Q3 2023 Artivion Inc Earnings Call
[music].
Welcome to the Archer and third quarter 2023 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. As a reminder, this conference is being recorded.
I will now turn the call over to Lynn Morgen from Gilmartin group.
Thank you you may begin.
Thanks, operator, good afternoon, and thank you for joining the call today, joining me today from our 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 requirements of the private Securities Litigation Reform Act of 1095.
Comments made on this call that look forward in time involve risks and uncertainties and are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
The forward looking statements include statements made as to the company's our management attention hopes beliefs expectations or predictions for the future. These forward looking statements are subject to a number of risks uncertainties estimates and assumptions that may cause.
<unk> actual results to differ materially from those forward looking statements.
Additional information can change your any 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.
You can also find a brief presentation with detailed highlight on the today's call on the Investor Relations section of <unk> web.
Right now I'll turn it over to art, you've been CEO Pat Mackin.
Okay, Thanks, Blayne and good afternoon, everyone.
I'm pleased to report we made outstanding progress on our goals this quarter.
Here today. The team has made substantial progress across the board in the third quarter commercially operationally and financially.
In addition to delivering top and bottom line growth. We also achieved clinical development milestones.
As of today, we have two patients remaining to complete the enrollment in the pursuit of a clinical trial in October.
Also as he gets an honest clinical study results were presented at the European Society of cardiac surgery that demonstrated unprecedented clinical outcomes all.
I will detail these positive developments one by one starting with our financial results.
We delivered constant currency revenue growth of 12% year over year in the third quarter.
Resulting in $87 9 million in revenue.
Our strong performance was led by improved revenue growth in our stent graft business, which increased 22% followed by Onyx near 10% tissue processing, 12% when compared to the third quarter 2022 on a constant currency basis.
We're also benefiting from expansion of our commercial footprint through regulatory approvals and new geographies.
Our strong topline performance led to a $13 $9 million and non-GAAP adjusted EBITDA in the third quarter. This.
This is a 34% increase compared to the third quarter of last year.
We expect our strong momentum in the first nine months to continue through the fourth quarter and into 2024.
We're very optimistic about it.
Our future as we can.
As we've ever been.
At our Investor day in March of 2020 to be committed to delivering compounded annual double digit constant currency revenue growth through 2024.
Also driving further operating leverage and adjusted EBITDA of $75 million in 2024 again, we're reiterating our expectation to achieve these goals.
Our commercial team is also executing extremely well as I mentioned earlier stent graft revenues grew 2020, 22% on a constant currency basis in the third quarter compared to the third quarter of last year.
Driven by improved supply and strong performance in a MBS indexes.
We anticipate demand to remain strong for the balance of 'twenty three and beyond.
Bancroft products, which should continue to sustain our strong revenue performance.
Additionally, on X revenues increased 13% compared to the third quarter of last year on a constant currency basis.
We continue to take market share globally with the only mechanical aortic heart valve that can be used within INR, one five to 2.0 in the aortic position.
We believe our valve is the best you've already got in the market and our market share gains each you're clearly support this view.
Finally tissue processing revenues increased 12% compared to the third quarter of last year on a constant currency basis, primarily due to pricing initiatives.
As you May recall part of our organic growth story has been to expand into new markets.
We've done that effectively and have successfully expanded our operations in APAC and Latin America.
Through new regulatory approvals and commercial footprint expansion APAC and Latin America delivered constant currency revenue growth of 21, and 22% respectively compared to the third quarter of last year.
We expect these regions to be important growth drivers over the coming years as we continue to leverage our industry, leading product portfolio further into these regions.
In addition to our strong financial performance, we made significant progress on our clinical programs and saw extremely impressive data readouts for Onyx and M. D S.
Recent European Association for cardiac surgery in Vienna.
First I'm extremely pleased to report that we've nearly completed the enrollment for persevere, which is our IDE trial for the U S. PMA consisting of 93 participants who have experienced an acute type aortic dissection.
At this point, we only have two patients remaining to complete enrollment of the trial.
As a reminder, the combined primary efficacy and safety endpoints in this trial a reduction in all cause mortality.
Disabling stroke, myocardial infarction, and nuance that renal failure, requiring dialysis as well as the occurrence of gain tiers.
Our distillate <unk>, new entry tiers, which are associated with increased risk for re intervention and mortality.
Dan can occur in up to 70% of patients following hemi arch repair without aimed yes.
It allows continued blood flow into the false lumen created by the dissection.
And a result interim results of the person of your study, which is our FDA pivotal trial have shown there had been no day in tears detected in any patients treated with MBS nor were there any day in tears reported in the Dart study after three years of follow up.
As I will discuss shortly clinicians have so far seen incredible outcomes with Andy S across these end points.
Additionally, the FDA has granted US continued access for approval to continue are enrolling up to 40 additional patients in the persevere study sofas.
So physicians and patients who need can access to this life saving technology, while we preserve pursue regulatory approvals.
Following the one year follow up period, and assuming the trial meets its endpoints. We continue to believe that we should receive FDA approval for the Anda and yes device in the second half of 2025.
In addition, our partner Endo span is making progress on its U S IDE trial called triage.
For its nexus aortic repair stent graft system.
As a reminder, the PMA will be based on the results of 60 patients in the chronic dissection arm of the trial.
At this point there are 41 patients enrolled out of 60 in the trial.
Based on the current enrollment rate the pivotal arm of this trial should enroll in the first half of 'twenty four and after a year of follow up any year for regulatory review. This would put nexus on track for an approval sometime in mid to late 2026.
To reiterate if these PMA trials proceed as anticipated we expect FDA approval on <unk> 25 in Nexus in 'twenty six at.
At that time, assuming we exercise our option for understand these two products would significantly increase our addressable market opportunity.
At the recent <unk> meeting in Vienna, two of our products were featured in late breaking presentations.
First interim data from the MBS persevered clinical trial, which is a 30 day combined primary endpoint for data in the first 52 out of 93 patients that were enrolled showed clinically meaningful reduction of all cause mortality and primary major adverse events.
As a reminder, the safety endpoint for this trial is based on litter controls for patients with malware fusion.
And this reference cohort, 58% of patients had greater than or equal to one major adverse to that.
The target goal of this trial was at 31% reduction to reach 40% of patients with greater than or equal to one major adverse of that.
The data in the 52 out of 93 patients that was presented at <unk> showed a 21% of the patients had greater than or equal to one major adverse event, that's a 64% reduction.
We are incredibly pleased with it very positive interim results, which are demonstrated the life saving nature of Mds.
Including a statistically significant reduction in mortality.
No failure, callings, causing dialysis and myocardial infarction.
We expect this data will drive <unk> device adoption and hence revenue growth in markets, where <unk> is currently approved.
Okay.
Second data from our 510 patient Onyx heart valve or a post market study study with a follow up with a mean follow up of three four years.
Statistically lower composite primary endpoint of thromboembolism valve thrombosis and major bleeding.
These results were driven by an 85% reduction in major bleeding and a 73% reduction in all bleeding.
This data reflected in improvement in outcomes compare to the original Onyx low INR pivotal arm.
Which showed about a 63% reduction first published in 2014.
This is the basis of our current low end low INR label.
These data we are increasingly confident in our ability to Greg to gain further market share globally with optics is the only mechanical aortic heart valve that can be maintained at an IRR of one five to two point out.
Which is backed by recommendations from ACC and the American College of Cardiology, Neha American Heart Association guideline for patients with valvular disease.
Finally, I want to let you know we are discontinuing our pursuit of the lower R&R indication in the U S for on X mitral valves.
As we previously reported to you while the trial did not show an increase in thromboembolic or valve thrombosis event rates. It missed its primary non inferiority endpoint.
After several discussions with the FDA and which they informed us they would require additional clinical data to consider the indication for approval, we've determined not to invest in the significant time and resources. It would take to secure an additional the additional data.
We previously stated that securing PMA approval for low INR indication for the on X mitral valve was not critical for us to achieve our growth objectives that we've communicated.
Furthermore, I'm pleased to report that our on X mitral valve business has increased 18% year to date compared to the same period in 2022.
We believe this is partially due to the compelling clinical results for patients in the trial, who have been treated with the on X mitral valve and we're being maintained at a lower INR.
Based on the positive data from this trial, we do plan to seek a change in the existing guidelines for use of warfarin in connection with the on X mitral valves as we did with the on X aortic valve I want to thank our investigators and subjects who participated in the trial.
Before I turn the call over to Ashleigh I'd like to take a minute to talk to you about the impact of the G. L. P. One receptor agonist class medical device stocks.
Right now investors are trying to determine what the impact these drugs will have on medical procedures.
Over the past couple of weeks and.
Myself personally and our team have met with over 25, cardiovascular epidemiologist preventative medicine, cardiologist cardiac and vascular surgeons.
Regarding the potential impact of this class of drugs on the disease states that we treat specifically aortic valve disease in patients under 65, and aortic dissections and aneurysms.
Based on the clinical data published to date as well as the extensive research into risk factors. These diseases.
Our research indicates the GOP ones will not have any impact on our incidence rates of these diseases, we treat.
And a corresponding addressable market opportunity.
We've included two slides slide 11, and 12 in the presentation included in our Investor Relations section of our website that summarize our research.
More specifically regarding aortic valve disease. The patient population, we treat are under the age of 65. The primary risk factor basically is linked to a preexisting condition for those patients that have a congenital valve malformation called a bicuspid aortic valve, which make up about 60% of the patients that we treat.
Further there are very large studies with over 100000 patients that are shown there is no relationship between obesity and aortic stenosis or valve replacement in ages under the age of 65.
Based on our conversations with key opinion leaders and based on the significant data stemming from the studies on the matter G. O P ones will have minimal to no impact on the incidence rates of aortic valve replacement surgery in patients under the age of 65.
Similarly for aortic dissections and aortic aneurysms the primary risk factors, our preexisting conditions for those patients with this disease are familial architect connective tissue disorders, such as Maher fans high blood pressure smoking and high cholesterol.
Similarly, these very large studies for aortic aneurysms and dissections have shown no relationship to obesity.
Further GOP ones have middle and minimal impact on blood pressure.
Based on our conversations with key opinion leaders and based on the significant number of studies on the matter <unk> should have minimal impact on the incident rate for ear sections in aneurysms.
Furthermore, even if this category does have some minimal impact on our addressable markets you must keep in mind that the largest growth opportunities for our T V. On over the next several years is the introduction of our novel Stent graft technologies in the U S and Japan and.
In other developed markets around the world and in those markets, we're starting from zero.
So in conclusion, we do not feel GOP ones will have a meaningful impact on the incident rates of the disease states that we treat.
And even if they did have some minor impact the new addressable markets that we are eventually moving into provide ample opportunity for us continuing develop delivering double digit growth on the topline for many years.
I'll now turn the call over to Ashley.
Thanks, Pat and good afternoon, everyone.
Revenues were $87 $9 million for the third quarter of 2023 up 14% on a GAAP basis, and 12% on a constant currency basis, both compared to Q3 of 2022.
non-GAAP adjusted EBITDA increased 34% from $10 $4 million in the third quarter of 2022 to $13 9 million in the third quarter of 2023.
After generating $5 $1 million of free cash flow in the second quarter of this year, we generated $5 $8 million of free cash flow in the third quarter.
Accordingly on a trailing 12 month basis, we are free cash flow positive and expect that free cash flow on a trailing 12 month basis will continue to improve from this point going forward.
On a year over year basis in the third quarter of 2023 stent graft revenues increased 30% on X revenues increased 14% tissue processing revenues increased 12% and bio glue decreased 7%.
On a constant currency basis compared to the third quarter of 2022 stent grafts drove the news grew 22% on X revenues grew 13% tissue processing revenues increased 12%.
Total revenues decreased 8%.
To add some color on the decline in bio glue revenue. This quarter in Q3 2022, we did not have CE, Mark and we're using derogations to sell in Europe at.
At the end of Q3 2022 are derogations for the U K and France were set to expire.
So our customers ordered an additional one and a half million dollars in volume so that they would not run out of out of this important product.
As a result, we had lower Q4 sales in Q4 of 2022.
And we expect <unk> to return to growth in Q4 of 2023.
On a regional basis third quarter 2023 revenues in Asia Pacific increased 21%.
Latin America increased 29% in North America, and Europe, both increased 13% all compared to the third quarter of 2022.
On a constant currency basis revenues in Asia Pacific increased 21% Latin America increased 22% North America increased 13% and Europe increased 7% all compared to the third quarter of 2022.
Gross margins improved to 64% in Q3 compared to 63, 4% in the third quarter of 2022 the.
This increase was driven by price increases and product mix, partially offset by inflationary impact on materials and labor.
G&A expenses in the third quarter were $51 1 million compared to 41 $1 million in the third quarter of 2022.
Excluding charges, which primarily consist of adjustments to the fair value of contingent consideration related to the Cyrus acquisition G&A.
G&A expenses were $44 7 million for the third quarter of 23 compared to $39 9 million in the third quarter of 2022.
R&D expenses for the third quarter were $6 $4 million compared to $11 8 million in the third 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 $8 $2 million includes $6 $3 million and net interest expense and foreign currency translation losses of approximately $1 9 million.
On the bottom line, we reported GAAP net loss of approximately $9 $8 million or 24 cents per fully diluted share in the third quarter.
Net loss for the third quarter of 23 includes pre tax charges of $6 $2 million related to contingent consideration for the acquisition of Andas and the impact of valuation allowances on deferred tax assets.
non-GAAP net income was $749000 or <unk> <unk> per share in the third quarter.
non-GAAP net income includes foreign currency losses, and excludes business development and other nonrecurring charges.
Okay.
As of September 32023, we had approximately $53 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 our updated outlook for 2023.
Given our performance through the third quarter, our pricing initiatives improvement in supply of stent grafts and FDA approval for Brookline, we are raising our revenue guidance and now expect constant currency revenue growth of between 11 and 12% for the full year compared to the previous range of 10% to 12% we.
We expect revenues to be in a range of $349 million to $351 million compared to our previous range of 342 to three three hit $350 million.
With our strong third 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 also 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 we believe our options to address our capital structure will continue to improve.
And finally, our term loan B contains no financial covenants to maintain 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 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 before just greater flexibility as we continue as we consider 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've just heard our business is performing extremely well we exceeded our revenue goals increased guidance continue to expand our markets and advance our clinical pipeline, which will meaningfully expand our addressable market approvals are gained.
These combined factors makes us confident that our growth prospects through 'twenty three and beyond.
We expect future growth to be driven by the following.
First our continued strong growth in our stent graft business, primarily due to our improved supply and product adoption.
Second.
Our accelerating a MBS growth driven by the 30 day Persevere study data that was presented at <unk>.
Showing a 64% reduction in major adverse events compared to literature control.
Third continued market share gains for Onyx driven by the recent 510 patient data that was presented at <unk>, showing an 85% reduction of major bleeding.
Fourth growth in our proprietary STP.
<unk>.
Which is driven by price increases.
Both of the Ross procedure, and our increased ability to deliver from a supply standpoint.
The continued growth that we've seen in Asia Pacific and Latin Latin America from our channel investments and our new regulatory approvals.
Six our continued growth in part due to the PMA approval in May of 2023.
And finally in the midterm a robust a robust clinical pipeline more specifically the completion of patient enrollment in the Mds persevere trial.
Continued enrollment in the <unk> Nexus Tramp trial <unk>.
Combined we expect these two opportunities to significantly expand our total addressable market and 25% and 26.
We have delivered on consistent double digit revenue growth this year and as you just heard we had great momentum as we finish 'twenty three and head into 'twenty four.
I will wrap up my comments with some thoughts as we head into 'twenty four.
First as we commented our March 'twenty, two Investor day, we are committed to delivering double digit revenue growth.
We have made the necessary investments in our channels, our factories and our pipeline and you will see the continued benefit of those investments in 'twenty four.
As such our plan is to deliver $75 million of adjusted EBITDA, 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 addition on a trailing 12 month basis, we are cash flow positive and expect that free cash flow will continue to improve going forward.
Finally, I want to thank our employees around the globe for delivering an exceptional third quarter with that operator. Please open the lines for questions.
Thank you ladies and gentlemen, the floor is now open for questions.
Have a question. Please press star one on your telephone keypad at this time once again Thats Star one if you do have a question or comment.
And we'll take our first question from Rick Wise from Stifel. Please go ahead.
Hey, Pat Hey, Ashley This is John on for Rick Today, I, just wanted to start off with the two kind of really encouraging datasets. We saw at <unk> 23, and maybe how we should think about those and the impact it could have potentially on financial performance as we look into 2024, just specifically I want it.
Here are you hearing anything from the field.
Just what are your reps are saying what they are hearing from doctors could these datasets, both potentially be growth accelerants as we look to next year and.
You could grow even faster and expand margins greater than expected.
Yeah, So maybe I'll take them one at a time so that the two datasets that I referenced in my comments, where the Andas persevere that was the first 52 patients out of 93.
I think the overwhelming overwhelming feedback from clinicians is this just kind of game changing data.
So we're not we're not we're about to finish the trial will get the full dataset and hope we have that presented in January.
But youre seeing a 64% reduction in major adverse events versus the literature control that we're being we're using with the FDA. So as a reminder.
The patients have acute type I'd Adi sections with malware fusion right, so blood going in the wrong false limit.
In the literature control if you look at the average of those results.
At least one of those.
One of those patients had 58% or 58% of patients had at least one major adverse event.
The bar that the FDA set was around a 30% reduction to get to 40%.
We delivered at least in the interim analysis are 64% reduction, which is a 20% of the patients had a N a.
Huge change statistically significant difference in mortality Ah patients requiring dialysis and so we expect that I mentioned is we expect that data as it gets around.
We will continue to drive the growth of MTS, which is already growing very rapidly.
I think it portends for a for a very big opportunity in the U S. Once we launch that.
I think the second one on the on the Onyx post approval data. That's a 510 valve study that's a very large study.
And as a reminder, the original Onyx.
Below INR study, which we're the only company that has it we showed about a 63, 63% reduction in bleeding and Thats, what the PMA and the.
Expanded label is based on this was a post approval trial required by the FDA and in kind of real world patients.
We're about three five we have three four years of follow ups and those patients are there'll be more data presented at Ats in may but.
But you're basically seeing an 85% reduction in major bleeding and a 73% reduction in all bleeding. So it just further contributes to the body of evidence around.
The on X aortic valve and nobody else has it and we're just going to continue to go after market share with a with a market leading technology.
Thanks, that's helpful.
And then.
As a follow up here, you talked a bit about ramping adjusted EBITDA.
75 million next year and Youre growing strong so far this year, 30% this quarter Mike.
My question is I, just wanted to better understand the inputs for getting there I get that the double digit topline growth is critical but were also going out to see some leverage on the on the G&A and the R&D line. So I'd just be really helpful. If you could kind of talk through how you're going to generate that leverage how quickly it's going to be more visible.
And then just kind of the ramp throughout the year.
So it's there's multiple factors that I mentioned some of them in in kind of my closing right. So we have a lot of things going in our favor right. We just talked about the Mds data, we've talked about the onyx data the.
The other big thing is our.
The center graph pulmonary valve is growing very rapidly the Ross procedure.
The data on the Ross procedure, that's come out is phenomenal that procedures growing extremely rapidly where the market share leader by far and that we.
We've taken some price increases there, but we've also done a lot to improve our supply.
So with that that's going to be a real growth driver for next year. So this year a lot of it was pricing next year, you're going to see a lot from a unit standpoint. So we expect that pulmonary valve business to continue to grow that's one of the big contributors.
I think the other piece is I mentioned in my comments I mean, we're building a company here. So we've invested heavily right. We've invested heavily heavily in Latin American Asia Pacific, We've invested heavily in our pipelines our factories clinical.
Clinical trials all of these things that we're talking about and it for 2024.
We've made the investments we are delivering double digit growth and youre going to see us drive rapid EBITDA acceleration by the top line comments that I made as well as.
Managing the middle of the income statement, because we basically made the investments we've needed to make and youre going to see a significant drop through on the P&L next year.
Great that's helpful and just if I could sneak one.
One more and I just wanted to better understand the price versus volume contribution to the third quarter growth and how we should be thinking about that for 'twenty. Four is there a potential with these two.
Two datasets to potentially increase prices again or are there any other areas you might be targeting for a price increase.
Yes, I mean, we we look at we look at pricing every year and we've taken some pretty significant price increases where we have highly differentiated products, which again is the majority of our portfolio. So.
So we will look at that on a case by case basis, but clearly that is going to be another focus for us in 2020 fours where appropriate to take additional price increases.
Thanks.
Okay.
Thank you and we will take our next question from Suraj Kalia from Oppenheimer. Please go ahead.
Hey, this is seamus on for Suraj, congrats on the quarter and thank you for taking our questions.
Just kind of looking at Onyx you know how should we start thinking how should we have thought about the same store new store same store still sales and <unk> and kind of <unk> and thoughts on 24th of that as well she can.
Yes.
We've we've delivered 13% growth in on X for the last five years and it's been a combination of.
It's not just so when you when you think about a hospital, sometimes we'll get we'll get into a new hospital with one surgeon and other surgeons may use another valves. So yes to your analogy same store, but then expanding in those in that store with other surgeons. So we've had.
Good penetration.
Into accounts, we still have more to go there.
This expansion in Asia, and Latin America, we've seen very nice growth in those markets.
So I think the data is just out I mean literally this data is not even a month old. So our commercial teams are just getting out there.
Making their rounds with the clinicians, but we're gonna be very aggressive and we think there is this is the best valve on the market and there's no reason people should be using another one.
Because they don't have the data so we see this as a big opportunity for us and like I said, we guided a year and a half ago. We told people we could grow on X 10 to 15, we've been growing at the higher end of that range.
We're looking at more of the same going forward.
Got it thank you for that.
One quick one for Ashley how should we start thinking about FX exposure as we move into 2024.
Well as we round out the end of 2023 we certainly.
Have a little bit of a tailwind.
Again with the majority of our O U S business being in Europe.
No.
Relationship that we pay the most attention to is the euro USD and again, we should have a little bit of a tailwind.
And in the fourth quarter of this year, if you look at the forecast for 'twenty.
'twenty 'twenty four and again, we just look at the consensus you know we're not at this ethics experts, but we look at the consensus in the.
The consensus right now indicates that the dollar should start weakening.
From these levels.
Going into 'twenty, 'twenty, four which again should create another tailwind for us if that in fact happens.
Got it. Thank you and just one kind of last one if I can sneak in.
What are your kind of thoughts on these low risk tower sales that were presented at TCT for partner three.
Luke.
And how it relates to you guys.
Yes, I think.
<unk>.
We saw a.
<unk> press release that came out from both the STS and the European Association of cardiac surgeons and we can make that available to you.
It was it was pretty direct basically saying.
I can read you the comments from this is from the press release from the two biggest cardiac surgery societies.
Given that the fastest growing operation in the STS National database over the last five years as tab our explant.
We advise that more follow up in time, you're giving to the existing low risk trial before invasiveness in this patient population.
They also make a bunch of comments about.
That there, they're comparing apples and oranges, it's about 26% of the patients.
In these trials.
The savvy group the surgical group had a concomitant procedures done with it whether it was a cabbage or whatever which comes with a higher risk score.
And so that.
This is again, a direct quote we call and investigators for both partners three and evolute low risk trials published their results for isolated savard versus isolated to have her and see what the real data is in the final comment was we recommend caution prior to adopting <unk> first strategy and low risk patients, particularly those patients with characteristics not specifically.
And these trials so tell me what you think about that.
Sounds like Ross does that complete your question.
Yeah, Yeah, sorry, thank you.
Yes.
I would encourage you guys look this is from the surgeons. These arent might work. This is the two most powerful cardiac surgery societies in the world that issued a joint press release. After those two two trials were presented.
I appreciate it thank you.
Yeah.
Thank you and we will take our next question from Mike Matson from Needham. Please go ahead Mike.
Hi, This is Joseph on for Mike.
And congrats on the quarter and we do appreciate the commentary on the G. L. P. One.
Impact or I guess lack thereof.
Looking at stent grafts.
We've seen like four quarters.
Acceleration at least on a reported basis.
Just kind of curious.
What does all this strength coming from.
What's going on with that do you expect I guess based off of the guide.
It looks like there are any.
Continued acceleration into the fourth quarter, maybe not.
If you could just frame 2024, especially in that.
On a segment for us that would be helpful.
Yeah. So we you know what we talked about it in the first quarter right. We if you go back a year, we were having challenges hiring people in Germany, and we end up having to raise labor rates and we hired 100 people in Alaska.
Six months.
Q4, and Q1. So we are fully staffed we are we've got a brand new facility is operating on all cylinders, we delivered 100 and our operations team delivered 100% of what we asked them to we have full consignment, we have full inventory and that was frankly the rate limiting factor for us. We we only grew eight 9% in the <unk>.
First quarter and I told you back then watch what happens when the supply kicks in and we grew 19% in the second quarter and 22% in the third quarter. So.
We're well positioned and what's driving the revenue as the products right. We've got some great new products.
And a great sales team and.
And we expect to keep doing more of the same and it's a very.
Terry portfolio and the fastest growing segments of the stent graft market. So again, we're very very bullish on on that that technology continuing to grow.
Okay.
Okay, Yeah, great. That's that's that's.
It's helpful. Thanks, a lot of sense.
Yeah.
And then I guess just one more.
You guys laid out the EBITDA expectations for this year in 2024.
Yeah, I'm talking a lot about operating leverage but I was wondering if you could maybe get into any potential gross margin expansion.
And in the slide deck.
I guess the question essentially is.
How much gross margin expansion is it more just.
Back to some of the historic levels you guys think you can go beyond that into that even the higher 60 is $16 69.
Yeah. So so we arent given I mean, we keep commenting back to this investor presentation that we did.
Almost it was March of 'twenty two.
So you know.
18, 19 months ago, where we talked about we're going to we committed but at that point to double digit topline growth.
$275 million EBITDA in 2024.
We're not giving I'm not giving revenue guidance for 'twenty four.
The 75 is pretty much where we're at on the on the EBITDA, so but as far as gross margin I mean, we've had to swallow a lot on the on the inflation side between materials going up between labor rates going up.
So it's really not going to be driven by by margin increases next year now, we're gonna be working to get them up.
But it's not really a margin driven thing, it's really a top line revenue.
As well as some some really nice performance in some.
Some of our product lines above what we originally thought they were going to do.
Where we have very strong positions and also that I think there are some pricing opportunities, but I'm just not I'm not giving gross margin details yet we're not that far along in our planning process to get out 2020 for gross margin.
Sure Okay.
That's fair enough congratulations on the quarter and continued progress to you guys.
Thank you.
Thank you and we'll take our next question from Frank.
From Lake Street Capital. Please go ahead.
Great. Thanks for taking the questions I wanted to follow up on that the double digit growth guidance, you've put out there Pat I think it's been talked about a couple of different frameworks today I wanted to ask a little bit more specifically on gross bright product line I know throughout the Investor day its stance, leading the way then on X and then.
Preservation, and bio glue and they're in the single digits or lower single digit range. It feels like you add all that up and we can make 10% relatively easily achievable. If if I can say that maybe it's.
Downplaying it too much but just was hoping you could kind of walk through that thought process and how you think about growth from each line item and 24.
Yeah, no. It's a good question Frank.
I think the difference is from if you go back to that Investor day.
We basically said we thought we could grow stent grafts 15 to 20 I think that holds we've been up at the upper end of that range of late.
We said on X should grow 10 to 15, we've been at the upper end of that range of late.
I believe we said it was kind of a low single digit item. It was a little off this quarter because of what actually commented on it wasn't anything material. It was because of the derogation last year I think that still holds.
I think the big difference is we said kind of like 5% to 7% on tissue I think thats, where there is upside.
Because of some of the things that this Ross procedure, which is a great operation in patients under 60 for their aortic valve.
The data that's come out on that is phenomenal and Theres just a huge grow.
Growth in that operation in all the major aortic cardiac centers.
And we this year, it's been more we benefited more on the pricing side, but we've put things in place to significantly enhance our production.
And it took me to meet the demands of that growth. So we expect that to be a major contributor I think that's the one segment that is going to go up from from what you guys have from the Investor day last year.
18 months ago.
Got it that's helpful color and then maybe on on X more specifically, we've talked about this market in the past, but I think it's been out at least a couple of quarters since we've talked about the the entire.
Mechanical aortic valve market clearly your do you continue to take share outpacing market growth.
Can you, maybe just talk a little bit where the market stands today and kind of how much more market. You think is available to take and then how that's going to.
Compared to market growth or pricing increases over time.
Yes so.
The worldwide mechanical valve market is around $250 million, it's not perfect data because it gets loose when you get outside the U S and Europe.
It's about a 250 million market for aortic and mitral.
And depending on where you are in the world. So far for example, our market share in the USA. Arctic is is probably over 60 at this point. So we've still got 40 40 more to go.
It is lower in Europe, and it's way lower as you get outside the U S. So we've got lots of room to grow.
Internationally as well as in Europe, and the data that we've got out right now clearly as a as a catalyst for continued on its growth going forward.
Perfect and then maybe for the last one just for Ashley If you could talk about free cash flow you guys have put a couple of quarters together in a row now with good cash generation balance sheet looks better each quarter. So maybe talk about anything you're comfortable sharing about free cash flow expectations on a go forward basis.
Yeah, you know Pat has mentioned this a couple of times, we are going to give out our formal 2020 core guidance in February of next year.
We did have a second quarter of really strong free cash flow generation and we've done a lot of things internally to focus on that whether it's expense control or a better working capital management, it's something that we're laser focused on you know I made the comment in the call.
That we are now free cash flow positive on a trailing 12 month basis.
We expect that we will be free cash flow positive on a trailing 12 month basis going forward and we expect that to improve.
Each quarter and as we move forward.
Perfect I'll stop there I appreciate taking the questions and congrats on a solid quarter.
Thanks Frank.
As a reminder, that star one if you do have a question.
And we will take our next question from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.
Uh huh.
How are you.
Jeff Jeff.
Just a couple of short ones from.
You've addressed many of the issue so was there an update.
A quick mention about political.
<unk> was there an update as far as manufacturing over the past quarter and what that looks like on your end from a manufacturing and we're transferring that at some point.
Yes, so we basically just as a refresher. So we're currently producing per clock for Baxter they've done a very nice job with the product.
And kind of meeting exactly where we thought they would be.
We basically.
We don't have perfect information, Jeff on this but it looks like we will we will be producing per clock for them all of 'twenty four.
And maybe into the first first half of 'twenty five and again it will depend on how how their transfer goes and we will have I think as we get closer we'll have better data, but I think for what we're expecting to have it in all of 'twenty four.
And then we'll know more kind of mid to late 'twenty for how they're how they're transfers looking so that's about as good as I can do for right now.
Thanks, That's helpful. And then secondly could you talk a little bit about.
<unk> commercial channels.
Ex U S as far as some of the territories.
Went from.
Direct to distributors and will any of those be moving in the near future or is there something on your to do list as far as some of the territories moving.
Either direction.
Yes. So we had as you noted we've had a pretty deliberate strategy over the last five years.
To build out our channels in Asia Pacific and Latin America.
When I joined the company nine years ago, we had one person in Asia and nobody in Latin America now, we've got probably a team of 25 in Asia and Africa.
Probably a dozen people in Latin America.
We're going to we're going to basically for 24, we're going to slow down the investment there I think we've got good infrastructure.
There's more to do but we're not doing in 'twenty four I think we've invested what we need to invest for where we are as a company.
We did for example, we went to a direct increase this past year.
Kind of in our European region.
Well look we'll look to do those things from time to time, but not in 'twenty. Four so we're kind of our channel. We've got about 185 direct reps right now around the world and we're we're we're kind of fix there for next year and Thats part of the why Youre going to see the EBITDA drop through because we're not going to be investing in and further channel expansion next year.
Yeah.
Okay perfect that does for us thanks for taking the questions. Thanks, Jeff.
And that was our last question I'd like to turn the floor back to Pat Mackin, President and CEO for closing remarks.
Well, thanks for joining the call and as you can tell we're extremely.
Positive about how things are going at the company. We've beaten raised every quarter. We had a great Q3, we kind of are hitting on all cylinders, we've got great new data or.
Our factories are firing on all cylinders, we're delivering the numbers. We told you we would deliver and we feel very confident about our ability to deliver double digit growth next year with 75 million of EBITDA. So look forward to next quarter, and we'll be giving out our 2024 guidance. So thanks for joining.
Thank you 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 great day.
Okay.
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