Q3 2020 CryoLife Inc Earnings Call
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Greetings and welcome to the Cryolifes third quarter 2020 financial conference call.
At this time all participants.
Hey, listen only mode.
Question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host I will now turn this call over to Mr. one Louis.
Glenn Martin 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 Ashley Lee CFO before we begin I'd like to make the following statements to comply with the safe Harbor requirements of the private Securities Litigation Reform Act of 1995 comments made on this call that look forward in time involve risks and uncertainties in our forward looking statements then.
The private Securities Litigation Reform Act of 1995.
Forward looking statements include statements made as to the Companys or managements intentions hopes beliefs expectations or predictions of the future. These forward looking statements are subject to a number of risks uncertainties estimates and assumptions that may cause actual results to differ materially from those forward looking statements additional information concerning certain risks and uncertainties that may impact. These.
Forward looking statements is contained from time to time in the company's SEC filings and in the press release issued earlier today with that I'll turn the call over to Cryolifes CEO Pat Mackin.
Oh, Thanks Lynn.
Okay, everyone. Thanks for joining us I'm pleased to report that we had a solid third quarter as trends continue to improve fees per se current crisis.
We attribute our recovery to the critical indication.
So drunk.
Hey, our team's efforts have been extraordinary over these past two quarters.
They approved they can supply devices and support procedures, both in person and virtually.
They could also employ creative solutions to ensure continued customer service in patient care.
I have no doubt that there are incredible dedication and resolve to help save many patients lives throughout this pandemic.
I want to sincerely, thank our entire organization for their outstanding performance during these challenging times.
Today I'll provide some color on our Q3 performance as well as our expectations for the remainder of 2020 then.
And actually our CFO will review the third quarter financial results liquidity in greater detail.
I will then make closing remarks and open up the called your questions.
As I will explain later in more detail through the third quarter, we advanced on a number of our key initiatives and delivered solid results.
Our third quarter revenue performance was driven by the fact that the vast majority of our products are used the procedures that cannot be postponed at all.
They cannot be delayed for very long.
In Q3, we achieved revenues of $65.1 million, which reflects a decrease of 4% versus third quarter 2019, both a GAAP in constant currency basis.
If you exclude TMR revenues for the third quarters of 2019, and 2020 total revenues decreased 2% on a constant currency basis.
As we saw in the second quarter of this year throughout the third quarter, we saw improving procedure volumes in fact revenues in September increased over end of September 2020 increase over September 2019.
These trends corroborate our belief that hospitals and providers have become increasingly adept at managing procedural continuity during the cooking nights he pandemic.
As we look to Q4 revenue performance, we were optimistic that we could return to growth versus 2019.
In fact on October 2020, <unk> 20 revenue performance was a strong 99% of October 2019.
Unfortunately, this pandemic is a fluid situation in in the past two weeks, we have seen spikes in infection rates improve U.S. in Europe.
Recently, we have seen locked out on that aren't going to need today, most other countries in Europe.
As a result, we are less optimistic that we'll see the return to growth in Q4.
But we do anticipate that we will begin to benefit from recently launched or soon to be launched next generation electric products.
Hey, Mds and Nexus in our continued expansion into Asia Pacific and Latin America.
As well as positive news on the regulatory front that should benefit the benefit us beginning in 2021.
We are particularly optimistic on the outlook for MBS. So this is the world's first Archie modeling hybrid device used for the treatment of acute type they irritate sections.
Oh, that's a result of our acquisition of Cyrusone medical back in September.
Yeah acquisition of Mds aligned exceptionally well with our vision to provide the most technologically advanced simple and elegant solutions for patients with aortic disease.
As we start discussed in our call immediately following the Sars acquisition.
Aimed yes has the potential to reduce complications as well as three operations associated with the Q type they weren't dissections, which should improve patient care and reduce hospital costs.
We believe the hemi ours repair with the A.M.D.S. technology at it has the potential to become new standard of care for the treatment of acute type it irritates sections.
So far we're off to a great start we posted revenues of approximately $465000 for the month of October which was a 295% increase over October of 2019.
Regarding our operations Fortunately nothing has changed since our last update.
As we've continued to run at or near capacity across our three manufacturing facilities with few if any disruptions continue to avoid any significant supply chain disruptions.
At each of our sites the work from home and safety protocols, we implemented earlier this year and in place and we believe that's been very effective in minimizing the impact of COVID-19 on our workforce.
As mentioned previously the slowdown in procedures in the past few months has allowed us to continue to improve our <unk> position.
We also remain on track to have a second source on supplier by the end of the year, assuming considering the worsening pandemic conditions in Europe don't allow preclude our notified body for coming in and conducting their inspection.
As we look ahead, we remain in a position of strength by continuing to mitigate operational risk diligently managing our expenses and strategically investing for growth now and when the pandemic subsides.
In fact, we've been able to make significant progress on several strategic initiatives in R&D projects.
First.
We made continued progress on our Geo Tech product launches are limited market release for the view to open neo inside are progressing very well.
Today, we received very positive customer feedback on those technologies.
We also remain on track to initiate a limited market release for any of this quarter and have already resumed their limited launch of Nexus.
We continue to anticipate full market release for all three new products.
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As mentioned on our last earnings call. Our team continued to gear up to train physicians as well as bill supply to support the full market launch isn't doing these three new York type products.
Second with the improvement seen in late Q2, yet seen in Q2 and Q3, we've ramped up our enrollment efforts in a proactive way trial, which is a prospective randomized clinical trial to determine if patients with the onyx aortic valve can be maintained safely and effectively on eliquis versus orphan.
We currently have 34 sites fully qualified to begin enrollment in 54 patients already participating in the study and feedback from surgeons and patients has been very enthusiastic.
Enrollment to date represents solid progress towards our approximately 1000 patient enrollment enrollment target across 60, North American sites that we expect to roll over the next year.
As a result of our progress to spark despite pandemic headwinds and assuming the trial meet its endpoints. We believe we can still achieve after the approval for the use of L. of course with the Onyx aortic valve in 2024.
We believe will contribute to the Onyx, Eric valve, becoming the market share leader in mechanical valves segment as well as taking share from existing bioprosthetic valves.
On the regulatory front, we remain on track to file our Pmeight for Perclot in the U.S. yeah.
And also a a response to the Chinese have to eat for Bioglue before year end.
And finally understand received ft approval to begin their U.S. clinical trial for Nexus anticipates enrolling the first patient later this quarter.
With that I will now turn the call over to actually for a detailed review of our financials in the quarter Ashley.
Thanks, Pat and good afternoon, everyone. A total company revenues were $65.1 million for the third quarter down 4% compared to the third quarter of 2019.
Due primarily to the impact on our business from COVID-19, and the absence of TMR revenues.
Excluding TMR revenues third quarter revenues were down only 2% compared to the third quarter of 2019.
In the third quarter of 2020 versus third quarter of 2019, Bioglue revenues increased 1%.
Tissue processing revenues decreased 2%.
Onyx revenues decreased 4%.
And your tech revenues, including that's just an A.M.D.S. decreased 3%.
Performance in each of these products lines was adversely affected primarily due to the Coca 19 pandemic.
But as expected we saw improved sequential revenue performance for each product line in the third quarter compared to the second quarter.
On a regional basis third quarter 2020 revenues in EMEA decreased 1% north.
North America decreased 4%.
Asia Pacific was flat.
In Latin America decreased 36%, all compared to the third quarter of 2019.
Our performance in Latin America during the quarter, primarily reflects the state of the pandemic in Latin America during Q3, and especially in Brazil, where the majority of our revenues in Latin America are generated.
Our gross margins were 66% for the third quarter compared to 67% for the third quarter of 2019.
Reflecting an actual decrease of approximately 50 basis points year over year.
The slight decrease in gross margins is primarily due to revenue guidance.
Interest net interest expense of 4.9 million includes approximately $2.3 million of expense related to our term loan b.
1.1 million related to our convertible debt.
Approximately 1.4 million and non cash interest expense and amortization of debt origination cost.
Other expense includes $4.9 million related to milestone payments made in the span for their recent I'd you approval.
Partially offset by $2.1 million in realized and unrealized foreign currency translation gains.
The impact of the milestone payment to understand is included in our business development expenses for the quarter for non-GAAP calculations.
On the bottom line, we reported a net loss of approximately $2.9 million or eight cents per fully diluted share in the third quarter of 2020.
Excluding business development expenses and $6 million.
Amortization of 3.4 million.
And noncash interest expense of 1.4 million non-GAAP net income was $4.9 million or 13 cents per share.
Note that we have excluded non cash interest expense of $1.4 million in the determination of the third quarter of 2000, Twentys non-GAAP income calculations with.
With the completion of our convertible debt financing in late Q2, we are now including noncash interest expense as an add back in the determination of non-GAAP earnings for all periods presented including prior years.
As of September 32020, we had approximately $300 million in debt.
Adjusted EBITDA for the third quarter of 2020 was $12.2 million compared to $13 million for the third quarter of 2019.
As of October 31st 2020.
We had approximately $61 million in cash and cash equivalents as well as the full $30 million available under our revolving credit facility.
Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results.
So in summary, the third quarter demonstrated the effectiveness of our strategy.
Uh huh.
Okay.
Sorry.
You there.
Due to the continued uncertainties, resulting from the impact of Coke and my team will not be reinstating 2020 financial guidance at this time.
However, with the recovery, we have seen in the business and prudent expense management.
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 service our debt.
I will now turn the call back over to Petros closing comments.
Thanks, Ashley so in closing as you've heard this afternoon, despite having to manage through a global pandemic. Our business is performing well I look forward to the days when we can operate in a more normalized environment you know the true potential of the company can be realized crude.
Cryolife is prime for growth over the next few years like never before our addressable market opportunity in 2015 was approximately $600 million.
And just five years and four transformative transactions later, we've increased our total addressable market tenfold to over $6 billion.
Our product line up is now filled with innovative highly differentiated products that are either in development or in many cases, just starting to realize their potential.
As a result of these opportunities we have for we have growth for years to come and these are truly exciting times at Cryolife.
We couldn't be more pleased with the Onyx Eotech Nexus and now Mds.
We are fortunate to have these four outstanding products, which when combined with our legacy products form a highly competitive lineup, particularly given our highly experienced and talented sales and service organization and our ability to go direct in key markets around the world.
And as Ashley said quite light for us on a sound financial structure, which allows us to continue to execute our goals and objectives.
So in summary.
Third quarter was a third quarter demonstrated that the effectiveness of our strategy to focus on the air to air and the nature of our product portfolio.
Barring any adverse impacts from the resurgence of COVID-19 in our key markets. We are confident about our prospects for success through the remainder of the year and beyond with that we'd like to open up the call to questions. Operator. Please proceed.
At this time, we'll be conducting a question and answer session. If you would.
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One moment, while we poll for questions.
Our first question comes from the line of Serasa Kalia with Oppenheimer. You May proceed with your question.
Hey, Pat Ashley Congrats on a great quarter.
Thank you thanks very much so Pat forgive me just hopping in between between calls so you might have mentioned this.
What the supply issues that Eotech resort in the quarter, you know that the numbers look pretty good but I just wanted to make sure I didn't miss that.
Yes, so two things you know the kind of a silver lining in it at a difficult time with this pandemic is as the supply you know where the demand for the products kind of waned for all products and you know Q2, and we've come back very strong going into Q3.
We took the opportunity to run our factories that at full tilt. So we've increased our eotech supply significantly and.
And we didn't really stop there we've got our second source supplier as I mentioned in the comments.
That we should be getting our inspection from our notified body this quarter and again covert <unk> covered could kinda slow that down if they can't get an inspector into that country, but you know between the inventory build we made into your tech product line during the pandemic. When the demand was you know slow down where it is.
Pretty strong inventory position.
And would the second source sewing supplier coming online I think we're going to be very well poised for a 2021.
From an inventory standpoint.
Got it but specifically in terms of Onyx in the U.S. walk us through center utilization metrics as you see them progressing.
And in Europe, specifically can it can you walk us through the cross selling that you had witnessed you know if you normalize for coated between Onyx and Eotech.
[noise] yeah. So the first question you know if I look on a global basis, you know basically the onyx portfolio is let's flip to the prior year.
[laughter] yeah.
Yeah.
That showed growth in some areas and slowdowns in other it's just mostly pandemic driven so you know onyx has been it's been very resilient and that it's it's basically performing where it was last year. So.
Yeah. The other comment I made is that we are starting to ramp up proact today and Theres a lot of excitement. So weve now got you know 30 plus centers towards the goal of getting to 60 centers and we've got like 54 patients already enrolled in the trial. So.
We think it's actually doable to enroll that trial in 2021 and that I think that added excitement is going to show up in you know just the you know customers interest in that product from a future standpoint.
As far as the cross selling I mean, it's one of the things had been reiterating you know from the very beginning when we started this journey.
Of acquiring these four companies over the last five years.
Joe Tech, it's gotta aortic stent graft portfolio that goes from basically the aortic valves all the way down to the iliac Onyx has any order valve mitral valve as well as a a device. It treats the sending a Andrew you know ace ace any arch Nexus it treats the aortic arch square the catheter a cyrus treats the aortic arch for now.
Q type its actions you.
Literally we're going to have we're gonna have three U.S. I'd you trials or in the next 12 to 18 months, we're going to be running a and to spend just just started they should enroll their first patient. This quarter Proact today is already enrolling. This time next year, we should be able to start the up the A.M.D.S. the Cyrus U.S. trial.
For Q Takeda sections.
Then will follow closely behind that with our of you to open neo frozen elephant trunk device. So you know our customers are very interested in these cutting edge technologies and or as a result, we're in front of them a lot more and you know Europe has the great thing about Europe is they've got that entire portfolio available to their customers today.
So the cross selling opportunities between.
Next in Mds and a view to open Neo and then if you flip to the vascular side, the endo span and the inside it's just really you've got cutting edge technologies that are for once and it does nothing but provide.
Tremendous cross selling opportunities for the company.
Got it and Pat in terms of Proact My true remind me when we could see some data and at the same time would that be any subgroup analysis based on risk stratification. Thank you for taking my questions and congrats on a great quarter.
Okay, Yes, the central you talked about.
I should be finished enrollment that trial last year. So you know it's about a 400 patient clinical trial, that's going to be it's a it's the kind of you know sister trial to proactively order, where we reduced the amount of blood thinner for the mitral position.
We've been in follow up all year with one of your follow up to the EPS <unk> trial.
So once once we hit the follow up should be I think early in Q1 to Q1, we will you know pull that data together and we should be submitting that P. M. A in second quarter to the FDA.
As far as the subset your question about subset analysis that trial is powered to just you know can you reduce the eye in AR from <unk> to.
Two five to three <unk>, which is the standard of care from Nashville to two to five and.
And it you're not going to be a lot I don't believe we're going to be able to do any subsets of any statistical powering up so it's a it's a kind of non inferiority complex designed our trial design like we had with the proactive work.
So we shouldn't be submitting that in the next thing you'll hear from US is you know the submission to that P.M.A. and I think we're still looking at when we want to have that data presented we obviously, we'd like to have a you know a a conference with people in the room versus a webex. So you know what we'll see what the timing of that looks like and how that lines up with when the data will be ready, but we should.
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Daddy ready that data ready to submit to the FDA by the second quarter of 2021.
Thank you.
Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. You May proceed with your question.
Hi, Pat actually how are you.
Good yeah.
Congrats on the you weren't award.
<unk>. Thank you.
No problem Ashley first for you or can you just run through the international segments again, I missed those specific numbers.
From the corridor from yeah.
So let me get Specked out here, just the happy to do that.
Yes, so on a regional basis EMEA decreased 1% year over year, North America decreased 4% year over year Asia Pacific was flat.
In Latin America decreased 36% a year over year.
Okay, Thanks for that color and I'm sure.
Sorry to jump around here I'm, a little bit further color Pat on the the protein neutral as far as the implants to date or most of them are recent surgical implants or implants over the past weeks months quarters.
Yeah, I don't have the breakdown on I don't obviously see the the the day to day data on that so I'm not exactly sure I would I would say that the that the trial design as Weve talked about is is very unique in that you have to be 90 days out of surgery, which was which is consistent with what we did in the original Pro Act.
Aortic trial, because you want to be on your full dose of coming in while the valves get set it up.
So the patient has to be 90 days out of surgery and they can go out to I think three or four years post.
Post surgery, so I don't have any any visibility to how long I mean, it's only 54 patients in the trial right now so I don't really have any visibility into you know are these like early post surgery are these people have developed for three years I don't have that data.
Okay got it we had a small amount of revenue for Mds for third quarter.
Think about a $100000 was which is your for the quarter and their commercialization started you'd made a reference to oh, so much over numbers.
Yes, so I mean that that was actually a you know a real highlight of the quarter. So we acquired the company in the in the Middle of September We started shipping devices kind of the next day our October revenue for this year was up.
295% over last year, So we did almost a half a million dollars $465000 in the quarter.
In the month of October.
Okay got it that's for sure.
It's a strong start and anything to call it and on the the euro truck or portfolios for a strain through affinity a specific devices and could you talk specifically about any territory as it stood out either stronger or weaker and did your please.
Yes, so sue the we've talked all year about these these new devices and we've we've conducted the you know we always start with a kind of a limited market release, where we get you know a number of centers to two trial device and get the training protocol worked out a et cetera.
And you know we were very very strong feedback overall, if you'd open neo which is the frozen elephant trunk device, which you know we we actually created that market UTEC created a market you know 10 years ago and one of the competitors in the field to come out with a newer device. So we lost a little bit of share. There you know, we're actually doing extremely well.
The feet I talked to root care wells in Europe who've user device and it were going to you know kind of rave reviews, but it's got a new delivery system. It's got a bunch of new features so.
So I think that the device is gonna do extremely well.
So started doing cases and Asia.
And we're actually having you actually had a proctor from from Germany on on a webex.
Teaching the surgeon or you know as a teaching but assisting the surgeon remotely which is something you have to do and he's got a cold at times [laughter].
I think the you know the same on the inside which is our our off the shelf brasileiro called dollar wise, we've gotten you don't Fabulous feedback in Europe from the centers that have use if the challenges you know.
These cities intervention Lockdowns. It's you know people are letting you travel from country to country you in some cases you can't go from some time one town to another town you know that they're not let reps into the hospitals. So it's just you know, it's just kind of putting up a governor on the on the ability to launch with all these kinda flare ups here and.
There. So we're very excited about what we've seen from the initial you know what I'm talking about talking one or two cases I'm talking like 50 cases, the customer feedback has been you know a kind of off the charts from a positive standpoint. So you know we've got to supply we've got the channel and we're looking for.
To kind of when things kind of ease up a little bit and you know the business is actually performing well.
As I said in the script you know total was 100% of last year. So we're basically back to where we were last year.
Got it that's great and along those lines I know, it's hard to look into the crystal ball for the balance of the year, but what have you been seeing the last four weeks or so in North America are you seeing flare ups and if so specific to geography, and how's that affecting a division says your head into and.
Through the yes, so we're still extremely yeah. So.
So one of the things that you know everybody is experiencing right. This is a very dynamic fluid situation.
In fact, you know coming into the fourth quarter I mean, we had a we had a super strong September we actually grew in September.
We we were flat to last year in October.
And we with the product lineup that we have between what we've already talked about Weve got deal. We've got Ensight. We've got excess we've got Mds, we got off and we expected to actually returned to growth in the fourth quarter and literally it's like the you know the tectonic plates are moving under your feet. We had you know these forecasts have returned to growth in the fourth.
Sure and then all of a sudden two weeks ago. You start you know Ireland shuts down you know five days ago UK locks down.
Then we start hearing noise about it's more in Europe, just I would say that's the other thing about our company versus a lot of companies our size, we've got a big business in Europe, and a lot of our growth has come about Europe and.
They tend to be more stringent in their locked down so I think the U.S. has actually done.
A great job in the you know the hospital administrators that I've talked to you know hospital Ceos, they've they figured out how to manage you know coded and elective cases, so I think the u. I have not seen as big an impact in the U.S.
We've seen a bigger impact in Europe, but I think the one thing I can reassure our investors about is we know how to manage the business. During a pandemic you know in the worst the worst month of this thing back in April you know, we did 62% of the prior year.
And we cut our expenses and we are able to we were able to put up a very strong quarter. You know if if this thing rages again, we will we will adapt our expenses to line up with the revenues. So I have no I have no challenges running this thing in <unk> during a pent up we know how to do it.
I will tell you that we're seeing you know a lot of positive feedback I can't give you guys. All controlled virus. So it isn't clear up in Europe and look at them in as the best we can circle.
Circumstances.
Got it and then lastly for me a just a question on bug return or you said you're expecting your response by the end of this year I imagine it's calendar end of year and well what would you expect to what are the permutations first what the response would be we'll be looking for more information or any further data that.
These are already will be seeking or would that be something out into an approval there.
Yeah. Its you know so first of all the this this pandemic has not helped at all or.
Bioglue, China I mean, a lot of these meetings are opposed supposed to be face to face.
None of them rather than face to face all the all the way back to our panel back in March.
So the.
The thing is clearly dragged on longer than it would have normally as we could have met face to face we are going through kind of a you know a real time review process. If you will we've got some missions going in I think this week.
To answer some of their questions. So it's kind of a back and forth right you submit they get the feedback you submit that feedback our our assumption is that we should have an approval in the second half of 2021, that's our current assumption right now but it.
It could be earlier than that it could be you know Q2, it could be Q3 could be before I, just it's very hard to predict.
You know in a pandemic working with the regulatory body.
How long this is really going to take so again, we're working hard and you know, we'll see we'll give updates as we as we get more information.
Got it okay, great quarter, thanks for the questions.
Mr. Mackey there are no further questions at this time.
I would like to turn okay great.
For closing remarks.
Yeah, and I'll be I'll be brief so thank you for joining the call and obviously the you know we're actually excited about how we performed in the quarter and we're watching this kind of resurgence, but I will say that you know as we were getting ready to go into 21, you couldn't be more excited about the opportunities in front of US you know, we've got kind of four buckets.
Of opportunities in 2021, and I'm skipping 2020, as a comp you're I'm using 2019 is the copier.
You know, we've got new products, we launch we've talked about.
To open new Yeah, we've talked about and side, we've got that we're going to start our limited market at least for any of this quarter. So those are three new products.
I would try and Bioglue, China in the second half of next year.
[laughter].
<unk> site.
We had the acquisition of other Cyrus we have Nexus. We've also got our distribution agreement with my thoughts on our on our Neo cuts device Uh huh.
We've also got the continued kind of growth, we're expecting from Asia Pacific and Latin America. So we've got like nine different vectors.
In 21 that we didn't have in 2019. So we are expecting to accelerate our growth profile and you know look forward I mean, a well managed to the pandemic, but I think as we come out the other side of this we're going to be very well positioned for a for accelerating our top line growth. So thanks again for participating in the call.
Good night.
Yes.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
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