LeMaitre Vascular(LMAT) - 2019 Q4 - Annual Report

PART I This section outlines LeMaitre Vascular's business, market, strategies, products, regulatory environment, and associated risks Business Overview LeMaitre Vascular is a global provider of medical devices and human tissue cryopreservation services, primarily for peripheral vascular disease, focusing on vascular surgeons, niche markets, and growth through direct sales and acquisitions, operating under extensive regulatory oversight Overview LeMaitre Vascular is a global provider of medical devices and human tissue cryopreservation services for peripheral vascular disease, with an estimated $900 million core market - LeMaitre Vascular is a global provider of medical devices and human tissue cryopreservation services, primarily used in the treatment of peripheral vascular disease[16] - The company develops, manufactures, and markets vascular devices for vascular surgeons and other specialties, with a diversified portfolio of brand-name products[16] - The estimated annual worldwide market for the company's core product lines is approximately $900 million[16] The Peripheral Vascular Disease Market The peripheral vascular disease market, exceeding $5 billion, is growing due to increased incidence and endovascular device adoption, though the company primarily serves open vascular procedures - Peripheral vascular disease affects over 200 million people worldwide, with the annual market for all peripheral vascular devices exceeding $5 billion[18] - Market growth is driven by increasing incidence and diagnosis rates, a shift to higher-priced endovascular devices, and adoption of Western healthcare standards in developing countries[18] - In 2019, over 90% of the company's net sales were from devices used in open vascular procedures, despite the market trend towards minimally invasive endovascular procedures[19] Our Business Strategies The company's strategy focuses on vascular surgeons, niche markets, and direct sales expansion, aiming for higher prices and market share through direct-to-hospital sales - The company's growth strategy is three-pronged: focusing on the vascular surgeon call point, competing in low-rivalry niche markets, and expanding through a worldwide direct sales force and complementary acquisitions/R&D[20][21][22] - Approximately 84% of 2019 sales were to hospitals for use by vascular surgeons, with recent exploration into adjacent markets like cardiac and neurosurgeons[21] - The company aims to build leading positions in niche segments, believing this allows for higher selling prices and market share gains due to less competitive focus[21] - Direct-to-hospital sales, which accounted for 94% of net sales in 2019, are favored for building customer relationships, achieving higher selling prices, and better gross margins[22] Acquisition History Since 1998, the company completed 23 acquisitions, expanding its portfolio to 15 product lines, with manufacturing consolidated to Burlington, Massachusetts - Since 1998, LeMaitre Vascular has completed 23 acquisitions of complementary products, expanding its portfolio to 15 product lines[23] - Key acquisitions in 2018-2019 include Syntel and Python embolectomy catheters, Cardial (polyester grafts, valvulotomes, surgical glue), Tru-Incise valve cutters, and CardioCel and VascuCel biologic patches[23] - Manufacturing operations for 15 of the 23 acquisitions have been relocated to the Burlington, Massachusetts headquarters to improve efficiency[23] Our Products and Services The company offers 15 product lines for vascular disease and open vascular surgery, alongside tissue cryopreservation, with biologic devices constituting 35% of 2019 sales - The company offers a portfolio of 15 product lines, primarily for vascular disease and open vascular surgery, along with human tissue cryopreservation services[25] Revenue Distribution by Anatomical Area | Anatomical Area | 2019 Revenue % | 2018 Revenue % | 2017 Revenue % | | :---------------- | :------------- | :------------- | :------------- | | Lower Extremities | 51% | 51% | 51% | | Carotid Artery | 31% | 34% | 32% | | Other Areas | 18% | 15% | 17% | - Biologic devices (e.g., XenoSure patch, Omniflow II graft, RestoreFlow Allograft) constituted 35% of sales in 2019, 36% in 2018, and 34% in 2017[26] Sales and Marketing The company employs 112 field sales representatives, generating over 94% of net sales directly, and provides training to vascular surgeon customers - As of December 31, 2019, the company employed 112 field sales representatives, with over 94% of net sales generated in direct sales territories[42] - Direct marketing efforts, including medical congress exhibitions and direct mail, are used to reach vascular surgeons beyond the direct sales force's reach[43] - The company provides training to vascular surgeon customers on specific procedures and has initiated a general surgical skills training program for less experienced doctors[44] Research and Development R&D focuses on expanding biologic product lines, integrating acquired manufacturing, and developing new products, with increased spending due to EU MDR requirements - R&D activities in 2018-2019 focused on expanding and enhancing biologic product lines (XenoSure, Omniflow II), integrating acquired manufacturing (ProCol), and developing new products like a biologic dural patch and a next-generation powered phlebectomy system[45] - Increasing regulatory requirements, particularly the EU MDR, necessitate more clinical and non-clinical testing, leading to increased R&D spending[47][48] - A clinical trial for XenoSure in China, initiated in 2017, is expected to complete enrollment in 2020, with NMPA submission in 2021[47] Manufacturing and Processing Primary manufacturing is in Burlington, Massachusetts, with specialized international facilities, relying on single-source suppliers and adhering to ISO 13485 standards - Primary manufacturing is in Burlington, Massachusetts, with additional facilities in North Melbourne (Australia), Saint-Etienne (France), and Fox River Grove (Illinois) for specific products and human tissue processing[49] - The company integrates manufacturing of newly acquired lines into Burlington operations, with transfers for Omniflow II and Applied Medical embolectomy assets expected to complete in 2020[50] - The company relies on single- and limited-source suppliers for key components and third-party manufactured products, such as CardioCel and VascuCel devices from Admedus Ltd[54] - Manufacturing and processing facilities are certified to ISO 13485 standards and accredited by the American Association of Tissue Banks (AATB) for human tissue operations, subject to periodic inspections by regulatory authorities[55] Competition The medical device market is highly competitive, with larger rivals possessing greater resources, and the shift to endovascular procedures poses a challenge for the company's open surgery focus - The medical device market is highly competitive and characterized by rapid technological advances, with no single company competing across all product lines[56] - Key competitors include larger companies like Baxter International, Boston Scientific, Medtronic, and CryoLife, which often possess greater financial, R&D, and marketing resources[56][58] - Success depends on effective service, superior product technology, quality, availability, reliability, ease of use, cost-effectiveness, physician familiarity, and brand recognition[57] - The shift from open vascular surgery to minimally invasive endovascular procedures poses a competitive challenge, as most of the company's products are used in open surgery[57] Intellectual Property The company protects its intellectual property through trade secrets, patents, and trademarks, with most U.S. patents expiring by 2032 and some products under license - The company relies on trade secret laws, patents, trademarks, and confidentiality agreements to protect its intellectual property[59] - The majority of issued U.S. patents are set to expire between 2020 and 2032[60] - Some products, like the Periscope Dissector, are sold under license agreements requiring royalty payments[62] - Most products are not patent-protected, and the company relies on trade secret protection for unpatented technology[64] Government Regulation Medical devices and human tissues are extensively regulated by the FDA and foreign governments, with EU MDR transition requiring new CE marks and increased clinical testing - Medical devices and human tissues are subject to extensive regulation by the FDA in the U.S. and by foreign governments globally[68][69] - Most devices require either 510(k) clearance or Premarket Application (PMA) approval from the FDA; nearly all current U.S. devices are 510(k)-cleared, except the ProCol biologic vascular graft (PMA approved)[70][71][77] - Postmarket regulations include annual registration, Quality System Regulation (QSR) compliance, labeling rules, medical device reporting, and corrections/removal reporting[78] - Human allografts are regulated by the FDA under 21 CFR Part 1271, requiring establishment registration, donor-eligibility criteria, and good tissue practices[80] - In the EU, products are regulated under the Medical Devices Directive (MDD) and will transition to the new Medical Device Regulations (MDR), requiring new CE marks under more stringent standards[86][91] - A lapse in CE mark certifications for some products (e.g., XenoSure, AlboGraft, Anastoclip systems) is expected until Q2 2020 to Q4 2021 due to a Notified Body ceasing services, potentially leading to backorders[90] - Other countries like Canada, Japan, Australia, and China have their own regulatory frameworks, with China's NMPA requiring clinical trials for new products and longer lead times for registration[95][96][97][98] Third-Party Reimbursement Product demand depends on third-party payor reimbursement, which is subject to legislative changes, budgetary pressures, and varying international policies - Demand for products depends on third-party payor reimbursement (Medicare, Medicaid, private insurers), which varies by payor and setting[100] - Reimbursement policies are subject to legislative and regulatory changes and budgetary pressures, potentially limiting coverage or offering insufficient rates[100][102] - Managed care systems and prospective payment systems (e.g., diagnosis-related groups) may incorporate product reimbursement into overall procedure costs, without separate payment for devices[103] - Non-U.S. reimbursement systems vary by country, and approval must be obtained individually, often relying on distributors[105] Fraud and Abuse Laws The company is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute, with potential for significant penalties for non-compliance - The company is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Physician Payments Sunshine Act[106][107] - Violations can result in criminal penalties, civil sanctions, fines, imprisonment, and exclusion from federal healthcare programs[106] Employees As of December 31, 2019, the company employed 479 individuals, with 454 being full-time employees - As of December 31, 2019, the company had 479 employees, including 454 full-time employees[108] Customers The company's sales are diversified, with no single customer or distributor accounting for more than 2% of net sales in 2019 - The company's sales are not dependent on any single customer or distributor, with no single customer accounting for more than 2% of net sales in 2019[109] Corporate Information LeMaitre Vascular, Inc. was reincorporated in Delaware in 1998, and its common stock trades on The Nasdaq Global Market under 'LMAT' since 2006 - LeMaitre Vascular, Inc. was reincorporated in Delaware on June 16, 1998, and its common stock trades on The Nasdaq Global Market under the symbol 'LMAT' since its IPO on October 19, 2006[110] - LeMaitre Vascular is a global provider of medical devices and human tissue cryopreservation services, primarily for the treatment of peripheral vascular disease[16] - The estimated annual worldwide market addressed by the company's core product lines is approximately $900 million, within a broader peripheral vascular device market exceeding $5 billion[16][18] - The company's business strategy involves focusing on vascular surgeons, competing in low-rivalry niche markets, and expanding its direct sales force while acquiring and developing complementary vascular devices[20][21][22] - As of December 31, 2019, the sales force comprised 112 representatives, generating approximately 94% of net sales through direct-to-hospital channels[17][42] - In 2019, over 90% of net sales were from devices used in open vascular procedures, indicating a primary focus on this segment despite a market shift towards minimally invasive endovascular procedures[19] Product Line Revenue Contribution (2019) | Anatomical Area | % of Revenues | | :---------------- | :------------ | | Lower Extremities | 51% | | Carotid Artery | 31% | | Other Areas | 18% | - Biologic devices, including patches and grafts, represented 35% of sales in 2019[26] - Research and development efforts in 2019 focused on biologic products, including a new dural patch and integration of Omniflow II manufacturing, alongside a clinical trial for XenoSure in China and development of a next-generation phlebectomy system[45][47] - The company's manufacturing facilities are ISO 13485 certified, with primary operations in Burlington, Massachusetts, and specialized facilities in Australia, France, and Illinois for specific product lines and tissue processing[49][55] - The EU's new Medical Device Regulations (MDR) will impose more rigorous requirements, including clinical evidence for most Class III and implantable devices, potentially impacting future sales if new CE marks are not obtained timely[48][91] - Demand for products is dependent on third-party payor reimbursement policies, which are subject to legislative and regulatory changes and cost containment pressures, potentially impacting sales volumes and pricing flexibility[100][102] Risk Factors The company faces multiple risks in regulatory compliance, financial volatility, market shifts, acquisition integration, supply chain, international operations, and stock price Risks Related to Our Business Business risks include regulatory non-compliance, financial fluctuations, narrow market focus, acquisition integration challenges, supply chain dependence, international operating risks, product liability, and direct sales conversion issues - Non-compliance with foreign regulatory requirements, particularly the EU MDR and the lapse of CE mark certifications for several products, could significantly harm the business by restricting sales[114][115][117] - The company's financial results are subject to significant fluctuations due to changes in product demand, competition, product mix, economic conditions, and regulatory actions[125] - The narrow focus on open vascular surgery, which accounts for over 90% of net sales, may hinder growth as the market shifts towards minimally invasive endovascular procedures[127][139] - Difficulties in integrating acquired businesses, such as manufacturing operations, personnel, and regulatory compliance, could prevent the realization of anticipated benefits and harm financial performance[133][136] - Dependence on sole- and limited-source suppliers for key components and products, including CardioCel and VascuCel, creates a risk of supply interruptions and increased costs[146][148][149] - International operations, representing 46% of 2019 net sales, are exposed to foreign currency fluctuations, governmental controls, trade restrictions, and political/economic instability, with Brexit and pandemic diseases like Covid-19 posing additional risks[158][160][164][165] - Product liability suits arising from defective products or misuse could be costly, divert management attention, and damage the company's reputation[170][171] - Converting from distributor sales to direct sales models in international markets can lead to sales disruptions, adverse cash flow effects, and challenges in meeting new regulatory requirements or establishing effective sales forces[173][175] Risks Related to the Regulatory Environment Regulatory risks involve extensive compliance with anti-kickback laws, FDA approvals, QSR, and Good Tissue Practices, with potential for recalls, license withdrawals, and restrictive reimbursement policies - The medical device industry is subject to extensive and complex regulations, including anti-kickback laws and the Physician Payments Sunshine Act, with non-compliance potentially leading to significant penalties and enforcement actions[178][179][180] - Failure to obtain and maintain FDA clearances (510(k)) and approvals (PMA) or foreign regulatory approvals (CE Mark) for medical devices would prevent product sales and significantly hamper future growth[181][183] - Non-compliance with the FDA's Quality System Regulation (QSR) and Good Tissue Practices could disrupt manufacturing, impact sales and profitability, and result in various enforcement actions[184][185][186] - Products may be subject to recalls, and licenses/approvals could be withdrawn or suspended due to non-compliance or unforeseen problems, leading to significant costs and adverse publicity[188][189][190][191] - Restrictive reimbursement practices by third-party payors and cost containment measures could decrease demand for products and the prices customers are willing to pay[192][194] Risks Related to Intellectual Property Intellectual property risks include failure to protect rights and potential litigation for infringement, leading to competitive disadvantage or costly product redesigns - Failure to adequately protect intellectual property rights (patents, trademarks, trade secrets) could lead to a loss of competitive advantage and harm the business[196][197][198] - The medical device industry is prone to intellectual property litigation, and claims of infringement by third parties could result in significant liabilities, costs, and the need to redesign or discontinue affected products[199][204] Risks Related to Our Common Stock Common stock risks include price volatility, significant influence from the CEO's voting power, and no assurance of future dividend payments - The company's stock price may experience significant volatility due to various factors, including fluctuations in operating results, product announcements, regulatory actions, and changes in analyst recommendations[206][207] - The chief executive officer and the LeMaitre Family LLC collectively control approximately 16% of outstanding common stock, which could significantly influence matters requiring stockholder approval and potentially affect the market price[208] - The company has not established a minimum dividend payment level, and there is no assurance of its ability to pay future dividends, which depends on financial condition, liquidity, earnings projections, and business prospects[210] - The company faces risks from non-compliance with foreign regulatory requirements, including potential delays or denials of CE mark reissuance for several products (e.g., XenoSure, AlboGraft, Anastoclip systems) until Q2 2020 to Q4 2021, which could lead to backorders and harm business[114][115][116] - The EU's new Medical Device Regulations (MDR) will impose more rigorous requirements, including clinical evidence for most Class III and implantable devices, potentially impacting future sales if new CE marks are not obtained timely[117][118] - Significant fluctuations in quarterly and annual results can arise from changes in demand, competition, product mix, acquisitions, economic conditions, and regulatory actions[125] - The company's focus on open vascular surgery (over 90% of 2019 net sales) may be too narrow, as the market shifts towards minimally invasive endovascular procedures, potentially impacting future sales if product offerings are not expanded[127][139] - Acquisitions, a key growth strategy, carry risks such as integration difficulties, lower margins from acquired devices, diversion of management's attention, and challenges in regulatory compliance and retaining key employees[133][136] - Dependence on sole- and limited-source suppliers for critical components and products, like CardioCel and VascuCel from Admedus Ltd., poses a risk of supply interruptions and production delays[146][148][149] - International operations, which accounted for 46% of net sales in 2019, expose the company to risks including foreign currency fluctuations, governmental controls, trade restrictions, and political/economic instability, exacerbated by events like Brexit and pandemic diseases such as Covid-19[158][160][164][165] - Failure to adequately protect intellectual property rights (patents, trade secrets) or claims of infringement by third parties could lead to competitive disadvantage, costly litigation, and the need to redesign or discontinue products[196][199] - The company's stock price may be volatile due to various factors, and the CEO and LeMaitre Family LLC collectively control approximately 16% of outstanding common stock, potentially influencing stockholder approval matters[206][208] Unresolved Staff Comments No unresolved staff comments were reported for the fiscal year ended December 31, 2019 - No unresolved staff comments were reported[211] Properties The company's main operations are in five leased facilities in Burlington, Massachusetts, with international offices in Germany and globally, all deemed adequate for current needs - The company's principal worldwide executive, distribution, and manufacturing operations are located in five leased facilities in Burlington, Massachusetts, with leases extended through December 2030[212] - International operations are headquartered in Sulzbach, Germany, with additional manufacturing, processing, distribution, and sales offices in other U.S., European, and Asia/Pacific Rim locations[212] - Current facilities are believed to be adequate for the company's needs based on current operating plans[212] Legal Proceedings The company is involved in routine legal matters, but management does not anticipate a material adverse effect on its financial position or operations as of December 31, 2019 - The company is periodically involved in lawsuits, claims, investigations, and litigation threats concerning intellectual property, employment, contractual, and commercial matters[213] - As of December 31, 2019, management believes no current legal proceedings would reasonably be expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[213] Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[214] PART II This section covers the company's common stock, selected financial data, management's discussion, market risk, and financial statements Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'LMAT', with 167 stockholders of record as of March 2, 2020, and Q4 2019 share repurchases for RSU tax obligations - LeMaitre Vascular's common stock is publicly traded on The Nasdaq Global Market under the symbol 'LMAT' since its initial public offering on October 19, 2006[217] - As of March 2, 2020, there were approximately 167 stockholders of record[218] Issuer Purchases of Equity Securities (Q4 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------------- | :------------------------------- | :--------------------------- | | December 1, 2019 through December 31, 2019 | 6,657 | $35.66 | | Total | 6,657 | $35.66 | - The repurchases were made to satisfy employees' obligations for minimum statutory withholding taxes in connection with the vesting of restricted stock units[226] Selected Financial Data Selected consolidated financial data for 2015-2019 shows net sales growth from $78.35 million to $117.23 million, fluctuating net income, and increased total assets and stockholders' equity Consolidated Statements of Operations Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Net sales | $117,232 | $105,568 | $100,867 | $89,151 | $78,352 | | Gross profit | $79,853 | $73,939 | $70,697 | $62,936 | $54,166 | | Income from operations | $21,183 | $28,209 | $21,103 | $16,336 | $11,513 | | Net income | $17,934 | $22,943 | $17,177 | $10,590 | $7,758 | | Basic EPS | $0.91 | $1.18 | $0.91 | $0.57 | $0.44 | | Diluted EPS | $0.88 | $1.13 | $0.86 | $0.55 | $0.42 | | Cash dividends per share | $0.34 | $0.28 | $0.22 | $0.18 | $0.16 | Consolidated Balance Sheet Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Cash and cash equivalents | $11,786 | $26,318 | $19,096 | $24,288 | $27,451 | | Short-term marketable securities | $20,895 | $21,668 | $22,564 | - | - | | Total assets | $188,341 | $153,088 | $126,323 | $101,924 | $90,704 | | Total liabilities | $40,200 | $22,853 | $16,553 | $14,424 | $12,820 | | Total stockholders' equity | $148,141 | $130,235 | $109,770 | $87,500 | $77,884 | Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A reviews 2017-2019 financial performance, highlighting 2019 net sales growth driven by acquisitions, decreased gross margin, increased operating expenses, and a decline in net income, with liquidity supported by cash and investments Overview LeMaitre Vascular develops and markets medical devices for peripheral vascular disease, employing a direct sales force and pursuing growth through acquisitions and niche market focus - LeMaitre Vascular develops, manufactures, and markets medical devices and implants for peripheral vascular disease, with some applications in cardiovascular disease and neurosurgery[232] - The company's strategy involves a focused call point on vascular surgeons, competing in low-rivalry niche markets, and expanding through direct sales and acquisitions[232] - Key product lines include valvulotomes, biologic vascular patches and grafts, carotid shunts, embolectomy catheters, and human tissue cryopreservation services[234] - In 2019, approximately 94% of net sales were generated by the direct sales force, which comprised 112 representatives across North America, Europe, and Asia/Pacific Rim[238] - Recent acquisitions include Tru-Incise valve cutters (2019) and CardioCel/VascuCel biologic patches (2019), alongside manufacturing transfers for acquired product lines to Burlington, MA[241][242] - Changes in foreign exchange rates decreased reported sales by approximately $2.3 million for the year ended December 31, 2019[244] Net Sales and Expense Components This section details revenue recognition, cost of sales, operating expenses (sales, G&A, R&D), other income/expense, and income tax expense components - Net sales are derived from product and service sales, less discounts and returns, including shipping and handling fees[245] - Cost of sales primarily includes manufacturing personnel, raw materials, depreciation, and allocated manufacturing overhead[246] - Operating expenses consist of sales and marketing (salaries, commissions, travel, congresses), general and administrative (executive, finance, legal, IT, amortization), and research and development (design, testing, regulatory approval, clinical studies, intellectual property costs)[247][248][249] - Other income (expense) includes interest income/expense and foreign currency gains/losses[250] - Income tax expense is affected by the mix of U.S. and foreign taxable income, permanent items, discrete items, and valuation allowances[251] Results of Operations Net sales increased by 11% in 2019, driven by acquisitions, while gross margin decreased due to product mix and foreign exchange, and the effective tax rate fluctuated Net Sales and Gross Profit Comparison (2019 vs. 2018, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :----------- | :-------- | :-------- | :------- | :------- | | Net sales | $117,232 | $105,568 | $11,664 | 11% | | Gross profit | $79,853 | $73,939 | $5,914 | 8% | | Gross margin | 68.1% | 70.0% | (1.9%) | * | - Net sales increase in 2019 was primarily driven by embolectomy catheters ($4.3 million, including Syntel/Python acquisition), valvulotomes ($1.6 million, including Tru-Incise/Chevalier acquisitions), polyester grafts ($1.5 million, including Cardial products), and human tissue cryopreservation services ($1.4 million)[253] - Gross margin decreased by 190 basis points in 2019 due to an unfavorable product mix, including recently acquired lower-margin products, and unfavorable foreign exchange rate changes, partially offset by higher average selling prices and manufacturing efficiencies[258] Operating Expenses Comparison (2019 vs. 2018, in thousands) | Expense Category | 2019 | 2018 | $ Change | % Change | | :------------------------- | :-------- | :-------- | :------- | :------- | | Sales and marketing | $30,339 | $27,318 | $3,021 | 11% | | General and administrative | $19,055 | $17,689 | $1,366 | 8% | | Research and development | $9,276 | $8,197 | $1,079 | 13% | | Gain on divestitures/acquisitions | - | $(7,474) | $7,474 | * | - The 2018 gain on divestitures and acquisitions included $5.9 million from the sale of Reddick product lines and $1.6 million from the bargain purchase of Cardial assets[263][280] Net Sales and Gross Profit Comparison (2018 vs. 2017, in thousands) | Metric | 2018 | 2017 | $ Change | % Change | | :----------- | :-------- | :-------- | :------- | :------- | | Net sales | $105,568 | $100,867 | $4,701 | 5% | | Gross profit | $73,939 | $70,697 | $3,242 | 5% | | Gross margin | 70.0% | 70.1% | (0.1%) | * | - Net sales increase in 2018 was primarily driven by biologic vascular patches ($1.7 million), carotid shunts ($1.2 million), embolectomy catheters ($1.2 million), and human tissue cryopreservation services ($1.2 million)[269] - The effective tax rate was 17.3% in 2019, 19.3% in 2018, and 18.6% in 2017, differing from the U.S. statutory rate due to factors like stock option exercises, foreign earnings, and valuation allowances[265][282][496] Liquidity and Capital Resources The company's liquidity is strong, with cash and investments sufficient for future needs, though cash used in investing activities significantly increased in 2019 due to acquisitions Cash and Investments (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :------------------------- | :----------- | :----------- | | Cash and cash equivalents | $11,786 | $26,318 | | Short-term marketable securities | $20,895 | $21,668 | - The company's cash and cash equivalents, along with investments, are expected to be sufficient to meet anticipated cash requirements for at least the next twelve months[288] Cash Flows Summary (in thousands) | Activity | 2019 | 2018 | 2017 | | :----------------- | :--------- | :--------- | :--------- | | Operating activities | $14,179 | $19,506 | $22,868 | | Investing activities | $(24,100) | $(7,055) | $(28,958) | | Financing activities | $(4,622) | $(4,416) | $80 | - Net cash used in investing activities significantly increased in 2019 to $24.1 million, primarily due to $21.2 million in cash paid for acquisitions and $3.8 million for property and equipment[292] - Cash dividends declared per common share increased from $0.22 in 2017 to $0.34 in 2019[229][298] Contractual Obligations (as of Dec 31, 2019, in thousands) | Obligation | Total | 1 Year or Less | 2-3 Years | 3-4 Years | 5 or More Years | | :------------------------ | :------- | :------------- | :-------- | :-------- | :-------------- | | Operating leases | $20,272 | $2,419 | $4,292 | $3,259 | $10,301 | | Inventory purchase commitments | $1,465 | $1,465 | - | - | - | Critical Accounting Policies and Estimates Key accounting policies involve revenue recognition, accounts receivable, inventory, stock-based compensation, goodwill, and income taxes, all requiring significant management judgment - Key accounting policies requiring significant judgment include revenue recognition (especially for consigned inventory and human tissue cryopreservation services), accounts receivable allowances, inventory valuation, stock-based compensation, and the valuation of goodwill and other intangibles[303][304][310][313][315][318] - Revenue is recognized when control of goods or services transfers to the customer, typically at shipment, or when consigned inventory is consumed[305][307] - The allowance for doubtful accounts is based on historical experience and specific customer collection issues, with close monitoring of receivables in regions like Italy and Spain due to potential payment delays[310][311] - Goodwill and other intangible assets are evaluated for impairment annually or more frequently if indicators are present, using qualitative factors and, if necessary, a two-step impairment test or discounted cash flow methods[318][320] - Stock-based compensation expense for stock options and restricted stock units (RSUs) is recognized over the vesting period, with fair values determined using the Black-Scholes model for options[315][316] - Income taxes are accounted for under the asset and liability method, with deferred taxes and valuation allowances based on expected future taxable income and tax strategies[322][323] Recent Accounting Pronouncements The company adopted ASU 2016-02 (Leases) in 2019, and other ASUs effective in 2020-2021 are not expected to materially impact financial statements - 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 material cumulative-effect adjustment to retained earnings[326] - ASU 2016-13 (Credit Losses), ASU 2018-13 (Fair Value Measurement), ASU 2017-04 (Goodwill Impairment), and ASU 2019-12 (Income Taxes) are effective for the company starting January 1, 2020, or January 1, 2021, and are not expected to have a material impact on financial statements[327][328][329][330] Off-Balance Sheet Arrangements As of December 31, 2019, the company had no off-balance sheet arrangements or relationships with unconsolidated entities - As of December 31, 2019, the company did not have any off-balance sheet arrangements, relationships with unconsolidated entities, or engage in non-exchange traded contracts[331] - LeMaitre Vascular is a medical device company focused on peripheral vascular disease, with strategies including direct sales force expansion, complementary acquisitions, and internal product development[232][239][241] - The company has experienced success in lower-rivalry niche product segments like valvulotomes and biologic vascular patches, but faces increased competition in the latter[236] - Acquisitions in 2019 included Tru-Incise valve cutters ($8.0 million) and CardioCel/VascuCel biologic patches ($15.5 million plus contingencies), while 2018 saw the acquisition of Applied Medical's embolectomy catheter business ($14.2 million) and Cardial ($2.3 million)[241][455][460][465][469] - Manufacturing consolidation into Burlington, Massachusetts facilities is ongoing, with transfers for acquired embolectomy catheters and Omniflow biosynthetic grafts expected to complete in 2020[242] - Foreign currency exchange rate changes decreased reported sales by approximately $2.3 million in 2019 compared to 2018[244] Net Sales and Gross Profit (2019 vs. 2018, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :----------- | :-------- | :-------- | :------- | :------- | | Net sales | $117,232 | $105,568 | $11,664 | 11% | | Gross profit | $79,853 | $73,939 | $5,914 | 8% | | Gross margin | 68.1% | 70.0% | (1.9%) | * | Net Sales by Geography (2019 vs. 2018, in thousands) | Geography | 2019 | 2018 | $ Change | % Change | | :----------------------- | :------- | :------- | :------- | :------- | | Americas | $69,359 | $63,649 | $5,710 | 9% | | Europe, Middle East, Africa | $39,480 | $35,319 | $4,161 | 12% | | Asia/Pacific Rim | $8,393 | $6,600 | $1,793 | 27% | Operating Expenses (2019 vs. 2018, in thousands) | Expense Category | 2019 | 2018 | $ Change | % Change | | :------------------------- | :-------- | :-------- | :------- | :------- | | Sales and marketing | $30,339 | $27,318 | $3,021 | 11% | | General and administrative | $19,055 | $17,689 | $1,366 | 8% | | Research and development | $9,276 | $8,197 | $1,079 | 13% | | Gain on divestitures/acquisitions | - | $(7,474) | $7,474 | * | Net Income and EPS (2019 vs. 2018) | Metric | 2019 | 2018 | | :--------- | :---- | :---- | | Net income | $17,934 | $22,943 | | Basic EPS | $0.91 | $1.18 | | Diluted EPS| $0.88 | $1.13 | Cash Flow Summary (2019 vs. 2018, in thousands) | Activity | 2019 | 2018 | | :----------------- | :--------- | :--------- | | Operating activities | $14,179 | $19,506 | | Investing activities | $(24,100) | $(7,055) | | Financing activities | $(4,622) | $(4,416) | - Cash and cash equivalents decreased from $26.3 million in 2018 to $11.8 million in 2019, primarily due to increased cash used in investing activities for acquisitions and capital expenditures[285][292] - The Board of Directors authorized a $10.0 million share repurchase program, extended to February 14, 2021, though no repurchases have been made under this program to date[286][508] - Contractual obligations as of December 31, 2019, include $20.3 million in operating leases (expiring through 2030) and $1.5 million in inventory purchase commitments[299][300] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from foreign currency fluctuations, particularly the Euro and British pound, impacting revenue and costs, while interest rate risk is minimal due to short-term investments - The company is exposed to foreign currency risk, as 46% of total revenue in 2019 was from outside the United States, with significant operating costs also denominated in foreign currencies[333] - Major foreign currency exposures include the Euro, British pound, Canadian dollar, Australian dollar, and Japanese yen[333] - A hypothetical 10% change in foreign currency exchange rates could have increased or decreased consolidated results of operations by approximately $1.2 million for 2019[334] - Interest rate risk is not material due to the short maturities of cash, cash equivalents, and short-term marketable securities[335] Financial Statements and Supplementary Data This section incorporates the consolidated financial statements and notes for 2017-2019, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows - The consolidated financial statements for the years ended December 31, 2019, 2018, and 2017 are incorporated by reference[336] Consolidated Financial Statements The consolidated financial statements, including the independent auditor's report, balance sheets, income statements, and cash flow statements, are presented for 2017-2019 - The financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows[380] - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements as of and for the year ended December 31, 2019[383] - The company changed its method of accounting for leases as of January 1, 2019, due to the adoption of ASC Topic 842, Leases[385] Consolidated Balance Sheets (as of Dec 31, in thousands) | Asset/Liability/Equity | 2019 | 2018 | | :--------------------- | :-------- | :-------- | | Cash and cash equivalents | $11,786 | $26,318 | | Total current assets | $92,092 | $94,017 | | Total assets | $188,341 | $153,088 | | Total current liabilities | $20,851 | $19,758 | | Total liabilities | $40,200 | $22,853 | | Total stockholders' equity | $148,141 | $130,235 | Consolidated Statements of Operations (Years Ended Dec 31, in thousands) | Metric | 2019 | 2018 | 2017 | | :------------------------- | :-------- | :-------- | :-------- | | Net sales | $117,232 | $105,568 | $100,867 | | Gross profit | $79,853 | $73,939 | $70,697 | | Income from operations | $21,183 | $28,209 | $21,103 | | Net income | $17,934 | $22,943 | $17,177 | | Basic EPS | $0.91 | $1.18 | $0.91 | | Diluted EPS | $0.88 | $1.13 | $0.86 | Consolidated Statements of Cash Flows (Years Ended Dec 31, in thousands) | Activity | 2019 | 2018 | 2017 | | :----------------- | :--------- | :--------- | :--------- | | Operating activities | $14,179 | $19,506 | $22,868 | | Investing activities | $(24,100) | $(7,055) | $(28,958) | | Financing activities | $(4,622) | $(4,416) | $80 | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - Not Applicable[337] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, a conclusion affirmed by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective at reasonable assurance levels as of December 31, 2019[340] - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO[342][343] - Grant Thornton LLP, the independent registered public accounting firm, expressed an unqualified opinion that the company maintained effective internal control over financial reporting as of December 31, 2019[347] - There were no material changes in internal control over financial reporting during the fiscal quarter ended December 31, 2019[344] Other Information No other information is reported under this item - Not Applicable[354] PART III This section covers directors, executive officers, corporate governance, compensation, security ownership, related transactions, and accounting fees Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the 2020 proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 definitive proxy statement[355] - Compliance with Section 16(a) of the Exchange Act is also incorporated by reference from the 2020 definitive proxy statement[356] - The company's Code of Business Conduct and Ethics and charters of its Audit, Compensation, and Nominating and Corporate Governance Committees are available on its website[357] Executive Compensation Executive compensation information is incorporated by reference from the 2020 definitive proxy statement - Information on executive compensation is incorporated by reference from the 2020 definitive proxy statement[358] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management, along with equity compensation plan details, is incorporated by reference from the 2020 proxy statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2020 definitive proxy statement[359] Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a) (c) | | :--------------------------------------------- | :-------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 1,235,775 | $23.64 | 1,089,749 | | Equity compensation plans not approved by security holders | - | - | - | | Total | 1,235,775 | $23.64 | 1,089,749 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships and related transactions, and director independence is incorporated by reference from the 2020 definitive proxy statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the 2020 definitive proxy statement[362] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2020 definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the 2020 definitive proxy statement[363] PART IV This section details exhibits and financial statement schedules filed with the Annual Report on Form 10-K, including certifications Exhibits and Financial Statement Schedules This item lists all documents filed with the Annual Report on Form 10-K, including financial statements, various exhibits, and required certifications - This item lists all documents filed as part of the report, including consolidated financial statements, various exhibits, and certifications[365] - Exhibits include asset purchase agreements (e.g., Admedus Ltd, Applied Medical Resources Corporation), lease agreements for facilities, and executive compensation plans[366][368][370] - Certifications by the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(a) and Section 1350 of Chapter 36 of Title 18 of the United States Code, are included[370] Form 10-K Summary This item is not applicable to the company's filing - Not applicable[372]