Artivion, Inc. (AORT) Q4 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the CryoLife Fourth Quarter and Year-End 2016 Earnings 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 turn the conference over to CryoLife management. Please go ahead.

Good morning and thanks for joining the call. I'm Ashley Lee, CFO of CryoLife. Before we begin, I would 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. These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from current expectations. Additional information concerning risks and uncertainties that may impact these forward-looking statements is contained from time-to-time in the Company's SEC filings and in the press release that was issued last night. Now I’ll turn the call over to our CEO, Pat Mackin.

Okay, thanks, Ashley and good morning everyone. I am pleased to be here to report on our progress during the fourth quarter and CryoLife’s overall successful 2016. Although we came in just below our twice upwardly revised revenue guidance at $180.4 million for the full year. We did deliver adjusted earnings above our guidance. Furthermore, we believe our Q4 top-line performance does not reflect the demand issue or loss of momentum for our core products, and we will detail why we believe this in later comments. We suggest you view our progress on an annual basis as quarterly progressions can vary from time-to-time. We also reported a significant improvement in our gross margins for the quarter and for the year, which was primarily driven by our continued productivity improvements in our Tissue Processing segment. Those who have followed us over the past year know that 2016 was a transformational year for CryoLife as we laid out a series of new strategies and objectives and made substantial progress on each. As a result, we believe we had a very successful 2016 and are well positioned to drive continued growth into the future. One of the biggest organizational changes we made was to expand our cardiac surgery sales force. That move has led to increasing momentum in the market leveraging cross-selling opportunities and expanded awareness for On-X valves and their unique clinical benefits to patients. In addition, we believe our products are the preferred heart valve replacement technologies for patients under the age of 60, which represents about one-third of the market. Given our progress in the quarter and strong positioning, we are confident in our ability to continue to capitalize on the opportunity in the cardiac surgery market we serve. You may also recall our decision to focus the product portfolio the pipeline and business development criteria. The goal was to strengthen our presence in target markets to which is typically enjoyed by much larger companies. That goal was effectively executed and now we are on our – now we offer our customers in most cases multiple clinically differentiated solutions for their patients. The key takeaway is that things are on track. Our top-line in Q4 was slightly impacted by issues that we believe are short-term in nature. Looking ahead, as we continue to advance our strategic objectives, we expect to generate solid returns. This morning, I will provide a progress update on our 2016 key initiatives and outline our objectives for 2017. Ashley will provide a detailed review of our fourth quarter financial results and our initial 2017 financial guidance and then we will take your questions. Let’s begin with an update on our 2016 objectives. Our first key initiative in 2016 was achieving our full year revenue and EPS guidance. Revenue for the fourth quarter of 2016 was $45 million representing a 13% or 2% decrease from non-GAAP basis. This was primarily due to three main issues. One, a shortfall in the cardiac tissue segment; two, a shortfall due to fewer orders than expected from our distributor for BioGlue in Japan; and three a shortfall in On-X revenues in our non-strategic OEM business and a regulatory issue from our non – from our On-X AAP in Europe. As far as we can tell, we do not believe demand has changed for any of our core products, but I’d like to give you a little more color on these three areas contributing to the shortfall on the top-line. First, on the tissue processing revenues and specifically cardiac tissues, we are below our expectations for the quarter due to two factors; first, a limited supply of small valves which are used for pediatric cardiac reconstruction; and second, a lack of execution in utilizing our recently published SynerGraft data to convert market share in the adult congenital market. We estimate that these issues cost us almost $1 million in the quarter in Q4. Importantly, as I said, demand for these tissues remains strong as we have over $4 million in back orders in pediatric tissue alone. We are optimistic that we will be able to increase both supply and sales of these important tissues, due to the recently published clinical data that demonstrates our proprietary SynerGraft processed pulmonary valve provides superior clinical outcomes when compared to non-SynerGraft processed cardiac tissues. Specifically, a multi-center study show that at ten years, patients with our proprietary SynerGraft valves had a 17 re-operation rate, whereas patients with a non-SynerGraft valves had a 40% re-operation rate. We have a strategy in place to leverage this compelling data to increase utilization of our SynerGraft valves over valves of our competitors, by demonstrating to physicians and hospitals that our valves are better for their patients. We believe this strategy will also be effective when the procurement groups to make us their preferred partner for the supply of these tissues and especially pediatric tissues. Second, our BioGlue revenues were affected by our Japanese distributors’ inventory management which resulted in BioGlue sales to them were approximately $500,000 lower than anticipated. Our distributor made us aware of their desire during 2016 to reduce their inventory levels which they accomplished. Now that they’ve achieved their 2016 inventory goals, they’ve informed us they plan to grow their business by 20% in 2017 over 2016. Finally, we had a revenue shortfall of about $200,000 in the On-X AAP revenues in Europe due to issues with our CE Mark and another $300,000 related to an unexpected softness in our non-strategic OEM business, which is a business that where we apply our proprietary carbon coating technology to non-valve devices of other companies. As for the AAP regulatory issue, we’ve already submitted our paperwork and expect to be back on the market in the second quarter. As with the non-strategic OEM business, we expect this to be a continued headwind. We’ve already taken both of these issues into account for our guidance for 2017. Importantly, excluding the non-strategic OEM business, North America On-X business increased 22% year-over-year in the fourth quarter. We believe this points to the underlying strength of the On-X valve platform and the success of our North American direct sales efforts. As a reminder, our non-GAAP revenues include On-X revenues for the period in 2016 prior to closing of the acquisition and On-X revenues for the comparable periods in 2015. It also excludes revenues for the divested HeRO graft and ProCol product lines for 2016 and 2015. Regarding our earnings for 2016, I am pleased to report that we finished ahead of our revised guidance, which came in 50% higher than our expectations entering the year. This was primarily driven by our continued improvement in gross margin which reached 69% in the fourth quarter. Our second initiative for 2016 was realizing the potential for our On-X acquisition with a goal of delivering double-digit compounded annual growth over the next five years. We are confident that our goal is well within our reach. Having worked with the product for three full quarters now, we believe we have a winner in our bag. We continue to work through the administrative requirements to get On-X into more hospitals, which unfortunately can be a lengthy process given all the constituencies involved. It is much more complex than just getting a surgeon on board with a product, but we know how to navigate the process and continue to add new customers and that will further allow us to achieve our growth objectives. Physicians are very receptive to using On-X valve once we are able to explain the clinical benefits to them. We spent a lot of time in 2016 working our way through the consignment process and that work is ongoing. Those efforts don’t always show up in the revenue-line right away but we are optimistic these efforts will be rewarded in the future. And as I just stated, we are extremely pleased with the performance in the US. When you exclude the OEM business which is non-strategic, we had a 22% year-over-year growth rate. We also anticipate the results of the On-X pivotal study to be published in a major journal sometime this year. Recall, that this study led to the On-X valve receiving the indication of 1.5 to 2.0 INR label in the US in April 2015. The balance of 2015 we spent negotiating acquisition and in 2016 we focused on integrating operations of On-X into CryoLife. A paper detailing the results of this pivotal study was recently submitted to a major journal and if accepted and published, we believe to provide significant tailwind for the On-X platform to generate incremental interest in this important technology. Our enthusiasm for the On-X opportunity is never been greater and we remain very bullish on the On-X platform. Our third key initiative for 2016 was driving efficiency in our tissue processing business. Our fourth quarter results demonstrate that we continue to make good progress in this area. In the fourth quarter, our tissue processing revenues were up 1% year-over-year and for the full year, our tissue processing revenues increased 6%. Importantly, our tissue processing gross margins improved to 56% during the quarter, which is an 800 basis point quarterly year-over-year improvement. Ashley will have more commentary on tissue processing revenues and gross margins during his remarks. Our fourth key initiative for 2016 was continuing to grow BioGlue in the US and international markets and although BioGlue revenues in the fourth quarter were down 3% to $15.9 million, compared to the fourth quarter of 2015, BioGlue revenues increased 7% for the full year. During the quarter, BioGlue revenues in North America were up 2% while OUS revenues were down 9% primarily driven by the Japanese distributor issue I previously mentioned. Looking forward, we continue to see opportunities for BioGlue. First, we expect to see some growth from the expanded indication in Japan as I mentioned earlier or procedure volumes were up 20%. Longer-term, we see upside from our BioGlue clinical trial in China which I will detail later in my comments. And lastly, we expect to benefit from BioGlue end-user pricing as we continue to execute our strategy to go direct in certain OUS markets. Our fifth key initiative for 2016 was investing in clinical programs focused on gaining regulatory approvals that will significantly expand our future market opportunities. I am pleased to report that we resumed enrollment in the PerClot trial during the fourth quarter. We currently have IRB approval at nine sites including full site activation at five centers where patients are currently being enrolled in the trial. We expect the pace of both IRB approval and enrollment to improve as we move forward. As a reminder, in Q3 of 2016, the FDA approved their revised study protocol that we believe will drive faster enrollment and based on our estimates for enrollment timelines and follow-ups, we believe we remain on track for FDA approval in the first half of 2019. In China, we also remain on track to begin patient enrollment of our BioGlue clinical trial in the second quarter of 2017 with approval sometime in the second half of 2019. Our last key initiative for 2016 was continued business development activity. To recap, in 2016, we successfully repositioned the company to focus on cardiac surgery with the On-X acquisition and subsequent divestiture of HeRo and ProCol. And then the completion of the integration and transaction and transition of activities related to those deals. In addition, we continue to make progress in transitioning manufacturing of the PhotoFix product line to CryoLife and remain on track to complete this transition by mid-year 2017 providing another tailwind for gross margins. In terms of additional business development, we continue to evaluate opportunities to add or acquire rights to complementary cardiac surgery products to our portfolio. Before I turn the call over to Ashley for a more detailed review of our financial results and our 2017 guidance, I would like to provide an update on one more new item we’ve been working on. This is a new tissue offering and potential new revenue opportunity for CryoLife, which we refer to as NEOPATCH. NEOPATCH is an allograph derived from human amniotic tissue that can be used among other things as a covering in advanced wound care to treat diabetic foot ulcers and venous leg ulcers. We are very excited about this new opportunity. For those who are not familiar with the advanced wound care market and specifically, the amniotic tissue use in this area, the current market is approximately $300 million and is growing at over 11% on a compounded annual basis over the last five years. This is a technology that we’ve been working on for a few years and although the wound care is not synergistic – that wound care market is not synergistic with our existing call points, NEOPATCH is certainly synergistic within one of our core competencies which is tissue processing. We have recently completed enrollment in a 50 patient first-in-man single-arm clinical trial to evaluate NEOPATCH outcomes in a real world population of diabetic foot ulcers. Follow-up data collection is ongoing, but we are very excited about this opportunity and the early clinical results that we are seeing in this series. The 12 week follow-up on this initial series will be completed in mid-May of 2017, and as a result, we have recently started to secure a marketing partner for NEOPATCH. There are no guarantees we will be successful in securing a partner, but we are very optimistic about the prospects given the compelling clinical results we have achieved of NEOPATCH in this large market opportunity in diabetic foot ulcers and venous leg ulcers. This opportunity demonstrates given our size and our internally developed products where smaller acquisitions can have a meaningful impact on our business. I will now turn the call over to Ashley for his financial review.

Thanks, Pat. I will now review our results for the fourth quarter and full year of 2016. Compared to the fourth quarter of the prior year, total revenues increased 13% to $45 million. This was primarily driven by the acquisition of On-X and an increase in cardiac tissue revenues. On a non-GAAP basis, revenues decreased 2% compared to the fourth quarter of last year. The non-GAAP revenue decrease was driven primarily by 32% decrease in TMR revenues in the fourth quarter mostly offset by 9% increase in On-X revenues in Q4. Please refer to our press release for additional information about our non-GAAP results including a reconciliation of these results to our GAAP results. On a geographical basis, Q4 North American revenues, which includes the US and Canada were $33.7 million, up 8% year-over-year driven largely by the acquisition of On-X. On a non-GAAP basis, North American revenues were flat for Q4 compared to the prior year. Revenues from our European region were $7.6 million, up 30% year-over-year, primarily as a result of the acquisition of On-X. On a non-GAAP basis, revenues from this region decreased 5% driven primarily by decreases in BioGlue and On-X revenues. Pat previously discussed the drivers behind these results. Revenues from Asia-Pacific and Latin America were $3.7 million for Q4, up 38% year-over-year, primarily as a result of the acquisition of On-X, partially offset by a decrease in BioGlue revenues. On a non-GAAP basis, revenues from Asia-Pacific and Latin America decreased 5% year-over-year, primarily due to a decrease in BioGlue revenues, which were affected by orders from our Japanese distributor, partially offset by 19% increase in On-X revenues. I’d like to spend some time focusing on individual product lines and specifically on tissue processing, BioGlue and On-X which combined account for about 90% of our total revenues. As Pat mentioned earlier, we continue to make progress in our tissue processing business where both revenues and gross margins are improving. In total, tissue processing revenues increased 1% for the quarter, compared to the fourth quarter of 2015. During the fourth quarter, cardiac tissue processing revenues increased 7% year-over-year on a 6% increase in unit shipments. Vascular revenues decreased 3% year-over-year on a 2% decrease in unit shipments. Pat previously touched on cardiac tissue processing revenues and the importance of our SynerGraft’s clinical data in helping to increase both sales and supply of cardiac tissue. Regarding vascular tissue processing revenues, as we mentioned in our last call, our focus over the past 12 to 18 months has been on improving productivity in our processing operations and meeting the latent demand from our existing customers who we were not previously able to consistently supply with tissue. To a large degree, we are able to provide the supply to meet current demand and we are now turning our attention to new customers. Our channel checks indicate that there is a significant base of business for us to pursue and we will be doing so in the coming months. BioGlue revenues in the fourth quarter decreased 3% year-over-year to $15.9 million. North American BioGlue revenues were $9.4 million in Q4, which in an increase of 2% year-over-year. We believe the primary driver of the increase was a result of our larger US direct sales force focused on cardiac surgery. OUS BioGlue revenues decreased 9% year-over-year to $6.5 million. The decrease primarily results from orders from our Japanese distributor. We continued to expect upside from our expanded indication in Japan, our ongoing strategy to go direct in select OUS markets and regulatory approval in China anticipated in 2019. On-X revenues for the fourth quarter were $9.1 million, a 9% non-GAAP increase compared to fourth quarter 2015. North American On-X revenues were $5.4 million for Q4, which represented a 13% year-over-year increase or 22% excluding the OEM business. OUS On-X revenues for Q4 were $3.7 million, which represented a 4% year-over-year increase. Our Q4 OUS business, outside of Europe increased 19% year-over-year. Our Q4 OUS business in Europe decreased 4% year-over-year, primarily as a result of the CE Mark documentation issue. Moving on, our overall gross margins for the fourth quarter were 69% and 66% for the full year. This was ahead of our full year revised guidance of 65%. If you exclude the $822,000 write-up of acquired On-X inventory that is included in cost of goods sold, gross margins would have been 71% for the fourth quarter. I’ll remind you that in addition to the inventory basis step-up, we repurchased inventory from previous international and domestic distributors. The unit cost of that purchased inventory is higher than the unit cost to manufacture valves. The current aggregate incremental carrying value of that inventory, which is approximately $2 million will run through cost of goods sold during the first quarter of next year or of 2017 and we will accordingly reduce gross margins during that time period. Tissue processing gross margins improved to 56% for the quarter, up from 49% in the third quarter of 2016. Recall that exiting 2014, our tissue processing gross margins were approximately 39%. Since that time, we’ve seen a 1700 basis point improvement in tissue processing gross margins, which has a direct result of our efforts in late 2014 and during 2015 to improve efficiency and throughput in the tissue processing labs. SG&A expenses during the quarter were $22.2 million including approximately $832,000 in business development, transaction and integration-related cost. Excluding these items, SG&A expense for the quarter was $21.4 million. Amortization charges were approximately $1.2 million for the fourth quarter. Going forward, we anticipate that total amortization expense which is included as an add-back to arrive at non-GAAP income will be approximately $1.1 million to $1.2 million per quarter. On the bottom-line, we reported GAAP net income of $2.9 million or $0.09 per fully in the fourth quarter of 2016, compared to a net income of $2.6 million or $0.09 per share in the fourth quarter of 2015. Non-GAAP net income was $4.1 million or $0.12 per share for the fourth quarter of 2016, compared to a non-GAAP net income of $3.9 million or $0.13 per share in the fourth quarter of 2015. Non-GAAP income in the fourth quarter of 2016 excludes the business development and integration charges of $832,000, amortization expenses of $1.2 million, and On-X inventory basis step-up of $822,000. In calculating non-GAAP income at 38% normalized income tax rate was applied to pretax income. A complete reconciliation of GAAP to non-GAAP net income and earnings per share is included in the press release that we issued last night. As of February 13, 2016, we had approximately $60 million in cash, cash equivalents and restricted securities. We had approximately $73 million outstanding in our senior credit facility and had our full $20 million revolving credit facility available to us. The interest rate on our credit facility was approximately 3.5% at year end. And now for our 2017 financial guidance. For the full year of 2017, we expect revenues to be in the range of $188 million to $192 million, which represents a 5% to 7% non-GAAP increase compared to 2016 when adjusting 2016 revenue to include a full year of revenue for On-X and excluding HeRO Graft and ProCol. I would note that our revenue guidance does not include any contribution from NEOPATCH or potential acquisitions. We expect tissue processing and product revenues to both be up mid-single-digits on a percentage basis year-over-year. Furthermore, on a quarterly basis, we expect our revenues to range from just shy of $45 million in the first quarter to approximately $50 million in the fourth quarter. Our second half 2017 revenues should benefit from our decision to go direct in select markets this year as well as expected continued growth in the On-X business including having the On-X AAP back on the market. We estimate gross margins will be between 68% and 69% for 2017. Gross margins for the first quarter will be in the mid-60% range which reflects the previously mentioned $2 million write-up of On-X inventory acquired from former distributors. We forecast R&D expenses to be between $17 million and $19 million. The increase primarily reflects enrollment in the PerClot and BioGlue China clinical trials. Our effective tax rate will be in the low to mid-30% range. And last, we expect adjusted net income per share to be between $0.40 and $0.43. Adjusted net income is defined as pretax income plus amortization, business development, which includes transaction and integration-related cost, and adjustment for any other unusual items. We will continue to report GAAP results as required. That concludes my comments and now I’ll turn it back over to Pat.

Thanks, Ashley. Before we open up the call for your questions, I’ll summarize our numerous accomplishments for 2016; provide an overview of the key initiatives for 2017. I am pleased much of the transitional items we needed to focus on in 2016 are behind us and as a result, CryoLife is now better positioned to compete in 2017. In 2016, we successfully repositioned the company to focus on cardiac surgeries with the On-X acquisition and the divestiture of our non-core product lines. Now we have a differentiated physician preference product line that is profitable and growing. We combined three sales – separate sales forces in the United States to one combined 51% channel focused on the cardiac surgeons. We enhanced our ability to execute by making key changes to our management team, both at the executive level and sales leadership and throughout the organization. We’ve made meaningful strides towards our goal of establishing ourselves as leaders in the cardiac surgery market and strengthened our ability to compete and win. Our gross margins expanded due to process improvements in growth and our higher margin products and more direct sales. With that in mind, let me outline our key operating initiatives for 2017. First, we are focused on achieving our financial guidance for revenue growth and adjusted EPS that Ashley just outlined. Second is to build on the integration activity completed for the On-X business in 2016 and deliver low double-digit non-GAAP revenue growth of the On-X portfolio excluding the OEM business. Third, we will transition our sales channels in Canada, Belgium and The Netherlands from a distributor model to a direct model; we expect to complete these initiatives by mid-2017. Fourth, we will continue to pursue future growth drivers for the company through our clinical programs which include enrolling patients in our PerClot and BioGlue China clinical trials. And fifth, we will continue to evaluate potential business development opportunities to enhance our focus in critical mass and cardiac surgery. Additionally, one of our 2017 goals will be to find a commercialization partner for NEOPATCH. We are very active and focused on business development and are hopeful we’ll have a successful 2017 on that front. If we accomplish these goals, CryoLife will enhance its position as a leader in the cardiac surgery market with continued upside potential for revenue growth and margin expansion. So in closing, we are very excited about the future prospects for the company and believe our experienced leadership team is well suited to deliver on our goals. I would like to thank all those at the company for their contributions in 2016. I am proud of the work that we do at CryoLife and to all of our employees, please remember your contributions are making differences in lives of so many people around the world. With that, we will now open the lines for questions. Operator?

[Operator Instructions] Our first question today is coming from Brooks West from Piper Jaffray. Please proceed with your question.

Thanks, good morning. Can you hear me?

Yes, we hear you fine, Brooks.

Great. Hey, Pat, I wanted to start with, I just wanted to make sure I understand the bridge of the results in Q4 to the guidance you gave in Q3. So, you gave a lot of information there. But just kind of large buckets, I think you said $1 million was from the tissue processing business and then, I want to make sure I understand the other buckets to kind of bridge back to your guidance, you could touch on that.

Yes, I think the best way to characterize this is, I mean, first of all we weren’t thrilled about the miss in Q4 and we were frankly surprised by a few items that we didn’t know about at the end of Q3 going into Q4 that we had, we probably would not have raised our guidance. The first bucket was On-X. There were two things that happened with On-X in the quarter that we didn’t know about going into Q4. The first item was, both I and Ash – both, you know Ashley mentioned, we have a non-strategic OEM business where we kind of quote parts of other companies, medical device companies, technology, they are not strategic and we really don’t talk about it much. It’s been a fairly stable business at about a $2 million a year. We were notified by one of those OEM suppliers late in the third quarter that their $300,000 order for On-X wasn’t going to show up and not only that, but the $500,000 we had in our budget for 2017 was also not going to show up. I am not allowed to comment further, because of confidentiality provisions in those agreements, but it’s just again that was a – it’s not a end-user commercial part of the business, it’s not something we focused a lot on and it was frankly a big surprise and that was – again, $300,000 in Q4 and $500,000 that we backed out to $2017. The second On-X issue was also a surprise and I don’t want to get into too much of the detail, but we basically had some discussions with our regulatory body in Europe and they weren’t happy with the speed at which we responded to some audit findings and they basically held up our certification for a very small portion of the On-X product line which is the AAP which is basically an aortic valve with a Dacron graft on it is called a valve conduit. It’s a great product. We’ve been doing extremely well with it and it’s frankly, the – one of the really only had mix up that we’ve had in the acquisition transition and it’s on us. The good news on that, I mean, the bad news whether we got hit by about $200,000 in the fourth quarter and we are going to hit probably by about $500,000 in the first quarter of this year, but we’ve already resubmitted that paperwork and we expect to be back on the market in Q2. So it’s a transient type issue. So those two On-X issues were about $0.5 million in Q4 and going to be one of the reasons we backed on our number for 2017 is about $1 million in 2017. The other non-cardiac tissue that you mentioned, the other bucket was BioGlue in Japan. We’ve had a very strong business in Japan with our new indication. That business has been growing pretty significantly. Our distributor there is a very good distributor, basically told us that they needed to kind of work their inventories down to hit some of their objectives and we were – we are actually anticipating another order in the fourth quarter of about $0.5 million and they basically didn’t do it to try to keep their inventories at a certain level. They also told us that back to the comment of, is there any impact on your core business, they’ve told us and committed to 20% growth in BioGlue in Japan for 2017. So, I guess, the big takeaway here, other than the kind of mix up on the regulatory filing which is a two quarter problem, there really is no core business issue here. OEM is not strategic. I don’t like the revenue is going away, but it’s not a strategic business. The BioGlue Japan, we didn’t like the fact that we missed in Q4, but that business is going to be very strong in 2017 and the cardiac tissue, I think we have great upside, because the SynerGraft data that I talked about, while we didn’t deliver what I thought we could in the fourth quarter, we are showing that with our valve at a decade you have a 17% chance of re-operation and with our competitors’ valves you have a 40% chance of re-operations. And I think over time, as we get that message out, we are going to make some meaningful shifts in the marketplace.

And Pat, is there a lingering impact with the tissue processing in 2017? Or is that just a Q4 issue?

Yes, I think I mean, one of the comments I made early on was, and again, we understand we have to hit quarters and we need to kind of manage our business on a quarterly basis. If you look at the tissue business, the previous five years, it was growing 1%. Tissue grew 6% this year. So I actually think, again, we focus on the quarter as well. But I think if we step back a little bit and look at the tissue business at CryoLife, the previous five years, the business was top-line growing 1% and the gross margins on the business were around 40%. If you fast forward over the last 18 months of work, this business is now growing 6% and the gross margins were 56%. So it’s been a massive change taken the growth rate from 1% to 6% and the margin from 40 to 56. So I think, that’s probably to be honest, having been in this business for a long time, the cardiac tissue business is very difficult to predict quarter-to-quarter. I think on a yearly basis, we think it’s going to grow in the mid single-digits, but I think, hopefully that only answers your question.

Yes, yes, I got it. Okay, and then, I just had a couple on On-X if I could. You didn’t mention the PROACT II trial and I am wondering where you are on that? And then, can you talk about where you are with the sales force and your kind of coverage, account coverage for On-X versus where you might want to be ultimately with that product?

Yes, so on PROACT II, I mean, part of it’s just – given all we have to cover, just there is so much, we can’t cover everything. We’ve had some very good meetings on PROACT II with our investigators. We had a big meeting at SGS at the end of January and really have – I think what I think is strong alignment about kind of the next step. So that we are doing some – we are doing some checks, just some data checks on pulling together things for the protocol, but I think you are going to start to see us move forward and begin discussions with the FDA and to start putting the ball in motion for that study. So that’s actually tracking quite well and then your second question on the sales force, I think that’s another potential tailwind for us this year, because, I’ve talked about this on previous calls, when we merge three sales forces together, the two CryoLife sales forces which was the vascular surgery sales force, the CryoLife cardiac sales force and the On-X cardiac sales force and I have done a number of these in my career. There is always kind of fallout from it and we didn’t lose anybody in that process which they tell you typically you are going to lose 20% and we didn’t, which is great news. Two, you always have people who are out of position and so we probably had about eight territories that were out of position and those are now full and those were filled late in a year. So we have almost an entire region at CryoLife and starting the year in 2017 that didn’t even exist last year, which I think is very positive. And we’ve been very aggressive on the On-X. I think, one of the real positive messages here and again, I understood, a lot of focus on why we missed but at the same time, On-X delivered 22% growth in the quarter in the US in Q4, which again is kind of what I’ve been saying. It’s taken us time to get through the consignment and the contracting and all this kind of stuff and once you do that, you can start to see the – that we will start moving and that’s a market that’s not growing and we are growing at 22% and that’s a 90% gross margin business which is also why you are seeing our margins accelerate.

That’s great. And then, Pat, just last from me, did I hear you say low double-digit growth for On-X in 2017?

Yes.

Okay, perfect. Thank you so much.

Thank you. Our next question today is coming from Jeffery Cohen from Ladenburg Thalmann. Please proceed with your question.

Hey guys, can you hear me okay?

Yes, good morning, Jeff.

Hey, how are you? So, four, five things I wanted to get through, I guess, you can pick what you’d like, but can you go through On-X a little bit and talk about SKUs and then potential line extensions? I’ll just go to my list, but can you talk about the DFU study and what will be measured? Can you discuss little bit about tissue margins going forward? Can they be held at current levels going into 2017? And I guess, lastly, could you talk about the current size and scope of the sales force now in Canada, Belgium, and The Netherlands and what that might look like and what this avenue have been and maybe going forward? Thanks a lot.

Okay, sure. I’ll kind of go one at a time. Hey, Ashley, I’ll come back to you on the tissue margin. I have some thoughts, but I I’ll have you maybe give a little more color. So, as far as, there is a lot going on in On-X, again, I am glad you actually ask, so, the question around On-X’s SKU, there is still a number of things we are doing in the clinic with On-X to fully complete that product line. So for one, we don’t have a 17 millimeter aortic valve approved, which is the smallest size which has got applications for pediatrics where we are very strong with our SynerGraft product. It has huge applications in Japan given the patient size. So that trial is enrolling. We are almost done. I don’t have the timing off the top of my head, but that product line, we’ll actually have that 17 millimeter valve in Europe I think late this year and that would got to go through the FDA and the MHLW process in Japan. But those are two, I think real opportunities for the company on the 17 millimeter valve. Pediatrics and Japan. We are also in the clinic on a 23 millimeter mitral valves which is the largest mitral valve that’s kind of missing in our portfolio. And then third, we’ve got the AAP device, which again is just a valve with a Dacron graft on it used for repairing both the valve and part of the aorta. We are actually coming up, we’ve got some R&D projects there around different graft options. We want some surgeons that want oversized grafts and again it’s just rounding out the product line. So we’ve got a number of things going on in the On-X portfolio to give us a broader portfolio. And then the last and probably most significant of all those is the same trial that we did to get the On-X low INR indication, the 1.5 to 2.0 in the aortic position. We also have a mitral study that’s ongoing to lower that INR in the same. So the INR is for mitral valves are higher and this trial will actually look to reduce that by 50% as well. So that’s another trial that’s enrolling. So there is four or five things going on in On-X that will add to the other things that we are doing with that portfolio. The second thing is, the second you asked was on the NEOPATCH. This – we conducted a first-in-man trial in diabetic foot ulcers. And again, as I mentioned this is not a strategic area for the company from a commercial standpoint, but it is from a leveraging our tissue processing capability. We’ve got a phenomenal tissue processing capability. We’ve been doing it for 30 years. We can leverage our procurement. We can leverage our regulatory, our operations, our quality and we have a – I think we have a phenomenal product here. Margins are outstanding and basically the trial that we ran endpoints of the trial, I think was your question, these are patients who they apply the standard of care and if they aren’t successful at responding to the standard of care, you wait for two weeks and then you apply weekly NEOPATCH amniotic membranes to that diabetic foot ulcer up to 12 weeks and we are looking at basically healing percentage of healing over the life of that 12 week study and then you follow them for – to the end of that period and that’s what we are in the process of doing now. We have got, probably two-thirds of the patients have made it through the study period and we are seeing numbers in the 85% to 90% full closure of diabetic foot ulcers. So it’s a very – I guess an exciting product. It’s a big market. It’s growing and we have a nice position in it. Tissue margins is a complex question, obviously, we’ve done a lot of work. Ashley knows that area quite well, because you’ve been around it for a period of time, but we had the quality problems when I first started. We had the warning letter and our margins creep down to 38. We then did a bunch of work to get them back up to 45 and then we did more work to get them up to 55. I would say that, I think a 50% gross margin – if we can grow tissue mid single-digits at 50% gross margin, it’s pretty good. We will always try to do better. But again, I’ll let Ashley comment on kind of how that can bounce around somewhat.

Just big pictures one-time in nature for the quarter?

Why don’t you comment, he has actually spent a lot of time looking at this.

Yes, so, Jeff, for the balance of 2017, we fully expect tissue processing margins to stay in the mid 50% range. Longer-term, the margins can be dependent somewhat on revenue mix as well as processing volumes, but we are – as we sit here right now, we are pretty confident that that the margins we can maintain them in the low to mid 50% range. There are other things that we are working on right now from a productivity and efficiency standpoint that may allow us to even drive margin higher in the future, although that we are not really ready at this point to make any commitment to that.

And then last question I had was the sales force. So, in the US, I made some comments earlier about the combining of the three, we have a 51 person sales force in US that’s full trained in the field. In Europe, we’ve got about a 30 person team that’s full trained and in the field. The new go direct areas, so Canada, we will go direct with three reps and Belgium and The Netherlands we each go with one. That will be five additional kind of CryoLife reps in 2017. And as I made comments – both Ashley and I made comments in the script, those are typical, you notify the distributor and one of the reasons you are going to see lower Q1 and Q2 revenue and then see it accelerate in the back half at least from those areas. They’ll burn their inventory down, we will switch to direct operations and then you get higher revenue and higher gross margin once you do that. So, those are all planned for kind of at different phases in the first half, but both to go live in the second half.

Okay, and then, finally, 2017 gross margins, as far as the cadence per quarter, you made some commentary, can you just review that please?

The big issue that Ashley hit a couple times is, when we acquired On-X a year ago, we bought back a bunch of inventory from our distributors, particularly in the Europe and in the US we could go direct. There is about $2 million left of that sitting on our cost of goods sold line. That will flow through the P&L in the first quarter. So, our – as Ashley commented, I think our gross margins in Q1 are going to be kind of in the low to mid-60s and then once that flows through the P&L in the first quarter, Q2 through Q4, your margins will pop up to – I don’t know, Ashley, you can comment. Because again, that we were guiding to 68 to 69 for the year. But it’s going to be lower in Q1and higher in Q2, Q3, Q4.

Yes, Pat. So, you had that right. So, in the first quarter it’s going to be closer to the mid-60s and for Q2 through Q4, it will be closer to 70.

Okay, perfect. Guys thanks very much for taking the questions. I appreciate that.

Thanks, Jeff.

Thank you. Our next question today is coming from Jason Mills from Canaccord Genuity. Please proceed with your question.

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

Yes, we hear you fine, Jason.

Great. Lot to unpack you, Pat. But my basic question just focuses on your core business, which you sounded generally bullish notwithstanding some of the things your– left here in the fourth quarter that were trailed here, but as you think about your business, your three large pillars, BioGlue, On-X, and the tissue business and you talked a lot about some of the things you are working on with respect to those businesses. You’ve got On-X mitral tissue longer-term PROACT II, BioGlue Japan and BioGlue China and then on the tissue side, you talked about NEOPATCH and some of – you’ve seen significant improvement from 1% to 6%. So as you think about your core business, over the medium-term, you’ve already seen just a fairly good improvement. Where can this business go, Pat, given the market, given the growth of the end-market, but yet, some of the dynamics that you have that are going to be putting your growth, your margins relative to the overall market, what do you see this business looking like, sort of excluding M&A which is a second question that I have, over the next say, two to four years?

Yes, so, I think, again, you characterized that quite well. I mean, we have a lot of different things that are going on in the three pillars and I like the way you described that. But, so if you look at the tissue pillar and I commented earlier about, this business was growing 1% for five years at 40% gross margin and now it’s growing 6% at 55%. I would say, that’s a big improvement and obviously had a huge benefit to the company, in our profitability, in our margins and on our EPS. We are also doing some other things there. We’ve got, we are not sitting still, right. We’ve got the NEOPATCH as we talked about, that could be – that’s not in our guidance and if we can get a partner and find somebody up for that in a big market, that could be significant for us. We also have a couple new products that we frankly haven’t even really talked about both in the pediatric space. They are totally proprietary. Nobody else is doing them. They came from our focus on the cardiac surgery and the pediatric market. These are ideas that came from heart surgeons and we have one that’s a special conduit of saphenous vein or femoral vein used in a – what’s called the Norwood procedure. Again it’s fairly technical and complex, but this was the chiefs at one of the major institution said, why can’t you guys do this, we’ve done it. It’s been very popular. That’s a potential $10 million opportunity. I think one of the coolest things we are doing right now is with a major pediatric center, one of the top guys in the world, basically, we have a new service where we just started where for very small children, the gold standard for repairing some of these valve is using their own pericardium. So the child’s own covering of their heart and many times that’s what they’ll do, but they’ll end up discarding what’s left out of the case. So, we’ve been asking, we are now doing, they are going to be sending CryoLife the remaining pericardium after that first operation and we are going to store it for that patient until they go back, most of those cases, they have a second operation in a couple of years, and then we’ll send that child’s own pericardium back to them. Very, very unique. Very innovative, totally physician-driven. Those two segments I just mentioned, that’s $20 million of potential opportunity and you throw that with NEOPATCH, I think we have some real opportunity in the 50 person sales force focused on these products. So, I think the core, if we can grow our core tissue business in the mid single-digits at 50% to 55% gross margin, that’s a nice business. Glue, we talked about Japan, we talked about our added sales force. We’ve talked about BioGlue China. We’ve talked about going direct in different markets where we are going to get higher end-user revenue and margin. And again I think for that product if we can grow that mid single-digits at the margin this creates, I think is very strong. And then On-X, we’ve got a ton of stuff going on with On-X. We talked about the paper. We should be getting a major journal publication this year, which will be on the original PROACT trial. We’ve got our direct channel. We’ve got the 1.5 INR off the PROACT trial. We’ve got the 17 millimeter aortic, the 23 millimeter mitral. We’ve got the PROACT – the mitral PROACT, we’ve got the AAP device with more configuration which is really – those are very synergistic with our glue franchise. And then there is a whole another bunch of products, we are not really talking about, because they are smaller. But the ability to cross-sell, so I think, the three franchise it’s going to kind of get to the punch line, I mean, our guidance reflects it. We think that our core pillars, the three core pillars, we can grow that business in the 5% to 7% range with accelerating gross margin. We are now up, so, once you get through Q1, we are at 71% gross margin which is probably three years ahead of where we thought would be. It’s a different business. This business is a 60% gross margin business two years ago and now it’s a 70% gross margin business. So, I think, 5% to 7% with what we got at 70% gross margin and profitable and then anything we do after that will be upside.

That’s really helpful. So couple other things and then, I’ll let some others jump in. Your growth over the longer-term seems to be – just based on like you are doing with your R&D taking it up, so wanted to ask you about that initiatives to typically within that, it seems like you are contemplating BioGlue China, you are contemplating PROACT II, you are contemplating PerClot trials in there. But want to see your comments and also your M&A strategy, as you’ve talked about in the past, you’ve seen other companies that are targeting different call points, in small cap, med tech, I know, you know who they are that have seen quite a bit of success focusing on a call play, the large guys are focused on it. You are seeing some of these companies are able to get to low double-digit growth executing that tuck-in acquisition strategy and then generating twice that on the bottom-line. I am wondering if you aspire to the things sort of the model and what – just typically again, just to the question I guess, am I missing anything on the internal R&D as to why that’s ramping a little bit here this year? And we have that in our model, so it’s not a surprise. Just want to make sure I am not missing anything and then on the M&A strategy if those – if you can give us a sense for what the opportunity culture looks like out there in cardiac surgery now versus sort of when you started a couple of years ago? Thank you.

First, I think you characterized the R&D, obviously, the R&D line is going up this year pretty significantly and that’s mostly driven by clinical. The big – the meet of the PerClot enrollment is going to be this year. Both you can – as that trial kind of executes this year, that spend will kind of come down next year. The other thing is BioGlue China is we are going to start enrollment in Q2. So, those are two big trials. One for the glue franchise and one for a brand new product. And that’s a – I mean, that’s a significant opportunity for the company. That’s a big market and high margin and pretty significant. So I think those two – and by the way they both hit in 2019. So again, I think as people think about the story, 5% to 7% growth with our current franchise, 70% gross margin once you get through Q1 and increasing profitability. The pipe basically is setting you up for nice additions in 2019. So, PerClot, BioGlue China, and then obviously the NEOPATCH which we haven’t even figured into this, because that’s been in our R&D number which we just hadn’t talked about it. Then shifting to the kind of the M&A side of things and by the way, on the R&D clinical side of things, there are a number of things that are also in there. I talked about them all on the call with one of the questions, 17 millimeter aortic trial, 23 millimeter mitral trial, mitral PROACT trial, larger graft. I mean, so, there is a bunch of things that are in R&D pipeline that we don’t really talk a lot about, but I’ve mentioned a number of them on the call today. If you talk about the M&A, I think what’s been really interesting Jason is, I had, a lot experience in Medtronic on kind of the bigger deals that everybody was going after in the AF space or the diagnostic space, but what’s interesting is, focusing the strategy on the cardiac surgeon and our call point and the vision we are trying to create for this company which is unique and differentiated technologies for really kind of aortic and mitral disease that improve outcomes and reduce costs. It just – it really focuses the mind and we are looking everywhere and I think that’s one of the things I will call out to people is, I think a lot of people think it’s just going to go by company x, y or z and there is a lot of other things that are out there that we are looking at that are super synergistic, they are high, high-end physician purpose. One of the things that I learned over the years is, you got to get into spaces that your surgeons care a lot about and they are really hot on the trail of these technologies and these are technologies that have significant clinical benefits for their patients and potentially significant cost savings to the healthcare system. And those products are out there and we are hot on the trail on a couple of them right now. And I think that those moves are going to make CryoLife a very different company and I think we can also do it in a way that doesn’t dilute the company and in a very kind of economic way. So, I’ll kind of leave it at that, but I can tell you that we spend a lot of time looking at – looking for the right products for this company. And I think we’ve kind of found them and to your point, if you take those types of products I am describing and I am talking about markets that are in the $200 million to $300 million range or the $100 million range, where we can be a dominant player at 90% gross margin where they are super synergistic with what we do. And if we get those technologies and executing it so, this is a different company.

Thanks, Pat. I’ll get back in queue.

Thank you. Our next question today is coming from Brooks O'Neil from Lake Street Capital Markets. Please proceed with your question.

Good morning , first time on the call and frankly first time in 30 years there been two Brooks is on the call at once. So..

Small world.

Small world. I am an older guy. So I sort of go into the model and look at it and if I am looking at it correctly, you guys are guiding for a drop in adjusted EPS in 2017 versus 2016. And so, I am trying to understand what the primary driver is. I think I might have sent you guys a little spreadsheet. It looks to me like the only place things could be jumping up in a big way is in the G&A line and A, is that correct? And B, if it is correct, what do you spend in the money on?

Ashley, would you – I know, I was just asking about this last night. Ashley, do you want to take that one?

Sure. So, Brooks, for G&A, for 2017, we are anticipating G&A on a quarterly basis to be roughly about $22.5 million to $23 million per quarter. So, a lot of it is really just, Pat alluded to this earlier about not having the sales force fully staffed throughout 2016 and as we have that sales force fully staffed that’s now going to annualize. The other thing is, we had a lot of transitional activities during 2016. The acquisition of On-X, divestiture product lines and so forth. So, as part of getting the appropriate management team and people in place, during 2016 a lot of that is annualizing in 2017, and that’s really driving some of the increase that you are seeing in G&A. So again, $22.5 million to $23 million on a quarterly basis, I will say that historically, just for modeling purposes for the analyst community, the first has historically been one of the higher G&A spending quarters for us and that’s because, we have our national sales meeting. It’s really a heavy quarter in regards to industry conferences and so forth. So, you may actually see G&A be a little bit higher in the first quarter compared to some of the other quarters during 2017.

Great. That’s helpful. And then, just secondly, obviously, you’ve gone direct with On-X in a number of international markets. You talked quite a bit about the success you’ve had in the US market which is terrific. Can you just give us some sense for how things are going internationally on On-X as well?

Yes, I would say, international is obviously a big question. I mean, in our direct markets – the biggest next direct market for On-X is Europe and we saw a 20% growth in Europe in On-X this year. The only snag as I mentioned at the beginning of the call was this is kind of regulatory issue with one of our product lines at AAP, you heard it a little bit in the fourth quarter, but they actually – our European team was looking at 20% growth. When you kind of get outside of Europe and you go to the kind of the rest of the world, the non-developed markets, I mean, there is entirely kind of price-sensitive – it’s mostly handled by distributors. So, we’ve done okay there. But we still have kind of work to do and we just find that our growth is much stronger when we got the direct channel to tell the message.

And you think both US and Europe where you have that direct opportunity could be good for On-X in 2017, right?

Definitely.

Great. Thanks a lot.

Thank you. Our next question today is coming from Suraj Kalia from Northland Securities. Please proceed with your question.

Good morning everyone. Can you hear me, okay?

Yes, good morning, Suraj.

So, Pat, pardon the background noise if any. I have a number of questions, Pat. So first and foremost, the 22% US growth in On-X, can you give us an idea of what does that translate into share in the mechanical valve segment approximately?

Yes, so it’s – in other roles I’ve had in the device industry, we had great kind of quarterly pulses of market share data. It just doesn’t – it doesn’t really exist in the state. So a lot of what we do on the share side is we just have to do a math and triangulate and try to figure out. So I mean, it’s there is no third-party market share service if you will on the valve side. I would say, we acquired the company, it was sitting at about 20% market share in the US. I’d say we are probably in the 23% if you just do the math and I think as we gain momentum, we are going to be pushing higher than that.

Got it. Pat, if I remember correctly, you’ve got 800 or so accounts were using BioGlue in the US. Specifically on On-X one of the key components that leads to final piece, as well as the cross selling that could occur in BioGlue plus On-X, again the number, 450 accounts comes to mind that you all were selling On-X in the US. Is there an updated number you can give? And am I directionally right in my approximate?

No, I think you are correct. In fact, we had some market research that we had done prior to the acquisition. That was one of the reasons that we are excited about the – sight from the data and all that is, just that given the small On-X sales force that they had, that they were in probably about 40% of the accounts and there is about a 1000 heart hospitals out there, again, some are obviously smaller than others. But, they were in about, you call it 400 accounts and we thought that you could almost double that to 800, exactly to your point, the BioGlue account. So if you got all your BioGlue accounts using On-X you would double the number of accounts you are in. So I think we probably started with On-X a year ago in the four – low 400s and I think we are probably up around 500. One of the things that you see there is – it takes time to do that account, do that 500th account show up at the end of December, because you haven’t even seen revenue from that account yet, versus if it was a year ago and you understand the consignment and getting your product on the shelf and the contracts and all that kind of stuff. So, that is a huge part of our focus and we think over time, the cross-selling that we are selling On-X valves to heart surgeons. We are selling pulmonary valves to heart surgeons. We are selling glue to heart surgeons. We are selling PhotoFix to – I mean, just that continued having our rep in front of that customer for different reasons and we’ve had some reps who have been extremely successful where we have a program right now where we are looking at kind of cross-selling and they are sending the updates on where they use On-X in a case, BioGlue in a case, PhotoFix in a case, where we are getting multiple products from CryoLife using a case. And I think that’s a real – that’s kind of cross-selling of that sales force is a real opportunity for the company. And that’s something we are working very hard on to and we can provide metrics on that going forward.

Got it. I guess, one more question for Ash and Pat one more question for you and I’ll hop back in queue. So, Ash, in terms of components of FY 2017 guidance, correct me if I thought this wrong and I’d love if any color you could provide on US versus OUS? What I heard was cardiac tissue to grow in mid single-digits, On-X to grow low double-digits, one, did I get that right? And two, would you care to break it out between US versus OUS, at least how you are picking through that?

Yes, I think you heard the components correctly, Suraj. For our tissue processing business, we are expecting that to grow in mid single-digits next year. That is almost all a US-based business, probably about 99%. So, everything that you are going to see there is going to be US-based. In regards to On-X, you heard that correctly also. We are expecting low double-digit growth excluding the OEM business for 2017. I don’t have the breakout at my finger tips, right now, but that’s something that I can give back to you after the call.

Perfect. Pat, finally, this is not per se on CryoLife, but I have to ask as a question. On NEOPATCH, you’d have obviously seen something that gives you the level of enthusiasm you got, Pat help me reconcile and this is just, I’ve covered the wound care space for a zillion years. Right now, there - the space is riddled with questionable marketing practices. Clinical trial data should really few and far between, there are questions about BLAs for the trials. Help – and there are really no pass-through payments anymore and that is a bundled payment of I believe 1410 or something. Help us understand to the extent that you can the excitement or enthusiasm about NEOPATCH and you all think you all can differentiate yourselves in this already crowded and fragmented market? Thank you for taking my questions.

Yes, I think it’s a good question. I mean, so, this was a project that the R&D team and it’s - actually they’ve done an excellent job and this is something that was here when I got here and it was a little often, to be fair to the company, it was a R&D project and the strategy hadn’t been set yet. So, I looked at it. So this is pretty interesting. And so I think to your point on clinical, my first thing is, let’s get this into a real clinical trial. I mean, we did a 50 patient first-in-man with people who are using current commercially available products and we’ve got very strong feedback on the handling characteristics of our products. We think we have a very good cost position which gets to your point about reimbursement. We’ve already submitted for our Hick-Picks code. So, yes, it’s a crowded space, but I think a lot of what we saw was that there is a number of different kind of really small players in this space that have partnered up with bigger companies and none of them have the 30 years of tissue processing experience in the brand and the quality, regulatory – the things that CryoLife brings to the party. So, I think it’s a – it’s something that we see the same kind of crowded field. But the fact that the matter is, I think we’ve got a great product and we’ve already had a meeting with – we’ve already had meetings with potential partners and we are through that. So, there is also some very interesting cardiac applications that we are investigating that I am not going to get into on this call. But I think for the fact that a lot of the money have been spent and I think we have a great product and as a partner, we have a way better kind of capabilities and some start-up little companies never done this before.

Thank you.

Thank you. We have reached the end of our question and answer session. I’d like to turn the floor back over to management for any further or closing comments.

Yes, so, I appreciate everybody joining in. Again, we weren’t thrilled about the top-line miss that hopefully people have a better sense of – we feel like our core businesses are strong. The three pillars as we’ve talked about, in Glue, in On-X and in our tissue businesses. We have a lot going on in all those. We put our guidance out in the 5% to 7% range. We think our margins after Q1 are going to be at 70%. We’ve got a lot going on in the mid-term pipe between – during the PerClot trial, between BioGlue China. This NEOPATCH is a bit a flyer from a – we have nothing in our guidance on that and we are working to partner that product. And then on the M&A front, we have some exciting things we are working at and I am not going to kind of promise the future here. But, we’ve spent a lot of time focusing on kind of what we do and where our strengths are and the types of products we are looking at, I think will make a huge difference for patients and the healthcare system in a meaningful way. And when you add that into CryoLife, I think it’s just going to make it a stronger and better company. So, we appreciate everybody joining in on the call and we look forward to the next update.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.