Welcome to the LeMaitre Vascular Q2 2023 Financial Results conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. JJ Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir. Thank you, operator. Good afternoon, thank you for joining us on our Q3 2023 conference call. With me on today's call is our President, Dave Roberts. Our CEO, George LeMaitre, is not feeling well and will not be on the call. Before we begin, I'll read our safe harbor statement. Today, we will make some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast, and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, August 1, 2023, 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 as well as operating income, operating expense, and EPS, excluding special 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'll now turn the call over to Dave Roberts. Thanks, JJ. Q2 sales grew 19% on a reported basis and 16% organically to a record $50.1 million. Growth was spread across all products and geographies. Our five largest products led the way. Bovine patches were up 16%, valvulotomes 18%, bovine grafts 13%, carotid shunts 22%, and allografts 18%. By geography, EMEA was up 26%, APAC, 21%, and the Americas, 16%. All three regions set records. We continued to benefit from two macro tailwinds in the quarter. Hospital procedure volumes have remained strong as COVID fears have diminished. This helped drive 7% unit growth. The BEST-CLI trial results may be contributing to valvulotome growth. This trial demonstrated the superiority of surgical vein bypass over endovascular intervention as a first-line treatment for critical limb ischemia. Indeed, valvulotomes were the product most responsible for our 9% blended ASP increase in Q2. We ended the quarter with a record 133 sales reps, 20% more than a year ago. In retrospect, our 2022 rep surge seems well-timed to support our 2023 top-line growth. We plan to end the year with 135-140 reps. Three of those reps will be in Thailand. We just opened our sales office. In the next 12 months, we expect high sales of $1.5 million. Including Bangkok, we now have sales offices in 13 countries and sell direct to hospitals in 29 countries globally. Regulatory approvals should also drive international growth. In Japan, we recently received approval for XenoSure with a carotid indication. Sales have now begun. Approval of XenoSure with a femoral indication drove growth there for the last three years. The new carotid indication may have similar potential. In China, we expect to receive XenoSure cardiac approval in 2024 and peripheral approval in 2025. In Europe, we expect to receive our allograft approval in either Ireland or Germany in 2024. In Europe, we also expect to file for CE approval of Artegraft this December. With that, I'll turn it over to JJ. Thanks, Dave. Let me start by providing some additional color on sales. In Q2 2023, average selling price increases remained elevated, up 9%. Price increases were driven by valvulotomes, with ASPs up 14%, as well as shunts and Artegraft, both up 6%. Biologics also drove sales, increasing 23% in the quarter, including newly distributed porcine patch sales of $1.2 million. Excluding porcine sales, biologic devices grew 14%. For the full year 2023, we have increased our guidance by $5.3 million- $195.4 million, which represents 18% organic sales growth. In Q2 2023, we posted a gross margin of 64%, down 2% versus the prior year period, as average selling price increases were offset by direct labor inefficiencies as well as unfavorable product mix, including the newly distributed porcine patch sales at a 50% gross margin. As we move through the back half of the year, we expect to see some improved labor efficiency and are guiding Q3 and Q4 2023 gross margins of 64.3% and 64.6%, respectively. Excluding special items, operating expenses increased 19% in Q2 2023 versus the prior year. Much of the increase was due to higher selling commissions, which we are happy to pay when sales surpass quotas. In addition, we continued to invest in our sales team and ended the quarter with 22 more sales reps and three more sales managers versus the prior year. Regulatory costs were up 35% as we continue working to obtain our MDR CE marks. In Q2 2023, operating income of $9.5 million was driven largely by higher sales and reflects an operating margin of 19% and an increase of 8% over the prior year, excluding special charges. Bottom line results have begun to accelerate, with year-over-year operating income growth, excluding special charges of 3% in Q1, 8% in Q2, and an expected 33% in Q3 and 36% in Q4. H2 bottom line improvements should be driven by strong sales and a slightly improved growth margin. For the full year 2023, we expect an operating margin of 18%. Cash at the end of Q2 2023 was $90.2 million, an increase of $9.2 million versus Q1 2023. The increase was driven by cash from operations of $11.9 million and stock option exercise proceeds of $3.6 million, partially offset by dividends of $3.1 million. For guidance, please see our business outlook issued in today's press release. A few highlights include reported sales growth of 22% in Q3, 23% in Q4, and 21% in the full year. Organic sales growth of 16% in Q3, 17% in Q4, and 18% in the full year. Reported EPS growth of 24% in Q3, 39% in Q4, and 38% in the full year, and non-GAAP EPS growth, excluding special charges of 22% in the full year. For the full year, eighteens are wild, we expect to report 18% organic sales growth, 18% adjusted op income growth, and an 18% operating margin. With that, I'll turn it back over to the operator for questions. Thank you. At this time, we will conduct the question-and-answer session. To ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Matthew Mishan with KeyBank. Your line is open. Hey, guys, thanks so much for taking the questions. It's Brett Fishman today for Matt. Just wanted to start off, during the quarter, there was some proposed changes to reimbursement for TCAR, for TCAR procedures. I'm just curious if you could touch on LeMaitre's revenue exposure to open carotid procedures and how you think that change may or may not impact carotid endarterectomy procedural lines over the long term? Yeah. Hey, Brett, it's Dave. LeMaitre's exposure to carotid endarterectomy, if you take carotid shunts and the biologic patches, which are used sometimes in conjunction with shunts for carotid procedures, is around 15% of our sales. How could it be affected? I would say, of course, it's a CMS proposal, but it feels like based on the market reaction, it will go through eventually. That when that happens and, and the extent of the impact is probably unclear. Certainly, I would expect maybe the TCAR procedure to be impacted most greatly. In terms of carotid endarterectomy, it's been the gold standard for decades. It still is. Of course, interventionalists, they can't do it. They can't do the cut down in the procedure, so the vascular surgeons will probably retreat a little bit to carotid endarterectomy. You know, we'll see how it plays out over time. All right. Thanks very much for the color. Just turning to guidance, I think, you know, the revenue trends are really encouraging and definitely capturing a positive environment. I guess, like, the one area to potentially nitpick would be the gross margin, which came down a little bit versus last quarter. Just curious, if you could provide a little bit more on, like, what changed incrementally around some of the inefficiencies you were seeing and, what, what really, like, improved into the second half there, that gives confidence in a little bit of a step up? Thanks very much. Yeah. Yeah, no, that, that is the area to nitpick. I think you got that right. I think, you know, we've been working on that for some time. I would say, for, for the most recent quarter, I'd probably say, you know, the answer, for the, for the lower than expected result, I think is sort of half mix and half manufacturing. On the, on the mix side, you know, I think, I think the porcine patches, the Aziyo distribution piece, did better than we thought, and those carry about a 50% gross margin, so that hurt the margin. RestoreFlow, the allograft product line, also did very well in the quarter, and that carries a lower than corporate gross margin as well, so that brought the margin down. There was a, a third piece maybe to call out, which is our export sales. It did very well. Sales to geographies, sort of where we're not selling direct, those generally carry lower than, than corporate gross margins. I think those sales were quite strong in the quarter, maybe up $500,000 or so year-over-year. That's the mix piece. From a manufacturing standpoint, I think the high level answer is, and I've been saying this for a while, so I'm pretty-- it, it, it gets embarrassing after a while, I'll say, but we've hired a bunch of direct labor folks. We got them in-house, and we've had trouble training them up to be efficient in two respects. One, to be utilized e-effectively, then to be efficient while they're in their seats doing work. We've been working really hard on those two topics over the last quarter and a half, two quarters or so. I feel like I can see some nice answers coming through that haven't gotten through to the P&L yet. So that answer hasn't come through to the P&L yet. As we look forward into the next couple of quarters, I think that's the high-level story for why it might improve a little bit. We didn't improve the margin dramatically over the next two quarters, you know, going from 64% to maybe 64.5% or so by the, by the Q4 timeframe. I think it will be driven largely by that. All right. Thanks so much for the call. I appreciate it. Congrats on the quarter. Thanks very much. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our next question. Our next question comes from the line of Aaron Wukmir with Lake Street Capital. Your line is open. Good afternoon, everyone. Yeah, this is Aaron Wukmir on the line for Brooks. Congrats on the print. Just a couple of things: so, have you gotten a lot of pushback on the pricing actions you've taken so far? You know, do you expect to take more pricing this year? Do you think that will, do you think you'll raise prices again in the second half of the year? Hi, Aaron, it's Dave. Good to hear your voice. Have we gotten pushback? I would say, you know, a little bit, but not so much. You know, the price increases we've been able to get in the market have been spread across a few different product lines, probably the valvulotome, as we mentioned, the prepared remarks, getting the most, but also, carotid shunts, specifically in Europe, and then a little bit in Artegraft. These are all just highly differentiated devices that you, you can't really get anywhere else. And so, yeah, of course, you know, it, with, with some of these price increases, it's important to have a large sales organization there to support the price increase, and we're fortunate that we have that, and we expanded it in 22 in advance of sort of the, the price increases as well as just the overall unit growth, in 2023. As to your question, will we put a price increase in, you know, in the back half of the year? No. We'll, you know, we put the price increases in, at the beginning of the year, so we're not expecting another one till January 1. You know, I would add to that, also, the, the unit story is a favorable one. As you go from Q1 to Q2, I think units grew 6% or so in Q1, 10% or so in Q2. You know, that piece of the story has not been problematic and in fact, has been favorable. We'll watch it because, you know, the answer is not always presented to you quickly and easily. It comes over time. I would say between that statistic and the fact that our sales folks have not reported back to us, any big issues around those price hikes, I think the ASPs have gone through surprisingly smoothly. Great. Yeah, very helpful. Just a quick follow on. Do you expect one sort of specific product line to contribute disproportionately in the second half? Do you think the trends that we're currently seeing will be sustainable? You know, as Dave said, it was really broad-based in Q2. I feel like it was in Q1 as well. There's sort of five or six product lines that really lead the way. I expect them to continue to do that. That makes sense if you put it in context with the higher level topics that are driving sales. One is the hospital procedures. Dave talked about procedures continuing to be strong, may be driven by hospital staffing and may be driven by folks sort of becoming more comfortable with the COVID topic and then now getting back into due procedures. Certainly, the price hike piece that's been across a number of product lines. We're calling out valvulotome and shunts, but Artegraft and RestoreFlow and patches have seen nice price hikes as well. That, that sort of continues as the year goes on. Then, at a high level beyond that, you know, we're up 22 reps year-over-year. We hired a lot of those reps over the last nine months-ish, call it, and they're starting to become productive. We would expect those folks to sort of broadly sell the bag as they have been doing, and maybe even a little bit more efficiently. We'll see. Awesome. Very helpful. Congrats again. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our next question. Our next question comes from line of Michael Petusky with Barrington Research. Your line is open. Hey, good evening, guys. A few questions, I guess. JJ, you know, this, this gross margin issue, I, I guess, you know, I'm, I'm thinking about one of the companies that you guys are often sort of shows up in a comp group for you guys, and, and they sort of were, you know, sort of like ducks, sort of pedaling really hard below the surface. Nothing was happening, nothing was happening, and then all of a sudden, they were sort of putting up, like, 200 basis point year-over-year improvements. I mean, is that, is that possible here? I mean, I know you've been working on this for a while, but, I mean, could we be seeing that somewhere in 2024 or second half of 2024, something like that, where all of this sort of, all of a sudden sort of comes together? Sure. That's a great question, Mike. You know, I'd like to think there'd be some significant improvement at some point, but I've been wrong for a while now, as I was alluding to the earlier question. There is a direct labor topic that I think at some point you do get it, right? You do get to the place you wanna get to, and then that actually makes its way through the balance sheet to the P&L, and you'll find important improvement. We're obviously not signaling that for this year. Who knows? We'll give you guidance in February, obviously, for next year. Conceptually, there should be some improvement, and I guess at some point. The other piece to it, Mike, I guess maybe two other important pieces. One is we transferred Omniflow and CardioCel, as you know, to our Burlington facility, when you do transfers, they're pretty inefficient at first, and we're still working through that. I'd say we, we were working hard to get out of the Omniflow backorder. We did that. It went from, like, $470,000 to $60,000 or something in Q2. We largely got out of that, and that's great. Yay! We still are working on efficiency there, and that's the same answer with CardioCel. The third piece that would be a needle mover for you, Mike, is, is quality costs. They... Back in the day, they were sort of 3% of sales. Now, they're sort of 6% of sales. There's a 2% or 3% tackle to your gross margin just from quality costs. I think those are good answers that we spent money and invested in quality, and over time, we'll let the sort of sales grow up around those quality resources that we've hired, and maybe we get some improvement there. I think those would be the three pieces. Okay. All right. JJ, while I've got you, before I ask, Dave a question, did you have CapEx and stock comp? I didn't catch that if you've given it already. You know I do. $2.804 for CapEx and $1.312 for stock-based comp. Awesome. You said cash flow from ops was $11.9 million for the quarter? Yeah, yeah. Okay. That's right. Awesome. Dave, I guess, just, any, any update around the M&A environment, what you're, what you're, what you're seeing out there, what valuations look like, you know, sort of pipeline of discussions, any, any, anything you can share? Yeah, well, obviously, our cash pile keeps growing, and so, you know, I and my team were out hunting. There are about 25 or 30 targets in the open vascular space with more than $5 million of revenue, and that's sort of the sandbox that we've been playing in. So we're in conversations with, you know, a whole bunch of these over time. You know, I would say, you know, since it's sort of a limited pool in the scheme of things, we are looking also a little bit at, at, at adjacent spaces. The adjacent spaces are cardiac surgery, maybe peripheral endovascular. We like cardiac surgery because sort of like open vascular, it's not growing as quickly, it's smaller market. Today, Mike, we get about 13% of our revenue, actually from cardiac surgery now that you add, the porcine patches in. We're hunting there. Valuations seem to have stabilized, a little bit recently. I would say, you know, we're, we're hunting, and we're aware the cash balance is growing, but, you know, we're also waiting for our pitch. We've known, 'cause we've done 24 acquisitions, that it's better to wait and do a good one than to pull the trigger and regret it. I just wanted to clarify one remark I think that you made in your prepared remarks. Did you say, did I hear this right, that you were adding... You haven't yet, but you would be adding three sales folks in Thailand, and you expected, this part I'm really unclear about, $1.5 million in sales in the back half or in the first 12 months, or w-? Yeah, in the first 12 months. We actually have two of the three Thai sales reps on staff right now, and we're adding a third. It's 1.5 in the, in basically, we opened the office a couple days ago, and so it'll be the first full year. All right. Very good. Thanks, guys. Thanks, Mike. Thanks. Ladies and gentlemen, that concludes today's conference. I would like to thank you for your participation. You may now disconnect. Have a great day.