CRY - Earnings call transcript Q4 2017

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Operator

Greetings and welcome to the CryoLife Fourth Quarter and Year End 2017 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Pat Mackin, Chairman, President and CEO and Ashley Lee, CFO for CryoLife. may you and you begin. Thank

Ashley Lee

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

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

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

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

Pat Mackin

a very Thanks, fourth to announce a good very quarter am pleased Ashley we had capping morning, and that XXXX. everyone. I highly off successful solid

On-X. we will hear We and on tissue an As on. you good today’s have to in of BioGlue, processing, report call, news abundance generated growth double-digit

made is growing. schedule. clinical significant we our organization more of before at margin, expanded the our in geographies the direct And JOTEC. Our integrating gross same list is are ever or we sales advancing than programs progress Furthermore, ahead on time while and

by JOTEC. On-X increased addressable our we with past billion. several the years, Over $X.X than have considerably has transformed And more the of acquisitions and CryoLife markets

today of even growth. we On-X acquisition JOTEC’s hear than when we more envisioned Further, the we type were is also track completed returns to has and for and integration are about In on the well drive you JOTEC addition, the been will transaction. that On-X of now we success generating is a the excited potential

acquisition first to we begin the did of confident capable coming due successful acquisition integration On-X running I current and in have integration that our the to part little am done results, leadership one of process capabilities the ability a our JOTEC I QX I company team was even strong that of driving rapid of JOTEC. and to so. the of after indicative of is post larger quality Finally, more leadership have things a strong the process integrating building in team’s of team with much while doubt leadership of the CryoLife our was to

specifics. So, let’s get now into

able core quarter, were delivered expand One margins across was gross expand markets. reason the select go our all lines, decision we in we double-digit while On-X our BioGlue revenue growth to of generate product move During in tissue, to to revenue – three direct margins. to fourth direct growth double-digit our non-JOTEC and continuing to to and

That should that and where where the distributors. evidenced increases direct in expansion after as future initial were key drive regions. was JOTEC We Benelux countries strategy those going already expect Canada previously in margin direct, continue to positive revenue we gross results in in using recent European by

more certain the divested a know, non-core competitive As been has highly in focused you we also and offering. lines XXXX result product product

our than worldwide offering. that XXX sell product more sales have focused now trained also We reps

strong us our as to approved PerClot a will trials BioGlue We competitor indications position advance large U.S. believe also continued markets. clinical these in new these and and if China

innovative products significant now will to JOTEC’s call on the XXXX JOTEC in as to cover to I on when innovations highly part discuss With JOTEC detail to the XXXX those will markets, the U.S. the I well differentiated our expertise. introduce more objectives. next end X the the pipeline move I of our due topics in into initiatives. of of our as have addition at we JOTEC’s existing portfolio, products to R&D large review key market introduce our over also years quarterly product in potential existing

first was achieve increase representing the financial the key of our XXXX we quarter guidance. full fourth Our XX% year initiative In XXXX. $XX.X XXXX for over of million fourth revenues XXXX quarter of an to delivered of

$XX.X million, in of last compared the the the of from generated X% quarter revenues revenue million $X.X in year. to fourth an Excluding fourth quarter JOTEC increase were

guidance $XXX the include and half competitiveness On-X, which impact growth our from reversals the tissue of growth back products. Excluding of of million, revenue our direct countries. We JOTEC, all decision product our sales in processing, of to our across these $XXX adverse double revenues to updated range $XXX.X the XXXX non-JOTEC go which were revenue strengths three organization achieved of in despite BioGlue our exceeded million. contributions in from lines and million XXXX our major the full year face revenue of the This the highlights three digit

commentary. more his provide financial will in Ashley details

we to our resulting of diluted share per EPS $X.XX year non-GAAP XXXX our was $X.XX within the which for earnings, of range of $X.XX. non-GAAP fourth delivered EPS in Regarding quarter guidance full $X.XX share per diluted

excluding On-X low on was direct non-GAAP portfolio business growth on Our On-X double-digit OEM our year to initiative the the second key deliver and markets the in business. for the expand revenue

quarter post in North increased continue we direct revenues available On-X the X% compared to our in In in to fourth XX% I the As not having quarter of growth despite direct In European to just quarter product fourth fourth the markets XXXX. markets On-X for the AEP which the XX% America line us. portfolio double up markets. mentioned, growth included were those digit for we

digit fourth Our is our U.S. sales $X.X revenues double continued On-X excluding which the increase In million OEM We potential of believe growth XX% indicative was open force approximately in total continues the of accounts growth for business with new On-X On-X quarter. accounts the portfolio. products direct new the our to On-X added during year-over-year. markets the a XX On-X were

are On-X confident On-X that Well, and when we sales were customers mechanical On-X up picked grow in U.S. of as acquiring could what’s data and We revenue. happen. that’s PROACT the valve acquired expected. compelling exactly have acquisition that the mechanical our and see direct associated market XXX what’s We to points pleased gains basis our rationale team experienced share the we the valve happened educate meaningful drive with market regarding is very out for share highly continuing to Since market. playing almost

selling in Canada to in Benelux to in and in channels Benelux Our and transition Canadian third direct June for key July. XXXX distributor our was We initiative started channels. direct

revenues at first lowered XXXX the direct transitions margin. these end pricing and portfolio half CryoLife’s While these markets from to we benefit in in use higher of the of are beginning sales

initiative the key and XXXX U.S. China to PerClot BioGlue, fourth Our make was significant for for in in trials progress clinical our

full at on the under where are enrolled now activation of of XXXX. and conducting PerClot sometime BioGlue total the to-date, trial. remain half the at the XXX we a track restarting enrollment full site XXX more study approval have patients this that trial China XX have began China, in We Since in are in the November centers patients of site enrolled now seven BioGlue in activation Regarding a enrollment with study second in in protocol, we study currently than goal institutions patients. We XXXX. for revised in have we this being

of more enrolled than to-date have goal this XXX patients an with in study We patients. enrollment XXX

of addition, second sites the to expect quarter another In XXXX. we four be in activated

approval for track enrollment rate of us FDA half keeps current in on Our XXXX. the second

opportunities enhance Our for cardiac build XXXX fifth evaluate critical our surgery. and to potential focus vascular and development key initiative was mass business in to

the December. We progress have clearly this front JOTEC in acquisition on made the closing significant with of

JOTEC minutes the take to transpired transaction have very on you since months hard update working to progress. a X Since announced few that and have what’s been great time, me made Let ago. integrate we we

vascular January As and on this products. Similarly, France team we in Italy vascular for year, will went legacy go X direct products sales and cross-trained of BioGlue. have direct on portfolio and cross-trained team CryoLife X JOTEC’s graft cardiac has frozen surgeons on product calls elephant that cardiac year on trunk has surgery Spain, the in now surgeons. XX and Poland its with April been JOTEC calling European We reps called JOTEC Plus. we Open The this legacy on been CryoLife’s vascular E-vita of

customer Some European those those where running in of four still by within will distributors, markets will finance served complete includes of on and be will and April key regions will and integration Also same service vast markets. countries all the IT system back these the be up which on required, office, majority direct. X, the be be but

completing the number earnings billion for stent opportunities. a of acquisition access undertaking period we major generation. We differentiated X gave revenue growth, cash of We with short before time. posted that the remain XXXX. margin, year-over-year JOTEC XX% years, global on a products. JOTEC growth market, of We to in and any have acquisition JOTEC relatively our margin, focused the next plus be the $X this anticipate gross over in accretive will to operating look branch JOTEC new The us non-GAAP graft flow accomplished integration

with in his being the most We over JOTEC’s the that, growth turn review. financial catalyst X a products will Ashley anticipate call seek for now the will to future which market next And we CryoLife. U.S. enter with to differentiated years I for

Ashley Lee

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

$XX.X from quarter revenues fourth million, the revenues Excluding JOTEC of were an increase X%. acquisition,

like the I’d On-X ordering quarter markets. our direct as Spain of in revenues X% time to XX% revenues Asia-Pacific European million, increase primarily $XX Italy, tissue BioGlue individual in in patterns. Spain, growth that America, On-X from acquisition. a focusing and North the BioGlue. million, in X% year-over-year direct Revenues a due and were direct decreased and QX in the increase of increase spend distributors ordering primarily excluding were from our that increase quarter, XX% year processing, were includes distributor an of an OEM terminated despite quarter double-digit million, $XX.X Importantly, markets processing an increase in and go and an direct revenues driven for American increase have year and were Latin a were to terminations tissue revenues. to transition Asia-Pacific result of specifically of to who XXXX. fact $XX and as JOTEC Latin American of loss North and revenues the processing the in XX% Poland million increased decreased primarily was quarter XQ overall XX% an processing million, distributor sales to distributors of in saw $X.X year-over-year. compared disruption the On-X in the on geographical Europe fourth the and third revenues excluding patterns. the European which we were to of the despite compared result increase lines elected fourth America, business revenues and and of for fourth a to quarter for from in fourth year-over-year terminate for model fourth X% On-X, On-X were The temporary up JOTEC, we the On-X prior by year-over-year On Revenues to quarter. distributor $XX.X region, we the basis million the prior tissue Total XX% for XX% $X.X our increase tissue on Canada, X% Poland. some revenues, from product we On-X discussed. due the our X% a JOTEC U.S. revenues despite excluding Italy as

a overall the on for We to XX% processing increased revenues on quarter, year-over-year about fourth tissue business. Cardiac XX% year-over-year the XX% shipped. million. American revenues product and previously of we million. confident tissue BioGlue a year-over-year revenues XX% from XX% in OUS XX% vascular in QX, remain increased increased to units trial, BioGlue which fourth processing During up in BioGlue X% year-over-year $XX.X in distributor about. the the were competitive increase X% increased year-over-year, units increase had Europe quarter North revenues BioGlue shipped. were resulting in X% which despite increase $X.X a in spoken $X.X Asia was ordering patterns. Pacific an increased million revenues revenues prospects

JOTEC and from Brazil, having outlook markets, upside sales the expect go BioGlue our XX cross-selling to the improving regulatory in vascular continued direct and ongoing OUS opportunity that an call-in anticipated to We in surgeons strategy select all from approval China in reps the XXXX. in

a Gross to overall gross in the quarter to of Our was charge a fourth the step-up basis quarter include JOTEC XXXX. inventory. fourth quarter for acquired XX% $XXX,XXX related of margin margins to fourth similar in the related

for the margins million. fourth margin quarter and the charge, were during non-GAAP gross margin XX%. product were SG&A Tissue was processing fourth quarter gross net gross expenses XX% quarter was XX%. Excluding for $XX.X the

Excluding for JOTEC. and expenses SG&A $XX.X $X.X million in XXXX includes of development expenses SG&A were December related the for expenses million, business which month

repatriation. by non-deductible we sheet to Our the In full related tax was to P&L expenses in rate XXXX a transaction material or benefit tax from year rate either XX%. partially for reflects The fourth The was that of a regards did windfall JOTEC the full enacted a balance differential stock the recently impact year legislation, not the for rates quarter expenses. the have transition X%. to due benefit rate compensation from of tax was tax offset or tax due

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

had on hand. XXXX, restricted equivalents approximately in X, March of cash, we million cash As securities $XX and

are release issuing the XXXX our detailed guidance press also financial we night. as last issued We in that

full basis. and increase in pro and $XXX $XXX a between be XX% X% revenues the XX% on of will We expect range million million and an basis X% between and GAAP of representing forma year a on between XXXX

million revenues and For the million. to $XX between XXXX, of we expect $XX first be quarter

gross to in distributors. JOTEC be from XXXX. and between million approximately expect XX.X% XX.X% and $X.X stepped-up inventory repurchased basis That for in We margins acquired includes inventory terminated

XX.X% step-up and inventory between the Excluding XX.X%. non-GAAP margins be gross would

be expect We $XX expense $XX million and for between to million XXXX. R&D

With be rate the expect tax to legislation, enactment in future tax our years the we effective mid-XX% range. of the in new

and expectation close compensation due in to the from significantly and stock our XXXX. JOTEC net tax breakeven a on expense of tax the to in to range effects However, mid-XX% our including rate few GAAP vary XXXX quarter-to-quarter income year acquisition the XXXX full related of expenses factors from non-deductible our for rate, of could

bottom line $X.XX, non-GAAP of shares per between assuming share to diluted $X.XX XX.X expect On outstanding. we earnings the fully million

used effective in have also non-GAAP calculating rate earnings. We a XX% tax

interest I dilution at in an Regarding have not detail interest non-GAAP we XXXX The income. have expense XXXX. XXXX add-back to in arrive EPS, non-GAAP included versus some compared expense an XXXX as you results to additional incremental in better $X.XX to approximate help understand XXXX.

XXXX, incur First, during the million related first the XXXX. in and quarter approximately we expect $X throughout we to integration and expect that amount approximately in remainder of incur to million expenses $X.X

that to Second, QX a $XXX,XXX I mentioned in earlier related inventory. JOTEC recorded charge we acquired

in through the the third sold the $X.X more Approximately, million million million our approximately occurring have $X during quarter million the to second XXXX. $X.X charge of that majority run goods run will $X will through We of through remaining the quarter, cost with about first quarter.

currently facility, rate our LIBOR X.X%. interest at floats our which interest credit plus Third, rate XXX, puts at regarding our

is million that in interest $XX.X million be XXXX. $XX Our expense expectation between current will and

for our Pat. $X will million expect million we we back $X $XX approximate And concludes amortization comments. be to and expense Lastly, to XXXX depreciation million it expense I to to now for approximately my to That over XXXX. turn expect $XX million

Pat Mackin

Ashley. Thanks

our for outline Before questions, to XXXX. we let key me your take move operating initiatives

guidance Ashley are we our focused First, financial achieving that on XXXX outlined. just

will the business. the Second, deliver strive JOTEC business of XXXX revenue the double complete to digit growth non-GAAP we JOTEC and in integration for

our XXA the sales in opportunity and CryoLife patient market to we momentum $X approximately These include transition Italy business. will from drivers deliver through to Third, in the and total forward look the the XXXX include the X digit of growth in completing pursue million company we acquisition Fifth, addressable of to $XXX and Fourth, next and for trials for trial. double Poland. for years. the for the enrollment billion we will in clinical BioGlue products future through PROACT JOTEC to Spain, to pipeline, continue On-X expand which and On-X PerClot the initiation current growth in initiatives direct completion expect the roughly programs our continuing China clinical over revenue investment our

As will as using aortic XXA FDA blood to the a thinner. approval than Eliquis the reminder PROACT trial the with On-X obtain seek rather Coumadin valve

more will We and approval exciting provide details on trial this if for when receive the FDA IDE. we

new In this are the products launching we in following addition, be to by time next Europe. year expecting

Open elephant the frozen called Neo. trunk E-Vita generation next Our

thoracic Our called markets graft to this trials time the to commence next that U.S. bring to clinical next and products are and we generation thoracoabdominal stent be [indiscernible]. called the U.S. our will same [indiscernible] generation seeking These year. expect next device

today. we XXXX. another XXXX successful but in positioned, year have a pleased very we is direct are And it I will larger CryoLife. to than of in The with person sales combination hard that never XXX since addressable competitive I highly well-trained strategy So place on for market worked company the better a we arrived. closing confident accomplished in with products put the has opportunity competitive, very force be am day all been The more does

combination expect all today. XXXX would to we I brought in contributions beyond. strong that thank drive are of the for those us where like to company to the the performance and at We

we our for on-board even we We products proceed. have with make questions, will world. will open please now operator lines always taken the now in patients around pride that lives helping in be and more the difference the people’s JOTEC With

Operator

line from Genuity. Jason Thank Canaccord ahead. Mills you. [Operator Instructions] The with comes first Please of go question the

Jason Mills

you Hi, Ashley. a Congratulations and very much, on Pat thank quarter. good

entering FYI. the problems think queue, there, aside folks as having so are Just I just

that growth and I you owned the other goes, far JOTEC where guidance all that’s infrastructure $X.X you Ashley, the for maybe JOTEC guidance and of then the going adding guidance been margin, growth you as of to the the potential that again top well for XXXX we wondering of we Maybe been that will really while. your up organic see down of sustainable am you and quarter. start if and fourth line double-digit a what give on the to thing in XXXX bit if you a And am wondering assume I second potentially of like of part P&L, you you the that on organic where that with strength the organic I million margins and the and organic your core quarter of question, integration franchises sort sort is on line how sense sounds back segues a doing organic line as XXXX is think to also there little X% several X% integrate top that the in gross the strong the calculation? And XXXX mature with into And what go? as in but acquisition is of line, your us the could in the going just little question respect over have for than guess upside which the gross modeling. of three for the especially with implied surprising is gross top So, is move growth it you have to continue what part saw the questions once growth just congratulations you growth margin were you over time? included sort in cross-trained, you to

Pat Mackin

Yes. Yes, questions. Jason. good Thanks, so

with with very fourth I quarter. pleased the we the Let Yes, me mean were start revenue.

acquisition and commented CryoLife, that part quarters in X% in tissue the range. lines, X% growing business of for were core talked what And the lines, in both things one growth look as of and BioGlue We are product we can tissue but let’s lumpy our is we some we we particularly of about It those kind message that think kind that the you JOTEC range product When M&A growth important were pretty an the expect next and double-digit X of kind growing you and single-digit much of When what years. the X% And grow announced at we call years. to X the are strategy, legacy that’s or get be XX%. about drive have JOTEC announced growth I get glue quarters legacy the the have corporation. we the single-digit we said strategy grew on lines that, it the if double-digits year, lines On-X double-digit felt over we was On-X the the or getting we talked previously you the product we the for mid X% to growing been tissue tissue with lines with product in mid felt next we guidance have and with of over expecting. I and product X% think a book last that, the acquisition, can a kind we some transaction, the to the range. could we executed X% tissue strategy the then

are of when kind up core so together that’s double-digit that those you at. with add our single you and products of the revenue to put against mid we the products of where our growth of growth kind those legacy And get new you bookings

Ashley the So you. ‘XX and all to your that’s if like forma we gave of kind X% number owned that X% that of look do kind does you if JOTEC to – as the question what second was XXXX, the compared for pro of

a ways in CryoLife. and There you communicated. that depressed one we at October Poland for are in which back takes we distributors So, notified is quarter we the notified fourth QX. to we separate revenue be JOTEC in them kind of to that revenues tail distributor well France, things Jason our that and with Spain, And had is going had in you to this get were reversals, working time, always we experienced the of in Italy, we

its the exit April the office, talked those majority in and lot about back – sales in X us, distributor done. of is having So we of as direct a behind thing channels first direct quarter I distributor our is nice mean or to our we to that the markets

to So the range the little accelerate full the have kind to year think of that you X will of seeing bit a the can of expect QX transition. I reasons you the that’s we the growth one a And think we of X because through for the distributor Maybe Ashley margin. of would year. in because lag be you address are

Ashley Lee

Yes.

So margin at if guidance, – it’s if upper range, you our the consolidated of are we XX% range. gross look we at in the end the top be will

For the way impacting that XXXX to One consolidated corporate are gross there down the of are were that so bit a where gross is a to effect our number. below things having of little margins couple are JOTEC that. margin that’s slightly acquisitions, an margins prior the

our – little expecting The that’s our processing in that’s year. gross optimize inventory resulted throughput is reduced of a decrease costs. which slightly our other levels some a We slight unit we thing to our processes margins are is through bit tissue in facility, the implemented impacting for reduced

the are expecting processing to margins we low posted that’s XX% from down the in but gross range still last year. We range, be tissue mid-XX% that slightly

Jason Mills

and – the had us standing question on longer as term, to the but business of probably gave other years the the digits you there color. JOTEC some in as about business this see Pat sort look maybe next year guess growth you best baseline and just parts case X and I do remarks then how or the about look in give over you we this analysis first single margin how my of as can think to to in to business, you you percentages. as in and you you see rates this growth P&L the here X over On-X worst our developing was that not you trend helpful here, that’s trend basis guidance Ashley and here are guidance, for granular fact Okay, double-digits think just color

performance, about you setup this the that only bottom in You line really being business on queue. still back not on in strong get have us the back maybe will then the deliver growth, think AEP question, presume line past talked now and good thanks as update certification France? in but Congrats top to And I last an will quarter. get the maybe give for I in just I On-X queue,

Pat Mackin

Jason. Thanks, Yes.

we the rates On-X to mean you of I for digit and growth this in very the on the have piece. we when top upper and and the – that’s you are the could recent pretty I going excited growth happening next One, our acquisition. happening push On-X with – what’s the On-X P&L of X what’s that get can about under mean think in if So start with On-X the digit we both it’s at say much think can new that at JOTEC couple few cases heard I the mean shareholders. a JOTEC a the mean double think JOTEC more gains mid-single our you I the the products one years the market excited I but newer they a have we are I share end keep had. in give have growth about more you get. and and and with And single-digits, there belt core – the I be we are years is double higher same I have the you to things us over of the range look about kind going I I – that’s learned, the if there of JOTEC look in us first if

of a into gross disappoint move as the not is a as larger down we The company good. done a P&L lot really the margin, is quite down piece second companies cost is which on in have kind

at of from His previous brought gentleman Head of I billion for Head that is Chain Supply with the new job Global was Operations their Our Baxter, I Medtronic. a worked chain. in $X last supply

be One and goods his to XX looking in years. going down cost X take is the next goals goal from off – next to X over years his line we our the XX of margins to of major move over to are

going exactly as continued So and the to kind new want step tell products the the the look that’s take infrastructure in of if launch I look you like, see as that’s down have we to We expansion as can’t largely you margin but well our what we P&L cost place. at take G&A, down. Again goal. we

direct channel person XX got in have Europe. We channel

We market are Nordics. in except direct every the

PerClot going but we got talked frozen or We direct launching North channels next start got in going next be I graft about We down of are America Europe, channel generation but and move in fixed. next-generation two and leverage We R&D, into line and hitting we launching branch next late are to the going person next-generation going there, guys. mentioned may after Those XX XX script, trunk Canada. to to And also you have a largely have are elephant P&L. amazing BioGlue person that we the add people stent an thoracic are as pipeline then channel. graft we here China thoracoabdominal a kind few in in to our a through year, be

start into trials those to next PMA going We and year. clinical IDE U.S. which bring then those are will take products

margin, growth of that, you going going your operating to see a into you the to And when have double-digit you leverage to when hard JOTEC the margin going pipeline to middle start your you range. when to now start core. double-digit are pushing see On-X statement, So, you we significant expand of pretty top when you add pipeline, up the to already do drive out a single-digit this company we to to are the line, when are acceleration mid all – and gross be XX% income the in get G&A

as think deals, have see is a done this other tuck-in an unfold we a small. opportunity we story, this are execute. it there, and to I don’t I done, may So, got do need would have do think here, we very but we And been if deals be you execution great any tuck-in that or the that

Jason Mills

Ashley. Thanks, Pat. Thanks,

Operator

line comes Northland question from go of Please next Kalia The the with Securities. ahead. Suraj

Suraj Kalia

alright? me hear you Can gentlemen. morning Good

Pat Mackin

Yes, good morning.

Ashley Lee

Good morning.

Suraj Kalia

background noise. the for apologies my Pat

On-X the going give look if gross in I were was more in what you increases, direct decrease Benelux, at information, us margins guess precise to the and Canada So, any? that geographies, in and Ashley, the X% specifically what can you ASP year-over-year are

Pat Mackin

Yes. hear. Suraj, really it’s to the Hey, it’s hard background noise

you so growth? I full heard ask On-X I is, think year what

Ashley Lee

Yes.

So, was in fourth we our and European our markets. in up North the and markets American XX% direct markets, were that quarter XX% in year-over-year direct our in X% direct

Suraj Kalia

the and then And question I with margin those happened direct was in the second impact Canada of Benelux, the when we the in think go markets? pricing what

Ashley Lee

from XX% so to Canada. anywhere varies country. just Yes, it in increase within the in Benelux countries And XX% a in ASP get again, cost. increase We obviously just the it with and country by varies various

Pat Mackin

bit, could get do if part, out benefit think I margin. end important the first to kind get a just the one-time benefit. other a hold the just of end eliminate user direct I Yes, and the go don’t we That’s user of middleman pricing,

in great reps three The is we – we second Canada. hired benefit three have

fast in the Montréal, in line. as rep carrying Vancouver. a in Toronto, faster, company. times product We have a significantly rep as is That business a They whole growing are X got rep

tissue, really getting not it do On-X, we customers with into rid our are from just portfolio, people the of their why on standpoint. the own middleman, best-in-class it’s driving on with on that’s the Glue our in it’s So, strategic more your a and because putting contact marketplace, products they sophisticated product in

Suraj Kalia

discussion I perspective background, then some Got previous from FY a growth I presume integration, the was it. On years? apologies sales And year-over-year again that from slightly JOTEC, for remember there be force Pat. growth the correctly if XX% lower, ‘XX in because must

Pat Mackin

we acquired much an say, look, you them. I out would business top growth. and you small I extremely locked professional, the Their would a extremely the totally we have JOTEC is on it’s on a company And well of last XX% tell company we was due on when him do they year, CEO, in would and and think this and I lot line up Head had disruption if work I he European now for that who operations the is so during still run excellent the our of had there the channel, say, don’t is standpoint patents, driving where leader. wasn’t is to from for amount it’s of we posted diligence know thinking an commercial X months employment him a majority of literally consumed just acquisition financials, Yes, the year

people to been growth. surprised, a the I there So, of driving has that it is am the its the think now again don’t much good driving we have but really I and was the towards all – way, us on channel – right disruption well still and line, so have top I transaction got this expect behind not integration

Suraj Kalia

bullish to surprised are large, further that hit audience kind times, is And you down going the be just taking am I for the at and my this attention but just finally not select audience we could like could much talked are changer this for great? quarter. help our game extremely this why on that targets Pat, Thanks I to would on you about as the or them the a my guys and I am that the I path in it XA, have valve multiple congrats large PROACT how you even through color gain give but – [indiscernible] paying know under people at be walk and [indiscernible] you questions will on how any audience aspects of it’s

Pat Mackin

used I trial, been Thanks PROACT PROACT is to which to II one call things, the the of This so Suraj. the trial. follow-on Yes. we the has kind of what

changer is heart what game we that a XA is We XA. one to are be of novel has for PROACT been because calling are This kind inhibitor a in I XA coagulant, a aortic now surgery. going it valve of the would which call a PROACT studying

check of step a direction we you tissue where we right – valve of get patient you reduction One in you reoperation thinner. trade XX% a requires to so the about INR clinic to your in to thinner not the obviously of check your you step blood, still kind amount but monitoring trial, valve are a the of That’s cardiologist a to a blood that that And that thin called the big And a how and bleeding. downsides made valve. going you go forward, you maintain the requires a your your valve. XX% level. patient, somewhat have level diabetic of of and over and a tissue blood to a like blood and you if with week blood is almost mechanical to great a with maintaining INR to prick is take thinner cause to your level or off when fact finger, is takes a constantly the every a enhanced your get reduce blood having stroke to a tethered PROACT it’s is could the Coumadin clot take I Coumadin do always matter to certain make experience do And the having your sure is

On-X be bleeding in unique valve that commercials a to just That is INR drug a in widely also Switching cardiologists. if vita exact diet it’s – comparing the versus throw drug, in fibrillation as valve shown of is or acts, off Coumadin happens than the your too it some basically one trial say most probably it’s with an atrial – showing PROACT. have I it’s has we several by and well you have so with much Conversely, which these we studied exploring see gets We we a amino not of could seen group up said, what profile an effective patients being eat patients randomized. XA we if valve. is number that always Coumadin taking patients growing years. have the antagonist, a And it’s actually universally a we fastest cardiologists, by is care very vitamin been And in is that over much our Eliquis you an have You think – the Coumadin. no standard the restrictions. almost share, Coumadin prescribed levels. like X Eliquis, group on could is and Eliquis stays you On-X is a actually are to TV Coumadin would is thousands not would randomized we popular better patients widely. And very all it’s probably thought on large that K salad, the patients the believe that and groups, for the already cardiologist of would anticoagulant existing drug and PROACT Eliquis, most the current one

And that We and will trial the switch changer, market of years mechanical to average age mechanical are of would have which XX if XX we that’s of this for area it will believe we game in valve. all that valves the if successful, patients a the the the valves research years you market care valve done to lot today getting On-X change patient and research those tissue at currently is be number is a have XX done aortic shows look it more. jumps years of basically that standard

on surgeons – Eliquis and We majority switch Eliquis On-X that valves mechanical current tissue patients Eliquis to The the estimate in of just we put valve – with the is our $XXX if successful worldwide range. if also trial of that probably would is in would take the and market believe million valves. U.S. is that million the their alone other $XXX valves instead

have can with doing and And a FDA you as more – change we one taking that by the much an thinner and and math, we lasts both So mean a and friendlier. we know. patient ID guys think And frankly, in we – lifestyle that discussions are that’s opportunity. of do their blood reason their the this standard care excited a is had a the is I have on operation think well as a have life we protocol the have the burdensome it significant worlds it’s will best is just least we for soon it a much to this of everybody is very are

Suraj Kalia

Super. Thank you.

Operator

question next go from with line Brooks Street ahead. Markets. Your Lake of O’Neil Please the comes Capital

Brooks O’Neil

you plans for the sort moving the bit the congratulations about hoping United time, us just next but and JOTEC for talk of know I for little not over talk here? States, a could it’s bit to getting through guys quarter, of a of you just morning I can the outlook years Good couple the was on

Pat Mackin

Yes.

thanks the good Brooks So morning for and comments.

rigorous have is getting basically our years So I several script. comes team market. market quite they And sure got latest a want mean get the when because the we have takes into in we little up the – we have mentioned things this it make mentioned products I these to plan U.S. the with to the approvals, They to team. because is us products. it these available, bit come some JOTEC is R&D – fantastic a great

thoracoabdominal deliver of of of we one and the deliver generation year, that comments graft they at a my [indiscernible] Vita deliver generation Open E-inside. to was to elephant called to at next this ‘XX our next the Neo, frozen end So is the R&D going are trunk going next thoracic called are JOTEC end going team stent generation branch called graft

to take the this be IDE get devices going we FDA that three will clinical will our those for devices, but the we time those in setup PMA are and trials. three We to those Europe about year, the next launch take

PMA about So start start this you meetings enrollment – all those and in your at and to three are go have to from those trials the of once get the next your year, we this clinical enrolling follow-up to year it’s four really FDA you one with started. are to approval, you from probably those get Again it’s our will trials. goals to time ready trial timeframe a – X-year looking

Brooks O’Neil

U.S.? the to the of get to way the bring expect in in products to along and products U.S. you JOTEC the the time other when And significant the you kind Pat growth to Europe drive you

Pat Mackin

JOTEC And Yes. see mean the is And for we as are next as to the time we you growth those of be liked going waiting things X of one Once I are – market I I see almost products, expansion, to again about stent U.S. for products and next market U.S. the we the X that’s are hit the a U.S. point, between mean as the going think $X the grafts growth hit. geographical JOTEC an to billion your pipeline the I outside earlier like it’s can the nice in we that mean investor, commented But in well the the to to we along core wait. years years. is way nice these poised transaction R&D to over long

Brooks O’Neil

maybe then finding Great. products we them about you had a one other only for update that wound developed And I the was any on are the talking it? partner

Pat Mackin

Yes.

is we I It’s had was Neo-Patch, force, think partnership called for it’s to a an great foot a DFU effective. look idea sales product – a closure, fast partner growing. market. a product been a it’s it trial have – us. the we believe amniotic This we product. in have to don’t basically so and the developing nice job a our called the CryoLife distribute for have thought we we diabetic discussions clinical ulcers, big product did membrane This very got market, looking been used for I this was developed did product, so And good we

we shareholder a it. still spending on any active from are mean been already standpoint, been It’s not spending of those developed, really in are it’s discussions money from. We I kind it’s trialed. already

it’s mean kind company. discussions we now just – upside, doing if But upside, and really no is but as what BD I potential kind to a it’s is it in material of we We the a find harm we if are are not it’s all partner valve. of of don’t, there

Brooks O’Neil

much. very you Thank Okay.

Pat Mackin

Brooks. Thanks

Operator

comes ahead. line Ladenburg Thalmann. Please question with Cohen next of go Jeffrey Our from

Jeffrey Cohen

Ashley, okay? and Pat can me, Hi hear you

Ashley Lee

Jeff. Yes. Good morning

Jeffrey Cohen

So far can have areas have that little as talk couple affect? just my a have Thanks. a issues, direct increases, lot go been about questions you swap of you which particular already, been of specific territories bit in pricing, a little s bit but fluctuating addressed prices to price where and

Pat Mackin

is prices, varies I you you cardiac when your get there we on about, to middleman and far. a is the pricing. about in every was in it country revenue. And prices very go and When pressures perspective. who the – competing what are you is kind XX% of – When I in mean much your in it pricing, it’s wasn’t see we by between year. you and was your just raising our where I in I prices your if units the product will down. frankly. at from and movement pricing, mean had are is which have markets surprised this And mean increase CryoLife, our are our of comment we Ashley, by in don’t calls. XX% been he increase and across how they market mean been I can think are very difference pricing of lines, stable. pretty product stable direct you and a We go country in and talking look before I general CryoLife, but and far going kind can substantially a and this when made just I an the have depends I looked let you increase tissue products. intense it think distributor the in those There XX% raising comment, But prices bit I I Ashley XX% mentioned I were quarter, all healthcare so and eliminating we you in the have no a a I of I environment I on price earlier to got only point And that have previous got think Yes. the price like

Ashley Lee

pretty I think have further to don’t any I accurate. No, That’s add.

Jeffrey Cohen

give specific or anticipate further clinical introductions being some over little the Okay. specifically, you there you and now, year then a Japan could that work? product lines secondly, us perhaps And color on sold next two

Pat Mackin

Yes.

doing in currently that are Japan, we at been don’t indication Japan we growing say growth I would after in both and So, in JOTEC fingers. growing On-X Japan BioGlue have rates quite I those indication and actually times. reported has no after there. we Japan number nice We products, on On-X have well in growth see the growing. get is the have my approval. that XX% a products had top don’t nicely. We in Japan that other and BioGlue of still have we have new BioGlue

middle about are exploring speak. the those key of of taking the there opportunities discussions products So, and we as JOTEC we in Japan to are some

Jeffrey Cohen

got Thanks, again. year. it. Okay, me. on does That the Nice it readout from

Pat Mackin

Jeff. Thanks,

Operator

no Pat are floor the turn this There Mackin closing further I would over questions for time. comments. like at back to to

Pat Mackin

hear growth key products. to transcript we you Well, thank joining could in the beat line. I want a today. today, the we as we in everybody of bottom all line, very beat the top And from We our for our had QX, great call are excited double-digit

So, a on for December transaction XXXX particularly finish think, I was, X. closing JOTEC the nice with

We start this signed. over integrating the very working date have the been We we last hard X transaction months.

X integrating So, we have months. for been aggressively and actively

XXXX. successful We is very we back Italy, excited to Poland. are and are very in our Spain, direct go setup X, forward countries, live April a the office being looking to On

are place. in channels Our

outside a year the got We you product generation stent you in the using heard and to place. of team grafts to in trial in half line products PROACT going everything powerful, BioGlue grafts, PerClot U.S. forward. XXA, from and are then pipeline U.S. U.S. next products time great my comments about leadership hitting Our extremely China my Europe second ‘XX coming about to our heard is comments the in almost stent those next every this and

have build are we company. It like queue anyone the very there in was else and excited we there as the with the you is sounds So question. another someone forward – to in you working queue. look Do for

Operator

to Yes, interrupt Excuse I me. wanted to.

First go question another from have line Analysis. with of We Please ahead. Jo the Munda

Jo Munda

Ashley. and Hey, Pat

Sorry, me, Okay? Can having into some here. queue you hear issues getting the

Pat Mackin

Yes, we fine. you hear

Jo Munda

quick. Yes, I will this make

already. of of What debt quarter? end total answered lot questions Just at was the the

Pat Mackin

It was right at $XXX million.

Jo Munda

$XXX million.

XX on weighted outstanding Ashley, other on quick, color diluted the the us XX.XX non-GAAP end? then breakout XX for have guess non-GAAP versus is something I there missing but my give I shares delta on am real million. the million, maybe GAAP some thing the a you average

Ashley Lee

forecasted XXXX between XX.X compared mean million the to? You for

Jo Munda

reconciliations the quarter, non-GAAP fourth has year been to on? for this from GAAP the No,

Ashley Lee

we the month that for quarter. during additional outstanding acquisition, part The only shares JOTEC of we X are issued the as

So, have that’s lower fourth why a the in share you quarter. count

Jo Munda

a here, could little key makes but quick means quarter That U.S. products, quarter a BioGlue? know you helpful, just BioGlue our up fourth more was against put it And really Pat, real granularity, seems you mean end nice sense. solid despite up in really a bit give it bit points us little a be quarter color trailing gave like some for because solid competing Okay. I but then breakout the from more would very us I

Pat Mackin

Yes.

one think was trial pressure it nice we the it I see of of against a mean, up nice so things, have in had actually Europe. talked all year. U.S. was percent growth we the to I some saw growth we competitive because We and the and of in couple

the can’t we a think about of upside the the was swing a patterns boosted obviously I I well revenues. of we the as year, downside, which and big I order, late up control had – the distributor this big – both ordering had some we of before to think kind in talked big and Japan coming out and the

So, of it see a the I and next you quarter it’s out kind a the sometimes, tissue look previously. with are and to made and that that one then big Glue smoothes distributors, is we quarter, – on comment lighter have and I you mean, going then where little quarter depending

We order thing only the of late a big – the of I So, out I think excellent. growth year. was was ordinary think in the did a Japan Glue the have big

Jo Munda

Ashley, some space? for pricing is about of here, Are pricing You growth as the seeing as tissue, quarter. X% competition X% of the dynamics is tissue margins Okay. at wondering there, the for far in last some talked vascular, you unit just concerned? you gross overall down the I question And the roughly about is in risk business the coming talked was then about on growth pressure

Ashley Lee

that we throughput ‘XX the think projecting of XXXX more decrease we in it inventory reduced function are the versus that optimize I a our levels. to for is margins facility as

Pat Mackin

it’s the side. side, Yes, COGS price on on the not

Ashley Lee

Yes.

Pat Mackin

manage are not the high throughput, but you you COGS it’s your if nature We and margins throughput, margins down the if your issue, it’s your throughput. just better that’s math, I a inventory a off a of And price our bit, have little come and mean, back issue. our

Ashley Lee

gross we XX% to range. I indicated, I as And tissue still are mean, Yes. expecting the processing margins for in be low business

Jo Munda

you. thank Okay,

Operator

Mackin for questions. to There I hand comments. closing back are Pat no further

Pat Mackin

to do all going over I this again. am not

for to you everybody forward with call So, joining I and the a keeping I thank our day. just progress. Thanks. on want look great updated to Have

Operator

teleconference. concludes today’s This

disconnect for your you your You lines this may time. Thank at participation.

Artivion (AORT) 8 Mar 182017 Q4 Earnings call transcript