ARTIVION, INC. annual report, FY2021

Artivion, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the provided filing text does not give a clear standalone fourth-quarter income statement or cash-flow summary. Artivion develops and sells cardiovascular medical devices and preserves implantable human tissues. Its reportable segments are Medical Devices and Preservation Services.

Financial performance

Metric	FY2021	FY2020
Revenue	$298.8 million	$253.2 million
Gross margin	$197.5 million; 66% of revenue	$167.8 million; 66% of revenue
Operating income	$8.1 million	$2.4 million
Net loss	$14.8 million; $0.38 diluted loss per share	$16.7 million; $0.44 diluted loss per share
Cash from operating activities	$(2.6) million	$12.4 million
Cash and cash equivalents at year-end	$55.0 million	$61.4 million

• Revenue rose 18% (16% on a constant-currency basis). Product revenue increased 24% to $221.6 million; preservation-services revenue increased 4% to $77.2 million.
• By product family, aortic stents and stent grafts grew 38% to $85.4 million, surgical sealants grew 14% to $70.7 million, On-X grew 19% to $57.4 million, and other products grew 8% to $8.1 million.
• Operating expenses increased 24% to $205.3 million. R&D increased 47% to $35.5 million, or 12% of revenue; general, administrative, and marketing expenses increased 20% to $169.8 million.
• Operating income included a $15.9 million gain on the PerClot asset sale. Interest expense was $16.9 million and other expense, net, was $6.1 million.
• Net working capital was $202.7 million and the current ratio was 6:1 at year-end, versus $174.1 million and 4:1 in 2020. Total assets were $793.1 million.
• Year-end debt was $317.6 million gross, including $216.0 million under the term loan and $100.0 million of convertible notes; the balance sheet reported $309.1 million net of unamortized loan costs. The term loan rate was floating; its aggregate rate under the Credit Agreement was 4.50% at year-end. The convertible notes bear a 4.25% coupon and mature July 2025.
• Operating cash use reflected, among other factors, increases in inventory and deferred preservation costs ($18.4 million) and receivables ($11.6 million). Investing activities provided $5.7 million, including $19.0 million net proceeds from the PerClot sale, while financing activities used $12.2 million.

Material changes and unusual items

• Growth was broad-based, but revenue remained below 2019’s $276.2 million in 2020 before recovering in 2021. The 2021 increase reflected higher sales across product lines and services, improved procedure conditions versus 2020, new JOTEC products, and the inclusion of AMDS following its 2020 acquisition.
• Gross margin percentage stayed at 66%. Higher volume and favorable pricing were offset by product mix and inventory write-downs; inventory write-downs were $4.8 million in 2021, mainly for JOTEC and On-X AAP products.
• Operating cash flow swung from $12.4 million provided in 2020 to $2.6 million used in 2021, despite lower net loss, largely due to working-capital movements.
• The Baxter PerClot transaction closed in July 2021. Artivion received $25.0 million at closing, paid $6.0 million to SMI, and recorded a $15.9 million pretax gain. Additional consideration depends on FDA approval and sales milestones; total consideration to Artivion may reach $45.8 million.
• In Q4 2021, Artivion fully impaired the $4.9 million Endospan option and wrote down the Endospan loan to zero, citing lower forecast operating results. The company also recorded $9.5 million of Ascyrus contingent-consideration fair-value expense for the year.
• A contaminated saline-solution lot identified in 2020 led to an $826,000 tissue write-off and temporary quarantine of additional tissue. Release and availability affected sales into 2021; staffing constrained releases in the third quarter.
• Artivion reported an audited net loss and negative operating cash flow. Management said existing cash and operating cash generation were expected to meet current operational liquidity needs for at least 12 months. No specific revenue or earnings guidance was provided.
• The company changed its state of incorporation to Delaware effective January 1, 2022, changed its name from CryoLife to Artivion on January 18, 2022, and began trading under AORT on January 24, 2022.

Outlook, risks, and contingencies

• Management’s strategy emphasizes new products, expanded indications, international growth, and selected business-development opportunities. Near-term milestones include US clinical work for AMDS, FDA review of the On-X mitral lower-INR indication, continued enrollment in PROACT Xa, and FDA review of the PerClot PMA submitted with Baxter.
• Management anticipated first enrollment in the AMDS US pivotal trial in early 2022 and completion of PROACT Xa enrollment in 2022. BioGlue’s China application faced regulator questions and could expire in April 2022 without approval or an extension. These are expectations, not guarantees.
• Key risks include COVID-related procedure delays and staffing constraints; global supply-chain disruption and reliance on sole-source suppliers; regulatory and certification transitions under Europe’s MDR and UKCA requirements; potential FDA reclassification of CryoValve SGPV; clinical-trial and approval uncertainty; competition; foreign-exchange exposure; and the ability to commercialize acquired products.
• Debt agreements impose operating restrictions and secure substantially all US assets. The filing discloses $317.6 million of scheduled principal payments and $66.1 million of anticipated interest payments across debt arrangements, subject to contractual terms. Additional contingent payments may include up to $100 million related to Ascyrus and a $5 million Endospan loan tranche if specified milestones are met.
• Management reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified deferred preservation costs ($42.9 million at year-end) as a critical audit matter because valuation depends partly on estimated tissue yields.

Important facts for investors to verify

• Whether revenue growth converts into sustained positive operating cash flow, and how receivables, inventory, and deferred preservation costs develop.
• Progress and outcomes for AMDS, On-X, PROACT Xa, PerClot, and BioGlue regulatory applications, including potential milestone payments or delays.
• Whether European BioGlue and PhotoFix certifications and required country derogations are obtained in time to avoid supply interruptions.
• Debt repayment, variable-rate exposure, covenant compliance, and the timing and funding of contingent acquisition obligations.
• Whether the Endospan impairment signals further downside to NEXUS commercialization expectations, and whether Baxter-related contingent proceeds are achieved.
• Whether tissue supply, processing yields, staffing, and sole-source supplier availability support planned sales without additional write-offs or disruption.