

And I’ve a question for David, I don’t want to leave him. On the acquisition front talking to some other business dev types, seems like you know we certainly see kind of a tragic decline in valuations publicly lately in the MedTech space but talking to people like you they say the private valuations really haven't come down very much.

I know you're in the market a lot, you’re talking to lots of companies and looking at various technologies and acquisitions, any thoughts or observations on that?.

Yes, of course. Well first of all as George said even on LeMaitre stock doubled last year peripheral vascular, our peers were down 28% and I think everyone is down another 25% this year. So it's been really rugged of course in the public market, I think the private markets are just more situation dependent.

So if you want a business and it's cash flowing you may not pay that much attention to what's happening in the public market and when you look at the carve outs on the public side you still see health evaluations on the Endologix, TriVascular or St.

Jude, [indiscernible] in the six to seven times sales range and when you see Cardinal and Cordis going 2.5 times also it's just very situation dependent, it's hard to generalize but I would agree with what you said which is you know on the private side or in M&A often times it doesn't exactly correlate with what's happening in the public market..

Your next question comes from the line of [indiscernible]. Please proceed..

Would you mind running through the globe and sorry if I didn't catch this but just kind of remind us how you did in each of your major geographies, U.S., Europe and Asia and I was hoping maybe you would break down a little bit on profitability how these three different segments look and maybe throw an exports [ph] there if you want to and then finally I was hoping you could talk a little bit about where you would want to make an acquisition if there is higher contribution margins coming out of a certain segment of the world or certain areas of your business that you're more interested in investing and as a result of maybe better leverage in those areas.

Thanks for the time..

I'm going to give you organic growth rate numbers, the clear star of the show is Europe, Middle East, Africa up 22% for the entire year of 2015. A big change though this year was the Americas bounced from 2.8% organic growth rate in 2014 to 10% in 2015.

So I think that was the big difference you felt, Canada really came on the share organic growth rate of something like 40% helping out with a healthy USA as well. And then Asia was not something we’re too excited about negative 2% organic growth rate.

So oddly we're all thinking, oh my gosh Asia is going to be so big didn't have such a great year and Europe was the real star of the show.

As it relates to profitability the LeMaitre story continues to be the profits come from the United States and Canada largely and then a bit in Germany and Switzerland and the rest of the entities were largely funding, there is a couple breakeven ones out there.

There's about 11 entities, 11 statutory entries and the profits from North America and Germany, Switzerland are funding the balance of the entries particularly Asia, Australia and China in particular you’ve a lot of startup costs over there as you'd expect since they are new subsidiaries.

Maybe on the M&A front I will point that over to Dave and see what he has got to say about that..

So of course in one sense I'm agnostic about where to acquire product on geographically as well as long as it fits our criteria but I would say everything else equal if we had sales reps in a market and the product has sales so then we’re more likely to be successful.

So the North America, Europe, Japan, Australia, China place like that, we like high price market with high GDP per capita because that generally translates into higher gross margins for us. But you know of course the fundamentals for us on acquisitions are finally is disposable and find differentiated devices in niche markets.

And if we can do that and have a differentiated technology we can usually drive the price a little bit and that’s a good thing for us..

Ladies and gentlemen that concludes today's conference. I would like to thank you for your participation and you may now disconnect. Have a great..