Business context and reporting period
CryoLife, Inc. (the registrant name in this filing; company metadata identifies Artivion, Inc.) filed this unaudited Form 10-Q for the three months ended March 31, 2021. The company makes and distributes cardiovascular medical devices and processes implantable human tissues. Its reportable segments are Medical Devices and Preservation Services.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $71.1 million | $66.4 million |
| Gross margin | $47.8 million; 67% of revenue | $44.2 million; 66% of revenue |
| Operating income (loss) | $1.4 million | $(1.2) million |
| Net loss | $(3.1) million | $(6.7) million |
| Diluted loss per share | $(0.08) | $(0.18) |
| Operating cash flow | $(3.0) million | $2.6 million |
| Capital expenditures | $1.5 million | $2.5 million |
At March 31, 2021, cash and cash equivalents were $56.6 million; restricted securities were $0.6 million. Working capital was $177.7 million and the current ratio was approximately 4.1. Reported net borrowings were $311.2 million, including $100 million of convertible notes; the notes bear 4.25% interest and mature July 1, 2025. The term loan balance was $217.7 million, with the credit facility term loan due by December 2024. Total assets were $794.8 million and shareholders’ equity was $297.3 million.
Material changes versus the prior comparable period
- Revenue rose 7% (4% excluding foreign exchange). Product revenue increased 15%, led by a 31% increase in aortic stents and stent grafts; preservation services revenue declined 11%.
- Gross margin increased to 67% from 66%. Product mix helped, partly offset by product write-downs and price reductions.
- Operating results improved to income from a loss, while net loss narrowed. Research and development expense increased 22% to $7.8 million; general, administrative, and marketing expense declined 1% to $38.6 million.
- Operating cash flow moved from $2.6 million provided to $3.0 million used, principally reflecting increases in inventory and deferred preservation costs, receivables, and prepaid assets.
- Foreign currency translation adjustments produced a $10.3 million comprehensive loss component, versus $4.5 million in Q1 2020.
Outlook, commentary, risks, and unusual items
Management said existing cash and operating cash flows were expected to meet operational liquidity needs for at least the next twelve months. The filing provides no specific revenue or earnings guidance. Management described new products, new indications, global expansion, and business development as growth priorities.
- COVID-19 continued to delay or cancel procedures in some markets and could affect demand, supply chains, employees, clinical trials, and regulatory timelines. Management reported manufacturing sites operating near full production, but warned the pandemic could materially affect results and cash flows.
- Contaminated saline identified in 2020 led to tissue write-offs and quarantine. CryoLife said approximately $5.0 million of quarantined tissue might be released; if not, an additional write-off of up to $5.0 million could be recorded. The quarantine reduced tissue availability and weighed on Q1 preservation-services revenue.
- Ascyrus acquisition consideration includes milestone and sales-based contingent payments. The company recorded $60.9 million of contingent consideration liabilities and a $1.0 million Q1 fair-value expense adjustment.
- CryoLife anticipated being positioned to submit the PerClot PMA application to the FDA in Q3 2021; approval and commercialization were not assured. PerClot-related assets could be impaired if U.S. approval is not pursued or obtained.
- Adoption of convertible-debt accounting guidance on January 1, 2021 increased the carrying value of long-term debt by $20.4 million and reduced retained earnings and additional paid-in capital by $3.2 million and $16.4 million, respectively; this was an accounting change, not a cash outflow.
- The company disclosed a net $1.8 million tax benefit associated with correcting immaterial prior-period tax-accounting errors and adjusting an uncertain-tax-position reserve.
- Management reported no pending legal matter it believed could potentially have a material adverse effect, while noting ordinary-course proceedings and inherent litigation uncertainty. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether quarantined tissue was released and whether any further write-down was recorded.
- Subsequent revenue and procedure trends, particularly for preservation services, and the degree to which COVID-19 and foreign exchange affected reported growth.
- Cash generation, debt service, credit-facility covenant requirements, and liquidity as contingent acquisition payments and clinical spending continue.
- Progress and timing of PerClot, AMDS, NEXUS, and other clinical and regulatory milestones, including related contingent consideration.
- Whether the $1.8 million tax adjustment, acquisition accounting, or other estimates resulted in later changes to reported financial statements.