LeMaitre Vascular, Inc. — Q1 2022 Form 10-Q
Business and period: The company develops, manufactures and sells vascular surgery devices and provides human-tissue processing and cryopreservation services. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021; balance-sheet figures are compared with December 31, 2021. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $39.6 million | $35.9 million | +10% |
| Gross profit / margin | $26.0 million / 65.6% | $23.8 million / 66.3% | Profit +9%; margin down 0.7 percentage points |
| Operating expenses | $18.0 million | $15.9 million | +14% |
| Operating income | $7.9 million | $7.9 million | Approximately flat |
| Net income | $6.0 million | $5.9 million | +2% |
| Diluted EPS | $0.27 | $0.28 | Down $0.01 |
| Cash from operations | $4.7 million | $6.1 million | Down $1.4 million |
Sales rose in all reported regions: Americas +12% to $26.5 million, EMEA +6% to $10.5 million and Asia Pacific +9% to $2.5 million. Management attributed growth principally to bovine grafts, carotid patches, shunts, allografts and valvulotomes. Direct-to-hospital sales were 95% of total sales, versus 94% a year earlier. Biologics accounted for 48% of Q1 2022 sales.
Gross margin declined due mainly to higher labor costs, product mix (including greater sales of lower-margin polyester grafts), foreign-exchange effects and manufacturing inefficiencies associated largely with bovine carotid patches. Sales and marketing expense increased 21%, chiefly from greater sales-force headcount and related compensation; general and administrative expense rose 11%, while R&D increased 3%. The effective tax rate was 24.5%, compared with 20.8% in Q1 2021. Comprehensive income was $4.8 million, down from $5.0 million, including $1.2 million of other comprehensive loss, primarily currency translation and unrealized losses on marketable securities.
Cash, liquidity and obligations
At March 31, 2022, cash and cash equivalents were $15.6 million and short-term marketable securities were $55.3 million, for combined cash and securities of $70.9 million. Current assets were $141.4 million and current liabilities were $18.3 million. The company reported no outstanding borrowings; its former credit facility had been terminated in 2021. Lease liabilities totaled $15.6 million, of which $1.9 million was current. Management said available cash, investments and related interest should cover anticipated requirements for at least the next 12 months.
Operating cash flow was lower year over year, with a $5.0 million net working-capital use, including increases in receivables and inventory and payments of payables and accrued liabilities. Investing activities used $0.5 million, mainly for equipment and technology. Financing activities used $2.4 million, primarily for the $2.7 million dividend. The quarterly dividend was $0.125 per share, up from $0.110 in Q1 2021. A board-authorized share repurchase program permits purchases of up to $20 million through February 22, 2023; no purchases had been made under that program as of the filing. Separately, 3,016 shares were withheld/repurchased for employee tax obligations.
Outlook, risks and notable items
- The filing provides no specific revenue, earnings or margin guidance. Management warns that quarterly sales may remain variable and unpredictable because of COVID-19 effects on hospital procedures and access, despite easing restrictions in some markets.
- Foreign exchange remains a material exposure: approximately 39% of Q1 sales were outside the U.S.; management estimated the stronger U.S. dollar reduced Q1 2022 reported sales by about $0.8 million versus Q1 2021. The company had not used currency derivatives in 2022 or recent years.
- European regulatory approvals remain important. The Omniflow II transfer approval was delayed, with European backorders reported; Pruitt F3 shunt inventory could run short before anticipated MDR approval. The filing also discusses MDR and UKCA transition risks, potential product restrictions, and supply and margin effects for XenoSure.
- After quarter-end, the company committed to close its St. Etienne, France factory by June 30, 2022. It estimated approximately $3.2 million of special charges, including $2.7 million cash employment-termination costs and $0.5 million of asset and inventory impairments; approximately $3.1 million was expected to be recorded in 2022. The closure could affect product supply, sales and profitability.
- After quarter-end, LeMaitre agreed to buy out its Korean distributor for $540,000 and expects to begin direct-to-hospital sales in Korea in January 2023. It also signed a larger, nine-year Sulzbach, Germany lease.
- Acquisition-related contingent consideration liabilities were $1.5 million at quarter-end. Potential Artegraft earn-outs remain tied to 2022 and 2023 unit-sales targets; prior-year target was not met. Admedus revenue and shelf-life milestones were not met, while a payment tied to MDR CE marks remains possible, subject to deductions.
- The company disclosed $749,000 of unrecognized tax benefits, with relevant tax positions subject to examination. Management reported no legal matter expected to have a material adverse effect as of May 10, 2022, and concluded disclosure controls were effective at reasonable assurance levels.
Important facts for investors to verify
- Whether sales growth persists and whether gross margin stabilizes after the Q1 decline; monitor labor, product mix, foreign exchange and manufacturing efficiency.
- Progress and timing of Omniflow II and Pruitt F3 approvals, broader MDR/UKCA certifications, and any resulting backorders or sales restrictions.
- The actual cost, timing and supply impact of the St. Etienne closure, including whether Burlington-made products sustain customer demand.
- Working-capital trends and operating cash conversion, given Q1 cash flow declined despite higher sales and net income.
- Achievement of Artegraft earn-out targets, the potential Admedus CE-mark payment, and the company’s use of its cash, dividend and authorized repurchase capacity.