LeMaitre Vascular, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. LeMaitre develops, manufactures, and sells devices and implants primarily for vascular surgery and provides human-tissue processing and cryopreservation services. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net sales | $30.6 million | $28.5 million; up 7% |
| Gross profit / margin | $20.5 million / 67.0% | $19.5 million / 68.3% |
| Operating income | $4.4 million | $4.4 million |
| Net income | $3.2 million | $3.5 million |
| Diluted EPS | $0.16 | $0.17 |
| Operating cash flow | $1.2 million | $(0.2) million |
| Cash and cash equivalents | $10.9 million | $11.8 million at Dec. 31, 2019 |
| Short-term marketable securities | $19.7 million | $20.9 million at Dec. 31, 2019 |
Operating expenses increased 7% to $16.1 million, including research and development expense up 34% to $3.0 million. The effective tax rate was 25.8%, compared with 22.3% a year earlier. The company reported no borrowings; lease liabilities totaled $15.4 million, including current and long-term amounts. Management said cash, investments, and interest income should cover anticipated needs for at least 12 months, taking account of cost reductions.
At March 31, current assets were $89.7 million and current liabilities $16.6 million. Inventory and other deferred costs were $40.6 million. Total assets were $184.6 million and stockholders’ equity $148.8 million. Q1 financing cash use of $1.7 million was primarily the $1.9 million dividend; investing cash use was $0.03 million.
Changes versus the prior-year quarter
- Sales grew $2.1 million, led by CardioCel patches (+$1.7 million), allografts (+$1.0 million), and valvulotomes (+$0.6 million). A stronger U.S. dollar reduced sales by an estimated $0.3 million.
- Americas sales rose 12%, EMEA sales rose 3%, and Asia/Pacific Rim sales fell 11%.
- Gross margin declined 1.3 percentage points, reflecting a greater mix of lower-margin allografts, manufacturing inefficiencies in allografts and biologic patches, and $0.2 million of costs associated with an embolectomy catheter recall.
- Net income fell about 10% despite higher sales; increased operating costs, particularly R&D, and higher foreign-currency losses contributed.
- Other comprehensive loss was $1.5 million, mainly from foreign-currency translation and unrealized losses on marketable securities.
Outlook, risks, and unusual items
- COVID-19: Management expected continued negative effects on revenue, gross profit, and potentially gross margin for the remainder of 2020, but could not reasonably estimate the magnitude or duration. Although Q1 sales rose year over year, estimated worldwide sales in the final third of March fell 7% from the comparable 2019 period; sales since March 31 were described as considerably lower than recent periods. Many products are used in elective procedures, and hospital access and procedures were restricted.
- Cost actions: In April, the company initiated a workforce reduction of approximately 13% and salary reductions for certain retained employees, expected to continue through December 31, 2020. It had also reduced its workforce by approximately 7% in February for general cost-cutting purposes. Eleven Americas sales-representative positions were terminated in April.
- Product recall: In March, the company conducted a worldwide recall of a substantial number of over-the-wire embolectomy catheters because their balloons could fail to deflate; it reported backorders while addressing the issue.
- Regulatory and supply exposure: Delayed or lapsed European CE marks could constrain sales of certain products, including Omniflow II. The company also relies on limited or sole-source suppliers; COVID-related construction restrictions delayed plans to establish CardioCel/VascuCel manufacturing in-house.
- Capital returns and commitments: The board approved a $0.095-per-share dividend in April, payable in June, subject to the stated record date. The company had an authorized $10 million share-repurchase program but reported no repurchases under it. Potential acquisition payments and lease obligations are additional cash requirements.
- The filing gives no numerical revenue or earnings guidance. Management said near-term results would be materially affected, with the extent uncertain. No legal matter was identified as expected to have a material adverse effect, and the company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- How subsequent revenue trends, procedure volumes, and hospital access developed after the filing date, and the resulting effect on 2020 sales and margins.
- Whether workforce and salary reductions achieved planned savings without harming sales coverage, customer service, or execution.
- Recall resolution, backorder recovery, and any further costs or product-liability exposure related to the embolectomy catheters.
- Timing of CE-mark and MDR approvals, inventory availability in Europe, and progress toward in-house production of acquired biologic patches.
- Cash generation, inventory levels, acquisition-related payments, and the board’s future dividend decisions as the pandemic’s effects evolve.