Welcome to the LeMaitre Vascular Q2 2020 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, Josh. Good afternoon, and thank you for joining us on our Q2 2020 conference call. With me on today's call are 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 within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995, 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, July 23, 2020 and should not be relied upon as representing our estimates of use 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 the 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 include organic sales growth numbers as well as adjusted operating income and EPS, excluding certain acquisition related charges.

A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section on our website, www.lemaitre.com. I'll now turn the call over to George LeMaitre..

Thanks, JJ. On today's call, I'll focus my remarks on COVID and our Q2 results. Dave will discuss the Artegraft acquisition, and JJ will discuss Q3 guidance and related topics. I'd like to address health issues first.

Six of LeMaitre’s 404 employees are known to have tested positive for COVID, and five have fully recovered while we await news on the most recent report.

We are fortunate to have a dedicated workforce that has respected the many changes we've implemented in our workplace, including a switch to two shifts, mask wearing, temperature checks, social distancing, working remotely, travel restrictions, and most recently distance sensing and tracing wristbands.

Despite the pandemic, LeMaitre’s employees have been able to continue to supply our life- and limb-saving devices to hospitals, surgeons, and patients worldwide. I'm grateful and humbled by the effort and sacrifice, which I see our employees making.

From a sales perspective, the pandemic has reduced surgical procedures significantly, and our Q2 sales were down 16%. By geography, sales declined in the Americas by 15%, and in Europe, Middle East, Africa by 21%, while Asia-Pac was flat. By product, the story was similar as nearly all products declined in Q2.

Within the quarter, sales were down 33% in April, down 21% in May and up 7% in June. Our products are generally used in patients over 65 years old, the age group most susceptible to COVID. Not only were most elective surgeries canceled or deferred in Q2, but our core patient was likely hesitant to enter the hospital setting.

Our sales reps in RSM have also been staying away from hospitals as visitors have become less welcome than in pre-COVID days. At the height of the crisis in April and May, I'd estimate that we made a total of 30 total hospital visits per month in North America and Europe combined.

Prior to July 1, our policy was that reps needed approval from corporate to go into hospitals and not many did. It remains unclear what will happen in Q3.

Our European reps seem to be getting back to some semblance of normality, perhaps operating about 50% of the normal activity, whereas in North America, the answer is a bit less and will certainly be affected by USA wave number two.

Suffice it to say that the job description of a medical device sales rep has been significantly impacted and it remains unclear how welcome they will be in hospitals until a vaccine is widely distributed.

As you know, we are a profit oriented organization and we responded aggressively during the early stage of the pandemic as we saw sales declined 39% in the first half of April. We honestly did not know where the bottom would be.

As a result, we’ve reduced headcount, implemented temporary base salary reductions and benefited from the natural downdraft of expenses. On a combined basis, these reduced Q2 adjusted operating expenses down to $11 million, down 24% year-over-year. As a result, our Q2 adjusted operating income increased by 3% versus Q2 2019.

In Q2 2020, our operating margin was 20%. Delivering a solid bottom line to our shareholders has been our north star for quite some time. Healthy margins allow us to pay dividends, acquire companies, and in normal times, raise our employee salaries. This focus on profits enabled the debt-funded Artegraft acquisition.

At this point, I'll turn it over to Dave, so he can give you additional insights into this important transaction..

Thanks, George. On June 22, we acquired Artegraft for $72.5 million in cash, plus potential earnout payments of $17.5 million. For 12 months ended May 31, trade sales were $15.6 million. We estimate that hospital level sales were $18.6 million for the same period. Artegraft's unit sales pre-COVID grew 10% in 2019.

Artegraft processes and sells biologic vascular grafts derived from bovine carotid arteries. The product line is sold only in the U.S. and it's now the cornerstone in LeMaitre’s dialysis access offering.

Prior to the acquisition, 40% of Artegraft’s units were sold through independent distributors whose contracts were terminated in the days after closing. We estimate Artegraft sales for the period, July 1, 2020 through June 30, 2021 to be approximately $20 million.

We took on six Artegraft sales reps, and they will continue to focus on that device through the end of the year. For terms of the deal, we will continue to operate Artegraft's manufacturing facility in New Jersey for at least 3.5 years. Pre-acquisition, Artegraft's had a gross margin of approximately 65%.

Through the remainder of 2020, we expect Artegraft to carry a gross margin of roughly 40% due to purchase accounting. In 2021, we expect Artegraft's gross margin to approximate that of LeMaitre and its operating contribution margin to exceed that of LeMaitre. With that, I'll turn the call over to JJ..

Thanks, Dave. Given the significant impact of the COVID-19 pandemic on our financial results, I think it is more pertinent to compare results sequentially rather than year-over-year. In particular, I would like to touch on the following items.

Our Q2 financial results, the impact of Artegraft on our Q2 results and our balance sheet, and finally, our Q3 guidance. Q2 operating expenses were $12.2 million, a 25% decrease versus Q1 2020. Decrease was driven by layoffs in February and April, as well as our temporary salary reduction program initiated in April.

In total, these programs decreased operating expenses by approximately $1.6 million per month. In addition, Q2 travel and entertainment expenses as well as sales rep commissions were understandably light. As a result, GAAP operating income in Q2 was $4.9 million, a 12% sequential increase versus Q1 2020, and our operating margin was 20%.

Net income increased 10% from Q1 to Q2 and EBITDA increased 12%, sequentially. The newly acquired Artegraft product line generated $185,000 in revenue in Q2.

Including approximately $1.2 million in one-time acquisition-related costs and incremental amortization in operating expenses, Artegraft reduced our Q2 2020 net income by $1 million or $0.05 per share. Excluding the one-time acquisition-related cost, the EPS impact was de minimis.

To fund the Artegraft transaction, we used $9.1 million of our own cash and borrowed $65 million in the form of a $40 million term loan and a $25 million fully drawn revolver. The current interest rate is 3.5%, and the term of the loan is five years. We ended Q2 2020 with $25.1 million in cash and $65 million of debt.

We expect interest expense to be approximately $660,000 per quarter and principal payments to be $500,000 per quarter for the next year. At the midpoint, our Q3 sales guidance represents a sequential increase of $7.6 million versus Q2.

This increase is largely driven by $4.9 million of Artegraft sales and $2.8 million of assumed COVID recovery as hospitals continue to reopen. These increases are partially offset by approximately $1.5 million in assumed Q3 sales declines related to a delay in transitioning our CE Mark to a new notified body.

As you recall, one of our three notified bodies, LRQA, made an abrupt exit from the CE marketing business, effectively leaving us and 55 other device companies without many of our CE Marks. We have subsequently reobtained a number of these CE Marks with a new notified body, TUV SUD. And we are in the application process for the remaining devices.

We estimate that CE Mark issues will reduce Q3 sales by approximately $1.5 million, principally in the Dacron graft in bovine patch categories. This issue is included in our Q3 guidance. At the midpoint, our Q3 operating income guidance represents a sequential increase of $1.7 million or 34% increase from Q2.

Increase is the result of $3.4 million in additional gross profit and $1.7 million in increased operating expenses. The operating expense increase in Q3 is driven by the inclusion of a full quarter of Artegraft-related expenses as well as the partial elimination of employee salary reductions and increased selling commissions.

Q3 operating income represents a year-over-year increase of 11% versus Q3 2019. As for Artegraft, we expect Q3 sales to be $4.9 million and the Q3 gross margin to be 41%. The gross margin is temporarily reduced by purchase accounting. After Q4, we expect the Artegraft gross margin to approximate our corporate gross margin.

In Q3, we expect Artegraft to add approximately $130,000 of op income and reduce net income by approximately $400,000 due to interest expense. As Dave mentioned, we do expect the Artegraft to have similar gross margin and operating contribution margins to LeMaitre in the long-term. With that, I'll turn it over to Josh for questions..

Thank you. [Operator Instructions] Our first question comes from Cecilia Furlong with Canaccord Genuity. You may proceed with your question..

Hi. Thanks for taking our question. I guess I wanted to start just on Artegraft, really just how you're thinking about the shift, bringing it in-house, but really the shift to a full direct sales model going forward.

How you're thinking about the near-term impact from distributor terminations? And really how you view the sales ramping from a cadence standpoint? And then your longer-term expectations once it's fully under your umbrella?.

Hi, Cecilia, it's Dave. Thanks for those questions. Yes. So as we discussed on the call, Artegraft had sold roughly 40% of their units through five independent distributors, whose contracts were terminated in the days following the closing. I would say those terminations have generally gone smoothly.

Although, we're not sure that we've received all of the inventory back from them. They might have sold some of it out in the channel. That being said, we, as you know, hired six of Artegraft's sales reps as part of the acquisition plus their VP of Sales.

And so through the remainder of this year, we're expecting those sales individuals from Artegraft to continue selling the Artegraft product while the LeMaitre sales reps, let's call them the legacy U.S. sales reps, roughly 35 or so, will be selling just the LeMaitre bag, but will be getting a bounty and bonuses on Artegraft sales.

Starting January 1 next year, we expect all of the sales reps in the U.S. to be selling the entire bag. So we think the back half of 2020 is a transition period, if you will. As for cadence, we're not really breaking down sales by quarter, except, obviously, in Q3, we're talking about $4.9 million from Artegraft.

And then in 2020 – or excuse me, in 2021, we are expecting $20 million of revenue. And I would say this is just, as you can appreciate, a difficult time to make really tight projections on sales dollars because of COVID. And so – but we felt like it would be useful to give you all some instinctive guideposts for where we see the business going.

So I would say that's what we can say about cadence at the moment..

Great. Thank you, David.

I guess just kind of following up on that point, I'm curious how you're thinking about your broad sales strategy going forward, really beginning in 2021 with Artegraft now in the bag and just your thoughts around direct and indirect product pull-through impact from Artegraft and really how you're going to bring on the Artegraft sales reps and the cross-selling opportunities..

Right. It's a really good question. And I would say Artegraft's. Implicitly, the question, obviously, is the Artegraft is becoming the cornerstone product of LeMaitre's dialysis access product offerings. We're delighted to have it in the bag. Artegraft, as you know, is a graft for dialysis access. We sell other types of grafts for access in the U.S.

like ProCol, LifeSpan and even some of our allografts. So I would say Artegraft sort of competes with those. You'd only use one graft per procedure. But a given surgeon maybe interested who is using Artegraft to learn about other products that we offer, specifically in the dialysis access space.

I think, particularly of our AnastoClip product line used in the fistula creation as well as embolectomy catheters, which are used to de clot grafts and fistulas. So there are some nice complementary products, which could be used on the same or different procedures. And so we're hopeful that over time, we could see some pull-through.

I'll add that we – that Artegraft had 600-plus customers in the U.S. many of whom were LeMaitre customers, but certainly, some of whom were not. And so we see an opportunity for this to be a door opener for us. And then maybe, over time, start selling some of these complementary products..

Great. Thank you for the color..

You’re welcome..

Thank you. [Operator Instructions] Our next question comes from Rick Wise with Stifel. You may proceed with your question..

Hi guys. Thanks. It's Drew Ranieri on for Rick tonight. Thanks for taking the question.

Just to start kind of as you talk to your vascular surgeon customers, are you getting a sense of where their procedure volumes are running kind of in terms of near or pre-COVID levels? Are they back to 100% yet? And maybe what are you expecting in terms of second half 2020 volumes, thinking steady-state levels or more pressure from some of the resurgent areas that we're seeing in the country now?.

Okay. So Drew, this is George. I'll try to take that question. There's a lot of questions in there. When I answer this, I think I'm answering it from a very localized perspective about our sales and our procedures that I see, and I'm not talking about other people. But the cadence that we gave you, to use that word here, was it was really bad in April.

It got better in May, and it got okay in June. It felt like June was kind of 5% below normal, 5% above normal, something like that in terms of procedures. What happens next? And I heard in your question, you want to talk about the U.S. What happens next in the U.S., we really don't know.

We're very nervous about what happens to all those procedures, given that we have the second wave going on in the northeast part of our country. So that's a pretty good one.

I do think, as we were discussing today how to present these results, there's some possibility here that the end of June was some way of a catch-up for all the missed procedures in April and May. But we can't know that. We just know what we're shipping.

And the other point I made about the sales reps on the phone call is there is markedly decreased interaction between sales reps and surgeons. And now the typical interaction now for us is a surgeon will be doing a case, and they will ask the rep to come in and watch the case or help with the case.

In the past, our reps have all been pressing in the hospitals, of course, that's part of their job and trying to talk to surgeons and get into cases and now it's much more on an invitation basis. And so you have a lot less information now about what's going on, but I hope that answers a lot of your questions..

Yes. It was helpful and just kind of – yes, sure..

Drew, just to give a little more color, this is JJ. So in my comments, I mentioned the increase sequentially in sales. It's about $7.7 million in our guidance, so just based on our Q3 guidance. $4.7 million of that is Artegraft, but another $2.5 million to $3 million is sort of a COVID bounce, if you will.

So there's some optimism built in there, maybe as much in Europe as anywhere else in terms of a bounce. And I think we do think there will be some, but we certainly have to be aware that there may be a resurgence somewhere, but into our guidance, we take some of that answer..

Got it. So just kind of sticking on this topic for a second and I hear you're somewhat optimistic about procedures recovering. But just with states that you're seeing an influx or resurgence of patients in, just curious if you're seeing your customer being able to manage through any COVID case increases.

Are they able to – if they were able to get to a certain level of volume? Are they able to keep that? Or do you see them taking a step down?.

Right. And so I don't want to get into talking about July, and I know that's not exactly what you're asking. But this is all new as of sort of July 1 or 5, let's call it. So this is new stuff to us. But I will say that in general terms, what happened in June is going to be the last piece that we talk about here..

Got it. And just lastly, on your sales force. It just seems like you've been talking more about profitability recently on calls.

And just as you think ahead and look ahead at the recovery, I mean, how are you thinking about sales force hiring and participating any procedure volume recovery, maybe not even in 2020, but in 2021 and beyond? Should we kind of be thinking you get back to adding five reps per year?.

That maybe a safe place to stay. We'll have to figure out what happens. But I do think we've always sort of thought we were going to be a sales-driven organization. So this is a bit of a strange place for us to be in. I think maybe we got it right here for this time right now, but it's clearly going to change in six months.

And I would say once a vaccine is discovered and distributed widely, I think things change a lot..

Thanks for taking the questions guys..

Thanks Drew..

Thank you. Our next question comes from Brooks O'Neil with Lake Street Capital. You may proceed with your question..

Thank you. Good afternoon. I have a couple. David, maybe you could just talk a little bit about this. On the Artegraft, your termination of the distributor arrangements, that's 40% of the sales of Artegraft.

What is your expectation with regard to that business? Does it just go away? Do you hope to pick it up some in your direct sales? What are you thinking?.

Brooks, I would say that we expect to pick up a vast majority of it. There are competitive products, like I mentioned, ones to Cecilia like, we offer LifeSpan, which is a PTFE graft. There're allografts that are also used. ProCol, one of our products is a competitive product in the xenograft world.

But I would say Artegraft has had a very long history of building a consistent, stable sales base with a consistent, fairly dedicated group of customers. So I think we're going to be relying on that. Sometimes the distributors, as they exit, will have some shenanigans. I'm hoping that this will generally go smoothly.

I would say, so far, it generally has. So we'll have to see. But I do expect we'll capture most of the revenue, which is part of the reason why we're saying that Artegraft sales for the year ended at May 31 were $18.6 million at the hospital. And we're sort of advancing that by a year and a month. The year ended June 30, 2021.

We think we'll be at about $20 million of revenue or more, but let's call it, $20 million of revenue. So I think we ought to be able to capture most of that..

Okay. That's good. And then just a slightly different question. Hopefully, you don't think this is too funny. But obviously, you guys have historically focused on generating a high-return on invested capital in your business. You've done a terrific job of that.

How do you think about the impact of the Artegraft acquisition on that metric in the short and maybe the longer term?.

Yes. Brooks, so this is JJ. Thanks for the question. So depending on how you want to define ROIC, it has sort of different impacts. But generally speaking, the acquisition in the short-term, and we know it did in Q2, sort of hurts net income and so that numerator goes down.

But if you don't include the debt in the denominator, you should include equity, well, then in the long-term, as you increase your net income, because this acquisition should be very accretive over time, then I think you're going to do a very nice thing to that metric.

If you include debt in the denominator, then it certainly changes that a little bit. But I think the highest return here for investors is using the debt. The cost of debt is 3.5% plus whatever, call it blended 4% or 5% all in. And the cost of equity, theoretically, anyway, is in the mid-teens.

So if you find a deal like this one where it's drawing off a lot of cash, and you can pay down that debt pretty readily and handle your covenants pretty readily, then I think the cheapest way and the most – the highest return way to fund that is through debt, and that's what we did.

Even though it was a pretty tough environment, it wasn't a great debt environment. But I think the fact that we were able to fund this through debt speaks pretty highly of the core – LeMaitre profitability in the core business and the sustainability of it. So KeyBank and Truist were great working through this process with us.

And I think they understood that both the core business and the acquired business could be much more profitable going forward combined. And so I think that's the most efficient way to do it, and that's what we did..

Right. So the 3.5% that sounds like a great rate.

Do you – would you be willing to give us a rough idea when you think you might be able to pay down this debt? Is it a three-year or five-year, what do you think?.

Yes, it's a five-year term. And so we have amortization payments of $2 million over the first 12 months of $500,000 during a quarter, which are required. And then I think it's a little bit higher than that, maybe $3.5 million for a couple of years and then sort of staying in that range, and then a bullet at the end for the remainder.

But I'm going to guess we're going to have, Brooks, excess cash that we're going to be able to start paying down either revolver over the term, and then that will create some more dry powder for the next acquisition. And I think that's what the goal is. So I think the answer is we'll pay down the required payments as due.

We'll pay the interest as due, about $660,000 a quarter or so, I think, for the interest. And then as we have excess cash, we'll put that towards the pay down of the debt. Right now $25 million in cash, you could say, well, you could probably get by with $16 million or $17 million or $18 million of cash.

You could use some of your internal funds to pay down some of the debt right away. So we're not going to do that. We're going to wait and see how it looks and feels. But I think there are some options there..

That's good. I want you to get Dave Roberts back on the road, doing another acquisition pretty quickly..

Yes. Absolutely, we got to give him more dry powder..

Right. Thank you very much for taking my questions..

Thank you, Brooks..

Thank you. Our next question comes from Mike Petusky with Barrington Research. You may proceed with your question..

Hey, guys. Good evening. I may have missed this, but what was your commentary, if I did miss this, on current number of sales reps? And just in general, the folks that you had to let go a few months ago, have you started bringing people back or filling those roles? Or can you just speak to that, and in particular around sales reps? Thanks..

Sure. Mike, this is George. Thanks for the question. So in general, we had about 110 reps for the last three or four quarters. At Q1 of 2020, in March of 2020, we had 102 reps, and then we got down to 88 reps right now at the 6/30 measuring point. And as to your question, will we be rehiring? We haven't started yet.

We're still generally in a hiring freeze right now at the company as we wait to see what this next wave looks like. One, a questioner before, I think Drew asked, what should we expect going forward? And maybe thinking LeMaitre's got to get hiring at some point, but we might wait perhaps until the vaccine comes or perhaps until we have more clarity..

Got it.

And George, is there any way for you to sort of slice and dice in terms of just your exposure to, say, some of these states where they're really getting overrun right now, like Florida and Texas and California, like, what's your sort of revenue exposure in some of these states that look like they're in real trouble for the time being anyway?.

Well, that's a real good question. I don't have that right at my fingertips. I can tell you that Florida is always about 10% of our business. I know that's just offhand. It's a big piece I'd also say that the hot spots, if you will, are happening on top of the Stroke Belt that it's known by.

So the Stroke Belt is kind of North Carolina, go all the way west to Kansas and then go down through Texas. And that quadrant of the country is referred to as the Stroke Belt because a lot of vascular surgery happens there, and that's exactly where this is happening. So I would say this is a real something that we got to watch for.

Again, COVID wave two in the U.S. is unknown to everyone. But we did know enough to make all this. We know about all this stuff, and we gave you the guidance that we did. So we think that, that's baked into guidance. But we gave you a slightly wider field goal this quarter. I think we gave you from $30.5 million to $34.5 million for guidance.

And usually, it's a little tighter. And we did that because of the uncertainty around the pandemic. We're also unsure how many of our competitor companies are going to be giving guidance. So we figured, at least to get back on track and give guidance..

Again, absolutely. Can I just ask – you guys obviously went through it, particularly in New York, New Jersey, Boston, in the Northeast.

Are there things that you learned up there, your reps learned up there, just in terms of getting access to docs – things that, during that period of time that you can sort of apply in some of these particularly hot spots that are sort of more on the headlines right now?.

I mean, certainly, there's always chatter going on amongst the reps. They all have text strings. They talk to each other. But I would say, generally speaking, the amount of learning has been pretty low because when it's going on, the reps aren't really able to get out of their house and into hospitals.

So I would say the whole rep experience is upside down right now. And the RSM experience in the U.S. is upside down right now. It's changed a lot. I hope that gets the part of your question, Mike..

No. Absolutely. And then, JJ, can you share stock-based comp and CapEx for the quarter? I may have missed that..

I have them ready for you, Mike..

Thank you..

Depreciation and amortization, $1.6 million; stock-based comp, $800,000; CapEx, $310,000..

All right. Hey guys, heck of a job managing through in Q2. Thanks..

Thanks, Mike..

Thank you. And our next question comes from Jim Sidoti with Sidoti & Company. You may proceed with your question..

Good afternoon.

Can you hear me?.

Yes, we can..

Great. You talked a little bit about the U.S. and how things went there during the quarter.

And I understand you don't want to talk too much about July, but can you give us some comments on how things are in Europe? Are you seeing procedures back to pre-COVID levels there yet?.

Yes. And so I wouldn't comment on the exact last part of your question, but I would say we're getting a feeling that things are getting back a little bit more towards normal. In my script, I think I said something like 50% of normal, and that's just a guess here.

In Europe, a lot of our, sort of, salary reduction programs were in conjunction with government programs where we would pay x percent of the salary, the government will pay y. And then the government would say, but the employee can only work 50% of the time.

And what we're getting back from Spain and from France and from Italy and from Germany is our reps are chasing underneath the mandates that they can only work 50% of the time.

So they're pushing back towards us and saying, "Hey, let's abandon that government program and just go back to normal, so we can visit hospitals." And I think that's your leading edge indicator for us in Europe that they need – they want to go out more, and they've been restrained so far. So we're starting to lift some of those.

UK also, we had a program there as well..

So is it fair to say that the Europe and the UK are slightly ahead of the U.S.

in terms of the recovery?.

I mean, Jim, I read the newspapers just like you do, and I'm just all over that New York Times website where they talk about country cases, and it's so much better over in all those countries than it is in the U.S. right now. It would be hard to imagine that it's not better over there..

All right. And then question on the guidance. You gave some pretty wide guidance on revenue, which is understandable, considering the uncertainty related to the pandemic. But you gave gross margin guidance of 62.8%, which sounds pretty specific.

What gives you confidence in that number? And why be so specific on the gross margin when you have $4 million of variability on the sales line?.

Well, you got me there, Jim, I will say. This is JJ. I was lamenting that I didn't round that for you guys. That's the way the math worked out for me. I didn't round it for you. But I think the high-level answer here is you've got $5 million or so of new revenue coming in at 41%.

That's only for two quarters, and then it'll revert to something around corporate gross margin as we discussed. But that's a negative 4% impact on the margin. And then we've got some inefficiencies coming through in Q3 as well. So that's how we get down to that low number, which we can think of as 63%, being less precise..

And Dave, you said a couple of times today that you expect the revenue from Artegraft next quarter to be about $4.7 million, which doesn't sound like it's that much lower than it would have been had they stayed independent.

And I'm just asking, doesn't that seem a little aggressive considering you've shut down all of these distributors, and there's got to be some inventory in the channel?.

Yes. I mean we think there is some, but eventually, they will run out of that. And I mean, some so the distributors, Jim, have returned inventory. There are pockets that haven't. But no, I believe that – I believe the guidance we've provided is perfectly reasonable..

Okay. All right. No. I think that the number for 2021 sounds very reasonable. It's just – I was a little bit surprised to see the number for the third quarter because of that inventory.

And then the last one, did you take any PPP money in the quarter?.

So this is JJ, Jim. So on that prior question, too, we have information from the most recent month, obviously, that you don't have. So that probably helps inform us as to the Q3 guidance answer for the Artegraft piece as well. To your question of the PPP, yes, we applied for it. Yes, we got it.

I think it was just $4.5 million to $4.9 million or $5 million or something like that. It's like three days later, the treasury issued their revised guidance and basically said if you're a publicly traded company, this is not for you. And so we gave it back about three days later..

Okay.

So none of your margins were affected by that, you didn't take any of that money?.

We did not take any of that money. We took it for three days or four days or something like that..

Okay. But I mean the margins are what you reported.

There wasn't like – there wasn't any one-time benefit from the PPP in it?.

No. No, no..

Okay, good. All right. That's it for me. Thank you..

Thanks Jim..

Thank you. 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 day..