LeMaitre Vascular, Inc. — FY 2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011; quarterly figures below include the three months ended December 31, 2011. LeMaitre develops, manufactures and markets medical devices and implants for peripheral vascular disease. It reported one operating segment and sold primarily through a direct sales force (93% of 2011 net sales). Its strategy emphasizes niche products, direct-sales expansion and complementary products.
Key financial metrics
Dollar amounts are in millions except per-share data.
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $57.7 | $56.1 |
| Gross profit / gross margin | $40.2 / 69.7% | $41.7 / 74.4% |
| Operating income | $3.7 | $4.0 |
| Net income / diluted EPS | $2.1 / $0.13 | $6.0 / $0.37 |
| Operating cash flow | $3.2 | $7.1 |
| Cash and cash equivalents at year-end | $20.1 | $22.6 |
| Total assets / total liabilities | $59.7 / $7.6 | $63.3 / $10.9 |
| Interest-bearing debt at year-end | None reported | None reported |
Current assets were $39.7 million and current liabilities were $6.5 million at year-end 2011. The company said available cash and investments were expected to cover anticipated requirements for at least the next 12 months; it held no marketable securities at year-end. The 2011 cash-flow decline reflected working-capital use, including lower payables and increases in receivables, inventory and other current assets. Financing cash outflows included $1.9 million of share repurchases and $1.2 million of dividends. The quarterly dividend was increased to $0.025 per share in February 2012, subject to board approval.
Material changes versus comparable periods
- Annual sales rose 3% from 2010, but gross profit fell 4% and gross margin contracted 4.7 percentage points, chiefly due to AlboGraft manufacturing-transfer inefficiencies and a $0.2 million recall-related inventory charge.
- Open Vascular sales increased 11% to $44.4 million; Endovascular and Other sales declined 17% to $13.3 million. Higher average selling prices, LifeSpan graft sales and currency effects supported sales; divestitures and discontinuation of stent-graft distribution offset growth.
- Net income fell from 2010, when a $3.3 million release of a U.S. deferred-tax valuation allowance contributed to a $2.0 million tax benefit. In 2011, the tax provision was $1.6 million on $3.8 million of pretax income.
- Fourth-quarter 2011 sales were $13.4 million versus $14.4 million in Q4 2010; operating income was $0.8 million versus an operating loss of $1.3 million, and net income was $0.3 million versus $2.0 million.
- The company exited its TAArget and UniFit stent-graft lines and ended its European Endologix distribution agreement in 2011. The Endologix termination generated a $0.7 million gain. It also consolidated AlboGraft and LifeSpan manufacturing in Burlington and converted Spain and Denmark from distributor to direct sales.
Outlook, commentary and risks
- No numerical 2012 revenue or earnings guidance is provided. Management expected reported 2012 sales to be below 2011, largely because of the stent-graft exit. It anticipated increased sales and product-development spending, with sales and marketing and R&D expenses expected to rise.
- The AlboGraft production transfer was associated with manufacturing difficulties, five reported device complaints through February 2012 and voluntary recalls of two production lots. A UK Medical Device Alert advised hospitals to exercise caution. The company recorded $0.2 million in 2011 inventory write-offs; it said corrective actions had been implemented, but recurrence could not be ruled out.
- Other operating risks include competition and the shift from open surgery toward endovascular procedures; reliance on limited-source suppliers; foreign-exchange exposure and delayed collections in parts of Southern Europe; product-liability and regulatory risks; and the ability to gain acceptance for new products.
- A fire at the former single-source ink supplier interrupted supply for the LifeSpan graft. The company reported available inventory and was seeking to validate an alternate supplier, but manufacturing delays remained possible.
- The 2.3% U.S. medical-device excise tax was scheduled to begin in 2013; management estimated it would have been approximately $0.9 million based on 2011 sales. The company also reported $2.2 million of 2011 restructuring charges and $6.3 million of inventory purchase commitments through 2016.
- Management reported effective disclosure controls and internal control over financial reporting at year-end. The independent auditor gave an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether AlboGraft quality issues are fully resolved, and the commercial or regulatory effects of recalls and the UK alert.
- Whether the 2012 sales decline anticipated by management materialized, and how the post-divestiture portfolio performs.
- Whether gross margin recovers as manufacturing transfers and restructuring settle, and whether operating cash flow improves from its 2011 level.
- Collection timing for Southern European receivables, particularly the $1.2 million due from Italy at year-end 2011, and successful validation of the alternate LifeSpan ink supplier.
- The impact of the 2013 medical-device excise tax, continuing dividends and repurchases on cash, and any changes to the company’s stated liquidity outlook.