CryoLife, Inc. (now Artivion, Inc.) — Q1 2018 Form 10-Q
Business context and period. The supplied filing is for CryoLife, Inc. and its subsidiaries, for the three months ended March 31, 2018; it does not identify Artivion as the registrant. CryoLife develops and sells medical devices and preserves human tissues used in cardiac and vascular surgery. The December 2017 acquisition of JOTEC added endovascular and surgical products.
Key financial results
Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $61.9 | $45.1; up 37% |
| Gross profit / margin | $39.2 / 63% | $29.5 / 65% |
| Operating expenses | $42.7 | $27.0 |
| Operating income (loss) | $(3.5) | $2.5 |
| Interest expense | $3.7 | $0.8 |
| Net income (loss) | $(3.9) | $2.2 |
| Diluted EPS | $(0.11) | $0.06 |
| Operating cash flow | $(9.7) | $3.9 |
| Capital expenditures | $2.1 | $2.0 |
- Revenue mix: Medical-device revenue was $43.6 million, including $14.5 million from JOTEC; preservation-services revenue was $18.4 million. JOTEC was acquired in December 2017, so its contribution was not present in the prior-year quarter.
- Profitability: Gross profit rose 33%, but gross margin declined by 2 percentage points. Management cited lower tissue-processing margins and lower JOTEC margins, including purchase-accounting effects.
- Cash and liquidity: At March 31, cash and cash equivalents were $26.6 million, restricted securities $0.8 million, working capital $133.9 million, and the current ratio 5:1. Cash, cash equivalents, and restricted securities together decreased $13.4 million during the quarter.
- Debt: Balance-sheet debt was $218.7 million net of unamortized loan costs, including $1.3 million current and $217.4 million long-term. The $30 million revolving facility was undrawn and fully available. The term loan’s reported aggregate interest rate was 6.30% and its rate is floating.
- Other balance-sheet items: Total assets were $583.2 million and total liabilities $302.2 million. Goodwill was $193.1 million; the JOTEC purchase-price allocation remained preliminary.
Changes, outlook, and material items
- Revenue growth was driven primarily by JOTEC, alongside higher On-X, BioGlue, and preservation-services revenue. JOTEC accounted for 23% of quarterly revenue; BioGlue and tissue preservation represented 26% and 30%, respectively.
- Operating expenses rose 58%, with general, administrative, and marketing expense up 63%. Management attributed increases to JOTEC, integration and business-development costs, and added support for the larger revenue base and workforce. The filing reports $3.8 million of business-development and integration expenses in MD&A.
- Operating cash flow deteriorated to a $9.7 million outflow. Management cited acquisition-related business-development costs and working-capital timing, including $10.4 million of cash outflow from accounts payable, accrued expenses, and other liabilities.
- Management said cash from operations and existing cash were expected to meet operational liquidity needs for at least the next 12 months, while noting future needs for debt service, trials, R&D, working capital, and possible business development. Additional financing might be needed for significant future acquisitions; availability and terms were not assured.
- Management expected JOTEC products to achieve double-digit growth over the next five years, contingent on sales-force integration, training, and market expansion. PerClot U.S. FDA approval was projected, assuming trial enrollment proceeded as anticipated, between the second half of 2019 and the first half of 2020.
- Risks and contingencies include acquisition integration and leverage, variable interest rates and debt covenants, foreign-exchange exposure, product and tissue liability, regulatory approvals, and competition. The On-X purchase-agreement indemnification dispute was in litigation. The European CE Mark for the On-X ascending aortic prosthesis remained suspended; the company sought an alternative certification path, targeting a return to the European market in Q3 2018.
- PerClot’s U.S. commercial prospects depend on clinical and FDA outcomes; the filing warns that related assets could be impaired if U.S. approval is not pursued or obtained. The company also disclosed up to $1.75 million in annual PerClot minimum purchase obligations through 2025 if it neither obtains FDA approval nor terminates the agreement.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method; it reported an immaterial cumulative adjustment. Prior-year revenue was not restated. Accounting for certain Tax Cuts and Jobs Act provisions was incomplete and provisional adjustments could change.
Investor facts to verify
- Confirm the issuer and reporting entity: this document names CryoLife, Inc., despite the request metadata naming Artivion, Inc.
- Separate acquired JOTEC revenue from underlying organic growth and assess whether integration can improve margins.
- Track operating cash use, cash balances, debt service, floating-rate exposure, and covenant headroom.
- Check progress and outcomes for PerClot and the On-X European certification pathway, as well as the On-X indemnification litigation.
- Review final JOTEC purchase accounting and any subsequent changes to provisional tax accounting or acquisition-related estimates.