Good day, and welcome to the LeMaitre Vascular Incorporated's third quarter 2022 earnings 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. Good afternoon, and thank you for joining us on our Q3 2022 conference call. With me on today's call is our President, Dave Roberts. George LeMaitre, Chairman and CEO, is unable to be on the call due to the birth of his daughter last week. Before we begin, I'll read our safe harbor statement. Today, we will make some forward-looking statements within the meaning of the 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, October 27th, 2022, 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 growth. 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'll now turn the call over to Dave Roberts. Thanks, JJ On today's call, I'll cover three topics. First, Q3 organic sales growth of 7%. Second, our continued focus on biologics. Third, hiring in two key areas. We posted sales of $39 million in Q3, a 7% organic increase. Q3 organic growth was led by APAC, up 11%, and EMEA up 8%, while the Americas was up 6%. From a product perspective, carotid shunts up 23%, Artegraft up 12%, allografts up 10%, and Embolectomy Catheters, also up 10%, drove growth. Shunts benefited from a competitor exiting Europe due to the more stringent MDR CE requirements, while Embolectomy Catheters benefited from a competitor's backorder. These increases were partially offset by Valvulotomes, which decreased on a reported basis but were flat organically. Biologic devices grew 7% organically in the quarter and represent 50% of our sales. We continue to invest in new biologics approvals, and in Q3, we made two key regulatory filings. In Germany, we submitted our application for allografts, and in Japan, we submitted the carotid indication for XenoSure. We've also recently begun shipping XenoSure to Korea and expect our first direct-to-hospital sales there in November. On September thirtieth, we had 558 employees, an increase of 27% year-over-year. We focused our hiring in two key areas, sales reps and direct labor. Over the same period, our sales rep headcount increased by 28% to a record 118, while direct labor headcount increased by 54% to a record 213. These initiatives should drive sales and profitability in the quarters ahead. We expect to end the year with 125 sales reps. With that, I'll turn it over to JJ Thanks, Dave. Q3 2022 sales were $39 million, an increase of 2% on a reported basis and 7% organically versus Q3 2021. FX headwinds continued to be substantial, and we lost $1.9 million in sales due to the strengthening dollar in Q3. For the full year 2022, we estimate that we will grow 9% organically versus 2021 and will lose $6.4 million in sales due to the strong dollar. In Q3 2022, we posted a gross margin of 64.2%, a decrease of 60 basis points versus the prior year quarter. The strengthening dollar decreased our gross margin by 170 basis points, while unfavorable sales mix was offset by average sales price increases and manufacturing efficiencies. As Dave mentioned, we've increased the size of our manufacturing team. This should have a positive impact on our gross margin in the first half of 2023. Increased direct labor headcount should also increase output and mitigate any potential MDR transition or supply chain issues. Q3 2022 operating income was $6.2 million, reflecting an operating margin of 16%. Operating expenses increased 20% in Q3 as we continue to hire and invest in many areas, particularly our sales and regulatory departments. Before year-end, we intend to submit MDR CE mark applications for five additional products, building on the seven we submitted in 2021. Our revised guidance reflects these efforts and shows an 18% operating margin in Q4. The cash on our balance sheet continues to grow. We ended Q3 2022 with $79.7 million, an increase of $4.1 million versus Q2 2022, and $9.8 million since the beginning of the year. The Q3 increase was largely driven by cash from operations of $7.3 million, partially offset by dividends of $2.7 million. Turning to guidance, we expect Q4 2022 sales of $39.8 million-$42.2 million, which represents a reported increase of 4% at the midpoint and 9% organically. We also expect operating income of $6.6 million-$8.2 million, which represents a decrease of 11% at the midpoint. Our Q4 2022 EPS guidance of $0.24-$0.29 per share implies a midpoint of $0.26 per share and represents a decrease of 5%. Before opening it up to Q&A, I'd like to welcome our newest board member, Martha Shadan, who joined us in September. Martha has over 20 years of life sciences experience, most recently as president and CEO of Miach Orthopaedics, and prior to that, Rotation Medical. She currently serves on the boards of CVRx and AdvaMed. With that, I'll turn it back over to the operator for questions. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Sarcone from Jefferies. Your line is open. Hi. Thanks. Hi, Dave. Hi, JJ Thanks for taking the questions. Hi. Congrats to George on the new addition to the family. So I just had a question on 3Q. I think guidance was for 10% organic growth, and you came in at around 7%. Do you think you can just talk about you know what drove the shortfall versus expectations and maybe comment on how activity trended throughout the quarter? Sure. Thanks for the question, Mike. You know, one big part of the story, obviously going through everything is FX these days. Versus when we guided, FX hurt us on the top line by more than $100,000, maybe $125,000 or $150,000 or so. That's a piece of the story. Valvulotomes had a light quarter as well, sort of maybe $500,000 or $600,000 less than we were thinking when we gave guidance. I would say that they just sort of hit an air pocket, and that happens sometimes. It was a light quarter there. We also had a little bit of a backorder issue with one of our product lines in Europe, and that hurt us a little bit as well. I think those were the sort of topics in and around why we missed. You know, the cadence through the quarter was sort of low in July, low single digits, and then August sort of low double digits, and then sort of high single digits in September, something like that, in terms of growth rates. There wasn't really necessarily a clear pattern of increasing or descending that you could sort of glean from that. I would say, you know, overall, yeah, it was a little lighter than we thought, but still up 7%, organically, which is pretty much in line with sort of what. where we've been historically in that 7% or 8% growth rate. Sure. Thank you. That's really helpful. I guess just as a follow-up, can you talk about, I guess, how activity has trended through October, you know, and around the backorder issue in Europe? Can you talk about your confidence in accelerating from 7% organic to 9% in the fourth quarter? Yeah. Mike, it's Dave. Thanks for the question. Yeah, you know, as JJ said, there wasn't really much of a pattern that we could glean from the months in Q3. For that reason, we're a little bit reluctant to talk about procedures and all that. Suffice it to say that, obviously the organic growth rate that we're guiding for is up to 9%. You know, we're feeling good with that figure. Of course, you know, one of the topics is that we've grown our sales force fairly quickly, as we talked about in the prepared remarks. We're up to 118 sales reps. That's up 28% year-over-year. We're hopeful that, you know, as these few months continue to pass, these reps will be able to gain more traction. That's part of what's giving us the confidence to increase the organic growth rate in Q4. Mike, I can give you a little more sort of sequential flux, might help you sort of fill in some of the story here. Q3 is typically a little bit lighter than Q4. As you're going from Q3- Q4, I know you asked about year-over-year growth rates, but maybe just a little color on how you get from one to the next. You can expect a nice uptick from seasonality. The days, we actually have fewer days in Q4 than Q3, so that might hurt us a little bit. FX is gonna hurt us a little bit as usual also. We talked about that Valvulotome piece earlier in Q3, and I'm gonna guess we'll have a nice rebound in Valvulotomes from Q3- Q4. That'll help us pick up a little volume there as well. Great. Thanks for all the color. Once again, to ask a question, please press star one one on your telephone keypad. Your next question is from the line of Matt Mishan from KeyBanc. Your line is open. Hey, guys. This is Brett Fishbin on today for Matt. Just wanted to follow up on guidance. I think you just touched on revenue, may center around FX and some of the issues around Valvulotome. Just looking at margin, though, it seems like it was definitely, you know, a step down and looks like a local trough for you guys. Just wondering, outside of FX, which you quantified, what some of the bigger moving pieces we should be thinking about, impacting that sequential decline. Like, maybe specifically giving us a sense around how some of the broader macro headwinds around inflation and supply chain, like, may be impacting the near-term trends. Yeah, sure. The gross margin came in weaker than we thought, and you can see that. A piece of that is clearly FX, and we talked about that. I'm gonna say 0.2% or 0.3% of the 2.5 delta there is probably FX since when we gave guidance last time, so not a small part of the answer. Mix was a larger part of the answer, though, because Valvulotomes come in with a really nice gross margin, and when you have a weaker Valvulotome quarter, you do feel that in the gross margin. Mix in total maybe was 0.8% or a third-ish of that delta that we're talking about, and the Valvulotomes were a big piece of that. On the manufacturing side, we probably had a little bit more inventory write-offs or yield topics or scrap topics in terms of inventory than we've had typically. That was a piece of the story. The high level piece is what Dave talked about a little bit, I think, earlier, which is the direct labor piece is an important part of our story going forward on the gross margin line. I probably thought they were gonna get a little more efficient a little more quickly. We've done a lot of hiring, and you gotta hire them, you gotta get them in the door, and then you gotta get them trained. Given the number of folks that we've gotten in the door, I think it's taken a little bit longer to get them trained and efficient than I had thought. I think that's dragged down our gross margin answer in Q3 versus guidance. All right. That's really helpful. It sounds like some of those moving pieces are, you know, could be more short-term in nature. Then just, like, thinking about some of the longer term initiatives that you guys have in place, it kind of feels like, you know, you may be accelerating some of the investments just given, you know, like, your rep count already hit, like, the levels you were talking about for exiting the year. You're talking about, like, increasing the number of MDR submissions as well as the kind of international product approvals. Why is now the right time to be making those investments? Like, was this planned, or does it feel like, you know, you might be pushing forward a little bit faster? Brett, it's a good question. Obviously, with MDR, there's a timetable on that. The last day we can ship MDD products to Europe is in May 2024. The last day we can sell them in Europe is May 2025. You know, the good news on MDR is we're right on glide slope. We've obviously submitted seven MDR applications at the end of last year. This year, within the next couple of months, we'll submit five more. I think that'll just leave one or two in 2023. We're feeling really good about that. I think that explains the timing of the regulatory spend, which is always planned. In terms of the sales force expansion, I would say, you know, for years and years, this has been a really solid investment for LeMaitre investing. I think it's maybe the principal asset of the company. You know, as I mentioned, we do expect to get to 125 by the end of the year. At the moment, even when we get to 125, a typical LeMaitre, an average LeMaitre territory in terms of sales will be about $1.25 million. Of course, often in med tech we hear sort of the million dollar territory. We feel like there are a lot of geographies, a lot of territories where we could still expand. We do hear many instances where reps aren't able to get to cases, for example, allografts, because it's too far away in their territory, so shrinking territory size will help address that. Frankly, I think it will also be a positive for our sales reps. The more reps we have, the smaller the territories become, the more interesting I think the job is, the more appealing. That should be good in terms of hiring and retaining sales reps. You know, I'll add two other concepts about why now. One is, you know, as we went through COVID, we cut back pretty sharply on headcount in all areas, probably too sharply. That rebound in hiring took a little time to get going. I think, you know, we decided that this year, really, the organization really needed to fill in in a lot of areas, not just reps and DLs, but in other areas as well, in quality and regulatory and admin. I think it was a welcome answer from an operational standpoint generally, which is it was the right thing to do for the organization. For the sales reps, I would say, you know, we haven't done an acquisition in a couple of years. Dave keeps us pretty well stocked up every year with a deal, and we kinda got lucky in this sense operationally that we haven't had one for a year or two. Maybe it's a good time that the reps don't have to focus on a new device necessarily, and we can sort of focus on building that rep team. Maybe that was a good time as well. All right. Thanks very much, guys. Appreciate it. Your next question comes from the line of Brooks O'Neil from Lake Street Capital Markets. Your line is open. Good afternoon, everyone. Obviously, the cash buildup is notable, and JJ just mentioned the acquisition. Just curious how you guys are thinking about capital allocation now, then investing heavily in the business. Maybe it is a good time to be out there, and what's the acquisition environment looking like to you, Dave, now? Yeah. Thanks, Brooks. Good to hear your voice. Obviously, you know, our focus is to generate cash, return to operating leverage. As we do generate cash, probably, you know, from my perspective, allocating cash to acquisitions is, has been a successful strategy for LeMaitre for a long time. I would say after that, of course is our dividend. We're in this Dividend Achievers Index, and we're very proud of that, and it signals our commitment to ongoing profitability. Then, you know, there are other cash needs, smaller, like CapEx and maybe acquiring distributors and whatnot. On the acquisitions front, yeah, it's been, you know, two and a half years since we've done an acquisition. We're definitely out there looking at targets. We have taken a run at one or two in the last many months. Don't have anything to report at the moment, but the pipeline looks good. Of course, the criteria is generally the same, which was looking for products with minimally $5 million or $10 million of revenues in open vascular surgery. Although we do look a little bit at endovascular and cardiac surgery, we derive about 10% or 12% of our sales in cardiac now. Another really important piece of it is the niche low rivalry aspect, where we like to be number one or number two in our space. I would say, we're on the hunt, and I've got a really solid team who I work with on it. You know, as the cash balance builds, of course it gives us greater optionality to do larger deals. We're out there hunting. Valuations are down, of course, a little bit with IHI down 26% year to date, et cetera. Maybe deal flow slowed a little bit in general in terms of what the banks are reporting. Yeah, we're out there hunting and, you know, just like when real estate valuations are down, that might be a good time to buy a house. Maybe it's a good time to acquire a company at some point. Absolutely. I assume the shutdown of the plant in France went about as you guys expected. Yeah. I think it has. You know, it's a whole dance and a whole process over there. There's all sorts of legal formalities that you gotta make sure you work your way through over in France. Yeah, the building is shut and actually sold. We recently sold that building, so we are done manufacturing over in southern France. We're still negotiating with a few, we'll call it a handful of folks, on severance, but we feel like that $3.1 million number we gave you last quarter is kind of gonna be about the right answer. Just to add on, we were because the closure happened so close to the end of the quarter last quarter, we were unable to have that 3.1 deducted for tax reasons in Q2, but we were able to get that in Q3. That's why you see an abnormally low 11% effective tax rate in Q3. Cool. Thank you. JJ mentioned the Valvulotome weakness. You guys just think that's kind of the ongoing ebbs and flows of the business? There's nothing you'd point to that would suggest any change in the underlying market for those? Yeah, I don't see anything really in Valvulotomes in particular that would lead you to say there's some systemic topic there. That just felt like an air pocket to me in the quarter. They happen every once in a while, and then a rebound. It's a franchise that has been around, obviously, with this company since the very beginning of time. It remains an important part of our portfolio, and it's performed well, you know, over the sweep of time and more recently as well. There may be broader topics in different geographies in terms of case procedures, staffing in hospitals, maybe some COVID topics in different geographies. Remember, 40% plus of our sales are not in the U.S., so those can sort of swing around and get you from time to time. You know, by and large, the sort of mutual fund approach to product has served us well. In this case, Valvulotomes did take a little dip, but I think that's not a topic necessarily going forward. Great. Thank you very much for taking my question. Your next question comes from the line of Rick Wise from Stifel. Your line is now open. Hi, this is Purnima Malik. I'm calling for Rick Wise. I know that you mentioned in this quarter that you've acquired 118 reps and you're planning to increase to 125 sales reps this year. It sounds like this year in general you are focused on a lot of hiring. I was wondering whether any of the macro pressures have affected you know your decision in hiring or at least the rate of which you're hiring and how this might proceed going into 2023. Additionally, I was wondering whether you could elaborate on where you might be like underrepresented in sales force geographically. Ballparking, do you have an idea about where you might wanna be in 2023 as far as your sales force headcount? Yeah. Hi, Purnima. Dave. Great questions. In terms of the macro, of course, we've all been reading in the headlines for months and months and months how difficult it is to hire and, you know, how a lot of people are switching jobs. I'd say LeMaitre has not been immune to that. We've done a lot of hiring. However, we've had high turnover in the sales force, I'd say a little bit, and in our DL, even though from a company-wide standpoint, our voluntary turnover here in Burlington is 5% or 6% below the benchmark. You know, sales rep turnover has been something we've lived with for a long time. I think part of our coping response is to hire more reps, expecting that there will be a certain amount of turnover. That's, you know, the turnover does affect our the number of reps we hire and the cadence. Another piece of the macro that affects our reps, and frankly, their ability to gain traction is, you know, with and since COVID, our reps have had less access either to the operating room or to the physicians. Of course, it's gotten better, and COVID itself, of course, has gotten a lot better. There's still isolated, you know, countries like Japan or maybe cities in China, but by and large, you know, the hospitals and ORs are open. The rep access is limited. You know, with our reps who do a fair amount of on-the-job training, I think that COVID, that rep access limitation has maybe slowed their training a little bit. In terms of, I might be missing a question, but you were asking where are we, you know, well-represented and underrepresented. We've been doing a lot of hiring in the U.S. and frankly in part due to Artegraft, which has just been a very solid acquisition, and we keep hiring sales reps to promote that product. I would say if you look around the world regionally, of course, China is the second-largest medical device market in the world. We only have two or three sales reps there, but we have a limited number of approvals there. Korea, we just went direct there earlier this year. We have one sales rep on the ground. We haven't sold a product yet in Korea, but we expect to here in the next month or two, and then we should be able to add reps there. I'd say at a high level, maybe APAC is a little bit underrepresented for us. We wanna expand in the U.S., continue expanding in the U.S. as well. Great. That makes sense. Thanks. Then I have one more question. Virtually every company that we've heard from so far has discussed how macro pressures affected their business performance. Where do you see the macro pressures stabilizing or even improving? That's an interesting one. I think again, for us, you gotta look by geography. You know, in the U.S., it feels like maybe it could improve a little bit. In the U.K., we heard stories about there being blood shortages, and so maybe there's a little bit of outsized improvement there, potentially. I think, was it Japan that had a COVID lockdown too fairly recently? There's been pressures there, even though our XenoSure product line is doing very well in Japan, maybe from a macro perspective, there's room to breathe a little bit more in Japan as they get out of lockdowns. It's really almost country by country to answer that, but maybe those are some of the highlights. Great. Okay. One last one from me. I know that interest rates are obviously increasing. How do you see this affecting, like, your business decisions and decisions of potential M&A candidates going forward? Just to tie it into, I think something that you said last quarter, you were valuation sensitive when it comes to M&As. Are you seeing that those valuations are finally coming down? Are they coming towards your sweet spot? When do you think that might be the case? Yeah, it's sorta hard to predict that really reliably and thread the needle. Obviously, with interest rates rising, we're happy we have no debt and almost $80 million of cash. It means that we're actually generating interest income for our shareholders, which, you know, is sort of a silver lining to having all that cash. In terms of interest rates rising, I would say, you know, obviously, that's depressed valuations, as we've mentioned already. You know, it's really hard to predict, you know, how much further down valuations go and what that trajectory looks like. In terms of leverage, you know, to the extent that we use debt to fund acquisitions, you know, our order of operations is use cash on hand first, and we probably have $50 million-$60 million of cash on hand that we could use. We wanna leave a certain amount of working capital. Secondly, using debt. Well, you know, the debt market is not what it used to be, and so, you know, we're probably a little bit more cautious about how much leverage we would use in an acquisition, and then the cost of that debt would be higher. We have to factor that in as well. You know, in the meantime, I don't say we necessarily try to time the market in terms of, you know, the med tech valuations going up or down. Clearly they're heading down. I would say, as a rule, public company owners of potential carve-out targets are probably they're getting the email sooner than private company owners who may be reluctant to admit that their business is worth less because they can't look at the stock price every day. We're very conscious of it. You know, for us, I think the more important factor is long-term strategic fit. Yes, we're always valuation sensitive, but more importantly, we wanna find the right target strategically. When we do that, in the long term, we win and our shareholders win. That's really what we're focused on. I don't know if you said this, Dave. If you did, I apologize for repeating, but the bright side of increased interest rates is our interest income on our excess cash. We're sort of at a $1.2 million run rate right now per year for interest income, which is a nice improvement over where we've been historically. There is a silver lining there. Okay, great. That's excellent color. Thank you. Your next question comes from the line of Michael Petusky from Barrington Research. Your line is now open. Hey, guys. JJ, could you give me, if you've already given it, I missed it, stock comp, CapEx, and cash flow from ops, if you have it? Yes, I can. I prepare these for you faithfully every quarter, Mike. Thank you. Depreciation, amortization, $2.33. Yeah. Stock comp, $1.19. Do you want another one that I didn't faithfully prepare? Is there a third? CapEx and cash flow from ops. Yeah, yeah. $460K. What was cash flow from ops, if you have it? Cash flow. You're saying pre-cash flow? What do you want? No, no. Cash flow from operations before CapEx. Oh, seven, 7.3. 7.35. Awesome. I didn't catch XenoSure. Have you guys disclosed anything on XenoSure's short performance during the quarter? It grew 15% organically, 8% reported What was the actual reported decline in value terms? Like, down 5% or something like that? Yeah. Volumes were flat organically. Reported down 6%. Down 6%. Okay. Okay. Just to confirm, I think you guys had maybe given it some thought, but were leaning against raising price before your typical sort of first of the year. Did you guys hold to that, or did you guys, you know, make some price adjustments since the last conference call? We have not made price adjustments. I think we're sticking to that sort of beginning of year annual. Okay. I felt like we didn't wanna overreact to many transitory topics, and we wanted to look at the businesses at a higher level over a longer sweep of time and figure out what makes sense from that perspective. We're pretty aggressive from a price hike standpoint already, and you see that in our corporate presentation, getting sorta 3%, 4%, 5%, 6% a year blended worldwide. I feel like that process, the cadence of that process is, has been, will remain the same for this year. Is it fair to say with inflation and how that's sort of hitting everybody, that maybe you guys are a little bit more aggressive in terms of pricing at the first of the year or no? EBD. You know, we try and buy a lot of nice data to guide us on this topic, be it the competitors' pricing and market share changes, and do that by fairly specific geographies. We really rely on that. It's more of a market will bear topic and a sort of what makes sense topic in terms of pricing strategy as opposed to a cost-based topic. The cost piece has obviously come into play, but I would say maybe their consideration number two, and the first piece is what I mentioned, sort of what's going on in the market. It was great color on the sales rep number and the direct labor number. You said that the rep number could move up another six or seven by year-end. The direct labor, I mean, is 213, is that about right, or do you need to do any more material hiring there? Hi, Mike. It's Dave. I would say, 213 is a good level. Maybe we could do a little bit more, but frankly, I think, we're sort of nearing a near-term plateau on that. Our focus now more frankly than bringing a lot more direct labor employees is on getting the ones we have trained up and getting them productive. You know, our rate of direct labor hiring has been pretty dramatic. We're up 54% versus a year ago. Year to date, we're up 50%. Obviously we're not expecting anything like that. Could it go up a little bit? You know, there are still reasons to hire more reps as we need to build inventory to prepare, you know, to have plenty of stock on hand for MDD transitions and, you know, to the extent that supply chain is still difficult, it's important to be able to have stock available for that. I would say we've done most of the hiring at this point. Just sort of the last area that I just wanna ask about. It feels like if I'm sort of listening to the comments both on the direct labor and sort of maybe some of the newer hires not being as productive and then not coming through in gross margin improvement, and on the sales side, you sort of alluded to maybe high turnover and sort of also sort of talked about, well, maybe they have a little less access and that's causing them to be slower coming up. I mean, what it feels like and sort of the numbers sort of suggest, especially when you compare to last year, all this hiring hasn't really driven a number. I understand it's a 90-day snapshot against a 90-day snapshot, and things may you know, improve meaningfully going forward. I mean, it's fair to say you haven't gotten a bang for the buck to this point in really either, you know, sort of hiring initiative, either on the sales rep side or the direct line. Mike, I think that's right. I think that's generally directionally right, and I think we're trying to say that a little bit in our prepared remarks. Yeah. Which is we know this is the right strategy on both counts, and it's sort of the right answer that we're getting to. But it's taking a little bit longer to get for that to translate into results. You're always trying to say, "Well, rep count is up this percent, and so organic growth should then increase this percent." That correlation is not always as direct as you want it. We know over the sweep of time and in the medium term, and certainly the long term, it is, and it's the right answer. Yeah, we gotta wait a little bit longer. That training for sales reps has been hampered, we think, by access to hospitals, for COVID reasons and also maybe for staffing reasons in hospitals, and maybe some other reasons as well. Also when you hire quickly, maybe you make some mistakes along the way. Some of that has probably gone on as well, and maybe there are similar themes in the direct labor piece. We've done both of these strategies before, and we know they've worked well, so we feel confident that this is the right direction. Okay. Just what, real quick on the sales reps. I mean, have you guys lost any like, you know, super productive, you know, key reps, you know, over the past three to six months that just have been difficult to replace or replace effectively? Mike, of course, you know, we always. We never like to lose a rep. I mean, if a rep isn't performing, usually they're on a plan. The reps that we do lose, we never like to lose them. This has just been, you know, rep turnover is something we've lived with ever since we had sales reps. Have we lost some good ones? Yeah, probably. It's a bell curve, and we've lost some good ones, and we've lost some non good ones. It's probably no different than, you know, reps turnover in the past, except the numbers are bigger because we have more reps. I don't think we sit here and gnash our teeth about, "Oh, gosh, that one rep left. We're really, really upset about that." I mean, we diversify. We're very diversified with 118 sales reps. We're firing on 118 pistons. You know, if one of them decides to leave, well, that's their prerogative and we'll replace that person. All right. Very good. Thank you. Your next question is from the line of Jim Sidoti from SIDOTI & Company. Your line is open. Hello? Can you hear me? Now we can. Okay. Sorry. The moderator cut out just as she was saying your name, and I wasn't sure if it was me or not. You mentioned a little earlier in the call that there was a backorder in the quarter. Is that issue resolved now, and will that product ship in the December quarter? It's getting resolved as we speak, and yes, it will be shipping in Q4. You remember Omniflow, the Omniflow grafts, they were transferred here to Burlington in terms of their manufacturing. The startup of that manufacturing process. You know, there's always a learning curve, and it's always a little less efficient than you want it to be. As we started that up, we created a little bit of a backorder, but yeah, we're working our way out of it, Jim. It sounds like there's a light at the end of the tunnel with regards to the MDR process. Do you think that spending should come down in 2023? Can you just remind us what you spent for that in 2022? I'll take the first part of that question. Obviously the MDR spending has ramped over time. It ramped a little bit earlier for us because we had to change notified bodies for our MDD approvals, and we started to make investments a year or two ago on that. Clearly, you know, with filing the seven MDR applications at the end of 2021, and there's a lot of clinical evaluation report work to develop and dossier development. It was ramping then, and then this year again with another five applications going in by the end of the year. I would say if we're not at our plateau, we're near it. You know, we hope to start getting approval sometime in the next 12 or 18 months. Once you get the approval, the spend doesn't go away. It declines a lot, but there's an ongoing requirement for clinical data and whatnot. I would say if we're not at the plateau, we're sort of near it now. You know, 2023 maybe is still high, but certainly 2024, we would expect it to start to come down. Jim, I'm gonna be a little more cynical about it, and I'm gonna be like, well, remember when we had the CE mark issues and we got through that. We spent a bunch of money, and we got through that, and then that was replaced with MDD, MDR, and somebody's gonna come up with something new to spend it on. I'm gonna say, yeah, the MDR spend will come down, but I don't know what it's gonna be replaced with. We'll see. But you asked about numbers. I'll give you the regulatory and clinical spend the last three quarters, $1.7 million, $2.1 million, and $2.2 million. If you know, we're not talking about next year yet, so we'll see where all that goes. You can make assumptions from that about up, down, left, right, and what%. You can get a handle on that now given what the spend was in those three quarters. Sorry. You know, if we do hit a recession next year, you know, based on past recessions, you know, do you think any of your product lines are pretty recession resistant? I feel like this one's a little bit controversial. We're largely non-discretionary procedures. If you get a blockage in your leg, you gotta get it fixed at some point. Your foot's tingling. It doesn't have to be next month or the month after or maybe four or five months out, but it's gotta get done at some point. All roads lead to a procedure at some point, and that typically means you're at the LeMaitre store buying a device to fix that. I would say, yeah, they're largely non-discretionary, but they do ebb and flow. We saw that with COVID, right? We have a weak quarter, and there'd be pent-up demand, and then we have a stronger quarter. I'm gonna say that same sort of dynamic could be at work with other topics as we go forward, economics or otherwise. Okay. All right. Thank you. Thanks, Jim. Just checking in. Everything's fine here. Your next question comes from the line of Scott Henry from ROTH Capital. Your line is open. Thank you. Good afternoon. First, congratulations to George. That's pretty exciting. I just had a couple very brief questions. First, when looking at the gross margins, obviously the strong dollar creates a lot of noise there, and the mix is also a factor. When we think about that line going forward, if we think at a constant currency basis, should we think about it trending higher, or should I think about it more of being between 65%-70% and bouncing around based on mix? Just trying to get an idea how to think about the trend in that line, constant currency. Yeah. You're right. Great question. I guess the first level set piece of this would be year-over-year FX hurt that gross margin by 1.7-1.8%, something like that. You know, we came in with 64.2%, but really you can add a couple of% to that to put it apples to apples with the prior year. To the extent that the dollar weakens, you know, you can feel the magnitude of the relief on the gross margin line going forward. But in terms of where that goes, otherwise exclusive of FX going forward, you know, we obviously aren't guiding on that at this point. We're just giving you Q4. We have told you conceptually that we think that direct labor team, the size of that team increasing is gonna help as we move forward. I think in prior calls, we've talked about some cost saving topics that could be material in and around cost of sales, like shipping of our XenoSure tissue from Australia and sourcing it from Australia versus sourcing it from the U.S. Can we make that switch and have that happen? That would save a substantial amount of money. There are some other cost saving pieces that are ongoing within cost of sales that could help going forward. There's a ton of puts and takes in gross margin. You could get into it for hours. I would say we're frustrated with the level that we're at, and we're gonna work hard to improve that going forward, regardless of the FX topic. Okay, great. Thanks for that color. Then similar question, but in a bigger picture. I mean, it sounds like 2022 is a pretty heavy investment year. You've added a lot of employees, you've added sales reps, but operating margin has kinda declined a little, which also is hurt by currency. The question really is, would we expect to start to see the leverage from this year's investments? Would that be, you know, I guess more pronounced kind of in first half of 2023 or maybe more of a second half 2023 impact? Just trying to get a sense of when we should expect kind of the payoff from that investment. Thank you. Yeah. Scott, Dave, it's a great question. I would say, you know, obviously, we're doing this hiring of the DLs and the reps and other personnel, frankly, because we think they're all good investments. Have they paid off yet? No, not necessarily, not as quickly as we would like. Of course, you know, everyone's doing their job, and so we appreciate that. We feel like, you know, it's taking a little bit longer than we would have thought. You can see our guidance for Q4. I'm a little bit reluctant to get into the timing of what happens next year. If COVID taught us anything, it's that, boy, it's, you know, you make predictions at your own peril. I would say maybe we can take a pass on that question. We will be clear, I think, when we report on Q4. We'll give you the full year guidance for next year, and at that point, you'll have a good sense. Right now our focus is to get you know to work on the productivity of our entire team and position as well as we flip the calendar to 2023. Okay, great. Thank you for taking the question. Next question is from the line of Javier Fonseca from Spartan Capital Securities. Your line is open. Hello, Dave and JJ, thanks for having me on. You know, some congrats to George LeMaitre on the news. My question is more along the lines of the commercial performance of allograft. Obviously, as was mentioned in the previous earnings call, management's intent to file for the CE mark in 2023, does this remain the same? Also as a quick follow-up, you know, overall, how does growth look for allograft given its impressive commercial performance so far? Yeah. On Artegraft, we do expect to submit the CE mark, the MDR CE application in 2023 at some point. Not exactly sure when. You know, frankly, it's a biologic product, et cetera, animal origin, so we would expect it to take a year or two for it to get approval. You know, with the success we've had with Artegraft in the U.S., obviously we feel like it's a priority to bring it to Europe, and so we're excited about that submission. Frankly, you know, in terms of building it into your model, it's a little ways off in terms of revenue. Javier, in terms of the success and as that moves going forward, there's a topic around units and pricing in Artegraft, and I would say a lot of the nice growth that we've seen has been pricing so far. We've been working to move the price of the device more in line with its value within its category of devices that it competes in, and we think we've done that. That's put the reps a little bit on the defensive because they're out there busy defending price hikes from these guys at corporate instead of having time to necessarily go out and get new accounts. I'm gonna guess, but I don't know that you're gonna see that shift a little bit over time as the pricing increases become less severe, I guess I'll say, and more normalized. The unit growth hopefully should improve more. Right. I would just add one other concept to that, which is, as we've been expanding our sales channel, and Artegraft is 99% a U.S. Product line currently. I think it's maybe approved in New Zealand, but it's a U.S. Product line. We've increased the size of our Americas sales force dramatically. Artegraft, I believe, is either the number one or number two product line they focus on in their bag and has been for some time. We have a lot of rep focus on that product line, and we continue to be very excited about where it can go. It's historically been focused in the dialysis access space, but you know, our reps are gaining some success expanding that out to peripheral vascular and even trauma. We continue to be very excited about that product line. Excellent. That's some great color. I guess my only other question would be just an additional commentary on the current effects on the foreign exchange environment. Obviously, it's, you know, very difficult to deal with these headwinds and LeMaitre forecast, but are there any measures or changes going on that would be going on to better mitigate this risk going forward of the strengthening dollar? Yes. You know, we've talked about hedging historically, and we've looked into it, and we've decided, you know what, we're not here to be hedging against these topics. We're here to sell medical devices and bring great medical devices to patients. We've not done that. We do feel like we're sort of 50% hedged generally, from the top line to the bottom line. If the top line is impacted by 100, let's say, the bottom line is impacted by 50. That's kind of a nice place to be. That's part of that international reach that we have. It's got a nice built-in natural hedge for us. We've been content with that historically. Excellent. Thanks for taking my questions. 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.