LeMaitre Vascular, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is annual, not a standalone fourth-quarter report. LeMaitre develops, manufactures and sells peripheral vascular medical devices, principally to hospitals through its direct sales force; about 91% of 2014 sales came from direct-sales territories.
Financial performance and liquidity
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Net sales | $71.1 million | $64.5 million | +10% |
| Gross profit / margin | $48.4 million / 68.1% | $45.1 million / 69.9% | Profit +7%; margin down 1.8 percentage points |
| Operating income / margin | $6.3 million / 8.9% | $4.5 million / 7.0% | Operating income +40% |
| Net income | $3.9 million | $3.2 million | +22% |
| Diluted EPS | $0.23 | $0.20 | +$0.03 |
| Cash from operations | $5.5 million | $5.4 million | +$0.1 million |
- Fourth-quarter 2014 sales were $18.7 million, operating income $2.7 million and net income $1.9 million. In Q4 2013, these were $17.9 million, $1.2 million and $0.7 million, respectively. 2014 began with a first-quarter operating loss of $0.2 million and net loss of $0.2 million.
- Year-end cash and cash equivalents were $18.7 million, up from $14.7 million; the company reported no marketable securities at year-end. Current assets were $48.6 million and current liabilities $10.0 million (an approximately 4.8 current ratio). Management said available resources should meet anticipated needs for at least 12 months.
- Cash used in investing was $7.7 million, mainly acquisitions ($6.6 million) and capital expenditures ($1.2 million). Financing provided $6.7 million, including $10.5 million net proceeds from a share offering, offset by dividends, acquisition-related payments and other items.
- The balance sheet reports no debt line at year-end; the $1.1 million debt assumed with Xenotis was repaid in 2014. Acquisition-related obligations were $1.4 million current. Total liabilities were $13.3 million.
- 2014 dividends declared were $0.14 per share, versus $0.12 in 2013. A $0.04 quarterly dividend was approved for payment in April 2015.
Material changes versus 2013
- Sales growth was led by biologic vascular patches (+$2.2 million), valvulotomes (+$1.0 million), catheters (+$0.9 million), powered phlebectomy systems (+$1.2 million) and newly acquired biosynthetic graft sales (+$1.0 million). International sales rose 18% to $27.6 million; Americas sales grew 6% to $43.5 million.
- Gross margin fell to 68.1%, mainly due to product and geographic mix, manufacturing cost increases and inventory write-offs. Growth in lower-margin international markets and biologic patches could continue to pressure margins.
- LeMaitre acquired Xenotis, maker of the Omniflow II biosynthetic graft, for approximately $6.7 million plus assumed debt, and acquired the angioscope product line. It also paid about $1.3 million to acquire customer lists and inventory from former Xenotis distributors in Europe.
- Operating expenses included $0.5 million of restructuring charges from workforce reductions and the Clinical Instruments manufacturing transfer, and $0.2 million of impairment charges after discontinuing a catheter product line. The medical-device excise tax was $0.7 million.
- A June 2014 share offering raised approximately $10.5 million net and increased shares outstanding. The company recorded a $2.1 million foreign-currency translation loss in other comprehensive income.
Outlook, commentary and risks
- Management planned to expand the sales force in 2015 and expected higher sales and marketing expenses; G&A was also expected to rise with new China and Australia subsidiaries.
- As of March 9, 2015, management estimated that the stronger U.S. dollar could reduce 2015 revenue by about $4.7 million, gross margin by 1.8 percentage points and operating income by about $2.1 million versus 2014 exchange rates. These were estimates, not formal revenue guidance.
- Management expected the effective tax rate to increase in 2015 if the federal R&D tax credit was not reinstated; any reinstatement could leave the rate similar to 2014’s 38.0%.
- Key business risks include the industry shift from open surgery to endovascular procedures, competition and pricing pressure, dependence on limited-source suppliers, foreign-exchange exposure, and collection delays in certain European markets. Italy and Spain receivables were $1.1 million and $0.4 million, respectively.
- Past AlboGraft lot recalls and sales prohibitions in France and the UK were disclosed; the restrictions had been lifted by the end of 2012. The company cautioned that recurrence or other product-quality issues could be costly. Certain patents on its Expandable Valvulotomes were due to expire in 2015.
- Management reported effective disclosure controls and internal control over financial reporting. No material litigation was reported as of year-end. The filing notes that the 2013 second-quarter inventory correction understated cost of sales by $0.4 million and overstated net income by $0.3 million for that quarter.
Important facts for investors to verify
- Whether sales growth and acquired-product contributions are sustainable, particularly for patches, grafts and phlebectomy products.
- How product and geographic mix, pricing, manufacturing costs and inventory write-offs affect gross margin.
- The realized 2015 effect of currency movements compared with management’s stated estimates, and any resulting tax-rate impact.
- Integration and performance of Xenotis and other acquired product lines, including remaining acquisition payments and manufacturing plans.
- Inventory growth, receivable collection—especially in Italy and Spain—and the adequacy of supplier alternatives and product-quality controls.
- The operational and competitive effects of the 2015 patent expirations and the transition of the angioscope manufacturing process.