Business context and reporting period
This is CryoLife, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, with fourth-quarter results also presented. The request identifies Artivion, Inc.; however, the filing is for CryoLife, Inc. and uses the ticker CRY. Verify the issuer and any subsequent name or corporate changes before attributing these results.
CryoLife develops and sells medical devices and preserves human tissues used mainly in cardiac and vascular surgery. Its businesses are reported as Medical Devices and Preservation Services. The 2018 results include a full year of JOTEC, acquired on December 1, 2017.
Financial performance and position
Amounts below are in millions, except per-share data and percentages.
| Metric | FY 2018 | FY 2017 | Change / context |
|---|---|---|---|
| Revenue | $262.8 | $189.7 | Up 39%; full-year JOTEC contribution was a major factor |
| Gross profit / margin | $173.0 / 66% | $128.6 / 68% | Gross profit up 34%; margin down 2 percentage points |
| Operating income | $9.3 | $8.0 | Operating margin approximately 3.5% versus 4.2% |
| Interest expense | $15.8 | $4.9 | Higher principally due to acquisition-related debt |
| Net income (loss) | $(2.8) | $3.7 | Loss of $0.08 per diluted share versus income of $0.11 |
| Operating cash flow | $9.9 | $10.8 | Down $0.9 |
| Capital expenditures | $5.8 | $6.6 | — |
Fourth-quarter 2018 revenue was $67.8 million, up 28% from $52.8 million. Gross margin was 67% versus 69%. Net loss was $0.8 million, or $0.02 per diluted share, compared with a $3.0 million loss, or $0.09 per diluted share, in Q4 2017.
Medical-device revenue was $187.4 million, up 57%; preservation-services revenue was $75.4 million, up 8%. By product, JOTEC contributed $63.3 million, BioGlue/BioFoam $66.7 million, and On-X $44.8 million. Management reported JOTEC revenue growth of 20% for 2018 versus the comparable prior-year period excluding foreign exchange; the reported annual JOTEC figures are not a like-for-like full-year comparison because the acquisition closed in December 2017.
At year-end, cash and cash equivalents were $41.5 million; working capital was $144.6 million and the current ratio was 5:1. Debt principal was $226.0 million, including the $222.8 million term loan; $30.0 million remained available under the revolving facility. Cash less stated debt principal was approximately $(184.5) million, before considering restricted securities and other obligations. Total assets were $571.1 million and shareholders’ equity was $275.1 million. The company reported $9.9 million of operating cash flow and stated that cash, cash equivalents, and operating cash flow should meet operational liquidity needs for at least 12 months.
Material changes versus the prior period
- Revenue rose sharply, led by JOTEC’s first full year in the consolidated results and growth in On-X. On-X annual revenue increased 21%; BioGlue/BioFoam increased 1% and preservation services increased 8%.
- Gross margin percentage fell from 68% to 66%, primarily reflecting lower tissue margins and average fees, partly offset by product mix and JOTEC/On-X growth.
- Operating expenses increased: general, administrative, and marketing expense rose to $140.6 million from $101.2 million, and R&D rose to $23.1 million from $19.5 million. 2018 business-development costs were $8.4 million, mainly related to JOTEC integration.
- Interest expense increased to $15.8 million from $4.9 million. The company recorded a net loss despite higher operating income.
- Operating cash flow declined modestly. Investing cash outflow dropped to $6.7 million from $171.0 million, as the prior year included the JOTEC acquisition.
Outlook, risks, contingencies, and unusual items
- Management expected JOTEC to achieve double-digit growth over the following five years, citing sales-force integration, cross-selling, and market expansion. This is a management expectation, not formal financial guidance.
- PerClot pivotal-trial enrollment was completed in January 2019; management anticipated submitting a U.S. FDA Premarket Approval application in early 2020. Approval and successful commercialization were not assured. The filing notes minimum purchase obligations may continue if approval is not obtained and the agreement is not terminated.
- The On-X ascending aortic prosthesis’ European CE Mark had been suspended, and the company was pursuing another certification pathway. Failure to regain certification could adversely affect European sales.
- The FDA could reclassify CryoValve SGPV as a Class III device, potentially requiring a PMA and making continued processing uneconomic. No proposed reclassification had been issued as of the filing.
- Other material risks include acquisition integration and execution, significant debt and variable interest rates, restrictive credit covenants, dependence on BioGlue/JOTEC/On-X and donated tissues, single-source suppliers, regulatory compliance, competition, foreign exchange, and product or tissue liability. JOTEC-related integration and transaction costs were $7.4 million in 2018.
- The $225 million term loan carried a 6.05% aggregate interest rate at year-end after an October 2018 repricing; it matures in 2024. The credit facility is secured by substantially all U.S. assets, restricts certain actions including dividends, and leaves the company exposed to rate changes.
- Tax benefit was $3.6 million in 2018; the filing cites stock-compensation benefits and other tax items. The Tax Act interest-deduction limit restricted the 2018 deduction to $4.9 million, leaving $21.1 million of excess interest to carry forward.
- Management reported no pending legal matter believed likely to have a material adverse effect, while cautioning that litigation outcomes are uncertain. Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Investor facts to verify
- Confirm the issuer identity: the supplied filing is CryoLife, Inc. (CRY), not a filing under the Artivion name.
- Separate acquisition-driven revenue growth from organic growth, particularly for JOTEC, and track whether anticipated integration and cross-selling benefits materialize.
- Assess debt service capacity, floating-rate exposure, covenant headroom, and the stated availability of the $30 million revolver.
- Monitor PerClot’s FDA submission and approval timeline, related purchase commitments, and the status of its expired third-party CE Mark noted in the filing.
- Check the status and financial impact of On-X AAP European certification and any FDA action concerning CryoValve SGPV classification.
- Reconcile earnings with cash generation, including the causes of the 2018 net loss, elevated interest expense, and lower gross-margin percentage.