LeMaitre Vascular, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; quarterly comparisons below are for the three months ended December 31. Unless noted, amounts are U.S. dollars.
Business context
LeMaitre develops, manufactures and sells vascular medical devices and human-tissue cryopreservation services, primarily for peripheral vascular and end-stage renal disease. Biologic products accounted for 49% of 2022 sales. Approximately 94% of sales were generated in territories served by its direct sales force; 39% of sales were outside the U.S. The company operates as one reportable segment.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $161.7 million | $154.4 million | +5% |
| Gross profit / margin | $104.9 million / 64.9% | $101.4 million / 65.7% | Profit +3%; margin down 0.8 percentage points |
| Operating income | $26.8 million | $36.4 million | −26% |
| Net income | $20.6 million | $26.9 million | −23% |
| Diluted EPS | $0.93 | $1.25 | −26% |
| Operating cash flow | $25.4 million | $35.1 million | −28% |
Fourth-quarter 2022 sales were $41.0 million versus $39.5 million in Q4 2021; operating income was $7.0 million versus $8.3 million, net income was $5.6 million versus $6.2 million, and diluted EPS was $0.25 versus $0.28.
At year-end, cash and cash equivalents were $19.1 million and short-term marketable securities were $63.6 million, totaling $82.7 million. The securities included an unrealized loss of $1.8 million from higher interest rates. The company had no outstanding debt and had terminated its credit facility in 2021. Current assets were $161.7 million and current liabilities $25.3 million. Lease liabilities were $16.6 million in total, including $1.9 million current and $14.7 million long-term.
FY2022 cash flow from investing activities was an outflow of $10.4 million, including $3.2 million of capital expenditures. Financing activities used $9.2 million, including $11.0 million of dividends. The company said existing cash, investments and interest income should cover anticipated cash needs for at least the next 12 months and known long-term needs.
Changes and drivers
- Sales growth came mainly from bovine grafts, carotid patches, shunts and allograft preservation services. A stronger U.S. dollar reduced reported sales by an estimated $6.1 million.
- Operating income fell as sales and marketing, general and administrative, and R&D expenses rose; the company expanded its sales force from 103 to 131 representatives and increased direct-labor capacity. FY2022 also included $3.1 million of restructuring expense for the closure of its St. Etienne, France factory.
- Gross margin declined due to currency effects, manufacturing inefficiencies and product mix, including comparatively higher sales of lower-margin products and lower sales of higher-margin valvulotomes.
- Operating cash flow decreased amid $13.4 million of working-capital use, principally higher inventory and deferred costs, receivables, and prepaid assets. Year-end inventory and other deferred costs rose to $50.3 million from $46.1 million.
Outlook, risks and unusual items
- No quantified revenue, earnings or margin guidance is provided. Management expects to launch the PhasTIPP powered phlebectomy device in the U.S. in the first half of 2023 and expects manufacturing transfers for Omniflow II and CardioCel/VascuCel to be substantially completed in 2023.
- Omniflow II European backorders were approximately $1.0 million at year-end, with shipment ramp-up dependent on production and regulatory progress. The company also plans to submit XenoSure applications in China and progress European MDR approvals.
- European Medical Device Regulation requirements create a material approval and sales risk. CardioCel and VascuCel CE marks were due to expire in August 2023; the company expected to apply in June 2023 and warned of a potential lapse while review proceeds, which could take up to 24 months. Only one product had received MDR CE marking by year-end 2022; the Pruitt F3 Shunt received its first MDR marking in January 2023.
- Other key risks include a continued shift from open surgery toward endovascular procedures, dependence on limited-source suppliers (including Anteris for CardioCel/VascuCel through January 2024), human-tissue supply and quality, foreign-exchange exposure, reimbursement and pricing pressure, and regulatory or product-liability actions. COVID-19-related procedure and hospital-access disruptions continued to make demand variable.
- The company closed its St. Etienne factory on June 30, 2022, recorded $3.1 million in restructuring charges, and sold the site in October for approximately $0.9 million, recognizing a gain of about $0.1 million. It discontinued or wound down several product lines. No material litigation was identified as of year-end; the independent auditor issued an unqualified opinion on the financial statements and internal controls.
- The board authorized a share repurchase program of up to $25 million through February 21, 2024; no repurchases had been made under it as of the filing. The quarterly dividend was raised to $0.14 per share in February 2023.
Investor verification priorities
- Track MDR and UKCA approvals, especially CardioCel/VascuCel certification timing, any CE-mark lapse, and resulting European sales or inventory impacts.
- Verify Omniflow II production recovery and whether the approximately $1.0 million backorder is cleared; monitor completion and regulatory approval of manufacturing transfers.
- Assess whether sales-force and manufacturing investments translate into growth and margin recovery, given FY2022’s 26% decline in operating income and lower operating cash flow.
- Monitor inventory, receivables and cash conversion, as well as the $1.8 million unrealized securities loss and sensitivity to foreign-exchange and interest-rate movements.
- Confirm that the stated liquidity outlook remains adequate alongside dividends, acquisition payments, capital spending and any share repurchases.