LeMaitre Vascular, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing; fourth-quarter figures below are unaudited supplemental data. The company develops, manufactures, and sells medical devices and implants for peripheral vascular disease, primarily through a direct sales force. It reported one operating segment.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $56.7 million | $57.7 million |
| Gross profit / gross margin | $40.9 million / 72.0% | $40.2 million / 69.7% |
| Operating income / margin | $4.2 million / 7.5% | $3.7 million / 6.4% |
| Net income | $2.6 million | $2.1 million |
| Diluted EPS | $0.16 | $0.13 |
| Cash from operations | $4.7 million | $3.2 million |
- Sales fell 2% year over year: Americas sales increased 4% to $38.3 million, while international sales declined 11% to $18.5 million. Management attributed the overall decline chiefly to exiting stent-graft products and a weaker euro.
- Gross margin improved 2.3 percentage points, supported by higher prices, improved manufacturing costs after prior-year transitions, and product/geographic mix. Sales and marketing expense rose 7% to $20.8 million; R&D expense rose 15% to $5.1 million. No restructuring charge was recorded in 2012, versus $2.2 million in 2011.
- Net income rose despite lower sales, but FY2011 included a $0.7 million divestiture gain and FY2012 had a $0.3 million foreign-exchange loss. FY2010 net income of $6.0 million included a substantial tax benefit, making that comparison less representative.
- Q4 2012 sales were $14.8 million, operating income $0.9 million, and net income $0.7 million, compared with $13.4 million, $0.8 million, and $0.3 million, respectively, in Q4 2011.
- Year-end cash and cash equivalents were $16.4 million, down from $20.1 million. Current assets were $39.1 million and current liabilities $8.4 million (approximately 4.7x current ratio); working capital was $30.7 million. Cash from operations was partly offset by acquisition spending, capital expenditures, dividends, and share repurchases. Inventory increased to $10.9 million from $8.0 million.
- Total liabilities were $10.2 million and equity $52.9 million. The balance sheet lists no conventional borrowings; the Italian government loan and grant had been repaid in 2011. Management said available cash and expected interest income should fund anticipated needs for at least 12 months. No off-balance-sheet arrangements were reported.
Material changes, outlook, and risks
- In October 2012, the company acquired XenoSure biologic patch manufacturing and distribution rights for $4.6 million. Manufacturing transfer and clean-room build-out were expected to continue through the second half of 2013, pressuring gross profit; management expected XenoSure margins to improve beginning in 2014, subject to execution and supply risks.
- Management expected 2013 sales and marketing and general and administrative costs to increase with direct-sales expansion, R&D expense to increase marginally, and the 2.3% U.S. medical-device excise tax to reduce operating income by about $0.7 million. No specific consolidated revenue or earnings guidance was provided.
- The company expanded direct selling in Switzerland and planned direct selling in a Japanese territory; it began shipping directly to Canadian customers in March 2013. About 94% of 2012 sales came through direct-sales markets. Direct conversions may disrupt sales, collections, and cash flows.
- AlboGraft graft failures led to two voluntary lot recalls and sales prohibitions in the U.K. and France in 2012. The restrictions were lifted, including removal of the U.K. testing condition effective January 1, 2013, but combined U.K./French sales fell to $0.5 million in 2012 from $1.0 million in 2011. Further product or regulatory issues could affect sales and reputation.
- Other principal risks include intense competition and the shift from open surgery toward endovascular procedures; reliance on limited-source suppliers; foreign-exchange exposure and slow collections in parts of Europe; reimbursement and regulatory changes; and product-liability exposure. Patents on the company’s highest-sales valvulotome line were due to expire in 2015.
- Italy and Spain receivables totaled $1.6 million at year-end and may be subject to extended payment delays. Management reported no litigation matters expected to have a material adverse effect. The independent auditor gave an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective.
Key facts for investors to verify
- Whether the XenoSure manufacturing transfer met timelines and delivered the anticipated margin improvement, and whether supply supported demand during the transition.
- Post-recall AlboGraft complaint trends, sales recovery in the U.K. and France, and any additional regulatory actions or recall costs.
- Whether core-product growth can offset the loss of stent-graft revenue and the competitive and procedural shift toward endovascular treatments.
- Collection progress on European receivables, inventory levels and write-downs, and the impact of currency movements.
- The actual effect of the medical-device excise tax and direct-sales expansion on 2013 costs, cash generation, dividends, and repurchases.