Q2 2023 Artivion Inc Earnings Call
Greetings and welcome.
<unk> second quarter 2020 financial conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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I will now turn the call over to Lynn Morgen Martin.
You may begin.
Thank you operator, good afternoon, and thank you for joining the call today, joining me today from Octavian management team.
And I can see E O and Ashley Lee CFO .
Before we begin I'd like to make the following statements to comply with the safe Harbor requirements of the private Securities Litigation Reform Act of 1995.
Commentary I don't not on this call that look forward in time involves risks and uncertainties and are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
The 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 could differ materially from those forward looking statements.
Additional information concerning certain risks and uncertainties that may impact. These forward looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today.
Now I'll turn it over to the CEO Pat Mackin.
Thanks, Lynn and good afternoon everybody.
The second quarter of 2023 was an outstanding quarter for our kidney on both commercially and operationally I'm pleased to report we delivered constant currency revenue growth of 11% year over year.
Resulting in a record $89 million $89 $3 million in quarterly revenue.
Our strong performance was led by improved revenue growth in our stent graft business, which increased 19%.
Followed by Onyx at 11% tissue processing at 9% and biography was up 4%.
These are all compared to the second quarter of 2022 on a constant currency basis.
We also received FDA approval for <unk> during the quarter and commenced shipping pork lots of Baxter.
We continue to execute on our strategy to drive increased revenue with existing markets as well as new geographies to expansion of our commercial footprint with new regulatory approvals.
And by expanding our addressable markets through our clinical pipeline.
Pipeline.
Our strong topline performance led to $13 8 million and non-GAAP adjusted EBITDA in the second quarter. This is a 35% increase compared to the second quarter of last year.
We expect our strong momentum in the first half of the year to continue into the remainder of the year and through 2024.
We were confident coming into 2023 that our business was well positioned for success in the year's unfolding largely as expected.
At our Investor day in March of 2020 'twenty two.
We committed to delivering compounded annual growth of double digit constant currency revenue growth through 2024 and two.
Driving further operating leverage adjusted EBITDA up to $75 million in 2024.
We believe we remain on track to achieve both of these goals.
Yeah.
Our commercial team is also executing extremely well as I mentioned earlier stent graft revenues were up 19% constant currency versus the second quarter of last year, we saw double digit constant currency year over year growth in stent grafts across all geographies fueled in part by increased stent graft production as a result of recent production hires in Germany and strong.
Performance in a M D S in excess.
We anticipate demand to remain strong in 2023 and beyond for our stent graft products and could you should see continued sustained revenue performance. Additionally.
Additionally, Onyx increased revenue, 11%, we continue to take market share globally is really the only mechanical aortic heart valve that can be maintained at an INR one five to two point out.
We believe our valve is the best it works out in the market leading market share gains each year.
We are also executing well on our initiatives to grow product sales in APAC and Latin America through our new regulatory approvals and commercial footprint expansion.
In APAC and Latin America, we delivered second quarter constant currency revenue growth of 23, and 24% respectively compared to the prior year period.
We continue to expect these regions to be important growth drivers over the coming years as we continue to leverage our industry leading portfolio.
Of these regions going forward.
On the regulatory front as I mentioned earlier in May we received FDA approval for per clock and began shipping per clock to Baxter.
As for product mitral, because we are in continued discussions with the FDA, but we've not factored any potential regulatory approval into our forecast for 2023 and beyond.
In addition to our progress on each of these three initiatives, we continue to make good progress on the Mds clinical trial.
We've enrolled 75 patients and to persevere trial. This is our I D clinical trial for U S. PMA approval in up to 30 centers and approximately 100 patients who have experienced acute type aortic dissection.
The combined primary efficacy and safety endpoints of the trial or a reduction in all cause mortality stroke heart attack and new onset of renal failure requiring dialysis.
The efficacy endpoint is the expansion of the true lumen of the aorta.
Anticipating completing full enrollment and persevere in the coming months likely before the end of the third quarter.
Following a one year follow up period, assuming the trial meets its endpoints, we anticipate we should receive FDA approval for Andas in 2025.
In addition, our partner Endo span is making progress on the U S. I D triage for its Nexus aortic arch stent graft system.
In that trial, there are approximately 34 patients enrolled and treated out of a total of 60 patients enrolled and approved for treatment.
And to span estimates enrolment completion later in 2023 and a PMA approval in 2025 again, assuming trial end points were met and new F. D. A panelist required.
To reiterate if these PMA trials proceed as anticipated we expect FDA approval for a M D S in Texas in 2025.
Uh huh.
At that time, assuming we exercise the option for them to spend. These these two products will significantly increase our addressable market opportunity with that I'll now turn the call over to Ashley.
Thanks, Pat and good afternoon, everyone total.
Total revenues were $89 $3 million for the second quarter of 2023 up 11% on both a GAAP basis and constant currency basis, both compared to Q2 of 2022.
non-GAAP adjusted EBITDA increased 35% from $10 3 million in the second quarter of 2022 to $13 8 million in the second quarter of 2023.
On a year over year basis in the second quarter of 2023 stent graft revenues increased 19% on X revenues increased 10%.
Tissue processing revenues increased 9% and bio glue increased 4%.
On a constant currency basis compared to the second quarter of 2022, Sten grants revenues grew 19% on X revenues grew 11%.
Tissue processing revenues increased 9% and Baidu revenues increased 4%.
On a regional basis second quarter 2020 through is in Asia Pacific increased 23% Latin America increased 21% North America increased 8% and EMEA increased 12% all compared to the second quarter of 2022.
On a constant currency basis revenues in Asia Pacific increased 23% Latin America increased 24% North America increased 8%.
EMEA increased 11% all compared to the second quarter of 2022.
Gross margins improved to 65, 1% in the second quarter, an increase compared to both the first quarter of 'twenty three in the second quarter of 2022, the increase was driven by price increases and product mix, partially offset by inflationary impacts on materials and labor.
G&A expenses in the second quarter were $57 $2 million compared with $39 million in the second quarter of 2022.
Excluding nonrecurring acquisition related business development expenses and benefits and other nonrecurring charges G&A expenses were $45 9 million for the second quarter of 2023 compared to $41 8 million in the second quarter of 2022.
R&D expenses for the second quarter was $7 $4 million compared to $8 6 million in the second quarter of 2022.
The decrease in R&D spending resulted primarily from the cessation of the proactive trial last September .
Other income and expenses of $10 3 million includes $6 $1 million and net interest expense of $5 million charge related to the final payment to earn those fan pursuant to our loan agreement with them.
And foreign currency translation gains of approximately $800000.
On the bottom line, we reported GAAP net loss of approximately $3 $4 million or eight cents per fully diluted share in the second quarter of 2023.
Net loss for the second quarter of 2023 includes pre tax charges of $10 $9 million related to contingent consideration for the acquisition of a M D S and $5 million related to the final payments and those span par.
Partially offset by a net pretax gain of $14 $3 million related to our receipt of the poor clock PMA approval milestone payment and the impact of valuation allowances on our deferred tax assets.
non-GAAP net income was $2 $3 million or six cents per share in the second quarter.
non-GAAP income includes foreign currency gains and excludes business development and other nonrecurring charges.
As of June 30th 2023 we had approximately $49 million in cash $313 million in debt and the full $30 million available to us under our revolving credit facility.
Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results.
And now for updated outlook for 2023.
Given our momentum in the first half of 2023, our pricing initiatives anticipated improvement in supply of stent grafts and FDA approval for per clock, we are raising our revenue guidance and now expect constant currency revenue growth of between 10 and 12% for the full year of 2023.
Compared to the previous range of 9% to 12%.
We expect revenues to be in a range of $342 million to $350 million compared to our previous range of $337 million to $348 million.
We continue to expect revenue growth will accelerate more meaningfully in the second half of the year compared to the first steps of the year as recent hires in Germany become fully productive as.
As we continue to pursue price increases for products, where we have clear clinical differentiation.
And with the approval for Claude.
With our strong second quarter performance continued top line revenue growth General expense management and a decrease in R&D spending we have increasing confidence that we will meet or exceed our adjusted EBITDA guidance of a minimum of 52 plus million dollars for 2023.
These factors will allow us to remain on track to meet our $75 million 2024, adjusted EBITDA commitment. We made in March of last year at our Investor Day.
In regards to our capital structure, we continue to monitor market conditions and evaluate options to address the maturity of our convertible debt in July 2025.
As we continue to execute on our strategy and drive EBITDA and free cash flow higher and with an apparent near term into the fed's interest rate increases we believe our options to address our capital structure will continue to improve as we move throughout the year.
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 draw on it as a reminder, our convertible notes do not contain any financial covenants.
Overall, our strong financial performance and the expectation it will continue through 2024 affords us greater flexibility as we can sit or our future obligations and ways to increase shareholder value with that I'll turn the call back over to Pat for his closing comments.
Hey, Thanks, Ashley So as you just heard a momentum that began in the first quarter continued into the second quarter capping off a very successful first half of the year our.
Our strategy is working and generally what we expect it to be meaningful EBITDA growth this year.
We also took guidance up for the second straight quarter, and we're confident of our strong growth in 2020 three will continue for the following reasons.
First continued strong performance in our Statkraft business due principally to recent staffing improvements at our German manufacturing facility and other supply chain initiatives.
Two continued strong onyx performance driving further market share games three.
Three continued strong performance in Asia Pacific and Latin America, as a result of our investments and new regulatory approvals in those regions.
Fourth growth in bio glue in part due to our recent regulatory approvals fifth we have two U S clinical trials a M. D S persevere and endo spans Nexus tree out that are currently enrolling.
Combined we expect to significantly expand our total addressable market in 2025, assuming we execute on the underground option.
We continue to expect revenue to grow double digits as compared on an annual basis and to generate greater than $75 million of adjusted EBITDA in 2024, which will reduce our net leverage to less than three times. Despite the headwinds we face from inflation and its impact on gross margins.
In conclusion, we continue to advance our goal of being a market leader in aortic repair and expect 2023 to be a standout year for the company I want to thank all of our employees around the globe for delivering an exceptional second quarter with that operator, we'd like to open the line for questions.
Thank you.
The question and answer session.
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Our first question comes from Rick Wise with Stifel. Please go ahead.
Hey, Pat Hey, actually this is actually John on for Rick Today, I wanted to start off on price last quarter, you spoke about implementing price increases in certain product areas. I was just curious how successful that implementation has been so far any kind of benefit it might've contributed in the second quarter and what your expectations are in the second half of the year.
Yeah. So we we we talked about looking at some of our products that were high.
Hi, we proprietary with patented technology that really nobody else has that also provide a significant benefit to patients.
And.
Given that the demand on some of these products I chose to raise prices there it's.
It's been very successful and I think as I mentioned in my comments, we expect to see more of that as we go out go throughout the year a lot of those prices went down you know rolling through the second quarter and a lot of those will be in place fully for for the third and fourth quarter. So it's been it's been kind of as we thought in and been very well.
Executed.
Great Great and then to follow up on that I like to look at it through the lens of revenue guidance for the year. If I just take the balance of the first in the second half it implies almost a 50 50 split a little more than that the second half than the first I'm just curious with the price increases built in could there be potential upside to that mid <unk>.
Like what's getting you to the higher end of the range is it price can you just talk us through the factors there.
Yeah, I mean, I think there's there's always there's you know we have a lot of levers we can pull.
We've got the price increases we just talked about we've got the supply for our extensive stent grafts that I mentioned in my comments that we you know we've we've done a great job in building up our inventory, which if you look back in the first quarter. Our stent grafts grew in kind of the eight or 9% range and they're growing 19 now. So we expect to you know the stent graft business to.
Continue to you know you know.
Grow faster, we also have some new product launches in there that are going to are going to kick in and we've got some stuff coming out of regulatory that'll kick in so a lot of it like like any any quarter I mean, we've got projections for when we think stuff is going to get approved for when we think launches are going to roll out.
And that's that's really the difference so I mean, we're confident we can grow double digits. The question as you know if we grow you know 11 12.
The range is again, depending on how those things come together.
Got it. Thank you that's very helpful.
Our next question comes from Suraj.
Please go ahead.
Hi, Pat and Ashley This is a shame it's actually on for Suraj today.
Congrats on a great quarter.
I'm just kind of a start on our end and are looking at SG&A kind of jumped a let's say a decent amount about 64%. So my math is right just looking for.
Any particular reason for that that's a continuation that we might see going forward.
Just break it down a little please.
Yeah, absolutely take that one it's not a real the G&A.
Yeah. The the the biggest contributor was the a big Spike that we had in contingent consideration for the a M. D. S acquisition. So that was a non cash charge of about $11 million and you know I've made some comments in our prepared remarks that you know excluding the.
Amounts that I just described that adjusted SG&A came in at around $45 million roughly compared to the.
The previous year.
Yeah, I mean, the way I look at this I mean, that's an accounting gyration of an acquisition that we did if I look at the pure operations of the company. We grew the top line, 11% and our operating expenses grew 5%.
Yeah. So yeah. So the true comparison is around a little over 45 to two around 40, Duke in the previous year.
Perfect. Thank you for that I'm, just kind of thinking as well you know how should we kind of think of current on ex U S sites average utilization rate kind of what what's the room for growth there.
Yeah. So I mean Onyx is a you know plays and we have obviously got an aortic valve in a mitral valve.
That's about $250 million global market that we've been growing double digits since we acquired the company.
You know I'm not going to get into the specifics you can do the math on our numbers, but we still have plenty of room for growth. You know we've had we've seen some some competitors exit because we've taken so much share in some geographies that they've decided to exit kind of in other places so.
So we see we see upside really around the world products and you know we continue to put up double digit growth and we've also had to you know the mitral publication. That's you know people are very interested in that's you know even a better value than they are than the aortic. So I think with our go global channel and our focus on the aorta Oh.
Our relationships with customers and the strength of that product, we feel it's going to continue to kind of grow at the double digit range going forward.
Perfect perfect. Thank you for taking our questions.
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Our next question comes from Frank <unk>.
<unk> with Lake Street capital markets. Please go ahead.
Great. Thanks for taking my questions. Congrats on the quarter wanted to start with one on stents, Pat you alluded to it in your prepared remarks, but manufacturing has been a challenge clearly that came back really solidly. This quarter was hoping you could take us a little bit deeper into the status of that is there still work to be done or are you feeling pretty confident.
With your current capacity and how should we be thinking about that line item through the back half of the year.
Yeah. So if you if you go back over the last couple of quarters right. This is one that we've we highlighted that you know Q1 are really our only kind of like light performance was on our stent grafts, even though we hit the top line and the bottom line and we talked about you know the reason for that is you know kind of in this inflationary period last year, we were having a hard time hiring people in.
Our big facility in Germany, which is where we produce all of our stent grafts.
We put a big Big initiative in place in the fourth quarter of last year hired like you know 60 70 people.
Those are all hired in the fourth quarter and then we told you last quarter that they had to get trained in the first quarter, which they've they've done and we basically hit our production plan for the first half of the year. The team did a great job.
We're very well positioned we've got the people in place, they're producing and where we're set up well for the second half and going into 'twenty four would be the team that we've got there. So I think that is largely behind us and like I said the teams executed extremely well.
Okay. That's helpful and maybe one on on X.
I heard the comments on taking share I was hoping you could maybe bring us a little bit deeper on if that if there's another factor in there of the market just returning to normal and theres more market growth in that as well, but I was hoping you could kind of parse out the growth of their between share taking as well as any market dynamics that are occurring.
Yeah. So I think one thing that I mean, if if you saw you know one of the tablet companies reported that their their surgical business grew faster than their tablet business, which which is interesting. So I do think that there is a you know.
A kind of a growth overall in the market and we don't have you know great market data on that I do know that we continue to perform well in all of our regions all of our regions have been growing double digits I think the other thing is you know.
Whether or not that market grows we've got more data coming out on our on our on X valves. We've got at a you know a 500 patient post approval trial that'll be presented here. Shortly we've you know excellent data. So it's just a continuation of just you know pounding the drum on its the best aortic valve in the World and you know we just keep taken.
Sure and we've got a great sales team and they keep doing their job and you know as we expand internationally, where we're getting that message out as well. So you know again I think theres lots of room for us to continue to grow that business.
Great and then maybe the last one for Ashley just was hoping you could kind of parse through cash generation in the quarter I'm clearly a couple of factors that are non operational or not within the regular P&L related to the cash infusion as well as the the cash outflow to endo span and some cash generation of the business, but was hoping you could kind.
Bridges from the $31 million last quarter or two with a $49 million. This quarter and then help us think about cash generation through the end of the year.
Yeah. So you you're right Frank there there was a lot of noise in the second quarter. You know we had the payment into span we received the PMA milestone payment from from Baxter. So you know that there was a fair amount of noise in there and we when you when you back all of that.
We actually generated free cash flow of $5 million in the second quarter of this year. So yeah, we've been talking a lot about our focus on not only driving adjusted EBITDA higher, but but our focus on generating.
Generating cash as well so we're really pleased with where we ended up in the second quarter I don't think that we're quite at the point, yet where we're ready to commit to being able to generate a positive free cash flow are on an individual quarter basis, and a trailing 12 month basis, but with.
You know the trends that we've been seeing over the last couple of quarters, where we're very encouraged about where we are and we think that we're getting are very close to the point, where we will be generating free cash flow both on a quarterly basis and a trailing 12 month basis going forward.
Perfect I'll stop there thanks for taking the questions.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your Touchtone phone.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Okay.
No questions at this time, so that concludes our question and answer session I would now like to turn the floor over to Pat.
President and CEO for closing remarks.
Well listen thanks for joining the call. This afternoon and as you can tell you we had a great quarter, we have a lot of confidence in our second.
Second half I think we're very well positioned going into 'twenty for to deliver on our double digit growth on the top line and $75 million of adjusted EBITDA, So stay tuned and we.
It will be back next quarter, thanks for joining.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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