Artivion, Inc.

Greetings and welcome to the CryoLife fourth quarter and year-end 2018 financial conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lynn Lewis of the Gilmartin Group. Thank you. You may proceed.

Good morning. This is Lynn from the Gilmartin Group. Thanks for joining the call today. Joining me from CryoLife's management team are Pat Mackin, CEO, and Ashley Lee, CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties in our forward-looking statements from the meeting of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from those forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that we issued last night. With that, I'll now turn the call over to Cryolife CEO, Pat Mackin.

Thanks, Lynn, and good morning, everyone, and thank you for joining us. As you're going to hear today, 2018 was a highly successful year for Cryolife as we made meaningful progress toward becoming the leading provider of solutions for people suffering from aortic disease. We now operate from a position of strength due to the quality and breadth of products, our experienced sales team, and adept customer support. This morning, I will outline why we expect CryLife will be in an even stronger position in the coming years without needing to make a single acquisition. Simply put, we believe our story will keep getting better as we advance our pipeline and execute our strategy. We expect our steady growth to continue and our addressable market to increase by over $1.5 billion due to anticipated regulatory approvals and from geographic expansion we aim to deliver. As we reflect on 2018, our team made significant progress towards the goals we set for our year. We generated top line growth of 11% for the full year 2018 versus 2017 on a non-GAAP basis, and 10% on a constant currency basis. We completed the integration of Yotech. We leveraged our global commercial organization. We enhanced our commercial leadership team in Latin America and Asia Pacific, and we advanced both our product pipeline and our clinical programs meaningfully. Turning to our operating performance in the fourth quarter, Cryolife closed 2018 like it began with solid revenue performance, led by double-digit organic growth from our Yotech and Onyx product lines. Revenue in the fourth quarter was 67.8 million, up 8% on a non-GAAP basis and constant currency basis. Despite revenue exceeding our expectations, our operating expenses were more than anticipated in the fourth quarter due to the acceleration of spending on our product pipeline and increase related to international growth. Ashley will review our fourth quarter financial performance and 2019 outlook in more detail later in the call. Now I'll take a few minutes to summarize the progress we've made toward our 2018 initiatives and then talk about our strategic priorities for 2019, including milestones and goals that we anticipate will drive both near and long-term revenue growth and improved earnings performance. In 2018, we posted strong organic revenue growth driven by ONIX and Yotech product lines. In both instances, we continued to take market share through an experienced and well-trained team of dedicated sales professionals in a highly differentiated product portfolio backed by significant clinical experience and strong clinical data. We grew Yotech non-GAAP revenue by 25% for the full year 2018 versus 2017 while integrating its products and employees into Cryolife. Our best-in-class family of mechanical valves, Onyx, posted revenue growth of 21% in 2018 versus 2017, as we continue to demonstrate the clinical advantages of our technology compared to our competitors. Finally, we transitioned a large portion of our European markets to direct sales from distributors, and we are already starting to enjoy the benefits of that decision. We also achieved our second key initiative, completing the integration of Yotech and delivering double-digit non-GAAP revenue growth in 2018. We estimate that the international market for which our Yotech portfolio competes is growing in the low single digits. In the fourth quarter, the Yotech portfolio recorded non-GAAP revenue growth of 17 and 19 percent on a constant currency basis. This is implying meaningful share gains. We believe this is driven by the combined effect of our experienced direct sales team selling the best and broadest portfolio of branched stent grafts on the market. Turning to ONIX, our fourth quarter for ONIX was up 13% as reported and 14% on a constant currency basis. North American ONIX revenue grew over 13% in the quarter, while our European Middle East and Africa business grew over 22%. We expect ONIX revenues will remain solid as it's the only mechanical aortic valve in the world that carries the FDA label, allowing patients to be managed starting three months after their surgery at an INR level of 1.5 to 2.0. And that difference gives us a tremendous competitive advantage. Another key initiative for 2018 was to expand our addressable market opportunity through investment in our R&D product pipeline. and we made meaningful progress towards advancing our clinical programs as well. And finally, we also achieved an important initiative completing the transition to direct sales channels for our legacy Cryolife products in Spain, Italy, and Poland. I am proud that all we've accomplished in 2018, and as you'll hear, we have an equally ambitious 2019. For 2019, we expect to achieve high single-digit growth in total revenues and double-digit growth in our Yotech and Onyx product lines. We anticipate performance this year will be driven by further market share gains from existing products and new product introductions via our direct sales force. We also have several catalysts in 2019 to fuel our continued top line growth. First, we expect to introduce three next generation Yotech products into select international markets in 2019. These include our next-generation frozen elephant trunk called the Aveda OpenNeo, our second-generation thoracic stent graft called Enya, and the first-ever off-the-shelf branched thoracoabdominal device called Enside. Second, we're continuing to advance our regulatory approvals. As you'll recall, we completed the enrollment of our clinical trial for Bioglut-China in 2018, and we remain on track for a regulatory submission in the first quarter this year. Third, we also recently completed the enrollment of the per-clot study in the United States, setting us up for a PMA submission to the FDA in early 2020. This is delayed compared to our previous guidance due to work to establish our large-scale manufacturing process and the related verification and validation work, including shelf life studies to support the anticipated launch post-approval. Fourth, we're excited about the upcoming ROS Masterclass at the upcoming AETS meeting in May. Dr. Paul Stelzer from Mount Sinai, New York, will be presenting a subset of his 600-plus ROS procedures with up to 20-year follow-up. The Stelzer series, when combined with a recent JAK publication by Mazin and coworkers, provides a retrospective look at more than 4,600 patients from 10 different literature reports that underwent the ROS procedure. For those who are unfamiliar with the ROS procedure, it's a double valve procedure where pulmonary allografts are used to replace the patient's native pulmonary valve, which has been moved into the aortic position. We've seen an uptick in the ROS procedure over the last couple of years, and it has helped to drive our cardiac tissue revenues. The data shows that the ROS procedure restores normal life expectancy to patients, and it appears to be the best option for young to middle-aged patients with a diseased aortic valve. The symposium will highlight the very compelling long-term efficacy data for the procedure and should be a clear positive for our cardiac tissue business. Fifth, we are investing in the development of our distribution channels in Asia Pacific and Latin America. Last year, we strengthened our commercial leadership team with the addition of two seasoned sales professionals to lead our commercial efforts in these geographies. We will begin migrating to a direct sales model in the second quarter in Brazil with our legacy Cryolite products. And six, we will enhance our sales channel across Asia Pacific with a focus on China, where we expect to have new distributors in place by mid-year. We expect these initiatives to deliver high single-digit revenue growth in each of the next five years. And with that, we're providing 2019 revenue expectations between 280 and 284 million. In addition to these near-term catalysts just described, we have a rich long-term pipeline filled with opportunities that we believe will increase our addressable markets. I would like to highlight several important opportunities in our pipeline. First, we have submitted our IND for the PROACT-10A trial and are hoping to begin enrolling patients in the first half of this year. We held an investigators meeting in late January at the Society of Thoracic Surgeons meeting and their significant enthusiasm for the trial in great anticipation for the commencement of the study. Through this trial, we will seek to obtain FDA approval with the onyx aortic valve using Eliquis rather than Coumadin as the blood thinner. We look forward to working with the FDA, and we'll provide more details as they become available. Second, we will file regulatory approval for Bioglu in China in the first quarter of this year and for Perclot in the U.S. in early 2020. We could potentially have both of those products in the market in 2020. Third, in 2021, we expect to have the Aventis SX, our self-expanding peripheral stent, in the market in Europe and expect our onyx mitral valve to receive regulatory approval for a lower INR similar to the onyx aortic valve in both the U.S. and Europe. That valve would offer doctors and patients the same low INR profile found with our aortic valves. And fourth, beginning in 2023, we look to leverage our Yotech product line, which is currently not approved for sale in the United States. We plan to conduct clinical trials in the United States with the three next-generation Yotech products that are slated for launch in Europe this year, with the goal of obtaining FDA approval for each product. With that, I will now turn the call over to Ashley.