LMAT

Business Context and Reporting Period

Company: LeMaitre Vascular, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: LeMaitre Vascular develops, manufactures, and markets medical devices and implants for vascular surgery. The company operates in a single segment with principal product lines including thoracic and abdominal stent grafts, anastomotic clips, and vascular access ports. Operations are headquartered in Burlington, Massachusetts, with international offices in Germany, Italy, and Japan.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 11% ($1.3M) for the three months ended September 30, 2009, compared to the same period in 2008. For the nine-month period, sales increased 2% ($0.7M). Growth was driven by higher average selling prices and the Vascular product category, partially offset by unfavorable foreign currency fluctuations (approx. 2% impact for Q3, 4% for YTD).
• Profitability: The company returned to profitability, reporting net income of $1.3M for Q3 2009 compared to a net loss of $0.1M in Q3 2008. For the nine months, the company reported net income of $0.3M versus a net loss of $3.6M in the prior year period.
• Restructuring Charges: The nine months ended September 30, 2009, included $1.8M in restructuring charges related to the termination of a distribution agreement with Edwards Lifesciences. In contrast, the prior year period included $1.1M in restructuring charges related to distributor terminations and workforce reductions.
• Impairment Charges: Impairment charges decreased significantly to $0.1M for the nine months ended September 30, 2009, compared to $0.5M in the prior year period.
• Operating Expenses: Sales and marketing expenses decreased 16% on a year-to-date basis, primarily due to reduced commissions and travel expenses. Research and development expenses increased 4% YTD due to clinical trial costs.

Guidance, Outlook, and Risks

• Outlook: Management expects to fund operations and capital expenditures through existing cash, cash equivalents, and marketable securities for at least the next 12 months. The company anticipates R&D expenses will increase over time as more patients are enrolled in the UNITE clinical trial and new products undergo regulatory pathways.
• Strategic Initiatives: The company continues to pursue growth through acquisitions and direct-to-hospital sales. Direct-to-hospital sales increased to 92% of net sales for the nine months ended September 30, 2009.
• Stock Repurchase: The Board authorized a stock repurchase program of up to $2.0 million (increased from $1.0 million in October 2009). As of September 30, 2009, $0.1M had been repurchased under the plan.
• Risks: Key risks include the unpredictability of quarterly sales, reliance on a highly competitive market, foreign currency exchange rate fluctuations (approx. 42% of sales are in non-USD currencies), and the ability to obtain regulatory clearances. The company does not currently hedge against market risks.
• Contingencies: The company has earn-out payment obligations related to the acquisition of Arizona Heart Innovative Technologies, LLC, payable quarterly based on sales. The first commercial sale in the EU occurred in September 2009, triggering future payment obligations.

Investor Verification Checklist

• Currency Impact: Verify the sensitivity of future earnings to USD/Euro and USD/Yen exchange rate fluctuations, as 42% of sales are denominated in foreign currencies.
• Restructuring Costs: Confirm the full settlement of the $1.8M restructuring charge related to the Edwards Lifesciences distribution termination and any remaining deferred acquisition payments ($0.2M due in Dec 2009).
• Product Mix: Monitor the performance of the Vascular product category (specifically AlboGraft and XenoSure) which drove recent growth, versus the decline in the Endovascular category.
• Cash Position: Review the composition of the $22.7M in liquid assets (cash and marketable securities) and the reduction in asset-backed securities holdings to mitigate credit risk.
• Regulatory Pipeline: Track enrollment and results of the UNITE clinical trial, as this is a primary driver for future R&D spending and potential revenue growth.