Artivion(AORT) - 2020 Q4 - Annual Report

PART I Forward-Looking Statements CryoLife's forward-looking statements reflect expectations for future growth, subject to risks from COVID-19, competition, and regulations - CryoLife's future growth is expected to be driven by four key areas: new products, new indications, global expansion, and business development[6] - The COVID-19 pandemic is identified as a significant potential impact on business operations, cash flow, R&D projects, and regulatory timelines[6] - Readers are cautioned against undue reliance on these statements, as actual results may differ materially due to various risks and uncertainties, many of which are beyond the company's control[9] Item 1. Business. CryoLife manufactures and distributes medical devices and implantable human tissues for cardiac and vascular surgeries, with a strategic focus on aortic disease and growth - CryoLife specializes in medical devices and implantable human tissues for cardiac and vascular surgeries, particularly for aortic disease[11] - The company's four major product families are BioGlue Surgical Adhesive, aortic stents and stent grafts, On-X mechanical heart valves, and implantable cardiac and vascular human tissues[11] - CryoLife's strategic growth plan focuses on new products, new indications, global expansion (e.g., China and Brazil), and business development through acquisitions, licensing, and distribution[13] Overview Corporate Structure Segments and Geographic Information Strategy Markets, Products, Services, and Competition CryoLife operates in competitive cardiac and vascular surgery markets, offering a range of products and services and differentiating itself through product features, clinical data, and technology - CryoLife's products and services are primarily used by cardiac and vascular surgeons to treat aortic disease[15] - The company faces significant competition from larger domestic and international medical device, pharmaceutical, and biopharmaceutical companies, as well as tissue processors[16] Cardiac Surgery Markets Surgical Sealants BioGlue - BioGlue is a proprietary polymer surgical adhesive, stronger than fibrin sealants, used as an adjunct to sutures and staples in large vessel repair[20] - BioGlue is FDA approved for open surgical repair of large vessels in adults and holds CE Mark for soft tissue repair[22] BioGlue Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------| | 2020 | 25% | | 2019 | 25% | | 2018 | 25% | Heart Valves and Cardiac Patches for Cardiac Reconstruction On-X Mechanical Heart Valves - On-X mechanical heart valves are durable, made of pyrolytic carbon, and are FDA approved for aortic and mitral valve replacement[32] - The On-X aortic valve is unique for its FDA-approved lower INR (1.5-2.0) for warfarin anticoagulation, reducing bleeding risk[34] - The PROACT Xa clinical trial is ongoing to evaluate apixaban (Eliquis®) as an alternative to warfarin for On-X aortic valve patients[37] On-X Product Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 19% |\n| 2019 | 18% |\n| 2018 | 17% | Cardiac Preservation Services - CryoLife preserves human cardiac tissues (heart valves and patches) using cryopreservation, offering clinical advantages over mechanical/bioprosthetic alternatives, especially for endocarditis and pediatric patients[39][41] - CryoValve SGPV and CryoPatch SG utilize proprietary SynerGraft decellularization technology, showing reduced re-operation rates and lower alloantibody induction[40][41] Cardiac Tissue Preservation Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 15% |\n| 2019 | 15% |\n| 2018 | 14% | PhotoFix - PhotoFix is a bovine pericardial patch, fixated without glutaraldehyde, FDA 510(k) cleared and CE Marked for various cardiac and vascular repairs[45] PhotoFix Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 1% |\n| 2018 | 1% | Stents and Stent Grafts for Aortic Arch and Thoracic Aortic Repair E-vita OPEN PLUS and E-vita OPEN NEO - E-vita OPEN PLUS is a hybrid stent graft system for one-stage treatment of aortic arch and descending thoracic aorta conditions, with a CE Mark[49][51] - E-vita OPEN NEO is the next-generation hybrid stent graft with improved handling, obtained CE Mark in Q1 2020, and launched in Q4 2020[52] E-vita OPEN PLUS Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 2% |\n| 2018 | 3% | AMDS - CryoLife acquired Ascyrus Medical in September 2020, gaining the Ascyrus Medical Dissection Stent (AMDS), the first aortic arch remodeling device for acute Type A aortic dissection[53][54] - AMDS reduces mortality, complications, and reoperations compared to standard care, and is sold in EMEA and Canada[53][54] AMDS Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | <1% | Endovascular and Open Vascular Surgery Markets Aortic Aneurysm Repair E-xtra DESIGN ENGINEERING - E-xtra DESIGN ENGINEERING offers customized stent graft systems for aortic vascular diseases, including tailor-made thoraco-abdominal stent grafts manufactured within 3 weeks[59] E-xtra DESIGN ENGINEERING Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 6% |\n| 2019 | 5% |\n| 2018 | 5% | E-nside - E-nside TAAA multibranch stent graft system is an off-the-shelf solution with pre-cannulated inner branches, designed to reduce procedure time and radiation exposure[61] - Obtained CE Mark in Q4 2019, with limited selling in Q2 2020 and full product launch anticipated in Q1 2021[62] E-vita THORACIC 3G - E-vita THORACIC 3G is a stent graft system for endovascular treatment of TAAs, featuring a unique spring configuration for flexibility and adaptation to vessel shape[63] E-vita THORACIC 3G Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 2% |\n| 2018 | 2% | E-nya - E-nya is a thoracic stent graft system for minimally invasive repair of descending aorta lesions, offering enhanced control and durability[66] - Obtained CE Mark in Q4 2019, with limited distribution in Q2 2020 and full launch anticipated in H2 2021[67] E-ventus BX - E-ventus BX is a balloon-expandable peripheral stent graft for renal and pelvic arteries, known for high flexibility and radial strength[68] E-ventus BX Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 3% |\n| 2018 | 3% | E-liac - E-liac is a self-expanding stent graft for aneurysmal iliac arteries, often used with E-tegra AAA device[70] E-liac Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 2% |\n| 2018 | 2% | E-tegra - E-tegra is an AAA stent graft system designed for secure sealing and optimal fixation in infrarenal abdominal aortic aneurysms[72] E-tegra Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 5% |\n| 2019 | 6% |\n| 2018 | 5% | NEXUS - JOTEC acquired exclusive distribution rights for NEXUS stent graft system in Europe, the only endovascular system approved for aortic arch aneurysms and dissections[74] - CryoLife holds a securities purchase option to acquire Endospan, the developer of NEXUS, upon FDA approval[76] NEXUS Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | <1% |\n| 2019 | <1% | Peripheral Vascular Disease Vascular Preservation Services - CryoLife preserves saphenous veins, aortoiliac arteries, and femoral veins/arteries for vascular reconstructions, offering advantages over synthetic alternatives, especially for infection treatment[82] Vascular Tissue Preservation Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 14% |\n| 2019 | 14% |\n| 2018 | 15% | Synthetic vascular grafts - CryoLife offers a broad line of synthetic vascular grafts (ePTFE, woven/knitted polyester) for open aortic and peripheral vascular surgical procedures, with CE Marks[84] Synthetic Surgical Vascular Grafts Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 2% |\n| 2019 | 2% |\n| 2018 | 2% | Other Technologies Angina Treatment CardioGenesis Cardiac Laser Therapy - CardioGenesis cardiac laser therapy uses Holmium: YAG laser systems for Transmyocardial Revascularization (TMR) to treat severe angina, FDA approved[87][88] - Supply of handpieces was interrupted in 2020 due to a manufacturing site change, with limited sales resumption anticipated in H1 2021 after FDA approval[89] CardioGenesis Cardiac Laser Therapy Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | <1% |\n| 2019 | 2% |\n| 2018 | 2% | Hemostats PerClot - PerClot is an absorbable powdered hemostat, plant-starch based, distributed worldwide (except certain Asian/Middle Eastern countries) for various surgical procedures[93] - PMA submission to the FDA for U.S. commercialization is anticipated in Q3 2021, following clinical trial completion in January 2019[95] PerClot Revenue Contribution | Year | % of Total Revenues | |:-----|:--------------------|\n| 2020 | 1% |\n| 2019 | 1% |\n| 2018 | 1% | Vascular Access Marketing and Distribution CryoLife markets its products and services globally through direct sales forces and independent distributors, emphasizing physician education and training - CryoLife uses a direct sales team in the U.S. and Canada (approx. 50 people) and EMEA (approx. 90 people)[97][98] - Independent distributors and 23 sales/clinical support specialists handle Asia Pacific and Latin America markets[100] - Physician education, including seminars, workshops, and peer-to-peer training, is a key marketing strategy to differentiate products and tissues[101] Suppliers, Sources, and Availability of Raw Materials and Tissues CryoLife relies on limited single- or sole-source suppliers for critical materials and human tissues, facing operational risks from supply interruptions or quality issues - The company is dependent on a small group of single- or sole-source suppliers for key raw materials and components for BioGlue, On-X, CardioGenesis, PerClot, and stent grafts[103][104][105][108][109] - Human tissues for preservation services are obtained from 58 OPOs and tissue banks in the U.S., making these relationships critical[107] - A contaminated saline solution from a supplier in Q4 2020 led to a write-off of $826,000 in non-conforming tissues and quarantined $5.0 million in tissue, impacting Q4 2020 and anticipated Q1 2021 revenues[108][296] Operations, Manufacturing, and Tissue Preservation CryoLife operates manufacturing and tissue processing facilities in Kennesaw, GA, Austin, TX, and Hechingen, Germany, adhering to stringent regulatory standards including FDA, cGTPs, and ISO 13485 - Main manufacturing and tissue processing facilities are in Kennesaw, GA (BioGlue, PhotoFix, human tissues), Austin, TX (On-X products), and Hechingen, Germany (JOTEC products)[110][111] - Operations are subject to FDA Quality System Regulations, Good Tissue Practices (cGTPs), and ISO 13485 Quality System Requirements[112] - The company is transitioning to the more stringent European Medical Device Regulation (MDR), fully implemented by May 26, 2021, which imposes stricter requirements on manufacturers[113] Government Regulation CryoLife's medical devices and human tissues are subject to extensive U.S. and international regulations, including FDA approvals, NOTA, state licensing, and international marks like CE and UKCA - Medical devices require FDA approval via 510(k) clearance or the more rigorous IDE/PMA process for Class III devices[121][122][123] - Human tissues are regulated by FDA under Section 361 of the Public Health Services Act, focusing on donor screening and testing to prevent disease transmission[128] - The FDA is preparing to reclassify 'more than minimally manipulated' (MMM) allograft heart valves, including CryoValve SGPV, to Class III medical devices, which would require a PMA application and could make continued processing commercially infeasible[126][198] - International sales require compliance with country-specific regulations and the CE Mark in the EEA, which is being replaced by the more stringent MDR. Post-Brexit, devices in the U.K. will require UKCA Marks by June 30, 2023[132][134][135] U.S. Federal Regulation of Medical Devices U.S. Federal Regulation of Human Tissue NOTA Regulation State Licensing Requirements International Approval Requirements Environmental Matters CryoLife manages biomedical waste through third-party contractors and uses ethylene oxide (EtO) for sterilization, facing risks from regulatory enforcement and facility closures related to EtO emissions - Biomedical wastes from tissue preservation are handled by third-party contractors[136] - Ethylene oxide (EtO) sterilization is used for some products (e.g., On-X), primarily relying on large-scale EtO facilities[136] - Concerns about EtO emissions have led to regulatory enforcement and facility closures, which could disrupt product commercialization[136][204] Backlog CryoLife generally lacks a firm backlog for most products, but limited supply of pediatric tissues and past issues with CardioGenesis handpieces have created backlogs - No firm backlog for BioGlue, On-X heart valves, PerClot, or PhotoFix[137] - Backlog exists for limited supply pediatric tissues, which fluctuates based on availability and surgical needs[137] - CardioGenesis cardiac laser therapy handpiece supply resumed in H1 2021 after FDA approval of a manufacturing site change, addressing a prior backlog[137] Research and Development and Clinical Research CryoLife invests significantly in R&D to expand product indications and enhance offerings, with $24.2 million in expenses in 2020 and ongoing clinical trials for key products - R&D strategy focuses on new products, indications, global expansion, and business development, primarily in aortic repair[139][141] Research and Development Expenses | Year | Amount (Millions USD) | % of Revenues | |:-----|:----------------------|:--------------|\n| 2020 | $24.2 | 10% |\n| 2019 | $23.0 | 8% |\n| 2018 | $23.1 | 9% | - Ongoing clinical trials include BioGlue (China approval), On-X aortic valve (additional size, post-approval study), On-X mitral valve (reduced anticoagulation, PMA submission mid-2021), PROACT Xa (apixaban for On-X aortic valve), PerClot (U.S. PMA submission Q3 2021), AMDS (U.S. pivotal trial initiation Q4 2021), and E-vita OPEN NEO (U.S. Early Feasibility trial late 2021 with Breakthrough Device Designation)[141][142][143][145] Patents, Licenses, and Other Proprietary Rights CryoLife protects its proprietary products and technologies through patents, trademarks, confidentiality agreements, and trade secrets, with BioGlue's technology still protected despite patent expiration - CryoLife relies on patents, trademarks, confidentiality agreements, and trade secrets to protect its proprietary technology[146] - BioGlue's main patents expired in 2012-2013, but the technology remains protected by trade secrets and the time/expense of regulatory approvals[147] - Intellectual property assets and licenses are material to the business, but no single asset (except BioGlue) is material to any segment or the business as a whole[146] Seasonality Human Capital As of December 31, 2020, CryoLife had approximately 1,200 employees, primarily in Kennesaw, GA, Austin, TX, and Hechingen, Germany, with a focus on attracting and retaining qualified personnel - As of December 31, 2020, CryoLife had approximately 1,200 employees[150] - Most employees are located in Kennesaw, GA; Austin, TX; and Hechingen, Germany, where competition for qualified personnel is intense[151] - The company's success depends on attracting and retaining key personnel with medical device and tissue processing experience[151] Available Information Item 1A. Risk Factors. CryoLife faces diverse risks including COVID-19 impacts, global expansion challenges, intense competition, dependence on key products, supply chain vulnerabilities, regulatory changes, and financial obligations - The COVID-19 pandemic has negatively impacted product sales, business operations, and R&D projects, with continued uncertainty for 2021 and beyond[157][158][159] - Global expansion exposes the company to risks such as managing foreign operations, compliance with international laws (e.g., FCPA, GDPR), currency exchange rate fluctuations, and Brexit-related consequences[160] - Significant dependence on revenues from tissue preservation (29%), BioGlue (25%), and aortic stents/stent grafts (24%) means adverse events affecting these product lines would materially impact financial results[163][165][166] - Reliance on single- or sole-source suppliers and single manufacturing facilities (Austin, Hechingen, Kennesaw) creates vulnerability to supply interruptions or operational shutdowns[179][180] - The potential reclassification of CryoValve SGPV to a Class III medical device by the FDA could make its continued processing commercially infeasible due to stringent PMA requirements[198][199] Risks Relating to Our Business Business and Economic Risks Operational Risks Industry Risks Legal, Quality, and Regulatory Risks Risks Relating to Our Indebtedness Risks Related to Ownership of our Common Stock Item 1B. Unresolved Staff Comments. There are no unresolved staff comments from the SEC - No unresolved staff comments[225] Item 2. Properties. CryoLife's primary facilities include its corporate headquarters in Kennesaw, GA (190,400 sq ft), an On-X manufacturing facility in Austin, TX (75,000 sq ft), and JOTEC's manufacturing and office space in Hechingen, Germany (80,000 sq ft) - Corporate headquarters and laboratory in Kennesaw, GA: 190,400 sq ft, including 20,000 sq ft of Class 10,000 clean rooms and 8,000 sq ft of Class 100,000 clean rooms[225] - On-X manufacturing facility in Austin, TX: 75,000 sq ft of combined manufacturing, warehouse, and office space[227] - JOTEC facility in Hechingen, Germany: 80,000 sq ft, with a new 76,000 sq ft facility anticipated for lease in 2021[226] - The company also sublets two office facilities in Georgia and leases small ancillary spaces in various international direct sales subsidiaries[227] Item 3. Legal Proceedings. CryoLife is involved in various legal proceedings, but management believes no pending matters will materially adversely affect the company's financial condition or operations - CryoLife is involved in legal proceedings in the normal course of business[228] - Management does not believe any pending matters will have a material adverse effect on the company's financial position or operations[230] - Inherent uncertainties in legal proceedings mean adverse outcomes could be material to results for any particular reporting period[230] Item 4. Mine Safety Disclosures. This item is not applicable to CryoLife, Inc - Mine Safety Disclosures are not applicable[230] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. CryoLife's common stock trades on the NYSE under 'CRY', with no dividends paid in 2020, 2019, or 2018, and Q4 2020 share repurchases solely for tax payments on stock compensation - CryoLife's common stock is traded on the New York Stock Exchange (NYSE) under the symbol 'CRY'[233] Common Stock Price (2019-2020) | Period | High ($) | Low ($) | |:-----------------|:---------|:--------|\n| 2020 | | |\n| First quarter | 31.77 | 12.63 |\n| Second quarter | 25.52 | 15.95 |\n| Third quarter | 21.93 | 16.13 |\n| Fourth quarter | 24.10 | 16.60 |\n| 2019 | | |\n| First quarter | 30.86 | 23.99 |\n| Second quarter | 32.59 | 26.78 |\n| Third quarter | 33.00 | 25.53 |\n| Fourth quarter | 27.45 | 20.76 | - No dividends were paid in 2020, 2019, or 2018, and the Credit Agreement prohibits future cash dividends[235] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share ($) | |:-----------------------|:-----------------------|:---------------------------------|\n| 10/01/20 - 10/31/20 | -- | -- |\n| 11/01/20 - 11/30/20 | 4,898 | 19.19 |\n| 12/01/20 - 12/31/20 | 8,992 | 20.93 |\n| Total | 13,890 | 20.31 | - Share purchases in Q4 2020 were for tax payments on stock compensation, not part of a publicly announced program[237] Market Price of Common Stock Dividends Issuer Purchases of Equity Securities Item 6. Selected Financial Data. CryoLife has elected to comply with recent SEC amendments to Regulation S-K, eliminating the requirement to provide five years of selected financial data in tabular form - CryoLife has elected to stop providing selected financial data, aligning with recent SEC amendments to Regulation S-K[239] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on CryoLife's financial performance, condition, and operational results, highlighting COVID-19 impacts, the Ascyrus acquisition, critical accounting policies, and financial trends Key Financial Highlights (FY 2020) | Metric | Value (Millions USD) | |:-------------------|:---------------------|\n| Annual Revenues | $253.2 |\n| Revenue Change YoY | -8% |\n| Cash Flow from Ops | $12.4 |\n| Net Loss | $16.7 | - COVID-19 significantly impacted 2020 revenues due to surgical procedure delays/cancellations, with larger decreases in Q2 and smaller sequential decreases in H2 2020[271] - The acquisition of Ascyrus Medical LLC in September 2020 for up to $200.0 million (initial $83.1 million cash/stock) is expected to drive growth in aortic arch remodeling[247][248][395] - The company issued $100.0 million in 4.25% convertible senior notes in June 2020 to increase cash and maintain financial flexibility during the pandemic, using proceeds to repay the Revolving Credit Facility and fund the Ascyrus acquisition[389][393] Overview Effects of COVID-19 The COVID-19 pandemic led CryoLife to implement expenditure reductions, investment delays, remote work, and debt issuance to preserve cash and manage operations, impacting R&D and clinical trial timelines - COVID-19 led to reduced expenditures, delayed investments, remote work, and restricted business travel[243] - The company issued $100.0 million in convertible senior notes to increase cash and maintain financial flexibility[243] - R&D initiatives and clinical trial timelines were adversely impacted, and regulatory actions slowed[158][245] Transaction with Ascyrus CryoLife acquired Ascyrus Medical LLC on September 2, 2020, for up to $200.0 million in consideration, including an initial $60.0 million cash and $20.0 million in common stock, with additional payments contingent on regulatory approvals and sales milestones - CryoLife acquired Ascyrus Medical LLC on September 2, 2020, for its AMDS hybrid prosthesis[247] - Total consideration is up to $200.0 million, with an initial payment of $60.0 million cash and $20.0 million in CryoLife common stock[248] - Contingent payments are tied to FDA IDE/PMA approvals, regulatory approvals in Japan and China by June 30, 2027, and incremental worldwide sales[248] Critical Accounting Policies CryoLife's critical accounting policies involve significant judgment and complexity in fair value measurements, deferred preservation costs, deferred income taxes, and valuation of acquired assets or businesses - Fair value measurements, especially Level 3 valuations for contingent consideration, involve significant judgment and reliance on unobservable inputs and management estimates[252][253] - Deferred preservation costs require complex calculations, including yield estimates for in-process and quarantined tissues, which can impact gross margins[255][256] - Deferred income taxes involve assessing recoverability of deferred tax assets and providing valuation allowances, with significant changes in factors potentially impacting profitability[260][261] - Valuation of acquired assets or businesses, particularly for business combinations, requires significant judgments and estimates for fair value allocation, including future revenues, costs, and regulatory approvals[264][266] Fair Value Measurements Deferred Preservation Costs Deferred Income Taxes Valuation of Acquired Assets or Businesses New Accounting Pronouncements Results of Operations CryoLife experienced an 8% decrease in total revenues for FY2020 compared to FY2019, primarily due to COVID-19 related surgical delays, resulting in a net loss of $16.7 million Total Revenues (FY2020 vs. FY2019) | Period | 2020 (Thousands USD) | 2019 (Thousands USD) | Percent Change | |:-------------------|:---------------------|:---------------------|:---------------|\n| Twelve Months Ended| $253,227 | $276,222 | -8% | Net (Loss) Income (FY2020 vs. FY2019) | Metric | 2020 (Thousands USD) | 2019 (Thousands USD) | |:-------------------|:---------------------|:---------------------|\n| Net (loss) income | $(16,682) | $1,720 | - The decrease in revenues for FY2020 was largely attributed to delays and cancellations of surgical procedures due to the COVID-19 pandemic[271] Gross Margin (FY2020 vs. FY2019) | Metric | 2020 (Thousands USD) | 2019 (Thousands USD) | % of Total Revenues (2020) | % of Total Revenues (2019) | |:-------------------------------------|:---------------------|:---------------------|:---------------------------|:---------------------------|\n| Gross margin | $167,784 | $183,013 | 66% | 66% | Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Revenues Revenues by Segment (FY2020 vs. FY2019) | Segment | 2020 (Thousands USD) | 2019 (Thousands USD) | Percent Change | |:--------------------|:---------------------|:---------------------|:---------------|\n| Products | $179,299 | $197,246 | -9% |\n| Preservation Services | $73,928 | $78,976 | -6% |\n| Total | $253,227 | $276,222 | -8% | - Revenues decreased 8% for the twelve months ended December 31, 2020, primarily due to COVID-19 related surgical procedure delays and cancellations[271] - Excluding foreign exchange effects, revenues decreased 8% for the twelve months ended December 31, 2020[271] Products Product Revenues (FY2020 vs. FY2019) | Product Family | 2020 (Thousands USD) | 2019 (Thousands USD) | Percent Change | |:----------------------------------|:---------------------|:---------------------|:---------------|\n| BioGlue | $62,068 | $68,611 | -10% |\n| Aortic stents and stent grafts | $61,663 | $64,974 | -5% |\n| On-X | $48,053 | $50,096 | -4% |\n| PhotoFix | $4,169 | $3,754 | 11% |\n| PerClot | $2,882 | $3,795 | -24% |\n| CardioGenesis cardiac laser therapy | $464 | $6,016 | -92% |\n| Total Products | $179,299 | $197,246 | -9% | - Product revenues decreased 9% for the twelve months ended December 31, 2020, with decreases across all products except PhotoFix[273] - The U.S. Dollar weakened against major currencies in 2020, leading to revenue increases when foreign currency transactions were translated into U.S. Dollars[274] BioGlue - BioGlue revenues decreased 10% for FY2020, primarily due to a 9% decrease in volume of milliliters sold, impacted by COVID-19 related surgical delays[277][278] - North America and EMEA saw decreases, while Latin America experienced an increase due to expansion in Brazil and enhanced distributor performance[278] Aortic Stents and Stent Grafts - Aortic stents and stent grafts revenues decreased 5% for FY2020, mainly due to changes in average sales prices (-3%) and mix of volume sold (-2%)[281][282] - EMEA and Latin America saw decreases due to COVID-19, offset by growth in Asia Pacific (distributor markets) and North America (AMDS sales to Canada post-acquisition)[283][284] On-X - On-X product revenues decreased 4% for FY2020, primarily due to a 16% decrease in volume of units sold[285][286] - North America saw an increase in market share, while EMEA and Asia Pacific experienced decreases due to COVID-19 related surgical delays[286][287] PhotoFix - PhotoFix revenues increased 11% for FY2020, driven by a 3% increase in units sold and a 5% increase in average sales prices[289] - Growth was attributed to an increase in implanting physicians and increased penetration in domestic and European markets[289] PerClot - PerClot revenues decreased 24% for FY2020, primarily due to a 25% decrease in volume of grams sold[290] - Decreased sales in Asia Pacific and EMEA were due to COVID-19 related surgical delays and competitive pressures[291] CardioGenesis Cardiac Laser Therapy - CardioGenesis cardiac laser therapy revenues decreased 92% for FY2020 due to a lack of handpiece supply[293] - Supply resumed in H1 2021 after FDA approval of a manufacturing site change for the contract manufacturer[292] Preservation Services - Preservation services revenues decreased 6% for FY2020, driven by decreases in both cardiac and vascular preservation services[294] - A $826,000 write-off of non-conforming tissues in Q4 2020 due to contaminated saline solution impacted revenues, with an anticipated additional impact in Q1 2021 from $5.0 million in quarantined tissue[296] Cardiac Preservation Services - Cardiac preservation services revenues decreased 7% for FY2020, primarily due to a 7% decrease in unit shipments of cardiac tissues[298] - Decreases were attributed to COVID-19 related surgical delays, procurement slowdowns, and quarantined tissues from contaminated saline solution[299] Vascular Preservation Services - Vascular preservation services revenues decreased 6% for FY2020, due to a 4% decrease in tissue shipments and a 2% decrease in average service fees[301] - Shipment decreases were due to COVID-19 related surgical delays, procurement slowdowns, and quarantined tissues from contaminated saline solution[302] Cost of Products and Preservation Services Cost of Products - Cost of products decreased 9% for FY2020, primarily due to a decrease in unit shipments[303][304] Cost of Preservation Services - Cost of preservation services decreased 8% for FY2020, mainly due to decreased tissue unit costs and shipments, partially offset by a $1.7 million write-off of tissues[305][306] Gross Margin - Gross margin decreased 8% for FY2020, primarily due to an overall decrease in total revenues[307][308] - Gross margin as a percentage of total revenues remained flat at 66% for FY2020[307][308] Operating Expenses General, Administrative, and Marketing Expenses - G&A and marketing expenses decreased 1% for FY2020, driven by reduced stock compensation, vacation accrual, travel, and marketing expenses due to COVID-19[309] - Partially offset by a $4.5 million fair value adjustment related to the Ascyrus Agreement[309] Research and Development Expenses - R&D expenses increased 5% for FY2020, primarily focused on clinical work for On-X and JOTEC products[310] Interest Expense Interest Expense (FY2020 vs. FY2019) | Period | 2020 (Thousands USD) | 2019 (Thousands USD) | |:-------------------|:---------------------|:---------------------|\n| Twelve Months Ended| $16,698 | $14,886 | - Interest expense increased due to non-cash interest related to convertible and term loan debt[311] Other Expense (Income), Net - Other expense, net was $3.1 million for FY2020, including $4.9 million in fair value adjustments of financial instruments[313] - Realized and unrealized foreign currency gains were $1.8 million for FY2020[313] (Loss) income before income taxes (Loss) Income Before Income Taxes (FY2020 vs. FY2019) | Metric | 2020 (Thousands USD) | 2019 (Thousands USD) | |:-------------------|:---------------------|:---------------------|\n| Twelve Months Ended| $(17,174) | $1,644 | - Shift from income to loss before income taxes in FY2020 was due to decreased revenues from COVID-19 and the fixed nature of certain operating expenses[314] Income tax expense (benefit) Income Tax Expense (Benefit) (FY2020 vs. FY2019) | Metric | 2020 (Thousands USD) | 2019 (Thousands USD) | |:-------------------|:---------------------|:---------------------|\n| Twelve Months Ended| $(492) | $(76) | - Effective income tax rate was a benefit of 3% for FY2020, impacted by pre-tax loss, reduced stock compensation tax benefit, and valuation allowance against deferred tax assets[315] - The CARES Act allowed utilization of $2.9 million in previously disallowed interest expense in 2020[317] Net (loss) income Net (Loss) Income and Diluted EPS (FY2020 vs. FY2019) | Metric | 2020 (Thousands USD) | 2019 (Thousands USD) | |:---------------------------|:---------------------|:---------------------|\n| Net (loss) income | $(16,682) | $1,720 |\n| Diluted (loss) income per common share | $(0.44) | $0.05 | - Net loss and diluted loss per common share in FY2020 were primarily due to the increase in loss before income taxes[318] Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Revenues Total Revenues (FY2019 vs. FY2018) | Segment | 2019 (Thousands USD) | 2018 (Thousands USD) | Percent Change | |:--------------------|:---------------------|:---------------------|:---------------|\n| Products | $197,246 | $187,394 | 5% |\n| Preservation Services | $78,976 | $75,447 | 5% |\n| Total | $276,222 | $262,841 | 5% | - Revenues increased 5% for FY2019, driven by increases in On-X products, cardiac preservation services, BioGlue, and aortic stents/stent grafts[325] - Excluding foreign exchange effects, revenues increased 7% for FY2019[325] Products Product Revenues (FY2019 vs. FY2018) | Product Family | 2019 (Thousands USD) | 2018 (Thousands USD) | Percent Change | |:----------------------------------|:---------------------|:---------------------|:---------------|\n| BioGlue | $68,611 | $66,660 | 3% |\n| Aortic stents and stent grafts | $64,974 | $63,341 | 3% |\n| On-X | $50,096 | $44,832 | 12% |\n| CardioGenesis cardiac laser therapy | $6,016 | $6,217 | -3% |\n| PerClot | $3,795 | $3,767 | 1% |\n| PhotoFix | $3,754 | $2,577 | 46% |\n| Total Products | $197,246 | $187,394 | 5% | - Product revenues increased 5% for FY2019, primarily due to increases in On-X, BioGlue, and aortic stents and stent grafts[326] - The U.S. Dollar strengthened in 2019, resulting in revenue decreases when foreign currency transactions were translated into U.S. Dollars[327] BioGlue - BioGlue revenues increased 3% for FY2019, driven by a 5% increase in volume of milliliters sold, partially offset by foreign exchange effects and decreased average sales prices[329] - International markets, especially EMEA and Asia Pacific, showed growth, while domestic markets decreased[330] Aortic Stents and Stent Grafts - Aortic stents and stent grafts revenues increased 3% for FY2019, primarily due to an 8% increase in volume of units sold, offset by foreign exchange effects and decreased average sales price[333][334] - EMEA, Latin America, and Asia Pacific experienced growth, with EMEA showing the largest increase[335] On-X - On-X product revenues increased 12% for FY2019, driven by an 11% increase in volume of units sold[336][337] - Worldwide increases, with significant growth in EMEA (Q4 2019) and North America (FY2019) due to market share gains[339] CardioGenesis Cardiac Laser Therapy - CardioGenesis cardiac laser therapy revenues decreased 3% for FY2019, primarily due to an 18% decrease in handpiece unit shipments[341] - Handpiece supply was interrupted in Q4 2019 due to a manufacturing site change, with resumption anticipated in H1 2021[340] PerClot - PerClot revenues increased 1% for FY2019, due to a 3% increase in volume of grams sold, offset by decreased average sales prices and foreign exchange effects[343] - Increased sales in EMEA direct markets were partially offset by price reductions due to competitive pressures[344] PhotoFix - PhotoFix revenues increased 46% for FY2019, driven by a 74% increase in units sold[345] - Growth was due to an increase in implanting physicians, penetration in domestic markets, and sales in EMEA (new market in 2019)[346] Preservation Services - Preservation services revenues increased 5% for FY2019, driven by increases in cardiac preservation services[347] Cardiac Preservation Services - Cardiac preservation services revenues increased 15% for FY2019, primarily due to a 14% increase in unit shipments of cardiac tissues[349] - Increase was due to higher volumes of cardiac valve and patch shipments[350] Vascular Preservation Services - Vascular preservation services revenues decreased 4% for FY2019, due to a 3% decrease in tissue shipments and a 1% decrease in average service fees[352] - Decrease in shipments was primarily due to saphenous, femoral artery, and aortoiliac shipments[354] Cost of Products and Preservation Services Cost of Products - Cost of products increased 2% for FY2019, primarily due to increases in unit shipments[355][356] - FY2018 included $2.8 million in inventory basis step-up expense related to the JOTEC Acquisition[356] Cost of Preservation Services - Cost of preservation services increased 6% for FY2019, primarily due to an increase in tissue unit shipments[357][358] Gross Margin - Gross margin increased 6% for FY2019, driven by increases in On-X, BioGlue, aortic stents and stent grafts, and tissue revenues[360] - Gross margin as a percentage of total revenues remained flat at 66% for FY2019[360] Operating Expenses General, Administrative, and Marketing Expenses - G&A and marketing expenses increased 2% for FY2019, due to higher expenses supporting increased revenue and headcount, offset by decreased business development and integration expenses[361] Research and Development Expenses - R&D expenses remained flat for FY2019, focused on clinical work for JOTEC, On-X, and PerClot[362] Interest Expense Interest Expense (FY2019 vs. FY2018) | Period | 2019 (Thousands USD) | 2018 (Thousands USD) | |:-------------------|:---------------------|:---------------------|\n| Twelve Months Ended| $14,886 | $15,788 | Other Expense (Income), Net - Other expense, net was $1.3 million for FY2019, primarily due to realized and unrealized foreign currency losses[364] Earnings Net Income (Loss) and Diluted EPS (FY2019 vs. FY2018) | Metric | 2019 (Thousands USD) | 2018 (Thousands USD) | |:---------------------------|:---------------------|:---------------------|\n| Net (loss) income | $1,720 | $(2,840) |\n| Diluted (loss) income per common share | $0.05 | $(0.08) | - Shift from loss to income before income taxes in FY2019 was due to decreased integration and business development expenses and inventory basis step-up expense related to the JOTEC Acquisition[365] - Effective income tax rate was a benefit of 5% for FY2019, impacted by excess tax benefits on stock compensation and R&D tax credit[366][367] Seasonality Demand for BioGlue, On-X, and aortic stents/stent grafts typically declines in Q3 and strengthens in Q4, while cardiac preservation services traditionally peak in Q3, and vascular services see lowest demand in Q4 - BioGlue and On-X products typically see declining demand in Q3 and stronger demand in Q4 due to European and U.S. summer holidays[373] - Aortic stents and stent grafts also show Q3 decline due to European summer holidays[373] - Cardiac preservation services traditionally peak in Q3 for school-aged patients, but this trend is diminishing as more tissues are used in adult populations[374] - Vascular preservation services experience lowest demand in Q4 due to fewer surgeries during winter holidays[374] - COVID-19 has obscured historical seasonality in 2020 and may continue to do so in H1 2021[375] Liquidity and Capital Resources CryoLife's net working capital increased to $174.1 million in FY2020, with cash requirements funded by convertible senior notes, existing cash, and stock option exercises, primarily for the Ascyrus acquisition and debt payments Net Working Capital and Current Ratio | Metric | Dec 31, 2020 (Millions USD) | Dec 31, 2019 (Millions USD) | |:-------------------|:----------------------------|:----------------------------|\n| Net Working Capital| $174.1 | $142.2 |\n| Current Ratio | 4 to 1 | 4 to 1 | - Primary cash requirements in 2020 included the Ascyrus acquisition, working capital, capital expenditures, and debt payments[377] - The company believes existing cash and operations will cover liquidity needs for the next 12 months, but additional debt/equity financing may be sought for significant business development[379] Cash Flows (FY2020 vs. FY2019) | Activity | 2020 (Millions USD) | 2019 (Millions USD) | |:-------------------------|:--------------------|:--------------------|\n| Operating Activities | $12.4 | $15.8 |\n| Investing Activities | $(73.1) | $(23.9) |\n| Financing Activities | $93.6 | $(1.5) | - Net cash from financing activities in 2020 was primarily from $100.0 million in convertible senior notes, partially offset by debt issuance costs and debt repayments[401] Net Working Capital Overall Liquidity and Capital Resources Significant Sources and Uses of Liquidity Net Cash Flows from Operating Activities Net Cash Flows from Investing Activities Net Cash Flows from Financing Activities Off-Balance Sheet Arrangements CryoLife has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[402] Scheduled Contractual Obligations and Future Payments CryoLife's contractual obligations include $320.6 million in long-term debt and interest, contingent payments for Ascyrus and Endospan, potential PerClot royalties, and lease/purchase commitments - Long-term debt and interest payments total $320.6 million[402] - Contingent payment obligations include up to $120.0 million for Ascyrus (with $10.0 million in stock) and a $5.0 million third tranche payment for Endospan[403] - Additional contingent payments are possible for PerClot based on U.S. regulatory approvals and commercial milestones[403] - Operating and finance lease obligations, along with purchase commitments (e.g., PerClot minimums), also represent future payments[404] Capital Expenditures Capital expenditures for FY2020 were $7.3 million, a decrease from $8.1 million in FY2019, primarily supporting leasehold improvements, computer software, and manufacturing/tissue processing equipment Capital Expenditures | Year | Amount (Millions USD) | |:-----|:----------------------|\n| 2020 | $7.3 |\n| 2019 | $8.1 | - Capital expenditures in 2020 were mainly for leasehold improvements, computer software, and manufacturing/tissue processing equipment[405] Item 7A. Quantitative and Qualitative Disclosures About Market Risk. CryoLife is exposed to interest rate risk on its variable-rate debt and foreign currency exchange rate risk from international operations, though a 10% adverse change in either is not expected to materially impact financial position - Interest rate risk primarily affects variable-rate debt (Revolving Credit Facility, Term Loan Facility, Convertible Senior Notes) and interest earned on cash equivalents[406][407] - A 10% adverse change in interest rates is not expected to have a material impact on financial position, profitability, or cash flows[407] - Foreign currency exchange rate risk impacts foreign-denominated balances (cash, receivables, payables) and revenues/expenses, particularly in Euros, British Pounds, and other currencies[408][409] Realized and Unrealized Foreign Currency Gains/Losses | Year | Amount (Millions USD) | |:-----|:----------------------|\n| 2020 | $1.9 (gain) |\n| 2019 | $(1.2) (loss) |\n| 2018 | $(2.6) (loss) | - A 10% adverse change in foreign exchange rates is not expected to have a material impact on financial position, profitability, or cash flows[410] Interest Rate Risk Foreign Currency Exchange Rate Risk Item 8. Financial Statements and Supplementary Data. This section presents CryoLife's audited consolidated financial statements for 2018-2020, including management's report on internal control and independent auditor reports, highlighting critical audit matters related to deferred preservation costs and the Ascyrus acquisition valuation - Consolidated financial statements include balance sheets, statements of operations and comprehensive loss, cash flows, and shareholders' equity for 2018-2020[420] - Management assessed internal control over financial reporting as effective as of December 31, 2020, excluding the recently acquired Ascyrus Medical LLC[415][416] - Critical audit matters include the complexity of deferred preservation costs calculation (due to yield estimates) and the significant estimation required for valuing the Ascyrus acquisition's contingent consideration liability and developed technology intangible asset[426][427][431][432] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Critical Audit Matters Deferred Preservation Costs [Valuation of contin