Special Bulletin July 28, 2016
Updates on LeMaitre Vascular (LMAT), Chembio (CEMI) and Blackbaud (BLKB)
Shares of LeMaitre Vascular (LMAT) should move higher today on a very good Q2 earnings report. Revenue was up 12.6% to $22.4 million and beat by $880,000. Earnings were up by 40% to $0.14 and beat by $0.03. Across the board—from revenue to EPS to operating income to EBITDA—the company hit financial records.
I’ve talked about growing excitement around biologics and LeMaitre delivered on that front. Sales of its XenoSure biologic patch were up 36% to $4.3 million in the quarter (19% of total revenue). Management said that in aggregate, biologic products (including XenoSure patch, Omniflow graft and ProCol graft) accounted for 25% of total sales. A few quick calculations show Omniflow and ProCol bringing in $1.3 million in Q2. One thing that will help XenoSure sales moving forward is a safety alert issued in the U.S. and throughout Europe for a competing product from Baxter Healthcare. LeMaitre enjoyed only four days of related sales increases for XenoSure in Q2, but in Q3 it expects an extra $1.25 million and then $500,000 in additional sales in Q4. Baxter’s loss is LeMaitre’s gain. How many customers will LeMaitre retain after this? Who knows. George LeMaitre guesses 40% (that’s how he got to $500K in Q4 from $1.25 million in Q3). We’ll see. He also thinks around 50% of the additional sales will trickle down to the bottom line. That’s a material plus.
Sales of Valvulotomes also hit a record, up 14%, powered by the HYDRO product. Overall, international sales are pulling the cart, rising by 22% to make up 41% of total sales. Trials beginning in the second half of the year will include XenoSure in China, and applications for XenoSure in Australia. Personnel challenges at the distributor level continue in China (the main product here is Trivex), which is stunting growth in that market. I’m long term bullish on LeMaitre in China, short term not factoring in any growth. Sounds like they need more boots on the ground over there at the management level.
Gross margin rose by 2.6% to 68.6% due to cost controls and manufacturing efficiencies, mainly in XenoSure and HYDRO. Nice work there. Pricing increases also helped (this has been consistent throughout the years). Management expects gross margin to top 70% for full-year 2016. Cash balance increased by $3.4 million to $29.3 million, another $0.045 dividend was declared, and a $5 million share repurchase program was announced. This company is a little cash cranking machine.
Full year guidance was upped to sales growth of 13%. Acquisitions are still a priority, even with the share buyback. The company will be presenting at a number of upcoming conferences, including Canaccord in August, Three Part Midwest in August, Barrington in September and Dougherty in September.
Management knows what Wall Street is looking for, and they’ve set up the company to fulfill those expectations, including 10% revenue growth and 20% earnings growth, every year. Dividends help return a little cash to investors and showcase LeMaitre as a consistent and stable grower. The share buyback program shows they think the stock is undervalued, and is aimed at reducing shareholder dilution from things like stock-based compensation. A reduction in the share count increases earnings per share. It’s simple math, but many management teams don’t seem to realize it!
Bottom line: Q2 results showcase why I recommended LeMaitre. As of yesterday’s close the stock is down around 8.5% from my original recommendation price. This result should bring it back to break-even over the next week or two, and provide enough fuel to keep it moving north of 16.00. It’s trading around the 50 and 200 day moving averages, and relative strength is improving. It looks good to buy right now. And if the broader healthcare/biotech sector can keep getting favorable ratings from major brokers we could be in for a really nice run. BUY.
A very quick update on Chembio (CEMI). Recall the company pre-announced so-so earnings on Monday, as well as a $10 million secondary stock offering. Yesterday it stated that it had obtained a CE mark for its DPP Zika IgM/IgG Assay, which includes both the assay and the DPP Micro Reader. The CE mark clears the path to sell into 17 European countries, including the UK, Germany, France and Caribbean nations that are part of European countries (not the U.S. Virgin Islands, Puerto Rico, etc.). This is good news. It’s not the best news we could get--that would be approval in Brazil and the U.S. too--but it’s an incremental positive and one regulatory hurdle (they are all independent). My only question is why management released this news a few days after pre-announcing, and announcing the secondary. I’d think the market would prefer news that’s “positive-negative-negative” as opposed to “negative-negative”, followed by “positive” a few days later. Maybe the CE mark wasn’t expected? Maybe sales of Zika assay to Europe aren’t expected to be very material? Maybe they thought this news would be buried under the secondary? Who knows. Bottom line is that the stock was up over 5% yesterday, and that’s good. Shares are still a little shaky though, so I’m not moving back to buy just yet. We’ll see how today goes, and I’ll update you again in tomorrow’s Weekly Update.
Finally, shares of Blackbaud (BLKB) were down over 4% yesterday after short seller Off Wall Street published a bearish report on the company. I don’t like these guys. I understand why they do it, but as an investor (not short seller) I don’t like it. This will probably cast a shadow over the stock for the remainder of the week. Blackbaud’s rebuttal will come on Monday when it reports. This adds another chunk of pressure on management to deliver. I think they will. Keeping at buy. BUY.