LeMaitre Vascular(LMAT) - 2019 Q2 - Quarterly Report

Part I. Financial Information This section provides LeMaitre Vascular's unaudited consolidated financial statements and management's analysis of financial condition and operations Item 1. Financial Statements This section presents LeMaitre Vascular's unaudited consolidated financial statements and related notes for the specified periods Consolidated Balance Sheets The consolidated balance sheets show the company's financial position as of June 30, 2019, compared to December 31, 2018 Consolidated Balance Sheets (in thousands) | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $13,264 | $26,318 | | Short-term marketable securities | $34,979 | $21,668 | | Total current assets | $98,159 | $94,017 | | Total assets | $162,661 | $153,088 | | Total current liabilities | $17,422 | $19,758 | | Total liabilities | $25,124 | $22,853 | | Total stockholders' equity | $137,537 | $130,235 | Unaudited Consolidated Statements of Operations These statements detail the company's financial performance for the three and six months ended June 30, 2019 and 2018 Unaudited Consolidated Statements of Operations (in thousands, except per share data) | Metric (in thousands, except per share data) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $29,483 | $27,020 | $57,962 | $53,014 | | Gross profit | $20,315 | $18,992 | $39,779 | $37,466 | | Income from operations | $5,915 | $11,541 | $10,350 | $16,403 | | Net income | $4,624 | $8,751 | $8,137 | $12,604 | | Basic EPS | $0.23 | $0.45 | $0.41 | $0.65 | | Diluted EPS | $0.23 | $0.43 | $0.40 | $0.62 | | Cash dividends declared per common share | $0.085 | $0.070 | $0.170 | $0.140 | Unaudited Consolidated Statements of Comprehensive Income This statement presents comprehensive income for the three and six months ended June 30, 2019 and 2018, including other comprehensive income Unaudited Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $4,624 | $8,751 | $8,137 | $12,604 | | Foreign currency translation adjustment, net | $208 | $(1,223) | $(53) | $(895) | | Unrealized gain (loss) on short-term marketable securities | $66 | $22 | $135 | $(23) | | Total other comprehensive income (loss) | $274 | $(1,201) | $82 | $(918) | | Comprehensive income | $4,898 | $7,550 | $8,219 | $11,686 | Unaudited Consolidated Statements of Stockholders' Equity These statements show changes in stockholders' equity components for the six-month periods ended June 30, 2019 and 2018 Unaudited Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balance at Dec 31, 2018 | Balance at June 30, 2019 | | :-------------------- | :---------------------- | :----------------------- | | Common Stock Amount | $211 | $213 | | Additional Paid-in Capital | $98,442 | $100,890 | | Retained Earnings | $45,831 | $50,624 | | Accumulated Other Comprehensive Income (Loss) | $(3,900) | $(3,818) | | Treasury Stock Amount | $(10,349) | $(10,372) | | Total Stockholders' Equity | $130,235 | $137,537 | Unaudited Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the six months ended June 30, 2019 and 2018 Unaudited Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $4,115 | $8,627 | | Net cash used in investing activities | $(14,826) | $(4,587) | | Net cash provided by financing activities | $(2,418) | $(3,113) | | Net increase (decrease) in cash and cash equivalents | $(13,054) | $542 | | Cash and cash equivalents at end of period | $13,264 | $19,638 | Notes to Unaudited Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited consolidated financial statements 1. Organization and Basis for Presentation This section describes LeMaitre Vascular's business, GAAP basis for interim statements, and revenue recognition policy - LeMaitre Vascular develops, manufactures, and markets medical devices and implants for vascular surgery, and processes/cryopreserves human tissues for implantation. The company operates in a single segment[25] - Revenue is recognized when performance obligations are satisfied, typically at shipment or when consigned inventory is consumed, net of allowances for returns and discounts[33] Revenue Disaggregation by Geographic Area (in thousands) | Geographic Area | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $17,511 | $16,082 | $33,886 | $31,942 | | Europe, Middle East and Africa | $10,014 | $9,074 | $20,027 | $17,829 | | Asia/Pacific Rim | $1,958 | $1,864 | $4,049 | $3,243 | | Total | $29,483 | $27,020 | $57,962 | $53,014 | - The company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019, recognizing lease liabilities of $7.0 million and right-of-use assets of $6.5 million, with no cumulative-effect adjustment to retained earnings[37] 2. Income Tax Expense This note details the company's income tax expense, deferred tax assets/liabilities, and unrecognized tax benefits - The company's income tax expense varies from the statutory rate due to federal and state tax credits, permanent items, different statutory rates from foreign subsidiaries, and discrete stock option exercises[44] Unrecognized Tax Benefits (in thousands) | Metric | Six months ended June 30, 2019 | | :----------------------------------------- | :----------------------------- | | Unrecognized tax benefits as of Dec 31, 2018 | $711 | | Additions for tax positions of current year | $37 | | Additions for tax positions of prior years | $5 | | Unrecognized tax benefits as of June 30, 2019 | $753 | - As of June 30, 2019, the gross amount of unrecognized tax benefits was $753,000, with tax years remaining subject to examination from 2015 forward in the United States and 2012 forward in foreign jurisdictions[45] 3. Inventories and Other Deferred Costs This section breaks down inventories and other deferred costs, including raw materials, work-in-process, and finished products Inventories and Other Deferred Costs (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :---------------------- | :------------ | :---------------- | | Raw materials | $4,399 | $4,085 | | Work-in-process | $5,477 | $5,095 | | Finished products | $18,824 | $16,391 | | Other deferred costs | $3,544 | $1,817 | | Total inventory and other deferred costs | $32,243 | $27,388 | - Other deferred costs primarily relate to the RestoreFlow allograft offering, accumulating costs for preservation, processing, and quarantine of human vascular tissues, which are not held as inventory due to federal law[47] 4. Acquisitions and Divestitures This note details the company's acquisition activities, including Cardial and Applied Medical, and the Reddick product line divestiture - Acquisitions are accounted for using the acquisition method, with goodwill arising from expected synergies such as sales channel expansion and manufacturing consolidation[48][50] Cardial Acquisition Summary (in thousands) | Metric | Allocated Fair Value (in thousands) | | :----------------- | :---------------------------------- | | Inventory | €2,419 | | Land and building | €750 | | Equipment and supplies | €94 | | Intangible assets | €623 | | Bargain purchase gain | (€1,946) | | Purchase price | €1,940 | - On October 22, 2018, LeMaitre acquired Cardial's business assets for €2.0 million ($2.3 million), resulting in a bargain purchase gain of €1.4 million ($1.6 million) net of deferred taxes[51][52][53] Applied Medical Acquisition Summary (in thousands) | Metric | Allocated Fair Value (in thousands) | | :----------------- | :---------------------------------- | | Inventory | $739 | | Equipment and supplies | $416 | | Intangible assets | $6,527 | | Goodwill | $6,361 | | Purchase price | $14,043 | - On September 20, 2018, LeMaitre acquired Applied Medical's embolectomy catheter business for $14.2 million, including $3.2 million in deferred payments, resulting in $6.361 million in goodwill[55][56][57] - On April 5, 2018, the company divested its Reddick cholangiogram catheter and Reddick-Saye screw product lines for $7.4 million, recording a gain of $5.9 million[60] - Subsequent to the quarter, on July 12, 2019, LeMaitre agreed to purchase the remaining assets of UreSil, LLC's Tru-Incise valve cutter business for $8.0 million[61] 5. Goodwill and Other Intangibles This note details the composition of goodwill and other intangible assets, their carrying value, and amortization expense Goodwill and Other Intangible Assets (in thousands) | Category | June 30, 2019 Net Carrying Value | December 31, 2018 Net Carrying Value | | :------------------------------------- | :------------------------------- | :----------------------------------- | | Goodwill | $29,860 | $29,868 | | Product technology and intellectual property | $5,476 | $6,002 | | Trademarks, tradenames and licenses | $620 | $685 | | Customer relationships | $6,173 | $6,259 | | Other intangible assets | $363 | $746 | | Total identifiable intangible assets | $12,632 | $13,692 | - Intangible assets are amortized over useful lives ranging from 2 to 16 years, with a weighted-average amortization period of 9.7 years as of June 30, 2019[64] Amortization Expense (in thousands) | Period | Amortization Expense | | :-------------------- | :------------------- | | Three months ended June 30, 2019 | $556 | | Three months ended June 30, 2018 | $414 | | Six months ended June 30, 2019 | $1,111 | | Six months ended June 30, 2018 | $832 | 6. Leases This note describes the company's operating leases, the impact of ASU No. 2016-02 adoption, and future lease commitments - The company's operations are primarily conducted in leased facilities, all classified as operating leases, with principal facilities in Burlington, Massachusetts, and international headquarters in Sulzbach, Germany[66] - Upon adoption of ASU No. 2016-02 on January 1, 2019, the company recognized lease liabilities and right-of-use assets, using an estimated incremental borrowing rate of 5.25%[68][69] Lease Information (in thousands) | Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | | :----------------------------------------- | :------------------------------- | :----------------------------- | | Operating lease cost | $432 | $854 | | Short-term lease cost | $63 | $131 | | Total lease cost | $495 | $985 | | Cash paid for operating lease liabilities | $445 | $959 | | Right-of-use assets obtained | $594 | $810 | | Weighted average remaining lease term (years) | 4.1 | 4.1 | | Weighted average discount rate | 5.25% | 5.25% | Minimum Noncancelable Operating Lease Rental Commitments (in thousands) | Period | Amount | | :-------------------- | :----- | | Remainder of 2019 | $1,080 | | Year ending Dec 31, 2020 | $1,997 | | Year ending Dec 31, 2021 | $1,863 | | Year ending Dec 31, 2022 | $1,522 | | Year ending Dec 31, 2023 | $1,249 | | Adjustment to net present value | $(861) | | Minimum noncancelable lease liability | $6,850 | 7. Accrued Expenses and Other Long-term Liabilities This note provides a detailed breakdown of accrued expenses and other long-term liabilities, including compensation and taxes Accrued Expenses (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :------------------------ | :------------ | :---------------- | | Compensation and related taxes | $6,476 | $7,973 | | Income and other taxes | $1,230 | $2,927 | | Professional fees | $111 | $43 | | Deferred revenue | $188 | $552 | | Other | $4,092 | $4,352 | | Total | $12,097 | $15,847 | - Deferred revenue of $188,000 at June 30, 2019, relates to the Reddick product line divestiture and an associated transition services agreement, with $364,000 recognized as revenue during the six months ended June 30, 2019[71] Other Long-term Liabilities (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :------------------------ | :------------ | :---------------- | | Acquisition-related liabilities | $1,354 | $1,326 | | Deferred rent | $- | $530 | | Income taxes | $566 | $559 | | Other | $146 | $196 | | Total | $2,066 | $2,611 | 8. Segment and Enterprise-Wide Disclosures This note clarifies LeMaitre Vascular operates as a single segment and provides a breakdown of net sales by country - LeMaitre Vascular operates and manages its business as a single operating segment[72] Net Sales by Country (in thousands) | Country | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $16,006 | $14,864 | $30,764 | $29,684 | | Germany | $3,192 | $3,257 | $6,272 | $6,364 | | Other countries | $10,285 | $8,899 | $20,926 | $16,966 | | Net Sales | $29,483 | $27,020 | $57,962 | $53,014 | 9. Share-based Compensation This note details share-based compensation expense components, including stock options and restricted stock units, and their allocation Share-based Compensation Expense (in thousands) | Component | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock option awards | $432 | $391 | $879 | $780 | | Restricted stock units | $262 | $245 | $561 | $477 | | Total share-based compensation | $694 | $636 | $1,440 | $1,257 | Stock-based Compensation by Statement of Operations Line Item (in thousands) | Line Item | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $76 | $83 | $158 | $148 | | Sales and marketing | $146 | $136 | $304 | $273 | | General and administrative | $418 | $351 | $837 | $702 | | Research and development | $54 | $66 | $141 | $134 | | Total | $694 | $636 | $1,440 | $1,257 | 10. Net Income per Share This note provides the computation of basic and diluted net income per share for the three and six months ended June 30, 2019 and 2018 Net Income per Share (in thousands, except per share data) | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available for common stockholders | $4,624 | $8,751 | $8,137 | $12,604 | | Basic earnings per share | $0.23 | $0.45 | $0.41 | $0.65 | | Diluted earnings per share | $0.23 | $0.43 | $0.40 | $0.62 | | Weighted average shares outstanding (Basic) | 19,680 | 19,320 | 19,660 | 19,301 | | Weighted average shares outstanding (Diluted) | 20,246 | 20,260 | 20,226 | 20,243 | 11. Stockholders' Equity This note outlines the company's share repurchase program and details the quarterly cash dividend policy and payments - On February 14, 2019, the Board authorized a share repurchase program of up to $10.0 million of common stock, concluding on February 14, 2020, with no repurchases made under this program to date[77] Cash Dividends Declared (in thousands) | Record Date | Payment Date | Per Share Amount | Dividend Payment | | :------------- | :------------- | :--------------- | :--------------- | | Fiscal Year 2019 | | | | | March 22, 2019 | April 5, 2019 | $0.085 | $1,672 | | May 22, 2019 | June 5, 2019 | $0.085 | $1,672 | | Fiscal Year 2018 | | | | | March 22, 2018 | April 5, 2018 | $0.070 | $1,351 | | May 22, 2018 | June 7, 2018 | $0.070 | $1,353 | | August 22, 2018 | September 6, 2018 | $0.070 | $1,369 | | November 20, 2018 | December 6, 2018 | $0.070 | $1,372 | - On July 22, 2019, a quarterly cash dividend of $0.085 per share was approved, payable on September 5, 2019, totaling approximately $1.7 million[78][79] 12. Supplemental Cash Flow Information This note provides supplemental cash flow information, detailing cash paid for income taxes, net, for the specified periods Cash Paid for Income Taxes, Net (in thousands) | Period | Cash Paid for Income Taxes, Net | | :-------------------- | :------------------------------ | | Six months ended June 30, 2019 | $4,157 | | Six months ended June 30, 2018 | $3,140 | 13. Fair Value Measurements This note describes the classification of assets and liabilities measured at fair value into Level 1, 2, or 3 categories - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[85] - Level 3 liabilities primarily relate to contingent consideration from the RestoreFlow allograft and ProCol biologic graft acquisitions, valued using management's forecast of future revenues and likelihood of continued employment[84] Rollforward of Fair Value of Level 3 Liabilities (in thousands) | Metric | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $72 | $1,300 | | Payments | $(59) | $(1,142) |\n| Change in fair value included in earnings | $(13) | $42 | | Ending balance | $- | $200 | 14. Accumulated Other Comprehensive Loss This note details changes in accumulated other comprehensive loss, primarily from foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (in thousands) | Metric | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $(3,900) | $(2,289) | | Other comprehensive income (loss) before reclassifications | $82 | $(918) | | Ending Balance | $(3,818) | $(3,207) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on LeMaitre Vascular's financial condition, results of operations, and critical accounting policies Overview LeMaitre Vascular focuses on peripheral vascular disease, employing strategies of niche products, direct sales, and strategic acquisitions - LeMaitre Vascular develops, manufactures, and markets medical devices and implants for peripheral vascular disease, with core product lines addressing an estimated $900 million market[91] - The company's strategy involves a focused call point, competing for low-rivalry niche products, expanding its worldwide direct sales force (110 representatives as of June 30, 2019), and acquiring/developing complementary vascular devices[91][96][101] - Biologic offerings (vascular patches, grafts, surgical glue) represented 35% of worldwide sales in the current quarter, viewed favorably due to differentiated and growing segments[94] - Recent strategic activities include the divestiture of Reddick product lines (April 2018), acquisition of Applied Medical's embolectomy catheter business (September 2018), and acquisition of Cardial's polyester vascular grafts, valvulotomes, and surgical glue (October 2018)[101] - Manufacturing consolidation efforts include transferring ProCol biologic product line to Burlington (completed 2018) and initiating transfer of OmniFlow ovine biologic graft and Applied Medical embolectomy catheters to Burlington (expected completion 2019/early 2020)[102] - Foreign exchange rate changes decreased sales by approximately $1.6 million for the six months ended June 30, 2019, compared to the prior year[103] Net Sales and Expense Components This section defines the primary components of LeMaitre Vascular's net sales and expenses, including cost of sales and operating expenses - Net sales are derived from product and service sales, less discounts and returns, primarily direct-to-hospitals, with revenue recognized at shipment or product use for consigned inventory[104] - Cost of sales includes manufacturing personnel, raw materials, depreciation, and allocated overhead. Sales and marketing covers personnel, commissions, travel, and promotional activities. General and administrative includes executive, finance, HR salaries, legal, IT, and intangible asset amortization. R&D covers design, development, testing, and regulatory approval costs. Other income/expense includes interest and foreign currency gains/losses. Income tax expense is affected by the mix of taxable income, tax credits, and foreign statutory rates[105][106][107][108][109][110] Results of Operations This section provides a detailed comparison of the company's financial results for the three and six months ended June 30, 2019 versus 2018 Net sales Net sales increased by 9% for both the three and six months ended June 30, 2019, driven by acquisitions and allografts Net Sales Performance (in thousands) | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | % Change | Six months ended June 30, 2019 | Six months ended June 30, 2018 | % Change | | :-------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net sales | $29,483 | $27,020 | 9% | $57,962 | $53,014 | 9% | - The increase in net sales was primarily driven by embolectomy catheters (+$1.1 million for 3 months, +$2.4 million for 6 months), polyester grafts (+$0.5 million for 3 months, +$1.0 million for 6 months) from recent acquisitions, and allograft sales (+$0.5 million for 3 months, +$0.4 million for 6 months)[112] - A strengthening U.S. dollar decreased net sales by an estimated $1.6 million for the six months ended June 30, 2019[112] - Direct-to-hospital net sales constituted 94% of total net sales for both the three and six-month periods ended June 30, 2019 and 2018[113] Net sales by geography Geographic net sales increased across all regions for the three and six months ended June 30, 2019, despite negative foreign currency impacts Net Sales by Geography (in thousands) | Geography | Three months ended June 30, 2019 | Three months ended June 30, 2018 | % Change | Six months ended June 30, 2019 | Six months ended June 30, 2018 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Americas | $17,511 | $16,082 | 9% | $33,886 | $31,942 | 6% | | Europe, Middle East and Africa | $10,014 | $9,074 | 10% | $20,027 | $17,829 | 12% | | Asia/Pacific Rim | $1,958 | $1,864 | 5% | $4,049 | $3,243 | 25% | - Americas sales increased by $1.4 million (9%) for Q2 and $1.9 million (6%) for H1 2019, driven by embolectomy catheters, allografts, and carotid shunts, partially offset by powered phlebectomy systems[114] - EMEA sales increased by $0.9 million (10%) for Q2 and $2.2 million (12%) for H1 2019, primarily due to polyester grafts, OEM sales, valvulotomes, embolectomy catheters, and surgical glue, with a $1.2 million negative impact from a weaker Euro for H1[115] - APAC sales increased by $0.1 million (5%) for Q2 and $0.8 million (25%) for H1 2019, mainly from embolectomy catheters, carotid shunts, and anastomotic clips, partially offset by powered phlebectomy systems[116] Gross Profit Gross profit increased for both periods, but gross margin decreased due to lower margins of acquired products and divestiture of higher-margin products Gross Profit and Margin Performance (in thousands) | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Change | Six months ended June 30, 2019 | Six months ended June 30, 2018 | Change | | :---------- | :------------------------------- | :------------------------------- | :----- | :----------------------------- | :----------------------------- | :----- | | Gross profit | $20,315 | $18,992 | $1,323 | $39,779 | $37,466 | $2,313 | | Gross margin | 68.9% | 70.3% | (1.4%) | 68.6% | 70.7% | (2.1%) | - The decrease in gross margin was primarily due to the lower gross margins of recently acquired Syntel, Python embolectomy catheters, and Cardial products, and the divestiture of higher gross margin Reddick products in Q2 2018[118] Operating Expenses Operating expenses increased significantly due to higher sales and marketing costs from sales force expansion and increased research and development Operating Expenses (in thousands) | Expense Category | Three months ended June 30, 2019 | Three months ended June 30, 2018 | % Change | Six months ended June 30, 2019 | Six months ended June 30, 2018 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Sales and marketing | $7,613 | $6,792 | 12% | $15,458 | $13,882 | 11% |\n| General and administrative | $4,531 | $4,547 | (0%) | $9,475 | $9,244 | 2% | | Research and development | $2,256 | $1,988 | 13% | $4,496 | $3,813 | 18% | | (Gain) loss on divestitures | $- | $(5,876) | * | $- | $(5,876) | * | | Total | $14,400 | $7,451 | 93% | $29,429 | $21,063 | 40% | - Sales and marketing expense increased due to higher personnel costs from sales force expansion and implementation of Salesforce CRM software[120] - General and administrative expense remained flat for the three-month period but increased 2% for the six-month period, driven by higher compensation, bad debt, and facilities costs, offset by lower professional and acquisition costs[121] - Research and development expense increased 13% for Q2 and 18% for H1 2019, primarily for new versions of biologic vascular patches and powered phlebectomy devices, and testing related to OmniFlow biologic vascular graft production transfer[122] Income tax expense Income tax provision decreased for both periods, with effective tax rates of 24.0% and 23.2% respectively, influenced by various tax items Income Tax Provision (in thousands) | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Tax provision | $1,464 | $2,796 | $2,464 | $3,859 | | Pre-tax income | $6,088 | $11,547 | $10,601 | $16,463 | | Effective tax rate | 24.0% | 24.2% | 23.2% | 23.4% | - The effective income tax rate for the current period is based on an estimated annual effective tax rate of 26.2%, adjusted for discrete stock option exercises and other discrete items[123] Liquidity and Capital Resources This section discusses the company's cash position, liquidity sources, operating and capital expenditure requirements, and cash flow activities Cash and Cash Equivalents (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :---------------------- | :------------ | :---------------- | | Cash and cash equivalents | $13,264 | $26,318 | | Short-term marketable securities | $34,979 | $21,668 | - The company has a $10.0 million share repurchase program authorized until February 14, 2020, with no repurchases made to date[128] - LeMaitre Vascular expects existing cash, cash equivalents, and investments to be sufficient to meet anticipated cash requirements for at least the next twelve months[131] Cash Flows Summary (in thousands) | Cash Flow Activity | Six months ended June 30, 2019 | Six months ended June 30, 2018 | Net Change | | :---------------------- | :----------------------------- | :----------------------------- | :--------- | | Operating activities | $4,115 | $8,627 | $(4,512) | | Investing activities | $(14,826) | $(4,587) | $(10,239) | | Financing activities | $(2,418) | $(3,113) | $695 | - Net cash provided by operating activities decreased to $4.1 million in H1 2019 from $8.6 million in H1 2018, primarily due to a net use of working capital driven by increased inventory and decreased accounts payable[133][134] - Net cash used in investing activities increased to $14.8 million in H1 2019 from $4.6 million in H1 2018, mainly due to higher purchases of marketable securities and property/equipment, with no proceeds from divestitures in 2019[135][136] - Net cash used in financing activities decreased to $2.4 million in H1 2019 from $3.1 million in H1 2018, primarily due to dividend payments offset by proceeds from stock option exercises[137][138] Off-Balance Sheet Arrangements The company confirms it had no off-balance sheet arrangements as of June 30, 2019, and does not engage in structured finance entities - LeMaitre Vascular had no off-balance sheet arrangements as of June 30, 2019, and does not engage with structured finance or special purpose entities[140] Critical Accounting Policies and Estimates No material changes to critical accounting policies occurred during the six months ended June 30, 2019, except for ASU No. 2016-02 adoption - No material changes to critical accounting policies occurred during the six months ended June 30, 2019, except for the adoption of ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019[141] Recent Accounting Pronouncements This section refers to Note 1 for a summary of recent accounting pronouncements that may impact future financial statements - A summary of recent accounting pronouncements impacting future financial statements is provided in Note 1 to the financial statements[142] Item 3. Quantitative and Qualitative Disclosure about Market Risk The company is exposed to market risks from currency exchange and interest rates, with no material changes since December 31, 2018 - LeMaitre Vascular is exposed to market risks from changes in currency exchange rates and interest rates[143] - These market risks are managed through regular operating and financing activities; the company has not used derivative financial instruments in 2019 or recent years[143] - There have been no material changes in quantitative and qualitative market risks since the disclosure in the Annual Report on Form 10-K for the year ended December 31, 2018[143] Item 4. Controls and Procedures Management evaluated the company's disclosure controls and procedures, concluding they were effective as of June 30, 2019, with no material changes in internal control Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective at reasonable assurance levels as of June 30, 2019 - As of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at reasonable assurance levels[145] Changes in Internal Control There have been no material changes in the company's internal control over financial reporting during the six months ended June 30, 2019 - No material changes in internal control over financial reporting occurred during the six months ended June 30, 2019[146] Inherent Limitations of Internal Controls Management acknowledges that internal control systems provide only reasonable, not absolute, assurance due to inherent limitations like faulty judgments or circumvention - Management acknowledges that control systems provide only reasonable, not absolute, assurance, due to inherent limitations like faulty judgments, simple errors, circumvention, or management override[147] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, exhibits, and official signatures Item 1. Legal Proceedings As of July 31, 2019, no legal proceedings are expected to have a material adverse effect on the company's financial position or results - As of July 31, 2019, no legal proceedings are expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[150] Item 1A. Risk Factors This section refers readers to the risk factors discussed in the company's Annual Report on Form 10-K, noting no substantive changes - There have been no substantive changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or issuer purchases of equity securities during the period Recent Sales of Unregistered Securities No unregistered sales of equity securities occurred during the period - There were no recent sales of unregistered securities[152] Issuer Purchases of Equity Securities The issuer made no purchases of equity securities during the period - There were no issuer purchases of equity securities[153] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL instance documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[155] Signatures The report was duly signed on behalf of LeMaitre Vascular, Inc. by its Chairman and CEO, and CFO and Director, on August 6, 2019 - The report was signed by George W. LeMaitre, Chairman and CEO, and Joseph P. Pellegrino, Jr., CFO and Director, on August 6, 2019[159]