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 Form10-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.

The principal objectives of this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to enhance our overall financial disclosures by providing explanation and analysis of the Company’s financial results and condition, as viewed by our management.

Overview

We are a medical device company that develops, manufactures, and markets medical devices and implants largely used in the treatment of peripheral vascular disease. To a lesser extent, our devices are also used to treat diabetes and cardiovascular disease, and are used in neurosurgery applications. We also provide processing and cryopreservation services of peripheral vascular human tissue for implantation into patients. Our principal product offerings are sold throughout the world, primarily in the United States, Europe, the U.K., Canada and Asia/Pacific Rim. We estimate that the annual worldwide market for all of our devices exceeds $5 billion, within which our core product lines address roughly $750 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 devices. We have used acquisitions as a primary means of further penetrating the peripheral vascular device market, and we expect to continue to pursue this strategy in the future. We currently manufacture most of our products 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, vascular surgeons can perform both open surgery and minimally invasive endovascular procedures, and are therefore uniquely positioned to provide a wide range of treatment options to patients.

Our principal product lines include the following: valvulotomes, biologic vascular patches, biologic vascular grafts, carotid shunts, embolectomy catheters, anastomotic clips, radiopaque marking tape, powered phlebectomy devices, synthetic vascular grafts and surgical glue. Through our RestoreFlow allografts business we also provide services related to the processing and cryopreservation of human vascular and cardiac tissue.

To assist us in evaluating our business strategies, we monitor long-term technology trends in peripheral vascular and other device markets. 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.

Historically we have experienced success in lower-rivalry niche segments, for example the markets for valvulotomes and carotid shunts. In the valvulotome market, our highly differentiated devices have historically allowed us to increase our selling prices while maintaining our unit share. In contrast, we have experienced less success in highly competitive markets such as our AlboGraft vascular 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.

Our business opportunities include the following:

• the long-term growth of our direct sales force in North America, Europe and Asia/Pacific Rim;

• the addition of complementary products through acquisitions;

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• 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 manufacturing into our Burlington, Massachusetts corporate headquarters.

We sell our products and services primarily through a direct sales force. As of December 31, 2020 our sales force was comprised of 80 sales representatives in North America, Europe and Asia/Pacific Rim, including two export managers. Our worldwide headquarters is located in Burlington, Massachusetts, and we also have North American sales offices in Chandler, Arizona and Vaughan, Canada. Our European headquarters is located in Sulzbach, Germany, and we also have sales offices in Milan, Italy; Madrid, Spain; and Hereford, England. Our Asia/Pacific Rim headquarters is located in Singapore, and we have sales offices in Tokyo, Japan; Shanghai, China; and Kensington, Australia. During the years ended December 31, 2020 and 2019, approximately 95% and 94%, respectively, of our net sales were generated in territories in which we employ direct sales representatives. We also sell our products in other countries, including South Korea, Russia and Brazil, through distributors.

Because we believe that direct-to-hospital sales engender closer customer relationships, and allow for higher selling prices and gross margins, we periodically enter into transactions with our distributors to transition their sales of our medical devices into our direct sales organization:

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:

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In addition to relying upon acquisitions for growth, we also rely on internal product development efforts to bring differentiated technology and next-generation products to market:

In addition to our sales growth strategies, we have also executed several operational initiatives designed to consolidate manufacturing into our Burlington facilities. We expect these plant consolidations will result in improved control over production quality as well as reduced costs. Our most recent manufacturing transfers included:

Our execution of these transfers may affect the comparability of our financial results from period to period and may cause fluctuations as we incur process engineering and other charges.

Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the year ended December 31, 2020, approximately 42% of our sales took place outside the U.S., largely in currencies other than the U.S. dollar. We expect foreign currencies will represent a significant percentage of future sales. Selling, marketing, and administrative costs related to these sales are also denominated in foreign currencies, thereby partially mitigating our bottom-line exposure to exchange rate fluctuations. However, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases we will record less revenue in U.S. dollars than we did before the exchange rate changed. For 2020, we estimate that the effects of changes in foreign exchange rates increased our reported sales by approximately $0.8 million, as compared to rates in effect for 2019.

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 sell on to hospitals and clinics. In certain cases our products are consigned to a hospital or clinic prior to purchase; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment.

Cost of sales. We manufacture the majority of the products that we sell. Our cost of sales consists primarily of manufacturing personnel, raw materials and components, depreciation of property and equipment, and other allocated manufacturing overhead, as well as 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.

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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 U.S., which include operating losses or profits in certain foreign jurisdictions for certain years depending on tax elections made, and foreign taxes on earnings of our wholly-owned foreign subsidiaries. Our consolidated tax expense is affected by the mix of our taxable income (loss) in the U.S. and foreign subsidiaries, permanent items, discrete items, unrecognized tax benefits, and amortization of goodwill for U.S. tax reporting purposes.

Results of Operations

In March 2020, we began to experience negative effects on our revenues and operations as a result of the COVID-19 global pandemic. Our revenues increased 7% during the quarter ended March 31, 2020 as compared to the prior year quarter, but for the quarter ended June 30, 2020, sales decreased 16% versus the prior year quarter, with the largest sales impacts in the U.S., Germany, Italy and France. Some of our sales offices were closed during the second quarter of 2020, and in many cases our employees are still working remotely.

During the quarter ended September 30, 2020 revenues increased by $7.3 million, or 25%, compared to the quarter ended September 30, 2019; however, of that increase, $5.4 million was from our recently acquired Artegraft product line, and we estimate that approximately $0.5 million was from changes in foreign currency exchange rates. For the full year 2020 our sales were higher by 10%, or $12.1 million, as compared to 2019, with a substantial portion ($11.1 million) attributable to the Artegraft acquisition. We currently expect to see a continued negative impact from COVID-19 on our revenues, gross profit and gross margin in 2021, but it is difficult to estimate by how much, due to the uncertain duration and severity of the pandemic.

In April 2020, we initiated a plan to reduce our global workforce by approximately 13%, and to temporarily reduce base salaries for certain employees. The salary reduction program applied to all employees earning more than $40,000 per year and was applied outside of the U.S. to the extent permissible under applicable local laws and regulations. These salary reductions remained in place until August 31, 2020, at which point full base salaries were restored. In addition, we have subsequently begun to hire employees into many of the areas previously reduced, and we expect to add personnel in 2021. Annual salary and bonus increases for 2021, which normally occur in January of each year, were brought forward to November 2020.

For reasons described above, we expect that results will continue to be impacted in the near term. These financial statements and management’s discussion and analysis of financial condition and results of operations should be read in that context.

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Comparison of the year ended December31, 2020 to the year ended December31, 2019

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:

Percent

($ in thousands)

Net sales by geography:

Net sales. Net sales increased 10% or $12.1 million to $129.4 million for the year ended December 31, 2020, compared to $117.2 million for the year ended December 31, 2019. The increase was largely from recently acquired products including Artegraft bovine grafts of $10.8 million and CardioCel bovine cardiac patches of $5.3 million. We also had higher valvulotome sales of $3.9 million, including sales of Eze-Sit in the U.S., which we acquired in July 2019. These sales increases were partly offset by lower OEM sales of $2.2 million, lower sales of carotid shunts of $1.8 million, lower XenoSure bovine carotid patch sales of $1.1 million, lower TRIVEX sales of $1.0 million and lower AnastoClip sales of $0.8 million. All other products decreased on a net basis by $2.0 million. We estimate that changes in foreign exchange rates during the year ended December 31, 2020 increased net sales by $0.8 million.

Direct-to-hospital net sales were 95% of total sales for the year ended December 31, 2020 and 94% for the year ended December 31, 2019.

Net sales by geography. Net sales in the Americas increased $12.1 million or 17% for the year ended December 31, 2020. The increase was driven mainly by recently acquired products including Artegraft of $10.8 million and CardioCel of $3.5 million. We also had higher valvulotome sales of $2.8 million. These increases were partly offset by decreases across most product lines which, with the exception of OEM sales, we believe were due primarily to the impact of the COVID-19 pandemic. Product lines with the largest decreases included carotid shunts and OEM sales, each decreasing by $1.5 million, bovine carotid patches which decreased $0.7 million and vessel closure systems which decreased by $0.9 million. All other products combined decreased by $0.4 million.

Europe, Middle East and Africa net sales were relatively unchanged year-over-year, at $39.2 million for the year ended December 31, 2020 as compared to $39.5 million for the year ended December 31, 2019. Sales of CardioCel cardiac patches increased by $1.4 million and valvulotomes increased by $1.0 million, offset by declines in most other product lines. Products with larger decreases included Omniflow II grafts and OEM sales, which each decreased by $0.7 million, and bovine carotid patches, which decreased by $0.6 million. As discussed under Item 1A. Risk Factors, we have experienced a lapse in CE mark certifications for some products due to one of our Notified Bodies abandoning CE mark certifications services. This caused certain of our products to go on backorder starting in the quarter ended June 30, 2020, including bovine carotid patches and polyester grafts. We received temporary approvals in most European countries, which allowed us to resume sales of those products for a limited time period, pending recertification.

Asia/Pacific Rim net sales increased $0.4 million or 4% for the year ended December 31, 2020. Increased sales of CardioCel cardiac patches of $0.5 million, bovine carotid patches of $0.2 million and embolectomy catheters of $0.2 million were offset in part by declines in sales of TRIVEX of $0.6 million.

Percent

($ in thousands)

* Not applicable

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Gross Profit. Gross profit increased $4.8 million to $84.6 million for the year ended December 31, 2020, while gross margin decreased by 270 basis points to 65.4% in the period. The decrease in the gross margin was driven primarily by the impact of purchase accounting from the Artegraft acquisition and to a lesser extent by manufacturing inefficiencies, as well as a slightly less favorable product mix, including higher sales of CardioCel cardiac patches and embolectomy catheters.

Operating Expenses.

2020 2019 $ change change of Net Sales of Net Sales

($ in thousands)

Gain on sale of building (470 ) - (470 ) * (0 %) *

* Not a meaningful percentage.

Sales and marketing. For the year ended December 31, 2020, sales and marketing expense decreased $6.6 million, or 22%, to $23.7 million. The decrease was driven mainly by expense reduction programs implemented in response to the COVID-19 global pandemic, including a reduction in force and temporary base salary cuts in place until August 31. The major components of the sales and marketing expense reduction were salaries and related expenses of $2.3 million, travel and related expenses of $1.9 million, and commission expense of $1.6 million. As a percentage of net sales, sales and marketing expense decreased to 22% for the year ended December 31, 2020 from 26% in the prior period.

General and administrative. For the year ended December 31, 2020, general and administrative expense increased $3.5 million, or 18%, to $22.5 million. Higher acquisition-related costs including consulting and other transaction costs of approximately $1.2 million and increased amortization expense of $2.6 million were partly offset by lower compensation-related costs from our reduction in force and temporary wage cuts of $0.6 million. Other expense categories increased by an additional $0.3 million on a net basis. As a percentage of net sales, general and administrative expense was 17% for 2020 and 16% for 2019.

Research and development. For the year ended December 31, 2020, research and development expense increased $0.8 million, or 9%, to $10.1 million. Product development and process engineering expenses decreased $1.2 million or 22% on a combined basis, in large part due to completion of the manufacturing transfer of certain acquired products to our Burlington facilities. Clinical and regulatory expenses increased $2.3 million or 67%, as a result of consulting and other costs incurred in connection with reinstating or maintaining regulatory approvals, especially in Europe, as well as regulatory submissions for our products in geographies such as China and Japan, and testing related to our biologic products. Royalty expense decreased $0.3 million due to the expiration of underlying royalty agreements. As a percentage of sales, research and development expense were 8% for both 2020 and 2019.

Gain on sale of building. During the first quarter of 2020, in connection with our planned manufacturing transfer of Omniflow II to Burlington, we executed an agreement to sell our land and building in North Melbourne, Australia for A$2.9 million ($2.0 million). The sale closed in September 2020. The building had a net book value of A$1.9 million ($1.4 million). We recognized a $0.5 million gain on the sale, net of applicable sales taxes and administrative costs.

Other income (expense). Other income (expense) primarily includes interest income and expense, foreign currency gains (losses), and other miscellaneous gains (losses). Interest income was $0.2 million and $0.7 million, respectively for 2020 and 2019. The decrease was due to the liquidation of most of our interest-bearing investments to acquire Artegraft. We also incurred debt of $65.0 million in order to complete the acquisition, which generated $1.3 million of interest expense in 2020. Foreign exchange losses on settlements or remeasurement of receivables and payables denominated in foreign currencies were $0.3 million and $0.2 million in 2020 and 2019, respectively.

Income tax expense. We recorded a provision for taxes of $6.1 million on pre-tax income of $27.4 million in 2020 as compared to $3.7 million on pre-tax income of $21.7 million in 2019. The 2020 provision was comprised of a U.S. federal tax provision of $4.2 million, a state tax provision of $0.7 million, and a foreign tax provision of $1.2 million. The 2019 provision was comprised of a U.S. federal tax provision of $2.0 million, a state tax provision of $0.4 million, and a foreign tax provision of $1.3 million. Our effective tax rate differed from the U.S. statutory tax rate in 2020 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.

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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, 2020, we have provided a valuation allowance of $1.8 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 9 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 December31, 2019 to the year ended December31, 2018

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:

Percent

($ in thousands)

Net sales by geography:

Net sales. Net sales increased 11% or $11.7 million to $117.2 million for the year ended December 31, 2019, compared to $105.6 million for the year ended December 31, 2018. Sales increases were primarily driven by increased sales of our embolectomy catheters of $4.3 million, of which $3.4 million was from our 2018 acquisition of Syntel embolectomy catheters; valvulotomes of $1.6 million, of which $1.2 million was from our Eze-Sit and Chevalier acquisitions in 2019 and 2018, respectively; and polyester grafts of $1.5 million, of which $0.4 million was from our Cardial acquisition. We also had an increase in human tissue cryopreservation service revenues from our RestoreFlow allograft business of $1.4 million. Our recently acquired CardioCel and VascuCel products contributed combined sales of $1.2 million in 2019. These and other product line increases were partially offset by decreased sales of TRIVEX of $0.8 million.

Direct-to-hospital net sales were 94% for the year ended December 31, 2019 and 95% for the year ended December 31, 2018.

Net sales by geography. Net sales in the Americas increased $5.7 million or 9% for the year ended December 31, 2019. The increase was primarily driven by increased sales of embolectomy catheters of $2.6 million, in part due to our acquisition of the Syntel embolectomy catheters, and increased human tissue cryopreservation services of $1.4 million. We also increased sales of valvulotomes by $1.1 million, and our recently acquired CardioCel and VascuCel products contributed sales of $0.9 million in the Americas in 2019. These increases were partially offset by decreased sales of TRIVEX of $0.8 million.

Europe, Middle East and Africa net sales increased $4.2 million or 12% for the year ended December 31, 2019. The increase was primarily driven by increased sales of polyester grafts of $1.3 million, embolectomy catheters of $0.8 million, OEM sales of $0.7 million, valvulotomes of $0.6 million and Omniflow II grafts of $0.4 million.

Asia/Pacific Rim net sales increased $1.8 million or 27% for the year ended December 31, 2019. The increase was driven by increased sales of embolectomy catheters of $0.9 million, AnastoClips of $0.3 million, occlusion catheters of $0.2 million and biologic vascular patches of $0.2 million. These and other increases were offset in part by decreased valvulotome sales of $0.1 million.

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Percent

($ in thousands)

* Not applicable

Gross Profit. Gross profit increased $5.9 million to $79.9 million for the year ended December 31, 2019, while gross margin decreased by 190 basis points to 68.1% in the period. The gross margin was favorably impacted by higher average selling prices across most product lines, as well manufacturing efficiencies. These increases were more than offset, however, by an unfavorable product mix, including recently acquired products which typically have a lower gross margin prior to being integrated into our Burlington manufacturing operations. Foreign exchange rate changes also had an unfavorable impact in 2019.

2019 2018 $ change change of Net Sales of Net Sales

($ in thousands)

Gain on divestures and acquisitions - (7,474 ) 7,474 * 0 % *

* Not a meaningful percentage.

Sales and marketing. For the year ended December 31, 2019, sales and marketing expense increased $3.0 million, or 11%, to $30.3 million. The increase was primarily driven by higher personnel costs, including compensation, commissions and travel expenses associated with expanding our sales force. We also had higher costs due to the implementation of customer relationship management software. As a percentage of net sales, sales and marketing expense was 26% in both 2019 and 2018.

General and administrative. For the year ended December 31, 2019, general and administrative expense increased $1.4 million, or 8%, to $19.1 million. General and administrative expense increases were primarily related to acquisition-related costs including amortization of intangible assets, professional fees, bank and credit card fees, bad debt expense and facilities costs. As a percentage of net sales, general and administrative expense was 16% for 2019 and 17% for 2018.

Research and development. For the year ended December 31, 2019, research and development expense increased $1.1 million, or 13%, to $9.3 million. Product development and process engineering increased $0.8 million on a combined basis, in large part due to transitioning certain acquired products to our Burlington manufacturing operations. Clinical and regulatory expenses increased $0.3 million, related to regulatory submissions for new products in geographies such as China and Japan, and testing related to our biologic products.

Gain on divestitures and acquisitions. The 2018 gains on divestitures and acquisitions relate to the sale of our Reddick cholangiogram catheter and Reddick-Saye screw product lines to Symmetry Surgical, which resulted in a gain of $5.9 million, and also to our purchase of the Cardial assets from Becton Dickinson, which resulted in a bargain purchase gain of $1.6 million.

Other income (expense). Interest income was $0.7 million and $0.6 million, respectively for 2019 and 2018. Foreign exchange losses on settlements or remeasurement of receivables and payables denominated in foreign currencies were $0.2 million and $0.4 million in 2019 and 2018, respectively.

Income tax expense. We recorded a provision for taxes of $3.7 million on pre-tax income of $21.7 million in 2019 as compared to $5.5 million on pre-tax income of $28.4 million in 2018. The 2019 provision was comprised of a U.S. federal tax provision of $2.0 million, a state tax provision of $0.4 million, and a foreign tax provision of $1.3 million. The 2018 provision was comprised of a U.S. federal tax provision of $2.8 million, a state tax provision of $0.5 million and a foreign tax provision of $2.2 million. Our effective tax rate differed from the U.S. statutory tax rate in 2019 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.

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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, 2019, we had provided a valuation allowance of $1.4 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.

Liquidity and Capital Resources

At December 31, 2020, we held $26.8 million in cash and cash equivalents and $0.2 million in a short-term managed income mutual fund investment, as compared to $11.8 million in cash and cash equivalents and $20.9 million in the mutual fund investment at December 31, 2019. 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 U.S. is available for corporate use, with the exception of $2.6 million held by subsidiaries in jurisdictions for which earnings are planned to be permanently reinvested.

On February 23, 2021, our Board of Directors authorized the repurchase of up to $15.0 million of the Company’s common stock through transactions on the open market, in privately negotiated purchases or otherwise until February 22, 2022. The repurchase program may be suspended or discontinued at any time. To date we have not made any repurchases under this program.

In June 2020, in connection with the Artegraft acquisition, we incurred debt of $65 million including a five-year revolving line of credit of $25 million and a five-year term loan of $40 million. The loans bear interest at either the Base Rate as defined in the agreement plus an applicable margin of 1.25% to 1.75% depending on our consolidated leverage ratio, or the Eurodollar Rate plus an applicable margin of 2.25% to 2.75% depending on our consolidated leverage ratio. At December 31, 2020 all outstanding borrowings or $39.0 million were designated as Eurodollar loans and had an interest rate of 3.5%.

The term of the revolving line of credit is five years and allows re-borrowing up to $25 million during the term, with all outstanding amounts due on June 22, 2025. The term loan is repayable in increasing quarterly installments of from $0.5 million to $1.0 million commencing September 30, 2020 through March 31, 2025, with the remaining outstanding balance due on June 22, 2025. During the year ended December 31, 2020, we made scheduled principal payments on the term loan of $1.0 million and repaid the revolving line of credit in full.

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 $28.8 million for the year ended December 31, 2020, $21.2 million for the year ended December 31, 2019 and $28.2 million for the year ended December 31, 2018. 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 our stock repurchase program;

• future acquisition-related payments;

• payments associated with U.S income and other taxes;

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Our cash balances may decrease as we continue to use cash to fund our operations, make acquisitions, repay outstanding debt, pay dividends, repurchase shares of our common stock and make deferred payments related to prior acquisitions. We believe that our cash, cash equivalents, investments and the interest we earn on these balances will be sufficient to meet our anticipated cash requirements for at least the next twelve months. 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 access our available revolving credit facility. 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.

Cash Flows

Year ended December 31,

($ in thousands)

Cash flows provided by (used in):

Net cash provided by operating activities. Net cash provided by operating activities was $34.8 million for the year ended December 31, 2020, and consisted of $21.2 million net income, adjusted for non-cash items of $12.7 million (including primarily depreciation and amortization of $8.4 million, stock-based compensation of $3.0 million, provisions for inventory write-offs and doubtful accounts of $1.8 million, and fair value adjustments on contingent consideration for acquisitions of $0.2 million, offset by a benefit from deferred taxes of $0.3 million, and a gain on the sale of a building of $0.5 million) as well as cash from working capital of $0.9 million. The net cash generated from working capital was driven by increases in accounts payable and other liabilities of $4.3 million, offset by increases in inventory and other deferred costs of $2.6 million and accounts receivable of $0.9 million.

Net cash provided by operating activities was $14.2 million for the year ended December 31, 2019, and consisted of $17.9 million net income, adjusted for non-cash items of $10.1 million (including primarily depreciation and amortization of $5.4 million, stock-based compensation of $2.6 million, provisions for inventory write-offs and doubtful accounts of $1.1 million, a provision for deferred taxes of $0.8 million and fair value adjustments on contingent consideration for acquisitions of $0.2 million), as well as working capital uses of $13.6 million. The net cash used for working capital was driven by increases in inventory of $11.3 million, accounts receivable of $1.3 million, and other current assets of $0.7 million, as well as a decrease in accounts payable and other liabilities of $0.3 million.

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, and provisions for inventory write-offs and doubtful accounts of $1.0 million, offset by 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 used in investing activities. Net cash used in investing activities was $52.9 million for the year ended December 31, 2020, including acquisition-related payments of $72.6 million primarily associated with the purchase of Artegraft and expenditures on property, equipment and technology of $3.0 million, offset by net sales and purchases of marketable securities of $20.7 million and proceeds from the sale of the North Melbourne, Australia building of $2.0 million.

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Net cash used in investing activities was $24.1 million for the year ended December 31, 2019, driven by cash paid for acquisitions of $21.0 million, as well as purchases of property and equipment of $3.8 million primarily associated with biologic clean room build-outs in Burlington. These investments were in part offset by net sales of short-term investments of $0.9 million.

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 in Burlington. 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 provided by (used in) financing activities. Net cash provided by financing activities was $32.2 million for the year ended December 31, 2020, consisting primarily of borrowings of $63.2 million net of debt issuance costs and stock option exercises proceeds of $5.4 million, net of shares repurchased to cover employee payroll taxes. These increases to cash were partly offset by dividend payments of $7.7 million, debt payments of $26.0 million and deferred payments for acquisitions of $2.8 million.

Net cash used in financing activities was $4.9 million for the year ended December 31, 2019, driven primarily by dividend payments of $6.7 million and payments related to prior acquisitions of $2.3 million. We had proceeds from stock option exercises of $4.9 million, offset by the acquisition of $0.7 million of treasury shares to cover minimum withholding taxes on restricted stock unit vestings.

Net cash used in financing activities was $4.4 million for the year ended December 31, 2018, driven primarily by dividend payments of $5.4 million and payments related to 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.

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)

On February 23, 2021, our Board of Directors approved a quarterly cash dividend on our common stock of $0.11 per share payable on March 25, 2021, to stockholders of record at the close of business on March 9, 2021, which will total approximately $2.2 million.

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 revenue recognition, inventories, intangible assets, and income taxes are reviewed on an ongoing basis and updated as appropriate. Actual results could differ from those estimates.

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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.

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.

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

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

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

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.

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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.

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.

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 U.S. 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.

Valuation of Intangible Assets and Goodwill

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. Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of the fair value of assets acquired and liabilities assumed. 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 assumptions require significant judgment and actual results may differ from assumed or estimated amounts. Other intangible assets, net of accumulated amortization, were $58.9 million as of December 31, 2020 and $24.9 million as of December 31, 2019. Goodwill was $65.9 million as of December 31, 2020 and $40.0 million as of December 31, 2019.

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, 2020, 2019, and 2018, we were not subject to any material litigation, claims or assessments.

In connection with certain of our acquisitions, we may enter into agreements to pay additional future consideration upon the satisfaction of certain agreed-upon criteria. We record liabilities for these arrangements at estimated fair value reflecting management’s assumptions of the likelihood of achieving the specified criteria at the time of the closing, which may require significant judgment. These amount are remeasured each reporting period, with any adjustments recorded in income from operations.

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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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), which requires a financial asset (or group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable, supportable forecasts that affect the collectability of the reported amount, and requires judgment in determining relevant information and estimation methods. The new standard was effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our financial statements, as the only financial assets we have that are affected by the standard are trade receivables for which we have historically employed a collectability estimation technique.

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 was effective for us beginning January 1, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial statements.

In January 2017, the FASB issued ASU 2017-04 Intangibles – Goodwill and Other (Topic 350), 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 was effective for us beginning January 1, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 as well as clarifying and amending other areas of existing GAAP under Topic 740. The new standard is effective for us beginning January 1, 2021, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our financial statements.

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 2020 and 2019, 42% and 46%, respectively, of our total revenue was from customers outside of the U.S. In addition, a significant portion of our operating costs incurred outside the U.S. 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 did not do so during 2020 or 2019. Our largest exposures to foreign currency exchange rates exist primarily with the Euro, British pound, Canadian dollar, Australian dollar and Japanese yen.

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During the years ended December 31, 2020 and 2019, we recorded $0.3 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 $1.5 million for 2020.

Interest Rate Risk

At December 31, 2020, we held $26.8 million in cash and cash equivalents and $0.2 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. We also have exposure to floating interest rates through our senior secured credit facility, as the interest expense related to any borrowings will fluctuate with changes in Eurodollar and other benchmark rates. Therefore, increases in interest rates may reduce our net income or loss by increasing the cost of carrying debt.

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.

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, 2020, 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, 2020. 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, 2020.

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Our internal control over financial reporting as of December 31, 2020 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, 2020 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.

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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, 2020, 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, 2020, 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, 2020, and our report dated March 12, 2021 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

Boston, Massachusetts

March 12, 2021

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Item9B. Other Information

Not Applicable.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

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 2021 definitive proxy statement (2021 Definitive Proxy Statement) for the 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2020.

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 “Delinquent Section 16(a) Reports” in our 2021 Definitive Proxy Statement, to the extent required to be included.

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 2021 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 2021 Definitive Proxy Statement.

Equity Compensation Plan Information

The following table sets forth information regarding our equity compensation plans in effect as of December 31, 2020. 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.

(a) (b) (c)

Equity compensation plans not approved by security holders - - -

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Item13. 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 2021 Definitive Proxy Statement.

Item 14.Principal Accountant 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 2021 Definitive Proxy Statement.

PART IV

Item 15.Exhibits and Financial Statement Schedules

a) Documents filed as part of this Report.

(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

Incorporated By Reference

Exhibit Number Exhibit Description Form Date SEC File Number Filed Herewith

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Incorporated By Reference

Exhibit Number Exhibit Description Form Date SEC File Number Filed Herewith

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Incorporated By Reference

Exhibit Number Exhibit Description Form Date SEC File Number Filed Herewith

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Incorporated By Reference

Exhibit Number Exhibit Description Form Date SEC File Number Filed Herewith

21.1 List of Subsidiaries X

23.1 Consent of Grant Thornton LLP X

101.INS Inline XBRL Instance Document. X

101.SCH Inline XBRL Taxonomy Extension Schema Document. X

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. X

101.PRE Inline XRBL Taxonomy Extension Presentation Linkbase Document. X

Item 16.Form 10-K Summary.

Not applicable.

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SIGNATURES

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 12, 2021.

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 Chief Executive Officer and March 12, 2021

George W. LeMaitre Chairman of the Board (Principal Executive Officer)

/s/ JOSEPH P. PELLEGRINO, JR. Chief Financial Officer (Principal March 12, 2021

Joseph P. Pellegrino, Jr. Financial and Accounting Officer) and Director

/s/ LAWRENCE J. JASINSKI Director March 12, 2021

Lawrence J. Jasinski

/s/ JOHN J. O’CONNOR Director March 12, 2021

John J. O’Connor

/s/ DAVID B. ROBERTS President and Director March 12, 2021

David B. Roberts

/s/ JOHN A. ROUSH Director March 12, 2021

John A. Roush

/S/ BRIDGET A. ROSS Director March 12, 2021

Bridget A. Ross

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INDEX TO FINANCIAL STATEMENTS

Page

LeMaitre Vascular, Inc.

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4

Notes to Consolidated Financial Statements F-9

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

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, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 12, 2021 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 regarding 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.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the acquisition-date fair value of contingent consideration

As discussed in Notes 2 and 13 to the consolidated financial statements, on June 22, 2020 the Company acquired Artegraft, Inc. for a total purchase price of $72.9 million. The acquisition agreement included a contingent consideration provision based on the volume of units sold in each of the three years post-acquisition, individually and in the aggregate, with potential total consideration of $17.5 million. We identified the evaluation of the acquisition-date fair value of the contingent consideration as a critical audit matter.

The principal consideration for our determination that the evaluation of the acquisition-date fair value of the contingent consideration is a critical audit matter is that a high degree of subjective auditor judgment was required in evaluating certain inputs to the Monte Carlo model used to determine the fair value of the contingent consideration. Specifically, the key inputs included forecasted unit sales and the volatility of unit sales. There was limited observable market information, and the calculated fair value of the contingent consideration was sensitive to possible changes to these key inputs.

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The primary procedures we performed to address this critical audit matter included the following:

Evaluation of acquisition-date fair value of customer relationships and developed technology intangible assets

As discussed in Note 2 to the consolidated financial statements, on June 22, 2020 the Company acquired Artegraft, Inc. for a total purchase price of $72.9 million. The Company accounted for this acquisition under the acquisition method of accounting for business combinations. In connection with the transaction, the Company recorded customer relationships and developed technology intangible assets (collectively, the "intangible assets") of $21.3 million and $16.5 million, respectively. We identified the evaluation of the acquisition-date fair value of the intangible assets acquired in the Artegraft, Inc. transaction as a critical audit matter.

The principal consideration for our determination that the fair value of the intangible assets is a critical audit matter is that a high degree of subjective auditor judgement was required in evaluating certain assumptions used in the valuation methods to calculate the fair value of the intangible assets. The valuation models included a number of internally developed assumptions for which there was limited observable market information, and the calculated fair value of such assets was sensitive to possible changes to the following key assumptions: obsolescence curve, royalty rates and annual customer attrition rate.

The primary procedures we performed to address this critical audit matter included the following:

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2015.

Boston, Massachusetts

March 12, 2021

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LeMaitre Vascular, Inc.

Consolidated Balance Sheets

December 31, December 31,

(in thousands, except share data)

Assets

Current assets:

Short-term marketable securities 214 20,895

Prepaid expenses and other current assets 2,618 3,312

Liabilities and stockholders’ equity

Current liabilities:

Current portion of long-term debt $ 2,500 $ -

Revolving line of credit - -

Acquisition-related obligations 772 2,476

Lease liabilities - short-term 1,954 1,757

Long-term debt, net 35,532 -

Stockholders’ equity:

Accumulated other comprehensive loss (1,525 ) (4,007 )

Total liabilities and stockholders’ equity $ 252,810 $ 188,341

See accompanying notes to consolidated financial statements.

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LeMaitre Vascular, Inc.

Consolidated Statements of Operations

Year ended December 31,

(in thousands, except per share data)

Gains on sales of assets and acquisitions (470 ) - (7,474 )

Other income (expense):

Interest expense (1,310 ) - (2 )

Earnings per share of common stock:

Weighted-average shares outstanding:

Cash dividends declared per common share $ 0.38 $ 0.34 $ 0.28

See accompanying notes to consolidated financial statements.

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LeMaitre Vascular, Inc.

Consolidated Statements of Comprehensive Income

Year ended December 31,

Other comprehensive income (loss):

Foreign currency translation adjustment, net 2,468 (234 ) (1,626 )

Unrealized gain (loss) on short-term marketable securities 14 127 15

Total other comprehensive income (loss) 2,482 (107 ) (1,611 )

See accompanying notes to consolidated financial statements.

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LeMaitre Vascular, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

Accumulated

Additional Other Total

Common Stock Paid-in Retained Comprehensive Treasury Stock Stockholders’

Shares Amount Capital Earnings Income (Loss) Shares Amount Equity

Other comprehensive income (1,611 ) (1,611 )

Vested restricted stock units 61,804 - - -

Stock-based compensation expense 2,349 2,349

Common stock cash dividend paid (5,445 ) (5,445 )

Other comprehensive income (107 ) (107 )

Vested restricted stock units 59,010 - - -

Stock-based compensation expense 2,642 2,642

Common stock cash dividend paid (6,736 ) (6,736 )

Vested restricted stock units 50,669 1 - 1

Stock-based compensation expense 3,022 3,022

Common stock cash dividend paid (7,695 ) (7,695 )

See accompanying notes to consolidated financial statements.

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LeMaitre Vascular, Inc.

Consolidated Statements of Cash Flows

Year ended December 31,

(in thousands)

Operating activities

Fair value adjustments to contingent consideration obligations 182 171 (29 )

Provision for doubtful accounts and allowances 293 388 264

Provision (benefit) for deferred income taxes (328 ) 824 (2,152 )

Gains on sale of building, acquisitions and divestitures (470 ) - (7,474 )

Foreign currency transaction gain 100 (57 ) 259

Changes in operating assets and liabilities:

Prepaid expenses and other assets 89 (654 ) (418 )

Accounts payable and other liabilities 4,322 (596 ) 4,314

Investing activities

Purchases of property and equipment (2,982 ) (3,761 ) (3,054 )

Proceeds from sale of building 2,023 - -

Purchases of short-term marketable securities (2,205 ) (22,699 ) (19,619 )

Proceeds from divestitures - - 7,400

Financing activities

Payment of deferred acquisition consideration (2,800 ) (2,059 ) (1,199 )

Proceeds from revolving line of credit 25,000 - -

Proceeds from issuance of long-term debt 40,000 - -

Payments of revolving line of credit (25,000 ) - -

Payments of long-term debt (1,000 ) - -

Payment of deferred debt issuance costs (1,751 ) - -

Purchase of treasury stock (570 ) (683 ) (741 )

Net cash provided by (used in) financing activities 32,155 (4,622 ) (4,416 )

Effect of exchange rate changes on cash and cash equivalents 914 11 (813 )

Net increase (decrease) in cash and cash equivalents 14,978 (14,532 ) 7,222

Supplemental disclosures of cash flow information (see Notes 6 and 9).

See accompanying notes to consolidated financial statements.

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LeMaitre Vascular, Inc.

Notes to Consolidated Financial Statements

December31, 2019

1. Significant Accounting Policies and Related Matters

Description of Business

Unless the context requires otherwise, references to LeMaitre, LeMaitre Vascular, we, our, and us refer to LeMaitre Vascular, Inc. and our subsidiaries. We develop, manufacture, and market medical devices and implants used primarily in the field of vascular surgery. We also derive revenues from the processing and cryopreservation of human tissues for implantation in patients. We operate in a single segment in which our principal product lines include the following: anastomotic clips, angioscopes, biologic vascular and dialysis grafts, biologic vascular and cardiac patches, carotid shunts, embolectomy catheters, occlusion catheters, powered phlebectomy devices, radiopaque marking tape, remote endarterectomy devices, surgical glue, synthetic vascular grafts and valvulotomes. Our offices and production facilities are located in Burlington, Massachusetts; Fox River Grove, Illinois; North Brunswick, New Jersey (Note 2); Chandler, Arizona; Vaughan, Canada; Sulzbach, Germany; Milan, Italy; Madrid, Spain; Saint-Etienne, France; Hereford, England; Kensington, Australia; Tokyo, Japan; 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 management to make estimates and assumptions that affect the amounts reported in in our consolidated financial statements and accompanying notes. Due to the COVID-19 pandemic, there is heightened volatility and uncertainty in customer demand and the worldwide economy in general. However, the magnitude and duration of the impact on our revenues and operations from COVID-19 is uncertain and cannot currently be reasonably estimated at this time. The Company is not aware of any specific event or circumstance that would require an update to its accounting estimates or adjustments to the carrying value of its assets and liabilities as of March 12, 2021, the issuance date of this Annual Report on Form 10-K. Actual results could differ from those estimates, particularly if the Company experiences material impacts to the carrying value of its assets and liabilities from COVID-19.

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.

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

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

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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

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.

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):

Year ended December 31,

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.

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.

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.

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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:

Year ended December 31,

(in thousands)

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 $13.7 million as of December 31,2020.

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, particularly in Italy and Spain, may be subject to significant payment delays due to government austerity measures impacting funding and payment practices. As of December 31,2020 our receivables in Italy and Spain totaled $0.9 million and $0.6 million, respectively. Receivables balances with certain government-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 31,2020, 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.

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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 Additions Deductions Balance at

Beginning (recoveries) charged from End of

of Period to Income Reserves Period

(in thousands)

Allowance for doubtful accounts and sales returns:

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, 2020.

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 Useful Life

Computers and equipment 3–5 years

Machinery and equipment 3–10 years

Leasehold improvements 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 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.

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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 31,2020,2019 or 2018.

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 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.

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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 31,2020,2019 and 2018, we were not subject to any material litigation or claims and assessments.

Sales of medical devices outside the U.S. are subject to international regulatory requirements that vary from country to country. These requirements and the amount of time required for approval may differ from our experiences with the U.S. FDA. In the European Union we are required to obtain CE marks for our products, which denote conformity to essential requirements for manufacturers of higher-risk devices. We have CE marks to sell many of our products, though currently there is a lapse in our CE marks for some of our products. Failure to obtain, retain or maintain these CE marks would impact our ability to sell our products in certain European 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.

Income Taxes

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 31,2020,2019 or 2018.

Accumulated other comprehensive loss consisted primarily of foreign currency translation adjustment losses of $1.6 million and $4.0 million as of December 31,2020 and 2019, 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.

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

Year ended December 31,

(in thousands, except per share data)

Basic:

Diluted:

Common stock equivalents, if dilutive 233 513 816

Shares used in computing diluted earnings per common share 20,479 20,326 20,242

Diluted earnings per share $ 1.04 $ 0.88 $ 1.13

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), which requires a financial asset (or group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable, supportable forecasts that affect the collectability of the reported amount, and requires judgment in determining relevant information and estimation methods. The new standard was effective for us beginning January 1,2020. The adoption of this standard did not have a material impact on our financial statements, as the only financial assets we have that are affected by the standard are trade receivables for which we have historically employed a collectability estimation technique.

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 was effective for us beginning January 1,2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial statements.

In January 2017, the FASB issued ASU 2017-04 Intangibles – Goodwill and Other (Topic 350), 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 was effective for us beginning January 1,2020, with early adoption permitted. The adoption of this standard did not have a material impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 as well as clarifying and amending other areas of existing GAAP under Topic 740. The new standard is effective for us beginning January 1,2021, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our financial statements.

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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.

Artegraft Biologic Grafts

On June 22, 2020, we entered into an Asset Purchase Agreement (Artegraft APA) to acquire the biologic graft business from Artegraft, Inc., who subsequent to the closing changed their name to Accidentals, Inc, (Artegraft, Inc.). Under the terms of the Artegraft APA, we agreed to pay Artegraft, Inc. a total of up to $90.0 million for the purchase of substantially all of its assets related to its business of the manufacturing, marketing, sale and distribution of its bovine carotid artery grafts (Products) other than specifically identified excluded assets. The acquired assets included inventory, accounts receivable, machinery and equipment, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $72.5 million of the purchase price was paid to Artegraft, Inc. and other parties as specified in the Artegraft APA, including $7.5 million into an escrow account. The escrow amount is to be held until December 31, 2021 to cover any potential claims against LeMaitre or Artegraft, Inc., after which it will be released to Artegraft, Inc. by mutual consent of the parties.

Three earn-out payments of $5,833,333 each are potentially due to Artegraft, Inc. under the Artegraft APA depending on the achievement of specified revenue targets, as follows:

The Artegraft APA includes a catch-up feature on the earn-outs such that, at the end of the three-year period, if the sum of the unit sales for all three years is greater than or equal to 58,240 unit sales (80% of the combined individual-year targets), Artegraft, Inc. will receive a “catch-up payment” in an amount equal to (a) $17,500,000 times a fraction, the numerator of which is the aggregate number of unit sales for the three-year period, and the denominator of which is 72,800 less (b) any individual-year earn-out previously paid. We recorded this liability at a fair value of $0.4 million to reflect management’s estimate of the likelihood of achieving these targets at the time of the closing of the acquisition, as well as the time value of money until payment. This amount will be remeasured each quarter during the earn-out period, with any adjustments recorded in income from operations.

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On the date of acquisition, the Company allocated the consideration given to the individual assets acquired and the liabilities assumed based on a preliminary estimate of their fair values. During the three months ended September 30, 2020, the Company obtained and considered additional information related to the assets acquired and liabilities assumed, and recorded measurement period adjustments to the allocation of the purchase price. The following table summarizes the purchase price allocation:

Allocated

Fair Value

(in thousands)

Accounts receivable 1,789

Equipment and supplies 1,140

Accounts payable and other (53 )

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 allocation of purchase consideration to the acquired intangible assets and related estimated useful lives:

Allocated Estimated

Fair Value Useful Life (Years)

(in thousands)

Non-compete agreement 104 5.0

Total intangible assets $ 39,056

The weighted-average amortization period of the acquired intangible assets was 12.6 years.

The results of operations of the Artegraft biologic graft business have been included in the results of operations of LeMaitre since the date of acquisition of June 22, 2020. Revenues since the acquisition date through December 31, 2020 were $11.1 million. The following unaudited pro forma financial information presents the results of operations for the years ended December 31, 2020 and 2019 as if the acquisition had occurred at the beginning of 2019. The pro forma financial information presents historical operating results for the combined entities with adjustments for amortization expense, interest, management fees and related tax effects. This information has been prepared for comparative purposes only and is not indicative of what actual results would have been if the acquisitions had taken place at the beginning of fiscal 2019, or of future results.

Unaudited Pro Forma Financial Information

Year ended

December 31,

LMAT US Equity

LMAT · 10-K · period ended 2020-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.Controls and Procedures

Item9B. Other Information

Item 10.Directors, Executive Officers and Corporate Governance

Item 11.Executive Compensation

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item13. Certain Relationships and Related Transactions, and Director Independence

Item 14.Principal Accountant Fees and Services

Item 15.Exhibits and Financial Statement Schedules

Item 16.Form 10-K Summary.

LMAT US Equity☆

LMAT · 10-K · period ended 2020-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.Controls and Procedures

Item9B. Other Information

Item 10.Directors, Executive Officers and Corporate Governance

Item 11.Executive Compensation

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item13. Certain Relationships and Related Transactions, and Director Independence

Item 14.Principal Accountant Fees and Services

Item 15.Exhibits and Financial Statement Schedules

Item 16.Form 10-K Summary.

LMAT US Equity