Q4 2020 CryoLife Inc Earnings Call
Greetings and welcome to the Cryolife fourth quarter and year end 2020 financial conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference.
Please press star zero on your telephone keypad.
Reminder, this conference is being recorded.
It is now my pleasure to introduce your host I will now turn the call over to Lynn Lewis from Gilmartin group. Thank you Ms. Lewis you may begin.
Thank you.
And thank you for joining the call today, joining me today from Cryolife management team are Pat Mackin, CEO and Ashley Lee CFO before we begin I'd like to make the following statements to comply with the Safe Harbor requirement from the private Securities Litigation Reform Act of 95.
It's made on this call that look forward in time involve risks and uncertainties and are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements include statements made as to the companys or managements attention 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 that was issued earlier today with that I'll turn the call over to Cryolife CEO Pat Mackin.
Thanks, Lynn and good afternoon, everyone. Thanks for joining.
So despite the continued impact of COVID-19, our business was very resilient given the nature of our products will continue to launch innovative products and invest in our business, including R&D clinical trials and manufacturing site expansions.
As we look to 2021, we expect the full commercial potential of our products will start to become more fully realized especially in the second half of 2021, when we hope to we hope to see a return to normalcy first in the U S. And then followed by Europe later in the year.
Today I will touch upon the highlights of our Q4 2020 performance and our initial expectations for 2021 as well as provide updates on several strategic initiatives.
Ashley reviews, the fourth quarter and full year financial results.
As well as providing further details on our 2021 outlook I will then make closing remarks and open the call to your questions.
As we discussed on our last call. We ended the fourth quarter of 2020 with optimism as we generated year over year over year revenue growth in September and October as COVID-19 related headwinds appeared to have lessened.
However, since November the pandemic worsened across geographies around the world lowering procedural volumes again in slowing our return to growth.
Fortunately the impact of this resurgence on our business was lessened because most of our products are used in critical procedures that cannot be postponed postponed for long or at all as well as hospitals and providers have become increasingly adept at managing procedural continuity throughout the pandemic.
So despite this returning these returning headwinds we had solid performance in the fourth quarter it.
It now appears on infection rates are once again declining from the 2020 year end spike.
This coupled with the acceleration in vaccination cause us to believe that we should see procedure volumes normalize mid year and returned to growth in the second half of 2021.
Both relative to 2019 and 2020.
Cryolife like many other companies, which put to the test last year, but as I said before we continue to advance our R&D initiatives and investments and maintain production at or near capacity.
In addition, our field teams supported procedures, both in person and virtually.
Our team was particularly adapter deploying creative solutions to ensure continued customer service and patient care and we thank our entire organization for their outstanding performance. During these challenging times.
Turning to our fourth quarter 2020 results in Q4, we achieved total revenues of $67 $9 million, which reflected a decrease of 3% versus the fourth quarter of 2019 on a GAAP basis, and a decrease of 5% on a pro forma constant currency basis. When you exclude TMR revenues the fourth quarter 2022.
Thousand 19, total revenues decreased 3% on a pro forma constant currency basis.
Finally, we returned to growth in October procedure volumes in November and December declined year over year on revenues in December decreased 6% compared to December of 2019.
Still we do continue to see procedures volume being impacted by the most recent spiking cases, although COVID-19 has been unpredictable, we anticipate that the COVID-19.
The impact of COVID-19 on a year over year revenue performance in the first quarter of 2021 will be similar to what we saw on the fourth quarter of 2020.
We also expect to experience a temporary shortage of tissues in Q1 that actually will expand on later.
Taking these factors into account, we expect revenues to be down between five and 8% in Q1 compared to Q1 of last year.
But we remain optimistic on the prospect of returned to growth in the back half of 2021.
We do however, anticipate significant growth in the second quarter of 'twenty, one relative to the second quarter of 'twenty the quarter in 2020, which we initially saw the significant impact from COVID-19 on our business.
Growth in 'twenty and 'twenty, one will be fueled by predominantly our recently launched next generation New Tech products a M D S and Nexus as well as our continued expansion into Asia Pacific and Latin America as.
As well as positive news on the regulatory front.
Due to the uncertainty of exactly when normalization of growth rates and acceleration will occur we will not be issuing guidance for the full year of 2021.
Looking specifically at the outlook for AMD as the world's first our true modeling hybrid device for use in the treatment of acute type a dissections we remain encouraged.
During the fourth quarter, we posted revenues of $1 $1 million compared to $580000 on the fourth quarter of <unk> 19, an increase of 91% on a constant currency basis.
Regarding Nexus our launch is still being impacted by COVID-19, and the Lockdowns and travel restrictions currently in effect in Europe, but.
But we are beginning to see more cases scheduled for the near future and remain optimistic regarding our prospects for this disruptive technology.
We also continue to get very positive feedback from our surgeons on the on X aortic valve, we saw 32% growth in the fourth quarter versus the prior year, even in the face of COVID-19 resurgent headwinds.
As a reminder, the onyx aortic valve is the only FDA approved mechanical aortic valve that can run at a lower INR one five to two.
Whereas all other mechanical heart valves from our competitors must run at on INR two to three.
More specifically the proactive trial demonstrated a reduction in our in our INR levels had a dramatic 63% reduction in bleeding compared to the standard of INR levels with no increased risk of thromboembolic events.
Turning to an update on operations, we have more good news to report as indicated we've been able to run at or near capacity across our three manufacturing facilities with few if any disruptions in our supply chain has remained intact.
In addition, our second source sewing supplier was recently approved by the European notified body and is currently supplying product to us.
We're also very pleased with our progress with the enrollment of the proactive on a trial, which is a prospective randomized clinical trial to determine if patients are on the on X aortic valves can be maintained safely and effectively on <unk> versus warfarin.
We currently have 42 sites fully qualified to begin enrollment 30 sites are actively enrolling and we have over 150 patients currently participating in the study.
Feedback from surgeons and patients participating in the trial has been very enthusiastic.
On the regulatory front, we were and if positive we were in a position to file our per clock PMA with the FDA now, but are strategically delayed filing to evaluate commercial options for this technology.
I understand recently enrolled its first patient in the primary arm and two patients in the secondary arm of its U S clinical trial for Nexus.
I'd now like to highlight some of our key operational goals and activities for 2021.
First we will continue to move forward with the rollout of our next generation <unk> products.
We have received good feedback from our physicians on inside and Vito open Neo during the limited market release in 2020 and both those products are now on full market release.
The rollout of these technologies is still currently being hampered by the impact of the pandemic.
But we do not expect procedure volumes to improve during 'twenty, one, but we do expect procedure volumes to improve during 2021 is the vaccine rollout gains momentum in Europe.
Regarding and Yeah, we received some customer feedback during our limited market release on it.
And are incorporating that feedback prior to continuing to do a limited market release in mid 'twenty one.
By a full market release later in the year.
In addition, these full market launches will be backed by improved Yo tech inventory, resulting from our own internal efforts the business slowdown associated with the COVID-19, pandemic and our second source manufacturing supplier.
As I mentioned on our last earnings call. Our teams are also gearing up to train more and more physicians to support these launches.
Second we expect to make significant progress through 2021 on enrollment in our proactive on a trial.
By year end, we expect to have all 60 sites qualified and at least 50% of the trial enrolled.
Despite pandemic headwinds and assuming these trials meet its endpoints. We believe we can still achieve FDA approval by late 'twenty for early 'twenty five.
If we successfully obtained such approval, we believe the onyx aortic valve should become the market share leader in aortic valve market in patients under the age of 65.
For those of you who missed the proactive on a webcast on December 7th I encourage you to watch it Dr. John Alexander the co chair of the proactive trial did an excellent job, providing a comprehensive overview of key aspects of the trial as well as entering investors' questions. You can find it archived on our website.
Our third key initiative in 2021 is to file the per clock PMA with the FDA during the third quarter. We are currently ready to submit the per club PMA application for open surgery in small scale manufacturing however to be attractive to potential commercial partners. We believe we also need laparoscopic laparoscopic indication in large.
Factoring capabilities.
As a result, we've changed the timing of the PMA submission to include these additional factors in the submission, which we now currently plan to submit in Q3.
Fourth we expect to file our PMA in mid 'twenty 'twenty, one for regulatory approval for our low INR label for the on X mitral valve.
This is similar to the way we have on our on X aortic golf.
It's a new labels approved patients would be on X mitral valve could be maintained on a lower dose of cumin and compared to patients implanted with other mechanical valves.
We believe such an approval for our mitral valve will enable us to take significant market share on the mechanical mitral valve market similar to what we've seen with our on X aortic valve.
Fifth regarding the approval for <unk> in China. We recently received additional questions from the Chinese FDA regarding bio glue. We're currently evaluating what impact. These questions may have on our approval time line and look forward to providing you with an update on expected timing late here later in the year.
And lastly, we expect to complete in mid 2021, all the testing necessary to file our I D for the a M D S and to see and receive IDE approval to begin our clinical trial by year end, putting us in a position to receive PMA approval by 2024.
Throughout 2021, we also continue to work to mitigate operational risk manage expenses and strategically invest for growth.
Overall, we believe we are in a better position to deliver accelerated revenue growth once the pandemic subsides.
Before I turn it over to actually I have one more piece of good news to report we received word from the FDA that is approved our suppliers' manufacturing site change, we're now clear to resume the sale of our TMR hand pieces.
We were the process of working with our supplier to resume production and anticipate that we will have a gradual ramp up of TMR beginning in the second quarter.
We will have more commentary on our ramp up in future quarters, but we don't anticipate relaunching. Our TMR on two until Q2 of this year with that I'll now turn the call over to Ashley.
Thanks, Pat and good afternoon, everyone.
On a company revenues were $67 $9 million from the fourth quarter down 3% compared to Q4 2019, due primarily to the impact on our business from COVID-19, the absence of TMR revenues as well as a temporary shortage of certain tissues that I will discuss in more detail shortly.
For the full year revenues were $253 $2 million down 8% compared to the full year of 2019, due primarily to the impact on our business from COVID-19.
On a year over year basis in the fourth quarter of 2020, you'll took revenues increased 3% on X revenues increased 2% bio glue revenues decreased 4% and tissue processing revenues decreased 11%.
For the full year compared to 2019, you took revenues decreased 9% on X revenues decreased 4% bio glue revenues decreased 10% in tissue processing revenues decreased 6%.
Performance in each of these product lines was adversely affected primarily by the COVID-19 pandemic.
On a regional basis fourth quarter revenues in 2020 in EMEA increased 2%.
America decreased 4%.
Asia Pacific decreased 7% and Latin America decreased 10%, all compared to the fourth quarter of 2019.
Compared to full year 2019 revenues full year 2020 revenues in EMEA decreased 9% North America decreased 8% Asia Pacific decreased 2%.
And Latin America decreased 23%.
Our gross margins were 66% for the fourth quarter compared to 67% for the fourth quarter of 2019.
For the full years of 2020 in 2019 gross margins were 66%.
Fourth quarter and full year gross margins include a charge of approximately $800000 related to the certain inventory tissue inventory then I'll provide more detail on later in my remarks.
G&A expenses in the fourth quarter were $36 $1 million compared to $37 $6 million in the fourth quarter of 2019.
G&A expenses for the full year of 2020 were $141 $1 million compared to $143 million in 2019.
The fourth quarter and full year of 2020 includes business development charges of $4 $8 million, primarily related to a fair value adjustment to contingent consideration for the acquisition on the Cyrus.
Partially offset by a pre tax benefit of $1 $2 million due to a change in our corporate PTO policy.
On a pre tax benefit of $3 million, resulting from the reversal of performance based stock compensation because financial targets were not met during 2020.
Fourth quarter interest expense of $4 $7 million includes approximately $2 3 million of expense related to our term loan b.
$1 1 million related to our convertible debt and approximately $1 4 million in non cash interest expense and amortization of debt origination cost.
Full year 2020 interest expense of $16 7 million includes approximately $10 3 million of expense related to our term loan b $2 2 million related to our convertible debt and approximately $4 2 million in noncash interest expense and amortization of debt origination cost.
In the fourth quarter of 2020 other income includes $2 $7 million in realized and unrealized foreign currency translation gains.
In the full year of 2020 other expense of $3 1 billion includes $4 $9 million in fair value adjustments related to induce fan, partially offset by $1 $9 million in realized and unrealized foreign currency translation gains.
Tax expense for the fourth quarter and full year of 2020 reflects valuation allowances on deferred tax assets.
On the bottom line, we reported GAAP net loss of approximately $3 5 million or <unk> per fully diluted share in the fourth quarter of 2020.
Non-GAAP net income was $7 $9 million or <unk> 20 per share in the fourth quarter.
In the full year of 2020, we reported GAAP net loss of approximately $16 $7 million or <unk> 44 per fully diluted share.
Non-GAAP net income was $9 $7 million or 25 cents per share for the full year.
Reconciliations of GAAP to non-GAAP income and EPS are included in the press release that we issued this afternoon.
As of December 31, 2020, we had approximately $320 million in debt.
Adjusted EBITDA for the fourth quarter of 2020 was $12 1 million compared to $11 4 million for the fourth quarter of 2019.
As of February 5th 2020, we had approximately $61 $4 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 non-GAAP results, including a reconciliation of these results to our GAAP results.
And now for our outlook on 2021, as Pat mentioned earlier due to the continued uncertainties, resulting from the Covid the impact of COVID-19, we will not be issuing full year 2021 financial guidance at this time.
We do believe that COVID-19 will adversely impact Q1, and likely Q2 performance and potentially later quarters with that said our expectation is that Q1 revenues compared to Q1 of 2020 will decreased five 8% compared to the first quarter of 2020 due to the impact from COVID-19.
And a temporary shortfall in availability of tissues unrelated to COVID-19, we.
We do expect to see double digit top line growth in Q2 of this year compared to Q2 of last year, the 2020 quarter most affected by Covid.
We then expect to see a return to growth in Q3 domestically in Q4 internationally, if COVID-19 trends continued to improve.
We are confident that once COVID-19 headwinds subside, we are poised to realize the true commercial potential of our products, especially those recently launched.
Regarding tissue availability during the fourth quarter, we discovered that a supplier ship does a lot of saline solution that we use on our tissue processing that contained contamination in a small number of bottles of the solution line.
The contamination was identified by our in house quality controls.
The contaminated solution is currently estimated to have impacted a small percentage of the tissue processed with the solution line.
Causing us to write off those tissues in the fourth quarter and an approximate amount of $800000.
We are conducting further review to determine if remaining tissue processed with this lot of solution can be released for distribution. We currently believe this review will likely take until mid year. As a result, our tissue processing revenues may be adversely affected in the first quarter.
If we cannot release this tissue, we may take an additional charge of approximately $5 million.
If we can releases tissue, then we likely will have a tailwind for our tissue processing business after release.
In the interim we have temporarily increased our tissue procurement activities to meet the demand for these critical tissues and mitigate the impact on our business in Q1 and beyond.
There are a couple of other items to note regarding contingent consideration in 2021.
Accounting regulations require contingent consideration to be recorded at fair value and periodically reassessed.
Changes in fair value can be generated by the passage of time assumptions made regarding the factors driving the contingent payments and.
In discount rates used to present value the obligations.
In 2021, as we evaluate and fair value of contingent consideration related to our acquisition of us Iris into our transaction within this fan we anticipate that there will be periodic charges force iris that will flow through SG&A expense and to a lesser extent charges for Indo span that will flow.
Through other expense these noncash expenses associated with their fair value accounting related to contingent milestone obligations will be classified as business development expenses for non-GAAP earnings calculations.
Upon the Endo spans achievement of 50% enrollment of the primary arm in their U S. Clinical trial for Nexus, we will make our third and final 5 million dollar installment under our loan agreement, which may occur late this year.
We expect to reported approximately $4 $5 million of this payment and other expense.
This milestone and related payment could occur late in the second half of 'twenty to 'twenty one.
Second when we received <unk> approval to begin a U S clinical trial for the Mds, we will make a $20 million payment to the former shareholders of a cyrus consisting of $10 million in stock and $10 million in cash the a M. D. S. IDE approval could occur late in 2021.
Yeah.
We also early adopted ASC 2020 Dash Oh, six on January one 2021, which simplifies the accounting for convertible debt instruments.
The net impact on our balance sheet is that we will gross up our convertible debt to its notional value of $100 million.
By reclassifying, approximately $17 million from additional paid in capital.
And $4 million from deferred tax liabilities with an offset of $1 $5 million to retained earnings.
The net effect on the income statement is that quarterly non cash interest expense will decrease by approximately $800000 beginning in the first quarter of 2021 as compared to the fourth quarter of 2020.
Our capex in 2021 is expected to increase to 16 plus million dollars due to primarily our manufacturing expansions in both Germany and Austin to meet anticipated increased demand for our yield tick and on ex products.
Regarding our ongoing investments designed to fuel growth, we intend to continue to invest in our commercial channels, particularly in Asia Pacific and Latin America, as well as on our R&D pipeline.
Overall, we anticipate that our R&D spending will likely increase to greater than $35 million in 2021, we.
We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital.
We do not expect to see significant significant operating leverage over the next year or two but as our investments in our pipeline plateaus and our channels are developed over the next couple of years, we anticipate seeing a meaningful increase in cash generation on an operating leverage.
One last item relates to nomenclature regarding our product lines with the recent addition of the a M D S and our distribution agreement for Nexus commencing with the filing of our 2020 10-K and our periodic reports in 2021, we will begin to refer to the former <unk> product line.
As a order expense in stent grafts, which we believe is a more accurate description of these products. This line will include the <unk> product line a M D S and Nexus.
Additionally, beginning in 2021, and our future filings on public reports, we will report our tissue processing revenues as a single line item. We will then have four primary product categories tissue processing.
<unk> extensive stent grafts surgical sealants, which is bio glue and Onyx. We will also begin to include in other category that will include per cot TMR and total fix we're making these changes to simplify the reporting of the multiple products that we have acquired or developed over the past few year.
Ears, as we have repositioned the company's focus on aortic repair.
I will turn the call back over to Pat for his closing comments. Thanks, Ashley So in closing as you've heard as you've heard this afternoon. Despite the global pandemic. Our business continues to perform very well we are hopeful that the rollout of the various vaccines around the world will improve market conditions by the middle of 2021.
As market conditions improve and procedure volumes returned to previous levels. We believe we will be in a position to realize the full potential of all the work we've done over the past five years and see our revenue growth begin to accelerate.
Even though we are not providing formal full year 2021 guidance, we do believe that when the pandemic subsides and vaccines are more widely available we will be in a position to deliver double digit growth year over year.
We have several catalysts in 2021 that we did not have in 2019.
First in 2021, we should fully launched three new Yo tech products or Vito open neo inside and India.
As well as their benefit from our improved supply chain.
Second in 2021. The addition of <unk> and Nexus are already in full launch and we should see nice nice growth in both product lines absent unintended unanticipated COVID-19 impact.
Third in 2021, we are filing our PMA for both per clock and our on X mitral valve and we hope to have good news for our biogas China submission.
Finally in 'twenty and 'twenty, one we anticipate seeing further upside from our investments in our channels in Asia Pacific and Latin America.
All of these catalysts give us heightened optimism in our ability to drive increased financial performance.
So in summary, the fourth quarter once again demonstrated the resilience of our product portfolio and the effectiveness of our strategy to focus on aortic repair.
We look forward to the day when COVID-19 is behind Us and we remain confident about the growth potential of our innovative products Lastly, expect us to continue on the operational goals I outlined earlier funded by our solid financial position with that I'd now like to open up a lot of questions. Operator. Please proceed.
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One moment, please while we pull for questions.
The first question is from Suraj Kalia Oppenheimer and company. Please go ahead Sir.
Good afternoon, everyone can you hear me alright, yes, we hear you fine.
So Pat actually congrats on ending what was otherwise a tough year and I just have a look at the numbers you guys did reasonably well so congrats on that.
Pat let me start out with or maybe actually maybe start out with the Q1 guidance is 5% to 8% year over year downtick broad based or is it a specific category.
Whether it's you attack.
Our on X or are just services that is causing some level.
The green from the fight two 8%.
Yeah, So I'll take this and actually can chime in if he if he wants to add anything to.
So the first thing is you know as you know Q1 of last year was really on non COVID-19 quarter. So it's a real it's a normal comp.
Number two we still we're still seeing the pandemic.
From the post 'twenty.
Early 'twenty one spike.
He's still hanging around the biggest issue for us so it's COVID-19 and any other one as we commented on this this tissue issue that we ran into where.
We had a a supplier quality issue that we caught thank goodness.
And that's going to impact really only our first quarter because the tissues that you process in Q4 are the ones you sell in Q1.
So that that's frankly, the biggest reason no I must say that I'm encouraged we're halfway through the quarter.
And pro forma constant currency were down like 1% so.
We actually feel like we're doing better than what we're being kind of cautious just because of this.
Covid as well as this short term tissue impact, but so far halfway through the quarter, we're in better shape than we.
And we thought.
Got it Panther on on X mitral, if you look on a filed for regulatory approval with low INR mid year.
Should we expect that data presentation, maybe at ACC.
Yeah, we're actually in fact I was in a meeting on this yesterday, we're actually talking about where we want to get this published in where we want to have it presented so.
That's obviously a process that we go through so we don't have anything to update you on but.
As we get closer to the to the PMA filing we should have more color in the next quarter or two because this will go in in the PMA will go in probably in like August.
So I would think maybe on our.
Q2 call, we should be able to give you an update on where we expect that to be published.
Turning to pet and is equal to 81 on December 7th presentation day to now and is equal to what <unk>.
150.
Oh, So you guys have doubled Oh nice okay.
Okay Pat.
On a nationally specifically maybe I missed this I heard on X was up 32% year over year, maybe it was a geographic split forgive me I was frankly, making notes what was that number specifically in terms of U S and O U S.
Yeah. So maybe I should you can look at the total number for the quarter. So I hydro I highlighted that number as well in my presentation in my comments was.
On an ex was up 32% of the U S Q4, 'twenty over Q4 19.
Even in the face of a pandemic, we're growing that business, 32%. So.
Yes, and that was a aortic valves, yeah, yeah right.
For the quarter on ex was up 2%, while the full worldwide on X was plus two but that Scott aortic and mitral. When you look at the U S, which is our biggest market. The U S was up 32% in aortic.
Yep.
Got it that was it from my side gentlemen, excellent quarter Congrats.
Thanks Roger.
Yeah.
The next question is from Mike Matson Needham and company. Please go ahead Sir.
Yeah. Thanks, I just wanted to go back to your guidance for the first quarter that down five to eight I guess after the the prior commentary.
In response to Suraj as question I'm, a little confused now because youre seeing down five to eight and then it sounded like you said, you're really only down one so far so is that because the tissue hit really hasn't.
Ben in that down, 1% and that's going to kind of hit later in the quarter or something or.
Yes, so two things Mike.
I know it is a little bit there's a little bit of a disconnect. There. So we look at.
As you well know the pandemic has been unpredictable throughout the year and while we're super encouraged going into Q4, we then got hit by the second wave.
Q4, as you just heard was down down five 5% pro forma constant currency. We haven't added so we still have the pandemic hanging around in Q1 and we've got this added short term tissue supply issue, which is frankly hard to predict and I made the comment to suraj.
All the tissue that we process in our quarter shows up the next quarter. So trying to trying to figure out exactly how much of that tissue is going to be impacted it's hard to figure out so.
December the Q4 number was down 5% due to COVID-19.
Covid hadn't left us. So we were thinking you know down five and then we put on a few points for the tissue issue.
Im very pleasantly surprised that halfway through the quarter were down one so yeah I think it's obviously.
We're being cautious because we it's hard to predict exactly what happens with tissue in the next six weeks, but so far it looks good.
Okay.
Thanks.
And then.
I wanted to ask about just the <unk>.
Backlog of potential procedures.
Even that you made the comment in the nature of your products on the type of surgeries that they're used in.
Are typically things that really cant be deferred that long with that then sort of imply that you probably don't have as big of a backlog is maybe companies that.
To provide more elective type products.
It's hard to say like I've been out with a bunch of customers in the last month and I think theres, a big difference between what I'm hearing in the U S and what I'm hearing in Europe, and remember, we've got a big business in Europe, and a lot of our growth is coming from Europe, the the travel restrictions and the curfews and.
Kind of the Lockdowns in Europe are way more pronounced than they are in the U S. We've had lots of cases canceled move because of Covid. So it's just it's just an ongoing kind of a drag on our ability to launch products to get into cases. So I think it's more of that I mean I was at a major center.
Last one is I guess two weeks ago and he said you know here in the U S and they said administration called them and said you know on Wednesday, you guys can't operate our IC use just spiked up.
And in another Big Hospital, the next day and there are no issues.
Clearly the hospitals have learned to manage this stuff better.
Also had a heart surgeon on another major center tell me Hey, we know for a fact, if you need a an urgent aortic valve or an urgent. If you are on acute type a dissection you can't delay that he said about guarantee you there are people who have kind of a.
Whether it's a mitral valve repair where you kind of don't feel great. They may be pushing that down the road a little bit. So it's hard to say exactly but I'm, giving you a bunch of data points that we are clearly not running with all pistons from a procedure standpoint because of the pandemic.
Okay. Thanks, that's helpful. And then I wanted to ask one on on per clock. So just this delay that you're waiting on this laparoscopic indication I guess so.
What do you have to do if anything to to get that other type of labeling.
And then.
I Didnt I guess I didn't understand the comments around the manufacturing part of that day. So yes. So let me let me see because this will be easy to understand.
Our original plan to file per clock was under the assumption that cryolife would be distributing the product through our channel in the U S.
And all we needed for that was we were going to file with open surgery, and what I call small scale manufacturing, which is not huge volumes and that would've been fine for Cryolife launch.
In discussions with potential partners. They want a lot more products and they want laparoscopic, which is where a big chunk of this is.
So instead of kind of filing for a smaller indication or a lesser indication with not enough products. We said why don't we just wait.
Wait a couple of quarters go to a larger it's basically technical separate I mean, we've got to do some testing and validation to get up to the larger scale capabilities. So we can make more product in a simple way to say it.
And then the laparoscopic is just we have to do in animal studies, so that'll all be done.
By this summer and we will submit the PMA in Q3, which will give us.
Access to a bigger market with the ability to produce a lot more.
Okay, and just given your comment there it sounds like there's a decent amount of interest from potential partners and distributing those products would it likely be a single partner or multiple partners or.
I'm not going to.
I'm not going to get into that level detail.
Again, as we check as we got feedback from potential partners. They wanted.
Access to a bigger market and have the ability for us to supply more products. So I'll just leave it at that.
Okay I understand thanks.
The next question is from Jeffrey Cohen.
Lindenberg Thalmann.
Oh, Hey, Pat and Ashley how are you.
Hey, Jeff.
So just a few questions from me to crush margin, Mike a call.
Call it a bunch of them. So as first the tissue issue was that specific to a cardiac refinish cooler because it doesn't look like you specify was yeah. It was it was both.
It was both okay got it.
Are there any ramifications from your suppliers for us on some of your insurance and your where you're carrying there as far as the potential 5 million charge going forward, yeah, I'm not going to I'm not going to get into that level of detail Jeff.
Got it okay. So.
Could you give us an indication where on a M. D. S fill out for Q4, I know you bundled it all and now under.
We called it out a Mds did $1 1 million.
In Q4 versus Q4 of <unk> 19, which is a 91% increase.
That's fantastic.
Just just we arent even in the first lap of the race over the first inning of a baseball game because.
It was late in Q4, we didn't have we had to do some kind of.
Paperwork to get the regulatory we had the CE mark, but we need to do some special paperwork to get access to Spain, Italy to Poland that came late in the fourth quarter, so that isn't even really in our numbers yet.
We also are starting to get approvals in some countries in Asia and Latin America.
So throughout this year with access to all of the markets in Europe, all the market.
All of Canada, and then more more markets in Latin America, and Asia were expecting.
Nice growth in that area.
Got it so you talked previously about a slightly.
Slightly smaller size for on X in the aortic shutting or was there any update there that you called out for the quarter.
We've gone out we've got a 17 millimeter valve.
<unk> been in clinical trials for a while it's just it's just hard to enroll because it's such a it's either pediatrics or interest.
Just a rare patient here and there just from a from a trial standpoint, there's a good chunk of patients.
But we're pretty close to finishing that I don't have the I can get back to you offline with the data on that we're pretty close to finishing that.
Okay and any commentary further I know you called out Texas on the second source on the on some of the the Eurotech product line is there any update there or is it is a full blown now you've got both sources up and running and no issues on any longer as far as.
Demand goes.
So currently so I think as you guys. All know I mean 2019 was the Utica supply was a challenge and we still grew double digits, but it was it was coming off a year we grew 25%.
The hotel supply really was was a.
The big headwind for us in 19.
Three things number one is with the pandemic, causing the procedure slowdown.
We took that opportunity to run our factories are 100%. So we built inventory during the pandemic. So that's helped number two we did get our second source sewing supplier up and running they're already supply on this product and number three.
You talked about the big increase in capital expense, we've built a new building.
In our facility in hockey game, which is going to increase our capacity by 50%. So the combination of those three things with these new products, we're not product supply is not going to be a constraint.
Okay, perfect and I think that those are for me thanks for taking the questions. Thanks.
Thanks, Jeff.
Mr. Mackin there are no further questions at this time I'd like to turn the floor back over to management for closing comments.
Yeah, well, thanks for joining and I appreciate the attention to the company.
Obviously, the pandemic everybody's aware of what's going on with the pandemic, we think with the vaccine rollout plan. We think the U S is going to return to normalcy in Q3 in Europe, who has a little bit behind on the vaccines comes in Q4.
The reason we're so excited is we've got like 10 10 things in 'twenty. One that we didn't have in 19, we've got the neo launched the Ensign launched at <unk> <unk>.
<unk> in excess or our investment in Asia Pacific and Latin America.
Potential for Abad with China approval, we've got the proactive on a trial enrolling and we've got two P. M. As we're filing this year for <unk> and for proactive mitral. So obviously the company's got a lot going on but as this pandemic lifts, we feel like we're well positioned to start delivering double digit growth. So appreciate your attention on the call and look forward to the next quarter update.
This concludes today's conference call you may disconnect your lines at this time and thank you for your participation.