LeMaitre Vascular, Inc. — Q1 2021 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. LeMaitre develops, manufactures, and sells vascular medical devices and provides human-tissue processing and cryopreservation services. It reports as one operating segment.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $35.9 million | $30.6 million | Up 17% |
| Gross profit / margin | $23.8 million / 66.3% | $20.5 million / 67.0% | Profit up 16%; margin down 0.7 percentage points |
| Operating income | $7.9 million | $4.4 million | Up 83% |
| Net income | $5.9 million | $3.2 million | Up 87% |
| Diluted EPS | $0.28 | $0.16 | Up $0.12 |
| Cash from operations | $6.1 million | $1.2 million | Up $4.9 million |
All amounts are reported in U.S. dollars. Sales growth was driven principally by $5.8 million of Artegraft bovine graft sales and higher valvulotome sales. Management estimates favorable foreign-exchange movements added approximately $0.9 million to sales. By geography, Americas sales rose 29%, Asia/Pacific Rim rose 25%, and EMEA declined 5%.
Gross margin decreased mainly because of higher excess and obsolete inventory charges and manufacturing inefficiencies; the effect was partly offset by higher-margin Artegraft and valvulotome sales. The inventory write-down provision was $1.0 million, compared with $0.2 million a year earlier. Operating expenses totaled $15.9 million, down 2%; lower sales and marketing expense was partly offset by higher G&A, including acquisition-related amortization.
Cash, debt, and liquidity
- Cash and cash equivalents were $23.5 million at March 31, 2021, down from $26.8 million at year-end 2020; short-term marketable securities were $0.2 million.
- Operating activities provided $6.1 million. Investing activities used $1.1 million, principally for equipment and technology. Financing activities used $8.0 million, including $7.0 million of debt payments and $2.3 million of dividends.
- Term-loan debt was $31.2 million before unamortized issuance costs, including $2.75 million classified as current; there were no revolver borrowings. The company made $6.5 million of optional term-loan prepayments in addition to scheduled payments. Borrowings bore interest at 3.25% at quarter-end. The company reported compliance with debt covenants.
- Current assets were $90.7 million and current liabilities were $22.3 million. Management said existing cash, investments, and expected interest income should cover anticipated cash requirements for at least the next 12 months.
- The quarterly dividend was $0.11 per share, up from $0.095 a year earlier. A further $0.11-per-share dividend was approved after quarter-end. The company also authorized a stock repurchase program of up to $15 million through February 22, 2022; it had made no repurchases under that program as of the filing.
Changes, outlook, and risks
- Results benefited from the acquired Artegraft business, acquired in June 2020, so reported growth is not wholly organic. Q1 2020 pro forma sales including Artegraft would have been $34.8 million, according to the filing.
- COVID-19 continued to create uncertainty: hospital restrictions on elective procedures and limits on sales-representative access contributed to variable demand. Management said it was rehiring after 2020 cost reductions and expected to add personnel in 2021. No specific revenue or earnings guidance is provided.
- European regulatory approvals are a key risk. Some products lacked current CE marks as of the filing; the company reported related backorders of approximately $0.3 million at March 31, 2021. Temporary country-level permissions were limited in duration, and delayed or unsuccessful recertification could further affect sales. The EU Medical Device Regulation was scheduled to apply beginning May 26, 2021.
- Other identified risks include international regulatory compliance, product demand and market acceptance, acquisition integration and realization of expected benefits, competition, foreign-exchange movements, and potential product recalls. Management said the magnitude and duration of COVID-19 effects could not be reasonably estimated. It reported no legal matter believed to have a material adverse effect.
- Unrecognized tax benefits were $0.789 million at March 31, 2021. Acquisition earn-outs and other contingent consideration are remeasured using management estimates; the combined reported fair value of such liabilities was $2.27 million.
Important facts for investors to verify
- How much of sales growth reflects Artegraft and favorable exchange rates versus underlying volume and pricing.
- Whether gross margin recovers as inventory charges and manufacturing inefficiencies change.
- Progress and timing of CE-mark recertifications, derogations, and MDR submissions, including any effects on European backorders and sales.
- Cash generation after dividends and debt repayments, and the company’s plans for debt, acquisitions, and the authorized repurchase program.
- How COVID-19 and hospital access affect demand, procedures, and the pace of sales-force rehiring.