LeMaitre Vascular Inc. Q4 2007 Earnings Call Transcript

Mar. 4.08 | About: LeMaitre Vascular, (LMAT)

LeMaitre Vascular Inc. (NASDAQ:LMAT)

Q4 2007 Earnings Call

March 4, 2008 5:00 pm ET

Executives

George Lemaitre - Chairman and CEO

J.J. Pellegrino - CFO

Dave Roberts - President

Analysts

Michael Tieu - Oppenheimer

Sebastian Bach - Goldman Sachs

Erica Laney - Thomas Weisel & Partners

Dan Fischer - Magnus Heart

Bill Wolfenden - RS Investments

Operator

Welcome to LeMaitre Vascular's Fourth Quarter and Full Year 2007 Financial Results conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. J.J. Pellegrino, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

J.J. Pellegrino

Thank you, Nikita. Good afternoon and thank you for joining us on our Q4 2007 conference call. Joining me on the call today is our Chairman and CEO, George LeMaitre, and our President, Dave Roberts. Before we begin, I would like to read our Safe Harbor statement.

Certain statements contained in this conference call may be considered forward looking, as defined by the Private Securities Litigation Reform Act of 1995. In particular, any statements we make about our expectations for future financial, clinical, and operational performance. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. These statements involve various risks and uncertainties that could cause our actual results to differ from those expressed in such forward-looking statements.

These risks and uncertainties include risks related to product demand and market acceptance of our products; the significant competition we face from other companies; technologies and other alternative medical procedures; our ability to expand our product offering through internal development and acquisition; our ability to recognize the anticipated benefits of our acquisitions; disruption at any of our manufacturing facilities; general uncertainty related to seeking regulator approvals for our products, particularly in the United States; potential claims of third parties that our products infringe their intellectual property rights; and the risks and uncertainties included under the heading Risk Factors in our most recent annual report on Form 10-K, as updated by our most recent quarterly report on Form 10-Q and other periodic filings with the SEC and available on our investor relations website at www.lemaitre.com, and on the SEC's website at www.SEC.gov.

Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matters contained in such statements will be achieved. The forward-looking statements we make on today's call are based on our beliefs and expectations as of today, March 4th, 2008, only. We do not undertake any obligation to revise or update publicly any forward-looking statements expressed on today's conference call.

I will now turn the call over to George LeMaitre.

George Lemaitre

Thanks JJ. Welcome to our Q4 2007 conference call. I'll start by reviewing some financial and strategic highlights. Dave will then follow with a few words regarding our recent acquisitions and J.J. will conclude with our financial results

At the end of the call, we would be happy to take questions. 2007 was a great year for LeMaitre Vascular. As outlined at our October 2006 IPO, our business plan is simple. One, hire sales reps; two, acquire vascular devices and three, develop vascular devices.

In 2007 we hired 10 additional sales reps, completed four device acquisitions, and launched four new products. This delivered 20% sales growth.

We also increased our sales margin to 74.1%, improved product quality, and had zero back orders for our non-acquired orders. As expected, the added expenses of our extended sales force and operating as a public company caused a net loss of $2.9 million.

Turning to our top line: our sales grew 20% in 2007 to $41.4 million. This $6.8 million increase over 2006 was our largest ever annual increase. Our compounded annual sales growth rate was 19% over the last five years. In 2007 our endovascular and dialysis access revenues grew 44%, our vascular category grew 12%, and general surgery 2%.

The principal sales drivers were the expanded sales force, our first year of Endologix distribution, the weak dollar, and higher selling prices. We seek to build a revenue stream which is more endovascular, more international, more direct-to-hospital, and more implantable. And we have made progress on all four fronts.

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

For 2007, our operations group also had a good year. We posted a record 74.1% gross margin up from 72.9% in 2006. We achieved this increase by raising domestic hospital prices, eliminating select European distributors and improving manufacturing efficiencies.

In Burlington in 2007, our scrap costs were reduced by 33% and direct labor employees were reduced by 32%. Of course we also benefited from the weak dollar.

With respect to our bottom line, LeMaitre Vascular posted a $2.9 million net loss in 2007 more or less inline with our expectations. This loss was driven by the addition of 10 sales reps, the growth of our R&D efforts, and the incremental expenses associated with being a publicly traded company for our first full year. It also worth noting that in 2007, we booked the $1 billion charge related to the buyout of our Italian and Irish distributors, and we also booked a $370,000 non-cash charge related to one of our four acquisitions.

Our R&D efforts produced four product launches in 2007. The Pruitt F3 Carotid Shunt in Q1, Flexcel II Carotid Shunt in Q2, the TT Tortuous Tracker Delivery System in Q4, and the Endofit Uniform TopStent also in Q4. The TT and the TopStent would be the most strategically important. We believe these two endovascular products will substantially improve our competitive position in the stent graft market.

On the other hand, the II Carotid Shunt launches demonstrate our continued interest in the open vascular category. Our R&D efforts tend to be aimed at the faster growing endovascular and dialysis categories. Our acquisitions, however, frequently present us with financially attractive, open vascular product development opportunities. As we have seen, the market transition from open vascular to endovascular will wax and vain. Our business plan is designed to be robust in either environment.

In 2007, we spent 11% of our revenues on R&D. As far as the UNITE Clinical Trial is concerned, we continue to make progress albeit slowly. We now have enrolled six patients, up from 4 in our last call, and we now have 10 sites operational, up from 6 in our last call. We hope this increase in trial sites will begin to accelerate enrollment. As a reminder, UNITE is a 90 patient, 14 center pivotal trial for our abdominal UniFit stent graft.

Prior to turning the call over to Dave, I would like to review our 2007 acquisitions at a high level. These purchases define and underscore our company's unique endovascular and open vascular business plan. The LeverEdge Contrast Injector enhances imaging during abdominal stent graft procedures. The Vascular Architects suite of remote endarterectomy products will allow our domestic sales force to sell a $2000 procedure.

Finally, Biomateriali's open aortic graphs are a natural compliment to our endovascular aortic grafts. As you can see, we acquired a mix of endovascular and open vascular product lines. We paid $9.5 million for these acquisitions, a thrifty 1.9 times sales multiple. I'm pleased we have found new growth avenues while remaining price disciplined.

In summary, 2007 was an excellent year, we made substantial progress on all our initiatives; we outlined at our IPO; amidst the backdrop of a 20% growth year, we hired ten additional sales reps, acquired four companies, and launched four new products.

I will now turn over the call over to Dave for more on our business development activities.

Dave Roberts

Thanks George. After getting out of the gate slowly, our acquisition efforts picked up through 2007. By year end, we had completed four acquisitions. I would like to spend a few moments updating you on these.

Our April acquisition, LeverEdge, was brought back on to the US market in December after having been recalled in June, due to the discovery of holes in the packaging. We are also pleased to report that this product received European CE approval two weeks ago. In short, this product seems to be back on track.

With regards to Vascular Architects, the front-end integration of this September acquisition proceeds the phase. During Q4 we focused on integrating the products in to our domestic sales force. All sales reps received their initial product training in nearly all of the observed cases. For many of these reps, this training is their first exposure to endovascular tools and techniques. We are pleased with the progress our domestic reps are making, climbing the learning curve for this procedure. The reward for moving up this curve is great.

Vascular Architects brings a procedure with a $2000 average selling price, which compares favorably to our other US product lines. Operationally we continue to outsource these products, unlike our other products which are all manufactured in-house.

In September, we also executed a business development transaction once we bought out our Italian distributor. Since then we have opened our own [markets] and have hired two sales professionals, including our country manager. This buyout marked the beginning of what would likely be a three year process of transitioning our sales from a distributor base model to a direct-to-hospital model.

Until our distributor has finished selling off his inventory, we will not be booking material revenues from Italy. As a reminder this is an $850,000 a year piece of business at the distributor level for the LeMaitre Vascular in 2007.

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

Our final acquisition in 2007 was Biomateriali, a manufacturer of Dacron grafts for open vascular surgery. Biomateriali has been manufacturing these implants in Southern Italy for over 10 years. As our wholly owned subsidiary, Biomateriali currently sells its vasucular graft through an exlusive distribution agreement with Edwards Lifesciences.

In Q1 2008, we began discussing the future of this distribution deal with Edwards. If we terminate this agreement, approximately $2.3 million of contingent liabilities may be triggered. Regardless of the channel, we continued to be optimistic about this acqusition. Aortic Dacron grafts are stable to the vascular surgeon and complement our aortic stent graft program nicely.

Our team is now trying to examine the US regulatory pathway for this device. We are not yet prepared to provide guidance on if or when aortic graft might receive FDA approval, but we are enthusiastic about the prospects of dropping this time tested product into our domestic sales bag.

Looking ahead, we are now in the process of restocking our pipeline with acquisition target. 2007 tasted more like acquisition toppers than full on tray, small acquisitions involved just as much transactional and operational complexity as larger ones. Therefore, we are shifting our focus to larger transactions. This being said, we all know it's not as simple as moving our shopping cart down to a larger deal aisle. However, we do believe that if we search more intensively for larger acquisitions we will be more likely to complete one.

With that I will turn it over to J.J.

J.J. Pellegrino

Thanks Dave. I am now going to talk about Q4 and full year 2007 financial results, make a few remarks about our December 31 balance sheet, and then finish with our 2008 guidance. Q4 revenues were $1.1 million, or 27% increase. Foreign accounted for about 5% of the increase. Our revenues are becoming more endovascular.

In Q4 2007, our endovascular and dialysis access category accounted for 35% of revenues versus 29% in Q4 2006. By geography, North American revenues grew 20%, while our International revenues grew 40%. The company reported 73.3% gross margin in the quarter, a decrease of 2% over the year earlier quarter.

One of Biomateriali's customers, Serom Medical, informed us they will no longer be purchasing certain OEM products. As a result, we recorded a $105,000 OEM inventory charge in Q4 and we expect to record a $440,000 intangible write-down in Q1 of 2008.

The Q4 gross margin was reduced by this OEM inventory charge as well as the lower margin distributed sales of the Endologix stent graft. Otherwise the gross margin for our products remained strong as the company continued to drive manufacturing improvements. In fact, during 2007 the number of direct labor employees of the company's Burlington facility decreased 32%, while sales increased 20%.

Sales and marketing expenses were $5.3 million in the quarter and increase of 17% over the year earlier quarter. This higher spending was driven by an increase in the number of sales reps and their increased W-2s. We ended the year with 57 sales reps versus 47 at year end 2006.

Q4 2007, G&A expenses were $2.6 million, up 27% over Q4 2006. This increase was primarily the result of the higher cost of being a publicly traded company for 12 months in 2007 versus two-and-half months in 2006.

On the R&D side, expenses increased 64% year-over-year to $1.2 million. This increase was driven largely by the hiring of additional R&D engineers as well as increased spending in our regulatory and clinical departments.

We posted an operating loss in Q4 2007 of $1.3 million compared to an operating loss of $433,000 in the year earlier period. This operating loss included a one-time purchased R&D charge of $373,000. Excluding this non-cash charge, the $105,000 Biomateriali OEM inventory write-down, and other extraordinary items, the adjusted non-GAAP operating loss was $856,000. The net loss for the quarter was $1.2 million, compared to a year ago net loss of $674,000. In terms of subsequent events, as part of continuing efforts to restrain expense growth, the company executed a 32% reduction in force of rep in February.

Reductions were targeted towards operations, G&A reflective of underperformance of sales reps, and management. A significant part of this risk was to rationalize the operations we inherited in the four 2007 acquisitions. Indeed, over the past decade we have found post acquisition risk at LeMaitre Vascular to be fairly standard. We expect the Q1, 2008 restructuring charge of approximately $550,000 as a result of this risk. Of note, at the October 2006 IPO, we had 206 employees compared to 225 today.

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

Our geography: our North American revenues grew 12%, while our international revenues grew 33%. Foreign exchange accounted for approximately 4% of the 2007 sales increase.

In 2007, our endovascular and dialysis access category accounted for 34% of revenue, while the vascular category comprised of 50% of sales.

Gross margin for 2007 was 74.1% versus 72.9% in 2006. The 1.2% increase was due to average selling prices, as well as increased average selling prices and improved operating efficiencies at our Burlington facility, partially offset by lower margin Endologix revenues.

2007 sales and marketing expenses were $19.4 million, a 28% increase over the prior year. Increased spending was driven by additional sales reps as well as increased W-2s.

For full year 2007, general and administrative expenses increased $2.4 million to $9.5 million. Increases were largely a result of the cost associated with being a public company for the full year versus only 2.5 months in 2006.

R&D cost, excluding purchased R&D, grew from $3.3 million in 2006 to $4.6 million in 2007- an increase of 39%. Increases were a result of our continued investment in product development as well as increased spending on our regulatory and clinical departments.

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

Turning to the balance sheet, we have cash and equivalents of $22.9 million at December 31, 2007 compared to $25.6 million at September, 30th, 2007. This $2.7 million decrease was driven largely by the $2.4 million cash outlays for various 2007 acquisitions.

As to our 2008 guidance, the company expects full year net sales between $47 million and $48 million. In addition the company expects its 2008 operating losses to be comparable to the $4.3 million operating loss posted in 2007.

The company’s expectations for future financial performance do not include the impact of any potential acquisitions.

With that I will turn it back over to the operator for Q&A

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Amit Hazan of Oppenheimer. Please proceed, sir.

Michael Tieu - Oppenheimer

Hi, this is actually, Michael Tieu, calling in for Amit.

George LeMaitre

Hi, Michael. How are you doing?

Michael Tieu - Oppenheimer

Doing well. How are you guys?

George LeMaitre

Very good. Very good.

Michael Tieu - Oppenheimer

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

George LeMaitre

Sure. Now you're talking about the risks right now, the Q1 risk.

Michael Tieu - Oppenheimer

Yes.

George LeMaitre

Okay. Michael. That will be on its own line, in the restructuring line, in the P&L,. so you'll see that.

Michael Tieu - Oppenheimer

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

George LeMaitre

Right, I think, I think this is pretty well known to the folks who have been on these conference calls for the last two years. We did start off by giving some guidance around this Chinese distributor getting an approval in China for EndoFit.

And I think we really had a sort of -- you may, I call when we took the guidance off the table approximately 18 months ago or 12 months ago. I forget the date then, Michael. We still don't want to provide guidance because it's a project that we do not have control over. I can't tell you the project still is continuing, but again, since it's outside our control, I felt like it was a responsible thing to do, 12 months ago, to take that guidance off the table, while I realized it's a little bit frustrating to the people watching us, I think it's the only appropriate thing to do.

Michael Tieu - Oppenheimer

Okay. Thank you very much. And I'll hop back into the queue.

George LeMaitre

Thank you.

Operator

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

Sebastian Bach - Goldman Sachs

Hello, gentlemen. It is [Sebastian Bach] for Larry. How are you all doing?

George LeMaitre

Hi, Sebastian.

Sebastian - Goldman Sachs

Quick question, first on sales force, exiting 2007 with 57 reps down, once in the third quarter levels, just wondering if this implied at the current level sufficient in the meantime, and if you guys could flush out your expectations for sales force expansion '08? That would be great.

George LeMaitre

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

Sebastian - Goldman Sachs

Yeah, sure. With 57 reps at current level, exiting 2007 being stagnant now for about a quarter, just wondering if this means that you're comfortable with the level for at least the next few quarters, and wondering if you could just kind of flush out how about that trend have progress in 2008.

George LeMaitre

Okay, fine. So, I think you might remember that we bought Vascular Architects right on the tusk of the end of Q3. I believe the date was September 20th.

Sebastian - Goldman Sachs

Yeah.

George LeMaitre

And we picked up a net of 5 or 7 sales reps. I forget the details there. And so, we were really full up. I think the guidance we gave you guys, the adjusted guidance following that acquisition, was 55 to 60 reps. Then we always intended to slot in, inside of that, guidance. So I would say the 57 number represents a sort of landing exactly where we've been talking to you guys about it.

I will say though, and it's down by one, so I would say frankly a bit of a rounding error there, although in general there, I think, we found following these acquisitions over the years that there is a bit of a settling-in process that takes place once there is an acquisition. In some instances you see two reps in the same city, even as you bring in the company together, you'd seen 2 reps in the same city and things like that.

So I would say that's not a material difference, between 58 and 57. And it's probably the leading edge or the front edge, a little bit, of the settling-in of the Vascular Architect's acquisition.

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

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

Sebastian Bach - Goldman Sachs

Yes, sure. I guess that kind of leads me into 2008 and I am just wondering, if sales force hired might be expected to track orders along with revenue growth. I guess with revenue guidance for 2008 implying roughly about 15% growth year-over-year, but expecting almost the same level of operating loss, I was wondering upon this negative operating leverage changing your outlook for profitability in 2009. And I am wondering if you could also just provide a minimum level of sales needed to achieve profitability in 2009?

George LeMaitre

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

We do generally feel of this company that medical device companies tend to start moving into the profitability zone, and you pick a number, I don't want to get closer here, about 50, 55, 60, 65. As time goes by, it gets a lot easier to leverage these infrastructures. So I hope that is some sense as to where we are going, but I don't want to bleed into '09 with our guidance. I do feel like we have given you pretty set good guidance pieces to go by.

Sebastian Bach - Goldman Sachs

So, the 2008 operating last guidance hasn't really change much, fundamentally changed a cost structure around 2009 that we talked about in the past, in past calls?

George LeMaitre

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

Sebastian Bach - Goldman Sachs

In just terms of just achieving profitability in 2009.

George LeMaitre

This is LeMaitre Vascular full guidance, right, that that we are going? You and I really don't want to break into.’09. I hope I don't appear stubborn about that. I do feel like you are hearing in this phone call some new news about risk, about 30% risk. I think you are seeing LeMaitre Vascular’s continued desire to stay around the numbers that we have been around recently for now, and I guess we will see, we are going in '09 as we get there. So, for now you have got '08 guidance on the bottom line for the first time.

Sebastian Bach - Goldman Sachs

In that question, your gross margins have traded nicely upwards over the past few years, just wondering if you could size up the incremental opportunity for gross margin improvement from, let’s say, specific drivers such as distributor direct effort, pricing improvements, and the Burlington manufacturing plant efficiencies. Thanks guys.

George LeMaitre

Sure, I will try to do this, looking backwards. And I'm going off a chart in my head. Sebastian, I hope, I don't have exactly pulled out for you, but the price sizes are good piece of it. Those, how about we are getting some manufacturing improvements out of Burlington. FX, obviously, suddenly let me talk about, but this company is 39% international, and so while that helps out on the top line, that's well known to everyone, sort of a second story. If it does help out on the gross margin line, so that those three pieces have been helping out a lot.

You look also with, as you think bout the '07 gross margin, one thing you might get lost in all this discussion is, we were carrying that Endologix product line for the full year of '07, and of course that has materially lower gross margin than all of the rest of our products. So, the good work that our folks were doing in the back here, with reducing manufacturing folks, as well as getting efficiencies, has been muted to a good degree by the fact that we brought Endologix in house, or on board, for the European distribution agreement for '07.

So, there is a nice story going on in the background there. I'll say it's tougher to see this story in '07 than it was in '06, because you lost some number of four points from the gross margin deficit, I'd say, you took from the Endologix distribution.

Sebastian Bach - Goldman Sachs

Alright, thanks very much.

George LeMaitre

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of [Erica Laney] of Thomas Weisel & Partners. Please proceed.

Erica Laney - Thomas Weisel & Partners

Hi, guys.

George LeMaitre

Hi, Erica.

Erica Laney - Thomas Weisel & Partners

My first question is regarding growth for the year, for the quarter. And I'm wondering what it was, without excluding acquisitions, how’d that figure?

George LeMaitre

Sure. I mean, you want the quarter first?

Erica Laney - Thomas Weisel & Partners

That would be great, sure.

George LeMaitre

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

You do have the sales force. We had 47 reps in their seats, if you will, December 31st, and we have been telling Wall Street it takes 6 to 9 months for these reps to gain traction. And you felt like a lot of those reps, who were hired in the December timeframe of '06, really got nine months in their seat and then they were sort of let go into their territory, if you will, for that fourth quarter of '07, and I think they helped that a lot. We just had a nice quarter across everything. It wasn't anything in particular, but those were couple items. Is that sufficient, Erica.

Erica Laney - Thomas Weisel & Partners

Yes, thank you, it's helpful.

George LeMaitre

Okay, thanks for the question.

Erica Laney - Thomas Weisel & Partners

And sure, I had one other quick question for you, regarding pricing increases. I believe you are going to increase your PN prices in January. I am just wondering if you did that, and if so, how much that was?

George LeMaitre

Sure, that's a great question. We had been saying that the price hikes were happening on January 01. We have had price hikes, it's not, to our eyes, the folks in the finance group here, it wasn't material enough to bring up on this phone call. I think as you saw us talk about price hikes, we centered our conversations a little bit more on the domestic price hikes. You can think the domestic price hikes were on the average of 3%,4$, 5% depending on what product category you are in, and I would say there was sort of de minimus over in Europe may be 1% to 2% based on the product category and 0% in some of the more commodity type product categories.

Erica Laney - Thomas Weisel & Partners

Okay. Thank you very much.

George LeMaitre

Thank you.

Operator

And your next question comes from the line of [Dan Fischer of Magnus Heart]. Please proceed sir.

Dan Fischer - Magnus Heart

Hi guys. Thanks for taking the call.

George LeMaitre

Hi Dan.

Dan Fischer - Magnus Heart

Could you do me a favor? In looking at the guidance that you given for 2008, could you break that down for what you are looking in the organic growth or in the base business, and what contributions you are expecting from the recent changes in Biomateriali, Vascular Architects? Do you reckon to have incremental revenue dollars from Italy.

George LeMaitre

You know, Dan, I know you are a shareholder for a while, but one of the focuses we try to have on this phone call is not to breakdown our revenue growth by product line, and that would be effectively asking us dig in to the bag and pull out a couple of different products, a couple of specific product lines, and pull out where we thought they were going to go. One way we try to get that for you folks is, every time we make an acquisition, I think we've been pretty good about laying down the tracks for you guys about what was the LTM revenue as we go into the acquisitions.

Dave Roberts

And so, Dan, this is Dave, on that score, the LeverEdge deal that we did in April was very small at $240,000 with worth of LTM revenue, the Vascular Architects deal that we closed at the end of September, I think we recorded about $1.8 million worth of revenue, and then the Biomateriali deal that closed on December 28th, that had roughly 2 million Euros worth of revenue and that again was all at the distributor level.

So that gives you a sense, looking backward, but it doesn't really necessarily, I know, get at exactly your question, but that’s sort of the way we've been laying down these pieces going backwards, and then we just wrap it all up in our total number going forward.

George LeMaitre

Dan, we have the same set of questions going into '07, and that the move going into '07 was the Endologix European distribution agreement, and I remember at the end we had a lot of questions around that, and I think we tried to hold the line on, the information's out there. It is what it is.

Dan Fischer - Magnus Heart

Burt would it be fair to say you're not expecting much from Biomateriali since [Sowen] has dropped out and you are still up in at -- [Edwards] questions is still up in the air?

George LeMaitre

I would say in all of these deals now you got, not only do you have these four acquisitions, but you also have the Italian distribution deal. So, you don't mind, I am going to say there were five deals, that were cut back half of '07. And with all of these deals, if you will, I mean, you really do have transitional and pipeline and channel elements that your are grappling with every single deal. So, why are you pointing out that souring thing? I think that was a 400,000 euro piece of business that we were talking about, you point that out. There are other sort of transitional issues, the Italian one, I think, was one which I'd point out on the phone call for you guys as well, which is, we did some great work back in September buying that distributors right, but it does take some time for you to bleed off the inventory, et cetera.

So, it is hard when you get a lot of deals coming at the same time. There is a bit of swirl. And we try to put a boundary around that for our investors, and also for the folks on the sell side, by giving that revenue guidance as a block. Again, we are now dealing with 14 product lines, and my guess is you guys would not want to be chasing these 14 product lines around individually in the long run.

Dan Fischer - Magnus Heart

Thank you for answering the question.

George LeMaitre

Thank you.

Operator

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

George LeMaitre

Hi, Bill. I think you are on. Maybe Bill is having some problems with his telephone there.

Bill Wolfenden - RS Investments

Can you hear me?

George LeMaitre

We can now, Bill.

Bill Wolfenden - RS Investments

Certainly. I had technical difficulty. Can I just ask the same question again that the last two callers, Sebastian, wasn't answered? I'm not asking for what product lines grew, what was the organic growth in the fourth quarter? Just a simple question, organic growth fourth quarter?

J.J. Pellegrino

Sure, okay. Bill, let me see if I can take a cut at this, I'm going to just back out the acquisitions generally.

Bill Wolfenden - RS Investments

In the fourth quarter?

J.J. Pellegrino

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

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

George LeMaitre

Sound like that you went to 11.2, I think it was 11.1

J.J. Pellegrino

Sorry 11.1. Okay. Does that get what your?

Bill Wolfenden - RS Investments

Yeah. That answers the question. So, the '08 revenue growth is incorporating those acquisitions that were made, but nothing that may happen in '08?

J.J. Pellegrino

Correct.

Bill Wolfenden - RS Investments

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

George LeMaitre

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

Bill Wolfenden - RS Investments

Okay, but well, it is getting worse, right, because the real operating losses is 2.7, and you are saying it’s going to be 4.3.

J.J. Pellegrino

Yeah, but that, well this is J.J, that 4.3 also includes which we, I think, I outlined at the end of my section, about a $1 million of one-time items, so you can really back that down from 4.3 to 3.3, and so now you get a lot closer and more in-line with the 2.8 that’s non-GAAP adjusted results for the year-end ’07.

Bill Wolfenden - RS Investments

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

George LeMaitre

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

Bill Wolfenden - RS Investments

Got it. Thanks.

George LeMaitre

Thank you.

Operator

(Operator Instructions) It appears there are no further questions. I’d now turn the call over to George LeMaitre for closing remarks.

George LeMaitre

Okay, thank you very much to everyone for joining us and we look forward to our next call. Thanks Nikita.

Operator

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

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