LeMaitre Vascular, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 11, 2020. This is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars.
Business context
LeMaitre develops, manufactures and sells medical devices used mainly in peripheral vascular surgery, and provides human-tissue processing and cryopreservation services. It operates as one segment, sells primarily through a direct sales force, and generated 46% of sales outside the United States. More than 90% of 2019 sales were from devices used primarily in open vascular procedures.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $117.2 million | $105.6 million |
| Gross profit / margin | $79.9 million / 68.1% | $73.9 million / 70.0% |
| Operating income / margin | $21.2 million / 18.1% | $28.2 million / 26.7% |
| Net income | $17.9 million | $22.9 million |
| Diluted EPS | $0.88 | $1.13 |
| Cash from operations | $14.2 million | $19.5 million |
Sales rose 11%, led by embolectomy catheters, valvulotomes, polyester grafts and RestoreFlow tissue services; acquired CardioCel/VascuCel products contributed $1.2 million. Sales increased across the Americas (9%), EMEA (12%) and Asia/Pacific Rim (27%). Gross margin fell 190 basis points, principally from acquired-product mix and foreign exchange, partly offset by pricing and manufacturing efficiencies.
Operating income and net income declined despite sales growth. FY2018 included a $7.5 million gain from the Reddick divestiture and Cardial bargain purchase; FY2019 did not. FY2019 operating expenses also increased, including sales and marketing (+11%) and R&D (+13%). Quarterly FY2019 sales were $28.5 million, $29.5 million, $29.1 million and $30.2 million; fourth-quarter net income was $4.6 million versus $6.0 million in Q4 2018.
Cash, liquidity and obligations
Year-end cash and cash equivalents were $11.8 million, with $20.9 million of short-term marketable securities, versus $26.3 million and $21.7 million, respectively, a year earlier. Current assets were $92.1 million and current liabilities $20.9 million. The filing reports no off-balance-sheet arrangements and no interest-bearing debt balance; FY2019 interest expense was zero. Reported liabilities include $15.7 million of lease liabilities following adoption of the lease accounting standard.
Operating cash flow declined as inventory and other deferred costs absorbed $11.3 million. Investing cash outflow was $24.1 million, including $21.2 million of acquisition payments and $3.8 million of capital expenditures. Financing outflow was $4.6 million, including $6.7 million in dividends. Management said available cash, investments and interest income should cover anticipated cash needs for at least 12 months. The company paid $0.34 per share in FY2019 dividends and announced a $0.095 quarterly dividend in February 2020.
Material changes, outlook and key risks
- Acquisitions and investment: Bought Tru-Incise U.S. distribution rights for $8.0 million and acquired CardioCel/VascuCel biologic patches; additional contingent payments may apply. The company continued transferring acquired product manufacturing and expanding Burlington facilities.
- European certifications: A former notified body’s withdrawal caused CE-mark lapses for some products. Certifications were reissued for many products in February 2020, but remaining approvals were expected on different schedules through 2021; the filing reports backorders had begun for some products. Delays or failure to secure approvals could constrain European sales.
- Regulatory and commercial outlook: The EU Medical Device Regulation transition requires more stringent certification and clinical evidence. Management expected to complete the XenoSure China clinical trial in 2020 and submit in 2021, and planned to complete certain manufacturing transfers in 2020. No numerical sales or earnings guidance is provided.
- Supply and product risks: Reliance on sole- or limited-source suppliers includes Admedus for CardioCel/VascuCel, as well as suppliers of other products and components. A 2019 recall affected certain Applied Medical catheter lots due to premature material degradation.
- Market and operating risks: Competition, pricing and reimbursement pressure, the shift from open surgery to endovascular procedures, acquisition integration, foreign exchange and collection delays could affect results. A 10% currency-rate change was estimated to affect 2019 results of operations by approximately $1.2 million; currency movements reduced reported sales by about $2.3 million versus 2018 rates.
- Emerging risks and contingencies: The filing discusses potential business disruption from the then-emerging COVID-19 outbreak and Brexit-related regulatory and trade uncertainty. Management said no pending legal matter as of year-end was expected to have a material adverse effect. Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Progress, timing and commercial effect of outstanding CE marks, including potential backorders and MDR compliance.
- Whether acquired products and manufacturing transfers improve growth and margins, and the likelihood and amount of contingent acquisition payments.
- Inventory growth, working-capital conversion and the sustainability of operating cash flow.
- Supplier continuity for CardioCel/VascuCel and other limited-source products, and any further product quality or recall developments.
- Exposure to open-surgery market shifts, pricing and reimbursement changes, foreign exchange, and COVID-19-related disruption.
- Ability to sustain dividends and liquidity while funding acquisitions, capital spending and lease commitments.