CRY - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the CryoLife Q3 2017 Financial Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Mackin, Chairman, President and CEO; and Ashley Lee, CFO for CryoLife. you. Thank

begin. may You

Ashley Lee

thanks CFO the of and Ashley I Lee, the CryoLife. for morning call. joining am Good

Before made we XXXX. predictions uncertainties, requirements statements The to the are begin, forward-looking Comments in these These Litigation as following Reform the cause Securities statements. statements statements hopes, time I of or Reform within made to of estimates would like or comply include Litigation Securities expectations and that forward-looking Private Act may the the to from that of forward-looking in actual intentions, management’s with risks, involve this meaning of assumptions a Safe look of risk number forward-looking Harbor Act subject of call Company’s Private to to the statements results XXXX. materially future. make and forward the statements beliefs, are the and differ uncertainties

risk contained release these issued and the impact press night. uncertainties that may in Additional filings in SEC time-to-time information Company’s last from concerning and that is we statements forward-looking the

it to Now turn over will our Mackin. CEO, I Pat

Pat Mackin

Ashley, morning and Thanks, everyone. good

are towards goals about short accomplishing my for I’m where we progress with we already on out objectives CryoLife. pleased capitalizing behind rationale times into relatively we’ve in talked why I share my say do. a believe set I I and time we period a made and we before first the significant you to the standpoint. company a Before to potential when what many that of wanted are to joined considerable company. I’ve dive think to quarter, the understand the from results the we strategic as important thoughts It’s our strategy

our next been fee, more a anyone if experience past implementation people years, small compete As – significantly has organizations. we phase which and when have large opportunities the we will we seen of through to our larger considerable by become are we starts The and we will we’ll made acquisition growth. to place you’ve executing that three that JOTEC operate during product highly of with products and legacy address entrenched been as in is, we in markets. That and product strategy, to the portfolio with the running come our the a all no customers. marketplace. meaningful you’ve far but competitive Moreover kept strategy, portfolio in of acquisition transformation closed opportunities profitable company is significant acquisition That following, ability down CryoLife Upon leadership regarded highly a when divestiture. put will well be and be there post that JOTEC our changes strong in product the in with result, and for

especially in continue Furthermore, we growth in initiatives accounts. to new As and to well sales are larger as if clinical compete our products our forces successful, them new markets. larger will market perform introduce our

Under JOTEC. On-X On-X soon our advantages believe as in meet that that JOTEC this are products M&A they Moving standouts acquired to and categories. be standard. easily our we And and competition. products truly and their the products, onto our of strategy, seek acquired over We competitive

highly first of will XXX the business removed all differentiated had educating our the markets. from share from acquisition, been advanced numbers, the direct on competitors. our enough We But the taking double-digits even and the today products you’ll sales full JOTEC As physicians are key first essential direct of in time. quarter Benelux hear It’s to when reps noises grew we direct and over a have hospitals today. world has for performer not a technologically Upon completion a the to On-X have these products strong the advantages carry On-X powerful by detailed Canada. of in products sales organization. quarterly The many around

even this We of place company make only not products that to in growth the in but maximize will development believe soon drive the sales we go-to offer years be its pieces dynamic position BioGlue many management to the this and PerClot ever solution clinical be before. will to markets products from bottom the value The to business more the programs. equipped the also our an will China coming is portfolio. the excellent investments CryoLife level, the solutions in in serve. our in in in new than We including on and channel our line in is customers portfolio, The the with

the introductions from that revenue on the Our market work have our in hurricanes, reversal the the effect product is I’m be the acquisition quarterly dramatically which just of delay potential explain potential will shortly. the back coming getting and clinical Europe, getting Without optimistic ways, CryoLife years. recent is an JOTEC. increase line will by terminations. trial strategy and impact to of quite the AAP are we’re They the top of company I Despite our hold exceptional and in well new in many and off so taking performing very distributor question, pending topped started. in

the will our with the why acquisition, are JOTEC understand call replay listen be get board. a last that so to JOTEC urge webcast month be up the chance I soon better to you on -- to didn’t you discussing we If call to delighted

objectives the put provider cross arteries. this stronger our position our focus key other a recent my Following to the of be by execute. and our ahead aortic task disease in detailed solutions, up a The followed treating your of will questions. we’ll we sell products is and review on aortic transaction quarterly now review products. key us XXXX iliac then a I the from third acquisition to provide will And root results who financial Ashley provide to quarter to open of

$XX full representing emphasize that revenues of That the discussed. XXXX in that our a over growth will shattered the our I to performance for year XXXX, quarter achieving is financial our strong million guidance. XXXX the we in the third upon the of business remain want decrease the in initiative positive just X%. by headwinds key so first was JOTEC. potential three In substantially Our fundamentals Unfortunately business long-term increase demand delivered the said of of closing I And pending our company does products. and of the of acquisition

which XXXX delivered puts Regarding full EPS year earnings, our we third on to of us meet per track $X.XX quarter share, guidance. our non-GAAP

markets, for in post including On-X direct our the markets On-X European X% key to our deliver Our terminations us. in XXXX that effects for XX% I not acquisition North those increased the JOTEC. on third of growth which XXXX. non-GAAP continue double-digit OEM and revenue the business third digit to we On-X our of in portfolio our direct the quarter we compared the markets, On distributor objective In the anticipation in available low-double for did second that of excludes the have growth am growth revenues We fact to report is and to XX% of markets. portfolio in basis up pleased despite direct expand pending that America quarter On-X were AAP to

distributor million, salesforce added of on is were On-X the continues XX basis non-GAAP the excluding terminations U.S. new In the during On-X total which quarter. $X On-X third were but excluding with accounts excluding the to a OEM. OEM Our million, accounts effects X% a open revenues $X revenues around new business increase

sold portfolio of We’re potential when going the our of to in continue On-X growth growth of the markets the experienced products team. an direct directly double-digit On-X sales is indicative by

Canada sales in half model. July. to revenue transitions third key Our impacted in Canada direct the We channels Benelux XXXX. to initiative June our These our from in in XXXX for distributors sales and Benelux and transition is in first of commenced in direct

and and We’re now portfolio user benefit to margins. in end markets those of sales from CryoLife achieving beginning pricing direct

continue now patients in under trial. pace in IRB full activation Our China. currently growth are revised initiative pursue each further is protocol, the to our sites, enrolled study, PerClot a we are In including at PerClot fourth the enroll for restarting in the key BioGlue sites, in to and U.S. PerClot the site company in starting month. XX XXXX in clinical approval Since for where study being the programs we drivers have to to faster XX

We have in expect this patients end and by activated We be the to to enrolled sites rate additional into approval remain enrollment study over the with year. now the seven our add XX XXXX. FDA track six of to on for

for the delay For enroll and on China, of second China. the track trial in issue study now experienced been we sites BioGlue seven China conducted patient BioGlue That we product of sometime will in in eventually we with in customs. Overall, to XXXX. has the resolved approval any day believe for the remain major getting cities we and first half in being now in a

Our to potential and new significant acquisition we on fifth to intent to JOTEC year. the development focus enhance before cardiac we surgery. XXXX this opportunities opportunities. Clearly, our this our focus made key we expect vascular in shift initiative in similar with and synergy still the critical close We which business of front to and realize JOTEC, mass pending progress evaluate to business for integrate On-X, the potential delever is to

believe the will briefly acquisition me transform highlights of our Let the transaction, this we how recap business.

$X the us market. First, billion JOTEC graft access to gives stent plus

almost technology successfully using the of large ones portfolio. ongoing new This pull in that new products competitors products. their will is for for with JOTEC impressive Although, fairly compete differentiated introductions with less which next more we’ll innovative their believe the growth, JOTEC development, of through They’ve generation also branch small R&D an multiple portfolio cadence Second, the entire has effective including support provides their its decade. product ask due differentiated to products next products to pipeline been us in plan robust against in

significantly you addition announcing profile JOTEC This the a company opportunities diversified has Third, plus our sales next accelerates in family over selling of will JOTEC opportunity Germany altogether, a team sales have to over call Europe. ground deal. existing Ashley time. beyond by stream. encouraged to bring JOTEC and CryoLife it in interact We When strategy the I the review. the around to period, been JOTEC operating positive, portfolios. also over generation. person the will able will After margin, financial flow be growth, the JOTEC’s profitable, we the future acquisition the in market. growth Europe. and infrastructure non-GAAP be of most we catalyst is gross after cash accretive expect the in With five margin, CryoLife expect significant cash turn potential our direct product his excitement have transaction, for their teams, to our earnings to the expanded JOTEC’s will with the team products We’ve across cross had sell that the anticipate years, in the XX Since team. now commercial and to we’ve differentiated revenue integrating flow change revenue U.S. the this will financial

Ashley Lee

I $XX million. third will review Pat. year, the results Thanks, quarter X% total quarter. decreased company to now the Compared revenues prior of the to our third for

due quarter, our direct as XX% Revenues affected tissue distributor affected were Revenues Third million, in year. more on QX, basis of by $X Revenues overall quarter million the tissue without Revenues basis some third signs the in primarily processing quarter Florida U.S. an the were AAP recent Pat prior like affected estimate region basis, with and European year-over-year, the third seeing million million, America. million $X.X negatively negatively revenues the of QX a a approximately due On-X million processing from American are to year-over-year terminations compared the the to were hurricanes America revenues result negatively XX% AAP. for revenues individual markets quarter, X% includes down and in $X.X I’d a On-X were basis On recovery XX% OEM Latin and year-over-year by On-X quarter for during and third in distributor to earlier. European to and result in year-over-year. tissue as decrease on time Brazil. million, XX% $XX of flat the of million quarter, affected markets mentioned even the three which and were XXXX. this a Canada from up decreased Latin geographical unavailability adversely decreasing X% on our where revenues the in third recorded factors by distributor quarter a the this product in on impact for for On-X, by patterns. percentage for lines Texas. associated previously Asia On-X Overall, were $X.X including hurricanes. the region quarter region were revenues, that spend the North ordering in Pacific focusing $XX.X revenues We revenues of specifically on processing direct down revenues the million. of up buybacks. the reversal were $X in the that in a North million Total and for third Despite BioGlue. Europe, of $X X% On-X were our excluding for increased were $X.X from XX% of America, we $XX.X and revenues Asia-Pacific

BioGlue processing remain business. increased X% increase X% decreased in on the in year-over-year on Cardiac about year-over-year During for shipments. our second X% revenues in ordering patterns, $XX.X of X% X% the our and indicating a $X.X BioGlue third tissue million. a that confident previously procedural unit XX% vascular processing of XXXX. in year-to-date XX%. prospects full in a quarter have expanded the is BioGlue in revenues QX, American from the revenues overall the year-over-year want underlying to unit tissue up was decrease results quarter-to-quarter orders decreased from distributor O-U.S. Japanese is year We an XXXX. largest, spoken year-over-year market growth the shipments. with even the $X.X the of in distributor, for North about. million our X% have in to consistent third indication to The which some year-over-year, phase quarter is which competitive decreased product BioGlue increase we were quarter from revenues million, vary expectations decreased growth we distributor point that year-over-year following our trialing X% of revenues inline This Japanese our from of late following what which been and increase out we orders with as are

approval upside outlook XXXX. expect in in our anticipated BioGlue and Brazil, to to strategy in in improving markets go our an in continue regulatory O-U.S. We direct from ongoing select China

overall third gross the gross Tissue and margins processing margin the XXXX. margin quarter was XX% third was for XX%. in Our of the quarter for XX% compared XX% quarter gross to product were

to initiatives, over third that $XX.X SG&A in recorded quarter forward gross development business years. on million exercise to improve a were expect third $XX.X and related tax benefit our will $XX.X we vesting related execute million, As to the move compared million in stock previous during and quarter in quarter stock coming were million, growth We we very large of margin expenses, this expenses SG&A and XXXX. of the efficiency $X the the in continue conference call. expenses situation further options. We our awards the of non-qualified excluding discuss

rate fourth the tax the vary transaction Going once acquisition certain to forward, year to due transaction guidance JOTEC may our and to our closes. for expenses full of compared non-deductibility the related significantly the quarter

of income release these share. about XXXX of $X.X our GAAP results reconciliation reported a results quarter third refer or our share line, per for diluted the GAAP results. net per non-GAAP Please bottom non-GAAP income and $X.XX to we information million million the $X.X press including fully additional On or in to $X.XX our of of net

we October approximately in securities. of XX, cash As $XX equivalents and cash, XXXX, had million restricted

the million Following revolving excess regards that hand $XX and $XX arm we met the In ratings be we an York to in credit anticipated of million later this estimate begun in our the under JOTEC of and with the will JOTEC quarter. closing will cash currently syndication facility. on transaction, have to complete upcoming that the financing, we efforts we have estimate transaction We recently process. in New loan agencies closing

issued in from that XXXX puts range any $XX full release range $XXX adjusting our XXXX million an in million. $XX and in year $XXX between to last detailed excluding million revenues be We revenues as will total which we expected guidance financial contribution believe JOTEC night. We of quarter fourth the are press of million, the between

orders in in from receive expect $X.X fourth the $XXX,XXX up to up the during quarter orders provides guidance lost and revenue AAP fourth to terminated distributors we quarter. Our no longer million in that to after

undoubtedly a European by of temporary channel to revenue reflects during salesforce updated commencements due realignment disruption reduced in territory selling the the salesforce combined the fourth the integration quarter days guidance the in Additionally, and complete, sales quarter resulting the once will on factors are from performance, and we as training. will the fourth offsite positioned we but extremely XXXX. weigh head into These training well revenue integration be for success

of my I’ll line, We year-end financial issuing non-GAAP $X.XX income to share XXXX of bottom and the On $X.XX. conference comments, year during to guidance concludes our over are reiterating early full turn Pat. guidance initial our XXXX call. anticipate our That we in financial March it per

Pat Mackin

Thanks, Ashley.

type and heard at our yielding issues processing and U.S. competition, them in point news expected. you hurricane. we BioGlue results overall well for still despite to the that need that growth in performing to grow with we even as short us fairly a where sets order very be expect Japan tracking had is line we year-to-date, the the to plan to strong behind track continues few morning, is that is So, of a direct, and this is confident we’re work considering strategy The like you’ve away up take the is to on call business the the through our us effects good from already XXXX. On-X tissue we’re performing in double-digits I

direct is JOTEC will Canada objectives. the Our team and complete Benelux of acquisition transition and our fulfill a to acquisition in pending

be will and advanced the take R&D sizable On on products will to global top level. experienced team JOTEC sales that our stronger of our with high a champion board. margin significantly that, and capabilities operate next company to soon this will We be able

pipeline this been Our new never full. has exciting or product

large markets for that ongoing potential new trials have markets open us. expand to clinical existing and the have up also We

all in we deliver to single-digit position result key in high these goal growth our of As are factors, an a starting of now excellent XXXX.

thank I’d employees exciting truly poised JOTEC the and you I that, CryoLife at and for to our to for now of reach times questions. moment. are this open open will their lines the all lines? Finally, allowed Operator, we success. us for contributions are please sincerely employees can the These believe like quarter that With we this great

Operator

question-and-answer go Thank first At comes will today conducting Mills Genuity. time, [Operator we you. question Our Canaccord ahead. a Instructions] be from Jason this of session. Please

Jason Mills

hear you Can Ashley. and Pat me okay? Thanks,

Pat Mackin

Jason. Yes. Good morning,

Ashley Lee

Yes.

Jason Mills

Good morning.

travelling. [indiscernible] Sorry

you the next and the to in of qualitative are future appreciate comments. you moving business ready some to integration again directionally lot And And know congratulations on the you for in the seeing deal to from give to will Pat, et margins, I you’re but think it can world guidance you deal, JOTEC And would of then think? us give year generate before initial So give how going of but Could AAP you you operating terms start sort picture growth margins, XXXX? the business around that giving a can those what not growth? gross to for understand how little business, cetera, core going official said you guidance, things an you the I give qualitatively your on doing maybe with of and organically sort show of the looking parts things organic goes. I topline forward JOTEC and deal days look – the in a with next time like so thoughts those buybacks I up on, you’re react things big augment the a XXXX expect growth, deal think standpoint, from early qualitative and to will year, distributor

Pat Mackin

kind portfolio with maybe it. described the of you start I’ll organic Yes, CryoLife’s as

the get looking some And to a not investors we have the and kind much company reverse not years our around, story direct distributors that strategic to spoke get France feel get have can revenues you notify than last the where to terminated. traveled it opportunity don’t into to were the our that of those we they where always would seen Canada And have. if under-utilized you a Benelux, we was pretty we piece going felt lots the distributor, with one JOTEC to burnout of mid-single with distributors that in go of also normally and and challenge revenues CryoLife growth you’ve felt channel, you reverse add of and and great sales the been JOTEC contemplated we did revenue us for strategy and like we kind products never because We their digits, go went portfolio in and in we of you that’s confident and organic that I direct products was we we the we obviously under our of inventory. and for felt plan in thought at for faster the the and sold channels in the describe we’re a of But acquisitions digit scale, is backdrop, at comes have Ashley part met can were and messages then we XXXX. year we’ve reasons from for is while is couple CryoLife’s that’s terminating conferences the it’s really where some them you QX direct anything our that accelerate any which QX that because we you’ve distributor, I, here were kind of of been when where for As many and high-single out and the like one in. you

this QX happen burndowns QX that’s of will of taking QX hold news of but And see in QX, starting about in think XXXX. about into start all benefits is, bit I So XXXX, feel of like us the going the distributor AAP, XXXX. that. we of to a these that many will but We the transaction we’ll little think behind talked kind to be be QX. I in There both in going good really

significant advantages around of color with CryoLife, more Europe. combination So, we a in see the little JOTEC

as we Spain, – several direct will to be going will us Poland; would XX that middle XXX XX% between man. in you markets XX% have when the know, have be those and we our end taken user we revenue, pricing margins And user and up to well days then us days. we’re three QX, markets years in gets will that get the Italy point, in and probably next that goes to in starting end cutout that So, CryoLife do to

also we’re adding in people but be the some cost be would going will because overall be repositioning going We be those to up new will markets, not – net folks.

So, on the selling SG&A to those markets, portfolio. in line, CryoLife we’re going going to that just resources basically those help leverage direct products folks. reposition the person direct drive a in existing our organic spend But and have markets to is

piece a to the we to going is of kickoff week, cross-selling, in next the a think I plus meeting person going I’m Europe a are going to on channel now it’s X. be starting XX a January kind other have integration sales meeting.

frozen trunk CryoLife We be team training be the Open and surgery cardiac is JOTEC BioGlue elephant E-vita the training Plus, surgery vascular surgery the on cardiac their we’ll on system. team will which hybrid

selling that is that reps So, multiplying with of effect. a and direct that in number countries just many being cross

full our Hopefully, your Jason. going around answers hang expect and to will that the frankly, bit first stride, gain we the of question, that’s inventory momentum the I of through finish little we QX. fourth to to of as acquire So, burning But think, be that some as in quarter gaining really we off QX. beginning kind hitting transaction through QX in of benefits really a start and distributor as we soon quarter momentum the in them this

Jason Mills

Yes, that’s Pat. very helpful. Thanks,

States, deal Again, impact And of how forma pass get the gross the margins on follow-ups, disruption the pro around guess I’ll maybe business, in near-term, Just course of normal you to do organic back and in also and mentioned and in back remarks, a with your the on secondly, transaction forward get you you world business as early margins days you a that let in few I get BioGlue jump talk of some gross could around more to looking to queue, in quarter, still AAP the had On-X obviously this see more on these of know prepared and trending in. North label On-X you coming the just basis? about this Pat, sort earlier others your sort decent On-X lot and but and and world United pretty recent from direct developments, a of its the and a the it meeting diligence, specifically get presentation America, for at with sounds what first it over this couple a our North standpoint, like differentiation the the potential the surgeons in growth years? markets time, next we expect America acceleration? I’ll On-X due for or kind from thanks. over see in of direct And seems, you there Whether is for this will specifically of back queue, year,

Pat Mackin

we our margin unfortunately QX, chop, some I our the gross quarter. closer XX% to gross quarter some from margins, I range. to So, and and think the year-over-year X some some the gross eliminate up, in write-offs was we’re of in frankly mean, hit our X.XX that had choppy, we’ve third you on mean were X.XX kind margin, I when of choppiness I margins mean, we had had some points kind up of

and the and again, even be On-X in over like of portfolio, high kind some think range portfolio, of margins, I our can Glue it XX% product items and I we should accelerate the stable the think actually margin gross the expect JOTEC our time.

P&L. to you’ve kind timing going even you that’s got you your comment economics, the of and when if acquisition we one when growths at acquire Ashley, gross know flow – be. the because do then it and as inventory, the happened part everybody has to inventory you you of it to piece remembers of point maybe with what don’t purchase when to to this obviously can On-X, think I accounting, we that guys on, that know have is, the going are as through know I up your –

Ashley Lee

earlier, we Yes, years, coming those to we’re the a the as purchase for will still mid way. up cost mentioned we’ll the it to XXs to be to low next But out that on will be certainly through soon, the fair valuation a and gross I as color working down to of of part XX% accounting think expect range three gates, purchase two once be to our up with into margins high strategies accounting more our is the the work move drag over Pat value as out the that as have in well direct write of through XXs that the portfolio we combination of and near-term goal on four accounting, consultants but on combined and the initiatives. margins. But

Pat Mackin

I and back And I your a then there trial put know, is years that’s think And different lot you a clinical guidelines to question the to in been shift. adopted of – favor, the you typically five move think into think marketplace follow. That’s things into change as of guidelines companies around was the time number April. a again, It as was work. mean, lot On-X and the takes and know to practice awareness. guidelines a like our device And are and get that word the On-X. I get know, education were partly we’ve all in through covering you a I that second major going of takes you On-X to

be think catalyst. I still think all the of we’re is, the major second PROACT paper, the will near-term publication for which another piece we waiting

about day. we get an in continues more product, the Fourth, become. get haven’t the The third, think talked mitral talk don’t but really experience trials. more think the to that every about enrollment got I much, stronger we’ve powerful it they I – PROACT with salesforce they our ongoing even

the sister to aortic lower is the kind on product valves, PROACT or brother of the that an trial enrolling, product we have the can of in approval I which we mitral which is markets. have this a think INR we impact is for mitral dramatic So, think see expect XXXX,

of story this keeps going. So, just kind

they’re going went Spain, throw Netherlands. in there and direct Italy, Poland, the Belgium, developed Europe You some markets in direct in just in of we – Canada,

that also So, margin, the we you’ve margin got we then direct growth. get double-digit product reps pricing, a from where and gross and do selling

On-X time can and developed double-digit portfolio for to come. that we the on So, we’re bullish deliver think growth very in some markets it

Jason Mills

Okay. Thanks, gentlemen.

Operator

Please from is Ladenburg Jeffrey go next question of ahead. Cohen The Thalmann.

Jeffrey Cohen

Hey, good me you okay. Can hear morning.

Pat Mackin

morning, Yes. Good Jeff.

Ashley Lee

Yes. Good morning, Jeff.

Jeffrey Cohen

focus, wanted roughly just – Four guys. to quickly. I Hi,

believe the of more hold some about or quarters you as labels two will talked you resolved that in situation So, be taking the far so quarter in of territories? some QX, AAP the another the

Pat Mackin

had think some one certification we’ve and of while think on, a things I in got change this of kind Europe. Yes, we was this the that us landscape I going obviously – been a disappointment that bit out of and and we for little challenges had was in a has was that norm with a

more The Device the people from significant is. think the haven’t I many bodies – know change. significant Directive going are already that a file the is, transfer more. technical it Medical Medical Regulation what going back applying an really where around Medical about we’re they it, of upgrade current to they of Directive is is Device new Medical and when from the many are finding for your Regulation the Device Medical research, means is we’re that a heard to hear And Device if to stringent it requirements the going notified Device Regulation the in

much of go into and and some getting a detail, like So, been cases, again, compatibility things happened too and lot has this work that. of in back the to without buy

the product or the middle in nothing It’s product, in with there’s just So, product is there’s in the thing unfortunate that. the one wasn’t kind landscape the wrong environment like caught – European regulatory It kind anything that. shift really of this really of fantastic. driven of by is the the complaints and a

we’ll held to we’d do account in when being already this point not is something in we our with about we’ve our is our be we the plan taking numbers AAP million we obviously kind We’ve that. and guidance. still we’re back for we lost up, numbers don’t back, But longer in to even guidance, at be March. into if QX, of QX this take last call should and going to it QX think we’re talked and keeping because it that the said going going gone that and us So, that for throughout we in I $X put and quarter’s our get in QX for year

Jeffrey Cohen

you expansions product this some SKU far about, sizing talk that could as Got it. other introductions is And there and portfolio, possible on and On-X the point? at as new R&Ds

Pat Mackin

you XX and where on have world. the do we again Yes, depends millimeter it are in

think, is in INR, Europe a patients. is the lot mean the we as size for and then should millimeter of XX I the XXXX not a given much our primarily and that and it’s is pediatric potential in it’s huge actually I it – a a in think because going Japan work to SKU is get – been I that. our then pediatrics heart has first PROACT of I have XXXX that. it’s lot and think We Europe us, an used is, do into for as were at timeframe. and U.S. the it so which it’s mentioned We which which also a for pediatrics surgeons thing, and looking like indication a a not – lower mitral, also have for something XXXX and huge a of a – with just the expansion be important Japan then XXXX U.S. not I Japan’s the extension we asking It’s expect

Jeffrey Cohen

territories are front, quarters and there other you Italy Yes, Are now And expect you’ve Spain, is got coming some? it. territories direct at? the Belgium, the in Canada, we Benelux on Poland other or Could available done. so looking got so

Pat Mackin

Yes.

the be a But we’re technology, and high Europe with you with supported pricing direct experience do not place first high clinical move in Europe. the data, in my stated future. direct got – much markets really that. in and we’ll at the this don’t three time, Japan, we’ve the any Australia time. we we’ll we’re I made with when of direct the sophisticated bigger just any last leads you but enough That in in have here, and obviously at margin, look pretty basically that the and Japan and question point got Nordics We in organizations, a at are all Spain plans, even plans I great drive high And don’t was product in just with growth at two strategy earlier done I And to with countries So, plans we have over by position to lots markets and point, and organization in we we’ve what you described where Italy, have just think touch, those we doing, be in margin. look to just have my in obviously only distributors Australia have from but I the mentioned. lot Poland, all direct we’re what this don’t we things at for those consider. to of just some – to or kind a you point developed at better portfolio, this the is there’s the and And in found Jason’s when would

Ashley Lee

this is Jeff, And Ashley.

in, be mentioned that going to forward. direct lot it’s But the salesforce and The is by off slightly what need about there need all closes, be augment operating going we we and after Pat it – to that expect we is next that the that. and to We headcount leverage a may of leverageable we be we’re have the to we’ll the to other move going of going the years few over we combination highly headcount markets what large have as be a that drive to need. JOTEC thing the

Jeffrey Cohen

which it, JOTEC to date. questions last got far as leads me closing as Okay, the my

I that $X we bit guidance or quarter about closing in know contribution XXXX. previously how the got in contribution month So, the little is does What as Does talking we’ve estimated about million fourth your a for change? look a expect XXXX, that excluding slip JOTEC. you do because a of discussion so timeline from day, because

Pat Mackin

in so do debt again, the feel this been we’ve we things syndication. agencies, on to we Yes, rating track, week commented, up as are Ashley are of front the going

close to expect we So, it the of week let’s call be to December. the first say, able –

that’s predict control are just some year all there. it closes going include not date close but I because so I in did I revenues there, again, we’ve not CryoLife point, reasonable your not closes, there don’t control with any I what on, whenever there, to and all to, at from consistent we does though, can’t pretty the guidance anything done JOTEC we’re pieces to probably whatever is to a then We exactly pieces think the least give December going all a if on going include our it but the going JOTEC decided to on there’s Xst, from So numbers and even revenue guidance it’s day. CryoLife be we can to standpoint, close.

Jeffrey Cohen

Okay.

the guidance, XXst XXX, closing JOTEC for the So closes includes the XXX the it? the something from first from and be year zero December, for so to

Pat Mackin

That’s correct.

Jeffrey Cohen

spillover the it. QX all? for into I if seen one last any that Thanks Okay. got you’ve the storm I may, guess effect at I from clarification, one

Pat Mackin

way its No, of think through like we I the worked don’t mean, kind it feel we so. in quarter. third

there back on have, now, was some have of We been third math, weeks about could all that, when in we there the the it stuff front quarter. was the two basically but contained ran and –

that. don’t spillover of really So, effect any see we

Jeffrey Cohen

Thanks, guys. Perfect. it. appreciate I

Pat Mackin

Thanks, Jeff.

Operator

Kalia from Suraj of Securities. question ahead. Please is The next go Northland

Suraj Kalia

hear Can gentlemen. morning, you Good me?

Pat Mackin

Suraj. morning, Good

Ashley Lee

Good morning, Suraj.

Suraj Kalia

dependent you Pat, once Just on remarks, between units? and and your go had And see what help for that prepared ASP of impact you’ll for Ashley. reconcile is at direct? questions mentioned, obviously increases, all What couple the the product, yields first, of least I you on us increases heard you direct somewhere that did hear of second these to or type that are Kind ASP one I XX%, of your is XX% range can you going correctly?

Pat Mackin

Yes.

at decide to So, it’s we right? mean when two not. direct we this look way really questions, So, really the or I it’s go

about that accurate. consider the agreement a is the depends and distributor, up you asked is – country, products, lot but the there was between you is the – heard, that’s of piece the have there first XX% the and variables it So, to is on you that pricing pick number somewhere range XX%. the And

the first that’s piece. So

end contract keeping just product up like, which which market revenue, user an was, just and depending arrangement you and what the distributor, have. eliminate which what step that and the margin, we what by obviously is middleman on frankly eliminating immediate So, user we end – looks for take the

a from that second step the area your versus strong a has markets growth is rep we’d your customers varied when a had rate Because a that. we’ve portfolio time again, many the in distributor direct growth less the we now figure massive where tend in The you pick you out who you all selling you products. of doing products markets, is, the have revenue put to that. get done we’ve seen We’ve That who penetrated person revenue multiple growth to depending if dedicated daily basis, on up distributor CryoLife that seen is have also to unit a already quite when heavily. full selling on carrying additional great

that revenue So, reps and benefits you margin we direct and pricing the top typically see nice we growth put after benefits the on of that’s get. –

Suraj Kalia

look per no at direct. is is way fair it? se, a due that no you go there all or there – relationships volume unit So, lost Is to the when otherwise either to

Pat Mackin

we list, we and very of payments, point. including a do to Well, distributor sit mean, just you see we them I I partners reversals, we basically having and have fair that’s list, eliminate pragmatic down fact, our with these go distributors. down. personal, that the our are, because been revenue the in work don’t they’ve it’s think think part you of – with things. don’t want closely the think we units We’ve termination And customer not I very of orderly have of these a ours. been It’s pricing business, have we transition business. mean, – good have burndowns then distributors, I have kind very very you again not successful I very reason to good obviously in –

don’t we to our primary around think when a transition, the we part own put and that the have, grow of revenue I point, box as this user to So, do that, get And is pricing that, objective end revenue. what any want our kind put people business. your then we keep lose we of and

Ashley Lee

to a the you’re what time, Ashley. if been is lot we see unit the On-X, low it depends, loss. you’re our this growth is, were then seen But in XX% of you’ll because market that’s markets just Sorry, if saw markets mature, unit a period we market Pats like long a in and the market point A growth in distributor for typically our that Europe. very see we going it’s and haven’t particular to terminated emerging distributor BioGlue in of then on direct

of the depends is, product the of a market. lot market and what on So, what is, what maturity it the stage the

Pat Mackin

is other thing think about a ago. of perfect give – very that years the couple a I you different example case a CryoLife I’ll direct kind France study. went in

– have to distributor that lot already country didn’t The they to we direct dynamics, back for going Italy, going our direct exact type real user reverse selling of same – put revenue reps direct are those the the lose is us picked ground. in France. we we end to in real leader business, go and Poland and hired have people work – in of go customers. office was We in zero same are pricing. to JOTEC in they’d Ashley’s the to But with benefits experienced a user that help Spain, they to distributors’ up feet of us product of commercial all a a to the basically any on very from current leaders we end in that a in burn in have Spain. the been market to team benefit inventory, had we point, revenue, Spain, Spain, had one of They reps have of We same which

we’ve because good is likelihood because in already the the having the outcomes countries So, of even higher got transaction. of infrastructure

Suraj Kalia

study, talks did it, I – you in missed existing did patients, there patients any II maybe status? on I last those comments? an PROACT and Got update it. missed were know the X,XXX Pat, call maybe I quarterly – give about I

Pat Mackin

No. of II. sure lot we lot done go time We in call on over didn’t for wanted put a We’ve anything questions. we make Suraj, is plenty to of the because to PROACT obviously work we and had left a

next probably front to a a big options do place. the we but get we’re a the have just the we’ve and and call and pieces show had fact, and first study the protocol. to of of it’s got investigators’ lot on different I is In last we a complicated in week to basically of FDA in step in slowly we plan big them Really the kind surely think that quarter couple –

meetings update FDA, would and And based in to on that so, be hear I II. back we be where those appropriate at PROACT we from are give we think what time, it will having on everyone

Suraj Kalia

and queue, baked, this. And for hop sounds one finally, trying arms half around just enough. to Ashley I the and am Fair if forgive will I me back get it you my in

So, XXXX, versus euro XX%, up Ashley in I mean roughly roughly the the was right, up and dollar.

If numbers growth you if publicly year-over-year. for look I all at given JOTEC, I you believe their – have nominal correctly, – remember what and XX%

Gentlemen, expect is, be what was constant – you significant you either is JOTEC’s portion, one great. the would to moving for pretty there or thank growth? going a component currency taking number all question European So, And my any do color to how questions. be hedge forward,

Ashley Lee

my nominal in hands right euro over functional at look is at don’t currency, denominated years, you Yes, if you growth their XX%. in growth been but to I which so euro. about have tell growth currency in the available it’s was their three regards JOTEC, the what constant can in I last as JOTEC’s now,

guys might you maybe – for forward. and helpful So going be this

for €XX.X if for So, XXXX, quarters in million. QX was XXXX, QX – you was of just of that JOTEC give was of I’ll in million; it you, ending go QX revenue of was denominated it and XXXX, their last QX it the €XX look it June €XX.X XX, to four and million; at in €X.X euro XXXX million;

three as bit over functional again, where about years. So will their of in give are. has they XX% that their hopefully you a to growth perspective little been And the last currency,

Pat Mackin

didn’t with bottom infrastructure of do had any to an had combination because line we just to hedging, the we kind a regards really outside hedge based prior we natural in London. hedging, of In on JOTEC, the

So, really any from a basis, we hedging. natural a net and hedge cash flow didn’t do had we

significant If we’re to going at forward, business have have on combined you out the to going to coming that in a in million gates, need something look of we to hedging. $XX regards it’s going business the million, entity Europe, we $XX focus and are

Now over JOTEC have does XXX employees.

out and of hedge we of somewhat expect go as flow natural So, going the a are there too out being amount right out coming generated we a the plans have of gates, next the business going But to attention is to five of point. to don’t we cash have gates. something expect hedging, it’s to we firm but that significantly this any we years, in have more going have we’re to that at over to, grow to that three don’t significant pay

Suraj Kalia

Thank you.

Operator

Lake Brooks O’Neil next Please Street question go The ahead. Markets. is from Capital of

Brooks O’Neil

morning. Good

your in hoping about skeptical a your market, players. comment to you’re will ability be it graft bit just confident about would So compete me market. stent the big seems the And the you in that market Pat, the to you why was successful is I thinking against so

Pat Mackin

Yes.

space. of worked I have space, the of again, big the So having companies’ ran in in one that advantage business that

I So, obviously of watching business a about been know have for a the number years. lot and it

human of AAA. think say immediately I stent graft just you when the one market, people it’s kind nature, – jump of to misnomers

started. aortic thing aneurysms, is which abdominal whole where the So biggest market and the

What decade probably pipeline, this big AAA our not at the player, one like market. just least surgeons. about more created surgical of the certain aortic state me frozen stent of it’s aorta player that their was which implanted one; they’ve it’s open valve, go amazing over big that’s players. cardiac hybrid That of other excited the of a the not other I elephant lowest that’s but the transaction, JOTEC real a called a the the kind kind one is on a, first up an product pipeline and think of on the There last you part the with which – starting only a is graft. focus company, really if and trunk commoditized, product, graft was, is is is it’s is product by crowded

in So, our is very that players which of JOTEC segment, is with channel. synergistic two one

customized branch only segment. with thoracoabdominal If in successful you other that one jump JOTEC down has the region, there’s their to and technology been very player

that in two technology. the So, have of space don’t players the even big

win, novel got of So, to you goal. a the compete, which segments in and the some think can when people aortic very about disease our not and focus of think concept players, spot us sweet focusing. where technology has with where we say and that in fastest we our this like the it’s with big compete players they where asymmetry don’t it on on focus big scale, and puts we’re growing that’s been size not market, the have can JOTEC our really graft is stent going we We competition think think – to

X% that’s also growing against Europe competing in in JOTEC’s So three growing again, players JOTEC they’ve performance or mean, a proxy. out been market. will a XX%. market think the mean as you I I we all prove years I use has X%, for big last been been the the in it can

So, them, eight I wonder compete growing with market? the what’s fast times why happening as there. the JOTEC is If I can’t as

Brooks O’Neil

That’s XXXX%. with I very a you and helpful agree

perhaps more but the the the being the building historically adding you strategic focus sense you a my just probably lot about more, some business. a you’re the strategic businesses to can focus you a to market, I’m areas. alluded the recall, products elaborate generalist focused JOTEC, So, and you surgery not your will that fit an the cardiac in cardiac focus strategic Clearly, for about historic But new around it’s expert bit that company of the you’ve talked as proximity just of surgery between targeted? little historic of

Pat Mackin

Yes.

surgery CryoLife company focused vein will some and between quite think segment cardiac and tissue saphenous has start a So, for time and with I been I BioGlue. the – vascular on the

I years position had couple very ago vascular So, a we surgery. dialysis portion, – the always a has ago Several a vascular is CryoLife divested guess market. different years in of which

very around there, focused aorta. fit the would we vascular around the of quite the unique that I looked is divestiture, cardiac mean, well that with state, revenue at the out but surgery. we’re we’re different us that So, say this were this And in really predominantly on different companies as about disease think more still CryoLife is opportunities, the I was probably XX%, XX% the surgery, on focused company surgeons, transaction cardiac focus I but what had and vascular after

think I scale, hyper a successful company, we the of focus. going are So, size again, smaller things XX% XX% in if force a one got I we’re I kind that of is direct a sales Europe. of makes believe you direct a sales in the and company, mean, going at, over North we’re a going we’re XXXX employees, to probably, We’ve have to be force. look direct, America, have And pushing

vascular I a focused surgical that space. is think surgery it’s we in There’s that both and and do aorta the customers cardiac space also surgeons surgery on we and talked a aorta. they vascular they of our And stent this that more disease stent So, it’s the synergy on side, cardiac that many we’ve segment got the segment and open I tons pipeline. do a think good customers and we can growing channels, surgeons but on work And we customers win this good and with cardiac products, the there’s a narrow we that’s idea, more And of by of where great there’s small set grafting. cases R&D aortic BioGlue. focus do the strategies this. with, there where do I around use surgical in cases, differentiate they grafting, focused. And can and will we’re like, on focused also we’re vascular open between but mean mean,

Brooks O’Neil

That’s or perfect. but of you stuff has going the I’m plate, don’t think Last your just anything with have just been if that’s I thing, something and ton all moved side there these you that on? I curious know progress with about any other product say wound the heard to on a I got care

Pat Mackin

that time and haven’t priorities. still acquisition spending wound on it’s decided been time, are and our mean, so, the that the on a still NeoPatch, the other but The by something front and investors end the we’re had hasn’t focus little asked the somewhat the question our been we’ve hoping to in hoping amniotic we done But to you with closing the like focused discussions our we remarks product, Obviously, get I and been about of the is this membrane, couple trying prepared on that’s JOTEC obviously been at II. bit of the could on care by excited we for. what take year XX think our had we’ve been quarter still I as No, very to things financing much to Obviously actively is on and of typically partner players end the year, which burner. are PROACT have get and really this we we one of than it minutes deal, longer something done – product. We’ve and like. with that. a which on

Brooks O’Neil

prior and much on very works. congratulations you all Thank your Perfect.

Operator

Jo is Please ahead. next First of from go The Analysis. question Munda

Jo Munda

Good Okay. hear me? and you Ash. Can morning, Pat

Pat Mackin

Joe. Good morning,

Jo Munda

quick here. couple of Just questions

I use some think interest hold you we quick, the range give of can last about I proxy but for the XXX. purposes? quarter true? we a call, could debt, talked on LIBOR you still real rate Ashley, modeling Does think over plus baseline on had that in asked sort us this four

Ashley Lee

going and Joe, that process somewhere at determined that’s be pricing comparable look the you been But in neighborhood. ultimately syndication transactions, they’ve by to if demand. the

that’s that So, we think appropriate.

Jo Munda

okay. Yes,

total? account, where the talked new you As you give of as and opened guess, to over quarter, as far Pat switching you accounts XX I can – in in or year-to-date about us third On-X, then total stand a number guys

Pat Mackin

Yes, since a company. accounts we’re XXX. been We’ve quarter at acquired about about XX the we adding

XXX. sitting we’re around So,

Jo Munda

opportunity I you what I remind was can total And us, far mean, the as… forget as

Pat Mackin

Yes.

long XXXX there hospitals. – mean, about time, in So for a there’s this a I is having – been heart it’s field

the volume Some the accounts. bigger skewed is in obviously of

you wrong lot the smallest if volume you XXX the biggest, unit could the have XXX, the got a mean, will XXX So, be I versus different.

So, valve is to every surgery. have available I mean our I place in that goal aortic does really think On-X

to And grow so, we room some have obviously there. still

Jo Munda

is then, talk bit to that remind you about? us as talking coating little And it that give of you remarks guys, little what’s you business. And a is, about there? you bit prepared business were on going can the the if OEM in a us you color your Can

Pat Mackin

guess orders having – in any business Joe, have you like, ago, because their year year placing be has the we one for to non-strategic, was, companies. this fourth the it’s ago. that that time. of so use we in a that to the had space on again, about they use issues just get into Yes, some And orthopedic basically anything an for was they not with it quite of would We we got a quarter the It’s side. I a other who – On-X something their been our OEM one the have products. space going are They technology end just reason. announcement, But if weren’t they we are remember with us user – because technology coating happened by for some confidentiality were that can’t provisions kind notified that and it’s and good to do cardiac have companies in

So, worked revenue, is supplier out of is kind the good news of that now far the kind gone. of system that the as as it’s

and suppliers a OEM annualized really it’s something that remaining be part itself business shape it’s still a on Our that not shouldn’t of again, in headwind anymore. now – it’s strategic it – and that good our

Jo Munda

is that you ballpark? give big How Okay. us Can business?

Pat Mackin

$X.X Yes, a about million.

Jo Munda

year? Okay. A

Pat Mackin

Yes.

Jo Munda

here. quick two ones I then real And more just got

in against guys as some BioGlue is far to us guess, Can give new are big two-part it Japan you coming to the losing these how A; in BioGlue, trialled. As business up I that trials question. you accounts that – these you’re Are any products about a you talking product is the B; being competing of sense and currently? are

Pat Mackin

it new any thought first mean in, we very run have that. come and Yes, mean time question, on into positive. I you I the a was I competitor

uses issue just – been the has sales. the get trials I the biggest offering for BioGlue any them don’t product think we where frankly us and free we customer

We period. have our not really during of loss than seen any accounts the there other trialing

last it a BioGlue in kind and quarter, it kept was up up face and the thing point, we of I our kind of had in think where – them mean out but get to just a where come we new I pretty So, I point to And mean still of happy accounts. this UK competitor. that. is and been a of was they in going trying try like saw up in with there we’re same they’ve the the they was

more sense it’s a else. of new So, anything

have a calls focus dedicated We heart time. all that also team the on surgeons

we’ve think a position I So, good got on that.

got Japan, the get not point, opportunity that quickly. far $X expanded another then this it’s indication kind but probably As and we at original $X from we we’re of remaining indication and now we and us the we’ve too technical got zero BioGlue million one got second I important about of – $X this up sitting that’s because think the million. We’ve that the like indication, at then probably we – opened part went just as got, can’t again million fairly to in

indication, this about time. are that’s We XX% penetrated the Japan to in at

Jo Munda

Pat, a have or on obviously question. And a talked impact Ashley then fourth I figure of should on when noise guess you little some noise, the via you cohesive go-forward the business. integrated some about an from is last far quarter fully issue as the and bit the that about in concerned, this integration my talked be salesforce – the – entire timeline as dissipate? and salesforce when unit basis you will

Pat Mackin

number happening. that. are a of take be to going that is I’ll So, things There

So, kind meeting week. number a of got one, we’ve European kickoff next

part they all or to – So, JOTEC’s CryoLife teams week better going the both half a the the are and the for field be so. sales

are going have going get going to kind So They new the JOTEC XX that’s surgeons. reps to reps – integration. the we to in on are of are the first get cross-trained BioGlue on step on to BioGlue, cross-trained heart

the so to reps going you’re which going to the cross-unit be will cardiac are cross-selling frozen the to CryoLife selling sell start through, see. which trained – that’s be on trunk on elephant Our the to heart the

that dozen of Where in cities sophisticated done a And had thing and without position and was, pretty same going frankly in but a had for and the we Europe, process and we have them not to CryoLife we which consulting probably of very some salesforce. on a in you’ve combination this other probably but a something project we look we’re what a had you done is full is significant of going of opportunity different U.S. the numbers, at experience that we’re dozen went reps eliminate size which found the getting had sales eliminate summer re-hire my The the basically – reps we in position and I’ve the and and into got JOTEC the not your also we got in half through optimization, reps you career. through the this JOTEC-CryoLife lot we places. out alignment went done products countries and those these to

we’re kind we’ve the hit the ground mid-January, team. in global sales as with into see the as closes in So choppiness of quarter. a the fourth January, in street full move we December, But going we that’s got of with some transaction running a – going to you’re on early in to a the as new meeting feet January

Jo Munda

question. taking thanks Okay, for the

Operator

no are There Mackin back remarks. over turn Pat questions I’d this time. at further the closing like to for to call

Pat Mackin

stride end for hope are have to the we could the guidance of very of apologize integration we about some the first to side. salesforce doing try majority over, a you the be going I quarter it work, on, fourth talked in little we’re some know I you that. distributor momentum quarter, December. reversals think third first burn of going the we’re to the we’re of but on we about, going a I this of be the QX. gaining morning. hitting day, we’re close with bit in for But clear as first to the little we we the We And give joining stride transaction, inventory thanks. the bit at But the dealing AAP got we’re into the hitting on in we lot starting as want think our we full you and and of excited lingering given hear, in strong Yes, the and had week choppiness going really, be down kind salesforce integration to quarter, going to quarter thank all obviously and I

So, we’re March doing year updated we the excited, will we’re call, I full of a messaging. think very giving be our and the now at see in guidance labors you’ll fruits right that

and day. for have a good again thanks calling So, in

Operator

today’s concludes conference. This

may You disconnect for now lines. participation. your your Thank you

Artivion (AORT) 31 Oct 172017 Q3 Earnings call transcript