LeMaitre Vascular Inc (LMAT) 2007 Q4 法說會逐字稿

Welcome to the LeMaitre Vascular fourth quarter and full year 2007 financial results conference call.

(OPERATOR INSTRUCTIONS)

At this time I would like to turn the call over to Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Thank you, Nakita. Good afternoon and thank you for joining us on our Q4 2007 conference call. Joining on me the call today is our Chairman and CEO, George LeMaitre, and our President, Dave Roberts. Before we begin I would like to read our 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 that 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 product offerings through internal development or acquisition; our ability to recognize the anticipated benefits of our acquisitions; disruption at any of our manufacturing facilities; 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 most recent Annual Report on Form 10-K, as updated by our most recent quarterly report on Form 10-Q and other period filings with the SEC 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 our beliefs and expectations as of today, March 4, 2008, only. We do not undertake any obligations to revise or update publicly any forward-looking statements expressed in today's conference call. I will now turn the call over to George LeMaitre.

Thanks, J.J. Welcome to our Q4 2007 conference call. I'll start by reviewing some financial and strategic highlights. Dave will then follow with a few words regarding our recent acquisitions and J.J. will conclude with our financial results. At the end of the call we'll be happy to take questions.

2007 was a great year for LeMaitre Vascular. As outlined in our October 2006 IPO, our business plan is simple. One, hire sales reps, two, acquire vascular devices and three, develop vascular devices. In 2007 we hired ten additional sales reps, completed four device acquisitions and launched four new products. This delivered 20% sales growth. We also increased our gross margin to 74.1%, improved product quality and had zero back orders for our non-acquired products. As expected, the added expenses of our extended salesforce and operating as a public company caused a net loss of $2.9 million.

Turning to our top line, our sales grew 20% in 2007 to $41.4 million. This $6.8 million increase over 2006 was our largest ever annual increase. Our compounded annual sales growth rate was 19% over the last five years. In 2007 our endovascular and dialysis access revenues grew 44%, our vascular category grew 12% and general surgery 2%. The principal sales drivers were the expanded salesforce, our first year of ENDOLOGIX distribution, the weak dollar and higher selling prices.

We seek to build a revenue stream which is more endovascular, more international, more direct to hospital and more implantable and we've made progress on all four fronts. For the full year 34% of our sales were endovascular, 39% international, 90% direct to hospital and 23% implantable. We believe these revenues are stickier and exhibit higher margins. As far as the quarter was concerned, we grew sales 27%. Our sales growth rates for our first five public quarters have been 11%, 15%, 18%, 19% and now 27%. We enjoyed a strong Q4 in our endovascular and dialysis access category posting 52%. We were also pleasantly surprised with Q4 sales growth of 17% in our vascular category.

For 2007 our operations group also had a good year. We posted a record 74.1% gross margin, up from 72.9% in 2006. We achieved this increase by raising domestic hospital prices, eliminating select European distributors and improving manufacturing efficiencies. In Burlington in 2007 our scrap costs were reduced by 33% and direct labor employees were reduced by 32%. Of course we also benefited from the weak dollar.

With respect to our bottom line, LeMaitre Vascular posted a $2.9 million net loss in 2007, more or less in line with our expectations. This loss was driven by the additional of ten sales reps, the growth of our R&D efforts and the incremental expenses associated with being a publicly traded company for our first full year. It's also worth noting that in 2007 we booked a $1 million charge related to the buyout of our Italian and Irish distributors and we also booked a $370,000 (sic - see press release) non-cash charge related to one of our four acquisitions.

Our R&D efforts produced four product launches in 2007. Pruitt F3 Carotid Shunt in Q1, the Flexcel II Carotid Shunt in Q3, the TT Tortuous Tracker Delivery System in Q4 and the EndoFit Uniform TopStent also in Q4. The TT and the TopStent were the most strategically important. We believe thee two endovascular products will substantially improve our competitive position in the stent graft market. On the other hand, the two carotid shunt launches demonstrate our continued interest in the open vascular category.

Our R&D efforts tend to be aimed at the faster growing endovascular and dialysis categories. Our acquisitions, however, frequently present us with financially attractive open vascular product development opportunities. As we've seen, the markets transition from open vascular to endovascular will wax and wane. Our business plan is designed to be robust in either environment. In 2007 we spent 11% of our revenues on R&D.

As far as the UNITE clinical trial is concerned we continue to make progress, albeit slowly. We now have enrolled six patients, up from four at our last call, and we now have ten sites operational, up from six at our last call. We hope this increase trial sites will begin to accelerate enrollment. As a reminder, UNITE is a 90-patient, 14-center pivotal trial for our abdominal UniFit stent graft.

Prior to turning the call over to Dave I'd like to review our 2007 acquisitions at a high level. These purchases define and underscore our company's unique endovascular and open vascular business plan. The LeverEdge Contrast Injector enhances imaging during abdominal stent graft procedures. The Vascular Architects suite of Remote Endarterectomy products will allow our domestic salesforce to sell a $2,000 procedure. Finally, Biomateriali's open aortic grafts are a natural complement to our endovascular aortic grafts.

As you can see, we acquired a mix of endovascular and open vascular product lines. We paid $9.5 million for these acquisitions, a thrifty 1.9 times sales multiple. I'm pleased we have found new growth avenues while remaining price disciplined. In summary, 2007 was an excellent year. We made substantial progress on all of our initiatives we outlined at our IPO. Amidst the backdrop of a 20% growth year, we hired ten additional sales reps, acquired four companies and launched four new products. I will now turn the call over to Dave for more on our business development activities.

Thanks, George. After getting out of the gate slowly, our acquisition efforts picked up through 2007. By year-end we had completed four acquisitions. I'd like to spend a few moments updating you on these. Our April acquisition, LeverEdge, was brought back onto the U.S. market in December after having been recalled in June due to the discovery of holes in the packaging. We're also pleased to report that this product received European CE approval two weeks ago. In short, this product seems to be back on track.

With regard to Vascular Architects, the front-end integration of this September acquisition proceeds apace. During Q4 we focused on integrating the products into our domestic salesforce. All Sales reps received their initial product training in nearly all of observed cases. For many of these reps this training is their first exposure to endovascular tools and techniques. We're pleased with the progress our domestic reps are making climbing this learning curve for this procedure. The reward for moving up this curve is great, Vascular Architects brings a procedure with a $2,000 average selling price, which compares favorably to our other U.S. product lines. Operationally, we continue to outsource these products, unlike our other products which are all manufactured in-house.

In September we also executed a business development transaction in which we bought out our Italian distributor. Since then we have opened our own office and hired two sales professionals including our Country Manager. This buyout marked the beginning of what will likely be a three-year process of transitioning our sales from a distributor-based model to a direct-to-hospital model. Until our distributor has finished selling off his inventory, we'll not be booking material revenues from Italy. As a reminder, this was a EUR850,000 piece of business at the distributor level for LeMaitre Vascular in 2007.

Our third 2007 acquisition closed in early December when we purchased several endovascular patent applications for $450,000 plus contingent payments. For competitive reasons we do not discuss our R&D projects until they are launched. We can tell you that these patents, if developed, nicely complement our current endovascular platform.

Our final acquisition in 2007 was Biomateriali, a manufacturer of Dacron grafts for open vascular surgery. Biomateriali has been manufacturing these implants in Southern Italy for over ten years. As our wholly owned subsidiary, Biomateriali currently sells its vascular grafts through an exclusive distribution agreement with Edwards Lifesciences. In Q1 2008 we began discussing the future of this distribution deal with Edwards. If we terminate this agreement approximately $2.3 million of contingent liabilities may be triggered.

Regardless of the channel we continue to be optimistic about this acquisition. Aortic Dacron grafts are a staple of the vascular surgeon and complement our aortic stent graft program nicely. Our team is now starting to examine the U.S. regulatory pathway for this device. We're not yet prepared to provide guidance on if or when Albograft might receive FDA approval, but we're enthusiastic about the prospects of dropping this time-tested product into our domestic sales bag.

Looking ahead, we are now in the process of restocking our pipeline with acquisition targets. 2007 tasted more like acquisition tapas than a full entree. Small acquisitions involve just as much transactional and operational complexity as larger ones. Therefore we're shifting our focus to larger transactions. This being said, we all know it's not as simple as steering our shopping cart down the larger deal aisle. However, we do believe that if we search more intensively for larger acquisitions we'll be more likely to complete one. With that I'll turn it over to J.J.

Thanks, Dave. I'm now going to talk about Q4 and full year 2007 financial results, make a few remarks about our December 31 balance sheet and then finish with our 2008 guidance. Q4 revenues were 1.4 million, a 27% increase. Foreign exchange accounted for about 5% of the increase. Our revenues are becoming more endovascular. In Q4 2007 our endovascular and dialysis access category accounted for 35% of revenues versus 29% in Q4 2006. By geography, North American revenues grew 20% while our international revenues grew 40%.

The Company reported a 73.3% gross margin in the quarter, a decrease of 2% over the year earlier quarter. One of Biomateriali's two customers, Soren Medical, informed us they will no longer be purchasing certain OEM products. As a result, we recorded a $105,000 OEM inventory charge in Q4 and we expect to record a $440,000 intangible write down in Q1 of 2008. The Q4 gross margin was reduced by this OEM inventory charge as well as the lower margin distributed sales of the ENDOLOGIX stent graft. Otherwise, the gross margin for our products remained strong as the Company continued to drive manufacturing improvements. In fact, during 2007 the number of direct labor employees at the companies Burlington facility decreased 32% while sales increased 20%.

Sales and marketing expenses were $5.3 million in the quarter, an increase of 17% over the year earlier quarter. This higher spending was driven by an increase in the number of sales reps and their increased W-2s. We ended the year with 57 sales reps versus 47 at year-end 2006. Q4 2007 G&A expenses were $2.6 million, up 27% over Q4 2006. This increase was primarily the result of the higher cost of being a publicly traded company for 12 months in 2007 versus 2.5 months in 2006. On the R&D side, expenses increased 64% year over year to $1.2 million. This increase was driven largely by the hiring of additional R&D engineers as well as increased spending in our regulatory and clinical departments.

We posted an operating loss in Q4 2007 of $1.3 million compared to an operating loss of $433,000 in the year earlier period. This operating loss included a one-time purchased R&D charge of $373,000. Excluding this non-cash charge the $105,000 Biomateriali OEM inventory write down and other extraordinary items, the adjusted non-GAAP operating loss was $856,000. The net loss for the quarter was $1.2 million compared to the year ago net loss of $674,000.

In terms of subsequent events, as part of our continuing efforts to restrain expense growth, the Company executed a 32-person reduction in force, or RIF, in February. Reductions were targeted towards operations, G&A and duplicative or under performing sales reps and management. A significant part of this RIF was to rationalize the operations we inherited in the four 2007 acquisitions. Indeed over the past decade we have found post-acquisition RIFs at LeMaitre Vascular to be fairly standard. We expect a Q1 2008 restructuring charge of approximately $550,000 as a result of this RIF. Of note, at the October 2006 IPO we had 206 employees compared to 225 employees today.

Let me now give you a brief look at our full year. You'll recognize many of the same themes that we discussed for Q4. For the full year 2007 net sales increased 20% to $41.4 million. Growth in the endovascular and dialysis access category was driven predominantly by the distribution of the ENDOLOGIX stent graft which commenced in January of 2007, while better than expected vascular category revenue increases were driven mainly by more sales representatives and price increases.

By geography, our North American revenues grew 12% while our international revenues grew 33%. Foreign exchange accounted for approximately 4% of the 2007 sales increase. In 2007 our endovascular and dialysis access category accounted for 34% of revenues while vascular category comprised 50% of sales. Gross margin for 2007 was 74.1% versus 72.9% in 2006. The 1.2% increase was due to increased average selling prices as well as improved operating efficiencies at our Burlington facility, partially offset by lower margin ENDOLOGIX revenues.

2007 sales and marketing expenses were $19.4 million, a 28% increase over the prior year. Increased spending was driven by additional sales reps as well as increased W-2s. For full year 2007 general and administrative expenses increased $2.4 million to $9.5 million. Increases were largely a result of the costs associated with being a public company for the full year versus only 2.5 months in 2006. R&D costs excluding purchased R&D grew from $3.3 million in 2006 to $4.6 million in 2007, an increase of 39%. Increases were a result of our continued investment in product development as well as increased spending on our regulatory and clinical departments.

The Company posted an operating loss of $4.3 million in 2007. Approximately $1.5 million of this loss is attributable to extraordinary charges related to our distribution agreements and acquisitions. These included a one-time charge of approximately $1 million related to the termination of our Italian and Irish distribution agreements, a $373,000 non-cash charge resulting from the purchase of certain patent applications in Q4 and $105,000 inventory write down related to the Biomateriali acquisition. Excluding these items, non-GAAP operating losses totaled $2.8 million. 2007 net loss was $2.9 million.

Turning to the balance sheet, we held cash and equivalents of $22.9 million at December 31, 2007 compared to $25.6 million at September 30, 2007. This $2.7 million decrease was driven largely by the $2.4 million cash outlays for various 2007 acquisitions. As to our 2008 guidance, the Company expects full year net sales between $47 million and $48 million. In addition, the Company expects its 2008 operating losses to be comparable to the $4.3 million operating loss posted in 2007. The Company's expectations for future financial performance do not include the impact of any potential acquisitions. With that I'll turn it back over to the operator for Q&A.

(OPERATOR INSTRUCTIONS)

And your first question comes from the line of Amit Hazan of Oppenheimer: Please proceed, sir.

Hi, this actually Michael Tu calling in for Amit.

Hi, Michael, how are you doing?

Very well, how about you guys?

Very good, very good.

Great. I just have a couple of questions. First of all I'd like to focus on this $550,000 charge that you see happening in first quarter '08. Could you break that out as far as where that will hit your P&L?

Sure. Now you're talking about the RIF right now, the Q1 RIF?

Yes.

Okay.

Michael, that'll be on its own line in the restructuring line in the P&L. So you'll see that.

Okay, thank you very much. And my next question is with regards to the Chinese EndoFit study. It's been a while since we've received an update on that and I know that we've gone over this a couple times, but I just want to get a sense as far as if you guys are deciding to move forward with this or how you think this is going to play out for the rest of 2008.

Right. I think this is pretty well known to the folks that have been on these conference calls for the last two years. We did start out by giving some guidance around this Chinese distributor getting an approval in China for EndoFit. And I think we really had a [Maya Culp] when we took the guidance off the table approximately 18 months ago or 12 months ago, I forget the date then, Michael.

We still don't want to provide guidance because it's a project that we do not have control over. I can tell you the project still is continuing but again, since it's outside our control I felt like it was the responsible thing to do 12 months ago to take that guidance off the table. While I realize it's a little bit frustrating to the people watching us, I think it's the only appropriate thing to do.

Okay, thank you very much and I'll hop back into the queue.

Thank you.

Your next question comes from the line of Lawrence Keusch of Goldman Sachs. Please proceed, sir.

Hello, guys, this is Sebastian Paquette in for Larry, how are you all doing?

Hi, Sebastian.

A quick question, first on salesforce. Exiting 2007 at [57] reps down once in the third quarter level, I'm just wondering if this implies that the current level is sufficient in the meantime and if you guys could flush out your expectations for a salesforce expansion in '08 that would be great.

Sure. You know I had a tough time hearing the front of that question, Sebastian, can I have that one more time?

Yes sure. With 57 reps at current level exiting 2007 being stagnant now for about a quarter, I'm just wondering if this means that you're comfortable with the level for at least the next few quarters. And I'm wondering if you could just flush out how that should trend as we progress through 2008.

Okay fine. So I think you might remember that we bought Vascular Architects right on the cusp of the end of Q3, I believe the date was September 20. And we picked up a net of five or seven sales reps, I forget the details there, and so we were really fully up. I think the guidance we gave you guys, the adjusted guidance following that acquisition was 55 reps to 60 reps and we had always intended to slot in inside of that guidance. So I would say the 57 reps number represents you landing exactly where we had been talking to you guys about it.

I will say though, and it's down by one, so I would say franking a bit of rounding error there. Although in general I think we've found following these acquisitions over the years that there is a bit of a settling in process that takes place once there is an acquisition. In some instance as you're bringing the Company together you're seeing two reps in the same city and things like that. And so I would say that's not a material difference between 58 reps and 57 reps and it's probably the leading edge of the front edge, a little bit of the settling in of the Vascular Architects acquisition.

Now prospectively you're asking about where we go salesforce-wise from here, you'll notice very clearly that we've chosen not to give a salesforce guidance number for calendar '08. I think at the IPO we made a very big deal that the need for this company, the reason why we wanted to raise the money at the IPO was we really wanted to develop the sales channel. And I think we set ourselves a pretty lofty goal, at the time it was 50 reps to 55 reps, at the end of Q4 '07 I think we exactly got there.

As we've looked around over the years and we've watched what other companies do vis-a-vis guidance, it felt like a little constrictive to put ourselves into an exact box going forward. I will tell you that the business plan of the Company continues to be hire quality sales reports, buy vascular device companies and do R&D in vascular devices. So it's unchanged and it's a big piece of where we're going, although again I think we're settling in from that Vascular Architects acquisition right now. I hope that answers your question, Sebastian.

Yes, sure. And I guess that leads me into 2008, I'm just wondering if salesforce hires might be expected to track along with revenue growth. With revenue guidance for 2008 implying roughly 15% growth year over year but expecting also the same level of operating loss, I'm just wondering if this negative operating leverage changes your outlook for profitability in 2009. And wondering if you'd be able to provide a minimum level of sales needed to achieve profitability in 2009.

Sure. Let me start with the end of that question, Sebastian, since there are a couple questions at the beginning. As far as profitability into '09 we're definitely not going to be giving guidance. I think you'll recognize that we've finally gotten around to giving you some type of profitability for '08, something to get your hands around for '08, and that's our first time really making any concrete bottom-line guidance. So that's us trying to start leading you in that direction.

We do generally feel at this company that medical device companies tend to start moving into the profitability zone. And you pick a number, I don't want to get quoted here, but 50 reps, 55 reps, 60 reps, 65 reps, as time goes by it gets a lot more easy to leverage these infrastructures. So I hope that's some sense of where we're going but I don't want to bleed into '09 with our guidance. I do feel like we're giving you a pretty good set of guidance pieces to go by.

So the 2008 operating loss guidance, that doesn't really fundamentally change the thought structure around 2009 that we've talked about on past calls?

Can you be more concrete about what you mean about what we talked about on the past calls?

Just in terms of achieving profitability in 2009.

You know what, this is LeMaitre Vascular's full guidance right now that we're giving you and I really don't want to break into '09. And I hope I don't appear stubborn about that, I do feel like you're hearing in this phone call some new news about a 30-person RIF, I think you're seeing LeMaitre Vascular's continued desire to stay around the numbers that we've been around recently for now. And I guess we'll see where we go in '09 as we get there. So for now you've got an '08 guidance on the bottom line for the first time.

All right, I understand. And last question, gross margins have trended nicely upwards over the past few years and I'm just wondering if you can size up the incremental opportunity for gross margin improvement from let's say specific drivers such as distributor direct effort, pricing improvements and the Burlington manufacturing plant efficiencies. Thanks, guys.

Sure, I'll try to do this looking backwards. And I'm going off a chart in my head, Sebastian, I don't have it exactly pulled out for you, but the price hikes are a good piece of it, those help out. We're getting some manufacturing improvements at Burlington. FX obviously is something we haven't talked about but this company is 39% international and so while that helps out on the top line, that's well known to everyone, second story to that is it does help out on the gross margin line. So those three pieces have been helping out a lot.

You know, as you think about the '07 gross margin, once thing that might get lost in all this discussion is we were carrying that ENDOLOGIX product line for the full year of '07. And of course that has materially lower gross margins than all of the rest of our products, so the good work that our folks were doing in the back here with reducing manufacturing folks as well as getting efficiencies has been muted to a good degree by the fact that we brought ENDOLOGIX in-house or on board for the European distribution agreement for '07. So there's a nice story going on in the background there. I will say it's tougher to see the story in '07 than it was in '06 because you lost some number of full points from the gross margin deficit, I would say, that you took from the ENDOLOGIX distribution.

All right. Thanks very much.

Thank you.

(OPERATOR INSTRUCTIONS)

And your next question comes from the line of Erica Laney of Thomas Weisel Partners. Please proceed.

Hi, guys.

Hi, Erica.

My first question is regarding growth for the year, for the quarter. And I'm wondering what it was without -- or excluding acquisitions if you have that figure?

Sure. I mean, do you want to do the quarter first?

That would be great. Sure.

Sure. I mean we got a great bump from our endovascular group of products. As you know, Erica, we're not breaking down by product lines, but that product set grew 52%. I think we mentioned that the ENDOLOGIX had a good bit to do with that, although it was broad based. You know also the FX is helping out this company a little bit, maybe you can call that worth about 5% in the quarter. So of the 27%, 5% of it would be attributable to FX. And then I would say it was just a broad based rally by all of our products.

You do have -- the sales force, we had 47 reps in their seat, 50 reps will December 31st and we've been telling Wall Street it takes six to nine months for these reps to gain traction and you felt like a lot of those reps who were hired in the December time frame of '06 really got nine months in their seats. And then they were let go into their territories, if you will, for that fourth quarter of '07 and I think they helped out a lot. We just had a nice quarter across everything. It wasn't anything in particular, but those are a couple of items. Is that sufficient, Erica?

Yes. Thank you. That's helpful.

Okay. Thanks for the question.

Sure. I had one other quick question for you, regarding pricing increases. I believe you're going to increase European prices in January and was wondering if you did that and if so, how much that was?

Sure. That's a great question. We had been saying that the price hikes were happening on January first. We have had a price hike. It's not, to our eyes, the folks in the finance group here. It wasn't material enough to bring up on this phone call. I think as you saw us talk about price hikes, we centered our conversations a little bit more on the domestic price hikes. You can think the domestic price hikes were on the average of 3%, 4%, 5% depending on what product category you're in and I would say they were diminimous over in Europe, maybe 1% to 2% based on the product category and 0% in some of the more commodity type product categories.

Okay. Thank you very much.

Thank you.

And your next question comes from the line of [Dan Dessert of Magnum Far]. Please proceed, sir.

Hey, guys. Thanks for taking my call.

Hey, Dan.

Could you do me a favor, in looking at the guidance that you've given for 2008, could you break that down for what you're looking in the organic growth or in the base business and what contributions you're expecting from the recent changes and Biomateriality, Vascular Architects and your incremental revenue dollars from Italy?

Dan, I know you've been a -- I know you're a shareholder for awhile, but one of the focuses that we've tried to have on these phone calls is not to break down our revenue growth by product line and that would be effectively asking us to dig into the bag and pull out a couple of different products -- a couple of specific product lines and pull out where we thought they were going to go.

One way we've tried to get at that for you folks is every time we make an acquisition, I think we've been pretty good about laying down the tracks for you guys about what was the LTM revenue as we go into the acquisitions.

And so, Dan, this is Dave. On that score, the LeverEdge deal that we did in April, it's very small, it adds $240,000 worth of LTM revenue. The Vascular Architects that we closed at the end of September, I think we quoted about $1.8 million worth of revenue. And then the Biomateriality deal that closed on December 20th, that had roughly EUR2 million worth of revenue. And that, again, was all at the distributor level. So that gives you a sense of looking backwards, but it doesn't really necessarily, I know, get at exactly your question, but that's the way we've been laying down the Reese's Pieces going backwards. And then we just wrap it all up in our total number going forward.

Dan, we have the same set of questions going into '07 and the big -- the move going into '07 was this ENDOLOGIX European distribution agreement and I remember there being a ton of questions around that. And I think we tried to hold the line on -- the information's out there, it is what it is.

All right. Would it be fair to say you're not expecting much from Biomateriality since Soren has dropped out and you're still up in -- if the Edwards question is still up in the air?

I would say in all of these deals, now you've got -- not only have you got these four acquisitions, but you also have the Italian distribution deal. So if you don't mind, I'm going to say there were five deals that were cut back half of '07 and with all of these deals, if you will, you really do have transitional and pipeline and channel elements that you're grappling with with every single deal, so while you're pointing out that Soren thing, I think that's a EUR400,000 piece of business that we're talking about, you pointed that out, there are other transitional issues.

The Italian one, I think, was one which I'd point out on the phone call for you guys as well, which is we did some great work back in September buying that distributors' rights, but it does take some time for you to bleed off the inventory, et cetera. So it is hard when you've got a lot of deals coming at the same time. There is a bit of a swirl and we try to put a boundary on that for our investors and are for the folks on the sell side by giving that revenue guidance as a block. Again, we're not dealing with 14 product lines and my guess is you guys would not want to be chasing these 14 product lines around individually in the long run.

No, no, no, thank you for answering the question.

Thank you.

Your next question comes from the line of Bill Wolfenden of RS Investments. Please proceed, sir.

Hi, Bill. I think you're on. Maybe Bill's having some problems with his telephone there.

Can you hear me?

We can now, Bill.

It apparently had some technical difficulty. Can I just ask the same question again? I'm -- the last two called have asked and it wasn't answered. I'm not asking for what product lines grew. What was the organic growth in the fourth quarter? Just a simple question. Organic growth, fourth quarter.

Sure. Okay. So let's -- Bill, let me see if I can take a cut at this. I want to just back out the acquisitions generally.

In the fourth quarter.

In the fourth quarter, yes. And the LeverEdge deal, that just got back onto the market in December, so I'd say effectively that contributed zero revenue in the fourth quarter. The third acquisition we did was non-revenue, so that's also zero. The Biomateriality acquisition, that was closed on December 20th, so that was a zero as well. And the Vascular Architects acquisition, that was running, again, at about a $1.8 million LTM rate before we bought it, which was right at the end of September.

And I think our guidance for that product in Q4 was around $250,000. And I'll tell you that it didn't materially change. The performance of that wasn't that materially different from what we had guided. And so if you take, call it, $200, 000 or $250,000 off of your $11.2 million quarter, that's roughly maybe 2% on the quarter, bringing it from a 27% to 25%. Guys, does that math check out with you roughly?

Something like that, yes. If you went off $11.2 million, I think it was $11.1 million.

Sorry, $11.1 million. Okay. Does that get at what you're -- ?

Yes. No, that answers the question. So the '08 revenue growth is incorporating those acquisitions that were made, but nothing that may happen in '08?

Correct.

Okay. And then I want to get back to a question that was asked earlier, because the operating loss in '07 was really $2.7 million. Because you've got one-time things. So -- but you're saying that the operating loss is going to be $40 -- $4.3 million in '08. So we really are talking about a lot of negative leverage here in '08 on top of what is a 15% sales growth. So can you just help me understand why we're going backwards?

Yes, Bill, to me it doesn't feel like we're going backwards, given all of the sales force body growth. It's -- if we want to have these sales guys, you're going to have to grow the reps. And we are -- we do feel like we're setting this place up very well to turn the corner at some point as we make these acquisitions. We cut distribution deals. And as we grow sales. So it doesn't feel like that to us. It does feel like we're giving you a boundary on '08 where it's not going to get worse and you're going to be growing.

Okay. But well it is getting worse, right? Because the real operating loss is $2.7 million and you're saying it's going to be $4.3 million.

Right. But that -- Bill, this is J.J. That $4.3 million also includes, which I think we outlined at the end of my section, about $1 million of one-time items. So you can really back that down from $4.3 million to $3.3 million. And so you're a lot closer and a lot more in line with the $2.8 million that's the non-GAAP adjusted result for the year-end '07.

Okay. I missed that. And then it does sound like you're backing away then from previously stated profitability goals in '09.

Well, yes on the surface, although if you dig more deeply, Bill, I'd like to try to explain this to you a little bit. All of our previously stated guidances were always saying this guidance does not include any effects from acquisitions going forward. And since then we've obviously bought these four companies and I think in the guidance or the acquisition press releases, on each of those acquisitions, we've been saying, hey, in the near run, say in the next year or so, you can expect this to be dilutive, not accretive. So while the high level, you're right, I would say technically we really have been pretty good about saying that's if we do no acquisitions. And we did do a bunch of acquisitions. And they did bring with them some extra charges and costs.

Thanks.

Thank you.

(OPERATOR INSTRUCTIONS)

It appears there are no further questions. I would now turn the call over to George LeMaitre for closing remarks.

Okay. Thank you very much for everyone -- to everyone for joining us. And we will look forward to our next call. Thanks, Nikita.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.