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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, 2023

 

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 22,263,235 shares of common stock, $.01 par value per share, outstanding as of November 3, 2023.

 

 

 

 

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, 2023 (unaudited) and December 31, 2022

4

       
   

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

5

       
   

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

6

       
   

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

7

       
   

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

9

       
   

Notes to Unaudited Consolidated Financial Statements

10

       
 

Item 2.

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

23

       
 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

32

       
 

Item 4.

Controls and Procedures

32

     

Part II.

Other Information:

34

       
 

Item 1.

Legal Proceedings

34

       
 

Item 1A.

Risk Factors

34

       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

       
 

Item 5.

Other Information

36

       
 

Item 6.

Exhibits

37

       
 

Signatures

38

 

 

 

Part I. Financial Information

Item 1. Financial Statements

 

LeMaitre Vascular, Inc.

Consolidated Balance Sheets

 

   

(unaudited)

         
   

September 30,

   

December 31,

 
   

2023

   

2022

 
   

(in thousands, except share data)

 
Assets                

Current assets:

               

Cash and cash equivalents

  $ 18,051     $ 19,134  

Short-term marketable securities

    78,967       63,557  

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

    23,882       22,040  

Inventory and other deferred costs

    56,187       50,271  

Prepaid expenses and other current assets

    5,097       6,731  

Total current assets

    182,184       161,733  
                 

Property and equipment, net

    21,357       17,901  

Right-of-use leased assets

    15,850       15,634  

Goodwill

    65,945       65,945  

Other intangibles, net

    43,199       46,527  

Deferred tax assets

    2,325       1,745  

Other assets

    3,152       991  

Total assets

  $ 334,012     $ 310,476  
                 

Liabilities and stockholders equity

               

Current liabilities:

               

Accounts payable

  $ 4,371     $ 2,903  

Accrued expenses

    21,788       19,967  

Acquisition-related obligations

    121       573  

Lease liabilities - short-term

    2,749       1,886  

Total current liabilities

    29,029       25,329  
                 

Lease liabilities - long-term

    14,132       14,710  

Deferred tax liabilities

    69       69  

Other long-term liabilities

    2,145       2,167  

Total liabilities

    45,375       42,275  
                 

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  

Additional paid-in capital

    198,254       189,268  

Retained earnings

    110,081       97,773  

Accumulated other comprehensive loss

    (6,705 )     (6,031 )

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 )

Total stockholders’ equity

    288,637       268,201  

Total liabilities and stockholders’ equity

  $ 334,012     $ 310,476  

 

See accompanying notes to consolidated financial statements. 

 

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Operations

(unaudited)

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands, except per share data)

   

(in thousands, except per share data)

 
                                 

Net sales

  $ 47,411     $ 39,028     $ 144,601     $ 120,697  

Cost of sales

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

Gross profit

    30,815       25,070       93,784       78,842  
                                 

Sales and marketing

    9,673       8,229       30,786       24,321  

General and administrative

    7,738       7,229       23,392       21,812  

Research and development

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

Restructuring

    -       -       485       3,107  
                                 

Total operating expenses

    21,635       18,920       67,278       58,980  
                                 

Income from operations

    9,180       6,150       26,506       19,862  
                                 

Other income (expense):

                               

Interest income

    835       264       2,085       539  

Foreign currency loss

    (189 )     (266 )     (429 )     (709 )
                                 

Income before income taxes

    9,826       6,148       28,162       19,692  

Provision for income taxes

    2,324       692       6,522       4,683  
                                 

Net income

  $ 7,502     $ 5,456     $ 21,640     $ 15,009  
                                 

Earnings per share of common stock:

                               

Basic

  $ 0.34     $ 0.25     $ 0.97     $ 0.68  

Diluted

  $ 0.33     $ 0.25     $ 0.97     $ 0.68  
                                 

Weighted-average shares outstanding:

                               

Basic

    22,263       21,984       22,196       21,959  

Diluted

    22,481       22,217       22,411       22,149  
                                 

Cash dividends declared per common share

  $ 0.140     $ 0.125     $ 0.420     $ 0.375  

 

See accompanying notes to consolidated financial statements. 

 

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Comprehensive Income

(unaudited) 

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands)

   

(in thousands)

 

Net income

  $ 7,502     $ 5,456     $ 21,640     $ 15,009  

Other comprehensive income (loss):

                               

Foreign currency translation adjustment, net

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

Unrealized loss on short-term marketable securities

    (50 )     (333 )     (182 )     (1,816 )

Total other comprehensive loss

    (883 )     (1,683 )     (674 )     (4,692 )
                                 

Comprehensive income

  $ 6,619     $ 3,773     $ 20,966     $ 10,317  

 

See accompanying notes to consolidated financial statements.

 

 

 

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, 2022

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

Net income

                            6,040                               6,040  

Other comprehensive income (loss)

                                    459                       459  

Issuance of common stock for stock options exercised

    50,424       1       1,445                                       1,446  

Vested restricted stock units

    8,773       -       -                                       -  

Stock-based compensation expense

                    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 )

Balance at March 31, 2023

    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  

 

See accompanying notes to consolidated financial statements.

 

 

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.

 

 

 

LeMaitre Vascular, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

   

For the nine months ended

 
    September 30,  
   

2023

   

2022

 
   

(in thousands)

 
Operating activities                

Net income

  $ 21,640     $ 15,009  

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

               

Depreciation and amortization

    7,072       7,145  

Stock-based compensation

    3,915       3,489  

Fair value adjustment to contingent consideration obligations

    (49 )     (81 )

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  

Foreign currency transaction (gain) loss

    (7 )     (90 )

Changes in operating assets and liabilities:

               

Accounts receivable

    (2,077 )     (1,737 )

Inventory and other deferred costs

    (7,582 )     (5,041 )

Prepaid expenses and other assets

    (1,160 )     (1,344 )

Accounts payable and other liabilities

    2,253       176  

Net cash provided by operating activities

    26,005       21,301  
                 

Investing activities

               

Purchases of property and equipment and other assets

    (5,986 )     (1,969 )

Payments related to acquisitions

    (899 )     -  

Purchases of short-term marketable securities

    (15,569 )     (8,000 )

Net cash used in investing activities

    (22,454 )     (9,969 )
                 

Financing activities

               

Payments of deferred acquisition consideration

    -       (401 )

Proceeds from issuance of common stock

    5,073       1,679  

Purchase of treasury stock for net settlement of equity awards

    (186 )     (152 )

Common stock cash dividend paid

    (9,332 )     (8,238 )

Net cash used in financing activities

    (4,445 )     (7,112 )
                 

Effect of exchange rate changes on cash and cash equivalents

    (189 )     (1,162 )

Net increase (decrease) in cash and cash equivalents

    (1,083 )     3,058  

Cash and cash equivalents at beginning of period

    19,134       13,855  

Cash and cash equivalents at end of period

  $ 18,051     $ 16,913  

 

See accompanying notes to consolidated financial statements.

 

 

LeMaitre Vascular, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(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; 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 nine months ended September 30, 2023 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, including the notes thereto, included in our Form 10-K filed with the Securities and Exchange Commission (SEC) on March 1, 2023.

 

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, 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.

 

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

 

 

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 company satisfies a performance obligation by transferring a 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,

 
   

2023

   

2022

   

2023

   

2022

 
   

($ in thousands)

   

($ in thousands)

 
                                 

Americas

  $ 31,863     $ 26,627     $ 97,496     $ 82,024  

Europe, Middle East and Africa

    12,322       9,922       38,179       31,165  

Asia Pacific

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

Total

  $ 47,411     $ 39,028     $ 144,601     $ 120,697  

 

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.

 

 

 

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, 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 2023 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 2022 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, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $569,000. 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. A reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:

 

   

Nine months ended

September 30, 2023

 
   

(in thousands)

 

Unrecognized tax benefits as of December 31, 2022

  $ 612  

Additions/adjustments for tax positions of current year

    -  

Additions/adjustments for tax positions of prior years

    (43 )

Reductions for settlements with taxing authorities

    -  

Reductions for lapses of the applicable statutes of limitations

    -  

Unrecognized tax benefits as of September 30, 2023

  $ 569  

 

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

 

United States

2019 and forward

Foreign

2015 and forward

 

 

 

3. Inventories and Other Deferred Costs

 

Inventories and other deferred costs consist of the following:

 

   

September 30, 2023

   

December 31, 2022

 
   

(in thousands)

 

Raw materials

  $ 19,137     $ 14,929  

Work-in-process

    3,793       3,662  

Finished products

    28,334       26,688  

Other deferred costs

    4,923       4,992  
                 

Total inventory and other deferred costs

  $ 56,187     $ 50,271  

 

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

 

During the nine months ended September 30, 2023, we recorded additional restructuring charges of $0.5 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.

 

 

 

5.

Goodwill and Other Intangible Assets

 

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

 

   

September 30, 2023

   

December 31, 2022

 
   

Gross

           

Net

   

Gross

           

Net

 
   

Carrying

   

Accumulated

   

Carrying

   

Carrying

   

Accumulated

   

Carrying

 
   

Value

   

Amortization

   

Value

   

Value

   

Amortization

   

Value

 
   

(in thousands)

 

Product technology and intellectual property

  $ 29,549     $ 15,381     $ 14,168     $ 29,549     $ 13,319     $ 16,230  

Trademarks, tradenames and licenses

    3,767       1,870       1,897       3,647       1,533       2,114  

Customer relationships

    37,171       10,341       26,830       36,197       8,359       27,838  

Other intangible assets

    1,643       1,339       304       1,461       1,116       345  
                                                 

Total identifiable intangible assets

  $ 72,130     $ 28,931     $ 43,199     $ 70,854     $ 24,327     $ 46,527  

 

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, 2023 is 10.3 years. Amortization expense is included in general and administrative expense and was as follows for the periods indicated.

 

   

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  

 

We estimate that amortization expense for the remainder of 2023 and for each of the five succeeding fiscal years will be 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  

 

 

 

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, the Company has the following building and facility leases capitalized on the balance sheet:

 

Location (leases)

 

Purpose

 

Approx. Sq. Ft.

 

Expiration

               

Americas

             

Burlington, MA (5)

 

Corporate headquarters, manufacturing and distribution

    109,354  

December 2030

North Brunswick, NJ (1)

 

Artegraft biologic business

    16,732  

October 2029

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

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

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”) 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.

 

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.

 

 

Additional information with respect to our leases is as follows:

 

   

Three months ended September 30,

    Nine months ended September 30,  
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands)

   

(in thousands)

   

(in thousands)

   

(in thousands)

 
                                 

Lease cost

                               

Operating lease cost

  $ 797     $ 792     $ 1,941     $ 1,955  

Short-term lease cost

    28       154       348       478  

Total lease cost

  $ 825     $ 946     $ 2,289     $ 2,433  
                                 

Other information

                               

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

  $ 967     $ 977     $ 2,433     $ 2,461  
                                 

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

  $ 843     $ 287     $ 2,156     $ 2,669  
                                 
                                 

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

                    6.7       8.2  
                                 

Weighted average discount rate - operating leases

                    5.15 %     4.93 %

 

The maturities of the lease liabilities for each of the following fiscal years is:

 

Remainder of 2023

  $ 880  

Year ending December 31,

       

2024

    3,502  

2025

    3,314  

2026

    2,647  

2027

    2,482  

2028

    2,452  

Thereafter

    4,610  

Adjustment to net present value as of September 30, 2023

    (3,006 )
         

Minimum noncancelable lease liability

  $ 16,881  

 

 

 

7. Accrued Expenses and Other Long-term Liabilities

 

Accrued expenses consist of the following:

 

   

September 30, 2023

   

December 31, 2022

 
   

(in thousands)

 

Compensation and related taxes

  $ 11,248     $ 10,770  

Accrued purchases

    5,996       3,748  

Accrued expenses

    3,690       4,640  

Income and other taxes

    446       449  

Professional fees

    75       108  

Other

    333       252  
                 

Total

  $ 21,788     $ 19,967  

 

Other long-term liabilities consist of the following:

 

   

September 30, 2023

   

December 31, 2022

 
   

(in thousands)

 

Acquisition-related liabilities

  $ 1,383     $ 1,354  

Income taxes

    558       636  

Other

    204       177  
                 

Total

  $ 2,145     $ 2,167  

 

 

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, Germany, the United Kingdom and other European countries and Canada. Substantially all of our assets are located in the United States and Germany. Net sales to unaffiliated customers by country were as follows:

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands)

   

(in thousands)

 

United States

  $ 28,799     $ 24,242     $ 88,136     $ 74,734  

Germany

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

Canada

    2,615       1,962       8,093       6,141  

United Kingdom

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

Other countries

    10,676       8,741       32,174       26,997  
                                 

Net Sales

  $ 47,411     $ 39,028     $ 144,601     $ 120,697  

 

 

 

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 were 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  

 

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

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands)

   

(in thousands)

 

Cost of sales

  $ 168     $ 142     $ 504     $ 415  

Sales and marketing

    248       205       712       607  

General and administrative

    765       720       2,310       2,127  

Research and development

    132       119       389       340  
                                 

Total stock-based compensation

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

 

During the nine months ended September 30, 2023 and 2022, we granted options for the purchase of 1,660 and 2,052 shares of our common stock, we granted restricted stock units of 944 and 728, and granted performance-based restricted stock units of 310 and 250, respectively. We issued approximately 180,000 and 81,000 shares of common stock following the exercise or vesting of underlying stock options or restricted stock units during the nine months ended September 30, 2023 and 2022, respectively.

 

 

 

10. Net Income per Share

 

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

 

   

Three months ended

   

Nine months ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(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  
                                 

Weighted average shares outstanding

    22,263       21,984       22,196       21,959  
                                 

Basic earnings per share

  $ 0.34     $ 0.25     $ 0.97     $ 0.68  
                                 

Diluted:

                               

Net income available for common stockholders

  $ 7,502     $ 5,456     $ 21,640     $ 15,009  
                                 

Weighted-average shares outstanding

    22,263       21,984       22,196       21,959  

Common stock equivalents, if dilutive

    218       233       215       190  

Shares used in computing diluted earnings per common share

    22,481       22,217       22,411       22,149  
                                 

Diluted earnings per share

  $ 0.33     $ 0.25     $ 0.97     $ 0.68  
                                 

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

    192       159       286       286  

 

 

 

11. Stockholders Equity

 

Share Repurchase Program

 

On February 21, 2023, our Board of Directors authorized the repurchase of up to $25.0 million of the Company’s common stock through transactions on the open market, in privately negotiated purchases or otherwise until February 21, 2024. 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

 
               

(in thousands)

 

Fiscal Year 2023

                   

March 9, 2023

 

March 23, 2023

  $ 0.140     $ 3,099  

May 17, 2023

 

June 1, 2023

  $ 0.140     $ 3,116  

August 17, 2023

 

August 31, 2023

  $ 0.140     $ 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  

 

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

 

 

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  

 

 

 

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, 2023 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.

 

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. We recorded this liability at a fair value of $0.4 million 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 being remeasured each quarter during the earn-out period, with any adjustments recorded in income from operations. During the quarter ended December 31, 2022 we recorded a reduction to the liability to reflect a change in our estimate of the likelihood of achieving the unit sales milestones. There was no additional change in the estimated liability during the nine months ended September 30, 2023.

 

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 statement of the acquired business to us; $2.0 million (“CE Mark 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 period 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.

 

 

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: