LEMAITRE VASCULAR INC

Previous wording

LeMaitre, AlboGraft, AnastoClip, AnastoClip GC, Artegraft, Cardial, CardioCel, DuraSure, Eze-Sit, Glow ‘N Tell, LeverEdge, LifeSpan, OmniFlow, PhasTipp, ProCol, Pruitt, Pruitt F3, RestoreFlow, TufTex, VascuCel, VascuTape, and XenoSure are registered trademarks of LeMaitre Vascular or one of its subsidiaries, and Chevalier, Flexcel, PeriVu and Syntel are trademarks of LeMaitre Vascular. This Quarterly Report on Form 10-Q also includes the registered and unregistered trademarks of other persons, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ®or TM symbols.

Current wording

LeMaitre, AlboGraft, AnastoClip, AnastoClip GC, Artegraft, Cardial, CardioCel, DuraSure, Eze-Sit, Glow ‘N Tell, LeverEdge, LifeSpan, OmniFlow, PhasTipp, ProCol, Pruitt, Pruitt F3, RestoreFlow, Syntel, TufTex, VascuCel, VascuTape, and XenoSure are registered trademarks of LeMaitre Vascular or one of its subsidiaries, and Chevalier, Flexcel and PeriVu are trademarks of LeMaitre Vascular. This Quarterly Report on Form 10-Q also includes the registered and unregistered trademarks of other persons, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ®or TM symbols.

Previous wording

We are a global provider of medical devices and human tissue cryopreservation services largely used in the treatment of peripheral vascular disease, end-stage renal disease, and to a lesser extent cardiovascular disease. We develop, manufacture, and market vascular devices to address the needs of vascular surgeons and, to a lesser degree, other specialties such as cardiac surgeons, general surgeons and neurosurgeons. Our diversified portfolio of devices consists of brand name products that are used in arteries and veins and are well known to vascular surgeons. Our principal product offerings are sold globally, primarily in the U.S., Europe, Canada and Asia Pacific. We estimate that the annual worldwide market for peripheral vascular devices exceeds $5 billion, within which we estimate that the market for our products is approximately $800 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 complementary devices. We have used acquisitions as a primary means of further penetrating the peripheral vascular device market, and we expect to continue this strategy in the future. We currently manufacture most of our products in our Burlington, Massachusetts headquarters.

Current wording

We are a global provider of medical devices and human tissue cryopreservation services largely used in the treatment of peripheral vascular disease, end-stage renal disease, and cardiovascular disease. We develop, manufacture, and market vascular devices to address the needs of vascular surgeons and, to a lesser degree, other specialties such as cardiac surgeons, general surgeons and neurosurgeons. Our diversified portfolio of devices consists of brand name products that are used in arteries and veins and are well known to vascular surgeons. Our principal product offerings are sold globally, primarily in the U.S., Europe, Canada and Asia Pacific. We estimate that the annual worldwide market for peripheral vascular devices exceeds $5 billion, within which we estimate that the market for our products is approximately $800 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 complementary devices. We have used acquisitions as a primary means of further penetrating the peripheral vascular device market, and we expect to continue this strategy in the future. We currently manufacture most of our products in our Burlington, Massachusetts headquarters.

Previous wording

Our products and services are used primarily by vascular surgeons who treat peripheral vascular disease through both open surgical methods and endovascular techniques. In contrast to interventional cardiologists and interventional radiologists, vascular surgeons can perform both open surgical and minimally invasive endovascular procedures, and therefore can provide a wider range of treatment options to their patients. Recently we have also begun to explore adjacent market customers, or non-vascular surgeon customers, who can be served by our vascular device technologies, such as cardiac surgeons and interventional cardiologists.

Current wording

Our products and services are used primarily by vascular surgeons who treat peripheral vascular disease through both open surgical methods and endovascular techniques. In contrast to interventional cardiologists and interventional radiologists, vascular surgeons can perform both open surgical and minimally invasive endovascular procedures, and therefore can provide a wider range of treatment options to their patients. Recently we have also begun to explore adjacent market customers who can be served by our vascular device technologies, such as cardiac surgeons and interventional cardiologists.

Previous wording

Our principal biologic offerings include vascular and cardiac patches as well as vascular and dialysis grafts. In Q2 2024, biologics represented 52% of our worldwide sales. We believe our biologic devices represent differentiated and, in some cases, growing product segments.

Current wording

Our principal biologic offerings include vascular and cardiac patches as well as vascular and dialysis grafts. In Q3 2024, biologics represented 52% of our worldwide sales. We believe our biologic devices represent differentiated and, in many cases, growing product segments.

Previous wording

We sell our products and services primarily through a direct sales force. As of June 30, 2024, our sales force was comprised of 144 sales representatives in North America, Europe, the UK, and Asia Pacific, including four 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 European sales offices in Milan, Italy; Madrid, Spain; Hereford, England; Dublin, Ireland; and Maisons-Alfort, France. Our Asia Pacific headquarters is located in Singapore, and we also have Asia Pacific sales offices in Tokyo, Japan; Shanghai, China; Kensington, Australia; Seoul, Korea; and Bangkok, Thailand. During the current quarter, approximately 95% of our net sales were generated in territories in which we employ direct sales representatives. We sell our products in other countries through distributors.

Current wording

We sell our products and services primarily through a direct sales force. As of September 30, 2024, our sales force was comprised of 146 sales representatives in North America, Europe, the UK, and Asia Pacific, including four export managers. Our worldwide headquarters is located in Burlington, Massachusetts, and we also have a North American sales office in Vaughan, Canada. Our European headquarters is located in Sulzbach, Germany, and we also have European sales offices in Milan, Italy; Madrid, Spain; Hereford, England; Dublin, Ireland; and Maisons-Alfort, France. Our Asia Pacific headquarters is located in Singapore, and we also have Asia Pacific sales offices in Tokyo, Japan; Shanghai, China; Kensington, Australia; Seoul, Korea; and Bangkok, Thailand. During the current quarter, approximately 95% of our net sales were generated in territories in which we employ direct sales representatives. We sell our products in other countries through distributors.

Previous wording

Historically we have experienced success in lower-rivalry niche segments. In the valvulotome market, for example, our differentiated devices have historically allowed us to increase our selling prices while maintaining unit share. In contrast, we have experienced less success in competitive markets such as the polyester vascular graft market, where we face competition from larger companies with greater resources and lower per unit costs.

Current wording

Historically we have experienced success in lower-rivalry niche segments. In the valvulotome market, for example, our differentiated devices have historically allowed us to increase our selling prices without incurring significant unit share loss. In contrast, we have experienced less success in competitive markets such as the polyester vascular graft market, where we face competition from larger companies with greater resources and lower per unit costs.

Previous wording

We obtain regulatory approvals for our devices and services in new segments and geographies in order to further access the broader peripheral device market and selected other markets. While much of our regulatory effort is focused on maintaining regulatory approvals in various geographies, we will continue to obtain new product approvals in new geographies in order to extend our geographic reach and increase sales. Recent approvals include the approval to sell the XenoSure patch for carotid indication in Japan in May 2023, and the approval to sell the Pruitt Irrigation Occlusion Catheter in China in October 2023.

Current wording

We obtain regulatory approvals for our devices and services in new segments and geographies in order to further access the broader peripheral device market and selected other markets. While much of our regulatory effort is focused on maintaining regulatory approvals in various geographies, we will continue to obtain new product approvals in new geographies in order to extend our geographic reach and increase sales. Recent approvals include the approval to sell the XenoSure patch for carotid indication in Japan in May 2023, the Pruitt Irrigation Occlusion Catheter in China in October 2023, and the Artegraft bovine graft in Thailand and Malaysia in August 2024 and in South Africa in October 2024.

Previous wording

In February 2024, we began implementing a new enterprise resource planning system (ERP) to replace our financial reporting and planning system. We expect that the new ERP system will be beneficial in a number of areas, including inventory management, pricing programs, financial operations and real-time reporting. We have been preparing for this transition since 2022 and have hired an experienced consulting team to assist in this transition, and in the U.S., we transitioned from our legacy ERP system to our newly implemented Microsoft Dynamics D365 system in Q1 2024. We expect to implement this new system in selected countries in Europe in 2025. As of June 30, 2024, we have capitalized costs on our balance sheet of approximately $3.9 million associated with this ERP system.

Current wording

In February 2024, we began implementing a new enterprise resource planning system (ERP) to replace our financial reporting and planning system. We expect that the new ERP system will be beneficial in a number of areas, including inventory management, pricing programs, financial operations and real-time reporting. We have been preparing for this transition since 2022 and have hired an experienced consulting team to assist in this transition, and in the U.S., we transitioned from our legacy ERP system to our newly implemented Microsoft Dynamics D365 system in Q1 2024. We expect to implement this new system in selected countries in Europe in 2025, starting with the United Kingdom. As of September 30, 2024, we have capitalized costs on our balance sheet of approximately $4.0 million associated with this ERP system.

Previous wording

Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the six months ended June 30, 2024, approximately 42% of our sales took place outside of 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 the six months ended June 30, 2024, we estimate that the effects of changes in foreign exchange rates decreased our reported sales by $0.4 million, as compared to rates in effect for the six months ended June 30, 2023.

Current wording

Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, primarily the Euro, affect our financial results. For the nine months ended September 30, 2024, approximately 42% of our sales took place outside of 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 the nine months ended September 30, 2024, we estimate that the effects of changes in foreign exchange rates decreased our reported sales by $0.3 million, as compared to rates in effect for the nine months ended September 30, 2023.

Previous wording

Comparison of the three- and six-month periods ended June 30, 2024 to the three- and six-month periods ended June 30, 2023:

Current wording

Comparison of the three- and nine-month periods ended September 30, 2024 to the three- and nine-month periods ended September 30, 2023:

Previous wording

Net sales. Net sales increased by $5.7 million, or 11%, to $55.8 million for the three months ended June 30, 2024, compared to $50.1 million for the three months ended June 30, 2023. The increase was driven primarily by higher average selling prices, strong hospital procedure volumes, and additional sales representatives. Allograft preservation services increased $1.3 million, carotid shunt sales increased $1.0 million, bovine vascular patch sales increased $0.9 million, and valvulotome sales increased $0.8 million. We estimate that the stronger U.S. dollar decreased net sales by $0.4 million during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

Net sales. Net sales increased by $7.4 million, or 16%, to $54.8 million for the three months ended September 30, 2024, compared to $47.4 million for the three months ended September 30, 2023. The increase was driven primarily by higher average selling prices, strong hospital procedure volumes, and additional sales representatives. Allograft preservation services increased $1.7 million, bovine graft sales increased $1.2 million, bovine vascular patch sales increased $1.2 million, and carotid shunt sales increased $0.8 million. We estimate that the weaker U.S. dollar increased net sales by less than $0.1 million during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

Net sales increased by $12.1 million, or 12%, to $109.3 million for the six months ended June 30, 2024, compared to $97.2 million for the six months ended June 30, 2023. The increase was driven primarily by higher average selling prices, strong hospital procedure volumes, additional sales representatives, and sales related to our new porcine patch product line. Allograft preservation services increased $2.6 million, carotid shunt sales increased $2.2 million, bovine vascular patch sales increased $1.9 million, and porcine patch sales increased $1.5 million. We estimate that the stronger U.S. dollar decreased net sales by $0.4 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Current wording

Net sales increased by $19.5 million, or 14%, to $164.1 million for the nine months ended September 30, 2024, compared to $144.6 million for the nine months ended September 30, 2023. The increase was driven primarily by higher average selling prices, strong hospital procedure volumes, and additional sales representatives. Allograft preservation services increased $4.2 million, bovine vascular patch sales increased $3.1 million, carotid shunt sales increased $3.0 million, and bovine graft sales increased $2.3 million. We estimate that the stronger U.S. dollar decreased net sales by $0.3 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous wording

Direct-to-hospital net sales were 95% and 96% of our total net sales for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Direct-to-hospital net sales were 95% and 96% of our total net sales for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net sales by geography. Net sales in the Americas increased $3.4 million, or 10%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was driven primarily by increased sales of allograft preservation services of $1.0 million, bovine grafts and bovine vascular patches of $0.7 million each, and valvulotomes of $0.5 million.

Current wording

Net sales by geography. Net sales in the Americas increased $3.9 million, or 12%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven primarily by increased sales of allograft preservation services of $1.4 million, bovine grafts of $1.2 million, bovine vascular patches of $0.5 million, and valvulotomes of $0.4 million.

Previous wording

Net sales in the Americas increased $6.5 million, or 10%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was driven primarily by increased sales of allograft preservation services of $2.2 million, porcine patches of $1.5 million, and bovine vascular patches and bovine grafts of $1.0 million each.

Current wording

Net sales in the Americas increased $10.5 million, or 11%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven primarily by increased sales of allograft preservation services of $3.5 million, bovine grafts of $2.2 million, bovine vascular patches and porcine patches of $1.5 million each, and valvulotomes of $1.0 million.

Previous wording

EMEA net sales increased $1.7 million, or 13%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was driven primarily by increased sales of carotid shunts of $0.7 million, and polyester grafts and allograft preservation services of $0.3 million each.

Current wording

EMEA net sales increased $2.7 million, or 22%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven primarily by increased sales of carotid shunts of $0.6 million, bovine vascular patches of $0.5 million, and allograft preservation services, valvulotomes and embolectomy catheters of $0.3 million each.

Previous wording

EMEA net sales increased $3.8 million, or 15%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was driven primarily by increased sales of carotid shunts of $1.6 million, bovine vascular patches of $0.7 million, allograft preservation services of $0.4 million, and polyester grafts of $0.3 million.

Current wording

EMEA net sales increased $6.5 million, or 17%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven primarily by increased sales of carotid shunts of $2.2 million, bovine vascular patches of $1.2 million, allograft preservation services of $0.7 million, and embolectomy catheters, valvulotomes and polyester grafts of $0.6 million each.

Previous wording

Asia Pacific net sales increased $0.6 million, or 20%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was driven primarily by increased sales of over-the-wire embolectomy catheters of $0.3 million and ePTFE vascular grafts of $0.1 million.

Current wording

Asia Pacific net sales increased $0.8 million, or 24%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven primarily by increased sales of ePTFE vascular grafts and bovine vascular patches of $0.2 million each, and embolectomy catheters, over-the-wire embolectomy catheters and valvulotomes of $0.1 million each.

Previous wording

Asia Pacific net sales increased $1.8 million, or 31%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was driven primarily by increased sales of over-the-wire embolectomy catheters of $0.5 million, ePTFE vascular grafts of $0.4 million, and occlusion catheters and embolectomy catheters of $0.2 million each.

Current wording

Asia Pacific net sales increased $2.6 million, or 29%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven primarily by increased sales of over-the-wire embolectomy catheters and ePTFE vascular grafts of $0.6 million each, and bovine vascular patches and embolectomy catheters of $0.3 million each.

Previous wording

Gross profit increased $6.4 million, or 20%, to $38.5 million for the three months ended June 30, 2024, and gross margin increased 490 basis points to 68.9% in the period. The increase in gross profit was driven primarily by increased sales, particularly from allograft preservation services, carotid shunts, bovine vascular patches and valvulotomes. The increase in gross margin was driven primarily by greater manufacturing efficiencies, sales price increases, and favorable product mix, which was partially offset by increased shipping and warehousing costs and unfavorable foreign exchange rates due to the stronger U.S. dollar.

Current wording

Gross profit increased $6.4 million, or 21%, to $37.2 million for the three months ended September 30, 2024, and gross margin increased 280 basis points to 67.8% in the period. The increase in gross profit was driven primarily by increased sales, particularly from allograft preservation services, bovine grafts, bovine vascular patches and carotid shunts. The increase in gross margin was driven primarily by greater manufacturing efficiencies and sales price increases, which was partially offset by unfavorable product mix.

Previous wording

Gross profit increased $12.2 million, or 19%, to $75.1 million for the six months ended June 30, 2024, and gross margin increased 390 basis points to 68.7% in the period. The increase in gross profit was driven primarily by increased sales, particularly from allograft preservation services, carotid shunts, bovine vascular patches and porcine patches. The increase in gross margin was driven primarily by greater manufacturing efficiencies and sales price increases, which was partially offset by increased shipping and warehousing costs, unfavorable product mix, including sales of comparatively lower margin porcine patches and sales of our existing allograft preservation services, and increased excess and obsolescence charges.

Current wording

Gross profit increased $18.5 million, or 20%, to $112.3 million for the nine months ended September 30, 2024, and gross margin increased 360 basis points to 68.4% in the period. The increase in gross profit was driven primarily by increased sales, particularly from allograft preservation services, bovine vascular patches, carotid shunts and bovine grafts. The increase in gross margin was driven primarily by greater manufacturing efficiencies and sales price increases, which was partially offset by unfavorable product mix, including sales of comparatively lower margin allograft preservation services, and increased excess and obsolescence charges.

Previous wording

Sales and marketing*.* For the three months ended June 30, 2024, sales and marketing expenses increased 8% to $11.0 million. The increase was driven primarily by higher sales representative headcount, which resulted in increased compensation and related expenses of $0.7 million. Additionally, travel and training expenses increased $0.2 million and facility expenses increased $0.1 million. The increase was partially offset by lower outside services and general supplies of $0.2 million. Sales rep headcount was 144 as of June 30, 2024, an 8% increase from June 30, 2023. As a percentage of sales, sales and marketing expenses remained consistent at 20% for the three months ended June 30, 2024 versus the prior year period.

Current wording

Sales and marketing*.* For the three months ended September 30, 2024, sales and marketing expenses increased 18% to $11.4 million. The increase was driven primarily by higher sales representative headcount, which resulted in increased compensation and related expenses of $1.2 million. Additionally, travel and training expenses increased $0.5 million. Sales rep headcount was 146 as of September 30, 2024, a 7% increase from September 30, 2023. As a percentage of sales, sales and marketing expenses increased to 21% for the three months ended September 30, 2024, up from 20% in the prior period.

Previous wording

For the six months ended June 30, 2024, sales and marketing expenses increased 7% to $22.7 million. The increase was driven primarily by higher sales representative headcount, which resulted in increased compensation and related expenses of $1.0 million. Additionally, travel, training and sales meetings expenses increased $0.9 million and facility expenses increased $0.1 million. The increase was partially offset by lower outside services and general supplies of $0.4 million. As a percentage of sales, sales and marketing expenses decreased to 21% for the six months ended June 30, 2024, down from 22% in the prior year period.

Current wording

For the nine months ended September 30, 2024, sales and marketing expenses increased 11% to $34.1 million. The increase was driven primarily by higher sales representative headcount, which resulted in increased compensation and related expenses of $2.5 million. Additionally, travel, training and sales meeting expenses increased $1.0 million and outside services increased $0.1 million. The increase was partially offset by lower general supplies of $0.3 million. As a percentage of sales, sales and marketing expenses remained consistent at 21% for the nine months ended September 30, 2024 versus the prior year period.

Previous wording

General and administrative. For the three months ended June 30, 2024, general and administrative expenses increased 14% to $8.8 million. The increase was driven primarily by higher outside services and professional fees, compensation and related expenses, and facilities expenses of $0.3 million each. Additionally, bad debt expenses increased $0.1 million due to increased uncertainty of accounts receivable collectability related to a small number of our customers. As a percentage of sales, general and administrative expenses increased to 16% for the three months ended June 30, 2024, up from 15% in the prior year period.

Current wording

General and administrative. For the three months ended September 30, 2024, general and administrative expenses increased 15% to $8.9 million. The increase was driven primarily by higher headcount and related recruiting fees, accrued bonus, and stock compensation expenses, which resulted in increased compensation and related expenses of $0.9 million. Additionally, facilities expenses increased $0.3 million. As a percentage of sales, general and administrative expenses remained consistent at 16% for the three months ended September 30, 2024 versus the prior year period.

Previous wording

For the six months ended June 30, 2024, general and administrative expenses increased 14% to $17.8 million. The increase was driven primarily by higher outside services and professional fees of $1.1 million, compensation and related expenses of $0.5 million, facilities expenses of $0.2 million, and travel and training of $0.1 million. Additionally, bad debt expenses increased $0.2 million due to the increased uncertainty of accounts receivable collectability related to a small number of our customers. As a percentage of sales, general and administrative expenses remained consistent at 16% for the six months ended June 30, 2024 versus the prior year period

Current wording

For the nine months ended September 30, 2024, general and administrative expenses increased 14% to $26.8 million. The increase was driven primarily by higher compensation and related expenses of $1.4 million, outside services and professional fees of $1.1 million, and facilities expenses of $0.5 million. Additionally, bad debt expenses increased $0.3 million due to the increased uncertainty of accounts receivable collectability related to a small number of our customers. As a percentage of sales, general and administrative expenses remained consistent at 16% for the nine months ended September 30, 2024 versus the prior year period

Previous wording

Research and development. For the three months ended June 30, 2024, research and development expenses decreased 5% to $4.3 million. The decrease was driven by lower outside services, professional fees and testing of $0.3 million related to elevated MDD and MDR services performed in the prior period. Additionally, process engineering expenses decreased $0.1 million as CardioCel device manufacturing was initiated at our Burlington facility, and related expenses were allocated to cost of sales. The decrease was partially offset by higher compensation and related expenses of $0.2 million. As a percentage of sales, research and development expenses decreased to 8% for the three months ended June 30, 2024, down from 9% in the prior year period.

Current wording

Research and development. For the three months ended September 30, 2024, research and development expenses decreased 13% to $3.7 million. The decrease was driven by comparatively higher costs in the prior year period related to outside services, professional fees and testing costs related to MDD and MDR approvals of $0.4 million. Additionally, process engineering expenses decreased $0.4 million as CardioCel device manufacturing was initiated at our Burlington facility, and related expenses were allocated to cost of sales. The decrease was partially offset by higher compensation and related expenses of $0.2 million. As a percentage of sales, research and development expenses decreased to 7% for the three months ended September 30, 2024, down from 9% in the prior year period.

Previous wording

For the six months ended June 30, 2024, research and development expenses were unchanged at $8.4 million. Compensation and related expenses increased $0.4 million, offset primarily by lower outside services, professional fees and testing of $0.3 million and facilities expenses of $0.2 million. As a percentage of sales, research and development expenses decreased to 8% for the six months ended June 30, 2024, down from 9% in the prior year period.

Current wording

For the nine months ended September 30, 2024, research and development expenses decreased 5% to $12.0 million. Process engineering expenses decreased $0.5 million as CardioCel device manufacturing was initiated at our Burlington facility, and related expenses were allocated to cost of sales. As a percentage of sales, research and development expenses decreased to 7% for the nine months ended September 30, 2024, down from 9% in the prior year period.

Previous wording

Restructuring. For the three and six months ended June 30, 2024, there were no restructuring expenses. On June 30, 2022, we ceased operations at our St. Etienne, France factory. The closure resulted in a restructuring charge of $3.1 million for the year ended December 31, 2022. These charges consisted primarily of employment termination costs, impairment of fixed assets and inventory, and third-party costs. For the three and six months ended June 30, 2023, we recorded additional restructuring expenses of $0.2 million and $0.5 million, respectively. The additional expenses consisted primarily of employment termination, settlement, legal and other third-party costs.

Current wording

Restructuring. For the three and nine months ended September 30, 2024, there were no restructuring expenses. On June 30, 2022, we ceased operations at our St. Etienne, France factory. The closure resulted in a restructuring charge of $3.1 million for the year ended December 31, 2022. These charges consisted primarily of employment termination costs, impairment of fixed assets and inventory, and third-party costs. For the nine months ended September 30, 2023, we recorded additional restructuring expenses of $0.5 million. The additional expenses consisted primarily of employment termination, settlement, legal and other third-party costs.

Previous wording

***Income tax expense.***We recorded a tax provision of $3.7 million on pre-tax income of $15.5 million for the three months ended June 30, 2024, compared to a $2.2 million tax provision on pre-tax income of $10.3 million for the three months ended June 30, 2023. We recorded a tax provision of $6.6 million on pre-tax income of $28.3 million for the six months ended June 30, 2024, compared to a tax provision of $4.2 million on pre-tax income of $18.3 million for the six months ended June 30, 2023. Our effective income tax rate was 23.7% and 23.3% for the three- and six-month periods ended June 30, 2024. Our tax expense for the current period is based on an estimated annual effective tax rate of 24.3%, adjusted in the applicable quarterly periods for discrete stock option exercises and other discrete items. Our income tax expense for the current period varies from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign entities, and a discrete item for stock option exercises.

Current wording

Our effective income tax rate was 23.4% and 23.3% for the three- and nine-month periods ended September 30, 2024. Our tax expense for the current period is based on an estimated annual effective tax rate of 24.1%, adjusted in the applicable quarterly periods for discrete stock option exercises and other discrete items. Our income tax expense for the current period varies from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign entities, and a discrete item for stock option exercises.

Previous wording

Our effective income tax rate was 21.5% and 22.8% for the three- and six-month periods ended June 30, 2023. Our 2023 provision was based on the estimated annual effective tax rate of 25.6%, adjusted in the applicable quarterly period for discrete stock option exercises and other discrete items. Our income tax expense for the three- and six-month periods ended June 30, 2023 varied from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign entities, and a discrete item for stock option exercises.

Current wording

Our effective income tax rate was 23.6% and 23.1% for the three- and nine-month periods ended September 30, 2023. Our 2023 provision was based on the estimated annual effective tax rate of 24.9%, adjusted in the applicable quarterly period for discrete stock option exercises and other discrete items. Our income tax expense for the three- and nine-month periods ended September 30, 2023 varied from the statutory rate mainly due to the generation of federal and state tax credits, permanent items, different statutory rates from our foreign entities, and a discrete item for stock option exercises.

Previous wording

As of June 30, 2024, our cash and cash equivalents were $22.3 million as compared to $24.3 million as of December 31, 2023. We had $90.8 million in short-term marketable securities as of June 30, 2024, and $80.8 million as of December 31, 2023. Our cash and cash equivalents are liquid investments with maturities of 90 days or less at the date of purchase and consist primarily of operating bank accounts. 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, and a short-duration bond fund. As of June 30, 2024, our short-term marketable securities reflected an unrealized loss of $1.2 million as a result of increasing market interest rates.

Current wording

As of September 30, 2024, our cash and cash equivalents were $21.0 million as compared to $24.3 million as of December 31, 2023. We had $102.9 million in short-term marketable securities as of September 30, 2024, and $80.8 million as of December 31, 2023. Our cash and cash equivalents are liquid investments with maturities of 90 days or less at the date of purchase and consist primarily of operating bank accounts. 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, and a short-duration bond fund. As of September 30, 2024, our short-term marketable securities reflected an unrealized loss of $0.4 million as a result of increasing market interest rates.

Previous wording

We recognized operating income of $26.3 million for the six months ended June 30, 2024, compared to $17.3 million for the six months ended June 30, 2023. For the year ended December 31, 2023, we had operating income of $36.7 million. 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:

Current wording

We recognized operating income of $39.4 million for the nine months ended September 30, 2024, compared to $26.5 million for the nine months ended September 30, 2023. For the year ended December 31, 2023, we had operating income of $36.7 million. 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:

Previous wording

Net cash provided by operating activities. Net cash provided by operating activities was $14.7 million for the six months ended June 30, 2024, consisting of $21.7 million in net income, adjustments for non-cash or non-operating items of $10.4 million (including primarily depreciation and amortization of $4.8 million, stock-based compensation of $3.2 million, provisions for inventory write-offs and credit losses of $1.7 million, and foreign currency effect on net income of $0.7 million), and a net use of working capital of $17.4 million. The net cash used for working capital was driven by an increase in accounts receivable of $6.5 million, an increase in inventory and other deferred costs of $7.3 million, and payments of accounts payable and other liabilities of $4.3 million. These cash uses were offset by a decrease in prepaid expenses and other assets of $0.7 million.

Current wording

Net cash provided by operating activities. Net cash provided by operating activities was $28.9 million for the nine months ended September 30, 2024, consisting of $32.9 million in net income, adjustments for non-cash or non-operating items of $14.9 million (including primarily depreciation and amortization of $7.2 million, stock-based compensation of $4.8 million, provisions for inventory write-offs and credit losses of $2.6 million, and foreign currency effect on net income of $0.2 million), and a net use of working capital of $18.8 million. The net cash used for working capital was driven by an increase in accounts receivable of $7.4 million, an increase in inventory and other deferred costs of $8.9 million, and payments of accounts payable and other liabilities of $2.5 million. These cash uses were offset by a decrease in prepaid expenses and other assets of $0.1 million.

Previous wording

Net cash provided by operating activities was $14.2 million for the six months ended June 30, 2023, consisting of $14.1 million in net income, adjustments for non-cash or non-operating items of $8.6 million (including primarily depreciation and amortization of $4.7 million, stock-based compensation of $2.6 million, provisions for inventory write-offs and credit losses of $0.8 million, and loss on divestiture of $0.5 million), and a net use of working capital of $8.6 million. The net cash used for working capital was driven by an increase in accounts receivable of $4.2 million, an increase in inventory and other deferred costs of $4.3 million, and payments of accounts payable and other liabilities of $1.0 million. These cash uses were offset by a decrease in prepaid expenses and other assets of $0.9 million.

Current wording

Net cash provided by operating activities was $26.0 million for the nine months ended September 30, 2023, consisting of $21.6 million in net income, adjustments for non-cash or non-operating items of $12.9 million (including primarily depreciation and amortization of $7.1 million, stock-based compensation of $3.9 million, provisions for inventory write-offs and credit losses of $1.5 million, and loss on divestiture of $0.5 million), and a net use of working capital of $8.6 million. The net cash used for working capital was driven by an increase in accounts receivable of $2.1 million, an increase in inventory and other deferred costs of $7.6 million, and an increase in prepaid expenses and other assets of $1.2 million. These cash uses were offset by an increase in accounts payable and other liabilities of $2.3 million.

Previous wording

Net cash used in investing activities. Net cash used in investing activities was $13.4 million for the six months ended June 30, 2024, consisting of expenditures on property and equipment of $3.2 million and purchases of marketable securities of $10.1 million.

Current wording

Net cash used in investing activities. Net cash used in investing activities was $26.2 million for the nine months ended September 30, 2024, consisting of expenditures on property and equipment of $4.9 million and purchases of marketable securities of $21.3 million.

Previous wording

Net cash used in investing activities was $12.6 million for the six months ended June 30, 2023, consisting of expenditures on property and equipment of $4.9 million, purchases of marketable securities of $7.2 million, and acquisition related payments of $0.4 million.

Current wording

Net cash used in investing activities was $22.5 million for the nine months ended September 30, 2023, consisting of expenditures on property and equipment of $6.0 million, purchases of marketable securities of $15.6 million, and acquisition related payments of $0.9 million.

Previous wording

Net cash used in financing activities. Net cash used in financing activities was $2.8 million for the six months ended June 30, 2024, consisting of proceeds from stock option exercises of $4.4 million, net of shares repurchased used to pay employee payroll taxes. This proceed of cash was offset by dividend payments of $7.2 million.

Current wording

Net cash used in financing activities. Net cash used in financing activities was $5.9 million for the nine months ended September 30, 2024, consisting of proceeds from stock option exercises of $4.8 million, net of shares repurchased used to pay employee payroll taxes. This proceed of cash was offset by dividend payments of $10.8 million.

Previous wording

Net cash used in financing activities was $1.3 million for the six months ended June 30, 2023, consisting of proceeds from stock option exercises of $4.9 million, net of shares repurchased used to pay employee payroll taxes. This proceed of cash was offset by dividend payments of $6.2 million.

Current wording

Net cash used in financing activities was $4.4 million for the nine months ended September 30, 2023, consisting of proceeds from stock option exercises of $4.9 million, net of shares repurchased used to pay employee payroll taxes. This proceed of cash was offset by dividend payments of $9.3 million.

Previous wording

We have adopted various accounting policies to prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Our most significant accounting policies are described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes in our critical accounting policies during the six months ended June 30, 2024. The preparation of our consolidated financial statements in conformity with U.S. 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, inventory valuation, valuation of intangible assets and goodwill, contingent consideration and income taxes are reviewed on an ongoing basis and updated as appropriate. Actual results may differ from those estimates.

Current wording

We have adopted various accounting policies to prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Our most significant accounting policies are described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes in our critical accounting policies during the nine months ended September 30, 2024. The preparation of our consolidated financial statements in conformity with U.S. 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, inventory valuation, valuation of intangible assets and goodwill, contingent consideration and income taxes are reviewed on an ongoing basis and updated as appropriate. Actual results may differ from those estimates.