Artivion, Inc. Q4 FY2024 Earnings Call

Greetings, and welcome to the Artivion Fourth Quarter and Year End 2024 Financial Conference Call. 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.

This year at Artivion, 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, allowing us to deliver positive results while making significant strides in key clinical and regulatory initiatives and further expanding our global presence. We entered the new year with strong confidence in our ability to execute our 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 discussing the fourth quarter performance and our expectations for 2025, I want to update you on the previously disclosed cybersecurity incident from November 24th. Upon discovering that a threat actor had accessed our systems, we implemented business continuity plans, took certain systems offline, and engaged external advisers to contain and address the incident. Thanks to our team's swift response, we limited the threat actor's ability to negatively impact our systems and minimize short-term disruption to our business. While we managed to operate effectively in the final weeks of the quarter, we estimate the incident led to a negative impact of about $4.5 million on our Q4 revenue. We have since returned to normal operations; however, our manufacturing facilities and tissue processing operations were not functioning at their usual capacity from late November through January. Although this affected our near-term tissue and On-X supply, we do not anticipate this incident to have a significant impact on our business throughout 2025, which is reflected in our guidance. Specifically, we expect our tissue revenues to be substantially lower-than-normal in Q1, with the shortfall being recouped over the remainder of the year. As discussed previously, a large portion of our tissue revenue comes from SynerGraft pulmonary valves, and currently, our demand exceeds the supply for these valves every quarter, meaning we hold no inventory. Importantly, we have continued to receive normal levels of donations in processed tissue throughout the cybersecurity incident, so we do not foresee any significant long-term impact. However, lead times for tissues that were in process or received during that period will be longer than usual, which means that tissues scheduled for release in Q1 will be released later in the year. Similarly, our lead times for On-X were temporarily extended, resulting in some stocking orders that were supposed to occur in Q1 being pushed to later in the year. Lance will provide more details on the Q4 impact and the timing of our 2025 revenues. Moving on to our Q4 results, our performance was driven by ongoing growth across our product portfolio, along with benefits from regulatory approvals and expansion in key international markets like Latin America. On a constant currency basis, On-X revenue rose by 10% year-over-year as we continue to capture market share globally with the only mechanical aortic heart valve that can be maintained at a low INR of 1.5 to 2.0. Based on field feedback, our recent market share gains, and the proven clinical advantages of the On-X aortic valve, we are confident that it remains the best-in-class aortic valve on the market and will continue to take share worldwide. We were also encouraged by significant new data presented at the Society of Thoracic Surgeons Meeting in late January. This data, which was published simultaneously in the Journal of the American College of Cardiology, indicated that, across 109,000 patients from the STS database, mechanical aortic valves significantly improved mortality rates compared to surgically implanted patients under 60. This presents a substantial opportunity for the On-X valve and reinforces our confidence in sustaining double-digit growth moving forward. Additionally, our stent graft revenues increased by 8% on a constant currency basis in Q4 compared to the same period last year, although they were affected by the cyber incident, which Lance will address in further detail. Our stent graft portfolio remains a critical component of our growth strategy, driven by uniquely differentiated products focused on complex segments of the market. Currently, these products are primarily sold in Europe, where we have established direct sales infrastructure to enhance cross-selling opportunities across our aortic offerings. Our pipeline largely involves introducing proven products to the U.S. and Japanese markets, signifying significant growth potential. I'll outline our expectations for the AMDS impact in the U.S. BioGlue experienced a 7% revenue increase on a constant currency basis compared to last year. As a reminder, we received regulatory approval for BioGlue in China last quarter, and we are working through additional administrative steps to gain hospital access, which are expected to take about six to nine months. We anticipate beginning commercialization of BioGlue in China in the second half of 2025, potentially benefiting around 12,000 patients annually with acute type A dissections. Lastly, tissue processing, the segment most affected by the cyber incident, saw an 8% decline year-over-year on a constant currency basis in Q4. Geographically, we continue to witness progress from our growth initiatives in Latin America and Asia-Pacific, achieving constant-currency revenue growth of 26% and 11% for the full year, respectively. We remain optimistic about strong revenue growth in both regions as we leverage our industry-leading product portfolio. I will now shift to our product pipeline and provide an update on the significant regulatory development regarding the AMDS HDE. The Humanitarian Device Exemption (HDE) represents a notable milestone for Artivion. An HDE allows a product designated as a Humanitarian Use Device to be marketed for conditions where there are no viable alternatives. The HDE for AMDS was granted based on data from the full primary cohort of the Persevere USIDE trial, demonstrating superior clinical benefits of this groundbreaking technology. These findings confirm that AMDS has the potential to greatly improve patient outcomes. Data from the PERSEVERE trial, which completed enrollment in November 2023, revealed a statistically significant reduction of 72% in mortality and a 54% reduction in major adverse events compared to the current standard of care. Importantly, the trials also demonstrated no DANE tears in any patient treated with AMDS, contrasting with the typical occurrence rate of up to 70% in patients after hemiarch repair without AMDS. This is a critical clinical outcome, as DANE can lead to worse patient outcomes, including increased mortality and the need for reoperation. Following the HDE approval, one-year data from the AMDS PERSEVERE clinical trial was presented at late-breaking sessions at the STS in Los Angeles in January. This data showed ongoing benefits of AMDS, with a 50% lower mortality rate compared to the reference cohort, zero occurrences of DANE, and minimal new occurrences of serious complications. These results reinforce the lifesaving potential of the AMDS technology. We are excited about the FDA's decision to grant the HDE, which not only enables us to begin selling the product prior to PMA approval but also has the potential to dramatically enhance patient outcomes. Lance will outline the expected financial impact of the HDE in 2025, but I want to emphasize some specifics related to the HDE and product launch. Each medical center will need to complete three steps before implanting an AMDS: obtaining a site-wide IRB, securing approval from the Hospital Value Analysis Committee, and ensuring that surgeons and clinical staff receive training on the device. Additionally, there is a limit of 8,000 devices that can be implanted annually under HDE regulations. However, this cap is larger than the total number of acute DeBakey type 1 dissections occurring annually in the U.S., so it is not a practical concern. I'd like to update you on our pipeline. For AMDS, we are focused on securing our PMA. In Q4, we submitted our second PMA module to the FDA and are working to complete additional non-clinical benchtop testing in line with updated international standards by the FDA. This timeline adjustment is due to additional testing and the review time associated with it, and we now anticipate PMA approval for AMDS in mid-2026. However, with the HDE in place, we do not believe this delay will hinder our ability to generate AMDS revenue in the interim. Furthermore, Endospan is expected to present its 30-day data from its U.S. trial for the NEXUS aortic stent graft system at the AATS Annual Meeting in May. If the data meets the initial trial endpoints, NEXUS is projected for approval in the latter half of 2026. Our strong performance in financial, clinical, and regulatory areas in 2024 positions us favorably for 2025 and beyond, reinforcing our confidence in achieving sustainable double-digit revenue growth, driving EBITDA margin expansion, and growing adjusted EBITDA at double the rate of constant currency revenue growth. I will now turn the call over to Lance.

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, a 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 the 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 $4.5 million and a 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%. We're pleased with our adjusted EBITDA results, which landed above the midpoint of our guidance despite the Q4 challenges and reflects strong operational leverage. 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 with some additional details on the estimated impacts of the 2024 cyber event. We were unable to ship approximately $1 million worth of orders on the last day of the quarter that were ready to be shipped. This $1 million was split evenly between tissue and stent grafts. The remaining $3.5 million in cyber incident headwinds 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 outstripped 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 within the quarter. We estimate this had a roughly $2 million negative impact. The last $1.5 million of impact was related to a portion of our stent graft business that is made to order. 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 On-X, we were able to meet demand with inventory on hand, as reflected in these products' respective Q4 growth rates, which were generally in line with our expectations. From a product line perspective, on a constant currency basis, On-X revenues increased 10%, business 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 stent grafts would have grown approximately 16%. Other revenue declined by approximately $600,000 in the fourth quarter of 2024, driven by PerClot. As a reminder, we sold the PerClot 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 PerClot until the transfer is complete. For context, excluding PerClot, our underlying business would have grown 10% for the full-year 2024 compared to 2023 and 11% excluding both PerClot and the cyber incident. Our as-reported expenses included approximately $4.6 million associated with the cyber incident, which are excluded from our adjusted EBITDA. The $4.6 million impact consists of external advisor fees and an idle plant charge. 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 received from adjusted EBITDA at that time as well. Gross margins were 63% in Q4 and were negatively impacted by approximately 2 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 $51.4 million compared to $50.3 million in the fourth quarter of 2023. Non-GAAP general, administrative and marketing expenses were $47.5 million in the fourth quarter compared to $47.4 million in the fourth quarter of 2023. R&D expenses for the fourth quarter were $7.4 million compared to $7.6 million in the fourth quarter of 2023. Interest expense, net of interest income, was $9.4 million as compared to $5.8 million in the prior year. Other income expense this quarter included a foreign currency translation loss of $4 million. Free cash flow was $8.7 million in the fourth quarter of 2024. As of December 31st, we had approximately $53.5 million in cash and $314.3 million in debt, net of $5.8 million of unamortized loan origination costs. 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 the prior year. In regard to our capital structure, as stated in our 8-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 multi-year commitment to deleverage and reduce our interest expense. In summary, 2024 was an excellent year. Excluding PerClot, 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. Now for our initial outlook for the full-year 2025. We expect constant currency growth of between 10% and 14% for the full-year 2025, representing a reported revenue range of $420 million to $435 million. At current rates, we expect foreign currency to have an approximately 2 percentage point negative impact on as-reported revenue. As we look ahead, we expect the overall 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&D pipeline. With our continued top line revenue growth and general expense management, we expect adjusted EBITDA to be in the range of $84 million to $91 million for the full-year 2025, representing 18% to 28% growth over 2024 and 200 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 2 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&A infrastructure. R&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 full-year 2025. 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 SGPV price increase, which benefited the total company 2024 growth rates by approximately 1 percentage point. In general, that means for 2025 annual growth rates for tissue and BioGlue in the mid-single digits, for On-X in the low double digits, and for stent graft in the mid-teens before consideration of the AMDS HDE. 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 1 to 2 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 will be focused on making any investments necessary to ensure the product is launched successfully and is positioned for stronger contributions in 2026 and beyond. 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 '25, we do expect it will create some fluctuation between quarters. The extended lead times in the tissue business in Q4 2024 and the first half of Q1 2025 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 On-X in Q1, but we will catch up over the remainder of the year. Also, we anticipate AMDS sales to be minimal in Q1 and grow sequentially each quarter of 2025. 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 2025 revenue for clarity. We are forecasting our first-quarter reported revenue to be in the range of $94 million to $96 million. This represents roughly $10 million less of primarily tissue and some On-X revenues than we would normally expect. We anticipate this $10 million 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 of the business in 2025 and beyond.

Thanks, Lance. So as you've just heard, our strategy is working. We're pleased with our strong performance in 2024, which positions 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 that 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 we're already in full process now. The recent data I mentioned about the On-X versus bioprosthetic valves, focusing on the mortality benefit in patients under 60. 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. 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.

Our first question comes from Rick Wise with Stifel. Please go ahead with your question.

Thank you and good afternoon, Pat. Hi, Lance. Maybe let's just start off with your early AMDS commercial progress to date. It sounds like it's going well, but can you give us more detail, more color, and perspective on the 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 paperwork we needed 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 DANE occurrences, whereas the control or reference cohort had up to 70% occurrences. 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 the 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 break down and give you guys our internal scorecard. We're going to 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 are going to be some patients that just can't wait and will 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 ours. 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 presented at American Heart in November 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 were 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 status of the PMA in January. One of the things the FDA notified us about, and this is unrelated to any of this recent stuff, is there's some new testing, bench testing that they're applying to all companies and all devices and plannable devices, which we're going to have to do for AMDS. This is some new testing the FDA wants us to do, which everyone is going to have to do. When you look at what the testing is and how long it takes and the submissions, it's going to add two quarters. We're just being transparent with people. I personally don't think it has a big impact. 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, we mean, we're going to keep working it and try to bring that in, but that's the we're being transparent with folks.

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 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. Again, we call on 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 I would say we have great coverage of the 80% of the volume immediately. We'll have to work through 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. 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. 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 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.

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. 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 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 kind of the range of revenue and EBITDA. I think this was obviously the cyber event was an unexpected one-time event. 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 some revenue direction. We feel very comfortable with the full-year EBITDA guidance and revenue guidance.

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 to reverse this trajectory and get to the expectation that On-X will deliver?

Yes. So maybe I can make a couple of comments. 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 if you were under the age of 70 was the actual study. Basically, the lines cross at 60. If you were under 60, you actually had a survival benefit by getting a mechanical valve. As far as the mechanical valve market declining, it actually was shown over years, the mechanical valve has actually been growing. By the way, that's just a U.S. number that they're looking at. The market has actually been growing, but it's way down from where it was 10 years ago. I think to your point, if you talk to surgeons, surgeons were really blown away by the data. Guys were walking out of there saying, I don't know if you heard a 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. To your question, getting after referring cardiologists with our surgeon group, we've got some plans in place that we're working on kind of midpoint of the year. I do think there's some stuff we can do to accelerate that. But this recent On-X post-approval data is showing an 87% reduction in bleeding coupled with this recent data out of JACC needs to show 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 going to be able to keep doing that? Well, it looks like for a while.

Got it. Pat, on AMDS, I know everyone has asked questions 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; this data was presented again. This is just last weekend. I think there is overwhelming support for this device being used in acute type A dissections. I mean to have a lot of these patients, by the way, a lot of these patients 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. The physician buzz on this is extremely high. I think part of the reason we're so bullish on our 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 for my last quick question before I return to the queue, OUS has clearly shown strong performance, particularly in LATAM. As you look ahead to FY25, I believe you mentioned there will be a 1% to 2% impact from FX; please correct me if I misheard that.

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

It's a 2 percentage point impact at current rates.

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 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.

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. It has some small impact on 2025 EBITDA but it's not significant.

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 presenting their pivotal data of the PMA cohorts. That's the 60-patient trial that will be basically that you'll have the full dataset at AATS in May in Seattle. So not so far away. 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 on 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. 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 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 driver behind the thought around using the shares.

Yes, we've talked 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 deleverage. 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%.

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. I think there's a couple of things, right? 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. 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, 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. We're going to increase our spend in R&D by about a percentage point as compared to last year.

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 is 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.

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. 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, 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.