This Quarterly Report on Form 10-Q contains forward-looking statements (within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995) that
involve substantial risks and uncertainties, particularly risks related to the
regulatory environment, our common stock, fluctuations in our quarterly and
annual results, our ability to successfully integrate acquisitions into our
business, and risks related to our business and industry generally, such as
risks inherent in the process of developing and commercializing products and
services that are safe and effective for use in the peripheral vascular disease
market. All statements, other than statements of historical facts, included in
this report regarding our strategy, future operations, future financial
position, future net sales, gross margin expectations, projected costs,
projected expenses, prospects and plans and objectives of management are
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "plans," "projects," "will," "would," and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We have based
these forward-looking statements on our current expectations and projections
about future events. Although we believe that the expectations underlying any of
our forward-looking statements are reasonable, these expectations may prove to
be incorrect, and all of these statements are subject to risks and
uncertainties. Should one or more of these risks and uncertainties materialize,
or should underlying assumptions, projections, or expectations prove incorrect,
our actual results, performance, or financial condition may vary materially and
adversely from those anticipated, estimated, or expected. No forward-looking
statement can be guaranteed and actual results may vary materially from those
projected in the forward-looking statements. We intend to take advantage of the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995
regarding our forward-looking statements, and are including this sentence for
the express purpose of enabling us to use the protections of the safe harbor
with respect to all forward-looking statements. These risks and uncertainties
include, but are not limited to: the status of our global regulatory approvals
and compliance with foreign regulatory requirements to market and sell our
products outside the United States; the duration and severity of the impact of
COVID-19 on the global economy, our customers, our suppliers and our company;
the risk of significant fluctuations in our quarterly and annual results due to
numerous factors; the risk that assumptions about the market for the Company's
products and the productivity of the Company's direct sales force and
distributors may not be correct; the risk that we may not be able to maintain
our recent levels of profitability; the risk that the Company may not realize
the anticipated benefits of its strategic activities; risks related to the
integration of acquisition targets; the acceleration or deceleration of product
growth rates; risks related to product demand and market acceptance of the
Company's products and pricing; the risk that a recall of our products could
result in significant costs or negative publicity; the risk that the Company is
not successful in transitioning to a direct-selling model in new territories.
Forward-looking statements reflect management's analysis as of the date of this
quarterly report. Further information on potential risk factors that could
affect our business and financial results is detailed in Part II, Item 1A, "Risk
Factors" in this Quarterly Report on Form 10-Q and in our other filings with the
Securities and Exchange Commission, including under the section headed "Risk
Factors" in our most recent Annual Report on Form 10-K. Given these risks,
uncertainties and other factors, you should not place undue reliance on these
forward-looking statements. The following discussion and analysis should be read
in conjunction with our consolidated financial statements and the related notes
included in this report and our other SEC filings, including our audited
consolidated financial statements and the related notes contained in our Annual
Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC
on February 28, 2022. We do not assume any obligation to update any
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by law. Unless the context indicates
otherwise, references to "LeMaitre Vascular," "we," "our," and "us" in this
Quarterly Report on Form 10-Q refer to LeMaitre Vascular, Inc. and its
subsidiaries.
LeMaitre, AlboGraft, AnastoClip, Artegraft, CardioCel, Omniflow, RestoreFlow,
VascuCel and XenoSure are registered trademarks of LeMaitre Vascular or one of
its subsidiaries. This Quarterly Report on Form 10-Q also includes the
registered and unregistered trademarks of other persons, which are the property
of their respective owners.
Overview
LeMaitre Vascular is a global provider of medical devices and human tissue
cryopreservation services largely used in the treatment of peripheral vascular
disease, end-stage renal disease, and to a lesser extent cardiovascular disease.
We develop, manufacture, and market vascular devices to address the needs of
vascular surgeons and, to a lesser degree, other specialties such as cardiac
surgeons, general surgeons and neurosurgeons. Our diversified portfolio of
devices consists of brand name products that are used in arteries and veins and
are well known to vascular surgeons. Our principal product offerings are sold
globally, primarily in the United States, Europe, the United Kingdom, Canada and
Asia Pacific. We estimate that the annual worldwide market for peripheral
vascular devices exceeds $5 billion, within which we estimate that the
addressable market for our products is approximately $750 million. We have grown
our business using a simple three-pronged strategy: 1) pursuing a focused call
point, 2) competing for sales of low-rivalry, niche products, and 3) expanding
our worldwide direct sales force while acquiring and, to a lesser extent,
developing complementary devices. We have used acquisitions as a primary means
of further penetrating the peripheral vascular device market, and we expect to
continue to pursue this strategy in the future. We currently manufacture most of
our products in our Burlington, Massachusetts headquarters.
21
--------------------------------------------------------------------------------
Table of Contents
Our products and services are used primarily by vascular surgeons who treat
peripheral vascular disease through both open surgical methods and endovascular
techniques. In contrast to interventional cardiologists and interventional
radiologists, vascular surgeons can perform both open surgical and minimally
invasive endovascular procedures, and therefore can provide a wider range of
treatment options to their patients. More recently, however, we have begun to
explore adjacent market customers, or non-vascular surgeon customers, who can be
served by our vascular device technologies, such as cardiac surgeons and
neurosurgeons.
Since March 2020, the COVID-19 pandemic has significantly impacted the markets
for our products as well as our business. In response to COVID-19, many
hospitals limited elective procedures in response to the onset of the pandemic
and then periodically when infection rates have increased. Many of our devices
are used in elective procedures. Additionally, our sales representatives' access
to hospitals and surgeons has periodically been restricted by hospitals or local
governments. More recently, however, in many geographies we have seen
restrictions eased, although the prevalence of COVID-19 variants has not always
resulted in the re-opening of hospital access. During 2020 and into 2022, these
dynamics resulted in, and we expect will continue to result in, variable and
unpredictable sales.
Our principal product lines include the following: anastomotic clips, biologic
vascular and dialysis grafts, biologic vascular and cardiac patches, carotid
shunts, embolectomy catheters, occlusion catheters, radiopaque marking tape,
synthetic vascular grafts, and valvulotomes. Through our RestoreFlow allografts
business, we also provide services related to the processing and
cryopreservation of human vascular and cardiac tissue.
Our principal biologic offerings include vascular and cardiac patches as well as
vascular and dialysis grafts. In Q1 2022, biologics represented 48% of worldwide
sales. We view the biologic device offerings favorably, as we believe it
contains differentiated and in some cases growing product segments.
To assist us in evaluating our business strategies, we regularly monitor
long-term technology trends in the peripheral vascular device market.
Additionally, we consider the information obtained from discussions with the
medical community in connection with the demand for our products, including
potential new product launches. We also use this information to help determine
our competitive position in the peripheral vascular device market and our
manufacturing capacity requirements.
Our business opportunities include the following:
• adding complementary products through acquisitions;
• growing our direct sales force in North America, Europe, the United Kingdom,
and Asia Pacific, including when replacing a distributor with our sales
personnel;
• introducing our products into new territories upon receipt of regulatory
approvals or registrations in these territories;
• consolidating and automating product manufacturing at our Burlington,
Massachusetts facilities, and
• updating existing products and introducing new products through research and
development.
Our ability to execute on these opportunities on a timely basis, or at all, may
be impacted by the COVID-19 pandemic, the duration and severity of which are
uncertain.
We sell our products and services primarily through a direct sales force. As of
March 31, 2022, our sales force was comprised of 112 sales representatives in
North America, Europe, the United Kingdom and Asia Pacific, including three
export managers. Our worldwide headquarters is located in Burlington,
Massachusetts, and we also have North American sales offices in Chandler,
Arizona and Vaughan, Canada. Our European headquarters is located in Sulzbach,
Germany, and we also have sales offices in Milan, Italy; Madrid, Spain; and
Hereford, England. Our Asia Pacific headquarters is located in Singapore, and we
also have sales offices in Tokyo, Japan; Shanghai, China; and Kensington,
Australia. During the current quarter, approximately 95% of our net sales were
generated in territories in which we employ direct sales representatives. We
also sell our products in other countries through distributors.
22
--------------------------------------------------------------------------------
Table of Contents
Historically we have experienced success in lower-rivalry niche segments, for
example the markets for valvulotomes and carotid shunts. In the valvulotome
market, our highly differentiated devices have historically allowed us to
increase our selling prices while maintaining unit share. In contrast, we have
experienced less success in highly competitive markets such as the polyester
vascular graft market, where we face competition from larger companies with
greater resources. While we believe these challenging market dynamics can be
mitigated by our relationships with vascular surgeons, there can be no assurance
that we will succeed in highly competitive markets.
We have also experienced success in international markets, such as Europe, where
we have a significant sales force, and sometimes offer comparatively lower
average selling prices. If we continue to seek growth opportunities outside of
North America, we may experience downward pressure on our gross margin.
Our strategy for growing our business includes the acquisition of complementary
product lines and companies and occasionally the discontinuance or divestiture
of products or activities that are no longer complementary:
• In July 2019, we entered into an agreement with UreSil, LLC to purchase the
remaining assets of their Eze-Sit valve cutter business, including U.S.
distribution rights, for $8.0 million.
• In October 2019, we entered into an agreement with Anteris to purchase the
assets of their CardioCel biologic patch business for $15.5 million plus
additional payments of up to $7.8 million, depending upon the satisfaction of
certain contingencies.
• In June 2020, we entered into an agreement with Artegraft to purchase the
assets of their bovine graft business for $72.5 million plus additional
payments of up to $17.5 million, depending upon 2021 - 2023 unit sales.
• During 2021, we made decisions to wind down or discontinue TRIVEX powered
phlebectomy systems, remote endarterectomy devices and surgical glue. These
product lines combined to account for approximately $2.2 million in revenues
in 2021.
• In March 2022, we made the decision to wind down the ProCol graft product
line, which totaled approximately $0.7 million in revenues in 2021.
Because we believe that direct-to-hospital sales engender closer customer
relationships, and allow for higher selling prices and gross margins, we
periodically enter into transactions with our distributors to transition their
sales of our medical devices into our direct sales organization:
• During 2020, we entered into definitive agreements with, or participated with
Anteris in concluding agreements with, several former Anteris distributors in
Europe and Canada, in order to terminate their distribution of our acquired
bovine cardiac and vascular patch products, and we began selling
direct-to-hospital in those geographies. The termination fees totaled
approximately $0.1 million.
• During 2020, we participated with Artegraft in concluding agreements with
several of their former U.S. distributors in order to terminate their
distribution of our bovine graft products. We now sell Artegraft products
direct-to-hospital throughout the United States.
We also rely, to a much lesser extent, on internal product development efforts
to bring differentiated technology and next-generation products to market:
• In 2019, we launched DuraSure, a biologic patch indicated for closing or
repairing dural defects during open neurosurgical procedures.
• In 2020, we launched RestoreFlow cardiac allografts for use in cardiac repair
and restoration.
• In March 2022, we received U.S. FDA approval to market PhasTIPP, a portable
powered phlebotomy device used to remove larger varicose veins in the leg.
In addition to our sales growth strategies, we have also executed on several
operational initiatives designed to consolidate manufacturing into our
Burlington facilities. We expect these plant consolidations will result in
improved control over production quality as well as reduced costs. Our most
recent manufacturing transfers included:
• In September 2018, we acquired the Syntel embolectomy catheter business assets
from Applied Medical. We immediately initiated a project to transfer the
production to our Burlington facilities. This transfer is now complete.
• In 2018 and 2019, we expanded our Burlington biologic clean room in order to
transfer the production of our Omniflow II vascular graft from our North
Melbourne, Australia facility to Burlington. This transfer is substantially
complete, and the North Melbourne facility has been sold.
• In October 2019, we acquired the biologic patch business assets from Admedus.
In July 2020, we initiated a project to transfer the production of these
devices to our Burlington facilities. We expect this transfer to be complete
in 2023.
23
--------------------------------------------------------------------------------
Table of Contents
Our execution of these initiatives may affect the comparability of our financial
results and may cause fluctuations from period to period as we incur related
process engineering and other charges.
Fluctuations in the exchange rates between the U.S. dollar and foreign
currencies, primarily the Euro, affect our financial results. For the three
months ended March 31, 2022 approximately 39% of our sales took place outside
the U.S., largely in currencies other than the U.S. dollar. We expect foreign
currencies will represent a significant percentage of future sales. Selling,
marketing, and administrative costs related to these sales are also denominated
in foreign currencies, thereby partially mitigating our bottom-line exposure to
exchange rate fluctuations. However, if there is an increase in the rate at
which a foreign currency is exchanged for U.S. dollars, it will require more of
the foreign currency to equal a specified amount of U.S. dollars than before the
rate increase. In such cases we will record less revenue in U.S. dollars than we
did before the exchange rate changed. For the quarter ended March 31, 2022, we
estimate that the effects of changes in foreign exchange rates decreased our
reported sales by approximately $0.8 million, as compared to rates in effect for
the quarter ended March 31, 2021.
Net Sales and Expense Components
The following is a description of the primary components of our net sales and
expenses:
Net sales. We derive our net sales from the sale of our products and services,
less discounts and returns. Net sales include the shipping and handling fees
paid for by our customers. Most of our sales are generated by our direct sales
force and are shipped and billed to hospitals or clinics throughout the world.
In countries where we do not have a direct sales force, sales are primarily to
distributors, who in turn sell to hospitals and clinics. In certain cases our
products are held on consignment at a hospital or clinic prior to purchase; in
those instances we recognize revenue at the time the product is used in surgery
rather than at shipment.
Cost of sales. We manufacture the majority of the products that we sell. Our
cost of sales consists primarily of manufacturing personnel, raw materials and
components, depreciation of property and equipment, and other allocated
manufacturing overhead, as well as freight expense we pay to ship products to
customers.
Sales and marketing. Our sales and marketing expense consists primarily of
salaries, commissions, stock-based compensation, travel and entertainment, sales
meetings, attendance at vascular congresses, training programs, advertising and
product promotions, direct mail and other marketing costs.
General and administrative. General and administrative expense consists
primarily of executive, finance and human resource salaries, stock based
compensation, legal and accounting fees, information technology expense,
intangible asset amortization expense and insurance expense.
Research and development. Research and development expense primarily includes
costs associated with obtaining and maintaining regulatory approval of our
products, salaries, laboratory testing and supply costs. It also includes costs
associated with the design and execution of clinical studies, costs to register,
maintain, and defend our intellectual property, and costs to transfer the
manufacturing of acquired product lines to our Burlington facility. Also
included are costs associated with the design, development, testing and
enhancement of new or existing products.
Other income (expense). Other income (expense) primarily includes interest
income and expense, foreign currency gains (losses), and other miscellaneous
gains (losses).
Income tax expense. We are subject to federal and state income taxes for
earnings generated in the U.S., which include operating losses or profits in
certain foreign jurisdictions for certain years depending on tax elections made,
and foreign taxes on earnings of our wholly-owned foreign subsidiaries. Our
consolidated tax expense is affected by the mix of our taxable income (loss) in
the U.S. and foreign subsidiaries, permanent items, discrete items, unrecognized
tax benefits, and amortization of goodwill for U.S. tax reporting purposes.
24
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Since March 2020, the COVID-19 pandemic has significantly impacted the markets
for our products as well as our business. In response to COVID-19, many
hospitals limited elective procedures in response to the onset of the pandemic
and then periodically over the last two years when infection rates have
increased. Many of our devices are used in elective procedures. Additionally,
our sales representatives' access to hospitals and surgeons has periodically
been restricted by hospitals or local governments. More recently, however, in
many geographies we have seen restrictions eased, although the prevalence of
COVID-19 variants has not always resulted in the re-opening of hospital access.
During 2020 and into 2022, these dynamics resulted in, and we expect will
continue to result in, variable and unpredictable sales.
For reasons described above, our results could be materially impacted in the
near term. These financial statements and management's discussion and analysis
of financial condition and results of operations should be read in that context.
Comparison of the three-month period ended March 31, 2022 to the three-month
month period ended March 31, 2021:
The following tables set forth, for the periods indicated, our net sales by
geography, and the change between the specified periods expressed as a
percentage increase or decrease:
Three months ended March 31,
(unaudited) Percent
2022 2021 change
($ in thousands)
Net sales $ 39,561 $ 35,883 10 %
Net sales by geography:
Americas $ 26,543 $ 23,699 12 %
Europe, Middle East and Africa 10,494 9,862 6 %
Asia Pacific 2,524 2,322 9 %
Total $ 39,561 $ 35,883 10 %
Net sales. Net sales increased $3.7 million, or 10%, to $39.6 million for the
three months ended March 31, 2022, compared to $35.9 million for the three
months ended March 31, 2021. The increase was driven primarily by an increase in
bovine graft sales of $1.0 million, and carotid patch sales of $0.7 million,
largely due to carotid patch CE mark issues in the prior year. Additionally,
shunt, allograft, and valvulotome sales increased by $0.7 million, $0.6 million,
and $0.5 million, respectively, for the three months ended March 31, 2022
compared to the three months ended March 31, 2021. We estimate that the stronger
U.S. dollar decreased net sales by $0.8 million during the three months ended
March 31, 2022 as compared to the three months ended March 31, 2021.
Direct-to-hospital net sales were 95% of our total net sales for the three
months ended March 31, 2022, and 94% for the three-months ended March 31, 2021.
25
--------------------------------------------------------------------------------
Table of Contents
Net sales by geography. Net sales in the Americas increased $2.8 million, or
12%, for the three months ended March 31, 2022 as compared to the three months
ended March 31, 2021. The increase was driven mainly by increased bovine graft
sales of $1.0 million, or 16%, increased allograft sales of $0.6 million, or
28%, and increased valvulotome sales of $0.5 million, or 10%.
EMEA net sales increased $0.6 million, or 6%, for the three months ended March
31, 2022 as compared to the three months ended March 31, 2021. Higher sales of
carotid shunts and bovine carotid patches led the growth, with increased sales
of $0.4 million each, offset by a $0.1 million decline in embolectomy catheter
sales.
Asia Pacific net sales increased $0.2 million, or 9%, for the three months ended
March 31, 2022 as compared to the three months ended March 31, 2021, with
increased bovine carotid patch sales of $0.2 million. This and other product
sales increases were offset, in part, by a $0.1 million decline in bovine
cardiac patch sales.
The following table sets forth the change in our gross profit and gross margin
for the periods indicated:
Three months ended March 31,
(unaudited) Percent
2022 2021 Change change
($ in thousands)
Gross profit $ 25,962 $ 23,799 $ 2,163 9 %
Gross margin 65.6 % 66.3 % (0.7% ) *
*Not applicable
Gross Profit. Gross profit increased $2.2 million, or 9%, to $26.0 million for
the three months ended March 31, 2022, and gross margin decreased 70 basis
points to 65.6% in the period. The increase in gross profit was driven primarily
by increased sales from bovine grafts and valvulotomes. The decrease in the
gross margin was driven primarily by an increase in labor costs, unfavorable
product mix, including higher sales of comparatively low margin polyester
grafts, unfavorable changes in foreign currency exchange rates and manufacturing
inefficiencies largely related to bovine carotid patches.
26
--------------------------------------------------------------------------------
Table of Contents
Operating Expenses
The following tables set forth changes in our operating expenses for the periods
indicated and the change between the specified periods expressed as a percentage
increase or decrease:
Three months ended March 31,
(unaudited) Percent
2022 2021 $ Change change
Sales and marketing $ 7,850 $ 6,466 $ 1,384 21 %
General and administrative 7,252 6,544 708 11 %
Research and development 2,932 2,844 88 3 %
Total $ 18,034 $ 15,854 $ 2,180 14 %
Three months ended March 31,
2022 2021
% of Net Sales % of Net Sales Change
Sales and marketing 20 % 18 % 2 %
General and administrative 18 % 18 % 0 %
Research and development 7 % 8 % (1 %)
Sales and marketing. For the three months ended March 31, 2022, sales and
marketing expense increased 21% to $7.9 million. The increase was driven
primarily by higher sales rep headcount, resulting in higher salaries and
related expenses of $1.1 million, including higher selling commissions of
approximately $0.3 million. Travel and related expenses were also higher by $0.2
million. Expense reduction programs implemented during the second quarter of
2020 through the fiscal year 2021 in response to the COVID-19 global pandemic,
including a reduction in force, lowered expenses for the three months ended
March 31, 2021. Since the pandemic has abated, we have hired in many areas,
including our sales force. As a percentage of net sales, sales and marketing
expense increased to 20% for the three months ended March 31, 2022, up from 18%
in the prior period.
General and administrative. For the three months ended March 31, 2022, general
and administrative expenses increased 11% to $7.3 million. Compensation and
related expenses increased by $0.7 million, largely due to salary and
stock-based compensation increases, as well as an increase in personnel. As a
percentage of sales, general and administrative expenses were unchanged at 18%
for each of the three month periods ended March 31, 2022 and 2021, respectively.
Research and development. For the three months ended March 31, 2022, research
and development expense increased $0.1 million, or 3%, to $2.9 million. The
increase was driven by higher salaries and related expenses of $0.4 million, as
well as an increase in personnel. These increases were largely offset by a
decrease in professional fees and outside services of $0.3 million. As a
percentage of sales, total research and development expense decreased to 7% for
the three months ended March 31, 2022, from 8% in the prior period.
27
--------------------------------------------------------------------------------
Table of Contents
Income tax expense. We recorded a tax provision of $2.0 million on pre-tax
income of $8.0 million for the three months ended March 31, 2022, compared to a
$1.6 million tax provision on pre-tax income of $7.5 million for the three
months ended March 31, 2021. Our effective income tax rate was 24.5% for the
three month period ended March 31, 2022. Our tax expense for the current period
is based on an estimated annual effective tax rate of 24.5%, adjusted in the
applicable quarterly periods for discrete stock option exercises and other
discrete items. Our income tax expense for the current period varies from the
statutory rate mainly due to federal and state tax credits, permanent items, and
different statutory rates from our foreign entities.
Our effective income tax rate was 20.8% for the three month period ended March
31, 2021. Our 2021 provision was based on the estimated annual effective tax
rate of 24.0%, adjusted in the applicable quarterly period for discrete stock
option exercises and other discrete items. Our income tax expense for the three
month period ended March 31, 2021 varied from the statutory rate mainly due to
federal and state tax credits, permanent items, different statutory rates from
our foreign entities, and a discrete item for stock option exercises.
We monitor the mix of profitability by tax jurisdiction and adjust our annual
expected rate on a quarterly basis as needed. While it is often difficult to
predict the final outcome or timing of the resolution for any particular tax
matter, we believe our tax reserves reflect the probable outcome of known
contingencies.
We assess the likelihood that our deferred tax assets will be realized through
future taxable income and record a valuation allowance to reduce gross deferred
tax assets to an amount that we believe is more likely than not to be realized.
As of March 31, 2022, we have provided a valuation allowance of $1.7 million for
deferred tax assets primarily related to Australian net operating loss and
capital loss carry forwards and Massachusetts tax credit carry forwards that are
not expected to be realized.
Liquidity and Capital Resources
At March 31, 2022, our cash and cash equivalents were $15.6 million as compared
to $13.9 million at December 31, 2021. We also had $55.3 million in short-term
marketable securities as of March 31, 2022 and $56.1 million as of December 31,
2021. Our cash and cash equivalents are highly liquid investments with
maturities of 90 days or less at the date of purchase, and consist primarily of
operating bank accounts. Our short-term marketable securities consist of a
managed income mutual fund investing mainly in short-term investment grade,
U.S.-dollar denominated fixed and floating-rate debt, and a short-duration bond
fund.
On July 16, 2021, we closed an offering of 1,000,0000 shares of our common
stock, $0.01 par value per share, at a price to the public of $54.50 per share
less underwriting discounts. The net proceeds, after deducting the underwriting
discounts and other offering expenses, were approximately $51.0 million. We used
a portion of the proceeds from the offering to repay our outstanding debt. We
plan to use the remaining proceeds for general corporate purposes, including
working capital needs and capital expenditures, dividend payments, deferred
payments related to prior acquisitions, and the funding of future acquisitions.
On August 4, 2021, the underwriters purchased an additional 150,000 shares
pursuant to an option granted to them in connection with the offering described
above. The net proceeds to the Company, after deducting underwriting discounts
and other offering expenses, were approximately $7.6 million. We plan to use the
proceeds for general corporate purposes.
28
--------------------------------------------------------------------------------
Table of Contents
On February 22, 2022, our Board of Directors authorized the repurchase of up to
$20.0 million of the Company's common stock through transactions on the open
market, in privately negotiated purchases or otherwise until February 22, 2023.
The repurchase program may be suspended or discontinued at any time. To date we
have not made any repurchases under this program.
In June 2020, in connection with the Artegraft acquisition, we incurred debt of
$65 million including a five-year revolving line of credit of $25 million and a
five-year term loan of $40 million. The loans bore interest at either the Base
Rate as defined in the agreement plus an applicable margin of 1.25% to 1.75%
depending on our consolidated leverage ratio, or the Eurodollar Rate plus an
applicable margin of 2.25% to 2.75% depending on our consolidated leverage
ratio. In July 2021 we repaid the balance under the term loan, plus accrued
interest, in full.
In November 2021, we terminated the credit agreement, including the revolving
line of credit, as allowed for in the original agreement.
Operating and Capital Expenditure Requirements
We require cash to pay our operating expenses, make capital expenditures, and
pay our long-term liabilities. Since our inception, we have funded our
operations through public offerings and private placements of equity securities,
short-term and long-term borrowings, and funds generated from our operations.
We recognized operating income of $7.9 million for the three months ended March
31, 2022. For the year ended December 31, 2021, we had operating income of
$36.4 million. We expect to fund any increased costs and expenditures from our
existing cash and cash equivalents, though our future capital requirements
depend on numerous factors. These factors include, but are not limited to, the
following:
• the revenues generated by sales of our products and services;
• payments associated with potential future quarterly cash dividends to our
common stockholders;
• future acquisition-related payments;
• payments associated with income and other taxes;
• the costs associated with expanding our manufacturing, marketing, sales, and
distribution efforts;
• the costs associated with our initiatives to sell direct-to-hospital in new
countries;
• the costs of obtaining and maintaining U.S. FDA and other regulatory
clearances for our existing and future products;
• the costs associated with obtaining European MDR clearances for our existing
and future products;
• the number, timing, and nature of acquisitions, divestitures and other
strategic transactions, and
• potential future share repurchases.
Our cash balances may decrease as we continue to use cash to fund our
operations, make acquisitions, repay outstanding debt, pay dividends, repurchase
shares of our common stock and make deferred payments related to prior
acquisitions. We believe that our cash, cash equivalents, investments and the
interest we earn on these balances will be sufficient to meet our anticipated
cash requirements for at least the next twelve months. If these sources of cash
are insufficient to satisfy our liquidity requirements beyond the next twelve
months, we may seek to sell additional equity or debt securities or take out a
loan. The sale of additional equity and debt securities may result in dilution
to our stockholders, as was the case with our July 2021 equity offering. If we
raise additional funds through the issuance of debt securities, such securities
could have rights senior to those of our common stock and could contain
covenants that would restrict our operations and possibly our ability to pay
dividends. We may require additional capital beyond our currently forecasted
amounts. Any such required additional capital may not be available on reasonable
terms, if at all.
29
--------------------------------------------------------------------------------
Table of Contents
Dividends
In February 2011, our Board of Directors approved a policy for the payment of
quarterly cash dividends on our common stock. Future declarations of quarterly
dividends and the establishment of future record and payment dates are subject
to approval by our Board of Directors on a quarterly basis. The dividend
activity for the periods presented is as follows:
Record Date Payment Date Per Share Amount Dividend Payment
(in thousands)
Fiscal Year 2022
March 8, 2022 March 24, 2022 $ 0.125 $ 2,743
Fiscal Year 2021
March 9, 2021 March 25, 2021 $ 0.110 $ 2,262
May 19, 2021 June 3, 2021 $ 0.110 $ 2,267
August 26, 2021 September 9, 2021 $ 0.110 $ 2,401
November 19, 2021 December 2, 2021 $ 0.110 $ 2,405
On April 26, 2022 our Board of Directors approved a quarterly cash dividend on
our common stock of $0.125 per share payable on June 2, 2022, to stockholders of
record at the close of business on May 17, 2022.
Cash Flows
Three months ended March 31,
(in thousands)
2022 2021 Net Change
Cash and cash equivalents $ 15,560 $ 23,525 $ (7,965 )
Cash flows provided by (used in):
Operating activities $ 4,711 $ 6,074 $ (1,363 )
Investing activities (536 ) (1,060 ) 524
Financing activities (2,380 ) (7,965 ) 5,585
Net cash provided by operating activities. Net cash provided by operating
activities was $4.7 million for the three months ended March 31, 2022,
consisting of $6.0 million in net income, adjustments for non-cash or
non-operating items of $3.6 million (including primarily depreciation and
amortization of $2.4 million, stock-based compensation of $1.2 million,
provisions for inventory write-offs and doubtful accounts of $0.6 million), and
also a net use of working capital of $5.0 million. The net cash used for working
capital was driven by an increase in accounts receivable of $2.0 million, an
increase in inventory and other deferred costs of $1.3 million, and payments of
accounts payable and accrued liabilities of $3.4 million. These cash uses were
offset by a decrease in prepaid expenses and other assets of $1.7 million.
Net cash provided by operating activities was $6.1 million for the three months
ended March 31, 2021, consisting of $5.9 million in net income, adjustments for
non-cash or non-operating items of $4.7 million (including depreciation and
amortization of $2.6 million, stock-based compensation of $0.9 million,
provisions for inventory write-offs and doubtful accounts of $1.1 million), and
also a net use of working capital of $4.6 million. The net cash used for working
capital was driven by payments of accounts payable and accrued liabilities of
$3.0 million, an increase in inventory and other deferred costs of $1.3 million
and an increase in receivable of $0.9 million. These cash uses were offset by a
decrease in prepaid expenses and other assets of $0.6 million.
30
--------------------------------------------------------------------------------
Table of Contents
Net cash used in investing activities. Net cash used in investing activities was
$0.5 million for the three months March 31, 2022, consisting of expenditures on
equipment and technology.
Net cash used in investing activities was $1.1 million for the three months
ended March 31, 2021, consisting of expenditures on equipment and technology.
Net cash used in financing activities. Net cash used in financing activities was
$2.4 million for the three months ended March 31, 2022, consisting primarily of
a dividend payment of $2.7 million. This use of cash was partly offset by
proceeds from stock option exercises of $0.4 million, net of shares repurchased
to cover employee payroll taxes.
Net cash used in financing activities was $8.0 million for the three months
ended March 31, 2021, consisting primarily of payments made on our long-term
debt of $7.0 million and a dividend payment of $2.3 million. These uses of cash
were partly offset by proceeds from stock option exercise of $1.3 million, net
of shares repurchased to cover employee payroll taxes.
Critical Accounting Policies and Estimates
We have adopted various accounting policies to prepare our consolidated
financial statements in accordance with U.S. generally accepted accounting
principles, or U.S. GAAP. Our most significant accounting policies are described
in Note 1 to our consolidated financial statements included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2021. There have been no
material changes in our critical accounting policies during the three months
ended March 31, 2022. The preparation of our consolidated financial statements
in conformity with U.S. GAAP requires us to make estimates and assumptions that
affect the amounts reported in our consolidated financial statements and
accompanying notes. Our estimates and assumptions, including those related to
revenue recognition, inventory valuation, valuation of intangible assets and
goodwill, contingent consideration and income taxes are reviewed on an ongoing
basis and updated as appropriate. Actual results may differ from those
estimates.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements that may impact our financial
statements upon adoption in future periods can be found in Note 1 to our
financial statements included under Part 1, Item 1 of this Quarterly Report on
Form 10-Q.
© Edgar Online, source Glimpses
LEMAITRE VASCULAR, INC. 
