LeMaitre Vascular, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. LeMaitre develops, manufactures and sells medical devices primarily for vascular surgery and provides human-tissue processing and cryopreservation services. Amounts below are USD millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $40.7 | $24.9 | $76.6 | $55.4 |
| Gross profit / margin | $26.8 / 65.8% | $17.0 / 68.5% | $50.6 / 66.0% | $37.5 / 67.7% |
| Operating income | $11.1 | $4.9 | $19.1 | $9.2 |
| Net income | $8.3 | $3.5 | $14.2 | $6.7 |
| Diluted EPS | $0.40 | $0.17 | $0.68 | $0.33 |
| Operating cash flow | Not separately stated | Not separately stated | $16.0 | $6.5 |
Q2 sales grew 64% year over year; first-half sales grew 38%. Q2 operating and net margins were approximately 27.3% and 20.4%, respectively, versus 19.6% and 14.1% a year earlier. First-half operating and net margins were approximately 24.9% and 18.6%, versus 16.7% and 12.0%.
Balance sheet, cash flow and capital
- At June 30, cash and cash equivalents were $21.5 million, with $0.2 million of short-term marketable securities. Current assets were $90.0 million and current liabilities $21.5 million.
- Cash declined $5.2 million from year-end 2020. First-half operating cash flow of $16.0 million was offset by $2.5 million of investing outflows and $18.5 million of financing outflows. Financing included $16.0 million of debt payments and $4.5 million of dividends.
- Debt on the June 30 balance sheet was $22.4 million net of unamortized issuance costs. The company reported $23.0 million of outstanding borrowings at 3.25%; it was in covenant compliance.
- After quarter-end, the company repaid the term loan in full by July 21 and reported its revolving facility undrawn. A July offering of 1.0 million shares generated approximately $51.0 million net; the underwriters later purchased another 150,000 shares, generating approximately $7.6 million net.
- Quarterly dividend declared was $0.11 per share, up from $0.095 in the comparable 2020 periods. A $15 million share-repurchase authorization was in place, with no repurchases made to date.
Drivers and material changes
- Growth reflected recovery from the more severe COVID-19 impact on 2020 sales, as well as acquired Artegraft graft sales. Artegraft contributed $6.5 million of incremental Q2 sales and $12.3 million for the first half. Higher valvulotome and carotid-shunt sales also contributed.
- Americas sales rose 83% in Q2 and 53% for the first half; EMEA sales rose 36% and 13%; Asia/Pacific Rim sales rose 30% and 27%, respectively. The weaker U.S. dollar added an estimated $1.2 million to Q2 sales and $2.1 million to first-half sales.
- Gross margin contracted 270 basis points in Q2 and 170 basis points for the first half. Management cited manufacturing inefficiencies related to COVID-era staffing reductions and higher excess/obsolete inventory charges; the first-half comparison also reflected greater lower-margin allograft service revenue.
- Operating expenses increased 29% in Q2 and 11% for the first half, primarily reflecting restored compensation and rehiring after 2020 cost reductions. As a percentage of sales, expenses declined due to revenue growth.
Outlook, risks and unusual items
- No numerical full-year sales or earnings guidance is provided. Management expects variable sales may continue as COVID-19 and variants affect hospital procedures and representative access. It expects to add personnel in the second half of 2021 and believes cash, investments and interest income will cover anticipated needs for at least 12 months.
- European regulatory approvals remain a significant operating risk. CE-mark changes and certification delays caused backorders; certain products received temporary country-level authorizations. New sourcing restrictions for bovine patches may raise costs and reduce margins. The company also noted potential future Omniflow II supply disruption if its certification transfer or MDR approval is delayed.
- Other stated risks include international regulatory compliance, product demand and acceptance, acquisition integration, competitive pressure, foreign-exchange movements, and continued effects of COVID-19. Management said the pandemic’s future impact could not be reasonably estimated.
- Acquisition-related contingent obligations were reported at $2.3 million at June 30; potential Artegraft earn-outs depend on unit sales targets through 2023. First-half inventory write-down provisions were $2.2 million. Unrecognized tax benefits were $0.8 million, with relevant tax years open to examination through 2028.
- Management reported no legal matters believed likely to have a material adverse effect and concluded disclosure controls were effective at reasonable assurance levels.
Investor verification points
- Check whether sales growth and margins persist after the unusually weak COVID-affected 2020 comparison, and assess the contribution and profitability of Artegraft.
- Track gross-margin recovery, inventory write-downs, and the sourcing and cost effects of European regulatory restrictions.
- Verify completion of debt repayment, use of equity-offering proceeds, dilution from the 1.15 million shares issued, and subsequent dividend or repurchase decisions.
- Monitor CE-mark/MDR milestones, temporary authorizations, product backorders and Omniflow II certification and supply status.
- Assess cash conversion and working-capital needs, including acquisition earn-outs and other deferred obligations.