LeMaitre Vascular, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. LeMaitre develops, manufactures, and markets vascular surgery devices and provides human-tissue processing and cryopreservation services. It reports one operating segment.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $27.0m | $25.8m | $53.0m | $49.9m |
| Gross profit / margin | $19.0m / 70.3% | $17.5m / 68.0% | $37.5m / 70.7% | $34.9m / 69.9% |
| Operating income | $11.5m | $5.5m | $16.4m | $9.7m |
| Net income | $8.8m | $4.6m | $12.6m | $7.9m |
| Diluted EPS | $0.43 | $0.23 | $0.62 | $0.40 |
| Operating cash flow | Not stated separately | Not stated separately | $8.6m | $7.9m |
- Quarterly sales grew 5%; first-half sales grew 6%. First-half geographic sales were Americas $31.9m (+3%), EMEA $17.8m (+13%), and Asia/Pacific $3.2m (+5%). Management said favorable currency movements increased first-half reported sales by approximately $1.9m.
- Gross margin improved 2.3 percentage points in Q2 and 0.8 points in the first half, reflecting favorable foreign exchange, product mix, and selling prices; manufacturing inefficiencies partly offset the quarterly improvement.
- Reported operating income and net income include a $5.9m Q2 gain on the Reddick product-line divestiture. Excluding that gain, Q2 operating income was approximately $5.7m, near the prior-year $5.5m.
- Q2 operating expenses before the divestiture gain increased: sales and marketing to $6.8m, general and administrative to $4.5m, and R&D to $2.0m. The company cited higher personnel, professional, acquisition-related, and regulatory/testing costs.
Financial position and cash flows
- At June 30, cash and cash equivalents were $19.6m and short-term marketable securities were $33.3m, up from $19.1m and $22.6m, respectively, at year-end. Total current assets were $92.4m; current liabilities were $13.1m.
- Total liabilities were $16.4m and stockholders’ equity was $120.7m. The balance sheet reports no debt.
- First-half operating cash flow was $8.6m. Investing activities used $4.6m, including $10.8m of marketable-security purchases and $1.2m of capital and other asset expenditures, partly offset by $7.4m of divestiture proceeds. Financing activities used $3.1m, principally dividends and acquisition-related payments.
- The company paid $2.7m in first-half dividends; the quarterly dividend increased from $0.055 to $0.07 per share. A further $0.07 dividend, totaling approximately $1.4m, was approved in July for payment in September.
Material changes, outlook, and risks
- On April 5, 2018, the company sold the Reddick cholangiogram catheter and Reddick Saye-Screw product lines for $7.4m. It will continue manufacturing and supplying products to the buyer under transition arrangements, including a balloon supply agreement. A $1.1m transition-services deferred-revenue balance remained at June 30.
- The company shifted China distribution arrangements toward direct sales to sub-distributors and expected higher sales, marketing, and regulatory costs during 2018. Biologic devices represented 36% of worldwide sales in Q2.
- No numerical full-year earnings or sales guidance is provided. Management said cash, investments, and interest income should cover anticipated requirements for at least the next 12 months. Future cash needs depend on sales, dividends, acquisitions, taxes, expansion, regulatory costs, and other strategic activity.
- Key stated risks include sales and profit fluctuations, competition and product acceptance, product recalls, acquisition integration, execution of direct-sales expansion, foreign-exchange movements, and the possibility that growth initiatives may not deliver expected benefits. The filing reports no material change to previously disclosed risk factors and no legal matters management believed would materially adversely affect results or financial position.
- Revenue recognition standard Topic 606 was adopted January 1, 2018, with no material impact. The company was assessing the new lease standard and expected it could significantly increase balance-sheet assets and liabilities, though it did not expect a significant income-statement effect.
Important facts for investors to verify
- How much of reported earnings growth reflects the one-time $5.9m Reddick gain versus recurring operations?
- Whether sales growth, gross-margin gains, and currency benefits persist, particularly amid increased competition in biologic patches and expansion costs in China.
- How transition-service manufacturing economics and deferred-revenue recognition affect margins after the divestiture.
- The cash and investment liquidity available for dividends, acquisitions, and growth spending, and the effect of adopting lease accounting.
- Tax exposure: unrecognized tax benefits were $578,000, with relevant tax years still open to examination.