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spk03: Ladies and gentlemen, and welcome to Cryo Life third quarter 2021 financial conference call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. If you should require assistance, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Brian Johnson. Sir, the floor is yours. Good day, ladies and gentlemen, and welcome to the Cryo Life third quarter 2021 financial conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Brian Johnson. Sir, the floor is yours.
spk00: or management's intentions.
spk01: Operator, can you come back live? Nobody can hear us.
spk03: I am here on live. I can hear you loud and clear now. Are you on?
spk01: We're on. Nobody else can hear us. Nobody can hear the call.
spk03: I see that both of you guys' lines are moderated, so they should be able to hear you guys. I have their call in lecture mode, so you guys won't be able to hear them.
spk00: So, Brian, are you on?
spk01: Yeah, I apologize, folks. We've had some technical difficulties. Obviously, people couldn't hear us. We've been on the line for the last seven minutes, so we apologize. We're going to go straight into the call. This is Pat Mackin, CEO of Cryolife. We posted a solid quarter despite the headwinds caused by the Delta variant. Our results for the third quarter were 72.2 million, 5% growth on a pro forma constant currency basis, compared to Q3 2019, which were right in the midpoint of our Q3 guidance. Our performance benefited particularly from our new stent and stent graft product launches and strength in our onyx aortic valve business in the U.S. More specifically, in the third quarter of 2021 compared to the third quarter of 2019, our stents and stent graft segment grew 22% and onyx grew 10%, each on a pro forma constant currency basis. The ONIX product line growth was led by the ONIX aortic valve revenue growth in North America, which grew 16% compared to 2019. I'm encouraged by these results, given that we had three significant headwinds in the quarter that are all showing signs of improvement as we move into Q4. First, the spike of the Delta variant had an impact on procedure volumes and therefore an impact on our Q3 results. We have seen over the past month, however, the COVID cases have declined nationally, which we believe means that in Q4, procedure volume should stabilize and increase. Second, our cardiac tissue declined 10% in the third quarter compared to 2019, resulting from a backlog in review of donor and tissue charts to release this tissue, which, as you will recall, had been temporarily quarantined as a result of our previously discussed TRIS issue. In the third quarter, we added staffing capacity and have been able to release more charts. As a result, we've already seen significant improvement in cardiac tissue revenue, with an 8% year-over-year growth in October compared to 2019. Third, we did not sell any TMR hand pieces in Q3 and expect to begin selling them this month, which should add to our Q4 revenue growth. Given our mitigation of these three headwinds, in Q3, we expect to post double-digit revenue growth in the fourth quarter of this year compared to the fourth quarter of 2019. We're also reiterating our full-year 2021 guidance. Ashley will provide more commentary on our outlook for the remainder of the year later in this call. Moving on to more granular review of our progress in the third quarter, as I explained in our last call, our near-term plan is to accelerate revenue growth with three main initiatives. Our first initiative is to commercialize our five new aortic stent and stent graft products in Europe. These include AMDS, Nexus, Enside, NEO, and Enya. Our second initiative is to continue to expand into Asia Pacific and Latin America by gaining regulatory approvals and expanding our local channels. Our third initiative is to secure regulatory approvals in major markets for perclot in the U.S., Proac Mitral in the U.S., and Bioglu in China. I will walk you through an update on each of these three initiatives. Starting with AMDS, the world's first ARCH remodeling hybrid device for use in the treatment of acute type A aortic dissections, we remain very optimistic. During the third quarter, we posted $1.3 million in revenue, an increase of 68% on a pro forma constant currency basis over the third quarter of 2019. This growth occurred despite regional lockdowns in Europe, where we have the majority of our AMDS sales. We also secured marketing authorizations in four additional countries this quarter, including Hong Kong and UAE, which positioned us well for further growth with AMBS. Second, Nexus posted $502,000 in revenue, an increase of 66% on a constant currency basis compared to the third quarter of 2020, as Nexus was not approved in the third quarter of 2019. We believe these revenue results would have been better for Nexus as well as for other products, if not for renewed COVID-19 lockdowns and travel restrictions in Europe during a portion of the third quarter. Given the anticipated decline in COVID-19 infection rates and other factors, we expect to see an uptick in Nexus procedures in Q4. Third, NSAID, which is our newest device in our portfolio to treat thoracodominal aneurysms with endovascular stent grafts. Our revenues for this product line, which include N-Side and our extra design engineering, grew 45% on a constant currency basis when compared to Q3 of 19. Fourth, the NEO device is our newest product in the frozen elephant trunk category to treat dissections and aneurysms of the aortic arch. Revenues from this product line, which include the NEO device plus the Vita Open Plus, grew 60% on a constant currency basis compared to Q3 of 2019. Fifth, regarding Enya, our limited market release continues and we expect to move to a full market release in early 2022. We expect the demand for these five products to continue to build as the market adoption for the products expands as well as the vaccine levels in Europe continue to rise. Moving on to our next initiative, international expansion. In Asia Pacific and Latin America through new regulatory approvals and commercial footprint expansion. Asia Pacific revenues grew 31%, while revenues in Latin America grew 40%, both on a pro forma constant currency basis in the third quarter of 21 compared to the third quarter of 19. We continue to expect growth across these regions over the coming years as we continue our initiatives in these regions. Regarding our third initiative, we continue to make progress on achieving three regulatory approvals in major markets. More specifically, we submitted the per-clot PMA earlier this month, We submitted the Proact Mitral PMA during the third quarter, and we continue to have dialogue with the Chinese regulatory authorities to facilitate the approval of Baibu in China. For Perklot, we expect to receive approval from the FDA during the second half of 2022. Following the FDA approval, we'll supply product to Baxter and generate revenue for a period of approximately two years under our transition services agreement. We also expect to receive PMA approval for our lower INR label for the onyx mitral valve. This is similar to our lower INR label for our onyx aortic valve. We expect this approval to come in the first half of 2022. As a reminder, the onyx aortic valve has a significant clinical advantage for patients over competitor valves in that it's the only FDA-approved mechanical aortic valve that can run at a lower INR of 1.5 to 2.0 rather than the standard of care 2.0 to 3.0. If our new label is approved, patients with the onyx mitral valve will be able to be maintained on a lower dose of Coumadin compared to patients implanted with other mechanical valves. For a reminder, our label, if approved by the FDA, would be a 2.0 to 2.5 INR versus a standard care 2.5 to 3.5. This will translate to significant clinical benefits for patients. We believe this approval for the onyx mitral valve will enable us to take significant market share just as we took market share with the onyx aortic valve. Lastly, as it relates to the regulatory approval of Bioglu in China, we remain actively engaged with NMPA and look forward to providing an update on our approval timeline when we have further clarity. In addition to our progress on each of these initiatives, we also continue to make strides on our midterm pipeline with key products currently in U.S. clinical trials and others expected to start later this year. These three products are PROACT-10A, NEXUS, and AMDS. We continue to make significant progress on the enrollment of our PROACT-10A trial. This is our prospective randomized clinical trial to determine if patients with the onyx aortic valve could be maintained safely and effectively on Eliquis versus Warfarin. We currently have 471 patients enrolled in this study. Feedback from surgeons and patients participating in the trial remain very positive. We anticipate completing enrollment in the trial during the second quarter next year And assuming the trial meets its endpoints, we believe we can achieve FDA approval for this new indication by late 2024 or early 2025. If we successfully obtain such approval, we believe the Onyx Aortic Valve should become the market share leader in aortic valve patients under the age of 70. As for AMDS, we submitted the IDE to the FDA during the third quarter, and we hope to begin our AMDS clinical trial by year end. In addition to the PROACT-NA trial and the AMDS trial, our partner, Endospan, continues to make progress on its US IDE trial for Nexus, known as Triumph. If these trials proceed as we expect, we anticipate FDA approval for PROACT-NA, AMDS, and Nexus by late 24 or early 25, which would give the company an additional $1 billion in market opportunity at that time. With that, I'll now turn the call over to Ashley, our CFO.
spk00: Thanks, Pat. And before I move on, I'd like to remind everybody that this call does contain forward-looking statements, and you should refer to the forward-looking statements contained in our press release that we issued this morning and in the risk factors in our 10-Q that we'll file tomorrow. So total revenues were $72.2 million for the third quarter, up 11% on a gap basis. and 9% on a pro forma constant currency basis, both compared to Q3 of 2020. Revenues came in above the midpoint of our guidance, despite the impact of the Delta variant, slower than anticipated cardiac valve chart clearances, and the delay in restarting sales of our TMR disposable handsets. On a year-over-year basis, in the third quarter of 2021, Aortic stent and stent graft revenues increased 37%, reflecting increased procedure volumes, an improved YOTEC inventory position, the addition of the AMDS in September of 2020, and improved adoption of Nexus in the EU. Onyx revenues increased 16%, and BioGlue revenues increased 5%, reflecting improving procedure volumes relative to the third quarter of 2020, and tissue processing revenues decreased 5% due to a temporary delay in cardiac valve tissue releases. On a pro forma constant currency basis compared to the third quarter of 2020, aortic stent and stent graft revenues increased 27%, onyx revenues increased 15%, and BioGlu revenues increased 3%. On a pro forma constant currency basis compared to the third quarter of 2019, Onyx revenues increased 11%. Aortic stent and stent graft revenues increased 22%. BioGlue revenues increased 5%. And tissue processing revenues decreased 7%. On a regional basis, third quarter 2020 revenues in EMEA increased 21%. Asia Pacific increased 26%. Latin America increased 88%. and North America increased less than 1%, all compared to the third quarter of 2020. On a pro forma constant currency basis, revenues in EMEA increased 17%, Asia Pacific increased 25%, and Latin America increased 83%, and North America decreased less than 1%, all compared to the third quarter of 2020. Our gross margins were 66% for both the third quarters of 2021 and 2020. G&A expenses in the third quarter were $39.1 million compared to $33.7 million in the third quarter of 2020. The increase primarily relates to a $4.9 million increase in personnel-related expenses, including salaries, commissions, and travel, and an increase of $1.5 million of amortization and fair value adjustments related to contingent consideration resulting from the OSIRIS acquisition in September 2020. We also recorded a $15.9 million pre-tax gain on the sale of per-clot, reflecting our $25 million payment from Baxter, partially offset by a $6 million payment to SMI and the write-off of certain intangible assets. R&D expenses were $10 million in the third quarter of 21 compared to $5.8 million for the third quarter of 2020, primarily reflecting increased spending related to the PROACT-10A trial and work to advance our aortic stent pipeline in the U.S. Third quarter interest expense of $4.1 million includes approximately $2.5 million of expense related to our term loan B, $1.1 million related to our convertible debt, and approximately $500,000 in amortization of debt origination cost. Other expense in Q3 includes $2.6 million in realized and unrealized foreign currency translation losses. On the bottom line, we reported GAAP net income of approximately $10.6 million, or 26 cents per fully diluted share, in the third quarter of 21. Non-GAAP net loss was $1.2 million or $0.03 per share in the third quarter. GAAP and non-GAAP earnings includes the pre-tax loss of $2.6 million or approximately $0.05 per share related to foreign currency translation losses. And the prior year included a $0.04 per share gain from FX. Reconciliations of GAAP to non-GAAP income and EPS are included in the press release that we issued this afternoon. Adjusted operating income was $4.7 million for the third quarter of 21 compared to $8.1 million for the third quarter of 2020. Adjusted operating income reflects add-backs of amortization expense and acquisitions and other non-recurring charges to operating income. As of September 30, 2021, we had approximately $65.1 million in cash, $318 million in debt, and our full $30 million available under our revolving credit facility. Adjusted EBITDA for the third quarter of 21 was $9.3 million compared to $12.2 million for the third quarter of 2020. Gross leverage, as defined by our credit facility, stood at 5.7 times and net leverage stood at 4.6. You can 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 outlook. We are maintaining our second half of 2021 pro forma constant currency growth outlook of between 7% and 10% compared to the second half of 2019. But because of the dollar strengthening since our last call, Our revenue forecast for the full year is now between $296 and $299 million, and we expect fourth quarter revenues of between $76.5 and $79.5 million, reflecting pro forma constant currency growth of between 9.5 and 13.7% over the fourth quarter of 2019. There are several factors that give us confidence. Our new product launches, AMDS, Nexus, Evita Open Neo, and Inside continue to perform very well. We anticipate seeing continued strong performance from Onyx in North America. We are already beginning to see improved cardiac tissue releases. We expect to continue to see strong performance from APAC in Latin America, and we anticipate restarting TMR handset sales this month. Our guidance also reflects the fact that the dollar has strengthened versus our prior expectations, which has an approximate $1 million drag on our nominal revenue guidance during the fourth quarter. Finally, our guidance assumes that the impact of COVID throughout the quarter will continue to diminish. Additionally, if as anticipated, we receive IDE approval to begin our AMDS clinical trial in the fourth quarter, We anticipate recording charges of approximately $4 million in fair value adjustments to contingent consideration related to the EMDS acquisition. These amounts will be included in SG&A. Regarding our ongoing investments designed to fuel future growth, we intend to continue to invest in our commercial channels in Asia Pacific and Latin America, as well as in our R&D pipeline. We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital. I will now turn the call back to Pat for his closing comments.
spk01: Hey, thanks, Ashley. In closing, as you've heard this afternoon, the three headwinds that we faced in Q3 2021, the surge of the Delta variant, cardiac tissue chart processing, and lack of a TMR handpiece are all improving. This positions us well for double-digit growth in Q4 2021 versus Q4 of 2019. We also expect this momentum for Q421 to continue into 2022. As I explained throughout the call, we've built a plan that has three initiatives that will drive growth from now through the end of 2024. First, we should see continued growth in our five new aortic stents and stent grafts, AMDS, Nexus, Enside, Neo, and Enya. Second, we anticipate further upside from our investments in our channels and new regulatory approvals in Asia Pacific and Latin America. Third, in 2022, we expect to get PMA approval for Perclat as well as PMA approval for the Onyx Proact Mitral low INR indication. Finally, we have a robust midterm pipeline with three US PMAs that are all currently enrolling like Proact 10A and Nexus Triumph. We're about to start enrolling the AMDS Persevere trial. I'm very confident in our plan, and we're relentlessly focused on delivering double-digit growth on a consistent basis. Before I turn it over to questions, I'm going to actually have Ashley reread the forward-looking statements because I don't think those were picked up as I started because we're having technical difficulties at the beginning. Ashley, could you just quickly run through that?
spk00: Yeah, absolutely. So comments that we made during the call that look forward in time involve risk and uncertainties in our forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risk, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements. Additional information concerning risk and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that we issued earlier today.
spk01: Okay, thanks, Ashley. So I apologize for the technical difficulties at the start. We've now read the four looking statements. And, operator, could you go ahead and open the line for questions?
spk03: Ladies and gentlemen, for any questions at this time, please press star 1 on your telephone keypad. Again, for any questions, please press star 1 at this time. Okay, our first question comes from Suraj. Suraj, please go ahead.
spk01: We can't hear him.
spk03: Suraj, if your line is muted, please unmute your line.
spk02: Hey, Pat, can you hear me?
spk01: I can now.
spk02: Oh, my goodness, having issues. Pat, so, Pat, Q2 22 PRO Act 10 enrollment finishing, can you expand on that in terms of, I know the DSMB is looking at it every one to two quarters as we understand it. When is the earliest we could get some visibility on an interim basis on PROACT-10E?
spk01: Yeah, I think we've, you know, we've talked about this previously. So, this is, it's an interesting, the trial design, because it's such a, thromboembolic events with a valve are very low, which is why we have 1,000 patient trial. And the way this is set up is as a non-inferiority to Coumadin. And so there really is no interim look. I mean, you could get to a situation where you had the trials, you know, and you're very familiar with how this works from a statistics standpoint, where you could have a trial stop early, but there would have to be a significant difference between Coumadin and Eliquis, which, again, we don't think is going to happen. This is powered for non-inferiority. So I think, you know, maybe the way I would answer it is, you know, we're assuming the trial enrolls in the second quarter next year. That means that you've got 1,000 valves, half on Eliquis, half on Coumadin. And we started this trial, as you know, in May of 2020. That means we will, at that point, have already had some of the first patients on Eliquis for two years. And I think the way to think about this trial, once this trial enrolls, Every quarter that goes by, it's another quarter with 500 patients on Eloquus. So in the end, we won't know the answer to the question until we get to our full, you know, two-year enrollment. So I think that's probably the best I can answer at this time.
spk02: Pat, I'll just plug in. Pat, can you still hear me?
spk00: Yes.
spk02: Just one additional question on PROACT-NA, and I'll hop back into you and let others chime in. So Pat, remind me on Proact 10A, you know, let's say Suraj gets enrolled in March 2020. Fine, you know, and the trial enrollment gets completed March 2022, right? He's already two years in follow-up. But let's say Pat Mackin gets enrolled March 22, right? You need two-year follow-up for Pat also. And by the time Suraj is alive on Eloquence for four years, right? When the final data is presented, would it subgroup analyze by duration of, you know, a follow-up also? And the reason I ask is, you know, these event rates over time multiply. The cumulative incidence increases, right? I know there is a mean, and we are looking at two years, but I'm just curious if that kind of data stratification also is eventually going to be presented, because it's going to be interesting. you know, patients with longer-term, how they could, how they do on Eliquis. Thank you for taking my questions.
spk01: Yeah, no problem. No, so, I mean, I think one of the points back to your earlier question is, you know, we're, a typical FDA valve trial is about 800, you need about 800 patient years of follow-up. So, for example, I mentioned the PROAC mitral PMA has been submitted. That bar is a 800 patient years of follow-up. We're collecting 1,600 patient years of follow-up in this trial. And I think part of that is because anytime you're going to change a drug, both our clinicians and the FDA wanted to see two years of data. But you're right. You know, under your example, Suraj will have been on Eliquis for four years, and I would have been on Eliquis for two years. So, you know, the last enrolled patient in this trial will have to be followed for two years, and then we do the Kaplan-Meier analysis on area under the curve. So there is no interim analysis. You know, the DSMB, as you mentioned earlier, meets every six months and reviews the data. And as long as the trial keeps going, then it's a green light. Thank you. Okay, we can take the next question.
spk03: There are no further questions at this time. Again, ladies and gentlemen, for any questions, please press star 1. Again, that's star 1 for any questions at this time. Mr. Mackin, there are no further questions at this time. I'd like to turn the floor back over to management for closing comments.
spk01: Again, I apologize for the difficulty at the beginning of the call. As we talked about, I think we had a solid quarter. We had some headwinds with Delta. We had some headwinds with our cardiac tissue just clearing charts. The good news is we've got lots of tissue. We just need to clear those charts. That situation is improving as we speak. We're already growing tissue 8% in October. We're about to send out our first TMR handpieces after not having them for a couple of years. I think with all those headwinds kind of being mitigated, we're in good shape for the fourth quarter and look forward to putting up a double-digit growth number. The pipeline is advancing. We've got two PMAs with the FDA right now that we expect to get approved next year, and we've got three PMA clinical trials that are either enrolling or will be enrolling by the end of the year. So, again, we're very confident in the portfolio we have and look forward to putting up a double-digit growth number this quarter. Thanks for joining in.
spk03: Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect your lines and enjoy the rest of your day.
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