Q4 2022 Artivion Inc Earnings Call
Okay.
[music].
Greetings and welcome to <unk> fourth quarter, and full year end 2022 financial results call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Brian Johnston Vice President at Gilmartin Group. Thank you you may begin.
Thanks, operator, good afternoon, and thank you for joining the call today, joining me from <unk> management team are Pat Mackin CEO of National <unk> 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. You mentioned 95 comments made on this call that look forward in time involve risks uncertainty.
These are forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 95.
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 these forward looking statements additional information concerning certain risks and uncertainties that may impact. These forward looking <unk>.
As contained from time to time in the Companys SEC filings and the press release that was issued earlier today.
With that I'll turn the call over to Pat Mackin.
Thanks, Brian and good afternoon, everyone.
Our strategy, which Ive discussed with you over the past few years in which we further detailed in March of 2022 at our Investor Day.
Create significant shareholder value by driving sales of our innovative products.
Expanding within and into new geographies and developing our pipeline of innovative products to substantially increase our addressable market.
As you'll hear today, we're doing just that.
I'm pleased to report that our business continues to perform well as we closed out the full year 2022, with just over 9% in constant currency revenue growth compared to the full year of 2021.
I'm also pleased to report that we made significant progress on the regulatory front.
We received the biogas CE Mark under the new M D. Our framework and based on our recent conversations and interactions with the FDA. We are confident we receive approval for per clock.
You'll also hear that we continue to remain on track to deliver our revenue and EBITDA commitments with 2023 expected to represent a major step forward.
Starting with our year over year revenue performance for the fourth quarter.
We start we saw strong top line constant currency growth in stent, grafts, which grew 16% and onyx, which grew 11%.
For the full year, our constant currency basis stent grafts were up 20% on X was up 13% tissue processing was up 8% and Bogwood was down 5% all compared to full year 2021.
As anticipated fourth quarter 2020 to constant currency revenue growth of 5% with strong but slightly below the quarter growth delivered through the first three quarters of the year.
As we mentioned on our Q3 call. We expect that we expected some deceleration in the fourth quarter, because our EU customers had accelerated approximately $1 5 million of by wood purchases into the third quarter.
Otherwise would not have made in the fourth quarter.
This was done to protect their supply of bio glue for the fourth quarter in the event. The company was unable to obtain bogo derogation extensions beyond October 31st.
If customers had not made these increased by a good purchase in Q3, our total growth for the fourth quarter would have been around 7% on a constant currency basis compared to the prior year.
We believe this bargain purchase was a one time occurrence now that we have the CE mark for bio glue and we anticipate our customers returned to regular ordering patterns in EU and in those countries work from a commercialization is based on CE Mark.
As you will recall at our Investor day in March of 2022, we committed to delivering compounded double digit constant currency revenue growth through 2024 through three key initiatives.
First.
We will continue to drive our growth in our aortic stent grafts and Onyx.
Second we will continue to benefit from our investments in commercial channels and new regulatory approvals in Asia Pacific and Latin America.
And third we will benefit in 2020 three and beyond.
From PMA approvals in the U S for per clot and protect mitral.
As mentioned previously.
Graph revenues rebounded in the fourth quarter increased to 16% on a constant currency basis.
I'm here to the fourth quarter last year.
We finished the full year with 20% year over year growth compared to 21 on a constant currency basis.
The demand for a stent graft portfolio remains high.
We've also made significant progress in hiring at our German manufacturing facility, which is now operating at nearly full staffing.
As a result, we believe the improved production.
This will improve production significantly overtime, which will serve as a catalyst to continuing to drive growth in our stent graft portfolio.
As for on X revenue grew 11% on a constant currency basis in the fourth quarter of 'twenty, two compared to the fourth quarter of last year, and 13% full year compared to 21.
We remain confident we will continue to take market share globally with the only mechanical aortic heart valve that can be maintained at INR between one five and to point out.
We are also executing very well on our next initiative to expand our presence in Asia Pacific and Latin America through new regulatory approvals and commercial footprint expansion.
APAC and Latin America had fourth quarter constant currency revenue growth of 21% and 12% respectively and.
And 30% and 38% for the full year respectively.
We continue to expect these regions to be important growth drivers over the coming years.
Regarding our third initiative based on recent discussions with the FDA. We are optimistic that we receive a PMA for our pork lock product.
Upon approval, we receive approximately $19 million or $15 million net of amounts owed to a former partner and we will then commence shipping a product to Baxter.
As for product mitral, we are maintaining our interactive dialogues with the FDA and look forward to a potential approval in the second half of this year.
We do not believe this securing this approval is imperative as it relates to our ability to achieve our near and longer term growth revenue growth forecast.
And we've not included the potential approval and our outlook for 2023.
In addition, our progress in each of these three initiatives, we continue to make progress in our pipeline, which includes the Mds clinical trial in the next has persevered trial of our partner.
We've enrolled 25 patients in our persevere trial, which is a non randomized clinical trial of up to 30 centers in the U S with 100 patients.
We've experienced acute type aortic dissections.
The combined primary efficacy and safety endpoints of this trial a reduction of all cause mortality, new disability stroke myocardial infarction nuanced sent renal failure, requiring dialysis and re expansion of the true lumen of the aorta.
We now anticipate completing full enrollment in the second half of this year following a one year follow up period.
Assuming the trial meets its endpoints, we anticipate we should which we would receive FDA approval for Andas in 2025.
In addition, as I previously stated our partner Endo span is making progress on the U S. I D called triage.
For its nexus aortic arch stent graft system.
In that trial, there were approximately 32 patients enrolled and treated in total 40 47 patients enrolled and approved for treatment.
And to span estimates enrollment completion in mid 2023 with the PMA approval in 2025 again, assuming the trial hit its endpoints.
To reiterate if these PMA trial succeed as anticipate or proceed as anticipated we expect FDA approval for AMD as in Nexus in 2025.
At that time, assuming we exercise our option for understand these products would increase our addressable market opportunity by an estimated $700 million with that I'll now turn the call over to Ashley.
Thanks, Pat and good afternoon, everyone.
Total revenues were $79 $4 million for the fourth quarter flat on a GAAP basis and up 5% on a constant currency basis, both compared to Q4 of 2021.
For the full year revenues increased 5% on a GAAP basis, and 9% on a constant currency basis.
On a year over year basis in the fourth quarter of 2022 on X revenues increased 8%.
<unk> processing revenues increased 2%.
If you were to extent graphs grew 2% and bio glue decreased 12%.
On a constant currency basis compared to the fourth quarter of 'twenty. One stent grafts grew 16% on X grew 11% tissue processing increased 2% and Baidu revenues decreased 8%.
On a regional basis fourth quarter, 2020 revenues 2022 revenues and Asia Pacific increased 20% Latin America increased 13%.
North America increased 4% and EMEA decreased 11% all compared to the fourth quarter of 2021.
On a constant currency basis revenues in Asia Pacific increased 21% Latin America increased 12% North America increased 4% and Europe increased 2% all compared to the fourth quarter of 2021.
Gross margins improved sequentially from the third quarter to 64, 1% in Q4, which compares to 64, 7% for the fourth quarter of 'twenty one.
The decrease compared to the prior year was driven primarily by inflation impacts on materials and labor as well as product mix within our aortic stent graft Guan.
While inflation rates globally remained persistently high and continued to weigh on our gross margins.
We believe the gross margins, we expect them to approve and stabilize in 2023, then improve after that.
G&A expenses in the fourth quarter of 38 were $38 $5 million compared to $51 $3 million in the fourth quarter of 2021 <unk>.
Excluding nonrecurring acquisition related business development benefits and other nonrecurring charges.
G&A expenses were $41 9 million for the fourth quarter of <unk> 22, compared to $40 3 million for the fourth quarter of 2021.
R&D expenses for the fourth quarter were $8 $3 million compared to $9 $5 million in the fourth quarter of 2021 R&D.
R&D expenses in the fourth quarter of 2022 include $1.9 million for prelaunch per Claude inventory.
If for Claude is approved which we expect then the majority of the PERC lot sales to Baxter expected in 2023 will have no cost of goods associated with these sales.
We have treated these costs as nonrecurring and have excluded them for purposes of calculating adjusted EBITDA and non-GAAP earnings per share.
Other income and expenses include $523 million and net interest expense and foreign currency translation gains of approximately $4 $5 million.
On the bottom line, we reported GAAP net income of approximately $2 2 million or five cents per fully diluted share in the fourth quarter of 2022.
non-GAAP net income was $4 2 million or 10 cents per share in the fourth quarter. non-GAAP income includes foreign currency gains and excludes business development and other nonrecurring charges.
As of December 31, 2022, we had approximately $39 $4 million in cash $306 million in debt and the full $30 million available to us under our revolving credit facility.
Adjusted EBITDA for the fourth quarter of 2022 was $11 million compared to $10 $8 million for the fourth quarter of 2021.
2022 full year adjusted EBITDA was 41 6 million compared to $44 3 million for 2021.
Please 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 initial 2023 outlook.
We expect constant currency revenue growth of between eight and 12% for the full year of 2023.
We expect revenues to be in a range of $331 million to $343 million.
We see timing of the per clock P. M. A N timing of supply upside following increased production staffing and Germany as key factors that could move us towards the lower or higher end of this range.
As noted earlier approval and initial revenue contribution from Pro Act mitral is not included in our 2023 outlook and could represent further upside.
Our guidance also reflects a recent communication we received from our sole source supplier for T. M. Orhan pieces, indicating that they are exiting this business and will no longer supply us with N pieces effectively immediately we therefore expect to have minimal contribution from TMR revenues.
In 2023 weeks.
We currently are evaluating our options for T M ore, but none would contribute any revenues prior to 2024 for.
For context, we generated approximately $3 million in revenue from the TMR product line last year, and therefore do not see this as a meaningful impediment to long term growth.
For the first quarter, we expect to see an approximate $2 million revenue currency headwind compared to the first quarter of 2022.
Additionally, given the meaningful contribution of stent grafts to our growth we expect revenue growth for the first half of the year to be closer to the lower end of our range of revenue guidance as recent hires in Germany will take time to become fully productive.
We then expect growth in the second half of the year to be closer to the higher end of our range of revenue guidance.
With the continued growth in our top line revenues General expense management and a decrease in R&D spending we anticipate delivering 20 plus percent growth in 2023, and adjusted EBITDA to a minimum of 50 plus million dollars.
This will put us on track to meet our 2024 adjusted EBITDA commitments, we made in March of last year at our Investor Day.
Further we do not see the need to raise additional capital to fund our debt obligations are investments in our channels or our pipeline, even if so for increases to approximately 5%, we should be able to comfortably service our debt and continue to invest in growth.
And finally, our term loan B contains no financial covenants that would place us in default unless we were to have more than seven and a half million dollars drawn on our revolving credit facility at the end of any calendar quarter, which we do not as of now we have the full $30 million available under our credit facility and do not foresee the need to do.
They're all on it.
Additionally, our convertible notes do not contain any financial covenants or.
Turn the call back over to Pat for his closing comments.
Thanks Ashley.
Pleased with our performance in 2022, and our position entering 2023, particularly considering the multitude of macro headwinds, including among other things COVID-19 significant stashing, it staffing and inflationary pressures.
Our growth strategy is working and delivering on the results we've envision to summarize our stent graft business returned to strong growth in the fourth quarter. We expect recent staffing improvements in Germany to significantly benefit supply and drive future growth.
On X continues to perform well and we're hopeful that pro like mitral Reapproved later this year.
Asia Pacific and Latin America to outperform and we expect more of the same moving forward.
Our recent biogas CE Mark should drive growth and we're very optimistic that we'll soon have approval for per club.
And then our two us two U S clinical trials M Dias persevere and Endo spans Nexus Triomphe are currently enrolling.
Combined we expect to expand our total addressable market for these two products by over $700 million in 2025, assuming we execute on the industry adoption.
Through 2024, we expect revenue growth to grow double digits on a compounded annual basis to generate $75 million to $80 million and adjusted EBITDA.
And to reduce our net leverage to less than three times. Despite the headwinds we face from inflation and its impact on gross margins.
At this point, we have essential pieces in place for sustained growth and continue our focus on execution to create shareholder value.
We are further solidifying our position as a leading company in ear compare thanks to our innovative products accomplished sales organization and experienced leadership team.
We are confident in our positive momentum will continue and I want to thank all of our <unk> employees around the world for continuing to deliver for the people, who we endeavor to help so with that operator. Please open the line for questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
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Our first question comes from the line of Charlie Montaigne with Lake Street. Please proceed with your question.
Hi, guys. Congrats on a great quarter, just a couple of quick questions for me in my first one is can you kind of remind us on how we should be thinking about FX impact in 2023, and when those headwinds might start to moderate when comparing year over year USD numbers.
Yeah actually I'll, let you take that one.
Yeah, you know a lot of it obviously depends on where primarily the euro USD relationship.
Moves in because that is the one that has the most outsize impact on our business.
Based on where rates are currently we expect that beginning in the second half of the year ethics could actually become a tailwind for us. So again, it ultimately depends on on where rates move.
But based on what we're currently looking at we expect again ethics to become a tailwind for us in the second half of the year.
Okay, great. Thanks for the clarity with that and then my next one is at your last analyst day on these stated status should grow high teens on X, 10% to low teens preservation mid single digits and surgical sealants low to mid single digits.
Does this remain the case and is there anything you are seeing today that could alter that trajectory.
Yeah, I'll take that one I mean, if we if you look back at kind of what we presented in March of last year. It was.
Roughly 15, we projected roughly 15% to 20% growth for stent grafts, we came in at 20% for the year. So at the high end of that range Onyx, We said kind of 10 to 15, we came in at 13 midpoint of that.
So well in line you know tissue mid single, we came in at 8% kind of at the high end of that range. The only one that disappointed was obviously bio glue and you know the fact that it took us an entire year to get the CE Mark through the MTR process was a big contributor of that.
You know we had several countries that.
We couldn't get Derogations figuring out you know and then we in the countries. We didn't get Derogations. It took us longer than we thought so the great News is we got the biogas CE Mark right at the end of the year. That's all behind US. We now have an M D. Our CE mark for bio glue, when we don't have to hear about that anymore. So.
So I think you know bogwood shooter should return back to kind of that low single digits and that was really the only the only outlier in you know one of the reasons. We were at the lower end of the range for the for the full year.
Okay, great. Thank you and then just one last quick one here the supply chain issues within that business resolved and if not kind of what else needs to be done.
Yeah, you know I mentioned this in my in my comments.
It's obviously, it's a good problem to have we have we have huge demand on our stent graft portfolio, partly because we have such innovative products.
You know this is a bit of a growth a growth challenge in that we're growing at the high end of our range of 20%. We we had some issues hiring in our one of our you know our major factory in Germany.
And we actually changed our labor rates and you know where we couldn't find people at the lower rates. We all of a sudden magically find a bunch of people you know this is again inflation in action.
You know we hired a number of people in the fourth quarter, they're being trained as we speak it takes about 90 days to get up and trained so he is actually comedy we should expect to see kind of continued strength in our supply chain to support that growth and even hopefully go on beyond where we are as we get the new manufacturing employees Trey.
And and getting the supply chain primed. So you know.
We should see gross growth, probably you know kind of.
Increase throughout the year on our stent graft business.
Great well, that's it for me or for me and thanks for taking my questions.
Sure.
Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Please proceed with your question.
Oh, Hi, Pat and Ashley how are you.
Hey, Jeff.
Well.
So.
A few quick ones as far as the guidance goes for 'twenty, three are you, including or not including for a quote in there.
In the range.
Yeah. That's that's in that's in the range.
Got it Okay, and then could you talk about margins a bit supply chain it seems like.
It seems like 'twenty three will remain challenging.
Yeah, I mean, you know margins I mean are you know kind of our one of our other than other than the Bible CE Mark taken forever last year.
The inflationary impact so the labor increase the rates of labor and the cost of materials was really you know one of our you know kind of challenges or headwinds that you know many companies faced I mean, we we finished 2021 at around 66% gross margin and.
And we finished 22 at about a 64 five so about 150 basis point decline and you'll all directly related to inflationary pressures. So you know.
Those are somewhat baked in our gross margins you know, we're planning on kind of holding them flat this year.
But a lot of those inflationary pressures baked in you know the supply chain thing I mean, this we talked about TMR and you've been around the covering the company for a long time I.
I mean in these kind of older product lines that are nonstrategic like T. M arm that was not exactly our future, but it was it was a decent product with good margin I mean, we had multiple suppliers.
You know just go down and we don't have the the supply chain kind of infrastructure really supporting that because it's such a small product and it's not strategic and I think that's a good example of it just its more probably effort tenants worth we're going to evaluate whether or not we want to revive that but at a minimum we're not going to see revenue from TMR for the next two years. So.
But I think that's a good example of where we don't have a strategic focus that that kind of stuff can happen you know we deal with it kind of you know every you know every day, but we're able to one of our faster growing a larger product lines. We have a you know a good infrastructure around supporting those so that's part of our job to manage those those supply chain issues.
Got it thanks, and then lastly for us any commentary Pat as far as.
The stent graft platform out there in Europe .
Some more color on Nexus versus would be the first day of gas and what kind of reception and presence and growth Youre seeing.
Yeah, I mean, we're seeing we're seeing a really excellent growth like I said it I mean, we we somewhat decelerated.
As the year went on and in 2022, primarily because of supply.
I mean, my our sales team over there is you know running around moving product around because as I mentioned earlier.
We had a hard time hiring in our facility in Germany, and once we change those labor rates.
To get in line with kind of the German market rates, we were able to hire very quickly in the fourth quarter and you know fill that fill the factory up and you know those people are being trained now so but as far as the product lines. I mean, we're seeing really good growth across all of our you know our products and that's really one of the you know it's an opportunity we've got such such unique technology.
And in the new frozen elephant trunk up in the arch the the <unk>.
Two offerings and the thoughtful donal area for inside and our what we call extra design.
That we just we just got to make sure we got the product where it needs to be on time and we can continue to drive this growth for all for a long period of time.
Got it thanks for the readout in color.
Yeah.
Our next question comes from the line of required Switzer people. Please proceed with your question.
Good afternoon, Pat Hi, Ricky.
Couple of questions.
Yeah.
Sorry to make you go over the macro again I just wanted to be absolutely clear that I'm hearing the messaging.
The companies that reported so far.
Pat.
I would over Simplistically characterize it I'd say they've been talking about.
It's stable to improving environment.
Just wondering is that how we should think about things in a general sense.
For you.
I mean, and when I think about it again, Germany getting better as the year unfolds.
Like supply chain less of an issue.
Currency lesser in fact staffing.
Staffing I shouldn't make sure were real clear on the key macro.
You know drive right so being less.
Yeah. So if you you know if you think about you know we I made a comment about you know just the number of in 30 years of doing this I've never had as many macro headwinds right. You had COVID-19 you had staffing hospital striking you had inflationary pest pressures you had supply chain pressures currency pressures right. So there was a lot you know I think we actually put up a pretty.
Good year, given the given all the stuff that was thrown at us if you kind of unpack those.
<unk> inflation, you know you can read the papers everybody's kind of trying to figure out what's going to happen, but you know we we feel like our gross margins are going to be flat. Then answers. Your inflation question. We took 150 basis point whack last year, and we think we can be stable. This year. So we've kind of got it baked in.
Covid I mean, I don't I don't really even see COVID-19 being an issue now again, who knows what happens in the future, but I really just don't see it what we're seeing you know staffing here and there and I talked to a lots of surgeons and their.
Strikes in your.
Mount Sinai had a nurse strike in Minneapolis had a nurse strike and.
Stanford had a nurse strike and he's going to do there are procedures get done so whether they strike for a week or two it it's not going to change our macro procedure volume in a year. So.
So that that I don't I don't see I mean, we have heard a lot of noise out of the U K. The NHS health systems are in disarray, but again, our our emergent with these aren't these aren't facelifts right. These are aortic arch repairs in heart valves. So I I think we tend to and we've proven this through the pandemic, we tend to actually our procedures get done.
So I think that one is in better shape I think actually comment on currency in the second half. So I do think to your point I think a lot of these R. R.
Much in a much better way than they were last year, you have the supply chain stuff kind of can bite you jump up and bite you.
But we've you know we've got teams in place to manage that there's lots of kind of noise under the hood, but we continue to drive that drive the business and I think you know simplifying the product line I mean, having a nonstrategic product like a T M or it's just hard to manage this and old supply chain and it doesn't have a lot of revenue and I think it's a good example of stuff you probably don't want to be involved in going forward.
Yeah for sure.
Can you take us through some of the key drivers in 2023 for the aortic stent grafts.
Portfolio, obviously, you're doing great.
How do we think about.
The blocking and tackling this year.
To what extent is it important to add sales guys as it is.
What are your top couple of priorities for that portfolio around yeah. So yeah. So are our fastest our fastest growing products in there.
Four of them.
And inside that stent graft portfolio, it's really our our differentiated portfolio. So if you kind of go from the top of the aorta down on the surgical side are our new device is doing extremely well.
Where we're both opening up new markets in Asia Pacific and Latin America, and we're also adding feet on the street. There we saw tremendous growth in Asia Latin America has combined businesses, but that was one of the underlying drivers.
We we we continue to add.
Some people people people here and there as we see a very fast growing market, but that new devices is growing quite well.
We just launched our second generation stent graft for the arch the Nexus duo which is a two branch device.
And you're familiar with this from some of the work you've done with our physicians. The current the current Nexus sits in U S clinical trials as a single branch into denominator, that's got some limitations we.
We've got a two branch device that was just launched in Europe that is getting very very pause refuse we expect that to be a growth driver.
The a M D S for acute type A's dissections, which is approved in.
In Europe , Canada, and a handful of international markets is growing very rapidly and we continue to get more and more data out on that device perseveres, continuing to enrol, which obviously the there's somebody here you know the anecdotal things we're hearing from U S. Surgeons are our kind of spanning across the oceans and people are hearing about them.
And then our our Thoracoabdominal is really a.
We're we're kind of a key player in that segment with two offerings right the only off the shelf and side.
And then the custom made extra design and combined we basically can treat really any political abdominal Andrew so it's really those four four unique technologies.
Where we have very little competition, we may have one or two but you know it's it's a very kind of surgeons love the portfolio, it's allowing them to treat patients they can't treat with some of the other companies and you know like I said, we had some challenges and you know fill that filling up the factory.
You know in the second half of last year, and we've now resolved that so it's really just a training getting those employees up and trained and we we as long as we can feed those reps will continue to grow that Stan stent graft business pretty significantly.
That's fair.
Just a couple more from me if you don't mind.
And I appreciate all the.
The color very helpful.
If I remember correctly your long term guidance.
Analyst day, or you've talked about.
Your aspiration for $400 million in 'twenty 'twenty four.
How are you feeling about that number now.
Got it.
What do you I mean, obviously you don't obviously currently yes.
Great about.
Not so great baby.
Yes, that'd be great demanding as it yeah as we as we learned last year I mean, I, obviously, when we when we launched that in March I didn't know the euro is going to decline, 16% and we've a big chunk of our business in euros. So you know.
You'd have to well what would I say I would I would draw your more too as the revenue shale chart that basically showed we thought we could grow 10% on average over the next three years.
We grew nine this year, it's never as you know businesses are never linear and there were a lot of challenges in 2022.
And so I think that that 10% if you look at our guidance. We're between eight and 12, you know where we're shooting for over the three years that we have a 10% CAGR. So again I think that the end number you know has a lot of factors that occur, including a big currency factor for us, but I think what we are holding two is our 10% growth rate and I think that's well with.
And reach.
For the company.
Okay.
Just last.
Hey, I just wanted to make sure again, maybe I'm just being dense about it.
You had guided correct mitral I think to the end of 'twenty two before that's right now it's second half great I, just want to make sure I'm understanding.
Why why did why delay in timing and what are the factors there and why are you confident about two 823. Thanks. So much yeah. So you know it's a good question. Rick. So you know we had two P M. As it for the F. D. A and we had hoped or hear from about both of them you know by the end of the year you know on the on the good news we heard from the FDA on.
<unk> I'm happy to report that they basically said this thing is going to get approved where we're basically working on labeling right. Now you know I've been through a lot of these and we were in the final steps of the process now again I can't tell you exactly one of the things you need to prove but I mean, the fact that they told US is going to get approved and we're working on labeling as a pretty good indicator.
I think Conversely, if you look at Pro Act mitral.
It wasn't as clean the trial wasn't as clean and you'll you'll understand this because you've done a lot of work here.
If you if you look at the poetic mitral, which started a decade ago right. This is it started a long time ago.
It it missed its primary endpoint of non inferiority of it it was a composite endpoint of bleeding in thromboembolic events. Okay.
And that.
That was exactly the same way proactive Arctic was done and yesterday you didn't like it that the two variables were kind of co mingled right bleeding in thromboembolic event, because one can drive a non inferior event right a better performance on bleeding can can mask thromboembolic mis.
In proactive they made us take those variables apart they made us primary thromboembolic secondary bleeding. So if you look at that trial and you look at the fact that the average patient in the treatment group was a two five and the average stores like a 2.47, an average patient in the in the control group was around three <unk>.
One would one would suspect that the bleeding would be less it.
It just I don't know how you have a lower INR off 0.5, and there's no difference of bleeding, but it wasn't because we didn't obviously it wasn't powered enough, but the fact that you had a INR two five to three you should get a lower bleeding.
It did have a non inferior it did hit non inferiority for thromboembolic events. So again, I think what I'm trying to get through it all but it just can take us longer talking with the FDA about it because I think in totality. When you look at all the data while we might've missed the primary endpoint for the trial.
If you really look at how they look at the data which is take apart the endpoints.
And you look at the totality of the data you can run.
And on X mitral valve at 2.5.
Compared to a non on X valve it at three or over and have no difference in thromboembolic events to me that's meaningful for patients and surgeons are telling me. This you know the pie of the trials, telling us so you're just going to take us longer it's not as it's not as clean. So I think it's you know.
That's the reason for the delay hopefully that was helpful to kind of give you some context.
Great to get all the detail. Thank you again.
Thanks, Rick.
Our next question comes from the line of Mike Matson with Needham <unk> Company. Please proceed with your question.
Yeah. Thanks, So just.
Just one on the stent graft business.
This is the second time that you've kind of had the staffing challenge there in Germany and.
I understand that it's been a really difficult labor market and everything but I guess you know you you kind of have a forecast for how fast that business is going to grow and it's kind of been growing in line with that forecast. So I guess can you try to you know I mean, what can you do differently to try to get ahead of this that this doesn't happen again next time you kind of.
Your heart of it.
Yeah, Yeah, Yeah, Yeah, it's a it's a fair question, Mike and again I think part of this season.
Been involved with this business the stent graft business going back I ran Medtronic business 20 years ago.
It's a very complex supply chain.
There there are if you are an individual case you may ship in five or six pieces, because there's different sizes and you have to put different pieces together and then two or three may come back. So there's a lot of logistical excellence that's involved in it and we werent necessarily up to snuff with that Theres also a lot of consignment involved where you actually put units on this.
Shelf, so if you're if you spread your units out in consignment and you're in the wrong places.
You can see how you can get ahead of yourself. So we we actually.
Brought in an outside firm to help us with this and we're kind of going through that right. Now. So I agree with you that this is something we're going to kind of put to bed for once we're doing a lot around the supply chain excellence about getting product back as well as making sure. Our consignment accounts are having the right number of turns.
So again Theres, a theres a whole project going on in that area, because it's not just a factory with the factories part of it but there's also a kind of a supply chain excellence.
And to your point, we're not we're not going back to this again, we expect this business to grow very fast and we're gonna put the the kind of supply chain infrastructure in place. So that we don't have to go back to this.
Okay got it and then.
Just on the EBITDA. So I mean, the guidance is for in excess of $50 million, but you're reiterating the guidance for <unk> 75 for 2024.
So you know I guess I mean, if you come in closer to that 50 million number I mean that seems to be a pretty big step up almost 50% growth to get to that $75 million in 2024. So.
You know how confident are you that you can kind of you know.
Get maybe more to like $65 million that theory, and you know for that that step up doesn't look quite as difficult.
Difficult in 2024, Yeah, no and it's that's a it's a fair question, Mike I mean, if you. If you just do the math you're one of the things we said at the at the kind of analyst day was that we were going to return.
50% of the incremental gross margin as EBITDA, which is pretty much what we're doing this year.
But what gets you to the $50 million I mean, where we're driving for upside right. So its exactly to your point, we gave a range of eight.
Eight to 12 with a $50 million EBITDA number. So we we obviously wanted to come in as high as we can on that range.
And you know every every million dollars you get in it.
Every point of growth every $3 million of growth, which is a point of growth yeah. It gets you almost $2 million in profit.
So you know, we're gonna be pushing to get to a higher number than 50 because to your point you know it'll put more pressure on next year, but that's that's what we're shooting to do.
Okay, Alright, and then just on the TMR Handpiece thing so yeah.
I, it's a little confusing to me I know you went through the numbers, but I just wanted to revisit that because so the can you tell me what the actual revenues were in 2022, because I don't know I can't remember if you were selling at every quarter. He had some you've had prior so yeah. Just to give you just to give you some yet to give you some rough numbers.
Last year 'twenty, one we did about $3 million.
We're going to do about 500000, I think in the first quarter until we run out of hand pieces, and then were out and there aren't there aren't gonna be anymore for two years. So I think that pretty much tells you. The you know.
I think all the numbers you need to know.
Yeah, Okay, but I mean is the intention that dead and never comes back or.
Yeah, I mean part of it part of the challenge with this Mike is it. We just were notified you know a few days ago [laughter]. So I need some time to kind of evaluate I mean, we had looked at potentially potentially go onto another supplier.
But it was going to take US a couple of years in a couple of million dollars of investment I. Just don't know if it's worth it but I also got a I got I need some time to actually investigate like I said. This is we just got a letter from our contract manufacturers that we're done making this thing and I really havent had time to react other than the fact that I know that I'm not gonna have TMR hand pieces for two years I do know that but I do need some <unk>.
Just to see if it's worthwhile in how long it'll take how much it'll cost. So you got me kind of in the middle of the sausage, making.
Yeah, I understand okay got it thank you.
Our next question comes from the line of Raj <unk>.
With Oppenheimer. Please proceed with your question.
Good afternoon, Pat Ashley can you hear me all right.
So Raj how are you doing.
Doing well hope football as well and you guys decide hey, Pat So couple of questions for you and one for Ashley all on Onyx.
Maybe first question, Pat maybe I'm over reading this but for the first time I sense.
This level of hedging in terms of Pro Act mitral approval.
Good day and night over reading into that pack.
No I think that's fair.
Not getting.
Specifically, not getting approval or put a restricted label high risk whatever.
Any additional color.
No I think I think I think that's fair I mean part of it is you know we we obviously learn where FDA was and I just in Rick's question I tried to help and you get you know probably more about this stuff than anybody on the trial designs.
What I found interesting is that in.
They didn't like Pro Act when we when I personally met with the FDA about proactive.
And they did not like the composite endpoint of proactive aortic because bleeding reduction in bleeding drove the drove the endpoint. So they make it made us take them apart right. So they made and I get it and they made us take them. Apart thromboembolic is really the goal bleeding secondary which is what we did in proactive ne.
What's interesting is that in pork mitral.
We missed the primary endpoint.
It was a composite of the two.
But when you do the way that they like it which is when you take them apart.
We actually are non inferiority for thromboembolic event, which is the big safety issue.
And there was no difference in bleeding, which also makes no sense, but that's what the data shows.
Even though the the treatment group was at a two five and in the control group is at a three anyone would tell you there has to be more bleeding in that arm.
So again I think part of it part of it is yes. I mean, you know you learn more as you have the conversations with the F. D. A I mean, we're we're gonna present, we think you should look at the totality of that data and with the surgeons are telling me is that trial was a 10 year trial in 400 patients that showed that you could run.
On on X valves that are two five and have no difference in thromboembolic events compared to the standard of care at between two five and three for three.
Two five and three five.
Right, So which is at three O.
So again.
Can't speak for the FDA I think I understand why it wasn't a lay up I mean <unk> was a much cleaner we hit all the numbers and everything was much cleaner. So it's just taken us longer but I can't I can't predict what the FDA is going to we're going to put our best case for it and we'll see what happens I think in the end I mean, the data is out there. The paper was published in December we're knocking all we're not going to promote off label, but I think surgeons when I talked to surgeons.
Zee.
They see the benefit of of of of the valve and hopefully the FDA sees it the same way.
Got it.
Pat correct panning remind us again, when the publication as well.
Post post Carney.
The top line or the tile stoppage.
To the extent that you can characterize the sales force productivity pre and post.
Additional handholding was needed specifically as it relates to onyx for the field.
Yeah. So first on your first question on public today that will be presented at its recent news and I was going to cover. This I was hoping I would get that question.
It's going to be presented in a plenary session at Ats in Los Angeles like May that wherever the first week of May 5th sixth seventh around there.
So that that's going to be I think a very important presentation, both for the field as well as.
I'm very encouraged to see the control group how it performed so I'll just leave you with that foreshadowing.
I think from a from a field standpoint is very interesting.
We've got great a great sales force and you know they went out after product today, they talked to all the surgeons that we heard great comments from our surgeons like you guys, where you know you were cutting edge. This would've been huge for patient you still get the best mechanical aortic valve and mitral valve.
And you're still the only ones with a low INR on the aortic side. So you know kind of keep doing what you're doing right. So again I don't I don't think.
I didn't see much of a setback I mean I'm sure our competitors will try to jump on it but I think the other piece to think about suraj as that is the amount of things we're doing in the aortic field.
Everything from frozen elephant trunk with neo to a M. D S to nexus to throw a nominal I mean, we're an aortic company and we're investing heavily in aortic space and.
And Onyx is one of our one of our platforms. That's best in class. So again I think you know to me we are our sales force didn't really require any handholding.
Got it.
Last one I'll throw your way and jump back in queue. Do appreciate you guys, taking my questions I think maybe I missed it.
The Onyx split U S O U S.
Thank you very much.
Oh gosh.
It is.
Roughly.
60 40.
Roughly suraj.
Get back with you on the exact split but.
I think that it's approximately around there.
No worries thank you.
Yeah.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well thanks for thanks for attending the call and.
We're looking forward to continuing to drive forward on our strategy and.
Driving growth in our stent grafts and our Onyx franchise.
Sure.
Significant growth in Asia Pacific Latin America, and bring into pipeline forward. So you know.
We'll be back at you next quarter and thanks for joining bye bye.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.