Artivion, Inc. (AORT) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Artivian Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Johnston from the Gilmartin Group. Thank you. You may begin.

Good afternoon and thank you for joining the call today. Joining me from our Tivian's management team are Pat Mackin, CEO, and Lance Berry, COO Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties that are forward-looking statements within the meaning of the Federal Securities, Private Securities Litigation Reform Act of 1995. Includes statements made as the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today's call on the investor relations section of Artivian's website. Lastly, I'd like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including reconciliation of these results to our GAAP results. Unless otherwise stated, all of our comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be on the adjusted currency, constant currency rates, and expenses as percentage of sales will be based on adjusted revenues. With that, I'll turn the call over to Artivian CEO, Pat Mackin. Hey, thanks, Brian, and good afternoon, everybody.

Through the second quarter of 2026, we continue to execute on our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. We delivered total constant currency revenue growth of 9% and adjusted EBITDA growth of 7% over prior year. Revenue growth was again driven primarily by ONIX and stent grafts, including AMDS. Before expanding further on product line performance, I want to take a moment to address two milestones that we were most focused on coming into this year and recently achieved In late June, we received US FDA approval for the PMA for our AMDS hybrid prosthesis in line with our previously communicated expectations. The third quarter will be the first full quarter in which AMDS is sold in the U.S. under the full PMA. is meaningful because PMA approval obviates the lengthy IRB review process. and new accounts that previously had to work through. And we expect to accelerate new account conversion and set sales going forward. We were also pleased to complete the acquisition of Endospan in its Nexus Aortic Arch Tentcraft system during the second quarter, again ahead of the timing we had anticipated. This acquisition completes our market-leading, three-pronged aortic arch portfolio. We believe this technology, alongside AMDS and our CIVO, positions us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, Nexus is a platform technology, not just a single product. It supports three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time. As it relates to Nexus, our message here is consistent with last quarter. Through 2026, our focus will be on building inventory, working through value analysis committees, and augmenting our U.S. sales team. We continue to expect a full U.S. commercial launch of the Nexus system in January of 2027. As a reminder, the device is approved to treat chronic aortic dissections, which represents about a $100 million market opportunity. With that, now let me turn to the second quarter results. From a product category perspective, StemCraft revenues grew 12% on a cost and currency basis in the second quarter compared to the same period last year. This is an acceleration from the 10% growth we reported in the first quarter and came against tougher year-over-year comparison, so we're encouraged to see this progress. Importantly, one of our key areas of focus coming out of the first quarter was on AMDS set sales. We were pleased to see improvement in set sales relative to the first quarter with implant trends also remaining strong. As we said last quarter, we view implant reordering as the most critical indicator, as strong reordering patterns reflect positive user experience and ultimately longer-term adoption and higher growth. Looking ahead, we expect USAMDS set sales to further accelerate following the recent AMDS PMA approval. As the barriers associated with the initial upfront $100,000 investment associated with the stocking continue to wane. Ultimately, we see our comprehensive StantGraph portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantages within this segment. Turning to ONIX, our second quarter ONIX revenues grew 18% year-over-year on a constant currency basis. This growth was again driven by global market share gains in the newer U.S. opportunity unlocked by data showing improved outcomes with mechanical versus bioprosthetic valves in younger patients. also came against a much tougher year-over-year comparison than in prior quarters. The data supports our conviction that the Onyx valve is the best aortic valve on the market for patients under the age of 65. Meanwhile, tissue processing came in slightly ahead of our expectations, generating approximately $26 million in revenue, representing an increase of 1% year-over-year on a constant currency basis against a challenging comp due to recovery from the 2024 cyber incident in Q2 2025? We had a strong finish to the quarter in terms of tissue releases resulting in some volume we might otherwise have expected in the third quarter shifted into the second quarter. Overall, we remain on track with our expectations. I also want to briefly highlight the ROS procedure data that was recently published in JAK, the Journal of American College of Cardiology. The study reported a 12-year outcome of 455 adult ROS procedures that were performed at a single high-volume center. This study provides compelling long-term evidence regarding the performance of our proprietary Sinegraph pulmonary valve. The results were outstanding. With survival compared to the age match general population, The autograft re-intervention rate was 1%, and the pulmonary homograft intervention rate was at less than 2%, and that's at 12 years. As a result, the overall re-intervention at 12 years was about 3.5%. Importantly, 95% of the pulmonary homographs implanted in this study were artesian cinegraph valves. These results further reinforce Synograph's differentiated clinical profile and market leadership. We believe this level of long-term clinical evidence is unmatched in the pulmonary homograph market and strengthens physician confidence in the ROS procedure and as well as our product. Collectively, these data reinforce our conviction that supply, not demand, continues to be the primary constraint in growth for this segment of our tissue business. Finally, BioGlue revenue declined modestly in the quarter on a constant currency basis. As we discussed last quarter, this product line carries a meaningful amount of stocking distribution business, which creates normal quarter-to-quarter variability, and we continue to expect mid-single growth for BioGlue over the full year. Lastly, on our pipeline, we continue to make progress on the Artisan Clinical Trial for our CIVO LSA product. We've now enrolled 30 patients in the trial, which is a non-randomized clinical trial up to 132 patients in the US and Europe at 30 centers. This is for the treatment of aortic dissection and aneurysm in the arch. We anticipate completing enrollment in mid-27. We are optimistic the trial will be successful. based on, in part, the positive clinical results from our current generation frozen elephant trunk, Aveda Open Neo, outside the U.S. Following a one-year follow-up period and assuming the trial meets its endpoints, we anticipate FDA approval for our CVO in 2029, unlocking an incremental $80 million of annual U.S. market opportunity. In conclusion, the second quarter was a quarter of meaningful progress against our long-term strategy. We delivered the AMBS PMA approval we had targeted for me a year. We completed the nexus acquisition ahead of schedule. Stengrath revenue accelerated against a tougher comp. Honest continued to take share, and our preservation services business is growing, constrained generally by supply, not demand. The fundamentals that underpin our growth strategy remain exceptionally strong, a comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total adjustable market over time.

With that, I'll now turn the call over to Lance. Thanks, Pat, and good afternoon, everyone. Before I begin, I would like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Federal revenues were $125.8 million for the second quarter of 2026, up 9% compared to Q2 of 2025. Meanwhile, adjusted EBITDA increased approximately 7% from $24.8 million to $26.4 million in the second quarter of 2026. Adjusted EBITDA margin was $12.5 million. 21% in the second quarter of 2026, an approximately 90 basis point decrease from the prior year, primarily driven by the anticipated increased investments in R&D, including investments in the Nexus pipeline following the acquisition of IndusFans. From a product line perspective, stent graft revenues increased 12 percent, onyx grew 18 percent, tissue processing revenues grew 1 percent, and bio-glue revenues decreased 2 percent in the second quarter of 2026. On a regional basis, revenues in North America increased 8 percent, EMEA increased 10 10 percent, Asia Pacific increased 9 percent, and Latin America increased 11 percent, all compared to the second quarter of 2025. Overall we were pleased to see a return to growth across international markets. Q2 growth margins were 64%, a decrease from 64.7% in the second quarter of 2025 as favorable pricing was more than offset by unfavorable geographic mix and some higher costs in our Austin facility as we incur early costs associated with ramping production. General administrative and marketing expenses in the second quarter were $79.8 million compared to $57.7 million in the second quarter of 2025. Non-GAAP general administrative and marketing expenses were $60 million or 47.7% of sales in the second quarter compared to $53.4 million 47.2% of sales in the second quarter of 2025. Approximately 90 basis points of year-over-year improvement was driven through leveraging existing infrastructure and annualizing our year one US AMDS launch cost, while absorbing costs associated with the acquired end-of-span business, which was more than offset by approximately 90 basis points of deleverage from increased stock-based compensation and approximately 40 basis points of deleverage from increased amortization expenses following the acquisition of Endospan. R&D expenses for the second quarter were $9 million or 7.2% of sales compared to $7.1 million or 6.3% of sales in the second quarter of 2025. Interest expense net of interest income was $6.9 million as compared to $7.2 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $700,000. Free cash flow was negative 12 million in the second quarter of 2026 as compared to pods of 11.7 million in the second quarter of 2025. This quarter's free cash flow was impacted by 1.5 million of IndusPan related diligence and integration expenses and a 10.2 million dollar payment by IndusPan as a result of the acquisition for contractually required transaction bonuses. This cash payment was funded as part of the plan's $135 million purchase price, but was required to be reflected for accounting purposes as a post-acquisition expense and a free cash outflow. remaining free cash flow is relatively neutral as anticipated as we invested in our onyx manufacturing facility cost to run the acquired Indus Fan business and the US Nexus launch. As of June 30, 2026, we had approximately $77.3 million in cash and $363 million in debt, net of $6.6 million of unadvertised loan origination costs. At the end of the second quarter, our net leverage ratio was 3.1, reflecting the impact of the recent $150 million of borrowings drawn to primarily fund the end-of-span acquisition. Note that the $25 million AMDS PMA milestone payment was paid in July and is not included in the 3.1 leverage ratio for Q2. And now for our outlook for 2026. Overall, we are pleased with our 2Q performance as we saw an acceleration in stint graph revenue and strong ONIX growth, both against difficult comps and a return to growth across all international geographies. This combined with the AMDS PMA approval leaves us more confident in our ability to deliver our previously outlined guidance. We continue to expect adjusted constant currency growth between 7 to 11 percent for the full year, representing a reported revenue range of $480 to $496 million. This guidance contemplates FX to have an approximate one percentage point tailwind on as reported revenue for the full year. As a reminder, this guidance assumes inconsequential revenue from the U.S. nexus sales in 2026 as we seek Value Analysis Committee approvals and build supply for an anticipated January 2027 U.S. launch. We also continue to expect a difficult comp for the preservation services business in Q3 before normalizing in Q4. Additionally, as Pat discussed, we had some upside in preservation services in Q2, but that was primarily timing between Q2 and Q3. Outside of that business, we continue to expect sequential improvements through the back half of the year as our U.S. AMDS and U.S. Onyx sales accelerate. With these revenue expectations and including the impact of the end of span acquisition, we are reiterating our full year 2026 adjusted EBITDA to be in the range of $92 to $99 million. As a reminder, this guidance included our expectation to occur approximately $8 million of expenses associated with the acquisition of Endospan through 2026 associated with investments in launch costs and commercial infrastructure while also accounting for the absorption of Endospan operating costs, including ongoing R&D and clinical expenses. Looking forward, we would expect the first meaningful revenue contribution for Nexus to begin in January 2027 and would anticipate our combined results to be even non-neutral for the full year 2027 as U.S. Nexus revenue ramps over the course of the year as we get combined R&D and clinical spending into a targeted range of 7% to 8%.

sales. With that, I will turn the call back to Pat for his closing comments. Thanks, Lance. Overall, we're very pleased with our Q2 performance following a challenging start to the year. With Nexus and AMDS, we have a strong conviction in our longer-term growth outlook. We continue to build our broader market expansion pipeline, particularly with the Artisan Trial enrolling on schedule. More specifically, we believe that future growth will be driven by four primary USAortic growth platforms, which collectively represent about $430 million in annual U.S. market opportunity today. additional upside from expanding innovation pipeline. First is the AMDS PMA. We're seeing strong early commercial momentum with AMDS. And following the US PMA approval this past quarter, we expect accelerating adoption as we expand access to the US market. This represents about a $150 million annual opportunity in the US. Second, onic heart valves. We continue to educate physicians on the compelling clinical data demonstrating improved survival and lower re-operation rates for patients under 65 years old compared with bioprosthetic valves. We believe this data will continue to drive greater global adoption and market share gains for ONIX, representing an estimated 100 million U.S. market opportunity. Third, Nexus. We're excited to acquire the Nexus platform following its FDA approval earlier this year. In addition to providing an estimated $100 million annual U.S. market opportunity, the acquisition positions Artevian as a leader in the aortic arch repair market and significantly strengthens our innovation pipeline with three additional PMA programs currently in development. And fourth, the Artisan IDE trial. We continue to make excellent progress in rolling on the FDA IDE trial called Artisan for our next generation frozen elephant trunk platform. We believe this technology represents an additional $80 million U.S. market opportunity and further expands our long-term growth runway. Finally, I want to thank all of our employees around the globe for the continued dedication to our mission of being a leader, a leading partner for surgeons focused on aortic disease,.

So with that, operator, please open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question is from Bill from Canaccord Genuity. Please go ahead.

Hi, it's Zachary on for Bill. Thank you for taking the question. to beat by a nice bit. Why not raise the guidance? What does it imply for the back half of the year, more specifically on product line, especially with some of the drivers you have, AMDS getting approval? Thank you.

Yes, so a couple of things. We're really pleased with the Q2 performance. Obviously, we got the PMA approval for AMDS and we closed the end of span transaction. But both of those were contemplated in our previous guidance. And at the time of the Q1 call, we had a very high degree of confidence in both those things. Beyond that, if you look at Q2, the preservation services, we had a great quarter. It was probably about $2 million above our kind of targeted expectations. But a lot of that was due to really strong releases toward the end of the quarter. that really just kind of moved some revenue that would have been in Q3 into Q2. And then lastly, though, if you look, stint graphs accelerated revenue growth despite a much tougher comp, and ONIX actually even slightly higher growth in Q1 despite a much tougher compass too, which is great. And all that gives us more confidence in our ability to deliver that guidance. I think really just coming off of what was honestly a pretty challenging Q1, we felt at this point it was just prudent to maintain some conservatism. until we get a little further in the year, and it's really nothing more than that.

Got it, thank you. And then for my follow-up, if you don't mind, can you quantify or provide some relative scale to the number of accounts currently with AMDS on the shelf and those either in VAC approval or purchasing of inventory? I know that there were some headwinds before about about, you know, AMDS being in HCE and some accounts are waiting until we got the PMA to adopt it. Just any comment on that, thank you.

Yes, we've not really given a lot of details on those other than like the initial quarter after we launched we gave some comments. We did make good progress in Q2 and had an improved performance on set sales and new account openings in Q2 as compared to Q1. So we will say that. And then, Pat, I don't know if you want to give some qualitative comments on AMDS and Q2. Yes, no, I mean, we clearly haven't given.

an account level detail that we're not planning on anytime soon, but I do think we've said for a while that this PMA is a, we think this is a big deal. It allows us to be more aggressive with the marketing. We brought the whole commercial team back in in July for a sales training meeting. It was fantastic. So I feel like our messaging, the not having to go through the IRB, not having this HTE to deal with, I think it's going to set us up well for the back half.

The next question is from Suraj Kalia from Oppenheimer. Please go ahead.

Hi, Pat. Hi, Lance. This is Seamus on for Suraj. Thank you for taking our questions. Just to start, Pat, can you talk a little bit more about kind of AMDS? I think you said something along the lines of, you know, the $100,000 set price, you know, you're kind of seeing that kind of barrier waning as you kind of go on. Just trying to understand a little bit better kind of what happened kind of in one queue, what kind of... have changed now that obviously we know PMA approval, but obviously that $100,000 price didn't change. So kind of why was it a barrier before and why is it not so much now? Yes.

Yes, I think, you know, as we said on the Q1 call, you know, all the way through 2024, we – through 2025 with HD, we were tracking every quarter to our sets, to our implants, and Q1 of 26 was really our first kind of time that we missed our expectations. And trying to predict when these things close is challenging because you're outside of them. We had a number of accounts that had IRB approval, VAC approval, but we're waiting on a PO because this is not normal that they have to write a check for $100,000. So we spent a lot of work in Q2 kind of understanding the barriers of why it was taking people longer. We have programs kind of set up for addressing those types of things. I just think we've really gotten our arms around kind of what it takes to open accounts and drive adoption. And like I said, we're super excited about the PMA. And it'll take us some time to get that out and it doesn't travel out immediately, but we're very bullish on the second half, what we can do with AMGS. Got it.

Thank you for that. And then just kind of thinking through things a little bit differently. You know, fast forward, we'll say six months or so from now, kind of January, Nexus is launched. How are you guys kind of balancing kind of the sales force of selling? You know, you've got these great new products, but obviously you have kind of legacy what's been in the bag. You know, how are you balancing kind of them selling everything that's newer, what's kind of what you've got, and making sure that nothing kind of slips. Thank you again for taking the questions. Yes, so I think a couple points. So we've got a couple of questions.

A commercial team in the U.S. are about 60 people, and they focus heavily on the aortic cardiac surgeon. that's ONIX for going against bioprosthetic vials, and that's AMBS. It's also the Synergraph Pullman Revitality. It's the same customers. They already know them all. We have business in each one of these accounts. They have relationships. It's really just our team driving messaging into those accounts. Nexus is also done in the big accounts. but that's primarily with the vascular surgeon. And so we're building out a small commercial team that'll work with our cardiac team because they actually work together on these, the cardiac and vascular surgeons. And the nice thing about Nexus, the Nexus opportunity, is there's probably 150 centers that are really our target. So it's not a huge universe of accounts, but that's where all the volume is. So with kind of a small dedicated vascular team, we'll be able to do, you know, cover these nexus cases and they'll work kind of hand in hand. with the cardiac team. So our cardiac team just went through value analysis committee and a bunch of accounts. we're already going through value analysis committee even faster because we learned how to do it and we've kind of got the playbook set. So I think there's a lot of synergy between our cardiac and vascular, but the nice thing about this Nexus product is it's a very tight number of accounts and a small team of reps can actually cover the implants.

The next question is from John McCauley from Stiefel. Please go ahead.

Hi, Pat and Lance. It was clearly a positive, busy quarter on the aortic side of things with Nexus officially acquired and getting the PMA for AMDS approved. Quick question sort of on both items. I mean, can you just talk a little more qualitatively about how conversations with customers have changed since the approval has been in hand? And sort of as a follow-up to that, I mean, is this a situation where revenues could accelerate in the back half of the year? And then on... On Nexus, just curious on the progress you're making on integration, rep hiring, and getting the device sort of ready to scale from a manufacturing perspective.

Yes, so let me take the Nexus one first. I mean, the great thing about the relationship we had with Endospan is, you know, we've been partnering with them since 2019, so this is not a new, you know, I've done a lot of acquisitions in my career. When you do an acquisition and, you know, people don't know each other and everything's new, this is a team we've worked with for, what is it now, six, seven years. So I think the integration's gone extremely well. We've brought over the majority of their team and they've been doing really well We're super aligned on what we're trying to accomplish in delivering breakthrough technology to the aortic arch, and they're a key component of that. The other thing with Nexus is, as you guys know, there's a built-in six-month delay in to start in these accounts because of the Value Analysis Committee. So we're taking that time to build up the inventory, hire the reps, train the surgeons. And as we've said all along from last quarter, our plan is to launch this product on January 1 of 2027. Now, we're going to be doing some cases between now and the end of the year, but they're more ad hoc. and we'll take them as they come through. But we're really trying to position ourselves for a January 1 kind of kickoff for Nexus. As far as AMDS, you know, I think the one thing I would say on the customer side, you know, I've been to a lot of these training meetings with surgeons, you know, People were super confused by this HTE. They had to go through your IRB. In some cases, they had to fill out paperwork for the trial, almost like it was a clinical trial. I think the other thing is we've got this very positive reimbursement, and we're getting that messaging out, both this new DRG 209 for Medicare patients and communicating kind of what the private payers are paying. So that's been another big thing we've learned through the initial launch is tightening up the messaging around the reimbursement as well as the, now that we've got the PMA, not having to go through that process. So, you know, again, I think the biggest thing is we just really kind of tightened up our messaging on AMDS now that we have the PMA. And I think it's very well done and, you know, we've got to get out in the market and you know, put it to work. But, you know, we're encouraged by kind of our opportunity in the back half. Yes.

Got it. That's very helpful. And looking at maybe a tad too far ahead at this stage, but as I'm looking at 27, I hear you talking about a Nexus product launch January 1st. But at the same time, I also hear you talking about hiring reps and developing that. And I think, Lance, you even made some comments there about leave it to a neutral impact. Just Just curious sort of about how we should be thinking about the top line equation for next year with Nexus coming into the fold, but also what the implications are for EBITDA. I know your typical goal is to grow at least higher or at least faster than revenues growing. So just be curious about any initial thoughts there.

Yes, first of all, it's a little early. We usually try and give some directional comments on the Q3 call, not the Q2 call. But some directional things. One, we are going to have to make some investments on the commercial side for reps and for training for surgeons. We've talked about Nexus is a more intensive training. product now but we've also said it's going to be very concentrated from a facility and certain standpoint and we're not going to need a large sales force to be able to deliver what we want to in 2027. So I think there will be some investment, but it's not going to be... it's not going to be I think obviously the rest of our business, our business model is great if you take the investments and costs from Indusband that we're going to have and the revenue out. The underlying business model is still great and has an opportunity to generate a lot of leverage and really good revenue growth. Those are some high-level comments, and I think we'll think about giving you a little bit more detail in Q3 when we get a little bit closer to 27.

I appreciate the color, and thanks for taking the questions. The next question is from Keith Hinton from Freedom Capital Markets. Please go ahead.

Great, thanks. Yes, so I have a question on AMDS just in terms of what things have looked like since the approval. So, should we be thinking about this as the approval hits and then you guys have full license to go out and kind of rebuild the pipeline for potential accounts or is there some kind of like warehousing effect where you had some you know some accounts that were were ready to go and just waiting for that approval and so we could see more of a step change upwards and then I have a follow.