Q2 2022 Artivion Inc Earnings Call
Greetings and welcome to the <unk> second quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. A brief 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.
As a reminder, this conference is being recorded it.
It is now my pleasure to introduce your host Mr. Brian Johnson of Gilmartin group. Thank you Sir Please go ahead.
Thanks, operator, good afternoon, and thank you for joining the call today, joining me from <unk> 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 provisions of the private Securities Litigation Reform Act of 1995 comments made on this call that look forward in time involve risks.
Uncertainties that 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 intentions hopes beliefs expectations or predictions of the future esports looking statements are subject to a number of risks uncertainties estimates and assumptions that may cause actual results to differ materially from these forward looking statements additional information concerning certain risks and uncertainties that may impact each.
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 now I'll turn it over to Arthur Levine CEO Pat Mackin.
Thanks, Brian .
He used to report we delivered another strong quarter following two consecutive periods of double digit constant currency topline growth.
Constant currency revenue growth was 9% compared to Q2 of 2021 this quarter, putting us at a 10% constant currency revenue growth in the first half of the year.
Overall, we remain on track to deliver on each of the commitments we made at our Investor meeting in March.
Once again, our growth was driven primarily by aortic stent grafts.
Arnaud on X mechanical valves as well as tissue processing segments.
More specifically on a constant currency basis, comparing to Q2, when we compare Q2 of 2022 to Q2 of 2021.
<unk> grew 23% honest grew 12% tissue processing grew 7%.
As we expected <unk> revenue in the second quarter decreased compared to the second quarter of last year, primarily due to a delay in securing our CE mark renewal as well as tough comps and the North America market for bio grew in the first half of 2021.
To that end, we've made significant progress on the CE Mark since our call last quarter.
In June our notified body completed there in person inspection of our U S facility as well as your inspection of our German facility.
Now expect to have our CE renewal near the end of the third quarter.
In the meantime, we've continued to make substantial progress in securing country specific derogations, enabling us to sell product.
These derogations collectively now cover approximately 80% of our Bayou business in Europe through the third quarter.
Our success on all these fronts has reinforced our confidence that we can deliver on our three key growth initiatives that we outlined at our Investor day in March and which we believe will drive double digit constant currency revenue growth over the next three years.
As a reminder, our three initiatives are as follows first we will drive continued growth in on X and our aortic stent grafts.
We will continue to benefit from our investment in our channels and our new regulatory approvals in Asia Pacific and Latin America in.
And third in 2022, we will drive growth through PMA approvals in the U S for per clock and the on X product mitral low INR indication.
<unk> revenues in the second quarter increased 23% on a constant currency basis compared to the second quarter last year.
We saw broad strength in this category for the quarter.
<unk>, we posted 12% constant currency revenue growth in the quarter.
The second quarter compared to the second quarter of last year.
The feedback we're receiving from customers in each of these product lines is that the superior clinical differentiation has been extremely positive and we anticipate the demand for these products will continue to build as market adoption increases in hospital staffing shortages abate.
Moving to our next initiative expanding our presence in Asia Pacific and Latin America through new regulatory approvals and commercial footprint expansion remains on track.
I am pleased to report they were continuing to execute very well on our strategy as demonstrated by second quarter constant currency revenue growth of 38% and 59% in Asia Pacific and Latin America, respectively.
We expect these regions to be important contributors of growth over the coming years as we execute on this strategy.
Regarding our third initiative, we continue to make progress on achieving regulatory approvals for our low INR on X mitral valve.
And for a per clock by the end of the year.
With respect to the on X mitral valve. We continued continue to expect to receive PMA approval in 2022.
Approved we believe we will take significant market share in the U S with the on X mitral valve just as we've done and are continuing to do with our on X aortic valve.
So per clock, we continue to work closely with the FDA and expect to receive approval during the second half of 2022.
If approved by December 31, 2022.
You will receive a $25 million payment from Baxter, which is a milestone due to us based on our divestiture agreement and will begin to generate revenue from supplying personal lots of Baxter for approximately two years thereafter.
In addition to our progress on each of these three initiatives. We also continued to make strides on our midterm pipeline with three key products currently in U S clinical trials.
These three products are proactive in a nexus and E M D S.
Regarding the proactive trial, we continue to make significant enrollment progress in this prospective randomized clinical trial to determine.
Patients with the Onyx aortic mitral onyx aortic valves can be maintained safely and effectively on <unk> versus warfarin.
As of today, we have enrolled over 800 patients and feedback from surgeons and patients participating in the trial remains very positive.
We anticipate completing enrollment in the fourth quarter of 2022, assuming the trial meets its endpoints, we expect FDA approval for this new indication by early 'twenty five.
We believe the on X aortic valve using <unk>, rather than more friends will become the market share leader in the aortic valve market for patients under the age of 70, given significant patient benefits using allo, Chris over warfarin.
As for Andas, So I'm pleased to announce we recently enrolled our first patients in our pivotal trial called persevere for the Andas device and as of today, we have four patients enrolled in that trial.
Perseveres, a non randomized clinical trial in up to 25 U S sites of approximately 100 participants who have experienced an acute type aortic dissection.
The combined primary efficacy and safety endpoints of the trial or the reduction of all cause mortality new disability stroke my.
Ocado infarction, and new onset renal dialysis, new also had really failure requiring dialysis.
As well as the expansion of the true lumen of the aorta.
We are now anticipating completing full enrollment during the first quarter of 'twenty three.
Following in one year follow up period, we expect or we anticipate if the trial meets its endpoints, we should receive approval for <unk> in early 2025.
In addition to the progress we've made in the <unk> trial and the Andas I E.
Pleased to report that our partner Endo span is also making progress on its U S. E. <unk> trial for the Nexus aortic arch stent graft system.
In that trial, there are approximately 23 patients already treated and a total of 30 34 patients approved for treatment.
<unk> is currently estimating trial completion in June of 2023, and PMA approval in 2025 again, assuming the trial endpoints are met.
To reiterate each of these three PMA trials proceed as anticipated, we anticipate FDA approval for a proactive and a AA Mds and Nexus in 2025.
At that time, assuming we exercise our option for Endo span these products would increase our addressable market.
Estimate of $1 3 billion.
With that I'll now turn the call over to Ashley.
Thanks, Pat and good afternoon, everyone.
Revenues were $83 million for the second quarter up 6% on a GAAP basis and up 9% on a constant currency basis, both compared to the second quarter of 2021 as Pat mentioned, we benefited particularly from strengthen aortic stent grafts on X and tissue processing.
On a year over year basis in the second quarter of 2022 aortic stent graft revenues increased 13%.
On X revenues increased 10% and tissue processing revenues increased 7%.
Reflecting new product launches and improving procedure volumes relative to the second quarter of 2021.
<unk> revenues decreased 11%, reflecting the CE mark renewable delay as well as tough comps in 2021 in North America.
On a constant currency basis compared to the second quarter of 2021 aortic stent graft revenues increased 23% on X revenues increased 12% tissue processing revenues increased 7% and bio glue revenues decreased 9%.
On a regional basis.
Second quarter, 2022 revenues and Asia Pacific increased 37% Latin America increased 69% North America increased 5% in Europe decreased 4% all compared to the second quarter of 2021.
On a constant currency basis.
In Asia Pacific increased 38% Latin America increased 59% North America increased 5% and Europe increased 6% all compared to the second quarter of 2021.
Gross margins were 65% in the second quarter compared to 66% in the second quarter of 2021. The decrease was driven by product mix within our aortic stent graft and <unk> product lines and inflationary impacts on materials and labor.
Yeah.
G&A expenses in the second quarter were $39 million compared to $48 million in the second quarter of 2021.
Excluding nonrecurring acquisition related and business development benefits of $3 $1 million in 2022.
Which primarily consists of the noncash $3 2 million benefit related to fair value adjustments for a Cyrus contingent consideration.
And rebrand rebranding charges of $289000.
And excluding nonrecurring acquisition and business development charges of $3 $4 million in 2021.
G&A expenses were $41 8 million for the second quarter of 'twenty to.
Compared to $37 4 million in the second quarter of 'twenty one.
On the bottom line, we reported GAAP net loss of $4 3 million or <unk> 11 per fully diluted share in the second quarter of 'twenty two.
non-GAAP net loss was $1 $3 million or <unk> <unk> per share in the second quarter.
GAAP and non-GAAP net loss includes $3 $8 million or <unk> 70 per share and losses on foreign currency revaluations.
Excluding these amounts non-GAAP net income would've been $1 $5 million or <unk> <unk> per share.
As of June 32022, we had approximately $40 million in cash $316 million in debt and the full $30 million available under our revolving credit facility adjust.
Adjusted EBITDA for the second quarter of <unk>, 22 was $10 3 million compared to $12 8 million for the second quarter of 2021.
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 2022 outlook.
We continue to expect constant currency growth of between nine and 11% for the full year of <unk> 22 compared to 2021.
In our last call. We stated that we faced the $8 million currency headwind in 'twenty two versus 21.
Since that time. The dollar has continued to strengthen resulting in additional FX headwinds of approximately $2 million.
Considering our better than anticipated performance in Q2, partially offset by the continued strengthening of the dollar we continue to anticipate full year revenues in the range of $317 million to $323 million.
Due to the continued volatility in the FX markets, we want to provide a little more information on what we see for the balance of the year.
At a euro USD FX rate of approximately 1.03.
Our prior year Q3, 2021, adjusted revenue is approximately $69 million and our fourth quarter 2021 revenue is approximately $76 $5 million, reflecting FX headwinds of approximately $3 million in each quarter.
We expect that growth in both the third and fourth quarters should be consistent with our full year guidance of between nine and 11% constant currency growth.
We believe that we can comfortably continue to invest in our commercial channels in Asia, and Latin America, our R&D pipeline and service our debt without having to raise additional capital I will turn the call back to Pat for his closing comments.
Thanks, Ashley so to summarize our third consecutive quarter of strong execution leaves us more confident than ever in our ability to execute on our growth initiatives and achieve our goal to become the world leader in aortic repair through innovation.
We're expanding our global commercial footprint and investing in our clinical programs.
The next three years, we expect revenue to grow double digits to approximately $400 million.
We anticipate a 200 basis point increase in our gross margin, we expect to generate between $75 million to $80 million and adjusted EBITDA and reduce our net leverage to less than three times.
Our success in the second quarter positions us well to deliver on these metrics.
First we saw 23% constant currency growth in our stent graft program, 12% growth in our on X franchise, and 7% growth in tissue processing.
Second we posted 59% constant currency growth in Latin America, and 38% growth in Asia Pacific and were continuing to invest in these regions.
Third in 2022, we expect to receive PMA approval for per client and the Onyx product mitral low INR indication.
We also have a very robust midterm pipeline of three U S. Clinical trials that are currently enrolling we expect these trials of proactive Nexus tree off Andas persevere will all expand our total addressable market by $1 $3 billion in late 'twenty for early 'twenty five.
At this point, we have all of the central pieces in place and we've pivoted our focus to execution.
Having led highly effective commercial organizations over the years I know that the key to successful execution is having the right team in place I would like to thank our management team and all of our employees for their hard work and dedication so with that operator. Please open the line for questions.
Yeah.
Thank you the floor is now open for questions.
To ask a question. Please press star one on your telephone keypad at this time.
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Again that is star one to register your questions at this time.
Our first question today is coming from Rick Wise of Stifel. Please go ahead.
Hi, Good afternoon, Hi, Ashley.
Got it.
Sorry.
But it's great to see how much progress you continue to make in that.
The year is on track all of these programs are on track.
I'm sort of curious I was all likes it coming into the quarter not knowing.
What to expect from a macro perspective, I mean, we've heard all the companies this quarter talking about the staffing impact inflation and transportation.
You know the long list.
So the question is.
How did all of that affect you with the numbers have been or the progress had been even better and.
How are you thinking about it as you frame the rest of your second half.
Right.
Yes, so thanks Rick.
I do think one of the key messages here.
I've seen a lot of other companies report and we're seeing the same stuff right as.
Foreign currency has obviously been a headwind with the euro.
Inflationary inflation is at a 50 year high so your cost of goods your materials in your labor costs are going up which is affecting the gross margin theres been staffing issues, both COVID-19 related and more actually I think more just overall staff.
Turnover and you know I've had a chance to talk to a number of of our customers and I do so on a regular basis.
It's just kind of it's kind of on the edges. So I can't really tell you how much better we would have done but I know it's out there.
But I think you know our our mantra here is that this is execution. So we face headwinds all the time and we power through them.
As far as how it kind of affects is kind of going forward I mean, I think the one thing is we have a tool we can use if these inflationary pressures exist which is price.
And so.
These things don't abate soon we're going to continue to take price.
And it's basically something we have to do and we have a product line that is a very high end portfolio with not a lot of competition. So we have a lot we have a lot of pricing power in the market with the ability to take price.
So I mean all of these all of the things you've talked about existed in the second quarter and we powered through and had a good quarter. So I mean, we will manage the same in the back half.
Gotcha.
And is it also encourage you care.
Care about your product can a enrollment progress over 800.
As you said.
If I heard if I heard it correctly.
And I know you are.
You're blinded here, but.
A good way to ask how many years of follow up will the next looking forward just trying to get a sense of where.
Where we are and you know.
Any pointers that might encourage us on correct.
Yes.
So were over 800 I think we are at about 805, as what I think yesterday.
1000, we Shouldnt rule, we will enroll this trial in the fourth quarter.
Hopefully before the next earnings call. So in the next 90 days.
Okay.
One of the one of the things about this trial is the way it was designed.
As long as it keeps enrolling then that means things look okay. The data safety monitoring board meets on a regular basis to review the data.
And the only.
If the trial stops us obviously bad news and the fact that the.
The trial has over 800 patients we enrolled our first patient in May of 2020, so over two years ago.
We have 400 patients on <unk> right now.
So I think that that bodes well and obviously, we don't know until the end of the trial, so but I think that the more time that goes by and the more that patients had keep adding up the more years of follow up that you get and the more the higher the probability of success.
We are also I think very confident.
That if this trial.
Gets approval by the FDA this will be a significant shift in the market.
And I've said it a number of times and we will show people, but this will this will be the market leading valve in patients under 70 years old and you can run the math and see what that means.
Yeah no for sure.
Maybe just one last one from me gross margin.
You are obviously right.
Quarter.
Came in in a reasonable way gross margins have been sort of hanging in there.
66% of sales range, how do we think about the second half right here.
Again, given the puts and takes from.
Exchange inflation et cetera et cetera.
Is this the right way to think about it and the SEC.
Can happen as well.
Yeah, and I think that I'll, let ashley jump in a.
Couple of a couple of comments on gross margins. So one we definitely saw an impact on bio glue.
Just because we were selling.
We were having to sell different sizes, because we were running out in Europe , and so there was a little bit of noise around the biogas CE Mark issue.
The biggest the biggest headwind on gross margin for US has been what everybody is seeing right is the materials increased materials cost increase and the increase in labor costs, and so we're going to get more aggressive on the pricing front.
I already made that comment maybe asking you can you can chime in yeah. So Rick we estimate that inflation has had about 150 basis point impact on.
Gross margins.
We anticipate that is going to be the impact for the full year now with that being said you know we have been taking some price in the first half of this year that that's allowed us to mitigate maybe about half of that impact.
And as Pat said, you know, where we're going to look to get more aggressive on pricing in the second half of this year.
As you look out over the balance of this year you know we've been hanging around around the 65% range last year. We ended up just a little bit over 66, we.
Anticipate that we're gonna be.
Closer to the 66% range.
The <unk> 65 for the second half of this year, but again a lot of it's going to depend on what we continue to see in regards to inflation as well as you know the success that we have in the second half in regards to taking additional pricing.
Gotcha very clear thanks again.
Okay. Thanks, Rick.
Once again, ladies and gentlemen that is star one to register a question at this time.
Our next question is coming from Suraj Kalia of Oppenheimer. Please go ahead.
Okay.
Hey, Pat Ashley can you hear me all right.
Yes, Thanks Raj.
Gentlemen, congrats on a great quarter, considering the circumstances I think so.
We've consistently delivered throughout Covid Pat.
Jumping in between a couple of calls did you mention then a number of patient years already in the bag on proactive honey and the reason I ask because I did not I actually don't have that at the tip of my tongue.
We've enrolled 805 patients as of yesterday.
With a goal of enrolling 1000, our first patient was enrolled in may of 2020.
So I actually don't I don't have the patient years, that's something I can actually get fairly quickly, but I don't have that at my fingertips.
Pat that you're still somewhat contemplating maybe beacon rushed this.
Zing number of patient years for proactive E filing.
Yeah, No that's a great point Suraj I mean.
We are we plan on enrolling in this trial in the fourth quarter and we are going to approach the FDA.
About submitting with 60. So if you think about a trial like Praelect mitral, which is our low INR mitral, which you're well aware of that as a one year follow up which is 800 patient years.
They wanted two years of follow up which is 600 patient years.
We will hit 600 patient years.
In less than a year. So I think that's something we're going to explore we don't have any.
Definitive guidance on that yet, but that's something we're going to pursue.
Okay.
Patrick what is the status of <unk> in Europe .
More specifically give.
Give us your bird's eye view of how you view, Germany in particular.
With all the geopolitical issues going on.
Trying to preempt.
Or any issues could crop up later in the year.
Thing going on.
Yeah.
Yes, I mean, so I mean, we had a we had a solid quarter in Europe .
The only real issue was these derogations the biogas CE Mark and we are on our call last quarter.
In mid February .
We had one derogation out of like 20, and we've subsequently gotten like 15 of them. So we did a great job. The team did a great job getting these derogation. So we I think we've got 85% of the bio grew revenue covered.
We had a great inspection with.
With the regulators and we're tracking for our CE Mark under MTR to be back at the at the end of the third quarter.
Germany.
I think it's kind of I've been there twice in the last.
Last quarter I was there twice.
Aside from the travel Nightmare.
I think things are running as usual.
We've talked to our local team about the about the power grid and how we get power and everything else and I think we feel pretty confident.
Can't predict what's going to happen geopolitically, but I think as things stand today, we don't really see that as an issue.
For us in the second half.
Fair enough. That's the final question I'll hop back in queue.
Walk us through in the U S.
How many sites are using onyx aortic.
Would love to get something.
Parameters on utilization rates, if you could share.
Specifically, when we look at Onyx mitral high risk.
Just kind of compare and contrast, the contrast, if you could tell us or give us an idea of what the low hanging fruit could be post approval and when you start launching just trying to get a sense of what the immediate pull through could be gentlemen, congrats again. Thank you for taking my questions.
Hey, Thanks Raj, Yes. So there is there is about.
This is off the top of my head there's about eight.
800 hospitals that do aortic and mitral valves.
Some of them do very few so I mean, our major focus is on like 600 accounts and we're probably in like 450 of those 600 accounts and again. Some of them are just are just smaller accounts and don't have a lot of volume.
One of the things we saw with proactive Arctic is.
We would be in a center with one surgeon, but then when the data came out we would spread that to multiple surgeons. So it's not just being in the account it's actually how deep you are in the account.
Also kind of is to your point opening up new accounts.
We've talked about Pro Act mitral is a <unk>.
<unk> 40 million dollar opportunity.
For us just taking mechanical share.
We will be we would be the only assuming we get FDA approval in the second half will be the only mitral valve and the mechanical space that has a low INR.
And we've showed you what we've done with the proactive aortic we're the market leader in the mechanical aortic space at this point so at.
At least in the U S, where we have good share data and we expect to do the same thing would be the plan.
Black mitral.
Thank you at this time I would like to turn the floor back over to Mr. <unk> for closing comments.
So thanks for joining today and we were pleased that we've strung together three nice quarters.
Growing 10% halfway through the year.
We've got I think a very simple approach with four key growth drivers, we focus on our key products of Onyx and stent grafts Theyre, both growing ones growing 23 ones growing 12, we focused on expanding in Asia Pacific and Latin America, one is growing 59 ones growing 39.
We're focused on getting our two PMA is approved per clock and pork mitral and we're focused on enrolling our three PMA clinical trials, which will get us a $1 $3 billion in 90% gross margin revenue that if all will get approved will be in the market in 2025. So.
This is really an execution story.
<unk> heard from some of the questions, we're delivering even in the face of a lot of challenges.
And we've reiterated our guidance for the rest of the year and feel confident that we can deliver it. So thanks for joining and we'll see you next quarter.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines.
And enjoy the rest of your day.
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