LeMaitre Vascular, Inc. (LMAT) Earnings Call Transcript & Summary

Welcome to LeMaitre Vascular Quarter 2 2026 Financial Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. Dorian LeBlanc, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir.

Good afternoon, and thank you for joining us for our Q2 2026 conference call. With me on today's call is our CEO, George LeMaitre; and our President, Dave Roberts. Before we begin, I'll read our safe harbor statement. Today, we will make some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast, might and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, August 4, 2026, and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures such as organic sales growth. A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website, www.lemaitre.com. I'll now turn the call over to George LeMaitre.

Thanks, Dorian. Artegraft grew 34% in Q2, accounting for 21% of sales. Grafts, up 23%, shunts up 18% and patches up 4%, each posted records as did EMEA, up 18%, APAC, up 18% and the Americas up 5%. Sales grew 10% organically in Q2, 7% from price and 3% from units. Catheters were down 11% in Q2 due to recall-driven overstocking in the year earlier quarter. Excluding catheters, Q2 2026 organic growth was 12%, 7% from price and 5% from units. Notably, we underperformed our Q2 2026 sales guidance by $1.1 million for 3 reasons, each with roughly the same impact in the quarter. The strengthening of the dollar after we gave guidance on May 5, the impact of the Middle East war continues to delay export revenues and cardiac allografts sales have been hampered by supply. Our guidance reflects these 3 items continuing to hamper sales in H2. Turning to the positive. Artegraft has become our fastest and largest product, and we're investing in the product in several ways. Number one, more international approvals; number two, longer sizes for leg bypasses, particularly for Europe; and finally, number three, building out our sales force and our commercial infrastructure. International Artegraft sales advanced sequentially from $2.1 million in Q1 to $2.8 million in Q2, and we now expect sales of $11 million in 2026 versus $4 million in 2025. Artegraft approvals were received in Vietnam, Morocco and Turkey in Q2, and we're now approved in 56 countries. We also expect 3 large approvals in 2027, Korea, Brazil and India. In July, we met face-to-face with Japan's PMDA and the initial response was positive. We might receive approval for the AV indication by 2029/2030 without a clinical trial. Canada approved Artegraft last year and the launch is set to occur this September. We're also working to make longer Artegraft available. Because European surgeons use Artegraft for leg bypasses, our longest Artegraft, which is 50 centimeters, is now in high demand, but the Artegraft packaging tube is just 53 centimeters long. So we plan to make approval filings for longer tubes in the U.S. and Europe in Q4 2026. For sales of these longer bovine grafts could start in H2 2027. Here's an update on the Quick Stick project. We made a pre-submission filing to the FDA for this indication. Unfortunately, we now believe that a clinical trial is likely. If we like to follow this path, the time line would be measured in years, not quarters. As a follow-up to the 2025 warning letter, the FDA reaudited our New Jersey facility in June 2026. At this audit, we believe that we adequately addressed 3/4 of their 2025 observations. On June 25, the FDA provided us an additional set of quality systems observations. As per standard practice, we responded on July 16. The observations from these audits have not disrupted our ability to produce, ship or invoice. As for RFA, allograft revenues grew 17% in Q2. We now distribute these cadaver tissues in 4 countries: the U.S., Canada, the U.K. and Germany. German surgeons have recently performed 3 implants. Our German sales force reports high levels of interest from German surgeons due to the quality and availability of our tissues. In Ireland, we have just responded to our first set of questions from the Irish Tissue Authority, and we await an inspection of our Dublin facility. Current expectations are for an Irish approval in H1 2027. Long-term, the Dublin facility is expected to be used for Irish as well as pan-European RFA distribution. And here's the time line for when we expect to begin distributing tissues in several other countries. H1 2027, Austria, Holland and Spain. H2 2027, Australia and Switzerland. As always, we continue to hire sales reps and build out our commercial infrastructure. We ended Q2 with 163 sales reps, and we still plan to end the year with 170 to 180 reps. Nine reps have signed and are set to start in Q3 and 13 requisitions are currently open. In July, we signed a Polish go-direct term sheet and expect to sell direct to hospital from a Warsaw warehouse this December. In addition to Dublin and Warsaw, we have 5 other warehouse projects underway. Our primary warehouse has tripled and moved to Billerica, Massachusetts. Madrid has doubled and now ships all products. Paris is doubling in Q3 and will ship all products. Toronto is moving and tripling in Q3. And finally, Hereford, U.K. is moving to the London area in Q4. In total, about 7 new or larger warehouses opening in 2026/2027. We believe these infrastructure projects will help make a tighter connection between LeMaitre and its worldwide hospital customers. Higher ASPs, geographic expansion and disciplined spending produced 10% sales growth and 23% EPS growth in Q2 2026. Our 29% op margin in Q2 as well as our 17% ROE underscores the strength and profitability of our business. Full year guidance implies 11% organic sales growth and 21% EPS growth. I'll now turn the call over to Dorian.

Thanks, George. LeMaitre's Q2 organic revenue growth of 10%, consisting of 7% price growth and 3% unit growth was impacted by the Q2 2025 stocking orders following our package-relating catheter recall. As George noted, excluding catheters, organic growth across the remaining portfolio was 12%, consisting of 7% price and 5% unit growth. The 5% unit growth was highlighted by the strong unit growth of Artegraft and Cardiac RestoreFlow. In Q2 2026, gross margin was 72.1%. The 210 basis point increase year-over-year was driven primarily by higher ASPs, reduced shipping costs and positive product mix, supported in particular by growing high-margin Artegraft sales. We remain on track to transfer tissue processing from our Fox River Grove facility in Illinois to our Burlington, Massachusetts headquarters before the end of the year, and we have already yielded tissue in Burlington. In addition, we began shipping our core devices in June from our new 34,000 square foot high bay warehouse in Billerica to U.S. domestic customers in our international subsidiaries and distributors. Operating expenses in Q2 2026 were $30.4 million, an increase of 5% versus Q2 2025, resulting from continued hiring restraint as full-time employees increased marginally from 658 at June 30, 2025, to 660 at June 30, 2026. We do anticipate continued 2026 investment in expanding our global sales force, including the new sales reps joining in Q3. Q2 operating income was a record $20.4 million, up 26% and resulting in an operating margin for the quarter of 29%. Net income increased 24% year-over-year to $17.1 million and fully diluted EPS was $0.74, up 23%. Our fully diluted EPS calculation for Q2 2026 triggered the if-converted accounting for our convertible debt, increasing the fully diluted share count to 24.5 million for the basis of this calculation. We ended Q2 2026 with $376 million in cash and securities, an increase of $9 million in the quarter. Cash from operations generated $16 million in Q2. We incurred $2.3 million in capital expenditures and paid $5.7 million in dividends to shareholders. We have updated our full year revenue guidance to $276.3 million and 11% reported revenue growth. Expected reported revenue has declined as we updated our FX assumptions for the strengthening U.S. dollar since our February and May guidance. In addition, we have reduced full year organic revenue growth from 12% to 11% to reflect our Q2 results and the revenue impact related to our export business and slowing growth for RFA, largely due to anticipated supply constraints. We anticipate full year gross margin of 72.4%, a 200 basis point improvement from adjusted 2025, full year operating income of $76.8 million, resulting in a 28% operating margin for 2026 and an op inc increase of 19% from adjusted 2025. We have also updated our guidance of fully diluted earnings per share to $2.89, up 21% from adjusted 2025. Our guidance implies a fourth consecutive year of strong double-digit revenue growth and 20% plus EPS growth. We'll now take questions.

[Operator Instructions] Our first question comes from the line of Michael Sarcone with Jefferies.

I guess, George, just to start, you gave us the update on the Quick Stick claim, and we've got this time line measured in years now. And I guess, can you give us a little more color on how you're thinking about allocating resources to that effort? And just any updated thoughts on what you're going to do there?

Sure. We definitely see that as a nice piece of the market, Mike. And by the way, thanks for your question. I appreciate it. I think the news is fresh enough here that we just need to sit back and decide what to do next here. We're not really a clinical trial company historically, but we do have these aspirations to get a little bit more R&D focused. So I think it will take us a little time to figure that out. But we do acknowledge it's an important piece of the market, particularly in the U.S.

Got it. And then just on the RFA supply constraints, I guess, how are you thinking about next steps here? And maybe any time lines for when you could see some relief on those constraints?

Sure. As you can imagine, we're running around like crazy trying to solve this. I think when you're dealing in cadaver tissues, there are always threats of supply around you. So there's a set of 4 or 5 to-dos that we're not going to bore you with today that we're in the middle of trying to do. If you want to think of this positively, when we first took over this company in 2016 for the first 5 years, we had tremendous difficulty having enough supply of the peripheral vascular tissues, the veins and the femoral artery and such. And we've definitely solved that. We feel really good about that. And now this is sort of the next frontier. And then I always say this to the sales force, which is 95% of your products are good to go here. We have ample supply, and they always talk about the one that doesn't. So we want to get rid of it because it's tiring to sit there and listen to it from the sales force as much as we want the sales to come out.

Mike, this is Dorian. And maybe just to add on that. Cardiac allografts were up 39% quarter-on-quarter. So we're talking about a business that's performing very, very well, just maybe the growth rate is slowing a bit from where we anticipated. And one of the big things, of course, that we're doing on supply is to move that processing here to Burlington, Massachusetts, where we're all closer to it. So I think those are 2 important things to kind of wrap up the question.

Our next question comes from Brett Fishbin with KeyBanc.

Just had a quick one first on 2Q. The geographical performance versus our model at least looked pretty good in Europe and in Asia. And Americas was a little bit softer than expected. I was hoping you could just touch on kind of what you're seeing in the Americas region, just given some of the mixed reads on procedural growth this quarter domestically or if that was mostly driven by the catheter issue.

I would say we should start with the catheter issue, which is if you -- first of all, if you X-out the Aziyo issue, and we've all forgotten about that, but we used to distribute Aziyo way back when that was in Q2 of '25. You get it to a 6% organic number for the Americas. And then if you strip out the catheter topic, again, you can go strip out stuff, right? But if you strip that out, that's a real thing. You get it to 8% organic in the Americas. And it's probably feeling more normal to us that that's our business. Your second part of your question, Brett, was about the procedure volume. And I think we tend not to lean on that in these phone calls about procedure volume. And one specific reason we might not lean on it is we -- the stuff we're reading a lot of the newspapers about the Affordable Care Act and all that, it's a little bit more -- it's not really our customer. Our customers are 70-year-old men and women, and they're not Medicaid patients and things like that. So we don't want to lean too hard on that. I think the internal issues, but again, if you X-out those 2 issues, you can get yourself to 8% organic growth for the quarter.

Right. Great. And then just one follow-up for me. I think you talked a lot more today in the press release and prepared remarks about some of these warehouse expansions and the magnitude and number of them. Maybe if you could just elaborate a little bit more at a high level on this like overall initiative, and if there's any long-term read into either margin expansion upside or working capital?

Right. Okay. Thanks for giving me the platform to talk about this. This is sort of one of my really serious initiatives inside the company called relocalization. And historically, we tried to address Europe just from Frankfurt because we're all excited about the EU and the Schengen zone and the euro as common currency. And I would say myself and our team, we've sort of debunked that over 20 years. In the last 5 years, we've gotten much more serious about a Spanish hospital wants to talk to a Spanish customer service rep located in Madrid with the product sitting right next to him or her and get it shipped directly for so many reasons. That's the hypothesis of relocalization. And you can kind of see we've gone a bit hog wild with it, right? We're going to have -- when Warsaw opens up, we're going to have 7 offices in Europe, I believe, and maybe 15 years ago, it was just in Frankfurt. So we've really gone down this path. There's the outside reasoning or the larger rationale for it. What we're also finding, which we didn't expect to find is shipping a package from Frankfurt cost $55 to the Madrid hospital and shipping a package from Madrid to the Madrid hospital costs $5. And so there's this huge shipping savings to go with Artegraft being so much bigger in Europe, just to press forward on the point here. There's an explosion of gross margin going on over in Europe. And I've never seen this in my career, but it's 6 points, 5 points, 9 points year-over-year, full points, not bps. And it's been really satisfying to see even though we spent the money on these places, the gross margin is exploding over there for a number of reasons. And I would say the focus of the success of the company in Q2 clearly was Europe, whether it be from a sales perspective or on a growth and profitability perspective. And I think the profitability of that segment was up like 70% or something like that. It's really going nicely over there, and it's sort of intertwined with that relocalization project.

Our next call comes from Rick Wise with Stifel.

This is Annie on for Rick. My first one is on Artegraft in Europe. When we spoke with you last, we kind of heard that Artegraft was seeing early success in these European countries with shorter sales cycles, while the more tender-based countries were likely to come in further down the road. So I guess, can you update us on where those tender processes like stand today and whether the updated back half outlook is going to depend on those wins converting before the year-end?

Okay. And I think when we gave the Q1 call, we were a little bit like, "Well, is it going to be $10 million or what?" We were all talking about it. And we're happy to say Q2 seemed like a little bit better than we all expected over in Europe for Artegraft. So we're thrilled about that. As to your specific question on the tender, on the tender countries, I don't have a real angle on that. I will say that when it first started, let's call it, Q3 and Q4 of 2025, it felt very much like a Central Europe, I'm going to say, Holland, Belgium, Germany, Austria thing. And in the last 3 or 4 quarters, it definitely has spread out. It's become a big topic in France, Italy and Spain and a big topic in the U.K. The tender-driven markets of sort of the Nordics. When you talk about tenders over there and in the Southern European markets, you feel like the Nordics, maybe a little slower and the tender-driven markets of the South part of Europe are doing really well right now, very well. It's helping the business post records every month and every quarter.

Great. And maybe just a follow-up on the RFA supply constraints, maybe just generally about the longer-term opportunity outside the U.S. I'm curious if you have any plans to build out tissue processing OUS and what that might entail in terms of the timing, investment and regulatory work there?

Annie, it's Dave. It's a great question. It is something we think about on a long-term basis. But I think we still have a long way to go in the U.S. to rationalize and improve our supply of cardiac tissue, especially here. So I think we're focused on that in the near-term. As Dorian mentioned, we're moving the processing from the Chicago area to Burlington. So all the management will be concentrated here, and we are taking a few steps to improve the supply here. Certainly, as we see sales start growing OUS, that topic about supplying outside the United States becomes more relevant. But I don't think it's a near-term project for the company at this point.

Our next question comes from the line of Danny Stauder with Citizens.