Greetings, and welcome to the Artivion Third Quarter 2024 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. I would now like to turn the conference over to your host, Laine Morgan from Gilmartin Group.

Thanks, operator. Good afternoon, and thank you for joining the call today. Joining me today from our Artivion's management team are Pat Mackin, CEO; and Lance Berry, 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 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. You can also find a brief presentation with details highlighted on today's call on the Investor Relations section of the Artivion website. Now I'll turn it over to our Artivion CEO, Pat Mackin.

Thanks, Laine, and good afternoon, everyone. I'm pleased to report continued strong financial performance through the third quarter as we delivered robust revenue growth and further improved operating leverage. We also made breakthrough progress on several key clinical and regulatory initiatives that have collectively given us greater conviction in our ability to execute our best-in-class PMA focused pipeline and delivered sustained double-digit revenue growth while growing EBITDA twice as fast as revenue. In the third quarter of 2024, we delivered constant currency revenue growth of 10% year-over-year, representing $95.8 million in revenue and adjusted EBITDA growth of 28% year-over-year compared to the third quarter of 2023. Let me first cover our Q3 financial performance before addressing the significant clinical and regulatory updates for the quarter. From a financial perspective, our strong Q3 performance was enabled by continued growth across our product portfolio as well as continued benefit from regulatory approvals and commercial footprint expansion in key international markets, especially in Latin America and Asia Pacific. From a product category perspective, On-X revenues increased 15% year-over-year on a constant currency basis as we continue to take market share globally, with the only mechanical aortic valve that can be maintained at a low INR of 1.5 to 2.0. Based on feedback from the field, our recent market share gains and the proven clinical benefits of the On-X aortic valve, we maintain our strong conviction that On-X is the best aortic valve in the market, and we'll continue to take market share worldwide. BioGlue grew 14% on a constant currency basis compared to the same period last year. This was the second straight quarter of double-digit constant currency revenue growth for BioGlue. We are pleased with the strong performance to date of BioGlue as we continue to grow this differentiated product globally. Also…

Thanks, Pat, and good afternoon, everyone. Before I begin, I'd like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $95.8 million for the third quarter of 2024, up 10% constant currency compared to Q3 of 2023. Adjusted EBITDA increased approximately 28% and from $13.9 million to $17.7 million in the third quarter of 2024. Adjusted EBITDA margin was 18.5% in the third quarter of 2024, a 270 basis point improvement over the prior year, driven by a 220 basis point reduction in general, administrative and marketing expense as a percentage of sales. We continue to believe our sales and G&A infrastructure is very scalable and the significant leverage we have produced in the first half of the year supports our belief. From a product line perspective, On-X revenues increased 15%, BioGlue revenues grew 14%, stent graft revenues grew 13% and tissue processing revenues grew 2% in the third quarter of 2024. Other revenue declined approximately $561,000 and 17% in the third quarter of 2024. While relatively nominal to the business, the decline in Q3 was driven by the timing of PerClot orders from Baxter as they continue to manage down inventory levels. Though the underlying end-user sales of PerClot are beginning to ramp up, we expect these inventory dynamics to continue through the balance of 2024. Excluding this impact, our underlying business grew 11% in the third quarter compared to Q3 of 2023. On a regional basis, revenues in Latin America increased 32%, Asia Pacific increased 23%, EMEA increased 15% and North America…

Thanks, Lance. So as you've heard throughout of our comments, we're committed to shareholders that we will deliver double-digit revenue growth and 2x that for EBITDA. You've also just heard about our strong execution of our R&D pipeline, which gives us stronger confidence that we can deliver on these financial commitments going forward. More specifically, we have the following key regulatory approval in 3 PMAs in our R&D pipeline that will help us to deliver on the continued revenue and EBITDA growth. First, BioGlue China regulatory approval. This opens up a major new market starting in the second half of 2025. Second, the AMDS PMA. We've just completed the 1-year follow-up of the PERSEVERE trial, and we just filed the first PMA module, both of which put us on track for a Q4 2025 PMA approval. Third, the NEXUS PMA. The Endospan -- our partner Endospan completed enrollment in the NEXUS IDE trial called TRIOMPHE, which puts the PMA on track for approval in the second half of 2026. Fourth, ARCEVO LSA PMA. Presentation of the clinical data at EACTS from the NEOS clinical trial that is our current generation frozen elephant trunk called NEO, was in 161 patients, which showed clinical results that are better than the commercially available device that's on the U.S. market today. Given that our U.S. IDE trial for ARCEVO LSA, we enrolled around 120 patients, the results of the NEOS trial gives us great confidence that the ARCEVO LSA trial will also be successful. Finally, I want to thank all of our employees around the globe for their continued dedication to our mission of being the leading partner to surgeons focused on aortic disease. With that, operator, please open the line for questions.

[Operator Instructions] The first question that we have comes from Daniel Stauder of Citizens JMP.

Yes. Great. I guess I'll start off on the aortic stent graft business. So another strong quarter despite 3Q '23 being a tougher comp. I just wanted to ask if you can give any more color on what specific products are performing well? Or if you could just give us any puts and takes on what's driving this business? And is it any cross-selling benefits or anything you're seeing in the market?

Yes. I would say a couple of things, and Lance, you can chime in as well. I mean when you look at -- we don't break out the specific product segment detail. We've got a half a dozen products that cover the entire span of aorta, pretty much every one of them is growing double digits and continues to do so. So we're very kind of confident in that business continue to grow in the double-digit range. We're seeing it in Europe. We're seeing it in Asia. We're seeing it in Latin America. So I mean, I think it's kind of more of the same because we've got such a differentiated portfolio, and we're expanding globally at the same time.

Great. And just one follow-up on, On-X. So you noted some share gain nationally. I just want to get a sense of what extent are you seeing this? And how should we think about this or where this could go in 2025? And are you seeing more traction just mostly because of the new data with the reduced bleeding? Just any puts and takes or any other additional commentary as we think about that?

Yes. So if you started the kind of the globe, we've got about 30% market share globally. We are much stronger in the U.S. We're in the 55% range in the U.S. The share gains we're seeing are really across the globe. We continue to take share in the U.S. driven by the post-approval trial. And just as a refresher, we ran the original PMA trial for On-X low INR, and it showed a 60% reduction in major bleeding. We've ended a post-approval trial with 5-year follow-up required by the FDA and 500 valves. We presented that in May, showed an 87% reduction in major bleeding. Based on our market checks and research, we expect our market share in the U.S. to continue to go up, and we've got even more upside opportunity internationally. So I think On-X continues. And as we've told investors, we think that's a double-digit growth product than it has been for the last 6 or 7 years. So we're continuing to execute on what we said we would do.

The next question we have comes from Suraj Kalia of Oppenheimer & Co.

Pat, Lance, congrats on the quarter. Can you hear me all right?

Yes, we can hear you fine.

Perfect. So Pat, SynerGraft, long-term mid-single-digit growth. I guess just a tangential question. Do you think -- there are some other ways in terms of alternative assets that can be complementary to growth rates? How do you all think -- or basically, this is the way the Ross has done. This is the way SynerGraft does and the donation algorithm, and that's the way we should start thinking about it.

Yes. I think -- so there's a couple of things that are, I think, super impressive about one, the Ross and two, the Ross with SynerGraft. We have 25 years of data on the Ross procedure with SynerGraft. So and it's phenomenal. The reason the procedure is taken off is because of that data. There's been kind of a number of different papers that have been published recently that show if you get a Ross procedure that you can actually match the survival and lifestyle of a patient who didn't have one. So the data is outstanding. The challenge here is that we're just constrained by donation. Now we are doing things. We're always working on continuous improvement last year -- this past year, we've worked on our yields on the SynerGraft pulmonary valve, which have been very impressive. We've got more kind of tricks up our sleeve. We've got other things we're working on because we're always looking at stuff. So we'll continue to work in it. It's just I don't have the luxury of telling the factory to make more. So we literally sell everyone that comes out, and we're working to make sure that we can meet the demands of the market to the best of our ability.

Pat, in terms of -- and I know this might be dumb, but the NEXUS trial, obviously, the 30-day outcomes were good in terms of stroke and paraplegia and whatnot. Pat, even though the trial -- TRIOMPHE trial calls out 30 days. Remind us again, is there any late migration we should be worried about?

No. So we've had -- I think the only public data on NEXUS, the U.S. IDE trial called TRIOMPHE is -- was presented at STS year, I think, in 20 patients. It was Brad Leshnower, from Emory who presented that data and did show very good results. And the big thing they're looking at, right, is what's the stroke rate, what's the paraplegia rate, what's the reoperate, what's the mortality, renal dialysis, so all the same stuff we track in PERSEVERE. So we have not seen the full 60-day cohort that will be presented to the FDA. We may see that in January. We may see that in May. Just we don't run that trial. It's Endospan runs that. So as soon as they get that data out, we'll be able to react to it. I think the one thing that's very important about this device, and we went through this in our diligence when we looked at it, it is the only arch thoracic stent graft designed for the arch. And if you ask surgeons about it, it's specifically designed for the arch. It's a 2P system, so to my knowledge, we've seen no migration on this technology because of that reason. It's a custom -- or specifically designed technology for the aortic arch. And we've seen excellent results to date, and I'm very excited to see you with the 60 show because I think this is going to be a game changer for patients.

Got it. Lance, one question for you, and I'll hop back in the queue. Is the game plan still at the stock is, let's say, above $30 force a conversion? And then should we start factoring in on an as-converted basis when we think about the fully diluted EPS because you guys are pretty close right now to breakeven, and I just want to make sure from a modeling perspective, any color would be great.

Thanks, Suraj. Yes. So we've continued to say -- we're in the -- we have the luxury now of having options with our delayed draw term loan. And we've been saying for the past couple of quarters, look, we have the ability to take a wait-and-see approach to see what goes on with interest rates, what goes on our stock price and then based on that, decide. We're still in that mode. What I would tell investors is it could go either way and just to take whatever you think is the most conservative approach. If you want to put the shares in and assume that they get converted to shares is the most conservative approach, do that. If you want to assume that we draw down and delay draw term loan and have incremental interest expense. If you think that's a more conservative approach. I would tell you to do that. And at the moment, we're still watching and it could go either way.

The next question we have comes from Frank Takkinen of Lake Street Capital.

This is Nelson Cox on for Frank. So maybe just want to start with AMDS. Can you walk us through how we should think about the launch of that, maybe just the learning curve you guys when you go through bags. Is this a soft launch in '25 with the full launch in '26? And then maybe just some other -- any other comments would be helpful.

Yes. And just to kind of refresh people where we are, right? So I mentioned in my comments, we just hit the 1-year follow-up. We're going to have to obviously get that data pulled together, and that will be the clinical module that gets submitted based on how we've laid out the modules, we've submitted our first module would put us in -- and FDA approval has us on track for Q4 of '25, so a year from now. I think you're -- I mean, assuming we get in Q4 '25, I think a soft launch is a good way to describe Q4 of '25. We do have to go through value analysis committees. We do have to train surgeons. We've got to get them to buy the devices. So we've got a great sales force. We know these customers. We know these hospitals. We already have all the relationships but we still have to go through the process. I also think that the fact that this is a lifesaving, I just told you that we saw strokes cut in half with the acute Type A dissections that was just published at EACTS from the PERSEVERE trial. I think the fact that the mortality is so much lower, the stroke is so much lower, [indiscernible] is so much lower that we're hopeful that we can get through these value analysis committees faster, but I'll know it when we do it right, better visibility once we've launched it. So but we are geared up, and we'll have the sales team ready to go.

And maybe I'll jump in, just put my plug in for everyone as you think about 2025 from a modeling standpoint, I would advise everyone to not put any revenue in for AMDS with the Q4 approval and just the things you have to do to get going, revenue would be very minimal, if any, in 2025. I think the safe thing is just at the moment to assume 0. And then if we get beneficial timing and it's sooner, then we can talk about adding some of that.

Perfect. And then maybe just about the pricing opportunity in the preservation business, specifically SynerGraft. Do you see more room to take additional price? Or do you kind of feel like you're reaching a point where you can maybe stay consistent for a while?

Yes. I mean I think we're sensitive to the pricing environment out there and I think the price increase we did last year was pretty significant. And I don't think there's a lot of room on that. I think there's other parts. It's not the only tissue we have in the portfolio. So there are other areas where we will be getting price increases. But I think the SynerGraft one is probably not one we're going to be going after any time soon.

[Operator Instructions] The next question we have comes from Mike Matson of Needham & Co.

Yes. I guess with AMDS, I'm a little surprised that it's the first module because I feel like the data is usually like the final module. So can you maybe just talk about what's going there...

Let me clarify, Mike. I think you might have made it sounded confusing when I just said that, right? So we have 4 or 5 modules we're going to submit. We submitted the first module. The last module will be clinical. And you're correct. The last module is going to be clinical.

And so when would that final model be submitted, do you think?

Probably in the second quarter.

Second quarter of next year?

'24 -- 2025. Yes.

Okay. And you still think it can be approved in the fourth quarter?

Yes. I do.

Okay. All right. Okay. And then just on BioGlue in China, I seem to remember you talking about that being like a $20 million opportunity. Is that still the right number?

Yes. No, it's actually -- go ahead.

And then I'll let you answer that. Let me just go ahead and finish the question. How fast does that -- would that ramp? I mean, is this kind of like a 1-year step-up? Or would it be like a more gradual kind of like tailwind over like several years as you penetrate that market?

Yes. So first thing is we -- Lance and I had to go back and look at our earnings transcripts and find what we last talked about BioGlue China, it was 2 years ago. And we basically said we're working with the Chinese regulators and you'll hear from us in the summer '24. And we obviously are very happy to have a report on the approval. Your math is correct. But I think it's like most things, right? So we -- I mentioned in my comments that we've -- China has its own special requirements, right? So we've got to get the national medical registration and then we have to get province registration, and we've got to get on hospital price list. So it takes some time. So we aren't really expecting anything meaningful until the second half of '25. But this will be a -- we'll be rolling this out to hospitals. We've got to train surgeons. We've got to get them familiar with the product. So this would be kind of a gradual kind of uptick over several years, not a 1-year thing.

Yes. Okay. Got it. All right. And then the PerClot manufacturing agreement. How much revenue is that generating? And when does that -- and when will that -- to what degree will that become a headwind at some point? And what year would that be when that happens?

So that depends on how fast they can be ready to take it over. They obviously would like to take it over as fast they can, and we'd be more than happy to transfer to them. It's -- if it just go -- went away completing the full year in and then a full year out, you're talking about slightly less than a 1 percentage point headwind. So it's just not significant. This year, it's created some noise quarter-to-quarter. But it's always about 1 point. For the full year this year, it's probably about 1 point headwind to last year. And if it stays at that level, which is our assumption and when it goes away completely, it will be about 1 point headwind that year. Right now, it looks like play for sure, we'll have it for the full year of '25 and then we'll have to assess after that. It also has really little to no impact on EBITDA. We're just kind of manufacturing for them.

The next question we have comes from Jeffrey Cohen of Ladenburg Thalmann.

So I guess, firstly, Lance, you had some commentary about the preservation business for 2025. And was that Q1 that you called out from the previous bolus of Q1 in SynerGraft from Q1 last year or Q1 this year as it would pertain to Q1 next year?

So we took the big increase in price for SynerGraft in Q2 of 2023. So we had 1 quarter in 2024 of elevated growth rates from that price increase before we annualize that. So if you look back in Q1 of 2024, we had a very high growth rate for the tissue business. And that's the one thing I'm calling out that really -- that will be the one thing that's different if you think about 2025 versus 2024. We will not have that 1 quarter of elevated growth rate in the tissue business.

Yes, that we see $25.7 million increase to -- from $26.3 million. Okay. I got that. That's clear to me. Could you talk a little bit about LatAm and APAC by specific countries Japan as well as the balanced APAC specific countries and/or LatAm specific countries?

Yes. We're not going to get into specific countries, Jeff. I don't necessarily need to telegraph it to our competitors what we're doing. I will say that in Asia, when I started here, we had 1 person and now we've got 50. In Latin America, we had none and now we have 25. We're direct in Brazil. We've talked about before. We mostly won a distributor this in LatAm. So we've gone direct in several countries in Asia, but I'm not going to get into the specifics of where we are now and where we're going later.

Okay. Got it. And then lastly, Lance, any further commentary on gross margins for Q4 and/or for '25? Does you feel like mid-60s is kind of the right territory to think about?

Yes. I mean, I think at the moment, we just need to think about gross margins being relatively flat year-to-year and quarter-to-quarter, you may have some minor fluctuations just due to revenue mix in any given quarter. And then once down the line, when we get approvals of these products in our pipeline and they come to the U.S. market, then we should be able to see some gross margin expansion through mix. But at the moment, I would tell people to just kind of model gross margin is fairly flat year-to-year.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back to Pat Mackin for closing remarks. Please go ahead, sir.

Yes. Thanks for joining. We appreciate it. You see we had another strong quarter of double-digit revenue growth and more than twice that on the bottom line at 28%. You heard about some really amazing performance on our pipeline, regulatory approval in China, late-breaking trials on AMDS at EACTS in Europe, the biggest cardiac meeting in Europe. The NEO trial presented at EACTS as well. We've also got -- NEXUS is finished enrollment in their pivotal trial, which puts them on track for '26. And we just saw the NEOS trial in Europe in 161 patients which is more than we're going to do in the U.S., and we had very positive results that are better than the market, the only product in the U.S. market from a competitive standpoint. So we're very confident that we can continue to grow this business double-digit top line and twice as fast on the bottom line. And thanks for joining, and we'll look to see you at our next call.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.