Business context and reporting period
This is CryoLife, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020. The filing describes a medical-device and human-tissue preservation business. The request metadata identifies Artivion, Inc., but the filing itself names CryoLife, Inc.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $66.4 million | $67.5 million; down 2% (down 1% excluding foreign exchange) |
| Gross profit / margin | $44.2 million / 66% | $44.3 million / 66% |
| Operating income (loss) | $(1.2) million | $2.2 million |
| Net income (loss) | $(6.7) million | $(0.3) million |
| Diluted loss per share | $(0.18) | $(0.01) |
| Operating cash flow | $2.6 million | $1.2 million |
| Cash and cash equivalents | $63.4 million at March 31, 2020 | $33.8 million at December 31, 2019 |
| Total debt, net of issuance costs | $245.4 million | $215.7 million at December 31, 2019 |
| Working capital / current ratio | $170.4 million / 5:1 | $142.2 million / 4:1 at December 31, 2019 |
Revenue comprised $46.4 million of products, down 4%, and $20.0 million of preservation services, up 5%. Product movements included On-X up 4%, PhotoFix up 43%, BioGlue down 3%, JOTEC down 4%, PerClot down 18%, and CardioGenesis cardiac laser therapy down 94%. Cardiac preservation revenue rose 12%; vascular preservation revenue fell 2%.
Operating expenses increased 8% to $45.4 million, including general, administrative, and marketing expense up 7% and R&D expense up 15%. Other expense, primarily reflecting realized and unrealized foreign-exchange effects, was $3.7 million versus $0.1 million a year earlier. Financing activities included a $30 million draw on the revolving credit facility; that borrowing was the main reason cash increased.
Material changes, outlook, and risks
- COVID-19: Management expected negative effects on business and results for at least Q2 and possibly Q3 2020, with the most severe revenue impact anticipated in Q2 and recovery expected in Q3. Surgical delays affected sales, and the pandemic’s duration and consequences were uncertain. The company reduced discretionary spending, hiring, capital expenditures, and some R&D and clinical spending; it reported operating manufacturing sites near full production at the filing date.
- Credit and liquidity: The company drew the full $30 million revolver as a precaution. On April 29, 2020, after quarter-end, it amended its credit agreement: the maximum first-lien net leverage covenant was waived through 2020, and minimum liquidity of $12 million and restrictions on certain payments, including dividends, were introduced. Additional covenant requirements apply under specified borrowing conditions through Q3 2021. The company said available cash and operating cash flow were expected to meet operational liquidity needs for at least 12 months, subject to uncertainty.
- Product supply and regulatory: CardioGenesis handpiece supply was unavailable pending resolution of FDA observations at a supplier’s manufacturing site; management anticipated supply resumption in the second half of 2020. The filing also identified regulatory and clinical approval risks for PerClot, NEXUS, and other products. PerClot PMA submission was anticipated in the second half of 2020; failure to obtain approval could impair related assets.
- Commitments and contingencies: Two further $5 million Endospan loan tranches may be due upon specified milestones. Endospan arrangements give CryoLife distribution rights and a purchase option, but the filing states CryoLife is not the VIE’s primary beneficiary; its reported maximum exposure was $15 million. Estimated unreported product and tissue liability was $1.9 million, with a possible estimate as high as $3.7 million before insurance considerations. Management said it knew of no pending legal matter expected to have a material adverse effect, while noting ordinary-course litigation risks.
- Other risks: Key disclosed risks include elective-procedure delays, foreign-exchange exposure, debt and covenant constraints, reliance on suppliers and donated tissue, competition, regulatory changes, and the uncertain outlook for clinical and commercial programs. The filing provided no numerical revenue or earnings guidance.
Important facts for investors to verify
- Whether the issuer and ticker in the requested metadata correspond to this CryoLife filing.
- Actual COVID-19 effects on Q2 and subsequent revenue, procedures, tissue availability, and cash generation versus management’s expectations.
- Compliance with the amended credit agreement’s minimum-liquidity and other covenant terms, as well as debt repayment and interest costs.
- Timing and resolution of the CardioGenesis handpiece supply issue and the PerClot and NEXUS regulatory milestones.
- Foreign-exchange effects and whether the unusually high Q1 other expense recurs.
- Progress and potential funding obligations under the Endospan agreements and the adequacy of reserves for product and tissue claims.