2018 AnnuAl RepoRt
www.lemaitre.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(State or other jurisdiction of incorporation or organization)
04-2825458
(I.R.S. Employer Identification No.)
63 Second Avenue, Burlington, Massachusetts
(Address of principal executive offices)
01803
(Zip Code)
Registrant’s telephone number, including area code 781-221-2266
Securities registered under Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
Name of each exchange on which registered
Nasdaq Global Market
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes: ☐ No: ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes: ☐ No: ☑
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule12b-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 Rule12b-2 of the Act). Yes: ☐ No: ☑
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the last sale price
for such stock on June 30, 2018 was: $372,895,620. For purposes of this calculation, shares held by stockholders whose ownership exceeded 5%
of the registrant’s common stock outstanding were deemed to be held by affiliates. Exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that
such person is controlled by or under common control with the registrant.
At March 1, 2019, the registrant had 19,646,943 shares of common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from the registrant’s definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year covered by this annual report.
This page intentionally left blank
LEMAITRE VASCULAR
2018 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business ..............................................................................................................................................................
Item 1A. Risk Factors ........................................................................................................................................................
Item 1B. Unresolved Staff Comments ...............................................................................................................................
Properties ............................................................................................................................................................
Item 2.
Item 3.
Legal Proceedings ...............................................................................................................................................
Item 4. Mine Safety Disclosures .....................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ............................................................................................................................................................
Item 6.
Selected Financial Data ......................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ..............................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................................
Financial Statements and Supplementary Data ...................................................................................................
Item 8.
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ............................
Item 9A. Controls and Procedures .....................................................................................................................................
Item 9B. Other Information ...............................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..................................................................................
Item 11. Executive Compensation ....................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence ....................................................
Item 14.
Principal Accounting Fees and Services .............................................................................................................
PART IV
Item 15. Exhibits and Financial Statements Schedules .....................................................................................................
Form 10-K Summary ..........................................................................................................................................
Item 16.
SIGNATURES ..........................................................................................................................................................................
1
14
28
28
29
29
30
32
33
47
48
48
49
50
51
51
51
51
52
52
55
56
This page intentionally left blank
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K contains forward-looking statements (within the meaning of the federal securities law) that
involve substantial risks and uncertainties, particularly risks related to the regulatory environment, our intellectual property, our
common stock and risks related to our business and industry generally, such as risks inherent in the process of developing and
commercializing products and services that are safe and effective for use in the peripheral vascular disease market. All statements,
other than statements of historical facts, included in this Annual Report on Form 10-K regarding our strategy, future operations,
future financial position, future net sales, gross margin expectations, projected costs, projected expenses, prospects and plans and
objectives of management are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,”
“may,” “plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although
not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our
current expectations and projections about future events. Although we believe that the expectations underlying any of our
forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to
risks and uncertainties. Should one or more of these risks and uncertainties materialize, or should underlying assumptions,
projections, or expectations prove incorrect, our actual results, performance, or financial condition may vary materially and
adversely from those anticipated, estimated, or expected. No forward-looking statement can be guaranteed and actual results may
vary materially from those projected in the forward-looking statements. We intend to take advantage of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995 regarding our forward-looking statements, and are including
this sentence for the express purpose of enabling us to use the protections of the safe harbor with respect to all forward-looking
statements. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K,
particularly in the section entitled “Risk Factors,” that we believe could cause actual results or events to differ materially from the
forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures, investments or terminations of distribution arrangements that we may make.
These statements, like all statements in this report, speak only as of the date of this Annual Report on Form 10-K (unless another
date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. We do not
assume any obligation to update any forward-looking statements, whether as a result of new information, future events, or
otherwise, except as required by law.
The following discussion should be read in conjunction with our financial statements and the related notes contained
elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings.
Unless the context requires otherwise, references to “LeMaitre Vascular,” “LeMaitre,” “we,” “our,” and “us” in this
Annual Report on Form 10-K refer to LeMaitre Vascular, Inc. and its subsidiaries.
LeMaitre, AlboGraft, AnastoClip, AnastoClip GC, Cardial, Dialine, EndoRE, LeMaitre Valvulotome, Eze-Sit, Glow ‘N
Tell, Inahara-Pruitt, InvisiGrip, LeverEdge, LifeSpan, MollRing Cutter, MultiTASC, Omniflow, ProcCol, Pruitt, Pruitt F3, Pruitt-
Inahara, Python, Reddick, RestoreFlow, Syntel, VascuTape, TRIVEX, Wovex, XenoSure, and the LeMaitre Vascular logo are
registered trademarks of LeMaitre Vascular or one of its subsidiaries, and AlboSure, Chevalier, Flexcel, Periscope and VCS are
unregistered trademarks of LeMaitre Vascular. This Annual Report on Form 10-K also includes the registered and unregistered
trademarks of other persons, which are the property of their respective owners.
Item 1.
Business
Overview
LeMaitre Vascular is a global provider of medical devices and human tissue cryopreservation services for the treatment of
peripheral vascular disease. We develop, manufacture, and market vascular devices to address the needs of vascular surgeons. Our
diversified portfolio of peripheral vascular devices consists of brand name products that are used in arteries and veins outside of
the heart and are well known to vascular surgeons, and includes the LeMaitre valvulotome, the XenoSure biologic patch, the
Pruitt F3 carotid shunt, VascuTape radiopaque tape, and Syntel, Python and Latis embolectomy catheters. Our principal product
offerings are sold throughout the world, primarily in the United States, Europe and, to a lesser extent, Asia and the Pacific Rim.
We estimate that the annual worldwide market that our core product lines address is approximately $900 million.
We sell our products and services primarily through a direct sales force. As of December 31, 2018 our sales force was
comprised of 108 sales representatives in North America, Europe, Japan, China and Australia, including one export manager. We
also sell our products in other geographies through distributors. Our worldwide headquarters is located in Burlington,
Massachusetts. Our European operations are headquartered in Sulzbach, Germany, and our Asia/Pacific Rim operations are
headquartered in Singapore. We also have sales offices located in Fox River Grove, Illinois, Tokyo, Japan; Vaughan, Canada;
Madrid, Spain; Milan, Italy; Saint-Etienne, France, Shanghai, China; and North Melbourne, Australia. In 2018, approximately
95% of our net sales were generated in territories in which we employ direct sales representatives.
1
The Peripheral Vascular Disease Market
Based on industry statistics, we estimate that peripheral vascular disease affects more than 200 million people worldwide
and that the annual worldwide market for all peripheral vascular devices exceeds $5 billion. The disease encompasses a number of
conditions in which the arteries or veins that carry blood to or from the legs, arms, or organs other than the heart become
narrowed, obstructed, weakened, or otherwise compromised. In many cases peripheral vascular disease goes undetected,
sometimes leading to life-threatening events including stroke, ruptured aneurysm, pulmonary embolism or death. We believe that
the peripheral vascular disease market will grow due to the increase in the incidence and diagnosis rates of peripheral vascular
disease, a shift by doctors to using higher-priced endovascular devices, and the adoption of western healthcare standards by the
developing world. Clinical studies have identified several factors that increase the risk of peripheral vascular disease, including
smoking, diabetes, obesity, high blood pressure, lack of exercise, coronary artery disease, high cholesterol, and being over the age
of 65. Demographic trends suggest an increase in the prevalence of peripheral vascular disease over time, driven primarily by
rising levels of obesity and diabetes and an aging population. We believe that our strong brands, established sales force, evolving
suite of peripheral vascular device offerings, and broad network of vascular surgeon customers position us to capture an
increasing share of this large and growing market.
Vascular surgeons treat peripheral vascular disease and also perform vascular procedures associated with other diseases,
such as end-stage renal disease. We estimate that there are more than 15,000 vascular surgeons worldwide, including 2,800 board-
certified vascular surgeons and several thousand general surgeons who perform vascular procedures in the United States, as well
as more than 3,000 vascular surgeons in Europe, Asia and the Pacific Rim. In contrast to other medical specialists, such as
interventional cardiologists and interventional radiologists, vascular surgeons perform both open vascular surgeries and
endovascular procedures. Open vascular surgery involves opening the body, cutting vessels, and suturing. Endovascular
procedures typically are minimally invasive, catheter-based procedures involving repairing vessels from within using real-time
imaging. We estimate that in 2018, 91% of our net sales were from devices used in open vascular procedures.
Our Business Strategies
We have grown our business by using a three-pronged strategy: focusing on the vascular surgeon call point, competing for
sales in low rivalry niche markets, and expanding our growth platform through our worldwide direct sales force as well as
acquiring and developing complementary vascular devices.
•
•
•
Focused call point. We have historically directed our product offering and selling efforts towards the vascular
surgeon, and estimate that in 2018 approximately 78% of our sales were to hospitals for use by vascular surgeons.
As vascular surgeons are typically positioned to perform both open vascular surgeries and endovascular procedures,
we sell devices in both the open and endovascular markets to the same end user.
Low rivalry niche segments. We seek to build and maintain leading positions in niche product and services
segments. We believe that the relative lack of competitive focus on these segments by larger competitors, as well as
the differentiated features and consistent quality of our products, enable higher selling prices and market share
gains. In recent years we have also sought to sell complementary offerings into larger, more competitive market
segments, particularly when we believe that our offerings in those segments are differentiated, such as the
Omniflow II biosynthetic graft or the RestoreFlow human tissue cryopreservation services
Direct sales force expansion, and the addition of complementary products through acquisitions and research and
development. We sell our products primarily through a direct sales force in North America, Europe, Asia and the
Pacific Rim. Since 1998, we have built our sales force from zero to 108 direct sales representatives, including one
export manager. We believe that direct-to-hospital sales build closer customer relationships, allow for higher selling
prices and gross margins, and are not subject to the risk of customer loss related to distributor turnover. In countries
where we do not have a direct sales force, we sell our products through distributors. For the year ended December
31, 2018, approximately 95% of our net sales were generated through our direct-to-hospital sales force, and no
single hospital customer accounted for more than 2% of our net sales. We intend to further expand and diversify our
product offerings and add new technology platforms. We believe our experience in acquiring and integrating
product lines and businesses is one of our competitive advantages. We evaluate the acquisition of additional product
lines and businesses that may be complementary to our product offerings, refine our current product lines, develop
new applications for our existing technologies, and obtain regulatory approvals for our devices in new segments and
geographies in order to further access the broader peripheral vascular device market.
2
Acquisition History
We were founded in 1983 by George D. LeMaitre, M.D., a vascular surgeon who designed and developed the predecessor
to our LeMaitre Valvulotome. Through a combination of strategic acquisitions and research and development efforts, we have
expanded to 16 product lines. We have completed 21 acquisitions of complementary products since 1998:
Year
1998
1999
2001
2003
2004
2005
2007
2007
2007
2007
2010
2012
2013
2013
2014
2014
2015
2016
2016
2018
2018
Acquisition
Whittaker Screen Printing
Vermed
Ideas for Medicine
Credent
VCS Clip
Endomed
Vascular Innovations
Vascular Architects
UnBalloon Technology
Biomateriali
LifeSpan
XenoSure
Clinical Instruments
TRIVEX
Xenotis Pty Ltd
Angioscope
Eze-Sit
ProCol
RestoreFlow
Syntel/Python
Cardial
Key Product(s) and Services
Radiopaque tape manufacturing operations
Embolectomy catheters
Carotid shunts, balloon catheters, and laparoscopic cholecystectomy devices
Polycarbonate grafts
Closure system
Stent grafts
Contrast injector
Remote endarterectomy devices
Stent graft modeling catheters
Polyester grafts and patches
ePTFE grafts
Biologic patches
Carotid shunts and embolectomy catheters
Powered phlebectomy system
Biosynthetic grafts
Fiberoptic catheters
Valvulotomes
Biologic graft
Human tissue cryopreservation services
Embolectomy catheters
Polyester grafts, valvulotomes, surgical glue
With the exception of the 2018 acquisitions as well as remote endarterectomy devices, powered phlebectomy systems,
cryopreserved allograft services and biosynthetic grafts, we have relocated the manufacturing operations associated with our 21
acquisitions to our Burlington, Massachusetts headquarters and we continue to look at ways to make our operations more
efficient. The manufacture of our biosynthetic vascular grafts take place in our North Melbourne, Australia facility and the human
tissue processing and cryopreservation operations associated with RestoreFlow allografts take place in our Fox River Grove,
Illinois facility. The manufacture of our Cardial devices takes place in our Saint-Etienne, France facility, and we currently
purchase our Syntel, Pythin and Latis catheters from Applied Medical.
3
Our Products and Services
We have a portfolio of 16 product lines, all of which are designed to treat vascular disease, and most of which are designed
for use in open vascular surgery. We also provide services related to the processing and cryopreservation of human vascular
tissue. Our products and services address various anatomical areas including the carotid arteries, lower extremities, upper
extremities, aorta and other areas. In 2018, the lower extremities product lines and services were 51% of revenues, the carotid
artery product lines comprised 34% of revenues, and other areas combined were 15%. In 2017, the lower extremities product lines
and services were 51% of revenues, the carotid artery product lines comprised 32% of revenues, and other areas combined were
17%. In 2016, the lower extremities product lines and services were 51% of revenues, the carotid artery product lines comprised
31% of revenues, and other areas combined were 18%. No single product line accounted for more than 25% of our revenues in
2018, 2017 or 2016.
Of our 16 product offerings, four are biologic devices that are implanted in the patient, and one is the service of processing
and cryopreserving human tissue for implantation into the patient. These include the XenoSure patch (bovine pericardium),
ProCol graft (bovine mesenteric vein), Omniflow II biosynthetic graft (ovine tissue and synthetic mesh), surgical glue (porcine
gelatin) and the RestoreFlow Allograft cryopreserved graft (human tissue). As a percentage of sales, these biologic product lines
represented 36% in 2018, 34% in 2017, and 27% in 2016.
Angioscopes
The LeMaitre Disposable Angioscope is a fiberoptic catheter used for viewing the lumen of a blood vessel. It also provides
direct visualization of valves during in-situ bypass procedures.
Balloon Catheters for Embolectomy, Thrombectomy, Occlusion and Perfusion
Our LeMaitre, NovaSil, Syntel, Python and Latis lines of embolectomy catheters are used to remove blood clots from
arteries or veins. We sell single-lumen latex and latex-free embolectomy catheters as well as dual-lumen latex and latex-free
embolectomy catheters. The dual-lumen embolectomy catheters enable clot removal and simultaneous irrigation or guide-wire
trackability. Our Syntel thrombectomy catheter features a silicone balloon and is designed for removing thrombi in the venous
system. Occlusion catheters temporarily occlude blood flow to allow the vascular surgeon time and space to complete a given
procedure. Perfusion catheters temporarily perfuse blood and other fluids into the vasculature. Our Pruitt line of occlusion and
perfusion catheters reduces vessel trauma by using internal balloon fixation rather than traditional external clamp fixation.
Carotid Shunts
Our Pruitt F3, Pruitt F3-S, Pruitt-Inahara and Flexcel carotid shunts are used to temporarily shunt blood to the brain while
the surgeon removes plaque from the carotid artery in a carotid endarterectomy surgery. Our Pruitt F3, Pruitt F3-S and Pruitt-
Inahara shunts feature internal balloon fixation that eliminates the need for clamps, thereby reducing vessel trauma. Our Flexcel
shunt is a non-balloon shunt offered for surgeons who prefer to secure their shunt with externally placed clamps.
Powered Phlebectomy Device
Our TRIVEX powered phlebectomy system is comprised of capital equipment and disposables that enable removal of
varicose veins. In this procedure, an illuminator is inserted through a small incision in the leg, enabling visualization of varicose
veins. A second instrument removes the veins. Compared to conventional hook phlebectomy, this surgical procedure is faster and
results in more complete vein removal through fewer incisions.
Radiopaque Tape
Our VascuTape Radiopaque Tape is a flexible, medical-grade tape with centimeter or millimeter markings printed with our
proprietary radiopaque ink that is visible both to the eye and to an x-ray machine or fluoroscope. VascuTape Radiopaque Tape is
applied externally to the skin and provides interventionalists with a simple way to cross-reference between the inside and the
outside of a patient’s body, allowing them to locate tributaries or lesions beneath the skin.
Remote Endarterectomy Devices
Our EndoRE line of remote endarterectomy devices are used to remove plaque from arteries in the leg in a minimally
invasive procedure requiring a single incision in the groin. Our EndoRE devices are used to separate the plaque from the vessel,
cut the far end of the plaque to free it for removal, and then withdraw it from the vessel.
4
Valvulotomes
Our LeMaitre valvulotomes, Over-The-Wire LeMaitre valvulotomes, Eze-Sit valvulotomes, Chevalier valvulotomes and
LeMills valvulotomes cut valves primarily in the saphenous vein, a vein that runs from the foot to the groin, so the vein can
function as an artery to carry blood past diseased arteries to the lower leg or the foot. We believe our valvulotomes reduce costs
for hospitals by enabling bypass surgery to be performed with several small incisions rather than one continuous ankle-to-groin
incision, thereby reducing the length of hospital stays and the likelihood of wound complications.
Vascular Grafts
Our AlboGraft, Wovex and Dialine II vascular grafts are collagen-impregnated polyester grafts used to bypass or replace
diseased arteries. They are available in both straight tube and bifurcated versions.
Our LifeSpan ePTFE vascular graft is an expanded polytetrafluoroethylene (ePTFE) graft used to bypass or replace
diseased arteries and to create dialysis access sites. LifeSpan is available in both regular and thin wall options and with an optional
full or partial external spiral support. Our stepped and tapered LifeSpan models are designed to reduce the risk of steal syndrome
and high cardiac output, complications that may arise in dialysis access grafts.
Our Omniflow II biosynthetic vascular graft is a composite of cross-linked ovine collagen with a polyester mesh
endoskeleton. It is used to bypass or replace diseased leg arteries and to create dialysis access sites.
Our ProCol biologic graft is a bovine mesenteric vein vascular graft used for dialysis access in patients with a previously
failed synthetic graft.
Through our RestoreFlow allograft business, we provide human tissue cryopreservation services, in particular the
processing and cryopreservation of veins and arteries. Our RestoreFlow allografts are cryopreserved human tissue grafts,
including saphenous veins, femoral veins and arteries, and aortoiliac arteries. These allografts are used in a variety of vascular
reconstructions such as peripheral bypass, hemodialysis access, and aortic infections. Currently they are only available for
distribution in the United States and Canada.
Vascular Patches
Our XenoSure biologic vascular patch is made from bovine pericardium, and is used primarily for closure of vessels after
surgical intervention. Our AlboSure Vascular Patch is a polyester patch used primarily for vessel closure after surgical
intervention.
Closure Systems
Our AnastoClip AC and AnastoClip GC closure systems attach vessels to one another with titanium clips instead of
sutures. These closure systems create an interrupted anastomosis that expands and contracts as the vessel pulses, which surgeons
believe improves the durability of the anastomosis. The AnastoClip AC and AnastoClip GC closure systems also facilitate
compliant dura closure in neuro applications.
Surgical Glue
Our Cardial surgical glue is a biologic-based glue that is typically used for joining dissected vessel layers and reinforcing
sutures in cardiac and vascular procedures.
Sales and Marketing
As of December 31, 2018, we employed 108 field sales representatives, including one export manager. We believe the
expansion of our sales force since 1998 has been a key factor in our success, and it remains one of our primary long-term
strategies. Over 95% of net sales were generated in territories in which we employ direct sales representatives.
Outside our direct markets, we generally sell our products through country-specific distributors.
In addition, we engage in direct marketing efforts, including direct mail and exhibitions at medical congresses, which we
believe are important to our brand development. We believe that direct marketing allows us to market to vascular surgeons who
are beyond the reach of our direct sales force.
We also provide training to our vascular surgeon customers on specific vascular surgery procedures including in situ or
peripheral bypass, carotid endarterectomy, phlebectomy and interrupted anastomosis.
5
Research and Development
Our research and development has historically focused on developing enhancements and extensions to our existing product
lines. Our current product development efforts are primarily focused on the open vascular space. In 2018, our efforts were
primarily focused on expanding and enhancing our biologic product lines including XenoSure and Omniflow II, and completing
the integration of our ProCol manufacturing into our Burlington facility. With regard to XenoSure, our priorities included
attaining an additional indication for use in neurosurgery in 2019, as well as quality-based improvements and research around
potential future generations of the product. Efforts were also made in 2018 to complete improvements on the design of the
LeMaitre valvulotome as well as our powered phlebectomy system.
All of our products are subject to our design control procedures throughout the various stages of product development.
These procedures may include bench testing, animal testing, human cadaveric studies and human clinical trials conducted by
independent physicians, and post-market surveillance of product performance, as appropriate. We may use feedback received
from independent physicians to demonstrate product functionality before commencing full-scale marketing of any product.
Manufacturing and Processing
Our primary manufacturing facilities are located in Burlington, Massachusetts, where most of our product lines are
produced. We also have facilities in North Melbourne, Australia, where our Omniflow II product line is produced, Saint-Etienne,
France where our Wovex and Dialine grafts, Chevalier valvulotomes and surgical glue are produced, and Fox River Grove,
Illinois where RestoreFlow allografts are processed, cryopreserved, stored and distributed.
We typically integrate manufacturing of the newly acquired lines into our Burlington operations. Our TRIVEX, EndoRE
and some of our embolectomy catheters, however, are currently manufactured by third parties. We completed a renovation of our
manufacturing facility in Burlington in 2017 and in 2018 moved our ProCol biologic product line into the space. In 2018 and into
2019 we are continuing to expand this biologic clean room.
We manufacture certain proprietary components, assemble most of our devices ourselves, and inspect, test, and package all
of our finished products. By designing and manufacturing many of our products from raw materials, and assembling and testing as
many of our subassemblies and products as practical, we believe we can maintain better quality control, ensure compliance with
applicable regulatory standards and internal specifications, limit outside access to our proprietary technology, ensure adequate
product supply, and make design modifications in a timely manner. We have custom-designed proprietary manufacturing and
processing equipment and have developed proprietary enhancements for existing production machinery. Our products are built to
stock.
We process and cryopreserve human tissue provided to us by qualified tissue procurement organizations in the United
States. Donated human tissue is procured from deceased donors by these organizations. We have strict specifications regarding
tissue we will accept for processing relating to, among other things, the physical condition and characteristics of the tissue and the
donor, the medical history of the donor and certain test results of the donated tissue. We also use various supplies in connection
with the processing and cryopreservation of human tissue, including certain proprietary solutions and antibiotics.
Our management information systems provide us with the ability to evaluate our performance, collect business
intelligence, and make better strategic decisions. These systems include customer relationship management, order entry,
invoicing, on-line inventory management, lot traceability, purchasing, shop floor control, and shipping and distribution analysis,
as well as various accounting-oriented functions. During day-to-day operations, these systems enable us to track our products
from the inception of an order through the manufacturing process and then ultimately through delivery of the product to the
customer.
We purchase components from, and have certain product lines manufactured by, third parties. Most of our components are
readily available from several supply sources, but we do rely on single- and limited-source suppliers for several of our key product
components and our third-party-manufactured products. We do not have contractual arrangements with many of these suppliers
and manufacturers, and we order our supplies and product on an as-needed basis. To date, we have not experienced any significant
supply disruptions from existing sources of product and components, but there is no guarantee that we will not experience such
disruptions in the future.
Our Burlington, North Melbourne and Saint-Etienne manufacturing facilities have been certified to ISO 13485 quality
management system standards, which enables us to satisfy certain regulatory requirements of the EU, Canada, and other foreign
jurisdictions. Our Fox River Grove, Illinois facility has been accredited by the American Association of Tissue Banks for the
processing, storage and distribution of cardiac and vascular tissue for transplantation and licensed by certain state agencies. Our
manufacturing and processing facilities are subject to periodic inspections by various regulatory authorities and Notified Bodies
(described below) to ensure compliance with domestic and non-U.S. regulatory requirements. See “Government Regulation” for
further information. In August 2017, our Burlington facilities were audited by the U.S. Food and Drug Administration (FDA), and
6
in January 2018, we underwent inspections by our European Notified Body, LRQA. In February 2018, our Fox River Grove
facility was inspected by the FDA, and our Australian operations were inspected by our notified body, TUV Rheinland. In
February 2019, our Burlington facilities were audited by the Korean Ministry of Food and Drug Safety. The results of these
inspections were satisfactory.
Competition
The segments in which our product lines compete are characterized by rapid change resulting from technological advances
and scientific discoveries. No one company competes against all of our product lines; rather, we compete with a range of
companies. Notable larger competitors include Baxter International, Inc., Boston Scientific Corporation, Cardiovascular Systems,
Inc., Medtronic, Becton, Dickinson and Company, CryoLife, Inc., Edwards Lifesciences Corporation, Getinge AB, LifeNet
Health, Inc., Terumo Medical Corporation, and W. L. Gore & Associates.
The success of our products relies on effective service support as well as superior product technology, quality, product and
service availability, reliability, ease of use, cost-effectiveness, physician familiarity, and brand recognition. While we also
compete on the basis of price, our products that are more technologically advanced than those of our competitors are sometimes
sold at higher prices than those of our competitors. We believe that our continued success will depend on our ability to broaden
and optimize our direct sales channel, acquire or develop additional complementary vascular device products, obtain regulatory
and reimbursement approvals, maintain sufficient inventory, and retain skilled personnel. We also compete on the basis of
procedure type. The treatment of peripheral vascular disease has experienced a shift from open vascular surgery towards
minimally invasive endovascular procedures, and many of our products are used primarily or exclusively in open vascular
surgery. Our ability to compete effectively relies on keeping pace with existing or new product and technology offerings in the
vascular device market, and the minimally invasive endovascular procedure segment in particular.
Many of our competitors have substantially greater financial, technological, research and development, regulatory,
marketing, sales, and personnel resources than we do. Certain of these competitors are able to manufacture at lower costs and may
therefore offer comparable products at lower prices, especially commodity products such as polyester and ePTFE vascular grafts.
Certain of these competitors may also have greater experience in developing and further improving products, obtaining regulatory
approvals, and manufacturing and marketing such products. In the case of vascular allografts, certain competitors may have an
advantage in sourcing tissue due to higher volume purchases and longer term relationships with tissue procurement organizations.
Additionally, certain of our competitors may obtain patent protection or regulatory approval or clearance, or achieve product
commercialization before us, any of which could materially adversely affect our business.
Intellectual Property
We believe that our success is dependent, to a certain extent, on the development and maintenance of proprietary aspects of
our technologies. We rely on a combination of patents, trademarks, trade secret laws, and confidentiality and invention assignment
agreements to protect our intellectual property rights.
We maintain patents in the United States, Europe and other strategic locations relating to various aspects of our products
and/or manufacturing processes. The majority of our issued U.S. patents are set to expire at various times from 2020 to 2032.
Generally, for products that we believe are appropriate for patent protection, we will attempt to obtain patents in the United
States and key markets of the EU. However, depending on circumstances, we may not apply for patents in all or any of those
jurisdictions.
Certain aspects of our products are covered by patents held by third parties. We manufacture, market, and sell these
products pursuant to license agreements with these third parties. These arrangements require us to pay royalties, typically
determined as a percentage of our net sales for the underlying product. If we fail to make these payments or otherwise fail to
observe the terms of these agreements, we may lose our ability to sell these products. For example, we manufacture, market, and
sell our LifeSpan vascular grafts, Periscope Dissectors and TRIVEX phlebectomy products pursuant to licenses with third-parties.
We believe that our brands have been an important factor in our success. We rely on common law and registered
trademarks to protect our brands. Some of our registered trademarks are LeMaitre, XenoSure, Pruitt, VascuTape, Glow ‘N Tell
and RestoreFlow, each of which is registered in the United States, the EU, or both, and in certain cases in other foreign countries.
We rely on trade secret protection for certain unpatented aspects of other proprietary technology. Most of our products are
not protected by patents. Patent protection is not available where we acquire a commercialized product that is not patented, such
as the embolectomy catheters we acquired from Applied Medical in September 2018 and the product lines we acquired from
Becton, Dickinson in October 2018. In the past, other companies have independently developed or otherwise acquired comparable
or substantially equivalent proprietary information and techniques, and there can be no assurance that others will not do so in the
future or otherwise gain access to our proprietary technology or disclose such technology, or that we can meaningfully protect our
7
trade secrets. We have a policy of requiring employees and consultants to execute confidentiality agreements upon the
commencement of an employment or consulting relationship with us. Our confidentiality agreements also require our employees
to assign to us all rights to any inventions made or conceived during their employment with us. We also generally require our
consultants to assign to us any inventions made during the course of their engagement by us. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer, or
disclosure of confidential information or inventions.
The laws of foreign countries generally do not protect our proprietary rights to the same extent as do the laws of the United
States and we may experience more difficulty enforcing our proprietary rights in certain foreign jurisdictions.
See “Item 1A. Risk Factors” for a description of certain risks associated with our intellectual property.
Government Regulation
Medical devices and human tissues are subject to regulation by the FDA, and, in some instances, other federal and state
authorities and foreign governments.
United States Regulation of Medical Devices
Most of our products are medical devices subject to extensive regulation by the FDA under 21 United States Code Chapter
9, the Federal Food, Drug, and Cosmetic Act (the FDCA). FDA regulations govern, among other things, product development,
testing, manufacturing, packaging, labeling, storage, clearance or approval, advertising and promotion, sales and distribution, and
import and export.
Premarket Pathways
Most medical devices must receive either 510(k) clearance or Premarket Application approval (PMA approval) from the
FDA prior to commercial distribution. Devices deemed to pose relatively less risk are placed in either class I or II, which requires
the manufacturer to submit a premarket notification requesting permission for commercial distribution; this is known as 510(k)
clearance. Some low-risk devices are exempted from this requirement. Class II devices may be subject to special controls, such as
performance standards and FDA guidelines that are not applied to class I devices. Devices deemed by the FDA to pose the
greatest risk, such as life-sustaining, life-supporting, or implantable devices, or devices deemed not substantially equivalent to a
previously 510(k)-cleared device or to a pre-amendment class III device (i.e., one in commercial distribution before May 28,
1976) for which PMA applications have not been called, are placed in class III, which generally requires PMA approval. In all
cases, a user fee is required for 510(k) submissions and PMA applications, which in the case of PMA applications can be very
costly.
510(k) Clearance. To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the
proposed device is substantially equivalent in intended use and performance to a “predicate device” (i.e., a previously 510(k)-
cleared class I or class II device or a pre-amendment class III device for which the FDA has not yet called for PMA applications).
The FDA’s 510(k) clearance pathway usually takes from three to twelve months, but it can take longer. In reviewing a premarket
notification, the FDA may request additional information, including clinical data. Nearly all of our devices currently sold in the
United States are marketed pursuant to the 510(k) clearance, with the exception of our ProCol biologic vascular graft.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that
would constitute a major change as specified by FDA guidelines, requires a new 510(k) clearance. The FDA requires each
manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees
with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek
510(k) clearance. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k)
clearance or PMA approval is obtained. Also, the manufacturer may be subject to significant regulatory fines or penalties.
PMA Approval. The PMA approval pathway requires proof of the safety and effectiveness of the proposed device to the
FDA’s satisfaction, making this pathway much more costly, lengthy, and uncertain. A PMA application must provide extensive
preclinical and clinical trial data, as well as detailed information about the device and its components regarding, among other
things, device design, manufacturing, and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s
facilities for compliance with the Quality System Regulation (QSR) which imposes elaborate testing, control, documentation, and
other quality assurance procedures on the manufacturing process.
If the FDA approves a PMA, the approved indications or claims may be more limited than those originally sought. The
PMA can include post-approval conditions that the FDA believes to be necessary to ensure the safety and effectiveness of the
device including, among other things, restrictions on labeling, promotion, sale, and distribution. Failure to comply with the
conditions of approval can result in material adverse enforcement action, including the loss or withdrawal of the approval. Even
after approval of a PMA, a new PMA or PMA supplement is required if the device or its labeling or manufacturing process are
8
modified. Supplements to a PMA often require the submission of the same type of information required for an original PMA,
except that the supplement is generally limited to that information needed to support the proposed change from the product
covered by the original PMA.
Clinical Trials. A clinical trial is typically required to support a PMA application and is sometimes required to support
510(k) clearance. In some cases, one or more smaller feasibility Investigational Device Exemption (IDE) studies may precede a
pivotal IDE clinical trial intended to comprehensively demonstrate the safety and effectiveness of the investigational device. All
clinical studies of investigational devices must be conducted in compliance with the FDA’s extensive requirements. If an
investigational device could pose a significant risk to patients (as defined in the regulations), the FDA, prior to initiation of
clinical use, must approve an IDE application showing that it is safe to test the device in humans and that the testing protocol is
scientifically sound. A non-significant risk device does not require submission to the FDA of an IDE application. Both significant
risk and non-significant risk investigational devices require approval from institutional review boards (IRBs) at the study centers
where the device will be used. The FDA and the IRB at each institution at which a clinical trial is being performed may suspend a
clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk.
During a study, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial monitoring, reporting,
record keeping, and prohibitions on the promotion of investigational devices. The investigators must obtain patient informed
consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices, and
comply with all reporting and record-keeping requirements. Required records and reports are subject to inspection by the FDA.
Prior to granting PMA approval, the FDA typically inspects the records relating to the conduct of the study and the clinical data
supporting the PMA application for compliance with IDE requirements.
Although the QSR does not fully apply to investigational devices, the requirement for controls on design and development
does apply. The sponsor also must manufacture the investigational device in conformity with the quality controls described in the
IDE application and any conditions of IDE approval that FDA may impose with respect to manufacturing.
Historically, our products have been introduced into the market using the 510(k) clearance procedure, and we have not
used the more burdensome PMA process for any of the products that we currently market or sell in the United States, other than
our ProCol vascular graft, which had PMA approval at the time we acquired the device. If we were to seek Unites States approval
for our Omniflow II biosynthetic vascular graft, for example, we would be required to follow the PMA process.
Postmarket Regulation
After a device is placed on the market, regardless of the classification or premarket pathway, significant regulatory
requirements apply. These include:
• manufacturing establishment registration and device listing with the FDA;
•
•
the QSR, which requires finished device manufacturers, including third-party or contract manufacturers, to follow
stringent design, testing, control, documentation, and other quality assurance procedures in all aspects of
manufacturing;
labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved, or off-label
uses and other requirements related to promotional activities;
• medical device reporting regulations, which require that manufacturers report to the FDA if their device may have
caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a
death or serious injury if the malfunction were to recur; and
•
corrections and removal reporting regulations, which require that manufacturers report to the FDA any field
corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a
violation of the FDCA that may present a risk to health.
We are subject to inspection and marketing surveillance by the FDA to determine our compliance with regulatory
requirements. The most recent FDA inspection of our Burlington facility was in August 2017, the result of which was satisfactory.
Non-compliance with applicable FDA requirements can result in, among other things, public warning letters, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of production, failure of the FDA to grant marketing
approvals, withdrawal of marketing approvals, a recommendation by the FDA to disallow us to enter into government contracts,
and criminal prosecutions. The FDA also has the authority to request repair, replacement, or refund of the cost of any device
manufactured or distributed by us. In the event that one of our suppliers fails to maintain compliance with our quality
requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result.
Non-U.S. sales of medical devices manufactured in the United States that are not approved or cleared by the FDA for use
in the United States, or are banned or deviate from lawful performance standards, are subject to FDA export requirements. Before
9
exporting such products to a foreign country, we must first comply with the FDA’s regulatory procedures for exporting
unapproved devices.
United States Regulation of Human Tissue
FDA
Our allografts are subject to extensive regulation by the FDA under Title 21 of the Code of Federal Regulations, Part 1271
(Human Cells, Tissues, and Cellular and Tissue-Based Products). These regulations were promulgated under Section 361 of the
Public Health Service Act, which authorized the FDA to issue regulations to prevent the spread of communicable disease. Under
these regulations, the FDA requires registration of establishments that process human cells, tissues, and cellular and tissue-based
products and establishes donor-eligibility, current good tissue practice and other procedures to prevent the introduction,
transmission, and spread of communicable diseases by such products, including through donor screening and testing. Our Fox
River Grove, Illinois facility and our Burlington, Massachusetts facility are both registered with the FDA’s Center for Biologics
Evaluation and Research as required by the regulations. The regulations also provide for the inspection of tissue establishments by
the FDA. The FDA most recently inspected our Fox River Grove, Illinois facility in February 2018 and the results of that
inspection were satisfactory. In the event of non-compliance with these regulations, the FDA may issue a warning letter, order the
recall and/or destruction of tissues and/or order the suspension or cessation of processing and preservation of new tissues.
AATB
We voluntarily comply with the standards of the tissue bank industry’s accreditation organization, the American
Association of Tissue Banks (the AATB). The AATB has established standards for tissue banking and administers an
accreditation program. Compliance with the AATB’s standards are a predicate to accreditation, which must be renewed every
three years. Our Fox River Grove, Illinois facility has been accredited by the AATB for the processing, storage and distribution of
cardiac and vascular tissue for transplantation through May 13, 2021. Our Burlington, Massachusetts facility is also accredited for
the storage and distribution of tissue. The AATB is entitled to inspect accredited members at any time. The AATB most recently
inspected our Fox River Grove, Illinois facility in January 2018, and the results were satisfactory.
NOTA
Under the National Organ Transplant Act, it is unlawful for any person or entity to knowingly acquire, receive, or
otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate
commerce. However, “valuable consideration” excludes the reasonable payments associated with the removal, transportation,
implantation, processing, preservation, quality control, and storage of a human organ. We believe the compensation we receive for
the processing and cryopreservation services we provide with respect to our allografts falls within this statutory exception.
State Regulation
Certain states regulate the processing, storage and distribution of human tissue. We are licensed or registered, as
applicable, with California, Delaware, Florida, Illinois, Maryland, New York and Oregon. The regulatory agencies of these states
may inspect our Fox River Grove, Illinois facility from time to time to monitor compliance with applicable state regulations.
Other U.S. Regulations
We, and our products and services, are also subject to a variety of state and local laws in those jurisdictions where our
products and services are or will be marketed or distributed, and federal, state, and local laws relating to matters such as safe
working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or
potentially hazardous substances. We are subject to various federal and state laws governing our relationships with the physicians
and others who purchase or make referrals for our products. For instance, federal law prohibits payments of any form that are
intended to induce a referral for any item payable under Medicare, Medicaid, or any other federal healthcare program. Many states
have similar laws. There can be no assurance that we will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not have a material adverse effect upon our ability to do
business.
We are subject to federal, state, and local laws, rules, regulations, and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling, and disposal of certain hazardous and potentially hazardous substances used in
connection with our operations. Although we believe that we have complied with these laws and regulations in all material
respects and to date have not been required to take any action to correct any noncompliance, there can be no assurance that we
will not be required to incur significant costs to comply with environmental regulations in the future.
10
Non-U.S. Regulation of Medical Devices
Sales of medical devices are subject to regulatory requirements in many countries. The regulatory review process may vary
greatly from country to country. The EU has adopted numerous directives and standards relating to medical devices regulating
their design, manufacture, clinical trials, labeling, and adverse event reporting, including the Medical Devices Directive
(93/42/EEC) (the Directive), which is applicable to our products. Devices that comply with the requirements of the Directive are
entitled to bear a CE mark, indicating that the device conforms with the essential requirements of the applicable directive and can
be commercially distributed in countries that are members of the EU, as well as Iceland, Lichtenstein, Norway, and Switzerland.
Each member state of the EU has implemented the directives into its respective national law and has each established a
“Competent Authority” to apply the directive in its territory.
The Directive defines a classification system placing devices into Class I, IIa, IIb, or III, depending on the risks and
characteristics of the medical device. The Directive also defines the essential requirements that devices must meet before being
placed on the market, establishes assessment procedures for approving a device for marketing, and creates mechanisms for
national authorities to manage implementation or to intervene when public health requires. Essential requirements include
manufacturing, design, performance, labeling, and safety requirements, and may include providing certain clinical data. These
requirements vary based on the type of the device and other related factors.
A manufacturer of low-risk devices typically may demonstrate conformity to the essential requirements based on a self-
declaration. The European Standardization Committees have adopted numerous harmonized standards for specific types of
medical devices. Compliance with relevant standards establishes a presumption of conformity with the essential requirements.
Manufacturers of higher-risk devices generally must use a “Notified Body”—an appointed independent third party to assess
conformity. This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the
manufacturer’s devices. An assessment by a Notified Body in one country within the EU is generally required in order for a
manufacturer to commercially distribute the product throughout the EU. Most of our devices are considered higher-risk devices
that require Notified Body assessment.
The European medical device laws also address the advertising and promotion of medical devices, clinical investigations,
and requirements for handling adverse events. Post-market surveillance of medical devices in the EU is generally conducted on a
country-by-country basis; however, the Directive sets forth certain specific requirements for reporting adverse events. The
Medical Device Vigilance system is the mechanism by which adverse event reporting is managed and monitored in the EU.
In April 2017, the EU adopted new regulations for medical devices (MDR), which replace the Directive and apply after a
three year transition period. Our products will be subject to the MDR, which require all of our products, regardless of
classification, to obtain a new CE mark in accordance with the new, more stringent standards under the MDR. For example, as a
condition to CE mark approval, clinical evidence from clinical investigations will be required for most Class III and implantable
devices. As our Notified Bodies begin to transition from MDD to MDR, they have begun to impose more rigorous requirements
on us in order to obtain approval to renew the CE marks on certain of our products. If we fail to obtain the CE marks on our
products under the MDR in a timely manner, or at all, future sales of our products could be impacted.
The Notified Bodies that issue a majority of our CE marks are located in the United Kingdom. These United Kingdom
Notified Bodies are accredited to issue CE marks by the United Kingdom’s health authority, MHRA. As of the date of this report,
the United Kingdom (UK) is scheduled to exit the EU on March 29, 2019. There continues to be uncertainty regarding the
economic and regulatory impact of the UK’s exit (referred to as “Brexit”). If the United Kingdom were to leave the EU without a
signed withdrawal agreement on March 29, 2019, these CE marks would no longer be recognized by the EU countries, and there
would be a lapse in our CE marking. As such, only product built and sold to our European subsidiary prior to March 29, 2019
would be eligible for sale to EU countries while we awaited reissuance of the CE marks by a properly accredited Notified Body.
In such event, we would expect reinstatement of the CE marks by the second half of 2019 and until such time, we would expect to
continue selling product from our inventory reserves already on the market in Europe prior to March 29, 2019. If our transference
of CE marks is materially delayed, it is possible that our revenues could be impacted due to our saleable inventory reserves
becoming depleted.
In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA or foreign equivalent
could require us to implement a recall of, any of our products and, if someone is harmed by a malfunction or a product defect, we
may experience product liability claims for such defects. Any corrective action, whether voluntary or involuntary, as well as
defending ourselves in a lawsuit, will require the dedication of our time and capital and may harm our reputation and financial
results. Future recalls or claims could also result in significant costs to us and significant adverse publicity, which could harm our
ability to market our products in the future.
In some cases, we rely on our non-U.S. distributors or third party agents to obtain premarket approvals, complete product
registrations, comply with clinical trial requirements, and complete those steps that are customarily taken in the applicable
jurisdictions to comply with governmental and quasi-governmental regulation. In the future, we expect to continue to rely on
distributors and agents in this manner where appropriate.
11
Canada regulates the import and sale of medical devices through Health Canada (HC). HC classifies medical devices into
four classifications, with Class I being the lowest risk and Class IV being the highest. Class I and II devices are often cleared for
sale after they are CE marked or listed on the company’s ISO certification and filed via fax-back applications. Higher
classification risk devices (Class III and IV) require filing dossiers that resemble US 510(k) applications. These applications can
range in cost and typically take longer for approval. As a holder of Canadian device licenses, we are subject to inspection by HC
at our Canadian office. Our Canadian office was most recently inspected in August 2017, the results of which were satisfactory.
In Japan, the Ministry of Health, Labor and Welfare (MHLW) regulates medical devices through the Pharmaceutical
Affairs Law, which was reformed effective April 1, 2005. The revisions to Japan’s regulations have resulted in longer lead times
for product registration. As a holder of Japanese device licenses, we are also subject to inspection by several Japanese authorities
including Japan’s Pharmaceutical and Medical Device Agency (PMDA), Tokyo Metropolitan Government (TMG), and third
parties such as Japan’s Electrical Safety & Environmental Technologies Laboratories (JET). Our Japanese office was most
recently inspected by TMG in February, 2019, the results of which were satisfactory.
Australia regulates the import and sale of medical devices through the Therapeutic Goods Administration (TGA). The
TGA has built its regulatory framework around similar requirements to those issued in Europe. As such, many medical devices
(those with a lower risk profile) may gain relatively fast marketing clearance using their existing EU-issued CE marking. Higher
risk devices (those in EU/Aus Class III) must go through a full design review which can be costly and take longer to complete.
Issued licenses for medical devices do not require renewal, but do require an annual fee to remain active in the TGA registry of
devices. As a holder of Australian device licenses, we are also subject to inspection by TGA in both Australia and the United
States. Our Australian facility was most recently inspected in December 2018, the results of which were satisfactory. Australia
requires all foreign manufacturers to have an in country ‘sponsor’ who must have a licensed business inside of Australia. Our
licenses are held on our behalf by our sponsor, Emergo Group.
In China, the China Food and Drug Administration (CFDA) Medical Device Division regulates and must approve all
medical devices to be marketed and sold in China. China has a three-class risk classification system, with Class I being the lowest
risk and Class III being the highest risk. Home country approval, such as 510(k) or PMA clearance, is required as a prerequisite to
any application. Additionally, the CFDA often tests finished devices at its own testing laboratory to confirm each device’s
specifications. The approval process is typically lengthy and usually requires clinical trials. CFDA licenses are valid for five years
from date of issuance and require renewal prior to expiration. As a holder of Chinese device licenses, we are subject to inspection
by CFDA in both China and the United States. Our China facility was most recently inspected in July 2018, the results of which
were satisfactory. The CFDA requires all companies located outside of China to appoint a legal entity who maintains a registered
business inside of China as the license holder. After the formation of our Chinese subsidiary in 2015, we transferred our licenses
from our third-party license holders to our subsidiary.
There can be no assurance that new laws or regulations or new interpretations of laws and regulations regarding the release
or sale of medical devices will not delay or prevent sale of our current or future products.
Third-Party Reimbursement
United States
Healthcare providers that purchase medical devices generally rely on third-party payors, including the Medicare and
Medicaid programs and private payors (such as indemnity insurers, employer group health insurance programs, and managed care
plans) to reimburse all or part of the cost of those products. As a result, demand for our products is and will continue to be
dependent in part on the coverage and reimbursement policies of these payors. The manner in which reimbursement is sought and
obtained varies based upon the type of payor involved and the setting in which the product is furnished and utilized. For example,
Medicare reimbursement policies favor outpatient treatment. Furthermore, payments from Medicare, Medicaid, and other third-
party payors are subject to legislative and regulatory changes and are susceptible to budgetary pressures.
In the United States, third-party payors generally pay healthcare providers directly for the procedures they perform and in
certain instances for the products they use. Our sales volumes depend on the extent to which third-party payors cover our products
and the procedures in which they are used. In general, a third-party payor only covers a medical product or procedure when the
plan administrator is satisfied that the product or procedure is medically necessary because it improves health outcomes, including
quality of life or functional ability, in a safe and cost-effective manner. Even if a device has received clearance or approval for
marketing by the FDA, there is no assurance that third-party payors will cover the cost of the device and related procedures in
which the device is used.
In many instances, third-party payors cover the procedures performed using our products using price fee schedules that do
not vary reimbursement to reflect the cost of the products and equipment used in performing those procedures. In other instances,
payment or reimbursement is separately available for the products and equipment used, in addition to payment or reimbursement
for the procedure itself. Even if coverage is available, third-party payors may place restrictions on the circumstances in which they
provide coverage or may offer reimbursement that is not sufficient to cover the cost of our products. Many of the products that
12
compete with ours are less expensive. Therefore, although coverage may be available for our products and the related procedures,
the levels of approved coverage may not be sufficient to justify using our products instead of those of competitors.
In addition, many third-party payors are moving to managed care systems in which providers contract to provide
comprehensive healthcare for a fixed cost per person rather than the traditional fee for service model. Managed care providers
often attempt to control the cost of healthcare by authorizing fewer elective surgical procedures. Under current prospective
payment systems, such as the diagnosis-related group system and the hospital out-patient prospective payment system, both of
which are used by Medicare and in many managed care systems used by private third party payors, the reimbursement for our
products will be incorporated into the overall reimbursement of a procedure, and there will be no separate reimbursement for our
products. As a result, we cannot be certain that hospital administrators and physicians will purchase our products.
If hospitals and physicians cannot obtain adequate reimbursement for our products or the procedures in which they are
used, our business, financial condition, and results of operations could suffer a material adverse impact.
Non-U.S.
Our success in non-U.S. markets will depend largely upon the availability of reimbursement from the third-party payors
through which healthcare providers are paid in those markets. Reimbursement and healthcare payment systems in non-U.S.
markets vary significantly by country. The main types of healthcare payment systems are government sponsored healthcare and
private insurance. As in the United States, reimbursement is subject to legislative and regulatory changes and is susceptible to
budgetary pressures. Reimbursement approval must be obtained individually in each country in which our products are marketed.
Outside the United States, we may pursue reimbursement approval in those countries in which we sell directly to the hospital. In
other markets, we generally rely on the distributors who sell our products to obtain reimbursement approval in those countries in
which they will sell our products. There can be no assurance that reimbursement approval will be received.
Fraud and Abuse Laws
We may directly or indirectly be subject to various federal and state laws pertaining to healthcare fraud and abuse,
including anti-kickback laws. In particular, the federal healthcare program Anti-Kickback Statute prohibits persons from
knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for or to
induce either the referral of an individual, or the furnishing, arranging for, or recommending a good or service for which payment
may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for
violations include criminal penalties and civil sanctions such as fines, imprisonment, and possible exclusion from Medicare,
Medicaid, and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and
practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector
General, or OIG, has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all
their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the
Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not
fully satisfy each applicable element of a safe harbor may result in increased scrutiny by government enforcement authorities,
such as the OIG.
Patient Protection and Affordable Care Act
In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the Patient Protection and
Affordable Care Act (the PPACA). Under the PPACA we are subject to the Physician Payments Sunshine Act, which was enacted
as part of the PPACA and requires detailed public disclosure of certain payments and “transfers of value” from us to healthcare
professionals, such as the payment of royalties, compensation for services provided such as training, consulting, and
reimbursement for travel and meal expenses. Certain states also require us to disclose similar information or even prohibit some
forms of these payments.
Employees
We had 483 employees, including 457 full-time employees, at December 31, 2018.
Financial Information by Business Segment and Geographic Data
We operate in one reportable industry segment: the design, marketing, sales, service and technical support of medical
devices and implants for the treatment of peripheral vascular disease. Our chief operating decision maker is our chief executive
officer. Our chief executive officer reviews financial information, accompanied by information about revenue by geographic
region for purposes of allocating resources and evaluating financial performance. Information about segment revenue, revenue by
geographic area and long-lived assets by geographic area is included in Note 11 to our Consolidated Financial Statements which
13
are included elsewhere in this Annual Report. For information regarding risks associated with our international operations, please
refer to the section entitled “Risk Factors” in Item 1A of Part I in this Annual Report on Form 10-K.
Customers
Our sales are not dependent on any single customer or distributor, and we continue to expand our distribution channel
worldwide through direct and indirect sales forces. No single customer accounted for more than 2% of our net sales in 2018.
Corporate Information
We were incorporated in Massachusetts on November 28, 1983, as Vascutech, Inc. On June 16, 1998, we were
reincorporated in Delaware, and on April 6, 2001, we changed our name to LeMaitre Vascular, Inc. On October 19, 2006, we
executed our initial public offering, and our common stock trades under the symbol “LMAT.” Our principal executive offices are
located at 63 Second Avenue, Burlington, Massachusetts 01803, and our telephone number is (781) 221-2266.
Where You Can Find More Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the
investor relations portion of our website (www.lemaitre.com) free of charge as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission, (SEC). Information on our
investor relations page and on our website is not part of this Annual Report on Form 10-K or any of our other securities filings
unless specifically incorporated herein or therein by reference. In addition, our filings with the Securities and Exchange
Commission may be accessed through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system at www.sec.gov. All statements made in any of our securities filings, including all forward-looking
statements or information, are made as of the date of the document in which the statement is included, and we do not assume or
undertake any obligation to update any of those statements or documents unless we are required to do so by law. In addition, our
Corporate Governance Guidelines, Code of Business Conduct and Ethics and Charters of our Audit, Compensation and
Nominating and Corporate Governance Committees are available on our website and are available in print to any stockholder who
requests such information.
Item 1A.
Risk Factors
Investing in our securities involves a high degree of risk. You should consider carefully the following information about the
risks described below, together with the other information contained in this Annual Report on Form 10-K and in our other public
filings in evaluating our business. The following important factors, among others, could cause our actual operating results to
differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or
presented elsewhere by management from time to time. Investors should carefully consider the risks described below before
making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to
us or that we currently believe are not material may also significantly impair our business operations. Our business could be
harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may
lose all or part of their investment.
We may experience significant fluctuations in our quarterly and annual results.
Risks Related to Our Business
Fluctuations in our quarterly and annual financial results have resulted and will continue to result from numerous factors,
including:
•
•
•
•
•
•
•
•
•
changes in demand for the products and services we sell;
the acceleration or deceleration of growth rates of our products, particularly in the case of biologic vascular patches
whose growth rate has declined over recent periods;
increased product and price competition, due to market conditions, the regulatory landscape or other factors;
changes in the mix of products and services we sell;
our pricing strategy with respect to different product lines and services;
strategic actions by us, such as acquisitions of businesses, products, or technologies;
effects of domestic and foreign economic conditions and exchange rates on our industry and/or customers;
the divestiture or discontinuation of a product line or other revenue generating activity;
the relocation and integration of manufacturing or processing operations and other strategic restructuring;
14
•
•
•
•
•
regulatory actions that may necessitate recalls of our products or warning letters that negatively affect the markets for
our products;
changes to the regulatory status of our products, including suspension or cancellation of licenses or CE marking;
changes in foreign political relations that add additional barriers to entry;
our determination whether or not to continue the payment of quarterly cash dividends, and/or the amount and
frequency at which to increase them;
costs incurred by us in connection with the termination of contractual and other relationships, including those of
distributors or agents;
our ability to collect outstanding accounts receivable in selected countries outside of the United States;
changes in tax laws in the jurisdictions in which we do business;
the expiration, elimination or utilization of deferred tax assets such as net operating loss carry-forwards;
•
•
•
• market reception of our new or improved product and service offerings; and
•
the loss of any significant customer, especially in regard to any product or service that has a limited customer base.
These factors, some of which are not within our control, may cause the price of our common stock to fluctuate
substantially. If our quarterly operating results fail to meet or exceed the expectations of securities analysts or investors, our stock
price could drop suddenly and significantly. We believe the quarterly comparisons of our financial results are not always
meaningful and should not be relied upon as the sole indicator of our future performance.
If we are unable to expand our product and service offerings, we may not achieve our growth objectives and our results of
operations could suffer.
The treatment of peripheral vascular disease is shifting from open vascular surgery to minimally invasive endovascular
procedures, and many of our products are used primarily or exclusively in open vascular surgery procedures. We market and sell
our products primarily to vascular surgeons, and the majority of our marketing efforts and sales relate to products used in open
vascular surgery rather than in endovascular procedures. We estimate that in 2018, 91% of our net sales were from devices used in
open vascular surgery.
We may not be able to compete effectively with our competitors unless we can keep pace with existing or new products,
services and technologies in the vascular device market and the minimally invasive endovascular procedure segment, in particular.
Our success in developing and commercializing new products and new versions of our existing products and services is affected
by our ability to:
•
•
•
•
•
•
recognize in a timely manner new market trends and customer needs;
identify products or services that address those trends or needs;
obtain regulatory clearance or approval of new products and technologies;
successfully develop cost-effective manufacturing processes for such products;
commercially introduce such products, services and technologies; and
achieve market acceptance.
If we are unable to expand our product or service offerings, we may not achieve our growth objectives and our results of
operations as well as our stock price could suffer.
We may not maintain our recent levels of profitability.
While we reported growth in operating and net income in each of the years ended December 31, 2018, 2017 and 2016,
there can be no assurance we will continue to achieve significant net sales growth and/or profit growth in the future. If, for
example, we are unable to effectively manage our operating expenses due to, for example, increased headcount, we may need to
reduce our operating expenses in other areas in order to maintain or improve operating profitability. Decreased investment levels
may inhibit future growth in net sales and earnings.
Additionally, our ability to maintain and increase profitability will be influenced by many factors, including:
the level and timing of future sales, manufacturing costs and operating expenses;
•
• market acceptance of our new products and services;
•
•
the productivity of our direct sales force and distributors;
fluctuations in foreign currency exchange rates;
15
•
•
•
•
•
•
•
•
our ability to successfully build direct sales organizations in new markets;
our ability to successfully acquire and develop competitive products;
our ability to successfully integrate acquired businesses, products, services or technologies;
the impact on our business of competing products, technologies, and procedures;
our ability to obtain or maintain regulatory approvals for our products in new and existing markets;
the reimbursement rates for the medical procedures in which our products are used;
the cost of litigation, if any; and
changes in tax laws.
If we do not comply with foreign regulatory requirements to market our products outside the United States, our business will
be harmed.
Sales of medical devices outside the United States are subject to international regulatory requirements that vary from
country to country. These requirements and the amount of time required for approval may differ from our experiences with the
FDA in the United States. In some cases, we rely on our international distributors to obtain premarket approvals, complete product
registrations, comply with clinical trial requirements, and complete those steps that are customarily taken in the applicable
jurisdictions to comply with governmental and quasi-governmental regulation. In the future, we expect to continue to rely on
distributors in this manner in those countries where we continue to market and sell our products through them. Failure to satisfy
these foreign regulations would impact our ability to sell our products in these countries and could cause our business to suffer.
There can be no assurance that we will be able to obtain or maintain the required regulatory approvals in these countries.
Our products are regulated in the EU under the European Medical Devices Directive (93/42/EC as amended by
2007/47/EC). In order to market our medical devices in the EU, we are required to obtain CE mark certification, which denotes
conformity to the essential requirements of the Medical Devices Directive. We have received CE mark certification to sell nearly
all of our products. However, in April 2017, the EU adopted new regulations for medical devices (MDR), which replace the
Directive and apply after a three year transition period. Our products will be subject to the MDR, which require all of our
products, regardless of classification, to obtain a new CE mark in accordance with the new, more stringent standards under the
MDR. For example, as a condition to CE mark approval, clinical evidence from clinical investigations will be required for Class
III and implantable devices. As our Notified Bodies begin to transition from MDD to MDR, they have begun to impose more
rigorous requirements on us in order to obtain approval to renew the CE marks on certain of our products. For example, we have
been informed by our Notified Body for the product lines manufactured in our Saint-Etienne, France facility, that they require
more clinical data for the renewal of the CE marks for such devices. There can be no assurance that we will be able to obtain or
maintain CE marks for our existing products, and obtaining CE marks may involve a significant amount of time and expense,
stringent clinical and preclinical testing, or modification of our products and could result in limitations being placed on the use of
our products in order to obtain approval. If we fail to obtain new CE marks on our products under the MDR in a timely manner, or
at all, future sales of our products could be adversely impacted.
Maintaining a CE mark is contingent upon our continued compliance with applicable European medical device
requirements, including limitations on advertising and promotion of medical devices and requirements governing the handling of
adverse events. There can be no assurance that we will be successful in maintaining the CE mark for any of our current products.
In particular, adverse event reporting requirements in the EU mandate that we report incidents which led or could have led to
death or serious deterioration in health. Under certain circumstances, we could be required to or could voluntarily initiate a recall
or removal of our product from the market in order to address product deficiencies or malfunctions. Any recall of our products
may harm our reputation with customers and divert managerial and financial resources.
Failure to receive or maintain approval would prohibit us from selling these products in member countries of the EU, and
would require significant delays in obtaining individual country approvals. If we do not receive or maintain these approvals, our
business could be harmed.
16
Our manufacturing facilities are subject to periodic inspection by numerous regulatory authorities, including governmental
agencies and Notified Bodies, and we must demonstrate compliance with their applicable medical devices regulations. Our most
recent inspections were as follows:
Facility
Burlington
Canada
Fox River Grove
Fox River Grove
Burlington
Australia
Burlington
Burlington
Australia
Australia
Burlington
Burlington
Tokyo
Agency
U.S. FDA
Health Canada
AATB
U.S. FDA
Notified Body (LRQA)
Notified Body (TUV)
Notified Body (LRQA)
Notified Body (LRQA)
Notified Body (TUV)
Therapeutic Goods Administration (TGA)
Notified Body (LRQA)
Korean FDA
Tokyo Metropolitan Government
Jurisdiction
United States
Canada
Worldwide
United States
Europe
Europe
United States Medical
Device Single Audit Program
Europe
Europe
Australia
Europe
Korea
Japan
Date
August 2017
August 2017
January 2018
January 2018
January 2018
January 2018
October 2018
November 2018
November 2018
December 2018
December 2018
January 2019
February 2019
Any failure by us to comply with regulatory requirements in this regard may entail our taking corrective action, such as
modification of our policies and procedures. In addition, we may be required to cease all or part of our operations for some period
of time until we can demonstrate that appropriate steps have been taken. There can be no assurance that we will be found in
compliance with such standards in future audits.
We also pursue registrations in other jurisdictions in which we sell our devices directly, such as Japan and China. In 2015,
the China Food and Drug Administration significantly increased the application fees for product registrations and imposed
additional requirements for obtaining product approval, which includes requirements for conducting clinical trials to support the
registration application process on newly introduced products in China. As a result, we may not seek registration for certain
products where the cost is not justified. Any delay in product registrations could have a negative impact on our results of
operations.
We may acquire businesses and assets in the future. We may experience difficulties in completing the integration of these
acquisitions into our business, or we may not realize the anticipated benefits of these acquisitions.
In order to expand our product offerings, we have completed 21 acquisitions, and a key part of our strategy is to acquire
additional businesses, products, or technologies in the future. Our growth strategy depends, in part, upon our ability to identify,
negotiate, complete, and integrate suitable acquisitions. If we are unable to complete acquisitions on satisfactory terms or at all,
our growth objectives and sales could be negatively affected.
Even if we complete acquisitions, we may experience:
•
•
•
•
•
•
•
•
difficulties in integrating any acquired businesses, personnel, and products into our existing business;
difficulties or delays in integrating manufacturing operations into our existing business or successfully replicating
manufacturing processes at new manufacturing facilities on a cost-effective basis;
degradation in our corporate gross margin due to lower margins associated with our acquired devices;
the sudden reduction in volume or loss of orders from a key customer, particularly where the acquired company had
concentrated sales;
diversion of our management’s time and attention from other business concerns;
higher costs of integration than we anticipated;
unknown or unanticipated liabilities included as part of the acquisition;
disputes or litigation with former owners related to contingent payments, liabilities assumed or not assumed or other
matters;
17
•
•
•
•
•
•
•
•
•
•
challenges in complying with new regulatory requirements to which we were not previously subject;
increased regulatory scrutiny;
challenges in maintaining or obtaining regulatory approvals for acquired products;
difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions;
difficulties if the acquired company is remote or inconvenient to our Burlington, Massachusetts, headquarters, such as
the operations we acquired in 2014 in Australia and in 2018 in France;
difficulties or delays in transitioning clinical studies or unfavorable results from such clinical studies;
loss of key suppliers or issues with the ongoing supply of the acquired product from its former owners;
charges related to the acquisition of in-process research and development;
dilution as a result of equity financing required to fund acquisition costs; or
debt, as a result of debt financing required to fund acquisitions, which would be senior to our common stock, would
require interest payments to a lender, and could restrict our ability to pay dividends to our shareholders.
We could also discover deficiencies withheld from us due to fraud or otherwise not uncovered in our due diligence prior to
an acquisition, including but not limited to deficiencies in internal controls, data adequacy and integrity, product quality, and
regulatory compliance, as well as undisclosed contractual or other liabilities and product liabilities, any of which could result in us
becoming subject to penalties or other liabilities. Any of these difficulties could negatively impact our ability to realize the
intended and anticipated benefits that we currently expect from our acquisitions or from acquisitions we complete in the future,
and could harm our financial condition and results of operations.
We also acquired the processing, preservation and distribution operations of RestoreFlow allografts located in Fox Rover
Grove, Illinois. See “Our tissue processing and preservation services are subject to a variety of risks, including those related to the
procurement of human tissue and regulatory requirements” below for risks associated with our tissue processing and preservation
services.
For any of these reasons or as a result of other factors, we may not realize the anticipated benefits of our acquisitions and
our operating results may be harmed.
Our call point focus on the vascular surgeon with a product portfolio largely used in open surgical procedures may be too
narrow, which may adversely affect our future sales.
The treatment of peripheral vascular disease continues to shift from open vascular surgery to minimally invasive
endovascular procedures. We market and sell our products primarily to vascular surgeons, and the majority of our marketing
efforts and sales relate to products used in open vascular surgery rather than in endovascular procedures. We estimate that in
2018, 91% of our net sales were from devices used in open vascular procedures.
In addition to performing traditional open surgical procedures, vascular surgeons in growing numbers also perform
minimally invasive, image-guided interventional procedures for peripheral vascular disease. However, vascular surgeons may not
adopt these procedures in the numbers we expect and instead these procedures may be largely performed by interventional
cardiologists and interventional radiologists. Many of our competitors have focused their sales efforts on these interventionalists.
If interventional cardiologists and interventional radiologists perform a greater percentage of these new procedures than we
expect, our net sales may decline.
Moreover, demographic trends and other factors, such as reimbursement rates, are also driving vascular surgeons in the
United States and potentially in other markets to increasingly specialize in certain kinds of procedures, such as the creation and
maintenance of dialysis access sites and endovascular therapies. Vascular surgeon training programs may focus on those therapies
to the exclusion of open vascular procedures. If there is a decline in vascular surgeons training in open vascular procedures in
favor of training in minimally invasive endovascular procedures, this could limit the number of vascular surgeons using our
products due to lack skills in open vascular procedures. Further, even those physicians trained in open procedures may discontinue
performing them if there is a lack of demand. If this trend continues, it could lead to the fragmentation of our customer base,
which would reduce cross-selling opportunities and the efficiency of each sales call by our sales representatives, which in turn
could negatively impact our business.
18
Our tissue processing and preservation services are subject to a variety of risks, including those related to the procurement of
human tissue and regulatory requirements.
In November 2016, we acquired the processing, preservation and distribution operations for the RestoreFlow allograft.
Prior to the acquisition, we did not provide any services related to human tissue. Our ability to successfully provide such services
may be affected by the following:
• maintenance of quality standards and controls to mitigate the risk that processed tissue cannot be sterilized;
compliance with regulatory and legal requirements specific to human tissue, with which we were previously
•
unfamiliar, or changes in those requirements;
• maintenance of our AATB accreditation, FDA establishment registration and state licensures;
•
•
the degree to which our tissue procurement organizations are successful in procuring the gift of tissue donation;
procurement from tissue procurement organizations of adequate amounts of human tissue of a type and quality that
meets our specifications;
processing human tissue in a cost effective manner;
controlling turnover in a workforce skilled in tissue processing and cryopreservation and any subsequent delay
necessary for the adequate training of new personnel; and
compliance of our tissue procurement organizations to current good tissue practices and our own procurement
procedures.
•
•
•
Our failure in any one or more of these areas could adversely impact our ability to provide processing, preservation and
distribution services related to allografts and therefore our operations.
Our dependence on sole- and limited-source suppliers could hinder our ability to deliver our products and services to our
customers on a timely basis or at all and could harm our results of operations.
We rely on sole- and limited-source suppliers for some of our important product components and certain products. For
example, our TRIVEX system and associated disposables, as well as components of our EndoRE remote endarterectomy product
line, are manufactured for us by third-party suppliers. Additionally, we rely on a sole-source supplier for the ovine material used
for our Omniflow II biosynthetic vascular graft.
There are relatively few, or in some cases no, alternative, validated sources of supply for these components and
products. And in some cases, we do not have supply agreements with these suppliers, instead placing orders on an as-needed
basis. At any time, these suppliers could discontinue or become incapable of the manufacture or supply of these components or
products on acceptable terms or otherwise. We do not ordinarily carry a significant inventory of these components and products.
Identifying and qualifying additional or replacement suppliers, if required, may not be accomplished quickly or at all and could
involve significant additional costs. Any supply interruption from our suppliers or failure to obtain replacement suppliers would
interrupt our ability to manufacture our products and result in production delays and increased costs, and may limit our ability to
deliver products to our customers. This could lead to customer dissatisfaction and damage to our reputation, and our financial
condition or results of operations could be harmed.
With respect to our RestoreFlow allografts, we rely on tissue procurement organizations to provide donated tissue to us for
processing and cryopreservation. While we have relationships with multiple tissue procurement organizations, we cannot be sure
that the supply of suitable human tissue will be available to us at the levels we need, in which case our allografts revenues could
be adversely affected.
Any disruption in our manufacturing facilities could harm our results of operations.
Our principal worldwide executive, distribution, and manufacturing operations are located in four leased facilities located
in Burlington, Massachusetts. We also have manufacturing sites in North Melbourne, Australia and Saint-Etienne, France and a
tissue processing preservation and distribution facility in Fox River Grove, Illinois. These facilities and the equipment we use to
manufacture our products would be difficult to replace and could require substantial lead-time to repair or replace in the event of a
natural or man-made disaster. In such event, we could not shift production or processing to alternate manufacturing facilities, and
we would be forced to rely on third-party manufacturers, if available at all. Although we carry insurance for damage to our
property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential
losses, including potential damage to our reputation, and may not continue to be available to us on acceptable terms, or at all.
19
We depend on our senior management team and other key sales and technical personnel, and if we are unable to retain them
or recruit additional qualified personnel we may not be able to manage our operations and meet our strategic objectives.
We depend on the continued services of our senior management team and other key sales and technical personnel, as well
as our ability to continue to attract and retain additional highly qualified personnel. Each of our key employees may terminate his
or her employment with us at any time, and the loss of any of our senior management team or key employees could harm our
business. Because we compete for such personnel with other companies, academic institutions, government entities, and other
organizations, we may not be able to meet our future hiring needs or retain existing personnel on acceptable terms. Any loss or
interruption of the services of our key personnel could also significantly reduce our ability to effectively manage our operations
and meet our commercial or strategic objectives, because we cannot assure you that we would be able to find an appropriate
replacement on a timely basis when the need arises.
Certain of our products contain materials derived from animal sources and may become subject to additional regulation.
Our AlboGraft vascular graft, AlboSure vascular patch, Dialine II vascular graft, Wovex vascular graft, XenoSure biologic
patch and ProCol vascular graft products contain bovine tissue or material derived from bovine sources, our Omniflow II
Biosynthetic Vascular Graft contains ovine tissue, and our surgical glue contains porcine gelatin. Products that contain materials
derived from animal sources, including food, pharmaceuticals and medical devices, are increasingly subject to scrutiny in the
media and by regulatory authorities. Regulatory authorities are concerned about the potential for the transmission of disease from
animals to humans via those materials. This public scrutiny has been particularly acute in Japan and Western Europe with respect
to products derived from animal sources, because of concern that bovine materials infected with the agent that causes bovine
spongiform encephalopathy, otherwise known as BSE or mad cow disease, may, if ingested or implanted, cause a variant of the
human Creutzfeldt-Jakob Disease, an ultimately fatal disease with no known cure. Cases of BSE in cattle discovered in Canada
and the United States have increased awareness of the issue in North America. Certain regions or countries have issued
regulations that require products to be processed from bovine tissue sourced from countries, like Australia or New Zealand, where
no cases of BSE have occurred. Products that contain materials derived from animals, including our products, may become subject
to additional regulation, or even be banned in certain countries, because of concern over the potential for the transmission of
infectious agents. Significant new regulation, or a ban of our products, could impair our current business or our ability to expand
our business, and in the case of a ban or suspension, could materially and adversely affect our results of operations.
We face intense competition from other companies, technologies, and alternative medical procedures and we may not be able
to compete effectively.
The segments in which we compete are highly competitive, subject to change, and significantly affected by new product
introductions and other activities of industry participants. Although no one company competes against us in all of our product
lines or services, a number of manufacturers of peripheral vascular devices have substantially greater capital resources, larger
customer bases, broader product lines, larger sales forces, greater marketing and management resources, larger research and
development staffs, and larger facilities than ours; have established reputations with our target customers; and have developed
worldwide distribution channels that are more effective than ours. Our competitors could elect to devote additional resources to
the segments in which we currently enjoy less competition. Also, although we currently have leading positions in the segments for
some of our products, this is not true for all of our products. From time to time, we have experienced difficulties competing
against large companies.
Recent industry consolidation could make the competitive environment more difficult for smaller companies like ours. Our
competitors may be companies who are larger than us and who have substantially greater financial, technological, research and
development, regulatory, marketing, sales, and personnel resources than we do. Certain of these competitors are able to
manufacture at lower costs and may therefore offer comparable products at lower prices. Certain of these competitors may also
have greater experience in developing and further improving products, obtaining regulatory approvals, and manufacturing and
marketing such products. Certain of these competitors may obtain patent protection or regulatory approval or clearance, or achieve
product commercialization, before us, any of which could materially adversely affect us. Further, if the trend towards
endovascular procedures versus open vascular procedures continues or accelerates, our competitors may be better poised to take
advantage of that trend, since our main product lines are used primarily in open vascular procedures. Because of the size of the
vascular disease market opportunity, competitors and potential competitors have dedicated significant resources to aggressively
promote their products. Also, new product developments that could compete with us more effectively are likely because the
vascular disease market is characterized by extensive research efforts and technological progress. Competitors may develop
technologies and products that are safer, more effective, easier to use, less expensive, or more readily accepted than ours. Their
products could make our technology and products obsolete or noncompetitive. Our competitors may also be able to achieve more
efficient manufacturing and distribution operations than we can. In addition, many of our products face competition from
alternative procedures that utilize a different kind of medical device that we do not currently sell. Increased competition could also
result in price reductions and loss of market share, any of which could result in lower revenues and reduced gross profits.
20
If we are unable to increase our selling prices to customers, or if we are required to make price concessions, our rate of net
sales growth could be reduced and our operating results could suffer.
In the years ended December 31, 2018, 2017 and 2016, a material portion of our increases in net sales was driven by higher
average selling prices to our hospital customers across several of our product lines, particularly with respect to sales of our
LeMaitre Valvulotome and with respect to sales occurring in the United States. In the past, we have been able to rely upon our
intellectual property position, our well-known brands, and our established reputation to implement price increases. We
implemented a significant price increase in 2015 for our LeMaitre Valvulotome, and our ability to implement additional price
increases with respect to that product in the future may be limited. We also experienced an increase in net sales of our XenoSure
biologic patch in 2016, which was due in part to the recall of a competitive product. That recall has since been resolved, and we
have only retained a portion of the customers who switched to our product during the recall.
Additionally, we may become unable to implement further increases in the selling prices of our products:
•
•
•
if healthcare spending is reduced, particularly in the United States, in response to government-enacted healthcare
reform, general economic conditions, or the influence of accountable care organizations;
if the reimbursement rates for the medical procedures in which our products are used are reduced or limited; or
if competitors introduce lower-priced products of comparable safety and efficacy.
We also expect marketplace changes to increasingly place pressure on medical device pricing as hospitals join group
purchasing organizations, integrated delivery networks, managed care organizations and other groups that seek to aggregate
purchasing power and as hospitals are given financial incentives to improve quality and reduce costs. Due to pricing pressures,
surgeons may even perform alternative procedures in which our products are unnecessary.
If we become unable to raise selling prices, or if we are required to make price concessions, it could reduce our rate of net
sales growth and harm our operating results.
The risks inherent in operating internationally and the risks of selling and shipping our products and of purchasing our
components and products internationally may adversely impact our net sales, results of operations, and financial condition.
We derive a significant portion of our net sales from operations in markets outside of the United States. For the year ended
December 31, 2018, 44% of our net sales were derived from operations outside of the United States. Our international sales
operations expose us and our representatives, agents, and distributors to risks inherent in operating in foreign jurisdictions. These
risks include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fluctuations in foreign currency exchange rates;
the imposition of additional U.S. and foreign governmental controls or regulations, including export licensing
requirements, duties and tariffs, and other trade restrictions, whether due to, or in reaction to, changes in U.S. trade
policy;
the risk of non-compliance with the Foreign Corrupt Practices Act by our sales representatives or our distributors;
changing medical device regulations that may impede our ability to register our products in a jurisdiction;
the imposition of U.S. and/or international sanctions against a country, company, person, or entity with whom we do
business that would restrict or prohibit continued business with the sanctioned country, company, person, or entity,
whether due to , or in reaction to, changes in U.S. foreign policy under President Trump or otherwise;
a shortage of high-quality sales personnel and distributors;
loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain
international markets;
changes in third-party reimbursement policies that may require some of the patients who receive our products to
directly absorb medical costs or that may necessitate the reduction of the selling prices of our products;
the imposition of restrictions on the activities of foreign agents, representatives, and distributors;
scrutiny of foreign tax authorities, which could result in significant fines, penalties, and additional taxes being imposed
on us;
pricing pressure that we may experience internationally;
laws and business practices favoring local companies;
longer payment cycles;
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
difficulties in enforcing or defending intellectual property rights;
exposure to different legal and political standards; and
political, economic, and/or social instability.
21
We cannot assure you that one or more of these factors will not harm our business. Any material decrease in our
international sales would adversely impact our net sales, results of operations, and financial condition.
If Brexit results in greater restrictions on imports and exports between the United Kingdom and the European Union or
increased regulatory complexity, then our operations and financial results could be negatively impacted.
As of the date of this report, the United Kingdom (UK) is scheduled to exit the European Union (EU) on March 29, 2019.
There continues to be uncertainty regarding the economic and regulatory impact of the UK’s exit (referred to as “Brexit”).
Potential adverse consequences of Brexit such as global market uncertainty, volatility in currency exchange rates, greater
restrictions on imports and exports between the UK and the EU and increased regulatory complexity could have a negative impact
on our business, financial condition and results of operations.
We currently ship products to the UK from our Sulzbach, Germany location. If Brexit results in greater restrictions on
imports and exports between the UK and the EU, we may find it necessary to make operational changes to adapt to those
restrictions. We may be unable to make such changes in a commercially reasonable or timely manner or at all. Additionally, this
could result in higher costs of doing business in the UK and possibly the EU.
The Notified Bodies that issue a majority of our CE marks are located in the United Kingdom. These United Kingdom
Notified Bodies are accredited to issue CE marks by the United Kingdom’s health authority, MHRA. If the United Kingdom were
to leave the EU without a signed withdrawal agreement on March 29, 2019, these CE marks would no longer be recognized by the
EU countries, and there would be a lapse in our CE marking. As such, only product built and sold to our European subsidiary
prior to March 29, 2019 would be eligible for sale to EU countries while we awaited reissuance of the CE marks by a properly
accredited Notified Body. In such event, we would expect reinstatement of the CE marks by the second half of 2019 and until
such time, we would expect to continue selling product from our inventory reserves already on the market in Europe prior to
March 29, 2019. Any delay in obtaining, or an inability to obtain or maintain, any regulatory approvals, as a result of Brexit or
otherwise, could prevent us from selling our products in the UK and/or the EU and could constrain our ability to generate revenue
from those geographies.
The use or misuse of our products and tissues we distribute may result in injuries that lead to product liability suits, which
could be costly to our business.
If our products or the tissue we process and preserve are defectively designed, manufactured, processed or labeled, contain
defective components, or are misused, or if our products or the tissues we process and preserve are found to have caused or
contributed to injuries or death, we may become subject to costly litigation by our customers or their patients. Although we offer
training for physicians, we do not require that physicians be trained in the use of our products or the tissues we distribute, and
physicians may use our products or the tissues we distribute incorrectly or in procedures not contemplated by us. We are from
time to time involved in product liability claims. Product liability claims could divert management’s attention from our core
business, be expensive to defend, and result in sizable damage awards against us. Claims of this nature may also adversely affect
our reputation, which could damage our position in the market and subject us to recalls.
We cannot assure you that our product liability insurance coverage will be sufficient to satisfy any claim made against us.
Further, we may not be able to maintain the same level of coverage, and we may not be able to obtain adequate coverage at a
reasonable cost and on reasonable terms, if at all. Any product liability claim brought against us, with or without merit, could
increase our product liability insurance rates or prevent us from securing coverage in the future. Additionally, if any such product
liability claim or series of claims is brought against us for uninsured liabilities or is in excess of our insurance coverage, our
business could be harmed.
From time to time, we are involved in litigation where the outcome is uncertain and which could entail significant expense.
We are subject, from time to time, to legal proceedings and litigation, including, but not limited to, actions relating to
product liability, employment matters, intellectual property, contract disputes and other commercial matters. For example,
although the amount in controversy is not material, a former distributor in China has recently filed suit against us related to the
sale of our powered phlebectomy devices in China. Because the outcome of litigation is inherently difficult to predict, it is
possible that the outcome of litigation, or even simply the defense of litigation, could entail significant cost for us, divert
management’s time and attention and harm our business. Additionally, we could experience adverse effects of litigation even
before finally adjudicated if a counterparty is granted intermediate relief such as an injunction. Even claims without merit could
subject us to adverse publicity and require us to incur significant legal fees. The fact that we operate in international markets also
increases the risk that we may face legal exposures as we seek to comply with a large number of varying legal and regulatory
requirements. If any such proceedings were to result in an unfavorable outcome, it could adversely affect our business, financial
condition and results of operations.
22
If we fail to convert additional countries or products from distributor sales to direct sales, or encounter difficulties in effecting
such conversions, our results of operations could suffer.
We have a history of converting international distributor sales to direct-to-hospital sales by buying out our foreign
distributor agreements and selling direct-to-hospital through our own sales representatives. In the future, we may elect to convert
select additional countries and products from distributor sales to direct-to-hospital sales. Such conversions sometimes result in
disruptions in our sales in the applicable geographies. These transitions may also have an adverse effect on our cash flow because
distributors, unlike direct sales representatives, pay us for inventory that they stock for later sale. In addition, switching to a direct
sales force may subject us to longer customer collection times and larger bad debt expense, since we would be required to collect
customer payments directly rather than through a distributor.
Our distribution agreements are exclusive, where permissible, with terms of up to five years. These agreements may
temporarily constrain our ability to convert certain countries or products from a distributor to a direct-to hospital model. In order
to ensure a successful market transition, we may compensate a distributor in connection with the termination of their
distributorship, even where the payment of compensation is not required by contract or local law.
Following termination of any distribution agreement, we may encounter difficulties in transitioning to a direct-to-hospital
model in any country in question. The transition to a direct sales model may require us to meet regulatory requirements that were
previously the responsibility of the distributor, which may subject us to additional costs. It also may take us longer than expected
to find sufficient qualified sales personnel to establish an effective sales force, which could negatively impact projected sales. If a
distributor sold our products through a network of sales agents, rather than exclusively through its own personnel, we may not be
able to establish relationships with all members of that network, temporarily limiting our access to the existing market. Similarly,
failure to maintain or quickly re-establish a distributor’s close relationships with the physicians who use our products could reduce
sales. Further, it may be difficult or impossible to transfer the assignment of a distributor’s rights to sell our products, and as a
result, sales to customers may be delayed until a new agreement or approval is obtained. The transition to a direct sales model
may also require us to incur additional expenses and may be time-consuming to manage remotely, as is the case with our sales
office in China. As a result of these risks, there can be no assurance that we will be successful in transitioning to a direct sales
model in the countries that we select, and difficulties that we encounter in these transitions could negatively affect our business.
Fluctuations in the exchange rate of the U.S. dollar and other currencies may adversely impact our results of operations.
Our results of operations are reported in U.S. dollars. While the majority of our revenue is denominated in U.S. dollars, a
significant portion of our revenue and costs is denominated in other currencies, such as the Euro, the British pound, the Japanese
yen, the Canadian dollar and the Australian dollar. As of December 31, 2018, 44% of our net sales were transacted in currencies
other than the U.S. dollar. As a result, we face exposure to movements in currency exchange rates. Our results of operations and
our operating expenses are exposed to foreign exchange rate fluctuations as the financial results of those operations are translated
from local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against the local currency, the translation of
these foreign currency-based local operations will result in increased net assets, revenue, operating expenses, and net income.
Similarly, our local currency-based net assets, revenue, operating expenses, and net income will decrease if the U.S. dollar
strengthens against the local currency. Additionally, receivable and payable balances denominated in currencies other than the
functional currency may result in gains and losses upon settlement that may adversely impact our results of operations.
Risks Related to the Regulatory Environment
Oversight of the medical device industry might affect the manner in which we may sell medical devices and compete in the
marketplace.
There are laws and regulations that govern the means by which companies in the healthcare industry may market their
products and services to healthcare professionals and may compete by discounting the prices of their products and services,
including for example, the federal Anti-Kickback Statute, the federal False Claims Act, the federal Health Insurance Portability
and Accountability Act of 1996, state law equivalents to these federal laws that are meant to protect against fraud and abuse and
analogous laws in foreign countries. Violations of these laws are punishable by criminal and civil sanctions, including, but not
limited to, civil and criminal penalties, damages, fines, exclusion from participation in federal and state healthcare programs,
including Medicare and Medicaid. Although in structuring our sales and marketing practices and customer discount arrangements
we strive to comply with those laws and regulations, we cannot assure you that:
•
•
government officials charged with responsibility for enforcing those laws will not assert that our sales and marketing
practices or customer discount arrangements are in violation of those laws or regulations; or
government regulators or courts will interpret those laws or regulations in a manner consistent with our interpretation.
Federal and state laws are also sometimes open to interpretation, and from time to time we may find ourselves at a
competitive disadvantage if our interpretation differs from that of our competitors.
23
Our business is subject to complex, costly, and burdensome regulations. We could be subject to significant penalties if we fail
to comply.
The production and marketing of our products and services and our ongoing research and development are subject to
extensive regulation and review by numerous governmental authorities both in the United States and abroad. U.S. and foreign
regulations applicable to medical devices and human tissues are wide-ranging and govern, among other things, the testing,
marketing, and premarket clearance or approval of new medical devices and services related to human tissues, as applicable, in
addition to regulating manufacturing and processing practices, reporting, promotion and advertising, importing and exporting,
labeling, and record-keeping procedures.
Our failure to comply with applicable regulatory requirements could result in governmental agencies or a court taking
action, including any of the following:
issuing public warning letters to us;
imposing fines and penalties on us;
issuing an injunction preventing us from manufacturing, processing, selling or distributing our products;
bringing civil or criminal charges against us;
delaying the introduction of our new products into the market;
ordering a recall of, or detaining or seizing, our products or cryopreserved human tissue; or
•
•
•
•
•
•
• withdrawing or denying approvals or clearances for our products.
If any or all of the foregoing were to occur, our business, results of operations, and reputation could suffer.
If we are not successful in obtaining and maintaining clearances and approvals from governmental agencies for our medical
devices, we will not be able to sell our products, and our future growth will be significantly hampered.
Our products require premarket clearance or approval in the United States and the CE Mark or other approvals in foreign
countries where they are sold. Each medical device that we wish to market in the United States generally must receive either
510(k) clearance or approval of a premarket application, or PMA, from the FDA before the product can be marketed or sold.
Either process can be lengthy and expensive. The FDA’s 510(k) clearance procedure usually takes three to twelve months from
the date the FDA receives the application, but may take longer. Although 510(k) clearances have been obtained for nearly all of
our current products that require such clearances, the FDA may condition, limit or prohibit our sales of these products if safety or
effectiveness problems develop with the devices. Our new products or significantly modified existing products could be denied
510(k) clearance and required to undergo the more burdensome PMA approval process if they are not found to be substantially
equivalent.
The PMA approval process is much more costly, lengthy, and uncertain than the premarket notification process. It
generally takes from six months to three years from the date the application is submitted to, and filed with, the FDA, and may take
longer. Achieving premarket approval typically requires extensive clinical trials and may require the filing of numerous
amendments with the FDA over time. The FDA may also require post-approval studies to continue demonstrating the safe and
effective performance of these devices. We do not have significant experience in obtaining PMA approval or conducting these
studies for our products.
The FDA has previously proposed changes for which FDA clearance to market would possibly require clinical data, more
extensive manufacturing information and post market data. As part of the 510(k) reform, the FDA proposes to issue regulations
defining grounds and procedures for rescission of 510(k) applications that have previously been cleared to market. Additionally,
in April 2018, the FDA announced the Medical Device Safety Action Plan: Protecting Patients, Promoting Public Health in which
the FDA has proposed limiting the age of predicate devices used in 510(k) applications, thus narrowing the field of available
predicates for comparison in the 510(k) process. The FDA may also require the more extensive PMA process for certain products.
Our ability to market our products outside the United States is also subject to regulatory approval, including our ability to
demonstrate the safety and effectiveness of our products in the clinical setting. Even if regulatory approval or clearance of a
product is granted, the approval or clearance could limit the uses or the claims for which the product may be labeled and
promoted, which may limit the market for our products. If we do not obtain and maintain foreign regulatory or FDA approval with
respect to our products, as applicable, we will not be able to sell our products, and our future growth will be significantly
hampered.
24
If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation and other applicable requirements,
our manufacturing or processing operations could be disrupted, our sales and profitability could suffer, and we may become
subject to a wide variety of FDA enforcement actions.
We are subject to inspection and marketing surveillance by the FDA to determine our compliance with all regulatory
requirements. If the FDA finds that we have failed to comply with any regulatory requirements, it can institute a wide variety of
enforcement actions.
We and some of our suppliers must comply with the FDA’s Quality System Regulation, which governs the methods used
in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing,
labeling, packaging, storage, and shipping of medical devices. Our Fox River Grove operations must comply with the FDA’s
current Good Tissue Practices, which are the FDA regulatory requirements for the processing of human tissue. The FDA enforces
its regulations through pre-announced and unannounced inspections. We have been, and anticipate in the future being, subject to
such inspections by the FDA and other regulatory bodies. The timing and scope of future audits is unknown and it is possible,
despite our belief that our quality systems and the operation of our manufacturing facilities will remain in compliance with U.S,
and non-U.S. regulatory requirements, that a future audit may result in one or more unsatisfactory results. If we or one of our
suppliers fails an inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may
bring an enforcement action against us, and our operations could be disrupted and our manufacturing delayed.
We are also subject to the FDA’s general prohibition against promoting our products for unapproved or off-label uses and
to the medical device reporting regulations that require us to report to the FDA if our products may have caused or contributed to
a death or serious injury, or if our device malfunctions and a recurrence of the malfunction would likely result in a death or
serious injury. We must also file reports with the FDA of some device corrections and removals, and we must adhere to the
FDA’s rules on labeling and promotion. If we fail to comply with these or other FDA requirements or fail to take adequate
corrective action in response to any significant compliance issue raised by the FDA, the FDA can take significant enforcement
actions, which could harm our business, results of operations, and our reputation.
In addition, most other countries, such as Japan, require us to comply with manufacturing and quality assurance standards
for medical devices that are similar to those in force in the United States before marketing and selling our products in those
countries. If we fail to comply, we would lose our ability to market and sell our products in those foreign countries.
Even after our products have received marketing approval or clearance, our products and the tissue we process may be subject
to product recalls. Licenses, registrations, approvals and clearances could be withdrawn or suspended due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following initial approval.
Our products, services, marketing, sales and development activities, and manufacturing processes are subject to extensive
and rigorous regulation by the FDA, by comparable agencies in foreign countries, and by other regulatory agencies and governing
bodies. These authorities have been increasing their scrutiny of our industry. If those regulatory bodies feel that we have failed to
comply with regulatory standards or if we encounter unforeseen problems following initial approval, licensure or registration,
there can be no assurance that any approval, licensure or registration will not be subsequently withdrawn, suspended or
conditioned upon extensive post-market study requirements, even after having received marketing approval or clearance or
licenses and registrations. Further, due to the increased scrutiny of our industry by the various regulatory agencies and the
interconnectedness of the various regulatory agencies, particularly within the EU, there is also no assurance that withdrawal or
suspension of any of our approvals, licenses or registrations by any single regulatory agency will not precipitate one or more
additional regulatory agencies from also withdrawing or suspending their approval, license or registration.
In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA or foreign equivalent
could require us to implement a recall of or prohibit the sale of, any of our products. For example, in 2016 and in early 2017, we
voluntarily recalled certain lots of our LeMaitre valvulotome due to an issue with the product’s closure mechanism. In February
2017, we voluntarily recalled certain lots of our Reddick cholangiogram catheter due to a labeling issue. While we took corrective
actions to address these issues, there can be no assurance that there will not be a recurrence or that other problems related to our
products will not develop in the future. And though the aggregate cost of these recalls to us was only $0.2 million, recalls could
result in significant costs to us and significant adverse publicity, which could harm our ability to market our products in the future.
With respect to our RestoreFlow allografts, we may voluntarily recall tissue, and in the event of non-compliance with the
regulations governing human tissue, the FDA may issue a warning letter, order the recall and/or destruction of tissues and/or order
the suspension or cessation of processing and preservation of new tissues.
Additionally, if someone is harmed by a malfunction or a product defect, we may experience product liability claims for
such defects. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the
dedication of our time and capital and may harm our reputation and financial results. Future recalls or claims could also result in
significant costs to us and significant adverse publicity, which could harm our ability to market our products in the future.
25
Domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of third-party
payors and cost containment measures could decrease the demand for products purchased by our customers, the prices that
our customers are willing to pay for those products and the number of procedures using our devices.
Our products and our tissue preservation services are purchased principally by hospitals or physicians which typically bill
various third-party payors, such as governmental programs (e.g., Medicare, Medicaid and comparable foreign programs), private
insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to
obtain appropriate reimbursement for products and services from third-party payors is critical to the success of our products and
services because it affects which products customers purchase and the prices they are willing to pay. Reimbursement varies by
country and can significantly impact the acceptance of new technology. Implementation of healthcare reforms in the United States
and in significant overseas markets such as Germany, Japan, France and other countries may limit, reduce or eliminate
reimbursement for our products and services and adversely affect both our pricing flexibility and the demand for our products and
services. Even when we develop or acquire a promising new product or service, we may find limited demand for the product or
service unless reimbursement approval is obtained from private and governmental third-party payors.
Major third-party payors for hospital services in the United States and abroad continue to work to contain healthcare costs
through, among other things, the introduction of cost containment incentives and closer scrutiny of healthcare expenditures by
both private health insurers and employers. For example, in an effort to decrease costs, certain hospitals and other customers may
resterilize our products intended for a single use or purchase reprocessed products from third-party reprocessors in lieu of
purchasing new products from us.
Further legislative or administrative reforms to the reimbursement systems in the United States and abroad, or adverse
decisions relating to our products by administrators of these systems in coverage or reimbursement, could significantly reduce
reimbursement for procedures using our medical devices or result in the denial of coverage for those procedures. Examples of
these reforms or adverse decisions include price regulation, competitive pricing, coverage and payment policies, comparative
effectiveness of therapies, technology assessments and managed-care arrangements. Any of such reforms or adverse decisions
resulting in restrictive reimbursement practices or denials of coverage could have an adverse impact on the acceptance of our
products and the prices that our customers are willing to pay for them.
Risks Related to Intellectual Property
If we fail to adequately protect our intellectual property rights, or prevent use of our intellectual property by third parties, we
could lose a significant competitive advantage and our business may suffer.
Our success depends in part on obtaining, maintaining, and enforcing our intellectual property rights, trademarks, and other
proprietary rights, and our ability to avoid infringing on the proprietary rights of others. We take precautionary steps to protect our
technological advantages and intellectual property. We rely upon patent, trade secret, copyright, know-how, and trademark laws,
as well as license agreements and contractual provisions, to establish our intellectual property rights and protect our products.
These measures may only afford limited protection and may not:
•
•
•
prevent our competitors from duplicating our products or services;
prevent our competitors from gaining access to our proprietary information and technology; or
permit us to gain or maintain a competitive advantage.
The issuance of a patent is not conclusive as to its validity or enforceability. Any patents we have obtained or will obtain in
the future might also be invalidated or circumvented by third parties. In addition, any pending patent applications may not issue as
patents or, if issued, may not provide commercially meaningful protection, as competitors may be able to design around our
patents to produce alternative, non-infringing designs. Should such challenges to our patents be successful, competitors might be
able to market products and use manufacturing processes that are substantially similar to ours. Furthermore, patents expire after a
certain duration, depending on the jurisdiction in which issued. To the extent any manufacturers are successful in challenging our
patents or they enter the market following the expiration of our patents, this could have an adverse impact on our business and
harm our sales and operating results.
Additionally, we may not be able to effectively protect our rights in unpatented technology, trade secrets, and confidential
information. We have a policy of requiring key employees and consultants and corporate partners with access to trade secrets or
other confidential information to execute confidentiality agreements. Our confidentiality agreements also require our employees to
assign to us all rights to any inventions made or conceived during their employment with us. We also generally require our
consultants to assign to us any inventions made during the course of their engagement by us. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer, or
disclosure of confidential information or inventions.
26
In addition, the laws of foreign countries may not protect our intellectual property rights effectively or to the same extent
as the laws of the United States. If our intellectual property rights are not adequately protected, we may not be able to
commercialize our technologies, products, or services and our competitors could commercialize similar technologies, which could
result in a decrease in our sales and market share.
If third parties claim that we infringe upon their intellectual property rights, we may incur liabilities and costs, and we may
have to redesign or discontinue selling the affected product.
The medical device industry is litigious with respect to patents and other intellectual property rights. Companies operating
in our industry routinely seek patent protection for their product designs, and many of our principal competitors have large patent
portfolios. Companies in the medical device industry have used intellectual property litigation to gain a competitive advantage.
Whether a product infringes a patent or other intellectual property rights involves complex legal and factual issues, the
determination of which is often uncertain. We face the risk of claims that we have infringed on third parties’ intellectual property
rights, and we cannot assure you that our products or methods do not infringe the patents or other intellectual property rights of
third parties. Our efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be
successful. Any claims of patent or other intellectual property infringement, even those without merit, could:
•
•
•
•
•
•
•
•
be expensive and time consuming to defend;
result in us being required to pay significant damages to third parties for past use of the asserted intellectual property;
harm our reputation;
cause us to cease making or selling products that incorporate the challenged intellectual property;
require us to redesign, reengineer, or rebrand our products, which may not be possible and could be costly and time
consuming if it is possible to do so at all;
require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual
property, which agreements may not be available on terms acceptable to us or at all;
divert the attention of our management and key personnel from other tasks important to the success of our business; or
result in our customers or potential customers deferring or limiting their purchase or use of the affected products until
resolution of the litigation.
It is also possible that a third party could claim that our manufacturing process violates an existing patent or other
intellectual property rights. If we were unsuccessful in defending such a claim, we may be forced to stop production at one or
more of our manufacturing facilities.
In addition, new patents obtained by our competitors could threaten a product’s continued life in the market even after it
has already been introduced. If our business is successful, the possibility may increase that others will assert infringement claims
against us.
If we believe our product is or may be the subject of a patent or other intellectual property rights of a third party, we may
attempt to reach a license agreement with them to manufacture, market, and sell these products. If we fail to reach an agreement,
we could be required to pay significant damages to third parties for past use of the asserted intellectual property and may be
forced to cease making or selling products that incorporate the challenged intellectual property.
In addition, we may become subject to interference proceedings conducted in the United States Patent Office or opposition
proceedings conducted in foreign patent offices challenging the priority of invention or the validity of our patents.
Risks Related to Our Common Stock
Our stock price may be volatile, and an investment in our common stock could suffer a decline in value.
There can be significant volatility in the market price and trading volume of equity securities that is unrelated to the
financial performance of the companies issuing the securities. These broad market fluctuations may negatively affect the market
price of our common stock. Shareholders may not be able to resell their shares at or above the price at which they purchased them
due to fluctuations in the market price of our common stock caused by changes in our operating performance or prospects, a
reduced volume of trading in our common stock, and other factors.
Some factors that may have a significant effect on our common stock market price include:
•
•
•
•
actual or anticipated fluctuations in our operating results or future prospects;
our announcements or our competitors’ announcements of new products;
public concern as to the safety or efficacy of our products and services;
the public’s reaction to our press releases, our other public announcements, and our filings with the SEC;
27
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our determination whether or not to continue the payment of quarterly cash dividends;
our determination whether or not to undertake or continue a share repurchase program;
strategic actions by us or our competitors, such as acquisitions, divestitures or restructurings;
dilutive issuances of additional securities;
changes in our growth rates or our competitors’ growth rates;
developments regarding our patents or proprietary rights or those of our competitors;
our inability to raise additional capital;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
the discontinuation of a product line or other revenue generating activity;
adverse regulatory actions which may necessitate recalls of our products or services or warning letters that negatively
affect the markets for our products or services;
sales of common stock by us or our directors, officers, or principal stockholders;
control by our affiliates and insiders of a significant percentage of our common stock;
changes in stock market analyst recommendations or earnings estimates regarding our common stock, comparable
companies, or our industry generally;
reduced or lower volume of trading in our common stock; and
our inclusion in or removal from stock market indices, such as the S&P 600 or Russell 2000.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation
has often been brought. This litigation, if brought against us, could result in substantial costs and a diversion of our management’s
attention and resources.
Our chief executive officer has significant voting power and may take actions that may not align with the interests of our other
stockholders.
Our chief executive officer and the LeMaitre Family LLC collectively control approximately 17% of our outstanding
common stock as of December 31, 2018. As a result, these stockholders, if they were to act together, could have significant
influence on many matters requiring stockholder approval, including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or preventing a change in control, might adversely
affect the market price of our common stock, and may not be fully aligned with the interests of other stockholders.
We have not established a minimum dividend payment level for our common stockholders and there are no assurances of our
ability to pay dividends to common stockholders in the future.
In February 2011, our Board of Directors adopted a quarterly dividend program for the purpose of returning capital to our
stockholders. However, we have not established a minimum dividend payment level for our common stockholders and our ability
to pay dividends may be harmed by the risks and uncertainties described in this Annual Report on Form 10-K and in the other
documents we file from time to time with the SEC. Future dividends, if any, will be authorized by our Board of Directors and
declared by us based upon a variety of factors deemed relevant by our directors, including, among other things, our financial
condition, liquidity, earnings projections and business prospects. In addition, financial covenants in any credit facility to which we
become a party may restrict our ability to pay future quarterly dividends. We can provide no assurance of our ability to pay
dividends in the future.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our principal worldwide executive, distribution, and manufacturing operations are located at three adjacent 27,098 square
foot, 27,289 square foot and 15,642 square foot leased facilities, as well as a fourth nearby 12,878 square foot leased facility, in
Burlington, Massachusetts. Each of our Burlington leases expires in December 2023. In addition, our international operations are
headquartered at a 13,948 square foot leased facility located in Sulzbach, Germany, with a lease which expires in 2023. We also
own a 6,140 square foot manufacturing facility in North Melbourne, Australia, a 6,824 square foot facility in Saint-Etienne,
France and lease an 8,732 square foot processing and distribution facility in Fox River Gove, Illinois. In addition, we have smaller
leased sales and marketing offices located in Canada, China, Italy, Japan, Spain and Singapore. Based on our current operating
plans, we believe our current facilities are adequate for our needs.
28
Item 3.
Legal Proceedings
In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and
threats of litigation consisting of intellectual property, commercial, employment, and other matters. While the outcome of these
proceedings and claims cannot be predicted with certainty, there are no matters, as of December 31, 2018, that, in the opinion of
management, would be reasonably expected to have a material adverse effect on our financial position, results of operations or
cash flows.
Item 4.
Mine Safety Disclosures
Not applicable.
29
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is publicly traded on The Nasdaq Global Market under the symbol “LMAT”. Prior to our initial public
offering on October 19, 2006, there was no public trading market for our common stock.
Holders of Record
On March 1, 2019, the closing price per share of our common stock was $30.63 as reported on The Nasdaq Global Market,
and we had approximately 169 stockholders of record. In addition, we believe that a significant number of beneficial owners of
our common stock hold their shares in street name.
Stock Price Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return on LeMaitre’s common stock with the Nasdaq
US Composite Index, the Nasdaq Medical Equipment Index and a peer group for the period covering from December 31, 2013,
through the end of LeMaitre’s fiscal year ended December 31, 2018. The graph assumes an investment of $100.00 made on
December 31, 2013, in (i) LeMaitre’s common stock, (ii) the stocks comprising the Nasdaq US Composite Index, (iii) the stocks
comprising the Nasdaq Medical Equipment Index and (iv) the stocks comprising our peer groups. This graph is not “soliciting
material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of LeMaitre under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language in any such filing.
12/13
12/14
12/15
12/16
12/17
12/18
LeMaitre Vascular, Inc ................
NASDAQ Composite ..................
NASDAQ Medical Equipment ....
2017 Peer Group .........................
2018 Peer Group .........................
100.00
100.00
100.00
100.00
100.00
97.28
114.62
117.22
93.98
96.94
222.56
122.81
131.48
59.48
69.98
330.49
133.19
138.45
71.64
87.21
418.33
172.11
195.37
85.84
112.27
313.21
165.84
221.45
103.65
138.15
30
LeMaitre’s fiscal year ends on the last day of December each year; data in the above table reflects market values for our stock and
Nasdaq and peer group indices as of the close of trading on the last trading day of year presented.
The 2017 peer group includes the following companies: AngioDynamics, Inc., Avinger, Inc., Cardiovascular Systems Inc.,
Cryolife Inc., Endologix, Inc., Penumbra, Inc., and Vascular Solutions, Inc.
The 2018 peer group includes the following companies: AngioDynamics, Inc., Cardiovascular Systems Inc., Cryolife Inc.,
Endologix, Inc., Merit Medical Systems, Inc., and Penumbra, Inc. This new peer group differs from our old peer group.
Specifically, we removed Avinger, Inc. as the company has been experiencing adverse operating results, we removed Vascular
Solutions, Inc. because it was acquired by another company and we added Merit Medical Systems, Inc., as the company competes
primarily in the open vascular and interventional radiology segments.
Recent Sales of Unregistered Securities
Not Applicable.
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
Total
Number of
Shares (or Units)
Average
Price
Paid Per
Period
Purchased (1)
Share (or Unit)
Maximum Number
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Program
(or Approximate
Dollar Value) of
Shares (or Units)
that may yet be
Purchased under
the Plans or
Program
October 1, 2018 through
October 31, 2018 ...............
November 1, 2018 through
November 30, 2018 ...........
December 1, 2018 through
December 31, 2018 ............
86 $
- $
27.94
-
2,685 $
22.23
Total ......................................
2,771 $
22.41
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(1) For the three months ended December 30, 2018, we repurchased 2,771 shares of our common stock to satisfy employees’
obligations with respect to minimum statutory withholding taxes in connection with the vesting of restricted stock units.
31
Item 6.
Selected Financial Data
You should read the following selected consolidated financial data in conjunction with our consolidated financial
statements and the related notes which are included elsewhere in this Annual Report and the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section of this Annual Report. We have derived the consolidated
statement of operations data for the years ended December 31, 2018, 2017 and 2016 and the consolidated balance sheet data as of
December 31, 2018 and 2017, from our audited consolidated financial statements, which are included elsewhere in this Annual
Report. We have derived the consolidated statement of operations data for the years ended December 31, 2015 and 2014, and the
consolidated balance sheet data as of December 31, 2016, 2015 and 2014 from our audited consolidated financial statements,
which are not included in this Annual Report. Our historical results for any prior period are not necessarily indicative of results to
be expected for any future period.
Consolidated Statements of Operations Data:
Net sales ................................................................... $
Cost of sales .............................................................
Gross profit ........................................................
Operating expenses:
Sales and marketing ..............................................
General and administrative ...................................
Research and development ...................................
Medical device excise tax .....................................
Restructuring charges ...........................................
Gain on divestitures and acquisitions ...................
Impairment charges ..............................................
Total operating expenses ..........................................
Income from operations .........................................
Other income (expense):
Interest income .....................................................
Interest expense ....................................................
Foreign currency gain (loss) .................................
Total other income (loss) .......................................
Income before income tax .....................................
Provision for income taxes ....................................
Net income .............................................................. $
Earnings per share of common stock:
Basic ......................................................................... $
Diluted ...................................................................... $
Weighted-average shares outstanding:
Basic .........................................................................
Diluted ......................................................................
Cash dividends declared per common share ............. $
2018
Year ended December 31,
2017
2015
2016
(in thousands, except per share data)
2014
105,568 $
31,629
73,939
100,867 $
30,170
70,697
89,151 $
26,215
62,936
78,352 $
24,186
54,166
27,318
17,689
8,197
-
-
(7,474)
-
45,730
28,209
631
(2)
(394)
235
28,444
5,501
22,943 $
25,948
17,010
6,636
-
-
-
-
49,594
21,103
179
(21)
(155)
3
21,106
3,929
17,177 $
26,105
14,354
6,141
-
-
-
-
46,600
16,336
81
(14)
(161)
(94)
16,242
5,652
10,590 $
22,780
14,010
5,479
744
-
(360)
-
42,653
11,513
13
-
(102)
(89)
11,424
3,666
7,758 $
1.18 $
1.13 $
0.91 $
0.86 $
0.57 $
0.55 $
0.44 $
0.42 $
71,097
22,666
48,431
22,087
13,889
4,671
689
526
-
229
42,091
6,340
1
(5)
(16)
(20)
6,320
2,405
3,915
0.24
0.23
19,426
20,242
0.28 $
18,961
20,033
0.22 $
18,485
19,241
0.18 $
17,764
18,316
0.16 $
16,614
17,008
0.14
32
2018
2017
Year ended December 31,
2016
(in thousands)
2015
2014
Consolidated Balance Sheet Data:
Cash and cash equivalents ........................................ $
Short-term marketable securities ..............................
Current assets ...........................................................
Total assets ...............................................................
Current liabilities ......................................................
Long-term liabilities .................................................
Total liabilities .........................................................
Total stockholders’ equity ........................................
26,318 $
21,668
94,017
153,088
19,758
3,095
22,853
130,235
19,096 $
22,564
80,311
126,323
13,189
3,364
16,553
109,770
24,288 $
-
59,027
101,924
10,482
3,942
14,424
87,500
27,451 $
-
58,184
90,704
10,368
2,452
12,820
77,884
18,692
-
48,588
81,492
10,041
3,244
13,285
68,207
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes
contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The
following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and
uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks
could cause our actual results to differ materially from any future performance suggested below.
Overview
We are a medical device company that develops, manufactures, and markets medical devices and implants for the
treatment of peripheral vascular disease. We also provide processing and cryopreservation services of human tissue for
implantation into patients. Our principal product offerings are sold throughout the world, primarily in the United States, Europe
and, to a lesser extent, Asia and the Pacific Rim. We estimate that the annual worldwide market for all peripheral vascular devices
exceeds $5 billion, within which our core product lines address roughly $900 million. We have grown our business using a three-
pronged strategy: 1) pursuing a focused call point, 2) competing for sales of low-rivalry niche products, and 3) expanding our
worldwide direct sales force while acquiring and developing complementary vascular devices. We have used acquisitions as a
primary means of further accessing the peripheral vascular device market, and we expect to continue to pursue this strategy in the
future. Additionally, we have increased our efforts to expand our vascular device offerings through new product development. We
currently manufacture most of our product lines in our Burlington, Massachusetts headquarters.
Our products are used primarily by vascular surgeons who treat peripheral vascular disease through both open surgery and
endovascular techniques. In contrast to interventional cardiologists and interventional radiologists, neither of whom are certified
to perform open surgical procedures, vascular surgeons can perform both open surgery and minimally invasive endovascular
procedures, and are therefore uniquely positioned to provide a wider range of treatment options to patients.
Our principal product lines include the following: valvulotomes, biologic vascular patches, carotid shunts, balloon
catheters, biologic vascular grafts, anastomotic clips, radiopaque marking tape, powered phlebectomy devices, prosthetic vascular
grafts, surgical glue and remote endarterectomy devices. Through our RestoreFlow allografts business we also provide services
related to the processing and cryopreservation of human vascular tissue.
To assist us in evaluating our business strategies, we regularly monitor long-term technology trends in the peripheral
vascular device market. Additionally, we consider the information obtained from discussions with the medical community in
connection with the demand for our products, including potential new product launches. We also use this information to help
determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements.
Our business opportunities include the following:
•
•
•
•
•
the long-term growth of our direct sales force in North America, Europe, Asia and the Pacific Rim;
the addition of complementary products through acquisitions;
the introduction of our products in new territories upon receipt of regulatory approvals or registrations in these
territories;
the updating of existing products and introduction of new products through research and development; and
the consolidation of product manufacturing into our Burlington, Massachusetts corporate headquarters.
33
We sell our products and services primarily through a direct sales force. As of December 31, 2018 our sales force was
comprised of 108 sales representatives in North America, Europe, Japan, China, Australia and New Zealand, including one export
manager. We also sell our products in other countries through distributors. Our worldwide headquarters and principal
manufacturing site is located in Burlington, Massachusetts. Our European operations are headquartered in Sulzbach, Germany and
our Asia Pacific operations are headquartered in Singapore. We also have sales offices located in Tokyo, Japan; Vaughan,
Canada; Madrid, Spain; Milan, Italy; Shanghai, China; and North Melbourne, Australia, and we have a processing facility in Fox
River Grove, Illinois and manufacturing facilities in North Melbourne, Australia and Saint-Etienne, France. During the years
ended December 31, 2018 and 2017, approximately 95% and 93%, respectively, of our net sales were generated in territories in
which we employ direct sales representatives.
Historically we have experienced success in lower-rivalry niche product segments, for example the markets for
valvulotome devices and biologic vascular patches. More recently, however, we have faced increased competition in the biologic
vascular patch segment, which has inhibited our ability to continue to increase market share or to implement selling price
increases.
In the valvulotome market, our highly differentiated devices have historically allowed us to increase our selling prices
while maintaining our unit market share. In contrast, we have experienced less success in highly competitive markets such as our
ProCol biologic graft product line, where we face strong competition from larger companies with greater resources. While we
believe that these challenging market dynamics can be mitigated by our relationships with vascular surgeons, there can be no
assurance that we will be successful in these highly competitive markets.
In recent years we have also experienced success in international markets, such as Europe, where we sometimes offer
comparatively lower average selling prices. If we continue to seek growth opportunities outside of North America, we may
experience downward pressure on our gross margin.
Because we believe that direct-to-hospital sales engender closer customer relationships, and allow for higher selling prices
and gross margins, we periodically enter into transactions with our distributors to transition their sales of our medical devices
towards our direct sales organization:
•
•
In December 2015, we signed a master distribution agreement with Meheco Yonstron Pharmaceutical Co. Ltd.
(Meheco), a Chinese distribution and logistics company, and began selling our Chinese market products to Meheco in
2016. Meheco then sold our products to multiple sub-distributors who then sold to Chinese hospitals. This agreement
expired in December 2017, and we are currently in the process of signing distribution agreements with sub-distributors
and have begun selling our products to sub-distributors in China. We repurchased $120,000 of our products back from
Meheco in the three months ended September 30, 2018, which resulted in a corresponding revenue reversal.
In March 2018, we terminated our master distribution agreement with Sinopharm United Medical Device Co., Ltd.
under which we sold our powered phlebectomy device and related disposable devices for distribution in China. In
April 2018 we began selling these products to sub-distributors in China.
• During 2018, we entered into definitive agreements with several former Applied Medical and Cardial distributors in
Europe and Asia in order to terminate their distribution of our recently acquired catheter, polyester graft and
valvulotome products, and we began selling direct-to-hospitals in those geographies. The termination fees totaled
approximately $0.1 million.
We anticipate that the expansion of our sales organization in China will result in increased sales, marketing and regulatory
expenses during 2019. As of December 31, 2018 we had eight employees in China.
Our strategy for growing our business includes the acquisition of complementary product lines and companies and
occasionally the discontinuance or divestiture of products or activities that are no longer complementary:
•
•
In March 2016, we acquired substantially all of the assets as well as the production and distribution rights of the
ProCol business from Hancock Jaffe Laboratories and CryoLife, Inc. for $2.7 million plus 10% of net sales for three
years following the closing. ProCol is a biologic vascular graft used for dialysis access and is approved for sale in the
United States.
In November 2016, we acquired substantially all of the assets related to the peripheral vascular allograft operations of
Restore Flow Allografts, LLC for $12.0 million plus additional payments of up to $6.0 million depending upon the
satisfaction of certain contingencies.
34
•
•
•
In April 2018, we sold our Reddick cholangiogram catheter and Reddick-Saye screw product lines to Specialty
Surgical Instrumentation, Inc. for $7.4 million.
In September 2018, we acquired the assets of the embolectomy catheter business from Applied Medical Resources
Corporation for $14.2 million. We have initiated a project to transfer the manufacturing of the acquired devices to our
Burlington facility. We expect this transition to be completed in 2019.
In October 2018, we acquired the assets of Cardial, a subsidiary of Becton, Dickinson & Company, located in Saint-
Etienne, France, for €2.0 million. Cardial’s product lines include knitted and woven vascular grafts, valvulotomes and
surgical glue.
In addition to relying upon acquisitions for growth, we also rely on our product development efforts to bring differentiated
technology and next-generation products to market:
•
•
•
•
•
In 2016, we launched additional sizes of our XenoSure patch.
In 2016, we launched the 7.0mm diameter size Omniflow graft.
In 2017, we launched XenoSure biologic pledgets.
In 2017, we launched a new iteration of our anastoclip AC closure system intended for use in neurosurgery
applications.
In 2018, we expanded the indications for our Anastoclip GC closure system in the United States to include dura tissue
repair.
In addition to our sales growth strategies, we have also executed several operational initiatives designed to consolidate and
streamline manufacturing within our Burlington, Massachusetts facilities. We expect these plant consolidations will result in
improved control over our production capacity as well as reduced costs over the long-term. Our most recent manufacturing
transitions included:
•
•
•
In 2016, we initiated a project to transfer the manufacturing of the ProCol biologic product line to our facility in
Burlington. This transition was completed in 2018.
In 2017, we renovated our manufacturing facility in Burlington, in which many of our biologic offerings, including the
XenoSure patch as well as our ProCol biologic grafts, are currently produced or processed. The cost of the facility
renovation was approximately $3.0 million. We are currently in the process of further expanding this clean room,
which we expect to complete during 2019 at a cost of approximately $0.8 million.
In September 2018, we acquired the embolectomy catheter business assets from Applied Medical Resources
Corporation. We have initiated a project to transfer the manufacturing of the acquired devices to our Burlington
facility. We expect this transition to be completed in 2019.
Our execution of these business opportunities may affect the comparability of our financial results from period to period
and may cause substantial fluctuations from period to period as we incur related process engineering and other charges, as well as
longer term impacts to revenues and operating expenditures.
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial
results. For the year ended December 31, 2018, approximately 44% of our sales took place outside the United States, and in most
cases in currencies other than the U.S. dollar. We expect that foreign currencies will continue to represent a significant percentage
of our sales in the future. Selling, marketing, and administrative costs related to these sales are largely denominated in the same
respective currency, thereby partially mitigating our exposure to exchange rate fluctuations. However, as most of our foreign sales
are denominated in local currency, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it
will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases
we will receive less revenue in U.S. dollars than we did before the rate increase went into effect. For the year ended December 31,
2018, we estimate that the effects of changes in foreign exchange rates increased sales by approximately $1.4 million, as
compared to rates in effect for the year ended December 31, 2017.
Net Sales and Expense Components
The following is a description of the primary components of our net sales and expenses:
Net sales. We derive our net sales from the sale of our products and services, less discounts and returns. Net sales include
the shipping and handling fees paid for by our customers. Most of our sales are generated by our direct sales force and are shipped
and billed to hospitals or clinics throughout the world. In countries where we do not have a direct sales force, sales are primarily
to distributors, who in turn sell to hospitals and clinics. In certain cases our products are held on consignment at a hospital or
clinic prior to purchase; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment.
35
Cost of sales. We manufacture the majority of the products that we sell. Our cost of sales consists primarily of
manufacturing personnel, raw materials and components, depreciation of property and equipment, and other allocated
manufacturing overhead, as well as freight expense we pay to ship products to customers.
Sales and marketing. Our sales and marketing expense consists primarily of salaries, commissions, stock based
compensation, travel and entertainment, attendance at vascular congresses, training programs, advertising and product
promotions, direct mail and other marketing costs.
General and administrative. General and administrative expense consists primarily of executive, finance and human
resource salaries, stock based compensation, legal and accounting fees, information technology expense, intangible asset
amortization expense and insurance expense.
Research and development. Research and development expense includes costs associated with the design, development,
testing, enhancement and regulatory approval of our products, principally salaries, laboratory testing and supply costs. It also
includes costs associated with design and execution of clinical studies, regulatory submissions and costs to register, maintain, and
defend our intellectual property, and royalty payments associated with licensed and acquired intellectual property.
Other income (expense). Other income (expense) primarily includes interest income and expense, foreign currency gains
(losses), and other miscellaneous gains (losses).
Income tax expense. We are subject to federal and state income taxes for earnings generated in the United States, which
include operating losses or profits in certain foreign jurisdictions for certain years depending on tax elections made, and foreign
taxes on earnings of our wholly-owned foreign subsidiaries. Our consolidated tax expense is affected by the mix of our taxable
income (loss) in the United States and foreign subsidiaries, permanent items, discrete items, unrecognized tax benefits, and
amortization of goodwill for U.S tax reporting purposes.
Results of Operations
Comparison of the year ended December 31, 2018 to the year ended December 31, 2017
The following tables set forth, for the periods indicated, our results of operations and the change between the specified
periods expressed as a percentage increase or decrease:
2018
2017
$ Change
Percent
change
Net sales ................................................................... $
105,568 $
($ in thousands)
100,867 $
4,701
Net sales by geography:
Americas ............................................................... $
Europe, Middle East and Africa ........................... $
Asai/Pacific Rim ...................................................
Total ..................................................................... $
63,649 $
35,319 $
6,600
105,568 $
62,696 $
32,516 $
5,655
100,867 $
953
2,803
945
4,701
5%
2%
9%
17%
5%
Net sales. Net sales increased 5% or $4.7 million to $105.6 million for the year ended December 31, 2018, compared to
$100.9 million for the year ended December 31, 2017. Sales increases were primarily driven by increased sales of our biologic
vascular patches of $1.7 million, carotid shunts of $1.2 million, embolectomy catheters of $1.2 million, of which $0.8 million was
from our recent acquisition of Syntel and Python products, and valvulotomes of $0.6 million. We also had an increase in human
tissue cryopreservation service revenues from our RestoreFlow allograft business of $1.2 million. These and other product line
increases were partially offset by decreased sales due to the divestiture of our Reddick cholangiogram catheter product in early Q2
2018 of $1.1 million and decreased sales of our closure systems of $0.7 million.
Direct-to-hospital net sales were 95% for the year ended December 31, 2018 and 93% for the year ended December 31,
2017.
Net sales by geography. Net sales in the Americas increased $1.0 million for the year ended December 31, 2018. The
increase was primarily driven by increased human tissue cryopreservation services of $1.2 million related to our RestoreFlow
allograft business. We also had increased sales of embolectomy catheters of $0.7 million, in part due to our acquisition of the
Syntel and Python products, as well as increased sales of valvulotomes, carotid shunts and biologic vascular patches of $0.5
million each. These increases were partially offset by decreases in sales associated with the divestiture of the Reddick product line
of $1.2 million, as well as lower sales of radiopaque tape of $0.5 million and closure systems of $0.4 million.
36
Europe, Middle East and Africa net sales increased $2.8 million for the year ended December 31, 2018. The increase was
primarily driven by increased sales of our biologic vascular patches of $1.1 million, polyester grafts of $0.4 million, embolectomy
catheters of $0.3 million and carotid shunts of $0.2 million. We also had sales of surgical glue of $0.6 million in connection with
our recent Cardial acquisition.
Asia/Pacific Rim net sales increased $0.9 million for the year ended December 31, 2018. The increase was primarily
driven by increased sales of carotid shunts of $0.5 million, and embolectomy and occlusion catheters of $0.2 million each, and
valvulotomes of $0.1 million each. These increases were offset in part by decreased sales of closure systems to China.
Gross profit ..................................................... $
Gross margin ...................................................
73,939
$
70.0%
($ in thousands)
70,697
$
70.1 %
3,242
(0.1% )
5%
*
2018
2017
Change
Percent
change
* Not applicable
Gross Profit. Gross profit increased $3.2 million to $73.9 million for the year ended December 31, 2018, while gross
margin decreased by 10 basis points to 70.0% in the period. The gross margin was favorably impacted by higher average selling
prices across most product lines, a more favorable product mix, including increased sales of our biologic patch products, and the
favorable impact from changes in foreign exchange rates. These increases were offset, however, by manufacturing inefficiencies
as well as higher manufacturing overhead costs experienced for certain of our product lines.
2018
2017
$ change
Percent
change
2018 as a %
of Net Sales
2017 as a %
of Net Sales
27,318 $
17,689
8,197
25,948 $
17,010
6,636
($ in thousands)
1,370
679
1,561
(7,474)
45,730 $
-
49,594 $
(7,474)
(3,864)
5%
4%
24%
*
(8%)
26%
17%
8%
(7%)
43%
26 %
17 %
7 %
*
49 %
Sales and marketing ............ $
General and administrative ..
Research and development ..
Gain on divestures and
acquisitions ......................
$
* Not a meaningful percentage.
Sales and marketing. For the year ended December 31, 2018, sales and marketing expense increased $1.4 million, or 5%,
to $27.3 million. The increase was primarily driven by higher personnel costs, including compensation, recruiting, sales meeting
and travel expenses associated with expanding the sales force. As a percentage of net sales, sales and marketing expense was 26%
in both 2018 and 2017.
General and administrative. For the year ended December 31, 2018, general and administrative expense increased $0.7
million, or 4%, to $17.7 million. General and administrative expense increases were primarily related to compensation costs,
professional fees and travel expense, offset in part by lower acquisition-related costs and facilities costs. The compensation
expense increase in 2018 was in part due to the January 1, 2018 reinstatement of our Chief Executive Officer’s compensation,
which he had forgone (except as to the amount legally required) beginning in June 2017. As a percentage of net sales, general and
administrative expense was 17% for both 2018 and 2017.
Research and development. For the year ended December 31, 2018, research and development expense increased $1.6
million, or 24%, to $8.2 million. Clinical and regulatory expenses increased $1.0 million and product development expense
increased $0.6 million. These increases were primarily related to regulatory submissions for new products in geographies such as
China and Japan, testing related to our biologic product offerings and for compliance with new medical device regulation (MDR)
requirements in the EU.
Gain on divestitures and acquisitions. On April 5, 2018, we entered into an asset purchase agreement with Specialty
Surgical Instrumentation, Inc. to sell the inventory, intellectual property and other assets associated with our Reddick
cholangiogram catheter and Reddick-Saye screw product lines for $7.4 million. During the three months ended June 30, 2018 we
recorded a gain in connection with these agreements of $5.9 million. On October 22, 2018, we entered into an agreement to
acquire the assets of Cardial, a subsidiary of Becton Dickinson, whose business consists of the manufacture and sale of knitted
and woven vascular grafts, valvulotomes and surgical glue, for a purchase price of €1.2 million ($1.4 million). In connection with
this asset purchase, we simultaneously entered into an agreement to purchase Cardial’s land and building for €0.8 million ($0.9
million), bringing the total price paid for the business to €2.0 million ($2.3 million). During the three months ended December 31,
37
2018 we recorded a gain of €1.4 million ($1.6 million) in connection with these agreements resulting from the excess value of the
assets acquired over the purchase price, subject to finalization of the purchase accounting.
Other income (expense). Interest income was $0.6 million and $0.2 million, respectively for 2018 and 2017. Foreign
exchange losses on settlements or remeasurement of receivables and payables denominated in foreign currencies were $0.4
million and $0.2 million in 2018 and 2017, respectively.
Income tax expense. We recorded a provision for taxes of $5.5 million on pre-tax income of $28.4 million in 2018 as
compared to $3.9 million on pre-tax income of $21.1 million in 2017. The 2018 provision was comprised of a federal tax
provision in the United States of $2.8 million, a state tax provision of $0.5 million, and a foreign tax provision of $2.2 million.
The 2017 provision was comprised of a federal tax provision in the United States of $2.2 million, a state tax provision of $0.7
million and a foreign tax provision of $1.0 million. Our effective tax rate differed from the U.S. statutory tax rate in 2018
principally because of stock option exercises, taxes on foreign earnings, valuation allowances, and certain permanent differences.
While it is often difficult to predict the final outcome or timing of the resolution of any particular tax matter, we believe that our
tax reserves reflect the probable outcome of known contingencies.
We assess the likelihood that our deferred tax assets will be realized through future taxable income and record a valuation
allowance to reduce gross deferred tax assets to an amount we believe is more likely than not to be realized. As of December 31,
2018, we have provided a valuation allowance of $1.3 million for deferred tax assets primarily related to Australian net operating
loss and capital loss carry forwards and Massachusetts tax credit carry forwards that are not expected to be realized.
Refer to Note 8 to our consolidated financial statements for additional information about income tax expense (benefit)
including information related to U.S. tax reform legislation.
Comparison of the year ended December 31, 2017 to the year ended December 31, 2016
The following tables set forth, for the periods indicated, our results of operations and the change between the specified
periods expressed as a percentage increase or decrease:
2017
2016
$ Change
Percent
change
Net sales .............................................................. $
100,867 $
($ in thousands)
89,151 $
11,716
Net sales by geography:
Americas .......................................................... $
International .....................................................
Total ................................................................ $
62,696 $
38,171
100,867 $
53,710 $
35,441
89,151 $
8,986
2,730
11,716
13%
17%
8%
13%
Net sales. Net sales increased 13% or $11.7 million to $100.9 million for the year ended December 31, 2017, compared to
$89.2 million for the year ended December 31, 2016. The sales increase was primarily driven by increased sales of our biologic
vascular patches of $3.6 million, carotid shunts of $1.0 million, and biologic vascular grafts of $0.8 million. We also had an
increase in human tissue cryopreservation service revenues from our RestoreFlow allograft business (acquired in late 2016) of
$5.5 million. These and other product line increases were partially offset by decreased sales of powered phlebectomy devices of
$0.5 million, radiopaque tape of $0.4 million and ePTFE vascular grafts of $0.4 million.
Direct-to-hospital net sales were 93% of our sales in the year ended December 31, 2017 and 92% in the year ended
December 31, 2016.
38
Net sales by geography. Net sales in the Americas increased $9.0 million for the year ended December 31, 2017. The
increase was primarily driven by increased human tissue cryopreservation services of $5.5 million related to our RestoreFlow
allograft business. We also had increased sales of biologic vascular patches of $2.3 million and carotid shunts of $0.7 million.
International net sales increased $2.7 million for the year ended December 31, 2017. The increase was primarily driven by
increased sales of our biologic vascular patches of $1.3 million, valvulotomes of $0.7 million and biologic vascular grafts of $0.6
million. These and other product line increases were partially offset by decreased sales of ePTFE vascular grafts of $0.4 million.
Gross profit ............................................................. $
70,697
$
($ in thousands)
62,936
$
7,761
2017
2016
Change
Gross margin ...........................................................
70.1%
70.6%
(0.5%)
Percent
change
12%
*
* Not applicable
Gross Profit. Gross profit increased $7.8 million to $70.7 million for the year ended December 31, 2017, while gross
margin decreased by 50 basis points to 70.1% in the period. The gross margin was favorably impacted by higher average selling
prices across most product lines, lower per-unit manufacturing costs of our biologic patches and other products, increased sales of
biologic patches, and lower sales to China where average selling prices are comparatively lower. These increases were offset,
however, by the introduction of the RestoreFlow product line, as well as higher sales into non-direct markets where we typically
realize lower gross margins than in our direct-to-hospital markets. The gross profit increase was a result of higher sales offset
slightly by the lower gross margin.
2017
2016
$ change
Percent
change
2017 as a % 2016 as a %
of Net Sales of Net Sales
($ in thousands)
Sales and marketing ............ $
General and administrative ..
Research and development ..
$
25,948 $
17,010
6,636
49,594 $
26,105 $
14,354
6,141
46,600 $
(157 )
2,656
495
2,994
(1% )
19 %
8 %
6 %
26%
17%
7%
49%
29%
16%
7%
52%
* Not a meaningful percentage.
Sales and marketing. For the year ended December 31, 2017, sales and marketing expense decreased $0.2 million or 1%
to $25.9 million. The decrease was primarily driven by reduced discretionary spending for professional services, sales meetings,
trade shows, advertising and product samples, offset in part by increased compensation-related expense. As a percentage of net
sales, sales and marketing expense decreased to 26% in 2017 from 29% in 2016.
General and administrative. For the year ended December 31, 2017, general and administrative expenses increased $2.7
million or 19%, to $17.0 million. General and administrative expense increases were primarily related to compensation costs,
facilities costs and acquisition-related expenses, and to a lesser extent recruiting costs and professional fees. As a percentage of
net sales, general and administrative expense increased to 17% for the year ended December 31, 2017 as compared to 16% for the
prior period.
Research and development. For the year ended December 31, 2017, research and development expenses increased $0.5
million or 8%, to $6.6 million. Clinical and regulatory expenses increased $0.5 million primarily due to compensation costs and
professional fees, including costs related to regulatory submissions for new products in geographies such as China. Product
development expenses in total were unchanged, with decreases in compensation costs offset by increased product testing.
Other income (expense). Interest income was $0.2 million and $0.1 million, respectively for 2017 and 2016. Foreign
exchange losses for both 2017 and 2016 were $0.2 million.
Income tax expense. We recorded a provision for taxes of $3.9 million on pre-tax income of $21.1 million in 2017 as
compared to $5.7 million on pre-tax income of $16.2 million in 2016. The 2017 provision was comprised of a Federal tax
provision in the United States of $2.2 million, a state tax provision of $0.7 million and a foreign tax provision of $1.0 million. The
2016 provision was comprised of a Federal tax provision in the United States of $4.6 million, a state tax provision of $0.6 million
and a foreign tax provision of $0.5 million. Our effective tax rate differed from the U.S. statutory tax rate in 2017 principally
because of stock option exercises, U.S. tax reform legislation, deferred tax remeasurement, and certain permanent differences.
While it is often difficult to predict the final outcome or timing of the resolution of any particular tax matter, we believe that our
tax reserves reflect the probable outcome of known contingencies.
39
We assess the likelihood that our deferred tax assets will be realized through future taxable income and record a valuation
allowance to reduce gross deferred tax assets to an amount we believe is more likely than not to be realized. As of December 31,
2017, we have provided a valuation allowance of $2.0 million for deferred tax assets primarily related to an Australian net
operating loss and capital loss carry forwards as well as Massachusetts tax credit carry forwards that are not expected to be
realized.
Refer to Note 8 to our consolidated financial statements for additional information about income tax expense (benefit)
including information related to U.S. tax reform legislation.
Liquidity and Capital Resources
At December 31, 2018, we held $26.3 million in cash and cash equivalents and $21.7 million in a short-term managed
income mutual fund investment, as compared to $19.1 million in cash and cash equivalents and $22.6 million in the mutual fund
investment at December 31, 2017. Our cash and cash equivalents are highly liquid investments with maturities of 90 days or less
at the date of purchase, consist of money market funds, and are stated at cost, which approximates fair value. Our short-term
marketable securities consist of a managed income mutual fund investing mainly in short-term investment grade, U.S.-dollar
denominated fixed and floating-rate debt. All of our cash held outside of the United States is available for corporate use, with the
exception of $4.4 million held by subsidiaries in jurisdictions for which earnings are planned to be permanently reinvested.
On July 25, 2017, our Board of Directors approved a stock repurchase program under which the Company was authorized
to repurchase up to $7.5 million of its common stock. This program expired on July 25, 2018. We did not make any repurchases
under this program.
On February 14, 2019, our Board of Directors authorized the repurchase of up to $10.0mm of the Company’s common
stock through transactions on the open market, in privately negotiated purchases or otherwise. The repurchase program may be
suspended or discontinued at any time and will conclude on February 14, 2020, unless extended by the Board. As of March 6,
2019 we had not made any repurchases under this program.
Operating and Capital Expenditure Requirements
We require cash to pay our operating expenses, make capital expenditures, and pay our long-term liabilities. Since our
inception, we have funded our operations through public offerings and private placements of equity securities, short-term and
long-term borrowings, and funds generated from our operations.
We recognized operating income of $28.2 million for the year ended December 31, 2018, $21.1 million for the year ended
December 31, 2017 and $16.3 million for the year ended December 31, 2016. We expect to fund any increased costs and
expenditures from our existing cash and cash equivalents, though our future capital requirements depend on numerous factors.
These factors include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
the revenues generated by product sales;
payments associated with potential future quarterly cash dividends to our common stockholders;
payments associated with our stock repurchase program;
future acquisition-related payments;
payments associated with U.S income and other taxes;
the costs associated with expanding our manufacturing, marketing, sales, and distribution efforts;
the costs associated with our initiatives to sell direct-to-hospital in new countries;
the costs of obtaining and maintaining FDA and other regulatory clearances of our existing and future products; and
the number, timing, and nature of acquisitions and other strategic transactions.
Our cash balances may decrease as we continue to use cash to fund our operations, make acquisitions, make payments
under our quarterly dividend program, repurchase shares of our common stock and make deferred payments related to prior
acquisitions. We believe that our cash, cash equivalents, investments and the interest we earn on these balances will be sufficient
to meet our anticipated cash requirements for at least the next twelve months. If these sources of cash are insufficient to satisfy our
liquidity requirements beyond the next twelve months, we may seek to sell additional equity or debt securities or borrow funds
from, or establish a revolving credit facility, with a financial institution. The sale of additional equity and debt securities may
result in dilution to our stockholders. If we raise additional funds through the issuance of debt securities, such securities could
have rights senior to those of our common stock and could contain covenants that would restrict our operations and possibly our
ability to pay dividends. We may require additional capital beyond our currently forecasted amounts. Any such required additional
capital may not be available on reasonable terms, if at all.
40
Cash Flows
2018
Year ended December 31,
2017
($ in thousands)
2016
Cash and cash equivalents .................. $
26,318 $
19,096 $
24,288
Cash flows provided by (used in):
Operating activities ..................... $
Investing activities ......................
Financing activities .....................
19,506 $
(7,055)
(4,416)
22,868 $
(28,958 )
80
16,896
(17,211)
(2,577)
Net cash provided by operating activities. Net cash provided by operating activities was $19.5 million for the year ended
December 31, 2018, and consisted of $22.9 million net income, adjusted for non-cash items of $1.7 million (including primarily
depreciation and amortization of $4.3 million, stock-based compensation of $2.3 million, provisions for inventory write-offs and
doubtful accounts of $1.0 million, a benefit for deferred taxes of $2.2 million and gains on acquisitions and divestitures of $7.5
million), as well as working capital uses of $1.7 million. The net cash used for working capital was driven by increases in
accounts receivable of $1.3 million, inventory of $4.3 million and other current assets of $0.4 million, offset by an increase in
accounts payable and other liabilities of $4.3 million.
Net cash provided by operating activities was $22.9 million for the year ended December 31, 2017, and consisted of $17.2
million net income, adjusted for non-cash items of $7.3 million (including primarily depreciation and amortization of $4.1 million,
stock-based compensation of $2.3 million, provisions for inventory write-offs and doubtful accounts of $0.6 million, and a
provision for deferred taxes of $0.3 million), as well as working capital uses of $1.6 million. The net cash used for working capital
was driven by increases in accounts receivable of $1.5 million, inventory of $1.3 million and other current assets of $0.3 million,
offset by an increase in accounts payable and other liabilities of $1.5 million.
Net cash provided by operating activities was $16.9 million for the year ended December 31, 2016, and consisted of $10.6
million net income, adjusted for non-cash items of $5.9 million (including depreciation and amortization of $3.6 million, stock-
based compensation of $1.7 million, provisions for inventory write-offs and doubtful accounts of $0.5 million and provision for
deferred taxes of $0.1 million), as well as changes in working capital of $0.4 million. The net cash provided by changes in
working capital was driven by decreases in other current assets of $1.5 million, including primarily prepaid taxes, partially offset
by increases in accounts receivable of $0.9 million and inventory of $0.1 million, and a decrease in accounts payable and other
liabilities of $0.1 million.
Net cash used in investing activities. Net cash used in investing activities was $7.1 million for the year ended
December 31, 2018, driven by cash paid for acquisitions of $12.3 million, as well as purchases of property and equipment of $3.1
million primarily associated with clean room build-outs at our Burlington, Massachusetts headquarters. These investments were in
part offset by proceeds from the Reddick divestiture of $7.4 million and net sales of short-term investments of $0.9 million.
Net cash used in investing activities was $29.0 million for year ended December 31, 2017, driven by a $22.5 million
purchase of a short-term investment, as well as purchases of property and equipment of $6.4 million primarily associated with the
clean room build-outs at our Burlington, Massachusetts headquarters.
Net cash used in investing activities was $17.2 million for year ended December 31, 2016, driven by $14.4 million of cash
paid in connection with our acquisitions of the ProCol biologic vascular graft and RestoreFlow allograft businesses, as well as
purchases of property and equipment of $2.8 million primarily associated with the expansion of our Burlington, Massachusetts
headquarters.
Net cash provided by (used in) financing activities. Net cash used in financing activities was $4.4 million for the year
ended December 31, 2018, driven primarily by payments of common stock dividends of $5.4 million and payments related to our
prior acquisitions of $1.2 million. We had proceeds from stock option exercises of $3.0 million, offset by the acquisition of $0.7
million of treasury shares to cover minimum withholding taxes on restricted stock unit vestings.
Net cash provided by financing activities was $0.1 million for the year ended December 31, 2017, driven primarily by
proceeds from stock option exercises of $5.5 million, offset by the acquisition of $0.8 million of treasury shares to cover
minimum withholding taxes on restricted stock unit vestings and by payments of common stock dividends of $4.2 million. We
also made payments related to our prior acquisitions of $0.4 million.
Net cash used in financing activities was $2.6 million for the year ended December 31, 2016, driven primarily by payments
of common stock dividends of $3.3 million, partially offset by proceeds from stock option exercise, net of shares repurchased for
taxes, of $1.1 million. We also made payments related to our prior acquisitions of $0.4 million.
41
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 2018
March 22, 2018
May 22, 2018
August 22, 2018
November 20, 2018
April 5, 2018
June 7, 2018
September 6, 2018
December 6, 2018
$
$
$
$
Fiscal Year 2017
March 22, 2017
May 24, 2017
August 23, 2017
November 22, 2017
April 6, 2017
June 8, 2017
September 6, 2017
December 7, 2017
$
$
$
$
0.070 $
0.070 $
0.070 $
0.070 $
0.055 $
0.055 $
0.055 $
0.055 $
1,351
1,353
1,369
1,372
1,029
1,036
1,055
1,060
On February 14, 2019, our Board of Directors approved a quarterly cash dividend on our common stock of $0.085 per
share payable on April 5, 2019, to stockholders of record at the close of business on March 22, 2019, which will total
approximately $1.7 million.
Contractual obligations. Our principal contractual obligations consist of operating leases and inventory purchase
commitments. The following table summarizes our commitments under operating leases as of December 31, 2018:
Contractual obligations
Total
Less
than
1 year
1-3
years
(in thousands)
3-5
years
More
than
5 years
Operating leases ............................................. $
7,435 $
1,826 $
3,053 $
2,556 $
Inventory purchase commitments................... $
2,195 $
2,072 $
123 $
- $
-
-
The commitments under our operating leases consist primarily of lease payments for our corporate headquarters and
manufacturing facility in Burlington, Massachusetts, expiring in 2023, our Sulzbach, Germany office, expiring in 2023, our
Vaughan, Canada office expiring in 2023, our Tokyo, Japan office, expiring in 2022; and our Shanghai, China office, expiring in
2020. They also include automobile leases.
We also have inventory purchase commitments of approximately $2.2 million as of December 31, 2018. These
commitments are for product used in operations in the normal course of business and do not represent excess commitments or loss
contracts.
Critical Accounting Policies and Estimates
We have adopted various accounting policies to prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles (GAAP). Our most significant accounting policies are described in Note 1 to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of our consolidated
financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in
our consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to bad
debts, inventories, intangible assets, sales returns and discounts, and income taxes are reviewed on an ongoing basis and updated
as appropriate. Actual results could differ from those estimates.
Certain of our more critical accounting policies require the application of significant judgment by management in selecting
the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree
of uncertainty. These judgments are based on our historical experience, terms of existing contracts, and observance of trends in
the industry, as appropriate. Different, reasonable estimates could have been used in the current period. Additionally, changes in
accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on
the presentation of our financial condition, changes in financial condition, or results of operations.
42
We believe that the following financial estimates and related accounting policies are both important to the portrayal of our
financial condition and results of operations and require subjective or complex judgments. Further, we believe that the items
discussed below are properly recorded in our consolidated financial statements for all periods presented. Management has
discussed the development, selection and disclosure of our most critical financial estimates with the audit committee of our board
of directors and our independent registered public accounting firm. The judgments about those financial estimates are based on
information available as of the date of our consolidated financial statements. Those financial estimates and related policies
include:
Revenue Recognition
Our revenue is derived primarily from the sale of disposable or implantable devices used during vascular surgery. We sell
primarily directly to hospitals, and to a lesser extent to distributors. We also occasionally enter into consigned inventory
arrangements with either hospitals or distributors on a limited basis. Following our acquisition of the RestoreFlow allograft
business, we also derive revenues from human tissue cryopreservation services. These service revenues are recognized when
services have been provided and the tissue has been shipped to the customer, provided all other revenue recognition criteria
discussed below have been met.
On January 1, 2018 we adopted the provisions of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). We
used the modified retrospective method of adoption under which the comparative information was not restated and will continue
to be reported under the standard in effect for those periods. The adoption of this standard was not material to our financial
statements and there was no cumulative effect adjustment to the opening balance of retained earnings required. 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
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 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 recognize 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.
43
Below is a disaggregation of our revenue by major geographic area, which is one of the primary categorizations used by
management in evaluating financial performance, for the periods indicated (in thousands):
Americas ........................................................................ $
Europe, Middle East and Africa .....................................
Asia/Pacific Rim ............................................................
Total ........................................................................... $
63,649 $
35,319
6,600
105,568 $
62,696
32,517
5,654
100,867
Year ended December 31,
2018
2017
Except as discussed in Note 6 to our consolidated financial statements, 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 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
Spain and Italy 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
return experience, which requires judgment. Our cost of replacing defective products has not been material and is accounted for at
the time of replacement.
Accounts Receivable
Our accounts receivable are with customers based in the United States and internationally. Accounts receivable generally
are due within 30 to 90 days of invoice and are stated at amounts due from customers, net of an allowance for doubtful accounts
and sales returns, other than in certain European markets where longer payment terms are customary and may range from 90 to
240 days. We perform ongoing credit evaluations of the financial condition of our customers and adjust credit limits based upon
payment history and the current creditworthiness of the customers, as determined by a review of their current credit information.
We continuously monitor aging reports, collections, and payments from customers, and maintain a provision for estimated credit
losses based upon historical experience and any specific customer collection issues we identify.
We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic
conditions, in both the U.S. and international economies. Our European sales to government-owned or supported customers such
as hospitals, distributors and agents in Italy and Spain may be subject to significant payment delays due to government austerity
measures impacting funding and payment practices. As of December 31, 2018 our receivables in Italy and Spain totaled $1.0
million and $0.7 million, respectively. Receivables balances with certain publicly-owned hospitals and government supported
customers in these countries can accumulate over a period of time and then subsequently be settled as large lump sum payments.
While we believe our allowance for doubtful accounts in these countries is adequate as of December 31, 2018, if significant
changes were to occur in Italy’s or Spain’s payment practices or if government funding becomes unavailable, we may not be able
to collect on receivables due to us from these customers and our write offs of uncollectible amounts may increase.
We write off accounts receivable when they become uncollectible. While such credit losses have historically been within
our expectations and allowances, we cannot guarantee the same credit loss rates will be experienced in the future. The allowance
for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review
our allowance for doubtful accounts on a monthly basis and all past due balances are reviewed individually for collectability. The
provision for the allowance for doubtful accounts is recorded in general and administrative expenses.
Inventory and Other Deferred Costs
Inventory consists of finished products, work-in-process, and raw materials. We value inventory at the lower of cost or
market value. Cost includes materials, labor, and manufacturing overhead and is determined using the first-in, first-out (FIFO)
method. On a quarterly basis, we review inventory quantities on hand and analyze the provision for excess and obsolete inventory
based primarily on product expiration dating and our estimated sales forecast, which is based on sales history and anticipated
future demand. Our estimates of future product demand may not be accurate, and we may understate or overstate the provision
required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in demand could have a significant
impact on the value of our inventory and results of operations.
44
In connection with our RestoreFlow allograft business, other deferred costs include costs incurred for the preservation of
human vascular 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 human vascular tissues are instead accumulated and deferred.
Stock-based Compensation
We recognize, as expense, the estimated fair value of stock options to employees which is determined using the Black-
Scholes option pricing model. We have elected to recognize the compensation cost of all share-based awards on a straight-line
basis over the vesting period of the award. In periods that we grant stock options, fair value assumptions are based on volatility,
interest rates, dividend yield, and expected term over which the stock options will be outstanding. The computation of expected
volatility is based on the historical volatility of the company’s stock. The interest rate for periods within the contractual life of the
award is based on the U.S. Treasury risk-free interest rate in effect at the time of grant. Historical data on exercise patterns is the
basis for estimating the expected life of an option. The expected annual dividend rate was calculated by dividing our annual
dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.
We also issue restricted stock units (RSUs) as an additional form of equity compensation to our employees, officers, and
directors, pursuant to our stockholder-approved Second Amended and Restated 2006 Stock Option and Incentive Plan. RSUs
entitle the grantee to an issuance of stock at no cost and generally vest over a period of time determined by our Board of Directors
at the time of grant based upon the continued service to the company. The fair market value of the award is determined based on
the number of RSUs granted and the market value of our common stock on the grant date and is amortized to expense over the
period of vesting. Unvested RSUs are forfeited and canceled as of the date that employment or service to the company terminates.
RSUs are settled in shares of our common stock upon vesting. We may repurchase common stock upon our employees’ vesting in
RSUs in order to cover any minimum tax withholding liability as a result of the RSUs having vested.
As disclosed more fully in the notes to our consolidated financial statements, we recorded expense of approximately $2.3
million in connection with share-based payment awards for the year ended December 31, 2018. The future expense of non-vested
share-based awards of approximately $9.7 million is to be recognized over a weighted-average period of 3.8 years. During 2018,
we granted stock options at a weighted average fair value of $8.28 and RSUs with weighted average fair value of $23.65. Share-
based compensation charges are recorded across the consolidated statement of operations based upon the grantee’s primary
function.
Valuation of Goodwill, and Other Intangibles
Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of the fair value of
assets acquired and liabilities assumed. Goodwill is evaluated for impairment annually or more frequently if indicators of
impairment are present or changes in circumstances suggest that an impairment may exist. Our assessment is performed as of
December 31 each year based on a single reporting unit. We first perform an assessment of qualitative factors to determine if it is
“more likely than not” that the fair value of our reporting unit is less than its carrying value as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. The “more likely than not” threshold is defined as having a
likelihood of more than 50 percent. If required, the next step of the goodwill impairment test is to determine the fair value of the
reporting unit. The implied fair value of goodwill is determined on the same basis as the amount of goodwill recognized in
connection with a business combination. Specifically, the fair value of a reporting unit is allocated to all of the assets and
liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination as of
the date of the impairment review and as if the fair value of the reporting unit was the price paid to acquire the reporting unit. The
excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of
goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to that excess. Goodwill was $29.9 million and $23.8 million as of December 31, 2018 and
2017, respectively. Our annual impairment testing indicated no significant risk of impairment based upon changes in value that
are reasonably likely to occur. However, changes in these estimates and assumptions could materially affect the estimated fair
value of our reporting unit.
Other intangible assets consist primarily of purchased developed technology, patents, customer relationships and
trademarks, and are amortized over their estimated useful lives, ranging from 2 to 16 years. We review intangible assets quarterly
to determine if any adverse conditions exist for a change in circumstances has occurred that would indicate impairment.
Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business
climate that could affect the value of the asset, a change in the operating cash flows associated with the asset, or adverse action or
assessment by a regulator. If an impairment indicator exists we test the intangible asset for recoverability. If the carrying value of
the intangible asset exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible
asset, we will write the carrying value down to the fair value in the period in which it is identified. We generally calculate the fair
value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-
adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, we use estimates and
assumptions about future revenue contributions, cost structures, and remaining useful lives of the asset. These estimates and
45
assumptions require significant judgment and actual results may differ from assumed or estimated amounts. Other intangible
assets, net of accumulated amortization, were $13.7 million as of December 31, 2018 and $8.2 million as of December 31, 2017.
Contingencies
In the normal course of business, we are subject to proceedings, lawsuits, and other claims and assessments for matters
related to, among other things, business acquisitions, employment, commercial matters, intellectual property matters, product
liability and product recalls. We assess the likelihood of any adverse judgments or outcomes to these matters as well as potential
ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful
analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or
changes in approach such as a change in settlement strategy in dealing with these matters. We record charges for the costs we
anticipate incurring in connection with litigation and claims against us when we determine a loss is probable and we can
reasonably estimate these costs. During the years ended December 31, 2018, 2017, and 2016, we were not subject to any material
litigation, claims or assessments.
Income Taxes
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 likely, 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 recognize, measure, present and disclose in our financial statements, uncertain tax positions that we have taken or
expect to take on a tax return. We operate in multiple taxing jurisdictions, both within the United States and outside of the United
States and may be subject to audits from various tax authorities regarding transfer pricing, the deductibility of certain expenses,
intercompany transactions, and other matters. 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.
Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2018-
15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use
software license). The new standard is effective for us beginning January 1, 2020, with early adoption permitted. The adoption of
this standard is not expected to have a material impact on our financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820), which modifies the disclosure
requirements for fair value measurements. The new standard is effective for us beginning January 1, 2020, with early adoption
permitted. The adoption of this standard is not expected to have a material impact on our financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Other Comprehensive Income (Topic
220), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and is expected to improve the usefulness of information reported to financial statement users. However,
because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying
guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not
affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The new standard is effective
for us beginning January 1, 2019, with early adoption permitted. The adoption of this standard is not expected to have a material
impact on our financial statements.
In January 2017, the FASB issued ASU 2017-04, which, among other provisions, eliminates “step 2” from the goodwill
impairment test. The annual, or interim, goodwill impairment test will be performed by comparing the fair value of a reporting
unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds
the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
46
reporting unit. The new standard is effective for us beginning January 1, 2020, with early adoption permitted. The adoption of this
standard is not expected to have a material impact on our financial statements.
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842),
subsequently amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under the new guidance, lessees will be
required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease
liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-
of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Lessees will no longer be provided with a source of off-balance sheet financing. The new lease guidance also simplifies the
accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The
standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted. Entities have the option of using
either a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, or else a transition option (which we currently expect to use) allowing lessees to not
apply the new lease standard in comparative periods but instead recognize a cumulative-effect adjustment to retained earnings as
of the date of adoption. The modified retrospective approach would not require any transition accounting for leases that expired
before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Our
assessment of the impact of adopting this standard is nearly complete, and included cataloging all of our leases, performing an
analysis of the amounts of lease liabilities and right-of-use assets to be recorded and reviewing potential changes to our
disclosures on leases. Based on this assessment we do not expect the adoption of this standard to have a significant impact on our
consolidated statement of operations. However, we expect that the recognition of right-of-use assets and corresponding lease
liabilities will have a significant impact on our consolidated balance sheet, adding between $6.1 million and $6.7 million to our
total assets, and between $6.6 million and $7.2 million to our total liabilities, depending primarily on the discount rate selected.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2018. We do not currently have, nor have we ever
had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance
or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded
contracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had
engaged in these relationships.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of conducting business, we are exposed to certain risks associated with potential changes in market
conditions. These market risks include changes in currency exchange rates and interest rates which could affect operating results,
financial position and cash flows.
Foreign Currency Risk
During fiscal 2018 and 2017, 44% and 42%, respectively, of our total revenue was from customers outside of the United
States. In addition, a significant portion of our operating costs incurred outside the United States are denominated in currencies
other than the U.S. dollar. We conduct business on a worldwide basis and as a result, a portion of our revenue, earnings, net
assets, and net investments in foreign affiliates is exposed to changes in foreign currency exchange rates. We measure our net
exposure for cash balance positions and for cash inflows and outflows in order to evaluate the need to mitigate our foreign
exchange risk. We may enter into foreign currency forward contracts to minimize the impact related to unfavorable exchange rate
movements, although we have not done so during fiscal 2018 and fiscal 2017. Our largest exposures to foreign currency exchange
rates exist primarily with the Euro, British pound, Canadian dollar, Australian dollar and Japanese yen.
During the years ended December 31, 2018 and 2017, we recorded $0.4 million and $0.2 million of net foreign currency
exchange losses, respectively, related to the settlement and remeasurement of transactions denominated in currencies other than
the functional currency of our operating subsidiaries. Our analysis of operating results transacted in various foreign currencies
indicated that a hypothetical 10% change in the foreign currency exchange rates could have increased or decreased the
consolidated results of operations by approximately $1.9 million for 2018.
47
Interest Rate Risk
At December 31, 2018, we held $26.3 million in cash and cash equivalents and $21.7 million in a short-term managed
income mutual fund investment. Due to the short maturities on any instruments held, a hypothetical 10% increase or decrease in
interest rates would not have a material impact on our financial position, results of operations or cash flows.
Item 8.
Financial Statements and Supplementary Data
See the consolidated financial statements filed as part of this Annual Report on Form 10-K as listed under Item 15 below,
which are incorporated by reference herein.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
48
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is
responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed
to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated
to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure. We design our disclosure controls and procedures to ensure, at reasonable assurance levels, that such information is
timely recorded, processed, summarized and reported, and then accumulated and communicated appropriately.
Based on an evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer
and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at reasonable
assurance levels.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2018.
Management based its assessment on criteria established in the Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management’s assessment included
evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation,
accounting policies, and our overall control environment.
Based on this assessment under the criteria set forth in the Internal Control — Integrated Framework, management has
concluded that our internal control over financial reporting was effective as of December 31, 2018.
Our internal control over financial reporting as of December 31, 2018 has been audited by Grant Thornton LLP, an
independent registered public accounting firm, as stated in their respective report which is included herein.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended
December 31, 2018 that has materially affected, or is reasonably likely to materially affect our internal control over financial
reporting.
Inherent Limitations of Internal Controls
Notwithstanding the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, does
not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
LeMaitre Vascular, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of LeMaitre Vascular, Inc. (a Delaware corporation) and subsidiaries
(the “Company”) as of December 31, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2018, and our
report dated March 11, 2019 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Westborough, Massachusetts
March 11, 2019
Item 9B. Other Information
Not Applicable.
50
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information responsive to this item is incorporated by reference herein from the information to be contained in the
sections entitled “Directors, Executive Officers and Key Employees,” “Corporate Governance,” and “Meetings and Committees
of the Board of Directors” in our 2019 definitive proxy statement (2019 Definitive Proxy Statement) for the 2019 annual meeting
of stockholders to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended
December 31, 2018.
The information required by this item concerning compliance with Section 16(a) of the Exchange Act is incorporated
herein by reference from the information contained in the section entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” in our 2019 Definitive Proxy Statement.
Code of Ethics
Certain documents relating to our corporate governance, including our Code of Business Conduct and Ethics, which is
applicable to our directors, officers, and employees, and the charters of the Audit Committee, Compensation Committee, and
Corporate Governance and Nominating Committee of our Board of Directors, are available on our website at
http://www.lemaitre.com. We intend to disclose substantive amendments to or waivers (including implicit waivers) of any
provision of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer,
principal accounting officer, or controller, or persons performing similar functions, by posting such information on our website
available at http://www.lemaitre.com.
Item 11.
Executive Compensation
The information responsive to this item is incorporated herein by reference from the information to be contained in the
section entitled “Compensation of Executive Officers and Directors” in our 2019 Definitive Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information responsive to this item is incorporated herein by reference from the information to be contained in the
section entitled “Security Ownership of Certain Beneficial Owners and Management” in our 2019 Definitive Proxy Statement.
Equity Compensation Plan Information
The following table sets forth information regarding our equity compensation plans in effect as of December 31, 2018.
Each of our equity compensation plans is an “employee benefit plan” as defined by Rule 405 of Regulation C of the Securities Act
of 1933, as amended.
Number of
securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of
securities
remaining available
for future issuance
under equity
compensation plans,
excluding securities
reflected in column
(a)
Plan category
Equity compensation plans approved by security holders .....
Equity compensation plans not approved by security
holders ...................................................................................
Total ...........................................
(a)
(b)
(c)
1,680,470 $
17.03
1,212,644
-
1,680,470 $
-
17.03
-
1,212,644
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required responsive to this item is incorporated herein by reference from the information to be contained
in the sections entitled “Certain Relationships and Related Transactions” and “Corporate Governance” in our 2019 Definitive
Proxy Statement.
51
Item 14.
Principal Accounting Fees and Services
The information responsive to this item is incorporated herein by reference from the information to be contained in the
sections entitled “Ratification of Independent Registered Public Accounting Firm” and “Additional Information Regarding Our
Independent Registered Public Accounting Firm” in our 2019 Definitive Proxy Statement.
Item 15.
Exhibits and Financial Statement Schedules
a)
Documents filed as part of this Report.
PART IV
(1) The following consolidated financial statements are filed herewith in Item 8 of Part II above.
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations
(iv) Consolidated Statements of Changes in Stockholders’ Equity
(v) Consolidated Statements of Comprehensive Income
(vi) Consolidated Statements of Cash Flows
(vii) Notes to Consolidated Financial Statements
(2) All financial statement schedules are omitted because they are not applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits
Exhibit
Number
2.1
Exhibit Description
Incorporated By Reference
SEC File
Number
Form Date
Filed
Herewith
Asset Purchase Agreement dated November 10, 2016 between
Registrant, Restore Flow Allografts, LLC and certain individuals
named therein.
10-K
3/9/18
001-33092
2.2
Asset Purchase Agreement dated September 20, 2018 between
Registrant and Applied Medical Resources Corporation
10-Q
11/2/2018
001-33092
3.1
Amended and Restated By-laws of the Registrant
S-1/A
5/26/06 333-133532
3.2
3.3
Second Amended and Restated Certificate of Incorporation of the
Registrant
10-K
3/29/10
001-33092
Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant
8-K
6/15/12
001-33092
4.1
Specimen Certificate evidencing shares of common stock
S-1/A
6/22/06 333-133532
52
Exhibit
Number
10.1
Exhibit Description
Incorporated By Reference
SEC File
Number
Form Date
Filed
Herewith
Northwest Park Lease dated March 31, 2003, by and between the
Registrant and Roger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, as amended
S-1
4/25/06
333-133532
10.2
Director Compensation Policy
10-K
3/27/12
001-33092
10.3†
Executive Retention and Severance Agreement dated October 10,
2005, by and between the Registrant and George W. LeMaitre
S-1/A
5/26/06
333-133532
10.4†
Employment Agreement dated June 20, 2006, by and between the
Registrant and David Roberts
S-1/A
6/22/06
333-133532
10.5†
Employment Agreement dated April 20, 2006, by and between the
Registrant and Joseph P. Pellegrino
S-1/A
6/22/06
333-133532
10.6†
Form of Indemnification Agreement between the Registrant and its
directors and executive officers
S-1/A
5/26/06
333-133532
10.7
10.8
10.9
Second Amendment of Lease dated May 21, 2007, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of
Northwest Associates, and Registrant
Third Amendment of Lease dated February 26, 2008, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of
Northwest Associates, and Registrant
Fourth Amendment of Lease dated October 31, 2008, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of
Northwest Associates, and Registrant
8-K
6/15/07
001-33092
8-K
4/10/08
001-33092
10-K
3/31/09
001-33092
10.10†
First Amendment to Executive Retention and Severance Agreement
dated December 23, 2008, by and between the Registrant and George
W. LeMaitre
10-K
3/31/09
001-33092
10.11†
First Amendment to Employment Agreement dated December 19,
2008, by and between the Registrant and David Roberts
10-K
3/31/09
001-33092
10.12†
First Amendment to Employment Agreement dated December 19,
2008, by and between the Registrant and Joseph P. Pellegrino
10-K
3/31/09
001-33092
10.13
Fifth Amendment of Lease dated March 23, 2010, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of
Northwest Associates, and Registrant
10-K
3/29/10
001-33092
53
Exhibit
Number
10.14
10.15
10.16
10.17
Exhibit Description
Incorporated By Reference
SEC File
Number
Form Date
Filed
Herewith
Northwest Park Lease dated March 23, 2010, by and between
Rodger P. Nordblom and Peter C. Nordblom, as Trustees of Northwest
Associates, and Registrant
10-K
3/29/10
001-33092
First Amendment to Northwest Park Lease dated September 14, 2010,
by and between Rodger P. Nordblom and Peter C. Nordblom, as
Trustees of Northwest Associates, and Registrant
Second Amendment to Northwest Park Lease dated October 31, 2011,
by and between NWP Building 4 LLC, as successor-in-interest to
Trustees of Northwest Associates, and Registrant
10-K
3/27/12
001-33092
10-K
3/27/12
001-33092
Third Amendment of Northwest Park Lease dated August 31, 2012, by
and between NWP Building 4 LLC, as successor-in-interest to Trustees
of Northwest Associates, and Registrant
10-K
3/27/13
001-33092
10.18
Lease dated December 20, 2013, by and between N.W. Building 3
Trust and Registrant
8-K
12/23/13
001-33092
10.19
10.20
Fourth Amendment of Lease dated December 20, 2013, by and
between NWP Building 4 LLC, as successor-in-interest to the Trustees
of Northwest Associates, and Registrant
8-K
12/23/13
001-33092
Sixth Amendment of Lease dated December 20, 2013, by and between
NWP Building 5 LLC, as successor-in-interest to the Trustees of
Northwest Associates, and Registrant
8-K
12/23/13
001-33092
10.21†
Amended and Restated Management Incentive Compensation Plan
8-K
2/25/14
001-33092
10.22†
Third Amended and Restated 2006 Stock Option and Incentive Plan
8-K
6/8/15
001-33092
10.23†
Separation Agreement dated June 7, 2017 between Peter R. Gebauer
and LeMaitre Vascular GmbH
10-Q
8/3/2017
001-33092
10.24†
Transition and Employment Agreement dated June 7, 2017 between
Peter R. Gebauer and the Registrant
10-Q
8/3/2017
001-33092
10.25†
Form of Restricted Stock Unit Award Agreement under the LeMaitre
Vascular, Inc. 2006 Stock Option And Incentive Plan
10-K
3/9/18
001-33092
10.26†
Form of Incentive Stock Option Agreement under the LeMaitre
Vascular, Inc. 2006 Stock Option And Incentive Plan
10-K
3/9/18
001-33092
10.27†
Form of Non-Qualified Stock Option Agreement (Employees) under
the LeMaitre Vascular, Inc. 2006 Stock Option And Incentive Plan
10-K
3/9/18
001-33092
10.28
Form of Non-Qualified Stock Option Agreement (Non-Employee
Directors) under the LeMaitre Vascular, Inc. 2006 Stock Option And
Incentive Plan
10-K
3/9/18
001-33092
10.29
Asset Purchase Agreement between the Registrant and Specialty
Surgical Instrumentation, Inc. dated April 5, 2018.
10-Q
5/4/2018
001-33092
21.1
List of Subsidiaries
23.1
Consent of Grant Thornton LLP
24.1
Power of Attorney (included on the Signatures page of this Annual
Report on Form 10-K)
X
X
X
54
Exhibit
Number
Exhibit Description
Incorporated By Reference
SEC File
Number
Form Date
Filed
Herewith
31.1
31.2
32.1*
32.2*
Certification of Chief Executive Officer, as required by Rule 13a-14(a)
or Rule 15d-14(a)
Certification of Chief Financial Officer, as required by Rule 13a-14(a)
or Rule 15d-14(a)
Certification of Chief Executive Officer, as required by Rule 13a-14(b)
or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the
United States Code (18 U.S.C. §1350)
Certification of Chief Financial Officer, as required by Rule 13a-14(b)
or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the
United States Code (18 U.S.C. §1350)
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XRBL Taxonomy Extension Presentation Linkbase Document.
X
X
X
X
X
X
X
X
X
X
†
*
Indicates a management contract or any compensatory plan, contract, or arrangement.
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with
the Securities and Exchange Commission and are not to be incorporated by reference into any filing of LeMaitre Vascular, Inc.
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after
the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16.
Form 10-K Summary.
Not applicable.
55
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 11, 2019.
SIGNATURES
LEMAITRE VASCULAR, INC.
By:
/S/ GEORGE W. LEMAITRE
George W. LeMaitre,
Chief Executive Officer and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints George W. LeMaitre and Joseph P. Pellegrino, Jr., and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ GEORGE W. LEMAITRE
George W. LeMaitre
/s/ JOSEPH P. PELLEGRINO, JR.
Joseph P. Pellegrino, Jr.
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Chief Financial Officer (Principal
Financial and Accounting
Officer) and Director
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
Director
Director
/s/ LAWRENCE J. JASINSKI
Lawrence J. Jasinski
/s/ JOHN J. O’CONNOR
John J. O’Connor
/s/ DAVID B. ROBERTS
David B. Roberts
/s/ JOHN A. ROUSH
John A. Roush
/S/ MICHAEL H. THOMAS
Michael H. Thomas
President and Director
March 11, 2019
March 11, 2019
March 11, 2019
Director
Director
56
INDEX TO FINANCIAL STATEMENTS
LeMaitre Vascular, Inc.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm ..................................................................................................
Consolidated Balance Sheets as of December 31, 2018 and 2017 ........................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016 ......................................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016 ..................
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 ......................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 .....................................
Notes to Consolidated Financial Statements .........................................................................................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
LeMaitre Vascular, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of LeMaitre Vascular, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December
31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 20X2, based on criteria established in
the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated March 11, 2019 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2015.
/s/ GRANT THORNTON LLP
Westborough, Massachusetts
March 11, 2019
F-2
LeMaitre Vascular, Inc.
Consolidated Balance Sheets
December 31, December 31,
2018
2017
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents ............................................................................................... $
Short-term marketable securities .....................................................................................
Accounts receivable, net of allowances of $399 at December 31, 2018, and $349 at
December 31, 2017 ......................................................................................................
Inventory and other deferred costs ..................................................................................
Prepaid expenses and other current assets .......................................................................
Total current assets ..............................................................................................................
Property and equipment, net ................................................................................................
Goodwill ..............................................................................................................................
Other intangibles, net ..........................................................................................................
Deferred tax assets ..............................................................................................................
Other assets .........................................................................................................................
Total assets .......................................................................................................................... $
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable............................................................................................................. $
Accrued expenses ............................................................................................................
Acquisition-related obligations ........................................................................................
Total current liabilities ........................................................................................................
Deferred tax liabilities .........................................................................................................
Other long-term liabilities ...................................................................................................
Total liabilities ....................................................................................................................
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 21,110,224
shares at December 31, 2018, and 20,745,051 shares at December 31, 2017 ..............
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive loss ..........................................................................
Treasury stock, at cost; 1,501,511 shares at December 31, 2018 and 1,480,101 shares
at December 31, 2017 ..................................................................................................
Total stockholders’ equity ...................................................................................................
Total liabilities and stockholders’ equity............................................................................. $
See accompanying notes to consolidated financial statements.
26,318 $
21,668
15,721
27,388
2,922
94,017
14,102
29,868
13,692
1,215
194
153,088 $
1,732 $
15,847
2,179
19,758
484
2,611
22,853
19,096
22,564
15,000
21,046
2,605
80,311
12,378
23,844
8,234
1,378
178
126,323
1,543
9,770
1,876
13,189
2,176
1,188
16,553
-
-
211
98,442
45,831
(3,900)
(10,349)
130,235
153,088 $
207
93,127
28,333
(2,289)
(9,608)
109,770
126,323
F-3
LeMaitre Vascular, Inc.
Consolidated Statements of Operations
2018
Year ended December 31,
2017
(in thousands, except per share data)
2016
Net sales .................................................................................................. $
Cost of sales ............................................................................................
105,568 $
31,629
100,867 $
30,170
89,151
26,215
Gross profit .............................................................................................
73,939
70,697
62,936
Sales and marketing ................................................................................
General and administrative ......................................................................
Research and development ......................................................................
Gain on divestitures and acquisitions ......................................................
Total operating expenses .........................................................................
27,318
17,689
8,197
(7,474)
45,730
25,948
17,010
6,636
-
49,594
26,105
14,354
6,141
-
46,600
Income from operations ..........................................................................
28,209
21,103
16,336
Other income (expense):
Interest income ....................................................................................
Interest expense ...................................................................................
Foreign currency loss ..........................................................................
631
(2)
(394)
179
(21 )
(155 )
81
(14 )
(161 )
Income before income taxes ....................................................................
Provision for income taxes ......................................................................
28,444
5,501
21,106
3,929
16,242
5,652
Net income .............................................................................................. $
22,943 $
17,177 $
10,590
Earnings per share of common stock:
Basic .................................................................................................... $
Diluted ................................................................................................. $
1.18 $
1.13 $
0.91 $
0.86 $
0.57
0.55
Weighted-average shares outstanding:
Basic ....................................................................................................
Diluted .................................................................................................
19,426
20,242
18,961
20,033
18,485
19,241
Cash dividends declared per common share ............................................ $
0.28 $
0.22 $
0.18
See accompanying notes to consolidated financial statements.
F-4
LeMaitre Vascular, Inc.
Consolidated Statements of Comprehensive Income
2018
Year ended December 31,
2017
(in thousands)
2016
Net income .............................................................................................. $
22,943 $
17,177 $
10,590
Other comprehensive income (loss):
Foreign currency translation adjustment, net .......................................
Unrealized gain (loss) on short-term marketable securities .................
Total other comprehensive income (loss) ................................................
(1,626)
15
(1,611)
2,294
-
2,294
(534 )
-
(534 )
Comprehensive income ........................................................................... $
21,332 $
19,471 $
10,056
See accompanying notes to consolidated financial statements.
F-5
LeMaitre Vascular, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Common Stock
Additional
Paid-in
Amount Capital
Retained Comprehensive
Earnings
Income (Loss)
Treasury Stock
Shares
Amount
Total
Stockholders’
Equity
Accumulated
Other
Shares
Balance at December 31,
2015 .................................. 19,748,321 $
197 $
82,094 $
8,161 $
(4,049) 1,431,139 $
(8,519)
77,884
Net income ............................
Other comprehensive
income ..............................
Cummaltive effect
adjustment to retained
earnings ............................
Issuance of common stock
for stock options
exercised ...........................
Vested restricted stock units .
Stock-based compensation
expense .............................
Repurchase of common
stock at cost ......................
Common stock cash
dividend paid ....................
Balance at December 31,
10,590
(534)
165
(93)
233,798
58,229
3
1,439
1,680
(3,323)
21,671
(311)
10,590
(534)
72
1,442
-
1,680
(311)
(3,323)
2016 .................................. 20,040,348 $
200 $
85,378 $
15,335 $
(4,583) 1,452,810 $
(8,830) $
87,500
Net income ............................
Other comprehensive
income ..............................
Issuance of common stock
for stock options
exercised ...........................
Vested restricted stock units .
Stock-based compensation
expense .............................
Repurchase of common
stock at cost ......................
Common stock cash
dividend paid ....................
Balance at December 31,
17,177
2,294
635,503
69,190
7
5,493
2,256
(4,179)
27,291
(778)
17,177
2,294
5,500
-
2,256
(778)
(4,179)
2017 .................................. 20,745,041 $
207 $
93,127 $
28,333 $
(2,289) 1,480,101 $
(9,608) $
109,770
Net income ............................
Other comprehensive
income ..............................
Issuance of common stock
for stock options
exercised ...........................
Vested restricted stock units .
Stock-based compensation
expense .............................
Repurchase of common
stock at cost ......................
Common stock cash
dividend paid ....................
Balance at December 31,
22,943
(1,611)
303,379
61,804
3
2,966
2,349
(5,445)
21,410
(741)
22,943
(1,611)
2,969
-
2,349
(741)
(5,445)
2018 .................................. 21,110,224
211
98,442
45,831
(3,900) 1,501,511
(10,349)
130,235
See accompanying notes to consolidated financial statements.
F-6
LeMaitre Vascular, Inc.
Consolidated Statements of Cash Flows
Operating activities
Net income ................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..............................................
Stock-based compensation ....................................................
Fair value adjustments to contingent consideration
obligations .........................................................................
Provision for doubtful accounts and allowances ...................
Provision for inventory write-downs ....................................
Provision (benefit) for deferred income taxes .......................
Gain on acquisitions and divestitures....................................
Foreign currency transaction gain .........................................
Changes in operating assets and liabilities:
Accounts receivable ......................................................
Inventory and other deferred costs ................................
Prepaid expenses and other assets .................................
Accounts payable and other liabilities ...........................
Net cash provided by operating activities .....................................
Investing activities
Purchases of property and equipment ...........................................
Payments related to acquisitions ..................................................
Purchases of short-term marketable securities .............................
Proceeds from sales of marketable securities ...............................
Proceeds from divestitures ...........................................................
Purchase of intellectual property ..................................................
Net cash used in investing activities .............................................
Financing activities
Payment of deferred acquisition consideration .............................
Proceeds from issuance of common stock ....................................
Purchase of treasury stock ............................................................
Common stock cash dividend paid ...............................................
Net cash provided by (used in) financing activities ......................
Effect of exchange rate changes on cash and cash equivalents ....
Net increase (decrease) in cash and cash equivalents ...................
Cash and cash equivalents at beginning of year ...........................
Cash and cash equivalents at end of year ..................................... $
Supplemental disclosures of cash flow information
(see Note 13).
2018
Year ended December 31,
2017
(in thousands)
2016
22,943 $
17,177 $
10,590
4,324
2,349
(29)
264
671
(2,152)
(7,474)
259
(1,283)
(4,262)
(418)
4,314
19,506
(3,054)
(12,282)
(19,619)
20,500
7,400
-
(7,055)
(1,199)
2,969
(741)
(5,445)
(4,416)
(813)
7,222
19,096
26,318 $
4,055
2,256
106
230
396
300
-
(29)
(1,507)
(1,352)
(288)
1,524
22,868
(6,417)
-
(22,541)
-
-
-
(28,958)
(463)
5,500
(778)
(4,179)
80
818
(5,192)
24,288
19,096 $
3,591
1,680
-
105
362
140
-
59
(922)
(134)
1,528
(103)
16,896
(2,841)
(14,368)
-
-
-
(2)
(17,211)
(385)
1,442
(311)
(3,323)
(2,577)
(271)
(3,163)
27,451
24,288
See accompanying notes to consolidated financial statements.
F-7
LeMaitre Vascular, Inc.
Notes to Consolidated Financial Statements
December 31, 2018
1. Significant Accounting Policies and Related Matters
Description of Business
Unless the context requires otherwise, references to 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, angioscopes, balloon
catheters, biologic vascular grafts, biologic vascular patches, carotid shunts, polyester vascular grafts, powered phlebectomy
devices, radiopaque marking tape, remote endarterectomy devices, surgical glue and valvulotomes. Our offices are located in
Burlington, Massachusetts; Fox River Grove, Illinois; Vaughan, Canada; Sulzbach, Germany; Milan, Italy; Madrid, Spain; Saint-
Etienne, France; North Melbourne, Australia; Tokyo, Japan; and Shanghai, China and Singapore.
Consolidation and Basis of Presentation
Our consolidated financial statements include the accounts of LeMaitre Vascular and the accounts of our wholly-owned
subsidiaries, LeMaitre Vascular GmbH, LeMaitre Vascular GK, Vascutech Acquisition LLC, LeMaitre Acquisition LLC,
LeMaitre Vascular SAS, LeMaitre Vascular S.r.l., LeMaitre Vascular Spain SL, LeMaitre Vascular Switzerland GmbH, LeMaitre
Vascular ULC, LeMaitre Vascular AS, LeMaitre Vascular Pty Ltd, Bio Nova International Pty Ltd, LeMaitre Vascular, Ltd.,
LeMaitre Medical Technology (Shanghai) Co. Ltd, LeMaitre Cardial SAS and LeMaitre Vascular Singapore Pte Ltd. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation
Balance sheet accounts of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. Operating accounts
are translated at average exchange rates for each year. Net translation gains or losses are adjusted directly to a separate component
of other comprehensive income (loss) within stockholders’ equity. Foreign exchange transaction gains (losses), substantially all of
which relate to intercompany activity between us and our foreign subsidiaries, are included in other income (expense) in the
accompanying consolidated statements of operations.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires us
to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying
notes. Our estimates and assumptions, including those related to bad debts, inventory and other deferred costs, intangible assets,
sales returns and discounts, and income taxes are reviewed on an ongoing basis and updated as appropriate. Actual results could
differ from those estimates.
Revenue Recognition
Our revenue is derived primarily from the sale of disposable or implantable devices used during vascular surgery. We sell
primarily directly to hospitals and to a lesser extent to 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. With the acquisition of the RestoreFlow allograft business, 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.
On January 1, 2018 we adopted the provisions of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). We
used the modified retrospective method of adoption under which the comparative information was not restated and will continue
to be reported under the standard in effect for those periods. The adoption of this standard was not material to our financial
statements and there was no cumulative effect adjustment to the opening balance of retained earnings required. 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
F-8
Step 4: Allocate the transaction price
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 recognize 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 Vascular 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):
Americas ........................................................................ $
Europe, Middle East and Africa .....................................
Asia/Pacific Rim ............................................................
Total ........................................................................... $
63,649 $
35,319
6,600
105,568 $
62,696
32,517
5,654
100,867
Year ended December 31,
2018
2017
Except as discussed in Note 6, 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 Spain and Italy 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
return experience, which requires judgment. Our cost of replacing defective products has not been material and is accounted for at
the time of replacement.
Research and Development Expense
Research and development costs, principally salaries, laboratory testing, and supplies, are expensed as incurred and also
include royalty payments associated with licensed and acquired intellectual property.
F-9
Shipping and Handling Costs
Shipping and handling fees paid by customers are recorded within net sales, with the related expense recorded in cost of
sales.
Advertising Costs
Advertising costs are expensed as incurred and are included as a component of sales and marketing expense in the
accompanying consolidated statements of operations. Advertising costs are as follows:
Advertising expense ............................................ $
299 $
305 $
378
2018
Year ended December 31,
2017
(in thousands)
2016
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with maturity dates of 90 days or less to be cash equivalents. Cash and
cash equivalents are primarily invested in money market funds. These amounts are stated at cost, which approximates fair value.
Short-term Marketable Securities
Our short-term marketable securities are available-for-sale securities carried at fair value, with unrealized gains and losses
recorded in other comprehensive income.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. Cash equivalents represent highly liquid investments with maturities of 90 days or less at the date of
purchase. Credit risk related to cash and cash equivalents are limited based on the creditworthiness of the financial institutions at
which these funds are held. We maintain cash balances in several banks. Accounts located in the United States are insured by the
Federal Deposit Insurance Corporation (FDIC) up to $250,000. Certain of our account balances exceed the FDIC limit. Cash
balances held outside the United States totaled approximately $18.8 million as of December 31, 2018.
Our accounts receivable are with customers based in the United States and internationally. Accounts receivable generally are
due within 30 to 90 days of invoice and are stated at amounts due from customers, net of an allowance for doubtful accounts and
sales returns, other than in certain European markets where longer payment terms are customary and may range from 90 to 240
days. We perform ongoing credit evaluations of the financial condition of our customers and adjust credit limits based upon
payment history and the current creditworthiness of the customers, as determined by a review of their current credit information.
We continuously monitor aging reports, collections, and payments from customers, and maintain a provision for estimated credit
losses based upon historical experience and any specific customer collection issues we identify.
We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic
conditions, in both the U.S. and international economies. Our European sales to government-owned or supported customers such
as hospitals, distributors and agents, in Southern Europe, specifically Italy and Spain may be subject to significant payment delays
due to government austerity measures impacting funding and payment practices. As of December 31, 2018 our receivables in Italy
and Spain totaled $1.0 million and $0.7 million, respectively. Receivables balances with certain publicly-owned hospitals and
government supported customers in these countries can accumulate over a period of time and then subsequently be settled as large
lump sum payments. While we believe our allowance for doubtful accounts in these countries is adequate as of December 31,
2018, if significant changes were to occur in the payment practices of these European governments or if government funding
becomes unavailable, we may not be able to collect on receivables due to us from these customers and our write offs of
uncollectible amounts may increase.
F-10
We write off accounts receivable when they become uncollectible. Such credit losses have historically been within our
expectations and allowances. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in
our existing accounts receivable. We review our allowance for doubtful accounts on a monthly basis and all past due balances are
reviewed individually for collectability. The provision for the allowance for doubtful accounts is recorded in general and
administrative expenses. The following is a summary of our allowance for doubtful accounts and sales returns:
Balance at
Beginning
of Period
Additions
(recoveries)
charged
to Income
Deductions from Balance at End of
Reserves
Period
(in thousands)
349 $
258
243
264 $
230
105
214 $
139
90
399
349
258
Allowance for doubtful accounts and sales
returns:
Year ended December 31, 2018 .................... $
Year ended December 31, 2017 ....................
Year ended December 31, 2016 ....................
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, short-term marketable securities, accounts receivable and trade
payables. The fair value of these instruments approximates their carrying value based upon their short-term nature or variable
rates of interest. Unrealized gains and losses on our short-term marketable securities are recorded in other comprehensive income
and were not material to our consolidated financial statements for the year ended December 31, 2018.
Inventory and Other Deferred Costs
Inventory and Other Deferred Costs consists of finished products, work-in-process, raw materials and costs deferred in
connection with human tissue cryopreservation services of our RestoreFlow allograft business. We value inventory and other
deferred costs at the lower of cost or market value. Cost includes materials, labor and manufacturing overhead and is determined
using the first-in, first-out (FIFO) method. On a quarterly basis, we review inventory quantities on hand and analyze the provision
for excess and obsolete inventory based primarily on product expiration dating and our estimated sales forecast, which is based on
sales history and anticipated future demand. Our estimates of future product demand may not be accurate, and we may understate
or overstate the provision required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in
demand could have a significant impact on the value of our inventory and results of operations.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets
using straight-line method as follows:
Description
Computers and equipment
Machinery and equipment
Leasehold improvements
Useful Life
(in years)
3 – 5
3 – 10
The shorter of its useful life or lease term
Expenditures for maintenance and repairs are charged to operations when incurred, while additions and betterments are
capitalized. When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated from
the accounts and any gain or loss is reflected in the statement of operations.
Valuation of Business Combinations
We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible
assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. We assess the fair value of assets,
including intangible assets, using a variety of methods and are usually performed by an independent appraiser who measures fair
value from the perspective of a market participant.
Acquisitions have been accounted for using the acquisition method, and the acquired companies’ results have been included
in the accompanying consolidated financial statements from their respective dates of acquisition. Acquisition transaction costs
have been recorded in general and administrative expenses, and are expensed as incurred. Allocation of the purchase price for
F-11
acquisitions is based on estimates of the fair value of the net assets acquired and, for acquisitions completed within the past year,
is subject to adjustment upon finalization of the purchase price allocation.
Our acquisitions have historically been made at prices above the fair value of the acquired assets, resulting in goodwill, due
to expectations of synergies of combining the businesses. These synergies include use of our existing commercial infrastructure to
expand sales of the acquired businesses’ products, use of the commercial infrastructure of the acquired businesses to cost-
effectively expand sales of our products, and the elimination of redundant facilities, functions and staffing.
Contingent Consideration
Contingent consideration for acquisitions is recognized at the date of acquisition, based on the fair value at that date, and then
re-measured periodically through adjustments to net income.
Impairment of Long-lived Assets
We review our long-lived assets (primarily property and equipment and intangible assets) subject to amortization quarterly to
determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in
the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in
legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a
regulator. If an impairment indicator exists, we test the intangible asset for recoverability. We record impairment losses on long-
lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Impairment is measured
based on the fair market value of the affected asset using discounted cash flows.
Goodwill
Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of the fair value of
assets acquired and liabilities assumed. Goodwill is evaluated for impairment annually or more frequently if indicators of
impairment are present or changes in circumstances suggest that an impairment may exist. We evaluate the December 31 balance
of the carrying value of goodwill based on a single reporting unit annually. We perform an assessment of qualitative factors to
determine if it is “more likely than not” that the fair value of our reporting unit is less than its carrying value as a basis for
determining whether it is necessary to perform the two-step goodwill impairment test. The “more likely than not” threshold is
defined as having a likelihood of more than 50 percent. If required, the next step of the goodwill impairment test is to determine
the fair value of the reporting unit. The implied fair value of goodwill is determined on the same basis as the amount of goodwill
recognized in connection with a business combination. Specifically, the fair value of a reporting unit is allocated to all of the
assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination as of the date of the impairment review and as if the fair value of the reporting unit was the price paid to acquire the
reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied
fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that excess. We have determined that no goodwill impairment charges
were required for the years ended December 31, 2018, 2017 or 2016.
Other Intangible Assets
Other intangible assets consist primarily of patents, trademarks, technology licenses, and customer relationships acquired in
connection with business acquisitions and asset acquisitions and are amortized over their estimated useful lives, ranging from 2 to
16 years.
Stock-based Compensation
We recognize, as expense, the estimated fair value of stock options to employees which is determined using the Black-
Scholes option pricing model. Share-based compensation charges are recorded across the consolidated statement of operations
based upon the grantee’s primary function. We have elected to recognize the compensation cost of all share-based awards on a
straight-line basis over the vesting period of the award. In periods that we grant stock options, fair value assumptions are based on
volatility, interest, dividend yield, and expected term over which the stock options will be outstanding. The computation of
expected volatility is based on the historical volatility of the company’s stock. The interest rate for periods within the contractual
life of the award is based on the U.S. Treasury risk-free interest rate in effect at the time of grant. Historical data on exercise
patterns is the basis for estimating the expected life of an option. The expected annual dividend rate was calculated by dividing
our annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.
We also issue restricted stock units (RSUs) as an additional form of equity compensation to our employees, officers, and
directors, pursuant to our stockholder-approved 2006 Plan. RSUs entitle the grantee to an issuance of stock at no cost and
generally vest over a period of time determined by our Board of Directors at the time of grant based upon the continued service to
F-12
the company. The fair market value of the award is determined based on the number of RSUs granted and the market value of our
common stock on the grant date and is amortized to expense over the period of vesting. Unvested RSUs are forfeited and canceled
as of the date that employment or service to the company terminates. RSUs are settled in shares of our common stock upon
vesting. We typically repurchase common stock upon our employees’ vesting in RSUs in order to cover any minimum tax
withholding liability as a result of the RSUs having vested.
Commitments and Contingencies
In the normal course of business, we are subject to proceedings, lawsuits, and other claims and assessments for matters
related to, among other things, patent infringement, business acquisitions, employment, commercial matters and product recalls.
We assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual
issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters. We record charges for the losses we anticipate incurring in connection
with litigation and claims against us when we conclude a loss is probable and we can reasonably estimate these losses. During the
years ended December 31, 2018, 2017 and 2016, we were not subject to any material litigation or claims and assessments.
Income Taxes
We account for income taxes under the asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred taxes are determined based on the difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The provision for income
taxes includes taxes currently payable and deferred taxes resulting from the tax effects of temporary differences between the
financial statement and tax bases of assets and liabilities. We maintain valuation allowances where it is more likely than not that
all or a portion of a deferred tax asset will not be realized. Changes in the valuation allowances are included in our tax provision in
the period of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings
history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the
likelihood of the realization of a deferred tax asset.
We recognize, measure, present and disclose in our financial statements, uncertain tax positions that we have taken or expect
to take on a tax return. We recognize in our financial statements the impact of tax positions that meet a “more likely than not”
threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement.
Our policy is to classify interest and penalties related to unrecognized tax benefits as income tax expense.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Other than reported net income, comprehensive income includes foreign
currency translation adjustments, which are disclosed in the accompanying consolidated statements of comprehensive income.
There were no reclassifications out of comprehensive income for the years ended December 31, 2018, 2017 or 2016.
Accumulated other comprehensive loss consisted primarily of foreign currency translation adjustment losses of $3.9 million
and $2.3 million as of December 31, 2018 and 2017, respectively.
Restructuring
We record restructuring charges incurred in connection with consolidation or relocation of operations, exited business lines,
reductions in force, or distributor terminations. These restructuring charges, which reflect our commitment to a termination or exit
plan that will begin within twelve months, are based on estimates of the expected costs associated with site closure, legal matters,
contract terminations, severance payments, or other costs directly related to the restructuring. If the actual cost incurred exceeds
the estimated cost, an additional charge to earnings will result. If the actual cost is less than the estimated cost, a credit to earnings
will be recognized.
Earnings per Share
We compute basic earnings per share by dividing net income available for common stockholders by the weighted average
number of shares outstanding during the year. Except where the result would be anti-dilutive to net income per share, diluted
earnings per share has been computed using the treasury stock method and reflects the potential vesting of restricted common
stock and the potential exercise of stock options, as well as their related income tax effects.
F-13
The computation of basic and diluted net income per share is as follows:
2018
Year ended December 31,
2017
(in thousands, except per share data)
2016
Basic:
Net income available for common stockholders ............................ $
Weighted average shares outstanding ............................................
Basic earnings per share .................................................................... $
Diluted:
Net income available for common stockholders ............................ $
Weighted-average shares outstanding ...........................................
Common stock equivalents, if dilutive ..........................................
Shares used in computing diluted earnings per common share .....
22,943 $
19,426
1.18 $
22,943 $
19,426
816
20,242
17,177 $
18,961
0.91 $
17,177 $
18,961
1,072
20,033
10,590
18,485
0.57
10,590
18,485
756
19,241
Diluted earnings per share ................................................................. $
1.13 $
0.86 $
0.55
Shares excluded in computing diluted earnings per share as those
shares would be anti-dilutive .........................................................
230
6
45
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2018-15,
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use
software license). The new standard is effective for us beginning January 1, 2020, with early adoption permitted. The adoption of
this standard is not expected to have a material impact on our financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820), which modifies the disclosure
requirements for fair value measurements. The new standard is effective for us beginning January 1, 2020, with early adoption
permitted. The adoption of this standard is not expected to have a material impact on our financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Other Comprehensive Income (Topic 220),
which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and is expected to improve the usefulness of information reported to financial statement users. However,
because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying
guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not
affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The new standard is effective
for us beginning January 1, 2019, with early adoption permitted. The adoption of this standard is not expected to have a material
impact on our financial statements.
In January 2017, the FASB issued ASU 2017-04, which, among other provisions, eliminates “step 2” from the goodwill
impairment test. The annual, or interim, goodwill impairment test will be performed by comparing the fair value of a reporting
unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds
the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit. The new standard is effective for us beginning January 1, 2020, with early adoption permitted. The adoption of this
standard is not expected to have a material impact on our financial statements.
F-14
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842),
subsequently amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under the new guidance, lessees will be
required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease
liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-
of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Lessees will no longer be provided with a source of off-balance sheet financing. The new lease guidance also simplifies the
accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The
standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted. Entities have the option of using
either a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, or else a transition option (which we currently expect to use) allowing lessees to not
apply the new lease standard in comparative periods but instead recognize a cumulative-effect adjustment to retained earnings as
of the date of adoption. The modified retrospective approach would not require any transition accounting for leases that expired
before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Our
assessment of the impact of adopting this standard is nearly complete, and included cataloging all of our leases, performing an
analysis of the amounts of lease liabilities and right-of-use assets to be recorded and reviewing potential changes to our
disclosures on leases. Based on this assessment we do not expect the adoption of this standard to have a significant impact on our
consolidated statement of operations. However, we expect that the recognition of right-of-use assets and corresponding lease
liabilities will have a significant impact on our consolidated balance sheet, adding between $6.1 million and $6.7 million to our
total assets, and between $6.6 million and $7.2 million to our total liabilities, depending primarily on the discount rate selected.
2. Acquisitions and Divestitures
Acquisitions are accounted for using the acquisition method and the acquired businesses’ results have been included in the
accompanying consolidated financial statements from their respective dates of acquisition. In each case for the acquisitions
disclosed below, pro forma information assuming the acquisition had occurred at the beginning of the earliest period presented is
not included as the impact is immaterial.
Our acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in
goodwill, due to expectations of synergies that will be realized by combining businesses. These synergies include the use of our
existing sales channel to expand sales of the acquired businesses’ products, consolidation of manufacturing facilities, and the
leveraging of our existing administrative infrastructure.
The fair market valuations associated with these transactions fall within Level 3 (see Note 13) of the fair value hierarchy, due
to the use of significant unobservable inputs to determine fair value. The fair value measurements were calculated using
unobservable inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and timing
of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long range
strategic plans and other estimates.
Cardial
On October 22, 2018, through a newly created subsidiary LeMaitre Cardial SAS, we entered into an agreement to acquire the
business assets of Cardial, a company located in Saint-Etienne, France and formerly owned by Becton, Dickinson and Company.
The Cardial business consists of the manufacturing of polyester vascular grafts, valvulotomes and surgical glue. On the same date,
the parties entered into a separate agreement notarial deed under which LeMaitre Cardial SAS purchased the building and land
previously owned by Cardial. Revenues from the acquisition date through December 31, 2018 were $1.1 million.
The purchase price for the acquired assets, including the land and building, inventory, machinery and equipment, intellectual
property, permits and approvals, data and records, and customer and supplier information, was €2.0 million ($2.3 million). At
closing, €1.1 million ($1.3 million) was paid in cash, and €0.5 million ($0.5 million) of liabilities were assumed by LeMaitre
Cardial SAS. Another €0.4 million ($0.4 million) is due in two installments, half to be paid twelve months after the closing date,
and half eighteen months after the closing date. There are no contingencies associated with these holdback payments, although
they may be reduced depending upon the results of a reconciliation of the value of inventory transferred, as outlined in the
agreement.
F-15
The following table summarizes the preliminary purchase price allocation:
Inventory ......................................................................................................... €
Land and building ...........................................................................................
Equipment and supplies ..................................................................................
Intangible assets ..............................................................................................
Bargain purchase gain .....................................................................................
Allocated
Fair Value
(in thousands)
2,419
750
94
623
(1,946)
Purchase price ................................................................................................. €
1,940
The bargain purchase gain was recorded to reflect the excess of the net assets acquired over the purchase price. We recorded
deferred taxes on this gain of €0.5 million ($0.6 million), resulting in a net gain of €1.4 million ($1.6 million).
The following table reflects the preliminary allocation of purchase consideration to the acquired intangible assets and related
estimated useful lives:
Customer relationships ............................................................. €
Intellectual property ..................................................................
Non-compete agreement ...........................................................
Tradenames ...............................................................................
Allocated
Fair Value
(in thousands)
250
237
46
90
Weighted
Average
Useful Life
(in years)
16.0
5.0
5.0
5.0
Total intangible assets ........................................................... €
623
The weighted-average amortization period of the acquired intangible assets was 9.4 years.
Applied Medical
On September 20, 2018, we entered into an agreement to acquire the assets of the embolectomy catheter business of Applied
Medical Resources Corporation (Applied). The clot management business consists of several embolectomy and thrombectomy
catheter product lines which are sold worldwide (approximately 60% in the U.S. and 40% outside the U.S.). On the same date, we
entered into a transition services agreement under which Applied will manufacture and supply us with inventory for a period of
twelve months, unless extended in writing by both parties. Revenues from the acquisition date through December 31, 2018 were
$0.8 million.
The purchase price for the acquired assets, which included inventory, machinery and equipment, intellectual property,
permits and approvals, data and records, and customer and supplier information, was $14.2 million. Of this amount, $11 million
was paid at closing, with another $2 million due 12 months following the closing date, and the final $1.2 million due 24 months
following the closing date. The deferred amounts totaling $3.2 million were recorded at an acquisition-date fair value of $3.043
million using a discount rate of 3.75% to reflect the time value of money between the acquisition date and the payment due dates.
F-16
The following table summarizes the preliminary purchase price allocation:
Inventory ......................................................................................................... $
Equipment and supplies ..................................................................................
Intangible assets ..............................................................................................
Goodwill .........................................................................................................
Allocated
Fair Value
(in thousands)
739
416
6,527
6,361
Purchase price ........................................................................... $
14,043
The goodwill results from expected synergies of combining the acquired products and customer information to our existing
operations, and is deductible for tax purposes over 15 years.
The following table reflects the preliminary allocation of purchase consideration to the acquired intangible assets and related
estimated useful lives:
Allocated
Fair Value
(in thousands)
Customer relationships .......................................................................... $
Intellectual property ..............................................................................
Non-compete agreement .......................................................................
Tradenames ...........................................................................................
4,475
1,316
530
206
Total intangible assets ....................................................................... $
6,527
Weighted
Average
Useful Life
(in years)
16.0
7.0
5.0
7.0
The weighted-average amortization period of the acquired intangible assets was 13.0 years.
Reddick Divestiture
On April 5, 2018, we entered into an asset purchase agreement with Specialty Surgical Instrumentation, Inc. to sell the
inventory, intellectual property and other assets associated exclusively with our Reddick cholangiogram catheter and Reddick-
Saye screw product lines for $7.4 million. Concurrent with this divestiture we entered into a transition services agreement under
which we will continue to manufacture and supply these products to the buyer for a period of up to two years unless extended by
both parties, as well as a balloon supply agreement under which we will supply balloons, a component of the cholangiogram
catheters, to the buyer for a period of up to six years unless extended by both parties. We recorded a gain in connection with these
agreements of $5.9 million. The following table summarizes the allocation of consideration received:
Inventory ............................................................................................... $
Deferred revenue - transition services agreement .................................
Goodwill ................................................................................................
Gain on divestiture ................................................................................
Consideration received ....................................................... $
Allocated
Fair Value
(in thousands)
308
1,081
135
5,876
7,400
F-17
Under the terms of the transition services agreement, we have agreed to manufacture the Reddick products for the buyer at
prices at or in some cases below our cost. We allocated a portion of the consideration received to this agreement to reflect it at fair
value and recorded it as deferred revenue. As the products are sold to the buyer, we amortize a portion of the deferred revenue to
adjust the gross margin on the sale to fair value on a specific identification basis. Additionally, as the Reddick product lines that
were divested constituted a business, we allocated a portion of our goodwill to this divestiture based on the fair value of the
business sold in relation to the fair value of the business that will be retained.
RestoreFlow Allografts
On November 10, 2016, we entered into an agreement to acquire the assets of Restore Flow Allografts, LLC, a provider of
human vascular tissue processing and cryopreservation services, for an initial purchase price of $12 million, with three additional
payments of up to $2 million each ($6 million in total), depending upon the satisfaction of certain contingencies. One payment of
$2 million was due not later than 15 days following the expiration of the 18 month period following the closing date, subject to
reductions as specified in the agreement for each calendar month that certain retained employees were not employed by us due to
resignation without good reason, or termination for cause, both as defined in the agreement. The portion of this payment that was
to be paid to retained employees and that was contingent on their continued employment, estimated at $0.9 million, was being
accounted for as post-combination compensation expense rather than purchase consideration. The remaining $1.1 million that was
payable to non-employee investors but that was also contingent on the continued employment of the retained employees had been
accounted for as contingent purchase consideration, at an acquisition-date fair value of $0.9 million. In May 2018 we paid this $2
million liability as the contingency was met.
There were also two potential earn-out payments under the agreement. The first earn-out was calculated at 50% of the
amount by which net revenue in the first 12 months following the closing exceeded $6 million, with such payout not to exceed
$2 million. The second earn-out was calculated at 50% of the amount by which net revenue in the second 12 months following the
closing exceeded $9 million, with such payout not to exceed $2 million. These earn-outs were accounted for as contingent
consideration, at an acquisition-date fair value of $0.1 million for the two earn-outs combined. This valuation was derived by
utilizing an option pricing model technique incorporating, among other inputs, management’s forecasts of future revenues, the
expected volatility of revenues, and an estimated weighted average cost of capital of 14.1% to account for the risk of achievement
of the revenue forecasts as well as the time value of money between acquisition date and the payment date. These milestones were
not met, and accordingly no amount was paid out.
The RestoreFlow business derives revenue from human tissue preservation services, in particular the processing and
cryopreservation of veins and arteries. By federal law, human tissues cannot be bought or sold. Therefore, the tissues we obtain
and preserve are not held as inventory, and the costs we incur to procure and process vascular tissues are instead accumulated and
deferred. Revenues are recognized for the provision of cryopreservation services rather than product sales.
The acquired assets included intellectual property, permits and approvals, data and records, equipment and furnishings,
accounts receivable, inventory, literature, and customer and supplier information. We also assumed certain accounts payable. We
accounted for the acquisition as a business combination.
The following table summarizes the final purchase price allocation:
Accounts receivable ......................................................................................... $
Deferred cryopreservation costs .......................................................................
Equipment and supplies ...................................................................................
Accounts payable .............................................................................................
Intangible assets ...............................................................................................
Goodwill ...........................................................................................................
Purchase price ....................................................................................... $
Allocated
Fair Value
(in thousands)
394
2,583
125
(286)
4,544
5,599
12,959
The goodwill is deductible for tax purposes over 15 years.
F-18
The following table reflects the allocation of purchase consideration to the acquired intangible assets and related estimated
useful lives:
Non-compete agreements ............................................................... $
Tradename ......................................................................................
Procurement contracts.....................................................................
Technology .....................................................................................
Customer relationships ...................................................................
Total intangible assets ......................................................... $
Allocated
Fair Value
(in thousands)
180
271
617
2,793
683
4,544
Weighted
Average
Useful Life
(in years)
5.0
9.0
9.0
10.5
12.5
The weighted-average amortization period of the acquired intangible assets was 10.3 years.
ProCol Biologic Graft
On March 18, 2016, we acquired the ProCol biologic vascular graft (“ProCol”) business for $2.7 million from Hancock Jaffe
Laboratories, Inc. (HJL) and CryoLife, Inc. (CRY). HJL was the owner and manufacturer of ProCol and CRY was the exclusive
distributor of the ProCol graft. CRY also owned an option to purchase the ProCol business, which we acquired from CRY. We
bought finished goods inventory and other ProCol related assets from CRY for $2.0 million, which was paid in full at closing. We
bought other ProCol assets from HJL for $0.7 million, 50% of which was paid at closing, with the remainder paid at subsequent
dates as specified in the agreement. Additional consideration is payable to HJL for a three-year period following the closing,
calculated at 10% of ProCol revenues. This additional consideration was initially valued at $0.3 million and is being re-measured
each reporting period until the payment requirement ends, with any adjustments reported in income from operations. For the years
ended December 31, 2018, 2017 and 2016, the amount of the adjustment was not material to our financial statements.
Assets acquired included inventory, intellectual property and a related license, the ProCol trade name, customer lists, non-
compete agreements and certain equipment and supplies. We did not assume any liabilities. We accounted for the acquisition as a
business combination.
The following table summarizes the purchase price allocation:
Inventory ............................................................................................ $
Manufacturing equipment and supplies..............................................
Intangible assets .................................................................................
Goodwill ............................................................................................
Purchase price .............................................................. $
Allocated
Fair Value
(in thousands)
2,080
25
620
318
3,043
The goodwill is deductible for tax purposes over 15 years.
F-19
The following table reflects the allocation of the acquired intangible assets and related estimated useful lives:
Allocated
Fair Value
(in thousands)
Non-compete agreement ....................................................................... $
Tradename .............................................................................................
Technology ...........................................................................................
Customer relationships ..........................................................................
Total intangible assets ....................................................................... $
84
109
277
150
620
Weighted
Average
Useful Life
(in years)
5.0
9.5
9.0
9.0
The weighted-average amortization period of the acquired intangible assets was 8.6 years.
3. Inventory and Other Deferred Costs
Inventory and other deferred costs consists of the following:
Raw materials ............................................................................................ $
Work-in-process ........................................................................................
Finished products ......................................................................................
Other deferred costs ..................................................................................
December 31,
2018
December 31,
2017
(in thousands)
4,085 $
5,095
16,391
1,817
3,200
3,745
12,278
1,823
Total inventory and other deferred costs ................................................... $
27,388 $
21,046
We held inventory on consignment of $1.7 million and $1.4 million as of December 31, 2018 and 2017, respectively.
In connection with our acquisition of the RestoreFlow allograft business, other deferred costs include costs incurred for the
preservation of human vascular 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 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.
F-20
4. Property and Equipment
Property and equipment consists of the following:
As of December 31,
2018
2017
Computers and equipment ......................................................................... $
Machinery and equipment .........................................................................
Building and leasehold improvements ......................................................
(in thousands)
4,077 $
13,718
11,651
Gross property and equipment ..................................................................
Less accumulated depreciation ..................................................................
29,446
(15,344)
3,204
12,223
10,843
26,270
(13,892)
Property and equipment, net ...................................................................... $
14,102 $
12,378
During the years ended December 31, 2018, 2017 and 2016 we wrote off fully depreciated assets with gross values of
$1.0 million, $0.2 million and $0.1 million, respectively.
Depreciation expense is as follows:
2018
Year ended December 31,
2017
(in thousands)
2016
Depreciation expense ..................................................... $
2,564 $
2,266 $
1,986
5. Goodwill and Other Intangibles
Goodwill consists of the following:
As of December 31,
2018
2017
Balance at beginning of year ................................................................. $
Additions for acquisitions ..................................................................
Purchase accounting adjustments ......................................................
Divestiture adjustment .......................................................................
Effects of currency exchange ............................................................
23,844 $
6,361
-
(135)
(202)
23,426
-
257
161
Balance at end of year ........................................................................... $
29,868 $
23,844
F-21
Other intangibles consist of the following:
December 31, 2018
December 31, 2017
Gross
Carrying
Value
Net
Accumulated Carrying
Amortization
Value
Gross
Carrying
Value
Net
Accumulated Carrying
Amortization
Value
(in thousands)
Product technology and
intellectual property ......... $
11,728 $
5,726 $
6,002 $
10,267 $
4,908 $
5,359
Trademarks, tradenames
and licenses ......................
Customer relationships ........
Other intangible assets ........
Total identifiable intangible
2,246
10,065
2,145
1,561
3,806
1,399
685
6,259
746
1,948
5,383
1,575
1,468
3,299
1,264
480
2,084
311
assets ................................ $
26,184 $
12,492 $
13,692 $
19,173 $
10,939 $
8,234
These assets are being amortized over useful lives ranging from 2 to 16 years. The weighted-average amortization period for these
intangibles as of December 31, 2018, is 9.5 years. Amortization expense is included in general and administrative expense and is
as follows:
2018
Year ended December 31,
2017
(in thousands)
2016
Amortization expense ..................................................... $
1,760 $
1,790 $
1,605
Estimated amortization expense for each of the next five fiscal years, based upon the intangible assets at December 31, 2018,
is as follows
2019
2020
Year ended December 31,
2021
(in thousands)
2022
2023
Amortization expense ..... $
2,088 $
1,839 $
1,624 $
1,420 $
1,347
6. Accrued Expenses and Other Long-term Liabilities
Accrued expenses consist of the following:
December 31,
2018
December 31,
2017
Compensation and related taxes ............................................................ $
Income and other taxes ..........................................................................
Professional fees ...................................................................................
Deferred revenue ...................................................................................
Other .....................................................................................................
(in thousands)
7,973 $
2,927
43
552
4,352
Total .................................................................................................. $
15,847 $
6,494
703
35
-
2,538
9,770
F-22
As discussed in Note 2 above, deferred revenue relates to our divestiture of the Reddick product line and an associated
transition services agreement that we entered into contemporaneously with the divestiture, under which we agreed to manufacture
and sell product to the buyer at prices at or below our cost. We allocated a portion of the consideration received from the
divestiture to this transition services agreement to reflect it at fair value and recorded it as deferred revenue. As the products are
sold to the buyer, which we expect will occur over approximately the next nine to twelve months, we amortize a portion of the
deferred revenue to adjust the gross margin on the sale to fair value on a specific identification basis. The following table
summarizes the changes in the deferred revenue balance during the year ended December 31, 2018:
Beginning contract liability balance ................................................................................................................ $
Deferred revenue recorded ..........................................................................................................................
Revenue recognized upon satisfaction of performance obligations in the period ........................................
Ending balance ................................................................................................................................................ $
-
1,081
(529)
552
December 31, 2018
(in thousands)
Other long-term liabilities consist of the following:
Acquisition-related liabilities ................................................................ $
Deferred rent .........................................................................................
Income taxes .........................................................................................
Other .....................................................................................................
December 31,
2018
December 31,
2017
(in thousands)
1,326 $
530
559
196
127
561
321
179
Total .................................................................................................. $
2,611 $
1,188
7. Commitments and Contingencies
Leases
We conduct the majority of our operations in leased facilities, which are accounted for as operating leases. Certain leases
include renewal options. We also lease automobiles under operating leases. There were no assets held under capital leases at
December 31, 2018 and 2017.
Rent expense under all operating leases was as follows:
2018
Year ended December 31,
2017
(in thousands)
2016
Rent expense ................................................................... $
2,090 $
2,190 $
1,580
At December 31, 2018, the minimum non-cancelable operating lease rental commitments with initial or remaining terms of
more than one year, and outstanding inventory purchase commitments, are as follows:
Contractual obligations
Total
1 year
Less than
1-3
years
(in thousands)
3-5
years
More than
5 years
Operating leases ............................................. $
7,435 $
1,826 $
3,053 $
2,556 $
Inventory purchase commitments................... $
2,195 $
2,072 $
123 $
- $
-
-
As part of our normal course of business, we have commitments to purchase $2.2 million of inventory through 2019. The
purchase commitments for inventory are to be used in operations over the normal course of business and do not represent excess
commitments or loss contracts.
F-23
8. Income Taxes
Income (loss) before income taxes is as follows:
2018
Year ended December 31,
2017
(in thousands)
2016
United States ................................................................................ $
Foreign .........................................................................................
22,256 $
6,188
17,778 $
3,328
12,600
3,642
Total ............................................................................................. $
28,444 $
21,106 $
16,242
Certain of our foreign subsidiaries are included in the U.S. tax return as branches but are included as foreign for purposes of
the table above.
The provision (benefit) for income taxes is as follows:
Current:
Federal ......................................................................................... $
State .............................................................................................
Foreign ........................................................................................
Deferred:
Federal .........................................................................................
State .............................................................................................
Foreign ........................................................................................
2018
Year ended December 31,
2017
(in thousands)
2016
4,262 $
673
2,718
2,451 $
292
886
7,653
3,629
(1,512 )
(145 )
(495 )
(2,152 )
(268 )
390
178
300
4,409
393
710
5,512
197
166
(223)
140
Provision for income taxes .......................................................... $
5,501 $
3,929 $
5,652
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 December 31, 2018, the gross amount of unrecognized tax benefits exclusive of interest and penalties
was $0.7 million, which may increase within the twelve months ending December 31, 2019. We remain subject to examination
until the statute of limitations expires for each respective tax jurisdiction. The statute of limitations will be open with respect to
these tax positions through 2026. A reconciliation of beginning and ending amount of our unrecognized tax benefits is as follows:
Unrecognized tax benefits at the beginning of year ...................... $
Additions for tax positions of current year ....................................
Additions for tax positions of prior years ......................................
Reductions for settlements with taxing authorities. .......................
Reductions for lapses of the applicable statutes of limitations ......
Unrecognized tax benefits at the end of the year ........................... $
525 $
73
113
-
-
711 $
390 $
83
57
-
(5)
525 $
82
95
213
-
-
390
2018
2017
(in thousands)
2016
F-24
Deferred taxes are attributable to the following temporary differences:
Deferred tax assets:
Inventory ............................................................................. $
Net operating loss carryforwards ........................................
Tax credit carryforwards .....................................................
Capital loss carryforwards ...................................................
Reserves and accruals .........................................................
Intangible assets ..................................................................
Stock options .......................................................................
Other ...................................................................................
As of December 31,
2017
2018
(in thousands)
976 $
1,421
828
279
802
2,737
373
91
569
1,898
760
1,168
629
1,138
322
65
Total deferred tax assets ......................................................
7,507
6,549
Deferred tax liabilities:
Property and equipment ......................................................
Goodwill .............................................................................
Foreign branch deferred offset ............................................
Other ...................................................................................
(1,416)
(3,023)
(1,032)
(50)
(1,203)
(2,932)
(1,177)
(44)
Total deferred tax liabilities ................................................
(5,521)
(5,356)
Net deferred tax assets before valuation allowance .............
1,986
1,193
Valuation allowance ............................................................
(1,255)
(1,991)
Net deferred tax liabiltity ......................................... $
731 $
(798)
Deferred tax classification
Long-term deferred tax asset .................................... $
Long-term deferred tax liability ...............................
1,215 $
(484)
1,378
(2,176)
Net long-term deferred tax liability .......................... $
731 $
(798)
We elected to adopt ASU 2016-09 during the third quarter of 2016. Consequently, we recorded excess tax benefits related to
certain stock option exercises of $0.3 million, $3.7 million, and $1.1 million in 2016, 2017, and 2018 respectively.
In 2016, we released approximately $0.3 million of valuation allowances on deferred assets in Spain and Switzerland. Our
2016 assessment considered evidence such as current profitability, utilization of certain available tax assets and liabilities, and
projected future earnings. Based on this evidence, we concluded that it was more likely than not that we would generate sufficient
pre-tax income in future periods to utilize all of these deferred tax assets for which the valuation allowance was removed. In 2017,
we increased our valuation by a net $0.2 million mainly attributable to Massachusetts credit carryforwards. In 2018, we decreased
our valuation allowance by a net $0.7 million mainly attributable to Australian net operating loss and capital loss carry forwards
that are now expected to be realized.
As of December 31, 2018, we have provided a valuation allowance of $1.3 million for deferred tax assets primarily related to
Australian net operating loss and capital loss carry forwards and Massachusetts tax credit carry forwards that are not expected to
be realized. The valuation allowance against our deferred tax assets may require adjustment in the future based on changes in the
mix of temporary differences, changes in tax laws, and operating performance.
Realization of our deferred tax assets is dependent on our generating sufficient taxable income in future periods. Although we
believe it is more likely than not that future taxable income will be sufficient to allow us to recover substantially all of the value of
our deferred tax assets remaining after we apply the valuation allowances, realization is not assured and future events could cause
us to change our judgment. In the event that actual results differ from our estimates, or we adjust these estimates in the future
periods, further adjustments to our valuation allowance may be recorded, which could materially impact our financial position and
net income (loss) in the period of the adjustment.
F-25
As of December 31, 2018, we have net operating loss carryforwards in Australia of $1.3 million that do not expire, in France
of $2.7 million that do not expire, in Spain of $0.9 million that do not expire, in Norway of $0.1 million that do not expire, in Italy
of $33,000 that do not expire, and in Sweden of $4,000 that do not expire. We have a capital loss carryforward in Australia of $0.9
million that does not expire. We also have state tax credit carryforwards of approximately $1.4 million that are available to reduce
future tax liabilities, which begin to expire in 2020, or can be carried forward indefinitely.
In December 2018, we reevaluated our international operations and as a result, are no longer indefinitely reinvested with
respect to undistributed earnings from our German and Australian subsidiaries. There was no material deferred tax expense
recorded for foreign and state tax costs associated with the future remittance of these undistributed earnings. We remain
permanently reinvested with respect to undistributed earnings from our other foreign subsidiaries. It is not practicable to estimate
the amount of deferred tax liability, if any, with respect to these permanently reinvested undistributed earnings.
A reconciliation of the federal statutory rate to our effective tax rate is as follows:
2018
2017
2016
Federal statutory rate ......................................................
State tax, net of federal benefit.......................................
Effect of foreign taxes ....................................................
Federal tax on foreign income ........................................
Valuation allowance .......................................................
Foreign deferred tax liability offset ................................
Manufacturing deduction ...............................................
Research & development tax credits ..............................
Stock options ..................................................................
Uncertain tax positions ...................................................
Other permanent differences ..........................................
Change in tax laws .........................................................
Deferred tax remeasurement ..........................................
Other ..............................................................................
21.0 %
1.4 %
3.8 %
1.4 %
(3.2% )
(0.3% )
0.0 %
(0.7% )
(3.3% )
0.8 %
(0.7% )
0.0 %
0.0 %
(0.9% )
35.0%
1.7%
(0.6%)
1.7%
0.1%
(0.2%)
(1.5%)
(0.6%)
(15.8%)
0.6%
1.0%
2.9%
(5.0%)
(0.7%)
Effective tax rate ............................................................
19.3 %
18.6%
35.0%
1.3%
(1.9%)
1.6%
(2.6%)
1.5%
(2.5%)
(0.7%)
(0.7%)
2.0%
1.2%
0.0%
0.0%
0.5%
34.8%
In 2016 the Internal Revenue Service completed an audit of our 2013 and 2014 U.S. federal tax returns. As a result of the
audit we paid $0.2 million in additional federal income taxes. Additionally, the adjustment settled on for this audit resulted in an
additional $0.2 million increase to our uncertain tax provisions for a state carryforward. In August 2018, the German tax authority
commenced an audit of our German subsidiary for the tax years 2013 through 2016. While it is difficult to predict the final
outcome or timing of the resolution of this audit, at this time we believe there will be no material changes to our German
Subsidiary’s income tax liability as a result of the audit. We are not currently under audit in any other tax jurisdictions.
As of December 31, 2018, a summary of the tax years that remain subject to examination in our most significant tax
jurisdictions are:
United States .................................................................... 2015 and forward
Foreign ............................................................................. 2011 and forward
F-26
9. Stockholders’ Equity
Authorized Shares
Our certificate of incorporation, as amended and restated from time to time, authorizes the issuance of up to 37,000,000
shares of common stock and up to 3,000,000 shares of undesignated preferred stock.
Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of the preferred stock
in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock. Currently, we have no shares of preferred stock outstanding.
Stock Award Plans
In May 2006 we approved a 2006 Stock Option and Incentive Plan (as subsequently amended, the 2006 Plan), which became
effective upon our initial public offering. The 2006 Plan allows for the granting of an aggregate 5,500,000 shares of incentive
stock options, non-qualified stock options, stock appreciation rights, RSUs, unrestricted stock awards, and deferred stock awards
to our officers, employees, directors, and consultants. Incentive stock options are required to be issued at not less than fair market
value at the date of the grant and generally vest over four or five years. The term of the options is determined by our Board of
Directors but in no event will exceed ten years from date of grant. In connection with the adoption of the 2006 Plan, no further
option grants were permitted under any previous stock option plans and any expirations, cancellations, or terminations under the
previous plans are available for issuance under the 2006 Plan. We may satisfy awards upon exercise of stock options or RSUs
with either newly issued shares or treasury shares. The total number of shares currently authorized for the 2006 Plan is 7,118,003
shares, of which 1,212,644 remain available for grant as of December 31, 2018.
We have computed the fair value of employee stock options granted each year using the following weighted average
assumptions:
Dividend yield ..................................................................................
Volatility ..........................................................................................
Risk-free interest rate .......................................................................
Weighted average expected option term (in years) ..........................
Weighted average fair value per share of options granted ................ $
2018
2017
2016
1.2%
41.3%
2.7%
4.8
8.28 $
0.7%
39.1%
2.2%
4.6
10.37 $
1.3%
34.5%
1.2%
5.5
4.04
A summary of option activity as of December 31, 2018 and the year then ended is presented below:
Number
of Shares
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term
(in years)
4.15
Aggregate
Intrinsic
Value
$
27,771,635
$
7,196,175
Balance outstanding at December 31, 2017 (1) ........
1,536,282 $
13.86
Granted .....................................................................
Exercised (2) ............................................................
Canceled / Expired ...................................................
280,423 $
(303,379) $
(50,751) $
23.56
9.79
13.79
Balance outstanding at December 31, 2018 (3) ........
1,462,575 $
16.41
4.54
$
12,214,422
Vested and exercisable at December 31, 2018 (4) ...
Expected to vest at December 31, 2018 ...................
504,988 $
957,587 $
11.51
18.99
2.65
5.54
$
6,482,151
Total .........................................................................
1,462,575
(1)
(2)
The aggregate intrinsic value represents the difference between the exercise price and $31.84, the closing price of our stock
on December 31, 2017, for all in-the-money options outstanding.
The aggregate intrinsic value of shares exercised represents the difference between the exercise price and the closing price
of our stock on the date of exercise.
F-27
(3)
(4)
The aggregate intrinsic value represents the difference between the exercise price and $23.64, the closing price of our stock
on December 31, 2018, for all in-the-money options outstanding.
The aggregate intrinsic value represents the difference between the exercise price and $23.64, the closing price of our stock
on December 31, 2018, for all in-the-money options vested and exercisable as of that date.
Restricted Stock Units
A summary of our RSU activity is as follows:
Weighted
Average
Grant Date
Fair Value
Shares
Balance outstanding at December 31, 2017 ...............................................................
216,750 $
Granted .......................................................................................................................
Vested (1) ...................................................................................................................
Canceled .....................................................................................................................
87,088 $
(63,478) $
(22,465) $
Balance outstanding at December 31, 2018 ...............................................................
217,895 $
18.10
23.65
15.11
17.75
21.21
(1) The number of RSUs vested includes the shares that we withheld on behalf of employees to satisfy minimum statutory tax
withholding requirements.
The fair values of the RSUs that vested during 2018, 2017, and 2016 were $1.9 million, $1.9 million, and $0.8 million,
respectively.
We repurchase shares of our common stock in order to cover any minimum tax withholding liability associated with RSU
vestings. A summary of our repurchases is as follows:
2018
2017
Shares of common stock repurchased ....................................................................
Average per share repurchase price ........................................................................ $
Aggregage purchase price (in thousands) ............................................................... $
21,410
34.62 $
741 $
27,291
28.51
778
F-28
Stock-based Compensation
The components of stock-based compensation expense included in the consolidated statements of operations are as follows:
Stock option awards ....................................................... $
Restricted stock units .....................................................
Total stock-based compensation ............................. $
1,457 $
892
2,349 $
1,612 $
644
2,256 $
2018
2017
(in thousands)
2016
Stock-based compensation is included in our statements of operations as follows:
2018
2017
(in thousands)
2016
Cost of sales ................................................................... $
Sales and marketing .......................................................
General and administrative .............................................
Research and development .............................................
Total stock-based compensation ............................. $
272 $
529
1,293
255
2,349 $
188 $
403
1,484
181
2,256 $
1,116
564
1,680
175
373
983
149
1,680
General and administrative stock-based compensation expense for 2017 included a charge of $0.5 million related to a stock
option modification associated with the departure of our President of International Operations.
We expect to record the unamortized portion of share-based compensation expense of $9.7 million for existing stock options
and RSUs outstanding at December 31, 2018, over a weighted-average period of 3.8 years.
Stock Repurchase Plans
On July 25, 2017, our Board of Directors approved a stock repurchase program under which the Company was authorized to
repurchase up to $7.5 million of its common stock. This program expired on July 25, 2018. We did not make any repurchases
under this program.
On February 14, 2019, our Board of Directors authorized the repurchase of up to $10.0mm of the Company’s common stock
through transactions on the open market, in privately negotiated purchases or otherwise. The repurchase program may be
suspended or discontinued at any time and will conclude on February 14, 2020, unless extended by the Board.
F-29
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 2018
March 22, 2018 .....................................................
May 22, 2018 ........................................................
August 22, 2018 ....................................................
November 20, 2018 ..............................................
April 5, 2018 $
June 7, 2018 $
September 6, 2018 $
December 6, 2018 $
Fiscal Year 2017
March 22, 2017 .....................................................
May 24, 2017 ........................................................
August 23, 2017 ....................................................
November 22, 2017 ..............................................
April 6, 2017 $
June 8, 2017 $
September 6, 2017 $
December 7, 2017 $
0.070 $
0.070 $
0.070 $
0.070 $
0.055 $
0.055 $
0.055 $
0.055 $
1,351
1,353
1,369
1,372
1,029
1,036
1,055
1,060
On February 14, 2019, our Board of Directors approved a quarterly cash dividend on our common stock of $0.085 per share
payable on April 5, 2019, to stockholders of record at the close of business on March 22, 2019, which will total approximately
$1.7 million in payments.
10. Profit-Sharing Plan
We offer a 401(k) profit-sharing plan (the Plan) covering eligible U.S. employees to make tax deferred contributions, a
portion of which are matched by us. We may make discretionary profit sharing contributions to the Plan in an amount determined
by our Board of Directors. Our contributions vest ratably over six years of employment and amounted to approximately $0.3
million, $0.2 million and $0.1 million for 2018, 2017 and 2016, respectively.
11. 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 reporting purposes.
Most of our revenues are generated in the United States, Germany, and other European countries, Canada, the United
Kingdom and Japan, and substantially all of our assets are located in the United States, Australia and France. Net sales to
unaffiliated customers by country were as follows:
2018
Year ended December 31,
2017
(in thousands)
2016
United States .................................................. $
Germany ........................................................
Other countries ..............................................
59,078 $
12,445
34,045
58,470 $
11,576
30,821
50,439
10,350
28,362
Net sales ........................................................ $
105,568 $
100,867 $
89,151
F-30
Total property and equipment held by geography were as follows:
As of December 31,
2017
2018
(in thousands)
United States ....................................................................... $
Australia ..............................................................................
France ..................................................................................
Germany ..............................................................................
Other countries ....................................................................
11,006 $
1,460
1,071
430
135
10,275
1,639
-
369
95
Total property and equipment ............................................. $
14,102 $
12,378
12. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are as follows:
Cash paid for income taxes, net .......................... $
5,521 $
3,146 $
4,231
2018
Year ended December 31,
2017
(in thousands)
2016
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 December 31, 2018 included our short-term investment
mutual fund account.
We had no Level 2 assets being measured at fair value on a recurring basis as of December 31, 2018.
As discussed in Notes 1 and 2, several of our acquisition-related assets and liabilities were measured using Level 3
techniques. During 2016, we recorded contingent liabilities associated with our acquisitions of the RestoreFlow allograft and
ProCol biologic graft businesses. In the case of the Restore Flow allograft acquisition, the agreement included the potential for us
to pay up to $5.1 million of additional consideration, with $1.1 million contingent on the continued employment by LeMaitre
Vascular of certain retained employees, and another $4.0 million contingent on the achievement of specified levels of revenues in
the first 12 and 24 months following the acquisition date. This additional consideration was initially valued in total at $1.0 million
and was being re-measured each reporting period until the payment requirement ended, with any adjustments reported in income
from operations. The first portion related to continued employment by LeMaitre Vascular of retained individuals was paid during
2018. The amount attributable to achieving specified levels of revenue following the acquisition date was not paid as the
associated revenue metrics were not achieved. In the case of ProCol, additional consideration is payable to the former
shareholders for a three-year period following the closing, calculated at 10% of ProCol revenues. This additional consideration
was initially valued at $0.3 million and is being re-measured each reporting period until the payment requirement ends, with any
adjustments reported in income from operations. These arrangements are described more fully in Note 2. The following table
provides a rollforward of the fair value of these liabilities, as determined by Level 3 unobservable inputs including management’s
forecast of future revenues for these acquired businesses, as well as, in the case of the Restore Flow allograft acquisition,
management’s estimate of the likelihood of continued employment of certain retained employees.
F-31
2018
Year ended December 31,
2017
(in thousands)
2016
Beginning balance .......................................................... $
Additions ........................................................................
Payments ........................................................................
Change in fair value included in earnings ......................
1,300 $
-
(1,199)
(29)
1,320 $
-
(126)
106
-
1,301
(68)
87
Ending balance ............................................................... $
72 $
1,300 $
1,320
14. Quarterly Financial Data (unaudited)
Three months ended
2018
March 31
June 30
September 30 December 31
Total net sales ............................................................ $
Gross profit ...............................................................
Income (loss) from operations ...................................
Net income ................................................................
Earnings per share
Basic ...................................................................... $
Diluted ................................................................... $
25,994 $
18,474
4,862
3,853
0.20 $
0.19 $
27,020 $
18,992
11,541
8,751
0.45 $
0.43 $
24,165 $
17,255
4,613
4,314
0.22 $
0.21 $
28,389
19,218
7,193
6,025
0.31
0.30
(in thousands, except per share data)
Three months ended
2017
March 31
June 30
September 30 December 31
Total net sales ............................................................ $
Gross profit ...............................................................
Income (loss) from operations ...................................
Net income (loss) ......................................................
Earnings per share
Basic ...................................................................... $
Diluted ................................................................... $
24,139 $
17,353
4,193
3,219
0.17 $
0.16 $
25,753 $
17,516
5,536
4,632
0.25 $
0.23 $
24,822 $
17,577
5,053
5,042
0.26 $
0.25 $
26,153
18,251
6,321
4,284
0.22
0.21
(in thousands, except per share data)
15. Accumulated Other Comprehensive Income (Loss)
Beginning balance ............................................................................. $
Other comprehensive income (loss) before reclassifications .............
Amounts reclassified from accumulated other comprehensive loss ..
2018
Year ended December 31,
2017
2016
(in thousands)
(2,289) $
$
(1,611)
-
(4,583) $
-
2,294
-
(4,049)
(534)
-
Ending Balance ................................................................................. $
(3,900) $
(2,289) $
(4,583)
Changes to our accumulated other comprehensive loss consisted primarily of foreign currency translation for the years ended
December 31, 2018, 2017 and 2016.
F-32
Board of Directors
Lawrence J. Jasinski 1, 2, 3
Chief Executive Officer
ReWalk Robotics Ltd.
Director since 2003
George W. LeMaitre
Chairman & Chief Executive Officer
LeMaitre Vascular, Inc.
Director since 1992
John J. O’Connor1
Retired Vice Chairman of Services
PricewaterhouseCoopers LLP
Director since 2008
Stockholder Information
Price Range of Common Stock
Our common stock trades on the Nasdaq Global
Market under the symbol “LMAT”. The following
table sets forth the high and low closing sale
prices of our common stock for the periods
indicated.
Price Range
2017 High Low
First Quarter $26.59
$21.90
Second Quarter $32.57
$24.16
Third Quarter $39.13
$27.94
Fourth Quarter $39.01
$30.90
2018 High Low
First Quarter $37.13
$30.50
Second Quarter $41.02
$31.45
Third Quarter $38.74
$34.02
Fourth Quarter $37.23
$22.01
Joseph P. Pellegrino, Jr.
Chief Financial Officer & Secretary
LeMaitre Vascular, Inc.
Michael H. Thomas2, 3
Retired Chief Executive Officer
Bionostics, Inc.
Director since 2016
Director since 2013
1 Member of the Audit Committee
2 Member of the Compensation Committee
3 Member of the Nominating and Corporate
Governance Committee
David B. Roberts
President
LeMaitre Vascular, Inc.
Director since 2001
John A. Roush1
Operating Executive Advisor
ACON Investments, LLC
Director since 2014
Transfer Agent
Inquiries concerning the transfer or exchange of
shares, lost stock certificates, duplicate mailings
or changes of address should be directed to our
transfer agent at:
Investor Information Requests
Investors, stockholders and security analysts
seeking information about us should refer to our
investor relations website at ir.lemaitre.com or call
Investor Relations at 781-221-2266.
Computershare Investor Services
250 Royall Street
Canton, MA 02021
Independent Auditors
Grant Thornton LLP
Boston, MA
Auditors since 2015
Annual Meeting
The annual meeting of stockholders will take
place on Monday, June 3, 2019, beginning at
10:00 a.m. at our offices at 43 Second Avenue,
Burlington, Massachusetts.
Other Information
Reports on Form 10-K and Form 10-Q, Current
Reports on Form 8-K and amendments to those
reports are available free of charge through
the investor relations section of our website at
ir.lemaitre.com. Copies of these reports are also
available by writing us at:
Investor Relations
LeMaitre Vascular, Inc.
63 Second Avenue
Burlington, MA 01803 USA
Executive Committee
George W. LeMaitre
Chairman & Chief Executive Officer
David B. Roberts
President
Ryan H. Connelly
Vice President, Research & Development
StÉphane Maier
Vice President, EMEA Operations
Giovannella Deiure
Director, Southern Europe
Jonathan W. Ngau
Vice President, Information Technology
Joseph P. Pellegrino, Jr.
Chief Financial Officer
Maik D. Helmers
Vice President, Central European Sales
Trent G. Kamke
Senior Vice President, Operations
Laurie A. Churchill
Senior Vice President & General Counsel
Kimberly L. Cieslak
Vice President, Marketing
Andrew Hodgkinson
Senior Vice President, Clinical Regulatory & Quality
Affairs
Chance Kriesel
Vice President, Sales, The Americas
Roli Kumar-Choudhury
Director, Quality Assurance
Nobuhiro Okabe
Country Manager, Japan
Jacob Petersen
Vice President, Asia-Pac
James Russell
Director, Operations
Xiang Zhang
Vice President, Regulatory Affairs
001CSN3C73
Corporate
Headquarters
LeMaitre Vascular, Inc.
63 Second Avenue
Burlington, MA 01803
USA
Tel: +1-781-221-2266
Fax: +1-781-425-5049
International
Headquarters
LeMaitre Vascular GmbH
Otto-Volger-Str. 5a/b
65843 Sulzbach/Ts.
Germany
Tel: +49-(0)6196-659230
Fax: +49-(0)6196-527072
Asia-Pacific
Headquarters
LeMaitre Vascular Sinagapore, Pte. Ltd.
9 Straits View
Marina One West Tower #05-07
018937, Singapore
Tel: +65 6932 2691