LeMaitre Vascular, Inc. (LMAT) Earnings

Management highlights

### Core Financial Results * Total Q2 2026 organic sales growth hit 10% overall, with 7% from price increases and 3% from unit volume growth. Excluding catheters, organic growth reached 12% (7% price, 5% unit). * Gross margin was 72.1%, a 210 basis point YoY increase driven by higher average selling prices, reduced shipping costs, and favorable product mix from growing high-margin Artigraph sales. * Operating expenses increased 5% YoY to $34.4 million, with minimal full-time employee growth (from 658 to 660 year-over-year). * Operating income rose 26% YoY to a record $20.4 million, for a 29% operating margin; net income rose 24% YoY to $17.1 million; fully diluted EPS hit $0.74, up 23% YoY. ### Product Development and Regulatory Updates * Artigraph received new approvals in Vietnam, Morocco, and Turkey in Q2, bringing total approved markets to 56 countries. Three major upcoming approvals are expected in 2027 (Korea, Brazil, India), with a possible AV indication approval in Japan by 2029-2030 without a new clinical trial, following a positive initial meeting with Japan's PMDA. * Longer-size Artigraphs for European leg bypass procedures are in development; regulatory filings for updated packaging will be submitted to the US and EU in Q4 2026, with sales starting in H2 2027. * The QuickStick project completed a pre-submission filing to the FDA, but the agency now indicates a clinical trial will likely be required, pushing the launch timeline out to multiple years; management is still evaluating next steps for the program. * Following the 2025 FDA warning letter for the New Jersey facility, the FDA completed a re-audit in June 2026. Management estimates it addressed 3/4 of 2025 observations, received additional new quality system observations, and submitted a response in July 2026. The audit observations have not disrupted production, shipping, or invoicing to date. * RFA (cardiac allograft) distribution is now live in the US, Canada, UK, and Germany, with the first three implants completed in Germany. Irish approval is expected in H1 2027, with approvals and launches planned for Austria, Holland, and Spain (H1 2027) and Australia, Switzerland (H2 2027). The Dublin facility will support pan-European RFA distribution long-term. * Tissue processing is on track to be transferred from Fox River Grove, Illinois to Burlington, Massachusetts by the end of 2026, with first yields already produced at the new location. ### Infrastructure and Commercial Expansion * The company ended Q2 with 163 sales reps, and remains on track to reach 170-180 reps by the end of 2026, with 9 new reps set to start in Q3 and 13 open requisitions. * Seven new or expanded warehouse facilities are planned for 2026-2027 as part of the company's "relocalization" strategy, including a tripled primary warehouse in Billerica, MA (already operational), a doubled warehouse in Madrid (operational), a doubling of the Paris warehouse (Q3 2026), a tripled, relocated warehouse in Toronto (Q3 2026), a new direct-to-hospital warehouse in Warsaw, Poland (opening December 2026), and a relocated UK warehouse from Hereford to the London area (Q4 2026). * The relocalization strategy has generated large unexpected shipping cost reductions (from $55 per shipment from Frankfurt to Madrid to $5 per shipment from local Madrid warehouses) and drove significant gross margin expansion in Europe. ### Capital and Balance Sheet * Ended Q2 with $376 million in cash and securities, a $9 million increase during the quarter; cash from operations was $16 million; capital expenditures totaled $2.3 million; $5.7 million in dividends were paid to shareholders.

Guidance

* Full-year 2026 reported revenue guidance was updated to $276.3 million, representing 11% reported YoY growth, down from prior guidance due to a stronger US dollar, ongoing Middle East conflict delaying export revenues, and RFA cardiac allograft supply constraints. * Full-year organic revenue growth guidance was revised downward from 12% to 11%, reflecting Q2 2026 underperformance and the headwinds listed above. * Full-year 2026 gross margin is expected to hit 72.4%, a 200 basis point improvement from adjusted 2025 results. * Full-year 2026 operating income is expected to reach $76.8 million, for a 28% operating margin, representing 19% growth from adjusted 2025 results. * Fully diluted EPS guidance was updated to $2.89, representing 21% YoY growth from adjusted 2025, maintaining the company's streak of four consecutive years of double-digit revenue growth and 20%+ EPS growth. * Full-year guidance incorporates the expectation that the three Q2 headwinds (stronger dollar, Middle East export delays, RFA supply constraints) will continue to impact results in the second half of 2026.

Segment performance

1. Artigraph: 34% YoY revenue growth in Q2 2026, accounting for 21% of total company sales. International Artigraph sales grew sequentially from $2.1 million in Q1 2026 to $2.8 million in Q2 2026, with full-year 2026 sales expected to hit $11 million, up from $4 million in 2025. 2. Grafts: 23% YoY revenue growth, hitting a new quarterly sales record. 3. Shunts: 18% YoY revenue growth, hitting a new quarterly sales record. 4. Patches: 4% YoY revenue growth, hitting a new quarterly sales record. 5. Catheters: 11% YoY revenue decline, driven by recall-driven customer overstocking in Q2 2025. Excluding catheters, overall company organic growth reached 12% in Q2 2026. 6. Cardiac allografts (RFA): 17% YoY revenue growth in Q2 2026, and 39% quarter-over-quarter growth, though growth slowed below prior expectations due to ongoing supply constraints. Geographic segment performance: 1. EMEA: 18% YoY revenue growth, a new quarterly record. Relocalization infrastructure investments have driven 5-9 percentage point year-over-year gross margin expansion in the region. 2. APAC: 18% YoY revenue growth, a new quarterly record. 3. Americas: 5% YoY organic revenue growth; after excluding the catheters segment, growth rises to 8% YoY, which management considers aligned with normal business performance.

Risks & headwinds

* The company missed Q2 2026 sales guidance by $1.1 million, driven by three roughly equal headwinds that are expected to persist through H2 2026: 1) strengthening of the US dollar after initial guidance was issued in May, 2) the ongoing Middle East war delaying export revenue recognition, with $400,000 in completed orders held for shipment as of the call, and 3) RFA cardiac allograft supply constraints that slowed growth below prior expectations. * The QuickStick product development program now requires an FDA-mandated clinical trial, extending the timeline out to years and increasing required investment; management has not yet finalized a go-forward decision for the program. * The FDA issued new quality systems observations following the June 2026 re-audit of the New Jersey facility, after the 2025 warning letter, though operations have not been disrupted to date. * Cadaver tissue supply for RFA allografts is inherently variable, and current constraints are limiting growth despite strong surgeon demand.

Analyst Q&A

• Q: What is management's current thinking on resource allocation for the QuickStick program, now that a multi-year clinical trial is likely required?

  A: Management acknowledges QuickStick addresses an important US market opportunity, but the FDA guidance on clinical trials is very recent. The company has historically not focused on large clinical trial programs, but is looking to increase R&D focus overall. Leadership is still taking time to evaluate the path forward for the program before making a final decision.

• Q: Soft Americas Q2 growth was below expectations; is this driven mostly by the catheter overhang from last year's recall, or are there broader procedural volume trends impacting the region?

  A: After excluding the transient Q2 2025 catheter stocking and one-off unrelated internal factors, the Americas organic growth rate reaches 8% YoY, which is in line with normal business performance. Management does not see broader macro procedural volume trends affecting its customer base, which primarily serves non-Medicaid patients and is not materially impacted by recent Affordable Care Act policy discussions.

• Q: What is the update on Artigraph adoption in European tender-driven markets, and does H2 guidance depend on converting these tender wins this year?

  A: Artigraph Q2 2026 performance in Europe came in better than management expected. Early adoption was concentrated in Central Europe, but adoption has now spread to France, Italy, Spain, and the UK. Southern European tender-driven markets are currently performing very well and driving monthly/quarterly record sales, while Nordic tender markets are progressing slower than other regions.

• Q: What explains the downward revision to full-year guidance, and how should the operating expense trajectory be modeled for H2 2026?

  A: The revenue and operating income guidance reductions are entirely driven by the three Q2 headwinds (stronger dollar, Middle East export delays, RFA supply constraints), each contributing roughly a third of the downward adjustment. H2 2026 operating expenses will appear higher than H2 2025 because the second half of 2025 was a period of deliberate belt-tightening, while 2026 H2 will see planned spending on sales rep hiring and infrastructure projects. This will create an apparent lack of operating leverage that is expected by management.

• Q: Why are RFA supply constraints happening now, what steps are being taken to resolve them, and is there enough donor procurement capacity?

  A: Management previously solved long-standing peripheral vascular tissue supply shortages after years of work, and cardiac tissue supply is the next frontier to address. The key step is moving tissue processing from Illinois to Burlington, Massachusetts, where operations and regulatory leadership are based to improve oversight. Additional steps include using a new AI tool (Donor IQ) to improve processing efficiency and removing prior constraints on donor tissue purchasing. Management is also evaluating adding more organ recovery groups to increase input supply. Even with constraints, the business grew 39% quarter-over-quarter, so it remains a high-growth segment.