Artivion, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 23, 2024. Artivion (NYSE: AORT) develops and sells medical devices and preserves human tissues used in cardiac and vascular surgery. Its reportable segments are Medical Devices and Preservation Services.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $354.0 million | $313.8 million |
| Gross margin | $229.2 million; 65% of revenue | $202.5 million; 65% of revenue |
| Operating income | $5.7 million | $6.2 million |
| Net loss | $30.7 million | $19.2 million |
| Diluted loss per share | $0.75 | $0.48 |
| Cash from operating activities | $18.8 million | Cash used: $5.2 million |
- Revenue grew 13% reported and 12% at constant currency. Medical Devices revenue rose 13% to $261.2 million; Preservation Services rose 11% to $92.8 million.
- By product, aortic stent graft revenue increased 16% to $107.5 million, On-X increased 17% to $74.5 million, surgical sealants increased 4% to $68.0 million, and other products increased 34% to $11.2 million.
- General, administrative, and marketing expense increased 33% to $209.0 million, including $25.0 million of business development expense. This included a $23.5 million unfavorable fair-value adjustment to Ascyrus contingent consideration, compared with $9.0 million of business development income in 2022.
- Research and development expense declined 26% to $28.7 million. Interest expense increased to $25.3 million from $18.2 million, primarily because of higher term-loan rates.
- Cash and cash equivalents were $58.9 million at year-end, up from $39.4 million. Working capital was $222.8 million and the current ratio was 5:1. Inventory and deferred preservation costs together were $131.8 million.
- Year-end debt balances included $211.5 million under the term loan and $100.0 million of convertible notes; total loan balance was $312.0 million before $5.1 million of unamortized loan costs. The filing reports $320.5 million of scheduled principal payments and $139.0 million of anticipated interest across debt obligations.
Material changes and unusual items
- Revenue increased across all product categories, with stent graft growth aided by product mix, pricing, foreign exchange, and improved market adoption. Preservation Services revenue benefited mainly from higher average service prices, despite fewer tissues shipped.
- FY2023 gross margin included a benefit from PerClot pre-launch inventory previously expensed as R&D. The company also recognized a $14.3 million gain related to the PerClot PMA milestone under its Baxter transaction and recorded $5.1 million of PerClot revenue while manufacturing and supplying the product for Baxter.
- Artivion abandoned its CardioGenesis cardiac laser therapy business in June 2023 after losing its sole-source handpiece supply and being unable to qualify an alternative; it wrote off the related assets and recorded a $390,000 expense.
- Operating cash flow improved from a use of $5.2 million to positive $18.8 million, but included significant noncash adjustments. Growth in inventory and deferred preservation costs used $14.4 million of cash.
Outlook, financing, and risks
- Management says existing cash and operating cash flows are expected to cover current operational liquidity needs for at least 12 months. The filing provides no quantified revenue or earnings guidance. Management’s stated growth priorities are new products, expanded indications, international expansion, and selective business development.
- After year-end, on January 18, 2024, the company refinanced its prior credit facilities with Ares. It borrowed $190.0 million under a term loan and $30.0 million under a revolving facility, using proceeds and cash on hand to repay the prior facilities. The new facilities total up to $350.0 million, are interest-only with a January 2030 maturity, and carry floating rates; term-loan SOFR pricing initially includes a 6.50% margin. The agreement includes leverage covenants and restricts dividends and stock repurchases.
- Up to $100 million of contingent consideration may be payable to Ascyrus sellers if milestones are achieved. The associated year-end liability was $63.9 million, based on Level 3 estimates; changes in assumptions can materially affect earnings.
- Key regulatory dependencies include the AMDS US pivotal trial, whose enrollment was completed in 2023; management anticipates FDA PMA approval in late 2025. BioGlue’s China application faced regulator requests and could expire in 2024 if not advanced. FDA reclassification of the CryoValve SG pulmonary valve as a Class III device remains a potential risk; no final rule had been published.
- Other notable risks include reliance on sole- and single-source suppliers, tissue donation and processing yields, ongoing European MDR certification transitions (including PhotoFix), foreign-exchange exposure, competition, and geopolitical or supply-chain disruption. Management reported no pending legal matter believed likely to have a material adverse effect. The company reported effective internal control over financial reporting and an unqualified audit opinion.
Important facts for investors to verify
- Whether revenue growth translates into improved operating profitability, particularly given sharply higher general, administrative, and marketing expense and rising interest costs.
- How much of FY2023 operating cash flow is sustainable, considering the cash tied up in inventory and deferred tissue-processing costs.
- The terms, covenant headroom, interest-rate exposure, and potential use of Ares’s delayed-draw facility to repay or repurchase the 2025 convertible notes.
- The assumptions supporting the $63.9 million Ascyrus contingent-consideration liability and the potential cash payments of up to $100 million.
- Progress on AMDS US approval, BioGlue China registration, CryoValve regulatory requirements, and PhotoFix’s European certification transfer.
- Whether supply continuity and tissue availability support planned product growth, particularly for products dependent on sole-source manufacturers or suppliers.