LeMaitre Vascular, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; compared with Q1 2017 unless otherwise noted. LeMaitre develops, manufactures and sells vascular surgery devices and provides human-tissue processing and cryopreservation services. It reports as one operating segment.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Net sales | $26.0 million | $24.1 million | +8% |
| Gross profit / margin | $18.5 million / 71.1% | $17.4 million / 71.9% | Profit +6%; margin down 0.8 percentage points |
| Operating income | $4.9 million | $4.2 million | +16% |
| Net income | $3.9 million | $3.2 million | +20% |
| Diluted EPS | $0.19 | $0.16 | +$0.03 |
| Cash from operating activities | $3.8 million | $2.5 million | +$1.3 million |
- Gross margin declined mainly due to higher manufacturing and scrap costs and a greater share of lower-margin allograft revenue; higher selling prices and favorable foreign exchange partly offset the decline.
- Operating expenses rose 3% to $13.6 million: sales and marketing +2%, general and administrative +3%, and R&D +10%. R&D spending included regulatory submissions in China and Japan and animal testing.
- The effective tax rate was 21.6%, versus 24.1% a year earlier. Q1 2018 tax expense was $1.1 million on pretax income of $4.9 million.
- Cash and cash equivalents were $22.8 million at March 31, up from $19.1 million at year-end 2017; short-term marketable securities were $22.6 million. Cash plus those securities totaled $45.4 million.
- Total current assets were $84.0 million and current liabilities $12.6 million. Total liabilities were $15.9 million; the balance sheet reports no borrowings or conventional debt balance. Acquisition-related obligations were $2.1 million current.
- Operating cash flow included a $2.1 million use of cash from lower accounts payable and other liabilities, partly offset by lower receivables. Investing used $0.5 million; financing provided $0.3 million. Cash increased $3.7 million during the quarter.
Business trends and changes
- Americas sales increased 6% to $15.9 million; EMEA rose 15% to $8.8 million; Asia/Pacific fell 11% to $1.4 million, mainly reflecting weaker powered-phlebectomy sales in China.
- Sales gains included biologic vascular patches, allografts, valvulotomes, shunts and Omniflow II grafts; powered phlebectomy and anastomotic clips declined. Biologic devices represented 36% of worldwide sales.
- Direct-to-hospital sales were 95% of revenue, versus 93% a year earlier. Approximately 43% of sales were outside the United States. Favorable currency movements increased reported sales by about $1.2 million year over year.
- The company ended its China master distribution agreement for powered phlebectomy products in March and began direct sales to sub-distributors in April. Management expects higher China sales, marketing and regulatory costs during 2018.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said existing cash, investments and interest income should cover anticipated cash requirements for at least 12 months, while noting future needs depend on sales, dividends, acquisitions, taxes and expansion spending.
- On April 5, 2018, after quarter-end, the company agreed to sell the Reddick cholangiogram catheter and Reddick Saye-Screw product lines for $7.4 million. It expected to record a $5.5–$6.0 million gain in Q2 2018. Supply and transition-services agreements extend for up to six years and two years, respectively, subject to their terms.
- The board declared a $0.07-per-share quarterly dividend payable June 7, 2018. The company had not repurchased shares under its $7.5 million authorization, which was scheduled to expire July 25, 2018 unless extended.
- Key stated risks include quarterly result fluctuations, competition and product acceptance, sales-force productivity, acquisition integration, product recalls, international expansion and foreign-exchange exposure. The company said previously disclosed risk factors had not substantively changed. It reported no legal matters believed to have a material adverse effect and no off-balance-sheet arrangements.
- LeMaitre adopted revenue-recognition Topic 606 on January 1, 2018; adoption was not material. Adoption of lease-accounting Topic 842 was expected to materially increase balance-sheet assets and liabilities, though the assessment was incomplete.
Important facts for investors to verify
- Whether revenue growth persists and how much reflects underlying volume and pricing versus the approximately $1.2 million favorable foreign-exchange effect.
- Whether gross-margin pressure from manufacturing costs, scrap and allograft mix continues or reverses.
- Progress, costs and sales outcomes from the transition to direct distribution in China.
- Completion and accounting for the Reddick divestiture, expected Q2 gain, and ongoing supply obligations.
- Cash conversion, acquisition-related obligations, dividend sustainability and the company’s assessment of lease-accounting effects.