LeMaitre Vascular Inc (LMAT) 2014 Q2 法說會逐字稿

Welcome to the LeMaitre Vascular second-quarter financial results conference call. As a reminder, today's call is being recorded. At this time I would like to turn the call over to Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Thank you, Philip. Good afternoon and thank you for joining us on our Q2 2014 conference call. Joining me on today's call is our Chairman and CEO, George LeMaitre, and our President, Dave Roberts. Before we begin I'll read our Safe Harbor statement.

Today we will be making some forward-looking statements the accuracy of which is subject to risks and uncertainties. Wherever possible we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, forecast and similar expressions.

Our forward-looking statements are based on our estimates and assumptions as of today, July 29, 2014, and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied.

During this call we will not discuss non-GAAP -- we will discuss non-GAAP financial measures, which include organic sales and growth numbers, as well as EBITDA. A reconciliation of GAAP to non-GAAP measures is contained in our press release announcing the quarter's results and is available in the Investor Relations section of our website, www.LeMaitre.com. I will now turn the call over to George LeMaitre.

Thanks, J.J. Q2 2014 was a productive quarter. I'd like to focus my remarks on four headlines. Q2 sales grew 14% to a record $18.2 million. Q2 operating profit grew 37% to $2 million. In Q2 we launched the HYDRO LeMaitre Valvulotome. And finally the fourth headline, we hired a Chinese general manager and plan to open a Shanghai office in September.

As to our first headline, we posted our best quarter ever at $18.2 million in sales, a 14% improvement over Q2 2013. By product, XenoSure and TRIVEX drove Q2 sales growth. XenoSure was up 27% in Q2 with record sales of $2.5 million. XenoSure is approved in that US, Canada, Europe and now New Zealand. And we submitted our Australian application in Q2. We also plan to file for XenoSure approval in China and Brazil in 2014.

As for TRIVEX, we posted $2.7 million in sales in the first 10 months of ownership and expect approximately $3 million of year one sales. TRIVEX is producing solid operating contribution and has enabled our push into China. We acquired TRIVEX in August of 2013 for approximately $2.8 million, less than one times sales.

Geographically our newly direct operations led the way in Q2 with 269% sales growth in Australia and 120% sales growth in Switzerland. Our direct sales operations in France, Iberia and Italy also reported growth of 43%, 24% and 15% respectively as these economies repaired. Our sales guidance projects 12% growth in Q3 and 9% growth in 2014.

As to our second headline, record sales, sequential gross margin improvements, and a 10% sequential expense reduction combined to produce operating profits of $2 million, a 37% increase versus Q2 2013. We also posted record EBITDA of $2.8 million.

As to our third headline, the HYDRO LeMaitre Valvulotome is the most ambitious redesign of our flagship product in 12 years. It features water activated hydrophilic coating on a 1.5 millimeter catheter for easier insertion into smaller veins and smoother less dramatic passage. Valvulotomes accounted for 22% of our Q2 sales and we expect a $100 per unit price hike from the HYDRO. The HYDRO as approved in the US, Europe, Japan and Canada and is now the only valvulotome we sell in Australia.

As to our fourth headline, we've hired a Chinese General Manager and expect her to open our Shanghai office in September 2014. This office will support our two Chinese distributors of TRIVEX and AnastoClip and will also begin to pursue regulatory approvals. By the end of 2016 we expect that seven of our 15 products will have received approval in China.

Since we received our first Chinese approval in Q2 2013, LeMaitre's worldwide sales have exhibited higher beta based somewhat on the timing of our Chinese shipments. For instance, we posted approximately $700,000 of Chinese sales in Q4 2013, $100,000 in Q1 2014, and then $580,000 in Q2 2014.

While our Chinese sales may be lumpy and carry lower gross margins, we're excited to get a foothold in China, the third or fourth largest medical device market. I'd now like to have the call over to J.J. Pellegrino, our CFO.

Thanks, George. I'd now like to say a few words about our share offering, gross margin, cost-cutting, the bottom line and guidance.

Before I do, however, I would like to welcome the analyst team at Brean Capital, including Jason Wittes, who initiated coverage in May. I would also like to welcome the research team at Stifel Nicolaus including Rick Wise, Matt Blackman and Drew Ranieri who initiated coverage on us following our recent public offering. We look forward to working with both teams in the quarters ahead.

On June 4, 2014 we closed an underwritten public offering of 1.64 million shares of our common stock at a price of $7 per share. Net proceeds from the offering were $10.5 million. The goals of this offering were to increase our war chest for acquisitions and to issue additional shares in order to support increased trading liquidity.

The $7.00 per share operating price represented an 8% discount to our pre-offering share price of $7.63, in line with the 7% mean discount for recent med device follow-on offerings. Post offering our weighted average shares count used in the calculation of fully diluted EPS was 16.5 million shares in Q2 2014 and will be approximately 17.7 million for both Q3 and Q4 2014 and approximately 17 million for the full year 2014.

Gross margin in Q2 2014 was 68.1%, a sequential improvement from 67% in Q1 and 66.7% in Q4 2013. XenoSure manufacturing ramp, Southbridge closure and cost reduction initiatives all contributed to the improving results. I continue to expect additional improvements over the second half of 2014 and look for a 70% gross margin in Q4.

Operating expenses in Q2 2014 were $10.4 million, a sequential reduction of $1.1 million from the first quarter. The February and April layoffs of 40 employees, as well as other internal cost-cutting initiatives, have driven the decline.

All told we believe that we've reduced annual operating expenses by approximately $5 million, which has facilitated a quick bottom-line turn around. Combined with strong sales and an improving gross margin, this rightsizing of our expense structure cleared the way for $2 million in operating income in Q2 and 11% operating margin.

Turning to guidance, we are expecting Q3 2014 sales of $17.1 million, up 12% versus Q3 2013, and operating income of $1.4 million, up 80% versus Q3 2013. We are also increasing our full-year 2014 sales guidance to $70.1 million, up 9% versus 2013 full year, and improving our full-year operating income guidance to $5.6 million, up 24% versus 2013.

Separately we will be presenting at several upcoming investor conferences including the Canaccord Global Growth Conference in August in Boston, the Barrington Growth Conference in September in Chicago, the Stifel Healthcare Conference in November in New York, the Canaccord Medical Technology Forum in November in New York, and the Brean BMC Life Sciences Summit in November in New York. With that I will turn it back over to Phil for Q&A.

(Operator Instructions). Jason Wittes, Brean Capital.

Just first on China in terms of what the impact might be. I assume, A, most of that will be felt next year? And will there also -- will there be -- on top of the revenue improvement, will it also get some margin improvement from just the change in structure over there?

Okay, so I mean, I think we are still open for business in China in H2, although we sold a lot and, as you know, we've had these regulatory lapses as of January and July. But we are definitely -- we are looking for a long-term thing in China with growth in 2015. I don't envision a margin improvement because the structure is going to remain largely the same for a while, Jason.

But it won't be a direct -- it will still be distributors basically?

That's right. And we'll be pulling sales through the distributors.

Okay. And then also on XenoSure, sales continue to be strong. I did note that your guidance is now for plus 30, I think you were looking for a little bit more earlier in the year. Is there a reason for that change?

Yes, guidance is down from 10.3% to 10.0%. It is just what we are seeing right now. We still feel pretty good about a 27% growth rate in the quarter. But we are coming up against big numbers and comps are hard.

Understood, understood. And then on the HYDRO valvulotome, it sounds to me like the direction that business is going is that you are hopeful that the entire business will convert over to HYDRO or is that a little too aggressive in terms of thinking about how that cascades in the US and the rest of the world?

Right. So we are doing a little test on that in Australia where we are doing a hard switch and you can only get the HYDRO from LeMaitre in Australia. We are going a little bit more gingerly in our larger markets because of course there is more dollars at stake there. But, yes, in the long run I do feel like this is going to be a HYDRO only Company although we don't know how long the long run will take to play out.

Okay, and the last question and I will jump back in queue and that is, do you break out in terms of your growth rate how much of that was related to pricing?

Yes, we -- well, we don't break it out in the press releases but we do always answer it. And the 6% organic growth rate in Q2 was approximately 50% pricing and a 50% unit growth.

Great, thanks a lot.

Chris Lewis, ROTH Capital Partners.

I guess first just on the gross margin, I'm starting to see a nice sequential improvement there at least in the quarter. And, J.J., you mentioned you still plan to exit the year at 70%. So maybe if you can just provide a little more color on what you are seeing there in terms of the XenoSure manufacturing ramp and then what the Company needs to do in order to get back to that 70% exiting this year.

Yes, thanks, Chris. So the XenoSure ramp was an interesting one and then I think it took a little more time than we thought to sort of crank things up. But since we have gotten going nicely in XenoSure and the units have started improving markedly, we are producing by and large around sort of the annual units that we are selling right now back in that room.

And so that has had a dramatic impact on the margin. Sequentially from Q1 to Q2 it was something like a 2% impact in the margin. I would say going forward that is going to continue, but the XenoSure margin is still below the corporate margin.

So it is a little bit complex in that sense that while it is improving it is still below the corporate margin. And XenoSure is still growing at 30% plus as a product category within our product lines. And so therefore that is going to hurt the margin over going forward although help sequentially from where we have been.

So there is that piece flowing through. There's a couple other mix pieces as well, sort of the US versus OUS piece. As you recall, Chris, the US margins are stronger than the European margins. And to the extent that Europe grows more quickly than the US that would be sort of a headwind on our gross margin.

And then there is the export in China piece. To the extent that we sell into China, that margin is generally a little bit south of 50% or so. Depending on what we sell into China that is going to be a drag on margin.

But those pieces sort of have been I guess overshadowed in the last few quarters by the XenoSure ramp, which has helped a lot, the closure of the clinical instruments facility down the road here in Southbridge and then general manufacturing efficiencies. We've done pretty well in AlboGraft and LifeSpan particularly in the room. And then of course year over year you get ASP increases, so those will help.

Okay, great. Thanks for all that color. And then just on the guidance, the revenue guidance kind of for the remainder of the year. You obviously beat -- nice beat this quarter but you only increased your annual guidance by $100,000. So I think that implies a nice double-digit growth in the third quarter, but when I look at the fourth quarter it is a pretty low -- I think low-single-digit implied growth in the fourth quarter.

So maybe just walk us through the different dynamics to think about there, whether it is a bit of conservatism or just tougher comps or just other areas that we should consider when thinking about the growth for the remainder of the year.

Yes, it is a little bit of a tricky one there to sort of thing through. But it largely revolves around China, Chris. I think George talked about China being chunky and it is -- $600,000 or $700,000 of China sales in Q4 then down to $100,000 or $200,000 in Q1 and then back up to $700,000 in Q2.

So I think what you're seeing there is in the back half of the year we're thinking about less China sales. And then when you get to Q4 that comp is comping against a Q4 of last year that had $750,000 or so of China sales, so it is a tough comp. If you pull that out that comp rate looks a lot better in the sort of 5% or 6% range.

So, I think it is really a story of sort of front loaded in the year, H1 sort of more China and maybe less in H2. Remember also that Q3 is seasonally a weaker for us typically. And so, you will see Q3 come down as we have guided as well.

Chris, I might also add, this is George. We are now -- we've made 11 of 18 guidance quarters on sales and 11 of 18 for op income. So we continue in this building to try to prove out that when we say something it winds up being right on the next phone call [where we're at]. So there is a little bit of caution in all those things. We're trying to improve that. We have a 61% batting average and we feel like we want to bring that up. So we're always trying to make sure we make these numbers going forward.

Okay, great. And then if I could sneak one more in. Just with the financing and the war chest in place now, can you talk about just M&A, what you're seeing out there, what is the appetite, what types of technologies may be of interest to you? And I guess with the war chest built up a little bit do you go after potentially a larger acquisition than the Company has historically executed? Thanks.

Hey, Chris, it is Dave. Thanks for the question. Yes, there are certainly plenty of targets available right now. And with the bigger war chest I think at the margin we would prefer to look at larger deals. But of course we are going to pull the trigger on the right deal.

The attributes of the deals haven't really changed much, of course, used by vascular surgeons, niche market, products with sales may be $5 million to $20 million in sales accretive, something like that.

But we did that secondary offering, that follow-on offering so we could fill the bank account to do more and/or larger deals. So hopefully we will be able to execute on that over time.

Okay, thanks for the time.

(Operator Instructions). Rick Wise, Stifel.

It looks like the America's drove a lot of the revenue upside in the quarter. Maybe can you give us a little more color, a little more detail on some of the specific areas of strength and how sustainable it is and what it implies about the rest of the year?

Sure, Rick. So there is a little detail I want to go through here which is the Americas revenue looks like it grew 14%, but that is carrying a lot of a Chinese export piece. Our factory direct things that we ship out of our factory to some distributors is booked on the US side in the Americas, so it looks a little bit different than it is.

But the good thing is the Americas did rebound from a very weak Q1 where we shrunk by 1% organically and we grew by 3.4% organically in Q2. Some of the color on that is we felt like Q1 was affected by Obama Care pulling revenues into Q4. And we also -- now that we have a little perspective on the first quarter looking at the macro US GDP shrinkage of 3%, we really didn't know that when we were going through that and I think that had something to do with it.

So color is US is rebounding. I would even go a little further here which is we feel pretty good about in Q3 we could see that organic growth number expand in the US sort of into the 5's and 6's and 7's and 8's from, again, negative 1 in Q2 and 3.4 in Q2 -- excuse me, negative 1 in Q1 and 3.4 in Q2.

Got you. And on the GPO front, can you talk a little bit about your experience so far with Premier? I think if I remember correctly you signed a contract a few months ago. Are you actively signing additional GPO contracts domestically? Is this something ahead that could be an accelerant to growth?

Sure, Rick, this is Dave, thanks for the question. Premier, obviously we signed that. That became effective on April 1. And right now we are working on converting their members to some of our products, mainly XenoSure and our vascular grafts.

With respect to other GPOs, we haven't signed any other GPO contracts yet. We are in the application process with respect to a couple of our product lines with some of the larger GPOs. I don't feel like it is imminent right now, but we definitely feel like it is an important part of our strategy going forward.

Rick, I would add that I feel like we are in the top of the first inning in the US for the GPO game. And I feel like in Germany by contrast we're sort of in the 8th or 9th inning where we have really gotten it done and about 60% or 70% of our sales are going through German GPOs. So we -- as an organization, we do know how to do this, but in Germany, and we are learning in the US. So we are really just getting started in the US.

And again it is only two months old. I don't think it is ahead of plan or behind plan, but it is just getting started and we happened to start with one of the biggest, Premier. So that is a good start, but we will see what happens.

Thank you so much.

Larry Haimovitch, HMTC.

My question has actually been answered, but George I will rephrase one of my questions, which was the uptick in Q2 over Q1. You had said in Q1 you were thinking that procedures were down overall in market and you were right. Obviously things have bounced back.

Do you have any color at all yet for the rest of the year? Do think we're going to continue to see kind of the 3% to 4% organic growth? Is that kind of your expectation going forward?

And you are talking US not global for the (multiple speakers)?

Yes US, yes, yes, US.

I feel as though you are going to see better numbers from the US. I mentioned just now that I feel in Q3 like you are going to get 5%, 6%, 7%, 8% from the US. And I haven't split it out in my head in Q4, to be honest with you, but it feels like we kind of have an opportunity here, particularly with the HYDRO lunch going on in the US. It is not taking place in Europe, it is launching in the US.

Okay. And then just a follow-up question. Price increases have been a regular feature of LeMaitre as long as I have followed you and probably even way before that. Have you seen any resistance or any issues at all? I realize you dominate many of your markets and they are very [nichey] products, but have you ever seen any kind of pushback, George, to where it has affected sales growth?

Sure -- well, I would say, Larry, that we have a slide that is up on the Internet on our corporate slideshow. It is a great slide; it tries to really address this issue for the last 10 years, so you have 10 years of data there. And I feel as though our ability to increase prices over the last 10 years goes down by roughly 0.5% every year.

So if we were in the 7%s and 8%s 10 years ago -- I am doing the math really quickly here -- we're sort of at 3.5% and 4% right now. I feel like we get much better pricing than our peers because we are in such small niches. But I do feel like pricing power is slowly draining away. It is a little bit harder and we are dealing with more GPOs and more pricing committees.

Okay. So does that fact that prices are getting a little harder to raise year over year over year perhaps have an effect on the long-term organic growth of LeMaitre?

No, because I think we have been able to supplement that with incredible geographic expanse. So, to the extent you are seeing slightly lower US organic numbers of sort of 4%s and 5%s this year, I do feel like you keep seeing these great international numbers.

And that is funded to a certain extent by our geographic adventurism into places like China, like Australia, and like Switzerland most recently. But five years ago we got into Italy, France and Spain and they are still paying dividends for us.

Great, thanks, George.

Jan Wald, Benchmark.

Congratulations on the quarter. I guess I just have more follow-up type questions than anything else. I guess one thing that I saw last quarter was sort of a strategic move in a sense towards international markets. And I know you had good strong US -- you had strong US growth this quarter, but could you talk a little bit about what your expectations are for Europe and China and Australia/New Zealand for the rest of the year?

Okay. So I think we've gotten a little bit to this as a group in the last 10 minutes. I think Chinese sales have been quite lumpy for the last nine months and I don't think we have enormous expectations for China. Although you never know because either the distributor comes in with a giant order or they don't.

So I guess in our guidance here I think we're not thinking there is a bunch of Chinese orders out there. So then you would say, well it's Europe and the US for the balance of it. I have also mentioned I feel like the US has some good numbers at least out into Q3, I'm not quite as knowledgeable in my mind about where US and Q4 will go, but I think it is going to go fairly well.

These new markets are fantastic. So the Switzerland's, the Australia's, I feel like we've got long, long runways of 50s and 80s and things like that for the newer markets and then the traditional European markets, the Mediterranean's as well as the Northern European markets and what we will call the core markets.

We are bumping into some tough comps from last year, but still within our guidance is -- I think we got 8% in the quarter, 8% organic growth and 11% for -- or 12% for Q3. And then if you take out the big Chinese order in Q4 I think you still got 5% organic growth in Q4. So it still indicates some healthy growth out there as well.

Okay. And in terms of -- I know you've had a workforce reduction and I know also that you had plans to -- or I think you had plans to increase your sales force. Has that changed or what are you going to do in terms of growing your sales force over the coming 6 to 12 months?

Sure. So, Jan, inside the whole riff, if you will, of 40 people, the net drop in sales reps has gone from 87 to 83 from the end of Q1 to the end of Q2. And we had always said we think we are going to do 85 sales reps at the end of the year. I still feel like that is about where I want to land by the end of the year. The reduction in force took place throughout the organization and only four sales reps net-net were taken out.

As you are adding sales personnel where will you put them? Will it be US now that that is growing again or do you see it going into Europe or international?

Sure. We sort of played this out a little bit before the phone call of where we might be putting these reps. And we have an amazing palette of good places to put reps right now because we have infrastructure all over the world. Given that I am saying we are only going to 85 by the end of the year, don't take this wrong, but if we were to add 10 reps right now -- and LeMaitre's business plan is to always add more reps.

If we were to add 10 reps I would say I would split it a third, a third, a third Western Europe, United States and Canada and then also the Pac Rim. So maybe two in China, one in Australia, three in the United States and then three-ish France, Holland, something like that.

Okay and I guess one last question. In terms of looking forward and trying to maybe get at an acquisition type of question here. Where do you see the vascular surgery market going? I mean what do the surgeons want? What do they need? And is there the technology available to go and meet those needs?

Sure. It is a pretty dynamic space right now, Jan. I would say surgeons, with the delivery of healthcare certainly they are doing more endovascular procedures, they are moving a little bit out of the hospital, things are going a little bit more through purchasing committees.

But at the end of the day I think what they and what the healthcare wants are devices that deliver strong patency and deliver value. And so, when we look at Medical Devices for acquisitions there is a lot of interesting technology we see but oftentimes it is not proven. And we place a very high premium on devices that are proven in the market and ones that we believe to be cost effective for the healthcare system.

The fact that our devices work equally, if not better, over in Europe where they spend half as much as we do in the US of their GDP on healthcare indicates that our suite of devices is quite effective in that regard. So we will continue to do that. It might mean we won't get the whiz bang rocket science type of product. But we thing for the long haul it is what the health system wants.

And I guess one last question -- related question. It looks to me as if one thing that might have to happen, and tell me if it does or it doesn't, is that in order to keep your growth growing at the rate it is or maybe even improving a little bit you have to rely more on acquisitions than you have in the past because of the maturing markets.

And I know there are some markets you're just entering and you think you have a really long glide path in these markets. But a lot of the mature markets are going to slow down on you. Do you feel -- is there any more pressure to acquire now than there has been in the past?

Gee, Jan. I would definitely say no. I feel like geographically right now the world is our oyster, we are going to places and we are getting -- this suite of products, these 15 products, they work in almost every single geographic locale. So you really just have to have the bandwidth and the money and the time and effort to get into an Australia or China and you are going to really produce some great growth rates.

So, no, in general the message we like to keep putting at people is we're probably going to be growing around 8% organically and then you can expect us to add a little bit on top via acquisitions. And I think that has been in play for a long time, I think over 10 years. We have an 8% organic growth rate CAGR and we have a 12% reported growth rate CAGR. We don't see that changing.

If you put 2013 and 2014 together you're going to have an 11% organic growth rate in 2014 and a 5% -- excuse me, in 2013 and a 5% in 2014. And you put together, that is 8% for these last two years. It feels to me like that is still in play very much and we will keep on adding on when and as the acquisitions pop up at a good price. I think you have seen us be pretty price sensitive on these acquisitions. And I think we will continue to hold our fire on expensive acquisitions.

All right, thank you very much.

Jason Mills, Canaccord Genuity.

Hi, guys, this is actually Jeff Chu filling in for Jason. Thanks for taking the question. George, just wanted to follow up on your comments regarding growing the sales force. I was just wondering if you might -- the sales force additions in Europe or -- and overseas would be adding to areas where you're already direct or have you identified new geographies to convert to direct sales?

Right. Okay, so, of course with China taken as a given that we're going to try to be there, the things I have in mind right now are mostly drop into the existing infrastructure. We can do that. We probably have room for, pick a number, 20 or 40 reps to go into the existing infrastructure.

When and as we do choose to pick up new geographies, things like Brazil, Finland and New Zealand are tempting and interesting to us. Although I feel right now with China coming on maybe it is best to wait and see how that goes a little bit before we get too aggressive with other geographies.

Okay, very good. And with regard to geographic expansion, and you have touched upon kind of the near-term expansion opportunities. I was wondering what your thoughts are over the long-term, let's say out to five years. Had do you envision international business playing out?

And related to that, given the importance or the larger contribution from your international business, what is your confidence in keeping your margins or being able to sustain your margins in the 70% range?

Okay, that is an interesting question. Of course we all agree that these international margins are not quite as good as the US. But I do think we still have a lot of upside in the factory in terms of cost cutting and improving margins that way. And also keep in mind, we still do have something like a 3% or 4% price hike going every year and that helps you keep the margins up as well.

So I don't want to give a long range guidance play on our margins, but around here we are always thinking 70%-ish. And I don't think we think about it in terms of much less than that as a long-term thing. But yes, of course that will be a headwind and we will have to deal with the headwind as it approaches. More international certainly does mean lower margins.

Okay, great, thanks for taking the questions.

Joe Munda, Sidoti & Company.

J.J., I guess my first question is for you. Are we expecting to see any more restructuring or impairment charges in the third quarter?

No, we are not, Joe.

Okay. So that op guidance that you gave, that is free of any one-time charges, right?

Correct, yes.

Okay. And CapEx through the first six months, do you have a number?

Last quarter was about $100,000 and I'm going to say it was $300,000 or $400,000 in the quarter before that, so maybe $500,000.

The cost cutting program has reduced CapEx, you can feel it. It has gotten tighter on CapEx.

Okay, yes, George, that is an interesting point. With all the expansion plans that you guys have, I mean is that a number that we can annualize out, that $500,000 through the first six months?

For this year, yes, Joe, I mean normally I think we are in the $1 million, $1.5 million range for CapEx unless we are doing a build-out or an integration of a manufacturing facility or something extraordinary. I think this year is going to be feeling more like, yes, you can annualize that.

Okay. And George, I think in your prepared remarks, I think I missed it. What was the TRIVEX sales and what were XenoSure sales in the quarter?

Sure. XenoSure was $2.5 million in the quarter for a 27% reported growth. And TRIVEX, I didn't say in the quarter but I did say for the 10 months that we have owned that business it has been $2.7 million and I think we are projecting it to be about $3 million for the first home months of ownership.

Okay, $3 million for the first 12 months. Okay. As far as -- you talked about expansion, you talked about the margins. I am just curious here as we look at the business -- I know a lot of previous callers had mentioned it. It seems like international is the hotspot.

Is that also being taken into account as you develop an acquisition strategy going forward? Are you looking at products that would fit here in the US as well as overseas? Or is there a particular market that you are aiming at as far as an acquisition strategy?

That is a good question, Joe, I would say we are a little bit agnostic. We greatly prefer that acquisitions have sales in products -- in markets, excuse me, where we have salespeople already. But of course since we now have 83 salespeople and they are spread across multiple countries, that means as long as the targets have sales in the US or Europe and now we have Australia and we will have sales reps in China, Canada, etc., I would say we are little agnostic.

We prefer the sales are -- historic sales are in countries where the markets are a little bit proven out. But generally speaking we're agnostic. If there are sales in Europe instead of the US that is okay. If they are in the US and they can take advantage of our fantastic sales force here that is terrific as well.

Okay. That is all I had. Thank you.

Ladies and gentlemen, this will conclude the question-and-answer portion of today's conference as well as the end of today's call. Thank you all for your participation and you may all now disconnect. Have a good day.