Q3 2021 CryoLife Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Cryolife third quarter 2021 financial conference call. All lines have been placed on a listen only mode and the bar will be open for questions and comments. Following the presentation. If you should require assistance. Please press star zero on your telephone keypad to eat you alive operator at this time it is my.
Pleasure to turn them over to your host Bryan Johnson, Sir the floor is yours.
Yeah.
Yeah.
Good day, ladies and gentlemen, and welcome to Cryolife third quarter 2021 financial conference call. All lines have been placed on a listen only mode and the thought would be open for questions and comments. Following the presentation. If you should require assistance. Please press star zero on your telephone keypad to reach a live operator at this time it is my pleasure to turn.
Barbara to your host Bryan Johnson, Sir the floor is yours.
Okay.
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Good day, ladies and gentlemen, and welcome to the Cryolife third quarter 2021 financial conference call. All lines have been placed on a listen only mode and the floor will be open for questions and comments. Following the presentation. If you should require assistance. Please press star zero on your telephone keypad.
To reach a live operator at this time it is my pleasure to turn the floor over to your host Bryan Johnson, Sir the floor is yours.
Okay.
Yes.
Hi management.
Thanks, Jonathan.
Operator can you come back live.
Nobody can hear us.
I am here online banking hear you loud and clear now are you on.
We're on nobody else can hear us.
Oh, we can nobody can hear the call.
I see that most of you guys as lines are moderated foundation be able to hear you guys I have their call in lecture mode. So that you guys won't be book to hear them.
Okay.
So Brian are you on.
Yeah.
Yes, I apologize folks we've summer we've had some technical difficulties, obviously people can hear us we've been on the line for the last seven minutes. So we apologize we're going to go straight into <unk>.
The call.
This is Pat Mackin CEO of Cryolife.
We posted solid a solid quarter, despite the headwinds caused by the Delta variant.
Our results for the third quarter were $72 2 million, 5% growth on a pro forma constant currency basis compared to Q3, 2019, which we're right in the midpoint of our Q3 guidance.
Our performance benefited particularly from our new stent in stent graft product launches and strength in our on X aortic valve business in the U S.
More specifically in the third quarter of 2021 compared to the third quarter of 2019, our stents in stent graft segment grew 22% and on X grew 10% each on a pro forma constant currency basis.
The on X product line growth was led by the on X aortic valve revenue growth in North America, which grew 16% compared to 2019.
I'm encouraged by these results given that we had three significant headwinds in the quarter that are all showing signs of improvement as we move into Q4.
First the spike of the Delta variant had an impact on procedure volumes and therefore, an impact on our Q3 results.
We have seen over the past months. However, the COVID-19 cases have declined nationally, which we believe means that in Q4 procedure volumes should stabilize and increase.
Second our cardiac tissue declined 10% in the third quarter compared to 2019.
Resulting from our backlog and review a donor in tissue charts to release this tissue.
Which as you will recall had been temporarily quarantine as a result of our previously discussed tris issue.
In the third quarter, we added staffing capacity and have been able to release more charts.
As a result, we are already seeing significant improvement in cardiac tissue revenue with an 8% year over year growth in October compared to 2019.
Third we do not sell any TMR hand pieces in Q3 and expect to begin selling them this month, which should add to our Q4 revenue growth.
Given our mitigation of these three headwinds in Q3, we expect to post double digit revenue growth in the fourth quarter of this year compared to the fourth quarter of 2019, we're also reiterating our full year 2021 guidance.
Ashley will provide more commentary on our outlook for the remainder of the year later in this call.
Okay.
Moving onto more granular review of our progress in the third quarter as I explained in our last call. Our near term plan is to accelerate revenue growth with three main initiatives.
Our first initiative is to commercialize our five new aortic stent in stent graft products in Europe. These include A&D S Nexus inside neo and yet.
Our second initiative is to continue to expand in the Asia Pacific and Latin America by gaining regulatory approvals and expanding our local channels.
Our third initiative is to secure regulatory approvals in major markets for <unk> in the U S. <unk>.
<unk> mitral in the U S and <unk> in China.
I will walk you through an update on each of these three initiatives.
Starting with <unk>.
<unk> first arch remodeling hybrid device for use in the treatment of acute type aortic dissections, we remain very optimistic.
During the third quarter, we posted $1 $3 million in revenue an increase of 68% on a pro forma constant currency basis over the third quarter of 2019.
This growth occurred despite regional Lockdowns in Europe, where we have the majority of our MBS sales.
We also secured marketing authorizations in four additional countries this quarter, including Hong Kong in UAE, which positioned us well for further growth with MBS.
Second Nexus posted 502000 in revenue an increase of 66% on a constant currency basis compared to the third quarter of 2020 as Nexus was not approved in the third quarter of <unk> 19.
We believe these revenue results would have been better for Nexus as well as for other products if not for renewed COVID-19, Lockdowns and travel restrictions in Europe during a portion of the third quarter.
Given the anticipated decline in COVID-19 infection rates and other factors, we expect to see an uptick in nexus procedures in Q4.
Third and side, which is our newest device in our portfolio to treat thoracoabdominal aneurysms with Endovascular stent grafts.
Our revenues for this product line, which include inside and our extra design engineering grew 45% on a constant currency basis, when compared to Q3 of 19.
Fourth the neo devices, our newest product in the frozen elephant trunk category to treat dissections and aneurysms of the aortic arch revenues from this product line, which include the Neo device plus Vito open plus grew 60% on a constant currency basis compared to Q3 of 2019.
Fifth regarding any of our limited market release continues and we expect to move to a full market release in early 'twenty two.
We expect the demand for these five products to continue to build as the market adoption for the products expands as well as the vaccine levels in Europe continued to rise.
Moving on to our next initiative international expansion.
In Asia Pacific and Latin America to new regulatory approvals and commercial footprint expansion.
Asia Pacific revenues grew 31% while revenues in Latin America grew 40% both on a pro forma constant currency basis in the third quarter of <unk> 21, compared to the third quarter of <unk> 19.
We continue to expect growth across these regions over the coming years as we continue our initiatives in these regions.
Regarding our third initiative, we continue to make progress on achieving three regulatory approvals in major markets more specifically, we submitted the FERC <unk> PMA earlier. This month, we submitted the <unk> mitral PMA during the third quarter and we continue to have dialogue with the Chinese regulatory authorities to facilitate the approval of <unk> in China.
For <unk>, we expect to receive approval from the FDA during the second half of 2022.
Following the FDA approval will supply product to Baxter and generate revenue for a period of approximately two years under our transition services agreement.
We also expect to receive PMA approval for our lower INR label for the on X mitral valve.
This is similar to our lower INR label for on X aortic valve. We expect this approval to come in the first half of 2022.
As a reminder, the on X aortic valve has a significant clinical advantage for patients over competitor valves.
In that it is the only FDA approved mechanical aortic valve that can run at a lower INR of one five to two point rather than the standard of care to point out a three point out.
If our new label is approved patients with the on X mitral valve will be able to be maintained on a lower dose of <unk> compared to patients implanted with other mechanical valves.
For a reminder, our label if approved by the FDA It would be a two to two five INR versus a standard of care $2 5 million to $3 five.
This will translate to significant clinical benefits for patients. We believe this approval for the on X mitral valve will enable us to take significant market share just as we took market share with the on X aortic valve.
Lastly, as it relates to the regulatory approval of <unk> in China, We remain actively engaged with <unk> and look forward to providing an update on our approval timeline when we have further clarity.
In addition to our progress on each of these initiatives. We also continue to make strides on our midterm pipeline pipeline with key products currently in U S clinical trials and other is expected to start later this year. These three products are proactive.
Nexus and MBS.
We continue to make significant progress on the enrollment of our proactive trial.
This is our prospective randomized clinical trial to determine if patients with the on X aortic valve can be maintained safely and effectively on <unk> versus warfarin.
We currently have 471 patients enrolled in this study.
Feedback from surgeons and patients participating in the trial remain very positive.
We anticipate completing enrollment in the trial during the second quarter of next year.
And assuming the trial meets its endpoints. We believe we can achieve FDA approval for this new indication by late 2024 or early 2025.
If we successfully obtained such approval, we believe the on X aortic valve should become the market share leader in aortic valve patients under the age of 70.
As for <unk>, we submitted the IDE to the FDA during the third quarter and we hope to begin our <unk> clinical trial by year end.
In addition to the proactive trial in the Mds trial, our partner Endo spanned continues to make progress on its U S. IDE trial for Nexus known as <unk>.
If these trials proceed as we expect we anticipate FDA approval for <unk> <unk> and Nexus by late 'twenty, four or early 'twenty, five which would give us give the company an additional $1 billion of market opportunity at that time.
With that I'll now turn the call over to Ashley our CFO. Thanks.
Thanks, Pat and before I move on I'd like to remind everybody that this call does contain forward looking statements and you should refer to the forward looking statements contained in our press release that we issued this morning and in the risk factors in our 10-Q that we'll file tomorrow.
So total revenues were $72 2 million for the third quarter up 11% on a GAAP basis, and 9% on a pro forma constant currency basis, both compared to Q3 of 2020.
Revenues came in above the midpoint of our guidance. Despite the impact of the delta variant slower than anticipated cardiac valve chart clearances and there is a delay in restarting sales of our TMR TMR disposal disposable handsets.
On a year over year basis in the third quarter of 2021.
Aortic stent and stent graft revenues increased 37%, reflecting increased procedure volumes and improved inventory position. The addition of the Mds since September of 2020 and improved adoption of Nexus in the EU.
On X revenues increased 16% and <unk> revenues increased 5%, reflecting improving procedure volumes relative to the third quarter of 2020.
And tissue processing revenues decreased 5% due to a temporary delay in cardiac valve tissue releases.
On a pro forma constant currency basis compared to the third quarter of 2020.
Aortic stent in stent graft revenues increased 27%.
On X revenues increased 15% and <unk> revenues increased 3%.
On a pro forma constant currency basis compared to the third quarter of 2019 on X revenues increased 11%.
What extent in stent graft revenues increased 22% bio glue revenues increased 5% and tissue processing revenues decreased 7%.
On a regional basis third quarter 2020 revenues in EMEA increased 21%.
In Asia Pacific increased 26%.
Latin America increased 88% and.
In North America increased less than 1% all compared to the third quarter of 2020.
On a pro forma constant currency basis revenues in EMEA increased 17%.
Asia Pacific increased 25% and.
In Latin America increased to 83% and.
In North America decreased less than 1% all compared to the third quarter of 2020.
Our gross margins were 66% for both the third quarters of 2021 and 2020.
G&A expenses in the third quarter were $39 1 million.
Compared to $33 $7 million in the third quarter of 2020.
The increase primarily relates to a $4 $9 million increase in personnel related expenses, including salaries commissions and travel and an increase of $1 5 million of amortization and fair value adjustments related to contingent consider as a consideration resulting from the <unk>.
Cyrus acquisition in September 2020.
We also recorded a $15 $9 million pre tax gain on the sale of per Claude reflecting our $25 million payment from Baxter, partially offset by a $6 million payment to SME and the write off of certain intangible assets.
R&D expenses were $10 million in the third quarter of <unk> 21, compared to $5 8 million for the third quarter of 2020, primarily reflecting increased spending related to the proactive trial and work to advance our aortic stent pipeline in the U S.
Third quarter interest expense of $4 1 million includes approximately $2 $5 million of expense related to our term loan b $1 $1 million related to our convertible debt and approximately 500000 in amortization of debt origination cost.
Other expense in Q3 includes $2 $6 million in realized and unrealized foreign currency translation losses.
On the bottom line, we reported GAAP net income of approximately $10 6 million or 26 per fully diluted share in the third quarter of 'twenty one.
Non-GAAP net loss was $1 2 million or <unk> <unk> per share in the third quarter.
GAAP and non-GAAP earnings includes the pre tax loss of $2 6 million or approximately <unk> <unk> per share related to foreign currency translation losses in the prior year included a <unk> <unk> per share gain from FX.
Reconciliations of GAAP to non-GAAP income and EPS are included in the press release that we issued this afternoon.
Adjusted operating income was $4 7 million for the third quarter of <unk> 21, compared to $8 1 million for the third quarter of 2020.
Adjusted operating income reflects add backs of amortization expense and acquisitions and other nonrecurring charges the operating income.
As of September 32021, we had approximately $65 1 million in cash $318 million in debt and our full $30 million available under our revolving credit facility.
Adjusted EBITDA for the third quarter of 'twenty, one was $9 3 million compared.
Compared to $12 2 million for the third quarter of 2020.
Gross leverage as defined by our credit facility stood at five seven times and net leverage stood at $4 six.
You can refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results.
And now for our outlook.
We are maintaining our second half of 2021 pro forma constant currency growth outlook of between 7% and 10% compared to the second half of 2019.
But because of the dollar strengthening since our last call our revenue forecast for the full year is now between 296 and $299 million and we expect fourth quarter revenues of between $76 five and $79 5 million.
Reflecting pro forma constant currency growth of between $9, five and 13, 7% over the fourth quarter of 2019.
There are several factors that give us confidence our new product launches AMD.
Nexus E Vita open neo and inside continued to perform very well.
We anticipate seeing continued strong performance from Onyx in North America.
We are already beginning to see improved cardiac tissue releases.
We expect to continue to see strong performance from APAC and Latin America.
And we anticipate restarting TMR handset sales this month.
Our guidance also reflects the fact that the dollar has strengthened versus our prior expectations, which has an approximate $1 million drag on our nominal revenue guidance during the fourth quarter.
Finally, our guidance assumes that the impact of COVID-19 throughout the quarter, we will continue to diminish.
Additionally, if as anticipated we received approve.
Approval to begin our Mds clinical trial in the fourth quarter.
We anticipate recording charges of approximately $4 million in fair value adjustments to contingent consideration related to the <unk> acquisition.
These amounts will be included in SG&A.
Regarding our ongoing investments designed to fuel future growth.
We intend to continue to invest in our commercial channels in Asia Pacific and Latin America, as well as in our R&D pipeline.
We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital.
I will now turn the call back to Pat for his closing comments.
Hey, Thanks, Ashley and closing as you've heard this afternoon. The three headwinds that we faced in Q3 2021, the surge of the Delta variant cardiac tissue char processing and lack of of TMR Handpiece are all improving this position us positions us well for double digit growth in Q4 2021 versus Q4 of 2019.
We also expect this momentum for Q4 'twenty one to continue into 2022.
As I explained throughout the call. We built a plan that has three initiatives that will drive growth from now through the end of 2024.
First we should see continued growth in our five new air extensive stent grafts, MBS Nexus enside neo and in yet.
Second we anticipate further upside from our investments in our channels and new regulatory approvals in Asia Pacific and Latin America.
Problems and in the press release that we issued earlier today.
Okay. Thanks, Ashley so I apologize for the technical difficulties at the start we've now read the forward looking statements an operator could you go ahead and open the line for questions.
Framingham Ganymede for any questions at this time, please pastime one on your telephone keypad again for any questions. Please specify one at this time.
Okay. Our first question comes from Iraq <unk>. Please go ahead.
We can't hero.
Alrighty Your line is muted please your line.
Hey, Pat can you hear me.
Now.
Oh, my goodness, having issues pets [laughter] [laughter], so bad Q2, 22, Proact penny enrollment, finishing.
Can you expand on that in terms of I know the the D. S. M. B is looking at that every one to two quarters as we understand it witnessed the earliest we could get some visibility on an interim basis on Proact Penny.
Yeah, I think we've we've talked about this previously so this is an interesting the trial design.
Because it's such a problem.
Thromboembolic events with a valve or are very low which is why we have 1000 patient trial.
In a way this is set up as an as a noninferiority to coming in and.
And so there really is no interim look I mean, you could get to a situation where you had the trials.
You're very familiar with how this works from a statistics standpoint, where you're going to have a trial stop early but there would have to be a significant difference between.
Coming in and eloquence, which again, we don't we don't think it's going to happen.
This is powered for Noninferiority.
So I think maybe.
Maybe the way I would answer it is.
Moving the trial enrolls in the second quarter next year and that means that you've got a thousand valves half an hour of course have on coumadin.
And we started this trial as you know in May of 2020 that means we will we will we will at that point have already had some of the first patients an eloquence for two years.
And I think the way to think about this trial once this trial enrolls.
Every quarter growth that goes by it's another quarter with 500 patients on eloquence.
So in the end, we won't know the answer to the question until we get to our full two year enrollment.
So I think that's probably the best I can answer at this time.
At all just plugging pet can you still hear me.
Yes.
Just one additional question on the on Proact Canadian I'll hop back in queue, and let others chiming. So pet remind me on Proact Penny lettuce Rog gets enrolled in March 2025, you know and the trial enrollment gets completed March 2022, right. He's already two years.
<unk>.
And follow up.
But let's say pet Mac and gets enrolled March 22, right you need to your follow up for Pat also like by the time thrive as a life on on liquids for four years right.
Final data is presented would it would it.
Group analyze by duration of.
You know a follow up also and the reason I ask is peace event grades overtime multiply the cumulative incidents increases right I know that doesn't mean and we're looking at two years, but I was just curious if that kind of data stratification also is eventually going to be presented because it's gonna be interesting.
Patients that longer term, how they could how they do on telequest. Thank you for taking my questions.
Yeah, no problem. So I mean, I think one of the points back earlier question is.
A typical FDA Val trial is about 800, you need about 800 patient years of follow up. So for example, I mentioned the Proact mitral.
PMA has been submitted that bar is 800 patient years of follow up.
We're collecting 1600 patient years of follow up in this trial.
And I think part of that is because anytime you are going to change a drug both are clinicians and the FDA wanted to see two years of data, but you are right.
Under your example, Suraj will have been an eloquence for four years and I would have been an eloquence for two years.
So.
The last enrolled patient in this trial will have to be followed for two years and then we do to Kaplan Meier analysis on area under the curve.
So there is no interim analysis.
DSM B as you mentioned earlier meets every six months and reviews, the data and as long as the trial keeps going then it's a green light.
Thank you Okay. We can take the next question.
No further questions at this time again, ladies and gentlemen final questions. Please pass timeline again that Taiwan for any questions at this time.
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