LeMaitre Vascular, Inc. — Q1 2012 10-Q Summary
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless noted. LeMaitre develops, manufactures, and markets devices and implants used primarily in vascular surgery. Amounts below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $13.93 | $14.60 | Down 5% |
| Gross profit / margin | $9.87 / 70.9% | $10.15 / 69.5% | Profit down 2.8%; margin up 1.4 percentage points |
| Operating income (loss) | $0.85 | ($0.03) | Improved |
| Net income | $0.39 | $0.06 | Improved |
| Diluted EPS | $0.02 | $0.00 | — |
| Cash from operations | $0.39 | ($2.41) | Improved by $2.80 |
| Cash and cash equivalents at quarter-end | $19.62 | $19.10 | Prior-year comparison |
- Sales by category: Open Vascular rose 6% to $11.41 million; Endovascular and Other fell 34% to $2.52 million. The decline chiefly reflected the 2011 divestiture of stent graft products, which contributed $1.6 million of prior-year-quarter sales.
- Americas sales increased 5% to $9.47 million; international sales declined 20% to $4.45 million. Higher selling prices, biologic patch sales, and catheter growth partly offset divestitures and international weakness.
- Gross margin improved with lower costs following the Brindisi facility closure, higher prices, and favorable mix; AlboGraft inventory write-offs partly offset these factors. Operating expenses fell 11% to $9.02 million, mainly because Q1 2011 included restructuring and impairment charges totaling $1.09 million. Sales and marketing expense increased 5%.
- Operating cash flow was positive, but working-capital changes used approximately $1.5 million, primarily from higher inventory and lower accounts payable and other liabilities. Investing used $0.31 million and financing used $0.60 million, principally for share repurchases. Cash declined $0.51 million from year-end 2011.
Balance sheet and liquidity
- At March 31, 2012, total assets were $59.39 million and stockholders’ equity was $52.05 million. Current assets were $39.62 million versus current liabilities of $6.29 million, or approximately 6.3 times current-liability coverage.
- The balance sheet reports no borrowings or debt. The Italian government loan associated with the Biomateriali acquisition was repaid in December 2011. The company stated cash and available resources were expected to cover anticipated requirements for at least the next 12 months.
- Contractual obligations totaled $9.84 million: $4.07 million in operating leases and $5.76 million in inventory purchase commitments. The filing reports no off-balance-sheet arrangements.
Material developments, outlook, and risks
- AlboGraft: Following two voluntary lot recalls and additional device complaints, U.K. regulators issued a caution alert in March 2012. In April, after quarter-end, the U.K. and France prohibited sales until regulatory concerns are addressed. Those countries represented about 40% of AlboGraft sales volume; 2011 sales there were $1.0 million. The company was appealing the notices and investigating complaints; success and prevention of further restrictions were not assured. At quarter-end, related inventory was approximately $1.7 million and intangibles $0.6 million. The company recorded $0.1 million of related inventory write-offs in Q1. The FDA reported zero inspectional observations following a February audit of the Burlington facility.
- Management gave no specific revenue or earnings guidance. It expects the effective tax rate to remain fairly constant through the rest of 2012 and stated cash should meet anticipated needs for at least 12 months, while noting future profitability and cash requirements are uncertain.
- Foreign exchange was a headwind: Q1 2012 included a $0.20 million foreign currency loss, versus a $0.14 million gain in Q1 2011. The current-period loss primarily reflected a cumulative translation adjustment on dissolution of the Biomateriali subsidiary.
- The company repurchased 105,462 shares under its program for approximately $0.60 million; $4.7 million remained authorized. A $0.025-per-share quarterly dividend was declared, and another $0.025 dividend was approved after quarter-end for payment in June 2012.
- Other exposures include $329,000 of unrecognized tax benefits and normal-course legal matters that management did not consider materially adverse as of March 31, 2012. Management identified no material change in critical accounting policies and concluded disclosure controls were effective.
Important facts for investors to verify
- Progress and regulatory outcomes relating to AlboGraft, including whether U.K. and French sales prohibitions are lifted or extended to other markets, and the potential effect on inventory, reputation, and results.
- Whether Open Vascular growth and pricing can offset continuing declines from divested products and weakness in international sales.
- Cash conversion and inventory levels, given working-capital outflows, inventory write-downs, and $5.76 million of purchase commitments.
- The sustainability of profitability and liquidity while funding sales-force expansion, repurchases, and dividends; management’s outlook is not a firm forecast.
- Tax exposure, including the $329,000 uncertain-tax-position balance and the valuation allowance against $4.4 million of state and foreign deferred tax assets.