LeMaitre Vascular Inc (LMAT) 2018 Q2 法說會逐字稿

Welcome to the LeMaitre Vascular Q2 2018 Financial Results Conference Call. As a reminder, today's call is being recorded.

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

Thank you, Liz. Good afternoon, and thank you for joining us on our Q2 2018 conference call. With me on today's call is our President; Dave Roberts, our Chairman and CEO; George LeMaitre is unable to be on the call today due to the death of his father and our founder George LeMaitre. Dr. LeMaitre started the company back in 1983 after he invented the Valvulotome, which enabled the less invasive peripheral bypass procedure.

He chaired our Board of Directors until 2004. Dr. LeMaitre was a father, a surgeon, an author and an inventor, an entrepreneur and a captain in the U.S. Army. He will be missed.

Before we begin, I'll read our safe harbor statement. Today, we'll make 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, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today July 26, 2018, 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 discuss non-GAAP financial measures, which include organic sales and growth numbers, EBITDA and operating income adjusted for nonrecurring events.

A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website, www.lemaitre.com. I'll now turn the call over to Dave Roberts.

Thanks, JJ. Q2 2018 was another productive quarter. Our focus on 3 headlines: First, we posted record sales of $27 million; second, we've expanded our sales force to a 102 reps, a high watermark; and third, we continue to generate cash ending the quarter with $52.9 million, a record.

As to our first headline, we have record sales of $27 million in the quarter, posting 6% organic growth over Q2 '17.

Biologics momentum continued. RestoreFlow set another record, up 24% in Q2, after posting 48% growth in Q1. XenoSure also set a record, up 9%. As a group, our biologic products increased 9% and accounted for 36% of Q2 sales.

Geographically, Asia Pac Rim was the standout region, up 21%.

In China, where we recently eliminated a layer of distributors, sales grew 25%. Our delayering strategy seems to be paying dividends early on.

As to our second headline, during the quarter we added 8 sales reps, reaching a high watermark of 102 in-line with our previously stated goal.

We expect to have 105 sales reps by year-end. As a reminder, new reps typically take 6 to 9 months to gain traction. And we look forward to their contribution over the coming quarters.

Increase in the size of our sales force, which we view as our principal asset will help us leverage future acquisitions, regulatory approval and new product launches.

As to our third headline, we ended Q2 2018 with a record $52.9 million in cash, up $7.5 million from the previous quarter, and up $11.3 million from December. With a sizable war chest, no debt and 2017 EBITDA of $25 million, we're well positioned to fund future acquisitions.

We continue to pursue acquisitions that are complementary to our existing sales bag and the pipeline looks good.

Before turning the call back over to JJ, I'd like to remind everyone the company's financial goals. 10% annual reported sales growth and 20% annual operating income growth.

Thanks, Dave. Our Q2 2018 gross margin was 70.3% versus 68% in Q2 2017.

The 230-basis point increase was driven largely by decreasing XenoSure and Valvulotome manufacturing cost, favorable shunt and ProCol mix shift and improved gross margins from China, as we streamlined our distributional channel in that country.

Operating income in Q2 2018 was $11.5 million, up 108% versus the prior year period.

Had Reddick not been divested, we estimate operating income would have grown 13% versus the year earlier quarter.

We remain pleased with our decision to divest the Reddick product lines, which have been the only nonvascular devices in our sales bag and were dilutive to grow.

Q2 operating expenses were $7.5 million and benefited from the onetime Reddick divestiture gain. As Dave mentioned, our sales rep count increased to 102 in Q2, up from 93 in the prior year.

In addition to investing in our sales force, we're also investing in regulatory approvals with a focus on high-potential markets such as XenoSure in China, Japan, Australia and Korea.

Our effective tax rate in Q2 2018 was 24.2%, generally in-line with Federal and State statutory rates. We expect our full year 2018 effective tax rate to be approximately 25%.

We finished Q2 2018 with a record $52.9 million in cash and investments. Increases in the quarter were driven by cash from operations of $5.8 million and the Reddick divestiture of $7.4 million, which were partially offset by dividends of $2.7 million and acquisition-related payments of $2 million.

On July 23, our Board approved a quarterly dividend of $0.07 per share, which will be paid on September 6.

Turning to guidance. We expect Q3 2018 sales to be $25.6 million to $26.4 million, a reported increase of 5% and an organic increase of 9% at the midpoint.

We also expect the gross margin of 72% in the quarter, and operating income of $5.3 million to $5.9 million, growth of 10% at the midpoint.

We're also guiding EPS of $0.20 to $0.22. Our full year 2018 sales guidance is now $105.3 million to $107.9 million, or reported growth rate of 6% at the midpoint and an organic growth rate of 7%.

Our full year gross margin guidance is now 71.3% and our operating income guidance is $27.6 million to $29.4 million, growth of 35% at the midpoint.

Our annual EPS guidance is $1.04 to $1.11 per share.

Changes to our full-year guidance were largely the result of changes of foreign exchange rates since our last call.

In closing, I'd like to welcome our new analyst, Brooks O'Neil from Lake Street Capital Markets. We look forward to working with Brooks in the quarters ahead.

With that, I will turn the call back over to Liz for questions.

(Operator Instructions) Our first question comes from the line of Joe Munda -- excuse me, Jason Mills with Canaccord.

It's David Rescott for Jason. First, Jason and our team at Canaccord wanted to convey our sincerest condolences to George and his family. If you guys can pass it along to him that'd be greatly appreciate on our part.

Thanks, very nice. That's very nice of you.

In quarter, did you say, XenoSure, I guess, is the first question, was 9% growth in the quarter?

XenoSure in the quarter grew 9% and in the first half of the year, it's up 11%.

Okay. Do you think you'd be able to, maybe, walk us through some of the other, kind of, product line growth rates in the quarter?

Sure. I'd be happy to. This is Dave. RestoreFlow Allograft grew 24% in the quarter. And that was a record on the heels of 48% growth in Q1.

Our carotid shunt product line grew 15% in quarter. And that was also a record. And then XenoSure, of course, up 9%.

And the Valvulotome, which is also always interesting to folks, because it's our second biggest product line, grew 4% in Q2, and it's up 7% in the first half.

Okay. Thanks. And then, I guess, if we go back to XenoSure growth in the quarter, kind of, year-over-year, that growth has been slowing a little bit. And as we look forward to the second half of the year and going forward to full-year guidance, what do you -- how could you just comment on (inaudible), provide a little color around how we should think about slowing growth in this? And what effects it would have on top line growth and gross margins? And kind of, what do you think is kind of the upside and downside to getting there?

Yes. So I'll say a bunch of stuff here, but it's really all balled up into our guidance, as you know. And so we're looking at the guidance ranges that we talked about 7% organic for the year. And the high-level story on that is, it's sort of back-half loaded. So the first 2 quarters of the year organic growth rates, a little bit on the light side for us, as you know.

And then in the back half of the year, pretty much on the strong side, coming in sort of 9% implied organic growth in the back half of the year.

And so that's the general story of the year, which is a little bit better in the back than you are in the front.

And within that, I would say, XenoSure is going to benefit, as well as all other products will benefit from the increase in the number of sale reps.

So we were in the low, mid-90s or so for quite some time in terms of sales reps. Now we're up to 102, we're thinking maybe 105 at the end of the year. And I think that would increase footprint, a large part of it. The increase so far has been higher in the U.S.

And so I think they're going to benefit across all product lines, particularly XenoSure and RestoreFlow, where the dynamics are different but important in terms of a larger footprint. RestoreFlow with a lot of momentum, but to put our foot on the gas with more sales reps. And XenoSure with growth rates coming down, let's combat that with more sales reps.

So I think you're going to see some improved answers in the back half of the year, and particularly, in those 2 product lines.

All right. Thanks. And maybe 1 follow-up specific to sales force. Do you have any commentary around hiring a new VP of Sales? And then also if we think about -- I know, you kind of have guided the 105 by the end of the year. Is there a potential for any upside to that? Or any higher numbers than 105? And also, kind of, if we think about going forward in the next 3 or so years. Can you kind of level set us from a higher level as far as what we might sort of think about as far as bringing on reps per year? Would you see now 10 to 20 reps per year? Just kind of level set us on that front.

Sure. With respect to our North American VP of Sales, we do have a search underway currently. North America represents roughly 60% of our worldwide sales, so it's a very important hire for us.

We do have a recruiter, who is assisting us. And so far we had one candidate, who we liked to came -- we came close to hiring, but it ended up not working out.

So we've decided to go back to the drawing board with the same recruiting firm. The good news is that we have a strong layer of regional sales managers in North America with an average tenure of 9 years apiece.

So we will keep looking, we don't have a specific time frame. It's more important for us to hire the right person than to do it within a certain period of time, sort of, like acquisition.

On the topic of the rep hiring by the end of the year, 105 is our target. As we discussed already, we increase from 94 at the end of March to 102, at the end of the June. So that's a surge of 8 reps in 1 quarter, which might be the most reps we've ever added in a quarter. Could we go above 105? I'd say, if possible we could go above it or below it.

These things are always a little bit unpredictable. Sometimes you find really good candidates, as we did in Q2, and so we hired them. So -- but I would say 105, you should think of as the goal.

And beyond 2018, we're not really -- we don't really share how many reps we're targeting in 2019 or beyond.

I think if you look at our corporate slide deck, you will see a headline that says that we add roughly 5 reps a year, but that's over the long sweep of time. And as you would see on that same chart, we had been around that 85 or 90 rep headcount level for several years. So in a way, we're just catching up for lost time.

So I would say just stick with the 105 number at year-end. And then we may give visibility on 2019 as we get in the next year.

Your next question comes from the line of Joe Munda with First Analysis.

I want to echo sentiments, please give George my condolences on his father's passing. So please, please, please pass it along, if you can.

Thank you, Joe. Thanks a lot.

First off, So I wanted to touch a little bit on Europe and the strength that you guys saw there in the Europe, Middle East region. Last quarter, you talked a little bit about some of the softness, maybe, in Germany. And I was just wondering the strength that we're seeing from that particular region. Is that more of a catch up from the last quarter? Or is there something else going on there?

Joe, that's a good question. You're right, [typically now] Europe, Middle East Africa, which was up 12% for Q2, hit a record. And Germany is in the middle of a very nice turnaround. It was down, I want to say, 7% in Q1. And it's recovered to a plus 14% in Q2. But frankly, the growth is much wider spread than that.

France grew 22% in Q2, the U.K. and Ireland grew 16%. So I would say there is generally strength across Europe. You may recall that we did put a new VP or President of Europe, Middle East, Africa, sales in the back half of last year.

It could be the case that Frank Guenther is getting some traction with his team. It also could be the case that we've added a fewer sales -- we added a sales rep in Germany. And so combination of things. But it's been a very nice recovery, and we're very pleased to see Europe, Middle East, Africa return to in double-digit growth.

And Joe, I would add 1 thing about that from last quarter, if you remember, we had contest in Q4 that would pull in some sales. We thought out of Q1 back into Q4. And that's in the U.S. -- and OUS, so

some of that normalize as well, and you can see healthier growth numbers generally because of that.

Okay. I appreciate the color. And then, I guess, sliding over to the U.S., it was flat for year-on-year. I guess, and the decision to hire more reps, I guess, their hires, you had said are going to be predominantly -- more predominantly in the U.S. I guess, can you walk me through some of the -- what cities or what areas of the country these new reps are going to be targeting? As well as the hiring, if it is in response to the flattish growth that you've seen, I guess, this quarter? Or what you were seeing?

Right. So the flat reported growth in Q2, I guess, it is what it is. Although, it could be a little bit misleading, because as you'll recall, right at the beginning of Q2, we divested the Reddick Cholangiogram Catheter. And that product -- the sales of that product were 97% in the U.S. to that $3.3 million of sales.

So if you undo that and you look at the organic growth in the U.S. it was 5%. And so I would say, the fact that the hiring was tilted more to the U.S., and the hiring in the U.S., Joe, is I'd say, not focused on any one region.

It was pretty evenly spread out. I don't think that hiring was particularly geared towards the 0%. Because organically, we felt pretty good about the business. But as JJ mentioned, just a few moments ago, with the RestoreFlow growth that we're seeing and our belief that more reps could augment that growth in the future on the one hand, plus some of the faces, the challenges we faced with XenoSure and a couple of new competitors on the other, we felt like the U.S. was a good geography to expand more quickly during the quarter. So I would say that -- those were the primary considerations.

Okay. So if we back out the impact for the Cholangiogram business from last year this time versus this year. You're saying that U.S. grew organically roughly 5%?

5%. Correct.

Okay. And then, I guess, my last question. I'll hop back into the queue. You took down the guidance a little bit for ForEx, I was just wondering if you could give us the little bit more color, what sort of geographies are impacting you guys most as far as the currencies are concerned? Or do you think it's going to impact to you? And are we seeing a more -- I guess, the growth that's occurring in the OUS market. I'm assuming is it going to continue to be outsized as far as U.S. versus OUS.

Yes. So there's a lot there, Joe. I guess, I would start by framing it as -- so we made guidance in Q2 $27 million, but there's constant -- the in constant currency we beat by $225 million or a little bit more. So the FX since our last call had gone against us.

And by $225 million, maybe, $250 million, we still got the $27 million, which is good. And we kept that sort of CC, constant currency gain, if you will, for the rest of the year. But for Q3 and Q4, you can, kind of, think as our guidance as unchanged.

So for the year, we're bringing down the dollars by 800k or a little bit more, but in the organic growth, Joe, actually went up from 6% to 7% from last guide to this guide.

And that's really a function of the Q2 beat. We kind of kept that, and said okay, we'll be fine, we'll keep our H2 guidance the same and keep that second quarter gain.

So that's sort of the high level on sort of, what we did around FX and that is FX impacts for the full -- sort of, Q3 and Q4 as close to $1 million since our last call the change in FX. And if I said, about $225 million, $215 million Q3.

And then if you wanted a little bit of a "Hey, where geographically did that really -- is that really happening?" And I would say, "It's mostly euro because we're largely -- European operations are $30-plus million or so there's a large component there."

And then there's the U.K. as well and Canada, sort of, maybe in the $3-ish million range, in terms of revenues and FX impact. And Japan as well you can throw in there.

But you should get a -- you should -- I'm sorry, you should get a benefit on the expense line, right? Because you're...

Yes.

Okay. Okay.

So -- and it's weird, Joe. So it depends on what, you got to be really careful about what periods you're talking? And is it a year-over-year or sequential?

But if you're talking year-over-year, FX helped for the first half, but where we stand now is it's going to hurt for the second half that sales. And then the reverse for OpEx.

And then if you're talking since the last call, then it's FX is hurting and hurt $225 million or $215 million in Q2 and about $950 million for Q3 and Q4. And we'll help commence really for OpEx.

(Operator Instructions) Our next question comes from the line of Rick Wise with Stifel.

It's Drew on for Rick. Just to start, you've had several quarters in the single-digit growth.

And from the release and the call, you can need to pursue the 10%, reported growth construct -- just over the next couple of quarters, can you return to, kind of, that growth trajectory? I know you get some lift with the divestiture, but kind of, what's the road map for getting you back on track to the 10% growth?

Sure. Drew. I'll take that. Good question.

So of course, in the prepared remarks, we reiterated the 10%, 20% goal. And because you've followed LeMaitre for a long time, you're aware that, that 10% revenue growth is made up of, let's say, historically 8%, or 7% to 8% organic, plus 2% to 3% acquisition.

So for the full year, the guidance we just provided it's 7% organic growth for the full year. And in fact, in terms of the road map in the back half of the year, Q3 and Q4 the implied guidance in Q4 is 9% organic growth.

So in terms of the organic growth component of 10%, 20%, we feel like for the full year we're sort of at the lower edge of the range. But in the back of the year, we're solidly in the range that has always helped us deliver 10%, 20%, if not slightly above it.

And then, of course, the missing component is of that 10% growth, normally 2% or maybe 3% or more, has been driven by acquisitions.

And we had not completed an acquisition, as you and other folks recognized since November 2016, when we acquired RestoreFlow.

So the $64 question is, will there be an acquisition in the back half of the year? And I'm sure you recognize that we announce the acquisitions when they're complete. But in terms of the model in 10%, 20%, certainly, we feel like we're returning up to the higher organic growth as we push into the back half of the year.

And then on the bottom line, the 20% up income growth. If you exclude the -- all effects of the Reddick acquisition, I've seen that Reddick divestiture, op income, growth for the year would be 14%, again, a little bit light versus the 20%. But as you also know the acquisitions, one of the key criteria is that it'd be accretive.

And so we feel like there's the missing link on the 14% to 20% as well. And so we feel the 10%, 20% construct is intact. And we're just going about our business. And at some point, you will hear about another acquisition. And then in the meantime, we're pleased that the organic growth rates are recovering.

And Drew, that's the higher-level concept. And you asked about specific drivers, I think, as well, what's going to help you grow in the back half versus the front half. Unfortunately, it's a back half loaded year in terms of organic growth.

But certainly the rep surge is one piece. More reps are going to help. It takes them maybe a quarter or 2 to start ramping up, but we should get some benefit from them in the back half of the year.

RestoreFlow doing really well. We expect that to continue and maybe increase growth rates a little bit. We'll see.

Germany, as Dave said, had a really nice turnaround Q1 to Q2. Negative growth in Q1; 14% growth in Q2. If we can keep Germany moving, that's a really important part of the puzzle. New acquisitions, as Dave mentioned, obviously, a little wild card.

And then, we actually have a little bit lighter comps in the back half of the year, so year-over-year comparisons are a little bit easier.

China was weak in the back half of 2017, and so -- and some other topics there as well, maybe.

So maybe a little bit easier comps as well. So all of that conspires hopefully to give us the guidance that we talked about.

Great. Thanks for the color. I know the story -- the [component] of it has been acquisitioned and your ability to grow those sales over time. But we've just noticed that over the past few quarters, you've been spending a bit more on R&D. So I know you have a few trials, but could you just maybe talk to us about some of the newer products that we should be paying attention to or clinical trials? What are you guys excited about in your pipeline?

Sure. To contextualize it, in Q2 2018, we did spend 7% of sales on R&D. And we spent $2 million, which is a record. That was up 22% over a year ago.

And LeMaitre, when we think about R&D, we're thinking about the new product development pipeline and the regulatory pipeline.

So what we have our eyes on in terms of the regulatory pipeline, I would say are we're focused on high-potential markets. From a product standpoint, that's XenoSure. From a geographic standpoint, that's Asia Pac Rim.

So of course, the first thing I'll talk about is the clinical trial in China, where now we're near 60% enrollment. We're at 167 patients enrolled of the 288. We expect and hope to complete enrollment by the end of Q1 of next year. And we hope to get an approval for that product in 2021, a few years off.

We're also focused on XenoSure approvals in Australia, Korea and Japan. Japan is probably a longer time frame. Australia and Korea, nearer term. And then China, we're also pursuing an approval of our PTFE graft called LifeSpan.

So that as well as another version of the GripClip in the U.S. That's the regulatory pipeline, where, frankly, I'd say we've been investing probably a little bit more heavily than sort of the new product development pipeline. But we have been investing there as well.

And there, we're not really getting into specifics about which projects we're pursuing just for competitive reasons. But I will tell you that we are focused on the biologics segment of our business because that, we think, is the highest growth and highest potential.

Got it. And just 2 last housekeeping questions. Can you just talk about what price, volume and mix contributed in the quarter? And then just to sneak in a last one. I heard you talk about XenoSure and RestoreFlow growth, but could you break out Omniflow and ProCol as well?

Yes. So, in the quarter, volume was sort of in the 1% range and ASP more in the 5% range. It's a little bit of a red herring for us, though, because we do have product lines that have a lot of volume, obviously, unit wise and really low ASPs, like tape, for example. So that's a little bit of an odd metric for us. Typically, it's sort of half-and-half, units and ASP. This quarter, it turned out to be a little bit skewed.

And then on the Omniflow and ProCol, I don't have those exact numbers, but I can tell you that Biologics, which is comprised of RestoreFlow, XenoSure, Omniflow and ProCol, was up 9% in the quarter and now represents 36% of sales.

Our next question comes from the line of Mike Petusky with Barrington Research.

I had to step away briefly, so forgive if you guys have covered this. But did you guys give any update on the China transition in terms of your distribution structure? Did you talk about that? Or could you briefly talk about any update there?

We didn't. So, as you know, we've been working to transition from 3 master distributors to a number of sub-distributors and essentially be more direct-to-hospital, though not direct-to-hospital.

At this point, we've terminated the 3 master distributors. We've signed up about 35 sub-distributors. We think that's paying some nice early dividend in sales for China. We're up 25% in the quarter.

And so it was a nice, strong answer. We'll see if that continues. I bet it's still a little bit herky-jerky as we go forward, but it will certainly be nice to have 35 to 45 customers as we move forward instead of 3. And a lot of that heavy lifting has happened, and we'll continue to work on that channel.

Okay. Great. And then, I guess, just following on, on the last question regarding mix. The unit volume growth has been pretty weak, not just in this quarter but through the first half. I mean, are there any concerns around that? Or how do you guys -- obviously, you're getting pricing, and you've had some currency tailwinds. But, I mean, can you just speak to that, the first 6-month performance in terms of unit volume growth?

Sure, Mike. This is Dave. The unit growth answer is an interesting statistic because, for example, it's skewed heavily by some of our lower-priced products. And for example, in this quarter, I rattled off which products did well. The one product that really didn't have a very good quarter was our radiopaque tape, VascuTape, which was down 14%. And if it's not our highest volume product, it's right up there, because a piece of tape costs, let's say, around $50 or less to the hospital. So the tape answer can skew the answer on units. So I would say we pay a little bit of attention to it. But we pay more attention probably to the -- to where the dollars are going. And of course, we're pleased with the price increases we're able to command in these niche markets.

Okay, great. And then just a last one, Dave, on M&A. In a backdrop like this, does anything change in how you source deals or how you source products? Or ways that you can be creative to try to uncover assets that aren't valued at levels that aren't particularly attractive. I mean, does anything change in this backdrop? Or you just sort of just keep beating the bushes and see what you can find?

I would say we have -- about 2 years ago, we doubled the size of the acquisitions department from 1 to 2 people. And we're very active. We have a very good network of deal sources. On the whole, I would say things don't really change. There's a decent amount of brute force. We're very careful about where we spend our time, with which parts of the network.

Valuations are a little bit high these days. But on the other hand, the pipeline is good right now. And just to give a little bit of color on that, I'd say I've got 2 to 3 active deals in the pipeline and maybe another deal or 2 in the bullpen. And that's after, over the course of the last year, having one deal that came literally within days of closing, not close, which is why I'm always reluctant to announce a deal until the day it closes.

But I would say -- I understand your question, I would say we're doing what we're doing. And I feel good about where the pipeline is at. And at some point, everybody will wake up one morning, and there will be a press release from LeMaitre.

Excellent. Let me just ask real quickly, and I don't know if you're willing to characterize, but are any of the 2 to 3 that are active, are any of those sized beyond your traditional kind of smaller deals? Or are they all kind of more incremental, they'll help, but not necessarily needle movers?

Yes. I'd say -- I hope you don't mind the evasive answer, but I'm going to keep the size of the deals in the pipeline. I'm not going to disclose that at this time.

The next question comes from the line of Jim Sidoti with Sidoti & Company.

Dave, I think I'm the only one on this call that feels a little bit of relief when you don't do a deal that's maybe a little bit too expensive. I appreciate the discipline you guys are showing. And I know it's tough with $53 million burning a hole in your pocket not to pull the trigger, but I really think that you're wise to wait until you get the right deal.

Appreciate the comment. Thank you.

The one question I had, just comparing the quarter over a year ago, R&D was up a little bit and you addressed that. And G&A was quite a bit lower a year ago. Was there a onetime issue in the second quarter of 2017 that lowered G&A?

Yes. Good pick up, Jim. So if you exclude the one-timer, op expenses were up 11% year-over-year. There was a decent amount of OpEx that went into this quarter. And last year, George stopped taking his salary and bonus in the quarter. So there's a little bit of an odd low comp from last year.

And then this year, we had the Reddick divestiture, and there was a commission associated with that and legal fees associated with that. And Dave talked about a deal that got pretty close to the altar and didn't make it, and there were legal fees associated with that.

We had recruiting fees going on around those VP hires and some more folks in the finance group. And then in the clinical side, we were up pretty sharply as well, investing in that China trial and in Australia for regulatory approvals there, as well as the Japan regulatory approvals, too. So lot's going on sort of behind the scenes, if you will.

For the year, we're giving you guidance of OpEx being up I think about 7% or 8%, something like that. So it's kind of okay. A little on the high end, but kind of okay for the year. But definitely a little bloated in the quarter. I think the easy comp from last year when we went into cost cutting had something to do with that as well.

The next question comes from David Solomon with Roth Capital Partners.

I just want to wish my condolences to you guys all for what happened.

So just one quick question on acquisitions. I know we're not going to hear anything about size, but just on direction, do think you'll be more likely to be in the biologics direction? Or could you go somewhere else? Or do you think it could be a whole number of different things?

Good question, David. We do like biologics. It is the faster-growing part of our portfolio, but frankly, there are more nonbiologic targets out there than there are biologics. So it could go in various direction. The key for us is that the products are used by vascular surgeons and that they're in niche, low rivalry markets and that the deals are accretive.

Okay. And then just one more question on a completely different topic, just trade. Solid (inaudible) with the Trump trade wars and everything. How is that impacting your outlook on international sales, both in China and in other regions?

So I haven't read that they've actually enacted anything around med devices at this point. I think that's true, although I might be out of touch. I've been in a conference room for a couple of days preparing for this call. But I think the answer is unchanged right now, unless you know of something differently that's going on.

Okay. And then just one last housekeeping question. Do you think I could get the breakdown of where the salespeople are added, in which region?

Sure. So we added 8 sales reps during Q2. In the Americas, we added 6 sales reps, all in the United States. In Europe, Middle East, Africa, we added one sales rep, in Germany. And in Asia Pac Rim, we added one sales rep, and that was in Australia.

Our next question comes from the line of Brooks O'Neil with Lake Street Capital.

Being the newest analyst and from the Midwest, I'm going to ask you a fishing question. So last quarter, you talked about the opportunity to catch some whales, I think in the biologics business. I was hoping, perhaps, you could give us some anecdotal color about whether you're having success with your fishing efforts?

Brooks, it's Dave. And as a fellow Minnesotan, I just want to make sure I understand your fishing question. Are you referring to acquisition targets or customers when you're discussing whales?

To be honest with you, I think it was George last quarter. You, I don't think, were on the call, but George was talking about selling to doctors in the biologic -- biologics area and the potential they have.

Okay. I've got it. Right. So what George was referring to was, when we acquired RestoreFlow Allografts, there were a couple very large accounts that we picked up. And so the nature of Allografts, we found, can be a little bit different from the nature of customers who purchase, let's say, valvulotomes and other products in that, because the average selling price of a saphenous vein allograft is $7,000 or $8,000, if a single customer uses a lot of these, they can become a very large customer very quickly. And that's what we'd call a whale.

I would say, despite the fact that we had record sales of allografts in Q2, I think the nature of our business is a little bit geared less towards whales so far, and the revenue is more spread out. That being said, part of the reason, as JJ mentioned, that we're adding more reps in the Americas is because we recognize that there is a big opportunity with RestoreFlow, so we might want to go after some of those customers who would be more akin to muskies than sunnies.

There you go.

Brooks, I would go even further with that, which is to say part of the thesis of the acquisition was startup company with limited sales resources, take a great product line and put it on top of a 50-person and growing sales force at LeMaitre, and you get nice diversity of customer base over time instead of relying just on whales. If we pick some whales up in the interim, fantastic, but really, our business plan fits better with a nice broad customer base and nobody sort of swinging things too much quarter-to-quarter.

Our next question is a follow-up from Joe Munda with First Analysis.

Real quick, Dave, JJ, the RestoreFlow growth that you're seeing, I mean, is that a function of you guys taking share from another player? Or is it the market growth? I mean, can you give us some sort of color there? I mean, it's pretty nice outsized growth for this product. As well as, JJ, I was wondering if you could give us some sense of what CapEx was for the quarter? I think I might missed that.

Joe. It's Dave. I'll take the first half of that question, and I'll give JJ the second half.

I would say we are taking share because we just quoted a couple of very high growth rates in Q1 and Q2 in the 24% to 48% range. I think the -- I would say the peripheral vascular surgical allograft market is probably growing, like the rest of open peripheral vascular surgery, in the low single-digits range. It could be a little bit higher, but I would say low single-digits range. So I would say that we are taking share. And there are really 2 competitors in the United States. I can't really comment exactly on who we're taking share from, but I do believe we are taking share from either one or both competitors.

And what was the other question on CapEx, Joe? (inaudible) Capex, [at 800k].

Yes. Okay. And just, Dave, getting back to that, is it a function of product? Or is it a function of pricing do you think?

It's a function, I would say, predominantly of sales channel, which is -- the competitors in this space are CryoLife, which was really the pioneer in this space, and then LifeNet Health. And CryoLife has a good sales channel. LeMaitre Vascular has a good sales channel as well. We have a very deep sales channel. So I think that in terms of -- and certainly compared to LifeNet, who sells their peripheral allografts through distributors, I would say we come to the table with 53, now, American sales reps, of whom I believe 50 are in the United States. And so a very wide network of reps. And each sales rep has 20 or 30 vascular surgeon customer house accounts. So a very deep network. In terms of the product, I would say, at a high level, Joe, the product is pretty similar from one of the companies to the next. You could probably argue details, but at the end of the day, these are allografts, and so these products are manufactured by -- in our own bodies, and they come from cadavers. So they all start from the same place. I'm not sure if price plays a big role in this. It could play a little bit of a role, but I think your real answer is the sales force.

I'm showing no further questions in queue at this time. Ladies and gentleman, that concludes today's conference. I would like to thank you for your participation, and you may now disconnect. Have a great day.