LeMaitre Vascular, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 4, 2021. LeMaitre develops, manufactures and sells vascular medical devices and provides human-tissue processing and cryopreservation services. It reports as one operating segment.
Financial performance
- Q3 revenue: $38.4 million, up 5% year over year. Growth came principally from Artegraft bovine grafts and allograft services. Americas sales rose 5%, EMEA 5%, and Asia Pacific 16%.
- Nine-month revenue: $114.9 million, up 25%. Artegraft contributed $13.0 million of the increase; foreign exchange added an estimated $2.4 million. Direct-to-hospital sales were 94% of nine-month revenue.
- Profit: Q3 gross profit was $24.9 million, with gross margin of 64.8% versus 62.3%. Operating income was $9.1 million versus $10.0 million; net income was $6.5 million versus $7.5 million, and diluted EPS was $0.30 versus $0.37. For nine months, operating income was $28.1 million versus $19.2 million, net income $20.7 million versus $14.2 million, and diluted EPS $0.98 versus $0.69. Nine-month gross margin was 65.6% in both years.
- Costs and margins: Q3 operating expenses rose 24% to $15.8 million, including higher sales and marketing and R&D spending. Nine-month inventory write-down provisions were $3.0 million versus $1.0 million. Management cited manufacturing inefficiencies and higher excess and obsolete inventory expense as offsets to gross-margin benefits.
- Cash flow: Nine-month operating cash flow was $30.0 million versus $20.6 million. Investing used $53.8 million, chiefly for $49.6 million of marketable securities purchases and $4.3 million of capital expenditures. Financing provided $14.9 million, including $58.7 million in net equity proceeds, offset principally by $39.0 million of debt repayment and $6.9 million of dividends.
- Liquidity and debt: At September 30, cash and equivalents were $17.4 million and short-term marketable securities were $49.7 million, totaling $67.1 million. Total debt was zero after full repayment of the term loan; the $25 million revolving facility was undrawn and available. The company reported compliance with facility covenants.
- Other: Total assets were $289.5 million and stockholders’ equity $249.0 million. The quarterly dividend was $0.11 per share. A July/August offering of 1.15 million shares generated approximately $58.7 million net, diluting existing holders.
Changes, outlook and risks
- Q3 sales growth was modest compared with the 25% nine-month increase; management said the COVID-19 delta variant reduced demand in some geographies and sales were lower than Q2. Pandemic-related procedural and hospital-access restrictions continued to make demand unpredictable.
- Q3 gross margin improved year over year partly because the prior-year period included acquisition-related purchase accounting for Artegraft. For the nine-month period, gross margin was unchanged.
- European regulatory requirements remain a material exposure. CE-mark changes restricted eligible tissue suppliers and product indications for certain devices, potentially raising costs, reducing margins or limiting sales. Omniflow II validation and potential supply constraints could also lead to European backorders.
- The filing identifies global supply-chain disruption, higher input costs, regulatory approvals, acquisition integration and product demand as risks. Management said cash, investments and interest income should cover anticipated requirements for at least 12 months. It expects to continue rebuilding staffing, including sales personnel; no numerical revenue or earnings guidance is provided.
- Potential Artegraft earn-outs total up to $17.5 million, subject to sales targets. Admedus-related contingent consideration was amended; the company recorded a $0.5 million liability reduction for estimated costs deductible from a potential CE-mark payment. Total acquisition-related fair-value liabilities were $1.7 million at quarter-end.
- Management reported no legal matter expected to have a material adverse effect and concluded disclosure controls were effective. It noted no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether demand recovers from COVID-19 effects and whether growth remains dependent on Artegraft and other acquired products.
- Progress on European MDR/CE-mark approvals, approved tissue suppliers, Omniflow II validation and any resulting sales or margin effects.
- Inventory quality and manufacturing efficiency, given higher write-down provisions and excess/obsolete inventory expense.
- Use of equity-offering proceeds, future acquisition-related payments and whether the undrawn revolver remains available under its covenants.
- Achievement of Artegraft earn-out targets and the timing and final amount of Admedus contingent consideration.