George LeMaitre - Chairman and Chief Executive Officer Joseph Pellegrino - Chief Financial Officer

Cecilia Furlong - Canaccord Genuity Chris Lewis - ROTH Capital Mike Petusky - Barrington Jim Sidoti - Sidoti & Company

Thank you, Tiara. Good afternoon and thank you for joining us on our Q1 2017 conference call.

With me on today's call is our Chairman and CEO, George LeMaitre. Dave Roberts is unable to join us because he's at a vascular conference in London.

Before we begin, I'll read our Safe Harbor statement. Today, we will make some forward-looking statements, the accuracy of which is subject to risks and uncertainties.

Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, April 26, 2017 and should not be relied upon as representing our estimates or views on any subsequent date.

Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures, which include organic sales and growth numbers, as well as EBITDA.

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, at www.lemaitre.com. I'll now turn the call over to George LeMaitre.

Thanks, JJ. Q1 2017 was another strong quarter.

I'll focus on three items. First, record sales of 24.1 million and 49% net income growth headlined the quarter.

Second, biologics now one third of sales continued to drive growth at LeMaitre. And third, our business in the Americas has picked up momentum recently.

As to our first headline, Q1 sales increased 19% to a record $24.1 million. Strong sales growth, an improved gross margin and a low tax rate drove net income growth of 49% and EPS growth of 42%.

In fact, all three of our bottom line metrics in Q1 were our second best ever, Op income of 4.2 million, net income of 3.2 million and EPS of $0.16. We're very excited about passing the $100 million in sales in 2017.

JJ will run through out guidance later in the call. Turning to our second headline, biologics accounted for 33% of our sales in Q1, a high watermark.

XenoSure patch grew 48% in Q1, as our 95 rep sales force continued to make market share gains. We now have clearance facility ensure in 71 countries and we're pursuing applications in the large markets of China, Japan and Australia.

Our biologic growth extends beyond XenoSure. Omniflow posted 21% sales growth in Q1and the 2014 acquisition for our European sales force is now squarely in the win com.

Sales of our recently acquired Restore Flow Allografts was strong in Q1and the product has captured the interest of our domestic sales force. Starting in April, Restore Flow has enfolded into our sales reps quota, which should help drive 2017 sales.

We also recently filed with Health Canada to begin providing Restore Flow in north of the border. Results in these three in plants further our confidence in the future role of biologics in vascular surgery.

Two weeks ago we broke ground on a new biologic only clean room in our Burlington headquarters. As for the third headline, Q1 sales in the Americas were up 26% following growth of 17% in Q4 2016 and 22% in Q3 2016.

XenoSure remains the primary driver, but Q1 growth was once again supplemented by an asset club, up 49% in the Americas and 42% worldwide, largely due to the recently introduced longer version. There was no personal turnover in the North American sales force in Q1.

This could be due to the continuing upgrade of our product portfolio as well as recent increases to our reps W2s. Before turning the call over to JJ, I want to remind you of LeMaitre Vascular's financial objectives, 10% annual reported sales growth and 20% annual Op income growth.

Joseph Pellegrino Thanks, George. Our gross margin in Q1 2017 was 71.9%, a sequential increase of 240 basis points over Q4 2016.The increase was driven by higher US sales where margins are comparatively higher, lower sales to China where margins are comparatively lower, manufacturing efficiencies and average selling price increases.

In order to further improve manufacturing efficiencies, we've started construction on a new 8,000 square foot clean room which will be used to manufacture our XenoSure and other biologic products. Biologics now represents 33% of our worldwide sales and we believe that the new clean room will enhance our biologic manufacturing confidences by lowering unit cost overtime.

Q1 2017 operating income was $4.2 million, an increase of 21% versus Q1 2016. The increase was driven by 19% increase in sales as well as 100 basis points improvement in the gross margin.

The operating margin in the quarter was 17%. We expect our operating margin to increase in Q2 2017 to 19% and then to 20% for the full year 2017.

Improving leverage in the back half of the year is a result of projected organic sales growth of 9% for the full year and a gross margin of 71.5% as well as cost containment in the second half. Our effective tax rate in Q1 2017 was 24%, with the lower rate driven by increased employee stock option exercise.

Combined with the 27% increase in operating income, the reduced tax rate was altered in at 3.2 million of net income, a 49% year-over-year increase. Earnings per share in the period were $0.16, a 42% increase.

Turning to guidance, we expect Q2 2017 sales of $25.4 million or reported increase of 13% and 10% organically. We also expect a gross margin of 70% in the quarter, operating income of $4.8 million, an increase 27% and earnings per share of $0.17, an increase of 27%.

For the full year 2017, we have increased our guidance to $100.5 million, a reported increase of 13% and 9% organically. We also expect a gross margin of 71.5%, operating income of $20 million, an increase of 22% and earnings per share of $0.70, an increase of 27%.

In closing, I'd like to thank Joe Munda for recently initiating coverage on LMAT. We know Joe from his Sidoti days and we look forward to working with him in the coming quarters again.

With that I'll turn the call back over to the operator for questions.

Hi, this is actually Cecilia on for Jason. Could you give a little more color about Restore Flow progress today, how it's fitting into the sales tag so far and our sales fell in line year-over-year or is that progress ahead of your expectations and just how you view the business ramping to the back half of 2017?

Okay, great. Cecilia thanks a lot.

That's a great question. And I would say specifically, I don't think we're going to be guiding exactly on these devices.

I think we've been trying to look at the thing as a sort of a portfolio, but since it's a new acquisition maybe we dig in a little bit more than usual. So the short answer is it's going very well, the sales force seems very excited about this device.

It's large enough that it has captured their attention. And the result so far indicated - feels as though we're going to get something in the neighborhood of 15% to 20% increase in sales and you remember that we bought a $3.7 million business.

So I'd say, pretty down good, we're pretty excited, it's not yet in the win com, but pretty down good.

Okay, great. And then just turning quickly to gross margins, what were some of the major drivers during the quarter, any anomalies.

I know [indiscernible] and really what's included in Q2 guidance and is there a bit of conservatism factored in. Thank you.

Yeah, good question because there's been a lot of movement there. Sequentially we were up 240 basis points and a decent amount of that improvement was due to improved mix, particularly sales in the US where margins are comparatively higher versus sales outside the US.

And additionally most of China sales quarter-to-quarter sequentially again maybe adding 1% to the margin there because the manufacturing efficiency is coming through also pretty nicely in the quarter and then average selling price increases as we get around the turn of the year. So those are sort of the drivers sequentially a decent number of those are also improving the margin year-over-year, so it's kind of the same theme which is an improved mix topic, an improved ASP topic and may be an improved US or US geographic mix topic as well.

Looking forward to Q2, we're thinking we're going to down take a little bit for the quarter but then rebound as the year goes on. We're still guiding 71.5% for the full year, but in Q2 in particular there is more I think accounting issues more than anything else, some manufacturing inefficiencies from months gone by, about six to eight months gone by coming off technology then on to the P&L sort of hampering the margin a little bit in Q2.

But again recovery coming throughout the rest of the year as XenoSure continues to take up a bigger size of the sales and its margin improves and we improve manufacturing efficiencies on the hydro and some other topics as well. So good balance back in the second half of the year we think.

Great, thank you for taking our questions.

Hey, good afternoon guys. Thanks, for taking the questions.

Hi, Chris.

George, I wanted to start just on the US side, this is two or three quarters now of elevated growth you kind of touched on it, but can you just elaborate on what's driving the outperformance there and how should we think about the sustainability of these levels within that US market going forward?

Okay, one thing to remember is that XenoSure means more in the US than it does in Europe and we seem to have found pricing power in XenoSure in the US whereas we don't quite have as much pricing power over in Europe, so that's a big thing. Anytime we say the word XenoSure, it covers a lot, it pulls out a lot for our company.

Also its had a nice run of the sales reps sticking around and not turning over like we had historical, we talked about the turnover before, so we feel good about that. And then of course, we're up from - I think we're up 10% in terms of the size of the sales force over the last 12 or so months, so that's helping out as well.

The US also has access to this Anastoclip device, which is not in Europe and we have it in Europe, but it's so small that it's the minimum and that's been going very well. So you have a couple of big horses XenoSure and Anastoclip in the US and maybe you don't quite have that over in Europe.

Okay, that's helpful. And then on the international side, this is still strong growth of almost digit, I think 9% in the past two quarters year-over-year, so growing still nicely, but may be a little bit lower than the kind of the first half of '16.

So can you just talk about what you're seeing in your international markets and kind of the trends there?

Sure, so I'm going to talk in reported growth numbers rather than organic because I don't want to send our accountants scoring around in the background tier. But on a reported basis, you could stylize and say Asia has gone extremely well for last four or five quarters, 40s, 50s, 60s and 70s growth and usually Europe has been sort of in a 12s and 14s.

This quarter on a reported basis Europe was only 3% and a lot of that had to do with two things, one is we just had a bad export quarter and normally it is a pretty big piece of our business. We do all of our export largely out of our Frankfurt office and it's a very lumpy business.

We didn't do too well this quarter. I have no worries about it annually.

And then secondly you lost a couple of hundred thousand dollars because of the weakness of the British pound. We usually don't have that problem and then on top of that you lost some money from the weakness of Euro versus the dollar year-over-year.

So I'd say those three things would point you towards in the quarter. The reported number was 3% and normally we become accustom that being sort of 12 and 14, but again Asia going great guns and I expect Europe to be just fine.

Okay and then the announcement to devote some resources to creating a biologic clean room, your facilities, can you walk us through the decision there and any color you can provide around cost and timing expectations.

Okay, I might pent the cost to JJ in a second, but I would say philosophically the good news here is that you see us raising our sales guidance and the XenoSure thing grew 48% and that's organic. The XenoSure grew 50% on a reported basis.

No, I got it wrong, sorry, 48% reported growth in Q1 and Chris obviously when things grow that fast you got to do something because you run out of room in the clean room. So we've taken what used to be the shipping department in Burlington and we're building our 8,000 square feet of brand new clean room space largely for XenoSure but also for another biologic device the pro call device.

What we've ended with, we took the shipping department, we went to the fourth building Burlington, so to summarize we used to have three buildings in Burlington, we now have four and we did it because XenoSure is growing so fast. Timing, I bet we're occupying and making human used devices in Q3 of 2017.

JJ, color on cost on that thing.

Yeah, Chris in terms of the cost it's kind of a short-term, medium-term topic. In the short-term a return on the depreciation for a larger room, I think you'll have a negative impact overtime.

However as units continue to ramp and the folks within that room can be more efficient because the layout is better, the process flow of the raw materials is better et cetera, et cetera, I think you're going to get some nice efficiency. So in the medium-term I think it's going to be a nice win for the XenoSure margin and the short-term it might hamper it a bit, but certainly the right move.

Got you and just one more from me in terms of the annual guidance that you raised the sales guidance by about a 1.5 million, but you maintained OpEx or Op income guidance of about 20 million, so gross margins look like they're consistent at 71.5 for the year. So can you kind of help us understand where the incremental OpEx spend is coming from over the reminder of this year.

Thanks.

Yeah, so interestingly FX changed a little bit between last time and this time. So there's an FX topic in there and on the bottom line that actually increases our Euro based expenses as they get translated back into dollars.

So that 1.5 million in increased sales take that through gross margin and maybe you get 800 or $1 million of GP depending on the mix and maybe Restore Flow is a little bit more than the mix, so it's little on the lower side. Then you get to take out of that sort of eight or nine hundred that FX profit and just touched on maybe 250 or so for that and maybe purchasing accounting for Restore Flow was a little bit more than we thought when we spoke to you last time.

And the China trials are getting XenoSure ramped up in terms of entering into China. That trial is really starting to kick in I would say, this month and next month and as we do more cases in that trial we're obviously incurring more expenses and I think that's a little bit incremental to our last conversation.

So the investment spend piece if you will probably another three or four hundred grand out of that whole 15 topic and the rest being accounted for as I mentioned. On the whole for the year the Op margin getting to 20% up from 18% in the prior, so sort of a nice leverage still coming through in the bottom line we think growth is 22%, I think that is year-over-year, so nice growth as well in excess of 10, 20 mile trade if you will.

So even though we held it flat I think it's still a 19 for the year.

Great, thank you.

Thanks, Chris.

Good evening George and JJ, it's Mac Walkman [ph] for Rick. Can you hear me okay.

Yes, Mac. I can hear your voice.

So George first question for you, sort of bigger picture M&A outlook question. I think you probably saw that the trend of mega mergers continued this week in Medtac and curious about the implication in this field, but also larger recent deals and potentially future deals combining broad portfolios, just wondering is this a positive and that inevitably there will be some product lines, some potentially sizable, or again franchises likely to be sold from these new combinations and all sort of in the context of are you looking for more deals and also looking for sort of larger deals.

How does this all sort of shake out as you think about this, the future M&A outlook for LeMaitre?

Okay, so I'd answer that. There's two positives, I think that come out.

When these assets do get traded, they get more likely to even get traded again, that's how you start to be true that I felt happens with acquisitions. Therefore, as you're pointing out, for instance with Bard getting sold, there's Bard vascular, maybe the new owners of Bard are going to feel differently about certain pieces and maybe they think well often by those pieces.

And I think that's what you're getting at, so yes, we generally really like when we see these big trades happen. And the other thing we like about these big trades is we do feel like the vascular subsidiaries which are usually small within these larger entities get a little bit juicier and a little bit easier to compete against.

They start product lines, they don't - I think when Sinovas was bought by Baxster, it was a good thing for LeMaitre because they got a little bit less focused and we were able to make encouragements into the XenoSure market largely due to the fact that Baxter sort of forgot how to sell to vascular surgeons and Sinovas was pretty good at doing that. So two reasons why we like them, so yes we like them.

One small add on I'd say is what was the multiple here, six times sales, 6.5 times sales something like that. When those types of things happen, we feel like you get a markation or evaluation stamp again vascular and medical device companies, so we like that too.

Okay, that makes a ton of sense. I just wanted to shift to the new revenue guide and again obviously raise the bumps beyond the beat this quarter.

Just maybe talk about what you're seeing and where in the portfolio or geographically, what gives you confidence to take FX expectations and do they look a little bit closer at the rates. Looks like it's driven by inorganic revenue, you kept the reported revenue at the same level and were less onerous, you could pass out the - how much of this raise is driven by sort of better performances for some of the recently acquired assets versus how much of this is less onerous FX and I have one follow up?

Yeah, so the raise in total about 1.5 million, we beat by 600 or so in Q1, so that part of the answer there. Then I had mentioned there is an FX piece which doesn't touch the organic number and that was about 0.5 million, but surprisingly there's been a decent shift in the Euro FX rate and some of the other FX rates, so another 0.5 million there of revenue but not a change to that 9% organic number.

And then I think Restore Flow probably got a little bit better outlook going forward and maybe we were thinking last time and so there's a nice of that in there and of course XenoSure continues to surprise on the upside maybe didn't do well and so there's a piece of that in there. So I would say sort of nice growth from the acquired revenues in XenoSure and some of the organic pieces well, but those are for us.

Okay, that's very helpful. The last question, just curious how much more runway is left on the US and I'll stick with larger size roll out, is it multiple more quarters ahead, just give us a sense of where inning you are, what you are in that roll out?

Sure, I think we're in the second or third inning of that roll out and the reason I think that is, if we're fighting with one hand tied behind our back we don't have that long and after clip in the grip clip version approved for Dura Mac and that's really what the surgeons and the sales reps are clamoring for. They specifically want the A-Clip, they want the G-Clip and I know that's a detail but the G-Clip bites and it's more gripier, that's why it's called G-Clip as opposed to A-Clip and so when that comes on and we don't know when that comes on, but we started an animal trial to get that approved.

When that comes on I think you'd be fighting with both hands and that makes me think you're in the second or third inning.

Okay, thanks so much guys. Have a good evening.

Thanks a lot Mac for the great questions.

Alright, thanks guys. I appreciate.

Couple of housekeeping, JJ can you give stock comp and CapEx for the quarter?

Yeah, sure Mike, stock comp about 500 K in the quarter and CapEx about 1.7 million.

And then just in terms - I just want to make sure -

Mike, sorry to interrupt you. Just on that 1.7 million, that's high for us, typically we're in the $2 million, $2.5 million range a year.

We talked about the clean room build out and I think that's a decent part of that 1.7 million that we're talking about in Q1.

Okay, great. And then I think I understand the go forward guidance, but just want to make sure.

In terms of the tax rate going forward, I mean does that kind of return to the traditional kind of mid 30%, 35% or so through Q4?

Yeah, I mean it's tough to know for sure because the stock option exercise piece has a pretty big impact on it. There's a new rule that we took advantage of that has an impact on that in a pretty meaningful way.

I think in Q2 we're thinking the rate might tick up a little bit into the high 20s and then fewer option exercises in Q3 and Q4, so go back to sort of that 35% sort of normalized rate if you will in those out quarters potentially. But again the option exercises continue to do what they've done in Q1 and what we think they're doing in Q2, you're going to see lower rates.

Okay, so maybe something more like 30%, 32% for the remainder of the year on average, is that fair?

I mean if you get to low 30s for the full year, that might me sort of a place for shoot for, but in the back half I think you're in the mid 30s, low mid 30s.

Okay and then I guess, I think I know the answer to this, but I'd love for you guys to confirm it and is it fair to say XenoSure is your number one product category, is that fair to say?

Yes, it's been larger in every single quarter since Q3 of 2016.

Okay, then I guess jumping to Valvulotome, is there growth in that product category - I mean you note that thing for so long and done such a great job with that , but at this point I mean are there ways to continue to show growth in that product category or is it more of a flat revenue outlook going forward?

Do you mind if I quibble with the verb milked? I kind of just had fun there Mike, but no we feel good about the device and we told you guys a lot over the years, the units are generally flat and we have price increases.

And I would say it's business as usual with Valvulotome this year, but in Q1 we were comping against a high Q1the year before and so there wasn't much growth. I think it was exactly flat on a revenue basis in Q1, but we feel as though it will be a normal Valvulotome year.

We do feel as though we're getting the nice price hike that we put in, so I would say business as usual. The Valvulotome, although in Q1 you had a flat Q-over-Q.

Okay, alright. And then just one last one and I love the color you gave on some of the M&A that's happened in Medtech recently and how that impacts you guys, but just going back to your comments last quarter, you guys had characterized the M&A pipeline as looking good and with the idea that maybe something happens '17, one or two deals possibly, I mean is that still generally the outlook?

Gosh, I hope we didn't give anyone the impression that we thought something was or wasn't going to happen. I generally feel as though the pipeline is what it is.

There's premium things to buy in this space, but we would definitely never predict one or two happening in such and such a time frame, I think that hasn't served us well.

Yeah that actually had a kind of a tour, and me kind of taking the ideas of the pipeline looked good and thinking well, maybe a deal or two close this year, but would you say that the pipeline looks about as it did three months ago?

Yeah, I think it looks excellent always and I'd tell you as we get bigger the pipeline gets bigger because we have more things that are smaller than I think we could potentially buy. That all being said, I think one of the watch words recently and maybe this is a small shift in our M&A expectations is that we bought so many of these smaller companies in the last five years.

We bought eight companies since 2012 and if they've been a little been smaller than maybe they should have been and I think when we put a big piece of product in front of the reps. They react really well and when we put small piece in front of the reps they don't get that interested, there's not that much in it for each of them.

So I think our mindset is drifting upwards in terms of size. No more small ones and maybe hold off on those and wait till we get a bigger deal.

Okay, that's great color. Thank you.

Thanks, Mike.

Good afternoon guys. Thanks for taking my questions.

Do you hear me okay?

Yeah, Joe. Thank you very much.

Welcome back.

Good to be back. So first question, George you guys had a number of R&D projects towards back half of - particularly fourth quarter of '16, you launched XenoSure packed sizes, Omniflow graphs 7 millimeter, can you give us some color on how that's going and how that played out in Q1 and the growth in Q1 for XenoSure, was that devoted towards - because of the new product generations, the new patch sizes.

Sure, so I would say the XenoSure progress in R&D that we made with the patches that you mentioned. No, nothing special, nothing material there, the growth in XenoSure is about the original device, so better for worse it's just doing all this by itself and we haven't helped much with these two R&D projects, that's one.

Omniflow, no also the same answer, we had a fantastic Omniflow Q1, we were up 21%, no help at all from that 7 millimeter device that we launched. It will happen but these are long things.

And then I would say the place where you're getting a nice kick is - and we mentioned this before is that long Anastoclip and again it's only a scene. We still have the GC one to give at some point when we get it through the animal trial.

Okay. Last quarter you gave us a little bit of a Rubik's Cube as far as the dollar growth year-over-year expected in the guidance.

Any chance of second turn at that now that it's jumped up to $11.3 million?

You mean the reported sales growth of $11.3 million between last year and this year? Is that?

Yeah.

Yeah. I think we are still not guiding on individual products and we are trying as hard looking into coach you guys into looking at this as a mutual fund.

That being said, of course, we realize the importance of this year. So, I would say the number we wanted to give up this time which we are giving out now is that the sales were 5.22% this year in the quarter and again we mentioned before that was a 48% reported up and you guys will have to work on your math as you see what happens this year.

The number, the base number in 2016, the final number was $18.1 million sales for XenoSure. I hope you can put that Rubik's Cube Pack together.

It's really hard. I would say Q3 is particularly confounding, it's probably a good word, because of all the extra sales we've made due to the back order from Baxter in Q3 of 2016.

Okay. And, George, just can you give us quick update on the China trials online and XenoSure and update on the HYDRO Valvulotome recall that's expected to end third quarter this year?

Yeah, okay, so the China trial and I would always want to refer to these Asian trials, I just kind of have to use the word molasses. It's molasses.

It's a very long one. The end date is 2020 or 2021, something like that and we have not put our first implants and we have thought we would have put our first implants in by this phone call and we have not.

The current guidance from our regulatory staff is we'll put one in in China at least in May, so the beginning of that and we hope to do 75 cases of the 225. I might be getting that number on 280, excuse me, we hope to do 75 cases this year.

This year Chinese as it relates to the HYDRO and the recalls, I think the good news is the recalls and the HYDROs are all over and they are all mopped up. You had a very large sales number in Q3, because of this you had a small number in Q4 sales.

You had a small number in Q4 because of this and you are now back to square one with normal results in Q1 and I would say it's business as usual valvulotomes in Q1 and then going forward just because the recalls are over doesn't mean we don't have some small quality issues to mop up with the valvulotome, but I would say the lion's share of the biggie issues are behind us.

Okay, okay. Thank you.

Thanks a lot, Joe.

Good afternoon. Can you hear me?

Yes, Jim.

Yes, Jim.

Great. Just want to confirm the issue with Baxter recall that happened back half of last year, is that completed at this point and so these were all through your sales?

It's a good question. I think largely speaking it is and one way I try to look at this has been we were making all these market share gains before that thing and I think the proposition of our vascular-centric salesforce continues to be what's really driving all this and we happen to be in the right place at the right time.

So, I think you are up and running and you are not going to lose these customers. Well, maybe someone wants to go back to Baxter at some point again, but we feel comfortable that it's just business as usual in our XenoSure segment.

Right. And then when I looked at the guidance, I don't know if you addressed this already or not, but you raised revenue by about $1.5 million for the year.

But you have operating income the same as you did when you first issued the guidance. Is that because of the additional trial costs in China?

A little bit of that, Jim, sales up 1.5, maybe GP up 850 or so, FX is going against share now since the last time we spoke on expenses. Your basic expense is now coming back higher, maybe 250K for that and I think purchase accounting was probably a little bit higher than we thought the last time we spoke with you.

So, most of that accounted for with those concepts and then maybe a little bit more of investment spend. So, we kept it unchanged and as I said earlier, you are still up to 20% up margin in the year versus 18% in the prior year and year-over-year the growth is 22%.

So, we think it's still a nice number.

Great, great. All right.

And then the last question, when that additional capacity comes on line, do you expect to be a slight dip in gross margins as you initially started to fill it or do you think you will be able to get to that without any change?

So, you saw my guidance. It was unchanged on the gross margin lines, 71.5 for the full year.

I am going to guess, yes, it's going to negatively impact us when we immediately turn on the new clean room, but there is some other good things happening to counterbalance that, so I am going to say improvements sort of in the second half from the 70% in Q2. But yeah when you first on the new clean room you get the depreciation right away and then when you get the folks in there in a new environment, maybe takes a little while to get up to speed and to get a little bit more efficient, maybe there's some training stuff that goes right through to the P&L as they get accommodated to the new space.

But I think fairly soon after that they'll be operating more efficiently than they were in the current clean room which is designed less efficiently than the new one is.

Okay, thank you.

Thanks, Jim.