Business context and reporting period
CryoLife, Inc. (the registrant named in this filing) reported for the quarter and nine months ended September 30, 2021. Its businesses include medical devices—such as aortic stents and grafts, surgical sealants and On-X heart valves—and preservation services for human tissues.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $72.2m | $65.1m | $219.4m | $185.3m |
| Gross margin | $47.8m; 66% | $43.1m; 66% | $146.1m; 67% | $123.2m; 66% |
| Operating income | $14.7m | $3.6m | $17.5m | $0.5m |
| Net income (loss) | $10.6m | $(2.9)m | $5.3m | $(13.2)m |
| Diluted earnings (loss) per share | $0.26 | $(0.08) | $0.13 | $(0.35) |
At September 30, 2021, cash and cash equivalents were $64.6m, current assets $257.3m, current liabilities $61.1m, and working capital $196.2m. Net debt carrying value was $309.4m, including $100.0m of convertible notes; gross loan balances were $318.4m. The company reported compliance with debt covenants. Operating cash flow was negative $3.3m for the first nine months, versus positive $6.9m a year earlier; capital expenditures were $10.5m. No material off-balance-sheet arrangements were reported.
Material changes versus the prior period
- Q3 revenue rose 11%; nine-month revenue rose 18%. Product revenue increased 18% in Q3 and 26% year to date, while preservation services revenue fell 5% in Q3 and rose 1% year to date.
- Aortic stents and stent grafts grew 37% in Q3 and 42% year to date; On-X grew 16% and 22%, respectively. Q3 surgical sealant revenue increased 5%.
- Q3 net income included a $15.9m pretax gain from selling PerClot assets to Baxter. The reported operating profit therefore does not solely reflect recurring operations; operating expenses exceeded gross profit before that gain.
- General, administrative and marketing expense increased 16% in Q3; research and development expense increased 73%. Interest expense was $4.1m in Q3 and $13.0m year to date.
- Cash from operations deteriorated, principally amid higher inventory and deferred preservation costs and increased receivables. Cash proceeds from the PerClot sale supported investing cash flow.
Outlook, commentary, risks and unusual items
Management said existing cash and expected operating cash flows should cover operational liquidity needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance. Future cash needs include debt service, clinical trials, research and development, working capital, capital spending and possible milestone payments.
The Baxter transaction provided $25.0m at closing, of which $6.0m was paid to Starch Medical. Additional consideration is contingent on PerClot regulatory approval and sales milestones; the filing describes aggregate consideration of up to $60.8m, including amounts payable to Starch Medical. The Ascyrus acquisition also entails contingent milestone and sales-based payments, with obligations described as up to $120.0m.
Management cited continuing COVID-19 effects, hospital capacity and staffing constraints, worker shortages and possible supply-chain disruption. Limited trained staff slowed the release of quarantined tissue, contributing to lower Q3 preservation services revenue. A contaminated saline lot had led to an approximately $0.8m tissue write-off in 2020 and quarantine of additional tissue; some quarantined tissue began to be released in Q2 2021. Other notable risks include regulatory approvals and clinical timelines, foreign-exchange exposure, reliance on specialized and single-source suppliers, and debt obligations. BioGlue’s China application could expire if requested issues are not resolved and approval is not obtained by May 2022. The company reported a $2.1m income tax benefit from correction of immaterial prior-year errors.
Important facts for investors to verify
- How much of earnings growth is sustainable without the $15.9m PerClot sale gain, and how recurring expenses and contingent-consideration remeasurement affect profitability.
- Whether operating cash flow improves as inventory, deferred preservation costs and receivables normalize.
- Progress on tissue release and staffing, and whether preservation services revenue recovers.
- Achievement and timing of Baxter, Ascyrus and Endospan milestones, including potential cash obligations and PerClot approval conditions.
- Debt maturities, interest costs and covenant headroom, including the springing-maturity provisions tied to the convertible notes.
- COVID-19, supply-chain, regulatory and foreign-currency developments that could affect sales, operations and cash flows.