Earnings Call Transcript - LMAT Q1 2025

Operator, Operator

Welcome to the LeMaitre Vascular First Quarter 2025 Financial Results Conference Call. I would like to turn the call over to Mr. Dorian LeBlanc, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Dorian LeBlanc, CFO

Thank you, operator. Good afternoon, and thank you for joining us on our Q1 2025 conference call. With me on today's call is our CEO, George LeMaitre, and our President, Dave Roberts. Before we begin, I'll read our Safe Harbor statement. Today we will make some forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify these forward-looking statements by using words such as 'believe,' 'expect,' 'anticipate,' 'pursue,' 'forecast,' and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, May 1, 2025, and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures such as organic sales growth. A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the investor relations section of our website, www.lemaitre.com. I'll now turn the call over to George LeMaitre.

George LeMaitre, CEO

Thanks, Dorian. Q1 sales were stronger than our February 27 guidance, with 13% organic and 12% reported growth. Growth was led by graphs up 17% and carotid shunts up 14%. We posted sales records in all five of our categories: graphs, carotid shunts, catheters, velvet homes, and patches. By geography, EMEA was up 18%, the Americas 11%, and APAC 3%. I'll focus my remarks on three topics: first, the growth of our sales force; second, our new international sales offices; and finally, our MDRC marks. We currently have 164 reps on payroll, and we're now targeting 170 by year-end. We also employ 34 sales managers versus 31 at our last earnings call. The sales force is our number one asset, so we continue to invest in reps, managers, and sales offices. Our new Alpine regional sales manager started on April 1 and will oversee seven sales reps in Switzerland, Austria, and Czechia. Shipping from our new Zurich office will reduce customs complexity for Swiss hospitals, and our direct offices almost always improve sales performance. Switzerland is the sixth largest European market. We expect to sign a transition agreement with our Czech distributor shortly and should log our first direct sale in August. We are currently recruiting two Czech reps. As for Portugal, we hired our Lisbon rep on January 1, signed our distributor transition agreement on March 19, and on May 1 became direct in Portugal. Also in Europe, we've just received our MDR CE mark for autographs, and the European launch will begin presently. Autograft, a biologic craft used primarily in AV access and purple bypass, was the company's largest US product in 2024 with $37 million in US sales. At previous earnings calls, we've estimated autografts' current market size to be about $8 million in Europe and $8 million in the rest of the world. We currently have autograft approvals in New Zealand, South Africa, Thailand, Israel, and Malaysia. We sold $180,000 of autographs internationally in Q1. We also expect to receive approvals in Australia, Canada, Singapore, and Korea by H1 2026, so this is an exciting worldwide launch with plenty of long-run upside. Our New Jersey autograft production facility is currently running a single shift and is capable of meeting this new demand. Separately, we continue to anticipate at least one RestoreFlow allograft approval in 2025 from Ireland or Germany. As a reminder, allografts require approval on a country-by-country basis. Approvals from either Ireland or Germany would expedite our individual European country approvals; we anticipate the Irish approval will enable the opening of a Pan-European RestoreFlow distribution facility in Dublin in H2. RestoreFlow is currently approved in the US, the UK, and Canada. Since the 2016 acquisition, RestoreFlow's sales CAGR has been 23%. In summary, the Q1 sales momentum, our continued office and sales force build-out, and our regulatory progress allow us to increase our 2025 reported sales guidance to $245 million from $239 previously, and our organic sales guidance has advanced to 13% from 10% previously. $303 million of cash also provides strategic optionality. With that, I'll turn the call over to Dorian.

Dorian LeBlanc, CFO

Thanks, George. The LeMaitre portfolio of niche devices continues to deliver in Q1. As George referenced, we experienced record quarterly sales in graphs, carotid shunts, catheters, and patches. Organic sales growth of 13% over Q1 2024 was driven by average selling price increases of 9% and unit increases of 4%. In Q1 2025, we posted a 69.2% gross margin. The 60-basis point increase year-over-year was driven primarily by higher ASPs and lower inventory scrap, offset by product mix. Average selling price increases improved the gross margin by approximately 270 basis points in Q1, while reduced scrap contributed an additional 85 basis points. The shift in product mix, particularly towards graphs, negatively impacted the gross margin by 220 basis points. Operating expenses in Q1 2025 were $28.8 million, an increase of 16% versus Q1 2024. The increase was driven largely by higher compensation expenses, including the addition of 21 more sales professionals, and higher non-compensation sales-related expenses. In Q1 2025, operating income increased 6% year-over-year to $12.6 million, an operating margin of 21%. Fully diluted EPS was $0.48, up 10%. We ended Q1 2025 with $302.5 million in cash and securities, an increase of $2.8 million in the quarter. Cash from operations generated $9 million in the quarter; we paid $4.5 million in dividends to shareholders, and made the final deferred payment of $1.4 million related to our 2019 cardio cell acquisition. As we turn to guidance, there are two additional topics that we have incorporated into our full-year forecasts. First, we have amicably wound down our porcelain patch distribution agreement with Elutia effective April 30, in order to focus on sales of our own biologics in 2024. Our hospital sales of Elutia patches totaled approximately $5 million; this product exit will likely improve our organic growth rate and gross margin. Second, we'd like to address tariffs. In summary, we believe the company is comparatively well positioned as relates to this issue. LeMaitre manufactures 100% of its products in the United States, and therefore we have limited concerns related to US import tariffs. Approximately 25% of our cost of goods sold is for raw materials and components, of which approximately $2 million is paid to foreign suppliers, largely to Australia. Simply stated, we are not big importers. As for the impact of potential retaliatory tariffs, approximately 40% of our sales are international. Since we generally compete in low rivalry markets, we anticipate low substitution risk, and we believe we can raise prices to offset most potential tariffs. China accounted for less than 1% of our total annual revenue. The Chinese import tariffs currently in place will increase our Chinese cost of goods by almost $825,000 per year. We are implementing price increases on May 15 in China, which would offset half of these costs. We remain committed to a long-term view of our business prospects in China. We generally believe that cooler minds will eventually prevail, and most tariffs will recede in the long run, particularly on life-saving medical devices. Overall, we feel well positioned with our US-only manufacturing footprint, our US-focused supply chain, and our competitive positioning in foreign markets with our niche products and direct sales model. Therefore, we feel comfortable increasing our 2025 sales guidance despite trade tensions. LeMaitre continues to deliver broad-based revenue growth with our differentiated products, direct-to-hospital model, and growing commercial organization. We have raised our full-year revenue guidance to $245 million, reflecting a continued robust sales performance and a benefit from the weaker US dollar, offset by the discontinuation of our Elutia distribution agreement and a weaker outlook for our small China business. We have further updated our annual guidance for a gross margin of 69.6%, operating income of $57.7 million, and a midpoint guide on diluted earnings per share of $2.16. For more details, please see today's press release. With that, I'll turn it back over to the operator for questions.

Operator, Operator

Our first question is from Suraj Kalia with Oppenheimer and Company.

Suraj Kalia, Analyst

To start, you guys had a strong 1Q. You guys beat by a little over $2 million, but you raised the guidance by $7 million. Obviously, there are some moving pieces here. You guys have autograph clearance now, the Elutia agreement's cessation. I guess what's giving you the confidence here, especially with the current things swirling in the air in terms of tariffs globally, that's giving you the confidence to increase guidance so early in the year.

George LeMaitre, CEO

Thanks for the great question, Suraj. What gives us this confidence is a bunch of factors here. The first one that you pointed out was that we beat Q1 by a lot, so you've got that going for us. The price hikes also are working better than anticipated. It was a big topic at the last call. We came out and said we thought the US price list was going to increase prices by 8%, and in Q1 we got an 11% in the US, so we got a little bit better than we expected with those pricing floors. Interestingly enough, getting out of the Elutia business will help organic growth this year because it was reducing over time. It never really worked out well inside of our bag of goods, and so getting rid of that oddly increases organic growth. You can see also that we're sort of, quote, guiding more sales reps than on the last call. We're guiding for 165 by the end of this year on February 27, and now come May 1, we're guiding 170. So we're putting on more reps, and we think that will lead to additional sales growth. Obviously, you pointed out also that the autographed international process is starting to work internationally. And then, on Tuesday, we got the approval, the big one we've been waiting for, which is a CE mark for autograft. In general, Europe is going so well these days for a variety of reasons, both price and units and all these offices we keep putting in seem to help out with growth. So I would say that's a lot. That's a big, long laundry list for your question, but that's sort of why we feel comfortable going from 10% to 13% organic.

Suraj Kalia, Analyst

Got it. Appreciate all that helpful color. And then just kind of one more, and we'll hop back in queue. Can you give us any update on M&A, what you're seeing? And then, George, I can't help but clarify this. You noted that you guys have $3 million in cash, and it provides strategic optionality. I feel like there's something there that you're maybe hinting at behind the scenes, if you can give us any insight on that.

George LeMaitre, CEO

Thank you. Okay, really quickly, I'll say I'm not hinting at anything. I just feel like if you have $3 million in the bank, you can do stuff with it. So there's nothing underlying that. I'll pass it over to Dave, who usually handles the M&A question.

Dave Roberts, President

Yeah, the pipeline's in really good shape. Obviously, we're still hunting in the center of the fairway for us, which is open vascular surgery. There are 22 or 23 targets, over $5 million of revenue. But we're also actively hunting in an adjacent space, cardiac surgery, where there are crossover devices, and some cardiac surgeons do vascular surgery. I'd say, of course, like I said in previous calls, we're hunting for larger deals. Our last deal was almost five years ago, autograft, and we're obviously delighted with how that's gone. But we're hunting for larger deals. And hence we did the bond offering in December. You know, the sweet spot is probably revenues of $15 million to $150 million, or something like that, worth of revenue. Thank you.

Operator, Operator

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

Michael Petusky, Analyst

George. I'm curious. Any view on Xenosure in China? Do you have any concerns that this hangs it up, or is there any intelligence that you might have on that?

George LeMaitre, CEO

It's a great question. Mike, thanks a lot. I feel like the whole project just took a, I don't know, a five-yard sack, if you will, not just Xenosure, but the whole China LeMaitre. And as you can remember, two years ago we were in here saying how bad China was. Then last year, it sort of really turned around for us. We had a fantastic Q1, if you remember. It’s frustrating but, you know, we've been there 10 years. We call it the long march. We plan to continue being there. It will hurt us a little bit, but I think that in the long run, some of this stuff simmers down, and I think it'll be okay.

Dave Roberts, President

It's Dave. Obviously, we were delighted to get that Xenosure cardiac approval back in December. So for us, despite all the tariff and trade tension and all that, our team is actively seeking provincial listing approvals in the 31 provinces. We expect to get most of those in Q4. Of course, the material sales wouldn't appear until sometime next year, but let’s just see what happens between the countries. In the meanwhile, we're preparing to move ahead with that product line.

Michael Petusky, Analyst

Okay, all right, great. And Dorian, curious if you have this handy. Do you have cash flow for ops and CAPEX this quarter by any chance?

Dorian LeBlanc, CFO

Sure, Mike, cash flow from operations was $9 million, and within that, depreciation and amortization was $2.552 million. Share-based compensation was $2.046 million, and capital expenditures for the quarter were $1.383 million. Cash flow from operations was around $9.0 million.

Operator, Operator

Our next question is going to come from the line of Rick Wise with Stifel.

Rick Wise, Analyst

Hi George. Just to start off on your pricing commentary, I mean, clearly, as you said, price was stronger, better than expected. And maybe I'm misremembering; please correct me. But I feel like at the last call, we were thinking about more of a 6% blended price increase for the year. Given the first quarter performance and whatever the guidance was before, how do you want us to think about price or price and volume as we break it down, and think about the full 2025 year?

George LeMaitre, CEO

Okay, and I know I'm going to come to an unsatisfactory answer here, but I'm going to get there in a second. The difference between your 6% number and my 8% number is that I'm talking US only, and we were trying to use that as a simple proxy. You might have blended worldwide is 6%. Regardless of where we remember it, the fact is that in Q1 we had a 9% price increase and a 4% unit increase. We always have an eye towards having better unit growth, but it's a nice number anyway. So 9% and 4% was what we got in Q1. I sort of talk it through now to just go back to the US: our price list increase was 8.1% blended in the US, and we think we got an 11%. So we got a little bit more price discipline than we expected. I guess is what I would say. As for your question about price, price, and volume for the year, it's almost impossible for us to get that. The organic growth is so hard to predict that we don't really try to break it between price and units. Perhaps you could assume, you know, status quo. As the year goes by, I don't have any reason to think it's not status quo. That 9% and 4% is what led to the 13% organic growth for Q1. But I don’t know about the next three quarters.

Rick Wise, Analyst

Gotcha, that's helpful. And I was hoping you'd expand on the excellent news about the Artegraft CE mark approval. How should we think about the contribution from Artegraft in Europe? What kind of incremental volumes should that offer? What's based into your guidance? Just maybe some additional color there would be helpful.

George LeMaitre, CEO

Sure, that makes a lot of sense. It's why we gave you that international number, which is without Europe so far. In the first sort of real quarter of selling internationally, we've got $180,000 we've pumped into our model, a number which is so preliminary, but we wrote it in as €350,000 for the back three quarters of this year. Honestly, Rick, I think I'd love for you guys to give us a quarter or two to get our sea legs on this product, and then I think we'll be a lot better at guiding prospectively on that. And then, of course, as you remember, I won't want to guide on individual devices at some point, but I realize we need more information around this. Another way to look at it is that there's an $8 million market in Europe and an $8 million market in the rest of the world. If you take a really high-level look at it, maybe in 10 years, you're selling half of that, or a fourth of that. I don't know. They have different practice patterns over there, so it's a long run.

Rick Wise, Analyst

That's great perspective. I will sneak in another small question about gross margin if I could. Thank you, Joanne, for the gross margin breakdown. Help us think about the gross margin drag. Obviously, price was a positive, scrap was good, and contributed. But is this mixed drag? Is there anything that's going to change if the year unfolds? Maybe just give us some color about how gross margins we should think about them as the year unfolds.

Dave Roberts, President

Yeah, the Artegraft product is a component of mix that is, you can think of as being below the corporate average margin. Obviously, we've continued to see great growth in that product line; George mentioned that we've got a 23% compound annual growth rate since the acquisition there, but it is a little bit different product, the human tissue. So the great growth there, and we will hopefully see that in 2026 with the approvals we see coming in Europe, as well as the investments we are making.

Operator, Operator

Our next question comes from the line of Michael Saccone with Jefferies.

Michael Saccone, Analyst

Just to follow up on Rick's question, make sure I'm clear: just on the Q1 gross margin and operating margin coming in below guidance. Is it fair to read that as allograft kind of performed better than expected, and that's what drove the below guide margin?

George LeMaitre, CEO

Yeah, I think just graphs overall as a category, performing as high as they did is what drove that, that mix component.

Dave Roberts, President

And within that, as Dorian mentioned, allograft has been an important growth driver for us over many quarters, and it did outperform in Q1 by about a million dollars. So I would say that was the primary driver of the gross margin, from a product standpoint.

Michael Saccone, Analyst

Got it, that's helpful. And then just, you know, on gross and operating margin for the full year, it looks like the guidance came down modestly for gross margin, but you're taking up your operating margin guidance at the midpoint. Can you elaborate on the moving pieces there?

George LeMaitre, CEO

Yeah, I mean, there's a lot to that, right? We have such a nice sales growth guidance, and yet the operating margin moves down from 25% to 24% for the full year. That's what you're getting at, right? What are the components of that? So as you already alluded to, we’re pulling down our gross margin guidance ever so slightly for the year because we got a 69.2 in Q1. I’m a little nervous about what that means. And so I think we’re now at, what are we at? 69.6 is the guide. So that’s involved in it too. I would say that 24% operating margins are incredibly high and it gets affected. It’s pretty rare to see a company with that operating margin. So anything you do upsets that operating margin. One thing you can see us doing here on this call is we’ve increased our guidance for sales reps from 165 at year-end to 170. Our sort of bullishness is reflected in that increase. And then finally, of course, a Swiss office doesn’t come cheap. It’s the most expensive place to operate on the planet. You’ve got a little bit of Swiss office expenses in there too, along with some of these sales reps.

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to also start with one on Salesforce. Can you just remind us kind of ramp-up time and when we can see that convert to operating leverage? I know the guidance implies that operating income will start to grow a little quicker through the back half of the year, but typically we've seen that outpace the top line. So when can we see some of those reps start to contribute and then drive that impressive operating leverage profile you guys have shown?

Dorian LeBlanc, CFO

Thanks for the question, Frank. Just to put some numbers on where you're talking about in H2, it looks like we are implying in the guidance that the operating income growth gets back to 14% for H2. And I think it's a piece of what you're alluding to as to how quick the reps get up and running. You know, I've been answering this question for 20 years, but I don't have a great answer. I will say that we’ve done a lot of regression analysis and Salesforce analysis, and we have a lot of data now from running the Salesforce for so long. I used to say it takes a year for people to ramp up; I don’t feel that way anymore. I think it’s quicker than that, and it's extremely hard to distinguish between a rep that's been here two quarters, and one that's been here for five years. Their performance to quota is indistinguishable for those two groups of employees. I realize that's an odd answer, but I think that’s what the data is showing us. So I hope that helps.

Frank Tarkinen, Analyst

No, that’s helpful. Thank you. And then maybe one for Dave, just on the M&A front with med tech valuations and all publicly traded valuations coming in for that matter. Does this change your thought process at all? Maybe you can get a more novel, bigger market device rather than the smaller niche products that you’ve traditionally gone after at a more attractive valuation.

George LeMaitre, CEO

I would say it doesn’t change our strategy much, Frank. The types of targets we’re hunting, it all starts with the markets they’re in, and there are synergies to consider. Of course, when valuations come down, it makes targets more affordable. We have over $300 million of cash in the bank, so from that standpoint, we might be able to get more for our money. However, in terms of does it change the types of things we’re looking at, I would say, no, it doesn’t really.

Operator, Operator

Our next question is going to come from the line of Jim Sidoti with Sidoti & Company.

Jim Sidoti, Analyst

Thanks for taking the question. So I'm going to ask the operating margin question a different way. For the quarter that just ended, the margin was about 21% and you're guiding for 24% for the full year. What changes in the back half of the year will set that up?

George LeMaitre, CEO

One of the big topics here is that easier comparables will help us. The sales ramp helps you a lot and the implied gross margin ramp is significant. I think the H2 implied gross margin is now at 69.9% for the last two quarters. So you should see a lot of impact in that direction in the second half of the year.

Dorian LeBlanc, CFO

Additionally, dropping out of the Elutia distribution agreement means we were only earning distribution margins, not the full manufacturing margins that we earn on our own biologics. That should provide a nice pickup on the gross margin percentage in the back half of the year, so that’s one of the lifts for us.

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to also start with one on Salesforce. Can you just remind us kind of ramp-up time and then when we can see that convert to kind of operating leverage? I know the guidance implies that that operating income starts to grow a little quicker through the back half of the year, but typically we've seen that really outpace the top line. So when can we see some of those reps start to contribute and drive that impressive operating leverage profile you guys have shown?

Dorian LeBlanc, CFO

Thanks for the question, Frank. Just to put some numbers on where you're talking about in H2, it looks like we are implying in the guidance that the OP income growth gets back to 14% for H2, and I think it's a piece of what you're alluding to as to how quick the reps get up and running. You know, we've been answering this question for I've been answering for 20 years. I don't have a great answer. I will say that we've done a lot of what I call regression analysis and Salesforce analysis. And God knows, we have a lot of data around here now, having run the Salesforce for so long, and I used to say to people, it takes a year for people to ramp up. I don't feel that way anymore. I think it's quicker than that, and it's extremely hard to distinguish between a rep that's been here two quarters and one that's been here for five years. The performance to quota is indistinguishable for those two groups of employees. So that's an odd answer. It’s a surprising answer, but those are the numbers that keep showing up. I think it's maybe, unfortunately, I know there are sales reps on this phone call, and I hate to do this, but maybe it's a little bit of the warm body hypothesis, where you put a rep in Cleveland, they're going to sell rather they’re six years into this or two months into this thing. I hope that helps. It’s odd data; I will admit.

Frank Tarkinen, Analyst

No, that's helpful. Thank you. And then maybe one for Dave, just on the M&A front with kind of med tech valuations and all publicly traded valuations coming in, for that matter. Does this change your thought process at all? Maybe you can get a more novel, bigger market device rather than smaller niche products that you've traditionally gone after at a more attractive valuation.

George LeMaitre, CEO

I would say it doesn’t change our strategy so much, Frank. I mean, the types of targets that we're hunting, it all starts with the markets they're in, and there can be market synergies. Of course, when valuations come down, it makes targets more affordable. And we're like, have $300 plus million in cash in the bank. So from that standpoint, maybe we can get more with our money. But, in terms of does it change the types of things we're looking at, I would say no, it doesn’t really.

Operator, Operator

Our next question is going to come from the line of Jim Sidoti with Sidoti & Company.

Jim Sidoti, Analyst

Thanks for taking the question. So I'm going to ask the operating margin question a different way. You know, for the quarter that just ended, the margin was about 21%, and you're guiding for 24% for the full year. So what changes in the back half of the year that gets set up?

George LeMaitre, CEO

I mean, one of the big topics here, is easier comps. Excuse me, that's not, I apologize. I'm off on a different answer here. What changes? I mean, the sales ramp helps you a lot, right? And the gross margin ramp, the implied gross margin ramp. I think the H2 implied gross margin is now 69.9 for the last two quarters. So I think you get a lot in that those second two quarters, the last two quarters of the year, that yeah, Dorian can add to that.

Dorian LeBlanc, CFO

And the dropping out of the Elutia distribution agreement, where we only were earning distribution margins, not the full manufacturing margins that we earn on our own biologics. That does have a nice pickup on the gross margin percentage for us on the back half of the year. So that's one of the lifts for us. Jim.

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to also start with one on Salesforce. Can you just remind us kind of ramp-up time and then when we can see that convert to kind of operating leverage? I know the guidance implies that operating income starts to grow a little quicker through the back half of the year, but usually we've seen that really outpace the top line. So when can we see some of those reps start to contribute and drive that impressive operating leverage profile you guys have shown?

Dorian LeBlanc, CFO

Thanks for the question, Frank. And just to put some numbers on where you're talking about in H2, it looks like we are implying in the guidance that the operating income growth gets back to 14% for H2 and I think it's a piece of what you're alluding to as to how quick the reps get up and running. You know, we've been answering this question for I've been answering for 20 years. I don't have a great answer. I will say that we've done a lot of what I’ll call regression analysis and Salesforce analysis. And God knows, we have a lot of data around here now, having run the Salesforce for so long, and I used to say to people, it takes a year for people to ramp up. I don't feel that way anymore. I think it's quicker than that, and it's extremely hard to distinguish between a rep that's been here two quarters, and one that's been here for five years. The performance to quota is indistinguishable for those two groups of employees. It's an odd answer, I will admit.

Frank Tarkinen, Analyst

George LeMaitre, CEO

I would say it doesn’t change our strategy so much, Frank. I mean, the types of targets that we're hunting, it all starts with the markets they're in, and there can be market synergies. Of course, when valuations come down, it makes targets more affordable. And we're like, have 300 plus million dollars of cash in the bank. So from that standpoint, maybe we can get more with our money. But, in terms of does it change the types of things we're looking at, I would say no, it doesn’t really.

Operator, Operator

Our next question is going to come from the line of Jim Sidoti with Sidoti & Company.

Jim Sidoti, Analyst

George LeMaitre, CEO

I mean, one of the big topics here is easier comps. Excuse me, I apologize. I'm off on a different answer here. What changes? The sales ramp helps you a lot, right? And the implied gross margin ramp. I think the H2 implied gross margin is now 69.9 for the last two quarters. So I think you get a lot from that in the last two quarters of the year.

Dorian LeBlanc, CFO

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to also start with one on Salesforce. Can you just remind us kind of ramp-up time and then when we can see that convert to kind of operating leverage? I know the guidance implies that operating income starts to grow a little quicker through the back half of the year, but typically we've seen that really outpace the top line. So when can we see some of those reps start to contribute and drive that impressive operating leverage profile you guys have shown?

Dorian LeBlanc, CFO

Thanks for the question, Frank. And just to put some numbers on where you're talking about in H2, it looks like we are implying in the guidance that the OP income growth gets back to 14% for H2, and I think it's a piece of what you're alluding to as to how quick the reps get up and running. You know, we've been answering this question for I've been answering for 20 years. I don't have a great answer. I will say that we've done a lot of what I call regression analysis and Salesforce analysis. And God knows, we have a lot of data around here now, having run the Salesforce for so long, and I used to say to people, it takes a year for people to ramp up. I don't feel that way anymore. I think it's quicker than that, and it's extremely hard to distinguish between a rep that's been here two quarters and one that's been here for five years. The performance to quota is indistinguishable for those two groups of employees. It's an odd answer; I will admit.

Frank Tarkinen, Analyst

No, that's helpful. Thank you. And then maybe one for Dave, just on the M&A front, with kind of med tech valuations and all publicly traded valuations coming in for that matter. Does this change your thought process at all? Maybe you can get a more novel, bigger market device rather than smaller niche products that you've traditionally gone after at a more attractive valuation.

George LeMaitre, CEO

I would say it doesn’t change our strategy so much, Frank. I mean, the types of targets that we're hunting, it all starts with the markets they're in, and there can be market synergies. Of course, when valuations come down, it makes targets more affordable. We're like, have 300-plus million dollars in cash in the bank. So from that standpoint, maybe we can get more with our money. But, in terms of does it change the types of things we're looking at, I would say, no, it doesn't really.

Operator, Operator

Our next question is going to come from the line of Jim Sidoti with Sidoti & Company.

Jim Sidoti, Analyst

George LeMaitre, CEO

I mean, one of the big topics here is easier comps. Excuse me, I apologize. I'm off on a different answer here. What changes? The sales ramp helps you a lot, right? The implied gross margin ramp, I think the H2 implied gross margin is now 69.9 for the last two quarters. So I think you get a lot in the last two quarters of the year.

Dorian LeBlanc, CFO

Additionally, dropping out of the Elutia distribution agreement means we were only earning distribution margins, not the full manufacturing margins that we earn on our own biologics. That should provide a nice pickup on the gross margin percentage for us in the back half of the year. So that’s one of the lifts for us, Jim.

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to also start with one on Salesforce. Can you just remind us kind of ramp-up time and then when we can see that convert to kind of operating leverage? I know the guidance implies that operating income starts to grow a little quicker through the back half of the year, but typically we've seen that really outpace the top line. So when can we see some of those reps start to contribute and drive that impressive operating leverage profile you guys have shown?

Dorian LeBlanc, CFO

Frank Tarkinen, Analyst

No, that's helpful. Thank you. And then maybe one for Dave, just on the M&A front with kind of med tech valuations and all publicly traded valuations coming in for that matter. Does this change your thought process at all? Maybe you can get a more novel, bigger market device than the smaller niche products you're traditionally looking at?

George LeMaitre, CEO

I would say it doesn’t change our strategy so much, Frank. The target markets we’re looking at remain the same, and there can be market synergies. Of course, when valuations come down, it makes targets more affordable. We have over $300 million in cash on hand, so that gives us some leverage. But it doesn’t fundamentally change our strategic approach.

Operator, Operator

Our next question is going to come from the line of Jim Sidoti with Sidoti & Company.

Jim Sidoti, Analyst

Thanks for taking the question. I'm going to ask the operating margin question a different way. So the margin was about 21% last quarter, you're guiding for 24% for the full year. What changes will enable that?

George LeMaitre, CEO

The sales ramp will help significantly, along with our anticipated gross margin improvements. I think the H2 implied gross margin is now at 69.9% for the last two quarters. That will provide a strong boost.

Dorian LeBlanc, CFO

Additionally, dropping out of the Elutia distribution agreement, where we were only earning distribution margins rather than full manufacturing margins, will give our gross margin percentage a nice lift in the back half of the year.

Operator, Operator

Our next question comes from the line of Frank Tarkinen with Lake Street.

Frank Tarkinen, Analyst

Congrats on all the progress. I wanted to start with the Salesforce topic. Can you remind us of the ramp-up time and when we might see that translate into operating leverage? The guidance suggests that operating income will grow more quickly in the back half of the year, but typically we've seen it outpace the top line. When will we observe these reps begin to contribute toward the operating leverage profile?

Dorian LeBlanc, CFO

Thank you for the question, Frank. In H2, the guidance implies a 14% growth in operating income, which is relevant to your question about the reps ramping up. From experience, it used to take a year for new sales reps to fully ramp up. However, our analysis shows that the time to ramp is shorter than before, making it harder to distinguish between new and experienced reps in terms of performance metrics. I hope that clarifies it.

Frank Tarkinen, Analyst

Thanks for that. I appreciate the insights.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. I would like to thank you all for your participation. You may now disconnect and have a great day.