ARTIVION, INC. annual report, FY2022

Business context and reporting period

Artivion, Inc. (NYSE: AORT; formerly CryoLife, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2022. It makes and distributes medical devices for cardiac and vascular surgery, including aortic stent grafts, BioGlue surgical sealant and On-X mechanical heart valves, and provides preservation services for donated human cardiac and vascular tissues. The filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary.

Key financial metrics

• Revenue rose 5% as reported and 9% excluding foreign-exchange effects. Aortic stent grafts grew 9%, On-X grew 11%, and preservation services grew 8%; surgical sealants declined 8%.
• Gross margin dollars increased 3%, while gross margin percentage fell one point, reflecting inflation in materials and labor and product mix, partly offset by pricing.
• Cash and cash equivalents were $39.4 million at year-end, down from $55.0 million. Net working capital was $197.6 million and the current ratio was 5:1, versus $202.7 million and 6:1 a year earlier.
• Year-end debt was $314.8 million gross and $308.1 million net of unamortized issuance costs. The company reported $306.5 million in long-term debt and $1.6 million current. Its credit facility’s aggregate interest rate was 8.34% at year-end; the $100 million convertible notes bear a 4.25% coupon and mature July 1, 2025.
• Capital expenditures were $9.0 million. Research and development expense was $38.9 million, or 12% of revenue.

Material changes versus the prior year

• Revenue growth was led by higher unit sales of aortic stent grafts and On-X products and increased tissue shipments. Foreign exchange reduced reported revenue growth; the U.S. dollar strengthened against major currencies.
• General, administrative and marketing expense declined 7% to $157.4 million. FY 2022 included $7.7 million of business-development income, including a $9.0 million reduction in Ascyrus contingent consideration; FY 2021 included $16.1 million of business-development expense.
• FY 2021 included a $15.9 million gain from the PerClot asset sale to Baxter; no comparable gain was recorded in FY 2022.
• Net loss widened despite higher revenue, reflecting higher research and development, interest and tax expense, among other items. The 2022 income tax expense was $4.2 million, compared with $7,000 in 2021.
• Operating cash use increased to $5.2 million, driven in part by receivables and higher inventory and deferred preservation costs. Investing cash flow changed from $5.7 million provided in 2021 to $10.7 million used in 2022, when the prior-year PerClot-sale proceeds were absent.

Outlook, commentary, risks and unusual items

• The filing gives no quantified revenue or earnings guidance. Management stated that cash from operations and existing cash were expected to cover current operational liquidity needs for at least the next 12 months, while noting potential needs for debt service, clinical trials, R&D, working capital and business development.
• PROACT Xa was stopped in September 2022 on the independent monitoring board’s recommendation, after insufficient evidence that apixaban was non-inferior to warfarin for On-X aortic-valve patients. The company recorded $4.5 million of trial termination and wind-down expense.
• In February 2023, the sole-source supplier for CardioGenesis handpieces said it would stop supply immediately after its tubing supplier ceased operations. Artivion said it did not expect product-line revenue after Q1 2023 until a new source is qualified and approved.
• Other execution and regulatory risks include the FDA review of the On-X mitral lower-anticoagulation indication, U.S. AMDS trial enrollment, the PerClot PMA process under the Baxter arrangement, and BioGlue approval in China. Timing and outcomes are uncertain.
• Regulatory transitions in Europe pose supply risks: PhotoFix CE Mark transfer remained in process, and the company cited broader MDR and Notified Body delays. CryoValve SG could face additional FDA requirements if reclassified as a Class III device.
• Artivion depends on sole- or single-source suppliers and contract manufacturers for certain products and components. Other disclosed exposures include inflation, hospital staffing and procedure capacity, currency fluctuations, geopolitical and supply-chain disruptions, product liability, and competition.
• Potential contingent payments include up to $100 million related to Ascyrus milestones and sales, a $5 million Endospan loan tranche upon specified clinical milestone certification, and up to $7.5 million payable to SMI under the Baxter transaction if milestones are met. The filing also lists $314.8 million of scheduled debt principal and $89.7 million of anticipated interest payments across debt obligations.
• Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements. Deferred preservation costs of $46.4 million were identified as a critical audit matter because their measurement depends on tissue yield estimates.

Important facts for investors to verify

• Whether revenue growth converts into improved operating performance and positive operating cash flow, given the wider net loss and lower gross margin percentage.
• Debt repayment and refinancing requirements, variable-rate interest exposure, and the springing maturity provisions tied to the convertible notes.
• Progress, costs and regulatory outcomes for AMDS, On-X mitral, PerClot and BioGlue in China, and whether these programs deliver expected commercial benefits.
• How quickly Artivion can qualify an alternative CardioGenesis handpiece supplier and the resulting impact on sales and product availability.
• Whether supplier, European certification, tissue-yield and hospital-capacity risks affect product availability, preservation-service revenue or margins.