LeMaitre Vascular, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless stated otherwise. The company develops, manufactures, and sells vascular surgery devices and implants, primarily through its direct sales force. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Net sales | $18.947 | $16.754 |
| Gross profit / gross margin | $13.117 / 69.2% | $11.224 / 67.0% |
| Operating income (loss) / margin | $2.309 / 12.2% | $(0.231) / (1.4%) |
| Net income (loss) | $1.369 | $(0.207) |
| Diluted EPS | $0.08 | $(0.01) |
| Cash from operations | $(0.600) | $(1.689) |
| Cash and cash equivalents | $17.025 at March 31 | $18.692 at December 31, 2014 |
| Total assets / liabilities | $79.573 / $11.646 | $81.492 / $13.285 at December 31, 2014 |
Gross margin improved 2.2 percentage points. Current assets were $47.8 million against current liabilities of $8.4 million. The balance sheet lists no borrowing balance; acquisition-related obligations were $1.2 million current. Operating cash outflow reflected working-capital uses, notably a $1.7 million increase in receivables, $0.4 million increase in inventory, and $1.1 million decrease in accounts payable and other liabilities. Capital expenditures were $0.3 million. The company paid $0.7 million in dividends during the quarter and declared a further $0.04-per-share dividend, approximately $0.7 million, payable in June.
Changes versus Q1 2014
- Sales rose 13% to $18.9 million: Americas sales increased 12% and international sales 15%. Acquired biosynthetic vascular grafts contributed $1.0 million.
- Management attributed growth mainly to biologic patches and valvulotomes, each up $0.6 million, plus radiopaque tape and powered phlebectomy devices. Cholangiogram catheters and catheters each declined $0.2 million.
- Reported foreign-exchange effects reduced sales by $1.5 million. Direct-to-hospital sales remained 93% of total.
- Gross profit increased 17%; management cited manufacturing efficiencies, higher average selling prices, and completion of the biologic patch manufacturing transition. Foreign exchange and biosynthetic graft costs partly offset improvement.
- Operating expenses fell 6% to $10.8 million. There were no restructuring charges, compared with $0.4 million in Q1 2014; sales and marketing and R&D expenses also declined, while G&A increased 9%.
- Net cash used in operations improved by $1.1 million year over year, but remained negative. Cash declined $1.7 million from year-end, including a $0.2 million unfavorable exchange-rate effect.
Outlook, risks, and notable items
- Management estimated that the strong U.S. dollar could reduce 2015 revenue by about $5.1 million, gross margin by 1.9 percentage points, and operating income by about $2.5 million versus 2014 exchange rates. These are estimates and actual effects may differ.
- The company expected to expand its sales force in 2015, increasing selling and marketing costs, and expected higher G&A costs primarily from its China subsidiary. It anticipated stronger growth in Europe and non-traditional markets such as China and Saudi Arabia, while noting those markets generally have lower selling prices.
- Management believed cash and equivalents, investments, and interest income would fund anticipated requirements for at least 12 months. Future cash needs depend in part on sales, dividends, acquisitions, expansion, and regulatory costs.
- Contractual obligations totaled $12.5 million: $7.8 million of operating leases and $4.7 million of inventory purchase commitments. No off-balance-sheet arrangements were reported.
- Risks highlighted include acquisition integration and realization of expected benefits; product demand and market acceptance; XenoSure margin and manufacturing execution; recruiting and retaining staff in new markets; and successful transition to direct selling. Competitive pressure in polyester and ePTFE grafts and radiopaque tape, foreign-exchange exposure, and potential downward gross-margin pressure from lower-priced markets were also discussed.
- The company reported $72,000 of unrecognized tax benefits and a $3.2 million valuation allowance against deferred tax assets. Management said the 2015 effective tax rate could increase if the federal R&D tax credit was not reinstated. A new revenue-recognition standard was under assessment; its impact had not been determined.
- One acquisition-related sales milestone remained contingent; management did not expect to make the payment. The company reported no legal matters it believed would materially adversely affect its financial position, results, or cash flows. Disclosure controls were deemed effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether revenue growth and improved gross margin persist after considering currency effects, acquisition contribution, product mix, and lower-priced international sales.
- Whether operating cash flow turns positive as receivables and other working-capital balances convert to cash.
- Actual 2015 foreign-exchange impact versus management’s estimates, and the effect on sales, margins, and operating income.
- Execution and economics of the direct-sales expansion, China operations, and acquired biosynthetic graft business, including expected growth and margins.
- Cash use from dividends, acquisition obligations, leases, and inventory commitments, and whether liquidity remains adequate as planned costs evolve.