Welcome to the LeMaitre Vascular Q2 2019 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. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Thank you, Carmen. Good afternoon and thank you for joining us on our Q2 2019 conference call. With me on today's call is our Chairman and CEO, George LeMaitre; and our President, Dave Roberts. Before we begin, I will 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 24, 2019, 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 include organic sales and growth numbers, as well as operating income and operating income growth expectations, excluding certain one-time gains and 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 of our website, www.lemaitre.com. I will now turn the call over to George LeMaitre.

Thanks, J.J. In Q2, we reported record sales of 29.5 million, up 9% and embolectomy catheters, allografts and polyester grafts drove dollar growth in the quarter. Both the Americas and Europe had record quarter growing 9% and 10%, respectively. We are increasing our full-year 2019 sales guidance to 10% growth, up from 8% at the last call. We are also guiding 17% sales growth for Q3 of 2019. The 2018 acquisitions as well as the 2018 sales rep surge are largely responsible for the 9%, 10% and 9% sales growth rates we have reported over the last three quarters. The Syntel and Cardial acquisitions of 2018 are running at eight million in annual sales significantly ahead of pre-acquisition results. The two acquisitions also seem to be causing organic growth in our existing polyester grafts and embolectomy catheters. Separately as you may recall, we bought the international rights to the true inside valve cutter in 2015. As a follow-up in July, we bought the U.S. rights, which we believe could add $600,000 to H2 sale. Worldwide, we ended Q2 with a 110 sales reps, a high watermark. We are also opening more sales offices as we aim to enhance our presence in the larger countries. In Q1, we opened our new Asia-Pac headquarters in Singapore. In Q2, we opened the sales office in Chandler, Arizona to serve Western U.S. surgeons and hospital. And in Q3, we hope to get ahead of Brexit by opening a sales office and warehouse in Hereford, England. Following the Hereford opening, we will have 13 sales offices, five in Europe, four in North America and four in Asia-Pac. On R&D side in Q2 we launched XenoSure Plus. XenoSure Plus is a thicker version of our current patch aimed directly at our main patch competitor. And an H2 2019, we expect to launch DuraSure, which is identical to XenoSure, but carries U.S. indications for neuro and spinal. As you may know, we also continued to pursue XenoSure approval in the three large Asian markets of China, Japan and Korea. In China, our clinical trial is now 93% enrolled, and we currently expect approval in 2022. We expect to make another Japanese XenoSure filing in September and we have received approval in Korea. Though we await reimbursement specifics. And finally our 2018 Australian XenoSure approval has begun to accelerate sales growth in that country. With that, I'll turn it over to J.J.

Thanks, George. Our Q2 2019 gross margin was 68.9%, down 1.4% versus the prior year period. The decline was driven by the recently acquired lower margin embolectomy catheter and cardiac product line with stronger dollar and lower margins in our export sales. Our gross margins maybe range bound for several more quarters, while we execute integration and cost cutting measures typical after our acquisitions. Two of those projects are underway. We have now begun to transfer Omniflow manufacturing from Australia to Burlington, and we are also transferring the applied medical embolectomy catheters to Burlington. We anticipate both transfers to be completed in H1 2020. In Q2 2019 operating income was $5.9 million, up 6% from Q2 2018 excluding special items. The operating margin in the quarter was 20%. In addition, we are guiding operating income increases of 16% in Q3, and 6% for the full-year 2019 excluding special. These increases compare favorably to past quarters and mark a returns our bottom-line growth. The increase leverage should be driven by solid sales growth and operating expense control. For Q3 2019 and the full-year, we expect operating margins of 19%. We ended Q2 with 48.2 million in cash an increase of $786,000 during the quarter. The increase was driven by net income of $4.6 million in stock option exercises, which were partially offset by working capital uses and dividends of $3.3 million. Separately our Board of Directors approved $8.05 dividend implying the yield of 1%. Our Q3 2019 sales guidance $27.8 million, $28.6 million represents a year-over-year increase at the midpoint of 17% on a reported basis and 11% organically. We also expect Q3 2019 operating income of $5.1 million to $5.6 million an increase of 16% as the midpoint. We have increased our full-year sales guidance to a $115.5 million to a $116.7 million representing a year-over-year increase at the midpoint of 10% on a reported basis and 7% organically. We also expect full-year operating income to be $21.5 million to $22.4 million an increase of 6% including one-time items. With that I will turn it back over to the operator for questions.

Thank you. [Operator Instructions] And our first question is from Rick Wise from Stifel. Your line is open.

Hi gentlemen [indiscernible] thanks for taking the questions. Just wanted to start on one thing, George you mentioned that the recent acquisitions that are going above your expectations and they are actually causing some organic growth in some of the other product categories. Can you maybe touch on that a little bit more, are you seeing the organic growth as more surgeons on board to LaMaitre or is this maybe just increasing procedure of wallet share with LaMaitre customers?

I think it’s more the former than the latter Drew and in general you remember the French acquisition was largely about the Dacron in France and we sell our brand of Dacron called AlboGraf and so we are seeing a really nice something good has happened with AlboGraf and we are ascribing it to what we are calling leakage which is a new word from the acquisition into our house brand our house type of Daclon the same thing is happening with the Syntel, Python acquisition, the applied medical devices. We bought those envelop in embolectomy and they are leaking into our brand of embolectomy catheters as well so you are getting reported good guy growth from the acquired devices and then you are getting also organic good guy growth into the devices that we already had.

Got it and just to touch on restore flow. I think last quarter you were discussing the product was a bit challenged, but it did improve in April and it looks like it continue to improve throughout the second quarter could you just maybe touch on some of the dynamics there of what you saw unfold through the second quarter, how that recovery is progressing with RestoreFlow and have you worked through all the issues at this point?

Okay to cut the end of your question, I sort of think yes, we have gotten at the end of our issue and our issue at the beginning for us which started very early on after the acquisition was we weren’t able to source enough of the long 70 and 80 centimeter cadaver veins, now we have gotten that behind us, I feel like our sourcing of these product is now beyond our gifting or granting or whatever you call it not allowed to sell them to people. But I think it's beyond that now, so we have a nice what they call a tissue bank of tissues out in Chicago now at our factory. And you know the thing played out a lot like we thought it would, the sales force said gosh, we don’t have enough product, this is the one place we are in backorder and so we galvanize a giant effort entitlement vascular and I think it was late January or early February where we said oh my God today we got it done. We have enough product and now sales are going up as a result of that. Let's see what happen next, but for the first four and half months of this new situation, it's been fantastic.

And this is JJ, that is on the sourcing and you recall a year ago Q3, we talked about a week or store flow quarter and we lost a bunch of the original very large customers and I think our organic growth rate of new customers has increased a lot. I think it's around 150 or so active customers now up dramatically from where we were when we acquired a product line. So there is a nice healthy topic going on in terms of new customer growth as well that is helping to get us over that hump which was on the purchasing side.

Q2 organic service is 26% in the AlboGraf categories.

Great. And just one last housekeeping question. I think I heard you mention your sales offices. But did I miss you provide an updated salesforce headcount by geography.

I hope I didn't give - George I’m happy too it, it’s a 110 on board right now, it’s a high watermark. 51 in the Americas, 43 in Europe and 16 in Asia-PAC a lot of the growth it comes and goes a lot of growth is been about Europe and Asia-PAC.

Great. Thanks s much for taking the questions.

Thank you.

Thank you. Our next question is from Jason Mills with Canaccord Genuity. Your line is now open.

Hey George its David Rescott for Jason can you hear me right?

Yes.

Want to start first on guidance and the acquisitions, so I know kind of in the past you have mentioned that you know recently acquired products are excepted to be lumpy going forward and I was wondering if would first be able the contribution within quarter from those products as well as kind of parsing up the differences going forward at least as far as how you are thinking about the different contributions in growth in the new guidance whether the legacy or the acquired the new products done and where finding those areas as you think you could see acceleration coming from.

Okay, lots of question in that, could you mind dissecting those questions down, what is the first question that you want?

Yes. So the first what I guess would just be on the acquisitions in the quarter. I know we can break out kind of what the contribution was there, was there anything kind of one timers in there. Second would be how you are thinking about growth going forward and where you know the majority of that growth is going to come from whether it be the acquired products, the legacy products or new product launches and then third one of that one being which are those three kind of areas will show any kind of acceleration.

Okay. So I’m going up with first two. So the acquisition will add 200 in Q3 and 400 in Q4 and if you want just the gross number in Q2. The applied acquisition was about 11 and the Cardial was about 850,000 if that was what you are asking. And then to continue on I think also you are asking what is the acquisition, is it going to be about organic growth, or acquired growth going forward, I sort of heard that in there and I would say the guidance is 10% reported growth to the year and 7% organic. So you could say the Company is growing 7% for the year. And then there is some acquisition there. Remember, in Q4, since we bought those two companies in late Q3, very early Q4, there really isn't that much contribution from acquisitions anymore. It's kind of petered out by them. And it's mostly an organic story in Q4, according to what we see from here.

Okay. And then, I think you mentioned that in the past, you have been able to kind of derive growth via ASP increases [indiscernible] increase as well as kind of volume growth. Is that kind of how you are thinking about it going forward as well? And I have another follow-up as well.

Right. So I wouldn't give guide on that. But I would say looking at Q2, the business comes exactly 50% from pricing and 50% from units, we did look at that. The growth of our business with 50% unit, 50% pricing.

And then maybe one more specific within the CEA. So I know, we kind of saw data [indiscernible] around kind of TCAR procedures. Wonder if you could provide some of your thoughts around. How you are thinking about competition coming in? And really, where it could affect any of your product lines?

Yes, I think there is no question in the USA. We are doing great with the shunt product line. But there is no question that is in the area of shunt, and we will see how adopted that technology gets and how it affects our product and our carotid endarterectomy business. So we shunt, and some people sense, this is a better way of setting they say, and there is a lot of data coming out. And the stock on that company is doing quite well. So hasn't affected us yet. We will see what happens next. It's hard to outguess what the surgeons are going to do.

Alright. Thanks.

Thank you.

Thank you [Operator Instructions]. And our next question is from Joseph Munda with First Analysis. Your line is open.

Hi guys. Tracy Marshbanks pitching in for Joe here. But he left me some questions for you. So the first one was on, could you quantify biologics as a percent of the revenue in the quarter?

So Biologics are about 35% of sales in the quarter? And that is up from about 33% in the prior quarter.

Okay. And then the other question was really on gross margin and your outlook? I mean, you touched on it a bit. But could you sort of help quantify where the improved outlook on gross margin is coming from between the integrations and various other operational activities you are going on?

Yes. So we are guiding 68.7 for the year and that is up 0.2% from our last guide, and most of that increase, really, Tracy is from the beat in Q2, we beat the gross margin a little bit. And I would say Q3 is typically seasonally oddly a little bit better quarter. And we might get some good guys from RestoreFlow which had should cranked up production as you know, over the last year. And some of that makes it way on to the balance sheet and comes back onto the P&L and will still come on to the P&L, but it's declining. I mean, we will still get some of that and maybe there is a mix topic there that helps us well.

Right, okay. Noted that you launched Xeno Plus. Could you talk a little bit about do you have any feedback from the market and how that is going and when you might have feedback, if you don't.

Yes sure. We have a very little but we have some, we have done about 10 or 15 cases. Everything seems to be going swimmingly, it seems to be - I would say we are trying to replicate our competitors product. We have our own product that is kind of we love it and it’s the market leader right now, but we have a big competitor who also has a big chunk in the market and so the surgeons seem very happy with it, everything is fine and we will see as it rolls out.

And last one maybe your thoughts on both as a company your ability and readiness for additional acquisitions and if you will the landscape out there that you are facing?

Yes Tracy this is Dave Roberts. The ability I think is just as good as it’s always been. We ended the quarter with $48 million of cash. We just did another smallest acquisition a couple of weeks ago, but at a very high level, the pipeline looks full, the strategy remains the same. You know we only do about an acquisition a year, so we are out hunting, valuations are maybe a little bit higher than normal, but the very situation dependent so and we will always wait until we see the right valuation before we close the deal.

Alright. Thanks very much.

Thanks Tracy.

Thank you. Our next question comes from Michael Petusky with Barrington Research. Your line is open.

Hi good evening guys. I may have missed this, but did you guys give growth numbers for XenoSure, valvulotome's store flow?

I think the only one we have given so far for store flow is 26%. Happy to give you Q2 numbers it’s I think valvulotome 3% organic or 2% organic, its 3% reported and what was the other one Xeno was single-digits to flat reported like -.

about 2% organic for Xeno.

Yes.

As to the extent you can speak to sort of a competitive issue and pricing and XenoSure, I mean is there any color you can give around that current state of the thing there?

Sure and I'm lucky I just saw a bunch of market share chart last week so I’m educated on this as I could be. It feels to me like in the U.S. specifically we continue to do a good job market share wise and that the market is down a little bit in the last year and half and so that might explain some of the issues we have had there. In Europe where we don’t enjoy as much market share. That is going much better for us and in some ways we look at Europe and the U.S. right on XenoSure, as the tale of two cities for us. It’s going great in Europe. The organic growth rate number in Europe is - I think it is eight or nine for the quarter, someone help me while we are talking and in the U.S. it’s more like one-ish, I think - I mean its five to six in Europe and then one here. So very different and we have a much lower market share over in Europe. In a good way like we have more to go and the U.S. you sense we will get into the 40 or so and it’s harder to make progress. Pricing you asked about we definitely feel pricing pressure by the various competitors in the U.S. more so than we do in the Europe. So we are out there doing a lot of price competition.

Alright okay very good and then I guess George in terms of the fairly recent hires in sales reps and now it takes two, three, four quarters for these guys to really sort of get traction. I mean it feels like probably we are still quarter or two away from sort of full maturity on that latest surge. I mean Is that a fair way to think about it or anything you can speak to there.

Yes. You know we are saying in this call that now we have seen 9% 10% and 9% sales growth in the last three quarters. So I'm starting to think like we are feeling a little bit, but I always feel like it take - this could sounds crazy, two years once you fill a territory and so you are really, really going. So it takes a long-time, we all got to be patient, but I think we are starting to feel good about it, it just feels good around here the sale does and you can start to feel it in some other guidance that we are giving you as well. So, yes I think we have started to feel it, I think there is still more coming on.

Okay.

And you know Mike one other piece about that is in the Americas sales rep ramp really hasn't been dramatic, it’s kind of been flattish, it’s really been more in Europe and you can kind feel that in our numbers too. Europe feels pretty strong and Europe feels a little bit lighter and maybe there is some correlation there.

U.S. feels lighter he meant to say.

Yes U.S. feel light.

Yes. I tracked on that. Okay great. Just one more and this is really housekeeping for JJ. Do you by any chance have the stock based comp and CapEx for the quarter handy?

I feel like I wrote it down just for you so. Stock based comps are 700,000, what do you want CapEx or G&A?

CapEx.

CapEx 850 and G&A 1.35.

Okay. Very good. Thanks guys, I really appreciate it.

Thanks Mike.

Thank you and our next question come from Frank Takkinen with Lake Street Capital. Your line is now open. Brooks O’Neil: Good afternoon this is Brooks on for Frank. I’m just curious that I might have missed some of the commentary George, but I would call back a few quarters ago you kind of stepped away from the 10 and 20 growth guidance that you had, I think put up for the company for some time, would you say you are ready to declare that LeMaitre is back or would you say we are still in a period where you are working aggressively to find the formula to get back to that historical growth number.

Brooks I remember by the way this is a big topic. I think three or four phone calls ago with you, so appreciate you staying on the topic. I think what we learned with the broad intermediate term guidance of what was then 10, 20, we learned that it interfere with a lot of conversations in one-on-one room and things like that. So I don't know if I'm ever going to go back to this intermediate term. Whatever it could be, whether it's 10, 20 or 10, 30 or 10, 10, I don't know if we are ever going to go back to that longer guidance, I think we sort of learned a lesson we should stay within ourselves, we should stay within the year and so this year it’s 10, seven and it feels a lot better than last year sales. And I forget - I think last year was up five negative two, if you adjust out for all the items. So we feel like we are crafting a nice comeback story. And it is a 10, seven but I think we feel a little bit gun shy about going beyond the end of 2019 as we just keep figuring out that the future is a lot harder to divine then you think it is. So I doubt we are going to go back to that type of thing, but maybe who knows the future is uncertain. Brooks O’Neil: Okay. But you are feeling you said and I'm just regurgitating what you said, you are feeling a lot better about how the company is positioned, the elements you put together to run the company and the opportunities you see in the marketplace going forward.

Things feel great to me right now and you are seeing the guidance with a 10, at the top-line we haven't seen double-digits guidance out at LeMaitre for a while. And you are seeing in the 7% of income growth. So I feel good - you are going to know what I feel based on how we guide, because J.J. and I spent two days locked in a conference room trying to make sure, we guide correctly. We do not forever - we are not better or worse than we used to be. But we take the guidance really seriously. Brooks O’Neil: No, no. It's good. It's important and I'm glad things are going a lot better, and you are feeling better. And that is a really positive thing. So keep it up. Congratulations.

Thanks for the question Brooks.

Thank you. And our next question is from Scott Henry with Roth Capital. Your line is open.

Thank you, good afternoon. It looks like great results. Just had a couple questions. Most of mine have been asked. But I guess first the RestoreFlow. Very strong quarter looks - it's always a guesstimate. But it looks like a record quarter for the product line. The question is sometimes that can be a little lumping in that product line. Should I think about the 2Q number going forward on an absolute basis as a new trajectory or will they still be some lumpiness based on quarter-to-quarter?

So to confirm for you, the question is, is it a record quarter? The answer is yes. It was a record quarter and RestoreFlow. I agree this one with the fewer number of customers is a little bit harder for us to understand. It's definitely not like the LeMaitre valvulotome business, where we have hundreds and hundreds of small customers. On this one, we have more large customers. Although, our model is less reliant on large what we call whales than the model of the company that we bought it from the actual RestoreFlow company. So I think we sorted out some of it. But I agree with you, it's a little bit lumpy. I don't know what to say about the future for RestoreFlow, except you just had a record quarter. It was up 26% and we have solved the supply issues that were nagging for the us the last two years. So I would say all systems ago around RestoreFlow. Let's see what happens next. We don't breakdown our guidance by product line. We love the fact that we are a mutual fund of vascular devices. So we don't try to break down exactly which product is going to do well and not do well for you guys. Of course, we are looking at that internally a bit.

And then just one other question on the XenoSure. You kind of mentioned right around, flat slightly up. But you have new products coming on-board. Do you think we are at a point where it should start to accelerate and we should start to think about sustainable growth, even if they are small numbers going forward, or I'm just trying to get a sense of when we come out from that kind of plus or minus category as far as growth goes? Thanks.

Right. It is hard to read. We agree with you and we feel it. Again, I don't feel comfortable putting any expectations on specific product lines. But I’m coming out with a 10% reported and a 7% organic guidance here. And so somewhere in there, something is going well. But I would rather not put that kind of - let's wait and see and see what happens in Q3 I would say. Sorry, that is not a very satisfying answer, Scott, but that is what we got.

Quite alright. Well, thank you for the color and thank you for taking the questions.

Thanks a lot Scott.

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.