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spk11: Greetings, and welcome to Artivion's fourth quarter and full year end 2022 financial results 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, Brian Johnston, Vice President at Gilmartin Group. Thank you. You may begin.
spk26: Thanks, Operator. Good afternoon and thank you for joining the call today. Joining me from our TIVIANS 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 that are 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 these 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 was issued earlier today. With that, I'll turn the call over to Pat Mackin.
spk17: Thanks, Brian, and good afternoon, everyone. Our strategy, which I've discussed with you over the past few years, in which we further detailed in March of 2022 at our Investor Day, is to create significant shareholder value by driving sales of our innovative products, expanding within and into new geographies, and developing our pipeline of innovative products to substantially increase our addressable market. As you will hear today, we are doing just that. I'm pleased to report that our business continues to perform well as we closed out the full year 2022 with just over 9% constant currency revenue growth compared to the full year of 2021. I'm also pleased to report that we made significant progress on the regulatory front. We received the BioGlucy eMark under the new MDR framework, and based on our recent conversations and interactions with the FDA, we are confident we will receive approval for per-clot. You'll also hear that we continue to remain on track to deliver our revenue and EBITDA commitments with 2023 expected to represent a major step forward. Starting with our year-over-year revenue performance for the fourth quarter, we saw strong top-line constant currency growth in Stentgrass, which grew 16%, and Onyx, which grew 11%. For the full year, our constant currency basis, Stentgrass were up 20%, Onyx was up 13%, Tissue Processing was up 8%, and BioGlue was down 5%, all compared to full year 2021. As anticipated, fourth quarter 2022 constant currency revenue growth of 5% was strong, but slightly below the quarter growth delivered through the first three quarters of the year. As we mentioned on our Q3 call, we expected some deceleration in the fourth quarter because our EU customers had accelerated approximately 1.5 million of BioGlue purchases into the third quarter that they otherwise would not have made in the fourth quarter. This was done to protect their supply of BioGlue for the fourth quarter in the event the company was unable to obtain BioGlue derogation extensions beyond October 31st. If customers had not made these increased BioGlue purchases in Q3, our total growth for the fourth quarter would have been around 7% on a constant currency basis compared to the prior year. We believe this BioGlue purchase was a one-time occurrence now that we have the CE mark for BioGlue, and we anticipate our customers will return to regular ordering patterns in the EU and in those countries where commercialization is based on CE mark. As you will recall, at our investor day in March of 2022, we committed to delivering compounded double-digit constant currency revenue growth through 2024 through three key initiatives. First, we'll continue to drive our growth in aortic stent grafts and onyx. Second, we'll continue to benefit from our investments in commercial channels and new regulatory approvals in Asia Pacific and Latin America. And third, we will benefit in 2023 and beyond from PMA approvals in the U.S. for Perclot and Proact Mitral. As mentioned previously, StentGraph revenues rebounded in the fourth quarter, increased to 16 percent on a constant currency basis compared to the fourth quarter last year. We finished the full year with 20 percent year-over-year growth compared to 21 on a constant currency basis. Demand for our StentGraph portfolio remains high, We've also made significant progress in hiring at our German manufacturing facility, which is now operating at nearly full staffing. As a result, we believe this will improve production significantly over time, which will serve as a catalyst to continuing to drive growth in our StenGraph portfolio. As for ONIX, revenue grew 11% on a constant currency basis in the fourth quarter of 22 compared to the fourth quarter last year, and 13% full year compared to 21%. We remain confident we will continue to take market share globally. We're the only mechanical aortic heart valve that can be maintained in INR between 1.5 and 2.0. We are also executing very well on our next initiative to expand our presence in Asia Pacific and Latin America through new regulatory approvals and commercial footprint expansion. APAC in Latin America had fourth quarter constant currency revenue growth of 21% and 12% respectively. and 30 percent and 38 percent for the full year, respectively. We continue to expect these regions to be important growth drivers over the coming years. Regarding our third initiative, based on recent discussions with the FDA, we are optimistic that we will receive a PMA for our per-clock product. Upon approval, we will receive approximately $19 million or $15 million net of amounts owed to a former partner, and we will then commence shipping our product to Baxter. As for Prolick Mitral, we are maintaining interactive dialogues with the FDA and look forward to a potential approval in the second half of this year. We do not believe that securing this approval is imperative as it relates to our ability to achieve our near and longer-term revenue growth forecasts. And we've not included the potential approval in our outlook for 2023. In addition, our progress in each of these three initiatives, we continue to make progress in our pipeline, which includes the AMDS clinical trial and the Nexus Persevere trial of our partner. We've enrolled 25 patients in our PERSEVERE trial, which is a non-randomized clinical trial of up to 30 centers in the U.S. with 100 patients who've experienced acute type A aortic dissections. The combined primary efficacy and safety endpoints of this trial are reduction of all-cause mortality, new disability and stroke, myocardial infarction, new onset renal failure requiring dialysis, and re-expansion of the true lumen of the aorta. We now anticipate completing full enrollment in the second half of this year, following a one-year follow-up period, and assuming the trial meets its endpoints, we anticipate we would receive FDA approval for AMDS in 2025. In addition, as I previously stated, our partner, Endospan, is making progress on the USID called Triumph for its Nexus Aortic Arch Stent Graph System. In that trial, there were approximately 32 patients enrolled and treated, and a total 47 patients enrolled and approved for treatment. Endospan estimates enrollment completion in mid-2023 with a PMA approval in 2025, again, assuming the trial hits its endpoints. To reiterate, if these PMA trials succeed as anticipated or proceed as anticipated, we expect FDA approval for AMDs and Nexus in 2025. At that time, assuming we exercise our option for end of span, these products would increase our addressable market opportunity by an estimated $700 million. With that, I'll now turn the call over to Ashley.
spk03: Thanks, Pat, and good afternoon, everyone. Total revenues were $79.4 million for the fourth quarter, flat on a GAAP basis and up 5% on a constant currency basis, both compared to Q4 of 2021. For the full year, revenues increased 5% on a gap basis and 9% on a constant currency basis. On a year-over-year basis in the fourth quarter of 2022, onyx revenues increased 8%, tissue processing revenues increased 2%, aortic stent grafts grew 2%, and BioGlue decreased 12%. On a constant currency basis compared to the fourth quarter of 21, Stent grafts grew 16%, onyx grew 11%, tissue processing increased 2%, and body blue revenues decreased 8%. On a regional basis, fourth quarter 2022 revenues in Asia Pacific increased 20%, Latin America increased 13%, North America increased 4%, and EMEA decreased 11%, all compared to the fourth quarter of 2021. On a constant currency basis, revenues in Asia Pacific increased to 21%, Latin America increased 12%, North America increased 4%, and Europe increased 2%, all compared to the fourth quarter of 2021. Gross margins improved sequentially from the third quarter to 64.1% in Q4, which compares to 64.7% for the fourth quarter of 21. The decrease compared to the prior year was driven primarily by inflation impacts on materials and labor, as well as product mix within our aortic stent graft line. While inflation rates globally remain persistently high and continue to weigh on our gross margins, we believe that gross margins, we expect them to improve and stabilize in 2023 and then improve after that. G&A expenses in the fourth quarter of 38.5 million dollars compared to 51.3 million dollars in the fourth quarter of 2021. Excluding non-recurring acquisition related business development benefits and other non-recurring charges, G&A expenses were 41.9 million for the fourth quarter of 22 compared to 40.3 million for the fourth quarter of 2021. R&D expenses for the fourth quarter were $8.3 million compared to $9.5 million in the fourth quarter of 2021. R&D expenses in the fourth quarter of 2022 include $1.9 million for pre-launch per-clot inventory. If per-clot is approved, which we expect, then the majority of the per-clot sales to Baxter expected in 2023 will have no cost of goods associated with these sales. We have treated these costs as non-recurring and have excluded them for purposes of calculating adjusted EBITDA and non-GAAP earnings per share. Other income and expenses include $5.3 million in net interest expense and foreign currency translation gains of approximately $4.5 million. On the bottom line, we reported GAAP net income of approximately $2.2 million, or 5 cents per fully diluted share, in the fourth quarter of 2022. Non-GAAP net income was $4.2 million, or 10 cents per share, in the fourth quarter. Non-GAAP income includes foreign currency gains and excludes business development and other non-recurring charges. As of December 31, 2022, we had approximately $39.4 million in cash, $306 million in debt, and the full $30 million available to us under our revolving credit facility. Adjusted EBITDA for the fourth quarter of 2022 was $11 million compared to $10.8 million for the fourth quarter of 2021. 2022 full-year adjusted EBITDA was 41.6 million compared to 44.3 million for 2021. Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results. And now for our initial 2023 outlook. We expect constant currency revenue growth of between 8 and 12 percent for the full year of 2023. we expect revenues to be in a range of $331 to $343 million. We see timing of the per-clot PMA and timing of supply upside following increased production staffing in Germany as key factors that could move us toward the lower or higher end of this range. As noted earlier, approval and initial revenue contribution from Proact Mitral is not included in our 2023 outlook and could represent further upside. Our guidance also reflects a recent communication we received from our sole source supplier for TMR handpieces, indicating that they are exiting this business and will no longer supply us with handpieces effective immediately. We therefore expect to have minimal contribution from TMR revenues in 2023. We currently are evaluating our options for TMR, but none would contribute any revenues prior to 2024. For context, we generated approximately $3 million in revenue from the TMR product line last year, and therefore do not see this as a meaningful impediment to long-term growth. For the first quarter, we expect to see an approximate $2 million revenue currency headwind compared to the first quarter of 2022. Additionally, giving the meaningful contribution of SINT graphs to our growth, we expect revenue growth for the first half of the year to be closer to the lower end of our range of revenue guidance, as recent hires in Germany will take time to become fully productive. We then expect growth in the second half of the year to be closer to the higher end of our range of revenue guidance. With the continued growth in our top-line revenues, general expense management, and a decrease in R&D spending, We anticipate delivering 20-plus percent growth in 2023 in adjusted EBITDA to a minimum of $50-plus million. This will put us on track to meet our 2024 adjusted EBITDA commitments we made in March of last year at our investor day. Further, we do not see the need to raise additional capital to fund our debt obligations, our investments in our channels, or our pipelines. Even if SOFR increases to approximately 5%, we should be able to comfortably service our debt and continue to invest in growth. And finally, our term loan B contains no financial covenants that would place us in default unless we were to have more than $7.5 million drawn on our revolving credit facility at the end of any calendar quarter, which we do not. As of now, we have the full $30 million available under our credit facility and do not foresee the need to draw on it. Additionally, our convertible notes do not contain any financial covenants. We'll turn the call back over to Pat for his closing comments.
spk17: Thanks, Ashley. We're pleased with our performance in 2022 and our position entering 2023, particularly considering the multitude of macro headwinds, including, among other things, COVID, significant staffing and inflationary pressures. Our growth strategy is working and delivering on the results we've envisioned. To summarize, Our StentGraph business returned to strong growth in the fourth quarter. We expect recent staffing improvements in Germany to significantly benefit supply and drive future growth. Onyx continues to perform well, and we're hopeful that ProAct Micro will be approved later this year. Asia Pacific and Latin America continue to outperform, and we expect more of the same moving forward. Our recent BioGlue CE mark should drive growth, and we're very optimistic that we'll soon have approval for per clot. And then our two U.S. clinical trials, AMDS Persevere and Endospan's Nexus Triumph, are currently enrolling. Combined, we expect to expand our total addressable market for these two products by over $700 million in 2025, assuming we execute on the Endospan option. Through 2024, we expect revenue growth to grow double digits on a compounded annual basis to generate $75 to $80 million in adjusted EBITDA and to reduce our net leverage to less than three times. despite the headwinds we face from inflation and its impact on gross margins. At this point, we have the essential pieces in place for sustained growth and can continue our focus on execution to create shareholder value. We are further solidifying our position as a leading company in area repair, thanks to our innovative products, accomplished sales organization, and experienced leadership team. We are confident our positive momentum will continue, and I want to thank all of our TVI employees around the world for continuing to deliver for the people who we endeavor to help. So with that, operator, please open the line for questions.
spk11: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. Our first question comes from the line of Charlie Montang with Lake Street. Please proceed with your question.
spk07: Hi, guys. Congrats on a great quarter. Just a couple quick questions for me. My first one is can you kind of remind us on how we should be thinking about FX impact in 2023 and when those headwinds might start to moderate when comparing year-over-year USD numbers?
spk17: Yeah, Ash, I'll let you take that one.
spk02: Yeah.
spk03: You know, a lot of it obviously depends on, on where, um, primarily the, the Euro USD relationship, um, moves. And because that is the one that has the most outsized impact on our business, you know, based on where rates are, uh, currently we expect that, uh, beginning in the second half of the year, FX could actually become a tailwind for us. So again, it ultimately depends on where rates move. But based on what we're currently looking at, we expect, again, FX to become a tailwind for us in the second half of the year.
spk07: Okay, great. Thanks for the clarity with that. And then my next one is that you're the last analyst day. You stated stents should grow high teens on X, 10% to low teens preservation, mid single digits and surgical sealants low to mid single digits. Does this remain the case? And is there anything you are seeing today that could alter that trajectory?
spk17: Yeah, I'll take that one. I mean, if you look back at kind of what we presented in March of last year, You know, it was roughly, you know, 15, we projected roughly 15 to 20% growth for StenCrafts. We came in at 20% for the year, so at the high end of that range. Onyx, we said kind of 10 to 15. We came in at 13, midpoint of that, so well in line. You know, tissue, mid-single, we came in at 8%, kind of at the high end of that range. The only one that disappointed was obviously BioGlue, and, you know, the fact that it took us an entire year to get the CE mark through the MDR process was a big contributor to that. We had several countries that we couldn't get derogations. In the countries we did get derogations, it took us longer than we thought. So the great news is we got the BioGlue CE mark right at the end of the year. That's all behind us. We now have an MDR CE mark for BioGlue, and we don't have to hear about that anymore. So I think BioGlue should return back to kind of that low single digits, and that was really the only outlier and one of the reasons we were at the lower end of the range for the full year.
spk07: Okay, great. Thank you. And then just one last quick one here. Are the supply chain issues within the stent business resolved? And if not, kind of what else needs to be done?
spk17: Yeah, you know, I mentioned this in my comments. You know, it's obviously, it's a good problem to have. We have huge demand on our stent graft portfolio, partly because we have such innovative products. You know, this is a bit of a growth, you know, a growth challenge in that, you know, we're growing at the high end of a range of 20%. We had some issues hiring in our major factory in Germany, and we actually changed our labor rates, and where we couldn't find people at the lower rates, we all of a sudden magically find a bunch of people. This is, again, inflation in action. We hired a number of people in the fourth quarter. They're being trained as we speak. It takes about 90 days to get up and trained. So we, as Ashley commented, we should expect to see kind of continued strength in our supply chain to support that, you know, growth and even hopefully going beyond where we are as we get the new manufacturing employees trained in getting the supply chain primed. So, you know, we should see growth, you know, kind of increase throughout the year on our Stencraft business.
spk07: Great. Well, that's it for me. And thanks for taking my questions.
spk11: Sure. Our next question comes from the line of Jeffrey Cohen from Lattenburg-Downman. Please proceed with your question.
spk25: Hi, Pat and Ashley. How are you?
spk11: Hey, Jeff.
spk25: Doing well. So a few quick ones. As far as guidance goes for 23, are you including or not including per clot in that, in the range?
spk16: Yeah, that's in the range.
spk25: Got it. Okay. And then could you talk about margins a bit? Supply chain, it seems like, seems like 23 will remain challenging.
spk17: Yeah. I mean, you know, margins, I mean, are, you know, kind of our, one of our, other than, other than the Bible C mark taken forever last year, you know, the inflationary impact. So the, the labor increase, the rates of labor and the cost of materials was really, you know, one of our, you know, kind of challenges as a headwind that, you know, many companies faced. I mean, we finished 2021 at around a 66% gross margin, and we finished 22 at about a 64.5, so about 150 basis point, you know, decline, and, you know, all directly related to inflationary pressure. So, you know, those are somewhat baked in. Our gross margins, you know, we're planning on kind of holding them flat this year with a lot of those inflationary pressures baked in. The supply chain thing, I mean, we talked about TMR, and you've been around covering the company for a long time. I mean, in these kind of older product lines that are non-strategic like TMR, that was not exactly our future, but it was a decent product with good margin. I mean, we had multiple suppliers just go down, and we don't have the supply chain kind of infrastructure really supporting that because it's such a small product, and it's not strategic. And I think that's a good example of it's more probably effort than it's worth. We're going to evaluate whether or not we want to revive that. But at a minimum, we're not going to see revenue from TMR for the next two years. But I think that's a good example of where we don't have a strategic focus that that kind of stuff can happen. We deal with it kind of every day, but we're able to on our faster growing larger product lines. We have a good infrastructure around supporting those. So that's part of our job to manage those supply chain issues.
spk25: Got it, thanks. And then lastly for us, any commentary, Pat, as far as the StentGraph platform out there in Europe and, you know, some more color on Nexus versus Avida versus AMDS and what kind of reception and presence and growth you're seeing?
spk17: Yeah, I mean, we're seeing really excellent growth. Like I said, I mean, we somewhat decelerated, you know, as the year went on in 2022 primarily because of supply. I mean, our sales team over there is, you know, running around, moving product around because, as I mentioned earlier, you know, we had a hard time hiring in our facility in Germany. And once we changed those labor rates to get in line with kind of the German market rates, we were able to hire very quickly in the fourth quarter and, you know, filled the factory up. And, you know, those people are being trained now. But as far as the product lines, I mean, we're seeing really good growth across all of our you know, our products. And that's really one of the, you know, it's an opportunity. We've got such unique technology in the Neo frozen elephant trunk up in the arch. The two offerings in the thoracal abdominal area for our inside and our what we call extra design that we just got to make sure we got the product, you know, where it needs to be on time and we can continue to drive this growth for a long period of time.
spk25: Got it. Thanks for the readout, Collar.
spk27: Our next question comes from the line of Rick Weiss with Stifel.
spk11: Please proceed with your question.
spk13: Good afternoon, Pat. Hi, Rick.
spk14: A couple of questions. Sorry to make you go over the macro again. I just wanted to be absolutely clear that I'm hearing the messaging. A lot of the companies that have reported so far, Pat, have, if I would oversimplistically characterize it, I'd say they've been talking about a stable to improving environment. I just was wondering, is that how we should think about things in a general sense for you? I mean, when I think about it again, Germany getting better as the year unfolds. It sounds like supply chain is less of an issue, currency less of an effect. Staffing, I should make sure we're real clear on the key macro drivers being left in 2023.
spk17: Yeah. So if you think about, I made a comment about just the number of, in 30 years of doing this, I've never had as many macro headwinds, right? You had COVID, you had staffing hospitals striking, you had inflationary pressures, you had supply chain pressures, currency pressures, right? So there was a lot. And I think we actually put up a pretty good year given all the stuff that was thrown at us. If you kind of unpack those, I mean, inflation, you can read the papers, everybody's kind of trying to figure out what's going to happen. But You know, we feel like our gross margins are going to be flat. That answers your inflation question. We took 150 basis point WAC last year, and we think we can be stable this year. So we've kind of got it baked in. COVID, I mean, I don't really even see COVID being an issue. Now, again, who knows what happens in the future, but I really just don't see it. We're seeing, you know, staffing here and there, and I talk to lots of surgeons, and, you know, there's strikes in, you know, Mount Sinai had a nurse strike, and Minneapolis had a nurse strike, and You know, Stanford had a nurse strike. I mean, at the end of the day, our procedures get done. So whether they strike for a week or two, it's not going to change our macro procedure volume in a year. So that I don't see. I mean, we have heard a lot of noise out of the UK, the NHS health systems in kind of disarray. But again, our emergent, these aren't facelifts, right? These are aortic arch repairs and heart valves. So I think we tend to, and we've proven this through the pandemic, we tend to actually, our procedures get done. So I think that one is in better shape. I think, you know, Ashley commented on currency in the second half. So I do think, to your point, I think a lot of these are in a much better way than they were last year. You know, the supply chain stuff kind of can jump up and bite you, but we've got teams in place to manage that. There's lots of kind of noise under the hood, but we continue to drive the business. And I think, you know, simplifying the product line, I mean, having a non-strategic product like a TMR is just hard to manage an old supply chain and it doesn't have a lot of revenue. And I think it's a good example of stuff you probably don't want to be involved in going forward.
spk14: Yeah, for sure. Can you take us through some of the key drivers in 2023 for the aortic stent graft portfolio? Obviously, you're doing great. How do we think about just the blocking and tackling this year? To what extent is it important to and sales guys, is it, is one of your top couple of priorities for that portfolio around? Yeah.
spk17: So our, yeah. So our, our fastest, our fastest growing products and there's, you know, there's, there's four of them, um, inside that Stencraft portfolio. And it's really our, our differentiated portfolio. So if you kind of go from the top of the order down on the surgical side, our, our Neo device is, is doing extremely well. Um, We're both opening up new markets in Asia Pacific and Latin America, and we're also adding feed on the street there. We saw tremendous growth in Asia and Latin America as combined businesses, but that was one of the underlying drivers. We continue to add some people here and there as we see a very fast-growing market, but that Neo device is growing quite well. We just launched our second-generation Stencraft for the Arch, the Nexus Duo, which is a two-branch device. And you're familiar with this from some of the work you've done with our physicians. The current nexus that's in U.S. clinical trials is a single branch into the nominate. That's got some limitations. We've got a two-branch device that was just launched in Europe that is getting very, very positive reviews. We expect that to be a growth driver. The AMDS for acute type A dissections, which is approved in Europe, Canada, and a handful of international markets, is growing very rapidly. and we continue to get more and more data out on that device. Persevere is continuing to enroll, which obviously some of the anecdotal things we're hearing from U.S. surgeons are kind of spanning across the oceans and people are hearing about them. And then our thoracodominal is really a, you know, we're kind of a key player in that segment with two offerings, right, the only off-the-shelf inside and then the custom-made extra design And combined, we basically can treat really any thoracic abdominal angiogram. So it's really those four unique technologies where we have very little competition. We may have one or two, but, you know, it's a very kind of surgeons love the portfolio. It's allowing them to treat patients they can't treat with some of the other companies. And, you know, like I said, we had some challenges in, you know, filling up the factory, you know, in the second half of last year, and we've now resolved that. So it's really just a training process. getting those employees up and trained. And as long as we can feed those reps, we'll continue to grow that StentGraph business pretty significantly.
spk14: That's it. Just a couple more from me, if you don't mind, and appreciate all the color, very helpful. If I remember correctly, your long-term guidance at the annual day, or you've talked about your aspiration for $400 million in 2024, How are you feeling about that number now, Pat? Yeah, I think – I mean, obviously, currently – What's great about – not so great, maybe.
spk17: Yeah, so I think one thing is, as we learned last year, I mean, obviously, when we launched that in March, I didn't know the euro was going to decline 16%. And we have a big chunk of our business in euros. So I think you'd have to – what I would draw you more to is, the revenue shale chart that basically showed we thought we could grow 10% on average over the next three years. We grew nine this year. It's never, as you know, businesses are never linear. There were a lot of challenges in 2022. And, you know, so I think that 10%, if you look at our guidance, we're between eight and 12. You know, we're shooting for over the three years that we have a 10% CAGR. So again, I think that the end number, you know, has a lot of factors, including a big currency factor for us. But I think what we are holding to is our 10% growth rate. And I think that's well within reach for the company.
spk14: Okay. And just last, I just want to make sure, again, maybe I'm just being dense about it. You had guided Project Mitral, I think, to the end of 22 before.
spk12: That's right.
spk14: Now it's second half. I just want to make sure I'm understanding that. So why the delay in timing, and what are the factors there, and why are you confident about 2H23? Thanks so much, Pat.
spk17: Yeah, so, you know, it's a good question, Rick. And so, you know, we had two PMAs in front of the FDA, and we had hoped to hear from about both of them, you know, by the end of the year. You know, on the good news, we heard from the FDA on per clot. I'm happy to report that, you know, they basically said, This thing's going to get approved. We're basically working on labeling right now. I've been through a lot of these. We're in the final steps of the process. Now, again, I can't tell you exactly when the thing's going to get approved, but the fact that they told us it's going to get approved and we're working on labeling is a pretty good indicator. I think conversely, if you look at Proact Mitral, it wasn't as clean. The trial wasn't as clean, and you'll understand this because you've done a lot of work here. If you look at the Proact Mitral, which started a decade ago, right? It started a long time ago. it missed its primary endpoint of non-inferiority. It was a composite endpoint of bleeding and thromboembolic events, okay? And that was exactly the same way PROACT-Aortic was done. And the FDA didn't like it that the two variables were kind of commingled, right, bleeding and thromboembolic event, because one can drive a non-inferior event, right? A better performance on bleeding can mask a thromboembolic miss. In PROACT-10A, they made us take those variables apart, they made us primary thromboembolic secondary bleeding. So if you look at that trial, and you look at the fact that the average patient in the treatment group was a 2.5, and the average was like a 2.47, and the average patient in the control group was around a three, one would suspect that the bleeding would be less. I don't know how you have a lower INR of .5 and there's no difference in bleeding, but it wasn't, because it obviously wasn't powered enough, but the fact that you had an INR of 2.5 to three you should get a lower bleeding. It did have a non-inferior, it did hit non-inferiority for thromboembolic events. So again, I think what I'm trying to get to is it's just going to take us longer talking with the FDA about it. Because I think in totality, when you look at all the data, while we might have missed the primary endpoint for the trial, if you really look at how they look at the data, which is take apart the endpoints, and you look at the totality of the data, you can run an onyx mitral valve at 2.5 compared to a non-ONIX valve at three or over and have no difference in thromboembolic events. To me, that's meaningful for patients and surgeons are telling me this. You know, the PI of the trial is telling us this. So it's just going to take us longer. It's not as clean. So I think it's, you know, that's the reason for the delay. Hopefully that was helpful to kind of give you some backstory. That's great to get all the details.
spk09: Thank you again. Thanks, Rick.
spk11: Our next question comes from the line of Mike Mattson with Needham & Company. Please proceed with your question.
spk06: Yeah, thanks. So, um, you know, just one on the stint graph business, um, you know, this, this is the second time that you've kind of had this staffing challenge there in Germany. And I mean, I understand that it's been a really difficult labor market and everything, but I guess, you know, you, you kind of have a forecast for how fast that business is going to grow. And it's kind of been growing in line with that forecast. So I guess, can you try to, you know, I mean, what can you do differently to try to get ahead of this so this doesn't happen again next time you kind of, you know, that you're hiring parents?
spk17: Yeah, it's a fair question, Mike. And again, I think, you know, part of this is, you know, I've been involved with this business, you know, this Stencraft business going back. I ran Medtronic's business 20 years ago. It's a very complex supply chain. If you have an individual case, you may ship in five or six pieces because there's different sizes and you have to put different pieces together, and then two or three may come back. So there's a lot of logistical excellence that's involved in it, and we weren't necessarily up to snuff with that. There's also a lot of consignment involved where you actually put units on the shelf. So if you spread your units out in consignment and you're in the wrong places, you can see how you can get ahead of yourself. So we actually... you know brought in an outside firm to help us with this and we're kind of going through that right now so I agree with you this is something we're going to kind of put to bed for once we're doing a lot around the supply chain excellence about getting product back as well as making sure our consignments accounts are having the right number of turns so again there's a there's a whole project going on in that area because it's not just the factory the factories part of it but there's also a kind of a supply chain excellence And to your point, we're not going back to this. Again, we expect this business to grow very fast, and we're going to put the kind of supply chain infrastructure in place so that we don't have to go back to this.
spk06: Okay, got it. And then just on the EBITDA, so, I mean, the guidance is for in excess of $50 million, but you're reiterating the guidance for $75 for 2024. Okay. you know, I guess, I mean, if you come in closer to that 50 million number, I mean, that seems to be a pretty big step up, you know, almost 50% growth to get to that 75 million in 2024. So, you know, how confident are you that you can kind of you know, get maybe more to like $65 million this year and, you know, for that step up doesn't, you know, look quite as difficult in 2024?
spk17: Yeah, no, and that's a fair question, Mike. I mean, if you just do the math, I mean, one of the things we said at the kind of analyst day was that we were going to return, you know, 50% of the incremental gross margin as EBITDA, which is pretty much what we're doing this year, which gets you to the $50 million. I mean, we're driving for upside, right? So exactly to your point, we gave a range of, you know, 8 to 12 with a $50 million EBITDA number. So we obviously want to come in as high as we can on that range. And every million dollars you get, every point of growth, every $3 million of growth, which is a point of growth, it gets you almost $2 million in profit. So we're going to be pushing to get to a higher number than the 50 because to your point, it will put more pressure on next year. But that's what we're shooting to do.
spk06: Okay. All right. And then just on the, the TMR handpiece thing. So, um, I, it's a little confusing to me. I know you went through the numbers, but I just wanted to revisit that because so that just, can you tell me what the actual revenues were in 2022? Um, because I don't know, I can't remember if you were selling it every quarter, if you had some, you've had, so just to give you, just to give you some, yeah,
spk17: last year, 21, we did about 3 million. We're going to do about 500,000, I think, in the first quarter until we run out of hand pieces. And then we're out. And there aren't going to be any more for two years. So I think that pretty much tells you the, you know, I think all the numbers you need to know.
spk06: Yeah, okay. But, I mean, is the intention that this is just dead and never comes back?
spk17: Yeah, I mean, part of the challenge with this, Mike, is we just were notified, you know, a few days ago. So So I need some time to kind of evaluate. I mean, we had looked at potentially going to another supplier, but it was going to take us a couple years and a couple million dollars of investment. I just don't know if it's worth it. But I also need some time to actually investigate. Like I said, we just got a letter from our contract manufacturer that said we're done making this thing. And I really haven't had time to react, other than the fact that I know that I'm not going to have TMR handpieces for two years. I do know that, but I do need some time just to see if it's worthwhile and how long it'll take, how much it'll cost. So you got me kind of in the middle of the sausage making.
spk06: Yeah, I understand.
spk08: Okay, got it. Thank you.
spk11: Our next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.
spk22: Good afternoon, Pat, Ashley. Can you hear me all right?
spk23: Hey, Suraj, how you doing? Yes.
spk22: Doing well. Hope all is well on you guys' side. Hey, Pat, so a couple of questions for you and one for Ashley, all on Onyx. First question, Pat, maybe I'm overreading this, but for the first time I sensed some level of hedging in terms of PROAC mitral approval. Am I overreading into that, Pat?
spk19: No, I think that's fair.
spk22: Is there a risk of not getting, you know, specifically not getting approval or for a restricted label, high risk, whatever, any additional color?
spk17: Yeah, no, I think that's fair. I mean, part of it is, you know, we obviously learned where FDA was and I just, in Rick's question, I tried to help. And again, you know probably more about this stuff than anybody on the trial designs. What I found interesting is that in They didn't like Proact. I personally met with the FDA about Proactin A, and they did not like the composite endpoint of Proact Aortic because bleeding, reduction in bleeding drove the endpoint. So they made us take them apart. And I get it. They made us take them apart. Stomboembolic is really the goal, bleeding secondary, which is what we did in Proactin A. What's interesting is that in Proact Mitral, we missed the primary endpoint. It was a composite of the two. But when you do the way that they like it, which is when you take them apart, we actually are non-inferiority for thrombo and bulk event, which is the big safety issue, and there was no difference in bleeding, which also makes no sense, but that's what the data shows. Even though the treatment group was at a 2.5 and the control group was at a 3, anyone would tell you there has to be more bleeding in that arm. So again, I think part of it is yes, you learn more as you have the conversations with the FDA, I mean, we're going to present, we think you should look at the totality of that data. And what the surgeons are telling me is that trial was a 10-year trial in 400 patients that showed that you could run onyx valves at a 2.5 and have no difference in thromboembolic events compared to the standard of care between 2.5 and 3.5, which is at a 3.0. So, again, I can't speak for the FDA. I think I understand why it wasn't a layup. I mean, per clot was much cleaner. We hit all the numbers, and everything was much cleaner. So it's just taken us longer. But I can't predict what the FDA is going to do. We're going to put our best case forward, and we'll see what happens. I think in the end, I mean, the data is out there. The paper was published in December. We're not going to promote off-label. But I think surgeons, when I talk to surgeons, they see the benefit of the valve, and hopefully the FDA sees it the same way.
spk22: Got it. Pat, PROACT 10A, remind us again when the publication is, and also post 10A, you know, the top line or the trial stoppage, to the extent that you can, Pat, characterize the Salesforce productivity pre and post, if any additional handholding was needed, specifically as it relates to ONIX in the field?
spk17: Yeah, so first on your first question on productivity, that will be presented. It's recent news, and I was going to cover this. Hopefully I'll get that question. It's going to be presented in a plenary session at AATS in Los Angeles, like May, whatever, the first week of May, 5th, 6th, 7th, around there. So that's going to be, I think, a very important presentation, both for the field as well as, you know, I'm very interested to see the control group, how it performed. So I'll just leave you with that foreshadowing. I think from a field standpoint, it's very interesting. You know, we've got a great sales force. And, you know, they went out after Proactin A. They talked to all the surgeons. You know, we heard great comments from our surgeons. Like, you guys were, you know, you were cutting edge. This would have been huge for patients. You've still got the best mechanical aortic valve and mitral valve. And you're still the only ones with a low INR on the aortic side. So, you know, kind of keep doing what you're doing, right? So, again, I don't think – I didn't see much of a setback. I mean, I'm sure our competitors will try to jump on it. But I think the other piece to think about, Suraj, is the amount of things we're doing in the aortic field. Everything from frozen elephant trunk with Neo to AMDS to Nexus to thoracodominal. I mean, we're an aortic company, and we're investing heavily in the aortic space. And ONIX is one of our, you know, one of our platforms that's best in class. So, again, I think, you know, to me, our sales force didn't really require any hand-holding.
spk22: Got it. And, Ashley, last one. I'll throw you away and jump back. I do appreciate you guys taking all my questions. Ashley, maybe I missed it. What was the ONIX split US-OUS? Thank you very much.
spk02: Oh, gosh.
spk03: It is roughly 60-40, roughly, Suraj. And I can get back with you on the exact split, but I think that it's approximately around there.
spk27: No worries. Thank you.
spk10: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
spk17: Well, thanks for attending the call, and we're looking forward to continuing to drive forward on our strategy and driving growth in our Stencrafts and our Onyx franchise, significant growth in Asia-Pacific Latin America, and bringing the pipeline forward. So we'll be back at you next quarter, and thanks for joining. Bye-bye.
spk11: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day. you Thank you.
spk00: Thank you.
spk11: Greetings and welcome to Artivion's fourth quarter and full year end 2022 financial results 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, Brian Johnston, Vice President at Gilmartin Group. Thank you. You may begin.
spk26: Thanks, operator. Good afternoon and thank you for joining the call today. Joining me from our TIVIANS 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 that are 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 these 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 was issued earlier today. With that, I'll turn the call over to Pat Mackin.
spk17: Thanks, Brian, and good afternoon, everyone. Our strategy, which I've discussed with you over the past few years, and which we further detailed in March of 2022 at our Investor Day, is to create significant shareholder value by driving sales of our innovative products, expanding within and into new geographies, and developing our pipeline of innovative products to substantially increase our addressable market. As you will hear today, we are doing just that. I'm pleased to report that our business continues to perform well as we closed out the full year 2022 with just over 9% constant currency revenue growth compared to the full year of 2021. I'm also pleased to report that we made significant progress on the regulatory front. We received the BioGlucy eMark under the new MDR framework, and based on our recent conversations and interactions with the FDA, we are confident we will receive approval for per-clot. You will also hear that we continue to remain on track to deliver our revenue and EBITDA commitments with 2023 expected to represent a major step forward. Starting with our year-over-year revenue performance for the fourth quarter, we saw strong top-line constant currency growth in stent grafts, which grew 16%, and onyx, which grew 11%. For the full year, our constant currency basis, stent grafts were up 20%, onyx was up 13%, tissue processing was up 8%, and bio-glue was down 5%, all compared to full year 2021. As anticipated, fourth quarter 2022 constant currency revenue growth of 5% was strong, but slightly below the quarter growth delivered through the first three quarters of the year. As we mentioned on our Q3 call, we expected some deceleration in the fourth quarter because our EU customers had accelerated approximately 1.5 million of buyable purchases into the third quarter that they otherwise would not have made in the fourth quarter. This was done to protect their supply of BioGlue for the fourth quarter in the event the company was unable to obtain BioGlue derogation extensions beyond October 31st. If customers had not made these increased BioGlue purchases in Q3, our total growth for the fourth quarter would have been around 7% on a constant currency basis compared to the prior year. We believe this BioGlue purchase was a one-time occurrence now that we have the CE mark for BioGlue, and we anticipate our customers will return to regular ordering patterns in the EU and in those countries where commercialization is based on CE mark. As you will recall, at our investor day in March of 2022, we committed to delivering compounded double-digit constant currency revenue growth through 2024 through three key initiatives. First, we'll continue to drive our growth in aortic stent grafts and onyx. Second, we'll continue to benefit from our investments in commercial channels and new regulatory approvals in Asia Pacific and Latin America. And third, we will benefit in 2023 and beyond from PMA approvals in the U.S. for Perclot and Proact Mitral. As mentioned previously, StentGraph revenues rebounded in the fourth quarter, increased to 16 percent on a constant currency basis compared to the fourth quarter last year. We finished the full year with 20 percent year-over-year growth compared to 21 on a constant currency basis. Demand for our StentGraph portfolio remains high, We've also made significant progress in hiring at our German manufacturing facility, which is now operating at nearly full staffing. As a result, we believe this will improve production significantly over time, which will serve as a catalyst to continuing to drive growth in our Stancraft portfolio. As for ONIX, revenue grew 11% on a constant currency basis in the fourth quarter of 22 compared to the fourth quarter last year, and 13% full year compared to 21. We remain confident we will continue to take market share globally. We're the only mechanical aortic heart valve that can be maintained in INR between 1.5 and 2.0. We are also executing very well on our next initiative to expand our presence in Asia Pacific and Latin America through new regulatory approvals and commercial footprint expansion. APAC in Latin America had fourth quarter constant currency revenue growth of 21% and 12% respectively. and 30 percent and 38 percent for the full year, respectively. We continue to expect these regions to be important growth drivers over the coming years. Regarding our third initiative, based on recent discussions with the FDA, we are optimistic that we will receive a PMA for our per-clock product. Upon approval, we will receive approximately $19 million or $15 million net of amounts owed to a former partner, and we will then commence shipping our product to Baxter. As for Prolick Mitral, we are maintaining interactive dialogues with the FDA and look forward to a potential approval in the second half of this year. We do not believe that securing this approval is imperative as it relates to our ability to achieve our near and longer-term revenue growth forecast. And we've not included the potential approval in our outlook for 2023. In addition, our progress in each of these three initiatives, we continue to make progress in our pipeline, which includes the AMDS clinical trial and the Nexus Persevere trial of our partner. We've enrolled 25 patients in our PERSEVERE trial, which is a non-randomized clinical trial of up to 30 centers in the U.S. with 100 patients who've experienced acute type A aortic dissections. The combined primary efficacy and safety endpoints of this trial are reduction of all-cause mortality, new disability and stroke, myocardial infarction, new onset renal failure requiring dialysis, and re-expansion of the true lumen of the aorta. We now anticipate completing full enrollment in the second half of this year, following a one-year follow-up period, and assuming the trial meets its endpoints, we anticipate we would receive FDA approval for AMDS in 2025. In addition, as I previously stated, our partner, Endospan, is making progress on the USID called TRIOMPH for its Nexus Aortic Arch Stent Graph System. In that trial, there were approximately 32 patients enrolled and treated, and a total 47 patients enrolled and approved for treatment. Endospan estimates enrollment completion in mid-2023 with a PMA approval in 2025, again, assuming the trial hits its endpoints. To reiterate, if these PMA trials succeed as anticipated or proceed as anticipated, we expect FDA approval for AMDs and Nexus in 2025. At that time, assuming we exercise our option for end of span, these products would increase our addressable market opportunity by an estimated $700 million. With that, I'll now turn the call over to Ashley.
spk03: Thanks, Pat, and good afternoon, everyone. Total revenues were $79.4 million for the fourth quarter, flat on a gap basis and up 5% on a constant currency basis, both compared to Q4 of 2021. For the full year, revenues increased 5% on a gap basis and 9% on a constant currency basis. On a year-over-year basis in the fourth quarter of 2022, onyx revenues increased 8%, tissue processing revenues increased 2%, aortic stent grafts grew 2%, and BioGlu decreased 12%. On a constant currency basis compared to the fourth quarter of 2021, Stent grafts grew 16 percent, onyx grew 11 percent, tissue processing increased 2 percent, and bio-glu revenues decreased 8 percent. On a regional basis, fourth quarter 2022 revenues in Asia Pacific increased 20 percent, Latin America increased 13 percent, North America increased 4 percent, and EMEA decreased 11 percent, all compared to the fourth quarter of 2021. On a constant currency basis, revenues in Asia Pacific increased to 21 percent, Latin America increased 12 percent, North America increased 4 percent, and Europe increased 2 percent, all compared to the fourth quarter of 2021. Gross margins improved sequentially from the third quarter to 64.1 percent in Q4, which compares to 64.7 percent for the fourth quarter of 21. The decrease compared to the prior year was driven primarily by inflation impacts on materials and labor, as well as product mix within our aortic stent graft line. While inflation rates globally remain persistently high and continue to weigh on our gross margins, we believe that gross margins, we expect them to improve and stabilize in 2023 and then improve after that. G&A expenses in the fourth quarter of were $38.5 million compared to $51.3 million in the fourth quarter of 2021. Excluding non-recurring acquisition-related business development benefits and other non-recurring charges, G&A expenses were $41.9 million for the fourth quarter of 2022 compared to $40.3 million for the fourth quarter of 2021. R&D expenses for the fourth quarter were $8.3 million compared to $9.5 million in the fourth quarter of 2021. R&D expenses in the fourth quarter of 2022 include $1.9 million for pre-launch per-clot inventory. If per-clot is approved, which we expect, then the majority of the per-clot sales to Baxter expected in 2023 will have no cost of goods associated with these sales. We have treated these costs as non-recurring and have excluded them for purposes of calculating adjusted EBITDA and non-GAAP earnings per share. Other income and expenses include $5.3 million in net interest expense and foreign currency translation gains of approximately $4.5 million. On the bottom line, we reported GAAP net income of approximately $2.2 million, or 5 cents per fully diluted share, in the fourth quarter of 2022. Non-GAAP net income was $4.2 million, or 10 cents per share, in the fourth quarter. Non-GAAP income includes foreign currency gains and excludes business development and other non-recurring charges. As of December 31, 2022, we had approximately $39.4 million in cash, $306 million in debt, and the full $30 million available to us under our revolving credit facility. Adjusted EBITDA for the fourth quarter of 2022 was $11 million compared to $10.8 million for the fourth quarter of 2021. 2022 full-year adjusted EBITDA was $41.6 million compared to $44.3 million for 2021. Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results. And now for our initial 2023 outlook. We expect constant currency revenue growth of between 8 and 12 percent for the full year of 2023. we expect revenues to be in a range of $331 to $343 million. We see timing of the per-clot PMA and timing of supply upside following increased production staffing in Germany as key factors that could move us toward the lower or higher end of this range. As noted earlier, approval and initial revenue contribution from Proact Mitral is not included in our 2023 outlook and could represent further upside. Our guidance also reflects a recent communication we received from our sole source supplier for TMR handpieces, indicating that they are exiting this business and will no longer supply us with handpieces effective immediately. We therefore expect to have minimal contribution from TMR revenues in 2023. We currently are evaluating our options for TMR, but none would contribute any revenues prior to 2024. For context, we generated approximately $3 million in revenue from the TMR product line last year, and therefore do not see this as a meaningful impediment to long-term growth. For the first quarter, we expect to see an approximate $2 million revenue currency headwind compared to the first quarter of 2022. Additionally, giving the meaningful contribution of SINT graphs to our growth, we expect revenue growth for the first half of the year to be closer to the lower end of our range of revenue guidance, as recent hires in Germany will take time to become fully productive. We then expect growth in the second half of the year to be closer to the higher end of our range of revenue guidance. With the continued growth in our top-line revenues, general expense management, and a decrease in R&D spending, We anticipate delivering 20-plus percent growth in 2023 in adjusted EBITDA to a minimum of $50-plus million. This will put us on track to meet our 2024 adjusted EBITDA commitments we made in March of last year at our investor day. Further, we do not see the need to raise additional capital to fund our debt obligations, our investments in our channels, or our pipeline. Even if SOFR increases to approximately 5%, we should be able to comfortably service our debt and continue to invest in growth. And finally, our term loan B contains no financial covenants that would place us in default unless we were to have more than $7.5 million drawn on our revolving credit facility at the end of any calendar quarter, which we do not. As of now, we have the full $30 million available under our credit facility and do not foresee the need to draw on it. Additionally, our convertible notes do not contain any financial covenants. We'll turn the call back over to Pat for his closing comments.
spk17: Thanks, Ashley. We're pleased with our performance in 2022 and our position entering 2023, particularly considering the multitude of macro headwinds, including, among other things, COVID, significant staffing and inflationary pressures. Our growth strategy is working and delivering on the results we've envisioned. To summarize, Our StentGraph business returned to strong growth in the fourth quarter. We expect recent staffing improvements in Germany to significantly benefit supply and drive future growth. Onyx continues to perform well, and we're hopeful that Proact Mitral will be approved later this year. Asia Pacific and Latin America continue to outperform, and we expect more of the same moving forward. Our recent BioGlue CE mark should drive growth, and we're very optimistic that we'll soon have approval for Perclot. And then our two U.S. clinical trials, AMDS Persevere and Endospan's Nexus Triumph are currently enrolling. Combined, we expect to expand our total addressable market for these two products by over $700 million in 2025, assuming we execute on the Endospan option. Through 2024, we expect revenue growth to grow double digits on a compounded annual basis to generate $75 to $80 million in adjusted EBITDA and to reduce our net leverage to less than three times. despite the headwinds we face from inflation and its impact on gross margins. At this point, we have the essential pieces in place for sustained growth and can continue our focus on execution to create shareholder value. We are further solidifying our position as a leading company in area repair, thanks to our innovative products, accomplished sales organization, and experienced leadership team. We are confident our positive momentum will continue, and I want to thank all of our TBI employees around the world to continue to deliver for the people who we endeavor to help. So with that, operator, please open the line for questions.
spk11: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. Our first question comes from the line of Charlie Montang with Lake Street. Please proceed with your question.
spk07: Hi, guys. Congrats on a great quarter. Just a couple quick questions for me. My first one is can you kind of remind us on how we should be thinking about FX impact in 2023 and when those headwinds might start to moderate when comparing year-over-year USD numbers?
spk17: Yeah, Ash, I'll let you take that one.
spk02: Yeah.
spk03: You know, a lot of it obviously depends on, on where, um, primarily the, the Euro USD relationship, um, moves. And because that is the one that has the most outsized impact on our business, you know, based on where rates are, uh, currently we expect that, uh, beginning in the second half of the year, FX could actually become a tailwind for us. So, again, it ultimately depends on where rates move. But based on what we're currently looking at, we expect, again, FX to become a tailwind for us in the second half of the year.
spk07: Okay, great. Thanks for the clarity with that. And then my next one is that you're the last analyst day. You stated stents should grow high teens on X, 10% to low teens preservation, mid single digits and surgical sealants low to mid single digits. Does this remain the case? And is there anything you are seeing today that could alter that trajectory?
spk17: Yeah, I'll take that one. I mean, if you look back at kind of what we presented in March of last year, You know, it was roughly, you know, 15, we projected roughly 15 to 20% growth for StenCrafts. We came in at 20% for the year, so at the high end of that range. Onyx, we said kind of 10 to 15. We came in at 13, midpoint of that, so well in line. You know, tissue, midsingle, we came in at 8%, kind of at the high end of that range. The only one that disappointed was obviously BioGlue. And, you know, the fact that it took us an entire year to get the CE mark through the MDR process was a big contributor to that. We had several countries that we couldn't get derogations. In the countries we did get derogations, it took us longer than we thought. The great news is we got the BioGlue CE mark right at the end of the year. That's all behind us. We now have an MDR CE mark for BioGlue, and we don't have to hear about that anymore. I think BioGlue should return back to that low single digits, and that was really the only outlier and one of the reasons we were at the lower end of the range for the full year.
spk07: Okay, great. Thank you. And then just one last quick one here. Are the supply chain issues within the stent business resolved? And if not, kind of what else needs to be done?
spk17: Yeah, you know, I mentioned this in my comments. You know, it's obviously a good problem to have. We have huge demand on our stent graft portfolio, partly because we have such innovative products. You know, this is a bit of a growth challenge in that, you know, we're growing at the high end of our range of 20%. We had some issues hiring in one of our major factories in Germany, and we actually changed our labor rates, and where we couldn't find people at the lower rates, we all of a sudden magically find a bunch of people. This is, again, inflation in action. We hired a number of people in the fourth quarter. They're being trained as we speak. It takes about 90 days to get up and trained. So we, as Ashley commented, we should expect to see kind of continued strength in our supply chain to support that, you know, growth and even hopefully going beyond where we are as we get the new manufacturing employees trained and getting the supply chain primed. So, you know, we should see growth, you know, kind of increase throughout the year on our Stencraft business.
spk07: Great. Well, that's it for me. And thanks for taking my questions.
spk11: Sure. Our next question comes from the line of Jeffrey Cohen from Lattenburg-Downman. Please proceed with your question.
spk25: Hi, Pat and Ashley. How are you?
spk08: Hey, Jeff.
spk25: Doing well. So a few quick ones. As far as guidance goes for 23, are you including or not including per clot in that, in the range?
spk16: Yeah, that's in the range.
spk25: Got it. Okay. And then, uh, can you talk about margins a bit supply chain? It seems like, uh, it seems like 23 will remain challenging.
spk17: Yeah. I mean, you know, margins, I mean, our, you know, kind of our, one of our, other than, other than the Bible C mark taken forever last year, you know, the, the inflationary impact. So the, the labor increase, the rates of labor and the cost of materials was really, you know, one of our, you know, kind of challenges as a headwind that, you know, many companies faced. I mean, we finished 2021 at around a 66% gross margin and we finished 22 at about a 64.5, so about 150 basis point, you know, decline and, you know, all directly related to inflationary pressure. So, you know, those are somewhat baked in. Our gross margins, you know, we're planning on kind of holding them flat this year with a lot of those inflationary pressures baked in. The supply chain thing, I mean, we talked about TMR, and you've been around covering the company for a long time. I mean, in these kind of older product lines that are non-strategic like TMR, that was not exactly our future, but it was a decent product with good margin. I mean, we had multiple suppliers just go down, and we don't have the supply chain kind of infrastructure really supporting that because it's such a small product, and it's not strategic. And I think that's a good example of it's more probably effort than it's worth. We're going to evaluate whether or not we want to revive that. But at a minimum, we're not going to see revenue from TMR for the next two years. But I think that's a good example of where we don't have a strategic focus that that kind of stuff can happen. We deal with it kind of every day, but we're able to on our faster growing larger product lines. We have a good infrastructure around supporting those. So that's part of our job to manage those supply chain issues.
spk25: Got it, thanks. And then lastly for us, any commentary, Pat, as far as the StentGraph platform out there in Europe and, you know, some more color on Nexus versus Evita versus AMDS and what kind of reception and presence and growth you're seeing?
spk17: Yeah, I mean, we're seeing really excellent growth. Like I said, I mean, we somewhat decelerated, you know, as the year went on in 2022 primarily because of supply. I mean, our sales team over there is, you know, running around, moving product around because, as I mentioned earlier, you know, we had a hard time hiring in our facility in Germany. And once we changed those labor rates to get in line with kind of the German market rates, we were able to hire very quickly in the fourth quarter and, you know, filled the factory up. And, you know, those people are being trained now. But as far as the product lines, I mean, we're seeing really good growth across all of our you know, our products, and that's really one of the, you know, it's an opportunity. We've got such unique technology in the Neo frozen elephant trunk up in the arch, the two offerings in the thoracal abdominal area for our inside and our what we call extra design, that we just got to make sure we got the product, you know, where it needs to be on time, and we can continue to drive this growth for a long period of time.
spk25: Thanks for the readout, Collar.
spk27: Our next question comes from the line of Rick Weiss with Stifel.
spk11: Please proceed with your question.
spk13: Good afternoon, Pat. Hi, everybody.
spk14: A couple of questions. Sorry to make you go over the macro again. I just wanted to be absolutely clear that I'm hearing the messaging. A lot of the companies that have reported so far, Pat, have if I would oversimplistically characterize it, I'd say they've been talking about a stable to improving environment. I just was wondering, is that how we should think about things in a general sense for you? I mean, I hear, and when I think about it again, Germany getting better as the year unfolds. It sounds like supply chain's less of an issue, currency less of a factor. Staffing, I should make sure we're real clear on the key macro, you know, drivers being left in 23.
spk17: Yeah, so if you, you know, if you think about, you know, I made a comment about, you know, just the number of, in 30 years of doing this, I've never had as many macro headwinds, right? You had COVID, you had staffing hospitals striking, you had inflationary pressures, you had supply chain pressures, currency pressures, right? So there was a lot. And I think we actually put up a pretty good year given the, given all the stuff that was thrown at us, if you kind of unpack those, I mean, inflation, you know, you can read the papers. Everybody's kind of trying to figure out what's going to happen. But, you know, we feel like our gross margins are going to be flat. That answers your inflation question. We took 150 basis point whack last year, and we think we can be stable this year. So we've kind of got it baked in. COVID, I mean, I don't really even see COVID being an issue. Now, again, who knows what happens in the future, but I really just don't see it. We're seeing staffing here and there, and I talk to lots of surgeons, and there's strikes, and Mount Sinai had a nurse strike, and Minneapolis had a nurse strike, and Stanford had a nurse strike. I mean, at the end of the day, our procedures get done. So whether they strike for a week or two, it's not going to change our macro procedure volume in a year. So that I don't see. I mean, we have heard a lot of noise out of the UK, the NHS health systems in kind of disarray. But again, our emergent, these aren't facelifts, right? These are aortic arch repairs and heart valves. So I think we tend to, and we've proven this through the pandemic, we tend to actually, our procedures get done. So I think that one is in better shape. I think, you know, Ashley commented on currency in the second half. So I do think to your point, I think a lot of these are in a much better way than they were last year. You know, the supply chain stuff kind of can jump up and bite you. But we've got teams in place to manage that. There's lots of kind of noise under the hood, but we continue to drive the business. And I think simplifying the product line, I mean, having a non-strategic product like a TMR is just hard to manage an old supply chain and it doesn't have a lot of revenue. And I think it's a good example of stuff you probably don't want to be involved in going forward.
spk14: Yeah, for sure. Can you take us through some of the key drivers in 2023 for the aortic stent grafts? Obviously, you're doing great. How do we think about just the blocking and tackling this year? To what extent is it important to add sales guys? What are your top couple of priorities for that portfolio around the world?
spk17: Yeah, so our fastest growing products, and there's four of them, inside that Stencraft portfolio, and it's really our differentiated portfolio. So if you kind of go from the top of the aorta down on the surgical side, our Neo device is doing extremely well. We're both opening up new markets in Asia Pacific and Latin America, and we're also adding feed on the street there. We saw tremendous growth in Asia and Latin America as combined businesses, but that was one of the underlying drivers. We, you know, continue to add, you know, some people here and there as we see a very fast-growing market, but that NEO device is growing quite well. We just launched our second-generation stent graft for the ARCH, the Nexus Duo, which is a two-branch device. And you're familiar with this from some of the work you've done with our physicians. The current Nexus that's in U.S. clinical trials is a single branch into the nominate that's got some limitations. We've got a two-branch device that was just launched in Europe that is getting very, very positive reviews. We expect that to be a growth driver. The AMDS for acute type A dissections, which is approved in Europe, Canada, and a handful of international markets, is growing very rapidly. And we continue to get more and more data out on that device. Persevere is continuing to enroll, which obviously the But some of the anecdotal things we're hearing from U.S. surgeons are kind of spanning across the oceans and people are hearing about them. And then our thoracal abdominal is really a, you know, we're kind of a key player in that segment with two offerings, right? The only off-the-shelf inside and then the custom-made extra design. And combined, we basically can treat really any thoracal abdominal injury. So it's really those four unique technologies that, Um, where we have very little competition, we may have one or two. Um, but you know, it's, it's a very kind of, um, surgeons love the portfolio. It's allowing them to treat patients. They can't treat with some of the other companies. Um, and you know, like I said, we, we had some challenges and, you know, fill that filling up the factory, um, you know, in the second half of last year, and we've now resolved that. So it's really just a training, getting those employees up and trained. And we, we, as long as we can feed those reps, um, we'll continue to grow that stem stent graft business pretty significantly.
spk14: Just a couple more from me, if you don't mind, and appreciate all the color. Very helpful. If I remember correctly, your long-term guidance at the annual day, you've talked about your aspiration for $400 million in 2024. How are you feeling about that number now, Pat? Yeah, I think, I mean, obviously, currently, it's great about
spk17: that's not so great maybe. As we learned last year, obviously when we launched that in March, I didn't know the Euro was going to decline 16%. And we have a big chunk of our business in Euros. What I would draw you more to is the revenue shale chart that basically showed we thought we could grow 10% on average over the next 3 years. We grew nine this year. It's never, as you know, businesses are never linear. There were a lot of challenges in 2022. And, you know, so I think that 10%, if you look at our guidance, we're between 8 and 12. You know, we're shooting for over the three years that we have a 10% CAGR. So, again, I think that the end number, you know, has a lot of factors, including a big currency factor for us. But I think what we are holding to is our 10% growth rate. And I think that's well within reach for the company.
spk14: Okay. And just last, I just want to make sure, again, maybe I'm just being dense about it. You had guided Project Mitral, I think, to the end of 22 before.
spk12: That's right.
spk14: Now it's second half. I just want to make sure I'm understanding why the delay in timing and what are the factors there and why are you confident? about 2H23? Thanks so much, Pat.
spk17: Yeah, so, you know, it's a good question, Rick. And so, you know, we had two PMAs in front of the FDA, and we had hoped to hear from about both of them, you know, by the end of the year. You know, on the good news, we heard from the FDA on per clot. I'm happy to report that, you know, they basically said, this thing's going to get approved. We're basically working on labeling right now. You know, I've been through a lot of these, and we're in the final steps of the process. Now, again, I can't tell you exactly when the thing's going to get approved, but I mean, the fact that they told us it's going to get approved and we're working on labeling is a pretty good indicator. I think conversely, if you look at Proact Mitral, it wasn't as clean, the trial wasn't as clean, and you'll understand this because you've done a lot of work here. If you look at the Proact Mitral, which started a decade ago, right? It started a long time ago. It missed its primary endpoint of non-inferiority. It was a composite endpoint of bleeding in thromboembolic events, okay? And that was exactly the same way ProAct Aortic was done. And the FDA didn't like it that the two variables were kind of commingled, right, bleeding and thromboembolic event, because one can drive a non-inferior event, right? A better performance on bleeding can mask a thromboembolic miss. In ProAct 10A, they made us take those variables apart. They made us primary thromboembolic secondary bleeding. So if you look at that trial and you look at the fact that the average patient in the treatment group was a 2.5 and the average was like a 2.47 and the average patient in the control group was around a 3, one would suspect that the bleeding would be less. I don't know how you have a lower INR of 0.5 and there's no difference in bleeding, but it wasn't because it obviously wasn't powered enough. But the fact that you had an INR of 2.5 to 3, you should get a lower bleeding. it did have a non-inferior, it did hit non-inferiority for thromboembolic events. So again, I think what I'm trying to get to with all that, it's just going to take us longer talking with the FDA about it. Because I think in totality, when you look at all the data, while we might have missed the primary endpoint for the trial, if you really look at how they look at the data, which is take apart the endpoints, and you look at the totality of the data, you can run an onyx mitral valve at 2.5 compared to a non-ONIX valve at three or over and have no difference in thromboembolic events. To me, that's meaningful for patients and surgeons are telling me this. You know, the PI of the trial is telling us this. So it's just going to take us longer. It's not as clean. So I think it's, you know, that's the reason for the delay. Hopefully that was helpful to kind of give you some backstory. That's great to get all the details.
spk09: Thank you again. Thanks, Rick.
spk11: Our next question comes from the line of Mike Mattson with Needham & Company. Please proceed with your question.
spk06: Yeah, thanks. So, you know, just one on the stint graph business. You know, this is the second time that you've kind of had this staffing challenge there in Germany. And, I mean, I understand that it's been a really difficult labor market and everything. But I guess, you know, you kind of have a forecast for how fast that business is going to grow. And it's kind of been growing in line with that forecast. So I guess can you try to, you know, I mean, what can you do differently to try to get ahead of this so this doesn't happen again next time you kind of, you know, that you're hiring parents? Yeah, yeah.
spk17: Yeah, it's a fair question, Mike. And, again, I think, you know, part of this is, you know, I've been involved with this business, you know, this Stencraft business going back. I ran Medtronic's business 20 years ago. It's a very complex supply chain. If you have an individual case, you may ship in five or six pieces because there's different sizes and you have to put different pieces together, and then two or three may come back. So there's a lot of logistical excellence that's involved in it, and we weren't necessarily up to snuff with that. There's also a lot of consignment involved where you actually put units on the shelf. So if you spread your units out in consignment and you're in the wrong places, you can see how you can get ahead of yourself. So we actually... brought in an outside firm to help us with this, and we're kind of going through that right now. So I agree with you. This is something we're going to kind of put to bed for once. We're doing a lot around the supply chain excellence about getting product back as well as making sure our consignment accounts are having the right number of turns. So again, there's a whole project going on in that area because it's not just the factory. The factory is part of it, but there's also kind of a supply chain excellence And to your point, we're not going back to this. Again, we expect this business to grow very fast, and we're going to put the kind of supply chain infrastructure in place so that we don't have to go back to this.
spk06: Okay, got it. And then just on the EBITDA, so, I mean, the guidance is for in excess of $50 million, but you're reiterating the guidance for $75 for 2024. Okay. You know, I guess it mean if you come in closer to that 50 million number. I mean, that seems to be a pretty big step up, you know, almost 50% growth to get to that 75 million in 2024 so You know how confident are you that you can kind of you know, get maybe more to like 60, 65 million this year and, you know, for that step up doesn't, you know, look quite as difficult in 2024.
spk17: Yeah, no, and that's a fair question, Mike. I mean, if you just do the math, I mean, one of the things we said at the kind of analyst day was that we were going to return, you know, 50% of the incremental gross margin as EBITDA, which is pretty much what we're doing this year, which gets you to the 50 million. I mean, we're driving for upside, right? So exactly to your point, we gave a range of, you know, 8 to 12 with a $50 million EBITDA number. So we obviously want to come in as high as we can on that range. And every million dollars you get, every point of growth, every $3 million of growth which is a point of growth, it gets you almost $2 million in profit. So we're going to be pushing to get to a higher number than the 50 because to your point, it will put more pressure on next year. But that's what we're shooting to do.
spk06: Okay. All right. And then just on the, the TMR handpiece thing. So, um, it's a little confusing to me. I know you went through the numbers, but I just wanted to revisit that because so that just, can you tell me what the actual revenues were in 2022? Um, because I don't know, I can't remember if you were selling it every quarter, if you had some, you've had, so just to give you, just to give you some, yeah, to give you some rough numbers.
spk17: Um, Last year, 21, we did about 3 million. We're going to do about 500,000, I think, in the first quarter until we run out of hand pieces, and then we're out, and there aren't going to be any more for two years. So I think that pretty much tells you the, you know, I think all the numbers you need to know.
spk06: Yeah, okay. But, I mean, is the intention that this is just dead and never comes back?
spk17: Yeah, I mean, part of the challenge with this, Mike, is we just were notified, you know, a few days ago. Okay. So I need some time to kind of evaluate. I mean, we had looked at potentially going to another supplier, but it was going to take us a couple years and a couple million dollars of investment. I just don't know if it's worth it. But I also need some time to actually investigate. Like I said, we just got a letter from our contract manufacturer that said we're done making this thing. And I really haven't had time to react, other than the fact that I know that I'm not going to have TMR handpieces for two years. I do know that, but I do need some time just to see if it's worthwhile and how long it'll take, how much it'll cost. So you got me kind of in the middle of the sausage making.
spk06: Yeah, I understand.
spk08: Okay, got it. Thank you.
spk11: Our next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.
spk22: Good afternoon, Pat, Ashley. Can you hear me all right?
spk23: Hey, Suraj, how you doing? Yes.
spk22: Doing well. Hope all is well on you guys' side. Hey, Pat, so a couple of questions for you and one for Ashley, all on Onyx. First question, Pat, maybe I'm overreading this, but for the first time I sensed some level of hedging in terms of PROAC mitral approval. Am I overreading into that, Pat?
spk19: No, I think that's fair.
spk22: Is there a risk of not getting, you know, specifically not getting approval or for a restricted label, high risk, whatever, any additional color?
spk17: Yeah, no, I think that's fair. I mean, part of it is, you know, we obviously learned where FDA was and I just, in Rick's question, I tried to help. And again, you know probably more about this stuff than anybody on the trial designs. What I found interesting is that in They didn't like Proact. I personally met with the FDA about Proactin A, and they did not like the composite endpoint of Proact Aortic because bleeding, reduction in bleeding drove the endpoint. So they made us take them apart. And I get it. They made us take them apart. Stomboembolic is really the goal, bleeding secondary, which is what we did in Proactin A. What's interesting is that in Proact Mitral, we missed the primary endpoint. It was a composite of the two. But when you do the way that they like it, which is when you take them apart, you know, we actually are non-inferiority for thrombo and bulk event, which is the big safety issue. And there was no difference in bleeding, which also makes no sense, but that's what the data shows. You know, even though the treatment group was at a 2.5 and the control group was at a 3, anyone would tell you there has to be more bleeding in that arm. So, again, I think part of it is, yes, I mean, you know, you learn more as you have the conversations with the FDA. I mean, we're going to present, we think you should look at the totality of that data. And what the surgeons are telling me is that trial was a 10-year trial in 400 patients that showed that you could run onyx valves at a 2.5 and have no difference in thromboembolic events compared to the standard of care between 2.5 and 3.5, which is at a 3.0. So, again, I can't speak for the FDA. I think I understand why it wasn't a layup. I mean, per clot was much cleaner. We hit all the numbers and everything was much cleaner. So it's just taken us longer. But I can't predict what the FDA is going to do. We're going to put our best case forward and we'll see what happens. I think in the end, I mean, the data is out there. The paper was published in December. We're not going to promote off-label. But I think surgeons, when I talk to surgeons, they see the benefit of the valve, and hopefully the FDA sees it the same way.
spk22: Got it. Pat, PROACT 10A, remind us again when the publication is, and also post 10A, you know, the top line or the trial stoppage, to the extent that you can, Pat, characterize the Salesforce productivity pre and post, if any additional handholding was needed, specifically as it relates to ONIX in the field?
spk17: Yeah, so first on your first question on Prolactin A, that will be presented. It's recent news, and I was going to cover this. Hopefully I'll get that question. It's going to be presented in a plenary session at AATS in Los Angeles, like May, whatever, the first week of May, 5th, 6th, 7th, around there. So that's going to be, I think, a very important presentation, both for the field as well as, you know, I'm very interested to see the control group, how it performed. So I'll just leave you with that foreshadowing. I think from a field standpoint, it's very interesting. We've got a great sales force, and they went out after Proactin-A. They talked to all the surgeons. We heard great comments from our surgeons, like, you guys were cutting edge. This would have been huge for patients. You've still got the best mechanical aortic valve and mitral valve. And you're still the only ones with a low INR on the aortic side. So, you know, kind of keep doing what you're doing, right? So, again, I don't think – I didn't see much of a setback. I mean, I'm sure our competitors will try to jump on it. But I think the other piece to think about, Suraj, is the amount of things we're doing in the aortic field, everything from frozen elephant trunk with Neo to AMDS to Nexus to Thoracobdominal. I mean, we're an aortic company, and we're investing heavily in the aortic space. And ONIX is one of our, you know, one of our platforms that's best in class. So, again, I think, you know, to me, our sales force didn't really require any hand-holding.
spk22: Got it. And, Ashley, last one. I'll throw you away and jump back. I do appreciate you guys taking all my questions. Ashley, maybe I missed it. What was the ONIX split US-OUS? Thank you very much.
spk02: Oh, gosh.
spk03: It is roughly 60-40, roughly, Suraj, and I can get back with you on the exact split, but I think that it's approximately around there.
spk27: No worries. Thank you.
spk10: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
spk17: Well, thanks for attending the call, and we're looking forward to continuing to drive forward on our strategy and driving growth in our StentCrafts and our Onyx franchise, significant growth in Asia Pacific Latin America, and bringing the pipeline forward. So we'll be back at you next quarter, and thanks for joining. Bye-bye.
spk11: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your line to this time, and have a wonderful day.
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