Greetings, and welcome to CryoLife Fourth Quarter and Year End 2014 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 pleasure to introduce your host Ashley Lee, Chief Financial Officer. Thank you, you may begin.

Hi, good morning. This is Ashley Lee. Before we begin, I'd like to make the following statements to comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made in this call that look forward in time involve risk and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including the guidance for 2015 that I will provide in a moment. Additional information concerning risk and uncertainties that may impact these forward-looking statements is contained from time-to-time in the company’s SEC filings, including the Risk Factor section of our 10-K for the year ended December 31, 2013, our 10-Qs for 2014, the 10-K for 2014, which we expect to file shortly and in the press release that was issued this morning. Now, I’ll turn the call over to Pat.

Thanks, Ashley, and good morning. Thank you for joining the call today. On this call this morning we will cover several items, I'll provide a high level summary of the fourth quarter and full year results. I'll review the key takeaways from my first hundred days on the job with CryoLife, and I will provide an update on our key initiatives for 2015. Following my comments, Ashley Lee, our CFO will provide a detail review of our fourth quarter and full year 2014 results and 2015 guidance. We will then open the lines for a Q&A session. We are pleased with our fourth quarter and full year results reported earlier this morning, total revenues increased 5% in the fourth quarter to $37.2 million, for the full year the revenues increased 3% to $144.6 million. The positive trend in the fourth quarter was driven by a 12% increase in product revenues, including strong performance from BioGlue up 11% for the quarter, for HeRO up 10% for the quarter and for PerClot up 52% for the quarter. Our tissue processing revenues decreased 4% in the quarter, primarily due to the implementation of new and enhanced quality systems that reduced our production volumes of key tissue products. Ashley, will provide further details about our Q4 and full year financial results during his remarks. I joined CryoLife in September of last year, with a goal of leveraging my 20 years of experience in the cardiac and vascular markets to enhance the CryoLife business and strategy. During my first hundred days on the job I dedicated a significant portion of my time to thoroughly learning and evaluating the state of the company, to better understand what we're doing well, where our biggest opportunities lie, and what we can do better. This includes, field drives with…

Thanks, Pat. This morning we reported our results for the fourth quarter and full year of 2014. The following factors influenced our fourth quarter and full year performance. Total company revenues increased 5% to $37.2 million for the fourth quarter driven by 12% year-over-year revenue growth from our higher margin product segment. Our fourth quarter international revenues were $9.2 million, up 20% compared to the fourth quarter of 2013. For the full year, international revenues were $34.1 million, an increase of 8% year-over-year. International revenues accounted for 25% of our business in the fourth quarter and 24% for the full year. The increase in international revenues were driven by strong sales of BioGlue, PerClot and HeRO. Our domestic revenues increased 1% for the fourth quarter of 2014 and full year of 2014 compared to the prior year periods. The full year increases were driven primarily by an increase in BioGlue and HeRo revenues, partially offset by a decrease in tissue processing revenues. Worldwide BioGlue revenues in the fourth quarter were up 11% year-over-year. International BioGlue revenues were up 19%, on an 18% [ph] increase in volume. Domestic BioGlue revenues were up 5%, on a 2% increase in volume. For the full year 44% of our BioGlue revenues were generated in international markets, up from 43% in 2013. HeRO Graft revenues increased 10% to $1.8 million in the fourth quarter of 2014, compared to $1.7 million in the fourth quarter of 2013. The increase was primarily driven by increased adoption of the HeRO Graft in international markets where we are still in the early stages of the product rollout. PerClot revenues increased 52% for the fourth quarter of 2014 compared to the fourth quarter of 2013. The increase was due to continued growth in European markets where revenues increased 21% and…

Thanks, Ashley. We will now open the lines to take questions for the call.

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Tom Gunderson with Piper Jaffray. Please proceed with your question.

Hi. Good morning, guys. So, I was going to ask about gross margin, but you went through that in great detail, so I appreciate that. On the legal fees, sometimes I know you don’t do it on a GAAP basis, but sometimes on the investment side we look at extraordinary legal fees as a one time. Can you put a dollar figure on that as far as incremental that you are expecting in 2015 for the Bard patent suit?

Yes. Hey Tom, this is Pat. Just a couple of things. One on the just a straight, pure straight cost year-over-year, the differences from last, because obviously that suit is being going on. The difference is about $1.5 million from 2014 to 2015. Obviously, as Ashley commented in his remarks, we're waiting for the feedback on this preliminary injunction hearing that happened on January 23rd. If we – we felt like we did very well. We'll wait to hear what the judge says. But our goal is to come up with a reasonable settlement. We feel like we had strong case, but I don’t think taking this thing all the way to the [Med] [ph] is the smart economic decision for either company.

Got it. Thanks. And then on the R&D front, it’s a healthy increase in R&D, are you doing anything other than starting the PMA trial, which is obviously a big deal. But is there anything else in that R&D that starts to set us up for future growth of new products?

Yes. There's a couple of things, and clearly the PerClot trial is the big, is actually coming, it’s about $5 million investment this year and that’s a big part of the jump. There are some other things that are embedded that we've talked about publicly that’s more a background work. So for example in one of my comments, we've got the new product PhotoFix which we’re being, seeing really good progress as we launch that in pediatric surgery and adult surgery. But we think there is a big opportunity in carotid endarterectomies and we'll be doing some animal clinical work which is necessary for the 510(k) extension. The other thing is on the neuro front, we mentioned neuro in many of our investor comment or investor presentations, where 15% of our revenue in Europe is in neurosurgery. We know we have a very strong product in that arena, some – already some very good data published on that. And we're going to be working with kind of KOL physicians who have been using this product around the world, but also looking at doing some animal work to prepare for a potential IDE down the road. So those are two things that are kind of – they are smaller, but they are clearly increases from last year where we really didn’t spend any money on either of the carotid patch for endarterectomy for animal trials for – in the neuro surgery space.

Got it. Thanks. And then my last question, Pat, is on your number one focus and that is on the FDA. Last we talked was beginning of December, that’s two and half months ago, almost three, is any granularity, any color you can give us on the discussions that have been going on with the FDA in the last three months?

Yes. I can give you some historical perspective in prior jobs. I mean, the fact of the matter is you really don’t have good visibility to when they are going to come. And the discussions, we've had a couple of discussions as I mentioned on my last call, I met with a district officer September 29th. We had – I think we've had one phone call with them since, and it’s really kind of up to them when they come back. I can tell you that they – one of the things they told us is, they would not let the re-inspection which we're expecting kind of anytime now to lapse more than a year from the previous inspection and just to remind people the last time they were in was kind of February 20th to March 20th. So I think - we're planning on a re-inspection here in the next 30 days. I would also say just from a progress standpoint, I mentioned this in my comments, but this is really been a massive effort for the company, myself personally, the entire executive team, we've had, and this is one of the reason you're seeing the cost on the tissue jump in on us is the kind of the total overhaul of the quality systems. We've seen massive improvements and our [capitals] [ph] have been reduced by 65%, our backlog complaints have been reduced by 65%, our NCRs have been reduced by 65%. So we made great progress. We're obviously waiting for the FDA to come in and we're going to continue to work extremely hard to prepare for that. But ultimately they are the ones who decide when they come back.

Got it. That’s it from me. Thanks.

Thanks, Tom.

[Operator Instructions] Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Good morning, Pat and Ashley. How are you?

Good morning, Jeff.

Good morning, Jeff.

Could you talk a little bit about the transition with a specific European country that you are talking about? So what you had said was that $2 million of their inventory would be pared down and that you would be offset and direct during this third quarter. Could you talk also about the size of the team that you have anticipated for direct sales?

Yes. So I think you guys have all experienced this before with other companies that have gone direct. And typically what you see is, if you look at last year actually we did roughly $2.8 million in a specific country through using a distributor and our plans are to go direct. But before you could actually benefit from the direct revenues, you basically have to burn down the existing inventory that you distribute as a whole and that’s a very common practice Unfortunately we had a little more inventory than we would have liked, and we're not going to be able to go live until October 1st, but when we do go live October 1st, if you go to – kind of jump forward, as Ashley said, we get a real big pop on the revenue and the margin side. The team that we're taking about is in the five people range. We've already been in discussions and it’s a very amicable transition. So I think that things are progressing well and it’s a real opportunity for the company. We've seen other markets when we've gone direct, not only do you get the bump from distributor revenue and distributor margins to direct revenues and direct margins, but you also see just an added bump in the productivity and the focus in the other things we could bring through those channels. And it’s a significant country in Europe and I think strategically for the company it’s a very good move for the long-term. I think last thing I would say is, if you look over a 5 year period, it is a significant improvement in revenue, profit, cash flow, kind of on every metric with a very strong IRR.

Okay. Got it. And Ashley you made a little bit of commentary as far as FX effect, talking about that $1 million top line effect for 2015, did you seen any effect during the fourth quarter of 2014?

We did. We actually had about a couple hundred thousand dollar negative effect on the top line related to FX.

Okay. All right. Just comment on any measures in place to mitigate any of the effect on 2015 and or 2016?

No, we don’t specifically hedge to protect our top line. We kind of have a natural hedge and the fact that that we have 25 people on the ground over in Europe. And so the expenses that we pay which are predominantly in pounds and euro, kind of give us a natural hedge to our bottom line. But again, we don’t do anything specifically to hedge our top line exposure.

Okay. And lastly, if I thought you could discuss a little bit about acquisitions in some of the products that you're seeing out there that the company may have interest in?

I've commented Jeffrey, as we met – we've been publicly making comments about the kind of the fourth strategic vector of M&A. One of the things this company has done very well is the financial discipline, Ashley commented earlier that we're sitting around $39 million of cash, no debt and we expect a kind of transient issue in 2015 to move back to see a pretty good profitability going forward. Given all that, I mean, we are well poised to acquire and as I've said, we have these two really nice chassis; we have a cardiac surgery sale organization in entire business and a vascular surgery business. There are a number of opportunities. Every time I go to a new investor meeting or a new physician meeting, I am coming back with more and more opportunities and in each one of those categories and I am not – what I am not referring to at least in the early days of what we're looking at, this is not something where we're going to do a deal and have to – with no revenue, no profit, and we're going to have to invest too much money and then three years later you guys may see something. I am talking about buying existing businesses, with existing revenue, existing profit and existing people that would be very synergistic with the company. And again, I think there is a tremendous amount of opportunities out there. More than I actually thought there would be. Because as I – I've been in the cardiology field for 20 years, and I've been on a cardiac surgery for probably 12 and I've been on a vascular surgery for probably 8 to 10. I've been kind of blown away by the amount of opportunities kind of which we fit with us that are in our kind of real house from a acquisition stand point. It’s very exciting and again, I think that I can't really get more specific then that for obvious reasons. But we're very excited about that fourth vector of M&A.

Appreciated it. Thanks for the color. That’s it from me.

Thank you. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Well, I appreciate everybody dialing in this morning. And we are – we try to put together our plan for 2015 that recognizes some of the challenges and opportunities that we talked about in the transcript. And a lot of these kind headwinds in 2015 are very transient. And if I go back to the list, on the – on going direct in one of the European countries, we're going to take a little bit of hit on the revenue line in 2015, but in 2016 its going to come back stronger than ever with a direct strategic operation there, which is going to be good for us in the short term and then back to the M&A question, if we do any deals on that front its just going to accelerate that. The tissue COGS [ph] we're disappointed where the tissue COGS, I'll be honest, and we – but we've said at the very beginning that quality is number one here and we've had to put some cost in here and as those costs flow through the P&L you're going to see them in the margins. But I can tell you that is a – once we get out of this FDA, which I am hoping to do very quickly here, as they will back into the next 30 to 40 days, I am going to be shifting all of our efforts to this tissue cost and tissue supply. Our goals to get our tissue cost back to where they were or even better by the end of this year. The other thing is, there is huge demand for this tissue folks. We have million of dollars on backwater. So its not like there is some, the revenue short fall on the tissue side is a lack of customer…