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LeMaitre Vascular, Inc. (NASDAQ:LMAT)

2013 Investor and Analyst Day Call

November 13, 2013 1:00 PM ET

Executives

Mary Nielson – Business Development Associate

George LeMaitre – Chairman and CEO

Robert Linden – SVP, Sales, The Americas

Peter Gebauer – President, International Operations

Ruth Bush – Vascular Surgeon

Ryan Connelly – VP, Research & Development

David Roberts – President

JJ Pellegrino – CFO

Analysts

Chris Lewis – ROTH Capital Partners

Ed Shenkan – Shenkan Advisors

Mary Nielson

Good morning everyone and welcome to LeMaitre Vascular 2013 Analyst Day. We had a great day yesterday in Boston and we are excited that we can be here to come to our San Francisco Investors and Analysts. So thank you all for being here. We have a great program for you today and we are delighted that you could join us.

Over the next few hours you will hear from members of our executive committee and then also from Dr. Ruth Bush, who is a prominent vascular surgeon at Texas A&M College of Medicine and the Central Texas VA Healthcare system.

Before we get started I have a few housekeeping items to review. First, I hope all of you grabbed a little card with your lunch preference on that. If you haven’t, there is a basket at the registration table and you can just grab one of those and they will bring your lunch over according to that preference. Also we kindly ask you to hold all questions until our presenters have finished speaking, at which time I’ll have a microphone for you so if you would like to ask a question you can just flag me over and you can ask it into that, so all of our webcast listeners have the benefit of hearing your question.

Second, we ask that you take a moment before you leave to fill out the survey that’s included in your packet. We find your feedback to be very helpful as we continue to improve our Investor Relations program. And then third, in order for us to take advantage of the Safe Harbor rules I would like to remind you that today’s discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to our views and expectations concerning our future results, our actual results or actions may differ materially from those discussed in the forward-looking statements.

For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2012.

We will also include some non-GAAP financial measures in our discussion today. A presentation of the most directly comparable financial measures calculated in accordance with GAAP and the related reconciliations can be found in the Investor Relations section of our website at www.lemaitre.com.

Finally, for those of you listening to our webcast printable slides of today’s presentation are available on the SEC’s website at www.sec.gov and in the Investor Relations section of our website at www.lemaitre.com/investor.

I would like to introduce our Chairman and CEO, George LeMaitre.

George LeMaitre

Thanks a lot, Mary. Appreciate it. So thanks for coming to Analyst Day to all you guys. We had a very nice day yesterday as Mary mentioned. I feel like it became clear through the presentation yesterday that the highlight will be Dr. Bush, when she comes to talk to your guys. So you can look forward to that while the corporate guys kind of give their spiel.

And the other part of today which is nice, normally the folks from Wall Street, if you will, are getting information from Dave and myself and JJ and you get a chance to get a little wider set of information from – Peter Gebauer will be attending by video, is that right, okay. So our Head of International is going to be running a 15 minutes discussion; Head of Sales in the U.S., Rob Linden and also Head of R&D, Ryan Connelly. So you get a wider selection of information and maybe get a little bit off the beaten track what we are normally saying to you guys.

I had pushed pretty hard for questions during the presentation but I’ve been [flummoxed] by the powers that be, because of the Reg FD issues where you run out a microphone et cetera. So with a smaller group maybe, so if you really got a question it’s has got to go, because I feel like when I have a question I want to ask the question, I don’t wait till the end but yesterday we really felt like we had not to do that. So but the other thing is we also in the interest of time we are committed to getting this done within two hours and so just that does bog things down a little bit but we will see how it goes. If you have a question maybe Mary can get the mic sort of ready as we go, here you go.

So this is disclaimers, I think Mary went through this as well. Okay, great.

So the scene here, you can see this nice roll-up here next to me, as well we are positioned well for growth. You are going to see this as a scene throughout all of our presentations and the growth is going to come from R&D, it’s going to come from acquisitions and it’s going to come from development of niche devices using our R&D department and acquisitions.

Again the format’s going to be, you are going to keep seeing as we are going to talk about a snapshot where we are at this second, how we are positioned for what comes next and then what should come next. So it would be sort of one, two, three to all our presentations that you’ll see today. As I mentioned you are going to see U.S. sales, you are going to see Europe, you are going to see Dr. Bush talk about her experience with our devices, regulatory and R&D from Ryan and then JJ and Dave will follow up with their normal topics. And again there is your one, two, three.

So highlights for the company not to get too into details here but we have 11% growth keyed into our 2014 guidance for sales. I think we bumped that twice this year, although once was a bump from an acquisition, so that’s not so hard to do. 87 reps, we are going to keep coming back to the scene today. So hard and sole the primary asset of the company is growing and creeping sales force that we have gone all around the world.

It’s a very well-known vascular surgery brand, my dad’s been a vascular surgeon for almost 40 years now, he retired 10 years ago but we are very deep in vascular surgery and you will see yesterday we walked around the building you saw 30 anniversary, everywhere you went in the building. But it’s about somewhere for 30 years and really knowing these customers and we are pursuing it not with either acquisitions or R&D but we are pursuing it with a bolt strategy. And I think since the IPO in ‘06 the R&D strategy has come up a little bit more. We’ve always included acquisition, we are still doing that but we also got some plug-in R&D and then also we are profitable, we pay a dividend and we have a strong balance sheet.

So the mission statement: sometimes I think this is just business one-on-one, so I apologize. I have a classmate of mine from business school here, Sammy, so it’s nice to see you but this is just going back to the first year of business school. You get a focused call point, you address niche markets, so you don’t get beat up by major competitors. And then how do you grow, well of course you have more sales guys in more geographies, you do R&D, introductions and you acquire a product line. It’s that simple. The business plan is that simple.

One of the hallmarks of LeMaitre, one of the idiosyncratic things about the company is we are just about the vascular surgeon. 100% of our marketing dollars and sales dollars go out towards the vascular surgeon, maybe 10% or 15% of our sales comeback from other specialties but in some ways we don’t really care. All we do is serve the vascular surgeon. They do peripheral arterial disease by and large, there is some details to that. They work on some veins, they do some dialysis but by and large, they are solving peripheral arterial disease which is the growth of plaque in your arteries and then what happens and how you get blood to that organ, if the blood isn’t being carried directly through the artery.

On this slide, we are breaking the world down into open procedures, open being, you open the body you fix it with your hands and sutures and prosthetics’ then you close the body and endo being, you put it in for a pin prick and we participate in both of these. But we are largely known as an open vascular company. The business plan is simply put to zig, when everyone else is zagging, lots of companies, Edward, [Boston, Venture Tech] are leaving the open space and we feel like there is an awful lot of mop up opportunities to be had in that space, open vascular. We are really good at it. We like it a lot, we don’t pooh-pooh it, and most companies pooh-pooh it now.

We also don’t want to get lost here that we are also doing Endo. So 15% of our sales come from Endo and we always want to buy Endo products, we always want to develop Endo products. Clearly, the growth rate on Endo is better. Procedural volumes maybe up in the 6% and 8% and 10% growth rates and in open you really are talking about 0% to 3% growth rates. But it’s easier picking for us right now in open, given our size but we love Endo as well. And when left Stent Graft two years ago, I think one of the things that got caught up in that transition, is people said LeMaitre’s not Endo, and anything but, we love Endo, it’s great. How could you not like Endo?

Okay, so why the vascular surgeon? A simple answer is my dad’s a vascular surgeon and that you could almost stop there. Since then though we have taken out, we have vascular surgeons cooperative for a while, where we got a lot of investment from vascular surgeons and through that process we got lot closer to vascular surgeons. 30 years in this space. We also like the fact that it’s a smaller population. It seems more right sized to who we are with 87 reps instead of a 300 persons company. We also like their dynamics as a specialty. When a patient gets into the vascular surgeon’s net or web if you will, they stay there. And lot of these other specialties like interventional radiology and cardiac surgery to a certain extent, when the patient goes to that physician, it’s then kicked back to the manager, being a cardiologist or the vascular surgeon. And so we like the ownership aspect of the vascular surgeon.

And then also of course 10 years ago, they were only doing open surgery before the stent graft revolution. The stent graft revolution having come and succeeded they now have the wire skills that their intervention radiology colleagues have and so if they own the patient, they can do open and they have the wire skills. It seems like a better horse to bet on, maybe 10 or 8 years ago, we were little nervous that maybe we didn’t bet on the right horse because they don’t have the endo skills and they don’t have the wire skills, but they have clearly passed through that now. So we love who these customers, we are very devoted to the customers. They know that too and I think that helps us a little bit.

Why peripheral procedures, it is a big market, $4 billion. We may be broadly speaking you say $1 billion open and $3 billion endo but as a $63 million company this year you don’t need to worry about, it is much bigger and there are places to go for us. Great niche opportunities all over the place with just 5000 surgeons. Niches being places where the big guys can’t and won’t bend down and deal with. We think there’s lots of open opportunities because of other companies leaving the space, but we think there’s lots of endo opportunities because the market is so robust and the growth is so terrific and special in that space. And you can see that in CSI numbers, and you can see that in Endologic’s numbers, et cetera. So we feel very right size for this vascular surgeon call point.

So our niches on the left hand side of this pie chart you can see the light blue, these are the places where LeMaitre makes its gross margin and makes its gross profit. On the right hand side you can see sort of more commodity S product lines. I would say by and large we spend most of our time on the niches, making these high gross margins where we have pricing power, and then more recently it’s come along and said, well, as long as we are visiting vascular surgeons why not sell them a piece of Dacron or a piece of PTFE and the biologic patch is an interesting one, it is a niche in that it is small but it does act a little bit like a commodity market, and we will talk a lot of about biologic patch, we have had a lot of success with that.

So that – I think this is the end of what the positioning is and now going to the growth initiatives. From that positioning what do you do? Well, this is pretty simple, this has been a consistent theme for LeMaitre. We go out and we find new countries to go out to where we have virgin territory. And obviously the world is an incredibly big place for a 300 person company. We are now so we pushed into a lot markets we are 19 of the top 26 GDP per capita countries.

So if you want to stylize here LeMaitre has done the job of getting to the rich countries and now we need to get into the brick countries which are, they are large and there is a lot of money there but GDP per capita which of course is not what it is in these Australias and the Norways and things like that, but we about to get into that. So stylized we have got into the richer countries and we are just about to get into brick. We have been putting off brick a little bit, it didn’t – kept not making too much sense to us over the years, and I think finally now with the TRIVEX acquisition with the second leg of the stool if you will, it sounds like we are going to fall down, with the second, I don’t know what you call, but with the second piece of the puzzle we have an AnastoClip in China and now we have TRIVEX in China. It feels like we are getting closer to doing something there, we will talk about that for a while.

Okay, there is your sales force, and as I said it is sort more of a western force. You have the Western Europe has been really filled in the last three years with all these countries. You have heard us talking about going direct in Spain and Denmark et cetera. Also I the U.S. we have been there for a while and more recently we set up an office in Toronto to make Canada more serious. And we’ve been in Japan for a decade and we have got eight sales reps up there.

The capacity of reps that we could take, we always say is about 125 to 150. And if you’ve been listening to us for a while we’ve kept that pretty consistent and the goal post has not shifted yet. We’ll see what happens when we get to 150 but it seems like a great number for vascular surgery, to cover vascular surgeons. So that is one growth initiative, is the growth of the channel.

The next growth initiative is obviously R&D and this is something that by and large we did not do pre-IPO. We had three engineers at the time of our IPO in 2006 and the growth initiatives now are, every year I would say we launch about two new products. This year you got three but typically these are very typical launches. We are into singles and doubles we are not doing triples and home runs. The next generation we’re taking a 1.8 millimeter Valvulotome and are downsizing it 1.5, it does not sound like too much but it was a lot of work. And it’s succeeding very well right now and we are excited about that.

And then we took a 2007 acquisition called the MollRing Cutter and we put two products into one and we call it the MultiTASC, that’s our first major revision since that ‘07 acquisition. And we also acquired a company in ‘07 where we are now making out first major SKU addition. We’re making a Dacron patch and we were selling Dacron tubes before. So that’s typical, this is a very typical year. Our acquisitions as well, you have seen us do three of them in the last 12 months. I think in October last year we mopped up the XenoSure acquisition which we started distributing in ‘09 but really the acquisition took place last year. That’s been the grand slam home run inside the company and we will talk a lot about that later.

InaVein we bought in August, it is a $ 2.5 million company and that helps you take out varicose veins. We will talk a lot about that, and then of course, clinical instruments we bought in July. It is a real small one and it is a small market share grab on a $6000 company so it is sort of 1% of our sales. But we will talk about that as well.

Those are your growth initiatives. They all roll up together and it gets your company a growth about 12% a year, 8% or 9% of that is organic and we fill in the balance with acquisitions. Dave is going to show you over the years the acquisitions have become sort of more tuck-in rather than ranch type acquisitions but we like looking at all kinds of sizes of companies, it just worked out that way. And then this thing [drags] of course the Stent Graph, what I call a misadventure for our company. Stent Graph has obviously been really successful for other people. It was just too big and the R&D churn was too vast for us to handle, much like I don’t think we could ever get into Stents at this point. The train seems to have left the station. I don’t think we would be a good Stent Graph company any more.

So 12% growth and then in terms of the bottom line turnaround you can look at this pretty stark history of the company here. We’re sort of breakeven, pre IPO before the IPO we are running around with maybe a $1 million of cash on our balance sheet the whole time. So the 24 years before the IPL we were that company. We got $30 million of cash in the bank and I think we built on a lot of these things that we have been thinking about for a decade before the IPO.

And so we spent a lot of money, lost a lot of money in ‘08-’07, and then into ‘08 we started looking at ourselves and then maybe with a 12% growth rate we are not the type of company that should be pressing so deeply into the red. So we switched strategy pretty obviously and loudly and we said we are going to make money here and you can see that recovery starts to take place.

Of note here going from – so if we’re growing 12% I feel like the normal state of being of the company should be to grow earnings about 20%, something like that, 15%-25% and this year we are going from $4.2 million to $4.6 million but of course, Barack Obama had something to do here, on my income statement which is we had to pay $700,000 on our U.S. sales for the Affordable Care Act tax and so if you can look past that you go from $4.2 million to $5.3 million in op income and it is a nice 25% growth. So this year feels like the company we’re trying to be up 11%, that is our guidance, and then up 25% guidance in op income. And I think that’s the end of my part and I will hand it over to Rob Linden who runs sales in the Americas.

Robert Linden

Thanks, George, thank you and thanks for coming out today. As George said today in all the presentation today we will talk about a snapshot of where we are and how we are positioned for growth. A quick snapshot of who I am, I have been in the medical device arena here for little over 20 years, last 12.5 with LeMaitre Vascular. Started here as a sales rep and have taken every rung in the ladder up to this position to Rep Manager Director. So what that means basically is if a sales rep out there isn’t doing their job they can’t fake it on me. Our local rep Chris James is here today. So you might have a chance to speak with him afterwards.

And so the sales force that we have really it is our number one asset and to give you an idea let’s go into a snapshot of who that is, and where they compare to other folks out there. We have a very efficient and economical model. Our reps are able to cover footprints and not have to be in and out of procedures, so some of our other competitors did. Playing the space as us they need to focus a lot more on an actual procedure so they need more folks and the economics work a lot better for us. But I do believe we need to grow our sales probably another 33% to get where we need to be to cover the North America correctly.

So further on that snapshot how we look inside the company. We break it out into eight regions and eight managers, we like to have about six-eight reps reporting to a manager with a Tier A model that we will get to in a little bit, it allows for better training and better accountability. And as we grow inside the company filling the different geographies we are able to not just cover the areas, we need to in a better way but we also are allowing for a more clear progression for the sales reps. So it is it is not just a job, it’s career they see their colleagues moving up into the management level, Director’s level, and they even cover.

We are all direct here in North America. But in South America we have – we are covered through distributors and the model that we have seen be very successful in Europe. We are going to look forward to taking that route as well so that we can build up the business there and then go direct as we have done in Canada, which I’ll talk about a little bit later.

Where are they, the reps geographies, we have 46 reps and nine sales managers spread out in every major statistical area in United States. We have 45 out there as I said earlier, 60-65 is optimal for the bag that we have and type of procedures and the tech procedures we have right now. That could change depending on what comes into the bag in the future but right now I would say we are about two thirds the way to being in perfect position to offer the type of service and the consultation that all the surgeons’ need.

So who is that sales rep, you heard me mention Tier A, I know George and JJ and Dave talked about a lot about that. And we’ve really just took a look at the type of products that we have and the leverage we had that there are quality folks they are out there trying to get into the medical arena. We decided to use a lower cost model based on aggressive context and compensation on sales and to bring in to be able to almost bring in two reps for everyone.

And what that also does is it allows us to give the reps an upward W2 progression as well. So we are looking at bringing quality reps, teaching them we feel that we’ve got the ability to teach them what they need to know and as long as they know how to sell and then we can motivate them to stay with us for long term. So the Tier A model not only allows me to take it from I think was about 24 we started now we are up to 45 reps and it’s a very economic model but then it also gives a clear progression to add to the tenure and the continuity that I think the surgeon needs.

We are in lower single digit growth spaces right now. So we need to get to that up. How do we need to do that we need to get a bigger piece of the pie in the spaces that we are in and then we also have to move through the geographies situation that’s worked so well for Peter out there is by going direct in different areas as you can see what we’ve done in Canada recently and I think that this time last year JJ and I went up there to build our office and get going and now we have a country manager up there, a full sales force covering every province in Canada and the growth is sort of following behind us right now.

So as we continue to look for different avenues we were also looking for different places to go an obviously different ways to get what we need to get there. We are positioned very well. This is and it gives you an idea of our success in getting price increases. When you have gold standard products in a niche market you are able to command that price increase. We’ve been very successful across the world doing it and the Americas is really leading the way.

And when we have these quality niche gold standard products like Valvulotome and carotid shunt it enables when we bring in Tuck-in acquisitions whether it’s AnastoClip, XenoSure, AlboGraft and even Trivex, we are now placing it very economically into the reps bag. They have a relationship with the surgeon already to bringing them products that they need in one and whether we are bringing in something new and unique or a commodity type product like say a Vascular Graft we become that one stop shop for them when they are looking to fill their needs out there. And that’s really where the model really works the best with.

With about 50 reps in here and 2,500 vascular surgeons we are able to see them on a regular basis. We’ve got the products that command their attention like the Valvulotomes and the shunt and while they there and they have the branding and the loyalty they get with us we are able to then tuck-in the patch the grafts the catheters and then Trivex which is our newest acquisition.

So how do we grow? The big growth or us obviously is trying to get our new acquisitions up to speed. You can see XenoSure since we’ve taken that, it’s been a – you know we talk about singles and doubles. This is a single and double that’s becoming an inside the park home run. I do not see that slowing down anytime in the near future. And the common theme when you look at what XenoSure has with clinical instruments and Trivex is they are being by handled by distributors that really don’t cover the United States that well and where they do cover they are really only in a vascular arena, a very small portion of the time. So when you put that in the bag of the sales rep that’s all they do is cover vascular surgery it can really start to flourish. And when I look at XenoSure I think that there is plenty of places for us still go to and then inside each account we’ve got ten different sizes.

So we can grow through hospitals and then we can also grow through procedures inside these hospitals. As you see where we are earlier we can start to fill in with the success we have with the new products now we can start to fill in these different metropolitan areas like Lass Vegas, Kansas City. This gets us into the 60 to 65 optimum range and I think we do that by not only growing with the new products but then it allows us to take off a bigger piece of the pie with the Valvulotome and the Shunt market because now we can drill down and instead of having a rep in Saint Louis in Kansas City we’ll be able to drill down in those areas by having someone covering every hospital as possible.

So I think the 60, 65 range pretty much will bring down the surgeon to rep ratio, it’s 50 to one now, gets us into the 40 to one range which we think is really optimal for the type of products we have. Still going with the growth initiatives how do we grow outside of the new products and by taking a bigger piece of the pie in the United States we tap into the different markets that we are going through distributors right now. Brazil obviously George mentioned one of the big advantage, one of the big needs if you will go to down there is you need regulatory approvals you know and Puerto Rico is a, it might be a small area but it’s got all the same approvals here in the U.S. and Mexico we’ve just got all the approvals there.

So as we’ve build the regulatory, our [momentum] down there it enables us to grow the sales and then transition into the instant growth by going direct. And then probably this is my last slide here, the other big growth initiative for us is GPOs. It’s an area that we really haven’t been in many for – of the life time of LeMaitre and the GPOs really deal with commodity type products and good grafts to catheters to patches and that’s not an arena that we really played in up until a few years ago. But the GPO and IDN integrated a group purchasing organization like I said back an integrated delivery network.

They are going to try to leverage their relationships to get better pricing panel or getting better exposure with the companies. And 70% of the U.S. hospital purchase are through GPOs and now that we have a part of the bag that is kind of aimed right towards that it gives us a unique ability, or not really unique ability, I am sorry it gives us the hunting license to get the Tier A rep with the medtech product lines out there and kind of capitalizing on this.

So we are very close to starting to get our first contract and I think just going to be a lot more that fall behind that but the GPO is really a big there is really the third piece of the initiative in growing the U.S. next year. And then another avenue that we will eventually take is when you look at the ability to manufacture and effectively manufacture that current graft and PTFE grafts and balloons we have a whole other lever that we can pull for companies out there to build, have their manufacturing capabilities like LeMaitre.

So this concludes my part of the presentation. I’ll turn it over to Peter Gebauer, Head of Europe.

Peter Gebauer

Hello. Can you hear me?

Mary Nielson

Yes, Peter we can hear you.

Peter Gebauer

Okay great. So first of all thank you all for that introduction and good morning.

Mary Nielson

Peter, wait just one moment. They are making an adjustment to the sound. Sorry about that. So it’s still little bit garbled, just one moment. Okay Peter, try now.

Peter Gebauer

Well, is this sounding better?

Mary Nielson

That’s better.

Peter Gebauer

Okay great. All right so again thanks for…

Mary Nielson

Peter can you pick up your handset instead of doing it on speaker phone.

Peter Gebauer

It’s on my headphone right now.

Mary Nielson

Can you take out the receiver and instead of on your headset.

Peter Gebauer

Okay let me try that.

Mary Nielson

That’s much better thank you.

Peter Gebauer

How is that, can you hear me?

Mary Nielson

Yes.

Peter Gebauer

Okay all right. So again thanks Rob and good morning to everyone there from Frankfurt, Germany. I am an American living in Germany now for the past 16 years as President for LeMaitre Vascular. I am responsible for the sales and marketing development for countries outside of the Americas, which today consists of 14 direct markets and six legal entities. So I’ve got that about 30 years of my professional carrier in the vascular medical device industry in various sales and marketing roles, the better part of which while living in Europe. I’ve been in Europe for over 20 years.

My presentation today will center around three topics consistently from an international perspective on sales positioning and growth initiatives.

Slide two, please or next slide. You’ve seen that slide already in Rob’s presentation internationally I just want to point out we’ve got 42 reps, international right now and I think we stack up very favorably with our competitors in our direct markets we served with our broad niche product portfolio.

Next slide; here is an org chart as you can see of our international sales force. So I have nine regional sales managers managing our international distribution network. Some RSMs, regional sales managers manage regions while others manage specific countries and I have one export manager that manages the non-direct markets.

Next slide, this slide just highlights the geographies covered by our 34 European reps and eight Japanese reps. I believe we can easily increase our sales rep footprint by adding another 25 to 40 reps given the growth of our current product portfolio.

Next slide, since exiting the stent graft space in Q3 2011 the European rep portfolio has transformed to meet the needs of our mid-tech niche product portfolio. You can see there was quite a transformation that had taken place back at that time and we have hired since Q3, 2011, 22 new reps that were of tier-A variety. The profiles of the reps over here as Rob has mentioned they have little or no OR experience, they get paid a lot less than what the hybrid reps that we had before and we expect them to grow the business by about EUR 50,000 a year or about $65,000.

The benefits to us are obvious we get to hire these reps that are really coming to us with strong selling experience but not a lot of medical device experience and they are just very thankful for the opportunity so we can mold them our way. We pay them less as Rob said we can almost get almost two reps for the price of one and like they do in United States we also reward handsomely for performance, so we have a breadth of intensive sales contacts.

Next slide please. Here is a slide that just shows you the kind of growth that we have been enjoying recently in Europe. We have had seven consecutive quarters of double digit growth. On the right side you can see Japan has had a very run of double digit growth in ‘12. The dip you see in Q1 and Q2 can be attributed to the distribution buyout of our largest distributor and inventory transition that has taken place. You can see we have actually come out of that nicely in Q3 of 2013.

Next slide please, here you see a slide of the go-direct impact of our newest direct market Switzerland. We went direct in Switzerland in January of this year and this is just an example again of what happens when we buyout an underperforming distributor. In this case our Swiss distributor sales have been flat for some time if you will. These are on the left side of that chart. You can see he did not sell our entire bag. He had competitive products to us, some commodity products and for other products he just simply chose not to sell them. Niche products require a distributor to spend time in the OR and not all distributors like to do this. A lot of these distributors take the path of least resistance and very low effort. By going direct we really benefit by hiring our own reps who spend 100% of their time selling all of our products.

Next slide. In regards to positioning we have a price increase every year on our niche products. On average we manage to achieve an annual blended price increase somewhere between 1% to 2%. This is mainly due to pricing pressures of some of our commodity products and also the lingering economic issues that are over here right now in Europe.

In Japan we’ve managed to pass through price hikes on our niche products by reducing the amount of commissions that we pay our agent. We created demand and market share for these products, these niche products and very low competition if any so the agents really like to have these products and so we really have leverage when we talk about or when we compensate that.

Next slide please. Our call point is the vascular surgeon as you have heard and we will start to build deep relationships with them. We are able to drop in new product either through acquisitions through Dave or new products that are developed internally by Ryan.

Next slide is on positioning. What happened I already mentioned. In Q3 2011 we actually exited the stent graft space. Up between 2005 and 2011 we had a hybrid sales force over here in Europe. This model really didn’t work for us as the reps divided their sales efforts between Endo and visiting the interventional radiologist and open surgery to the vascular surgery. We weren’t successful selling our Endo stent grafts and our open surgery sales suffered due to the lack of focus. You know in the end we have exited the stent graft space and we restructured our sales force to focus on niche open vascular surgery products. Today, we have 34 reps in Europe selling our entire bag of 14 product line 100% of the time.

Next slide please. Here’s a quarter-to-quarter results of our sales force rationalization. You can see we suffered with our growth here in Europe mainly due to the hybrid sales force and the stent grafts that we had. You can see what’s happened ever since we transformed and restructured the sales force after exiting the stent graft space.

Next slide please. We have also a very large export market effort going on right now. This is also part of the rationalization of our sales force. We have made export a priority for us. Within last couple of years we have one export manager, we service 40 distributors in about 40 markets, that kind of fluctuates over time. Today with 6% of worldwide sale and we are experiencing incredible growth. In Q3 we are up 31% alone.

Next slide please. This is again to positioning. Traditionally in Europe a large percent of the business in some of the Southern European markets of Italy, France and Spain have been driven through tenders, okay? Since the start of the euro economic crisis hospitals have been merged to form group purchasing organizations and they have played an ever increasing role in the sale of medical devices throughout Europe in the last few years. You can see with the tenders once you are awarded a tender you have the ability to sell products for two to four years, in some cases with tenders you can be exclusive. So it’s either all or nothing there.

This is very important for us to be part of the GPOs as Rob said they are more like hunting licenses you can be listed and compete with one or two other companies that are normally also listed with the GPOs. In Europe just in the last five years the healthcare business has really, the market dynamics have changed considerably over here, again due to the economic crisis and about 70% of all healthcare business in which we compete is actually done through tenders or GPOs and as Rob just mentioned due to our broad portfolio and our niche products we are really positioned for as this market trend continues going forward here.

These are just some examples of some of the products that we are now selling in all these European markets. One example as well what’s happened in Germany today in Germany more than 60% of our businesses is conducted through GPOs and this is quite a change from three or four years ago where we were maybe 10% of our business. We really are well positioned to take advantage of this trend as we look into the future.

Next slide please. Growth initiatives, so here we go with a couple of the acquisitions that are then impacting our world over here in a positive way. In Europe the clinical instruments acquisition they had one massive distributor over here who had nine distributors that he actually sold through and that was about $50,000 business. What’s our strategy today is either buyout the existing distributors or convert the hospital customer.

XenoSure you can see what’s happened there. We were little bit late for the table here. We only almost started launching this product in 2011 and only in Germany and then most recently we followed suit launching the XenoSure in other markets. Up until now about 70% of our business growth comes from Germany alone and now we are experiencing the kind of same rapid growth in the other direct markets where we are. So I expect this kind of growth to continue for the foreseeable future.

Next slide please and this is again there is lots of places where we can go add new reps. If you can click on the slide Mary, that will you some places where we can go. There’s lot of places we don’t have reps or we just, we don’t enough reps. We still have open geography in current direct market so there is lots of places to go. In Japan we have been thinking maybe with 10 reps that would be enough. There is 125 million people in Japan there is many more reps that we’re talking about right now that we could add there.

Next slide please. The growth initiatives, China has really being as large as it is, it’s the fourth largest mid-tech market today. It really captured our attention of late, especially with the Trivex acquisition.

So we’re focusing our attention to develop very large market and we’re making commitment to do that. Another couple of markets we have in our eyes on are Holland and Portugal we can see we are pretty much direct in most of Western Europe which is pretty special when you stack that up against a lot of our competitors.

Next slide. So we have two new direct markets starting in January 2014, Australia is a larger market We have an employee from the United States to be country manager there, we bought out our distributor had a smooth transition that we’ve negotiated there with a non-compete clause and we are in the process right now hiring a couple of sales reps, one for Sydney and one for Melbourne.

The other country where we’re going direct as George just mentioned is Norway the same thing there, we bought out our distributor. We signed a non-compete clause and we’re in the process we just made an offer to hire our first rep in Norway, we plan to have only one there.

So those are the two new growth initiatives the direct markets for next year and the last slide here just want to say that we are in the early stages of penetrating the export market. There are lot of countries that where the treatment of vascular surgery is in the early stages of development there just starting to catch up with the rest of world and they are in need of our broad slate of product in the future.

So with this I’d like to thank you for your attention, I’d like to turn it over to Dr. Ruth Bush.

Mary Nielson

Thank you, Peter.

Ruth Bush

Good morning. Thank you all for being here. I am not that tall. My name is Dr. Ruth Bush I’m from Central Texas, from Texas A&M. I’ll give you a little bit of my background on the next slide and then talk about my experience with LeMaitre, which I have been involved with for several years but mainly that’s been more so in the last year and I will explain why, I will talk about why I like LeMaitre and especially my representative my sales reps and some of the product I use, this is not an exhausted list here but it will take too much time to go through them. And then I will touch on some trends in vascular surgery that might be interesting.

A little bit about myself as listed here, I am Board certified in both general and vascular surgery. My general was seven years just east of the city in Sacramento and then my vascular fellowship with Emory, I did not practice general surgery and more just strictly vascular surgery I practice little bit less as I took a job at A&M, Vice Dean, Texas A & M this past July but I am still practicing surgeon at the Central Texas VA. Prior to that I was at Scott & White Hospital in Central Texas, prior to that the Baylor College of Medicine.

My disclosures right before that I give, teach and proctor for VNUS Medical which is now owned by Covidien. I do radio frequency ablation and then I’ve been a trainer and proctor for Trivex which was formally InaVein and now has been LeMaitre this past August.

I am not an investor I did not own any stock but it’s not good but it would be a conflict of interest for me and I’m not a business person. Most of what I’ve heard from these folks has been interesting but it’s been brief and as you can see that an MBA is one of the degrees I have chosen not to pursue.

I’ve written a lot in most of presentations and all my publications are strictly on vascular surgery and my reading material which does not include Mr. LeMaitre Wall Street Journal is what – so those are my disclosures. I will talk about my experience with LeMaitre which is really been much more so in the past two years ago so I have been using their products – as I said for a while. My support from the company has been tremendous. My representative and I have two different ones now, into Central Texas VA hospitals has been much more than I would have expected otherwise.

The intraoperative support, the representative comes in first speaks to the OR staff make sure they have what they need. It’s not just being sitting in my office and catering to me as for me its catering to the operating room staff, catering to the purchasing department being nice with them, talking about different prices, training the staff on what they need to know about different products so that they can be part of the healthcare team and then working with the products that are on the shelf my reps are great about coming in looking at the shelf, making sure we have enough product on. That’s a sales technique but it’s also a helpful technique so that when I show up I know that I am going to have what I need and it’s not going to be out of date. They will change our products, if that needs to be changed out and they are very responsive to that.

Thus the LeMaitre representatives that we have had are very trust worthy and my staff can depend on them and can call them by their first name, pick up the phone and call them and to me having that interdisciplinary healthcare team means a lot if everybody taking care of the patient. These are some of the products that I currently use the one at the bottom I use, to use to contrast injectors but LeMaitre talks about their niche products, a lot of these are I called them workhorse products because they are the products that we are going to use every single day such as Valvulotome, so we are doing bypasses the XenoSure patch but has been talked about some of these polytetrafluoroethylene graft and polyester graft, the PTFE and Dacron graft if you will.

Those are things we are going to use every day, you need to keep on the shelf, they are not specialty products, they are products like in your refrigerator having milk and cereal every day that you are going to have, it’s not something that especially we need to pre-order or something we need to keep available that all time, Embolectomy Catheters are one touch devices as our carotid shunt.

What if vascular surgery can be scheduled electively but vascular surgery is similar to, lot of us get confused with cardiac and vascular we do non cardiac vascular surgery, peripheral vascular surgery, auto [event] bands as what’s stated. A lot of what we do is a margin state so are urgent, so patients come in emergency room or they’re brought in they need to go to the operating room. So it’s not something I can order in I have to depend on it being available.

So now you get your medical education on top of the business. We’ll talk a bit about peripheral arterial disease. Peripheral arterial disease is a disease of the peripheral arteries, again non cardiac vascular disease. Arteries take the blood away from the heart veins carry blood back to the heart. Many of the patients who present to us are long-term smokers diabetics who have diseases of the blood vessels in their lower leg which may lead to pain when they walk or a possible limb loss, losing a toe, losing a foot and we will have to do some type of intervention to get that blood flow down to the lower extremity.

There are different options that we can use for bypass that you do have to be familiar with all of these options. The first three options are ones that don’t belong to the patient mainly prosthetic, so we can use polytetrafluoroethylene, trade name that we use is just Ortex like the gloves that you wear for skiing, polyester which we just refer to as Dacron for the referring to tissues it’s CleanX. Dacron was originally invented by DuPont the public company.

Than Cryovein which is frozen cadaver vein. But the best bypass option as you think a vein from the patients themselves what is called an autologous vein. So taking a vein from the patient themselves, from their legs similar to doing a bypass in the heart and using that to bypass in the leg and sometime we need to do bypasses in the arm. Studies have shown that these are the best long-term options. The infection rates are less there is no chance of rejection, the latency rate how long that bypass stays open is going to be better than using something that’s either plastic or polyester. Size mismatch is much lower because it is patient’s own tissue and the veins are usually better associated with the size of the artery that you’re on then and the quality is much better than using something that’s prosthetic or plastic.

There are different ways to do bypasses I won’t give you a complete lesson in vascular surgery but you can take the vein and reverse it or not reverse it and it depends on what’s going to make a difference is going to be the valves in between, veins have valves to keep the blood ratcheting upward towards the heart in between heart beats and of don’t reverse the vein you have to lyse the valves, you have to divide the valve so that the blood can flow freely through that vein.

I mention that autologous veins were the best conduit for bypasses and this has been shown by multiple reports and evidence in the literatures at the TransAtlantic Intersociety Consensus documentation put in their 2007 test, two recommendations test three is about to come out in the next year or two, but looking at different types of conduits for lower bypass and if you look at the table on the left hand side it talks about above knee femoral propensity of bypass. The patency rates of how long the bypass stages open at five years for vein and then PTFE which is the most common conduit used if you do use a prosthetic and much better with vein and this is above the knee where we would consider these to be fairly close. If you do a bypass it’s even longer going below than knee or even lower down on the shin to what we call tibial vessel the patency rates of prosthetics really is 1x and get down into the teens.

So again multiple experts have said that veins are better, we know they have better long term patency so most of us vascular surgeons will search for a good vein. So that being said what we do with the veins to get rid of the valve. We need to do something to lyse those valves. In the old days we used [inaudible] that had little knives on them called the [Mill Fabioterm] and they could be very damaging. LeMaitre has self-sizing expandable Valvulotome, I have used this for several years. I’m only familiar with one other product on the market for Valvulotome which is just in my opinion not very good.

So I’ve been using the LeMaitre one for several years. It’s very gentle and you can look at the product back there when you squeeze the size of it, it’s very compliant because these veins are incredible fragile. And so what you wanted to do is size to the vein and so be able to expand and contract that the blade stay open when you’re lysing the valves and if you look at this, it’s sort of like an upside down umbrella, and there is little knifes here on the inside here. Those knife will engage the valves of the vein and then slice it so then it will lay against the wall of the vein. This is sort of how it works, so you insert it inside the vein you will have it in its close, it will be closed and these knifes will not be expanded out and it will go through the valve, you can see the valve sticking up here than you open up the Valvulotome and then you gently pull it back through the vein. So this would be me pulling it back through some one’s vein and these little blades will engage the valves and slice them.

So you can have good blood flow. So if you are not going to reverse your veins you have to do something to lyse the valves and this is in my opinion best product available to do that. They came out with their next generation this past year. We were involved in the beta testing of that of 1.5, again 0.3 doesn’t sound like much of a way difference but it makes the Valvulotome more gentle on the vein, less traumatic and I call it the baby Valvulotome and that’s the one I prefer to use now but I do keep both of them on the shelf.

So now we’re going to talk about veins again arteries go away from the heart, veins back to the heard. Venous disease is incredibly common in this country, most people are very unfamiliar with it because it doesn’t usually cause you to lose your life or lose a limb it’s just really a quality of life issue for a lot of people. Many people have varicose veins in this country, over 20 million people venous disease is progressive from simple varicosities or even more simple the net little spider veins that people get on their ankles all the way to having chronic venous insufficiency or skin ulceration which can cause quite a bit and again cause worsening quality of life.

This is just a slide talking a bit about venous disease. It wasn’t really popular vascular surgery till about 10 years ago when we started getting new products to take care of their varicose veins that were much simpler and kept people out of the hospital and then venous disease has really exploded in this country because people are being referred to us for it and the options are much better for treatment but again you can look at here for percentage of the numbers of peoples that are affected by venous disease, 15% are men, 30% are women.

Women tend to get pregnant and have progesterone in their body and it causes their veins to expand the valves become incompetent and they develop venous disease. Men it’s more of a genetic component. If your mother grandma had varicose veins you’re likely develop varicose veins some time during your life, those who work in standing location, folks who are construction workers, nurses, teachers on their feet for a long period of time are more likely to get varicose veins and again it’s much more common than arterial disease, it just doesn’t get the headline because it doesn’t kill people.

But it can be very complicated, especially in patients who have those large venous ulcerations they can be very slow to heal and it is a progressive disease. If you have varicose veins and you don’t take care of them they will progress over your life time they can get worse. And as I tell people I never cure varicose veins they’ll likely to recur. And everyone susceptible you can see here even the avid cyclist.

So I’m a very big believer in the Trivex system. It’s the long winded term for this is Transilluminated Powered Phlebectomy system, Phlebectomy being removal of veins, Phleb is the Latin term for vein and traditionally with varicose veins that you might see such as this a cluster of Varicose Veins, we numb up the skin, we make tiny little incisions, used again like a cross [inaudible] to pull the veins out. It’s very tedious and takes a long time.

About 10, 12 years ago the Trivex system, Transilluminated Powered Phlebectomy System was developed originally by Smith & Nephew, a vascular surgeon saw the knee arthroscopy system and said well why can’t I use this in varicose veins, and he took an arthroscopy system and made and used a light force similar to laparoscopy to put underneath the skin to visualize the varicose veins and then the arthroscopy shaver he developed, his name was Charles Smith, is that right, yeah, used a little shaver which oscillates back in forth, has a suction device will grab the Varicose Veins and suction them out.

It was a tremendous development for [inaudible] to be able to cure patients with varicose veins and I was involved way back when it was first being developed and during my fellowship and then later on in practice. It was acquired by a company called InaVein several years ago, I don’t remember exact time Smith & Nephew as you know is an orthopedic company. So their representatives were most interested in selling hip placements than varicose veins. And so there lot of us who were early adopters of the Trivex system and have continued to utilize it in our practice.

This is typically example of someone who might come in who I would use the Trivex on, someone who just has a couple little Varicose Veins I won’t, I will just do those with the old fashion stuff, lobectomies that I mentioned but someone has extensive venous disease like this it would take probably 60, 70 tiny little stab incisions to remove those which is tedious time consuming and painful for the patient and painful for me.

With the Trivex system under just IV sedation I can remove all of these veins very rapidly probably about 20 minutes or so again I have been using it for a decade. The patient will come out with their leg bruised but over the next few weeks it will heal up and they will have a very good result.

Some body looking for to have legs that they had when they were 20 years old as I told patients I’m never going to give you those back, I’d have long line up that went out the door but I will make patients feel better make their legs more comfortable and get rid of their venous disease.

So Trivex has been an incredible boon to those of us that do take care of varicose veins. There’s been several publications and data on Trivex or Transilluminated Powered Phlebectomy, the outcomes are fabulous the procedure times are much shorter. So the patients do not have to endure much and they can go home the same day. It’s not an overnight stay in the hospital. There is very fewer or small incisions because you are using a device that goes underneath the skin and can move around and suck out the vein. I don’t use any sutures in this and the recurrence rates are better, you get better removal of vein, because you can see them with the light source.

Unfortunately, InaVein was a little disappointing to those of us who used it because we never really knew who our representative force, they outsourced to somebody and my rep was somewhere up in Oklahoma and did other things. And so we didn’t really have any support and there was no marketing of the Trivex system. So I believe it’s a very underappreciated and underutilized system that hopefully is coming into its time, now with the acquisition by LeMaitre I’m very excited about having this available through them.

The XenoSure patch was mentioned, what this is a bovine pericardial patch, so heart tacks from cows. It’s a biologic patch as opposed to a prosthetic patch. Vascular surgeons use a lot of patches, when we clean up blood vessels. If you are putting in even the stent graft you might have to use a patch on the thermal artery to fix it afterwards. So again this is a work horse device which we use dozens per month in my hospital. It’s something that we have to keep several, many on the shelf just in case we might need one for a blood vessel. You can’t always predict when you do it, it’s having suture available, you need to have patches available at the vascular surgeon.

So when we remove plague from an artery, there is a chunk of plague that comes out, so somebody has atherosclerotic build up inside their blood vessel for one reason or another, this is a cartoon of a carotid artery. We don’t want to primarily close that vessel, so we don’t want to sew it up like sewing up the sleeve of a jacket because it will narrow the luminous of blood vessel. So you tend to patch artery, so that you maintain the luminal diameter and also give some support to the edges. Once you remove the plague from a blood vessel, what’s left of the wall is very, very thin. So the patch will also give some support to that blood vessel and keep its integrity.

The Albograft which is polyester Dacron graph or something again that we use quite frequently and need to keep available on the shelf. This is an angiogram of a normal aorta. So an aorta coming down, so the [abdomen] splitting down both legs in to the iliac blood vessels, this is a patient I took care of in which the aorta was completely blocked off by atherosclerotic plague, here’s one blood vessel going to a kidney artery and then the blood vessels in the leg. So this entire middle part including the main aorta and proximal part of those iliac vessels is blocked off.

So in that case there is nothing intravascular that can be done, you need to just bypass the blood vessel. And so this is one of my fellows who had to take the main bifurcated graft, it looks like an aorta the Dacron graft and then two separate branches side-ons as we call them, and so more into to the side of this to bypass the renal arteries. Not an easy operation, but one that’s necessary to do, fortunately not that frequently.

So these are some of the main products that I use. I do a lot of dialysis access so I need PTFE available at all times, not every patient has autologous vein to be able to be used for dialysis access and we will need prostatic grafts. So those are again very common.

So last couple of minutes I will talk about some trends in vascular surgery, that I see the question on and then you can look down into the bottom right hand corner for LeMaitre’s response to some of the how’s the need for evidence-based medicine manifesting itself in product selection in practice, really evidence-based medicine with the Affordable Care Act, is becoming what’s called the comparative effectiveness medicine. There is a lot of evidence basis on using autologous vein on maintaining patency on what’s the best products are you need to use a prosthetic whether its Dacron or whether it’s PTFE.

But what we are being asked to do is also comparative effectiveness. So what’s the most value that we can give to our hospital? And I have to say my one of the reasons that I mentioned in the past two years I have become very important with LeMaitre products is LeMaitre has given us a better price across the board on all of these products. They came in; they said what do you have. I told them and I had three different types of PTFE on the shelf. And they said, well, I will give you a better price than all of them. And that was before I even told them what it was.

And so, A that makes my hospital happy, B it makes me happy because then if I’m happy, boss is happy, purchasers and happy nurses, then they take care of my patients and they take care of me. And I don’t see the point in spending a lot of money if you don’t have to. And that’s going to become even more important as most of us are working for hospitals nowadays. There are very few surgeons that are in private self-owned practices because you just can’t afford to do it anymore.

The Affordable Care Act, nobody really knows what’s going to happen. We are all sort of afraid. Right now volumes are down and hospitals probably across the country, it’s definitely in my area, because of the Affordable Care Act, people don’t know what’s coming, they don’t know what’s going to happen to their insurance, they don’t know what’s going to happen with their deductibles.

So being reimbursed, hasn’t yet been affected by the Affordable Care Act, except for the fact that Medicare now will not reimburse, they reimburse it less for 30 day complications. So having product availability, doing the best operation you can is going to be very important because your hospital doesn’t want to have unnecessary readmission. Reimbursements clearly are going to go down across the board. They have gone down in the past few years. So having devices that aren’t the most expensive on the market going to be better because in the hospital, if they can’t make money, can break even.

Fortunately for me, I’m always going to have a population of patients to operate on. Vascular surgery is not going away, people are still going to smoke, they are still going to have diabetes. They are still going to continue to gain weight and we keep increasing the life expectancy in patients. So as you get older, you get more vascular disease. So there is always going to be patients with vascular disease. And we have plenty of healthy 80 year olds who need to undergo procedures. So it’s not something that’s going to go away.

It was mentioned earlier about minimally invasive versus. Minimally invasive is very trendy, endo vascular is very trendy, it’s also something that we want to do for our patients if we can and it’s a simple procedure that we can do an endo vascular procedure with. The studies on long-term efficacy of endo vascular procedures in the lower extremities and the iliac vessels show that it doesn’t last as well. So you either need to repeat it or even end up needing to do a bypass on their patient.

Open surgeries are not going to go away. The products that LeMaitre distributes are not going to go away. What’s going to happen is we are going to have more complex open procedures that need to be done or the patients will be a little bit older. Where is surgery happening, hospital versus office, office practices were a bit trend a couple of years ago, people were purchasing in office NGO suites. However the reimbursement has just cut dramatically in office NGO suites. So I suspect that most procedures are going to be done in a hospital or in an outpatient surgery center.

I think the pendulum as always happens when something trendy is swung too far in favor of endo vascular few years ago I think we’re coming back to middle and realizing that if I can do a bypass on a patient and it’s going to last for their life why should I do an endo vascular procedure, where I am going to have to bring them back every six months and do something else. The hospitals are not going to be able to stand for that. So I think endo vascular is here to stay, it’s not going to go away, it’s a fabulous option for the right patient, but open surgery is also something that’s a very good option and it’s not going away either.

And I think I’m done. Thank you very much.

Ryan Connelly

Thank you Dr. Bush. Good morning everyone. My name is Ryan Connelly, I’m VP of R&D for LeMaitre. As with my colleagues, I’m going to give you a snapshot of the R&D group. How we believe we positioned the group in order to help the company achieve growth, some concrete examples of what we are going to do to get that growth and then finish up with a regulatory update.

So I often get asked where the ideas come from, and I’m going to take some time and talk to you about that but I think it’s important to understand that for this company we have a limited amount of resources, both financially and in terms of personnel to get these projects done. So we are particular about the projects we chose, the thing that are ideas that become projects in R&D. So here are some examples of the more important criteria we will look at.

First and foremost of course, as several of my colleagues have said vascular surgeons must be the call point, it must be primarily used by vascular surgeons. I think that we know a lot of our devices will across into other disciplines but we want to be primarily used by vascular surgeon. Niche market is obviously another big one for us disposables and implantables is probably where you’d see us spend our time internally rather than capital equipment.

Investment size, IP generation how it fits with the portfolio at large and the other products is a big piece of what we look at as well. In general I tend to bucket these projects into three different kinds. One of them is catalogue expansion, so you can think of those as kind of the lower risk type project. We’ll definitely do next generation devices. These are kind of the medium risks something known to us but we would like to make some kind of significant change to the device or to the procedure. And then the higher risk things and the new products, whether that be new products, new to LeMaitre or de novo to vascular surgery.

So the next thing about internal R&D of course is you can exactly focus the resources on the project you think fits right for the company and align strategically instead of having to wait for something that might fit. So you would see us definitely try to work on some of our existing product lines. As I said we’ll we have 14 product lines you have heard a couple of times today.

We will want to keep those up to date and look at those surgeries and watch how they are doing. Couple of other examples of things you may see us try to tackle at LeMaitre are snare type devices, specialty catheters, specialty balloons, dialysis catheters may be even these are all things that would fit well within our real house both in terms of the R&D execution there and the manufacturing capabilities that we have right now.

There are definitely some things you would see us not try to tackle in R&D from scratch, probably anything with the stent in it. You guys know we’ve had, we’ve done our time with the stent graft market and so I think we’ve learned it’s probably not a space for us. There’s some other examples as well, Atherectomy is another example but probably for a different reason, capital equipment type things, again I don’t think you would see us want to go after a market like that.

And then vena cava filters might be in another example but again for another reason which is that’s a well-established market, lots of players, lots of possible solutions guarded by a lot of big players in our industry. So it’s probably another thing you would see us stay away from internally.

Very quickly on the org chart I have 13 practicing engineers at the moment. In general or directionally you would see us try to break-up the types of projects we’re working in, like this where may be 30% of the projects or of the Group are working on projects that are at the lower risk category. We expect accessories and expansions probably roughly half of the projects going on at any one time are around the next generation things or hopefully that’s the place we’re trying to hit the doubles if you will. And then the balance would be around the de novo things, again whether that would be de novo to LeMaitre or de novo to vascular surgery.

Continuing with the snapshot here I would like to talk about the three launches from this year. First one is really a classic example for us of next generation project. This is you know our flagship device the Valvulotome hadn’t been changed in the long time. So we felt like we need to take a look at this device and the surgery as a whole and we did that starting a couple of years ago with the over the wire Valvulotome project.

Inside of that project really is where we learned we should be making this device smaller. It’s through our focus groups our user focus groups we realize we could stand to have this thing be a little smaller so that it was a little more soft and pliable inside a fragile vessel. It has the potential to do less damage while it’s inside your fragile vein, it might allow you to get it into more people because it’s smaller and then most importantly it allowed us to cut on the smaller end or open the range with which the device can cut. So we’re able to achieve all this and we think we came out with a pretty nice change to the device.

Another example from this year was the AlboSure vascular patch. So this is a neat example of a new product because it utilizes technologies we have in house already and weaving and oncology impregnating which we do for our elbow graft devices. We took those technologies and moved them over to a patch platform in order to make a vascular patch, a nice little addition, new indication but utilizes things we already know how to do.

Again as George mentioned earlier this is something we hadn’t touched this product line since the acquisition earlier which was 2007, nothing we had done to it, since that was of course moving into our buildings in Burlington which happened in 2010 but since that we really hadn’t done anything to the product line as a whole.

Another example from this year of launches is the multi task product line. And I start to think of this as more of a procedural change that we did. George quickly mentioned earlier too this was a change that we made in order to take a surgery that you could accomplish using two tools and we merged those tools into one tool. The nice thing about this is taking a step out of surgery like that first and foremost eliminates the potential for complications to happen so that was one nice, the biggest advantage probably of combining these tools into one tool. May be it saves your little time and a little bit more important that I think is the fact that it reduces the potential for complications for the doctor.

So when you add on all that up financially now how is it affecting what’s going on for us. We do watch R&D percent of sales and this is a chart where we’ll take the sales from all geographies, all things launched excuse me all new catalogue numbers launched within the last 48 months and we’ll watch them over time and see how they are doing.

You can see in here at the beginning of Q2 was really where we launched these devices had a nice effect on the curve, inflecting it up obviously going in the right direction. Right now we are at about 7% for the year, 7% of sales are coming from catalogue numbers launched in the last 48 months. This spike that you see here this was the result of a hard switch that we made on the F3 switch product line which is available on the back. We had launched it in 2010 around here and as there were conservative when it comes to changing devices.

So after a little while of being sure that things are going perfectly for that device we then decided to [inaudible] the old version. So that’s where the spike in this chart comes from.

All right so switching gears a bit how we’re positioned to achieve some growth. First and foremost as you already heard a couple of times this company has very deep vascular surgery and how that affects me I think the important thing is it allows me to get in surgery. We really use our Surgeon’s Co-operative, in the past we had used those guys. I think it became post IPO a place where we had friends in surgery we could go and see surgery.

And we firmly believe you cannot design a good medical device from inside of our building the engineers have to out in surgery watching how this was done. So it’s a first place that I try to go to get into surgery. Of course we have a global sales force which is nice. Surgery is different across the world so we have to pay attention to that as we’re trying to make a device that could be used on both sides of the Atlantic. I will tell all of the sales rep candidates that I interview you are the eyes and ears of this company in surgery I want to hear from you about ideas about things we could change about things we could do better about ways to improve surgery.

So it’s a big thing that I will rely on when trying to come up with some new ideas or improvements to current procedures. Of course there’s congresses I spent most of my time at congresses actually in the scientific sessions. So those are very important and valuable to me we want to see how things are changing keep up with the clinical trends that are going on.

And then buss dev. guys of course as well those guys are not only out networking a lot in surgery a lot but it often the case when Dave will buy a product line that a year, two years later we will want to go and improve on that device. You saw this slide a little bit earlier and I mentioned we will want to work on our own devices that’s definitely one place to go in order to try to execute on the singles and doubles if you will. And we believe we have a very healthy set of options inside of the company already to go make sure or to go improve upon with 14 product lines in bigger markets. So there is a lot of things we can do inside, a lot of these are older and could do some updating. So we pay attention to these and it’s a nice big piece of a product to be able to go and try to do some different things in surgery.

And finally on execution we are paying attention to how we’ve done historically. We think we understand what projects will and will not work for us. And so I think it’s important for us to keep this in mind as we look at all the new things that we’re thinking about doing. We believe if you kind of get this into a win loss record we see something similar from Dave and Buss dev. we think we are about 10 and three wins and losses with three of them more recent things still to be determined if that was going to be financially successful or not. There’s two parts to this we make this chart strictly based on the finances and how it’s going.

There is also of course the piece of how is the device performing out there in the world and that’s important to pay attention to that as well. All right and how are we going to grow some tangibles on how we’re going to grow. The first thing is it’s important to understand that we’re very vertically integrated for a small company. We do have a lot of technologies in-house already that we understand from a manufacturing perspective and also from an engineering perspective. So these things when you look at them it’s a nice buffet I guess of different kinds of things we have everything from biologics to the nut and bolts of molding and extruding.

So there is a lot things we can put together in different ways in order to make some clever solutions. We will continue to invest in engineering as George mentioned earlier. 2006 and the IPO is really where we began to invest in the Group and every year since then you’ve seen one or two engineers get added into the department. I don’t know how long this will continue but I can tell you that do you feel viscerally like we aren’t even close to having the right amount of engineers for all the things that we know we want to accomplish all the different kinds of projects.

And then again the very specifics of what we’ll do here in the short term and these are examples of things which have going on at the moment. We do have each kind of projects represented as I was talking about it earlier. We have an inclusion catheter which is a nice catalog extension out there. We have that under-review at the moment in fact we’ve heard yesterday that this received FDA approval. So that’s nice for us to get going on this.

We have three examples of next generation projects under way. One in Unballoon and that’s a tail on, this is what I think is going to be the last revision of this device essentially making it stronger. So that is out there under review right now with both regulatory authorities. We have a Valvulotome project also I think this will be the final version of our Valvulotome I hope when I look up on a couple of year that going to be the case that is kind of at the tail end of its development cycle and then the beginning of its development cycle is a project around our AnastoClip product line.

There is a new product, a small new product that we are going to come out with here very shortly in the next several weeks. I think of this again as an example of paying attention to the surgery rather than may be the product line. One of the things we learned when we did our user focus groups around Valvulotome was that our device doesn’t work perfectly down at the small end the smallest range the smallest diameters. And so what we did was essentially give the surgeons a small little adjunct on device in a kit in order to get the surgery done more perfectly.

We also have some research stuff that’s very exciting going on, one is biologic space I am very happy that we now have XenoSure transfer completed or at the end of its project stage. So I can get in there and my guys can go play on with some biologics, there’s very exciting things that we are doing there. As well as carotid shunting and the nice thing about carotid shunting research is that no one else is really watching that space.

So a quick update on regulatory for you. The important thing to take away from this slide, Europe and in the U.S. we’re full up we can offer the full complement of our products. Essentially that’s the case in Canada as well with only a few things left to be approved. And then we still have a few, otherwise we have a lot of areas we can go to in our bigger geographies. Because of that we’ll have three to five of these are always going to be going on in any one year in order to trying to maintain our keep getting filling in this chart.

Right now we do have five underway at the moment. So we are very proud of this internally here we’ve become good at predicting what these agencies are going to say, and what questions they are going to ask us. And ultimately this allows us to get to more approvals each year and of course more approvals in our bigger geographies will get us to more sales. Thank you very much for your attention and I am going to turn it over to Dave.

David Roberts

Thanks Ryan. Okay so we have 87 sales people they are like birds with mouths and you have to feed them worms and so Ryan treating them the internally developed products and then off-course we have an acquisitions department. It’s a small department, myself and Mary Nielson. And we have a lawyer who helps us well and we also feed the sales force and it’s been a strategically important part of the business for many years I’ve been with the company for about 16 years now.

And like Ryan and R&D we have our own set of criteria. I am not going to roll throughout these. I think what’s important to note is that the lesson we learned from getting into and out of stent grafts is that we really succeed in the niche markets, the markets where we know we can win. And so this is the criteria that’s become more important over the last several years and by niche I’d say we define that is $50 million and smaller maybe the niches are getting bigger may be there are $75 million or $80 million or smaller.

So there is why I focused on the criteria. Of course the other ones are very important for us as well. And on the metric side I say we focused a lot, I focused very much on the free cash flow internal late of return. If we are buying a product that’s someone having an annuity, a stable product that has revenue growing a little bit more slowly but very predictable may be teens, mid-teens high-teens internal rates of return. If we are looking at a product with a little bit more risk may be a higher growth profile, more rivalry maybe that’s in the 20’s or even 30’s.

So internal rate of return is very important but of course we evaluate the acquisitions by a number of metrics and you’ll see a self-graded report card in a few minutes. Okay so as a percentage of our total sales acquisitions used to be a huge contributor but of course the denominator was very small, in the ‘98 to ‘01 time frame our company was $3 million or $5 million or $7 million in sales so it didn’t take a very large deal to represent a big percentage of our sales.

However as we grew we focused on roughly the same size deals which are $2 million, $4 million, $5 million, $6 million acquisitions and off-course that means that when you do one of those as a percentage of sales it gets a little bit smaller over time. So I’d say we focused more on singles and doubles over the last ten years or so. That being said we do occasionally swing for the fences now. In ‘01 we did [inaudible] Medicine that was about 40% of revenue, just two or three years ago, I think I’ve spoken with some of you in one-on-ones that we did take a run at a $30 million revenue target and we had a $60 million term sheet and the seller got cold feed but that was the larger deal that didn’t get done. But it’s a way of saying that we will focus on larger deals but they have to be exactly in our wheel house. We have to have some sort of an information advantage and in those cases those were products that we competed with already.

We’ve spent about $40 million on acquisitions over the last 15 years or so. And on average we paid 1.4 times revenues, LTM revenues. So I’d say that categorizes us as a value buyer. The way you get value in acquisitions is by having alternatives. And there are two types of alternatives one is you follow companies for a long time in product line. So we have a database in the company an acquisitions database with over 200 companies 200 to 300 companies and they have about 800 to 900 product line for of course we are a small team and we can’t focus on all of these but there are lot of targets out there.

So if we are negotiating with somebody and they get too expensive we just go on to the next opportunity in the pipeline and that allows us then to pull the trigger at prices we think are reasonable.

The other type of alternative is when somebody gets a little greedy on selling the business, we like I said we just put them to the back at the line and then we go and approach them two or three years later and frequently that’s a good strategy. In fact the two deals that we did this year Clinical Instruments and InaVein I first met Clinical Instruments in ‘98. And we made our first offer to buy them in 2007. And we met Trivex in 2003 and we made our first offer to acquire them in 2005.

So these cats all have nine lives and if you don’t get it the first time around may be you get at the second or the third time around, and they let you buy low. All right now so than what’s neat about LeMaitre off-course is not just that we acquire revenue but it’s once we acquired the revenue it grows inside of our bag and that’s really I mean that’s the business plan of this company we just have this phenomenal sales force that has very tight connections with the surgeons. And we have a sales person who works very close to Dr. Bush we’ve got 87 of these people all around the world and they are eager to bring the new products either internally developed or acquired products to these surgeons and you see adoption. And so you can see we doubled the acquired revenue inside of the business after the acquisition date.

Clinical Instruments one of two deals we did this summer, I mentioned that we followed this for a long time. This was a little one the acquisition thesis was sort of a net, it was a competitor always nipping away at us. We wanted to acquire it to add market share A and B because they had a couple of Latex free products that actually Ryan had in his R&D pipeline that we hadn’t launched yet but we wanted to introduce. So we simply acquired them and got them into our bags. We expect to consolidate that factory in Q3 of next year.

And then the other acquisition that we completed was the one Dr. Bush talked about this InaVein transaction, this is a company that had $2.3 million of sales we paid about one time sales plus there is some earn outs involved. This one really put us in the vein space. Prior to this product we had a vein stripper which is an old generation technology that accounted for about 1% of our revenue. So we really as a company hadn’t participated in the vein space but vein surgery is a big activity is a big silo for vascular surgeons and this is a perfect entrant for us because this is a niche market.

It’s probably a $25 million market, it’s open surgery. It takes place in the hospital, this is where our reps are, this is what they do all day long and the only competitive technique is hook and stab phlebotomy which is very tedious as Dr. Bush said. So there is no real company competing against us in this space. We shut the four person office a few weeks back. The product is contract manufactured so there is no big manufacturing transition that’s imminent and from an integration standpoint we did sign a distribution deal with a Chinese distributor. This I would say as George mentioned we had one product which we had experienced success selling in China since April. This is our second major product in the China and we are hoping to push more products in China before the approvals expire in 2014 but we will get the approvals back in 2015 or 2016.

Another way to slice and dice the performance, the self-graded win loss record, seven wins, three losses. I think it’s a pretty good record. One of the reasons we have done pretty well in this space is I think our due diligence is really good. Ryan talked about the Surgeons Cooperative. Our company has been catering into and selling to the vascular surgeons for 30 years and we have got very tight connection. In fact just before the presentation I was talking with Dr. Bush about our due diligence on Trivex.

We did how many focus groups George? Two or Three focus groups plus a bunch of individual interviews and Dr. Bush after running the focus group said several of the surgeons kept talking afterwards and said, I wonder who is going to acquire this, I hope it’s somebody good because that will be really terrific for InaVein so we know the surgeons really well. If you got any information as you guys know investing in companies that might tell you towards better performance, I think we have really strong information on position with respect to acquisitions.

Where do we get the deals from? A little bit from private equity investors who think our products are going to shoot the moon and then it doesn’t and then there are liquidity concerns for how they are going to get any of their money back, there are surgeon inventors, there are founders of companies who run the product until they get very old and then have nowhere else to go with the product line that was Clinical Instruments but also a lot of carve outs either from big companies as big as Covidien and also smaller companies like the Neovasc Patch was a smart carve out of a much smaller product line, a much smaller company.

We generally speaking avoid bidding wars. We do participate in them but I can tell you we have lost bidding wars to Vascular Solutions, Angel Dynamics, Merit Medical, CryoLife. I am almost proud of it you know. We don’t pay a lot for that muffler so we have our own proprietary deals for us and it think that’s what something that makes LeMaitre unique.

And then of course just getting the deal done that’s really just the beginning. Once we do the transaction we got a huge integration in front of us. The good news is we have done 14 acquisitions and we have completed all in the process of completing 14 integrations. So this is where the entire organization gets involved. I would say what’s critical, these are all critical points, being good at them is really important but you really want to pay attention to how you terminate the distributors so you don’t lose the business and you want to pay attention to the how you integrate the manufacturing. We had a bump in the road with the [inaudible] several years ago and I think we are always learning lessons as we go and hopefully I do believe we are getting better at integrations as well. So there is another competency which comes along with acquisitions.

Just looking into the future a little bit, how do we look at the world in terms of acquisitions, well one way to look at it is the market size and the growth profile of the spaces that are under consideration. We focus on small stable niches so those are sort of southwest corner of the quadrant there, those are products without a lot of rivalry where LeMaitre really has a dominant space and we love for all the reasons we talked about pricing powers et cetera et cetera.

If we want to avoid high rivalry, highly competitive spaces what we don’t want to do is move in to upper right quadrant. So you can see we have already moved a little bit the lower right slightly larger markets but still not that high growth. PTFE graphs, polyester graphs and Anastomotic devices, obviously glues and sealants those are products we would love to add to the bag as well.

However, we are also starting to focus a little bit more, George touched on this in the endovascular space we definitely have some endovascular targets in the pipeline but unlike with stent graft which you can see in the upper right quadrant which is a large market, fast growing, lots of competition. If you stick to the niches the plugs, modeling catheters coils, things like that those are products where you may have less rivalry but high growth and those are quite interesting to us. So there is one way to think about where we may be going next just in terms of the overall market profile and then this is my last slide and then I will turn it over to JJ.

Another way to think about the space is vascular devices we can split up into four different segments those servicing sort of the dialysis access space, those in traditional arterial surgery and those in venous surgery initially those you can divide into open surgical or endovascular and then there are tools and accessories which can be used across all three of those other spaces. So because LeMaitre has really leveraged the call point business model, we pay a lot of attention to where our reps are, where they are spending time. So the fact that we have Trivex means well maybe we might be a little bit more interested in venous products.

We have already got a small critical mass of some products and dialysis assets but we may like to add products there as well et cetera. So these are couple other ways we think about where we would go next but one thing is certain we have acquired 14 product lines or companies over the last 15 years. That’s about one a year. It’s an integral part of the business plan and we’ll just continue to deliver on that.

With that I will turn it over to JJ.

JJ Pellegrino

Thanks, Dave. This is last modules so if you would like to start your salads and then lunch will be coming sooner after and then we’ll take some questions and answers. Some financials snapshot items here. Of course starting with sales George talked about this chart briefly but I think the high level point here is that this is very steady sales base. We are very direct to hospital 95% direct to hospital, 85 sales reps getting that hospital level margin and control of the channel selling the full breadth products that distributors might not otherwise sell.

For a small company we are also unique in that 35% to 40% of our sales are not in the U. S. so you have nice geographic diversity and no product is more than 25% of sales. So we are not looking for anyone product to pull us through quarter to quarter. Although as XenoSure takes up more than 10% of our sales these days and a decent portion of our growth that’s certainly is a large part of the story. Our guidance is at $63.1 million, that’s raised from the previous guidance largely due to the two acquisitions and strong previous quarters and that’s about 11% sales growth.

Looking at the gross margin this is generally a 70% to 74% gross margin story. I think we peaked at about 76% back in the quarter in 2010. That’s sort of a high watermark for us. I think more recently when you can generally think of sort of in that range and this is a story of being in the middle of that range and then doing an acquisition. That acquisition brings us down maybe into the lower part of that range. That happened in 2007 when we acquired Biomateriali and then in 2011 we moved to that facility from Southern Italy to the U. S. to our Burlington facility essentially and we acquired and moved to facility from California the LifeSpan ePTFE graft and that also had negative effect on the margin and then you see us repairing that in 2012.

More recently we’ve got a number of gross margin impacts that you see in the bottom of the slide there running through the P&L. XenoSure integration as we move production from outsourced up in Canada to in source at our Burlington facility had a negative impact short term but I think as we get sort of through the next couple of quarters we will start seeing a positive impact from that integration going forward.

The Clinical Instruments acquisition has had a negative impact as well on the gross margin. We’ve got 13 or 15 folks in a separate facility in Western Massachusetts. We’ll close that down in due time and we’ll bring that into our facility in Burlington and that will have a positive impact on the gross margin as well. The Trivex deal I think should have a pretty nice positive impact, certainly for U.S. sales which carry a very nice gross margin may in a 75% to 80% range and depending on how much we sell to China of our Trivex products that might offset that nice margin a little bit.

There are two trends that are sort of higher level trends that have been running through the P&L for a while now that will continue to and continue to have a negative impact on the gross margin. And that is our mix shift as we sell more XenoSure those patches carry probably 50% or 60% gross margin and we will not probably get those up to a 75% corporate gross margin so as those take up a larger share of sales that will be a down drag on the gross margin. And as Peter had talked about he has been selling nicely and aggressively to far flung geographies like Romania and Turkey on these places which are sort of nice unit growth and nice top line growth but generally coming at lower ASPs and therefore have a negative impact on the margin. All balled up I have basically said this at our last call to expect sort of a 70% gross margin through the next couple of quarters through the middle of next year.

In terms of operating expenses and the bottom line you can see here on the left side of it the page that we really have some nice operating expense discipline throughout the year, certainly since the IPO we’ve sort of been ranged bound in the $35 million, $36 million a year of operating expenses despite the fact that sales have grown nicely over that time you see that gap increasing.

So back in those six or seven may be 200 employees maybe somewhere north of 300 now, 325 employees sales per employee has grown nicely and expense per employee has decreased over that period of time. So those efforts which include cost cutting efforts every year that we do may be to the tune of $1 million or $1.5 million as well as keeping a nice eye on operating expenses generally at a corporate wide basis and those are led to the right hand side of the page which is sort of one of the nice success story, sorts of snapshot of the company bottom line turnaround which is basically something I tell in three parts the left hand side ‘04 to ‘06 as pre-IPO and all operating losses were turned around to get breakeven at any gains or put any excess cash that was generated was put into growth.

At the IPO we promised more reps and more deals and more R&D and we did all of that. And we have subsequently lost $2.5 million. And so we said to ourselves, with a 70%, 75% gross margin there is no reason we should be losing $4 million. So we said the next couple of years rightsizing the P&L you will see that coming through on the last third sort of 2010 through current period of the slide. And we’re guiding $4.6 million of operating income this year about a 10% increase over last year if you add back the affordable care act tax which was for this about $700,000 it’s about 25% margin growth year-over-year.

In terms of cash generation I would say our free cash flow every year is about $5 million when have had about $7 million to $8 million of EBITDA that we’re generating. A lot of that’s going back to shareholders it has been in the formal share repurchases and/or dividends. The share repurchase program we started in ‘09 our Board authorized us to purchase up to $10 million of shares, we bought about 6.5 million of that through to present at about $5.85 per share and we’ve recently turned this program off pretty much as our cash balances have gone from $20 million or so to $14 million or $15 million or so and with nice deals in the pipeline so as we’ve done the last few deals XenoSure Clinical Instruments and Trivex we feel our cash balances go down and I think we’re sort of in cash preservation mode a little bit in that sense in terms of the share repurchase.

But on the other hand the dividends continue at pace and we are paying at about $0.03 a share per quarter $0.12 per year that’s about 1.5%, 1.7% yield getting towards the S&P yield a little bit it’s a nice way to sort of give shareholders some cash back on their investment in real time as well as we think signal to folks on the profitability is here to stay at LeMaitre.

So more technical items now include our trading volumes. So this used to be a tough chart to explain and back in the day 2009 through 2010 and ‘11 and mean even into 2012 we were trading may be 10,000 or 12,000 shares a day may be $50,000, $75,000 a day and you can see that moving up more recently in the beginning of 2013 in to the sort of $100,000 to $150,000 worth of shares per day and may be 20,000 shares or so and now even more recently until about $300,000 worth of shares per day we’ve had some nice activity over the last few months of folks, I think multiple buying our shares and that has reflected nicely on the trading volume helping folks to get out of the stock more easily.

That coincides with our ownership profile which is starting to basically look at high level and less like emergent mom and pop and more like a nicely trading micro-cap stock and you can see our institutional ownership share sort of having a late year at around 10% in 2009, 2010 coming up nicely and steadily since then to about 40%, 38%. That coincides with insider ownership coming down as George’s mom and dad execute their 10(b)5 sales plans and we also had an institutional – inside owner venture capital from Boston that was in the stock for about 13 or 14 years that finally distributed their shares to their limited. And so you see that piece there are coming out with the purple arrow. And so those two lines have begun to touch and will cross and we think this is healthy for the stock going forward.

In terms of positioning there is a number of models that you heard about today that we execute on a regular basis. One of them is distributor pile model, one of them is sales rep model. And I’ll talk a little bit about both of these and a couple others as well. In terms of the distributor buy out there is a spectrum of things that we do here on the left hand side of this page you can see Switzerland is an example Switzerland had may be $200,000, $300,000, $400,000 of sales we were going through distributor it was time to go direct in that geography. We put two reps into Switzerland no office, no country manager, no extra overhead associated with that, very nice ASPs and gross margin in Switzerland and so that trends have turned accretive to the bottom line pretty quickly and immediately and obviously has nice IRRs, a pretty easy decision to make.

On the right hand side of the page on the other side of the spectrum is Japan, Japan we went direct in 2004 and we worked our way up to eight or nine sales reps there. We have a country manager, we have a nice sized office we required to have three regulatory folks in Japan. We’ve got somebody to handled inventory AR and all the things that you might see in a typical sideline office which balls up into a nice chunk of overhead that basically needs to be paid for. And this investment is just starting to breakeven actually in Japan after all at this time.

So I am going to turn this more of a strategic decision in terms of getting into Japan there are 120 million folks in Japan and it was not a market that we could ignore. And then in the middle this spectrum is something like Canada where we built a nice base of business with distributors and a couple of reps with no country manager over time, may be getting add up to $1 million or $1.3 million in sales. And more recently we’ve put in a country manager and an office and some folks in the office and that investment is accretive pretty quickly because we had a nice sales base moving into it.

In terms of R&D Ryan talked about his ramp in terms of number of R&D specialist and he is up to 13 or 14 now. The spend in peer product development spend has actually tripled since 2006 so a lot of nice work here in getting resources towards the R&D spend in total it’s about 8% of sales. You see R&D peaking in ‘08 and ‘09 as we got there is some target unified trials that’s the business that we subsequently got out of.

But the high level piece here sort of a coda to what Ryan was talking about in terms of his win loss record and how we think about R&D as a percent of sales and what he is contributing to our sales which was about 8% as you recall for his chart but another way to look at that is we spent about $3 million a year on product development. And we’re getting about $4.5 million a year in sales and may be $3.2 million in gross profit.

So we’re getting sort of a high single digit return on our R&D spend and certainly we want to get that up higher over time but it’s a nice start to tuning up that mill, Ryan’s got some products that have come out of that effort recently in terms of united sort of overall financial return I think we are in a nice place to start from going forward. Same math basically a prior sales force model, our reps cost is generally about a $160,000 a year, maybe be about a $100,000 and of compensation $25,000 of fringe another $25,000 or travel and entertainment and cars and this is the math and they are required to increase sales or get new business of about $100,000 or $110,000 a year which equates to about $80,000 of GP.

And so in year one we are losing money and in year two we are getting that 80 grand from the first year incremental also another 80 grand from the second year incremental and so we are breaking even and then in the year three we start becoming cash positive on these investments. And so if you are doing IRR on that it looks pretty favorable in years four and five certainly and if you ever read that lease in the interim you still get the tail of the new business that he created in years one and two without the cost of the rep until you place that rep.

So this is a model that we know and we like and we replicated pretty nicely over time and we’ll continue to do so I’ll say at a high level it’s generally a more robust model in the U.S. than it is in Europe and Japan. And Europe ASP’s are generally little bit lower and in Japan the incremental sales per rep may be a little bit lower even though their ASP’s are higher leaving the U.S. sort of a little bit more favorable than those two geographies but we still like this models in all geographies.

In terms of profitability and leverage the question I get is frequently asked to me where can we go from here and one way to look at that is to say well what do we look like now in line by line how might that improve over time? And in terms of gross profit we talked about that 70% to 74% as pretty much range that we’ve been in and when we are not in an integration mode or an acquisition mode we are generally at the higher end of that range. So maybe there is a few percentage points there that you can gain over time.

Selling and marketing at 34% I compare this to our peer group at sort of high 20’s may be 30% of sales for selling and marketing for them we are on the high end then. And I would say this is largely related to our efforts in terms of expanding rep geography and going into the Australia’s of the world and the Switzerland’s and the Canada’s of the world and those models catching up on the bottom line over time. So as you are getting more sales in Canada in Switzerland and Denmark and Spain you are leveraging your fixed cost in those geographies and you should see that selling and marketing cost as a percent of sales come down over time as a result of that.

In terms of G&A we are in the generally in the 21%, 22% range I think our peer group is probably little lower in the 19%, 20% range. And this is a function of strictly sales growth. I think you don’t need another JJ, Dave or George or lots of other folks to say it’s growing and we should get some nice leverage on this line over time and then I would say R&D it’s probably low for us at 8%. We’d like to increase that over time so no leverage on this line.

So may be if all those things sort of align the moon and stars as I just discussed and we get another handful of points on the bottom line rotating that 7% we will be in the low and mid-teens over time. In terms of growth initiatives from a financial perspective Dave talked about doing larger deals and certainly our tuck-ins that we’ve been doing recently have been financed out of our existing cash and could continue to be going forward with 15 million in cash in the bank and no debt. If we do another $5 million we can certainly do that out of our existing cash.

For larger deals I think it’s a combination of existing cash and debts into our cash debt and equity depending on the type and style of the deal. If the deal is accretive to the bottom line pretty quickly you can probably do cash and debt with $7 million or $8 million of EBITDA. We could probably borrow about $20 million of senior debt pretty quickly and at nice rates. And so you could finance a deal like that fairly quickly I think with just cash and debt but it’s something a little more speculative where it push profitability or accretiveness out a number of years may be you have equity to that component as well.

So for example if we found an $ 8 million target in revenues and we paid 2.5 times $20 million for that and may be the sort of the way you think about that is a portion of cash and for another portion double that in debt. And so on our call on the couple a weeks ago for our earnings call for Q3 we gave guidance of $63.1 million or 11% sales growth year-over-year. We are reiterating that today and operating income guidance on $4.6 million which is 7% operating margin. And that concludes our presentation. And we are going to take questions now if you have any and the lunch will be coming shortly.

And the management folks you can sort of hover in intermittent group we can just bring – and we do want to have folks and ask questions into the microphone so webcast folks can hear.

Question-and-Answer Session

Chris Lewis – ROTH Capital Partners

Thank you. Chris Lewis of ROTH Capital Partners, thanks again for putting this on today. My first question is for you Dr. Bush. I just was hoping you could talk a bit about the market awareness right now with the Trivex system across the vascular surgeon community, where that is now? And how do you think that can expand with the new distribution which we made?

Ruth Bush

I think in term of the market, what was the term used?

Chris Lewis – ROTH Capital Partners

Awareness, market awareness.

Ruth Bush

Awareness and so awareness amongst vascular surgeons and I am interpreting that I think it’s very poor. And I think the data that’s out, the literature the evidence that is there is very poor and up to the state. So many of us who have been staunch supporters and really advocated for this device were incredibly disappointed on what has happened over the past few years because nothing changed with development in the device. There has been not much, there hasn’t been outreach. So we were as I said one person that day we were all saying Hallelujah when the company got acquired by someone else.

And we were all happy when they got out from underneath Smith and Nephew and had high hopes for the venture capital company but it just didn’t come to fruition. I think it’s a great device. I think that as more people got experience with it and the technique has been refined over a decade as opposed to how we were using ten years ago. It’s much better so I am really hoping that the outreach becomes much better. There have been no ads in any of the vascular journals. And there hasn’t been much at any of the congresses, there hasn’t been much encouragement of any more research to be supported.

So I am really hopping that that changes. I don’t want it to fade away I think it’s a great device and those who have said that use it think that which is why we’ve continued to do so that’s kind of a long winded answer.

Chris Lewis – ROTH Capital Partners

Thank you thanks for the detail there and then being a current customer of LeMaitre and using some of the products you talked about today. Just in general what type of products or specifically what products do you think would be a good set for the LeMaitre sales bag that they currently do not offer?

Ruth Bush

I was just asking about that. One thing that I think that they could package very nicely with their PTSE the Polytetrafluoroethylene would be a dialysis catheter. Those things kind of go hand in hand and I am surprised, well I am not surprised it just would seem to me that, that might be a nice acquisition. I am not a business person so I can’t predict, I think that’s I don’t even know they were in the stent graft market a few years ago. That market’s sort of saturated I think the stent market is saturated. And again there is a lot of bit and pieces that they call the niches that we need to have every day. And so I think they have done a great job in keeping the products that we need every day and then giving us a better price and that’s what made a difference to me.

Chris Lewis – ROTH Capital Partners

And then just one for Rob you talked about the growing importance of the GPO cutting license agreements. Where are you in terms of getting some of those agreements with the major GPOs in the U.S. and how has that, has that acted as a barrier of entry for some of the products in the hospitals now and how does that improve with some of those licenses?

Robert Linden

So first where we, we are working with one of the major one’s right now. We feel pretty confident we’ll do well with getting one of two of our products sold there next year. We are also for the first time we have somebody in fab utilization that’s focused on it. Our Director of sales and we are also looking to outside consultants to help with that. So we are pretty confident that we are going to be dominoes when they start to fall.

The barriers that so the hunting license if you will it’s when Peter talks about the tenders they are more sole source this is a hunting license and what the barrier we had in the past would allow the hospitals that let the surgeon decide what they wanted per se the unique items the commodity types they controlled and they want to stay with your buying group.

Now we know we have a better product that’s documented and we know we have a better price. So if we are allowed to go in there and talk to the bean counters if you will then I think that’s going to be a win-win for us and then it is also it fits well to the mid tech bag.

Chris Lewis – ROTH Capital Partners

And then just one more for George. You may be early on still but you talked about making a commitment to develop the market in China and can you talk a bit about how that layers into long term gross strategy for the company? And when we can expect to hear more on that opportunity?

Robert Linden

Sure and I think on a call about four weeks ago so I started talking about an office in China feeling like H2 of 2014, and it’s pretty obvious to me and I was over there in October for only the second times I have been at LeMaitre it’s pretty obvious to me that this is going to be something real and big for LeMaitre and we are just have an access to that all.

Again I always say the world is pretty big for 300 person company. So we couldn’t get everywhere and I think our first response is to go to the wealthier countries on a GDP per capital basis but China I mean talk about China right I everyone knows about China, so it’s huge it’s number four and mid-tech wide and off-course we are in Germany and Japan which are the other two big ones inside the U.S. So we definitely going to go there and it’s going to be a little offsetting.

I think at the beginning we will not go there all guns blazing with the direct sales force and I think in most of these other markets we’ve either been in the county or not been in the country and we are in the country we’ve brought the whole sales force to bear immediately and then I think we take a slower approach it’s so large, at 1.3 billion. I think we take a manage the distributor approach and then a master importer approach in Beijing and also do some regulatory work in Beijing to start with. May be slightly different model but there clearly have to be a great growth coming out of there at some point.

Chris Lewis – ROTH Capital Partners

Thanks.

Unidentified Analyst

[Larry Heimowitz, Heimowitz, Medical Technology Consultants]. George, just a follow on with Chris’s question I think it was Ryan that showed a chart with all the different areas different product areas in all the countries. China had a few approvals. Should we expect over time that, that would fully filled in as you build in China?

George LeMaitre

Yeah Larry a difference in terms of footprint you can get here. Yeah so you have two right now you can see CNS is of course doing quite well already and that’s only April. We don’t know how that business is which already started up pretty well. And you have this Trivex and you are going see to this strange on and off thing over the next year and half with Trivex. So just when you get excited about it, it’s going to shut off and then it’s going to come back on again in 2015, ‘16 which you can also see up there on the slide I think at slide 82 for the webcast.

We have the radio pick tape we think we’ll get that in either late 2013 or 2014 and then you have the approved product that should be coming out I think in 2015 I think we talked it about this one of the calls I don’t mean to change the guidance on this but it feels like that’s one a year and half after. In general you should see one of those approvals coming out every year after 2015. We’ll take a pretty aggressive approach with and fortunately for us our number two regulatory guide in Burlington is a Chinese national who actually just happens to live in Boston and so we’ve gotten really good at working with the Chinese authorities more recently.

Unidentified Analyst

So then couple of questions on XenoSure. One JJ mentioned the gross margins were about 60% and not likely to get up that much higher. And I am just curious since that’s a very nice product for you why do you find why is the gross margin so low relative to the corporate average?

George LeMaitre

Yeah because the [cows] got to get a piece of the action too. I mean it’s an expensive start, you are taking a cow sack and you have to process it. And also in general it’s only a $125 ASP price point. So there is not many of these parts that you are seeing $500 and $1,500 price points and this one doesn’t sell with very high price point. And then I think if I could speak for J since he is away from the microphone. And in this period here we are transitioning buying it from Neovascular is probably a 50% type preposition. My sense is it’s going to be an even a little bit, tiny bit worse in the very near term although that’s all baked into the guidance that J is talking about.

But we do have upside so just to clarify the story I think we think we are coming from 50% environment and I think we think we are going to a 60% environment doing at ourselves when we get massive volume perhaps there is a little bit of upside.

Unidentified Analyst

And then one more on XenoSure which is in and I can’t remember who showed the chart on XenoSure but showed a very, very nice growth rate. But it looked like it had actually had been accelerating in the past few quarters. Yet as I recall you had distribution of that product for several years. So has something changed in the last few quarters that all of a sudden that would have taken off?

George LeMaitre

I mean there is so much blue sky for XenoSure I think our guidance this year is that is going to grow 45% to $7.6 million and I think it grew 63% last year I may have the numbers wrong. But on this sky the acceleration you are looking at the Europe that’s the U.S. 30%, 36% and then in Europe I think that there’s more blue which is you are going to get 81% year-over-year and you are saying is it accelerating.

Europe is certainly accelerating because as Peter mentioned I don’t know if you could hear this that well 75% of our sales in Europe for XenoSure or Germany Proper for Germany proper for Germany proper is only supposed to be 25% of sales for medical devices in all of the Europe. So we have a long, long way to go. As France only turned on in April, Spain is effectively not turned on, Italy is effectively not turned on and UK turned on two months ago. Couple that with the fact that we are sitting in the conference room the other day saying we really ought to just go and hire a XenoSure registration man and/or women and put her in a corner office and say okay all you do forever is just because it’s such a large business plan then again the world is still large with 300 plus countries.

What you have to give is we’ll have an approval in Australia in about a year we are about to file for China we’ll have one of those in about two and half years in China. In Japan if you want we talked about this yesterday. If you want to do a million dollar clinical trial over four years you can have XenoSure on the market in four years and Brazil you have less to give. So it’s a huge world. All we effectively have is U.S. and Canada and Germany right now and still it’s going to go and go and go we think.

Unidentified Analyst

Thank you.

Unidentified Analyst

Hi [Marshal Barrel, Gibson and Associates] thank you very much for presentation, it’s very helpful. Couple of questions one on the ACA medical device tax periodically you put it in red where there is movements to eliminate it. What’s an update on where that stands? And secondly to what degree are you able to pass on that tax to your customers?

George LeMaitre

So I will try to get it this a little bit and so it’s 2.5% tax right on U.S. sales just on U.S. sales. So it’s $700,000 this year. Our price hike last year was 4%. We elected not to needle the hospitals and remind them about the ACA tax some of our peers have put it as an additional line in the expense in the invoice and the hospitals didn’t like that. So we just went with a 4% price increase and I think that 2.5% tax is worked into that. We’ll come back again in January 2014 with a 4% price hike, a 5% price hike in the United States. So I think to a certain extent the company is getting over that.

What I think about it going away, well I am a Republican so my hope is at some point it goes away. I actually do think it’s one place where I hear both sides of Congress saying well okay maybe we made a mistake on that one, maybe we shouldn’t put so much burden on such a small group of people, i.e. just the medical device company. So I think eventually it will go away but it feels like it here to stay for a little while at least and there is so much going on in Washington about this Affordable Care Act that I think nothing is going to happen till they sort of quit fighting about that. I hope that got to some of your questions.

Robert Linden

And my too sense on that is I don’t have a crystal ball either and but the tax includes about $200 billion of tax, incremental tax coming from passive income and from our Medicare tax right out of our pay roll tax. And another $60 billion so coming from insurance companies and another $25 billion or so coming from biotech companies and another $20 billion or $25 billion coming from Medtech companies and other taxes and I’ve never seen Washington to not like a tax and once it’s in place start to reverse that. So they are now getting revenue streams that are very significant it would seem difficult to turn that off while there may be a delay in the implementation given the website issues and other issues that they have it would seem difficult for me to reverse all of those things I just talked about.

Unidentified Analyst

In other area you had a couple of slides on the price hikes with slide 24 for the Americas and 35 for worldwide and both the charts are in declining down trend and would you speak to that and what do you see going forward?

George LeMaitre

Sure that’s a great point. So a good way you can look at this chart is to LeMaitre’s organic growth rate over this time has been sort of stable at 8% to 14%, 8% to 12%. So as time goes by LeMaitre is getting more and more of its organic growth from unit volume let’s say that’s the good way to look at this thing. The other way to look at it is a little bit harder to put across price increases in the old days when we are really tiny and no one was watching us we were more easily able to pass across price hike but still I’ve seen the 2014 price hike and I’ve seen the 2013 price hike in the U.S.

I think we’re all agree from a Medtech investors in this room that still getting a 5% price hike in the U.S. across the board and we are truly holding those price hikes. This isn’t just theoretical this is held price hikes. I think most companies would be envious of our ability to pass across price hikes and of course they get diluted. One detail that I think we didn’t communicate very well here on Peter’s slide with we’re getting 1.5% price hikes in Europe and we’re getting a negative 2% deflater in Japan and that happens every year because every two years Japan deflates their prices, there reimburse the price by 5%.

So this is going against the headwind of Japan always pointing down by about 2.5% a year and it wasn’t welcome if you are noticed slide 24.

Ed Shenkan – Shenkan Advisors

Ed Shenkan, Shenkan Advisors. The price hikes are impressive because very few companies can do this in med device so not beat on it but what makes your product line unique or your company unique that you can do price hikes on a routine basis, like is it just such a great niche and we’re in place that are small enough for people don’t want to come down and bother us. And then on top of that 30% to 50% of the revenue is just covered by patents. So it really idiosyncratic you can’t – I talked to Dr. Bush…

Ruth Bush

I do have to say, this is going to sound kind of stupid coming from me because I am not a business person but they are also not trying to gather. And some of the companies do come in I have to say and you ask them how much your device is going to cost, they give us the cost they are trying to recoup their R&D and it’s a lot.

Ed Shenkan – Shenkan Advisors

I think it speaks to the value of products. The other question is as you add sales people which you’ve done through the past years and you’re planning to do a bunch more of that should we expect the same type of leverage for each sales rep or are you getting more saturated in certain geographies I am getting towards like when you add Vegas was there no coverage there previously at all or are these like adding a new rep in the New York City it looks slightly different.

George LeMaitre

So I’ll ask to [Gebauer] answer that question it’s sort of in his slide which is we think we can get to 125 and 150 reps but yet to a certain extent I think what you saw in the last three years which explains a little bit the Americas growth isn’t slowing down and international growth going up it’s that we’ve allocated our reps to the real true virgin territories for us of staying of Australia, of Denmark to pick up one of Canada where we really weren’t before and in the U.S. we’ve always been sort of covering Vegas out of Los Angeles but yeah we could have Vegas rep and there is some places you’re going to put them in. But yes I think there is some diminishing returns with the current bag not with the acquired Dave-Roberts bag that he sees out there four years from now but with the current bag, yeah, some of the diminishing returns in the U.S. but the world’s a huge place for a 300 person company and China I mean nowhere near Brazil we got to give in Australia, pick off a couple of more rich countries along the way too.

Ed Shenkan – Shenkan Advisors

Dave you alluded to $30 million potential acquisition three-four years I think it was and you’ve also said that some deals come and some deals potentially in the next down the road possibly?

David Roberts

No one, at this point I wouldn’t say there is nothing imminent on that but yeah I mean that’s one where in one way it’s still sitting inside of a big company, could it ever come back I am not counting on it but it could, this is one chance.

Ed Shenkan – Shenkan Advisors

I mean how would management finance a deal of that size that would be I think you said may be a $60 million purchase price?

David Roberts

Yeah so well in that instance we have a little more cash at the time so we use cash and we had an investment bank involved I think we got about 2.5 turns or three turns of senior debt and then another turn, or 1.5 of EBITDA sub debt. And then there was an equity round sales finance as well.

So I think JJ alluded today this a little bit with respect to us looking at deals he gave the example of $8 million target we paid 2.5 times revenue we paid 20 million bucks and you can probably debt finance but if you look at on slightly larger deal or just some more expensive deal you may be getting in to equity at that point. We’re very careful about that but…

Robert Linden

You and I before this meeting talking about and I think we’re all feeling stock at 8.30 during the presentation and all these stocks are up and the Russell 2000 35% for the year. This stock is certainly align around here on Wall Street, things are going really, really well you don’t know how longer but what we’re seeing our conference in Burlington is we see dozens and dozens of money guys debt and equity money guys coming in saying please can we help you do this. I want to do that with you and so the availability of financing for LeMaitre right now I am sure it’s same at lot of companies so it’s not just about us right now but the availability of financing is fantastic right now.

First in the debt side particularly as a profitable company one of the reasons why we keep profitable is they will give you debt when you are profitable, the moment you are not, they won’t give you debt so I think we got plenty of financing on either side of the debt or equity fulcrum.

Mary Nielson

Any other questions?

George LeMaitre

Great, thanks very much for coming everybody.

Mary Nielson

That concludes the webcast portion. You can enjoy your lunch. We’ll have the [inaudible] are coming out as well. And management won’t be at different tables, so if you have any follow up questions you can ask them. And thank you again for coming.

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