LeMaitre Vascular, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Unless noted, financial amounts are USD millions. The company develops, manufactures and sells vascular medical devices and provides human-tissue processing and cryopreservation services, operating as one segment.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $47.4 | $39.0 | $144.6 | $120.7 |
| Gross profit / margin | $30.8 / 65.0% | $25.1 / 64.2% | $93.8 / 64.9% | $78.8 / 65.3% |
| Operating income / margin | $9.2 / 19.4% | $6.2 / 15.8% | $26.5 / 18.3% | $19.9 / 16.5% |
| Net income | $7.5 | $5.5 | $21.6 | $15.0 |
| Diluted EPS | $0.33 | $0.25 | $0.97 | $0.68 |
- Q3 sales rose 21%; nine-month sales rose 20%. Growth reflected higher procedure volumes, pricing, added sales representatives and new porcine patch sales. Nine-month porcine patch sales were $2.6 million.
- Q3 gross margin increased 0.8 percentage points, attributed to product mix and manufacturing efficiencies, partly offset by scrap and obsolescence. Nine-month margin declined 0.5 points, reflecting labor costs, mix and scrap/obsolescence charges.
- Operating expenses increased 14% in both periods year over year. Nine-month sales and marketing rose 27% and R&D rose 30%, including spending on sales-force expansion and European regulatory approvals. Restructuring expense was $0.5 million for the nine months, versus $3.1 million in the 2022 comparable period.
- Interest income was $0.8 million in Q3 and $2.1 million for the nine months. The nine-month effective tax rate was 23.1% versus 23.8% in 2022; Q3 rates were 23.6% and 11.3%, respectively.
Cash flow, liquidity and obligations
- Nine-month operating cash flow was $26.0 million, up from $21.3 million. Working capital used $8.6 million, including a $7.6 million increase in inventory and deferred costs.
- Investing activities used $22.5 million, primarily $15.6 million for marketable securities and $6.0 million for property, equipment and other assets. Financing activities used $4.4 million, including $9.3 million in dividends.
- At September 30, cash and equivalents were $18.1 million and short-term marketable securities were $79.0 million, together $97.0 million. Current assets were $182.2 million and current liabilities $29.0 million. Securities carried a $2.0 million unrealized loss attributed to rising interest rates.
- The balance sheet reports no borrowings. Lease liabilities totaled approximately $16.9 million, of which $2.7 million was current; total liabilities were $45.4 million. Management said cash, investments and related interest income should cover anticipated requirements for at least 12 months and known long-term requirements.
- The company paid $0.14 per share in each of the first three 2023 quarters; a further $0.14 dividend was approved for payment in November. A $25 million share-repurchase authorization runs through February 2024; no program repurchases had been made by the filing date.
Outlook, commentary and risks
- No specific revenue or earnings guidance is provided. Management expects to launch the PhasTIPP device in 2024 and expects to spend approximately $7 million implementing a new ERP system in 2024; implementation may not be timely or successful.
- Management cited opportunities in direct sales, pricing, acquisitions, new territories and manufacturing consolidation. It also noted competitive pressure, potential margin pressure from international sales, and risks in integrating acquisitions and transitioning distributors to direct sales.
- European MDR approvals remain a significant execution risk. Most products have been submitted for review; the Burlington-made CardioCel product application was submitted in June 2023, with an anticipated 18–24-month process. Failure or delay in obtaining required CE/UKCA marks could affect sales.
- Foreign exchange affects results: the stronger U.S. dollar reduced nine-month 2023 sales by an estimated $0.3 million, while Q3 currency movements increased sales by an estimated $0.7 million year over year. The company reported no material change in market risks and had not used currency derivatives in 2023 or recent years.
- In September, the Anteris contingent-payment agreement was amended. Up to $2.0 million related to CE marks, less eligible costs, may be payable by January 2025 if approvals are not obtained by then. The recorded contingent-liability balance was $1.3 million at quarter end.
- In October 2023, four Burlington building leases were extended by four years, to December 2034. Ordinary-course legal matters were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective at reasonable assurance levels.
Important facts for investors to verify
- Whether sales growth and operating-margin improvement persist as sales-force and R&D expenses rise, and whether gross margin recovers from the nine-month decline.
- Inventory and deferred-cost growth, inventory write-downs, and the conversion of earnings into operating cash flow.
- Progress and costs for MDR/UKCA approvals, especially the CardioCel transfer and the Anteris CE-mark contingency.
- Execution, timing and actual cost of the 2024 ERP implementation, and the PhasTIPP launch schedule.
- Capital allocation and liquidity after dividends, potential repurchases, acquisitions and the extended Burlington lease commitments.