LeMaitre Vascular, Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013; filing signed March 21, 2014. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars unless noted.
Business context
LeMaitre develops, manufactures, and sells medical devices and implants primarily for peripheral vascular surgery. Its portfolio spans 14 product lines, including valvulotomes, balloon catheters, carotid shunts, and biologic patches. The company sells primarily through its direct sales force; about 92% of 2013 net sales came from direct-sales markets. It operates as one reportable segment.
Financial performance and liquidity
- Revenue: $64.5 million, up 14% from $56.7 million in 2012. Americas revenue rose 11% to $42.7 million; international revenue rose 19% to $21.9 million.
- Profit: Gross profit was $45.1 million; operating income was $4.5 million; net income was $3.2 million. Diluted EPS was $0.20, compared with $0.16 in 2012.
- Margins: Gross margin fell to 69.9% from 72.0%. Operating margin was approximately 7.0% and net margin approximately 5.0% of sales.
- Cash flow: Operating cash flow was $5.4 million, investing cash outflow was $6.2 million, and financing cash outflow was $1.0 million. Cash and cash equivalents declined $1.7 million to $14.7 million.
- Liquidity and obligations: Current assets were $41.7 million and current liabilities $10.2 million. The company said available cash and expected interest income should cover anticipated requirements for at least 12 months. The balance sheet shows no funded debt; total liabilities were $13.9 million. Contractual obligations included $8.8 million of operating leases and $4.4 million of inventory purchase commitments.
- Capital returns: Dividends declared totaled $0.12 per share in 2013, up from $0.10 in 2012. The board approved a $0.035-per-share quarterly dividend in February 2014. The share-repurchase program expired December 31, 2013.
Changes versus comparable periods
- 2013 sales growth reflected higher selling prices and unit sales, plus acquisitions. Biologic patch sales increased $2.6 million; catheter sales rose $1.3 million; valvulotome sales rose $1.2 million. Newly acquired powered phlebectomy systems contributed $1.3 million of sales.
- Gross margin declined 2.1 percentage points, primarily due to geographic and product mix, higher biologic-patch manufacturing start-up costs, and costs associated with Clinical Instruments. Management also cited improved manufacturing efficiencies and higher selling prices as offsets.
- Operating income increased from $4.2 million to $4.5 million, while net income rose from $2.6 million to $3.2 million. The 2013 results included $0.6 million of medical-device excise tax; 2012 included a $0.2 million gain on divestitures.
- Fourth-quarter sales were $17.9 million versus $14.8 million in Q4 2012; operating income was $1.2 million versus $0.9 million, and net income was $0.7 million versus $0.7 million.
Outlook, commentary, and material risks
- Management did not provide a specific revenue or earnings forecast. It expected 2014 selling and marketing costs to increase as it began direct hospital sales in Australia and Norway, and expected higher general and administrative costs related to Australia. Management expected the effective tax rate to rise in 2014.
- The XenoSure manufacturing transition was expected to weigh on biologic-patch margins in 2014, with potential improvement beginning in 2015. Management cautioned that timing, costs, and benefits were uncertain. Clinical Instruments production was also being transferred to Burlington, with possible transition delays or product shortages.
- In February 2014, the company announced an operational-efficiency plan that included reducing its workforce by approximately 10%; estimated termination costs were $0.2 million to $0.4 million, mainly expected in 2014.
- LeMaitre acquired Clinical Instruments and InaVein in 2013. InaVein’s purchase included up to $1.4 million in contingent consideration tied to sales performance and regulatory approval in China.
- Risks include competition and price pressure; the shift from open surgery toward endovascular procedures; reliance on limited-source suppliers and third-party manufacturers; international currency and collection risks; reimbursement and regulatory changes; and acquisition and manufacturing-integration risks. Patents associated with the valvulotome line, the company’s highest-sales product line in 2013, were due to expire in 2015.
- The company disclosed voluntary recalls of certain AlboGraft graft lots in 2011, 2012, and 2013. Earlier sales prohibitions in France and the UK were lifted by the end of 2012. Management reported no litigation matters at year-end that it believed would materially affect financial position, results, or cash flows.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2013; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether 2014 sales growth and gross-margin performance support management’s expectations despite transition costs, mix pressures, and higher direct-sales spending.
- Progress and costs of the XenoSure and Clinical Instruments manufacturing transfers, including any effect on supply, quality, or customer demand.
- Whether AlboGraft quality issues recur and whether any further recalls, restrictions, or related costs arise.
- Collection trends for Italian and Spanish receivables, which totaled $1.7 million combined at year-end, and the adequacy of credit-loss allowances.
- The effect of 2015 valvulotome patent expirations on competition, pricing, market share, and margins.
- The reported second-quarter 2013 inventory valuation correction: the filing says it corrected an inventory understatement that otherwise would have understated cost of sales by $0.4 million and overstated quarterly net income by $0.3 million.