Greetings and welcome to the Artivion First Quarter 2022 Financial Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Brian Johnston from the Gilmartin Group. Thank you. 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 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 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 will turn it over to Artivion’s CEO, Pat Mackin.

Hey, thanks, Brian. I am pleased to report after an exceptional performance in the fourth quarter of last year, we followed up with a very strong first quarter this year. Constant currency revenue growth was 11.2% compared to Q1 of 2021 despite substantial COVID headwinds in the first half of the quarter. This is our second consecutive quarter of double-digit constant currency revenue growth. Our growth in Q1 was driven by our aortic stent grafts, On-X mechanical valves and tissue processing. More specifically, on a constant currency basis comparing Q1 of ‘22 to Q1 of ‘21, stent grafts grew 34%, and On-X and tissue processing both grew 11%. As many of you know, we held an Analyst and Investor Day on March 23 in New York City. If you are not able to attend, I would encourage you to listen to the webcast replay. We provided a detailed overview of our goals and our strategy to the next 3 years. We also had KOLs share their experience using our products and had members of our leadership team provide you with a review of our products and pipeline. It was an excellent event and a great way to understand why we are so excited about the future of the company. We announced three key growth initiatives that we will focus on over the next three years to drive double-digit constant currency revenue growth. They are as follows: first, we will continue to drive growth in On-X and aortic stent grafts. Second, we will generate further upside from our investments in our channels and our new regulatory approvals in Asia-Pacific and Latin America. And third, in 2022, we will drive further growth through our PMA approvals in the U.S. for PerClot and the On-X PROACT Mitral low INR indication. This quarter, we…

Thanks, Pat, and good afternoon, everyone. Total revenues were $77.2 million for the first quarter, up 8.6% on a GAAP basis and up 11.2% on a constant currency basis, both compared to Q1 of 2021. Revenues benefited from strength in aortic stent grafts, On-X and cardiac tissues. On a year-over-year basis, in the first quarter of 2022 aortic stent grafts revenues increased 26%, reflecting increased procedure volumes and revenues from our new product launches. On-X revenues increased 10% and tissue processing revenues increased 11%, reflecting improving procedure volumes relative to the first quarter of 2021. BioGlue revenues decreased 12%, reflecting lower procedure volume in the U.S. in the first half of the quarter due primarily to hospital staffing shortages. On a constant currency basis compared to the first quarter of 2021, aortic stent graft revenues increased to 34%. On-X and tissue processing revenues both increased 11%, and BioGlue revenues decreased 11%. On a regional basis, first quarter 2022 revenues in EMEA increased 5%. Asia-Pacific increased 38%. Latin America increased to 88% and North America increased 4%, all compared to the first quarter of 2021. On a constant currency basis, revenues in Europe increased 12%. Asia-Pacific increased 39%, Latin America increased 93% and North America increased 12%, all compared to the first quarter of 2021. Gross margins were 65.7% in Q1 compared to 67.3% for the first quarter of 2021. The decrease was driven primarily by product mix within our aortic stent graft line and BioGlue being a smaller portion of our revenues. G&A expenses in the first quarter were $39 million compared to $38.6 million in the first quarter of 2021. Excluding non-recurring acquisition-related and business development benefit of $1.6 million in 2022, which primarily consists of a non-cash $1.8 million benefit related to fair value adjustments for Ascyrus contingent…

Thanks, Ashley. So to summarize, our goal is to become a world leader in aortic repair through innovation. We firmly believe we have the necessary pieces in place to deliver on that growth – on these growth initiatives and what we laid out on our Investor Day. We’ve made key acquisitions in the past few years and have provided us with products and a pipeline to deliver solid revenue growth for years to come. Our direct sales channel is broad and expanding. We’ve invested in manufacturing and have significantly increased our manufacturing capacity. In the next 3 years, we expect to grow double digits and become a $400 million business. We also anticipate 200 basis point increase in our gross margin, and we expect to generate $75 million to $80 million in adjusted EBITDA, while reducing our net leverage to less than 3x. Our first quarter – we had our first successful quarter that moves us much closer to delivering on these metrics. First, we saw a 34% constant currency growth in our aortic stent graft portfolio and 11% growth in our On-X and tissue processing portfolios. Second, we posted 93% constant currency growth in Latin America and 39% growth in Asia-Pacific, and we’re continuing to invest in these regions. Third, in 2022, we expect to receive PMA approvals for PerClot as well as On-X PROACT Mitral low INR. And we have a robust midterm pipeline of three U.S. clinical trials, either enrolling or about to start enrolling. These trials, PROACT Xa, NEXUS TRIOMPHE and AMDS PERSEVERE should expand our total addressable market by $1.3 billion in late ‘24, early ‘25. In closing, our business momentum is strong. We believe that we have the strategy, the products and the team in place to continue that trend for the foreseeable future. Thank you for your time and continued interest in our Artivion. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Rick Wise with Stifel. Please proceed with your question.

Hi, good afternoon, Pat and great to see the solid progress in the quarter. Maybe to start off with – just to start somewhere, start off with the On-X performance, another solid quarter from On-X. As you know, we did some doc due diligence work. And I for one came away impressed that the docs are really feel like this is an important product. They are going to use it more. They are focused on a lower INR. And the engineering is competitively differentiated. So just reflecting all that, how are you – what are next steps in getting the message out on On-X? And maybe just as part of that discussion, how does the PROACT Mitral opportunity play into that or complement what you’re already doing on the aortic side?

Yes. Thanks, Rick. And so I think the things that are interesting about On-X is that this has been – we acquired that company almost 6 years ago. And with the PROACT aortic, which is the first ever low INR approval by the FDA in the Mechanical Valve segment, we’ve taken like 30 points of market share against some big competitors. And our sales force at that time when we launched that product had been selling tissue valves, aortic and pulmonary tissue valves, and they had not had experience in the mechanical segment. And so they have got 6 years of experience, not only selling the aortic low INR, but also building relationships with all the cardiac surgeons in the U.S. as well as in Europe and Asia, who implant heart valves, whether it’s an aortic or a mitral, they are the same group. So I think that the proxy of using the PROACT aortic as a surrogate for what we’re going to do with a PROACT mitral is a good one because we’ve got a highly trained sales force, the mitral valves are on the shelves of lots of hospitals. Once we get this label change, customers are used to a lower INR for a valve like the On-X aortic. So the transition, I think, will be easier. I also think that as we talked about in our Investor Day, the mitral position is a low pressure valve situation, which requires a higher INR. So any reduction from the standard care is even more meaningful for the patient and their lifestyle. And then I think the third is obviously, we’re almost at 700 patients enrolled in PROACT Xa. And obviously, that – we are not marketing that from a commercial standpoint. But we’ve got 60 centers involved in that trial. So I think the combination of the On-X PROACT aortic continued adoption, the pending On-X Mitral approval. And we plan on completing enrollment in the PROACT Xa trial here in the next quarter or so. I think the three of those really kind of highlight the brand of On-X and the technology around that brand and that we do things differently with that brand. Because of the technology, we can run at lower INRs and we’re also testing it in a massive clinical trial to see if we can prove that you can use all of this going forward with the real game-changing technology. So I think On-X is just continuing to roll and we had another great quarter and look for more of the same, look forward to the mitral approval later this year.

Great. And can you talk on the other side – darker side of the world on the BioGlue delayed research. I’d be curious to hear what steps you can take to – if there are any, to help accelerate this and resolve it? I appreciate you’re being very clear and it’s great to understand it. But I’d be curious to hear, I mean, is there anything that you can do as a company to push this forward? And what are next – maybe help us understand what are next steps?

Yes. Thanks, Rick. So I mean, this is – obviously, this is very frustrating. And this has got nothing to do with the products, safety performance. There is still great demand for the product. This is, frankly, a regulatory administrative issue that was triggered by our previous notified body for BioGlue decided once these new MDR regulations came out, that they thought it was too big of a burden and they didn’t want to do it. So they just got out, which meant we had to find a new notified body well in advance of when MDR goes into full effect, which is in May of 2024, which left us having to go find a new notified body, and we’ve done that. And in the process of doing the recertification, which was supposed to happen, they have to do a site visit. They are supposed to come to our facility here in Atlanta last fall, which would have put us in plenty of time to get the approval by the end of the year. They literally delayed it because of COVID travel restrictions. So now they are not coming until June. We’ve gone through this derogation process, which nobody has ever done before because nobody has ever needed to do it. And it’s taken a lot longer. We’ve been successful in some places. We have some other big countries that are in the wings. I think one of the things that we wanted to be transparent about the situation, the numbers that Ashley talked about are kind of the worst case for BioGlue. We have a couple of big countries in the works right now that could come through, but they are going through government agencies. So I have really very little control. We’re also going through a European-wide derogation, which, again, has not happened frequently because no one’s ever been in this situation before. But there are other companies that are dealing with this. So I mean this is a transient issue. It’s got really nothing to do with the business. This product has got almost 3 million units implanted around the world. It’s approved in Japan. It’s approved in the U.S. We have no safety issues with the product. We’re shipping and selling everywhere else. It’s got nothing to do with manufacturing. It’s frankly an administrative regulatory thing that people couldn’t travel to inspect our site because of COVID. And we offered to fly them on a private jet and they didn’t want to do that. So I mean we’re doing everything we can, and we’ve been working at this for a while, but it is what it is. And as soon as we get our inspection done in June, and we’re kind of at the mercy of how long it takes the notified body. So we expect probably in Q3 sometime we will be back and be back in business. So that’s kind of the full picture on that situation.

I appreciate it. Thanks so much.

Thanks, Rick.

Thank you. [Operator Instructions] Our next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.

Hey, Pat. Hi Ashley. Can you hear me alright?

Yes, Suraj.

Perfect. Pat, congrats on great quarter. So Pat, if memory serves me right, this is the first quarter where international sales were greater than domestic sales. Please correct me if I’m wrong. And I’m curious, there are FX headwinds, right? You referenced that at your Analyst Day about a month or so ago at $1.13 for the euro, obviously, Latin America doubled almost in the quarter. Just walk us through what are the drivers? And more importantly, how sustainable do you see these?

Yes, thanks, Suraj. So I think it’s a couple – one of the things that’s interesting about this business, as we’ve talked before, I mean, we’re very different than a lot of companies of our size in that many companies of our size have mostly U.S., a couple of products, mostly in the U.S. We have many different products, we’re in 100 countries. So we’re very diversified for our products, and we’re very diversified for our channels. What happened this quarter is, as you well know, the first half of Q1, U.S. staffing and hospitals was a real issue. I know you’re hearing this from all your calls, right? So we were seeing real issues with hospital staffing. It wasn’t patients clogging up the ICUs with COVID. It was really the hospital staffs getting infected and not being able to work. So what happened was the U.S., we saw kind of a shortfall in BioGlue and vascular tissue in the first quarter really out of the U.S., and that was the difference between us, even growing 15%. Simultaneously, we saw recoveries from COVID in Latin America and Asia-Pacific. But we’ve been talking about this investment in Asia-Pacific and Latin America for a while now. And it’s a pretty simple kind of process, right? We get new approvals for all the products we have in our portfolio and then we hire salespeople, and they go to work. And we’ve said at the Analyst Day, we’re expecting 25% to 30% growth in Asia-Pacific and Latin America for the next 3 years. And we obviously had a big quarter in both right out of the blocks. And then our European business, as you know, has got all of our new stent graft technology. So they are doing extremely well with NEO, with our brand thoracoabdominal, E-nside with AMDS. So I guess it’s just kind of a multiple different pieces depending on the geographies. But clearly, we expected to see faster growth outside the U.S. We didn’t expect to see the U.S. being off like they were, but we also didn’t know Omicron was going to be as virulent – from a staffing standpoint was going to have such a big impact in the first half of the quarter.

Right, okay, fair enough. Hey Pat, a multi-layered question. So on On-X, right, how should we think about U.S. versus o-U.S. contribution in the quarter? When is for PROACT Xa, when is remind us that DSMB was going to meet in May, forgive me, there are many calls going on, maybe you referenced this already as to when you’ll expect the DSMB to meet this month? And also, Pat, if I could just throw in the mitral – On-X mitral PMA approval status? Gentlemen, congrats and thank you for taking my questions.

Okay. Yes, I’ll go at these one at a time. I think similar to – on the first one about On-X, U.S., o-U.S. Again, the U.S. staffing issues caused On-X to be lighter than normal. Still we did okay with it, but we had way better growth outside the U.S. because we didn’t have the staffing issue. So that was not normal, but it’s not a surprise given what happened in the first half of the quarter here in the U.S. PROACT Xa, the DSMB, I mean it’s – they meet every 6 months. I believe it’s the end of May. We don’t put out press releases on this kind of stuff, but I think it’s going to be the end of May, end of this month. And then PROACT mitral, we’re expecting approval probably in the second half of this year. We’re working with the FDA in real-time on both of those PMAs PROACT mitral as well as PerClot. So we’re excited about the opportunity to have the sister valve to the PROACT aortic, and our team is kind of raring to go. So we’re just waiting for the approval. And again, I think it’s probably going to be more than the second half for the PROACT mitral.

Thank you.

Thanks, Suraj.

Thank you. Mr. Mackin, there are no further questions at this time. I’d like to turn the floor back over to management for any closing remarks.

Well, thanks for joining, and we appreciate your time. As I said, it was – at the Investor Day, we laid out kind of a clear plan for the next 3 years, and you can kind of measure our progress. And we told you we’re going to grow our focus products, On-X and stents and stent crafts in the high teens to 20%. We grew 34%. We told you we’re going to grow On-X 10% to mid-teens. We grew 11%. We told you we’re going to grow the overall business, 9% to 11% this year. We grew 11%. We told you that Asia-Pacific and Latin America should grow 25% to 30%. They grew with 39% and 93%, respectively, Asia-Pacific and Latin America. We said we’d get two PMAs approved and we’re tracking towards both PerClot and PROACT mitral in the second half of this year. And we’re – our midterm pipeline of PROACT Xa, the NEXUS TRIOMPHE and the AMDS PERSEVERE. We expect to enroll PROACT Xa. We expect to enroll PERSEVERE, and we expect to have a big improvement in the NEXUS enrollment. So we pretty much checked all the boxes even in the face of challenges like Omicron here in the U.S. So we appreciate your support and look forward to getting back with you next quarter. Thank you.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.