LeMaitre Vascular, Inc. — Q1 2023 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2023, LeMaitre developed, manufactured and sold medical devices used primarily in vascular surgery and provided human-tissue processing and cryopreservation services. The company reports as one operating segment. All dollar amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $47.1 | $39.6 | +19% |
| Gross profit / margin | $30.9 / 65.6% | $26.0 / 65.6% | Profit +19%; margin flat |
| Operating income | $7.9 | $7.9 | Slight decrease |
| Net income | $6.0 | $6.0 | Essentially unchanged |
| Diluted EPS | $0.27 | $0.27 | Unchanged |
| Operating cash flow | $2.3 | $4.7 | Down $2.4 |
- Sales growth was attributed mainly to higher hospital procedure volumes, higher average selling prices and additional sales representatives. Increases included valvulotomes ($2.2 million), bovine grafts ($1.5 million), allograft preservation services ($1.2 million) and carotid patches ($1.1 million).
- Sales by geography: Americas $32.1 million (+21%), EMEA $12.3 million (+17%) and Asia Pacific $2.7 million (+6%). Biologics were 49% of worldwide sales; direct-to-hospital sales were 97% of total.
- Operating expenses rose 28% to $23.0 million. Sales and marketing increased 39% to $10.9 million, R&D increased 32% to $3.9 million, and G&A increased 9% to $7.9 million. The company had 128 sales representatives, 14% more than a year earlier.
- Cash and cash equivalents were $16.7 million at March 31, down from $19.1 million at year-end; short-term marketable securities were $64.3 million, versus $63.6 million. Combined cash and securities were approximately $81.0 million. Management said these resources should cover anticipated cash requirements for at least 12 months.
- The company reported no borrowings. Lease liabilities totaled $16.5 million, including $2.1 million current and $14.4 million long-term. Total current assets were $164.8 million and current liabilities $23.9 million.
- Operating cash flow declined as working capital used $8.1 million, including increases in receivables ($3.2 million) and inventory and deferred costs ($3.8 million). Investing used $3.0 million, including $2.1 million for property, equipment and other assets. Financing used $1.8 million, primarily for a $3.1 million dividend.
Material changes and notable items
- Gross margin was unchanged year over year. Higher labor costs, unfavorable product mix (including increased lower-margin allograft services) and foreign exchange effects were offset by improved manufacturing efficiencies.
- Foreign exchange reduced reported sales by an estimated $1.1 million versus prior-year exchange rates. The company recorded a $0.4 million foreign-currency loss, compared with a $0.04 million loss in Q1 2022.
- Q1 included $0.3 million of additional restructuring expense related to closing the St. Etienne, France factory; the company had recorded $3.1 million of closure-related charges in 2022.
- The Board authorized a share repurchase program of up to $25 million through February 21, 2024; no shares had been repurchased under that program by the filing date. Separately, 3,602 shares were withheld/repurchased to cover employee tax obligations on equity awards.
- On April 20, 2023, LeMaitre agreed to distribute Aziyo Biologics’ cardiovascular patches exclusively in the U.S. for three years, with an option to acquire Aziyo’s worldwide cardiovascular patch business during years two or three. The Board also approved a $0.14-per-share dividend payable June 1, 2023.
Outlook, risks and contingencies
The filing provides no specific revenue, earnings or margin guidance. Management described ongoing opportunities in direct sales, acquisitions, new territories, pricing, manufacturing consolidation and product development. PhasTIPP was expected to launch in 2023; transfers of certain acquired product manufacturing to Burlington were expected to be substantially completed in 2023.
- Key risks include obtaining and maintaining regulatory approvals, particularly EU and U.K. MDR/CE marks; product recalls; market acceptance and pricing; foreign-exchange fluctuations; acquisition integration; and execution of direct-selling transitions. The company said nearly all products had been submitted for MDR review and noted its first MDR CE mark, for the Pruitt F3 Carotid Shunt. Some models were not covered by that mark.
- The Thailand distributor transition agreement signed in March 2023 carries approximately $0.7 million in termination fees. Acquisition-related contingent liabilities measured using Level 3 inputs were $1.4 million at quarter-end. Gross unrecognized tax benefits were $0.6 million.
- Management reported no legal matters expected to have a material adverse effect on financial position, results or cash flows. Disclosure controls were assessed as effective at reasonable assurance levels.
- The filing’s cash-flow statement reports operating cash flow of $2.279 million, while the MD&A narrative describes it as $2.8 million. The source text does not reconcile this difference; the cash-flow statement amount is used above.
Important facts for investors to verify
- Whether revenue growth and the added sales-force investment translate into sustained operating-income and margin growth.
- Working-capital trends, especially receivables and inventory, and the cash-flow figure discrepancy noted above.
- Progress and costs associated with MDR/CE-mark approvals, manufacturing transfers and the Thailand direct-sales transition.
- Future use of cash for dividends, the authorized repurchase program, acquisitions and contingent obligations.
- Whether foreign exchange, product mix and regulatory requirements materially affect reported sales or gross margins in subsequent quarters.