Business Context and Reporting Period
Company: LeMaitre Vascular, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: LeMaitre Vascular develops, manufactures, and markets medical devices and implants for vascular surgery. The company operates in a single segment with principal product lines including thoracic and abdominal stent grafts, anastomotic clips, and vascular access ports. Operations are headquartered in Burlington, Massachusetts, with international offices in Germany, Italy, and Japan.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Net Sales | $12,630 | $23,978 |
| Gross Profit | $9,122 | $17,388 |
| Gross Margin | 72.2% | 72.5% |
| Operating Income (Loss) | $993 | $(573) |
| Net Income (Loss) | $925 | $(956) |
| Cash and Cash Equivalents | $16,740 | $16,740 |
| Marketable Securities | $3,078 | $3,078 |
| Total Debt (Long-term) | $68 | $68 |
| Working Capital | $29,774 | $29,774 |
Note: Working Capital calculated as Total Current Assets ($35,986) minus Total Current Liabilities ($6,212).
Material Changes vs. Prior Period
- Revenue: Net sales decreased 1% ($12.6M) for the three months ended June 30, 2009, compared to the prior year quarter. For the six-month period, sales decreased 2% ($24.0M). The decline was primarily driven by unfavorable foreign currency exchange rate fluctuations (approx. 5% negative impact) and decreased sales in the Endovascular category, partially offset by higher average selling prices and growth in the Vascular category.
- Profitability: The company reported a net income of $0.9M for the quarter, a significant turnaround from a net loss of $0.9M in the same period in 2008. However, for the six-month period, the company reported a net loss of $1.0M, compared to a loss of $3.5M in the prior year. This improvement is largely due to reduced operating expenses and lower restructuring charges compared to 2008.
- Expenses: Total operating expenses decreased 17% for the quarter and 14% for the six-month period. Sales and marketing expenses dropped significantly (18% and 24% respectively), driven by reduced commissions and travel expenses. Restructuring charges were $1.8M for the six months ended June 30, 2009 (primarily related to the termination of a distribution agreement with Edwards Lifesciences), compared to $1.0M in the prior year period.
- Cash Flow: Net cash provided by operating activities was $0.3M for the six months ended June 30, 2009, a substantial improvement from a use of $3.2M in the prior year period.
Guidance, Outlook, and Risks
- Outlook: Management expects research and development expenses to increase over time due to the UNITE clinical trial enrollment and new product development. The company anticipates continued negative impacts from foreign currency exchange rates in the third quarter of 2009.
- Capital Resources: The company holds approximately $19.8M in cash, cash equivalents, and marketable securities. A $10.0M revolving line of credit exists but is not currently utilized. However, the bank informed the company in June 2009 that the facility will not be renewed under existing terms upon expiration in August 2009. The company is exploring options to renew or replace the facility.
- Subsequent Events: On July 27, 2009, the Board authorized a stock repurchase program of up to $1.0M, to be funded by available cash.
- Risks: Key risks include the unpredictability of quarterly sales, the ability to secure replacement financing for the expiring credit facility, foreign currency fluctuations, and the competitive nature of the medical device market. The company also faces risks related to product liability and regulatory approvals.
Investor Verification Checklist
- Credit Facility Renewal: Verify the status of the $10M revolving credit line expiring in August 2009 and the terms of any replacement financing.
- Currency Impact: Assess the sensitivity of future earnings to foreign exchange rates, given the significant negative impact (approx. 5%) on recent sales.
- Restructuring Costs: Confirm the completion of the $1.8M restructuring charge related to the Edwards Lifesciences distribution termination and any remaining liabilities.
- Product Mix Shift: Monitor the performance of the Endovascular product line, which saw a 15% decline in the quarter, versus the Vascular line which grew 8%.
- Cash Position: Review the burn rate and sufficiency of the $19.8M liquidity position to fund operations and the new $1M stock repurchase program without immediate access to the credit line.