LeMaitre Vascular, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012; filed November 9, 2012. The company develops, manufactures, and sells devices and implants primarily for vascular surgery, operating as one segment.
Financial performance
Amounts in millions, except per-share data and margins; comparisons are with the corresponding 2011 periods.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net sales | $13.645 | $14.564 | $41.934 | $44.274 |
| Gross profit / margin | $10.015 / 73.4% | $10.183 / 69.9% | $30.430 / 72.6% | $30.704 / 69.4% |
| Income from operations | $1.001 | $1.991 | $3.310 | $2.858 |
| Net income | $0.663 | $1.214 | $1.873 | $1.797 |
| Diluted EPS | $0.04 | $0.08 | $0.12 | $0.11 |
| Operating cash flow | Not stated quarterly | $4.295 | $3.473 |
- Q3 sales declined 6%; nine-month sales declined 5%. International sales fell 13% in Q3 and 17% year to date, while nine-month Americas sales rose 2%.
- Gross margin improved despite slightly lower gross profit. Management attributed the improvement to higher prices, product and geographic mix, lower manufacturing-transition costs, and reduced costs after plant consolidation; inventory write-offs and manufacturing inefficiencies partly offset gains.
- Q3 operating income fell to $1.0 million, partly reflecting a $0.7 million smaller divestiture gain than in Q3 2011 and higher operating expenses. Nine-month operating income increased despite lower sales, helped by the absence of prior-year restructuring costs.
- Cash and cash equivalents were $20.639 million at September 30, versus $20.132 million at December 31, 2011. Current assets were $42.191 million and current liabilities $8.195 million. The company reported no debt on the balance sheet; the Italian government loan had been repaid in 2011.
- Nine-month operating cash flow was $4.295 million; investing cash outflow was $0.667 million and financing cash outflow was $3.096 million. Inventory increased $2.127 million from year-end to $10.130 million; the cash-flow statement shows a $3.078 million inventory-related use of cash.
- Total assets were $61.192 million, total liabilities $9.286 million, and stockholders’ equity $51.906 million at September 30.
Changes, outlook, and material items
- Sales were pressured by the 2011 exit from stent-graft products, which accounted for $1.1 million of Q3 2011 sales and $4.0 million for the first nine months of 2011, as well as weaker euro exchange rates and lower polyester-graft sales. Biologic-patch sales and higher prices partly offset those declines.
- In October 2012, after quarter-end, LeMaitre acquired manufacturing and distribution rights for the XenoSure biologic vascular patch for $4.6 million ($4.3 million paid at closing and $0.3 million due in 2013). It expects the manufacturing transition to weigh on gross profit in 2013 and anticipates potential margin improvement beginning in 2014; results are not assured.
- Management estimated the U.S. medical-device excise tax, effective in 2013, would reduce operating income by approximately $1.0 million. It expected its effective tax rate to remain fairly constant through the rest of 2012.
- Management said cash and cash equivalents and related resources should meet anticipated requirements for at least 12 months. No specific revenue or earnings guidance was provided. The company approved a $0.025-per-share dividend payable in December 2012 and had $3.6 million remaining under its stock-repurchase authorization at quarter-end.
- AlboGraft: Following recalls and U.K. and French sales prohibitions, both prohibitions were rescinded in July 2012. U.K. sales remained subject to testing before implantation; the regulator indicated this condition might be removed from January 2013, but gave no guarantee. Management warned that prior restrictions may continue to hurt sales and that further defects, recalls, or regulatory actions could cause costs and reputational damage. At quarter-end, related inventory was approximately $2.3 million and intangibles $0.5 million.
- Other risks include foreign-exchange exposure, acquisition and manufacturing-transition execution, product regulation and liability, and competition. The filing reported no legal matters that management believed would materially adversely affect the company’s financial position, results, or cash flows. Contractual obligations totaled $5.589 million, including operating leases and inventory purchase commitments.
Important facts for investors to verify
- Whether AlboGraft testing requirements are lifted as expected and whether product complaints, sales restrictions, or inventory exposure change.
- Actual XenoSure transition costs, supply continuity, manufacturing yields, and gross-margin performance against the stated 2013–2014 expectations.
- Drivers of falling international sales, including currency effects, product-line exits, and recovery in European markets.
- Inventory growth and write-down exposure, and whether operating cash generation remains adequate after dividends, repurchases, and acquisition spending.
- The filing’s cash-flow statement reports September 2011 ending cash of $23.087 million, while an MD&A comparison table gives $23.807 million; confirm the intended comparative figure.