LeMaitre Vascular Inc (LMAT) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 LeMaitre Vascular Earnings Conference Call. My name is Saley and I will be your operator for today. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session.

(Operator instructions).

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the cal over to your host for today, Mr. JJ Pellegrino, Chief Financial Officer of LeMaitre Vascular. You may proceed, sir.

Thank you Saley. Good afternoon and thank you for joining us for our Q2 2010 conference call. Joining me on today's call is our Chairman and CEO, George LeMaitre and our President, Dave Roberts. Before we begin, I would like to read our safe harbor statement. Today we will discuss some forward looking statements, the accuracy of which are subject to risks and uncertainties. Wherever possible, we will try to identify those forward looking statements by using words such as believe, expect, anticipate, forecast and similar expressions. Please note these words are not the exclusive means for identifying such statements.

Please refer to the cautionary statement regarding forward looking information and the information under the caption risk factors in our 2009 10K and subsequent SEC filings including disclosure of the factors that could cause actual results to differ materially from those expressed or implied. During this call we may discuss non GAAP financial measures. Please refer to our earnings release on our website www.lemaitre.com for discussion and reconciliation of non GAAP financial measures. I'll now turn the call over to George LeMaitre.

Thanks, JJ Top to bottom, I was quite pleased with Q2. We're growing sales and we're growing profits. I'd like to summarize the quarter with three headlines. Number one, we posted sales of $14.2 million, 15% organic growth. Number two, we posted record operating profit of $2 million, double that of a year earlier. And number three, we received six regulatory approvals in Q2 2010.

As to our first headline, we posted record sales of $14.2 million in Q2 2010. Sales increased 15% organically over Q2 2009, led by 23% organic growth in the Americas. By category, open vascular increased 23% organically while endovascular was up 2%.

Q2 2010 marked another impressive quarter for open vascular. In fact, over the last four quarters organic vascular sales growth has been 14%, 14%, 24% and now 23%. Our success in this category is due to our broad palette of gold standard niche devices and our widening sales footprint. The XenoSure biologic patch is a nice case in point. Sales have increased about $100,000 per quarter since the January 2009 US launch.

In Q2 2010 our vascular category accounted for 72% of our sales versus 67% in the year earlier period. Our April 1st North American price hike and the increased size of our sales force were the key drivers of Q2 2010 growth. Indeed, at the heart of our recent success lies our lower cost sales model which keeps a lid on sales rep compensation without sacrificing productivity.

Currently 58% of our north American sales reps are what we call tier A and in Q2 2010 seven of the top 10 north American sales reps were also tier A. The continued build out of our sales force is a time tested expansion strategy for the Company and we are now able to do this more efficiently. My guess is that we will end 2010 with 70 sales reps worldwide.

Overseas a good part of our recent success has come as we have leveraged -- entered new large vascular geographies by terminating distributors and going direct. In Q2 2010 our French, Japanese and Italian subsidiaries reported sales growth rates of 54%, 26% and 8% respectively. Going forward we may enter -- we may continue to repurchase distribution rights from international distributors as a way to enter new vascular geographies.

With respect to our second headline, operating profit in Q2 2010 of $2 million was double the $1 million we reported in Q2 2009. This 14% operating margin was achieved through increased sales, a 75% gross margin and controlled operating expenses. Over the last four quarters we have posted operating profits of $1.3 million, $1.2 million, $1.3 million and now $2.0 million. Increased operating profits and cash flows have enabled us to ramp up our stock repurchase program to $5 million through December 2011.

Regarding our third headline, Q2 2010 was fruitful on the regulatory front and this is producing a steady flow of new product launches. Indeed we received the following six regulatory approvals in Q2 2010. AnastoClip GC in the US, Pruitt F3 corroded shunt in Europe, Target and UnBalloon in Russia, Remote Endarterectomy in Canada and finally Pruitt F3 corroded shut in Taiwan.

Two product specific notes seem worth highlighting. In June 2010 we recall the UnBalloon in Europe after resheeting some complaints about receiving the product. As a result of these complaints I felt that it would be prudent to have our engineers rework the product and we should be back on the market in Q4 2010.

This new release will not just resolve the resheeting issue but will also include several next generation product improvements previously on the drawing board. 2010 sales for the Company will not be materially impacted by this event.

On the positive side of the ledger, our AnastoClip GC launch has been more exciting that we had anticipated. We received the 510K from the US FDA in May and the GC already accounts for about 20% to 25% of our AnastoClip sales. The GC more readily grips vessels and is easier for surgeons to use. The US sales force has rallied around this launch.

In summary, Q2 2010 was another excellent quarter in which sales growth, a healthy gross margin and controlled operating expenses combined to produce solid bottom line results. I'd like to conclude my remarks by reiterating the three headlines from Q2 2010.

Number one, we posted record sales of $14.2 million, a 15% organic growth. Number two we posted record operating profit of $2 million, double that of the year earlier quarter. And finally, number three we received six regulatory approvals in Q2 2010. I'll now turn the call over to JJ Pellegrino, our CFO.

Thanks, George. Before I start I would like to welcome the folks from Natixis Bleichroeder and Sidoti and Company to the LeMaitre story. Both firms have recently picked up research coverage of LeMaitre Vascular and we look forward to working with them. I will now say a few words about our operating results, share buyback program and guidance.

As we heard from George, Q2 2010 sales growth was strong in our North American and newer direct markets. In addition, our core vascular products continued to show significant gains with our XenoSure, Remote Endarterectomy and AlboGraft product lines up 136%, 82% and 25% respectively. Our endovascular category meanwhile was constrained by the Q4 2009 loss of an important stent graft customer in Germany as well as broader competition in that segment and was up 2% organically in Q2.

As for the gross margin, we reported a 75.3% margin in Q2 2010, up from 72.2% in Q2 2009. This 300 basis point increase was driven by higher average selling prices, manufacturing efficiencies and a favorable geographic mix. In fact 63% of our sales in the quarter were generated in the Americas where ASPs are higher.

Of note, our gross margin in the last two quarters has approximated 75% and we believe that this may improve 50 to 100 basis points over the coming quarters. Moving down the P&L, operating expenses were 61% of sales in Q2, down significantly from 66% in the previous two quarters demonstrating nice operating leverage.

Sales and marketing costs increased 12% in Q2 2010 to $4.7 million. This spending increase was driven by our larger sales force and increased sales commissions. The Company ended Q2 2010 with 61 sales reps versus 54 at the end of Q2 2009.

General and administrative expenses increased 3% in Q2 2010 to $2.5 million while research and development expenses decreased 7% to $1.3 million representing 9% of sales. The decline in R&D was primarily driven by regulatory and clinical spending as we conducted less animal testing and purchased fewer outside services than in prior year quarter.

Going forward, however, we expect R&D to return to 11% to 12% of sales. Q2 2010 operating income was $2 million versus $1 million in Q2 2009. That income in Q2 was $1.5 million or $0.09 per diluted share versus $925,000 or $0.06 per diluted share in Q2 2009.

Turning to the balance sheet, our cash balance as of June 30, 2010 was $26 million and we have virtually no debt. Excluding share repurchases, our cash increased by $2.2 million during the quarter. The increase was primary the result of $1.5 million in net income and $573,000 of depreciation, amortization and stock based compensation.

As for our share repurchase program, in Q2 2010 we repurchased $383,000 or 76,000 shares of our stock at an average price of $5.02 per share and our board of directors recently increased the size of our share repurchase program by $3 million, authorizing up to $5 million of stock to be purchased from time to time in the open market or in privately negotiated transactions.

Finally, we are increasing our 2010 sales and operating income guidance to $55.8 million and $6.2 million respectively. Our sales guidance implies full year 2010 organic sales growth of 12%. We also expect third quarter, 2010 sales of $13.8 million and operating income of $1.4 million. Implying Q3 2010 sales growth of 8%. Guidance amounts exclude the effects of acquisitions, restructuring, foreign exchange fluctuations, and distributed terminations. With that, I'll turn it over to the Operator for Q&A.

Thank you. (Operator instructions).

Your first question comes from the line of Joshua Zable with Natixis. Please proceed.

Hey guys, congrats on a really impressive quarter here. Thanks for taking my question and thanks for welcoming us to the call.

Thanks, Josh, good to have you on board.

So, I have a bunch of questions here so I'll get right into them. Just obviously impressive organic growth. George, I know you talked a price increase April 1st, can you kind of quantify that in any way shape or form?

Sure, on a very high level blended US price hike of 5% April 1st.

Okay, great. And then I guess just kind of big picture here, obviously vascular was very strong, endovascular not quite as strong. I know there is some correlation between the US and international and endovascular and vascular. Maybe just kind of help us understand specifically I know you know JJ alluded to a stent wrap customer in Germany, just trying to understand sort of what's going on specifically out there that you're seeing. Any more color would be helpful. Thanks.

Sure, at a high level if you want to break this thing down, we're doing great in the United States. I think in the United States we're more penetrated with this tier A program, so we're getting more feet on the street in the United States and we're also benefiting from a better pricing environment obviously as indicated by the April 1st price hike.

And over in Europe, it's true in our specific, what I'll cal our home market in Germany, we're having tough time and a lot of that can be ascribed to that one customer. He left us in I think October, he retired, he left us in October of 2009. So we still have a couple more bad comp months to go, but in November that pain from that customer should go away.

If you want to get a little broader in Europe, a lot of good things are actually going on over there. Italy is going great, they were up 16% organically, year over year. France is going fantastic, I think they were up 66% organically. The UK was up in the neighborhood of -- I don't have this exact piece of data, between 10% and 15%. So really the problem is Germany right now and I can focus the problem down onto that customer.

In addition to all that, getting through all that for a second, I would say we've been a little bit less competitive with our stent graft program in Europe than some of the people that we're working against. That all being said, the IntuiTrak Endologix launch is going quite nicely actually.

Great. And then I know you guys launched a surgical graft, can you comment maybe what sort of how that's going in general?

Sure, so there's two separate launches, Josh. There's one in Europe, we bought that product in December of '07. It's called the AlboGraft Dacron Graft and we finally got control of the end customer distribution in April -- April 1st I think of 2009. And we're having -- we had our first apples to apples direct comparison of selling it direct ourselves in Q2 '09 versus Q2 '10 and we were up 33% organically in what I'll call that first apples and apples quarter from '09 to '10. You have a separate launch going on in the United States, we received the 510K for that product line in I believe January or February of this year and we really launched that thing April 1st. I would say that launch is going okay. There are other competing products out there. The accounts that we're winning, we're winning on the basis of the fact that we're LeMaitre, they know us, they use other products.

The other hindrance, if I could say to that launch is, right next door to that launch you have a fantastic launch which the US sales force has very quickly coalesced around for the AnastoClip GC and that launch is going great guns and adding significant growth, maybe $800,000, a million worth of sales growth in our US pie on an annualized basis if you look at June and July. So that launch is sort of stealing the thunder from the AlboGraft launch, but the US sales force is doing great on the AnastoClip launch

Awesome. And then just I guess turn it over to JJ here. Just on the -- really impressive quarter on the P&L here. It looks like you guys kind of hit on all cylinders. Obviously mix is what it is. I know you addressed R&D kind of as a -- probably a timing issue if you will and that ticks up. But on the G&A and the selling and marketing still much better leverage than I think anyone was expecting. Can you kind of just walk us through how to think about it? Was there some timing issues? I know you guys re reinvesting the sales force. I assume that's going to kind of move around based on timing, but just generally about the leverage. It seems like spending on an absolute basis is down, which his pretty impressive. So just help us understand how spending is down, maybe what's going on. Is it timing, is it cost cutting, what kind of is going on, thanks.

Yes, I guess I would say the starting point is we were at 14% or so for an operating income margin, which compares nicely with 9% and 10% in the previous couple quarters so really nice improvement there and nice to see clearly the increase in sales allows you to do a lot of the stuff. But in addition, we had a nice gross margin improvement as you saw, we had increased efficiencies in the margin, we had geographic mix helping with US being 63% of sales and we had the ASP increases that George talked about earlier. And so that's a nice help as well. So that's two for two.

And then coming down to operating expenses, I think we're at about 33, 34% of sales for selling and marketing. That compared pretty favorably to the last couple quarters at about 35%. Maybe a tick higher than some of our really nicely performing peers and so maybe there's a little bit of room there going forward as sales increase and as you roll out the TRA model. So I would say yes, you might be able to get something there going forward. We'll see. You know and it's a little chunky quarter to quarter, so you might not see it right away in Q3 and Q4 but over time going down to the G&A line, I would say yes, a lot of those costs we think are fairly fixed. So as sales ramp you should get leverage there pretty immediately. So if we're at the 17.5% range or so, down from 18% or 19% the last couple quarters we're pretty pleased with that as well and we might be able to get a little bit more leverage there over time as sales increase.

And then as you mentioned, on the R&D line, I would say we were abnormally low at 9.5% for this quarter, it sort of waxes and wanes a little bit. It's going to be a little bit lumpy from quarter to quarter and I would say overtime we're going to shoot for 11% to 12% of our sales going towards R&D as product development is clearly an important part of what we do.

Great guys. Well, listen, congrats on a great quarter and thanks for taking all my questions.

Thanks a million, Josh.

(Operator Instructions)

Your next question comes from the line of Joseph Munda with Sidoti. Please proceed.

Hey, guys. How you doing? Good to finally talk to you, George.

Joseph, thanks.

How are you?

Very good. How about yourself?

Good, good. JJ how you doing?

Good, come stai?

Tuttobene, tuttobene.

Excellent.

Listen, you mentioned in the call, sales rep compensation cap. Can you touch a little bit on that? I'm kind of new to this story so I understand that you're trying to keep costs down, but can you go into a little bit of that?

Sure in November 2008 we started a program called the tier A program and basically that was a recognition of the fact that we were in a recession as well as maybe LeMaitre doesn't have to hire sort of $200,000 a year sales reps. And so what we put in was a program that has a significantly lower yearly compensation. Roughly speaking the new tier A reps are making something like $85,000, $90,000 a year and our old program had them targeted towards about [145 or 150] and as a result it's given us a place for them to go career wise. We can give them raises as they go.

So it's sort of lengthened out their tenure so far at the Company and its also -- it kind of works better with our sales volume and the size of our territories and it seems to have been a home run so far. So we're real excited about it and about 58% of the reps right now in the US are tier A and we grandfathered all the other reps, the more highly paid reps into their positions, we're not really trying to get rid of them, we're happy with the work they're doing for us, but we felt like going forward we'd need to sort of reduce the starting point of the pay package.

Okay, I just had also a quick question, you talked about cutting gout some distributors. Are we still looking at 93% of sales direct to hospitals and 7% to distributors or is that number going to come down a little bit?

I think it was either 93% or 94% this quarter. I forget which, but yes we are always in the business of trying to go direct in these various countries. The material countries that you still have remaining would be places like Spain, Switzerland, Denmark, South Korea, Australia, and even China, although we don't have much of a foot print there even with sales through a distributor. So yes, we're always trying to go more direct. We like the link to the customer.

Okay, and just one last question. I saw you talked about Germany and the loss of that one customer that really drove down sales there and you were talking about new vascular geographies and markets, what are you guys looking for going forward as far as making up for lost sales in Germany?

Right, well we hope in November when the bad comparable periods have gone away, we hope most of this will resolve itself in Germany. We also are beefing up the sales force, we've got an open territory in Hanover that we're about to fill and just reinvigoration around a lot of product launches over there. We actually have a real full bag of medical devices that we're launching over there.

There's four or five of them right now, the Pruitt F3 shunt, the Flexcel Shunt in single packs, the XenoSure patch, when it gets an approval and also the AlboSure patch. So we got a bunch of launches lined up over there and we got a pretty healthy sales force. So we're confident it will come back. In the meantime its being buttressed by right around Germany you have fantastic results going on in France, Italy and the UK, which are helping sort of buttress our European results.

I'm sorry and I had just one more question, this one's for JJ JJ, you had mentioned 50 to 100 basis point improvement in gross margins in quarters going forward. Is that due to volume or is that due to better cost cutting, what is that improvement coming from?

Yes, I think we're doing pretty good on the operations side and we might expect some nice efficiencies going forward. Or minimally if you maintain your current levels and you get the price increases that we talked about periodically you're going to get an improvement there. So I would say both of those would be driving an improvement hopefully over time. I wouldn't say anything dramatically right away. I wouldn't think in those terms, but I'm saying over time, over a number of quarters.

Okay, all right. Thanks guys, appreciate for taking my call.

Thanks, Joe.

Your next question comes from the line of Mayank Gandhi with Cowen and Company. Please proceed.

Hi, guys, how you doing?

Mayank, how are you?

I'm okay, thanks you. just -- can you break out the sales in the quarter, if you can what's coming from new products if you can just help us thin that and then maybe just highlight some of those newer products. I know the last quarter you had bunch of new launches. So if you can quantify it a little bit that'll be helpful.

Okay, let me get to what the bulk of the sales growth is coming from and then we'll talk about the launches. Because I don't think they're adding in some giant way, just yet, they will but not right now.

The big product lines, the big four were the -- in terms of dollar grow from Q2 '09 to Q2 '10 would be the Valvulotome, the shunt, the Remote Endarterectomy products as well as the recently launched XenoSure patch. So that's where the bulk of the dollar volume growth is coming from. In terms of the launches, I feel like the AlboSure is clearly the -- excuse me, the XenoSure patch is clearly the one that's adding material financial results.

Just recently, and you don't see this showing up in Q2 yet, Mayank, but just recently -- the AnastoClip GC has starting with added materially to monthly results but not the quarter, because it was only out there for sort of the beginning of June onwards. You only have one month and that number -- those two launches, I don't think you're seeing much from the AlboGraft in terms of quarterly add to the US side of the street but if you're still allowing the the AlboGraft is launching in Europe since we're five months -- five quarters into the launch, I would say that is adding materially, its helping markets like France , some of the extraordinary numbers that you're seeing in France are that they're -- the sales force is gravitating towards that AlboGraft launch. Jay, I'm talking quickly here, am I missing some particular ones? I think I mentioned Remote Endarterectomy tools as well. Am I getting the

Yes, I mean I would say ion the US all open vascular products really have been contributing nicely as of late particularly in the most recent quarter, and that's more feet on the street. ASP price increases as well, but unit growth there too. So it's been nice to see in the US and then in France more particular AlboGraft and Endologix contributing and then other products throughout Europe. So I would say it's a fairly broad based contribution on the open vascular side.

Okay and then to follow up on the questions on margin, your guidance implies about 11% operating margin for the year and last -- this quarter and the last quarter you had very impressive leverage across the P&L. how much -- how should we think about what's the run rate like, what's the improvement going to be over the next few years and what's kind of the -- how much of it is sustainable?

Well, I would say in the short and median term, our -- our guidance is around 10%, or 11%, or 12% or so up margins down from the 14% or so we just did and I think Q3 is seasonally a little light. Everybody in Europe goes on holiday so docs are on holiday and purchasing less I mean so that's probably not a surprise.

And then, looking out sort of over a year or so or two as you asked, I guess I would say well, if you think about our peers, you got two types of peers, on is sort of your immediate smaller cap peers and they're in the zero to 10% op margin range generally with some notable standpoints, but by and large in that range and I think we feel like in the 10% to 13% or 14% range, that's a pretty decent place to be where you can balance growth and profitability which is really what we're doing here because if we said we wanted to be a lot more profitable tomorrow I think we could do that for you or for us, but really what we're trying to do is balance that growth and profitability and we've talked about that before.

If you look at our larger cap peers, maybe they're in the 20% to 25% opt margin range, that's certainly out there somewhere in the future. But I guess generally at a high level, to try and answer your question as you vector towards $80 million to $100 million in revenues you sort of increase that margin you hope naturally through natural leverage to the mid high teens, 20% in that range.

And may -- this is George, I might add to that. We are -- we had been stuck is the wrong word, but we had been trending in this sort of 8 or 9% opt margin world for the last four or five quarters. So we're real excited and we do want to highlight that this is a high water mark for us, this 14% maybe I think Josh in part of his question mentioned all things came together. I guess we're not always planning that all things are going to come together. So we're excited about the 14% high water mark. Maybe we go down a little bit to 10% and 11% the next couple of quarters if things just go normally, but maybe there's a little upside in that too. And you know us, we've been trying to be reasonable on the guidance side and we're trying not to get too far ahead of ourselves. So we're excited about that 14% number.

Okay, understood. And then, final question on -- just the your cash utilization strategy so in the context of the enhanced share repurchase program, how -- I guess what do you see in terms of the M&A landscape and any updates there?

Yes, Mayank hi this is Dave.

Hi, Dave.

Thanks for the question, I would say obviously we have different uses of our cash. As we think about the $26 million of net cash that we have in the business, certainly we're always out there looking for the next stack position and while the pipeline's good I think we've seen some disconnect tin the market ever since the great recession where M&As taking place at three to five times sales out there and here at LeMaitre we have a stock for good or for bad that we can purchase ourselves at one time sales.

So I think that's sort of driven a little bit of the enthusiasm for more than doubling the size of that program. It also has led us to focus a little bit on the opportunity of going direct in more markets, because making investments in sales people has proven to be a very reliable way of driving organic growth in the business. And so certainly as George mentioned, our markets where we can do that like Spain, Switzerland, Denmark, Korea, China, et cetera.

So buying our distributors to the half or one time sales or something is also a good use of funds. But clearly we want to leave dry powder and I think despite the fact that we'll be doing share repurchases and distributor buyouts, we feel very good based on the underlying cash generation properties of the business that we'll have a cash pile that's either at where it is now or growing to execute on transactions and we have like I said a nice pipeline. We're value buyers, like many of our investors are and so we're out there looking for what that next acquisition is and we've done 11 of these in the last 13 years. We feel highly confident we'll be able to do more of these in the months and quarters and years ahead, but we're out there looking and trying to deploy cash wisely.

So in a sense -- the sellers are just holding on longer or waiting for the recovery to take place essentially.

Yes, and I mean - I'm sure that you guys in your investment banking division, we see this all over Wall Street, the number of deals are down and what happens is obviously there's a big disconnect between prices of publicly traded companies and then the under lying value that companies believe that they're worth.

And so you get this disconnect and of course when the capital markets go askew the companies that need cash sometimes get desperate and you can get better pricing on those types of transactions, but those then to be dilutive and I'm not going to say we won't do a diluted transaction but our sweet spot is really to target companies with positive revenue, positive earnings all of that, and was typically at positive cash flow. So their back isn't against the wall and they can be demanding three or four or five times sales. And then that's where a little bit of the valuation disconnect comes in. now that all being said, but I believe there are opportunities out there and so we're looking, we've taken a swing at a few things here in the last six to 12 months and we basically have just missed on valuation but we're out there actively pursuing a small handful of deals right now.

Okay, great thank you.

Thanks, Mayank.

Your next question comes from the line of Sasha Kostadinov with Shaker Investments. Please proceed.

Thank you, congratulations guys, very nice quarter. I think I heard earlier but I don't recall what the number was. Your hiring plans for sales reps for the year, could you repeat what that number was?

Sure. We would like to get to about 70 reps and we're currently at 61.

Okay and that seems like a pretty aggressive goal. Do you already have candidates in the pipeline or where would you say you are in achieving that goal?

And you mean aggressive in terms of how fast that could happen over six months?

Yes, yes.

Okay, got it. Yes, in the US probably from start to finish on a search you can probably bring someone in the door in I'm going to say two months at the inside, four months at the outside. So in the US that's easy to do. There's a recession out there, you got 9% unemployment, it's not that hard to find candidates for these jobs.

I would agree with you, over in Europe and in Japan we have struggled at times with speed on our recruitment processes and so you're going to -- as we go to -- and the blend is sort of half US and half European. So as we go to do that, it will be a little bit more of a struggle, but I'm almost certain we can get it done by the end of the year.

Okay. My next question is given that you just instituted a kind of a blended 5% price increase across your product line and given that even if you didn't hire any sales reps, you got a nice year over year delta.

Your second half sales guidance, I hate to use the word sounds conservative, gut it does.

Yes, so the Company - I think our sales growth was 8% in '07, 7% in '08 and 4% in '09. Sour guidance right now implying 12% organic growth, we're thrilled with that actually. So you can have your opinions on it but we're real excited about that.

Also remembering back to the great recession if you will, what we saw happen and this is - I'm bringing this story out because it's going to impact what we're talking about in H2 2010, what we saw happen was in Q1 '09 the hospitals and the distributors unstocked their shelves, we sold very few medical devices in Q1 '09. Maybe it was a little bit less extreme in Q2 '09, but in general you had a lot of pent up volume buyers come in in Q3 '09 and to a certain extent Q4 '09. So you had more of the buying of medical devices happening in the back half of '09 and then the front half of '09 and so this is a long way of saying they're tough for comps --

Okay.

In the back half of '10 because you had so much pent up buying demand that was satisfied in Q3 '09 and to a lesser extent Q4 '09 so what you get is a funny blend of organic growth rates this year or 18% in Q1, 15% in Q2, 8% in Q3 and 9% in Q9. I would ask you if you would look at it as a yearly basis and say these guys did 12% organically, that's pretty good.

I mean your sales growth has been very good. That's not what it was getting at to criticize, I was just trying to understand what the reasoning for that makes sense, you have an inventory restocking hangover. But okay -- the other question is on the G&A line, is this kind of a good run rate for you? Your sales were actually up and your G&A went down sequentially. What was it played there?

Hey, Sasha. This is JJ Yes, I would say you've got a little bit of FX coming into play in these op expense lines as well that you've got to think about so I think the euro in Q1 was [138] blended or so and then down to [127] in Q2. And so that's about an 8% delta and we've got 45% or so of our sales OUS so you can think about expenses being over there in Euros as well. So that's a piece of it. And I would say otherwise generally in G&A we've tried to be pretty tight and I think we've been doing that. We haven't hired many folks. I think it was plus two year over year and I think generally we've just tried to say lean.

Okay. All right, thank you very much. Keep up the good work, guys.

Thank you.

Thanks.

Your next question comes from the line of [Steven Globus] of Globus Adventures. Please proceed.

Good afternoon guys and thank you for taking my call. Great quarter. Just a couple quick calls -- questions, most of them have been answered. JJ can you tell me a little bit about our tax rates and how we're paying. I see where we have a large NOL that we're carrying forward.

Yes, so thanks for asking about the tax line. Q1, I think our effective rate was about 20%, 21% and up at 30%, 32% or so for Q2. So about 26% blended for year to date --

And that's state and federal?

Yes, that's all in. and US and OUS as well. And so we had a large NOL, I guess we technically still have. We will be basically using all of our US NOLs this year. We'll still have some R&D tax credits, but basically that will translate into effective rates going up to statutory rates. So 36% to 39% over time.

Okay.

So probably not in the next couple quarters, but then certainly next year I think you'll see rates start to go up.

Okay, understood. And also we talked about this briefly but could you give us maybe Dave or George can give us a little color on the new climate of regulations that are coming down the pipe from Washington, how does that affect us?

Sure. And you're talking about Obamacare or are you --

Yes, Obamacare. Yes.

About [parks] and regulations. Sure. Okay, as far as Obamacare, I shouldn't say this. It's not good for us, I don't think. Effectively what we see happening in 2013 is we're going to get a 2.9% excise tax, which I think we've quickly calculated out to be worth about $1 million of a stick pretax on our company. In addition, at a very high level, we deal -- we obviously deal in Europe and we've been dealing with eight or nine very socialized healthcare systems for a decade or so.

We have learned how to make money in those markets, but we do find that when you have effectively a single state payer system that your gross margin gets challenged actually by the state of France and by Germany. They go in and they look at things and so we do experience slower margins over in Europe than we experience in the US and I think generally speaking that's due to the single payer system. My guess is over the sweep of ten years, Obamacare starts meaning that towards us. Another sort of thing I think people are starting to get to, which is in order to insure the 35 million people coming into the insurance pool --

Yes, that's my --

You're probably going to have to take some money away from the senior citizens in the Medicare program and we generally sell our devices to doctors that are working on people that are 65 years and older. It's not exactly true all the time, but it's generally who we sell to. And so our senior citizen customers are going to have money taken from them by Obama and given to the newly insured population. So probably not a great thing over the long run, although I will say we have learned how to make it work over in Europe and Japan where they really do have top down state run systems. So I'm going to guess, life will go on, but we prefer the old system.

And you don't see more members -- more participants or more demand as these things get socialized down do you or --

No, because Medicare is already covering everyone 65 and over and those are the folks getting vascular procedures. So unfortunately the expansion of procedures that will take place for stuff like gall bladder surgery, mid 40s, mid 30s, stuff like that, that's going to be someone else's. That's going to be good for some other medical device company, not us.

Now, just a quick question, its already been an hour already you guys are probably busy, but Dave are you -- without getting into specifics, are you looking acquit ions overseas and which are fairly tricky and have you been looking at China at all?

Yes, so thanks Steve for the question. So we've done 11 acquisitions historically and I want to say maybe almost half of them have been overseas, but of those, all of them have been in Europe. Are we looking in China specifically? No. we have looked a little bit in Japan historically, but I'd say really materially the bulk of the targets we're focused on are either based in the US or based in Europe.

Now an Asian deal would that come -- would that deal flow come from your own -- your own sources or would you expect to see those through investment bankers or merchant bankers and those areas?

I mean occasionally we see deals from the bankers, the investment bankers and merchant bankers. Usually if we see them from those sources then they're showing them to 1 million other people as well and I think every deal except one that we've transacted has not been in a competitive situation. So I'd say the proprietary deal flow for us comes from either directly form physicians who own companies or executives in smaller venture backed companies that aren't going to go public because basically nobody's going public these days.

Right.

Or also from larger companies that are doing carve outs. We hear about them through the professional industry network that we have and we've been doing this for 13 years so that's a pretty deep network, and also we hear from them through physicians and our distributors. So there are a lot of sort of catch basins if you will, but I would say it's unlikely but never say never --

(inaudible - multiple speakers).

Get the deals from bank.

One last question and the source -- the other source which could be fruitful but who knows the educational institutions, I know that one of your deals came from Arizona, but is that something that you're picking and choosing from time to time?

Yes, I mean certainly we believe that a lot of the innovative technologies come from key opinion leaders who are physicians or institutions.

Right.

And so we have an ongoing effort in the Company among the senior management team to know these individuals and their institutions so by all means, those typically tend to be more early stage interesting technologies. They may be less sort of bulky revenue acquisitions but by all means --

Right, right, right (inaudible - multiple speakers) --

Yes --

They take some time, yes.

By all means, we are interested.

Okay, thank you for taking my questions and congratulations.

Thanks again.

Your final question is a follow up question from Joshua Zable with Natixis. Please proceed.

Hey, guys. Thanks for taking my follow up here. Just kind of a general question. Just -- there were some calls obviously earlier today in the bachelor space about procedure growth just kind of being the mid low single digits. I guess I'm wondering kind of what you guys are seeing maybe faster on the -- with respect because obviously you're kind of serving more vascular surgeons and some of the other guys or if you're seeing that kind of inline and then the second thing again, I know there's a lot of moving parts here, but US versus international kind of procedure and procedures are holding up out there. I know in the numbers obviously there's a lot of moving parts so I'm just trying to tease out to it, general market sort of growth if you will. Thanks.

Okay and I didn't -- I don't have the benefit of those phone calls from today, so I don't know what you're hearing. I would tell you our opinion is maybe the open vascular procedures grow 1%, 2%, 3% a year and maybe the endovascular procedures are growing sort of 7%, 8%, 9%, 10% a year. Maybe a blend of the whole market, we always say that we're growing --the market itself is growing 8% financially a year.

But if you wanted to break it down across the two sides of the Atlantic, I mean our results recently we've had a tougher time in parts of Europe, although its belied by the fact that we're doing so well in Italy and France, but it does seem like its tougher sledding over in Europe right now and that in the united stets it's kind of going okay, and maybe that has something to do with all of the European financial crisis or maybe that's just over thinking it. There was also a German strike that lasted -- a German doctor strike which lasted I think halfway through May, through the end of June, that may have impacted procedures as well.

Great guys. Thanks, congrats.

Thank you, Josh.

If there are no further questions, I will hand the call back over to Mr. George LeMaitre.

Okay, thank you Saley, and thanks to everyone listening in today. Before I sign off, I'd like to let everyone know that we will be presenting in the Canaccord Genuity Growth Conference in Boston on August 12th and also the Rodman and Renshaw Global Investment Conference in New York in Mid September and obviously we also look forward to our next earnings call in October. So thanks a lot for listening and have a nice afternoon.

Ladies and gentlemen, that concludes today's conference, I would like to thank you for your participation and you may now disconnect. Have a great day.