LeMaitre Vascular, Inc. — Q3 2015 Form 10-Q
Business context and reporting period
Medical-device and implant developer, manufacturer and marketer focused on vascular surgery. This unaudited filing covers the quarter and nine months ended September 30, 2015; financial amounts below are in millions except per-share data. The company reports one operating segment.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $19.0 | $17.5 | $57.9 | $52.4 |
| Gross profit / margin | $13.5 / 71.0% | $12.0 / 68.6% | $39.8 / 68.7% | $35.6 / 67.9% |
| Operating income / margin | $3.3 / 17.5% | $1.9 / 10.6% | $8.4 / 14.6% | $3.6 / 6.9% |
| Net income / diluted EPS | $2.1 / $0.11 | $0.9 / $0.05 | $5.2 / $0.29 | $2.0 / $0.12 |
| Operating cash flow | — | — | $7.5 | $2.8 |
At September 30, cash and cash equivalents were $23.6, versus $18.7 at year-end 2014. Current assets were $54.0 and current liabilities $8.8. Total liabilities were $12.4; the balance sheet reports no debt balance. Nine-month investing cash use was $2.6 and financing cash provided was $0.2. Financing included $3.7 of stock-option proceeds, offset mainly by $2.1 of dividends and $1.1 of deferred acquisition payments. Quarterly dividend declared was $0.04 per share, up from $0.035 a year earlier.
Material changes versus prior periods
- Q3 sales grew 9%; nine-month sales grew 10%. Growth was led by biologic patches, biosynthetic grafts and valvulotomes. International sales grew 11% in both comparisons.
- Gross margin improved 2.4 percentage points in Q3 and 0.8 points for the nine-month period. Management cited manufacturing efficiencies and higher selling prices, partly offset by foreign exchange and less favorable geographic mix.
- Nine-month net income rose to $5.2 from $2.0, while operating income increased to $8.4 from $3.6. The prior-year comparison included $0.5 of restructuring charges and $0.2 of impairment charges; 2015 included a $0.36 gain on divestiture.
- Operating cash flow increased $4.7 year over year, primarily reflecting higher net income and lower working-capital use. Accounts receivable and prepaid/other assets used cash during 2015.
Outlook, commentary, risks and unusual items
- No formal revenue or earnings guidance is provided. Management expected to expand the sales force in Q4 2015, with higher selling and marketing expense, and anticipated higher G&A expense partly from staffing in China and Australia.
- Management estimated that the strong U.S. dollar could reduce 2015 revenue by about $5.1, gross margin by 1.6 percentage points and operating income by about $2.4 compared with 2014 exchange rates. Foreign exchange had reduced nine-month sales by $4.5. Actual effects could differ materially.
- The company expects cash and cash equivalents, investments and interest income to cover anticipated requirements for at least 12 months. Capital needs may be affected by acquisitions, dividends, taxes, expansion and direct-sales transitions. Contractual obligations totaled $9.7, including $7.2 of operating leases and $2.5 of inventory purchase commitments.
- In 2015, the company acquired non-U.S. Tru-Incise valvulotome rights for about $1.4, terminated distributor arrangements in Europe and Finland to transition to direct hospital sales, and sold its non-occlusive modeling catheter assets for $0.4, recognizing a $0.36 gain. It plans to terminate the InvisiGrip product line at year-end and reported a related inventory write-down.
- Key risks include foreign-exchange exposure, product demand and pricing, competition, sales-force productivity and retention, successful integration of acquisitions, product acceptance, regulatory clearances and execution of direct-selling transitions. The HYDRO valvulotome may affect unit sales. No material change to previously disclosed risk factors was reported.
- The IRS notified the company of an audit of its 2013 federal return; management expected no material change to tax liability. Unrecognized tax benefits were $72,000. The filing reports ordinary-course legal matters but none expected to materially adversely affect financial position, results or cash flows.
- The company was assessing a new revenue-recognition standard effective for annual periods beginning after December 15, 2017; impact had not been determined. Management reported disclosure controls effective and no material change in internal control.
Important facts for investors to verify
- Whether sales growth and improved margins persist after accounting for currency movements, product mix and the nonrecurring divestiture gain.
- Whether the sales-force expansion and direct-sales transitions—including Finland beginning in 2016—deliver expected growth without disproportionate costs.
- Cash conversion and working-capital trends, alongside acquisition commitments, dividends, lease obligations and planned capital spending.
- Actual 2015 foreign-exchange effects versus management’s estimates, and any resulting changes to margins or operating income.
- Product-line transition and discontinuation costs, including the Tru-Incise and angioscope manufacturing transfers and InvisiGrip exit.