Artivion, Inc. Q3 FY2025 Earnings Call

Good afternoon, and welcome to the Artivion Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lynn 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, COO and CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today's call on the Investor Relations section of the Artivion website. Now I'll turn it over to Artivion's CEO, Pat Mackin.

Thanks, Lynn, and good afternoon, everyone. I'm pleased to report another strong quarter of financial and operational results in which we delivered total constant currency revenue growth of 16% and adjusted EBITDA growth of 39% year-over-year. Further, we continue to make good progress in each of our key clinical and pipeline initiatives, which we believe will drive continued growth in the near term, medium term and long term. Our Q3 performance was enabled by continued growth across our product portfolio with stent grafts and On-X valves acting as significant growth engines. From a product category perspective, stent graft revenues grew 31% on a constant currency basis in the third quarter compared to the same period last year. Continued sequential growth was again driven in large part by AMDS as we benefited from growing early adoption and initial stocking orders. We see our stent graft portfolio as a foundational component of our growth strategy, and we are encouraged by these strong results with AMDS. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products that are already generating revenue in Europe to the U.S. and Japan, unlocking a meaningful expansion of our total addressable market. Relative to the AMDS U.S. launch, we're very pleased with the market enthusiasm since we received the HDE in late 2024. Feedback from early adopters remains exceptional, and we're seeing more and more customers moving through the 3-step process, including IRB approval, VAC analysis and company-required surgeon training prior to implanting an AMDS under the HDE. Our early success reflects both the dedication of our existing sales force and the still growing body of positive clinical data validating the unparalleled clinical benefits of AMDS. With respect to new clinical data, we were very pleased to see 2 late-breaking science sessions highlighting the favorable data regarding our AMDS technology at the recent EX Annual Meeting in Copenhagen in October. Late-breaking data from our AMDS PERSEVERE trial highlighted the positive benefits of AMDS beyond the region treated by the stent for the subset of patients with preoperative visceral and renal malperfusion. The results continue to demonstrate the benefit of patients with malperfusion even in subsets of malperfusion. Also at EX, late-breaking data from our AMDS PROTECT trial reported real-world outcomes from our European and Canadian multicenter registry, demonstrating excellent 3- to 6-month results consistent with those from AMDS PERSEVERE and the DART studies. Notably, there were no occurrences of paralysis, paraphoresis, aortic rupture, myocardial infarction, and over 95% of the patients showed positive remodeling with the true lumen diameter increasing or remaining stable in Zone 1 to 3. These data build upon our prior positive findings and further support the life-saving nature of AMDS. Lastly, on AMDS, we're very pleased to see that CMS recently established a new MSDRG DRG-209, specifically for complex aortic procedures. This code was made effective on October 1, 2025, and reflects a meaningful increase to the reimbursement available to healthcare providers for these procedures. We believe this improved rate more actively reflects the clinical necessity and complexity of these cases as well as the hospital resources required to deliver life-saving treatments such as AMDS. We expect this will strengthen our economic value proposition even further, improve patient access and act as an incremental tailwind for already adopting these trends. Overall, we're encouraged by the early commercial traction of AMDS, our expanding base of clinical evidence and the reimbursement updates and an even stronger value proposition for this life-saving technology. We're excited to continue growing AMDS revenue as we further tap into what we estimate to be a $150 million annual U.S. market opportunity, the vast majority of which is already unlocked through the HDE with limited competitive alternatives. Alongside AMDS, On-X continues to be another major growth factor in 2025. In Q3, we delivered exceptional results in our On-X business with revenue growing 23% year-over-year on a constant currency basis. Growth was driven by continued global market share gains supported by On-X unique clinical profile as the only mechanical aortic heart valve that can be maintained at a low INR of 1.5 to 2.0. Based upon the proven clinical benefits of the On-X aortic valve as well as the growing body of evidence supporting the use of mechanical valves in younger patients, we maintain our strong conviction that On-X is the best aortic valve in the market for patients under the age of 65, and we'll continue to take market share worldwide. In the U.S., we are benefiting from expanding awareness and adoption of our On-X valves, driven by positive new data as well as cross-selling opportunities from our AMDS launch. This dynamic, in particular, reinforces our conviction in our innovation-led multipronged growth strategy and further strengthens our confidence in both our near- and long-term outlooks for growth and profitability. In line with that strategy, in anticipation of continued growth, we've taken meaningful steps in the third quarter to expand our On-X operational footprint. During the quarter, we entered into 2 real estate agreements to purchase 2 facilities in Austin, Texas. The first facility where we currently lease and occupy serves as the basis for our On-X manufacturing operation and includes about 75,000 square feet of combined manufacturing, administrative, laboratory and warehouse and office space. Meanwhile, the second adjacent facility allows us to expand our footprint in Austin as our capacity needs continue to rise in the coming years. We expect these facilities to provide long-term capacity for the On-X business. Ultimately, we remain confident in the growth trajectories of our stent graft and On-X businesses where we continue to focus our investments on maximizing and sustaining our growth momentum. Beyond these growth engines, we also are maintaining a strong position across our highly differentiated and highly defendable base businesses, tissue processing and BioGlue. In Q3, tissue processing revenue increased 5% year-over-year on a constant currency basis. As a reminder, a significant portion of our tissue revenue comes from our SynerGraft pulmonary valves for which demand largely outstrips supply every quarter, and therefore, we hold no inventory. At this point, we believe tissue processing volumes have normalized following the disruption caused earlier this year by the 2024 cybersecurity event. As a result, we expect full year '25 tissue revenue to be relatively flat compared to 2024, with mid-single-digit revenue growth expected for the full year of '26 and beyond. Meanwhile, BioGlue grew 1% in Q3 on a constant currency basis compared to the same period last year. As we've discussed previously, we expect to see some variability in the growth rate of BioGlue quarter-over-quarter, driven by the significant amount of stock and distributor business in this product line. On an annual basis, we expect BioGlue to grow in the mid-single-digit range. In summary, we're encouraged by our third quarter commercial performance driven by our unique portfolio of highly differentiated PMA-approved products. Looking ahead, we're advancing a robust pipeline of high-margin innovations that we expect will unlock approximately $1 billion of incremental market opportunity over the next 5-plus years. Our nearest-term PMA opportunity is for AMDS. While the HDE enables us to sell AMDS in the U.S. before obtaining the PMA, we are focused on securing the PMA for AMDS. To date, we've successfully filed 3 of the 4 modules, keeping us on track for FDA approval in mid-2026. As for NEXUS, Endospan is expected to present its 1-year data from its U.S. IDE trial Triumph for the NEXUS device at the upcoming STS Annual Meeting in late January. Assuming the data shows the trial endpoints have been met, NEXUS remains on track for approval in the second half of 2026. In Q3, we took strategic steps to strengthen our balance sheet in anticipation of a potential Endospan acquisition by refinancing our existing credit agreement to extend its maturity to 2031. We also secured more favorable interest rates and gained access to a new $150 million delayed draw term loan facility. Lastly, on our pipeline, I'm pleased to announce we recently enrolled our first patient in our pivotal trial called ARTIZEN. As a reminder, in July, we received investigational device exemption approval (IDE) from the FDA to begin our U.S. pivotal trial, Arcevo LSA, which is our third-generation frozen elephant trunk used to replace the entire aortic arch. The trial will evaluate the safety and effectiveness of Arcevo in the treatment of acute and chronic Arch pathologies and will enroll 132 patients in up to 30 sites. We are optimistic that the trial will be successful, supported by the positive clinical results from our current generation Frozen elephant trunk. In conclusion, we believe our accelerated top line growth at 16% constant currency, the positive new late-breaking clinical data presented at EX for AMDS, the establishment of the approved DRG-209 for AMDS, all serve as clear validation of our strategy and the strength of our unique innovative product portfolio and pipeline. We look forward to continuing to build on our momentum as we close out the year and remain confident in our ability to deliver sustained double-digit revenue growth while growing adjusted EBITDA at twice the rate of constant currency revenue growth. With that, I'll 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 $113.4 million for the third quarter of 2025, up approximately 16% compared to Q3 of 2024. Meanwhile, adjusted EBITDA increased approximately 39% from $17.7 million to $24.6 million in the third quarter of 2025. Adjusted EBITDA margin was 21.7% in the third quarter of 2025, and approximately 320 basis point improvement over the prior year, driven by improvements in gross margin and leverage in SG&A. From a product line perspective, stent graft revenues increased 31%, On-X grew 23%, tissue processing revenues grew 5% and BioGlue revenues grew 1% in the third quarter of 2025. On a regional basis, revenues in North America increased 19%, Asia Pacific increased 18%, EMEA increased 12% and Latin America increased 10%, all compared to the third quarter of 2024. Our as-reported expenses include approximately $700,000 in Q3 associated with the 2024 cybersecurity incident, which are excluded from adjusted EBITDA. While we have sought insurance reimbursement for some of the costs we've incurred since the incident, this process will take some time. We will exclude any insurance proceeds we receive from adjusted EBITDA as well. Gross margins were 65.6% in Q3 compared to 63.7% in the third quarter of 2024. This reflects an approximate 200 basis point increase from 2024 due primarily to favorable mix from AMDS HDE revenues in the U.S. and the exceptional On-X growth, particularly in the U.S. General and administrative and marketing expenses in the third quarter were $57.3 million compared to $50 million in the third quarter of 2024. Non-GAAP general and administrative and marketing expenses were $53.6 million or 47.3% of sales in the third quarter compared to $46.6 million or 48.6% of sales in the third quarter of 2024, reflecting a 130 basis point improvement while funding our AMDS HDE launch costs. R&D expenses for the third quarter were $8.1 million or 7.1% of sales compared to $6.6 million or 6.9% of sales in the third quarter of 2024, reflecting consistent investment in our pipeline as a percentage of sales. Interest expense net of interest income was $5.9 million as compared to $8 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $100,000. Free cash flow was $17.7 million in the third quarter of 2025. Free cash flow for the full year is anticipated to be impacted by a one-time cash payment of approximately $12 million during the fourth quarter and $8 million in Q1 2026 related to the opportunistic purchase of 2 facilities in Austin. To reiterate Pat's comments, we view these purchases as a prudent long-term investment in our operational infrastructure. Owning these assets allows us to avoid potential future rent escalations, reduce long-term occupancy costs and ensure stability and long-term capacity for our On-X manufacturing operations. With this opportunistic $12 million purchase, we now expect to be slightly cash flow negative for the full year 2025, but we anticipate being free cash flow positive in 2026 despite the expected $8 million Q1 payment. As of September 30, 2025, we had approximately $73.4 million in cash and $214.9 million in debt, net of $5.1 million of unamortized loan origination costs. At the end of the third quarter, our net leverage ratio was 1.8, down from 3.9 in the prior year. In regards to the recently amended credit facility, we are pleased to have extended the maturity date by 1 year to 2031 while also securing a more favorable interest rate. In addition, the amendment provides us with optional access to a new $150 million delayed draw term loan facility, which enhances our financial flexibility and positions us well to pursue the potential acquisition of Endospan, assuming receipt of FDA approval for NEXUS. As a result, we expect to realize an annualized reduction in interest expense of approximately $1.5 million. And now for our outlook for the remainder of 2025. We are raising the midpoint of our full year 2025 revenue and adjusted EBITDA guidance. We now expect constant currency revenue growth between 13% and 14% compared to the previous range of 12% to 14%. We expect reported revenues to be in the range of $439 million to $445 million compared to our previous range of $435 million to $443 million, reflecting greater confidence in our overall growth outlook. This guidance range reflects our current estimate that currency will have a slight favorable impact on full year 2025 as compared to 2024. With our continued top line revenue growth and general expense management, we now expect full year 2025 adjusted EBITDA to be in the range of $88 million to $91 million representing a 24% to 28% growth over 2024 compared to the previous guidance of 21% to 28% and approximately 200 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Lastly, I would like to discuss 2026. We will provide 2026 guidance in February during our Q4 earnings call, but I did want to provide you with some directional comments as you think about next year. In general, we expect the same dynamics to be in place for the business in 2026 as there are in 2025 with 2 exceptions. First, we will be in year 2 of the AMDS launch, resulting in more difficult comps as we progress throughout the year. Second, on the expense side, we will have a full year of our CVO trial costs. Ultimately, we still expect to continue to drive double-digit revenue growth with adjusted EBITDA growing at twice the rate of constant currency revenue growth. With that, I will turn the call back to Pat for his closing comments.

Thanks, Lance. So to close things up, we're very pleased with our third-quarter results, which reflect strong execution, sustained momentum across our core product lines and meaningful progress of our pipeline. We continue to deliver significant top-line growth, expanding adjusted EBITDA at twice the rate while strengthening our balance sheet and investing in long-term growth. As we enter the final quarter of the year, we remain confident in our ability to drive continued performance by leveraging our differentiated portfolio, global infrastructure, and targeted commercial strategy. More specifically, we expect future growth to be driven by the following growth drivers: number one, the AMDS HDE. We're commercializing AMDS in the U.S., starting to penetrate the $150 million annual U.S. market opportunity with new clinical data and reimbursement dynamics likely to act as a further tailwind to growth. Number two, On-X heart valve data. We're educating healthcare providers on the JAK clinical data showing mortality benefit in patients under 60 compared to bioprosthetic valves. This is a new $100 million annual market opportunity that we are pursuing with the only mechanical aortic valve that can be maintained at a low INR of 1.5 to 2.0. Number three, the NEXUS PMA. Endospan is expected to present 1-year clinical data from the late clinical trial in late January 2026, which would, assuming we exercise our option to acquire Endospan, bring us one step closer to being able to access the annual U.S. market opportunity of $150 million. And fourth, the Arcevo LSA IDE trial. The first patient was recently treated with our third-generation frozen elephant trunk device, Arcevo as part of our U.S. IDE trial. Finally, I want to thank all of our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. With that, operator, please open the line for questions.

Our first question comes from John McAulay with Stifel.

I wanted to start off with your comments about 2026. I'm trying to understand the annualized cost of the Arcevo trial. Also, you mentioned that AMDS is facing tougher comparisons, which makes sense. However, the dollar contribution should be significantly stronger. It appears to start small this year and ramp up by the end. I would like to clarify what you mean by tougher comparisons in this context. Does this suggest slower growth? It would be helpful to address both Arcevo and AMDS as a starting point.

We believe we can support our pipeline by investing 7% to 8% of our sales in R&D each year. This year, we're likely to be at the lower end of that range due to having only a few months of an ongoing clinical trial. Next year, with a full year ahead, we might reach the higher end of the range. Regarding AMDS, the growth rate appears smaller this year but is significantly better than last year's zero growth. As the year progresses, we'll have actual figures to compare against last year, which will clarify the contribution to the growth rate. It's important to keep this in mind as we evaluate our performance.

Understood. I want to follow up on On-X, which has shown over 20 percent growth this quarter. I'm curious about what you're hearing from your reps or in direct conversations with doctors. It appears we might be experiencing a renaissance for mechanical valves. We've conducted a few calls on this topic ourselves, and I'm interested in understanding the factors driving this growth. Do you believe it's due to gaining market share from competitors, or is it linked to some of the data you previously mentioned? What’s happening in this area?

I believe it's a combination of factors. Over the past eight years, we have consistently gained market share each year because we are the only product with an aortic valve that has a low INR indication from the FDA. This has been in progress, and we have been growing that segment by double digits for a long time. Recently, new clinical data has emerged that supports this growth. A study published in January showed a mortality benefit for mechanical valve patients compared to bioprosthetic valve patients, specifically for those under 60. Another recent study involving 140,000 patients indicated a significant difference in outcomes for patients under 65. After ten years, 87% of mechanical valve patients did not die or require a reoperation, while only 69% of bioprosthetic valve patients had similar outcomes. This represents a considerable 20-point difference, suggesting a shift in perception towards mechanical valves among younger patients. Additionally, we have been concentrating on the AMDS launch in the U.S. and have not yet fully initiated our marketing efforts aimed at cardiologists, who are already quite enthusiastic about our clinical data with On-X and the recent findings from larger studies, as they favor improved patient outcomes. Therefore, we see a promising growth opportunity ahead with On-X.

Our next question comes from Frank Takkinen with Lake Street Capital Markets.

Congrats on the quarter. I was hoping I could start with some more commentary around the new DRG that was in place. Maybe speak to what it was previously? Was there an economic challenge with it previously? Where is it now? And does it solve that challenge? And then as an extension to that, I appreciate you just launched the product, but is there a pathway to get some ASP expansion out of the product over time under the new DRG?

Yes. So let me start high level. I mean, so when CMS looks at these changes in reimbursement, basically, what they've done here is it reflects when they look at a procedure, the high cost and complexity of an advanced aortic arch procedure. So they recognize this is a very complex area. There's a lot of cost, a lot of work that's done in the replacement and repair of an aortic arch. As it relates to this wasn't a big challenge from the economics equation. However, we've been going through value analysis committees. So certainly, that will be more of a tailwind going forward if they'll be less constrained by cost. I think the final point is, I think this new DRG reflects the value of our portfolio of products across the complex aortic arch. This new DRG-209 kind of covers that whole ARC segment, and I think it validates kind of our strategy in that complex area.

Got it. Okay. That makes sense. And then maybe just talking a little bit more about NEXUS. I heard the comment that you're on track with the second half '26 approval is the expectation still. Maybe talk through thought process around exercising that option versus not. Anything that you're still waiting to see? Or is it pretty much at this point if you feel like the approval goes through as intended, you will exercise the option and carry forward.

I'm not going to disclose our plans at this moment. This remains an option, and we have laid all the groundwork. I believe we are fully prepared. The next update will come from the one-year data presentation at STS at the end of January. This data is currently under review by the FDA regarding their PMA. For the past two years, we've indicated our expectation for approval in the second half of 2026. When we receive FDA approval, we will then assess whether to proceed with the acquisition. Additionally, as mentioned in our debt facility, we now have a $150 million delayed draw term loan available for this acquisition. We have the funds to proceed with it. Lance, do you have anything to add?

No. I mean I think we're optimistic about the process that things aren't approved until they're approved, and we'll have to evaluate it at that point in time.

Yes. I will say from a clinical standpoint, I've had a chance personally to talk to a number of the investigators and cardiac surgeons, vascular surgeons, there is a lot of excitement about the Nexus technology. This is a platform. It's not just one product. There are multiple products behind it. So we're very excited by it, but we're not going to tell you what we're going to do as it's not appropriate.

Our next question comes from John Young with Canaccord Genuity.

Congratulations on a great quarter. I wanted to just go back to AMDS. Is there any way to think about the strong results you saw in the quarter in terms of the aortic stent graft business in terms of sell-through versus sell-in for the product?

Yes. I mean I would say just in general, you have to get the product on the shelf before you can get it used in a surgery. So right now, the majority of the revenue really continues to be heavily weighted towards that initial stocking. But as you can imagine, we're every month seeing the number of implantations increase. And obviously, that's a super important part of the future is getting that adoption rate up. So right now, honestly, the revenue is still heavily weighted towards the initial stocking, but with positive exciting ramp to the implantations as well. And I would say also more importantly, the feedback from these early adopters on the surgeries has been excellent.

I appreciate that. And then is there any way to quantify just what inning you are in terms of that 600-center initial target you guys gave for MDS in terms of stocking?

It's pretty early.

Got it. And if I could squeeze just one more in. BioGlue China, should we expect any stocking in Q4 from that launch?

We've been facing challenges in China under normal circumstances, and the situation has become unusual over the past year. Therefore, we've advised people to view this as an incremental opportunity that will assist us in achieving our mid-single-digit annual growth rate targets, rather than considering it as an immediate boost. I would recommend continuing to think about it in that manner.

Our next question comes from Suraj Kalia with Oppenheimer & Co.

Congrats on a strong quarter. Lance, there are many discussions happening, so I'll ask both of my questions at once. Pat, I have a two-part question for you. Please let me know if you've already addressed this: how should we assess the Arcevo market size? And what insights do you have about the PARTNER-III seven-year study, particularly regarding the SAVR arm performance? Any information would be helpful. Lance, regarding AMDS, the stent graft business is performing well. How should we evaluate AMDS performance? I recall you mentioned over 100 sites previously. Can you give us an overview of AMDS for the quarter, especially since we estimated a contribution of around $5 million to $10 million for the year? Please provide guidance on where AMDS is likely to land.

Thank you, Raj. I'll start with the Arcevo market, which we estimate to be around $80 million in the U.S. This would make Arcevo our inaugural product in that segment once it hopefully receives approval. Regarding the PARTNER III seven-year data presented at TCT, while I'm not diving into trial specifics, I would like to share some broader insights about the results and their relevance. Notably, the average age of participants in that trial was 73 years. The outcomes for SAVR and TAVR are quite close, raising concerns about them intersecting. With this in mind, our target demographic comprises patients younger than 65, using products like On-X and our SynerGraft pulmonary valve. The life expectancy for a 65-year-old in the U.S. is around 20 years, and if we're already seeing results converge at the seven-year mark, it begs the question of why individuals under 65 would opt for this technology. This is a critical point to consider. More significantly, two recent studies have emerged, one being the JAK paper from January and another involving 140,000 patients, which demonstrate that for patients under 65, the mortality and reoperation rates between tissue and mechanical valves show a substantial advantage for mechanical valves. Therefore, when discussing TAVR with a 73-year-old, we must remember that individuals under 65 typically do not fare well with tissue valves. This is my perspective on how that trial relates to our target population and technology.

Yes. Regarding AMDS, we have previously stated that we won't provide specific details on U.S. AMDS performance. However, we experienced a significant increase in stent graft growth rates this quarter, and it’s safe to assume that AMDS in the U.S. played a major role in that growth. At the beginning of the year, we indicated that the pivotal factor determining whether we would reach the upper or lower end of our original guidance range would be the success of the AMDS U.S. launch. We have consistently adjusted our expectations to the higher end each quarter, suggesting that AMDS is performing well and trending towards the upper end of our initial projections for the first year. Thus, there are many positive indicators to highlight, even without providing specific figures, and it's reasonable to conclude that it is progressing favorably.

Our next question comes from Mike Matson with Needham & Co.

This is Joseph on for Mike. Just a quick one on AMDS and then maybe gross margin question. Can you just remind us, I don't know if you've actually given a timeline, but the expectations for AMDS internationally? Well, I guess, in China and in Japan because I guess it is available in Europe and Canada, I believe. But just targets there for the Asian markets.

So we haven't really spoken about China. We have spoken about Japan in the past and just in general, bringing our products to the Japan market post the U.S. market. So usually, there is a little bit a year or so time frame post receiving your PMA approval to get into the Japanese market, and then you also need to work on reimbursement. So step 1 is for us to get our U.S. PMA, and we're obviously working thinking ahead on that Japan PMA, but that's kind of the first step there. Then we would move towards trying to get approval in Japan and then trying to get reimbursement in Japan.

Okay. Yes, that's clear. And then I guess, Lance, just given what you discussed on, I guess, AMDS comp being a headwind, more or less a headwind in 2026. I'm just wondering if you could frame for us what growth would look like in 2026. Is it mid-teens, high teens, low teens? I guess, is it anywhere in that range depending on how the launch goes? And then real quick, I just wanted to get a little bit more color on gross margin. Obviously, great improvement year-over-year. But even looking sequentially, third quarter versus second quarter, pretty similar quarters even with the revenue splits, but there was substantial gross margin improvement. Is that just more AMDS and less BioGlue? Yes. Any color there would be helpful.

Sure. I'll start with the gross margin. I see about a 50 basis point improvement from Q2 to Q3, which mirrors the improvement from Q1 to Q2. This is mainly driven by the product mix of AMDS, along with On-X in the U.S. growing at a faster rate. Both of these are among our highest gross margin products. BioGlue, while a strong gross margin contributor, should ideally be in lower volumes from that perspective. However, the robust performance of AMDS and On-X in the U.S. is enhancing our gross margin mix, which we've discussed previously. We expect this trend to continue as these products enter the U.S. market; they are projected to have significantly higher gross margins compared to our current average, supporting ongoing improvements in gross margin over time. Regarding 2026, we won't go into specifics right now and will provide more detailed guidance in February, but I want to give a bit of context. The dynamics we see now will likely be similar in 2026. I want to clarify that people shouldn't expect an accelerating growth rate. We've seen strong top-line growth in the last two quarters, but I suggest that you consider our annual growth expectations for this year as a guide for your thinking about 2026 as well.

Thank you very much for taking our questions and congrats on a very strong quarter.

Our next question comes from Daniel Stauder with JMP Securities.

So first one for me on On-X. Great to see the growth here. But I wanted to ask on the cross-selling benefits. I think you noted last quarter that there was a large uptick in new accounts. Could you give us any color on these new users? I know it's early days, but are you seeing any notable utilization trends from these new surgeons? Are they converting their usage to On-X after initially using it? Just trying to get an idea of some of the stickiness with On-X and some of these new adds.

Yes. I mean I would just point to the growth rate. We had pretty similar growth rate in Q3 versus Q2, which I think is a very positive sign. We're very early on in this with the new data, but early signs are really positive. And again, I think maintaining that growth rate for 2 quarters is a good sign.

Yes, definitely. Great. I just have one quick follow-up. I recall you mentioned in the past that the growth in the first half occurred without much marketing from your side. Is that still accurate? Have you allocated more funds towards marketing the two data sets? If not, when do you plan to start, and how much additional support could that provide?

Yes, we're still getting ramped up on that. Currently, we are engaging with many surgeons thanks to AMDS. When we meet with them, we ensure they are informed about the data. We also need to share this information with cardiologists, not just cardiac surgeons. This initiative will take a bit longer to implement, and I would say it hasn't really begun yet. We expect it to become more prominent around 2026.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.

So I wondered if you could dive into the Arcevo trial a little bit and give us a sense of what kind of pace on recruitment you expect in a little compare and contrast versus the current state, and perhaps a sense of number of SKUs that you would expect as well.

The Neo device is currently available in Europe and several international markets. We have been involved in this product for 20 years through our acquisition, and the Arcevo represents the third generation. A key differentiating feature, which we hold a patent for, is the subclavian branch. This aspect enhances the procedure's ease and speed, which is particularly beneficial for patients in critical condition. The trial involves 130 patients across 30 centers and is comparable to the PERSEVERE trial we conducted with AMDS, utilizing many of the same centers and similar participant numbers. We will not go into the specifics, but we have already begun enrollment. A press release was issued this morning, and we anticipate onboarding sites and enrolling participants over the next 12 to 18 months.

Okay. Got it. And then a quick follow-up, if you could. Besides pulmonary grafts, anything to call out specifically in the tissue business from the quarter experience weaknesses or the areas of note?

The tissue business is experiencing normalized growth at 5%. However, we now anticipate that the full year will be more flat than in the mid-single digits. We have mostly resolved the backlog caused by last year's cyber event affecting our high-demand tissue products. While we are close to a full recovery, we do not expect to reach mid-single-digit growth for the year. With the return to a normalized performance and what we are observing in donations, we expect to achieve mid-single-digit growth next year. This summarizes the current status of the tissue business.

Mr. Mackin, there are no further questions at this time. So I would now like to turn the floor back over to management for closing comments.

Thank you for joining the call. We are very pleased with the results, showing a 16% increase in revenue and a 39% rise in profit, all while reducing our debt and generating strong cash flow. This clearly demonstrates our business model in action. We're excited about the growth drivers, particularly with On-X. We've discussed its potential extensively on this call, especially concerning the low INR, new data, cross-selling opportunities with AMDS trainings, and the new reimbursement code, DRG-209, along with our recent clinical data presented at EA. We anticipate growth in these areas. Furthermore, our business model focuses on introducing aortic innovations to the market, aiming for a new aortic technology launch every two years in the U.S., with plans to expand further. We expect to launch AMDS in 2025, followed by a full launch of NEXUS after approval in 2027 or 2028, alongside our CVO launch. This cycle of bringing new products through the PMA process continues, with many more innovations in the pipeline. We appreciate your support and look forward to the next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful afternoon.