LeMaitre Vascular, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. The company develops, manufactures, and sells medical devices and implants primarily for vascular surgery. This unaudited filing covers the quarter and six months ended June 30, 2015, with comparisons to the corresponding 2014 periods. LeMaitre reports as one operating segment.
Key financial results
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $19.9 | $18.2 | $38.8 | $34.9 |
| Gross profit / margin | $13.1 / 66.0% | $12.4 / 68.1% | $26.2 / 67.6% | $23.6 / 67.6% |
| Operating income / margin | $2.8 / 14.0% | $2.0 / 10.9% | $5.1 / 13.1% | $1.7 / 5.0% |
| Net income | $1.8 | $1.3 | $3.1 | $1.1 |
| Diluted EPS | $0.10 | $0.08 | $0.17 | $0.07 |
- Quarterly sales rose 10%; six-month sales rose 11%. The six-month increase was led by biologic vascular patches and valvulotomes; the acquired biosynthetic graft contributed $2.0 million.
- Q2 gross margin fell 2.1 percentage points year over year, reflecting foreign-exchange effects and unfavorable geographic and product mix, partly offset by manufacturing efficiencies and higher selling prices. Six-month gross margin was unchanged.
- Six-month operating expenses declined 3% to $21.1 million, including no restructuring or impairment charges in 2015 versus $0.5 million of restructuring and $0.2 million of impairment charges in 2014. Research and development was $2.5 million, broadly flat.
- Cash from operations was $3.3 million for the first half, versus cash used of $0.1 million in 2014. Investing used $2.0 million, principally for the UreSil acquisition and related distributor agreements; financing used $0.4 million, chiefly for $1.4 million in dividends.
Financial position and liquidity
- At June 30, cash and equivalents were $19.4 million, current assets $50.3 million, and current liabilities $9.2 million. Total assets were $83.2 million and total liabilities $12.8 million.
- The balance sheet presents no interest-bearing debt. Acquisition-related obligations were $1.35 million current; the company expected a final Xenotis payment of approximately $1.1 million in August 2015.
- Cash increased $0.7 million from year-end 2014. Management said available cash and expected cash generation should meet anticipated requirements for at least 12 months.
- Contractual obligations included $7.5 million of operating leases and $3.0 million of inventory purchase commitments. The company reported no off-balance-sheet arrangements.
Changes, outlook, and risks
- Sales growth was supported by patches, valvulotomes, radiopaque tape, and the acquired biosynthetic graft. Foreign exchange reduced first-half sales by $3.2 million; international sales were about 38% of total.
- As of July 28, management estimated that the strong U.S. dollar could reduce 2015 revenue by approximately $5.3 million, gross margin by 1.7 percentage points, and operating income by approximately $2.4 million versus 2014 exchange rates. These were estimates, not formal revenue guidance.
- Management expected sales-force expansion to increase selling and marketing costs, and expected higher G&A costs, primarily from the new China subsidiary. It also expected the federal R&D tax credit’s status to affect the 2015 effective tax rate; the estimated annual rate was 37.2% absent the credit.
- Operational plans included transferring angioscope manufacturing to Burlington by December 2015 and establishing a Burlington production line for Tru-Incise by March 2016. Execution, integration, product demand and acceptance, sales-force productivity, manufacturing capacity and quality, competition, and currency movements were identified as risks.
- The company sold its non-occlusive modeling catheter product-line assets in July 2015 for $0.4 million and expected to recognize a gain in Q3 2015. The board also approved a $0.04-per-share dividend payable September 3, 2015.
- Management reported no legal matter expected to have a material adverse effect and no substantive change to previously disclosed risk factors. Disclosure controls were assessed as effective; no material change in internal control was reported.
Important facts for investors to verify
- Whether sales growth and operating profitability persist after separating acquisition contributions, currency effects, and underlying product performance.
- Actual foreign-exchange impact versus management’s 2015 estimates, and the resulting gross-margin and operating-income effects.
- Progress and costs of the manufacturing transfers, direct-sales expansion, and integration of acquired product lines.
- Cash conversion and working-capital trends, including receivables, acquisition payments, lease commitments, and continued dividend funding.
- The final Xenotis payment, the potential tax-credit outcome, and any material developments in tax examinations or contingencies.