LeMaitre Vascular Inc (LMAT) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LeMaitre Vascular Fourth Quarter and Full Year 2006 Financial Results Conference Call. At this time I would like to turn the call over to Mr. Dave Roberts, Chief Financial Officer. Please go ahead, sir.

Thank you, Jaquala. Good afternoon, and thank you for joining us for our first quarterly conference call as a public company. Joining in the call today is our Chairman, President and CEO, George LeMaitre, and our Executive Vice President of Finance, J.J. Pellegrino.

Before we begin, I'd like to read the Safe Harbor Statement. Certain statements contained in this conference call may be considered forward-looking as defined by the Private Securities Litigation Reform Act of 1995, in particular any statements we make about our expectations for future financial, clinical and operational performance. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations.

These statements involve various risks and uncertainties that could cause our actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include risks related to product demand and market acceptance of our products, the significant competition we face from other companies, technologies and alternative medical procedures, our ability to expand our sales force, particularly in markets where we think we are currently underrepresented, ur ability to expand our product offerings to internal development or acquisitions, disruption at our single manufacturing facility, a lack of experience with and general uncertainty related to seeking regulatory approvals for our products, particularly in the United States. Potential claims of third parties that our products infringe their intellectual property rights and the risks and uncertainties, included under the heading Risk Factors in our prospectus filed with the SEC in connection with our initial public offering, and available on our investor relations website at www.lemaitre.com, and on the SEC's website at www.sec.gov.

Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matters contained in such statements will be achieved. The forward-looking statements we make on today's call are based on beliefs and expectations as of today, February 28, 2007 only. We do not undertake any obligation to revise or update publicly any forward-looking statements expressed in today's conference call.

Finally, please note that on today's call we will refer to certain non-GAAP financial measures on which we exclude certain non-cash or nonrecurring items from our financial results as determined in accordance with GAAP. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to consider the impact of these items as a supplement to financial performance measures determined in accordance with GAAP.

Please refer to today's press release announcing our fourth quarter and 2006 financial results available on our website at www.lemaitre.com for a reconciliation of these non-GAAP performance measures to our financial results determined in accordance with GAAP.

I'll now turn the call over to George LeMaitre.

Thanks, Dave. Since this is our first quarterly call since our IPO, I'd like to welcome all of you who may be new to the LeMaitre Vascular story. After I review some financial highlights for 2006, I'll provide some background on the company's business strategy. Dave will then follow with a more detailed financial review of both the quarter and full year. Afterwards, Dave, J.J. and I will be happy to take your questions.

2006 was another great year for LeMaitre Vascular. In addition to our IPO, the year was highlighted by continued sales growth, the last of our five factory consolidations and significant growth of our worldwide sales force. Year-over-year reported sales growth was 13% on a GAAP basis, and 17% apples-to-apples after stripping out the discontinued Expedial and private label sales. Our gross margin increased to 72.9% in '06 from 70.9% in '05 and we ended '06 with 47 bag-carrying sales reps, up from 30 at the end of '05. As we had expected, the added expenses of our growing sales force and operating as a public company caused us to post a net loss of $1.2 million in '06, versus $55,000 in net income in 2005.

We finished 2006 with $34.6 million in sales. We saw excellent progress in 2006 in the geographies and products we expected and the quality of our revenues increased. Our Endovascular and Dialysis Access category grew 45% in 2006 due to the higher growth profiles of these two markets, as well as our increased focus on this category. If you strip out the Expedial and private label businesses, the dialysis and endovascular category increased 53% year-over-year.

The endovascular and dialysis category accounted for 28% of our net sales in '06 versus 22% in '05. We posted excellent sales results in Germany and Japan due to our strengthening direct operations in these two home-away-from-home markets. We also continued our move away from distributors and towards direct-to-hospital sales, hiring sales reps in Canada, Sweden and Austria for the first time.

87% of our net sales in 2006 were direct-to-hospital versus 84% in 2005. This reflects our desire to sell directly to hospitals, as well as our termination of our private label business in 2005. We have pursued this direct-to-hospital strategy for nearly a decade, because direct sales provide a direct link to our vascular surgeon customers and carry higher gross margins.

Speaking of the gross margin, deliberate and thoughtful integration is an essential skill for an acquisitive company. I'm happy to report that LeMaitre Vascular continues to do a great job consolidating acquired product lines into our Burlington plant. With the consolidation of our Arizona and Wales manufacturing facilities in 2006, all of our manufacturing is now in Burlington for the first time since 1998. The five factory consolidations added $2.4 million in charges to our income statement over the 2003/2006 timeframe, which restrained us from funding the growth of our sales force. But the consolidation program is now paying off. We posted a 72.9% gross margin in '06, up from 70.9% in '05.

Our gross margin has improved every year since 2001 when it was 61.5%. There is further evidence of our improved efficiency. Since 2001 we've almost tripled net sales from $12.6 million to $34.6 million, while headcount has increased just 47% to 218 employees. Sales per employee has nearly doubled during this timeframe to $160,000 at year-end 2006.

And despite all the product transfers into Burlington in the last few years, we were backorder free for eight and a half months in 2006. We have made no backorders, a cause celebre at LeMaitre Vascular, and over time I believe this sets us apart as a trusted supplier to vascular surgeons.

Going forward, it's possible that the lower margin Endologix distribution sales may mask gross margin gains but we do expect additional manufacturing efficiencies in 2007 as our Burlington employees climb the learning curves of the recently transferred product line. Our centralized manufacturing should also enable us to achieve more uniform product quality and drive more rapid product innovation due to the proximity of the R&D team.

With respect to R&D, nearly all of our product development efforts are currently centered on our Endovascular and Dialysis Access categories. In 2006, we launched a new more cogent packaging system as well as a shorter, easier tracking tip for our stent graft. Our 2005 stent graft acquisition provides us with a versatile technology platform that can be applied throughout the vasculature, allowing us to serve our customer's evolving endovascular needs.

In January 2007, we also launched a next generation shunt for carotid endarterectomy called the Pruitt F3. The F3 features more flexible tubing, more blood flow as well as better identification markings and color coding. The F3 is our first major redesign of this product line since we acquired it in March 2001.

For competitive reasons, we will not make a practice of pre-announcing our products in our development pipeline. The number three use of our IPO proceeds was to more adequately fund our R&D efforts in order to make the best use of our widening sales channel. To this end, we hired several product development engineers in the back half of '06.

Also in November of 2006, we finalized a three-year agreement to distribute Endologix Powerlink stent graft in ten European countries. The logic of this agreement is simple and compelling for both parties. In most instances, it's the same customer who implants our UniFit and EndoFit stent grafts, as well as the Powerlink stent graft.

By this distribution agreement, Endologix is spared the cost of developing a European distribution channel, and LeMaitre Vascular is able to make more efficient stent graft sales calls, selling three products instead of two. This distribution agreement underscores our move into endovascular where we continue to see procedure volume growth outpace open vascular.

Moving on to acquisitions, some of the biggest LeMaitre Vascular news in '06 was that we did not execute an acquisition. Prior to 2006 we had done six acquisitions in eight years. While our acquisition pipeline was full as 2006 dawned, we elected to focus on the IPO instead. Historically, we've used acquisitions to access the $3 billion market for peripheral vascular devices.

This market is driven by the increase in the incidence and diagnosis of peripheral vascular disease, the adoption of Western healthcare standards by the developing world and, perhaps most importantly, the endovascular revolution. By way of reminder, our products are used by vascular surgeons who treat peripheral vascular disease through open surgical methods as well as more recently adopted minimally invasive endovascular techniques

Looking ahead, we fully intend to be active on the acquisition front. I believe we have developed a special competence in acquiring and integrating vascular device companies. Shareholders often ask me, "What type of acquisitions do you like? What companies or products will you buy?" In the 1998 to 2001 timeframe, we needed a sales force and wanted to make our bag wide enough to support it. More recently we've been buying technology. In short, we will look to acquire businesses which address the company's needs at the time.

On the IPO road show we spent a lot of time with the Ying and Yang PowerPoint slide on the screen. The Ying/Yang symbol is meant to indicate that we will be doing both leveraging acquisitions and technology acquisitions and I still feel this way. Dave and I will be opportunistic in acquiring companies, whether they be revenue or technology, at valuations where we feel we can bring synergies and future profitability to the organization.

In conclusion, our marquee accomplishment in '06 was obviously our October IPO. We were pleased to raise $38.5 million in gross proceeds and transition into a publicly held company. However, apart from the accelerated pace enabled by the $30 million bank account, our business plan following the IPO is essentially unchanged and consists of three simple strategies. One, build our vascular sales force. Two, acquire vascular devices. Three, develop vascular devices.

Prior to the IPO, I believe we were hampered by a lack of capital. This made us unable to execute on some fairly obvious investments. While we will deploy the company's capital prudently, we expect the pace of the company's growth to quicken in the years to come through a combination of organic and acquired growth. Organic growth will be delivered by the growth of the sales force, a better funded R&D effort, and the natural acceleration of the Endovascular and Dialysis Access markets. Externally, we also see significant opportunity in the acquisition of companies which don't have the funding to develop a sales force or make it to their IPO.

With that, I'll turn the call over to Dave Roberts for a review of our financial results and our guidance for 2007.

Thanks a lot, George. I'm going to talk about the Q4 financial results first, then the full year of '06 results and then make a few remarks about our balance sheet and finish with our guidance. Q4 2006 net sales were $8.8 million, an 11% increase over Q4 '05, primarily driven by the growth in our Endovascular and Dialysis Access product category. Excluding discontinued Expedial and private label sales, Q4 2006 net sales increased 15% versus Q4 '05. Our gross margin in Q4 2006 spiked to 75.3%, up from 69.3% in Q4 2005. This increase was attributable to price increases and the efficiency gains resulting from the planned consolidation program that George described earlier.

In terms of our three product categories, our Endovascular and Dialysis Access category continued to grow the fastest, increasing 22% versus Q4 2005, and 40% if discontinued Expedial sales are excluded. Our vascular category grew 9% and our general category was flat. Based on these growth rates, we continue to see our product mix shift in Q4 to our Endovascular and Dialysis Access category, which accounted for roughly 30% of total net sales. Our vascular category accounted for 60% and general surgery 10%. Geographically, our Q4 '06 sales were split 66% in the U.S. and Canada, and 34% in the rest of the world.

On the expense side, Q4 selling and marketing expenses were $4.5 million, an increase of 73% over Q4 2005. This spending increase was driven primarily by the accelerated ramp of our sales force late in the quarter. We added 11 bag-carrying sales reps in Q4, bringing our total to 47 at year end. That's a 31% increase just in the quarter, reflecting the fact -- I'm sorry, reflecting that expansion of our sales force was the number one use of proceeds from our IPO. While we are pleased with this headcount growth, it typically takes six to nine months for new sales reps to become productive.

Q4 G&A expenses were $2.1 million, up 20% from $1.7 million in Q4 '05. In the quarter we reported a charge of $246,000 for a stock grant awarded to key employees. The company also issued restricted stock units to employees totaling approximately $800,000 in non-cash compensation expense over the next three years. We also recorded share-based compensation expense related to 123R of $43,000 in the quarter.

Q4 R&D expense was $715,000, an increase of 28% over Q4 '05, primarily driven by the hiring of additional product development engineers. In November, we enrolled the final patient in our Chinese EndoFit clinical study. This starts a six-month follow-up period, after which we expect to submit approval for -- an approval filing with the Chinese SFDA.

The operating loss for Q4 2006 was $433,000, compared to operating income of $556,000 for Q4 2005. Our Q4 2006 income tax expense was $523,000, compared to $381,000 for Q4 2005. For Q4 2006, we reported a net loss of $674,000, or $0.05 a share, versus net income of $41,000 for Q4 2005.

Shifting to the full year, net sales grew 13%. Excluding discontinued Expedial and private label revenues, net sales increased 17% for the year. Our sales growth was largely the result of the expansion of our sales force, increases in direct marketing and a continued mix shift into the higher growth Endovascular and Dialysis Access markets. Net sales of our Endovascular and Dialysis Access category increased 45% over 2005 to $9.8 million, and 53% if we -- if discontinued Expedial sales are excluded.

The growth in the Endovascular and Dialysis Access category was driven by our EndoFit and UniFit stent graft products, particularly in our direct sales market. This category accounted for 28% of our net sales in 2006 versus 22% in 2005. Our vascular category grew 7% to 21 million and our general surgery category increased 6% to $3.8 million.

In 2006, our gross margin improved to 72.9% versus 70.9% in 2005. This was driven by our long-term factory consolidation strategy starting to bear fruit, which George described earlier. 2006 operating expenses increased 21% over 2005 to $25.9 million. Sales and marketing expenses increased 39% to $15.2 million in 2006, driven both by the expansion of our sales force and direct marketing. As noted, we ended the year with 47 bag-carrying reps, a high-watermark.

We also continued building our brand through increased direct mail, congressexhibitions and journal ad placements. For example, in 2006 we mailed more than 600,000 brochures and direct mail pieces to our customers. For 2006, general and administrative expenses increased 11% to $7.1 million, largely due to higher costs associated with being a publicly traded company.

R&D investment increased 9% to $3.3 million in 2006, compared with $3 million in 2005. This increase was attributable to the hiring of several product development engineers as well as royalties. Nearly all of our R&D efforts are currently centered on our Endovascular and Dialysis Access categories, which we believe offers the greatest opportunity for growth.

In both 2005 and 2006, R&D accounted for approximately 10% of net sales. The operating loss for 2006 was $679,000, compared to an operating income of $422,000 for 2005. In 2006, total expenses related to the discontinuation of the Expedial graft product line were approximately $359,000, while restructuring charges related to factory consolidations were approximately $257,000. Excluding these two items, the operating loss for 2006 would have been approximately $63,000.

Our 2006 income tax expense increased 25% to $652,000 compared to $523,00 in 2005, driven primarily by the non-deductibility of foreign subsidiary losses. The net loss for 2006 was $1,172,000, or $0.15 a share, compared with net income of $55,000, or $0.01 a share, for 2005. The reported net loss includes share-based compensation expense related to the implementation of 123R of $131,000 and the $246,000 charge for the stock grant.

Turning to the balance sheet, we had cash and cash equivalents of $30.8 million at December 31, 2006, compared to less than $1 million at the end of 2005. This represents the balance of the proceeds from our initial public offering completed in October. Inventory at December 31st, 2006 with $6.1 million, compared to $5.1 million as of December 31, 2005. Accounts receivable were up 20% to approximately $5.1 million from $4.2 million at December 31st, '05. The increase was primarily attributable to higher sales, as well as a slight increase in our DSOs to a higher international sales volume.

As for our guidance, for 2007 the company expects full year net sales to be between $39.5 million and $41 million. We expect to record a net loss for the year based on continued investments in the sales organization and in R&D. The company's goal remains to achieve profitability by the end of 2008. I will note that our expectations for future financial performance do not include the impact of any future acquisitions. In fact, I'll take just a minute to provide some additional insight about acquisitions, the number two use of our IPO proceeds.

Obviously, we will not make a practice of commenting on specific acquisitions in our pipeline. However, I can tell you that qualitatively we believe the pipeline is as full and robust as it has been in some time. With respect to our acquisition criteria, we are interested in acquiring peripheral vascular devices at reasonable valuations. We look for disposable or implantable products used by vascular surgeons and we prefer approved devices that address larger markets and that are either endovascular or used for dialysis access.

Despite increasing competition for such properties, we believe that we are well positioned to evaluate and acquire products that can benefit from the LeMaitre vascular brand-name, distribution channel and tight focus on the vascular surgeon. We will continue to be diligent and selective as well as opportunistic. Our goal is to come to agreement with an acquisition candidate during 2007, but there can be no guarantees as to when a transaction will close.

Operator, that concludes our prepared remarks. George, J.J. and I are ready for questions. Can you open the call, please?

[OPERATOR INSTRUCTIONS]

And your first question comes from the line of Robert Faulkner with Thomas Weisel Partners. Please proceed.

Good evening, gentlemen.

Hello, Rob.

Hi, Rob.

Thank you. Nice quarter. Wondered if you could touch on some of the usual topics. What kind of sales reps are you hiring or did you hire at the end of the quarter? Should we think of these as experienced reps from the vascular area or -- ?

Okay. So, Rob, one of the nice things I think maybe we didn't see going into the IPO that happened after the IPO was recruiting of very good sales reps has become a bit easier. I think when you're part of the management of the company you always think that things are going great, but I think maybe the employees of the company really like to see that $30 million in the bank and as a result I think we've had an easier time getting better sales reps. And also the W-2, as I mentioned during the road show, has been drifting upwards. It kept drifting upwards for the last two or three months, so we now have a financial package which is really starting to get attractive to these folks.

So I would say we generally tend to be attracting -- it's easier to attract great reps right now and if you want specifically the companies from whom we are taking them from, they are the usual suspects, the peripheral vascular companies, the folks like Atriums, Cook, stuff like that. We are, I think, more and more we're looking for experience inside the OR as the number one thing. Other companies where we're getting reps are Bolton and CardioMEMS as well. I don't know if you're familiar with those two stories.

Yes.

[I'd say] it's been a little better. We didn't expect that uptick from the IPO. We're happy that that took place.

Good. [And if] you could talk a little bit about what you expect the impact of the Endologix [inaudible] to be both in terms of dollar sales, if you want to go there, also impact on gross margins? And being a distributed product would you expect it to be lower, but [less other things].

Okay. So, in both instances I'm going to say I don't want to go there, although I'd like to expand on that answer so it doesn't sound like I'm not being forthright here. One way one can find out about all this stuff is just go back to the Endologix press releases. They've been working with Edwards for a long time.

And so, I don't know if they'll continue to be that open with their revenue split going forward, so you might be able to get it from them going forward as to what they sell us. We're trying as hard as we can not to break out that Endovascular and Dialysis Access category and that product line is going to fit inside of that category. So there's some thoughts on that.

And as far as gross margin, I think you hit on it already, which is as a company in the fourth quarter I think we hit a 75% gross margin. Clearly, distributing a device for another company, you're not going to get gross margins like that. And I even think Endologix -- native gross margin is around 60% right now and they're not forecasting a growth in that. So, it's certainly our gross margin on that device will certainly not be anywhere near as attractive as what I'll call our organic gross margins.

But we think that the synergies that allows -- that this device will allow in our bag are just incredible. We're already seeing it. We're already seeing things start to work out a little better than we expected on this product line, in terms of when you go visit a doctor that's using Endologix, they're almost certainly going to be a potential customer for UniFit and for EndoFit. And by the way, UniFit is our new brand name for the abdominal portion of our stent graft portfolio.

So that's new to everyone on this phone call. Vice a versa, it's also true; when we visit our EndoFit and UniFit customers who are implementing our devices in the thorax, in the abdomen, they also want to know about this Endologix stent graft in the abdomen.

For reference, Endologix only had one employee in Europe -- only has one employee in Europe and has had that situation for quite a while. So I think with our -- I think we have roughly, someone help me here, 35 European employees, I forget what the number is, something like that. So one employee over there versus 35, I think we can do some -- we can help them out with their distribution a lot and obviously I think we'll take a portion of those benefits.

Okay. Great. And maybe you can just update us as what you see in the UniFit, EndoFit market both in terms of growth and competition, and how you feel you guys are doing vis-Ã -vis the competition?

One thing we've seen over in Europe, we've seen Bolton get a little bit stronger, they're sort of a -- what is it, Medtronic, we've got Medtronic, we've got Gore, LeMaitre, Bolton and a variety of other players including Cook. And we've seen Bolton take some share away from, I believe, Medtronic. We've seen that happen. The market continues to be fantastic.

Rob, I think over the last six months people -- Bolton, by the way, is a thoracic only stent graft company, and we are largely thoracic as well. And I think in the last six months the outsiders and the analysts of the stent graft industry, and I'm speaking mostly about Europe right now because we're not quite ready to start talking specifically about the U.S., but I think they're starting to say, "Wow, the logic of being a thoracic stent graft company is even more robust than we thought it would be." So people are getting more excited about thoracic stent grafting vis-Ã -vis how big it is and how much it will grow, versus abdominal stent grafting.

I think abdominal stent grafting is a story that's very well known and thoracic stent grafting is coming on fast now and I think underlying it all is the fact that when you do a thoracic stent graft, you're skipping the splitting of the sternum and that's not the case when you do an abdominal stent graft. While it is -- while the old abdominal AAA open case was very invasive and a very serious piece of surgery, the old thoracic piece of surgery was dramatically more difficult and frightening for the patient and for the doctor. So I think that's driving this to be a little bit more attractive than maybe we all thought two or three years ago.

Great. Thank you. I'll hop back in the queue.

And your next question comes from the line of Amit Hazan with CIBC. Please proceed.

Hey, good afternoon, guys, and congrats on your first public quarter.

Hello, Amit. How are you doing?

Very good. Just a few questions. I'm just -- maybe on the guidance, if you can help us out a little bit, it was helpful to know that there's no acquisitions in there. But still yet if we kind of think about where you've been in terms of revenues over the last three quarters, I think you touched on a few things during the call on why we think there should be growth next year. Because of kind of the flatness over the last few quarters in sales, can you give us a direct sense of where you think that growth is going to come from next year?

Product line-wise do you mean?

Total revenues. I mean if we think about your revenue guidance, and we think about where sales have been in the last three quarters, which have been relatively flat, you're looking for some growth. Where would you point us to?

Amit, can I quibble a little bit with the supposition inside the question and then get on to the question?

You bet.

We do feel -- I know it's time-consuming and a little bit frustrating to pull out these Expedial's and private label stuff but we do feel like we keep posting those 15% numbers, and for the full year it was 17%, so if you do -- in Q3 and Q4, if you do look deeper at these numbers, you are getting good high-quality growth of the organic devices if you strip out the Expedial as well as private label. But I'll end that, and I know you're looking at these numbers as well, too.

Amit, I think a big part of the play of the IPO, and I think this is still definitely our hypothesis in place, is that the growth of the sales force should drive a lot of this. We also have the 30% of our revenues in Q4 was from the Endovascular and Dialysis Access category. And this category, regardless of whether we add sales reps or not, has a better and a faster growth rate than all the other categories, including vascular and general. And if you add that to the additional sales reps, it should help us out.

The reason why we keep breaking these out is we want to show you that more and more you can look at us as an endovascular and dialysis company. So if we looked at Q4 '05 going into '06 looking at growth, the breakdown would be -- let me just grab that number here, I think for the year we were 22% Endovascular and Dialysis Access. And I would give you a hint that going into this year we're better prepared, because more of our portfolio has a larger natural growth rate. We're getting into growth markets like we weren't in the past, I would say.

Okay, that's very helpful. And then just one more thing on guidance. The gross margins were obviously outstanding, which is great to see, but just so we all don't get ahead of ourselves from our side in modeling, what should we be thinking in terms of '07? I know Endologix will take it down a little bit. Anything else there? Should we be thinking -- where should we be modeling gross margins?

Yes, Amit, this is Dave. I think directionally you're right. The Endologix distributed sales, as George described to Rob Faulkner earlier, that will -- those will carry a reduced gross margin, so sort of on a weighted basis that will be pulling the number down a little bit.

I will say that we aren't going to get specific about the gross margin numbers in terms of quarters, or even the year for that matter, for 2007. But obviously you can look at what we've done in '05, which was 70.9%, in '06 72.9%, and you can recognize that a big part of the job, as you remember from being here, is trying to squeeze more efficiencies out of manufacturing and whatnot. So, we're going to be working our hardest doing the best that we can to drive that number up. But we're not going to set any specific targets or commit to anything for good or for bad.

Got it. Okay, fair enough. And maybe I missed it, but on the U.S. study for the abdominal, can you give us an update where we are now, if the IRB process is done or if you've actually started enrolling patients, how many patients you've actually enrolled at this point?

Yes. Thanks, Amit, for that question. In fact, we have been back and forth with the FDA, I think approximately two rounds of questions since we last spoke to you. I think when we last spoke to you at the IPO, if you will, we were saying we had conditional approval but we didn't feel comfortable about it.

We're now -- we're more understanding of that, which is we have conditional approval to do implants, we can only do them with one brand of sterilization versus the other brand of sterilization. And I don't think we called that out. So perhaps the news is a little better on what we did have four months ago, but the news is not advanced in terms of have we done implants. No. And do we have final approval. No.

One does get the sense, as the numbers of questions that they ask decrease -- continue to decrease, that one does get the sense we're getting there, although this is a regulatory body and it moves at its own speed, and it comes up with certain questions at certain times that we can't predict. So I don't want to get too far ahead of ourselves. But I feel advanced as to where we were before, but no specific news to tell you. Clearly, when we get that kind of news we'll be letting people know.

Okay, that's great. And the last one, and I'll get back in queue here is, maybe guide us to what other countries outside the U.S. you're planning on going direct here as we think about 2007?

That's an interesting question. We have -- we've got a variety of countries in front of us. For competitive reasons and because there are distributors who run these various countries, Amit, it feels to me like it would be a little bit rude to announce that and potentially have them listening to this conference call. So I'd rather not get too specific. I can tell you it's largely a European type of situation, if that gives you some guidance.

Okay, fair enough. Thanks, guys, and congrats again. Have a nice afternoon.

Thanks, Amit.

Thanks, Amit.

[OPERATOR INSTRUCTIONS]

And your next question comes from the line of Larry Keusch of Goldman Sachs. Please proceed.

Hi. Good afternoon, guys.

Hi, Larry.

Hey, Larry.

A couple of questions. Let me just start with the sales guidance again, which obviously now, George, as you indicated, includes Endologix revenue. I guess if I just sort of look back, and I know what Edwards reported in 2006 for that line item, but does that imply that you are looking for next year organic growth, ex-acquisitions, ex-Endologix of about, let's call it high single digits to very low double digits? Is that in the right ballpark?

Larry, I don't think it's going to imply that. I think we're looking at -- I think we went up from -- what was it originally? 38.5 and this has gone up to 39.5 now in this call. So I think what we're doing is we're being very careful -- our internal numbers are being very careful about this transition over the cusp of December '06 into January '07 of what happens as an old distributor walks out of an arrangement versus a new distributor. And I can tell you the typical things that you would have expected to have happened, have happened. I think we knew that going into all this. We expected it.

So we're -- we were wary of that so I hope it doesn't imply a weakness in our sales. I hope it implies an understanding that in the first year of a distribution agreement you have to watch out for what the old dealer was doing in the sales channel before you adopt the product line. Do you understand? I don't want to be too [inaudible]. Does that make some sense to you?

Yes. No, I mean I think what you're saying at the end of the day is whatever Edwards did for last year, we should be thinking perhaps you have less of that in your first year of this agreement, which would imply that the organic growth is perhaps a bit better than I just suggested.

I think it would, Larry.

Okay, great. Second question, you obviously hired these 11 sales reps late in the year. I'm wondering if you can give a feel for what geographies you have filled, or if you look at the map there are obviously some gaping holes. So would just love to get a sense of perhaps a couple of the more notable geographies that you are now in. And, can you give us a feel for where you are thinking you go for 2007?

Sure, okay. So, in general, Larry, the labor markets in the U.S. allow for quicker hiring, as you may know. And in Europe, typically in Europe, you hire someone and in about two months they start. So the hiring was done a little bit more on this side of the Atlantic than on the other side of the Atlantic. One Japanese, we got a Florida, we got a North Carolina, we got a South Carolina, we got a Washington State, we got an Ohio.

A couple of the other ones escape me right now. I think that's sort of two-thirds of the U.S. story. What else? Mobile actually, we hired a Mobile, we hired a Toronto, you probably saw that in the press release, we hired a Sweden, I believe we filled in one in the UK as well, I believe, not exactly sure of that.

Okay, that's good. That's good enough.

Going after great, really robust geographies.

Terrific.

And Osaka I think was the Japanese one. And that's usually the second or third city you'd fill in in Japan.

Right. And what about where do you think you go now in 2007?

I see France, I see -- I see Europe being a little bit more of a growth situation in terms of reps. Remember, we're up to 47 reps already, and I think if folks recall back to the IPO, we were basically giving guidance to have having -- committing to a bottom end of the range of 50 reps by 12/31/07.

So this is -- we'll see how it goes and see where the expenses go, but there's some thought that you don't need to go all the way up there and that you've done a lot of the hiring. There's some of that going on. We'll evaluate and see, but places like that. There's another Japanese rep out there, there's places in the U.S. we clearly need to go. Atlanta is now blank, Syracuse I think is on the runway, you might have one out in California as well, something like that.

Okay, so it sounds like net-net you would still anticipate getting close to that 50 by the end of the year, whether it's plus a couple, minus a couple, that remains to be seen.

Yes. I would say by Q1 2008 we're committed to getting into 50 to 55. Clearly, that's still in play, Larry.

Okay, great. Last question for you guys is just as you again talked about the acquisitions and you indicated that you believe your pipeline is as robust as it has been, given that you've got cash in the bank now and you're certainly suggesting that you believe you can announce a deal this year, maybe you could just sort of help us understand how active you are in sort of pushing that process forward now? Are you more focused on getting the sales force integrated? So if you can just help us sort of think about kind of what gets you over the goal line on announcing a deal?

Yes, I'll take that, Larry. This is Dave. So the acquisition effort, as you know, Aaron and I sort of spearhead that and we've been going to a lot of meetings. And frankly, prior to the IPO and as George mentioned, even going back to the beginning of last year, we had a pretty full pipeline and then we decided to focus on the IPO in '06. And so for the better part of ten months we weren't really actively developing a pipeline further until the IPO completed.

And at that point the nature of the pipeline has changed a little bit, as some willing sellers go away and other new ones show up. And so at this point, I would say that we do have a pipeline that is quite full and for us an important part of the acquisition is not just focusing on the space but finding a motivated seller where we feel like we can advance strategically, but do so at a reasonable valuation. And so we have been looking at, I'd say, a handful of opportunities very actively and trying to take the seller's temperature exactly on that -- on that item and then stacking and prioritizing the pipeline appropriately.

So that all being said, I do feel like we do have a handful of motivated sellers and this is a process. We're in varying stages of due diligence with some of these. But I do feel like -- we've done -- we did six acquisitions over eight years before 2006, and so we understand what it takes to get a deal across the finish line. And we're pretty focused on trying to achieve that goal this year and have it contribute meaningfully.

Hey, Larry, if I could take a shot at that as well just to supplement Dave's answer. I would say one of the nice things that's happened inside the company here is if you look at the three people on this call, J.J., Dave and myself, I'm really off -- of course with Kevin and Peter pushing that's my VP of Sales in the U.S. and my President of International over in Europe pushing the growth of the sales force, and doing what we'll call the organic management of the business. With the advent of J.J. here taking care of a lot of the finances beneath Dave, we were really able to push -- Dave and Aaron are really able to break free and push on that.

So if part of your question was, are you too busy with all the settling out from the IPO and all the growth -- the consolidations of the factory and the growth of the sales force, I would say no, we're not. Our acquisition department is not hampered by that right now, and they're in full swing.

Okay, terrific. Thanks, guys. Appreciate it.

Thanks, Larry.

Thanks, Larry.

At this time there are no further questions. I would now like to turn the call back over to Mr. George LeMaitre for closing remarks.

I'd like to thank Jaquala for hosting us and thank everyone on the call for joining us. One final note is Dave and I will be presenting an overview of LeMaitre at the 27th Annual Healthcare Conference that's sponsored by Cowen in Boston on Monday, March 12th. We look forward to seeing you there. And that concludes our remarks.

Thank you for your attendance on today's conference. This concludes the presentation. You may now disconnect. Good day.