Greetings, and welcome to the Artivion Fourth Quarter and Year End 2024 Financial Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laine Morgan 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 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, our 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 of 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 Artivion's, CEO, Pat Mackin.

[technical difficulty] year at Artivion as we achieved total constant currency revenue growth of 10% excluding PerClot. We also expanded EBITDA margins by 310 basis points, resulting in adjusted EBITDA growth of 32% year-over-year, enabling us to deliver positive results while making breakthrough progress on several key clinical and regulatory initiatives and further expanding our global footprint. We entered the new year with even greater conviction in our ability to execute our best in class multi-pronged PMA-focused pipeline and deliver sustained double-digit revenue growth. While growing EBITDA at least twice the rate of constant currency revenue growth. Before reviewing the fourth quarter performance and our expectations for 2025, I'd like to provide an update on the previously disclosed November 24th cybersecurity incident. Immediately upon discovering that the threat actor had accessed our systems, we initiated business continuity plans, took action to take certain systems offline and engaged external advisers to contain and remediate the incident. Due to our team's immediate response, we mitigated the threat actor's ability to adversely impact our systems and the short-term disruption to our business. While we effectively operated for the final few weeks of the quarter, we estimate the incident had a negative impact of approximately $4.5 million on our Q4 revenue. We are now back to operating at normal levels. However, our manufacturing facilities and tissue processing operations were not operating at a normal level from the beginning of the incident in late November through January. Although this has challenged near-term tissue and On-X supply, we do not expect this incident to meaningfully impact our business for the full-year of 2025 and our 2025 guidance reflects that. Specifically, we expect our tissue revenues to be significantly lower-than-normal in Q1, with the difference being recovered over the remainder of the year. As we've discussed previously,…

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 $97.3 million for the fourth quarter of 2024, up 3% compared to Q4 of 2023. Meanwhile, adjusted EBITDA increased approximately 15% from $15.3 million to $17.6 million in the fourth quarter of 2024. Adjusted EBITDA margin was 18% in the fourth quarter, i.e., 170 basis point improvement over the prior year, driven by a 210 basis point reduction in non-GAAP adjusted general, administrative and marketing expense as a percentage of revenue. For the full-year, total revenues were $388.5 million, up 9.4% constant currency and 10% in constant currency, excluding PerClot, despite the approximate 1 percentage point headwind from the cyber incident. Adjusted EBITDA grew 32% for the full-year, three times the rate of revenue growth. This resulted in adjusted EBITDA margins of 18%, a 310 basis point improvement from 2023. As Pat mentioned, we delivered these results against a challenging backdrop from the November 2024 cyber incident. Due to great work by our team, the incident was managed with minimal impact to our customers. Today, we are operating at normal levels with some minor inefficiencies, which we expect to be resolved in the near-term. To quantify, we estimate that the disruption associated with event had a negative revenue impact of approximately $4.5 million and negative adjusted EBITDA impact of approximately $2 million in Q4. As a result, the cyber incident reduced Q4 revenue growth by an estimated 5% and full-year growth by approximately 1%.…

Thanks, Lance. So as you've just heard, our strategy is working. We're pleased with our strong performance in 2024, which position us well for double-digit growth on the revenue side and twice as fast for EBITDA. More specifically, we have the following key growth drivers will help us deliver on our continued revenue and EBITDA growth for 2025 and beyond. AMDS HDE allows us to begin commercializing AMDS in the U.S. prior to the PMA, which were already in full process now. The recent data I mentioned about the On-X versus bioprosthetic valves, focusing on the mortality benefit in under six year olds in patients for mechanical valves versus tissue valves. Number three, BioGlue China regulatory approval. As we said in the script, we will expect in the second half of this year, which should continue to drive BioGlue revenue growth. Number four, we're going to be submitting our full PMA for AMDS. We talked about that pushing back to mid-2026. And then finally, Nexus PMA will be showing their 30 day data, which is the primary endpoint of their FDA trial here in early May, which gives us access to our next PMA assuming that they get approval. I want to thank our employees around the globe for their continued dedication to our mission and for being a leading partner to surgeons focused on aortic disease. With that, operator, please open up the line.

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

Thank you and good afternoon, Pat. Hi, Lance. Maybe let's just start off with the - your early AMDS commercial progress to date. It sounds like it's going well, but can you give us more detail, more color, more perspective on number of hospitals that are interested, the early physician feedback just the setup for the year ahead. Maybe you could talk us through that.

Yes. Thanks, Rick. So let me just start with kind of the building blocks of what we've already done to date. We obviously received the HDE in early December. We had a couple of weeks of internal kind of paperwork we need to do. So the device didn't really become available for shipment and selling until really late December. In January, we've trained our U.S. commercial team, which went extremely well. They're highly motivated and highly trained. Two weeks later, at the end of January, we presented the one year PERSEVERE data that I mentioned in my script, where we show a 50% reduction in mortality at one year and still no DANEs, whereas the control or the reference cohort had up to 70% DANEs. Our commercial team is in the process of the three steps, which is you've got to get an IRB, you've then got to go through value analysis committee and then the surgeon's got to get trained. A number of centers that are in the mix of that. We're not going to kind of breakdown and give you guys kind of our internal scorecard. We're going to - we'll report the number every quarter in our stent graft number. But I can tell you we've got roughly 55 feet on the street in the U.S. that are all actively pursuing AMDS accounts as we speak.

Got you. I don't want to be denser than usual, but help me better understand your clearly very high strong confidence that 100% of the lost revenue will return throughout the year. And again, the part that confuses me is just that you think that wouldn't these patients that you might have implanted, wouldn't have gotten a competitive device or some kind of competing procedure and so they're not going to come back? And just talk about it on the tissue and on the On-X side, if you would, just help us better understand.

Yes. I'll take a shot at that first, Rick, and then Pat can jump in. So on the On-X, usually there's going to be some patients that just can't wait and we'll have to get some other similar device. But the demand just so far exceeds our supply every single quarter that - I mean, every quarter, there are patients that are getting other devices because they can't get hours. And we just have a high level of confidence that when we can release these tissues that they will be purchased by customers. There's just significantly higher demand than there is supply. And because we've continued to receive donations as normal throughout this whole process and we're processing them, it's just that it's taking longer. So it's basically just that. I mean, because the donations coming in were still normal and that wasn't impacted. And because we don't see any change to the underlying demand, we don't see any reason why we shouldn't catch that up over the course of the year.

Yes. Part of what's fueling it is the data, right? So if you look at the two segments, the big drivers for our tissue business and for the On-X business is the clinical data. I mean, the Ross data that was Ross data presented at American Heart in November that shows it's the best aortic valve operation for younger patients under kind of 50. We literally sell every large pulmonary valve we have. So I think your point is fair, like are we missing out on some right now? Yes, but we know exactly how much tissue we brought in, which was at the normal level throughout the cyber event. We had to do some of this is going to take us longer to get it through the process. But we'll sell every one of them. And then same for On-X. I mean, we were able because we had enough stuff in WIP to basically grow On-X 10% in the fourth quarter during a cyber event, but we really depleted a lot of inventory because we weren't making valves for a month. We will catch that up in the new data I just talked about that was presented at STS, in 109,000 patients, it basically shows that you will die more if you get a tissue valve if you're under the age of 60. So we just got the data. So we're super bullish on both On-X and the SGPV for the ROS. And we've got the materials. We just have to get them through the process and we were kind of tied up for a bit there with the cyber event. But we've got full-year guidance of 10% to 14% and feel very strongly about it.

Got you. And just one last one for me, if I could. I just want to make sure I'm fully understanding the timeline delay - the PMA timeline delay for the AMDS device pushed out to mid-'26. Is this conservatism? I mean, it seems like good news that you submitted the second module in the fourth quarter. I'm just not clear what's delayed here and why are you pushing it out? Help us better understand. Thanks so much.

Yes, no, it's fair, Rick. So I will say, when we were working on the HDE, literally there was no PMA discussions going on. We focused 100% on the HDE, which obviously I think makes sense. We got that approval in early - we were submitting modules, we submitted two modules in 2024. We started having our first discussions about the patent - the status of the PMA in January. And one of the things the FDA notified us about, and this is unrelated to any of this recent stuff is there's some news testing, bench testing they - that are in the international standards. They're applying it to all companies and all devices and plannable devices, which we're going to have to do for AMDS. So this is a kind of a new test - some new testing they want us to do, which everyone is going to have to do. And when you look at what the testing is and how long it takes and the submissions and everything else, it's going to add two quarters. And we're just being transparent with people. I personally don't think it has a big impact. And the only real difference between the HDE and the PMA is getting an IRB and we feel pretty comfortable that this isn't going to change kind of the revenue trajectory. So yes, I mean, we're going to keep working it and try to bring that in, but that's the - we're being transparent with folks.

Got you. Thank you.

Thank you. Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

All right. Thanks for taking the questions. I'll also start with one maybe on AMDS. Can you remind us just how many implanting sites or potential implanting sites you see in the U.S. and the penetration into those sites you have with your existing sales force with other products?

Yes, I would say big picture, there's about a 1,000 centers that do a DeBakey type 1 dissection. It's a rule of thumb. I mean we basically sell stuff to all those centers. But as a rule of thumb, 80% of the volume is probably in the top 600 centers, which is where we're focused. So again, we call in all of them, but we're not obviously going to go after all 1,000 at once. It's obviously impractical. Also, the volume tends to be skewed to the larger centers. So we have - I would say we have great coverage of the 80% of the volume immediately. And we'll have to work through kind of prioritization, which we've already done on which ones we go after first. But obviously, we're going to go after the larger centers and then follow - we have a whole kind of cadence to that launch.

Okay. That's helpful. And then just one more on the cybersecurity incident. Can you help us at an operational level, what is occurring that is preventing the processing? Is it extra steps that now need to occur? Is it just business unit leadership distraction? What exactly is kind of the bottleneck to producing or processing the tissue?

Things that we would normally use our systems for we were having to do manually for a period of time. And so that is just extending the period of time that it takes to get through everything. And it really relates to tissues that were either in process at the time of the event or that where donations were received basically through January. So if we receive a donation today, it processes through our systems normally and it will have a normal lead time. But there was a two month period plus whatever is already in process where it's just - it's a lot more labor intensive and it's going to take a lot longer to get through it.

Okay. Thanks. And then just last one from me. I appreciate the commentary on kind of Q1 revenue. Can you help us maybe think about Q1 adjusted EBITDA in light of the revenue cadence throughout the year?

Yes. I mean, I think definitely, Q1 is going to be the lowest adjusted EBITDA of the year. And I think you got to kind of think through that proportionately with a drop through on revenue. It's not like we're going to go cut a bunch of expenses out of Q1 just because we're going to have timing differences on revenue.

Yes, but I also think, I mean we give full-year revenue and EBITDA guidance, which is exactly what we've been telling people. We're going to grow the top line double-digits and the bottom line at least twice as fast. We've given you the kind of the range of revenue and EBITDA. I think this was obviously the cyber event was a unexpected one-time it was painful to go through. Our team did a great job responding to it. But trying to parcel out like where Q1, we've given you kind of some revenue direction. I mean, full-year EBITDA guidance and revenue guidance, we feel very comfortable with, so.

Okay. That's helpful. Appreciate the commentary. Thanks guys.

Thank you. Our next question comes from the line of Suraj Kalia with Oppenheimer & Company. Please proceed with your question.

Hi, Pat. Pat, Lance, can you hear me all right?

Hi, Suraj.

First and foremost, congrats on a strong finish to the year despite the cyber breach and you guys have had a four year run for what it's worth and I've never missed a beat even in COVID. So it's unfortunate for this macro-level incident. Pat, that having said, the 190,000 patient retrospective analyses that you talked about, yes, it directionally points like there is a strong argument to be made that mechanical valves should dominate 60 below maybe 60 to 65 but by the same token, Pat, that analysis also indicated that overall mechanical valve usage was declining, right? So I guess my question, Pat, to you is, what kind of missionary work is needed let's say, from Artivion and to reverse this trajectory and get to the expectation that On-X will deliver?

Yes. So maybe I can make a couple of comments. So this was presented as a late breaker at STS and it's 109,000 patients and they basically looked at if you got a tissue valve or a mechanical valve and you were under the age of 70 was the actual study and basically the lines cross at 60. So if you were under 60, you actually had a survival benefit by getting a mechanical valve. And as far as the mechanical valve market declining, it actually - it was shown over years, the mechanical valve has actually been growing. And by the way, that's just a U.S. number that they're looking at. So we've actually been - the market has actually been growing, but it's way down from where it was 10, say, 10 years ago. And I think to your point, I think one, if you talk to surgeons, surgeons were really blown away by the data and guys were walking out of there saying, I don't know if you heard the discussant was from the Mayo Clinic and basically said you guys have been doing patients wrong and you should have been putting mechanical valves in under 60-year-olds all along. It was a pretty much a smackdown and - but I think to your question, I think getting after referring cardiologists with our surgeon group and we've got some plans in place that we're working on kind of midpoint of the year. So I do think there's some - to your point, there's some stuff we can do to accelerate that. But this recent On-X post-approval data showing an 87% reduction in bleeding coupled with this recent data out of JACC, showing a mortality benefit in patients under 60, means we can actually start going after valves in patients under 60, which doubles our business. So people were always kind of like hemming and hawing, you guys keep growing On-X 10%, how long are you to be able to keep doing that? Well, it looks like for a while.

Got it. Pat, on AMDS, I know everyone has asked a question or the others. So forgive me for belaboring this. From 30 days to one year, right, we now have the data what has been the conversation in the clinical community in terms of the 30-day to one year trajectory? And what's the noise on the ground? Any color you could share with us?

Yes. I was actually just at a surgical meeting with about 60 heart surgeons with we have - this data was presented again and this is just last weekend. I think there is overwhelming it's been shown in work that other analysts have done. The amount of, I think support for this device being used in acute type 8 dissections is extremely strong. I mean to have a lot of these patients, by the way, a lot of these patients like die on the table. So a 72% reduction in mortality, this is truly a lifesaving device, which is why the FDA took us down the HDE pathway. And I think this is going to be a very important device for patients who have this devastating condition and the physician buzz on this is extremely high. So I think part of the reason we're so bullish on our - is AMDS is really a great - we have a great sales force. We have great clinical data. We have a great device. There's no competition, and we're going to be pushing hard to get this technology to patients.

Got it. And last one quick one, then I'll hop back in queue. OUS has obviously been strong, especially LATAM and as you look for FY25, I believe you said there'll be 1% to 2% hit on FX, forgive me if I got that number wrong, but --

Yes, 2%. It's really the euro.

It's 2 percentage points at current rates.

And should we still think about OUS just in terms of relative contribution to the U.S. as being quite a bit higher. But just any additional color because look, regulatory and policy wise, the environment is quite uncertain. Hence, I'm just trying to understand how as you all think through OUS contribution, what are the relative buffers in place? Gentlemen, thank you for taking my questions.

Yes, thanks. I mean, I think that as far as the - I'm not sure if I understood the part about the regulatory side of things, but I mean, we're about 50-50 U.S., outside the U.S., the biggest region for us is obviously Europe, which is heavily impacted by the euro, which is where the FX comes in. But all of our regions are growing.

Yes. And then you had the comments about contribution. I don't know if that was about revenue contribution or about EBITDA contribution. But as it relates to EBITDA, we have a pretty significant natural hedge given our manufacturing that we do in Europe. And so it is a - it has some small impact on 2025 EBITDA, but it's not significant.

Thank you.

Thank you. Our next question comes from the line of Mike Matson with Needham & Company. Please proceed with your question.

Yes, thanks. Can you just remind us on as far as Endospan goes, when would be the earliest that you potentially have to make a decision on whether or not to acquire the company? I'm assuming it would be probably more in the 2026 timeframe, but just want to make sure that that's right.

Yes, that's correct, Mike. I think the exciting thing that's coming up here pretty quickly is they're going to be - they're going to be presenting their kind of the pivotal data of the PMA cohorts. That's the 60 patients trial that will be basically that will bet that you'll have the full dataset at AATS in May in Seattle. So not so far away. And then basically, it's just kind of the same process we went through with prior PMAs, which is they'll hit one year follow-up in October - excuse me, they'll hit one year follow-up in October, but to get that data together and then submit the PMA. We're saying second half of '26, they'd get approval, which means we have 90 days post that to make a decision, which so depending when they get approval, let's say they get approval in Q4, we'd have to make a decision in Q1 of '27.

Okay. Thanks. And then just as far as the convertible debt goes, I guess, why not roll it over into a new convert versus just letting it - exchanging it for shares basically?

Yes. We had the multiple different options. We could roll it to convert or we could roll it into the existing private debt that we have. We just felt like at this point in time, it would be best to deleverage, get that down lower. Hopefully, we're going to get great news and execute our option on Endospan and this will just put us in an even better position to do that. So that's the drivers behind the thought around using the shares.

Yes, we've talked to - we talk to our shareholders all the time and it's one of the things we've talked about and I think people would like to see us delever. And as Lance said at the midpoint of our EBITDA guidance for 2025, if we transition that convert to shares, we're going to be sitting around two, which feels a lot better than 3.8%.

Yes. 4.8.

Okay, got it. Thank you.

Thank you. Our next question comes from the line of Daniel Stauter with Citizens. Please proceed with your question.

Yes, great. Thank you. So first one, just on guidance. I appreciate the cadence and the commentary around first quarter. But just back of the envelope, if we plug in the midpoint for the first quarter and have improvement throughout the year, gets us to second half '25 closer to mid to high-teens growth. Is that kind of the right way we should be thinking about it or just anything else you can give us on the cadence would be great.

Yes. So I think there's a couple of things, right? So one is, and it's - the cyber thing did create a timing issue, which is unfortunate, but we're being very kind of transparent with everybody. It's a timing thing. Our underlying business is totally fine and it's taken us some time to process the tissue and to build up our inventory in On-X. I told you all the good news on both of those product lines. I think a couple of other things. One, AMDS will build throughout the year. Right? We just launched, we just trained our sales force in the second week of January. So we've got to go through that process I talked about. We've got to get IRBs, value analysis training. So we will definitely build AMDS throughout the year. Obviously, Q4 is going to be a pretty easy comp given the cyber event that we just talked about. So I think when you put that all together and then you spread more inventory for On-X later in the year, tissue is getting pushed later in the year, you add that all together, it holds together. Yes, I wouldn't be putting guidance out like this if I didn't believe it.

No, totally get it. I guess just one follow-up on guidance, but more on the bottom line or EBITDA rather. You mentioned contributions are from more operating leverage and within SG&A, but I'm pretty sure you said some will come from the AMDS benefits. How much is that adding to the EBITDA outlook? I think we've talked about 90% gross margins for that product, but what's the EBITDA margin we should be thinking about?

We - just kind of the math on the EBITDA leverage is we're expecting about 1 percentage point of gross margin expansion, about 2 percentage points of leverage out of SG&A. And then we're going to increase our spend in R&D by about a percentage point as compared to last year.

Okay. Great. Thank you very much.

Thank you. Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, Pat and Lance. Thanks for taking our questions. Just one on - Lance, you talked about gross margin improvement of 100 basis points. Could you just clarify is that full-year over full-year that's not related to the fourth quarter, correct?

Correct, that's full-year. Now obviously, there will be more benefit in the second half because that's when we expect to have more AMDS revenues and that's really what's driving the benefit. But yes, the 100 basis point impact.

Okay, got it. And do you think you'll break out AMDS at some point separately? Or it will be contained within stents and grafts.

That's not the plan, but we definitely think you'll expect to see the impact in our stent graft number pretty clearly.

Got it. And then just one more for me. Pat, you talked about this. So we should expect to see the 60 patient data at the Thoracic Conference in May out of Endospan, correct?

Correct.

Okay. Got it. It does it for us. Thanks for taking the question.

Thanks, Jeff.

Thanks.

Thank you. And we have reached the end of the question-and-answer session. And I would like to turn the floor back to Pat Mackin for closing remarks.

Yes. Well, thanks for joining the call. And as you hear, we obviously dealt with a challenging cyber event in the fourth quarter and still delivered a good year. We've got some stuff we've got to clean up and on the tissue side and On-X inventory kind of out of the first quarter. But we're super excited about our AMDS HDE, this long-term On-X data showing a mortality benefit where we can double that opportunity, launching BioGlue in China and this Ross data that keeps coming out stronger and stronger where we sell every pulmonary valve we have. So as you heard in the guidance, we're pretty bullish on the company and appreciate your attention and look forward to updating you on our progress on the next call.

Thank you. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.