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CryoLife, Inc. (CRY)

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CryoLife Inc. (CRY)

Q4 2017 Earnings Conference Call

March 8, 2018 08:00 ET

Executives

Pat Mackin - Chairman, President and Chief Executive Officer

Ashley Lee - Chief Financial Officer

Analysts

Jason Mills - Canaccord Genuity

Suraj Kalia - Northland Securities

Brooks O’Neil - Lake Street Capital Markets

Jeffrey Cohen - Ladenburg Thalmann

Jo Munda - First Analysis

Presentation

Operator

Greetings and welcome to the CryoLife Fourth Quarter and Year End 2017 Financial Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Pat Mackin, Chairman, President and CEO and Ashley Lee, CFO for CryoLife. Thank you and you may begin.

Ashley Lee

Good morning and thanks for joining the call. I am Ashley Lee, the CFO of CryoLife. Before we begin, I would like to make the following statements to comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made in this call that look forward in time involve risk 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 risk 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 last night.

Now I will turn it over to our CEO, Pat Mackin.

Pat Mackin

Thanks, Ashley and good morning, everyone. I am very pleased to announce that we had a very solid fourth quarter capping off a highly successful 2017. As you will hear on today’s call, we have an abundance of good news to report on. We generated double-digit growth in tissue processing, BioGlue, and On-X. Our sales organization is direct in more geographies than ever before and the list is growing. And our clinical programs are advancing on or ahead of schedule. Furthermore, we expanded our gross margin, while at the same time we made significant progress integrating JOTEC.

Over the past several years, CryoLife has transformed considerably with the acquisitions of On-X and JOTEC. And we have increased our addressable markets by more than $2.2 billion. In addition, the On-X acquisition has been a success and is now generating the type of returns we envisioned when we completed the transaction. Further, you will hear today that the integration of JOTEC is also well on track and we are even more excited than we were about On-X for JOTEC’s potential to drive growth.

Finally, one of the first things I did after coming to CryoLife was to begin the process of building a leadership team that was capable of running a much larger company and I am confident we have done so. I have little doubt the successful integration of On-X in the acquisition and rapid integration of JOTEC is due in part to the quality of our current leadership team driving that process even more indicative of our leadership team’s strong capabilities with our ability to post strong Q4 results, while integrating the acquisition of JOTEC.

So, now let’s get into specifics. During the fourth quarter, we delivered double-digit revenue growth across all three of our non-JOTEC core product lines, while continuing to expand our gross margins. One reason we were able to generate double-digit revenue growth in tissue, On-X and BioGlue and expand margins was our decision to move to direct to – to go direct in select markets. We expect to continue that strategy in key European countries where JOTEC was already direct, where we were previously using distributors. That should drive future revenue increases in gross margin expansion as evidenced by the recent positive initial results in Canada and Benelux after going direct in those regions.

As you know, we also divested certain non-core product lines in 2016 and the result has been a more focused highly competitive product offering. We also now have more than 125 trained sales reps worldwide that sell our focused product offering. We also continued to advance our BioGlue China and PerClot U.S. clinical trials and believe these new indications if approved will position us as a strong competitor in these large markets. With the addition of JOTEC’s pipeline to our product portfolio, we also have the potential over the next 5 years to introduce highly differentiated innovative JOTEC products into the U.S. market as well as to introduce innovations on existing JOTEC products in existing markets, due in large part to JOTEC’s significant R&D expertise. I will cover those topics in more detail at the end of the call when I discuss our 2018 objectives.

I will now move on to our quarterly review of our 2017 key initiatives. Our first key initiative for 2017 was to achieve our full year 2017 financial guidance. In the fourth quarter of 2017 we delivered revenues of $52.8 million representing an increase of 17% over the fourth quarter of 2016. Excluding the $4.1 million in revenue generated from JOTEC in the fourth quarter revenues were $48.7 million, an increase of 8% compared to the fourth quarter of last year. Excluding the contributions from JOTEC, our full year 2017 revenues were $185.6 million, which exceeded our updated guidance range of $184 million to $185 million. We achieved double digit revenue growth across all three of our major non-JOTEC product lines which include tissue processing, BioGlue and On-X, despite the adverse revenue impact from our decision in the back half of 2017 to go direct in three countries. This growth in the face of these revenue reversals highlights the strengths of our sales organization and the competitiveness of our products. Ashley will provide more details in his financial commentary.

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