Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM

10-Q

 


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023March 31, 2024

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     .

 

Commission File Number 001-33092

 


 

LEMAITRE VASCULAR, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

04-2825458

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

63 Second Avenue, Burlington, Massachusetts

01803

(Address of principal executive offices)

(Zip Code)

 

(781) 221-2266

(Registrants telephone number, including area code)

 

 


Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which

registered

Common stock, $0.01 par value per share

LMAT

The Nasdaq Global Market

 

1

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth Company “in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The registrant had 22,263,23522,446,109 shares of common stock, $.01 par value per share, outstanding as of November 3, 2023.May 7, 2024.

 

2

 

 

LEMAITRE VASCULAR

FORM 10-Q

TABLE OF CONTENTS

 

   

Page

    

Part I.

Financial Information:

4

    
 

Item 1.

Financial Statements

4

    
  

Consolidated Balance Sheets as of September 30, 2023March 31, 2024 (unaudited) and December 31, 20222023

4

    
  

Unaudited Consolidated Statements of Operations for the three-month and nine-month periods ended September 30,March 31, 2024 and 2023 and 2022

5

    
  

Unaudited Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30,March 31, 2024 and 2023 and 2022

6

    
  

Unaudited Consolidated Statements of Stockholders’ Equity for the three-month and nine-month periods ended September 30,March 31, 2024 and 2023 and 2022

7

    
  

Unaudited Consolidated Statements of Cash Flows for the nine-monththree-month periods ended September 30,March 31, 2024 and 2023 and 2022

98

    
  

Notes to Unaudited Consolidated Financial Statements

109

    
 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2319

    
 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

3227

    
 

Item 4.

Controls and Procedures

3227

   

Part II.

Other Information:

3429

    
 

Item 1.

Legal Proceedings

3429

    
 

Item 1A.

Risk Factors

3429

    
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3629

    
 

Item 5.

Other Information

3629

    
 

Item 6.

Exhibits

3730

    
 

Signatures

3831

 

3

 

Part I. Financial Information

Item 1. Financial Statements

 

LeMaitre Vascular, Inc.

Consolidated Balance Sheets

 

 

(unaudited)

     

(unaudited)

    
 

September 30,

 

December 31,

  

March 31,

 

December 31,

 
 

2023

  

2022

  

2024

  

2023

 
 

(in thousands, except share data)

  

(in thousands, except share data)

 
Assets        

Current assets:

  

Cash and cash equivalents

 $18,051  $19,134  $26,595  $24,269 

Short-term marketable securities

 78,967  63,557  81,693  80,805 

Accounts receivable, net of allowances of $863 at September 30, 2023 and $835 at December 31, 2022

 23,882  22,040 

Accounts receivable, net of allowances of $1,285 at March 31, 2024 and $941 at December 31, 2023

 30,236  25,064 

Inventory and other deferred costs

 56,187  50,271  60,575  58,080 

Prepaid expenses and other current assets

  5,097   6,731   3,863   6,380 

Total current assets

 182,184  161,733  202,962  194,598 
  

Property and equipment, net

 21,357  17,901  22,174  21,754 

Right-of-use leased assets

 15,850  15,634  17,795  18,027 

Goodwill

 65,945  65,945  65,945  65,945 

Other intangibles, net

 43,199  46,527  40,239  41,711 

Deferred tax assets

 2,325  1,745  828  1,003 

Other assets

  3,152   991   4,014   3,740 

Total assets

 $334,012  $310,476  $353,957  $346,778 
        

Liabilities and stockholders equity

        

Current liabilities:

  

Accounts payable

 $4,371  $2,903  $3,089  $3,734 

Accrued expenses

 21,788  19,967  21,118  23,650 

Acquisition-related obligations

 121  573  75  24 

Lease liabilities - short-term

  2,749   1,886   2,528   2,471 

Total current liabilities

 29,029  25,329  26,810  29,879 
            

Lease liabilities - long-term

 14,132  14,710  16,354  16,624 

Deferred tax liabilities

 69  69  114  107 

Other long-term liabilities

  2,145   2,167   2,176   2,268 

Total liabilities

 45,375  42,275  45,454  48,878 
  

Stockholders’ equity:

  

Preferred stock, $0.01 par value; authorized 3,000,000 shares; none outstanding

 -  -  -  - 

Common stock, $0.01 par value; authorized 37,000,000 shares; issued 23,835,670 shares at September 30, 2023, and 23,655,716 shares at December 31, 2022

 239  237 

Common stock, $0.01 par value; authorized 37,000,000 shares; issued 24,036,300 shares at March 31, 2024, and 23,911,760 shares at December 31, 2023

 240  239 

Additional paid-in capital

 198,254  189,268  206,350  200,755 

Retained earnings

 110,081  97,773  121,728  115,430 

Accumulated other comprehensive loss

 (6,705) (6,031) (5,558) (4,625)

Treasury stock, at cost; 1,572,435 shares at September 30, 2023 and 1,568,595 shares at December 31, 2022

  (13,232)  (13,046)

Treasury stock, at cost; 1,590,362 shares at March 31, 2024 and 1,584,512 shares at December 31, 2023

  (14,257)  (13,899)

Total stockholders’ equity

  288,637   268,201   308,503   297,900 

Total liabilities and stockholders’ equity

 $334,012  $310,476  $353,957  $346,778 

 

See accompanying notes to consolidated financial statements. 

 

4

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Operations

(unaudited)

 

 

Three months ended

 

Nine months ended

  

Three months ended

 
 

September 30,

  

September 30,

  

March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

(in thousands, except per share data)

 

(in thousands, except per share data)

  

(in thousands, except per share data)

 
  

Net sales

 $47,411  $39,028  $144,601  $120,697  $53,478  $47,075 

Cost of sales

  16,596   13,958   50,817   41,855   16,813   16,192 
  

Gross profit

 30,815  25,070  93,784  78,842  36,665  30,883 
  

Sales and marketing

 9,673  8,229  30,786  24,321  11,686  10,897 

General and administrative

 7,738  7,229  23,392  21,812  9,013  7,932 

Research and development

 4,224  3,462  12,615  9,740  4,092  3,875 

Restructuring

 -  -  485  3,107   -   305 
          

Total operating expenses

  21,635   18,920   67,278   58,980   24,791   23,009 
  

Income from operations

 9,180  6,150  26,506  19,862  11,874  7,874 
  

Other income (expense):

  

Interest income

 835  264  2,085  539  1,001  568 

Foreign currency loss

  (189)  (266)  (429)  (709)  (78)  (425)
  

Income before income taxes

 9,826  6,148  28,162  19,692  12,797  8,017 

Provision for income taxes

  2,324   692   6,522   4,683   2,910   1,977 
  

Net income

 $7,502  $5,456  $21,640  $15,009  $9,887  $6,040 
  

Earnings per share of common stock:

  

Basic

 $0.34  $0.25  $0.97  $0.68  $0.44  $0.27 

Diluted

 $0.33  $0.25  $0.97  $0.68  $0.44  $0.27 
  

Weighted-average shares outstanding:

  

Basic

  22,263   21,984   22,196   21,959   22,365   22,111 

Diluted

  22,481   22,217   22,411   22,149   22,570   22,274 
  

Cash dividends declared per common share

 $0.140  $0.125  $0.420  $0.375  $0.160  $0.140 

 

See accompanying notes to consolidated financial statements. 

 

5

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Comprehensive Income

(unaudited) 

 

 

Three months ended

 

Nine months ended

  

Three months ended

 
 

September 30,

  

September 30,

  

March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

(in thousands)

 

(in thousands)

  

(in thousands)

 

Net income

 $7,502  $5,456  $21,640  $15,009  $9,887  $6,040 

Other comprehensive income (loss):

  

Foreign currency translation adjustment, net

 (833) (1,350) (492) (2,876) (831) 252 

Unrealized loss on short-term marketable securities

  (50)  (333)  (182)  (1,816)

Total other comprehensive loss

  (883)  (1,683)  (674)  (4,692)

Unrealized (loss) gain on short-term marketable securities

  (102)  207 

Total other comprehensive income (loss)

  (933)  459 
  

Comprehensive income

 $6,619  $3,773  $20,966  $10,317  $8,954  $6,499 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Stockholders Equity

(unaudited)  

 

                 

Accumulated

                             

Accumulated

            
         

Additional

     

Other

         

Total

          

Additional

     

Other

         

Total

 
 

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Treasury Stock

  

Stockholders

  

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury Stock

 

Stockholders’

 
 

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amount

  

Equity

  

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amount

  

Equity

 
                  

Balance at December 31, 2022

 23,655,716  $237  $189,268  $97,773  $(6,031) 1,568,595  $(13,046) $268,201  23,655,716  $237  $189,268  $97,773  $(6,031) 1,568,595  $(13,046) $268,201 
                  

Net income

        6,040         6,040   6,040   6,040 

Other comprehensive income (loss)

          459       459   459   459 

Issuance of common stock for stock options exercised

 50,424  1  1,445           1,446  50,424  1  1,445   1,446 

Vested restricted stock units

 8,773  -  -           -  8,773  -   - 

Repurchase of common stock for net settlement of equity awards

  3,602  (172) (172)

Stock-based compensation expense

      1,290           1,290   1,290   1,290 

Repurchase of common stock for net settlement of equity awards

            3,602  (172) (172)

Common stock dividend paid

         (3,099)        (3,099)   (3,099)  (3,099)

Balance at March 31, 2023

 23,714,913  238  192,003  100,714  (5,572) 1,572,197  (13,218) 274,165   23,714,913  $238  $192,003  $100,714  $(5,572) 1,572,197  $(13,218) $274,165 
                 

Net income

        8,098         8,098 

Other comprehensive income (loss)

          (250)      (250)

Issuance of common stock for stock options exercised

 120,179  1  3,626           3,627 

Vested restricted stock units

 399  -  -           - 

Stock-based compensation expense

      1,312           1,312 

Repurchase of common stock for net settlement of equity awards

            151  (9) (9)

Common stock dividend paid

         (3,116)        (3,116)

Balance at June 30, 2023

  23,835,491  $239  $196,941  $105,696  $(5,822) 1,572,348  $(13,227) $283,827 
                 

Net income

        7,502         7,502 

Other comprehensive income (loss)

          (883)      (883)

Issuance of common stock for stock options exercised

 -  -  -           - 

Vested restricted stock units

 179  -  -           - 

Stock-based compensation expense

      1,313           1,313 

Repurchase of common stock for net settlement of equity awards

            87  (5) (5)

Common stock dividend paid

         (3,117)        (3,117)

Balance at September 30, 2023

  23,835,670  $239  $198,254  $110,081  $(6,705) 1,572,435  $(13,232) $288,637 

                  

Accumulated

             
          

Additional

      

Other

          

Total

 
  

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Treasury Stock

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amount

  

Equity

 
                                 

Balance at December 31, 2023

  23,911,760  $239  $200,755  $115,430  $(4,625)  1,584,512  $(13,899) $297,900 
                                 

Net income

              9,887               9,887 

Other comprehensive income (loss)

                  (933)          (933)

Issuance of common stock for stock options exercised

  107,930   1   3,985                   3,986 

Vested restricted stock units

  9,547   -                       - 

Vested performance-based restricted stock units

  7,063   -                       - 

Repurchase of common stock for net settlement of equity awards

                      5,850   (358)  (358)

Stock-based compensation expense

          1,610                   1,610 

Common stock cash dividend paid

              (3,589)              (3,589)

Balance at March 31, 2024

  24,036,300  $240  $206,350  $121,728  $(5,558)  1,590,362  $(14,257) $308,503 

 

See accompanying notes to consolidated financial statements.

 

7

LeMaitre Vascular, Inc.

Consolidated Statements of Stockholders Equity

(unaudited)

                  

Accumulated

             
          

Additional

      

Other

          

Total

 
  

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Treasury Stock

  

Stockholders

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amount

  

Equity

 
                                 

Balance at December 31, 2021

  23,477,784  $235  $181,630  $88,125  $(3,435)  1,554,905  $(12,404) $254,151 
                                 

Net income

              6,038               6,038 

Other comprehensive income (loss)

                  (1,189)          (1,189)

Issuance of common stock for stock options exercised

  24,917   -   508                   508 

Vested restricted stock units

  7,158   -   -                   - 

Stock-based compensation expense

          1,167                   1,167 

Repurchase of common stock for net settlement of equity awards

                      3,016   (145)  (145)

Common stock dividend paid

              (2,743)              (2,743)

Balance at March 31, 2022

  23,509,859   235   183,305   91,420   (4,624)  1,557,921   (12,549)  257,787 
                                 

Net income

              3,515               3,515 

Other comprehensive income (loss)

                  (1,820)          (1,820)

Issuance of common stock for stock options exercised

  10,808   -   164                   164 

Vested restricted stock units

  221   -   -                   - 

Stock-based compensation expense

          1,136                   1,136 

Repurchase of common stock for net settlement of equity awards

                      98   (4)  (4)

Common stock dividend paid

              (2,745)              (2,745)

Balance at June 30, 2022

  23,520,888  $235  $184,605  $92,190  $(6,444)  1,558,019  $(12,553) $258,033 
                                 

Net income

              5,456               5,456 

Other comprehensive income (loss)

                  (1,683)          (1,683)

Issuance of common stock for stock options exercised

  37,786   1   1,007                   1,008 

Vested restricted stock units

  280   -   -                   - 

Stock-based compensation expense

          1,186                   1,186 

Repurchase of common stock for net settlement of equity awards

                      55   (3)  (3)

Common stock dividend paid

              (2,750)              (2,750)

Balance at September 30, 2022

  23,558,954  $236  $186,798  $94,896  $(8,127)  1,558,074  $(12,556) $261,247 

See accompanying notes to consolidated financial statements.

8

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

For the nine months ended

  

For the three months ended

 
 September 30,  March 31, 
 

2023

  

2022

  

2024

  

2023

 
 

(in thousands)

  

(in thousands)

 
Operating activities        

Net income

 $21,640  $15,009  $9,887  $6,040 

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation and amortization

 7,072  7,145  2,382  2,351 

Stock-based compensation

 3,915  3,489  1,610  1,290 

Provision for inventory write-downs

 716  334 

Provision for credit losses

 362  (7)

Fair value adjustment to contingent consideration obligations

 (49) (81) 23  25 

Provision for credit losses

 60  214 

Provision for inventory write-downs

 1,455  2,060 

Loss on disposal of property and equipment

 -  95 

Loss on divestitures

 485  1,406  -  305 

Foreign currency transaction (gain) loss

 (7) (90)

Foreign currency effect on net income

 (45) 54 

Changes in operating assets and liabilities:

  

Accounts receivable

 (2,077) (1,737) (5,750) (3,242)

Inventory and other deferred costs

 (7,582) (5,041) (3,537) (3,755)

Prepaid expenses and other assets

 (1,160) (1,344) 2,216  1,224 

Accounts payable and other liabilities

  2,253   176   (2,793)  (2,340)

Net cash provided by operating activities

 26,005  21,301  5,071  2,279 
      

Investing activities

        

Purchases of property and equipment and other assets

 (5,986) (1,969)

Purchases of property and equipment

 (1,370) (2,130)

Purchases of short-term marketable securities

 (991) (564)

Payments related to acquisitions

 (899) -   -   (270)

Purchases of short-term marketable securities

  (15,569)  (8,000)

Net cash used in investing activities

 (22,454) (9,969) (2,361) (2,964)
      

Financing activities

        

Payments of deferred acquisition consideration

 -  (401)

Proceeds from issuance of common stock

 5,073  1,679 

Proceeds from stock option exercises

 3,986  1,446 

Purchase of treasury stock for net settlement of equity awards

 (186) (152) (358) (172)

Common stock cash dividend paid

  (9,332)  (8,238)  (3,589)  (3,099)

Net cash used in financing activities

 (4,445) (7,112)

Net cash provided by (used in) financing activities

 39  (1,825)
  

Effect of exchange rate changes on cash and cash equivalents

  (189)  (1,162)  (423)  53 

Net increase (decrease) in cash and cash equivalents

 (1,083) 3,058  2,326  (2,457)

Cash and cash equivalents at beginning of period

  19,134   13,855   24,269   19,134 

Cash and cash equivalents at end of period

 $18,051  $16,913  $26,595  $16,677 

 

See accompanying notes to consolidated financial statements.

 

98

 

LeMaitre Vascular, Inc.

Notes to Consolidated Financial Statements

September 30, 2023March 31, 2024

(unaudited)

 

 

1. Organization and Basis for Presentation

 

Description of Business

 

Unless the context requires otherwise, references to LeMaitre, LeMaitre Vascular, we, our, and us refer to LeMaitre Vascular, Inc. and our subsidiaries. We develop, manufacture, and market medical devices and implants used primarily in the field of vascular surgery. We also derive revenues from the processing and cryopreservation of human tissues for implantation in patients. We operate in a single segment in which 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. Our offices and production facilities are located in Burlington, Massachusetts; Fox River Grove, Illinois; North Brunswick, New Jersey; Chandler, Arizona; Vaughan, Canada; Sulzbach, Germany; Milan, Italy; Madrid, Spain; Hereford, England; Dublin, Ireland; Maisons-Alfort, France; Kensington, Australia; Tokyo, Japan; Shanghai, China; Singapore; Seoul, Korea; and Bangkok, Thailand.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments considered necessary for a fair presentation of the results of these interim periods have been included. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Our estimates and assumptions, including those related to bad debts, inventories, intangible assets, sales returns and discounts, share-based compensation, and income taxes are updated as appropriate. The results for the ninethree months ended September 30, 2023March 31, 2024 are not necessarily indicative of results to be expected for the entire year. The information contained in these interim financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2022,2023, including the notes thereto, included in our Form 10-K filed with the Securities and Exchange Commission (SEC) on March 1, 2023.February 29, 2024.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. The Company is not aware of any specific event or circumstance that would require an update to its accounting estimates or adjustments to the carrying value of its assets and liabilities as of November 7, 2023,May 10, 2024, the issuance date of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates.

 

Consolidation

 

Our consolidated financial statements include the accounts of LeMaitre Vascular and the accounts of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Revenue Recognition

 

Our revenue is derived primarily from the sale of disposable or implantable devices used during vascular surgery. We sell primarily direct to hospitals and to a lesser extent to international distributors, as described below, and, during the periods presented in our consolidated financial statements, entered into consigned inventory arrangements with either hospitals or distributors on a limited basis. We also derive revenues from the processing and cryopreservation of human tissues for implantation in patients. These revenues are recognized when services have been provided and the tissue has been shipped to the customer, provided all other revenue recognition criteria discussed in the succeeding paragraph have been met.

 

9

We record revenue under the provisions of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard explains that to achieve the core principle, an entity should take the following actions:

 

Step 1: Identify the contract with a customer

 

Step 2: Identify the performance obligations in the contract

 

10

Step 3: Determine the transaction price

 

Step 4: Allocate the transaction price to the performance obligations

 

Step 5: Recognize revenue when or as the entity satisfies a performance obligation

 

Revenue is recognized when or as a companythe Company satisfies a performance obligation by transferring athe promised good or service to a customer (which is when the customer obtains control of that good or service). In instances in which shipping and handling activities are performed after a customer takes control of the goods (such as when title passes upon shipment from our dock), we have made the policy election allowed under Topic 606 to account for these activities as fulfillment costs and not as performance obligations.

 

We generally reference customer purchase orders to determine the existence of a contract. Orders that are not accompanied by a purchase order are confirmed with the customer either in writing or verbally. The purchase orders or similar correspondence, once accepted, identify the performance obligations as well as the transaction price, and otherwise outline the rights and obligations of each party. We allocate the transaction price of each contract among the performance obligations in accordance with the pricing of each item specified on the purchase order, which is in turn based on standalone selling prices per our published price lists. In cases where we discount products or provide certain items free of charge, we allocate the discount proportionately to all performance obligations, unless it can be demonstrated that the discount should be allocated entirely to one or more, but not all, of the performance obligations.

 

We record revenue, net of allowances for returns and discounts, fees paid to group purchasing organizations, and any sales and value added taxes required to be invoiced, which we have elected to exclude from the measurement of the transaction price as allowed by the standard, at the time of shipment (taking into consideration contractual shipping terms), or in the case of consigned inventory, when it is consumed. Shipment is the point at which control of the product and title passes to our customers, and at which LeMaitre has a present right to receive payment for the goods.

 

Below is a disaggregation of our revenue by major geographic area, which is among the primary categorizations used by management in evaluating financial performance, for the periods indicated (in thousands):

 

 

Three months ended September 30,

  

Nine months ended September 30,

  

Three months ended March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

($ in thousands)

 

($ in thousands)

  

(in thousands)

 
          

Americas

 $31,863  $26,627  $97,496  $82,024  $35,245  $32,126 

Europe, Middle East and Africa

 12,322  9,922  38,179  31,165  14,395  12,277 

Asia Pacific

  3,226   2,479   8,926   7,508   3,838   2,672 

Total

 $47,411  $39,028  $144,601  $120,697  $53,478  $47,075 

 

We do not carry any contract assets or contract liabilities, as there are generally no unbilled amounts due from customers under contracts for which we have partially satisfied performance obligations, or amounts received from customers for which we have not satisfied performance obligations. We satisfy our performance obligations under revenue contracts within a very short time period from receipt of the orders, and payments from customers are typically received within 30 to 60 days of fulfillment of the orders, except in certain geographies such as Italy, Spain and France where the payment cycle is customarily longer. Accordingly, there is no significant financing component to our revenue contracts. Additionally, we have elected as a policy that incremental costs (such as commissions) incurred to obtain contracts are expensed as incurred, due to the short-term nature of the contracts.

 

Customers returning products may be entitled to full or partial credit based on the condition and timing of the return. To be accepted, a returned product must be unopened (if sterile), unadulterated, and undamaged, must have at least 18 months remaining prior to its expiration date, or twelve months for our hospital customers in Europe, and generally be returned within 30 days of shipment. These return policies apply to sales to both hospitals and distributors. The amount of products returned to us, either for exchange or credit, has not been material. Nevertheless, we provide for an allowance for future sales returns based on historical returns experience, which requires judgment. Our cost of replacing defective products has not been material and is accounted for at the time of replacement.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and are generally adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

 

1110

In December 2023 the FASB issued ASU 2023-09, Income Taxes Topic 740 - Improvements to Income Tax Disclosures. This amendment is expected to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities, on an annual basis, to disclose specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold and certain information about income taxes paid. This revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2024. We are currently evaluating the impacts of the new standard.

In November 2023 the FASB issued ASU 2023-07, Segment Reporting Topic 280- Improvements to Reportable Segment Disclosures. This amendment requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impacts of the new standard.

There are no other accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on the Company’s consolidated financial statements.

 

 

2. Income Tax Expense

 

As part of the process of preparing our consolidated financial statements we are required to determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from taxable income during the carryback period or in the future; and to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in the statement of operations. We do not provide for income taxes on undistributed earnings of certain foreign subsidiaries, as our intention is to permanently reinvest these earnings.

 

We recognize, measure, present and disclose in our financial statements any uncertain tax positions that we have taken, or expect to take, on a tax return. We operate in multiple taxing jurisdictions, both inside and outside the United States (U.S.), and may be subject to audits from various tax authorities. Management’s judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any valuation allowance recorded against our net deferred tax assets. We will monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly.

 

Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense. Our 20232024 income tax expense varies from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign subsidiaries, and discrete stock option exercises. Our 20222023 income tax expense varied from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign subsidiaries, and discrete stock option exercises.

 

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of September 30, 2023,March 31, 2024, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $569,000.$525,000. We remain subject to examination until the statute of limitations expires for each remaining respective tax jurisdiction. The statute of limitations will be open with respect to these tax positions until 2030.2031. A reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:

 

 

Nine months ended

September 30, 2023

  

Three months ended

March 31, 2024

 
 

(in thousands)

  

(in thousands)

 

Unrecognized tax benefits as of December 31, 2022

 $612 

Unrecognized tax benefits as of December 31, 2023

 $587 

Additions/adjustments for tax positions of current year

 -  - 

Additions/adjustments for tax positions of prior years

 (43) (22)

Reductions for settlements with taxing authorities

 -  - 

Reductions for lapses of the applicable statutes of limitations

  -   (40)

Unrecognized tax benefits as of September 30, 2023

 $569 

Unrecognized tax benefits as of March 31, 2024

 $525 

 

As of September 30, 2023,March 31, 2024, a summary of the tax years that remain subject to examination in our taxing jurisdictions is as follows:

 

United States

20192020 and forward

Foreign

2015 and forward

 

1211

 

 

3. Inventories and Other Deferred Costs

 

Inventories and other deferred costs consist of the following:

 

 

September 30, 2023

  

December 31, 2022

  

March 31, 2024

  

December 31, 2023

 
 

(in thousands)

  

(in thousands)

 

Raw materials

 $19,137  $14,929  $20,813  $18,333 

Work-in-process

 3,793  3,662  2,532  2,869 

Finished products

 28,334  26,688  31,148  31,131 

Other deferred costs

 4,923  4,992  6,082  5,747 
          

Total inventory and other deferred costs

 $56,187  $50,271  $60,575  $58,080 

 

We had inventory on consignment at customer sites of $1.8$2.2 million and $1.5$2.0 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

 

In connection with our RestoreFlow allograft business, other deferred costs include costs incurred for the preservation of human tissues available for shipment, tissues currently in active processing, and tissues held in quarantine pending release to implantable status. By federal law, human tissues cannot be bought or sold. Therefore, the tissues we preserve are not held as inventory, and the costs we incur to procure and process vascular and cardiac tissues are instead accumulated and deferred. These costs include fixed and variable overhead costs associated with the cryopreservation process, including primarily direct labor costs, tissue recovery fees, inbound freight charges, indirect materials and facilities costs. General and administrative expenses and selling expenses associated with the provision of these services are expensed as incurred.

 

 

4. Divestitures

 

On April 26, 2022, we committed to a plan to close our St. Etienne, France factory, which supported our LeMaitre Cardial SAS (Cardial) business, in order to streamline manufacturing operations and reduce expenses. The Cardial business consisted of the manufacture of polyester vascular grafts, valvulotomes, surgical glue and selected OEM devices. We acquired the Cardial business in 2018.

 

On June 30, 2022, we ceased operations at the St. Etienne, France factory. The closure resulted in a restructuring charge of $3.1 million for the year ended December 31, 2022. Charges primarily consisted of employment termination costs, impairment of fixed assets and inventory, and third-party costs.

 

On October 10, 2022, we sold the St. Etienne, France building, building improvements, and land for $0.9 million less closing costs of $0.1 million, resulting in a gain of approximately $0.1 million recorded for the year ended December 31, 2022.

 

DuringFor the ninethree months ended September 30,March 31, 2023, we recorded additional restructuring charges of $0.5$0.3 million in conjunction with the St. Etienne, France factory closure. The additional charges consisted primarily of employment termination, settlement, legal and other third-party costs.

 

13

 

5.

Goodwill and Other Intangible Assets

 

There was no change to goodwill during the ninethree months ended September 30, 2023.March 31, 2024. Other intangible assets consist of the following:

 

 

September 30, 2023

  

December 31, 2022

  

March 31, 2024

  

December 31, 2023

 
 

Gross

     

Net

 

Gross

     

Net

  

Gross

     

Net

 

Gross

     

Net

 
 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

  

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

 
 

Value

  

Amortization

  

Value

  

Value

  

Amortization

  

Value

  

Value

  

Amortization

  

Value

  

Value

  

Amortization

  

Value

 
 

(in thousands)

  

(in thousands)

 

Product technology and intellectual property

 $29,549  $15,381  $14,168  $29,549  $13,319  $16,230  $29,549  $16,714  $12,835  $29,549  $16,048  $13,501 

Trademarks, tradenames and licenses

 3,767  1,870  1,897  3,647  1,533  2,114  3,767  1,997  1,770  3,767  1,909  1,858 

Customer relationships

 37,171  10,341  26,830  36,197  8,359  27,838  37,171  11,725  25,446  37,171  11,064  26,107 

Other intangible assets

  1,643   1,339   304   1,461   1,116   345   1,643   1,455   188   1,643   1,398   245 
  

Total identifiable intangible assets

 $72,130  $28,931  $43,199  $70,854  $24,327  $46,527  $72,130  $31,891  $40,239  $72,130  $30,419  $41,711 

12

 

These assets are being amortized over useful lives ranging from 2 to 16 years. The weighted-average amortization period for these intangibles as of September 30, 2023March 31, 2024, is 10.39.3 years. Amortization expense is included in general and administrative expense and wasis as follows for the periods indicated.follows:

 

  

Three months ended September 30,

  

Nine months ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(in thousands)

  

(in thousands)

 
                 

Amortization expense

 $1,536  $1,535  $4,604  $4,647 
  

Three months ended March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Amortization expense

 $1,472  $1,559 

 

We estimate thatEstimated amortization expense for the remainder of 20232024 and for each of the next five succeeding fiscal years will beis as follows:

 

  

Year ended December 31,

 
  

2023

  

2024

  

2025

  

2026

  

2027

  

2028

 
  

(in thousands)

 
                         

Amortization expense

 $1,488  $5,904  $5,554  $5,119  $4,842  $4,456 

14

  

Year ended December 31,

 
  

2024

  

2025

  

2026

  

2027

  

2028

  

2029

 
  

(in thousands)

 
                         

Amortization expense

 $4,385  $5,601  $5,119  $4,842  $4,456  $4,423 

 

 

6. Leases

 

The Company determines if an arrangement is a lease at inception of the contract. The Company has operating leases for buildings, primarily for office space, manufacturing and distribution, as well as automobiles and printing equipment. At September 30, 2023,As of March 31, 2024, the Company hashad the following building and facility leases capitalized on the balance sheet:

 

Location (leases)

 

Purpose

 

Approx. Sq. Ft.

 

Expiration

        

Americas

       

Burlington, MA (5)(4)

 

Corporate headquarters manufacturing and distributionmanufacturing

  109,35496,476 

December 20302034

North Brunswick, NJ (1)

 

Artegraft biologic business

  16,732 

October 2029

Burlington, MA (1)

US distribution

12,878

December 2030

Fox River Grove, IL (3)

 

RestoreFlow allografts business

  11,765 

November 2025

Vaughn, Canada

 

Canada sales office and distribution

  3,192 

February 2026

Chandler, Arizona

 

US sales office

  2,058 

August 2025

        

Europe, Middle East and Africa

       

Sulzbach, Germany

 

European headquarters and distribution

  21,410 

June 2031

Milan,Italy

 

Italy sales office and distribution

  5,705 

July 2027

Hereford, England

 

United Kingdom sales office and distribution

  3,575 

October 2029

Maisons-Alfort, France

France sales office

3,492

February 2030

Madrid, Spain

 

Spain sales office

  2,260 

June 2029

        

Asia Pacific

       

Singapore

Asia Pacific headquarters and distribution

1,270

June 2024

Tokyo, Japan

 

Japan sales office and distribution

  4,236 

July 2025

Bangkok, Thailand

 

Thailand sales office and distribution

  2,810 

August 2026

Seoul, Korea

 

Korea sales office and distribution

  2,300 

April 2027

Singapore

Asia Pacific headquarters and distribution

1,270

June 2026

Shanghai, China

 

China sales office and distribution

  1,152 

August 2024

Ballarat, Australia

 

Supply facility

 

Up to 350 acres

 

December 2030

 

Operating lease right-of-use (“ROU”)(ROU) assets and operating lease liabilities are recognized based on the present value of the future lease minimum payments over the lease term at commencement date. Many of the lease agreements contain renewal or termination clauses that are factored into the determination of the lease term if it is reasonably certain that these options would be exercised. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

 

None of our noncancelable lease payments include non-lease components such as maintenance contracts; we generally reimburse the landlord for direct operating costs associated with the leased space. We have no subleases, and there are no residual value guarantees associated with, or restrictive covenants imposed by, any of our leases. There were no assets held under capital leases at September 30, 2023.as of March 31, 2024. We elected the package of practical expedients that allow us to omit leases with initial terms of 12 months or less from our balance sheet, which are expensed on a straight-line basis over the life of the lease.

13

 

The interest rate implicit in lease agreements is typically not readily determinable, and as such the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is defined as the interest the Company would pay to borrow on a collateralized basis.

 

15

Additional information with respect to our leases is as follows:

 

 

Three months ended September 30,

  Nine months ended September 30, 
 

2023

 

2022

 

2023

 

2022

  

Three Months Ended

 
 

(in thousands)

  

(in thousands)

  

(in thousands)

  

(in thousands)

  

March 31,

 
  

2024

  

2023

 

Lease cost

  

Operating lease cost

 $797  $792  $1,941  $1,955  740  580 

Short-term lease cost

  28   154   348   478   29   162 

Total lease cost

 $825  $946  $2,289  $2,433  $769  $742 
  

Other information

              

Cash paid for amounts included in the measurement of operating lease liabilities

 $967  $977  $2,433  $2,461  $1,022  $737 
              

Right-of-use assets obtained in exchange for new operating lease liabilities

 $843  $287  $2,156  $2,669  $509  $472 
  
 

Weighted average remaining lease term - operating leases (in years)

  6.7  8.2 

Weighted average remaining lease term in years - operating leases

 7.5  7.2 
  

Weighted average discount rate - operating leases

      5.15% 4.93% 6.60% 4.95%

 

The maturitiesAs of March 31, 2024, the minimum noncancelable operating lease liabilities for eachrental commitments with initial or remaining terms of the following fiscal years is:more than one year are as follows:

 

Remainder of 2023

 $880 

Remainder of 2024

 $2,758 

Year ending December 31,

  

2024

 3,502 

2025

 3,314  3,488 

2026

 2,647  2,806 

2027

 2,482  2,567 

2028

 2,452  2,535 

2029

 2,481 

Thereafter

 4,610  8,495 

Adjustment to net present value as of September 30, 2023

 (3,006)

Adjustment to net present value as of March 31, 2024

 (6,248)
      

Minimum noncancelable lease liability

 $16,881  $18,882 

 

1614

 

 

7. Accrued Expenses and Other Long-term Liabilities

 

Accrued expenses consist of the following:

 

 

September 30, 2023

  

December 31, 2022

  

March 31, 2024

  

December 31, 2023

 
 

(in thousands)

  

(in thousands)

 

Compensation and related taxes

 $11,248  $10,770  $7,770  $13,353 

Accrued purchases

 5,996  3,748  7,478  5,152 

Accrued expenses

 3,690  4,640  4,503  4,251 

Income and other taxes

 446  449  708  390 

Professional fees

 75  108  83  104 

Other

  333   252   576   400 
  

Total

 $21,788  $19,967  $21,118  $23,650 

 

Other long-term liabilities consist of the following:

 

 

September 30, 2023

  

December 31, 2022

  

March 31, 2024

  

December 31, 2023

 
 

(in thousands)

  

(in thousands)

 

Acquisition-related liabilities

 $1,383  $1,354 

Aquisition-related liabilities

 $1,354  $1,406 

Income taxes

 558  636  594  637 

Other

  204   177   228   225 
  

Total

 $2,145  $2,167  $2,176  $2,268 

 

 

8. Segment and Enterprise-Wide Disclosures

 

The FASB establishes standards for reporting information regarding operating segments in financial statements. Operating segments are identified as components of an enterprise that engage in business activities for which separate, discrete financial information is available and is regularly reviewed by the chief operating decision-maker in making decisions on how to allocate resources and assess performance. We view our operations and manage our business as one operating segment. No discrete operating information is prepared by us except for sales by product line and operations by legal entity for local purposes.

 

Most of our revenues are generated in the United States,U.S., Canada, Germany, the United Kingdom (UK) and other European countries and Canada.countries. Substantially all of our assets are located in the United StatesU.S. and Germany. Net sales to unaffiliated customers by country were as follows:

 

 

Three months ended

 

Nine months ended

  

Three months ended

 
 

September 30,

  

September 30,

  

March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

(in thousands)

 

(in thousands)

  

(in thousands)

 

United States

 $28,799  $24,242  $88,136  $74,734  $31,125  $29,015 

Canada

 3,612  2,762 

Germany

 3,317  2,814  10,246  8,675  3,518  3,346 

Canada

 2,615  1,962  8,093  6,141 

United Kingdom

 2,004  1,269  5,952  4,150  2,528  1,963 

Other countries

  10,676   8,741   32,174   26,997   12,695   9,989 
          

Net Sales

 $47,411  $39,028  $144,601  $120,697  $53,478  $47,075 

 

17
15

 

 

9. Share-based Compensation

 

Our Third Amended and Restated 2006 Stock Option and Incentive Plan allows for granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, performance-based restricted stock units, unrestricted stock awards, and deferred stock awards to our officers, employees, directors and consultants. The components of share-based compensation expense wereincluded in the consolidated statements of operations are as follows:

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(in thousands)

  

(in thousands)

 

Stock option awards

 $676  $614  $2,009  $1,840 

Restricted stock units

  481   432   1,443   1,231 

Performance-based restricted stock units

  156   140   463   418 
                 

Total share-based compensation

 $1,313  $1,186  $3,915  $3,489 

  

Three months ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Stock option awards

 $741  $662 

Restricted stock units

  561   477 

Performance-based restricted stock units

  308   151 
         

Total share-based compensation

 $1,610  $1,290 

 

Stock-based compensation is included in our consolidated statements of operations as follows:

 

 

Three months ended

 

Nine months ended

  

Three months ended

 
 

September 30,

  

September 30,

  

March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

(in thousands)

 

(in thousands)

  

(in thousands)

 

Cost of sales

 $168  $142  $504  $415  $211  $170 

Sales and marketing

 248  205  712  607  271  214 

General and administrative

 765  720  2,310  2,127  965  777 

Research and development

  132   119   389   340   163   129 
  

Total stock-based compensation

 $1,313  $1,186  $3,915  $3,489  $1,610  $1,290 

 

We did not grant any options during the three months ended March 31, 2024 or 2023. During the ninethree months ended September 30,March 31, 2024, and 2023, and 2022, we granted options for the purchase of 1,660 and 2,052 shares of our common stock, we grantedawarded restricted stock units of 944222 and 728, and granted200, respectively. We did not award any performance-based restricted stock units of 310 and 250, respectively.during the three months ended March 31, 2024 or 2023. We issued approximately 180,000125,000 and 81,00059,000 shares of common stock following the exercise or vesting of underlying stock options, restricted stock units or performance-based restricted stock units during the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively.

18

 

 

10. Net Income per Share

 

The computation of basic and diluted net income per share wasis as follows:

 

 

Three months ended

 

Nine months ended

  

Three months ended

 
 

September 30,

  

September 30,

  

March 31,

 
 

2023

  

2022

  

2023

  

2022

  

2024

  

2023

 
 

(in thousands, except per share data)

 

(in thousands, except per share data)

  

(in thousands, except per share data)

 

Basic:

          

Net income available for common stockholders

 $7,502  $5,456  $21,640  $15,009  $9,887  $6,040 
          

Weighted average shares outstanding

  22,263   21,984   22,196   21,959   22,365   22,111 
          

Basic earnings per share

 $0.34  $0.25  $0.97  $0.68  $0.44  $0.27 
          

Diluted:

          

Net income available for common stockholders

 $7,502  $5,456  $21,640  $15,009  $9,887  $6,040 
          

Weighted-average shares outstanding

 22,263  21,984  22,196  21,959  22,365  22,111 

Common stock equivalents, if dilutive

  218   233   215   190   205   163 

Shares used in computing diluted earnings per common share

  22,481   22,217   22,411   22,149   22,570   22,274 
          

Diluted earnings per share

 $0.33  $0.25  $0.97  $0.68  $0.44  $0.27 
          

Shares excluded in computing diluted earnings per share as those shares would be anti-dilutive

  192   159   286   286   175   320 

 

19
16

 

 

11. Stockholders Equity

 

Share Repurchase Program

 

On February 21, 2023,2024, our Board of Directors authorized the repurchase of up to $25.0$50.0 million of the Company’s common stock through transactions on the open market, in privately negotiated purchases or otherwise until February 21, 2024.2025. The repurchase program may be suspended or discontinued at any time. To date we have not made any repurchases under this program.

 

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

  

Payment Date

 

Per Share Amount

  

Dividend Payment

 
       

(in thousands)

 

Fiscal Year 2024

       

March 14, 2024

 

March 28, 2024

 $0.16  $3,589 
     

(in thousands)

        

Fiscal Year 2023

              

March 9, 2023

 

March 23, 2023

 $0.140  $3,099  

March 23, 2023

 $0.14  $3,099 

May 17, 2023

 

June 1, 2023

 $0.140  $3,116  

June 1, 2023

 $0.14  $3,116 

August 17, 2023

 

August 31, 2023

 $0.140  $3,117  

August 31, 2023

 $0.14  $3,117 
       

Fiscal Year 2022

       

March 8, 2022

 

March 24, 2022

 $0.125  $2,743 

May 17, 2022

 

June 2, 2022

 $0.125  $2,745 

August 25, 2022

 

September 8, 2022

 $0.125  $2,750 

November 17, 2022

 

December 1, 2022

 $0.125  $2,750 

November 16, 2023

 

November 30, 2023

 $0.14  $3,117 

 

On October 24, 2023,April 30, 2024, our Board of Directors approved a quarterly cash dividend on our common stock of $0.14$0.16 per share payable on NovemberMay 30, 2023,2024, to stockholders of record at the close of business on NovemberMay 16, 2023.2024.

 

 

12. Supplemental Cash Flow Information

 

  

For the nine months ended

 
  

September 30,

 
  

2023

  

2022

 
  

(in thousands)

 

Cash paid for income taxes, net

 $5,420  $6,822 

20

  

For the three months ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Cash paid for income taxes, net

 $1,396  $271 

 

 

13. Fair Value Measurements

 

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Level 1 assets being measured at fair value on a recurring basis as of September 30, 2023March 31, 2024, included our short-term investment and short-duration bond mutual fund accounts.

 

We had no Level 2 assets being measured at fair value on a recurring basis as of September 30, 2023.March 31, 2024.

 

Several of our acquisition-related assets and liabilities have been measured using Level 3 techniques. During 2020 we recorded a contingent liability associated with our acquisition of the bovine carotid graft business from Artegraft. The agreement required us to make potential additional payments to Artegraft of up to $17.5 million depending on the achievement of certain unit sales milestones during the first three calendar years following the acquisition.acquisition through December 31, 2023. We recorded this liability at a fair value of $0.4 million in 2020 to reflect management’s estimate of the likelihood of achieving these targets at the time of the Closing, as well as the time value of money until payment. This amount is beingwas remeasured each quarter during the earn-out period, with any adjustments recorded in income from operations. During the quarter endedAs of December 31, 20222023, there were no unit sales milestones achieved during the earn-out period and therefore we recorded a reduction toreduced the remaining liability to reflect a change in our estimatezero.

17

 

During 2019, we recorded contingent liabilities associated with our acquisition of the Anteris (formerly Admedus) biologic patch business. The agreement includes the potential for us to pay up to $7.8 million of additional consideration beyond payments made to date, with $0.3 million contingent upon the delivery of audited financial statementstatements of the acquired business to us; $2.0 million (“CE(CE Mark Contingency”)Contingency) contingent on LeMaitre’s success in obtaining CE marks under MDR regulations on the acquired products; $0.5 million contingent upon Anteris’ success in extending the shelf life of the acquired products as specified in the agreement; and another $5.0 million contingent on the achievement of specified levels of revenues in the first 12 and 24 months following the acquisition date. This additional contingent consideration was initially valued in total at $2.3 million and is being re-measured each reporting periodquarter until the payment requirement ends, with any adjustments reported in income from operations. The contingent payment related to the delivery of audited financial statements of the business was paid in November 2019 upon satisfaction of the deliverable. The contingent payments related to Anteris’ extending the shelf life of the acquired products and achieving the revenue targets during the first 12 and 24 month periods following the acquisition were not met, and the portion of the liabilities related to these items was adjusted through income from operations. The agreement was amended in August 2021 such that the CE Mark Contingency amount may be reduced for certain costs incurred by LeMaitre in achieving the CE marks. During the quarter ended September 30, 2021 we recorded a reduction to the liability of $0.5 million, with the offset recorded in income from operations, to reflect our estimate of costs to be deducted from the contingent payment in connection with this amendment. Additionally, during the quarter ended December 31, 2022, we recorded a reduction to the liability of approximately $0.1 million, with the offset recorded in income from operations.

 

In September 2023 the agreement was amended in order to (i) place a cap on the total amount of costs incurred by LeMaitre in achieving the CE marks under MDR regulations that could be used as a deduction toward the $2.0 million holdback, and (ii) require a prorata payment to Anteris of the CE Mark Contingency, less costs described above, by January 2025 if the CE marks are not obtained by that date. During the quarter ended September 30, 2023, we recorded a reduction to the liability of $0.1 million, with the offset recorded in income from operations.

 

21

The following table provides a roll-forward of the fair value of these liabilities, as determined by Level 3 unobservable inputs including management’s forecast of future revenues for the acquired businesses, as well as, management’s estimates of the likelihood of achieving the other specified criteria:

 

 

Three months ended

 
 

Nine months ended September 30,

  

March 31,

 
 

2023

  

2022

  

2024

  

2023

 
 

(in thousands)

  

(in thousands)

 

Beginning balance

 $1,339  $1,492  $1,224  $1,339 

Additions

 -  -  -  - 

Payments

 -  -  -  - 

Change in fair value included in earnings

  (63)  41   23   20 
  

Ending balance

 $1,276  $1,533  $1,247  $1,359 

 

 

14. Accumulated Other Comprehensive LossIncome (Loss)

 

Changes to our accumulated other comprehensive loss for the ninethree months ended September 30,March 31, 2024 and 2023 and 2022 consisted primarily of foreign currency translation and unrealized losses on short-term marketable securities:

 

  

Nine months ended

 
  

September 30,

 
  

2023

  

2022

 
  

(in thousands)

 

Beginning balance

 $(6,031) $(3,435)
         

Other comprehensive income (loss) before reclassifications

  (674)  (4,692)
         

Ending Balance

 $(6,705) $(8,127)

15. Subsequent Events

In October 2023, we amended our lease agreements related to four of our five buildings in Burlington, Massachusetts, extending them for a period of four additional years to December 31, 2034. The Company has no option to extend or renew the leases beyond December 31, 2034. As of September 30, 2023, the expiration date was December 31, 2030. The foregoing description of the Amendments is not complete and is qualified in its entirety by reference to the full text of such documents attached as exhibits hereto.

  

Three months ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Beginning balance

 $(4,625) $(6,031)
         

Other comprehensive (loss) income before reclassifications

  (933)  459 
         

Ending balance

 $(5,558) $(5,572)

 

22
18

 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

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:to: the risk of companies that develop products or services that may impact the use of our products such as drugs to treat diabetes or weight loss; the risks from competition from other companies; the status of our global regulatory approvals and compliance with regulatory requirements to market and sell our products both in the U.S. and outside of the U.S.; risks related to product demand and market acceptance of the Companys products and pricing; risks from implementing a new enterprise resource planning system; the risk of significant fluctuations in our quarterly and annual results due to numerous factors; the risk that we may not be able to maintain our recent levels of profitability; our reliance on sole source suppliers; disruptions or breaches of information technology systems; the risk that the Company may not realize the anticipated benefits of its strategic activities; the risk that assumptions about the market for the Companys products and the productivity of the Companys 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 status of our global regulatory approvals and compliance with regulatory requirements to market and sell our products both in the US and outside of the US; 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 Companys 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 managements 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, 2022,2023, as filed with the SEC on March 1, 2023.February 29, 2024. 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,” “LeMaitre, our, and us in this Quarterly Report on Form 10-Q refer to LeMaitre Vascular, Inc. and its subsidiaries.

 

LeMaitre, AlboGraft, AnastoClip, AnastoClip GC, Artegraft, Cardial, CardioCel, Dialine,DuraSure, Eze-Sit, Glow ‘N Tell, LeverEdge, LifeSpan, OmniFlow, PhasTipp, ProCol, Pruitt, Pruitt F3, Pruitt-Inahara, RestoreFlow, TufTex, VascuCel, VascuTape, Wovex and XenoSure are registered trademarks of LeMaitre Vascular or one of its subsidiaries, and Chevalier, DuraSure, Flexcel, Omniflow, PeriVu and Syntel are trademarks of LeMaitre Vascular. 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. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or TM symbols.

 

 

Overview

 

LeMaitre Vascular isWe are 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,U.S., Europe, Canada and Asia Pacific. We estimate that the annual worldwide market for peripheral vascular devices exceeds $5 billion, within which we estimate that the market for our products is approximately $750$800 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 complementary devices. We have used acquisitions as a primary means of further penetrating the peripheral vascular device market, and we expect to continue this strategy in the future. We currently manufacture most of our products in our Burlington, Massachusetts headquarters.

 

2319

 

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.

 

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 and dialysis 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 Q3 2023,Q1 2024, biologics represented 51% of our worldwide sales. We view our biologic device offerings favorably, as we believe they represent differentiated and, in manysome 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:

 

 

growing our direct sales force in the United States,North America, Europe, the United Kingdom, CanadaUK, and Asia Pacific, including replacing distributors with our direct sales personnel;

  

 

 

increasing the average selling prices offor our devices;

adding complementary products through acquisitions;

  

 

 

introducing our products into new territories upon receipt of regulatory approvals or registrations;

 

 

consolidatingacquiring complementary products, and automating product manufacturing at our Burlington, Massachusetts facilities; andthe transition of distributor sales to LeMaitre;

  

 

 

updating existing products and introducing new products through research and development.development; and

consolidating product manufacturing at our Burlington, Massachusetts facilities.

 

We sell our products and services primarily through a direct sales force. As of September 30, 2023,March 31, 2024, our sales force was comprised of 136137 sales representatives in North America, Europe, the UK, and Asia Pacific, including threefour 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 European sales offices in Milan, Italy; Madrid, Spain; Hereford, England; Dublin, Ireland; and Dublin, Ireland.Maisons-Alfort, France. Our Asia Pacific headquarters is located in Singapore, and we also have Asia Pacific sales offices in Tokyo, Japan; Shanghai, China; Kensington, Australia; Seoul, Korea; and Bangkok, Thailand. During the current quarter, approximately 95% of our net sales were generated in countriesterritories in which we employ direct sales representatives. We also sell our products in other countries through distributors.

 

Historically we have experienced success in lower-rivalry niche segments. In the valvulotome market, for example, 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 and lower per unit costs. 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 than in North America. If we continue to seek growth opportunities outside of North America, we may experience downward pressure on our gross margin.

 

We obtain regulatory approvals for our devices and services in new segments and geographies in order to further access the broader peripheral device market and selected other markets. While much of our regulatory effort is focused on maintaining regulatory approvals in various geographies, we will continue to obtain new product approvals in new geographies in order to extend our geographic reach and increase sales. Recent approvals include the approval to sell the XenoSure patch for carotid indication in Japan in May 2023, and the approval to sell the Pruitt Irrigation Occlusion Catheter in China in October 2023.

20

Our strategy for growing our business includes the acquisition of complementary product lines and companies, which can be difficult to identify, negotiate and purchase, and therepurchase. There can be no assurance that we will be able to do so in the future.

 

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.

24

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, dependingcontingent upon 2021 – 2023 unit sales.

 

Occasionally we discontinue or divest products or product lines that are no longer complementary to our business or that are not commercially viable.

 

 

During 2021, we made decisions to wind down or discontinue TRIVEX powered phlebectomy systems, remote endarterectomy devices and surgical glue. These products totaled approximately $2.2 million in 2021 revenues.

  

 

 

During 2022, we made the decision to wind down the ProCol graft, AlboSure polyester patch, LeverEdge and Latis graft cleaning catheter product lines. These products totaled approximately $0.7 million in 2022 revenues.

  

 

 

During 2023, we made the decision to discontinue the sales of AlboGraft and LifeSpan synthetic graft product lines in the United States.U.S. These products totaled approximately $0.2$0.3 million and less than $0.1 million, respectively, in 20222023 revenues.

 

From time to time we may undertake SKU reductions orand transition sales to other SKUs or products with similar features. For example, in 2022, we initiated the transition of sales of our Syntel spring tip catheter to our legacySyntel regular tip catheter. Any of these actions may result in inventory write-offs and temporary or permanent negative impacts to our sales, gross margin and customer relationships.

 

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 the acquired bovine cardiac and vascular patch products, and we began selling direct-to-hospital in those geographies. The distribution 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 U.S.

In May 2022, we entered into a distribution transition agreement with our Korean distributor in order to sell products directly in Korea and dissolve the existing distribution arrangement. We have been selling direct-to-hospital in Korea since December 2022. The distribution termination fees totaled approximately $0.5 million.

  

 

 

In March 2023, we entered into a distribution transition agreement with our Thailand distributor in order to sell products directly in Thailand and dissolve the existing distribution arrangement. We have been selling direct-to-hospital in Thailand since August 2023. The distribution termination fees will totaltotaled approximately $0.7 million. We began selling direct-to-hospital in Thailand in Q3 2023.

 

We also rely,benefit, to a lesser extent, onfrom internal product development efforts to bring differentiated technologytechnologies and next-generation products and services to market:

 

 

In 2020, we launched RestoreFlow cardiac allografts for use in cardiac repair and restoration.

  

 

 

In March 2022, we received U.S. FDA clearance to market PhasTIPP, a portable powered phlebotomy device used to remove varicose veins in the leg. We expect to launch this productThe device was launched in the US in April 2024.

25

 

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 and manufacturing transfers will result in improved control over production quality as well as reduced costs. Our most recent manufacturing transfers included:

 

 

In June 2014, we acquired the Omniflow II ovine graft business from BioNova, International. In June 2019, we initiated a project to transfer the production of these devices to our Burlington facilities. We received CE mark approval to sell these Burlington produced devices in Europe in June 2022. This transfer was completed in 2023.

In October 2019, we acquired the CardioCel biologic patch business from Anteris. In July 2020, we initiated a project to transfer the production of these devices to our Burlington facilities. We expect these transfer activities to be substantially complete in 2023. In June 2023, the MDR CE mark application to market these Burlington produced devices was submitted, and we anticipate this application process to take 18-24 months.

In June 2018, we acquired the Cardial business from Becton Dickinson. Cardial manufactured polyester vascular grafts, valvulotomes and surgical glue at its St. Etienne, France facility. In June 2022, we closed the St. Etienne factory in order to streamline manufacturing operations and to reduce expenses. We are transitioning Cardial graft sales to our Burlington-manufactured polyester vascular graftAlboGraft product (AlboGraft) for additional cost savings and improved margins. We also transferred chevalier valvulotome production to Burlington.

In October 2019, we acquired the CardioCel and VascuCel biologic patch businesses from Anteris. In July 2020, we initiated a project to transfer production to our Burlington facilities. The transfer to Burlington was substantially completed in 2023. In June 2023, the MDR CE mark application to market these Burlington produced devices was submitted, and we anticipate this application process to take 18-30 months. We will begin distributing these patches in the US in Q2 2024.

21

 

Finally, from time to time we may enter into distribution agreements of complementary product lines with the option to acquire the product line in the future.

 

 

In April 2023, we entered into an agreement with Aziyo Biologics,Elutia Inc. to become the exclusive U.S. distributor of their cardiovascular porcine patches. Under the agreement, we willcan distribute the products for three years with an option to acquire Aziyo’sElutia Inc’s worldwide cardiovascular porcine patch business during the second and third year of the agreement. Sales through LeMaitre Vascular for the nine months ended September 30,December 31, 2023, were $2.6$4.1 million. Sales through LeMaitre Vascular for the three months ended March 31, 2024, were $1.3 million.

 

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 expenses such as process engineering and other charges.period.

 

In February 2024, we expect to implementbegan implementing a new Enterprise Resource Planning (“ERP”)enterprise resource planning system (ERP) to replace our current softwarefinancial reporting and planning system. We expect that the new ERP system will be beneficial in a number of areas, including inventory management, pricing programs, financial operations and real time reporting. While weWe have been preparing for this transition since 2022 and have hired an experienced consulting team to assist us in this transition, there can be no assurances thatand we transitioned from our legacy ERP system to our newly implemented Microsoft Dynamics D365 system in the implementation will be successful or executed in a timely fashion.first quarter of 2024. We expect to spendimplement this new system in Europe in 2025. As of March 31, 2024, we have capitalized approximately $7.0$4.0 million onof costs associated with this implementation.ERP system.

 

Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the ninethree months ended September 30, 2023,March 31, 2024, approximately 39%42% of our sales took place outside of 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 ninethree months ended September 30, 2023,March 31, 2024, we estimate that the effects of changes in foreign exchange rates decreasedincreased our reported sales by approximately $0.3less than $0.1 million, as compared to rates in effect for the ninethree months ended September 30, 2022.March 31, 2023.

 

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 the 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 and cardiac congresses, training programs, advertising and product promotions, direct mail and other marketing costs.

26

 

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).

 

22

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.

 

Results of Operations

 

Comparison of the three- and nine-month periodsthree-month period ended September 30, 2023March 31, 2024 to the three- and nine-month periodsthree-month period ended September 30, 2022:March 31, 2023:

 

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 September 30,

 

Nine months ended September 30,

  

Three months ended March 31,

 

(unaudited)

         

Percent

         

Percent

          

Percent

 
 

2023

 

2022

 

change

 

2023

 

2022

 

change

  

2024

 

2023

 

change

 
 

($ in thousands)

 

($ in thousands)

  

(in thousands)

 

Net sales

 $47,411  $39,028  21% $144,601  $120,697  20% $53,478  $47,075  14%
  

Net sales by geography:

  

Americas

 $31,863  $26,627  20% $97,496  $82,024  19% $35,245  $32,126  10%

Europe, Middle East and Africa

 12,322  9,922  24% 38,179  31,165  23% 14,395  12,277  17%

Asia Pacific

  3,226  2,479  30%  8,926  7,508  19%  3,838  2,672  44%

Total

 $47,411  $39,028  21% $144,601  $120,697  20% $53,478  $47,075  14%

 

Net sales. Net sales increased by $8.4$6.4 million, or 21%14%, to $47.4$53.5 million for the three months ended September 30, 2023,March 31, 2024, compared to $39.0$47.1 million for the three months ended September 30, 2022.March 31, 2023. The increase was driven primarily by higher average selling prices, elevated hospital procedure volumes, higher average selling prices, additional sales representatives, and $1.3 million in distribution sales related to our newthe porcine patch product line. ValvulotomeAllograft preservation services increased $1.3 million, carotid shunt sales increased $1.8 million, bovine vascular patch sales increased $1.2$1.1 million and bovine graftvascular patch sales increased $1.0 million. We estimate that the weaker U.S. dollar increased net sales by $0.7less than $0.1 million during the three months ended September 30, 2023March 31, 2024, as compared to the three months ended September 30, 2022.

Net sales increased by $23.9 million, or 20%, to $144.6 million for the nine months ended September 30, 2023, compared to $120.7 million for the nine months ended September 30, 2022. The increase was driven primarily by elevated hospital procedure volumes, higher average selling prices, additional sales representatives, and $2.6 million in sales related to our new porcine patch product line. Valvulotome sales increased $5.3 million, bovine graft sales increased $3.5 million, and bovine vascular patch sales increased $3.4 million. We estimate that the stronger U.S. dollar decreased net sales by $0.3 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.March 31, 2023.

 

Direct-to-hospital net sales were 96%95% and 97% of our total net sales for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022.respectively.

 

Net sales by geography. Net sales in the Americas increased $5.2$3.1 million, or 20%10%, for the three months ended September 30, 2023March 31, 2024 as compared to the three months ended September 30, 2022.March 31, 2023. The increase was driven primarily by increased sales of valvulotomes of $1.3 million, porcine patches of $1.3 million, bovine graftsallograft preservation services of $1.0$1.2 million, and bovine vascular patches of $0.5 million.

27

Net sales in the Americas increased $15.5 million, or 19%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase was driven primarily by increased sales of valvulotomes of $4.4 million, bovine grafts of $3.5 million, porcine patches of $2.6 million, allograft preservation services of $1.6 million, and bovine vascular patches of $1.4 million.

EMEA net sales increased $2.4 million, or 24%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The increase was driven primarily by increased sales of bovine vascular patches of $0.6 million, valvulotomes of $0.5 million, carotid shunts of $0.4 million, and bovine cardiac patches of $0.4 million.

 

EMEA net sales increased $7.0$2.1 million, or 23%17%, for the ninethree months ended September 30, 2023March 31, 2024, as compared to the ninethree months ended September 30, 2022.March 31, 2023. The increase was driven primarily by increased sales of carotid shunts of $0.9 million, bovine vascular patches of $1.6$0.5 million, carotid shuntsembolectomy catheters of $1.5 million, valvulotomes of $0.9$0.1 million, and bovine cardiac patchesePTFE vascular grafts of $0.9$0.1 million.

 

Asia Pacific net sales increased $0.7$1.2 million, or 30%44%, for the three months ended September 30, 2023March 31, 2024, as compared to the three months ended September 30, 2022.March 31, 2023. The increase was driven primarily by increased sales of over-the-wire embolectomy catheters of $0.3 million, ePTFE vascular grafts of $0.2 million, occlusion catheters of $0.2 million, and occlusionembolectomy catheters, bovine cardiac patchescarotid shunts and bovine vascular patches of $0.1 million, respectively.

 

Asia Pacific net sales increased $1.4 million, or 19%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase was driven primarily by increased sales of bovine vascular patches and occlusions catheters of $0.4 million, respectively, and over-the-wire embolectomy catheters and bovine cardiac patches of $0.2 million, respectively.

Gross Profit.The following table sets forth the change in our gross profit and gross margin for the periods indicated:

 

  

Three months ended September 30,

  

Nine months ended September 30,

 

(unaudited)

             

Percent

              

Percent

 
  

2023

  

2022

  

Change

  

change

  

2023

  

2022

  

Change

  

change

 
  

($ in thousands)

  

($ in thousands)

 

Gross profit

 $30,815  $25,070  $5,745   23% $93,784  $78,842  $14,942   19%
                                 

Gross margin

  65.0%  64.2%  0.8%  *   64.9%  65.3%  (0.5%)  * 

  

Three months ended March 31,

 

(unaudited)

             

Percent

 
  

2024

  

2023

  

Change

  

change

 
  

(in thousands)

 

Gross profit

 $36,665  $30,883  $5,782   19%
                 

Gross margin

  68.6%  65.6%  3.0%  * 

*Not applicable

23

 

*Not applicable

Gross Profit.Gross profit increased $5.7$5.8 million, or 23%19%, to $30.8$36.7 million for the three months ended September 30, 2023,March 31, 2024, and gross margin increased 80300 basis points to 65%68.6% in the period. The increase in gross profit was driven primarily by increased sales, particularly from valvulotomes,allograft preservation services, porcine patches bovine vascular patches and bovine grafts.carotid shunts. The increase in gross margin was driven primarily by favorable product mix, including sales of comparatively higher margin valvulotomes, andgreater manufacturing efficiencies as our direct labor manufacturing team became more efficient, which werewas partially offset by increased scrap and excess and obsolescence charges.

Gross profit increased $14.9 million, or 19%, to $93.8 million for the nine months ended September 30, 2023,charges and gross margin decreased 50 basis points to 64.9% in the period. The increase in gross profit was driven primarily by increased sales, particularly from valvulotomes, bovine grafts and bovine vascular patches. The decrease in gross margin was driven primarily by increases in labor costs, unfavorable product mix, including higher sales of comparatively lower margin porcine patches and sales of our allograft preservation services and increased scrap and excess and obsolescence charges. porcine patches.

 

Operating ExpensesExpenses.

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 September 30,

      

Nine months ended September 30,

     

(unaudited)

             

Percent

              

Percent

 
  

2023

  

2022

  

$ Change

  

change

  

2023

  

2022

  

$ Change

  

change

 
                                 

Sales and marketing

 $9,673  $8,229  $1,444   18% $30,786  $24,321  $6,465   27%

General and administrative

  7,738   7,229   509   7%  23,392   21,812   1,580   7%

Research and development

  4,224   3,462   762   22%  12,615   9,740   2,875   30%

Restructuring

  -   -   -   *   485   3,107   (2,622)  (84)%

Total

 $21,635  $18,920  $2,715   14% $67,278  $58,980  $8,298   14%

 

28

  

Three months ended March 31,

 

(unaudited)

             

Percent

 
  

2024

  

2023

  

$ Change

  

change

 
                 

Sales and marketing

 $11,686  $10,897  $789   7%

General and administrative

  9,013   7,932   1,081   14%

Research and development

  4,092   3,875   217   6%

Restructuring

  -   305   (305)  * 

Total

 $24,791  $23,009  $1,782   8%

 

  

Three months ended September 30,

  

Nine months ended September 30,

 
  

2023

  

2022

      

2023

  

2022

     
  

% of Net Sales

  

% of Net Sales

  

Change

  

% of Net Sales

  

% of Net Sales

  

Change

 
                         

Sales and marketing

  20%  21%  (1%)  21%  20%  1%

General and administrative

  16%  19%  (3%)  16%  18%  (2%)

Research and development

  9%  9%  0%  9%  8%  1%

Restructuring

  0%  0%  0%  0%  3%  (3%)

  

Three months ended March 31,

 
  

2024

  

2023

     
  

% of Net Sales

  

% of Net Sales

  

Change

 
             

Sales and marketing

  22%  23%  (1%)

General and administrative

  17%  17%  0%

Research and development

  8%  8%  0%

Restructuring

  0%  1%  (1%)

* Not a meaningful percentage relationship.

 

Sales and marketing. For the three months ended September 30, 2023,March 31, 2024, sales and marketing expenses increased 18%7% to $9.7$11.7 million. The increase was driven primarily by higher sales reprepresentative headcount, and higher sales commissions, which resulted in increased compensation and related expenses of $1.4$0.3 million. Travel,Additionally, travel, training and related expensessales meetings increased by $0.1$0.7 million. The increase was partially offset by lower outside services and general supplies of $0.2 million. Sales rep headcount was 136137 as of September 30, 2023,March 31, 2024, a 15%7% increase from September 30, 2022.March 31, 2023. As a percentage of net sales, sales and marketing expense decreased to 20%22% for the three months ended September 30, 2023,March 31, 2024, down from 21% in the prior period.

For the nine months ended September 30, 2023, sales and marketing expenses increased 27% to $30.8 million. The increase was driven primarily by higher sales rep headcount and higher sales commissions, which resulted in increased compensation and related expenses of $5.3 million. Travel, training and related expenses increased by $0.6 million. As a percentage of net sales, sales and marketing expense increased to 21% for the nine months ended September 30, 2023, up from 20%23% in the prior period.

 

General and administrative. For the three months ended September 30, 2023,March 31, 2024, general and administrative expenses increased 7%14% to $7.7$9.0 million. The increase was driven primarily by higher outside services and professional fees of $1.0 million, which were partially offset by lower$0.8 million. Additionally, compensation and related expenses ofincreased $0.2 million facility fees of $0.1 million, and acquisition costs of $0.1 million. Lower acquisition costs were driven by gains relateddue to the amendment of a contingent purchase obligation associated with our 2019 Anteris biologic patch acquisition.an increase in personnel. As a percentage of sales, general and administrative expense decreased to 16%remained consistent at 17% for the three months ended September 30, 2023, down from 19% in the prior period.

For the nine months ended September 30, 2023, general and administrative expenses increased 7% to $23.4 million. The increase was driven primarily by higher compensation and related expenses of $1.1 million. Travel, training and related expenses increased by $0.2 million. As a percentage of sales, general and administrative expense decreased to 16% for the nine months ended September 30, 2023, down from 18% in the prior period.March 31, 2024.

 

Research and development. For the three months ended September 30, 2023,March 31, 2024, research and development expenses increased 22%6% to $4.2$4.1 million. The increase was driven by higher compensation and related expenses of $0.4$0.2 million. Outside services and testing increased by $0.3 million primarily due to higher consulting and third-party costs largely associated with European regulatory approvals. Our products are currently regulated in the European Union (EU) and the United Kingdom under the European Medical Devices Directive (MDD) and the EU Medical Device Regulation (MDR). In order to market our medical devices in the EU and the United Kingdom, we are required to obtain CE marks, which denote conformity to the essential requirements of the MDD or MDR. As a percentage of sales, research and development expense was unchangedremained consistent at 9%8% for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, research and development expense increased 30% to $12.6 million. The increase was driven by higher compensation and related expenses of $1.1 million. Outside services and testing increased by $1.5 million primarily due to higher consulting and third-party costs largely associated with European regulatory approvals. As a percentage of sales, research and development expense increased to 9% for the nine months ended September 30, 2023, up from 8% in the prior period.March 31, 2024.

 

Restructuring. For the ninethree months ended September 30, 2023,March 31, 2024, there were no restructuring expenses were $0.5 million.expenses. On June 30, 2022, we ceased operations at our St. Etienne, France factory. The closure resulted in a restructuring charge of $3.1 million for the year ended December 31, 2022. These charges consisted primarily of employment termination costs, impairment of fixed assets and inventory, and third-party costs. For the ninethree months ended September 30,March 31, 2023, we recorded additional restructuring charges in conjunction with the St. Etienne, France factory closure of $0.5$0.3 million. The additional charges consisted primarily of employment termination, settlement, legal and other third-party costs. As a percentage of sales, restructuring expense was less than 1% for the nine months ended September 30, 2023. There was no restructuring charges for the three months ended September 30, 2023.

 

Income tax expense. We recorded a tax provision of $2.3$2.9 million on pre-tax income of $9.8$12.8 million for the three months ended September 30, 2023,March 31, 2024, compared to a $0.7$2.0 million tax provision on pre-tax income of $6.1$8.0 million for the three months ended September 30, 2022. We recorded a tax provision of $6.5 million on pre-tax income of $28.2 million for the nine months ended September 30, 2023, compared to a tax provision of $4.7 million on pre-tax income of $19.7 million for the nine months ended September 30, 2022.March 31, 2023. Our effective income tax rate was 23.6% and 23.1%22.7% for the three- and nine-month periodsthree-month period ended September 30, 2023.March 31, 2024. Our tax expense for the current period is based on an estimated annual effective tax rate of 24.9%, 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 the generation of federal and state tax credits, permanent items, different statutory rates from our foreign entities, and a discrete item for stock option exercises.

 

2924

 

Our effective income tax rate was 11.3% and 23.8%24.5% for the three- and nine-month periodsthree-month period ended September 30, 2022.March 31, 2023. Our 20222023 provision was based on the estimated annual effective tax rate of 25.1%25.5%, adjusted in the applicable quarterly period for discrete stock option exercises and other discrete items. Our income tax expense for the three-and nine-month periodsthree-month period ended September 30, 2022March 31, 2023, 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 September 30, 2023,March 31, 2024, we have provided a valuation allowance of $1.6$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.

 

The Inflation Reduction Act ("IRA")(IRA) was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on “adjusted financial statement income” for applicable corporations and a 1% excise tax on repurchases of stock. These provisions are effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows or financial position.

 

Liquidity and Capital Resources

 

As of September 30, 2023,March 31, 2024, our cash and cash equivalents were $18.1$26.6 million as compared to $19.1$24.3 million as of December 31, 2022.2023. We had $79.0$81.7 million in short-term marketable securities as of September 30, 2023March 31, 2024, and $63.6$80.8 million as of December 31, 2022.2023. Our cash and cash equivalents are 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. As of September 30, 2023March 31, 2024, our short-term marketable securities reflected an unrealized loss of $2.0$1.3 million as a result of increasing market interest rates.

 

On February 21, 2023,2024, our Board of Directors authorized the repurchase of up to $25.0$50.0 million of the Company’s common stock through transactions on the open market, in privately negotiated purchases or otherwise until February 21, 2024.2025. The repurchase program may be suspended or discontinued at any time. To date we have not made any repurchases under this program.

 

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 $26.5$11.9 million for the ninethree months ended September 30,March 31, 2024, compared to $7.9 million for the three months ended March 31, 2023. For the year ended December 31, 2022,2023, we had operating income of $26.8$36.7 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:

 

 

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;

 

 

costs associated with expanding our manufacturing, marketing, sales, and distribution efforts;

 

 

costs associated with our initiatives to sell direct-to-hospital in new countries;

costs of obtaining and maintaining U.S. FDA and other regulatory clearances;

 

3025

 

 

costs of obtaining and maintaining U.S. FDA and other regulatory clearances for our existing and future products;

costs associated with obtaining European MDR clearances for our existing and future products;CE mark approvals;

 

 

the number, timing, and nature of acquisitions, divestitures and other strategic transactions,transactions; and

 

 

potential future share repurchases.

 

Our cash balances may decrease as we continue to use cash to fund our operations, make acquisitions, 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 and to meet our known long-term cash requirements. 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.

 

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

  

Payment Date

 

Per Share Amount

 

Dividend Payment

 
       

(in thousands)

 

Fiscal Year 2024

       

March 14, 2024

 

March 28, 2024

 $0.16  $3,589 
     

(in thousands)

        

Fiscal Year 2023

              

March 9, 2023

 

March 23, 2023

 $0.140  $3,099  

March 23, 2023

 $0.14  $3,099 

May 17, 2023

 

June 1, 2023

 $0.140  $3,116  

June 1, 2023

 $0.14  $3,116 

August 17, 2023

 

August 31, 2023

 $0.140  $3,117  

August 31, 2023

 $0.14  $3,117 
       

Fiscal Year 2022

       

March 8, 2022

 

March 24, 2022

 $0.125  $2,743 

May 17, 2022

 

June 2, 2022

 $0.125  $2,745 

August 25, 2022

 

September 8, 2022

 $0.125  $2,750 

November 17, 2022

 

December 1, 2022

 $0.125  $2,750 

November 16, 2023

 

November 30, 2023

 $0.14  $3,117 

 

On October 24, 2023,April 30, 2024, our Board of Directors approved a quarterly cash dividend on our common stock of $0.14$0.16 per share payable on NovemberMay 30, 2023,2024, to stockholders of record at the close of business on NovemberMay 16, 2023.2024.

 

Cash Flows

 

 

Nine months ended September 30,

  

Three months ended March 31,

 
 

(in thousands)

  

(in thousands)

 
 

2023

  

2022

  

Net Change

  

2024

  

2023

  

Net Change

 

Cash and cash equivalents

 $18,051  $16,913  $1,138  $26,595  $16,677  $9,918 
  

Cash flows provided by (used in):

  

Operating activities

 $26,005  $21,301  $4,704  $5,071  $2,279  $2,792 

Investing activities

 (22,454) (9,969) (12,485) (2,361) (2,964) 603 

Financing activities

 (4,445) (7,112) 2,667  39  (1,825) 1,864 

 

Net cash provided by operating activities. Net cash provided by operating activities was $26.0$5.1 million for the ninethree months ended September 30, 2023,March 31, 2024, consisting of $21.6$9.9 million in net income, adjustments for non-cash or non-operating items of $12.9$5.0 million (including primarily depreciation and amortization of $7.1$2.4 million, stock-based compensation of $3.9$1.6 million and provisions for inventory write-offs and doubtful accountscredit losses of $1.5 million and loss on divestiture of $0.5$1.1 million), and also a net use of working capital of $8.6$9.9 million. The net cash used for working capital was driven by an increase in accounts receivable of $2.1$5.8 million, an increase in inventory and other deferred costs of $7.6$3.5 million, and an increasepayments of accounts payable and other liabilities of $2.8 million. These cash uses were offset by a decrease in prepaid expenses and other assets of $1.2 million. These cash uses were offset by an increase in accounts payable and other liabilities of $2.3$2.2 million.

 

3126

 

Net cash provided by operating activities was $21.3$2.3 million for the ninethree months ended September 30, 2022,March 31, 2023, consisting of $15.0$6.0 million in net income, adjustments for non-cash or non-operating items of $14.2$4.4 million (including primarily depreciation and amortization of $7.1$2.4 million, stock-based compensation of $3.5$1.3 million, provisions for inventory write-offs and doubtful accountscredit losses of $2.3$0.3 million, and loss on divestiture of $1.4$0.3 million), and also a net use of working capital of $7.9$8.1 million. The net cash used for working capital was driven by an increase in accounts receivable of $3.2 million, an increase in inventory and other deferred costs of $5.0 million, an increase in accounts receivable of $1.7$3.8 million, and an increasepayments of accounts payable and other liabilities of $2.3 million. These cash uses were offset by a decrease in prepaid expenses and other assets of $1.3 million. These cash uses were offset by an increase in accounts payable and other liabilities of $0.2$1.2 million.

 

Net cash used in investing activities. Net cash used in investing activities was $22.5$2.4 million for the ninethree months ended September 30, 2023,March 31, 2024, consisting of expenditures on property and equipment of $1.4 million and purchases of marketable securities of $15.6 million, expenditures on equipment and technology of $6.0 million, and acquisition related payments of $0.9$1.0 million.

 

Net cash used in investing activities was $10.0$3.0 million for the ninethree months ended September 30, 2022,March 31, 2023, consisting of expenditures on property and equipment of $2.1 million, purchases of marketable securities of $8.0$0.6 million, and expenditures on equipment and technologyacquisition related payments of $2.0$0.3 million.

 

Net cash used inprovided by (used in) financing activities. Net cash provided by financing activities was less than $0.1 million for the three months ended March 31, 2024, consisting primarily of proceeds from stock option exercises of $3.6 million, net of shares repurchased used to pay employee payroll taxes. This proceed of cash was offset by a dividend payment of $3.6 million.

Net cash used in financing activities was $4.4$1.8 million for the ninethree months ended September 30,March 31, 2023, consisting primarily of a dividend payment of $9.3$3.1 million. This use of cash was partly offset by proceeds from stock option exercises of $4.9$1.3 million, net of shares repurchased used to pay employee payroll taxes.

 

Net cash used in financing activities was $7.1 million for the nine months ended September 30, 2022, consisting primarily of a dividend payment of $8.2 million and deferred payments for acquisitions of $0.4 million. This use of cash was partly offset by proceeds from stock option exercises of $1.5 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, 2022.2023. There have been no material changes in our critical accounting policies during the ninethree months ended September 30, 2023.March 31, 2024. 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.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These market risks include changes in currency exchange rates and interest rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, if considered appropriate, we may enter into derivative financial instruments such as forward currency exchange contracts, although we have not done so in 20232024 or in recent years. There have been no material changes in our quantitative and qualitative market risks since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. We design our disclosure controls and procedures to ensure, at reasonable assurance levels, that such information is timely recorded, processed, summarized and reported, and then accumulated and communicated appropriately.

 

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Based on an evaluation of our disclosure controls and procedures as of September 30, 2023March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at reasonable assurance levels.

 

Changes in Internal Control

 

ThereAs previously disclosed, in February 2024 we began implementing a new ERP system. The ERP implementation requires the integration of new ERP software with multiple new and existing data flows and business processes. The new ERP is designed to accurately maintain our books and records and provide information to our management team which is important to the operations of the business. As the phased implementation of the new ERP system progresses, we expect to continue to change certain processes and procedures which, in turn, are expected to result in changes to our internal control over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.

Other than the new ERP system implementation, there have been no changes into our internal control over financial reporting forduring the nine monthsquarter ended September 30, 2023March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations of Internal Controls

 

Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any system will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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Part II. Other Information

 

Item 1. Legal Proceedings

 

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to employment, product liability, commercial arrangements, contracts, intellectual property and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of November 7, 2023May 10, 2024, that management believes would have a material adverse effect on our financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

In additionThere have been no material changes to the information set forth in this report, you should consider the risks and uncertainties discussed in “Part I, Item 1A. Risk Factors”risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition, or future results. The risk factors below supplement and update the risk factors and information discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.

We face intense competition from other companies, technologies, and alternative medical procedures and2023. However, we may not be able to compete effectively.

The segments in which we operate are highly competitive, subject to change, and significantly affected by new product introductions and other activities of industry participants. Although no one company competes against us in all of our product lines or services, a number of manufacturers of peripheral vascular devices have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and management resources, larger research and development staffs, and larger facilities than ours; have established reputations with our target customers; and have developed worldwide distribution channels that are more effective than ours. Our competitors could elect to devote additional resources to the segments in which we currently enjoy less competition. Also, although we currently have leading positions in the segments for some of our products, this is not true for all of our products. From time to time, we have experienced difficulties competing against large companies.

Our competitors may be companies which are larger than us and have substantially greater financial, technological, research and development, regulatory, marketing, sales, and personnel resources than we do. Certain competitors are able to manufacture at lower costs and may offer comparable products at lower prices. Certain competitors may also have greater experience in developing and improving products, obtaining regulatory approvals, and manufacturing and marketing products. Certain competitors may obtain patent protection or regulatory approval or clearance, or achieve product commercialization, before us,cannot provide any of which could materially adversely affect us. Further, if the trend towards endovascular procedures versus open vascular procedures continues or accelerates, our competitors may be better positioned to take advantage of that trend, since our main product lines are used primarily in open vascular procedures. New product developments that could compete with us more effectively are likely because the vascular disease market is characterized by extensive research efforts and technological progress. Competitors may develop technologies and products that are safer, more effective, easier to use, less expensive, or more readily accepted than ours. Their products could make our technology and products obsolete or noncompetitive. Our competitors may also be able to achieve more efficient manufacturing and distribution operations than we can. In addition, many of our products face competition from alternative procedures that utilize different kinds of medical devices than we currently sell. Increased competition could also result in price reductions and loss of market share, any of which could result in lower revenues and reduced gross profits.

Other companies that may not be deemed competitors in the peripheral vascular device space in which we operate may develop technologies, products or services that may adversely impact the use of our products and services. For example, certain therapeutic treatments, such as drugs used to treat diabetes or help with weight loss, may enhance patient health and lower the occurrence and severity of the vascular diseases that certain of our products and services are intended to treat. If we do not introduce new products, services and enhancements in a timely manner, there may be a decrease in the use of certain of our products and services by vascular surgeons, in which case our revenues and operating results would suffer.

If we do not comply with international regulatory requirements to market our products outside the United States or are required to modify our operations or products as a result of such requirements, our business will be harmed.

Sales of medical devices outside the U.S. are subject to international regulatory requirements that vary from country to country. These requirements and the amount of time required for approval may differ from our experiences with the U.S. FDA. In some countries, we rely on our international distributors to obtain premarket approvals, complete product registrations, comply with clinical trial requirements, and complete those steps that are customarily taken in the applicable jurisdictions to comply with governmental and quasi-governmental regulation. In the future, we expect to continue to rely on distributors in this manner in those countries where we continue to market and sell our products through them. Failure to satisfy these foreign regulations would impact our ability to sell our products in these countries and could cause our business to suffer. There can be no assurance that weany risk factor will be able to obtain or maintain the required regulatory approvals in these countries.

34

Our products are currently regulated in the European Union (EU) and the United Kingdom under the MDD and the MDR. In order to market our medical devices in the EU, we are required to obtain CE marks, which denote conformity to the essential requirements of the MDD or MDR, and manufacturers of higher-risk devices generally must use a “Notified Body”—an appointed independent third party to assess conformity. We currently use three Notified Bodies for our various products. We have received CE marks under the MDD to sell most of our products and have recently received our first CE mark under the MDR for our Pruitt F3 Carotid Shunt.

In April 2017, the EU adopted new regulations for medical devices, the MDR, which replace the MDD and which started to take effect as of May 26, 2021. The final deadline for compliance with MDR was initially set to May 26, 2024, and subsequently revised to December 31, 2027 and December 31, 2028 for certain classifications of medical devices. Our products will eventually be fully subject to the MDR, which requires all of our products, regardless of classification, to obtain a new CE mark in accordance with the new, more stringent standards under the MDR. As a condition to CE mark approval, clinical evidence will be required for Class III and implantable devices. As our Notified Bodies transition from MDD to MDR, they have begun to impose more rigorous requirements on us. Nearly all of our products have been submitted to our Notified Bodies for review under the MDR. If we fail to obtain new CE marks on these products or our other products under the MDR in a timely manner, or at all, future sales of our products in the EU could be adversely impacted.

There can be no assurance that we will be able to obtain or maintain MDR CE marks for our existing products, and obtaining CE marks may involve a significant amount of time and expense, stringent clinical and preclinical testing, or modification of our products and could result in limitations being placed on the use of our products in order to obtain approval. These types of more stringent restrictions on our products as they transition to MDR could impact sales of our products and/or their gross margins could be adversely impacted. For example, under the MDR CE mark issued in January 2023 for our Pruitt F3 Carotid Shunt, we were unable to secure the new CE marking for the polyurethane balloon models (F3-S). While the MDD CE mark remains valid for the F3-S, we will be required to incur more expenses to gain MDR CE marking for those models. The F3-S models accounted for approximately $53,000 of annual sales in Europe and the U.K. in 2022. Additionally, significant changes to our devices may trigger a requirement to file or obtain an MDR CE mark earlier than expected, which could result in supply chain delays.

Maintaining a CE mark is contingent upon our continued compliance with applicable European medical device requirements, including limitations on advertising and promotion of medical devices and requirements governing the handling of adverse events. As highlighted above, there can be no assurance that we will be successful in obtaining, retaining or maintaining the CE mark for any of our current products. In particular, adverse event reporting requirements in the EU and the U.K. mandate that we report incidents which led or could have led to death or serious deterioration in health. Under certain circumstances, we could be required to or could voluntarily initiate a recall or removal of our product from the market in order to address product deficiencies or malfunctions. Any recall of our products may harm our reputation with customers and divert managerial and financial resources.

As a result of the U.K.’s exit from the EU, the U.K. Medicines and Healthcare Products Regulatory Agency (“MHRA”) announced that CE marking will continue to be recognized in the U.K. and certificates issued by EU-recognized Notified Bodies will continue to be valid in the U.K. market until July 1, 2024. This deadline was subsequently revised by MHRA to coincide with the EU extensions ending in December 31, 2027 and December 31, 2028. Following such dates, all devices marketed in the U.K. will require U.K. Conformity Assessed (“UKCA”) marks certified by a U.K. Approved Body. If we fail to obtain UKCA marks by these deadlines, or at all, our sales in the U.K. could be negatively affected.

Our facilities are subject to periodic inspection by numerous regulatory authorities, including governmental agencies and Notified Bodies, and we must demonstrate compliance with the applicable medical devices regulations. Any failure by us to comply with regulatory requirements may entail our taking corrective action, such as modification of our policies and procedures. In addition, we may be required to cease all or part of our operations for some period of time until we can demonstrate that appropriate steps have been taken. There can be no assurance that we will be found in compliance with such standards in future audits.

We also pursue registrations in other jurisdictions in which we sell our devices directly, such as Japan and China. In 2015, the China Food and Drug Administration (NMPA) significantly increased the application fees for product registrations and imposed additional requirements for obtaining product approval, which includes requirements for conducting clinical trials to support the registration application process on newly introduced products in China. As a result, we may not seek registration for certain products where the cost is not justified. Any delay in product registrations could have a negative impact on our results of operations.materialize.

35

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Recent Sales of Unregistered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

  

Issuer Purchases of Equity Securities

 
              

Maximum Number

 
              

(or Approximate

 
          

Total Number of

  

Dollar Value) of

 
          

Shares (or Units)

  

Shares (or Units)

 
  

Total

  

Average

  

Purchased as

  

that may yet be

 
  

Number of

  

Price

  

Part of Publicly

  

Purchased under

 

 

 

Shares (or Units)

  

Paid Per

  

Announced Plans

  

the Plans or

 
 Period 

Purchased (1)

  

Share (or Unit)

  

or Program

  

Program

 

July 1, 2023 through July 31, 2023

  -  $-   N/A   N/A 

August 1, 2023 through August 31, 2023

  87  $55.82   N/A   N/A 

September 1, 2023 through September 30, 2023

  -  $-   N/A   N/A 

Total

  87  $55.82   N/A   N/A 
  

Issuer Purchases of Equity Securities

 
              

Maximum Number

 
              

(or Approximate

 
          

Total Number of

  

Dollar Value) of

 
          

Shares (or Units)

  

Shares (or Units)

 
  

Total

  

Average

  

Purchased as

  

that may yet be

 
  

Number of

  

Price

  

Part of Publicly

  

Purchased under

 
  

Shares (or Units)

  

Paid Per

  

Announced Plans

  

the Plans or

 
Period 

Purchased (1)

  

Share (or Unit)

  

or Program

  

Program

 

January 1, 2024 through January 31, 2024

  3,583  $55.91   N/A   N/A 

February 1, 2024 through February 29, 2024

  2,179  $69.67   N/A   N/A 

March 1, 2024 through March 31, 2023

  88  $67.24   N/A   N/A 

Total

  5,850  $61.21   N/A   N/A 

 

(1) For the three months ended September 30, 2023,March 31, 2024, we repurchased 875,850 shares of our common stock to satisfy employees’ obligations with respect to minimum statutory withholding taxes in connection with the vesting of restricted stock units.

 

 

Item 5. Other Information

 

Rule 10b5-1 and non-Rule 10b5-1 trading arrangements

 

During the fiscal quarter ended September 30, 2023,March 31, 2024, none of our directors or officers informed us of the adoption, modification or termination of a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as those terms are defined in Regulation S-K, Item 408.

 

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Item 6. Exhibits

 

   

Incorporated by Reference

 

Exhibit

Number

Exhibit Description

 

Form

Date

Number

Filed

Herewith

       

3.1

Amended and RestatedRestated By-laws of the Registrant

 

S-1/A

5/26/06

001-33092

 

3.2

Second Amended and Restated Certificate of Incorporation of the Registrant

 

10-K

3/29/10

001-33092

 

3.3

Amendment to Second Amended and Restated Certificate of Incorporation of the Registrant

 

8-K

6/5/12

001-33092

 
10.1First Amendment of Lease dated October 18, 2023 between NWP RETAIL 18 LLC and the RegistrantX
10.2Second Amendment of Lease dated October 18, 2023 between NWP BUILDING 3 LLC and the RegistrantX
10.3Sixth Amendment of Lease dated October 18, 2023 between NWP BUILDING 4 LLC and the RegistrantX
10.4Eighth Amendment of Lease dated October 18, 2023 between NWP BUILDING 5 LLC and the RegistrantX

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15 d-14(a).

    

X

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a).

    

X

32.1

Certification by the Chief Executive Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section  1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).*

    

X

32.2

Certification by the Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section  1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).*

    

X

101.INS

Inline XBRL Instance Document.

    

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

    

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

    

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

    

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

    

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

    

X

       

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

    

X

 


 

Indicates a management contract or any compensatory plan, contract, or arrangement.

*

The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the SEC and are not to be incorporated by reference into any filing of LeMaitre Vascular, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2023.May 10, 2024.

 

LEMAITRE VASCULAR, INC.

 
  

/s/ George W. LeMaitre

 

George W. LeMaitre

 

Chairman and Chief Executive Officer

 
  

/s/ Joseph P. Pellegrino, Jr.

 

Joseph P. Pellegrino, Jr.

 

Chief Financial Officer and Director

 

 

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