Greetings. Welcome to the CryoLife First Quarter 2021 Financial Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Brian Johnston from the Gilmartin Group. Thank you. You may begin.

Thanks operator. Good afternoon and thank you all for joining the call today. Joining me from CryoLife's management team are Pat Mackin, CEO; and Ashley Lee, CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties that 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 for 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 those -- from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in press release that was issued earlier today. With that I'll turn the call over to CryoLife's CEO, Pat Mackin. Pat?

Okay. Thanks Brian and good afternoon everyone. Thanks for joining us this afternoon. As you can see from our results, our strategy is working and the recovery in our business is ahead of where we thought it would be at this time. As you will hear our business does continue to be impacted by COVID-19, especially in Europe where we have a significant presence. But our business has remained resilient in the face of COVID-19 and continues to rebound which we believe bodes well for the future. We've made substantial progress in the first quarter and continue to see demand build for our recently launched innovative aortic repair products. We also continue to invest in growth initiatives including our R&D programs in clinical trials. Despite continued headwinds from COVID-19, we achieved 7% revenue growth on a GAAP basis and 3% pro forma constant currency revenue growth for the first quarter of 2021 versus the first quarter of 2020. When we last spoke to you in mid-February the vaccine rollout was just beginning to accelerate in the US. Unfortunately, many countries in Europe were starting to experience renewed spikes in COVID-19 infections and were re-imposing lockdowns which continue to this day. We expressed a cautious outlook for the first quarter due to these factors coupled with the anticipated decrease in tissue supply while we resolved the Tris saline issue that arose in the fourth quarter of last year. Fortunately, as the quarter unfolded and we experienced improved conditions in the US as well as the positive impact from our new product launches increased JOTEC inventory and less than anticipated impact from our tissue processing revenues our Q1 2021 revenues were stronger than anticipated. For example in the first quarter of 2021 AMDS increased by 67%. Nexus revenues increased by 87% and…

Thanks Pat and good afternoon everyone. Total company revenues were $71.1 million for the first quarter, up 7% on a GAAP basis, compared to Q1 of 2020 and up 3% on a pro forma constant currency basis, compared to Q1 of 2020. Revenues came in ahead of our quarterly guidance due to the improving procedure volumes in the U.S. and better-than-anticipated revenues in Europe, despite the pandemic. On a year-over-year basis, in the first quarter 2021, aortic stent and stent graft revenues increased 31%, reflecting an improved JOTEC inventory position the addition of the AMDS in September of 2020 and the acceleration of adoption of Nexus in the EU. On-X revenues increased 7% and BioGlue revenues increased 7%, reflecting improving procedure volumes in the U.S. Tissue processing revenues decreased 11%, due to the Tris saline issue discussed on last quarter's call and the impact of COVID-19. On a pro forma constant currency basis, aortic stent and stent graft revenues increased 16%. On-X revenues increased 6% and BioGlue revenues increased 5%. Performance in each of these product lines was adversely affected by the COVID-19 pandemic. On a regional basis, first quarter 2020 revenues in Europe increased 25%. North America was flat. Asia Pacific increased 11%, and Latin America decreased 40%, all compared to the first quarter of 2020. On a pro forma constant currency basis, revenues in Europe increased 12%, North America was flat, Asia Pacific increased 11%, and Latin America decreased 38%, all compared to the first quarter of 2020. Our gross margins were 67% for the first quarter of 2021 and 66% for the first quarter of 2020. G&A expenses in the first quarter were $38.6 million, compared to $39 million in the first quarter of 2020. The first quarter of 2021 includes acquisition related and other nonrecurring charges…

Thanks Ashley. In closing, as you've heard this afternoon, despite the global pandemic our business continues to perform very well. That is without question due to the outstanding efforts of our employees around the world and our leadership team. Going forward, we are optimistic that the rollout of the various vaccines around the world will continue to improve and market conditions provided that the vaccine acceptance continues and improves. When procedure volumes return to previous levels, we believe we'll be better positioned to realize the commercial potential of our products. Even though, we're not providing formal full year 2021 financial guidance, we do believe that when the pandemic subsides and vaccines are more widely available and accepted, we'll be in a better position to deliver double-digit year-over-year revenue growth. We have several catalysts in 2021 that we do not have in 2020. As explained earlier, we have three initiatives that will drive growth in the period over 2021 to 2023. First, in 2021, we should see continued growth over five new aortic stents and stent grafts; AMDS, Nexus, E-nside, NEO, and E-nya. Second, in 2021, we anticipate further upside from our investments in our channels and new regulatory approvals in Asia Pacific and Latin America. Third, in 2021, we are filing our PMAs for both PerClot and the On-X mitral valve. All of these catalysts are -- is our expectation to continue to deliver on the operational goals I've outlined previously, supported by our strong financial position makes us optimistic regarding our ability to drive accelerated revenue growth as the pandemic subsides. So in summary, we will continue to work diligently to strategically invest for growth, mitigate operational risk and manage our expenses. The first quarter once again demonstrated the resilience of our product portfolio and the effectiveness of our strategy to focus on aortic repair. Based on how our products and our organizations performed over the last year, I'm more confident in our business and prospects than ever before. And with that I'll turn the call back over to the operator for questions.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Mike Matson of Needham. Please state your question.

Yes. Hi Pat and Ashley, this is actually David Saxon on for Mike. Thanks for taking the question and congrats on the quarter. I appreciate all the color. I guess, my first question is just on second quarter guidance. Can you just kind of talk us through, what that implies? I guess from a geographic perspective, Europe I think you said was up 12% pro forma. Does that -- does Europe improve from here? And I think you said North America was flat. So, just given the increasing vaccines in North America, do you think volumes improved there? And then I have a couple of follow-ups. Thanks.

Yes. I would say that -- I mean there were two things in the first quarter that we kind of highlighted to folks. One was the Tris tissues issue that we had and that clearly impacted -- that's mostly a North American product, so that clearly impacted the first quarter in the US. So while the vaccine rollout improved in the US and we saw a good return for some of the other products in the US, our tissue business was heavily weighed on in the first quarter. So, we -- as Ashley made a comment in his remarks, we've done all the testing on the tissue. We haven't -- we've submitted that to the FDA and we haven't heard back yet. So, I think the US is in better shape than it was in the first quarter. I think the part of our guidance, it shows sequential growth from Q1, but you've been -- you've seen the news what's going on in Europe. So, Europe actually performed extremely well. We grew double digits as a business in the face of all these resurgences and continued lockdowns. So, we're anticipating growth in the second quarter. The question is, I think, I have been proven a number of times trying to predict what's going to happen as it relates to COVID is kind of a dangerous business. So, we're showing sequential growth. Hopefully, it will improve from there, but I think it's a fair estimate about what's going on, particularly we're still heavily weighted in Europe, both from a revenue standpoint as well as that's where all of our new products are. So it's like a double whammy. If Europe slows down, it slows down the overall business.

Okay. That's helpful. And then yes, I did have a question on E-nya. You mentioned, you'll resume a market release later this year. I guess, before that happens, are there any major projects or tasks that need to be done before you do that, or are you pretty much just kind of finalizing that launch before you go full launch?

Yes. Typically, when this is -- in 30 years of doing this typically, what we do is a -- we start with a limited market release and start to roll the products out. And we'll go through that phase. And then, if we're happy with how that goes then we'll ramp it up into a full market release. So, we're not waiting on any approvals or anything like that. It's really just -- we're going through the limited market release and then move into the full market release.

Okay. And then, if I could just squeeze a last one in. Just AMDS, I think you said $1.9 million in the quarter, correct me if that's wrong. But I guess my question is, how is the sales force doing with that? I mean, with -- given it's just such a high margin product is -- are there incentives in place to push that, or -- and then also, how are they balancing that with the rest of the portfolio? Thanks for taking the question.

Yes. So, we did $1.3 million in the quarter and that was 67% pro forma constant currency growth over Q1 of last year. So a couple of things I would add on this. So we have approval in every country in Europe. We have approval in Canada. We're getting selective approvals in markets in Asia and Latin America that recognize the CE mark. Given that the majority of where this opportunity is was under severe lockdowns in the quarter, the fact that we grew 67% say something about the product. Because it's not just -- I mean, the lockdowns are one thing, but trying to launch new products in a lockdown when people are having a hard time moving across regions and the like. So, I think it's a great product. And as these vaccines roll out in Europe, continue and even in Canada, we will see the acceleration of AMDS. We're also going to be getting some more markets approved throughout the year in Asia and Latin America. So I think it's a great product. The other thing that's really nice about the product is, it fits perfectly in the portfolio. So if you think about, when our reps call on a heart surgeon, this device is put in by heart surgeons. Those heart surgeons use our On-X aortic valve. They use our On-X mitral valve. They use BioGlue. They use our NEO frozen elephant trunk. They use AMDS. So it's just more and more people to see and a really significant opportunity to cross-sell across the aortic procedures that we've talked about. So I think that the cross-selling and pandemic subsiding and getting more markets, I mean we think AMDS is going to do extremely well going forward.

Great. Thank you.

Our next question is from Suraj Kalia of Oppenheimer & Co. Please state your question.

Good afternoon everyone. Can you hear me alright?

Hey Suraj.

Pat and Ashley, congrats on a great quarter. So Pat, a bunch of questions and forgive me if some of these had been mentioned just jumping around between two calls. So PROACT 10A Pat, the current enrollment numbers and are you all still on track for E-nya is equal to greater than 500 by end of 2021?

Yes. So we did 234 and 235 right now unenrolled. And we've got 51 centers signed up and 38 kind of activated. So we're still kind of going through that, bringing all of our centers up to being able to enroll. Yes, I think 500 is well within reach for this year. In fact, I'm hoping we do better. We've had a couple of really big centers come online very recently. So I do think 500 is well within reach.

Got it. Pat, the PROACT Mitral remind us again when are we going to see data on that? Then the structural dynamics with the low INR 2 to 2.5 walk us through what you would consider as the low-hanging fruit for the taking?

Yes. So it's -- the great thing is we have a proxy for this, right? We have PROACT aortic. So you guys -- I mean you know the story, right? So we run a trial where we show you can use a lower INR. And it's actually more dramatic in the mitral position. Since that's a low-pressure valve, you have to run a patient's INR at a higher level so 2.5 to 3.5 which carries with it a significant amount of bleeding. So the fact that you can drop down -- and again we have to wait till we see what approval -- what label we get from the FDA, but we're submitting that PMA this summer. But a 2 to 2.5, I mean I've had surgeons tell me first of all, it's a great valve. It's the best mechanically mitral valve in the market before we get the label change. Number two, if you can run a patient between 2 and 2.5 instead of 2.5 to 3.5, what surgeons tell me is like it just gives me peace of mind. Like why wouldn't you do that? I mean if you can lower the risk of bleeding for a patient, I mean it's kind of a no-brainer. So I think the combination of the fact that we have a great valve and we'll be the only ones with an FDA label assuming we get the approval for a 2 to 2.5 versus a 2.5 to 3.5, you've already seen this movie played out. We've taken significant market share with our aortic valve and we continue to think we'll do the same with the mitral valve. The first part of your question about when will it be presented, obviously, with COVID we actually want to get this -- we always try to time this to when the approval is going to be. I think it's lining up like STS in January next year because if we submit the -- it's a PMA supplement, which is typically a six to nine-month time frame. We should get that approved in the first half of 2022. And so we try to line it up, so it's close to -- ideally you'd like to go into STS and have an approval in your hand and you could have the late breaker at STS in the end of January and then come out with an approval rate soon thereafter. The other beautiful thing about this is -- this is the same product our reps are carrying in their bag today. It's the same consignment that's already on the shelves. All we have to do is change the label. So we came up with new marketing brochures, we changed the label and our reps are well versed at selling these types of products. So again, I think this is a real opportunity for the company with a great product.

So Pat, I'll just throw out all my questions and hop back into queue. So first, Pat, PerClot and mitral, what are your expectations in a panel? That's one thing. The second thing, Ashley for you, BioGlue's contribution was very healthy in the quarter right at 90% 95% gross margins. The composite gross margins also there was an uptick. How sustainable are these moving forward? And third, Pat maybe for you. Pat, I look at the numbers. I look at consensus for FY 2021 and then for FY '22. You guys are obviously hampered with lack of proctoring in Europe just given travel -- everything you mentioned. It almost comes across you guys have been over conservative and you should easily blow past these consensus numbers. Gentlemen, thank you taking my questions and congrats again.

Yes. So let me list down one, two, three. I'll go first and then Ashley and then I'll come back to the last one. So the first one on the FDA, on the PMA submission, so PerClot is a full PMA submission. Again, I'm not the FDA, but based on the level of risk of that product, I would handicap highly that is not going to go to a panel. It's a clean trial. We hit the endpoint. It's safe. It's effective. I just -- I don't see that going to a panel. And we'll be -- we're hopeful that it will move through quickly because it's a very clean package. PROACT mitral is a PMAS. It's a supplement to the original mitral PMA. So that will not go to panel. That's going to be a normal kind of review cycle as a supplement. So that's the first question. Maybe Ashley, you can take the second question on gross margin.

Yes. So Suraj as you know, we don't give formal gross -- I mean guidance on gross margin. But with that being said, we believe that we do have some incremental opportunity to improve margins as we go throughout the year. A couple of the key drivers of that and you noted one of them, we had strong performance from BioGlue. On-X was also strong especially in North America where the business grew 16% and it's obviously a higher-margin product here in the US. And the third thing is, is that a lot of the growth in Q1 was driven by the new product launches and then Pat spoke about five of them and four of them being the AMDS and E-nside and NEO. The gross margins on those products are higher than the corporate average. And as a result of that, you're seeing a benefit to the gross margin line in Q1 versus Q1 of last year. But like I said I think that we had incremental opportunity to improve gross margin as we go throughout the year.

Yes. And then your third question on saying I mean basically, we have opportunity to beat the current consensus out there. Yes, I mean look, I'm actually very pleased with how we performed in the first quarter. I mean coming into the quarter Europe -- both the US and Europe were kind of raging with COVID. The US has really done a great job with the vaccine and we saw a big resurgence in the US. Now we were a little bit handicapped as we had said in the last call with this kind of tissue issue. I mean if our tissue -- we hadn't had that issue in Q4, we would have grown probably in the 5% to 7% range even with the pandemic still raging in Europe. We also have gotten positive news back on Tris from the testing. The testing has came out kind of flawless, but we're waiting to get the green light from the FDA. So that's another potential upside for us. Look at the performance of our new aortic stents and stent grafts in Europe 87% growth in Nexus, 67% growth in AMDS. These are pro forma constant currency. This isn't comparing to some like easy number. We're growing our thoracoabdominal stent graft business percent. We're growing our frozen elephant trunk business 30%. And that's in a pandemic. I mean every country in Europe -- and again, I don't know how much people are paying attention, but every country in major country in Europe lockdown, just like they did a year ago. So, what we have said is as Europe kind of gets back on track with the vaccine, we agree with you. I mean we think we're very well positioned. And hopefully it's this quarter. This is the last kind of COVID corridor in Europe and we start to see a return to significant growth in the second half, which is exactly what we said in our comments. [Technical Difficulty]. It's all over the place. Operator, is there any calls there?

Sorry Pat, you cut out for a moment there.

I'm sorry. Yes. I don't know how much you heard. I don't know what happened with the line there.

Okay. I think we missed the last couple of sentences.

Okay. Yes. I agree with Suraj that we're growing significantly. We're growing double-digits in Europe in a pandemic. Imagine what happens when the vaccines get rolled out and we actually get back to kind of normal there.

[Operator Instructions] Our next question is from Jeffrey Cohen of Ladenburg Thalmann. Please state your question.

Hi. This is actually Destiny on for Jeff. Thank you for taking my question. I noticed some commentary around the TMR hand pieces. And I'm just wondering how is that situation going? And when should or could we expect revenue to be at more normalized levels? 2021 2022? Any color would be super helpful.

Yes. I mean the good news on TMR is we've gotten clearance from the FDA. So that was obviously the biggest holdup that we had. We're now working with our supplier that supplies us those hand pieces and ramping them back up, which is proving to be somewhat challenging during a pandemic. So, I think we'll have better visibility on kind of what that will look like probably later this year. But we even said when we announced -- we have gotten the approval back that we weren't expecting anything meaningful until the second half of the year. So, we can probably give a better update at the next call.

Okay, got it. Thank you. And then, Ashley, perhaps I missed this. Did you break out preservation services between cardiac and vascular?

We did not. We had indicated in our last conference call that we were going to be combining those into one single line item going forward.

Okay. Thank you for that reminder. For BioGlue in China, what additional testing are they looking for? Are you able to discuss that at any further detail?

Yes. We're not going to give that level of detail. Just I mean this is normal in an approval process that you submit, they ask questions, you submit information, they come back with more questions. This is a normal kind of a back and forth in an approval process. What they've come back with at this point and what they've asked for is testing that's going to take us. It's not -- we're not redoing a clinical trial, but it's both potentially animal and bench top testing that could take more than a couple of quarters, which is why we're saying we don't think we're going to be able to get inside of 2021, but we're not going to get into the details of exactly what the testing requirements are for the Chinese government.

Got it. Yes, I know the regulatory process, there can be a little hard to predict. So I guess any feedback is helpful. I think that does it for me. All my other questions have already been answered. Thank you.

Thanks, Destiny.

We have reached the end of the question-and-answer session. And I will now turn the call back over to Mr. Mackin for closing remarks.

Yes. And thanks for joining the call. And as I said, I mean. I think Suraj's question sums it up well. I mean we're actually very bullish, but for the kind of resurgence of COVID in Europe. We're showing sequential growth in Q2, and we -- hopefully this is our kind of last kind of COVID quarter, and we can kind of get back to normal in the second half of the year. As I said, we've got a bunch of catalysts that we didn't have in 2020. AMDS, Nexus, E-nside, NEO, E-nya, our investments in Asia Pacific and Latin America as well as, our coming right around the corner as our PMAs for PerClot and PROACT Mitral. So, we're very bullish on the accelerating growth here at the company. And as soon as we can kind of get out of this COVID overhang in Europe and Brazil, I think you'll see the growth improve significantly. So I appreciate your attention on the call and look forward to our next update.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.