Q2 2020 CryoLife Inc Earnings Call
Greetings and welcome to acquire like second quarter 2020 financial conference call.
This time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
Anyone should require operator assistant started a conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Lynn Lewis and the Gilmartin group. Thank you you may begin.
Good afternoon, and thank you for joining the call today.
Joining me today from Cryolife management team or Pat Mackin, CEO and actually the CFO.
Before I 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 meeting other private Securities Litigation Reform Act the 1995.
Forward looking statements include statements made for the companies.
Management [laughter].
Lee.
I patients or predictions of the future.
Forward looking statements are subject to a number of risks uncertainties estimates and assumptions that may cause actual results to differ materially from those forward looking statements.
Additional information concerning certain risks and uncertainties that may impact these forward looking statements.
Contained from time to time of the company's FCC filings in the press release it was issued earlier today.
I'll turn the call over to Cryolifes CEO Pat Bakken.
Hey, Thanks, Lynn and good afternoon, everyone. Thanks for joining.
Second quarter of 2020 was filled with a number of challenges it's called the 19 disrupted many faceted facets of our lives.
I'm very pleased to report our team responded to these unprecedented challenges with incredible dedication in result.
I want to thank our entire organization for outstanding performance and we look we've a lot to be a product.
As I will explain later in more detail, we were able to deliver a number of keeping our key objectives in initiatives and also deliver solid result.
In Q2, we achieved total revenues of $53.8 million, which reflects a decrease of 24% versus the second quarter of 2019 in a decrease of 23% on a constant currency basis.
Our revenue declined this quarter was largely driven by the results of the delay in some cases cancellation <unk> procedures in April in early may in the various markets that we serve.
It's hospitals in these regions began resuming procedures starting in May our revenue likewise began to increase.
In April our revenue was down 39% compared to April 29 team.
Our may revenue was down 22% compared to May have 19.
And our June revenue was down 15% compared to June of 2019.
Well, it's impossible to forecast with certainty how cold it 19 will impact our business in the second half a year.
We're cautiously optimistic that you will see continued improvement in our revenue performance for Q3 in Q4 compared to the comparable prior year period.
We also anticipate that we'll begin to see the benefit from recently launched or soon to be launched next generation go type products.
As well as positive news on the regulatory approval front that she does benefit us in 2021.
Based on what we know today well, we don't know today, we expect 2021 to be very strong year for Carlos.
What's that provided some color on all performance for Q2 as well as our expectations for the remainder of 2020, Ashley Lee Our CFO will review, our second quarter financial results and liquidity in greater detail.
I will then make some closing comments and open up the line for questions.
First I will update you on the status of key aspects of our business starting with operations.
Since our last update Unfortunately little has changed as our operations, we continue to run at or near capacity with few if any disruptions.
We've been able to if you see further our growth initiatives funky R&D projects.
Skewed on a 100 million dollar convertible senior note offering which allowed us to repay our $30 million revolving credit facility and have more cash available for general corporate purposes.
Moving onto revenue performance for Q2, all in all while it does whether to covert 19 storm well due to a large part. The fact, the vast majority of our products are used in procedures that cannot be postponed at all.
Well that cannot be delayed for very long.
As I indicated previously revenue dipped sharply in April 2020, but then improve thereafter, as Europe Asia and certain U.S. geography has resumed more procedures.
Including those in which our products are used.
As hospitals and providers have learned more and their ability to deliver health care, even in the face of and in some cases, a resurgence of coking linked but could be 19 pandemic, we're optimistic that given the nature of our products. We can deliver saw solid revenue performance for the back half of 2020 and enter 21 on very solid footing.
Our commercial team is showing that the or they can continue supply devices since a poor procedures both in person in virtually.
Employee creative solutions to ensure continued customer service in patient care.
We expect their know how and expertise will further solidify are excellent reputation with customers and strengthen our leadership position and aortic repair.
We will also continue to do Georgia, managing our expenses, while strategically investing for growth now when when the pandemic subsides.
On the manufacturing front, we continue to avoid any significant supply chain disruptions.
In each of our three manufacturing sites are functioning at or near capacity.
At each of these sites, we have safety protocols that we've implemented earlier this year remain in place.
Hold on a procedure also has allowed us to improve our you'll take inventory position and we remain on track to have our second source sewing supplier Buddy ended the year.
It's actually will further detail in his remarks, we remain a position to financial strength.
In June we completed 100 million dollar convertible debt offering using some of the proceeds to repay our $30 million revolver.
In addition to our encouraging revenue performance in the quarter, good expense management and enhanced financial position, we made meaningful progress and several other initiatives.
First we made continued progress what are your tech product launches.
It's all the ended the second quarter, we initiated the limited market release for you to open Neil and inside.
And anticipate a limited mark or at least for and yet in October.
We also resumed the limited market release for Nexus.
We expect anticipate we anticipate full marker leases for all three New York products later in 2020, and as we move into 2021.
As we mentioned on our last call. Our teams are continuing to gear up to train physicians were building supply to support the full market launches of the three coated products. We currently have sufficient excess inventory for the remainder of the year.
Second in May we announced the initial enrollments of the Proact today trial, which is our prospective randomized clinical trial to determine if patients would be onyx aortic valve can be maintained safely and effectively on eloquence versus warfare.
The trial is expected to enroll approximately 1000 patients across 60 sites in North America.
[laughter] enrollments in her occurred in the second quarter, notwithstanding the pandemic as some institutions continue to enroll patients and important clinical trials in patients did not need to have implant procedures to participate in that trial.
As a result, if the trial meters endpoints. We believe we can still achieved at the approved for use of the picks a bad what do you honestly Arctic valve and 2024.
At the Onyx here to develop will become the market share leader in the mechanical about market as well as takes year from the existing bioprosthetic aortic valve market.
And lastly on the regulatory front, we remain on track before year end to file our P.M. April perclot of U.S.
And our response to the Chinese that you gave for bio <unk>.
With that I'll now turn the call over to actually for a detailed financial review a quarter Ashley.
Thanks, Pat and good afternoon, everyone.
Total company revenues were $53.8 million for the second quarter down 24% compared to the second quarter of 29 chain due primarily to the impact in our business from cope with my team and the absence of T or more revenues.
As Pat mentioned, we saw a monthly sequential improvement for procedure volumes and revenues this past quarter.
In the second quarter of 2020 versus the second quarter of 2019 tissue processing revenues decreased 17% Onyx revenues decreased 18%.
Bioglue revenues decreased 31% and you'll take revenues decreased 23%.
Formats in each of these products haulage was adversely affected by primarily the cobot 19 pandemic.
Our gross margins were 67% for the second quarter compared to 66% for the second quarter of 29 gene.
The improvement in gross margins, primarily reflects a reduction in unit cost products in tissue shipped during the second quarter of 2020 as compared to the second quarter of 2019.
On the bottom line, we reported a net loss of approximately $3.7 million or 10 cents per fully diluted share in the second quarter of 2020.
Non-GAAP net loss was $835000 or two 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 July 24, 2020, we had approximately $127 million in cash cash equivalents catch reflects the 100 million dollar convertible debt financing, we completed during the quarter less expenses for net of $96.5 million received as well as a repayment for $30 million you draw.
Under our revolving credit facility.
Even though we're very encouraged by what we're seeing regarding the recovery of our business uncertainty remains regarding the impact that coordinate 19 may have on our business over the balance of this year and thereafter.
To be prudent we will continue to monitor our expenses very carefully during Q3 in Q4.
We shared our cost reduction initiatives with you on our previous call.
Those include hiring freezes reductions in discretionary spending restrictions on non essential business travel deferment of merit increases for top members of management reductions to cash compensation for our board members, who are six month period.
Temporary slowdown of most clinical in R&D programs that are not directly connected to anticipated revenue generation for 2023.
Ever we're continuing to invest in clinical and R&D programs related to products that we expect to deliver revenue and 21 20 to.
Including our U.S., Perclot, Pmeight, Bioglue, China, and Proag mitral regulatory approvals.
With the recovery, we are experiencing in the business and the cost initiatives that we have implemented we remain confident that we not only have adequate liquidity to run the business, but also have sufficient capital to support our growth initiatives and comfortably servers our debt.
Due to the potential for continued uncertainties from the impact of could've been 19, we will not be issuing 2020 financial guidance at this time.
I will turn the call back over to Pat for his closing comments.
Thanks, Ashley so in summary, as you heard today, our growth has been somewhat delayed but far from derail.
Theres Little question at this point, how important are products are to customers and patients like we continue to estimate that our business is mostly comprised of products and procedures that cannot be postponed or if they are postponed only for a limited amount of time.
Our next generation you took offerings are very exciting products and we're very optimistic about the prospects.
With that I'd like to turn it over back to the operator to open the line for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If he'd like asking the question you May press star one on your telephone keypad a confirmation tunnel indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your handset.
Oh for pressing the star King.
Our first question comes from the line of Cecilia for a long with Canaccord Genuity. Please proceed with your question.
Hi patent actually thanks for taking my questions I guess I'd like to start with product and the trial and religious what you've seen in terms of interest levels to potentially pull patients into I'm, just being implemented I had a that potential indication. It's just.
Any interest that you've seen brought the from the trial starting.
Yes, I think one of the great things about this trial a is that you don't as I mentioned in my comments you'd actually don't need to go have a heartfelt put it in this trial is very unique in that these are patients.
Who already have onyx aortic valves. So there's about 10000 of them in the U.S. kind of in the time period that we're we're in enrolling in the trial or available to enrolling the trial. So the very first patient that was enrolled during the pandemic or actually was enrolled during a telehealth appointment and see they didn't have to go to the hospital get enough to go to the Doctor laid it all.
<unk> for consignment all the people work over over a telehealth appointment on video and then have their drugs ship directly to their house. So this this trial. If there was any trial that was designed to be implemented a pandemic is one of them.
So I think there's a couple of points to think about where this trial. We won we have tremendous patient interest in this trial for obvious reasons, you know I I mean, if you've ever talked anybody who's on Eliquis, who are who has been on warfront. It's like night and day and patients are very excited about the opportunity to be you know this study presented to be able to could potentially use eloquent.
Future.
So one there's a lot of excitement to [noise] there was a natural slow down in some centers never hit very hard by the pandemic in April and May. So for example, big Big centers in New York City that we're kind of being overwhelmed with koby patients.
You know they were not bringing in any new clinical trial. So it had nothing to do with the interest or excitement about the trial. It was more just they obviously had other priorities going on I.
I think the second thing is you know we made a conscious decision is actually made in his remarks that we you know, we obviously tighten our belts on expenses in the second quarter because no one really do with the revenue picture was going to look like.
Paul I kind of who is our largest is spending a in the company. It's about $6 million. So you know we kind of ratcheted back the spending from about six to three nights, we cut in half. So we actually had a natural governor that we put on the trial.
You know we're exploring now is as things start to loosen up a with clinical centers as well as you know our confidence around the revenue performance, we're going to look to accelerate the you know the enrollment in the trial. So again, there was a lot of things going on but I think we're as excited as ever about the overall interest an opportunity for that trial.
Great. Thank you and I guess, if I could just asking as well about Nexus just if you could provide some commentary on what you're really seeing in her out in the early days and then just as you think about the U.S. opportunity I'm your updated thoughts around the trial trial timing and then just priority within.
The rest of your pipeline longer term pipeline as you reevaluate everything just in this cobot period. Thank you.
Yeah. So just as a refresher nexus is a very sophisticated endovascular device that's a.
Produced a company called and to span is a in Israeli startup company that we entered into a transaction with a several months ago and that's all you know in press releases in presentations.
It's the first device ever that allows.
Patients to be treated with a catheter to fix the aortic arch in a branch vessel I'm. So it's it's a very sophisticated technology because its sofas sophisticated when we rolled out the product you required for good reason that you have a position proctor trainer flight from fly into support.
The new physicians in training.
And you know of all of our products. This is probably the one that got hit the hardest during a pandemic. So I'll just give an example, we were.
We were building a great case pipeline of patients and surgeons, who were getting trained and we're bringing patients on back in January and February.
And when the pandemic started kind of hitting hard, particularly in Italy, and Spain. As you recall back in March Nobody was flying no surgeons or in some places. The elected cases were cancelled, but you know the idea of about about Proctor flying from Milan to Madrid, just wasn't going to happen. So.
Nexus is clearly.
We'll have taken a setback because of the pandemic and because of the requirement of our physician practice to traveling in the lack of travel where physician partners are traveling. So you know that's it that's a short term, saying, we're starting to see a cases picked back up in certain parts of Europe.
But we're extremely bullish on that technology.
And as far as the U.S. I'd trial.
Just to remind you of the relationship we have with understand so we we pay $10 million for the European rights for five years. We also are funded them with milestones to funded U.S. trollope to $15 million and their incurred so the the company I understand is responsible for the U.S. I do you trial and they've been in discussions with the after.
Okay about their IP protocol.
You know I'm I'm not exactly sure what the timing is but again you know obviously the covert is somewhat slow down do you have to gain some regard, but we feel like that trial should start probably at the beginning of 2021 and you know it's one of the first of its to of its type device ever. So we think there'll be a lot of excitement for the enrollment in that trial as well.
Great. Thank you.
Our next question comes from the line I'm sure Raj call Young with Oppenheimer. Please proceed with your question.
Good afternoon, Pat could happen an athlete can you hear me all right I stressed pretty fine good afternoon perfect.
Oh every one of the safe and healthy so bad just hopping in between Colds forgive me if I if I missed some numbers did you provide an update on Onyx my true.
Oh I did not so onyx mitral just to give you a quick update onyx mitral.
Completed its enrollment a 400 patient trial, that's been completed its enrollment.
At the end of last year and basically we were using all of the 2020 years is the one your follow up period.
So we should we should complete the last patient should hit one year or probably I think in mid December timeframe and then we will we will basically you take a quarter took you know crunch the data.
And then we'll be submitting the P. you may probably in Q2 for that approval.
Got it and this might be the weak spot or did you provide a number of patients enrolled so far and proactive penny and also we did nicely.
Yes, we we have happy we haven't given up there Eric I think part of it too is you know I don't have you heard my comments on the previous from the previous question.
But you know there was there was a couple of things that were Oh, you know kind of slowing down the try one as you well know lot of these big centers.
For example, in New York City, you in many of the Big centers, a new Yorker in this trial I mean, they literally we're not even opening up new trials because of what was going on in second quarter right second a in fact in fact, it's like I said that the first pacing that was enrolled has done via telephone <unk>. This is a perfect trial for a pandemic.
Well, we're also trying to be financially prudent right. So we you know we weren't weren't sure. We Q2 was gonna look like so we really tighten up our belt on the expenses. So we we kind of pulled back probably about half the funding for the trial. So we actually had a natural slowdown on the number of centers, we were turning on a and it's not due to a lack of interest it was more just making sure that weakens or.
Conserve cash you know and based on our performance at our.
Discipline around spending we actually performed extremely well in the quarter and believe our financials look even better as we go into the second half. So I think we will look to open up the funding for that trial going forward.
Got it impact in terms of U.S., Oh, U.S. dynamics would love to get your perspective, specifically Oh, you as I'm curious what the status is probably Gil tech supply disruption and in the U.S. Specifically you know any color you can provide and forgive me. If you have mentioned that's about.
Resurgence in Florida, Texas in Arizona.
You know our field checks are telling us things are pretty dicey getting a lot of the hospitals.
I'd love to have you provide some color on what youre missing in the U.S. as a whole and maybe in some pockets also thank you very much for taking my yes.
No nice and what did.
Yeah. Thanks, I know, it's you know I think one thing I can say that I'm, probably sure most companies would say there's anything I mean.
If you see one geography seen one geography right. So for example, Asia was probably our best performing versus versus last year in the second quarter. Because the you know China went through a we'd also don't have a huge business in Asia, but we actually saw easy to return to normal kind of first.
You know our worst performer was Latin America, because you know, Brazil got hit hard and hit late and we have a big a fairly good size operation in Brazil.
The U.S. actually recovered I would say very strongly we've seen in really across the board. We've seen very strong kind of return to you know getting back to normal when the U.S. in fact, I I actually looked at.
The month of July right with this resurgence going on a I looked at the month of July I looked at Florida, I looked at Texas I looked at Arizona, Yeah, we're actually doing better than last year in Florida. So go figure I mean, I can't explain it up you know tech, Texas is actually doing worse than last year. So again, it's <unk>.
Part of it depends so for example, you think about Houston is a huge cardiac a hub.
So the fact that Houston got hit hard and that's a big cardiac hub that does it makes a lot of sense that your your numbers would be off the last year.
You know parts of Florida, we you know could be stronger where they're not happen as big outbreak. So we are we're not I mean, I think one of things I can see for Cryolife products.
This resurgence we're not seeing a return to the April early may type stuff.
And I think one of the things that hospitals have figured out.
Is kind of how to manage you know I think this idea of like shutting everything down and you know not you know went all your elective procedures go away I, just don't think that's something they're going to return to a particularly on the on the cardiac side, whereas I commented. We you know half of our portfolio you can't delay in the other half you can't really very long. So we're actually not seen a big negative impact.
The resurgence.
I would say on the on the European side again in the UK, Obviously got hit later and hard you know they've been slower to return, Germany did a very good job managing the pandemic and they're kind of returning very quickly. So it's really it's really kind of region independent, but overall I mean weve.
Scene.
If you weren't on I mean, we saw April.
The April numbers were down 39% May was down 22 June was down 15.
You know we were seeing better numbers now so we certainly seem to be doing quite well as as time goes by.
And the pumping you'll take supply issue resort.
Yeah, I would say I mean, one of the unfortunately, the this pandemic obviously, it's been you know terrible for lots of people around the world one of the silver linings has been with the you know the numbers I just read read to you. So having you know the quarter off by 24% and we kept the factories running hot Argotec inventories up 32.
Percent now so we we have taken the opportunity with this pandemic to keep our supply chain in our head of operations has done a fantastic job I believe we didn't have a a coated koby positive case and one of our factories for almost 100 days.
And in talking with other people industry that that was kinda on hurdles and we've been very disciplined about our safety protocols for our employees.
So our Yo Tech supply is we aren't seeing a supply issues number one number two oh, we're continuing to build and run the factories hot.
And number three our second source supplier should be online by the fourth quarter. So we think the eurotech supply will be a thing of the past.
Got it gentlemen, congrats on managing the quarter about thank you for taking my question.
Our next question comes on the line of Mike Matson Needham and company. Please proceed with your question.
Yeah. Thank you Mr., David tax and I'm sure Mike Thanks for taking the questions.
I appreciate yeah, Hey, guys I appreciate the detail you gave on the monthly revenue growth trends during the quarter would you mind sharing what you saw in July and then also what you're seeing in regions like the northeast that were hey earlier on and and what you're saying on the pace of recovery.
In those regions.
Yeah, I mean, we were not going to we're not going to give specific July numbers. They get I commented on Q2 that I'll make a general comment you can kind of go from there. We know we know how did you guys loved to pin it down with the stuff [laughter], but we went from negative 39 April negative 22 may negative 15 juniper.
Doing better than that in July so that's as far as I'm going to go with that.
Okay. That's that's great and then just in terms of the pace of recovering regions like the northeast.
Yes, actually do you want to I looked at a bunch of the different every week. We're actually if you have anything at your fingertips or the northeast in July what do you versus versus last year No I don't have the right at my fingertips, <unk>, but but the northeast is doing extremely well, but you know.
Don't recall off the top of my head, whether it is I would say back to level par with last year, but but the recovery, it's been really strong and a in the northeast.
Okay I appreciate the color and then on the my Sonic distribution agreement I know, it's early days, but what's the feedback gain on the neo patch and how should we think about that's that contribution during the balance the year.
Yeah, we we've actually there's been great I mean, we've had really good customer feedback I mean, my Sonics has done an excellent salesforce in in the channel.
Which is products are served in a wound care segment. So you know we were very excited about the the relationship with them, obviously like everybody else, we all got hit second quarter.
Which slowed down it was great. When we're doing our launch. So you know I think that there you know in a recent discussions with them there they're ramping up for you know kind of a a relaunches snakes kind of get back to normal.
And we'll we'll give more color on that for 2021, when they've had a chance to kind of roll out their launch and things can you know as we see things progress, but we we haven't given a specific numbers out on on that but we do expect to do that for 2021.
Okay. Thanks, so much.
Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Oh, Hi, <unk> definitely how are you.
Hey, Jeff <unk>.
So one follow up to as far as near Petros any kind of further did or would there. We can garner from do from a company as far as what areas are therapeutic or is that there's been no.
Good afternoon, rude and nickel were through neuro.
Yes. So there are there their major focus is on on the wound care, which is where the the publication with use also they have a a good surgical salesforce at a hospital based surgical team.
So I do believe is gonna be some foot and ankle usage in that in that regard as well. So again, we can given what we didn't even more of an update we're waiting to let them go through their kind of limited market release.
And then talk about what we're going to you know what they're looking for in 2021.
Okay got it on the.
I'm the chief today is.
She said earlier that are you running hot so.
That's going to continue through Q3, and I guess, a pressure we lose out on the inventory, especially video verification or any commentary from future inventory as far as the manufacturer. So and then you read into Q3.
No I you know <unk> first of all on the GE in a and just Opex in general I think as Pat mentioned earlier in call. You know we are very optimistic about second half of the year to see continued recovery in the business and yeah, we have not giving out any financial guidance, but but.
I think clearly you know we we're we're managing our expenses throughout 2022.
In response to how we're seeing the business recover you know I you know Pat mentioned you know one thing in regards to spending on projects. You know, we're looking at starting to accelerate spending on among other things and the production a trial.
On the GE and they side you know, we delayed a lot of GE and extending that throughout the year. It will certainly in the second quarter and again you know the level spending in the third and fourth quarters are really going to be tied to you know what we see in the recovery on the top line. So no specific guidance, but no more general, but it's going to be tied to the recovery.
In regards to inventory had mentioned that that Ah you know we've been running a hot you know in all areas of manufacturing all throughout the second quarter and its starting to manifest itself in a improved inventory levels with you and tech Yeah, we're seeing some increases in some of our other products.
Lines as well, but it's something that we're going to manage you know as we go throughout the balance of the year you know, we're going to continue to run our factories.
At or near capacity and and a you know if the business hopefully you know recovers throughout the year. The will likely continue to do that if it does not than you know we will.
Likely curtail some of our manufacturing if need be but again everything is gonna be tied to.
How will the business the coverage during the third fourth quarter <unk>.
Okay got it does for me. Thank you very Sri don't appreciate it thanks, Jeff.
Thank you.
There are no further questions in the queue I'd like to handing the call back to Mr. Mac in for closing remarks.
Yeah. So again, thanks for thanks for joining the call today and as you can hear from the numbers things progressed. You know continue we got better from from April to May to June and we're seeing even better in July you know our our clinical projects are on track. Our R&D projects are on track, we've got our live into marker leases for the three geotech products, we've got Nexus coming back online.
We've got the Neo pets, which has brought up we've got product today, we've got the Proact mitral and frankly, when you look at our Ah you know our financial performance and the discipline. We've had around spending up you know we are not really anticipating needing to burn much cash all in the second half a so we're in a very strong liquidity.
Vision and you know well just continue to none of us can predict what's gonna happened with the virus, but we know that our portfolio was it was resilient and we will be financially disciplined when would you to be a and we will accelerate opportunities when we see that the business is returning so we appreciate your interest in a company and look forward to catching up with you on the next call backs.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.