Greetings, and welcome to Artivion 4Q and Year-end 2021 Financial Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host. I will now turn the call over to Brian Johnson from the Gilmartin Group. Thank you, and you may begin.

Thanks, operator. Good afternoon and thank you for joining the call today. Joining me today from Artivion’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 and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made us 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 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 the press release that was issued earlier today. Now I'll turn it over to Artivion CEO Pat Mackin.

Hey, thanks, Brian and good afternoon, and thanks for joining us on the call. This is our first call since rebranding as Artivion. This name was derived from the words aorta, innovation and vision and reflects our evolution to be a global leader providing innovative treatments for aortic disease, and our vision to continually innovate to maintain our position of leadership. It was time to change our name as we significantly evolved from the CryoLife I joined seven years ago. During these past seven years, as we continue to evolve, I would come across investors and customers who are not aware of the significant transformation that was taking place in our company. Investors and customers now have a fresh look at Artivion to see what we do and to learn more about our significant transformation. Artivion now encapsulates all that we've accomplished since we acquired On-X in 2016. Through a series of strategic acquisitions and divestitures and our new development initiatives, we've assembled a portfolio of products focused on aortic repair that we believe can compete with those of any company on the market today. We provide cardiac and vascular surgeons with innovative solutions to the most difficult challenges, and will continue to do so in the future as our product pipeline and new regulatory approvals will open access to our innovative therapies to many more patients around the globe. My goal since becoming CEO of CryoLife was to transform into Artivion, and our employees by collaborating with each other and our physicians have basically just done just that. We now expect to organically grow our revenue double digits at the midpoint of our 2022 guidance. We believe our product pipeline and regulatory strategy sets us up well for continued success for years to come. A rebrand followed on the…

Thanks, Pat, and good afternoon everyone. Total revenues were $79.4 million for the fourth quarter, up 16.9% on a GAAP basis, and up 18.8% on a pro forma constant currency basis, both compared to the fourth quarter of 2020. Revenue has benefited from strength in aortic stent and stent grafts, On-X, cardiac tissues and the relaunch of TMR. On a year-over-year basis in the fourth quarter of 2021 aortic stent and stent graft revenues increased to 31% reflecting increased procedure volumes and revenues from our new product launches. On-X revenues increased 14% and BioGlue revenues increased 8%, reflecting improved procedure volumes relative to the fourth quarter of 2020. And tissue processing revenues increased 17% benefiting from the release of tissue impacted by the Tris hold in 2020. On a pro forma constant currency basis compared to the fourth quarter of 2020 aortic stent and stent graft revenues increased 33%, On-X revenues increased 13%, BioGlue revenues increased 8% and tissue processing revenues increased 17%. On a pro forma constant currency basis compared to the fourth quarter of 2019, On-X revenues increased 16%, aortic stent and stent graft revenues increased 37%, BioGlue increased 3% and tissue processing revenues increased 4%. On a regional basis fourth quarter 2020 revenues in EMEA increased 22%, Asia Pacific increased 28%, Latin America increased 31% and North America increased 12%, all compared to the fourth quarter of 2020. On a pro forma constant currency basis, revenues in Europe increased 27%, Asia Pacific increased 29%, Latin America increased 34% and North America increased 11%, all compared to the fourth quarter of 2020. Gross margins were 64.7% in the fourth quarter, compared to 65.7% for the fourth quarter of 2020. The decrease was driven by higher than anticipated inventory obsolescence and inflationary impacts. G&A expenses in the fourth quarter…

Thanks, Ashley. So before we move to take your questions, I'll leave you with a few final thoughts. Our business momentum is strong, we believe we have the strategy, the products and the team in place to continue that trend. We just posted strong year-over-year revenue growth despite COVID-related headwinds. We expect this momentum to continue into 2022, particularly into the second quarter and beyond. As explained earlier, we have three short term initiatives that will drive growth from now through the end of ‘24. First, we should see continued growth in On-X, and our new aortic stents and stent grafts, AMDS, NEXUS, E-nside and NEO. Second, we anticipate further upside for our investments in our channels and new regulatory approvals in Asia and Latin America. Third, in 2022, we expect to receive PMA approval in for PerClot and On-X PROACT Mitral in the U.S. And finally, we have a robust midterm pipeline with three U.S. PMAs that are currently enrolling, i.e. PROACT Xa, or NEXUS TRIOMPHE or about to start enrolling, AMDS, PERSEVERE. Based on our enrollment projections for these three trials, we anticipate three PMA approvals in late ‘24 or into ‘25 and will expand our total addressable market by $1.5 billion. I encourage all of you to join us in New York City for our Investor Analyst Day on March 23. It will be an excellent opportunity for you to learn more about our strategy, our products, or R&D pipeline and our leadership team. If any questions you'd like to attend in person, please reach out to our Investor Relations team at investors@artivion.com. Operator will you please open the line for questions?

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Cecilia Furlong with Morgan Stanley. Please go ahead.

Hey, thanks for taking the question. This is Calvin on for Cecilia. Just two kind of buckets of questions. First off, I want to ask about the AMDS trial progress. So wondering if you could speak a little bit more to your confidence in enrolling this within sort of a nine month period, as you spoke to in your prepared remarks. And how you think about potential COVID-related pressure on your enrollment that you've seen kind of in your other trials and also just initial thoughts on driving awareness around AMDS? And then I had a follow-up.

Yeah, so I think maybe one good surrogate is the PROACT Xa trial. I mean, we started enrollment in that trial in May of 2020, about six weeks after COVID hit the U.S. And we've enrolled almost 570 patients during a pandemic. So we're on track to enroll 1,000 patient trial in two years under a pandemic. I think the second thing about AMDS, we've got the ID approved, we should enroll our first patient this quarter. We have 25 centers. The trial’s about 100 patients. Those 25 centers represent the largest aortic centers in the country. I personally visited all of them. I know how many cases they do a year. And this is a lifesaving procedure. These patients are typically medevacked in at night. So COVID’s the least of people's worries when it comes to Acute Type A dissections. So there's always the kind of the contracting and getting through IOBs [ph] and these kind of things. It takes time. But we feel that given the importance of this technology, the lifesaving nature of this procedure, that with the centers we're in and the volume that they do that we should enroll this trial pretty quickly.

Got it. Very helpful. The second one is just on margins. I have two checks. One is on gross margin. I wanted to dig a little bit into the sequential compression. So just curious what's reflected in 4Q, associated with kind of your tissue coming back versus inflationary pressures that you spoke to, and how you think about that jumping off into ’22? And then also on the R&D cadence in ‘22, between PROACT Xa ramping AMDS and other drivers, what would drive that R&D cadence in 22? And thank you so much.

Yeah, so gross margins, as you know, are a combination of many, many moving parts. So clearly, the inflationary pressures from whether it's increased labor costs or increased materials are baked in there. The second thing we've seen in ‘21, is increased obsolescence primarily around, we were staffed up and had product in the field to support the normal growth rates. And we just had more exposure to obsolescence given the kind of the volume reductions. And then third, as you mentioned, there's mix, whether it's international or product line. And we did see a higher return to growth of our cardiac tissue, which is a lower gross margin than our kind of our high end devices. So it was kind of a mix of all those things. And clearly the inflationary pressures was one that was unforecasted at the beginning of the year. Oh, and then maybe you can comment on the R&D, Ashley?

Yeah. So we ended up fourth quarter at about $9.5 million in R&D. And clearly PROACT Xa continues to ramp up. We're going to be starting AMDS. But we're also going to have some R&D efforts that are going to be rolling off this year. We invested a lot of money in getting to the point where we could submit PerClot to the FDA. So we are going to have some programs and PerClot might roll. Just recently wrapped up as well. So with all that being said, we think that R&D in 2022 is going to be in the high $30 million to the low $40 million, and a lot of it will just depend on the progress that we make with the programs.

Right, thanks so much.

Thank you. The next question is from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hi, Pat, Ashley, how are you?

Good. Hey, Jeff.

So firstly, could you talk a little bit about the aortic stent pipeline, and they had some manufacturers and throughput issues [indiscernible] you're checking, you're putting up a second source under development. What's the status there? And are you caught up? Have you caught up? What are the plans going forward?

We grew 33% in the fourth quarter.

So no issues on backlog whatsoever?

We brought on a new selling [ph] suppliers as we mentioned. We built a new facility which is not up and running. But we've had no issues on the supply side that we put up depending on which number you want to look at, versus ‘20 we grew stents and stent grafts almost 30% and versus ‘19 we’ve grown 22%. So…

Got it. Fantastic. Okay, and then could you comment a little bit on your channels and the size of the commercial force for Asia and Latin American how you're tackling that as far as direct versus distribution arrangements?

Yeah, so we've talked kind of consistently over the last probably 18 months about we see this as one of our growth drivers. And we saw nice performance in both of those markets this quarter. I commented on the growth rates in Asia Pacific and Latin America. We're seeing 34% growth in Latin America and 29% growth in Asia. Those channels, we're expecting to build Asia out more, obviously, a bigger geography. So I think there's probably another, you know, 15 to 20 people, we'll be adding there over the next three years, probably half of that in Latin America. And then we basically are fully staffed up and don't need to any more. So it's an investment that's actually returning right now, really nice growth rates. And we're also feeding the regions as they grow. So with when COVID hit, we kind of slowed it down. And then when things started loosening up, we started adding people back on. But we expect to have that investment probably flattening out itself in the next 24 months.

Okay, perfect. And then lastly, for us, Ashley any comment on the $10 million integration segments and business development from Q4. Is that one time in nature or should we expect a further impacts into the first half this year?

Yeah, the fair value accounting for the Ascyrus contingent consideration is something that we will see every quarter going forward until the milestones are fully earned and paid and that's way out in the future. So going forward, our best estimate right now for Ascyrus, is maybe a $1.5 million per quarter. But again, that could change, based on a variety of factors, progress that's made, discount rate. So there are a lot of things, but that's our best guess. For Endospan, the option is fully written off. So you won't see any charges related to that. We do have an obligation to pay them another $5 million once they reach 50% enrollment in their clinical trial. We anticipate them hitting 50% at some point this year. And whenever they reach that milestone, and we make that payment, there will be a $5 million charge approximately in other expense.

Perfect. That does it for us. Thanks for taking the questions.

Thanks Jeff.

Thank you. The next question is from Mike Matson with Needham and Company. Please go ahead.

Yeah, thanks for taking my questions. I guess I just want to ask about the revenue guidance. So you just grew 19%, on a pro forma constant currency basis, you're guiding to around 10%. I understand there's some COVID impact expected, particularly in the early part of the year. But why the slowdown, I guess? And I guess as a follow-up to that just was there any kind of one-offs in the fourth quarter that helped your growth that aren't really sustainable, I guess? Maybe that's [multiple speakers] or…?

Yeah, I think the biggest issue Mike, and again this is one that's probably not common for a lot of companies of our size that have single products and are mostly in the U.S. I mean, almost 40% of our business is in Europe, and the euro’s dropped seven points in the last year. That's a $6 million headwind. So if people are kind of taking our Q4 number and trying to straight line it out to next year, it's the wrong math equation. I mean, the euro a year ago was $1.22, this quarter, and now it's $1.13. So we got a serious headwind when it comes to the euro, in Europe, and we have a big chunk of business there. So it's got nothing to do with our -- we're backing off, or what we think is going to happen is more -- a lot more to do with the headwind on currency.

And the other thing Mike, too, is that 18% growth was against the fourth quarter of ’20, we were up 13.5% against the fourth quarter of 2019. So we're guiding to between 9% and 11% versus again, if the comparison is 2019, it was 13.5%.

All right. Yeah.

Yeah. I think the big thing people aren't catching is the currency. Because if you revalue 2021 revenues at the new currency, our $298.8 turns into like $293. It's the 7% drop, it's all currency. We're saying we're going to grow 9% to 11%. You just got to -- I'm not going to get set up with a --I can't control currency.

Yeah, no, I understand that. I compliment you guys. So that's fine. Okay. All right. And then, so just want to ask about the first quarter specifically. It sounds like you're expecting some COVID impact there. I didn't really hear any specific revenue ranges or anything. It looks like consensus is just under $79 million, which would sort of imply 11% growth versus the first quarter ’21, if my math’s right. So that’s probably too high based on what you're saying, because your full year guidance. I mean, that's at the high end of the range for the full year.

So that $79 million has no impact of the 6% drop in currency. So I think people need to readjust their numbers based on the 2022 currency. And we're giving -- we've given full year guidance 9% to 11%. And clearly COVID is an issue in the first quarter. I mean, January was slow. We -- in our checks with hospitals, they -- a lot of these hospitals had as many patients in January as they did at any point in the pandemic. They were reducing elective procedures. The bigger issue is frankly hospital staffing. I think the good news is we're seeing, cases drop, hospitals empty out and staffing coming back. So we don't think it's going to persist, but we definitely think Q1 is going to be lighter than the rest of the year.

Yeah. Mike, this is Ashley. So I mean, to Pat's point talking about currency. Last year, we posted $71 million in revenue. And if you take into account the changes in FX rates that $71 million translates to $69 million. So that's really the base that you should be looking at. And if you just take the midpoint of our guidance that we guided to, which is 9% to 11% -- 10% on top of that is $76 million. And as Pat indicated, COVID’s really had an impact in at least, to date at the score.

Yeah, okay. Understand. All right. And then just as far as On-X Mitral goes, so when you hopefully get that approval, for the lower INR, how quickly do you think the uptake will be on that? I mean, you've talked about it being, I think, a $40 million, if I remember right, opportunity. So how quickly can you get to $40 million, I guess there?

Yeah, I think you've seen -- I mean, we have a great case study, right, because we've already done this. We did it on the aortic side, where we got the exact same -- it's the sister product, right. We had a lower INR for the aortic. It has to -- the paper has to get out. It has to get socialized and educated, you have to educate your physicians. The great news about PROACT Mitral is we've already done it with aortic, number one. Number two, the valves are already on the shelves. We have mitral valves in probably 500 accounts in this country. So all it's going to happen, the label’s going to change and our reps are going to market the paper. So as far as like making new product and getting it out and all that which what happens with a lot of our other products that doesn't exist where we have product on the shelf. So I think we're going to see a steady increase in the Mitral, like we did with On-X aortic over the next, you know, three or four years.

Yeah. Okay. All right. Thank you.

Thanks, Mike.

Thank you. Our next question is from Suraj Kalia with Oppenheimer and Company. Please go ahead.

Hey, Pat, Ashley. I hope everyone is safe and healthy.

Hey, Suraj.

Hey, Suraj.

Pat, On-X Mitral, love to get you guys' perspective, what has the reception been on the data? And if I could piggyback on the previous questioner, On-X Aortic right? If my math is right, like, within five years, you guys became pretty much the market leader in aortic. Just kind of map us the trajectory of On-X Mitral, if you could, knowing that this is, let's say, a $40 million, $40 million, $50 million opportunity in the U.S.

Yeah, no, I think it's a good point. And you're dovetailing off of Mike Matson’s question. I mean, I'm looking at the On-X numbers. So compared to ‘20, ‘21 versus 20, we grew On-X 18%’ ‘21 versus ’19, if you think that's too easy, we grew 14%. So here we are five years after we acquired them, and after they got the indication. And given the pandemic, we had a little bit of slowdown during the pandemic, but we've basically grown On-X, double digits every year for the last five years. So one of the things you see and you know this well from -- as a new paper gets out, you've got to educate your physicians, you've got to look to get the guidelines changed. And I do think we have a kind of a tailwind because we just did it for the last five years with On-X Aortic. So I think that the brand represents, a different valve within a coagulation. So I think the steps here are getting the publication out educating physicians, and obviously, we've got to get the FDA approval, right. We can't really do any of this stuff until we get the FDA approval. Once we get that, I mean, the product’s on the shelves, our reps know that surgeons and will present the data. The feedback we've had has been excellent. We've got a lot of market research. I mean again it's a little bit like the aortic valve in that why wouldn't you want to lower INR, if you're a patient who's going to get a mitral valve? We've shown that we can protect the valve with less Coumadin in the aortic position. And that was very well adopted. And now we've done it with the mitral valve. So I think it's -- you don't get it all, you don't get all $40 million in one year. Nobody knows that, right? It's technology adoption and uptake, but I do think it's going to probably go faster than the aortic did.

Pat PROACT Xa, 570 patients enrolled so far, if I heard you guys correctly.

That's right. That's correct.

Do you need to or do you anticipate a pickup in enrollment to maintain the Q2 timing for finishing up enrollment?

Yeah, I mean, I think we continue to add centers. So we've got 60 centers signed up, we have 55 on board at this point. So we've got five more centers coming in. And we typically see a bolus of patients when a new center comes in. And we've seen nice enrollment, I do think -- I think it's not misstating it. When you see a massive surge in a hospital, like in January, I think it's fair to say that clinical trials probably get impacted. People are busy in doing other things. So I think it's helpful for us as things kind of calm down on the COVID front with the hospital, that it should help. But we're -- I mean, we're very aggressive. We're having regular investigator meetings, but we've got the centers all up and running. It's now a matter of just putting the foot down and getting these patients in.

Fair enough. And Pat, the last question from my side, and I'll hop back in queue. So Pat you've been there seven years, right? Take a step back, and obviously, you have transformed the company. And I'm curious, as you look at it at the current junction, how would you characterize, let's say, average rep productivity, average revs per account? What do you see as optimal levels? What does the gap analysis tell you? And how do we fill that gap? Gentlemen, thank you for taking my questions.

Yeah, thanks. Yes, I think it depends on the region, right. So if you at Europe, we've thrown a lot of new products at them, right. We acquired JOTEC, and we brought on Endospan with the NEXUS and then we brought on AMDS. We've launched -- we launched E-nside, we've launched NEO. So it's like, we've got kind of a plot where -- a treasure of products in Europe, they got the whole pipeline. So I would say that that that group is extremely busy. The U.S. team as a kind of comparison, they haven't really got any of the new stuff. But they've got PROACT Mitral come in, and they're very well positioned for that. So we've got kind of 60 feet on the street in the U.S. They're well positioned for PROACT Mitral, they're well positioned for PROACT Xa, when it comes, they are well positioned for AMDS. And I think that's one that people don't necessarily grasp. In a lot of these businesses that I've been in, you really got to add a lot more reps, when you bring in new products. We don't need any more reps. I can add, $400 million with the new revenue into the U.S. and not add a single rep. So I think that's one of the real kind of secret sauces of Artivion is once we finish our investment in Asia Pacific and maybe some spotty things here and there in Europe, as we maybe go direct in countries and we’re mostly direct there now, we're going to kind of flatten out our investment in direct distribution. And all these new products that come through, we're going to see significant drop through to the bottom line, accelerating growth and accelerating gross margin as well as just sheer drop through because we don't have to add any more reps. So I think it's a unique thing about cardiac surgery in particular, where you can cover a lot of accounts without a lot of reps. Okay, operator, any more questions.

Mr. Mackin, there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Okay, yeah. Well, first of all, thanks for joining today. And we appreciate you spending some time with us. And we've tried to simplify the story to a pretty digestible plan, which is phase one or the current growth initiative number one is our new products, right? We are showing significant growth. Our On-X platform grew this year 18% versus ‘20 or 14% versus ‘19. Our stents and stent grafts grew 28% versus 2020 or 22% versus 19. So any competitor, we're talking about nice growth that is driving the growth of Artivion. So that's our first pillar in our growth. The second is Asia Pacific, Latin America. We've talked about the growth rates in those two regions. We continue to invest in those areas. The third is we've got two PMAs that should come through this year, PerClot, which will give us a $25 million payment from Baxter and then revenue that we sell to them. And then PROACT Mitral which we talked a lot about on the call. And then the fourth piece of the puzzle is three PMAs. We're enrolling PROACT Xa. We're 57% of the way done with that trial. Expect enrolling in the first half of this year. We expect to enroll our first patient in the second trial, PERSEVERE, which is AMDS. And we're still pursuing FDA approval with the NEXUS device. So I think we've got a great story. And we're looking to deliver the numbers we talked about and look forward to updating you on the next call. So thanks for attending.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.