Artivion Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 24, 2025

There are 10 speakers on the call.

Operator

Greetings and welcome to the Artivian Fourth Quarter and Year End twenty twenty four Financial Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lane Morgan from The Jill Martin Group.

Operator

Thank you. You may begin.

Speaker 1

Thanks, operator. Good afternoon, and thank you for joining the call today. Joining me today from Artivion's management team are Pat Matkin, 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 in our forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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 Artibion website. Now I'll turn over to Artivion's CEO, Pat Mackin.

Speaker 2

We have a strong year at Artivion as we achieved total constant currency revenue growth of 10% excluding per kilo. We also expanded EBITDA margins by three ten 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 ended 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 24 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 advisors to contain and remediate the incident.

Speaker 2

Due to our team's immediate response, we mitigated the threat actors' 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 $4,500,000 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 Onyx supply, we do not expect this incident to meaningfully impact our business for the full year of 2025 and our 2025 guidance reflects that.

Speaker 2

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, a significant portion of our tissue revenue comes from Synagraf pulmonary valves. In this case, our demand outstrips supply for these valves every quarter, and therefore, we hold no inventory. Importantly, we continue to receive normal levels of donations and process tissue throughout the period of the cyber incident, and therefore, we do not anticipate any meaningful impact for the full year. However, the lead times associated with tissue that were in process or received during that time period will be longer than normal, resulting in tissues that would have been released in Q1 being released later in the year.

Speaker 2

Similarly, but to a lesser extent, our lead times for Onex were temporarily extended and as a result, we expect to have some stocking distributor orders that would have occurred in Q1 to occur later in the year. Lance will provide additional details in his remarks on the impact of Q4 as well as the timing of our 2025 revenues. Now on to our Q4 results. From a financial perspective, our Q4 performance was driven by continued growth across our product portfolio as well as continued benefit from regulatory approvals and commercial footprint expansion in key international markets like Latin America. From a product category perspective, Onex revenue increased 10% year over year on a constant currency basis as we continue to take market share globally with the only mechanical aortic heart valve that can be maintained at a low INR of 1.5 to two point zero.

Speaker 2

Based on feedback from the field, our recent market share gains and the proven clinical benefits of the Onex aortic valve, we maintain a strong conviction that the Onex is the best in class aortic valve on the market and will continue to take market share worldwide. In addition, we are encouraged by significant new data that was presented at Society of Thoracic Surgeons meeting at the January. The data, which also published in JACC simultaneously, which is a journal of American College of Cardiology, showed that across one hundred and nine thousand patients from the STS database, mechanical aortic valves had a statistically significant improvement in mortality compared to surgically implanted patients 60. This is a significant opportunity for the Onyx valve and gives us even greater confidence that we should be able to continue to double digit growth for the foreseeable future. Also in Q4, our Stent Graph revenues grew 8% on a constant currency basis in the fourth quarter compared to the same period last year and was one of the areas more heavily impacted by the cyber incident, which Lance will cover in more detail in his section.

Speaker 2

Our Stant Graph portfolio remains a key component to our growth strategy and we're encouraged by our which are driven by our differentiated product portfolio that are focused on complex segments of the stent graft market. Today, the products in our stent graft portfolio are primarily sold in Europe, where we leverage our existing direct sales infrastructure to create significant cross selling opportunities across our unique aortic product offerings. Our pipeline consists largely of bringing some of these proven products to The U. S. And Japanese markets, representing significant growth opportunity.

Speaker 2

I will detail shortly our expectations for the impact of AMDS in The U. S. BioGlue grew 7% on a constant currency basis compared to the same period last year. As a reminder, we received regulatory approval for BioGlue in China last quarter and we're continuing to work through some additional administrative steps to get access to the hospital level. These steps are expected to take about six to nine months.

Speaker 2

Therefore, we expect to begin commercializing BioGlue in China in the second half of twenty twenty five. BioGlue has been a great product for patients for many years and we are excited to be able to bring this technology to another large market. We estimate that approximately twelve thousand patients with acute Type A dissections could benefit from BioGlue each year. Lastly, tissue processing, which was the area most heavily impacted by the cyber incident, declined 8% year over year on a constant currency basis in Q4. From a geographic standpoint, we continue to see results from our growth initiatives across Latin America and Asia Pacific, primarily through new regulatory approvals and commercial footprint expansion.

Speaker 2

Latin America and Asia Pacific delivered constant currency revenue growth of respectively in the fourth quarters and 2611% for the full year. We continue to anticipate strong revenue growth for both regions over the coming years as we continue to leverage our industry leading product portfolio in those regions. I will now turn to our product pipeline and our recent significant regulatory development with the AMDS HDE. Stated simply, the Humanitarian Device Exemption or HDE represents a significant milestone achievement for Artemion. For context, an HDE is a marketing application for a product that has been designated a humanitarian use device.

Speaker 2

AMDS received humanitarian use device and breakthrough designations due to its intended benefit for patients in the treatment and diagnosis of a rare disease or condition, which other comparable options currently exist. The HD allows for commercial distribution of AMDS in United States prior to the receipt of any PMA. The HD for AMDS was granted based on the full primary cohort thirty day data from the PERSIGRU. S. IDE trial.

Speaker 2

The results from the ID trial and the original DARTS trial demonstrate superior clinical benefits of the groundbreaking nature of this technology. And we believe this HDE validates even HDE validates even further data from the PERSEVERE trial, which completed enrollment of November of twenty twenty three, demonstrated statistically significant reduction in all cause mortality in primary major adverse events. More specifically, the persevered area out to thirty days, the primary endpoint demonstrated a statistically significant seventy two percent reduction in mortality and a fifty four percent reduction in major adverse events compared to the current standard of care. Finally, the results of both these trials demonstrate no Dane tears in any patient treated with AMDS, including the now five year data follow-up from the DART study. For context, Dane tears occur in up to seventy percent of patients following a hemiacal repair without AMDS.

Speaker 2

The elimination of Dane is an important clinical outcome as patients who experience a Dane will have worse clinical outcomes, including increased mortality, aortic growth and reoperation. Since receiving the HD, the one year data from AMBS PERSEVERURE clinical trial was presented at late breaking sessions at the STS in Los Angeles in late January. Late breaking data from our AMDS PERCEVEAL trial demonstrated sustained benefit of AMDS out to one year with mortality in the AMDS group fifty percent lower than the reference cohort. There were also zero occurrence of DANE compared to the reference cohort, which could have a range of up to seventy percent. In addition, there were minimal new occurrences of stroke, renal failure requiring dialysis or myocardial infarction.

Speaker 2

These data build on the positive findings from the thirty day readouts, further supporting the life saving nature of the AMBS technology. So we're very excited by the FDA decision to grant the HDE. It is now will now only enable us to begin selling the product ahead of the PMA approval, but it also the HD stands to meaningfully benefit patient outcomes and save lives. Lance will cover the expected financial impact of the HD in 2025, but I did want to cover some specifics related to the HD and the product. There are three steps that each center will have to complete before implanting an AMDS as part of the AMDS launch process.

Speaker 2

First, each hospital will need to receive a sitewide IRB before implanting the AMDS, except in the case of an emergency use. Second, we will need to have AMDS approved by the Hospital Value Analysis Committee. Third, surgeons and their clinical staff will need to be trained on the device. Lastly, from a market perspective, for those of you familiar with HDE, there is a limit of 8,000 devices that can be implanted annually. In the case of AMDS, this limit is larger than the total number of acute Dabagay type one dissections that occur annually in The U.

Speaker 2

S. So from a practical standpoint, this limit is not an issue. So I'd like to update you on our pipeline. On AMDS, we are focused on securing our PMA. In Q4, we submitted our second PMA module for AMDS to the FDA and are currently working to complete some additional non clinical benchtop testing.

Speaker 2

This testing is pursuant to recently adopted international standards by the FDA and is not related specifically to AMDS. To account for this additional testing submission as well as the FDA review time of this data, we are now anticipating PMA approval for AMDS in mid-twenty twenty six. Importantly, given the HDE, we do not view this delay as having meaningful impact on our ability to generate AMDS revenue in the meantime. Additionally, EndoSpan is expected to present its thirty day data from its U. S.

Speaker 2

And for its Nexus aortic stent graft system at the ATS annual meeting in early May. Assuming the data shows the initial trial endpoints have been met, Nexus remains on track for approval in the second half of twenty twenty six. Our strong financial, clinical and regulatory performance in 2024 position us well for 2025 and beyond and reinforce our confidence that we can deliver sustainable double digit revenue growth, drive EBITDA margin expansion and grow adjusted EBITDA at twice the rate of constant currency revenue growth. With that, I'll now turn the call over to Lance.

Speaker 3

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 $97,300,000 for the fourth quarter of twenty twenty four, up 3% compared to Q4 of twenty twenty three. Meanwhile, adjusted EBITDA increased approximately 15% from $15,300,000 to $17,600,000 in the fourth quarter of twenty twenty four.

Speaker 3

Adjusted EBITDA margin was 18% in the fourth quarter, '1 hundred and '70 basis point improvement over the prior year, driven by a two ten basis point reduction in non GAAP adjusted general administrative and marketing expense as a percentage of revenue. For the full year, total revenues were $388,500,000 up 9.4% constant currency and 10% constant currency excluding per client despite the approximate one 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 margin of 18%, a three ten basis point improvement from 2023. As Pat mentioned, we delivered these results against the challenging backdrop from the November twenty twenty four cyber incident.

Speaker 3

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 the event had a negative revenue impact of approximately $4,500,000 and negative adjusted EBITDA impact of approximately $2,000,000 in Q4. As a result, the cyber incident reduced Q4 revenue growth by an estimated 5% and full year growth by approximately 1%. We're pleased with our adjusted EBITDA results, which landed above the midpoint of our guidance despite the Q4 challenges and reflect strong operational leverage.

Speaker 3

We continue to service customers throughout the temporary disruption and do not expect any meaningful impact on our business from the incident for the full year 2025. However, it will have some impact on the individual quarters for the year, which I will cover in the guidance section of our prepared remarks. To help contextualize our Q4 results, I'll provide you some additional details on the estimated impacts of the twenty twenty four cyber event. We were unable to ship approximately $1,000,000 worth of orders on the last day of the quarter that were ready to be shipped. This $1,000,000 was split evenly between tissue and stent grafts.

Speaker 3

The remaining $3,500,000 in cyber incident headwinds were related to parts of the business where we do not typically carry an inventory buffer. As we have previously discussed, demand in a large part of our tissue business outstrips supply every quarter and therefore we hold no inventory. While we continue to receive and process tissue throughout the incident, due to the cyber event, we were less efficient and unable to process as much tissue as we normally would have at the end of the quarter. We estimate this had a roughly $2,000,000 negative impact. The last $1,500,000 of impact was related to a portion of our Stent Graph business that is made to order.

Speaker 3

We continue to produce this product, but less efficiently than normal, resulting in less product availability than would otherwise have been anticipated. On BioGlue and OnX, we were able to meet demand with inventory on hand as reflected in these product prospective Q4 growth rates, which were generally in line with our expectations. From a product line perspective, on a constant currency basis, OnX revenues grew 8%, BioGlue revenues grew 7% and tissue processing revenues declined 8% in the fourth quarter. Excluding the estimated impact from the cyber incident, tissue processing would have grown approximately 3% and Stentgrass would have grown approximately 16%. Other revenue declined by approximately $600,000 in the fourth quarter of twenty twenty four, driven by per clot.

Speaker 3

As a reminder, we sold the per kilo business in 2021 and are currently in the process of transferring manufacturing. As a result, we expect to continue generating a limited amount of zero margin revenue from per kilo until the transfer is complete. For context, excluding per kilot, our underlying business would have grown 10% for the full year 2024 compared to 2023 and eleven percent excluding both per kilot and the cyber incident. Our as reported expenses included approximately $4,600,000 associated with the cyber incident, which are excluded from our adjusted EBITDA. The $4,600,000 impact consists of external advisor fees and an idle plant charge.

Speaker 3

We will also incur additional cyber related expenses in 2025. We anticipate seeking insurance reimbursement for some of these costs, but that process will take some time and we will exclude any insurance proceeds that we receive from adjusted EBITDA at that time as well. Gross margins were 63% in Q4 and were negatively impacted by approximately two percentage points by the idle plant charge. Gross margins were generally in line with prior year other than the impact of the idle plant charge. General, administrative and marketing expenses in the fourth quarter were $51,400,000 compared to $50,300,000 in the fourth quarter of twenty twenty three.

Speaker 3

Non GAAP general, administrative and marketing expenses were $47,500,000 in the fourth quarter compared to $47,400,000 in the fourth quarter of twenty twenty three. R and D expenses for the fourth quarter were $7,400,000 compared to $7,600,000 in the fourth quarter of twenty twenty three. Interest expense net of interest income was $9,400,000 as compared to $5,800,000 in the prior year. Other income expense this quarter included foreign currency translation loss of $4,000,000 Free cash flow was $8,700,000 in the fourth quarter of twenty twenty four. As of December 31, we had approximately $53,500,000 in cash and $314,300,000 in debt, net of $5,800,000 of unamortized loan origination costs.

Speaker 3

We do not anticipate the need to raise additional capital to fund our debt obligations, our investments in our channels or our pipeline in the foreseeable future. Our net leverage at the end of Q4 was 3.8% down from prior year. In regard to our capital structure, as stated in our eight K filing in December, we anticipate all outstanding notes of our convertible debt due July 2025 to convert to common stock at maturity. We believe this approach will optimize our balance sheet as we continue to focus on our multiyear commitment to deleverage and reduce our interest expense. In summary, 2024 was an excellent year.

Speaker 3

Excluding per clock, we grew revenue 10% and adjusted EBITDA an outstanding 32% and made incredible progress on our product pipeline. While the cyber incident was frustrating due to the impact on our people and our Q4 results, our full year performance was still outstanding. And now for our initial outlook for the full year 2025. We expect constant currency growth of between 1014% for the full year 2025, representing a reported revenue range of $420,000,000 to $435,000,000 At current rates, we expect foreign currency to have an approximately two percentage point negative impact on as reported revenue. As we look ahead, we expect the OHA business to grow low double digits year over year over the long term, driven by our portfolio of differentiated products and our best in class R and D pipeline.

Speaker 3

With our continued top line revenue growth in general expense management, we expect adjusted EBITDA to be in the range of $84,000,000 to $91,000,000 for the full year 2025, representing 18% to 28% growth over twenty twenty four and two hundred basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Assuming the convertible debt is converted to shares at maturity in July, at the midpoint of our EBITDA guidance range, we expect net leverage to be below two by the end of the year. We expect gross margins to improve by about 100 basis points driven by mixed benefit from U. S. AMDS sales and continued leverage from our global sales force and G and A infrastructure.

Speaker 3

R and D expense came in slightly below expectations in 2024 at 7% of sales and is expected to increase to closer to 8% of sales in 2025, which is towards the high end of our longer term expectations. We continue to expect free cash flow to be positive for the 04/25. For revenue, we expect similar dynamics as seen in 2024, except for the anticipated positive impact of the AMDS HDE. In 2024, we also had the benefit of one full quarter of the SGPD price increase, which benefited total company 2024 growth rates by approximately one percentage point. In general, that means for 2025, annual growth rates for tissue and BioGlue in the mid single digits, for Onyx in the low double digits and for Stentgrass in the mid teens before consideration of the AMDS HDE.

Speaker 3

As Pat outlined, there are several factors that will impact the timing of AMDS revenue under the HDE and therefore, revenue contribution from AMDS in 2025. In addition, some factors driving AMDS adoption under the HDE such as IRB approvals and value analysis committee approvals are largely outside of our control. We expect to have much more visibility in each of these factors as we move through the year and look forward to providing more detail on our next call. At this point, we are assuming a one to two percentage point positive impact during 2025 to our constant currency growth rate from AMDS HDE with minimal impact on adjusted EBITDA as we invest in year one launch activities. In this first year, we'll be focused on making any investments necessary to ensure the product is launched successfully and is positioned for 2026 and beyond.

Speaker 3

Longer term, we expect this high margin product to have significant benefits to our adjusted EBITDA. As it relates to quarterly cadence, while we do not anticipate the cyber incident will have an impact on the full year 2025, we do expect it will create some fluctuation between quarters. The extended lead times in the tissue business in Q4 twenty twenty four and the first half of Q1 twenty twenty five will result in fewer tissue releases in the first quarter, but we expect to catch up over the remainder of 2025. Additionally, while we were able to meet On X demand in Q4 with existing inventory on hand, our On X throughput in December and January were below normal levels. As a result, we anticipate we will have lower than normal distributor sales of Onex in Q1, but we will catch up over the remainder of the year.

Speaker 3

Also, we anticipate AMBS sales to be minimal in Q1 and grow sequentially each quarter of twenty twenty five. While we do not plan to provide quarterly guidance on a regular basis, given the expected non typical quarterly cadence, we are providing one time guidance for first quarter twenty twenty five revenue for clarity. We are forecasting our first quarter reported revenue to be in the range of $94,000,000 to $96,000,000 This represents roughly $10,000,000 less of primarily tissue and some On X revenues than we would normally expect. We anticipate this $10,000,000 will be caught up over the remainder of 2025 as we clear our tissue processing backlog and return On X inventory to desired levels. In summary, we are proud of our progress to date through our strong full year 2024 results and we are excited about the prospects in the business in 2025 and beyond.

Speaker 3

With that, I will turn the call back to Pat for his closing comments.

Speaker 2

Thanks, Lance. So as you've just heard, our strategy is working. We're pleased with our strong performance in 2024, which positioned 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 HD allows us to begin commercializing AMDS in The U.

Speaker 2

S. Prior to the PMA, which we're already in full process now. The recent data I mentioned about the Onyx versus bioprosthetic valves. Focusing on the mortality benefit in 60 year olds in patients from mechanical valves versus tissue valves. Number three, BioGlue China regulatory approval.

Speaker 2

As we said in the script, we will expect in the second half of this year, which 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-twenty twenty six. And then finally, Nexus PMA will be showing their thirty 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.

Speaker 2

With that operator, please open up the line.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Rick Wise with Stifel. Please proceed with your question.

Speaker 4

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

Speaker 5

just

Speaker 4

the setup for the year ahead. Maybe you could talk us through that.

Speaker 2

Yes. Thanks, Rick. So let me just start with kind of the building blocks of what we've already done today. We obviously received the HDE in early December. We had a couple of weeks of internal kind of paperwork we need to do.

Speaker 2

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.

Speaker 2

Two weeks later at the January, we presented the one year, PERSEVERE data that I mentioned in my script, where we show a fifty percent reduction in mortality at one year and still no DANES, whereas the control or the reference cohort had up to seventy percent DANES. Our commercial team is in the process of the three steps, which is you've got to get an IRB, you then got to go through value analysis committee and then the surgeons got to get trained. We have a number of centers that are in the mix of that. We're not going to kind of break down and give you guys kind of our internal scorecard. We're going to we'll report the number every quarter in our Stent Graph number.

Speaker 2

But I can tell you we've got roughly 55 feet on the street in The U. S. That are all actively pursuing ANDES accounts as we speak.

Speaker 4

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'd think that wouldn't these patients that you might have implanted, would they have gotten 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 Onyx side, if you would. Just help us better understand.

Speaker 3

Yes. So I'll take a shot at that first Rick and then Pat can jump in. So I mean, obviously, there's going to be some patients that just can't wait and we'll have to get some other 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 ours. And we just have a high level of confidence that when we can release these tissues that they will be purchased by customers.

Speaker 3

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.

Speaker 2

Yes. I mean, I think 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 Onyx business is the clinical data. I mean the ROS data, there was ROS data presented at American Heart 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.

Speaker 2

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 the cases that are going to take us longer to get it through the process, but we'll sell every one of them. And then same for Onyx. I mean, we were able because we had enough stuff in WIP to basically grow Onyx ten percent 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.

Speaker 2

We will catch that up in the new data I just talked about, that was presented at STS. In one hundred and nine thousand patients, it basically shows that you will die more if you get a tissue valve if you're under the age of 60. And we just got the data. So we're super bullish on both Onyx and the SGPV for the RAS. And we've got the materials.

Speaker 2

We just have to get them through the process. And 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.

Speaker 4

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 push out to mid-twenty six. Is this conservatism? I mean, it seems like good news that you submitted the second module in the fourth quarter.

Speaker 4

I'm just not clear what's delayed here and why are you pushing it out? Help us better understand.

Speaker 2

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 HD, which obviously I think makes sense. We got that approval in early we were submitting modules we submitted two modules in 2024.

Speaker 2

We started having our first discussions about 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 that are in the international standards. They're applying it to all companies and all devices, implantable 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.

Speaker 2

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.

Speaker 4

Got you. Thank you.

Operator

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

Speaker 2

All right.

Speaker 6

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?

Speaker 2

Yes. I would say big picture, there's about 1,000 centers that do DeBakey type one dissection. As a rule of thumb, we basically self 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 it home, but we're not obviously going to go after all 1,000 at once.

Speaker 2

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.

Speaker 6

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?

Speaker 6

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?

Speaker 3

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 we're either in process at the time of the event or that were donations are received basically through January. So if you 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 was 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.

Speaker 6

Okay. Thanks. And then just last one from me. 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?

Speaker 3

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 proportionally with 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.

Speaker 2

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. 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.

Speaker 2

But trying to parcel out like Q1, we've given you kind of some revenue direction. I mean full year EBITDA guidance and revenue guidance, we feel very comfortable with.

Speaker 6

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

Operator

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

Speaker 7

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

Speaker 2

Hey, Suraj.

Speaker 7

First and foremost, congrats on our strong finish to the year despite 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 that 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 analyses 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 Artibion to reverse this trajectory and get to the expectation that Onex would deliver?

Speaker 2

Yes. So maybe I can make a couple comments. So this was presented as a late breaker at STS and it's one hundred and nine thousand patients. And they basically looked at if you got a tissue valve or a mechanical valve and you're under the age of 70 was the actual study. And basically the lines cross at 60.

Speaker 2

So if you're 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 market has actually been growing. And that's by the way, that's just a U. S. Number that they're looking at.

Speaker 2

So we've actually been the market's actually been growing, but it's way down from where it was ten, say, ten 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, it 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 smack down. 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.

Speaker 2

But this recent Onyx post approval data showing an eighty seven percent reduction in bleeding coupled with this recent data out of JAK, showing a mortality benefit in patients 60 means we can actually start going after two valves in patients 60, which doubles our business. So people were always kind of like hemming and hawing, you guys keep growing Onyx ten percent. How long are you going to be able to keep doing that? Well, it looks like for a while.

Speaker 7

Got it. Pat, on AMDS, I know everyone has asked a question of the others, so forgive me for belaboring this. From thirty day to one year, right, we now have the data. What has been the conversation in the clinical community in terms of the thirty day to one year trajectory? What's the noise on the ground?

Speaker 7

Any color you could share with us?

Speaker 2

Yes. I was actually just at a surgical meeting with about 60 heart surgeons. We had 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 A sections is extremely strong.

Speaker 2

I mean, to have a lot of these patients by the way, a lot of these patients like die on the table. So a seventy two percent reduction in mortality, this is truly a life saving 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 AMBS 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.

Speaker 7

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 FY 'twenty five, I believe you said there'll be 1% to 2% hit on FX. Forgive me if I got that number wrong, but

Speaker 2

just kind of Yes, two percentage points. Yes, it's really the euro.

Speaker 3

It's two percentage points at current rates.

Speaker 7

And should we still think about OUS just in terms of relative contribution to The U. S. As being quite a bit higher? 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?

Speaker 7

Gentlemen, thank you for taking my questions.

Speaker 2

Yes, thanks. I mean, I think 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 fiftyfifty 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.

Speaker 3

Yes. And then I think you mentioned the 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.

Speaker 7

Thank you.

Operator

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

Speaker 5

Yes, thanks. Can you just remind us on as far as endo span 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.

Speaker 2

Yes, that's correct, Mike. I think the exciting thing that's coming up here pretty quickly is they're going to be presenting their kind of their pivotal data of the PMA course. That's the 60 patient trial that will be based on that, that you'll have the full data set at ATS in May and 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 they get that data together and then submit the PMA. We're saying second half of twenty twenty six, they'd get approval, which means we have ninety 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 twenty twenty seven.

Speaker 5

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?

Speaker 2

Yes. We had bolt driven out, we could

Speaker 3

roll it into the new convert or we could roll it into the existing product 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 endo span and this will just put us in an even better position to do that. So that's the drivers behind the thought around using shares.

Speaker 2

Yes. We've talked to our shareholders all the time and it's one of the things we've talked to them about. And I think people would like to see us de lever. 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,

Speaker 8

percent. Yes.

Speaker 3

4.8% year

Speaker 2

or so. Yes. Okay. Got it. Thank you.

Operator

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

Speaker 8

Yes, great. Thank you. So first one is 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 twenty twenty five closer to mid to high teens growth.

Speaker 8

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?

Speaker 2

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. We our underlying business is totally fine.

Speaker 2

And it's taken us some time to process the tissue and to build up our inventory on Onyx. I told you all the good news on both of those product lines. I think a couple of other things. One, AMBS will build throughout the year, right? We just launched we just trained our sales force in the second week of January.

Speaker 2

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 Onyx later in the year, tissues getting pushed later in the year, you add it all together, it holds together.

Speaker 2

Yes, I wouldn't be putting guidance out like this if I didn't believe it.

Speaker 8

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 and A, but 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?

Speaker 3

Just kind of the math on the EBITDA leverage is we're expecting about

Speaker 7

one

Speaker 3

point percentage point of gross margin expansion, about two percentage points of leverage out of SG and A, and then we're going to increase our spend in R and D by about a percentage point as compared to last year.

Speaker 8

Okay, great. Thank you very much.

Operator

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

Speaker 9

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

Speaker 3

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 points impact.

Speaker 9

Okay, got it. And do you think you'll break out AMDS at some point separately or it will be contained within our expense and gross?

Speaker 3

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

Speaker 9

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?

Speaker 7

Correct.

Speaker 9

Okay. I got it. It does it for us. Thanks for taking the question.

Speaker 2

Thanks, Jeff. Thanks.

Operator

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.

Speaker 2

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 on the tissue side and On X inventory kind of out of the first quarter. But we're super excited about our AMBS HDE, this long term On X data showing mortality benefit, where we can double that opportunity, launching BioHoo in China and this Ross data that keeps coming out stronger and stronger than where we sell every pulmonary valve we have.

Speaker 2

So, 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.

Operator

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

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Earnings Conference Call
Artivion Q4 2024
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