Artivion, Inc.

Greetings and welcome to the CryoLife first quarter 2019 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 a 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 from the Gilmartin Group. Thank you, Ms. Lewis. You may begin.

Good afternoon. This is Lynn Lewis from the Gamartin Group. Thank you 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 within the meaning 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 was contained from time to time in the company's SEC filings and in the press release that was issued earlier today. With that, I'd like to turn it over to Cryolife CEO, Pat Mackin.

Thanks, Lynn, and good afternoon, everyone, and thanks for joining the call. As you'll hear today, we're off to a great start in 2019. I'd encourage you to measure us in two ways. First, our near-term quarterly performance, and second, the progress we've made against our clinical and R&D programs. I'm happy to report that we met and exceeded expectations on both fronts this quarter. You may recall from previous earnings calls that we expect to drive consistent growth from our current portfolio while at the same time, we work towards a series of product approvals, new market introductions, and product enhancements. Some of these initiatives have the potential to dramatically change the growth profile of the company. Our first quarter once again illustrates our ability to simultaneously produce strong organic revenue growth and achieve key development milestones, including, one, we submitted regulatory approval for BioGlue in China. Two, we completed enrollment for the U.S. per-clot clinical trial. Three, we submitted for CE-MARC the Enya thoracic stent graft. And four, we submitted the N-side branch thoracobdominal stent graft. I will touch on each of these in more detail throughout the call. Regarding organic revenue growth, total revenue for the quarter was $67.5 million, reflecting year-over-year growth relative to the first quarter of 2018 of 9% on a GAAP basis and 11% on a non-GAAP constant currency basis. This strong, consistent growth was driven primarily by our Yotech and Onyx product lines. For the quarter, relative to the first quarter of 2018, Yotech grew 10% on a GAAP basis and 18% on a non-GAAP constant currency basis, as our Yotech product line continues to take market share. We expect this trend to continue throughout 2019, given how our Yotech products stand out from the competition. We are also the only company to offer a full suite of aortic stent grafts covering the ascending aorta through the abdominal aorta. We expect to introduce three new next-generation Yotech products into key international markets by the end of the year. Turning to onyx, relative to the first quarter of 2018, our first quarter onyx revenue increased 14% on a gap basis and 15% on a non-gap constant currency basis. with non-GAAP constant currency revenues in North America growing 18%. We continue to expect ONIX revenue growth to remain solid, as it is the only mechanical aortic valve in the world that carries the FDA label, allowing patients to be managed three months after their initial surgery at an INR level of 1.5 to 2.0, compared to an INR level of 2.0 to 3.0 for our competitors' mechanical aortic valves. We believe we will have this competitive advantage for a considerable period in the future, as it is unlikely to be replicated by a competitor given the cost and time it would take to conduct a successful clinical trial and obtain regulatory approval. Despite our better than expected overall revenue beat in the first quarter, our gross margins were slightly lower than anticipated, driven by the mix of stronger revenue from our distributor markets. Ashley will review our first quarter financial performance and 2019 outlook in more detail later in the call. I would now like to discuss some of our recent business highlights, as well as near and long-term growth catalysts. Starting with Yotech, we are on track to introduce three new Yotech products in select international markets in 2019. This past quarter, we submitted our next generation thoracic stent graft called Enya, and the first ever off-the-shelf branch thoracic abdominal device called N-SIDE for CE-MARC, both of which we anticipate will be approved later this summer. We are confident that the ability of our branch thoracic abdominal device will offer meaningful benefits for both patients and surgeons, as will be the first time a branch stent graft will be available off-the-shelf, thus eliminating days of waiting for a patient-specific custom graft to be built. Further, we remain on track to submit for regulatory approval our next generation frozen elephant trunk called the Vita Open Neo. This summer with a goal of receiving CE mark by the end of this year. Moving to BioGlue. We submitted for BioGlue regulatory approval to the Chinese FDA in the first quarter. As a reminder, the approval cycle in China can take up to two years. We do not know what the visibility will be as we go through this process, but we'll keep you updated on progress when available. In addition, we're pleased to report that we completed enrollment in our U.S. clinical trial for per clot. We expect to submit our PMA in early 2020 with a potential FDA approval coming later in 2020. Regarding our global reach, we've begun expanding our sales operations in Asia Pacific and Latin America. with our two new commercial leaders, both of which come with extensive large medtech company experience. Over the next several quarters, we'll be adding approximately 20 people in Asia Pacific and 8 to 10 people in Latin America. We currently use distributors in many of these regions and will selectively migrate towards a direct sales model where it makes financial sense. For example, we are in the process of going direct with BioGlue and Onyx in Brazil. as we were able to leverage existing direct operations put in place by YOTEC before we acquired them. Based on the success and experience gained when we migrated to direct sales in our European territories, we expect these moves to direct sales in the regions will begin to produce strong and consistent results. Finally, I would like to discuss our tissue and onyx mechanical valve business. On the tissue side, we are driving solid growth in our pulmonary tissue valve business, which we believe is based on the continuous stream of positive long-term performance data on these tissue valves. Adding to this data set will be the results of Dr. Paul Steller's ROS procedure study that will be presented later this week at the annual AATS meeting in Toronto. Dr. Steller performed the ROS procedure in over 600 patients with great success, and we're looking forward to the readout of those results. We are confident that the incremental positive data will continue to drive growth in our pulmonary tissue valve business. As a reminder, the ROS procedure is a double valve operation where the pulmonary allograft is used to replace the patient's native pulmonary valve, which has been moved to the aortic position. Moving to our next leg of long-term growth for the best-in-class Onyx mechanical valve, We are currently working with the FDA to finalize what is needed for our PROACT-10A trial. We anticipate that we'll have an approved IND from the FDA this summer. Before closing, I'd like to share with you my thoughts on the recently announced PARTNER3 TAVR data and its potential impact on our ONIX business. At a high level, this is something that we've been expecting and have factored into both our 2019 guidance and the longer-term future of our business, so we do not expect a material impact. From a market opportunity standpoint, the average age of a patient population in the PARTNERS III trial was 74 years old. And currently, the average age of an ONIX patient is 58 years old. We believe that over time, TAVR valves will be implanted in patients closer to 70, but we also expect, with positive data for PROACT-10A, that the ONIX valves will be implanted in patients up to 65 years old. With this change in the age populations being treated by these two devices, we believe the target patient population for ONIX will actually increase, and the target population for the two devices will generally remain mutually exclusive. With that, I will now turn the call over to Ashley.