CryoLife, Inc. (CRY)

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CryoLife, Inc. (CRY)

Q2 2018 Earnings Conference Call

August 7, 2018, 8:30 am ET


Lynn Lewis - IR, Gilmartin Group

Pat Mackin - Chairman, President & CEO

Ashley Lee - CFO


Jason Mills - Canaccord Genuity

Suraj Kalia - Northland Securities

Jeffrey Cohen - Ladenburg Thalmann

Joe Munda - First Analysis

Frank Takkinen - Lake Street Capital



Greetings, and welcome to the CryoLife Corporation 2Q 2018 Financial Conference Call. At this time, all participants are in 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 your host, Pat Mackin, Chairman, President, and CEO; and Ashley Lee, CFO for CryoLife. Thank you and you may begin.

Lynn Lewis

Good morning. This is Lynn Lewis from Gilmartin Group. Thank you for joining the call today. Joining me from CryoLife management team are Pat Mackin, CEO and Ashley Lee, CFO.

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 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 those 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 last night.

With that, I would like to turn the call over to CryoLife's CEO, Pat Mackin.

Pat Mackin

Thanks, Lynn, and good morning, everyone.

I'm pleased to report we had very successful second quarter. Our strong performance was driven by solid execution of our strategy which is performing as expected. Our two transformative acquisitions JOTEC and On-X both were strong contributors in the quarter and the momentum continues to build. We're also seeing the benefits of the global realignment of our direct sales force. I will detail later on what is behind our market share gains, update you on the progress of the clinical front, and why we’re confident our best days are still ahead.

Our second quarter results reflect strong performance across all of our major product lines. Revenue was up to $68.5 million, up 10% on a non-GAAP basis. Currency it's also at a constant currency basis. What's especially noteworthy was that the revenue from On-X and JOTEC were up 21% and 31% respectively on an organic basis. This performance further validates our market strategy and the ability of our products to compete. As a result, we are raising our revenue expectations for 2018 from the previous range of $250 million to $256 million to a new range of $256 million to $260 million.

Our solid results through the first half of the year are a direct result of a successful integration of On-X and JOTEC and our strategic decision to focus on our attention on the treatment of aortic disease.

We believe our total addressable market to the products we market today to be approximately $2 billion and based on our robust internal R&D pipeline, we expect this to increase by another 50% to an addressable market of $3 billion. What we had in vision when we transformed the company over the last several years is playing out in the market as expected. For those that are new to the company, CryoLife is a significantly different company than it was just a few years ago. We started to raise our growth profile by bringing in technologically advanced and differentiated products that were backed by compelling clinical data and supported by an experienced and well trained team of direct sales professionals.

We delivered our net objective which has allowed us to move market share meaningfully in a relatively short period of time. We also capped select Legacy CryoLife products while divesting others not in our current area of focus. So some of these decisions has meaningfully increased our growth rate and our profitability. We are seeing with our honest line that our sales people and customers gain experience with the products, sales steadily improve. And really after the On-X acquisition, On-X growth was in the mid-to-high-single-digits, now that it's growth is exceeding 20%. In addition, our On-X market share in the U.S. is still only around 30% which gives us lots of room for future growth.

We believe the effective dissemination of the PROACT data as well as actual performance of the product are helping to grow our share. We added only 12 new accounts in the U.S. in the second quarter, with sales were up 20%, highlighting the deeper penetration into existing accounts. A portion of this growth results from increasing usage of our mitral valves and accounts -- that were brought online in previous quarters with aortic valve that were in playing predominantly aortic valves.

We have other catalyst to drive growth. First, at this time we're selling very little into the Chinese market which is an enormous market for both On-X and JOTEC product lines. Second, we're also hopeful to the On-X Ascending Aortic Prosthesis or AAP who will return to the European market later this year. Third, we're starting to see more traction in On-X and JOTEC product lines from cross-selling than ever before. Fourth, we are currently only seeing minimal incremental benefit from going direct in Spain, Italy, and Poland because many tenders are still being managed by former distributors. This will change over time and bodes well for future growth. Fifth, France and the UK are just getting started to see the results of JOTEC being sold directly, we also expect those contributions to increase over time.

Read the rest of this transcript on seekingalpha.com