LeMaitre Vascular, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; comparisons are primarily with FY2016. The filing was signed March 9, 2018. LeMaitre develops, manufactures, and sells peripheral vascular medical devices and provides human-tissue cryopreservation services. It reported one operating segment.
Financial performance
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net sales | $100.9 million | $89.2 million | +13% |
| Gross profit / margin | $70.7 million / 70.1% | $62.9 million / 70.6% | Profit +12%; margin down 0.5 percentage points |
| Operating income / margin | $21.1 million / 20.9% | $16.3 million / 18.3% | +29% |
| Net income / diluted EPS | $17.2 million / $0.86 | $10.6 million / $0.55 | Net income +62% |
| Cash from operations | $22.9 million | $16.9 million | +$6.0 million |
| Cash and cash equivalents | $19.1 million | $24.3 million | -$5.2 million |
- FY2017 also included $22.6 million of short-term marketable securities. Current assets were $80.3 million versus current liabilities of $13.2 million. Total liabilities were $16.6 million; the balance sheet does not show a material borrowing balance.
- Investing cash outflow was $29.0 million, including a $22.5 million short-term investment purchase and $6.4 million of capital expenditures, mainly for Burlington facility expansion. The company said available cash, equivalents, investments, and interest should meet anticipated cash needs for at least 12 months.
- FY2017 dividends totaled $0.22 per share. The board approved a $0.07 quarterly dividend in February 2018. A $7.5 million repurchase authorization was approved in July 2017; no shares had been bought under that program by year-end.
Material changes and business developments
- Sales growth was led by $5.5 million of RestoreFlow cryopreservation-service revenue following its late-2016 acquisition, plus higher biologic patch, carotid shunt, and biologic graft sales. Americas sales rose 17%; international sales rose 8%.
- Gross margin eased to 70.1%, reflecting RestoreFlow’s lower-margin contribution and greater sales through non-direct channels, partly offset by pricing and manufacturing-cost improvements. Direct-to-hospital sales represented 93% of net sales, up from 92%.
- Biologic devices and tissue services represented 34% of sales, versus 27% in 2016. No single product line exceeded 25% of sales. Approximately 42% of sales were outside the United States, and 89% of sales came from devices used in open vascular procedures.
- General and administrative expense rose 19% to $17.0 million, including a $0.5 million stock-option modification charge tied to the departure of the President of International Operations. R&D expense rose 8% to $6.6 million. Sales and marketing expense declined 1% to $25.9 million.
Outlook, risks, and unusual items
- No quantitative FY2018 revenue or earnings guidance is provided. Management expects higher general and administrative costs in 2018, including reinstatement of the CEO’s salary and bonus opportunity, and higher clinical/regulatory expense from XenoSure submissions and new EU medical-device rules. China sales expansion is also expected to increase selling, marketing, and regulatory costs.
- LeMaitre expects to complete the ProCol manufacturing transfer to Burlington in 2018, subject to regulatory approval. The Burlington manufacturing-facility renovation was completed in 2017 at a cost of approximately $3.0 million.
- The shift from open surgery to minimally invasive endovascular procedures is a strategic risk given the company’s concentration in open-procedure devices. Other key exposures include medical-device regulation and EU MDR recertification, product recalls and liability, limited-source suppliers, tissue availability and compliance, reimbursement and pricing pressure, foreign exchange, and international collection risk.
- The company reported voluntary recalls of certain HYDRO valvulotome lots in 2016 and early 2017 and certain Reddick catheter lots in February 2017; aggregate recall costs were approximately $0.2 million. It reported no material litigation expected to materially affect its financial position, results, or cash flows.
- The 2017 effective tax rate was 18.6%, down from 34.8% in 2016, reflecting items including stock-option exercises and U.S. tax reform. The filing records a $0.6 million transition-tax expense and a $1.0 million deferred-tax remeasurement benefit; final tax effects could change as calculations and guidance are finalized.
- Management and the auditor reported effective internal control over financial reporting. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- How much of future growth reflects recurring underlying product demand versus acquired RestoreFlow revenue, and whether RestoreFlow meets the earn-out revenue milestones.
- Whether gross margin stabilizes or improves as product, service, and geographic sales mix changes.
- Progress on ProCol manufacturing transfer, EU MDR compliance and recertification, and development of products for endovascular procedures.
- Cash generation and capital allocation after facility spending, dividends, potential acquisitions, and the authorized share-repurchase program.
- Collection trends for Southern European receivables, supplier and tissue availability, and the financial impact of currency movements and tax adjustments.