Q4 2019 Earnings Call
Greetings and welcome to the trial nice its fourth quarter and year end 29, Chief Financial Conference call.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
Now I'll turn the conference over to your House Lynn Lewis from the Gilmartin Group. Please go ahead.
Thank you good afternoon, and thank you for joining the call today, joining me from Cryolife management team I, Pat Mackin, CEO and actually be CFO before we begin I'd like to make the following statement by with the Safe Harbor requirements of the private Securities Litigation Reform Act. A 1995 comments made on this call that look forward in time involve risks.
And uncertainties are forward looking statements within the meaning the private Securities Litigation Reform Act a 1995. The forward looking statements include statements made to the companies or management's intentions hopes beliefs expectations or predictions of future. These forward looking statement statements are subject to a number of risks uncertainties estimates.
Assumptions that may cause actual results to differ materially from those forward looking statements. Additionally sees the additional information concerning certain risks and uncertainties that may impact. These forward looking statements is contained from time to time in the Companys SEC filings and in the press release. It was issued earlier today with that I'll turn the call over to Cryolifes CEO.
Bakken.
Thanks, Glenn and good afternoon, everyone. Thanks for joining.
On today's call will discuss fourth quarter and for your results, including progress, we're making our key pipeline products supply chain headwinds in our 2020 objectives and financial guidance.
Before we begin I'd like to discuss the positive developments that took place in the quarter, they're not only readily apparent by reviewing our fourth quarter financial results, which were affected by supply chain headwinds.
We believe there were at the beginning of a multiyear.
Multiyear period over which we'll expect to deliver multiple new product introductions and see market expansion of previously approved products.
Our pipeline is one of the most compelling reasons to consider cryolife as an investment.
As it has the potential to increase our growth rate in address our addressable market opportunity at the same time.
In early December we received CE Mark for any of our next generation thoracic stent graft and inside the first and only off the shelf Darko dolls bankrupt, what do you know branch technology.
We believe enhancements designed into these next generation products provide us with highly competitive and comprehensive stent graft offering.
We also announced our collaboration with end to span, which provides us with immediate distribution rights in the E U to the Nexus product.
The only off the shelf Endovascular graph approved the repair of both dissections Aneurisms in New York arch.
Global market it could exceed $1 billion once regulatory approvals are achieved.
Nexus complements our your type portfolio of Endovascular aortic repair products and will allow us to cross sell these products.
In addition, we received at the authorization to commence the proactive clinical study.
A prospective randomized trial to determine if patients will be onyx mechanical you're already felt can be maintained safely and effectively on eloquence rather than warfront.
If we hit the primary endpoint of this study we expect a mechanical valve business will be positively impacted that's decisions will choose to be honest onyx mechanical valve older over others due to the significant positive patient benefits of Eliquis over warfront.
Finally, we entered into collaboration with my Sonics.
Under which my Sonics will have exclusive U.S. commercialization rights for Neo patch.
Our amniotic membrane tissue product to treat a broad range of indications outside of cardiac and vascular surgery.
I'll have more on each of these topics later in my comments.
Moving to our fourth quarter financial results total revenue for the quarter was 69.7 million, reflecting year over year growth of roughly 4% on a non-GAAP constant currency basis.
We recorded strong onyx and cardiac tissue revenue growth in the quarter. However, the continued supply constraints what are your tech products, which we addressed on prior calls.
And the lack of supply for Archie and <unk> TMR hand pieces push our overall revenue growth slightly below our expectations.
[noise], if we'd been able to meet the demand for Joe Tech products and sell TMR Handpieces, our financial results. This quarter would tell a different story.
The good news is we expect these issues to be transit and demand for our innovative product portfolio remains robust.
Turning first to Onyx revenue increased 18% on a GAAP non-GAAP constant currency basis, driven by the strength from aortic valves, which were up 17% in the quarter.
Revenue in North Americas grew 5%, Oh U.S. markets grew 45%.
For the full year Onyx revenue grew over 12% on a GAAP and non-GAAP constant currency basis.
We anticipate onyx revenue growth to me to remain at the high single low double digits.
We expect to continue to take market share.
Switching gears to Yo Tech.
Excluding the OEM business your check revenue increased 4% year over year on a non-GAAP constant currency basis during the fourth quarter.
An increase of 10% year over year on a full year basis and this is even despite the headwinds we faced with supply.
We've been addressing or you'll take supply issues by hiring and training additional source in Germany.
I'm pleased to announce that are your check manufacturing capacity has increased 39%, 39% since we initiated these efforts and we expect this capacity to continue to expand throughout the year as we hire and train additional personnel.
In addition to increasing our internal manufacturing capabilities, we're working to secure additional external capacity through a contract manufacturer, which we anticipate onboarding in the second half of this year.
As a result of these efforts, we expect supply do increase meaningfully over 2020.
As such we anticipate you ever your growth trends for onyx products to accelerate throughout the year as supply improves and as we launch inside and yet in a V to open you Neo later this year.
Moving to our tissue business.
Reported solid performance in revenue in this area, which was up 6% for the fourth quarter and 5% for the full year.
This was led by our cardiac tissue valve business, which generated 12% in the fourth quarter versus the fourth quarter of 2018.
We continue to experience strong demand for a pulmonary tissue valves, which we believe stems from a renaissance in the Ross procedure as well as improved availability of pediatric heart valves.
Revenues for vascular tissue business were down 1% year over year for the fourth quarter due to ongoing supply issues, but increased from 9.1 million in the third quarter, two 9.4 million in fourth quarter.
Primarily due to improved supply of long saphenous vein.
Our initiative to improve the supply of vascular tissue is starting to ease at our vascular tissue supply business.
Babu was flat on a constant currency basis compared to the fourth quarter of last year, but up 5% on a constant currency basis for the full year of 2019.
We submitted our application or regulatory approved for regulatory approval to the Chinese F.D.A. in February of last year, and believing approval could take up to two years, which puts us <unk> possible approval in 2021.
Regarding our U.S. Perclot trial enrollment is complete however, we had a small fire the cost a minimal damage to our pilot manufacturing lab in late Q4.
The minor damage caused approximately a three to six month delay to our previously announced timeline.
Therefore, we now expect to submit the P.M. aided the FDA and the second half of 2020.
Regarding TMR hand pieces, we're still awaiting ft every inspection of our contract manufacturers. The silly. We hope to have you seen passes back on the market in the second half of 2020.
As we looked at 2020, we expect our product pipeline to begin to contribute to our topline.
In the core business to perform well.
This year, we expect a fully launched the E U three next generation your tech products and Nexus.
We will also initiate the product candidate trial in the U.S. and we'll continue to invest in our sales channels in Asia and Latin America.
During the first quarter will be building inventory and training or our customers on our next generation Eurotech products.
As we move into the second quarter, we expect to commence limited market releases for and you are next generation low profit profile thoracic stent graft for patients with the Arctic disease, followed by a full market release during the third quarter.
Our previous thoracic stent graft if you to Threeg was predominantly used in conjunction with there are a vito open plus frozen health and trunk and our extra design through a club nominal stent graft.
And your features a new delivery system that address a significant challenges of <unk> low profile D var devices, which is high deployments horses.
This improvement as well as other product enhancement gives us a significantly more competitive offering that will allow us to gain market share in the European thoracic stent graft market.
It's one of the most versatile versatile graphs on the market and use the perfect complement to inside our recently approved off the shelf, though called double device.
Similar to end, yet we expect the limited market release of inside to be in the second quarter, followed by a full market release in the third quarter.
Many patients with Oracle nominal disease are either treated with risky invasive open surgical procedures, which are characterized by lanky hospitalization periods and prolong recuperation, well with custom made stent grafts, which can take up the 90 days to manufacture.
Inside is the only off the shelf pre cannulated toric abdominal stent graft with inner branches.
In inside eliminates the waiting period experienced by approximately 70% of patients who typically would require a custom made stent graft.
We anticipate receiving CE mark approval for the via open Neil which is our next generation pros Ehealth and trunk in the first quarter of a 20.
This will be followed by a full market release in the second half of the year.
We will update you on important developments regarding its approval status.
Turning to nexis.
We conducted a limited market release in the fourth quarter of 29 team will be gradually introducing the product to a broader market or at least the route 2020.
As a reminder, nexus is utilized in the last frontier of Endovascular aortic repair the aortic arch.
This deployment any arch is one of the most sophisticated procedures being performed today.
As such we are investing in the appropriate time and effort to ensure that surgeons are adequately trained to deploy the product.
There's a great deal of excitement in the marketplace. This technology in the case schedule was building nicely.
Our initial experience for the product has been very positive when we're confident that nexus will be a solid contributor and our product portfolio.
As the most comprehensive and technically advanced aortic stent graft portfolio, our eurotech products address the entire he went up from the aortic valves the iliac artery.
We believe the addition of Nexus of you to open Neo and yeah inside along with the rest of our Nordic repair portfolio.
Provides us a significant cross selling opportunity through our 90 person European direct salesforce.
Switching gears to Onyx with the recent FDA approval a proactive today. Our next step is to conduct an investigator meetings or investigator meeting with the 60 participating centers.
We expect would begin enrollment in the next couple of months and anticipate enrollment to take approximately 18 months.
The trial will enroll 1000 patients at up to 60 centers in North America.
If the trial successful and proving the aortic valve.
Eric valve recipients can be maintained effect will be on aliquippa's.
We believe that Cryolife will become the market share leader in the mechanical valves second segment, while simultaneously taking share from existing Bob or set of get articles.
But she'd indication has significant potential to accelerate our onyx business and based on our market research could increase the addressable market opportunity for onyx to greater than $600 million.
We will continue to invest in our Asia Pacific in Latin America sales channels and over the next couple of years, we expect a double the number of salespeople in these regions.
Finally, before I turn the call over to actually for his review the financial results.
I'd like to announce a new initiative that we have begun in response to feedback that we received from our shareholders the broader investment community physicians and employees.
That is given the evolution of the company after the acquisition of young of Onyx and Yo Tech.
We should consider rebranding the company.
As such over that over the next nine to 12 months, we will be we will devote considerable effort to developing a new brand with the intent of launching by the end of the year.
The new brand will better represent to all of our key constituents, who we are in what we do.
We believe the timing of this change made sense as we expect our pipeline to continue to deliver series of new products that will further transformed the company in the years to come.
I'll now turn the call over to actually who will provide further detail on the fourth quarter full year 2019 results as well as your 2020 guidance Ashley.
Thanks, Pat and good afternoon, everyone total company revenues increased 3% to $69.7 million in grew 4% on a non-GAAP constant currency basis compared to the fourth quarter of 2018.
For the full year revenues increased 5% on a GAAP basis to $276.2 million and 7% on a constant currency basis compared to 2018.
Looking at the product lines, you took revenues for the fourth quarter decreased 4% on a GAAP basis and increased less than 1% on a non gap constant currency basis, most compared to the fourth quarter of 2018.
Excluding the OEM business, you'll take revenues decreased less than 1% on a GAAP basis and increased 4% on a non gap constant currency basis compared to the fourth quarter of 2018.
For the full year, you'll took revenues grew 3% on a GAAP basis, and 9% on a constant currency basis compared to the full year 2018.
[noise] Onyx revenues for the fourth quarter increased 18% on a GAAP and non get constant currency basis, both compared to the fourth quarter of 28 gene.
For the full year Onyx grew 12% on a GAAP and non-GAAP constant currency basis.
[noise] Bioglue revenues in the fourth quarter decreased less than one person on a GAAP basis and were flat on a non-GAAP constant currency basis, most compared to the fourth quarter of 2018.
For the full year Bioglue revenue increased 3% on a GAAP basis, and close to 5% on a non-GAAP constant currency basis.
Total tissue processing revenues for the fourth quarter increased 6% compared to the fourth quarter of 2018 and 5% for the full year.
Cardiac revenues grew 12% for the fourth quarter and 15% for the full year.
Vascular revenues decreased 1% for the fourth quarter and decreased 4% for the full year.
But as Pat mentioned VESCO revenues increased sequentially from the third quarter to the fourth quarter, reflecting the improvement that we see in vascular tissue so far.
Gross margins were 66.8% for the fourth quarter and 66.3% for the full year of 2019.
Our income tax expense for the fourth quarter reflects reserves for uncertain tax positions.
On the bottom line, we reported a GAAP net loss of $681000 or two cents per fully diluted share in the fourth quarter of 2019.
Non-GAAP net income was 3.8 million or 10 cents per share.
For the full year GAAP net income was $1.7 million or five cents per fully diluted share and non-GAAP net income was 11.7 million or 31 cents per share.
Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results.
As of February the seventh 2020, we had approximately $37.3 million in cash cash equivalents and restricted securities.
As of December 31, 2019, we had approximately $221 million outstanding under our term loan B and based on our credit documents. Our current gross leverage stood at approximately four times in our net leverage was approximately 3.4 times.
The interest rate on our term loan was 5.19% at the end of 2019.
We can comfortably service our debt and have no additional financing needs to support our current business model.
Turning to 2020 guidance, we expect our revenue to increase between 6.3 and 8.5% on a constant currency basis in 2020 compared to 2019.
Assuming an average euros U.S. the exchange rate of $1.10 for the full year of 2020 versus a 2019 average rate of $1.12. Our full year 2020 revenue guidance is a range of 292 and $298 million.
Our full year revenue guidance assumes no contributions from Bioglue in China.
U.S. perclot or TMR hand pieces.
Additionally, our guidance includes a nominal contribution from neo patch.
Excluding all TMR revenues from both 2020, and 29 team our constant currency growth rate for the full year of 2020 compared to 20 high teen would be between 8.7 and 10.2%.
In regards to the cadence of revenue growth in 2020, we expect that the second half of the year will be significantly better than the first half of the year due to the factors that Pat mentioned previously expected improvement in you'll see you'll take supply throughout the year and the launches of three new you'll take products and.
Excess considering these factors, we expect first quarter 2020 revenues to grow between 0.3 and 3.3% on a constant currency basis at a euro U.S. The exchange rate of $1.10 revenues are expected to be any range.
Of 67 million to $69 million.
Excluding the first quarter of 2019, TMR revenues of $1.7 million constant currency growth for the first quarter of 2020 compared to the first quarter of 2019 would be between three and 6%.
We expect our non-GAAP EPS to be within a range of 15, and 17 cents, which reflects improvements in gross margins increased investment in our Oh, U.S. channels and commercial infrastructure.
New product launches and increased investment in our pipeline.
If you go back three short years ago, we were not at commercial scale.
We had about 30 employees in Europe, one in Asia, and Latin America, combined and our only pipeline product was perclot.
Through the acquisitions of Onyx Inotek, we're now closer to scale from a channel standpoint in Europe, and we have multiple opportunities in our pipeline that overtime could deliver new products in multiple geographies over the coming years, but our pipeline requires investment in clinical trials.
Additionally, we are still not a commercial scale in Asia Pacific in Latin America, and that takes investment as well, especially in the near term so that with that being said on the SGN a side, we are investing over $3 million in developing Asia Pacific and Latin American channels infrastructure and.
Regulatory capabilities, we expect 2021 to be in investment year, and then we'll begin to see meaningful operating leverage in these geographies.
We're going to spend an additional two plus million dollars to support growth in Europe Middle East in Africa, including the launch of three new Yahoo Tech products and Nexus and other worldwide marketing efforts combined the investment in SGN, a in Europe Asia Pacific.
Erica approximate approximates 11 cents per share.
Additionally, amortization expense is expected to increase about $1.6 million in 2020, primarily related to the into spin transaction.
On the pipeline front, we will these spending and incremental $6 million or approximately 12 cents per share on our Proact 10, a clinical trial and the spend could be more or less than 6 million depending on the rate of enrollment in the clinical trial total R&D and clinical.
Spending are estimated to be in the low $30 million range in 2020.
As for our onetime branding initiative that Pat mentioned earlier, we expect an approximate three cents per share impact on GAAP earnings. However, we will be excluding such amounts in our determination of non-GAAP EPS.
In regards to capital expenses, we will be investing in facility expansions in both Germany, and Austin to increase manufacturing capacity for Yotel and Onyx as a result, we anticipate that Capex will increase from approximately $8 million in 2019 to.
Between 13 and $15 million in 2020.
Additionally, pursuant to our agreement with Endo span, we anticipate paying $5 million to them during 2020, assuming the F.D.A. grants them approval to begin U.S. clinical trials for Nexus.
Any expense, resulting from this payment will be excluded from non-GAAP EPS as business development cost.
I want to add one additional comment about our longer term expectations related to operating margins. We continue to have confidence that we will achieve 20 plus percent operating margin overtime with our investment in building out Asia Pacific and Latin America.
And on our pipeline, particularly related to proactively we will be <unk>. We believe will reach an inflection point beginning late in 2021 and begin to see significant operating leverage beginning in 2022 and beyond.
I'll turn the call back over to pet for his closing comments.
Hey, Thanks actually so in summary, we believe we're on track and we're delivering on our key objectives. If we look at the short term headwinds that impacted our financial performance. This quarter, none had anything to do with demand for our products.
And despite the headwinds we faced in 2019, we still delivered constant currency growth of 77% year over year.
Entering 2020, we believe we've resolved our vascular some supply issues.
We're confident that Youre tech supply will improve throughout the year.
In addition to the upcoming three Eotech launches, we also have nexus as well as the commencement of enrollment in the proactive clinical trial.
We also have a steady cadence of potential new product approvals over the next few years, including Bioglue China.
And the FTC approval, a perclot as well as Proact mitral are low I in our mitral valve.
We remain confident in our ability to deliver consistent high single digit revenue growth over the next several years.
Our pipeline is now beginning to unfold in patients around the world. The air disease begin to benefit from our innovative new products to that end I would like to thank all of our employees are continuing to turn our vision into reality.
That will now open the line to questions. Operator can you. Please proceed.
[noise] certainly at this time it will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation town will indicate your line is there no question can you May press star too if you would like to remove your question from the Q.
For those using speaker equipment and may be necessary to pick up your handset for pressing the star keys.
One moment, please while they pull for questions.
The first question is from Jason Mills as Canaccord Genuity. Please go ahead.
Hi, this is actually.
Hi, I'm.
I Wonder could you walk to Onyx growth driver in Q4.
The strength and then as you're looking at 2020, just supposed to driver.
He has already has grown.
Expanded indication I guess your expectations on commercial cadence in 2020 I suppose.
Positive impacts and kinda ramping awareness.
Okay.
Yes. So the first part of your question was on Onyx outside the U.S. and you know we saw you know as you know were direct in the U.S. in Europe, but were primarily using distributors everywhere else in the world.
You can tend to see you know lumpy ordering patterns kind of quarter to quarter. So we'd like to look at it on a full year basis. So I don't think about 45% growth and Oh U.S. as there is a sustainable growth rate.
I look at frankly, I look at the full year Biotics <unk> growing 12%, which I think is very strong and that's obviously before the proactive <unk> trial started.
And then in the second you repeat the second the second question.
Just the impact that 10, they could have over the near term driving awareness and interest.
Yeah, you know I've been I've been you know once this is trials been approved by the FDA and just in just in conversations with.
People, who I've run into or on Eliquis I've I've been taken aback a by how how benign that drug is and how they basically say it has barely really really any impact on their life and in fact, one of one of the a friend of mine, who who needs a he's got a and ascending aneurism and a bike.
Yes, but every valve is going to need or places probably 55 years old and you know you said if you guys had a mechanical onyx Val and I could just keep taking ahlquists. He said, it's just that has a good total game changer for him.
The second thing I would say is we had a there was a review of the clinical protocol at the recent heart surgery meeting STS at the end of it ended January so just a couple of weeks ago and the first question from the crowd was.
This is a total game changer. This is exactly what I've been waiting for so I think it's hard to handicap, what it could do clearly were not off label promoting the product, but I will tell you that there's a there's a ton of excitement about what the promise a if this trial works what it could mean.
For patients around the world. The fact that you could get one operation go on Eliquis through a minimally invasive incision.
And I think have a have a great outcome on compared to what your other options are.
Finally, our market research shows that not only do we become the market share leader on the mechanical side, but we take significant share.
From Bioprosthetic valves in patients under the age 70, so I can I think this is a you know we're very excited Ashley commented that you know we're spending $6 million. This year on the trial, that's 12 cents a earnings.
But this is a you know a four to 500 million dollar market up to the company. So I think it's a it's money well invested.
[noise] that's super helpful. And then I guess, just turning to Nexsan and if you could provide a little more insight into your initial take away just from the limited launch.
The target tenants, you're going to look to initially going forward and the ability to open up competitor accounts.
Yeah. So there are no competitive accounts because no one else has the product like this so it's actually one of the it'd be great things about the product right. This is that we're the only ones in town.
Yeah, we did a limited market release in the fourth quarter I would say, there's you know the typical kind of launch growing pains. We obviously have a partner a that's been very good to work with but we're also being very careful I mentioned in my comments. This is really the last frontier of stent graft thing I mean going up into the arch and doing a single branch.
A procedure totally through a catheter system has never been done before commercially.
And this you know where the first one so we're obviously being very prudent and careful to ensure a good patient outcomes and what does that mean that means we have a very rigorous training program for our surgeons that takes time once once a surgeon gets up and train then you know you move onto the next one so I think you will see a ramp we've seen a nice.
Steady build of other caseload of you know patients who are going to be treated even this quarter I'm. So I think this is something that's actually going to kind of build as we get the training out and get cases under our belt going forward.
Great. Thank you.
The next question is from scratch Calia of Oppenheimer. Please go ahead.
Good afternoon, gentlemen, can you hear me right.
Yeah, good afternoon thrush, yes.
Hey, Bad Ashley So Pat let me start out with one of the comments you made on Proact Penny and I'll kind of reverse tried to reverse engineering.
Cumulatively, how many onyx patients exist in the U.S., how do you factor in existing patients.
With that 18 month kind line for Proact any enrollment.
Yeah. It's it's a good questions Raj you didn't get this is this a trial like this has never been done before right. So it's it's hard to answer like what you could this thing enroll faster. So let me give you. Some rough numbers. There are about 10000 onyx aortic valve patients in the U.S. today that are in the into what you call the patient population pool that could.
Access product today and this is also again for others on the phone. This is a very unique trial. This is not a procedure, where you're going to do the index case in the hospital. This is a drug trial for patients who have already had the onyx valve implanted that our three months after surgery. So that that patient population is about 10000, so we need about 10% to.
To join the trial.
From our conversations with our investigators I think this is a very doable.
Hey, doable thing people are patients are very excited about this concept.
The you know any anytime you do a clinical trial and I've been involved lots of them in my career. There is a there is a ramp then right you have to go through the IR be at the hospital, you've Gotta go through the contracting with a hospital. So that that includes some of the enrollment. So it's not like when you get the idea proved that all said you wave a wand and everybody starts jumping in there.
While the biggest I'd say six months of that enrollment is just getting the IYR be using the contracts.
So I do think that the enrollment could go quick and you know actually alluded to this in his comments you know we're projecting we've been internal projection that gets you did the 6 million.
That could go a lot faster or it could also go slower. So I mean, you know our EPS could swing and we've talked about this on previous calls we will call out the enrollment in spending on proact today, because it has a direct such as a meaningful impact on our s. So what we're pausing we've a lot of excitement we have our investigator meeting.
Here in March we had 60 centers and you know we've got centers, we expect to enroll the first patients in Q1 when the next you know called the next two months I'm. So this is going to start taking hold and you know how quick we enroll we'll have to see in monitor as we go.
Got it so Pat Utac now that it does anniversaried.
And the supply issue that has persisted I believe for Q2 Q3, and now Q4, obviously you guys are trying to mitigate that.
I'm completely drawing a blank patra remind me what would normalize growth rate for Utac have been had this supply issue not existed so that would be one question and the second thing is if you keep the supply issue aside we know that that's beyond your control.
What does met your expectations, what's still requires work on the you'll take site.
Yeah, I think you know so couple of things you know.
Oh, I would say, it's actually the supply chain issues are totally in our control and as the CEO with my responsibility. So it's it's there's no one else to to point to figure out, but me and you know I've been doing it's a long time I was frankly caught off guard by it and you know I don't Wanna get into the details around it but you know at the same time, we're the first year, we acquired the product.
You know we acquired in December 17, we owned it for the first year of 18, or we grew 25% without a single supply issue.
So going into 2019 supply issues were not on my list and there was a multitude of factors that happened. Some you know lot of unrelated to the European MDR, but a lot of things that again, some some in our control some of our control, but I can tell you we've been working very hard as a team to put this behind us once and for all.
The biggest challenge on this is the.
The hiring of solar as I mentioned that into in the script right, which is <unk>.
It. It takes takes three months to get you Gotta hire somebody then you've got a train them. So it takes three months, there's a long lead time in that we've been hiring very quickly.
Great News is we're in the process of bringing on a second source supplier that will basically eliminate any supply problems. We have so from an investor standpoint. The good news is the worst part of it is behind us each quarter will get better.
And by the time, we get to the fourth quarter. The supplies you should be gone.
And as we as we move into 2021 with all the new products and full supply I think we're gonna be <unk>, we have a very strong 2021.
To answer your first question about you know to what could the revenue have been that's that's a hard question to answer I can tell you that yotel grew 25% in 2018 and it grew 10% in 2019, I'm not saying that we could have grown 25% again, but it would have been north of 10 and I'd.
You could probably would have been into you know the 15% to 20% range, particularly if we'd gotten the new products. That's the other piece right. We had been delays of the new products coming which also hurt us, but again I think the great news for investors is we've we've got all approval, we're waiting for one more approval, which what we think we'll get this quarter and then we've got a lot approvals.
And the MDR kind of door closes on May 26, we're gonna have all of her approvals and our supply chain is going to get better every quarter to the point when you get into Q4, it's gone.
And we're going to be rocking and rolling with the our portfolio. So again. This this is it's a transient problem I'm not thrilled about it but I can tell you. We've responded very aggressively to fix it.
Okay, great and finally pad and actually as we look at flight Twinkie.
Help us understand what is the level of conservatism built into the into guidance and the reason I ask is obviously first half slightly slower than the second half per your commentary new product approvals Nexus.
So we get that just in terms of cadence, but if I look at core Utac. If I look at core Onyx, how you know how should we look at the different levers moving on how should we think about it from a housekeeping perspective any additional color would be great gentlemen, Thank you for taking my questions.
Yes, no I think you look in this is not you can I get I'm doing as long time. It isn't this is not a kinda like we just sat around the back end loaded the plant I mean is it as it is real and the real thing is right. We because of the lead approvals of the low Tech products. You know, we're not really selling any new York products in the first quarter.
And we still have kind of lingering supply issue. So the first quarter is not much different than the fourth quarter.
But all start changing in Q2 right. We're now starting to build the devices for the limited market release.
For the new product. So all three New York Tech products start the limited <unk> marker leasing in Q2.
Supply will continue to improve we moved a full market release in Q3, and we're going to have unbridled supply by Q4. So again. This the rollout of these products is significant and I think that the you will see the yotel number accelerate through Q1, Q2, Q3 in Q4 and be better every quarter.
I'm sorry.
So I think I think that's a big piece of of how this is the other piece I would say is I can't remember the last time, you know probably put out a number I mean, if you take TMR out of last year and out of this year, we're giving that guidance of 9% to 10%.
We're being extremely conservative on on the TMR re approval I don't have direct control over the FDA and I frankly don't have direct control over my supplier and I'm not going to risk My plan based on a re inspection that I don't have total control over so we've taken TMR totally out of the plan.
There is a chance it comes back in the in the second half if it does it will be upside.
I think the thing you should look at as an investor. It's it's not a strategic product line to US you know, it's unfortunate that has happened, but it happened, but if you look at the underlying operating performance of this business and you take it out we are growing nicely, we're giving guide for banks that 90, 10% and so I don't think it's conservative.
Thank you.
[noise]. The next question is from Mike Matson of Needham and company. Please go ahead.
Hi patent nationally, it's David Saxon on for Mike. Thanks for taking the questions. I guess first just on Perclot I'm, just wondering if you've seen that data and if so how does that look and then just on the commercial strategy. What's your plan on selling it just given that it's going to.
Touch a lot of other call points and your current felt force currently covers.
Yes so.
Basically the trial has enrolled and it it met its primary endpoint and we feel.
Very confident from me, both the safety and efficacy data that came out of that trial that you know we should receive an FDA approval. So we're actually very confident that your second part of question is something we've talked about previously I mean ondeck on these calls which is you're correct.
Perclot is actually mentioned earlier, we had one product than our R&D pipeline when I joined the company and it was Perclot and obviously, we've since you know dramatically change the strategy the company to be an aortic company and we've done the acquisitions and Onyx and Utac and the partnership with Nexus with the arch device. We just talked about so this is this is obviously a very different.
Company at the same time, we've invested in as as a responsibility to shareholders. We've invested a lot of money and Perclot in its also a 200 million dollar market at 80% gross margin that's growing 15%. So it's attractive.
Our sales forces around the world call on heart and vascular surgeons that represents about 20% or the opportunity for Perclot, which obviously is not going to maximize our investment.
So.
We are exploring options of who we can partner with we could either sell it ourselves we can part with somebody else, we could do a flat out transaction and we're exploring all those different options I will tell you that I. My goal is to get the best return for our shareholders in the process of doing that and I do think having an F.D. approved <unk> pmeight.
Product in a market that that of that size it that margin.
We'll provide will be an interesting opportunity for some companies.
Oh, Okay. Thanks, and then I'm just on the TMR hand piece can you quantify the impact to the fourth quarter and then just going forward given that it it isn't really a strategic product have you considered just exiting that.
Yeah, you know, it's it's a good question I have actually you can comment on the actual number for the fourth quarter, but we actually had this conversation.
Yeah with the board, which is again, it's not a strategic product ideally you'd want to divest it and actually get get some money for it and that's what we may well do but at same time right now we're in a process of trying to get the product back on the market and and then we'll explore the options going forward, but again I think for an invoice.
Year to look at our what is what is cryolife about where he already company. This this is a product that was you know again a legacy product that was here that's not strategic not growing it's very profitable, which is the unfortunate part of it. So we'll just have to be thoughtful when we as we move forward, but you know we took it out of.
2020, because of what we got burned on regulatory approvals and 29 team. So I'd say, we're being very conservative on that but we'll see how this thing unfold throughout the year.
In in regards to the a the hand pieces in the in the fourth quarter. We did not have any that we were.
Able to sell it and that impacted TMR revenue, but.
Approximately $1.2 million to $1.4 million in the quarter.
Okay. Thanks.
[noise] [noise]. The next question is from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.
Pat Ashley Thanks for taking the questions.
I wanted to go back to the somebody go to questions from Shiraz earlier, so as far as the.
The second source and devices in supply toward the back half years at the too so it's going to work and kinda parallel or series you expect a different devices will be in different locations.
Yes, so that you don't want to get too much into the detail of of a second sources, its probably not appropriate but I mean, the big thing we're talking about selling we're not we're not really talking about it frankly in other places other people in the field do they do the same thing. So this is not anything new it's really around sewing and we're going to you know we're going to look at our portfolio.
And we may have them produced one product for us, which will free up tons of capacity for for the the German facility. So this is a this is both facilities will be sewing, we're going to continue to so at our facility in Germany.
This is it's going to be adding another supplier that will so for us and they already do this for other companies in the stent graft field. So it's I think it's a very low risk a in a in a really nice option for us and frankly I said when we move into Q4, assuming we get all these approvals of the second supplier you know we will lead this year with a below.
Due to supply and the other thing I would ask you to think about not not only on the Yo Tech side, what we have.
Go from no no new product revenue from Yo Tech in Q1.
Limited market release with improving supply in Q2 full market release with improving supply in Q3, and then full stride in Q4 with full supply, but we're also they're going to start hitting all of our international approvals with full supply.
So Latin America Asia Pacific So as we move into Q4, it actually into kind of 21, I think we're going to see this this is a great portfolio and again you know it's it got everything got moved back six months because this approval delays. So I'm I'm extremely bullish on what this portfolio is going to do going forward.
Yeah, Okay, and then with the with the new products coming out.
It would have you done already and work still to be done as far as the on the commercial readiness, particularly of the a the salesforce in your.
Yes, so the sale the Salesforce I was out are we do a European kick off sales meeting every year in early January I was at the meeting and the whole meeting was dedicated to training or we've got about 95 reps and we're hiring will probably be at a 100 reps by the end of year ended the year.
That team has been fully trained.
They are kind of chomping at the bit to get the products, you know and as I as I mentioned, a second ago Q2 will start to limited market release, so it's not not far away. They're trained we need to train their customers, we need to kind of do the first cases start building. The you know the inventory to support the launch and as as that you'll take supply.
Approves each quarter, you know, we will continue to get more priming the pump with devices out there. So yeah. So I mean, I think the sales sides ready to go we're just waiting on product.
Okay got it and then lastly, our quick one for me have you seen anything risk related on the and the flu side of things at any territories potentially as I take away some of the a regular procedures being done in some institutions.
You know, we I mean.
It's like a good news bad news I mean, we we do not have a lot of business in China, It's been most.
Kind of a profound in China, where there's you know people have been staying home and not you know going out and not going out of their houses yeah. I think we didnt around a million dollars in China, I mean, roughly last year.
We're very bullish on China going forward I think the to the two impacts meeting I don't think is maybe a big impact for Cryolife in from a revenue standpoint, I think the biggest potential impact is bioglue, China. You know, we specifically had our panel meeting for Bioglue scheduled.
For the in the next 30 days and that's now been postpone because of the krona virus. So that's where I think we might might feel the pain is.
What I don't know with nobody knows how this thing is going to unfold going forward, but if this thing continues to linger and people are going into the offices I mean does that push back our approval for for Bioglue China.
Which is not by the way there's no revenue in 2020 robot with China. So it's not a 2020 risk is just to do we get it later and 21 because of this.
Got it okay. So okay, great and we'll hear more about to rebrand and I'm glad you're focusing on the top line. Thanks very much.
Yep.
The next question is from Brooks O'neil of Lake Street Capital markets. Please go ahead.
Good afternoon, guys. So lot of deals lot of moving parts I was hoping you can kind of summarize where you think the company is heading it sort of what the profile will look like maybe give us a sense for when you think you're going to get their terms of.
What are the core businesses, what sort of the topline revenue with the top line growth rate, what's the gross margin what's the what's the earning power of this business is you realize your vision for what this company can become thank you.
Yeah, I think you know look I think actually you touched on a little bit you know and it was put into context right. So I started here five years ago, we had one product in our pipeline and we had one person in Asia Pacific in Latin America.
The company has doubled in the last five years.
Gross margins gone up 700, 800 basis points, we are creating a company with this with our eyes set on creating a billion dollar company you know our guidance puts you I'd like to 97 to 98 this year.
We have a pipeline now that has 10 robust products in the pipeline you know, we're now spending $30 million in R&D, we have a big increase because of Proact today, which is going to take some s., but the great News is we're one of the very few companies of the size, it's actually profitable. So shareholders don't have to go out and worry about us do when a capital raise because we don't have enough money to pay for.
Our pipeline.
We're also investing in Asia Pacific in Latin America because.
We have huge opportunity to take our existing products like onyx like Eotech like Bioglue to Asia, and Latin America, that's never been done because we never had anybody there.
That takes resources were building that infrastructure. So I think those are the two biggest things that we want our shareholders to understand is that we're building a company. We're not at scale, we're investing in the pipeline and were invested in the channels and the way that opera operating leverage drops through is as you get to scale with your your channel.
And then the pipeline starts pits fit products out you don't need to hire new reps.
Right. So we've talked to ask you talked about in his comments, we have a goal you know in the in the late call. It 20, 420, 324, we're going to be moving towards the 20, 20% operating margin.
But we're gonna be investing in the pipeline into channels between now and then in the whole purpose behind that is to drive topline revenue growth the greatest value creation for a small cap medical device company is revenue growth and margin expansion, we're going to give you a one point of margin expansion this year.
Yeah, we're gonna look to move our high single digits to get into the double digit range as our pipeline in our channels expand so that's that's the simple story.
Yeah, it's perfect pad and as integrate vision. Thank you very much.
The next question is from Joe Munda I've first analysis. Please go ahead.
Good afternoon Pan actually I Love my questions have been answered, but two real quick question. You know you talk about Oh, U.S. infrastructure build out your guidance as well.
Touched a little bit there on R&D.
Can you give us a sense of what you're doing Oh, you asked as far as infrastructure is concerned and then that you're.
Forecasting out as well as on the R&D line there the bump up in R&D than maybe you can walk us through a little bit of the moving pieces you got a couple of trials going here, but really waiting incremental store to spend is is occurring as well as the you know the new products, you're launching our plans one thank you.
Yeah. So again, you can imagine rice will talk of the investment in Asia Pacific In Latin America, I mean, we had one one person in Asia.
You know we've now got a team of probably about a 15 or 18 in Asia, we're gonna be adding more in that region. This year salespeople. You also have to you know at the back office support we partnered were not being heavy on the back office side, we're much more skewed to kind of the sales and marketing commercial but really the really.
Investment in Asia Pacific in Latin America is around the feet on the street.
The educational programs and just getting out in front of customers and also the regulatory approvals.
Right. So if you think about it we've got.
Tons of approvals of existing products is moving them into the market.
So and we think.
These are the seeds, we're planting that we expect that our Asia Pacific in Latin America regions will be significant contributors to that you know popping up our growth rate.
They they had decent years this year and I think as we invest in those channels. They will continue to be.
Providers of accelerating our growth rate as it relates to R&D I mean, the biggest the biggest change and the R&D was proact today and that's that's 12 12 cents a V. P. S. It's a six month 6 million dollar.
Delta from for for 2020, the rest of the pipeline. There you know this moving parts underneath but we've got 10 products in our pipeline right and they're all advancing.
We're working on bringing the.
Part of the Yo Tech portfolio to the U.S., we were going to be we finished the enrollment of the Proact mitral trial, we've got lots of other things in the works, but that that incremental R&D is really highly.
Correlated to the productivity trial.
Great. Thank you.
[noise] [noise]. Mr. Makin is there are no further questions at this time I would like to turn the floor back over to management for closing comments.
Great and you look think thanks for a thanks for participating in the call and you know hopefully you can hear it in my voice that you know we're very excited about what's in front of US you know I'm not thrilled about the eurotech supply or the TMR hand piece, but those are transition issues. Yeah, I look at kind of what we have going into 2020.
Through the four quarters I mean are our vascular tissue is back the supplies back there. We've got any approved we'll be launching the alomar in Q2, we got inside of proof, we'll be doing the alomar in Q2.
Put 10, a trial is approved and we're going to start enrollment we didn't even talk about that my Sonic Neo pets deal what we've got minimal revenue this year, but I think that's a nice opportunity Nexus is moving into full marker leasing in this quarter.
We should get a view to open Neal our last of the New York Tech products approved this quarter and we'll announce that when it's ready.
Throughout the year, we think eotech supply when prove to the point where in Q4, it's no longer an issue and we talked about taking out our team our NPS.
Revenue for the full year, because we're being very conservative on it and our guidance without it if you take out of last year. This year is 9% to 10%. So I think thats, a a pretty good target for this company.
We are investing in our channels, we're investing in our pipeline and we're investing and building a company.
We're also going to be looking at a re banning if rebranding initiative.
Because we don't feel that the current brand represents what we do given all the changes we've been through so we're we're very excited about the future and we look forward to give any updates on our progress throughout the year. Thanks for attending.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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