LeMaitre Vascular, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. LeMaitre develops, manufactures and sells vascular medical devices and provides human-tissue cryopreservation services. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Net sales | $42.1 | $40.7 | $81.7 | $76.6 |
| Gross profit / margin | $27.8 / 66.0% | $26.8 / 65.8% | $53.8 / 65.8% | $50.6 / 66.0% |
| Operating income | $5.8 | $11.1 | $13.7 | $19.1 |
| Net income | $3.5 | $8.3 | $9.6 | $14.2 |
| Diluted EPS | $0.16 | $0.40 | $0.43 | $0.68 |
- Sales increased 4% in Q2 and 7% in H1. Growth was led by carotid patches, bovine grafts and allograft preservation services. The Americas grew 6% in Q2 and 9% in H1; EMEA and Asia Pacific were broadly flat in Q2.
- Q2 gross margin rose 0.2 percentage points, helped by manufacturing efficiencies, lower excess-inventory charges and higher bovine graft sales. H1 margin fell 0.2 points, reflecting labor costs, product mix, foreign exchange and manufacturing inefficiencies.
- Operating income declined despite higher sales, primarily reflecting a $3.1 million restructuring charge and higher sales and marketing, general and administrative, and R&D expenses. Q2 operating margin was approximately 13.7%, versus 27.3% a year earlier.
- Income tax provision was $2.0 million in Q2 and $4.0 million in H1. Reported effective tax rates were 36.7% and 29.5%, respectively; the company attributed elevated rates in part to foreign losses not benefiting from tax deductions.
Cash, liquidity and capital
- At June 30, cash and cash equivalents were $20.8 million and short-term marketable securities were $54.9 million, together approximately $75.7 million. The securities carried an unrealized loss of $1.8 million amid rising interest rates.
- H1 operating cash flow was $14.0 million, compared with $16.0 million in H1 2021. Inventory and other deferred costs used $3.5 million of cash and accounts receivable used $2.6 million.
- H1 investing cash outflow was $1.5 million; financing cash outflow was $5.0 million, mainly dividends of $5.5 million. Cash increased $6.9 million from year-end 2021.
- The company had no outstanding borrowings and had terminated its credit facility in 2021. Lease liabilities totaled about $17.2 million, including current and long-term amounts. Total liabilities were $41.4 million and stockholders’ equity was $258.0 million.
- Management said available cash, investments and interest income should meet anticipated cash needs for at least 12 months. The board authorized a $20 million share-repurchase program through February 2023; no program repurchases had been made as of the filing. A $0.125-per-share dividend was approved in July 2022.
Material changes, outlook and risks
- LeMaitre closed its St. Etienne, France factory on June 30, 2022, terminating most site personnel. The closure generated a $3.1 million charge; total closure costs were expected to be approximately $3.5 million. The company intends to sell the site’s building and land within 12 months and transition Cardial graft sales to Burlington-manufactured AlboGraft.
- The company wound down the ProCol graft, AlboSure polyester patch and Latis graft cleaning catheter lines, which together generated about $0.9 million of 2021 revenue. It also began transitioning Syntel catheter sales to NovaSil. These changes may cause inventory write-offs or affect sales and margins.
- Foreign exchange was a headwind: management estimated the stronger U.S. dollar reduced reported sales by $1.7 million in Q2 and $2.5 million in H1 versus prior-year exchange rates. COVID-related hospital procedure limits and restrictions on sales-representative access continued to create sales uncertainty. No numerical full-year guidance was provided in the filing text.
- A June 2022 FDA inspection of the Burlington facility, focused primarily on XenoSure biologic patches, resulted in five Form 483 observations. The company submitted a corrective-action plan and stated it believes products remain safe and effective, but warned that the FDA could take further action, including a warning letter or recall.
- European regulatory transitions remain a risk. The company warned of potential CE-mark timing gaps and backorders for CardioCel/VascuCel and Pruitt F3 shunts; it anticipated Pruitt F3 MDR approval in Q4 2022 but gave no assurance. The lack of a CE mark for Burlington-produced devices also affected ovine graft sales. UKCA requirements add further approval risk.
- Other disclosed risks include regulatory compliance and product recalls, supplier capacity and tissue costs, acquisition integration, product demand and market acceptance, foreign-currency movements, and continuing COVID-related disruption. Management reported no legal matter expected to have a material adverse effect and stated disclosure controls were effective at reasonable assurance levels.
Investor verification checklist
- Track the FDA response to the five Form 483 observations, corrective actions, and any subsequent inspection, warning letter or product action.
- Verify MDR/CE-mark and UKCA approval timing, especially for CardioCel/VascuCel and Pruitt F3, and assess inventory coverage and potential backorders.
- Monitor whether the St. Etienne closure achieves expected cost savings and whether the factory assets are sold within the stated timeframe.
- Assess whether sales growth converts to earnings and cash flow as operating expenses rise; review inventory, receivables and gross-margin trends.
- Confirm future dividend and repurchase activity, contingent acquisition payments, and the continuing sufficiency of cash and marketable securities.