LeMaitre Vascular, Inc. (LMAT) Q3 2021 Earnings Report, Transcript and Summary

Welcome to the LeMaitre Vascular Third Quarter 2021 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, operator. Good afternoon and thank you for joining us on our Q3 2021 conference call. With me on today’s call are 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 belief, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, October 28, 2021 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 EBITDA. 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. On today’s call, I will cover three topics: number one, Q3 sales of $38.4 million or up 5%; number two, the impact of the Delta variant; and finally, number three, our progress rebuilding headcount in the sales force. Sales of $38.4 million were up 5% versus Q3 2020. Sales grew 5% in the Americas, 5% in Europe, and 16% in APAC. Artegraft, allografts and valvulotomes led sales growth. Artegraft sales of $6.3 million were up 15% year-over-year. We also posted record bovine carotid patch sales as XenoSure’s CE Mark issues resolved in Q3 and our Japanese launch showed momentum. Biologics comprised 49% of our sales in Q3. Due to the Delta variant, many hospitals deferred elective surgery and prioritized COVID treatments. Variant may also cause patients to defer procedures. From a personnel perspective, 43 employees have been infected since the pandemic began. Approximately, 85% of our employees are fully vaccinated and we wait OSHA guidance on the U.S. vaccine mandate. As of today, we have 103 sales reps on payroll, with 6 more offers signed and 17 more territories being recruited. Soon we will surpass our high watermark of 112 reps. With 440 employees on our payroll we are now back to pre-COVID levels. Partly due to the competitive hiring landscape, we recently instituted an across-the-board $20 minimum wage for our North American employees and we increased our North American entry level sales rep pay by about $10,000 a year. Hiring picked up in September and October possibly due to these two changes. Despite the chaotic environment in the last 18 months, our business is emerging stronger and more profitable and our business plan remains unchanged. We are growing our sales force, maintaining high op margins, generating cash and investing in acquisitions. I will now turn the call over to J.J.

Thanks, George. Our Q3 2021 gross margin was 64.8%, an increase of 2.5% over the prior year period. The increase was largely due to Q3 2020 inventory purchase accounting related to the Artegraft acquisition as well as ASP increases in the current quarter. These margin gains were partially offset by manufacturing inefficiencies and unfavorable product mix in Q3 2021. We posted operating income of $9.1 million in Q3 2021, a decrease of 9% versus the prior year quarter. Increased operating expenses drove the decline as we continued to normalize our headcount. While year-over-year bottom line comparisons are challenging due to pandemic reduced operating expenses in the year ago quarter, we posted a 24% operating margin this quarter. We will continue to hire personnel and sales reps, while keeping a close eye on our operating margin. We ended Q3 2021 with no debt and $67.1 million of cash and investments. This increase was driven by our $58.7 million stock offering as well as $11.3 million in EBITDA generated in the quarter. We used $23 million of our cash to pay down the remaining Artegraft related debt and have significant excess cash available for investment. Turning to guidance, we expect Q4 2021 sales of $39 million to $41 million, which represents an increase of 7% at the midpoint versus Q4 2020 and expect operating income of $8.3 million to $9.7 million, which represents a decrease of 6% at the midpoint. Our Q4 2021 EPS guidance of $0.29 to $0.34 per share represents a decrease of 8% at the midpoint. In closing, I’d like to welcome Anthony Petrone and Zach Weiner from Jeffries, who have recently initiated coverage on LeMaitre. In addition, I would like to welcome Javier Fonseca from Spartan Capital, who also initiated coverage on LeMaitre in Q3. With that, I will turn it back over to the operator for questions.

[Operator Instructions] Our first question will come from the line of Anthony Petrone from Jefferies. You may begin.

Hey, this is Zach on for Anthony. Thanks for taking the question. A few from us. Can you quantify the Delta impact and the backlog that you are seeing, how long do you think it will take for surgeons to work through that backlog?

Yes. Hey, nice to have you on this call for the first time, Zach, this is George. Welcome to the Jefferies, folks. You know we are saying it’s about $1 million. The guidance midpoint miss was about $1 million. And it feels like about $1 million. It’s really hard as I am sure you can understand to be precise on how much it was. As the second part of your question is when does that unwind? We really don’t know it feels like every time we go through the COVID wave, it kind of unwinds a little quicker. And the effect is a little bit less so, but we don’t know the future. I think whatever we thought about that question, we tried to bake into our guidance for Q4. And I think you can see in Q4, we are projecting a 7% organic growth rate.

That’s helpful. And one of the themes that we have heard so far through earnings is the impact of staffing shortages. Is that anything that you guys have seen on your end?

We may or may not have seen it. I guess at my level, I haven’t. To be honest with you, I don’t know so much about that. You are talking to staffing shortages at hospitals, correct?

Of course, yes, procedure volumes.

I hadn’t – to be quite honest, maybe I should have, but I hadn’t distinguished between that function and just the no patients because of COVID function. So, I don’t know that.

And then one more for us, on the manufacturing efficiencies that you referenced – referenced in your release, do you envision them or do you expect them to roll off in 4Q or is that a headwind that you think will continue to progress through the fourth quarter?

Yes, Zach, this is J.J. There is a lot of things going and running through the gross margin line. And I think it you see sequentially, we have got a little bit of an improvement baked in. Some of this topic has been write-downs of inventory from maybe exiting some product lines and/or building up inventory for manufacturing transfers and not getting all the SKUs quite right. Maybe a little bit of CE topics in there as well that we have sort of gone through now, but have felt that as a result come through the P&L. And so I do feel like maybe that improves a little bit in the coming quarters and that’s probably a little bit of a good guy going from Q3 to Q4. There is probably a mixed topic in there to restore flow to the extent it does really well that tends to bring down the margin and then valvulotomes and Artegraft to that extent that they do well tend to bring up the margin. And I am guessing there will be sort of a favorable product mix shift in Q4 and that’s helping the margin as well. So there is a lot of other topics as well. For example, how did we do 4, 5, 6 months ago in terms of manufacturing efficiencies in our different departments? Those answers will now come through the P&L in Q4. I think that’s going to be a favorable topic for us as well as we roll towards Q4. So, lot of puts and takes, but I think we got to that, that sort of improvement in the margin through those concepts.

And then if we could sneak one last one in, it looks like OpEx spend is going to step up in 4Q, can you just talk about that briefly?

Well, of course, you are seeing us talk a lot about those sales reps. So, it probably can start and end there, but that’s happening around the company. We are back finally at 440 employees to being at what I’ll call pre-COVID levels and then we are ramping up the sales force. So a lot of it’s embedded in that.

Perfect. That’s helpful. Thank you.

Our next question comes from the line of Rick Wise from Stifel. You may begin.

Good afternoon, George. Hello, everybody. George, maybe, I mean, it seems like one of the most notable things you are talking about tonight is that sales force expansion, now 103 reps, 6 more already signed, 17 more to go you are going to be, it sounds like with any luck, 125 or 126, what in the next 6 months.

Yes.

Just a couple of questions, maybe you could expand on it just sorry to interrupt, but I was going to say just where are these folks going, what – are you splitting territories into creating new territories, what geographies, what are you prioritizing? How do we think about them on the other side of all this? The potential theoretical all things equal impact on sales starts to see the second half of next year or help us just think through all that? Thank you.

Okay. Okay, great, Rick. Lots of questions. And if I miss any you can come back and remind me that I missed them. But so I think that the main answer that I’d like to give you is that this is sort of an American thing, because we bought Artegraft in June of 2020 and we needed more sales reps when we bought them. And then all of this happened with the layoffs and then also the reps quitting as well. So we have had this fortunate rerack and then we got to choose okay around the world, where would you put your reps, if you could start over again and for better, for worse, we have that option. And so this is a big change to the American sales force. I know you didn’t exactly ask that question, but it does say where did they go? And then how did we do that? So, quick numbers here, we are going from 35 and I think David mentioned we are going to be up 83% in rep headcount in the Americas when this is all over with at something like I’m doing quick math here, 64 reps, so, going from 35 to 64, Rick. And so we elected to go there for very obvious reasons, which is now 67% of our sales are USA and Canada and it used to be more like 50%. And that was because of the acquisition. Within the Americas – within the Americas, how did we do it? Yes, we are splitting states. We are splitting territories. First, we had to go back and fill in back to the 55 territories that we had always seen as 55 distinct places, but then to give you – to put some meat on the bone here, a state like Michigan, we split, we only had Detroit, now we have Detroit and Grand Rapids, a state like North Carolina, we split – we only had Charlotte. Now, we have Charlotte and we have Raleigh and then a state like Georgia, we split we used to just have Atlanta, now Atlanta and Macon and so on and so forth. Those are three very obvious splits that you can understand. But so going after the Americas and splitting states and when you split states and we when you place reps, the driver for us is where are their current sales, because you want to be able to service those current sales. At the very least your sales rep is a helpful friendly face at the hospital helping take orders at the best. They are pushing product and doing things sort of on the offense. And so, we were – this nice thing which is all this Artegraft revenue, I think we are telling you here we have $26 million of Artegraft revenue now annualized. And so, you put that $26 million on top of the American business that used to be, I can’t get the numbers right now, but I am going about $75 million before this, Rick. So, putting them together, you have a chance to redo the whole monopoly board. So, it’s been a nice – I mean, it’s been a rough go for the regional managers with the layoffs and with the hiring, but it’s been a nice way to rerack. And I think we have kind of gotten it right. When you move over to Europe, the change is less extreme. It’s going from 33 reps at the bottom to 44 reps at the top when we are all set. And in Europe, it’s been a less – little bit less about splitting, splitting geographies, but it’s about going back after those capital cities that we had lost reps and that we always sort of wanted to cover, places like Birmingham, the UK, the stuff like Stockholm, stuff like Naples, things like that these bigger cities that didn’t have covered. So, that’s a bit of a ramble, Rick, you opened up a big topic, maybe you come back at me and tell me what are the parts of the question you want me to pursue in addition to that?

Yes, I think that’s incredibly excellent detail. I appreciate it, George. How do we think about the time to meaningful impact on the sales line? I mean, do we see – do we sort of, let’s say, pending COVID recovery? Is it like fourth quarter, first quarter, second quarter, right, not dissimilar run-rates and then we see sharply up into the right, in the second half of next year, all things equal, as these folks start to get productive, is that the right way to think about it?

Rick, I bet you have asked me that question and other analysts on this on this group 6 times over the years and I probably always give you an unsatisfying answer. And my real answer is I know and I always do apologize for the fifth now, but I am going to give you an unsatisfying answer of we know you need reps, things don’t happen in this world without sales reps, without franchisees, if you will, in these various cities. You have to have them. When did they come on? I’ll give you a real generic answer of quasi 6 to 9 months after you hire the guy or the woman, but sometimes you get one that jumps out and the Raleigh rep is fantastic. And then sometimes the Raleigh rep doesn’t happen forever. So I am going to say at a median point 6 to 9 months, but we don’t know. I have always found it to be a little slower than people like me and you want it to be but it then does happen over time.

Got it. Appreciate that. Back in the first half of this year, first quarter was a little slower you had some backlog that helps the second quarter. I keep wondering whether we are seeing with each company that’s talking about the software, third quarter, is there a backlog of procedures? Do you have any sense that could possibly, okay, you lost $1 million to COVID in this quarter that you gain it back in the fourth quarter, how are you thinking about that kind of thought?

I think it could add some upside to – listen, I have watched a couple of these press releases from these companies also. And I think it could add a little upside to the various medical device companies, you probably have a bunch of CEOs that are shell-shocked. We came out of our shell on July 29. We are all excited to give you guys Q3 guidance. We even went and gave you Q4 guidance. We gave you annual guidance. And then honestly, then it all happened in August and we left going, oh, geez, here is this thing again. So maybe and I would say maybe this is affecting me and J, who were principally doing the guidance here. Maybe we are a little bit burned from that coming out of our shell in July. And now we are just like, okay, here is your guidance and we don’t know, is there another I have read in the newspaper, this is – I don’t mean to start a rumor here, sorry. But I did read there is this Delta plus thing going on elsewhere. And I am like, oh, gosh, what does that mean? When we worked our guidance, Rick, we did not work in anything about a Delta plus, we just assumed things we are going to kind of be okay over the next 3 months. But we are also a little bit nervous about what could happen if something bad happens here, I think we all – every single one of us personally and professionally, we know the second we try to guess, I’d guess COVID we are wrong. And so I don’t know what to say at least we only have to guide for one quarter right now.

Yes, that’s very helpful. Thanks again.

Thanks, Rick.

And our next question comes for the line of Matt Mishan from KeyBanc. You may begin.

Good afternoon, George, Dave, J.J. This is Brett on today for Matt. I think a lot of my questions were already asked. So I will move to the balance sheet. Really, as it continues to strengthen, can you give some comments on how the M&A pipeline is currently looking and where you might be seeing the most potential opportunity?

Yes. Hi, Brett. It’s Dave. Good to hear you. The pipeline looks pretty good right now. We have got a few targets. They tend to be a little bit larger than some of the ones we did a while back, I don’t know in the $5 million to $10 million range or north of that and they continue to be sort of in the center of the fairway, either open vascular surgery, disposables and implants. But also, I think, as you know, we are starting to look sort of to the left of the fairway, let’s say in cardiac surgery or to the right in peripheral endovascular. We are always focused on niche low rivalry markets. So yes, we are processing opportunities. I will say valuations are a little bit high these days. We see that with, obviously, the IHI is nearing all-time high and our neighbor down the street, Boston Scientific they have been off buying some things at fairly high multiples, etcetera. So, that’s a consideration and we are valuation sensitive. But yes, we are out looking. And it’s not lost on us that we issued equity this summer and we have got a good bank account and no debt and a lot of capacity for a larger deal. So, we are – we will we are out hunting and we are going to try to find that, but we won’t do anything rash.

Alright, excellent. And then just one more from me, I think you guys mentioned from price increases this quarter on the call, can you provide a little bit of color on where you were able to implement those? And then if there is an initial view on how you are looking at the approach to pricing for 2022 versus historical trends? Thank you.

Sure. I don’t know what we are talking about Q4 pricing. We almost always do our price increases on January 1. And so we do have some initial thoughts on that, but I feel like it’s still being worked on internally. None of the hospitals know anything about what the pricing maybe. So, I think I think I am not supposed to be talking exactly about our pricing right now. It’s not particularly state secret type stuff. And about, I don’t know when the letters go out to the hospital feels like about 2 weeks or so. So maybe after that, we can get you a copy of the pricing changes to the various analysts if that’s important.

Alright. No worries. Completely understood. Thank you very much for taking the questions.

Yes.

Our next question will come from the line is Javier Fonseca from Spartan Capital. You may begin.

Hi, good afternoon. This is a Javier Fonseca from Spartan Capital. Thanks for taking the question. This question is in regards to Artegraft, it’s been over a year since the acquisition and my question to management is overall highlights, Artegraft performed relative to your expectations? And could you provide more color on how you expect Artegraft to perform in Q4 and through 2022? And also, can you throw some numbers as far as how Artegraft performed relative to allograft and valvulotomes which were the lead products for quarter three?

Yes, Javier, first of all, welcome to the LeMaitre call. It’s great to hear your voice. This is Dave. Artegraft is going very well, as you know, when we acquired it, about 16 months ago, the sales at the hospital level were $18.6 million. And now if you just take Q3 and annualized that it’s running in the $25 million to $26 million range, it’s definitely going ahead of the board model, the Q3 sales were up 15%. Our normal practice on acquisitions is that when we get beyond a year after the acquisition, we start to let that acquired company and product line fold into the overall LeMaitre mass. And so I am not going to necessarily walk through gross margins and operating contributions, but I will say, as Artegraft anniversaried, it’s gross margin was definitely north of the corporate gross margin and it had an outsized contribution to operating profit. So, I would say at a high level, we are consistent. We are still consistent with that. So I think from the top line perspective, it’s going better than plan and from the bottom line perspective, it’s also going much better than plan. Do you want to repeat them the next part of your question?

Of course. So, as mentioned earlier in the call data, Artegraft together with allograft and the valvulotomes were the key products driving revenue for quarter three. Could you put some numbers to those three products?

Yes, so Artegraft, as we mentioned was up 15%. It was the biggest dollar contributor to growth in Q3. Allografts were the second largest dollar contributor. They happen to be up 28% year-over-year and then valvulotomes were the third largest dollar contributor up 5% year-over-year.

And could you share like the actual dollar figure that each one brought in this quarter?

Do you have that handy?

We know, [indiscernible].

I’ve got that. So RestoreFlow was about $2.9 million and valvulotomes about $7 million.

Alright. Thank you very much.

Thanks a lot, Javier.

And our next question will come from the line of Brooks O’Neil from Lake Street Capital. You may begin. Brooks O’Neil: Hi, good afternoon, guys. I guess the only question I can think of that hasn’t been asked and answered is supply chain impact on the business, any disruptions there to speak up?

That’s Brooks out there, right. This is George. That’s Brooks. Brooks O’Neil: Yes. Yes, George.

Nice to hear from you, Brooks. Brooks O’Neil: Thank you.

On the supply chain side, it’s actually been okay so far, the back orders that we were focused on to our customer for the first 8 months of the year were largely CE driven. We have had a little bit more of back orders. And by the way, the back orders are way down right now based on the CE being solved. We have had some back orders due to some small that we could say might be related to supply chain issues, but remember, we manufacture almost all of our stuff in Burlington, Massachusetts, North Brunswick, New Jersey and then out in Fox River Grove, Illinois, we only have right now one outside plant that we own in Lyon, France. And so we are not as affected I think by people that are bringing their products in and then shipping them to domestic customers. So, I would say pretty good so far. Now, on the finance side and the money side, J.J, maybe commentary on if this is affecting anything inside the gross margin?

Yes, I mean, there is a couple of odd things that are going on Brooks like, we are running out and buying 6 or 9 months’ worth of laptops and sometimes running over to target to get them like literally. So there is some odd quirky areas of our world where we are trying to find stuff and we can’t get it. We have largely been able to do that. With respect more towards raw materials and the like, we have got a lot of inventory on hand, that’s our MO typically. If you look at our balance sheet, you’ll see why do you have so much inventory and it’s all geared towards this being a no backorder company and as it turns out that helps you in times like this. So when you can’t get a certain resin or you are looking for a certain piece of night? No, you can’t get it. Well, you probably got a decent amount on stock on hand. It helps you mitigate all that. So I would say yes, there are topics we are running around behind the scenes, putting out odd little fires, but nothing that’s really raised, raised itself to the level of this. There might be one exception, which is because of the CE Mark topics, not necessarily because of the supply chain issues. XenoSure for us is now being sourced for Europe from Australia and the shipping for that is more expensive. And we felt that variants come through the P&L and the gross margin is one of the things, that’s pushing the margin down a bit. Brooks O’Neil: That’s it. All that color was very helpful. I did think of one more thing, obviously, you mentioned the CE Mark coming through and all that. Are there any regulatory issues of those that you see that are impacting or you think might impact in the near-term?

We are watching one other sort of subsidiary CE issue around this product called Omniflow, it might be a passing set of back orders in Q1 up to like $300,000. Brooks. I don’t think you will notice that at your level around this company. Brooks O’Neil: Yes.

And then as we got through the whole CE thing, the official word is everything is perfect, everything is fine. We all know that’s just the MDD world. And everyone is shifting now over to this thing called MDR. And I would say if MDD is junior varsity, MDR is varsity and we are about to have to switch and see if we can play varsity. And that’s coming at us. And that’s going to be a big story at all medical device companies through the final transition date, I think is May of 2024. So there is a lot of stuff. There is a lot of things that we need to get right by then, but we think we will get them right. And we think we will deliver that to the shareholders, but that would be a topic. Brooks O’Neil: Okay, thanks a lot for that.

Thanks a lot, Brooks.

And our next question comes from the line of Mike Petusky from Barrington Research. You may begin.

Hey, guys, good evening. A few questions on – I didn’t catch, if you guys said, XenoSure, sort of the results there. I would love revenue and either growth or decline on XenoSure, I know it’s obviously an important product.

Yes. Mike, so we have a category called bovine patches. Let me grab that, it’s up 6%. And that includes our vascular sub-product as well as initially, but largely Xeno. It’s largely the answer you are looking for, $6.4 million in sales, up about 5%.

That was a record bovine carotid patch quarter. I think it’s notable. It didn’t make it to the top three product lines, but in and of itself it was a record quarter. It has a lot to do with the resolution of the CE issues around XenoSure, going from Q2 when we got the CE mark to Q3 when we finally had sellable products. There are as of a week ago, there are no back orders on XenoSure at the company right now. And I would say that was state main for the CE fight for 9 months or 15 months.

So, J.J., I guess this is this is not necessarily a really short-term question, it’s more of a 12 months to 24 months question, at least. In terms of gross margin, you guys at one time, and I know the world has changed, but at one time, we are sort of 70% gross margins, fairly consistently 69%, 70%, 71%. And I guess I assumed when Artegraft sort of was fully integrated, and sort of the accounting around that sort of annualized that you guys will be pushing a little closer to that historical range. And now it feels like well, maybe, maybe not. I was just wondered if you could broadly generally speak about expectations over the next, however long, 2 years, 3 years, 5 years, I mean what you think we listed there?

Yes, really nice question, Mike. Thanks. It’s something we have been thinking obviously, more and more about here, as we have sort of drifted down from high 60%, 70%, say into the mid-60s. And there is a lot of topics sort of contributing to this. I am going to reel off five or six of them. And then maybe we can talk about, are they here to stay, or where do they go going forward. And that sort of gives us an idea of maybe where we are headed, but certainly higher payroll costs for manufacturing, have a downward pressure on the margin. And you heard George say, we have got a $20 minimum wage now in the U.S. And that applies pretty directly to the manufacturing folks. And as you give [indiscernible] as every year, obviously, that’s a topic. We have increased manufacturing spend outside of payroll as well, in general operating expenses like indirect supplies and outside services. And you have heard me talk about freight related dizziness, sure. We have been building out new clean rooms and improving clean rooms, and that depreciation then sort of comes on to the P&L. And so that puts some pressure on as well. We have done – thing number three, we have done call it three or four lower margin acquisitions over the last 5 years-ish, 4 years, 3 years-ish, RestoreFlow protocol applied in cardiac. I mean you have heard us talk about those. And those are all in a state of improvement as we go forward. And to the extent that we can make good on that, that will certainly help the margin going forward, but it depresses it. In the meantime, quality has been a more of a topic for us as well. And so we have spent more on that to make sure that our quality team has all the resources they need and have all the employees that they need. And that’s obviously pushed on it as well. And then number six, we have talked about that a little bit at the beginning of the call. It feels to me like half of those anyway are transient, the manufacturing ones get worked on over time. And then while that’s going on, you have got some good guys helping you as well. And so we talked about improving sales by increasing sales prices at the beginning of the year and certainly, we talked about Artegraft. This year we put a nice healthy 20% plus price like in Artegraft this year. Hopefully, next year we can do something sort of robust in terms of price hikes there. And with other product lines like valvulotome, etcetera. And then as those new clean rooms get built out and get used and become more efficient, then that will help our operating folks get more efficient with sort of the standard costs by product line, because they are working in sort of nicer, cleaner, more efficient facilities, if you will. And then as those transfers are completed, like the Omniflow transfer that was recently sort of started up some production in – here in the U.S., but really isn’t efficient yet and the same with the Syntel and Python, the applied products, same topic there. We started production, but not really necessarily efficient yet. And those will help going forward as well. So, there is a lot – sorry, I am rambling there Mike. But there is a lot of puts and takes. I feel like there is a good answer out there. But we are in a point right now, where all of those five or six things that I talked about, sort of ganging up on me. But we will get through pieces of them over time as we move forward.

Okay. There is a lot.

No. There is a lot in there.

Okay, fair enough. And just a quick one for George, before I let the next person answer questions, or ask a question. So, on the sales reps, obviously for two quarters, three quarters or four quarters, it felt like, not a lot getting done. And then all of a sudden bang, you knocked out, feels like more than a dozen and a bunch more to come and all the rest of it. I guess my question is, and you have been – you sort of have been intimately involved in terms of sales, and one that part of the business at times and all the rest. I mean, when you look at sort of the types of folks that you find on recently and that are, you are in talks with to sign on. I mean is this sort of typical, or is it more new folks than you would typically hire, or are R&D folks, people that you sort of downsized during COVID? I am just curious as to sort of if there any differences in terms of the hiring the types of guys you are hiring, sales folks you are hiring versus historic? Thanks.

Okay. So, at a really high level, no, not at all and then when we bumped up the starting salary by $10,000, there is a hint that maybe we can get after some better folks. And then in very specific answer, I think we have rehired of all the people that got terminated or quit in the summer of 2020. I feel like about four or five came back. But that’s not a lot of people compared to going from 79 to 125. That’s – was that 45 people or something like that, so not too many people. But yes, we picked up four or five that had been here before. No, I don’t see much of a difference between when – the ones we are hiring now. And the ones we used to hire 2 years ago or so.

Just a quick one and just going back to that question that you feel like you always give the same answer that nobody is happy with the four or five that you rehired? Should their ramp be a lot quicker or not really?

Yes, very clearly, they should just step right back into their job. And those four or five came on two months or three months ago or even longer than that ago.

Alright. Very good. Thank you.

And Mike before you go, depreciation and amortization $2.925 million, stock-based comp $797,000 and CapEx $1.815 million.

I think you saved yourself the text.

Thank you.

Our next question will come from the line of Scott Henry from ROTH Capital. You may begin.

Thank you and good afternoon. Most of my questions have been asked. I just had one sort of bigger picture question over the first nine months of the year, which are admittedly a challenging time to figure out trends and whatnot. But when we think about like the first quarter, you were at the upper end of your guidance. The second quarter, you were well above your guidance range. And now the third quarter, you are below it. And even if we add $1 million back, you are kind of in the middle of it. So, I am just trying to get a sense of why you think it’s trending that way, or maybe it’s just noise or perhaps it’s the – you are waiting for the more reps to come in. I just want to get your sense of that kind of trend versus expectations and how we should think about it going forward?

Okay. Hey, Scott, it’s good to hear your voice. And I would say remember, when we are back giving Q1 guidance, what is that February 15th, or something like that, February 20th. Remember where everyone is, no one has had a vaccine then. And so I think we were really scared about giving guidance in Q1 and so okay, we would beat it. And then I think we are still and we didn’t do that that well. Remember Q1, there was still a lot of the winter COVID wave, particularly in the U.S. was pretty strong. And there was still a lot of muted results. So, I don’t think we had a particularly great actual sales quarter forgetting about how we did. Yes, it was 35.9. Forgetting about how we did against guidance, it was still, we were still surprised coming from Q4 to Q1, that Q1, particularly January, was that cold and bad. And so I am getting lost here. But I would say what you got to always remember where you were in terms of vaccines and guidance for that. And then we just blew it out in Q2 versus guidance and versus anything. And I think that was – we think that that was the rush of people back into these hospitals. And then maybe J.J. and I got a little bit over our skis and a little bit overconfident on July 29th, thinking that all that goodness that we saw from Q2 was going to get repeated in Q3. And so yes, okay, maybe you can even say, well, without Delta, we just matched our guidance. So, maybe we were more confident about our numbers for Q3. And that had been the first time that we had had any confidence about the numbers. And certainly, that did not apply to Q1 and Q2. We were all quite scared about what was coming at us.

And Scott, I would say as part author of the guidance, I just feel like there is more volatility these days, right. And so for a period of time, folks didn’t even want to give guidance. And we tried to come back early with guidance for you guys, because we figured at least even if we are going to be wrong, at least you can hear what we think and then you can make your own judgments from there. And so it’s just a little bit more hurly-burly and a little bit more chunky. I don’t know that there is a trend or anything systemic going on. I just feel like we are taking our best shots and then stuff happens. And it’s – and the volatility is a lot sort of wider than it used to be. I think it’s fair, that simple, really.

Okay. Thank you for that color and for reviewing the trajectory through that. It is helpful. Thank you for taking the question.

Thanks a lot, Scott.

Thank you. We have a follow-up from the line of Anthony Petrone from Jefferies. Your line is open.

Thanks. And then thanks for taking the follow-up here. And just want to jump back in on Artegraft, two quick follow-ups. The first would be just the recap on how the price increase was sort of viewed in the marketplace, and was there any drop off on accounts? I suspect it was not. And then secondly, just as we look out for Artegraft and think of share between a biologic graft versus synthetic grafts within the hemodialysis sort of landscape, where do you think biologic grafts could go as a percent of total versus synthetic grafts over time? Thanks.

Yes. It’s Dave Roberts. So, Artegraft, obviously we have put a fairly sizable price increase that J.J. mentioned in January 1, 2021. We – when we examined the market and our due diligence and we have been watching this product for nearly 20 years in our space. We felt like there was a pricing opportunity, probably the number one competitor is a synthetic piece of PTFE, with heparin bonded to it, which was selling for a much higher price. And really didn’t have the features and benefits and patency of Artegraft. And so that gave us the confidence to put the price increase in January 1. I would say maybe in January, we felt a little bit of a slowdown, as hospitals were pushing the price increase through their committees, etcetera. But by February and March, I feel like we didn’t lose any customers. And we effectively captured the entire price increase. So and when we did increase the price, we didn’t really increase it as much as we could have. And so we do think there is a little bit more room for a price increase. Still, we don’t want to be overly aggressive about it. But we do think there could be room in January again. So, we are examining that right now. In terms of the algorithm of grafts in AV fistula is of course the number one issue with grafts and which get access and cannulated for dialysis is infection, those needles going in and out of the grafts, 3 times a week. And so – of course the huge advantage of Artegraft as a biologic as a xenograft is that it’s xenografts and biologics are better at preventing and fighting infection than synthetic grafts. And so we do think over time we have seen a migration in access to the biologic grafts, just like in biologic patches, we were observing that as and after we acquired XenoSure many, many years ago. So, we do think that in the long-term, biologics probably will win and continue to win against PTFE. However, some surgeons prefer PTFE. And so that will be around for a long time. But we believe in the long haul, the biologic grafts will win out. And within that category, there are xenografts and allografts. And the advantage of xenograft like Artegraft is it’s generally about half the price of an allograft, which of course comes from the human cadaver. So, we think there is probably a compelling proposition to the physician in the hospital when you wrap all of that up.

Very helpful. Thank you.

Thank you. And with that I am not showing any further questions in the queue. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. And you may now disconnect. Everyone have a great day.