Greetings. Welcome to the CryoLife First Quarter 2021 Financial Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host Brian Johnston from the Gilmartin Group. Thank you. You may begin.

Thanks operator. Good afternoon and thank you all for joining the call today. Joining me from CryoLife's management team are Pat Mackin, CEO; and Ashley Lee, CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions for 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. With that I'll turn the call over to CryoLife's CEO, Pat Mackin. Pat?

Thank you, Brian, and good afternoon everyone. I appreciate you joining us today. Our results indicate that our strategy is effective, and our business recovery is progressing faster than we anticipated. Although COVID-19 continues to affect our operations, particularly in Europe, our business has shown resilience and is rebounding well, which we believe is promising for our future. We've made significant strides in the first quarter, with growing demand for our innovative aortic repair products. We are also investing in growth initiatives, including R&D and clinical trials. Despite ongoing challenges from COVID-19, we achieved 7% revenue growth on a GAAP basis and 3% pro forma constant currency revenue growth for the first quarter of 2021 compared to the first quarter of 2020. When we last communicated in mid-February, the vaccine rollout was just starting to pick up in the US, while many European countries were facing renewed COVID-19 outbreaks and re-implementing lockdowns. We were cautious about our outlook for the first quarter due to these factors and an expected decrease in tissue supply while we addressed the Tris saline issue from last year's fourth quarter. Fortunately, as the quarter progressed, we saw improving conditions in the US along with the positive effects of new product launches, increased JOTEC inventory, and a smaller-than-expected decline in tissue processing revenues, leading to stronger than anticipated revenues for Q1 2021. For instance, in Q1 2021, AMDS revenues surged by 67%, Nexus revenues rose by 87%, and JOTEC revenues increased by 11%, all on a pro forma constant currency basis compared to the same quarter in 2020. Furthermore, On-X revenues were up 6% on a constant currency basis compared to last year, and On-X aortic valve revenues grew by 16% in North America. The On-X aortic valve offers a significant clinical advantage, being the only FDA-approved mechanical aortic valve that allows lower INR levels from 1.5 to 2.0 instead of 2.0 to 3.0. The US has made notable progress in the vaccine rollout since our last earnings call, improving hospital management of COVID-19. However, the vaccine rollout in Europe has lagged behind that of the US, with a resurgence of COVID-19 cases and many European countries returning to lockdowns. Brazil is also facing severe COVID-19 impacts. If, as we hope, vaccine rollouts and adoption continue to improve and conditions get better in these areas, we expect pro forma revenue to increase later this year. Ashley will touch on our Q2 outlook later in the call. As I mentioned previously, our short-term plan is to boost revenue through three key initiatives. The first is the commercialization of our five new aortic stent and stent graft products in Europe: AMDS Nexus, our next-generation JOTEC products E-nside, E-vita OPEN NEO, and E-nya. Second, we aim to expand into Asia-Pacific and Latin America. Third, we are seeking near-term regulatory approvals in key markets, including PerClot PMA, PROACT mitral PMA, and BioGlue in China. I will provide updates on these initiatives, starting with our five new aortic stents and stent grafts. First, AMDS is the world's first artery modeling hybrid device for treating acute type A aortic dissections, and we remain very optimistic. In the first quarter, we generated $1.3 million in revenue, which represents a 67% increase on a pro forma constant currency basis over Q1 2020. This growth continued despite regional lockdowns in Europe affecting much of the quarter. We are also securing marketing authorizations in select markets, which we expect will position us well for further increases in AMDS, particularly once the pandemic subsides in these regions. Second, Nexus achieved revenues of $408,000, a remarkable 87% increase on a constant currency basis compared to Q1 2020. While we believe these numbers would have been stronger without the renewed lockdowns and travel restrictions in Europe, we still anticipate additional Nexus cases in the coming weeks and months, and we remain positive about the technology's prospects. Third, E-nside has seen significant growth in our portfolio for treating thoracoabdominal aneurysms, with revenues up 48% on a constant currency basis versus Q1 2020. Fourth, E-vita OPEN NEO is our newest addition in the frozen elephant trunk category for treating aortic arch dissections and aneurysms, with revenues rising 30% on a constant currency basis compared to Q1 2020. Fifth, we plan to resume our market release for E-nya later in 2021. We expect demand for these five products to continue to grow as vaccination rates and market adoption rise. Additionally, we look forward to benefiting from improved JOTEC inventory due to our internal efforts and the onboarding of a second supplier. In regards to our second initiative, we are expanding internationally in Asia-Pacific and Latin America through regulatory approvals and commercial expansions. These efforts are starting to yield positive results despite pandemic challenges, with revenues in Asia Pacific increasing 11% on a pro forma constant currency basis in Q1 2021 compared to Q1 2020. However, Brazil remains severely affected by COVID-19, hindering growth in Latin America due to our significant presence there. We are hopeful for accelerated growth in both regions as the pandemic eases and we achieve more marketing authorizations. Our third initiative involves obtaining three near-term regulatory approvals in major markets. Specifically, we are planning to submit PMAs for PerClot and PROACT mitral in the latter half of 2021, along with pursuing FDA approval for BioGlue in China. If approved, this could boost our revenue in 2022. The first program focuses on the PerClot PMA submission, covering both open surgery and laparoscopic indications across multiple specialties, as well as large-scale manufacturing capabilities. We plan to submit our PMA to the FDA in Q3 2021. Furthermore, we aim to submit our PMA in mid-2021 for a lower INR label for the On-X mitral valve, similar to our label for On-X aortic valves. Approval of this label would allow patients with the On-X mitral valve to use lower doses of Coumadin than patients with other mechanical valves, offering significant clinical benefits. We believe this will enable us to gain substantial market share in the mechanical mitral heart valve market, akin to our success with the On-X aortic valve. Lastly, regarding regulatory approval for BioGlue in China, the NMPA has requested additional data which may necessitate further testing. This could delay our timeline for approval in 2021. We remain in discussions with the NMPA and will provide updates as we gain clarity. This potential delay, however, does not significantly impact our near-term revenue growth opportunities. Besides our progress on these initiatives, we are also advancing our mid-term pipeline with key products currently in U.S. clinical trials or expected to begin trials later this year. These trials include PROACT 10A, Nexus, and AMDS. We are making notable progress in enrolling patients for our PROACT 10A trial, which is a prospective randomized clinical trial aimed at determining if patients with the On-X aortic valve can safely and effectively be maintained on Eliquis versus warfarin. Currently, 51 sites are qualified, and 38 are actively enrolling, with over 235 patients participating. Feedback from surgeons and patients in the trial has been highly positive. Despite the pandemic challenges, we believe that if the trial meets its objectives, we could secure FDA approval by late 2024 or early 2025. If we achieve this, we anticipate the On-X aortic valve will lead the market for patients under 70. Additionally, our partner Endospan is making excellent progress with its U.S. IDE trial for the Nexus device. Lastly, we are on track to submit our IDE for the recently acquired AMDS device in mid-2021, potentially allowing us to begin an AMDS clinical trial by year-end. If these trials go as planned, we expect FDA approvals for PROACT 10A, AMDS, and Nexus by late 2024 or early 2025, which could provide us access to an additional $1 billion in total addressable market at that time. Now, I will hand the call over to Ashley.

Thanks Pat and good afternoon everyone. Total company revenues were $71.1 million for the first quarter, up 7% on a GAAP basis, compared to Q1 of 2020 and up 3% on a pro forma constant currency basis compared to Q1 of 2020. Revenues came in ahead of our quarterly guidance due to the improving procedure volumes in the U.S. and better-than-anticipated revenues in Europe, despite the pandemic. On a year-over-year basis, in the first quarter 2021, aortic stent and stent graft revenues increased 31%, reflecting an improved JOTEC inventory position, the addition of the AMDS in September of 2020 and the acceleration of adoption of Nexus in the EU. On-X revenues increased 7% and BioGlue revenues increased 7%, reflecting improving procedure volumes in the U.S. Tissue processing revenues decreased 11% due to the Tris saline issue discussed on last quarter's call and the impact of COVID-19. On a pro forma constant currency basis, aortic stent and stent graft revenues increased 16%. On-X revenues increased 6% and BioGlue revenues increased 5%. Performance in each of these product lines was adversely affected by the COVID-19 pandemic. On a regional basis, first quarter 2020 revenues in Europe increased 25%. North America was flat. Asia Pacific increased 11%, and Latin America decreased 40%, all compared to the first quarter of 2020. On a pro forma constant currency basis, revenues in Europe increased 12%, North America was flat, Asia Pacific increased 11%, and Latin America decreased 38%, all compared to the first quarter of 2020. Our gross margins were 67% for the first quarter of 2021 and 66% for the first quarter of 2020. G&A expenses in the first quarter were $38.6 million, compared to $39 million in the first quarter of 2020. The first quarter of 2021 includes acquisition related and other nonrecurring charges of $1.5 million, primarily related to fair value charges related to the Ascyrus acquisition. First quarter interest expense of $4 million includes approximately $2.3 million of expense related to our Term Loan B, $1.1 million related to our convertible debt and approximately $600,000 in amortization of debt origination costs. Other expense in Q1 includes $1.9 million in realized and unrealized foreign currency translation losses. On the bottom line, we reported GAAP net loss of $3.1 million or $0.08 per fully diluted share in the first quarter of 2021. Non-GAAP net income was $1.4 million or $0.03 per share in the first quarter. Additionally, GAAP and non-GAAP earnings include the pre-tax loss of $1.9 million or approximately $0.04 per share related to foreign currency translation losses. Reconciliations of GAAP to non-GAAP income and EPS are included in the press release that we issued this afternoon. Adjusted operating income was $7.2 million for the first quarter of 2021 compared to $2.7 million for the first quarter of 2020. Adjusted operating income reflects add-backs of amortization expense and acquisitions and other related charges to operating income. As of March 31 2021, we had approximately $57.1 million in cash, $320 million in debt and the full $30 million available under our revolving credit facility. Adjusted EBITDA for the first quarter of 2021 was $11.4 million, compared to $7.4 million for the first quarter of 2020. Gross leverage as defined by our credit facility stood at 6.3 times and net leverage stood at 5.2 times. Please refer to our press release for additional information about our non-GAAP results including a reconciliation of these results to our GAAP results. Regarding the tissue situation that we discussed on our last call, our further testing establishes that the $5 million in quarantine tissue is safe to be implanted in patients. We have notified the FDA of these results and we hope to be able to release this tissue later this year. And now for our outlook. Continued uncertainties regarding COVID-19 variants in vaccine rollout and adoption specifically in Europe make it difficult for us to predict long-term results. Recall that approximately 55% of our revenues are generated in North America and the remainder are generated overseas, the majority of which is in Europe where we are introducing our new products. Given the potential for meaningful impact to procedure volumes internationally relative to Q1 and specifically to our new product launches in Europe, we will not be issuing full year 2021 guidance at this time. Due to these factors, we believe we continue to believe that COVID-19 will adversely impact Q2 performance in potentially later quarters. With that said, our expectation is that Q2 revenues will be between $71 million and $73 million. If COVID-19 vaccine metrics continue to improve and the overall environment normalizes, we expect improvement in top line growth in Q3 and Q4. Regarding our ongoing investments designed to fuel future growth, we intend to continue to invest in our commercial channels particularly in Asia and Latin America as well as in our R&D pipeline. We believe that we will be able to fund these investments through our ongoing operations and that we can comfortably make these investments and service our debt without having to raise additional capital. I'll turn the call back to Pat for his closing comments.

Thanks Ashley. In closing, as mentioned this afternoon, our business is performing exceptionally well despite the global pandemic. This success is undoubtedly thanks to the incredible efforts of our employees worldwide and our leadership team. Looking ahead, we are optimistic that the distribution of various vaccines globally will enhance market conditions, assuming vaccine acceptance continues to improve. As procedure volumes return to pre-pandemic levels, we believe we will be in a stronger position to capitalize on the commercial potential of our products. While we are not providing formal financial guidance for the entirety of 2021, we do believe that once the pandemic eases and vaccines become more widely available and accepted, we will be well-positioned to achieve double-digit year-over-year revenue growth. There are several growth catalysts in 2021 that were not present in 2020. We have three major initiatives that will drive growth from 2021 to 2023. First, we expect continued growth in 2021 from five new aortic stents and stent grafts: AMDS, Nexus, E-nside, NEO, and E-nya. Second, we anticipate additional benefits from our investments in our channels and new regulatory approvals in Asia Pacific and Latin America. Third, in 2021, we will be filing our PMAs for both PerClot and the On-X mitral valve. All these catalysts align with our expectation to achieve the operational goals we've previously outlined, and our strong financial position gives us optimism about driving accelerated revenue growth as the pandemic recedes. In summary, we will persist in strategically investing for growth, minimizing operational risks, and managing our expenses. The first quarter once again showcased the resilience of our product portfolio and the success of our strategy focusing on aortic repair. Considering how our products and our organization performed over the past year, I am more confident in our business and our future than ever. Now I will turn the call back over to the operator for questions.

At this time, we will be conducting a question-and-answer session. Our first question is from Mike Matson of Needham. Please state your question.

Yes. Hi Pat and Ashley, this is David Saxon filling in for Mike. Thank you for taking my question and congratulations on the quarter. I appreciate all the insights. My first question is regarding the guidance for the second quarter. Can you walk us through what that entails? From a geographic standpoint, I believe you mentioned Europe showing a 12% pro forma increase. Is there potential for further improvement in Europe? Also, I noted that North America was flat. Given the increase in vaccinations there, do you anticipate an improvement in volumes? I have a couple more follow-ups as well. Thank you.

Yes. In the first quarter, we highlighted two key issues. One was related to the Tris tissues, which primarily affected our North American market and significantly impacted our first-quarter performance in the US. Although the vaccine rollout in the US was positive and we saw a good recovery in some of our other products, the tissue business faced substantial challenges. As Ashley mentioned, we've conducted all necessary testing on the tissue, but we have yet to submit it to the FDA and haven't received any feedback. I believe the situation in the US is looking better than it was in the first quarter. Our guidance indicates sequential growth from Q1, but as you've seen from the news, Europe has been performing exceptionally well, achieving double-digit growth despite ongoing resurgences and lockdowns. We're expecting continued growth in the second quarter. However, predicting the impact of COVID is quite unpredictable. We anticipate sequential growth and hope for further improvement, although our business remains heavily reliant on Europe for revenue and new products. If there are slowdowns in Europe, it could hinder our overall business performance.

Okay. That's helpful. And then yes, I did have a question on E-nya. You mentioned, you'll resume a market release later this year. I guess, before that happens, are there any major projects or tasks that need to be done before you do that, or are you pretty much just kind of finalizing that launch before you go full launch?

Yes. Typically, in my 30 years of experience, we start with a limited market release and gradually roll the products out. We will proceed through that phase, and if we are satisfied with the results, we will then move to a full market release. We are not waiting on any approvals; it is simply a matter of going through the limited market release before progressing to the full market release.

Okay. If I could ask one last question about AMDS, I believe you mentioned it reached $1.9 million in the quarter. Is that correct? I'm curious about how the sales force is performing with this product. Given its high margin, are there incentives to promote it, and how are they managing this alongside the rest of the product portfolio? Thank you for addressing my question.

Yes. We achieved $1.3 million in sales for the quarter, representing a 67% growth in pro forma constant currency compared to Q1 of last year. I want to highlight a few points. We have secured approval in every European country and in Canada, and we are obtaining selective approvals in certain Asian and Latin American markets that recognize the CE mark. Despite the fact that many of our key markets were under stringent lockdowns during the quarter, our growth of 67% reflects the strength of the product. Launching new products during a lockdown presents challenges, especially with mobility restrictions in place. This product has great potential, and as vaccination efforts progress in Europe and Canada, we anticipate a further acceleration of AMDS sales. Additionally, we expect to gain approvals in more markets throughout Asia and Latin America this year. The product also complements our existing portfolio very well, particularly when our representatives engage with heart surgeons who frequently use our On-X aortic valve, On-X mitral valve, BioGlue, NEO frozen elephant trunk, and AMDS. This creates significant opportunities for cross-selling across our aortic procedures. With the combination of successful cross-selling, the easing of the pandemic, and new market approvals, we believe AMDS is positioned to perform exceptionally well in the future.

Our next question is from Suraj Kalia of Oppenheimer & Co. Please state your question.

Good afternoon everyone. Can you hear me alright?

Hey Suraj.

Pat and Ashley, congrats on a great quarter. So Pat, a bunch of questions and forgive me if some of these had been mentioned just jumping around between two calls. So PROACT 10A Pat, the current enrollment numbers and are you all still on track for E-nya is equal to greater than 500 by end of 2021?

Yes. So we did 234 and 235 right now unenrolled. And we've got 51 centers signed up and 38 kind of activated. So we're still kind of going through that, bringing all of our centers up to being able to enroll. Yes, I think 500 is well within reach for this year. In fact, I'm hoping we do better. We've had a couple of really big centers come online very recently. So I do think 500 is well within reach.

Got it. Pat, the PROACT Mitral remind us again when are we going to see data on that? Then the structural dynamics with the low INR 2 to 2.5 walk us through what you would consider as the low-hanging fruit for the taking?

Yes. The great thing is we have a proxy for this, which is PROACT aortic. As you know, we conducted a trial demonstrating that it's possible to use a lower INR. This is particularly impactful in the mitral position because it’s a low-pressure valve, requiring patient INRs to be maintained at higher levels, specifically 2.5 to 3.5, which increases the risk of significant bleeding. The ability to reduce that to a range of 2 to 2.5 is promising. We still need to see the approval and label from the FDA, but we are submitting that PMA this summer. I've heard from several surgeons that this is an excellent valve, acknowledged as the best mechanical mitral valve on the market even before we receive the label change. If patients can maintain an INR of 2 to 2.5 instead of 2.5 to 3.5, surgeons tell me that it provides them with peace of mind. It's logical to lower the bleeding risk for patients, making it an obvious choice. With a superior valve and potentially exclusive FDA approval for an INR range of 2 to 2.5 compared to 2.5 to 3.5, we've seen how this has worked in the past with our aortic valve, capturing significant market share, and believe we will experience the same success with the mitral valve. Regarding your question about data presentation, we want to time this with the approval. I anticipate that the timing will align with STS in January next year. The PMA supplement process typically takes six to nine months, so we should expect approval in the first half of 2022. Ideally, we'd like to enter STS with the approval in hand, which would allow us to present late-breaking data there at the end of January and announce the approval shortly after. Additionally, it’s important to note that this is the same product our representatives are currently promoting, with the same inventory already available. We just need to update the label. We've prepared new marketing materials, and our representatives are well-trained to sell these products. Overall, I see this as a significant opportunity for the company with an outstanding product.

So Pat, I'll ask all my questions and then get back in line. First, Pat, what are your expectations for PerClot and mitral in a panel? Second, Ashley, BioGlue's contribution was very strong this quarter with gross margins around 90% to 95%. There was also an increase in composite gross margins. How sustainable are these margins going forward? And third, Pat, looking at the numbers and consensus for FY 2021 and FY 2022, it seems like you are being held back by the lack of proctoring in Europe due to travel issues, as you mentioned. It almost seems like you have been overly conservative and should easily exceed these consensus numbers. Thank you for taking my questions, gentlemen, and congratulations again.

Yes. Let me outline a few points. I'll start, then Ashley will go, and I'll finish up. First, regarding the FDA and the PMA submission, PerClot is a full PMA submission. While I'm not the FDA, given the product's risk level, I strongly believe it will not go to a panel. The trial was successful, meeting the endpoints, and it has shown to be safe and effective. I don't anticipate a panel review for this. We are optimistic that it will progress quickly since the submission package is very strong. As for PROACT mitral, it is a PMA supplement to the original mitral PMA, which will also not go to a panel and will follow the regular review process typical for supplements.

Yes. We do not provide formal guidance on gross margin, but we believe there is potential to improve margins over the year. One key driver is the strong performance from BioGlue. On-X also performed well, particularly in North America where the business grew 16%, and it's a higher-margin product in the US. Additionally, much of the growth in Q1 came from new product launches, including five mentioned by Pat, four of which are AMDS, E-nside, and NEO. These products have gross margins that exceed the corporate average, leading to a positive effect on gross margins in Q1 compared to the same period last year. As I mentioned, we see opportunities for further improvement in gross margin throughout the year.

Yes. Regarding your third question, we have the opportunity to exceed the current consensus. I'm quite pleased with our performance in the first quarter. Coming into the quarter, both the US and Europe were facing significant challenges due to COVID. However, the US has made remarkable progress with vaccinations, leading to a resurgence. We did face some limitations due to a tissue issue we previously mentioned. Had we not encountered that problem in Q4, we likely would have seen growth in the range of 5% to 7% despite the ongoing pandemic in Europe. Additionally, we've received positive feedback on Tris from testing, which has gone very well, but we're still waiting for FDA approval. There’s potential for growth here. Our new aortic stents and stent grafts in Europe have shown impressive results, with Nexus growing by 87% and AMDS by 67%, on a pro forma constant currency basis. We’re also seeing growth in our thoracoabdominal stent graft business and a 30% increase in our frozen elephant trunk business, even during a pandemic.

Is there any calls there?

I'm sorry. Yes. I don't know how much you heard. I don't know what happened with the line there.

Sorry Pat, you cut out for a moment.

Okay. Yes. I agree with Suraj that we're growing significantly. We're growing double-digits in Europe in a pandemic. Imagine what happens when the vaccines get rolled out and we actually get back to kind of normal there.

Our next question is from Jeffrey Cohen of Ladenburg Thalmann. Please state your question.

Hi. This is actually Destiny on for Jeff. Thank you for taking my question. I noticed some commentary around the TMR hand pieces. And I'm just wondering how is that situation going? And when should or could we expect revenue to be at more normalized levels? 2021 2022? Any color would be super helpful.

Yes, the good news regarding TMR is that we have received clearance from the FDA, which was the main obstacle. We are now collaborating with our supplier to ramp up production of the hand pieces, which is somewhat challenging due to the pandemic. Therefore, we expect to have a clearer idea of what this will look like later this year. When we announced the approval, we mentioned that we did not anticipate any significant impact until the second half of the year, so we should be able to provide a more detailed update on our next call.

Okay, got it. Thank you. And then, Ashley, perhaps I missed this. Did you break out preservation services between cardiac and vascular?

We did not. We had indicated in our last conference call that we were going to be combining those into one single line item going forward.

Okay. Thank you for that reminder. For BioGlue in China, what additional testing are they looking for? Are you able to discuss that at any further detail?

We're not going to provide that level of detail. It's typical in an approval process to submit information and then receive follow-up questions. This back and forth is normal. Currently, they have requested testing that will take us more time. We are not redoing a clinical trial, but the testing could involve both animal and bench top studies that may extend beyond a couple of quarters. Therefore, we believe we won't be able to meet the timeline for 2021, but we won't go into the specifics of the testing requirements from the Chinese government.

Got it. Yes, I know the regulatory process can be a little hard to predict. So I guess any feedback is helpful. I think that does it for me. All my other questions have already been answered. Thank you.

Thanks, Destiny.

We have reached the end of the question-and-answer session. And I will now turn the call back over to Mr. Mackin for closing remarks.

Thank you for joining the call. I believe Suraj's question captures the situation well. We're optimistic about our outlook, despite the resurgence of COVID in Europe. We're experiencing sequential growth in Q2, and we hope this will be the last quarter impacted by COVID, allowing us to return to normal in the latter half of the year. We have several positive factors in play that we didn't have in 2020, including AMDS, Nexus, E-nside, NEO, E-nya, our investments in Asia Pacific and Latin America, and the upcoming PMAs for PerClot and PROACT Mitral. We're very confident about our accelerating growth. Once we move past the COVID challenges in Europe and Brazil, I believe you will see a notable improvement in our growth. Thank you for your attention, and I look forward to our next update.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.