LeMaitre Vascular, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Unless otherwise stated, financial amounts below are in U.S. dollars.
Business context
LeMaitre develops, manufactures and sells vascular medical devices and provides human-tissue cryopreservation services. Its products are used mainly in peripheral vascular procedures, with most sales serving open vascular surgery. The company sells primarily through its direct sales force; direct-to-hospital sales were 95% of 2020 revenue. The June 2020 Artegraft acquisition added bovine vascular grafts.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $129.4 million | $117.2 million | +10% |
| Gross profit / margin | $84.6 million / 65.4% | $79.9 million / 68.1% | Profit +6%; margin down 2.7 percentage points |
| Operating income / margin | $28.8 million / 22.3% | $21.2 million / 18.1% | +36% |
| Net income | $21.2 million | $17.9 million | +18% |
| Diluted EPS | $1.04 | $0.88 | +18% |
| Operating cash flow | $34.8 million | $14.2 million | +$20.6 million |
Revenue growth was substantially acquisition-driven: Artegraft contributed $10.8 million and CardioCel $5.3 million, while higher valvulotome sales contributed $3.9 million. Foreign exchange added an estimated $0.8 million. These gains were partly offset by declines in several product lines, including carotid shunts and XenoSure patches. Artegraft contributed $11.1 million in revenue from its acquisition date.
Gross margin declined primarily due to Artegraft purchase-accounting effects, manufacturing inefficiencies and product mix. Sales and marketing expense fell 22% to $23.7 million, mainly reflecting pandemic-related cost reductions. General and administrative expense rose 18% to $22.5 million, including higher acquisition costs and amortization; research and development expense increased 9% to $10.1 million, with higher clinical and regulatory spending.
Fourth quarter: Revenue was $37.5 million versus $30.2 million in Q4 2019; net income was $7.0 million versus $4.6 million. Management attributed much of the second-half year-over-year revenue growth to Artegraft and foreign exchange, so the reported growth should not be treated as wholly organic.
Liquidity, debt and capital allocation
At year-end, cash and cash equivalents were $26.8 million, short-term marketable securities were $0.2 million, and current assets were $94.3 million against current liabilities of $25.1 million. The company reported $39.0 million of debt outstanding under its senior secured credit facility, including a $40 million term loan; the $25 million revolving line had been repaid. The term loan bore a 3.5% rate at year-end, and the company was in compliance with its debt covenants. Cash and short-term securities less stated debt were approximately $12.0 million.
Operating cash flow of $34.8 million was supported by earnings, noncash charges and working-capital movements. Investing activities used $52.9 million, including $72.6 million of acquisition-related payments, partly offset by marketable-security sales and proceeds from the Australian building sale. Financing activities provided $32.2 million, primarily from borrowing. The company paid $7.7 million in dividends during 2020; the quarterly dividend was increased to $0.11 per share in February 2021. Management stated that available cash, investments and expected interest income should meet anticipated requirements for at least 12 months.
Material changes, outlook and risks
- COVID-19: Pandemic-related hospital restrictions and limits on sales-representative access disrupted demand, particularly for elective procedures. Q2 2020 sales fell approximately 16% year over year; management expected COVID-19 to continue affecting revenue, gross profit and gross margin in 2021, with the magnitude uncertain. The company reduced its workforce by approximately 13% and temporarily cut some salaries in 2020, restored salaries on August 31, and began rehiring.
- European regulatory exposure: Some CE marks lapsed after a notified body discontinued services. The affected products had backorders of approximately $0.2 million at year-end, and temporary authorizations were time-limited. Recertification depended in part on closing an open Burlington audit. New EU Medical Device Regulation requirements, effective May 2021, add clinical and certification demands and could delay or prevent sales of affected products.
- Acquisition and unusual items: The Artegraft transaction involved $72.5 million paid at closing and up to $17.5 million in sales-based earn-outs. The company recorded a $0.5 million gain on the sale of its North Melbourne building. It also conducted a worldwide recall in March 2020 of a substantial number of TufTex over-the-wire embolectomy catheters due to a risk of balloon failure to deflate.
- Other operating risks: The company depends on limited-source suppliers, including Anteris for CardioCel and VascuCel patches, and faces risks from product recalls, reimbursement and pricing pressure, foreign exchange, competition and the shift toward endovascular procedures. Approximately 42% of 2020 sales were outside the United States.
- Guidance: The filing provides no specific 2021 revenue or earnings guidance. Management described continued pandemic uncertainty, anticipated additional hiring, and ongoing regulatory, clinical and manufacturing-transfer work.
- Contingencies and controls: Management reported no legal matters expected to have a material adverse effect as of year-end. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Key facts for investors to verify
- How much of subsequent revenue growth is organic versus attributable to Artegraft, CardioCel and other acquisitions.
- Progress and timing of CE-mark renewals, closure of the Burlington audit, and the revenue exposure if approvals or temporary authorizations lapse.
- Whether gross margin recovers as acquisition accounting effects ease and manufacturing transfers are completed.
- Debt repayment, covenant headroom, interest-rate exposure and capacity to sustain dividends or repurchases.
- Any further COVID-19 effects on elective procedures, sales access, tissue procurement and operating costs.
- Developments relating to the TufTex recall, product quality, and the continuity of supply from Anteris and other limited-source suppliers.