UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-13165
ARTIVION, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
| 59-2417093 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
|
|
|
1655 Roberts Boulevard, NW, Kennesaw, Georgia |
| 30144 |
(Address of principal executive offices) |
| (Zip Code) |
(770) 419-3355
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | AORT | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | x | Accelerated Filer | o |
| Non-accelerated Filer | o | Smaller Reporting Company | o |
|
|
| Emerging Growth Company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
|
|
|
Class |
| Outstanding at April 29, 2022 |
Common Stock, $0.01 par value |
| 40,201,565 |
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
In Thousands, Except Per Share Data
(Unaudited)
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
|
| 2022 |
|
| 2021 |
Revenues: |
|
|
|
|
|
Products | $ | 57,542 |
| $ | 53,345 |
Preservation services |
| 19,671 |
|
| 17,742 |
Total revenues |
| 77,213 |
|
| 71,087 |
|
|
|
|
|
|
Cost of products and preservation services: |
|
|
|
|
|
Products |
| 17,408 |
|
| 14,911 |
Preservation services |
| 9,086 |
|
| 8,338 |
Total cost of products and preservation services |
| 26,494 |
|
| 23,249 |
|
|
|
|
|
|
Gross margin |
| 50,719 |
|
| 47,838 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
General, administrative, and marketing |
| 38,955 |
|
| 38,638 |
Research and development |
| 10,128 |
|
| 7,754 |
Total operating expenses |
| 49,083 |
|
| 46,392 |
|
|
|
|
|
|
Operating income |
| 1,636 |
|
| 1,446 |
|
|
|
|
|
|
Interest expense |
| 3,948 |
|
| 4,040 |
Interest income |
| (16) |
|
| (24) |
Other expense, net |
| 133 |
|
| 1,931 |
|
|
|
|
|
|
Loss before income taxes |
| (2,429) |
|
| (4,501) |
Income tax expense (benefit) |
| 960 |
|
| (1,363) |
|
|
|
|
|
|
Net loss | $ | (3,389) |
| $ | (3,138) |
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
Basic | $ | (0.08) |
|
| (0.08) |
Diluted | $ | (0.08) |
| $ | (0.08) |
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
Basic |
| 39,850 |
|
| 38,738 |
Diluted |
| 39,850 |
|
| 38,738 |
|
|
|
|
|
|
Net loss | $ | (3,389) |
| $ | (3,138) |
Other comprehensive loss: |
|
|
|
|
|
Foreign currency translation adjustments |
| (3,775) |
|
| (10,290) |
Comprehensive loss | $ | (7,164) |
| $ | (13,428) |
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
Artivion, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
In Thousands
|
|
|
|
|
|
| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
| (Unaudited) |
|
|
| |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents | $ | 51,408 |
| $ | 55,010 |
Trade receivables, net |
| 54,998 |
|
| 53,019 |
Other receivables |
| 4,577 |
|
| 5,086 |
Inventories, net |
| 76,208 |
|
| 76,971 |
Deferred preservation costs, net |
| 43,964 |
|
| 42,863 |
Prepaid expenses and other |
| 13,378 |
|
| 14,748 |
Total current assets |
| 244,533 |
|
| 247,697 |
|
|
|
|
|
|
Goodwill |
| 247,829 |
|
| 250,000 |
Acquired technology, net |
| 162,458 |
|
| 166,994 |
Operating lease right-of-use assets, net |
| 44,365 |
|
| 45,714 |
Property and equipment, net |
| 37,459 |
|
| 37,521 |
Other intangibles, net |
| 33,697 |
|
| 34,502 |
Deferred income taxes |
| 3,489 |
|
| 2,357 |
Other assets |
| 8,026 |
|
| 8,267 |
Total assets | $ | 781,856 |
| $ | 793,052 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable | $ | 9,230 |
| $ | 10,395 |
Accrued compensation |
| 9,571 |
|
| 13,163 |
Accrued expenses |
| 9,396 |
|
| 7,687 |
Taxes payable |
| 5,575 |
|
| 3,634 |
Accrued procurement fees |
| 2,206 |
|
| 3,689 |
Current maturities of operating leases |
| 3,362 |
|
| 3,149 |
Current portion of long-term debt |
| 1,622 |
|
| 1,630 |
Other liabilities |
| 1,875 |
|
| 1,606 |
Total current liabilities |
| 42,837 |
|
| 44,953 |
|
|
|
|
|
|
Long-term debt |
| 307,232 |
|
| 307,493 |
Contingent consideration |
| 47,600 |
|
| 49,400 |
Non-current maturities of operating leases |
| 43,679 |
|
| 44,869 |
Non-current finance lease obligation |
| 4,156 |
|
| 4,374 |
Deferred income taxes |
| 26,373 |
|
| 28,799 |
Deferred compensation liability |
| 5,766 |
|
| 5,952 |
Other liabilities |
| 6,721 |
|
| 6,484 |
Total liabilities | $ | 484,364 |
| $ | 492,324 |
|
|
|
|
|
|
Commitments and contingencies |
|
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| ||
|
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|
|
Shareholders' equity: |
|
|
|
|
|
Preferred stock |
|
|
|
|
|
Common stock (issued shares of 41,688 in 2022 and 41,397 in 2021) |
| 417 |
|
| 414 |
Additional paid-in capital |
| 326,799 |
|
| 322,874 |
Retained (deficit) earnings |
| (1,414) |
|
| 1,975 |
Accumulated other comprehensive loss |
| (13,662) |
|
| (9,887) |
Treasury stock, at cost, 1,487 shares as of March 31, 2022 |
| (14,648) |
|
| (14,648) |
Total shareholders' equity |
| 297,492 |
|
| 300,728 |
|
|
|
|
|
|
Total liabilities and shareholders' equity | $ | 781,856 |
| $ | 793,052 |
See accompanying Notes to Condensed Consolidated Financial Statements
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
In Thousands
(Unaudited)
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
|
| 2022 |
|
| 2021 |
Net cash flows from operating activities: |
|
|
|
|
|
Net loss | $ | (3,389) |
| $ | (3,138) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 5,881 |
|
| 6,006 |
Non-cash compensation |
| 3,166 |
|
| 2,480 |
Non-cash lease expense |
| 1,920 |
|
| 1,758 |
Write-down of inventories and deferred preservation costs |
| 989 |
|
| 1,274 |
Change in fair value of contingent consideration |
| (1,800) |
|
| 970 |
Deferred income taxes |
| (2,966) |
|
| (4,241) |
Other |
| 496 |
|
| 787 |
Changes in operating assets and liabilities: |
|
|
|
|
|
Prepaid expenses and other assets |
| 1,494 |
|
| (1,291) |
Inventories and deferred preservation costs |
| (1,359) |
|
| (5,933) |
Receivables |
| (1,710) |
|
| (3,301) |
Accounts payable, accrued expenses, and other liabilities |
| (3,320) |
|
| 1,590 |
Net cash flows used in operating activities |
| (598) |
|
| (3,039) |
|
|
|
|
|
|
Net cash flows from investing activities: |
|
|
|
|
|
Capital expenditures |
| (2,239) |
|
| (1,502) |
Other |
| (469) |
|
| 692 |
Net cash flows used in investing activities |
| (2,708) |
|
| (810) |
|
|
|
|
|
|
Net cash flows from financing activities: |
|
|
|
|
|
Proceeds from exercise of stock options and issuance of common stock |
| 2,318 |
|
| 861 |
Repayment of debt |
| (694) |
|
| (701) |
Redemption and repurchase of stock to cover tax withholdings |
| (1,730) |
|
| (1,813) |
Other |
| (129) |
|
| (442) |
Net cash flows used in financing activities |
| (235) |
|
| (2,095) |
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
| (61) |
|
| 1,088 |
Decrease in cash and cash equivalents |
| (3,602) |
|
| (4,856) |
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
| 55,010 |
|
| 61,958 |
Cash and cash equivalents end of period | $ | 51,408 |
| $ | 57,102 |
See accompanying Notes to Condensed Consolidated Financial Statements
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
In Thousands
(Unaudited)
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| Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Additional |
| Retained |
| Other |
|
|
|
|
|
| Total | ||||
| Common |
| Paid-In |
| Earnings |
| Comprehensive |
| Treasury |
| Shareholders' | ||||||||||
| Stock |
| Capital |
| (Deficit) |
| Loss |
| Stock |
| Equity | ||||||||||
| Shares |
| Amount |
|
|
|
|
|
|
|
|
|
| Shares |
| Amount |
|
|
| ||
Balance at December 31, 2021 | 41,397 |
| $ | 414 |
| $ | 322,874 |
| $ | 1,975 |
| $ | (9,887) |
| (1,487) |
| $ | (14,648) |
| $ | 300,728 |
Net loss | -- |
|
| -- |
|
| -- |
|
| (3,389) |
|
| -- |
| -- |
|
| -- |
|
| (3,389) |
Other comprehensive loss | -- |
|
| -- |
|
| -- |
|
| -- |
|
| (3,775) |
| -- |
|
| -- |
|
| (3,775) |
Equity compensation | 205 |
|
| 2 |
|
| 3,338 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 3,340 |
Exercise of options | 140 |
|
| 2 |
|
| 1,678 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 1,680 |
Employee stock purchase plan | 37 |
|
| -- |
|
| 638 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 638 |
Redemption and repurchase of stock to cover tax withholdings | (91) |
|
| (1) |
|
| (1,729) |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| (1,730) |
Balance at March 31, 2022 | 41,688 |
| $ | 417 |
| $ | 326,799 |
| $ | (1,414) |
| $ | (13,662) |
| (1,487) |
| $ | (14,648) |
| $ | 297,492 |
|
|
|
|
|
|
|
|
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|
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|
|
|
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| Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
|
| Total | ||||
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Shareholders' | ||||||||||
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | ||||||||||
| Shares |
| Amount |
|
|
|
|
|
|
|
|
|
| Shares |
| Amount |
|
|
| ||
Balance at December 31, 2020 | 40,394 |
| $ | 404 |
| $ | 316,192 |
| $ | 20,022 |
| $ | 6,743 |
| (1,487) |
| $ | (14,648) |
| $ | 328,713 |
Net loss | -- |
|
| -- |
|
| -- |
|
| (3,138) |
|
| -- |
| -- |
|
| -- |
|
| (3,138) |
Other comprehensive loss | -- |
|
| -- |
|
| -- |
|
| -- |
|
| (10,290) |
| -- |
|
| -- |
|
| (10,290) |
Impact of adoption of ASU 2020-06 | -- |
|
| -- |
|
| (16,426) |
|
| (3,213) |
|
| -- |
| -- |
|
| -- |
|
| (19,639) |
Equity compensation | 207 |
|
| 2 |
|
| 2,635 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 2,637 |
Exercise of options | 19 |
|
| -- |
|
| 271 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 271 |
Employee stock purchase plan | 37 |
|
| 1 |
|
| 589 |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| 590 |
Redemption and repurchase of stock to cover tax withholdings | (72) |
|
| (1) |
|
| (1,812) |
|
| -- |
|
| -- |
| -- |
|
| -- |
|
| (1,813) |
Balance at March 31, 2021 | 40,585 |
| $ | 406 |
| $ | 301,449 |
| $ | 13,671 |
| $ | (3,547) |
| (1,487) |
| $ | (14,648) |
| $ | 297,331 |
See accompanying Notes to Condensed Consolidated Financial Statements
Artivion, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Overview
The accompanying Condensed Consolidated Financial Statements include the accounts of Artivion, Inc. and its subsidiaries (“Artivion,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements as of, and for the three months ended, March 31, 2022 and 2021 have been prepared in accordance with (i) accounting principles generally accepted in the US for interim financial information and (ii) the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the US Securities and Exchange Commission (the “SEC”). Accordingly, such statements do not include all the information and disclosures that are required by accounting principles generally accepted in the US for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in Artivion’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.
Significant Accounting Policies
A summary of our significant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements” contained in our Form 10-K for the year ended December 31, 2021. Management believes that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition. The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the US, which require us to make estimates and assumptions. We did not experience any significant changes during the three months ended March 31, 2022 in any of our Significant Accounting Policies from those contained in our Form 10-K for the year ended December 31, 2021.
New Accounting Standards
Recently Adopted
In August 2020 the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible instruments by eliminating two accounting models (i.e., the cash conversion model and beneficial conversion feature model) and reducing the number of embedded conversion features that could be recognized separately from the host contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. On January 1, 2021 we adopted ASU 2020-06 using the modified retrospective approach. See Note 8 for further discussion of convertible debt.
Not Yet Effective
In March 2020 the FASB issued ASU 2020-04, Reference Rate Reform Topic 848 (“ASC 848”). The amendments in this ASU were put forth in response to the market transition from the LIBOR and other interbank offered rates to alternative reference rates. Accounting principles generally accepted in the United States of America require entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022 and cannot be applied to contract modifications that occur after December 31, 2022. We are in the process of evaluating the effect that the adoption of this standard will have on our financial position and results of operations.
The following is a summary of our financial instruments measured at fair value on a recurring basis (in thousands):
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March 31, 2022 | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Cash equivalents: |
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|
|
|
|
Money market funds | $ | 10,018 |
| $ |
|
| $ |
|
| $ | 10,018 |
Total assets | $ | 10,018 |
| $ |
|
| $ |
|
| $ | 10,018 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| -- |
|
|
|
|
| (47,600) |
|
| (47,600) |
Total liabilities | $ | -- |
| $ |
|
| $ | (47,600) |
| $ | (47,600) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
Money market funds | $ | 10,015 |
| $ |
|
| $ |
|
| $ | 10,015 |
Total assets | $ | 10,015 |
| $ |
|
| $ |
|
| $ | 10,015 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| -- |
|
|
|
|
| (49,400) |
|
| (49,400) |
Total liabilities | $ | -- |
| $ |
|
| $ | (49,400) |
| $ | (49,400) |
We used prices quoted from our investment advisors to determine the Level 1 valuation of our investments in money market funds.
On September 2, 2020 we entered into a Securities Purchase Agreement to acquire 100% of the outstanding equity interests of Ascyrus Medical LLC (“Ascyrus”). Ascyrus developed the AMDS, the world’s first aortic arch remodeling device for use in the treatment of acute Type A aortic dissections. As part of the acquisition, we may be required to pay additional consideration in cash and equity up to $120.0 million to the former shareholders of Ascyrus upon the achievement of certain milestones and the sales-based additional earnout.
The contingent consideration represents the estimated fair value of future potential payments. The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. We applied a discount rate based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then applied a risk-based estimate of the probability of achieving each scenario to calculate the fair value of the contingent consideration. This fair value measurement was based on unobservable inputs, including management estimates and assumptions about the future achievement of milestones and future estimate of revenues, and is, therefore, classified as Level 3 within the fair value hierarchy. We used a discount rate of approximately 10% and estimated future achievement of milestone dates between 2025 and 2026 to calculate the fair value of contingent consideration as of March 31, 2022. We will remeasure this liability at each reporting date and will record changes in the fair value of the contingent consideration in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Increases or decreases in the fair value of the contingent consideration liability can result from changes in passage of time, discount rates, the timing and amount of our revenue estimates, and the timing and expectation of regulatory approvals.
We performed an assessment of the fair value of the contingent consideration and recorded income of $1.8 million and expense of $970,000 in fair value adjustments for the three months ended March 31, 2022 and 2021, respectively, in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss, as a result of this assessment.
The fair value of the contingent consideration component of the Ascyrus acquisition was updated using Level 3 inputs. Changes in fair value of Level 3 assets and liabilities are listed in the tables below (in thousands):
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|
|
| Contingent Consideration | |
Balance as of December 31, 2021 | $ | (49,400) |
Change in valuation |
| 1,800 |
Balance as of March 31, 2022 | $ | (47,600) |
The following is a summary of cash equivalents (in thousands):
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| Unrealized |
| Estimated | ||
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| Holding |
| Market | ||
March 31, 2022 | Cost Basis |
| Gains |
| Value | |||
Cash equivalents: |
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|
Money market funds | $ | 10,018 |
| $ |
|
| $ | 10,018 |
Total assets | $ | 10,018 |
| $ |
|
| $ | 10,018 |
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| Unrealized |
| Estimated | ||
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| Holding |
| Market | ||
December 31, 2021 | Cost Basis |
| Gains |
| Value | |||
Cash equivalents: |
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|
Money market funds | $ | 10,015 |
| $ |
|
| $ | 10,015 |
Total assets | $ | 10,015 |
| $ |
|
| $ | 10,015 |
There were no gross realized gains or losses on cash equivalents for the three months ended March 31, 2022 and 2021.
Inventories at March 31, 2022 and December 31, 2021 were comprised of the following (in thousands):
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|
| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
Raw materials and supplies | $ | 35,075 |
| $ | 35,780 |
Work-in-process |
| 11,440 |
|
| 9,712 |
Finished goods |
| 29,693 |
|
| 31,479 |
Total inventories, net | $ | 76,208 |
| $ | 76,971 |
To facilitate product usage, we maintain consignment inventory of our On-X heart valves at domestic hospital locations and On-X heart valves and aortic stent grafts at international hospital locations. We retain title and control over this consignment inventory until the device is implanted, at which time we invoice the hospital and recognize revenue. As of March 31, 2022 we had $14.7 million in consignment inventory, with approximately 37% in domestic locations and 63% in international locations. As of December 31, 2021 we had $12.9 million in consignment inventory, with approximately 43% in domestic locations and 57% in international locations.
Total deferred preservation costs were $44.0 million and $42.9 million as of March 31, 2022 and December 31, 2021, respectively.
Inventory and deferred preservation costs obsolescence reserves were $2.7 million and $3.2 million as of March 31, 2022 and December 31, 2021, respectively.
Indefinite Lived Intangible Assets
As of March 31, 2022 and December 31, 2021 the carrying values of our indefinite lived intangible assets were as follows (in thousands):
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| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
Goodwill | $ | 247,829 |
| $ | 250,000 |
In-process R&D |
| 2,164 |
|
| 2,208 |
Procurement contracts and agreements |
| 2,013 |
|
| 2,013 |
Trademarks |
| 196 |
|
| 66 |
We monitor the phases of development of our acquired in-process research and development projects, including the risks associated with further development and the amount and timing of benefits expected to be derived from the completed projects. Incremental costs associated with development are charged to expense as incurred. Capitalized costs are amortized over the estimated useful life of the developed asset once completed. Our in-process research and development projects are reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. We did not record any impairment of indefinite lived intangible assets during the three months ended March 31, 2022. In-process research and development, procurement contracts and agreements, and trademarks are included in Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.
Based on our experience with similar agreements, we believe that our acquired procurement contracts and agreements have indefinite useful lives, as we expect to continue to renew these contracts for the foreseeable future. We believe that our trademarks have indefinite useful lives as we currently anticipate that our trademarks will contribute to our cash flows indefinitely.
We evaluate our goodwill and non-amortizing intangible assets for impairment on an annual basis during the fourth quarter of the year, and, if necessary, during interim periods if factors indicate that an impairment review is warranted. As of March 31, 2022 we concluded that our assessment of current factors did not indicate that goodwill or non-amortizing intangible assets are more likely than not to be impaired. We will continue to evaluate the recoverability of these non-amortizing intangible assets in future periods as necessary.
As of March 31, 2022 and December 31, 2021 our entire goodwill balance was related to our Medical devices segment.
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| Medical Devices Segment | |
Balance as of December 31, 2021 | $ | 250,000 |
Foreign currency translation |
| (2,171) |
Balance as of March 31, 2022 | $ | 247,829 |
Definite Lived Intangible Assets
The definite lived intangible assets balance includes balances related to acquired technology, customer relationships, distribution and manufacturing rights and know-how, patents, and other definite lived intangible assets. As of March 31, 2022 and December 31, 2021 the gross carrying values, accumulated amortization, and approximate amortization period of our definite lived intangible assets were as follows (in thousands):
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| Weighted Average |
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Useful Life | |||
March 31, 2022 | Value |
| Amortization |
| Value |
| (Years) | |||
Acquired technology | $ | 211,589 |
| $ | 49,131 |
| $ | 162,458 |
| 17.7 |
Other intangibles: |
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Customer lists and relationships |
| 31,108 |
|
| 9,987 |
|
| 21,121 |
| 20.5 |
Distribution and manufacturing rights and know-how |
| 9,652 |
|
| 4,675 |
|
| 4,977 |
| 5.0 |
Patents |
| 4,127 |
|
| 3,153 |
|
| 974 |
| 17.0 |
Other |
| 4,190 |
|
| 1,938 |
|
| 2,252 |
| 4.4 |
Total other intangibles | $ | 49,077 |
| $ | 19,753 |
| $ | 29,324 |
| 10.6 |
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| Weighted Average |
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Useful Life | |||
December 31, 2021 | Value |
| Amortization |
| Value |
| (Years) | |||
Acquired technology | $ | 213,626 |
| $ | 46,632 |
| $ | 166,994 |
| 17.7 |
Other intangibles: |
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Customer lists and relationships |
| 31,148 |
|
| 9,618 |
|
| 21,530 |
| 20.5 |
Distribution and manufacturing rights and know-how |
| 9,847 |
|
| 4,308 |
|
| 5,539 |
| 5.0 |
Patents |
| 4,083 |
|
| 3,144 |
|
| 939 |
| 17.0 |
Other |
| 3,969 |
|
| 1,762 |
|
| 2,207 |
| 4.4 |
Total other intangibles | $ | 49,047 |
| $ | 18,832 |
| $ | 30,215 |
| 10.6 |
Amortization Expense
The following is a summary of amortization expense as recorded in General, administrative, and marketing expenses on our Condensed Consolidated Statement of Operations and Comprehensive Loss (in thousands):
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|
| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Amortization expense | $ | 4,084 |
| $ | 4,260 |
As of March 31, 2022 scheduled amortization of intangible assets for the next five years is as follows (in thousands):
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| Remainder |
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| |
| of 2022 |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Total | |||||||
Amortization expense | $ | 11,625 |
|
| 15,131 |
|
| 14,754 |
|
| 12,785 |
|
| 12,559 |
|
| 12,496 |
| $ | 79,350 |
Income Tax Expense
Our effective income tax rate was an expense of 40% and a benefit of 30% for the three months ended March 31, 2022 and 2021, respectively. Our income tax rate for the three months ended March 31, 2022 was primarily impacted by changes in our valuation allowance against our net deferred tax assets, non-deductible executive compensation, the foreign derived intangible
income deduction, the research and development tax credit, changes in our uncertain tax position liabilities, and tax shortfalls on stock compensation. Our income tax rate for the three months ended March 31, 2021 was primarily impacted by non-deductible executive compensation, changes in our valuation allowance against our net deferred tax assets, changes in our uncertain tax position liabilities, the research and development tax credit, and excess tax benefits on stock compensation.
Deferred Income Taxes
We generate deferred tax assets primarily as a result of capital leases, net operating losses, amortization of research and experimental expenses, excess interest carryforward, stock compensation, and accrued compensation. Our deferred tax liabilities are primarily made up of intangible assets acquired in previous years, capital leases, and unrealized gains and losses.
We maintained a net deferred tax liability of $22.9 million and $26.4 million as of March 31, 2022 and December 31, 2021, respectively. Our valuation allowance against our deferred tax assets was $14.8 million and $13.3 million as of March 31, 2022 and December 31, 2021, respectively, primarily related to net operating loss carryforwards and disallowed excess interest carryforwards.
We have operating and finance lease obligations resulting from the lease of land and buildings that comprise our corporate headquarters and various manufacturing facilities; leases related to additional manufacturing, office, and warehouse space; leases on company vehicles; and leases on a variety of office and other equipment.
On January 6, 2021 we executed a modification to extend the lease of our headquarters located in Kennesaw, Georgia. This modification resulted in an increase in the present value of future lease obligations and corresponding right-of-use asset of $23.3 million, using a discount rate of 6.41%.
Information related to leases included in the Condensed Consolidated Balance Sheets is as follows (in thousands, except lease term and discount rate):
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Operating leases: |
| March 31, 2022 |
|
| December 31, 2021 |
Operating lease right-of-use assets | $ | 57,532 |
| $ | 58,097 |
Accumulated amortization |
| (13,167) |
|
| (12,383) |
Operating lease right-of-use assets, net | $ | 44,365 |
| $ | 45,714 |
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| |
Current maturities of operating leases | $ | 3,362 |
| $ | 3,149 |
Non-current maturities of operating leases |
| 43,679 |
|
| 44,869 |
Total operating lease liabilities | $ | 47,041 |
| $ | 48,018 |
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Finance leases: |
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| |
Property and equipment, at cost | $ | 6,625 |
| $ | 6,759 |
Accumulated amortization |
| (2,196) |
|
| (2,105) |
Property and equipment, net | $ | 4,429 |
| $ | 4,654 |
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| |
Current maturities of finance leases | $ | 520 |
| $ | 528 |
Non-current maturities of finance leases |
| 4,156 |
|
| 4,374 |
Total finance lease liabilities | $ | 4,676 |
| $ | 4,902 |
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Weighted average remaining lease term (in years): |
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Operating leases |
| 12.4 |
|
| 12.5 |
Finance leases |
| 8.6 |
|
| 8.8 |
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Weighted average discount rate: |
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Operating leases |
| 5.9% |
|
| 5.8% |
Finance leases |
| 2.0% |
|
| 2.0% |
Current maturities of finance leases are included as a component of Other current liabilities on our Condensed Consolidated Balance Sheets. A summary of lease expenses for our finance and operating leases included in General, administrative, and marketing expenses on our Condensed Consolidated Statements of Operations and Comprehensive Income Loss are as follows (in thousands):
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| Three Months Ended | ||||
| March 31, | ||||
|
| 2022 |
|
| 2021 |
Amortization of property and equipment | $ | 137 |
| $ | 154 |
Interest expense on finance leases |
| 25 |
|
| 29 |
Total finance lease expense |
| 162 |
|
| 183 |
Operating lease expense |
| 1,920 |
|
| 1,758 |
Sublease income |
| (92) |
|
| (124) |
Total lease expense | $ | 1,990 |
| $ | 1,817 |
A summary of our cash flow information related to leases is as follows (in thousands):
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| Three Months Ended | ||||
| March 31, | ||||
Cash paid for amounts included in the measurement of lease liabilities: |
| 2022 |
|
| 2021 |
Operating cash flows for operating leases | $ | 1,525 |
| $ | 1,500 |
Financing cash flows for finance leases |
| 130 |
|
| 144 |
Operating cash flows for finance leases |
| 24 |
|
| 28 |
Future minimum lease payments and sublease rental income are as follows (in thousands):
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| Finance |
| Operating |
| Sublease | |||
| Leases |
| Leases |
| Income | |||
Remainder of 2022 | $ | 436 |
| $ | 4,392 |
| $ | 214 |
2023 |
| 616 |
|
| 5,630 |
|
| -- |
2024 |
| 610 |
|
| 6,189 |
|
| -- |
2025 |
| 587 |
|
| 5,162 |
|
| -- |
2026 |
| 568 |
|
| 4,767 |
|
| -- |
Thereafter |
| 2,272 |
|
| 42,021 |
|
| -- |
Total minimum lease payments | $ | 5,089 |
| $ | 68,161 |
| $ | 214 |
Less amount representing interest |
| (413) |
|
| (21,120) |
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Present value of net minimum lease payments |
| 4,676 |
|
| 47,041 |
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Less current maturities |
| (520) |
|
| (3,362) |
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Lease liabilities, less current maturities | $ | 4,156 |
| $ | 43,679 |
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Credit Agreement
On December 1, 2017 we entered into a credit and guaranty agreement for a $255.0 million senior secured credit facility, consisting of a $225.0 million secured term loan facility (the “Term Loan Facility”) and a $30.0 million secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Agreement”). We and each of our existing domestic subsidiaries (subject to certain exceptions and exclusions) guarantee the obligations under the Credit Agreement (the “Guarantors”). The Credit Agreement is secured by a security interest in substantially all existing and after-acquired real and personal property (subject to certain exceptions and exclusions) of us and the Guarantors.
On June 2, 2021 we entered into an amendment to our Credit Agreement to extend the maturity dates of our Term Loan and Revolving Credit Facility. As part of the amendment, the maturity dates of both our Term Loan and Revolving Credit Facility were each extended by , until June 1, 2027 and June 1, 2025, respectively, subject to earlier springing
maturities triggered if our 4.25% Convertible Senior Notes, described below, remain outstanding on April 1, 2025 and December 31, 2024, respectively. With respect to the Term Loan, if the Convertible Senior Notes remain outstanding on April 1, 2025, the Term Loan’s maturity date will be April 1, 2025, or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 91 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2027. In the case of the Revolving Credit Facility, if the Convertible Senior Notes are still outstanding on December 31, 2024, the Revolving Credit Facility’s maturity date will be either December 31, 2024 or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 182 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2025. Under the amendment, the Term Loan Facility bears interest, at our option, at a floating annual rate equal to either the base rate, plus a margin of 2.50%, or LIBOR, plus a margin of 3.50%. Prior to the amendment, the optional floating annual rate was equal to either the base rate plus a margin of 2.25%, or LIBOR, plus a margin of 3.25%. We paid debt issuance costs of $2.1 million, of which $1.8 million will be amortized over the life of the Term Loan Facility and included in current and long-term debt on the Condensed Consolidated Balance Sheets. The remaining $361,000 of debt issuance costs and $474,000 of non-cash debt extinguishment costs were recorded in Interest expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 the Credit Agreement contains certain customary affirmative and negative covenants, including covenants that limit our ability and the ability of our subsidiaries to, among other things, grant liens, incur debt, dispose of assets, make loans and investments, make acquisitions, make certain restricted payments (including cash dividends), merge or consolidate, change business or accounting or reporting practices, in each case subject to customary exceptions for a credit facility of this size and type. Beginning in 2021 if we repay borrowings under our Revolving Credit Facility to 25% or less, no financial maintenance covenants, including the minimum liquidity covenant and the maximum first lien net leverage ratio covenant, are applicable. We are in compliance with our debt covenants as of March 31, 2022.
Convertible Senior Notes
On June 18, 2020 we issued $100.0 million aggregate principal amount of 4.25% Convertible Senior Notes with a maturity date of July 1, 2025 (the “Convertible Senior Notes”). The net proceeds from this offering, after deducting initial purchasers’ discounts and costs directly related to this offering, were approximately $96.5 million. On January 1, 2021 we adopted ASU 2020-06 and adjusted the carrying balance of the Convertible Senior Notes to notional. The Convertible Senior Notes balance was $100.0 million recorded in Long-term debt on the Condensed Consolidated Balance Sheets as of March 31, 2022. The Convertible Senior Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. The initial conversion rate of the Convertible Senior Notes is 42.6203 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $23.46 per share, subject to adjustments. We use the if-converted method for assumed conversion of the Convertible Senior Notes for the diluted earnings per share calculation. The fair value and the effective interest rate of the Convertible Senior Notes as of March 31, 2022 was approximately $116.5 million and 5.05%, respectively. The fair value was based on market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy.
The interest expense recognized on the Convertible Senior Notes includes $1.2 million for the aggregate of the contractual coupon interest, and the amortization of the debt issuance costs as of the three months ended March 31, 2022 and 2021. Interest on the Convertible Senior Notes began accruing upon issuance and is payable semi-annually. As of March 31, 2022 there were $2.4 million of unamortized debt issuance costs related to Convertible Senior Notes.
Holders of the Convertible Senior Notes may convert their notes at their option at any time prior to January 1, 2025, but only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) we give a notice of redemption with respect to any or all of the notes, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after January 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.
We cannot redeem the Convertible Senior Notes before July 5, 2023. We can redeem them on or after July 5, 2023, in whole or in part, at our option, if the last reported sale price per share of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period
(including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. We may redeem for cash all or part of the Convertible Senior Notes at a redemption price equal to 100% of the principal amount of the redeemable Convertible Senior Notes, plus accrued and unpaid interest to, but excluding, the redemption date. No principal payments are due on the Convertible Senior Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the Convertible Senior Notes do not contain any financial covenants and do not restrict us from conducting significant restructuring transactions or issuing or repurchasing any of its other securities.
Loan Balances
The short-term and long-term balances of our term loan and other long-term borrowings were as follows (in thousands):
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|
| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
Term loan balance | $ | 215,438 |
| $ | 216,000 |
Convertible senior notes |
| 100,000 |
|
| 100,000 |
2.45% Sparkasse Zollernalb (KFW Loan 1) |
| 493 |
|
| 566 |
1.40% Sparkasse Zollernalb (KFW Loan 2) |
| 971 |
|
| 1,061 |
Total loan balance |
| 316,902 |
|
| 317,627 |
Less unamortized loan origination costs |
| (8,048) |
|
| (8,504) |
Net borrowings |
| 308,854 |
|
| 309,123 |
Less short-term loan balance |
| (1,622) |
|
| (1,630) |
Long-term loan balance | $ | 307,232 |
| $ | 307,493 |
Interest Expense
Interest expense was $3.9 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively. Interest expense includes interest on debt and uncertain tax positions in both periods.
Liability Claims
In the normal course of business, we are made aware of adverse events involving our products and tissues. Future adverse events could ultimately give rise to a lawsuit against us, and liability claims may be asserted against us in the future based on past events that we are not aware of at the present time. We maintain claims-made insurance policies to mitigate our financial exposure to product and tissue processing liability claims. Claims-made insurance policies generally cover only those asserted claims and incidents that are reported to the insurance carrier while the policy is in effect. The amounts recorded in these Condensed Consolidated Financial Statements as of March 31, 2022 represent our estimate of the probable losses and anticipated recoveries for incurred but not reported claims related to products sold and services performed prior to the balance sheet date.
Sources of Revenue
We have identified the following revenues disaggregated by revenue source:
Domestic hospitals – direct sales of products and preservation services.
International hospitals – direct sales of products and preservation services.
International distributors – generally these contracts specify a geographic area that the distributor will service, terms and conditions of the relationship, and purchase targets for the next calendar year.
CardioGenesis cardiac laser console trials and sales – CardioGenesis cardiac trialed laser consoles are delivered under separate agreements.
For the three months ended March 31, 2022 and 2021 the sources of revenue were as follows (in thousands):
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| Three Months Ended | ||||
| March 31, | ||||
|
| 2022 |
|
| 2021 |
| (Unaudited) | ||||
Domestic hospitals | $ | 36,993 |
| $ | 36,229 |
International hospitals |
| 28,414 |
|
| 26,128 |
International distributors |
| 11,064 |
|
| 8,642 |
CardioGenesis cardiac laser therapy |
| 742 |
|
| 88 |
Total sources of revenue | $ | 77,213 |
| $ | 71,087 |
Also see segment disaggregation information in Note 13 below.
Contract Balances
We may generate contract assets during the pre-delivery design and manufacturing stage of E-xtra DESIGN ENGINEERING product order fulfillment. We assess the balance related to any arrangements in process and determine if the enforceable right to payment creates a material contract asset requiring disclosure. No material arrangements in process existed as of March 31, 2022 and 2021.
We also incur contract obligations on general customer purchase orders that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product or service, we have determined that the balance related to these contract obligations is generally immaterial at any point in time. We monitor the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate. The value of orders accepted but unfulfilled as of March 31, 2022 and 2021 was not material.
Overview
We have stock option and stock incentive plans for employees and non-employee Directors that provide for grants of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock units (“PSUs”), and options to purchase shares of our common stock at exercise prices generally equal to the fair value of such stock at the dates of grant. We also maintain a shareholder-approved Employee Stock Purchase Plan (“ESPP”) for the benefit of our employees. The ESPP allows eligible employees to purchase common stock on a regular basis at the lower of 85% of the market price at the beginning or end of each offering period.
Equity Grants
During the three months ended March 31, 2022 the Compensation Committee of our Board of Directors (the “Committee”) authorized awards from approved stock incentive plans of RSUs and PSUs to certain employees and company officers, which, assuming that performance under the PSUs were to be achieved at target levels, together totaled 452,000 shares and had an aggregate grant date market value of $8.3 million.
During the three months ended March 31, 2021 the Committee authorized awards from approved stock incentive plans of RSUs and PSUs to certain employees, and RSAs and PSUs to certain Company officers, which, assuming that performance under the PSUs were to be achieved at target levels, together totaled 381,000 shares and had an aggregate grant date market value of $9.5 million.
The Committee authorized, from approved stock incentive plans, grants of stock options to purchase a total of 314,000 and 226,000 shares to certain Company officers during the three months ended March 31, 2022 and 2021, respectively. The exercise prices of the options were equal to the closing stock prices on their respective grant dates.
Employees purchased common stock totaling 37,000 and 36,000 shares in the three months ended March 31, 2022 and 2021, respectively, through the ESPP.
Stock Compensation Expense
The following weighted-average assumptions were used to determine the fair value of options and shares purchased under the ESPP:
|
|
|
|
|
|
| Three Months Ended | ||
|
| March 31, 2022 | ||
|
| Stock Options |
| ESPP |
Expected life |
| 5.0 Years |
| 0.5 Years |
Expected stock price volatility |
| 0.40 |
| 0.31 |
Risk-free interest rate |
| 1.89% |
| 0.22% |
The following table summarizes total stock compensation expenses prior to the capitalization of amounts into Deferred preservation and Inventory costs (in thousands):
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
RSA, RSU, and PSU expense | $ | 2,768 |
| $ | 2,050 |
Stock option and ESPP expense |
| 572 |
|
| 587 |
Total stock compensation expense | $ | 3,340 |
| $ | 2,637 |
Included in the total stock compensation expense, as applicable in each period, were expenses related to RSAs, RSUs, PSUs, and stock options issued in each respective year, as well as those issued in prior periods that continue to vest during the period, and compensation related to the ESPP. These amounts were recorded as stock compensation expense and were subject to our normal allocation of expenses to inventory costs and deferred preservation costs. We capitalized $174,000 and $157,000 in the three months ended March 31, 2022 and 2021, respectively, of the stock compensation expense into our inventory costs and deferred preservation costs.
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except per share data):
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
Basic loss per common share | 2022 |
| 2021 | ||
Net loss | $ | (3,389) |
| $ | (3,138) |
Net loss allocated to participating securities |
| 18 |
|
| 23 |
Net loss allocated to common shareholders | $ | (3,371) |
| $ | (3,115) |
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
| 39,850 |
|
| 38,738 |
Basic loss per common share | $ | (0.08) |
| $ | (0.08) |
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
Diluted loss per common share | 2022 |
| 2021 | ||
Net loss | $ | (3,389) |
| $ | (3,138) |
Net loss allocated to participating securities |
| 18 |
|
| 23 |
Net loss allocated to common shareholders | $ | (3,371) |
| $ | (3,115) |
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
| 39,850 |
|
| 38,738 |
Diluted weighted-average common shares outstanding |
| 39,850 |
|
| 38,738 |
Diluted loss per common share | $ | (0.08) |
| $ | (0.08) |
We excluded stock options from the calculation of diluted weighted-average common shares outstanding if the per share value, including the sum of (i) the exercise price of the options and (ii) the amount of the compensation cost attributed to future services and not yet recognized, was greater than the average market price of the shares because the inclusion of these stock options would be antidilutive to loss per common share. For the three months ended March 31, 2022 and 2021 all stock options and awards were excluded from the calculation of diluted weighted-average common shares outstanding as these would be antidilutive due to the net loss.
We have two reportable segments organized according to our products and services: Medical devices and Preservation services. The Medical devices segment includes external revenues from product sales of aortic stent grafts, surgical sealants, On-X, and other product revenues. Aortic stent grafts include aortic arch stent grafts, abdominal stent grafts, and synthetic vascular grafts. Aortic arch stent grafts include our E-vita Open NEO, E-vita Open Plus, AMDS, NEXUS, E-vita Thoracic 3G, and E-nya products. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, and E-liac products. Surgical sealants include BioGlue Surgical Adhesive products. The Preservation Services segment includes external services revenues from the preservation of cardiac and vascular tissues. There are no intersegment revenues.
The primary measure of segment performance, as viewed by our management, is segment gross margin or net external revenues less cost of products and preservation services. We do not segregate assets by segment, therefore, asset information is excluded from the segment disclosures below.
The following table summarizes revenues, cost of products and preservation services, and gross margins for our operating segments (in thousands):
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Revenues: |
|
|
|
|
|
Medical devices | $ | 57,542 |
| $ | 53,345 |
Preservation services |
| 19,671 |
|
| 17,742 |
Total revenues |
| 77,213 |
|
| 71,087 |
|
|
|
|
|
|
Cost of products and preservation services: |
|
|
|
|
|
Medical devices |
| 17,408 |
|
| 14,911 |
Preservation services |
| 9,086 |
|
| 8,338 |
Total cost of products and preservation services |
| 26,494 |
|
| 23,249 |
|
|
|
|
|
|
Gross margin: |
|
|
|
|
|
Medical devices |
| 40,134 |
|
| 38,434 |
Preservation services |
| 10,585 |
|
| 9,404 |
Total gross margin | $ | 50,719 |
| $ | 47,838 |
The following table summarizes net revenues by product and service (in thousands):
|
|
|
|
|
|
| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Products: |
|
|
|
|
|
Aortic stent grafts | $ | 25,506 |
| $ | 20,205 |
Surgical sealants |
| 15,681 |
|
| 17,828 |
On-X |
| 14,371 |
|
| 13,095 |
Other |
| 1,984 |
|
| 2,217 |
Total products |
| 57,542 |
|
| 53,345 |
|
|
|
|
|
|
Preservation services |
| 19,671 |
|
| 17,742 |
Total revenues | $ | 77,213 |
| $ | 71,087 |
Forward-Looking Statements
This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements give our expectations or forecasts of future events as of the date of this Form 10-Q. In some cases, words such as “could,” “may,” “might,” “will,” “would,” “shall,” “should,” “pro forma,” “potential,” “pending,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “future,” “assume,” and variations of these types of words or other similar expressions identify forward-looking statements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date of this Form 10-Q.
All statements included herein, other than statements of historical facts, that address activities, events, or developments that we expect or anticipate will or may occur in the future, or that reflect our beliefs about the future and/or expectations, are forward-looking statements, including statements about the following:
Our belief that new products, new indications, global expansion, and business development are the four growth areas that will drive our business in the future;
The potential impact of the COVID-19 pandemic and the war in Ukraine on demand for and sales of our products and services, business operations, manufacturing operations, supply chain, cash flow, workforce, clinical and regulatory timelines, and our research and development projects;
Our belief that our distributors may delay or reduce purchases of products in US Dollars depending on the relative price of goods in their local currencies;
Our beliefs that the use of surgical adhesives and sealants, with or without sutures and staples, for certain indications can enhance the efficacy and cost-effectiveness of certain procedures through more effective and rapid wound closure;
Our beliefs and anticipation regarding the favorable attributes and benefits of our products and services, the basis on which our products and services compete, our physician education activities, the advantages of our relationships with organ and tissue procurement organizations and tissue banks, the FDA classification of our medical devices, our compliance with applicable laws and regulations, and the advantages of our intellectual property and its significance to our segments and our business as a whole, our relations with our employees, timelines regarding product launches and regulatory certifications, clearances, renewals, and approvals;
Our beliefs about potential competition and competitive products and services, potential adverse regulatory consequences, potential security vulnerabilities, and the associated potential adverse effects on our business;
Our beliefs regarding our global expansion efforts, including the international growth opportunity that would be provided by obtaining regulatory approval for BioGlue in China;
The dependencies affecting our ability to realize the anticipated business opportunities, growth prospects, synergies, and other benefits of the agreements with Endospan and Baxter and our acquisition of Ascyrus, and our beliefs about the costs and timelines for certain clinical trial milestones for the regulatory approvals of the NEXUS stent graft system in the US and the AMDS globally;
Our beliefs regarding the fair value of our acquisitions, divestitures, and other business development activities and the estimates and assumptions about the future achievements of milestones and future revenues and cash flows related to those business development activities, including our ability to achieve the milestones in the Baxter Transaction;
Our beliefs about the anticipated benefits from our corporate reincorporation and rebranding and the risks posed by the same;
Our beliefs about the present value and potential impairment of our intangible assets and leases;
Our beliefs about handpiece availability and CardioGenesis cardiac laser therapy revenue;
Our beliefs regarding the impact alternative anticoagulation therapy and transcatheter heart valve replacement may have on the number of patients choosing On-X mechanical heart valves;
Our beliefs about our ability to make timely transitions to our notified bodies and obtain renewals for our CE Marks impacted by Brexit and the transition to the Medical Device Regulation (“MDR”) in Europe, our ability to obtain derogations related to the same, and the impact these renewals and derogations may have on our business;
Our beliefs about our R&D and product pipeline, including our beliefs about the timing of our clinical trials and product launches;
Our belief that revenues for preservation services, particularly revenues for certain high-demand cardiac tissues, can vary from quarter to quarter and year to year due to a variety of factors including: quantity and type of incoming tissues, yields of tissue through the preservation process, timing of receipt of donor information, staffing
levels, timing of the release of tissues to an implantable status, demand for certain tissue types due to the number and type of procedures being performed, and pressures from competing products or services;
Our beliefs regarding the seasonal nature of the demand for some of our products and services and the reasons for such seasonality, if any, and regarding the impact of consignment inventory on product sales, if any;
Our belief that our cash from operations and existing cash and cash equivalents will enable us to meet our current operational liquidity needs for at least the next twelve months, our expectations regarding future cash requirements, and the impact that our cash requirements might have on our cash flows for the next twelve months;
Our expectation regarding the impact on cash flows of undertaking significant business development activities and the potential need to obtain additional debt financing or equity financing;
Our belief that we will incur expenses for research and development projects, including for clinical research projects to gain regulatory approvals for products or indications, including On-X, aortic stent grafts, and BioGlue products, and for research and development for new products despite reduced planned spending due to COVID-19 and that our efforts to develop new products and technologies will likely require additional investment, research, and new clinical studies or data;
Our beliefs about pending and potential legal or other governmental or regulatory proceedings;
Our expectations regarding the timing of clinical research work and regulatory approvals for and expected distribution of products or indications, including On-X, aortic stent grafts, and BioGlue products, and CryoValve SGPV if the FDA reclassifies allograft heart valves as Class III medical devices;
Our beliefs and expectations regarding the utilization of net operating loss carryforwards from our acquisitions of JOTEC, On-X, Hemosphere, Inc., and Cardiogenesis Corporation;
Our beliefs about our operating results which may fluctuate significantly on a periodic basis as a result of internal and external factors, including reduced demand for our products, availability of products, materials, and supplies, strategic actions we take such as acquisitions or divestitures, unanticipated costs and expenses, market reception of our new or improved product offerings, and interest rate and currency fluctuations; and
Other statements regarding projections of future financial and business performance; anticipated growth and trends in our business and the markets relevant to our business, including as our growth relates to our competitors; the robustness and reliability of our workforce and supply chain; future production capacity and product supply; the availability and benefits of our products in the future; and the expected timing and impact of our strategic initiatives.
These and other forward-looking statements reflect the views of management at the time such statements are originally made based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, and expected future developments as well as other factors we believe are appropriate in the circumstances and are subject to a number of risks, uncertainties, estimates, and assumptions. Whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially and adversely from our expectations, including, without limitation, in addition to those specified in the text surrounding such statements, the risks described in Part II, Item 1A, “Risks Factors” in this Form 10-Q and elsewhere throughout this report, the risks described in our other filings with the Securities and Exchange Commission including the risks described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and elsewhere throughout that report, and other risks which we may not be able to identify in advance, many of which are beyond our control. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. We assume no obligation, and expressly disclaim any duty, to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise.
PART I - FINANCIAL INFORMATION
Artivion, Inc. (“Artivion,” the “Company,” “we,” or “us”), is a leader in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures for patients with aortic disease. We have four major product families: aortic stent grafts, surgical sealants, On-X® mechanical heart valves and related surgical products, and implantable cardiac and vascular human tissues. Aortic stent grafts include aortic arch stent grafts, abdominal stent grafts, and synthetic vascular grafts. Aortic arch stent grafts include our E-vita Open NEO, E-vita Open Plus, AMDS,
NEXUS, E-vita Thoracic 3G, and E-nya products. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, and E-liac products. Surgical sealants include BioGlue® Surgical Adhesive (“BioGlue”) products. In addition to these four major product families, we sell or distribute PhotoFix® bovine surgical patches, CardioGenesis® cardiac laser therapy, Therion® chorioamniotic allografts (previously marketed as NeoPatch®), and PerClot® hemostatic powder (prior to the sale to a subsidiary of Baxter International, Inc (“Baxter”)).
We reported quarterly revenues of $77.2 million for the three months ended March 31, 2022, a 9% increase from the three months ended March 31, 2021. The increase in revenues for the three months ended March 31, 2022 was primarily due to increases in aortic stent grafts revenues, preservation service revenues, and On-X product revenues, partially offset by decreases in surgical sealants and other product revenues.
See the “Results of Operations” section below for additional analysis of the three months ended March 31, 2022.
In December 2019 an outbreak of a respiratory illness caused by a new coronavirus named “2019-nCoV” (“COVID-19”) was detected, and by March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a “pandemic.”
Beginning in March 2020 we took steps to address the potential impact of COVID-19 on our employees and operations, and to preserve cash, including reducing expenditures and delaying investments. These steps included, but were not limited to, implementing specific protocols to minimize workplace exposures to COVID-19 by our employees; implementing remote work arrangements for most employees we deemed able to do so; restricting business travel; implementing hiring restrictions; reducing planned expenditures on some pending clinical trials; imposing senior management cash salary reductions in exchange for cash payments in the second quarter of 2021; requiring our Board of Directors to accept Artivion stock instead of cash compensation for a six month period through October 2020; and suspending management merit increases for seven months in 2020.
Our efforts to protect our supply chain and reduce the spread of COVID-19 among our employees, including our work-from-home arrangements, have been successful to date as we have continued to operate all manufacturing sites at full production. These efforts have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, or disclosure controls and procedures; however, there is no guarantee that these efforts and arrangements, if they are continued, will continue to be successful in the future. Further, our reductions or delays in expenditures slowed our progress on certain key R&D initiatives and could in the future continue to adversely impact our business operations or further delay our recovery from the pandemic.
Although we have scaled back many of our COVID-19 mitigation efforts, we continue to monitor the impact of the COVID-19 pandemic and the emergence of new variants on our business and recognize that COVID-19 and its effects could continue to negatively impact our business and results of operations during the remainder of 2022 and beyond. As an example, the COVID-19 pandemic has impacted certain aspects of the global supply chain and resulted in supply chain inflation. Although we have yet to experience any material effects of this impact on our supply chain or operations, we face an increasing risk that upstream disruptions may occur or worsen. As global economies continue to recover from the COVID-19 downturn, the expiration of COVID-19 related hiring freezes, increased opportunities for remote work, and increasing compensation pressure have resulted in a competition for talent and an unprecedent number of retirements or career changes. The resulting worker shortages at all levels have impacted supply chains and distribution channels and employers’ and our own ability to adequately staff operations. Impact from these shortages to date, including a shortage of trained staff capable of meeting the increased demand associated with releasing quarantined tissue, have impacted, and may impact our operations going forward. Hospitals and other healthcare providers have also experienced staffing shortages impacting our business including increased restrictions on elective and non-emergent procedures, restrictions on access to healthcare facilities, cancellation of elective procedures, and the re-allocation of scarce resources to some critically ill patients. Portions of our operations are being impacted by public and private vaccine mandates, which can impact hospital staffing, impact our specialized workforce, and impact the global supply chain, all of which can directly or indirectly impact our product sales, business operations, manufacturing operations, workforce, and research and development projects.
The extent to which our operations and financial performance will be impacted by the pandemic for the remainder of 2022 and beyond will depend largely on future developments, including changes in hospital utilization rates and staffing, prevalence and severity of new variants, the impact of vaccine mandates or vaccine encouragement programs on the spread of COVID-19 and its variants, global availability and acceptance of vaccines and their effectiveness against variants, the prevalence of vaccine mandates generally, disruptions to workforce availability, and any continuing impact on the global supply chain. If COVID-19 or its variants become more contagious, if efforts to further contain the effects of COVID-19 or its variants, including vaccine mandates or adoption, are unsuccessful, if COVID-19, its variants, or disruptions to the global supply chain impact our supply chain or employee availability or productivity, or if we continue to experience periods of uncertainty due to COVID-19 or its variants, it could materially, adversely affect our revenues, financial condition, profitability, and cash flows.
See the “Risk Factors” identified in Part II, Item 1A of this form 10-Q for risks related to COVID-19.
See Note 1 of “Notes to Condensed Consolidated Financial Statements” identified in Part I, Item I of this form 10-Q for further discussion of new accounting standards that have been adopted.
(Tables in thousands)
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percent |
| Revenues as a Percentage of | ||
| Revenues for the | Change |
| Total Revenues for the | ||||||
| Three Months Ended | From Prior |
| Three Months Ended | ||||||
| March 31, | Year |
| March 31, | ||||||
| 2022 |
| 2021 |
|
| 2022 |
| 2021 | ||
Products: |
|
|
|
|
|
|
|
|
|
|
Aortic stent grafts | $ | 25,506 |
| $ | 20,205 | 26% |
| 33% |
| 28% |
Surgical sealants |
| 15,681 |
|
| 17,828 | -12% |
| 20% |
| 26% |
On-X |
| 14,371 |
|
| 13,095 | 10% |
| 19% |
| 18% |
Other |
| 1,984 |
|
| 2,217 | -11% |
| 3% |
| 3% |
Total products |
| 57,542 |
|
| 53,345 | 8% |
| 75% |
| 75% |
|
|
|
|
|
|
|
|
|
|
|
Preservation services |
| 19,671 |
|
| 17,742 | 11% |
| 25% |
| 25% |
Total | $ | 77,213 |
| $ | 71,087 | 9% |
| 100% |
| 100% |
Products
Revenues from products increased 8% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase for the three months ended March 31, 2022 was primarily due to increases in revenues from aortic stent grafts and On-X products, partially offset by decreases in revenues from surgical sealants and other products. A discussion of the changes in product revenues for aortic stent grafts, surgical sealants, On-X, and other products is presented below.
Sales of certain products through our direct sales force and distributors across Europe and various other countries are denominated in a variety of currencies including Euros, British Pounds, Polish Zlotys, Swiss Francs, Brazilian Reals, and Canadian Dollars, with a concentration denominated in Euros. Each currency is subject to exchange rate fluctuations. For the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, the US Dollar strengthened in comparison to major currencies, resulting in revenue decreases when these foreign currency denominated transactions were translated into US Dollars. Future changes in these exchange rates could have a material, adverse effect on our revenues denominated in these currencies. Additionally, our sales to many distributors around the world are denominated in US Dollars, and although these sales are not directly impacted by currency exchange rates, we believe that some of our distributors may delay or reduce purchases of products in US Dollars depending on the relative price of these goods in their local currencies.
Aortic Stent Grafts
Aortic stent grafts include aortic arch stent grafts, abdominal stent grafts, synthetic vascular grafts, and OEM aortic stent grafts products. Aortic arch stent grafts include our E-vita Open NEO, E-vita Open Plus, AMDS, NEXUS, E-vita Thoracic 3G, and E-nya products. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, and E-liac products. Aortic stent grafts are used in endovascular and open vascular surgery for the treatment of complex aortic arch, thoracic, and abdominal aortic diseases. Our aortic stent grafts are primarily distributed in international markets.
Revenues from aortic stent grafts increased 26% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.
Revenues from aortic stent grafts, excluding OEM, increased 27% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. This increase was primarily due to an increase in units sold, which increased revenues by 36%, partially offset by the effect of foreign exchange rates, which decreased revenues by 8%, and a decrease in average sales prices of certain products in certain regions, which decreased revenues by 1%.
On a constant currency basis, revenues for aortic stent grafts, excluding OEM, increased 35% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase in revenues was partially due to improved conditions from the COVID-19 pandemic for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Revenues for the three months ended March 31, 2022 increased primarily in Europe, the Middle East, and Africa (collectively, “EMEA”) and Asia Pacific (“APAC”). The revenue increase in EMEA was primarily due to customer buying patterns in certain direct markets. The revenue increase in APAC was primarily due to an increase in sales of newly launched aortic stent grafts. OEM sales of aortic stent grafts accounted for less than 1% of product revenues for the three months ended March 31, 2022 and 2021.
Surgical Sealants
Surgical sealants include BioGlue products used as an adjunct to standard methods of achieving hemostasis (such as sutures and staples) in adult patients in open surgical repair of large vessels (such as aorta, femoral, and carotid arteries).
Revenues from the sales of surgical sealants decreased 12% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. This decrease was primarily due to a decrease in volume of milliliters sold, which decreased revenues by 12%.
On a constant currency basis, revenues from the sales of surgical sealants decreased 11% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The decrease in revenue for the three months ended March 31, 2022 was primarily due to revenue decreases in North America. During the three months ended March 31, 2021 revenues from the sales of surgical sealants in North America were larger than in the three months ended March 31, 2022 primarily due to inventory restocking orders placed in the first quarter of 2021 as hospitals experienced reduced impact from the COVID-19 pandemic and began resuming more normal operations. Revenues were negatively impacted during the three months ended March 31, 2022 due to delays and cancellations of some surgical procedures due to hospital staffing challenges as a result of a new COVID-19 variant.
See Part II, Item 1A, “Risk Factors—Operational Risks— We may not be successful in obtaining necessary clinical results or regulatory clearances/approvals for new and existing products and services, and our approved products and services may not achieve market acceptance.”
Domestic revenues from surgical sealants accounted for 48% and 53% of total surgical sealant revenues for the three months ended March 31, 2022 and 2021, respectively.
On-X
The On-X products include the On-X prosthetic aortic and mitral heart valves and the On-X ascending aortic prosthesis (“AAP”) for heart valve replacement. On-X product revenues also include revenues from the distribution of CarbonAid® CO2 diffusion catheters and from the sale of Chord-X® ePTFE sutures for mitral chordal replacement. On-X also generates revenue from pyrolytic carbon coating products produced for OEM customers.
On-X revenues increased 10% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.
On-X revenues, excluding OEM, increased 10% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. This increase was primarily due to an increase in volume of units sold, which increased revenues by 10%.
On a constant currency basis, On-X revenues, excluding OEM, increased 10% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase in revenues for the three months ended March 31, 2022 was primarily due to revenue increases in North America and EMEA. Revenues were positively impacted in the North American
market due to increases in market share and in EMEA due to an increase of shipments in direct markets. On-X OEM sales accounted for less than 1% of product revenues for each of the three months ended March 31, 2022 and 2021.
Domestic revenues from On-X accounted for 65% and 64% of total On-X revenues for the three months ended March 31, 2022 and 2021, respectively.
Other
Other revenues are comprised of PhotoFix, PerClot (prior to the Baxter Transaction, described below), and CardioGenesis cardiac laser therapy product revenues. Other revenues decreased 11% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.
On July 28, 2021 we entered into an asset purchase agreement and other ancillary agreements related to the sale of PerClot, a polysaccharide hemostatic agent used in surgery to Baxter, and an agreement to terminate all of our material agreements with Starch Medical, Inc. (“SMI”) related to PerClot (collectively the “Baxter Transaction”).
The decrease in other revenues for the three months ended March 31, 2022 was primarily due to a decrease in PerClot product revenues, partially offset by an increase in CardioGenesis cardiac laser therapy product revenues. The decrease in PerClot product revenues for the three months ended March 31, 2022 was due to the Baxter Transaction, described in more detail in Part II, Item 7, “Sale of PerClot” of our annual report on Form 10-K for the year ended December 31, 2021. The increase in CardioGenesis cardiac laser therapy product revenues for the three months ended March 31, 2022 was primarily due to our ability to resume limited sales of handpieces during the fourth quarter of 2021, as further described below.
Revenues from our CardioGenesis cardiac laser therapy product line historically consisted primarily of sales of handpieces and, in certain periods, the sale of laser consoles. During the three months ended March 31, 2021 we had minimal revenues from the CardioGenesis cardiac laser therapy product line as we did not have a supply of handpieces due to the FDA’s review of our supplier’s change in manufacturing location. After obtaining approval, our supplier resumed manufacturing a limited supply of handpieces allowing us to resume limited sales during the fourth quarter of 2021.
Preservation Services
Preservation services include service revenues from processing cardiac and vascular tissues. Our cardiac valves are primarily used in cardiac replacement and reconstruction surgeries, including the Ross procedure, for patients with endocarditis or congenital heart defects. Our cardiac tissues are primarily distributed in domestic markets. The majority of our vascular preservation services revenues are related to shipments of saphenous veins, which are mainly used in peripheral vascular reconstruction surgeries to avoid limb amputations. Competition with synthetic product alternatives and the availability of tissues for processing are key factors affecting revenue volume that can fluctuate from quarter to quarter. Our vascular tissues are primarily distributed in domestic markets.
We continue to evaluate modifications to our tissue processing procedures in an effort to improve tissue processing throughput, reduce costs, and maintain quality across our tissue processing business. Preservation services revenues, particularly revenues for certain high-demand cardiac tissues, can vary from quarter to quarter and year to year due to a variety of factors, including quantity and type of incoming tissues, yields of tissue through the preservation process, timing of receipt of donor information, timing of the release of tissues for implant, demand for certain tissue types due to the number and type of procedures being performed, and pressures from competing products or services.
In the fourth quarter of 2020 we became aware that a supplier shipped to us a saline solution lot that we use in our tissue processing that contained some contamination in a small number of bottles of the solution lot. The contamination was identified by our in-process quality controls. The contaminated solution was estimated to have impacted a small percentage of tissue processed with this solution lot, causing us to write-off approximately $826,000 of tissue in the fourth quarter of 2020. An additional $5.0 million of tissue was quarantined in process pending further testing. Upon completion, and FDA acceptance of the testing, we began releasing tissue meeting our release criteria late in the second quarter of 2021. We believe that the written-off and quarantined tissue impacted the availability of tissue for distribution, which had a negative impact on revenue in the first quarter of 2021.
Revenues from tissue processing increased 11% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase in revenues for the three months ended March 31, 2022 was primarily due to a mix of tissues shipped which increased revenues by 10%, and an increase in average sales prices which increased revenues by 1%.
Cost of Products
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Cost of products | $ | 17,408 |
| $ | 14,911 |
Cost of products increased 17% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Cost of products for the three months ended March 31, 2022 and 2021 included costs related to aortic stent grafts, surgical sealants, On-X, and other products.
The increase in cost of products for the three months ended March 31, 2022 was primarily due to an increase in shipments in certain regions due to improved conditions from the COVID-19 pandemic as well as an increase in the cost of surgical sealants and aortic stent grafts as compared to the three months ended March 31, 2021.
Cost of Preservation Services
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Cost of preservation services | $ | 9,086 |
| $ | 8,338 |
Cost of preservation services increased 9% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Cost of preservation services includes costs for cardiac and vascular tissue preservation services.
The increase in cost of preservation services for the three months ended March 31, 2022 was primarily due to an increase in shipments due to improved conditions from the COVID-19 pandemic as well as an increase in the processing cost of cardiac and vascular tissues, as compared to the three months ended March 31, 2021.
Gross Margin
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Gross margin | $ | 50,719 |
| $ | 47,838 |
Gross margin as a percentage of total revenues |
| 66% |
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| 67% |
Gross margin increased 6% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021 was primarily due to an increase in shipments of aortic stent grafts, On-X products, and cardiac tissues partially offset by a decrease in shipments of surgical sealants. Gross margin as a percentage of total revenues decreased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021 primarily due to an unfavorable mix of aortic stent grafts and surgical sealants sold as well as an increase in product costs due to inflationary pressures of materials and labor during the three months ended March 31, 2022.
General, Administrative, and Marketing Expenses
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
General, administrative, and marketing expenses | $ | 38,955 |
| $ | 38,638 |
General, administrative, and marketing expenses |
| 50% |
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| 54% |
as a percentage of total revenues |
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General, administrative, and marketing expenses increased 1% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase in General, administrative, and marketing expenses for the three months ended March 31, 2022 was primarily due to an increase in personnel and stock compensation expenses partially offset by a decrease in business development expenses.
General, administrative, and marketing expenses included $1.6 million of business development income for the three months ended March 31, 2022, as compared to $1.5 million expense for the three months ended March 31, 2021. Business development expenses during the three months ended March 31, 2022 included $1.8 million of income related to the fair value adjustments for the Ascyrus contingent consideration as compared to $970,000 of expense during the three months ended March 31, 2021.
Research and Development Expenses
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Research and development expenses | $ | 10,128 |
| $ | 7,754 |
Research and development expenses |
| 13% |
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| 11% |
as a percentage of total revenues |
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Research and development expenses increased 31% for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Research and development spending for the three months ended March 31, 2022 and 2021 was primarily focused on clinical work to gain regulatory approvals for On-X, certain aortic stent grafts, and PerClot products.
Interest expense was $3.9 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively. Interest expense for the three months ended March 31, 2022 and 2021 relates to interest on debt and uncertain tax positions.
Other expense, net was $133,000 for the three months ended March 31, 2022, as compared to $1.9 million for the three months ended March 31, 2021. Other expense, net for the three months ended March 31, 2022 and 2021 primarily includes the realized and unrealized effects of foreign currency gains and losses.
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Loss before income taxes | $ | (2,429) |
| $ | (4,501) |
Income tax expense (benefit) |
| 960 |
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| (1,363) |
Net loss | $ | (3,389) |
| $ | (3,138) |
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Diluted loss per common share | $ | (0.08) |
| $ | (0.08) |
Diluted weighted-average common shares outstanding |
| 39,850 |
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| 38,738 |
We incurred a loss before income taxes for the three months ended March 31, 2022 and 2021. The loss before income taxes for the three months ended March 31, 2022 and 2021 was negatively impacted by the increase in operating expenses to support revenue expansion and an increase in research, development, and clinical expenses. The loss before income taxes for three months ended March 31, 2021 was also negatively impacted by delays and cancellations of some surgical procedures as a result of reduced hospital capacity and hospital restrictions due to the COVID-19 pandemic.
Our effective income tax rate was an expense of 40% and a benefit of 30% for the three months ended March 31, 2022 and 2021, respectively. The change in the tax rate for the three months ended March 31, 2022 was primarily due to changes in pre-tax book income, a decrease in the excess tax benefit related to stock compensation, and an increase in the estimated current year valuation allowance, as compared to the three months ended March 31, 2021.
Our income tax rate for the three months ended March 31, 2022 was primarily impacted by changes in our valuation allowance against our net deferred tax assets, non-deductible executive compensation, the foreign derived intangible income deduction, the research and development tax credit, changes in our uncertain tax position liabilities, and tax shortfalls on stock compensation.
Our income tax rate for the three months ended March 31, 2021 was primarily impacted by non-deductible executive compensation, changes in our valuation allowance against our net deferred tax assets, changes in our uncertain tax position liabilities, the research and development tax credit, and excess tax benefits on stock compensation.
We experienced net loss and diluted loss per common share for the three months ended March 31, 2022, and 2021. Net loss and diluted loss per common share for the three months ended March 31, 2022 and 2021 was primarily due to loss before income taxes, as discussed above.
Seasonality
As a result of the uncertainty and other impacts of the COVID-19 pandemic and the resulting shifts of timing in some revenue, our historically observable seasonality of revenues has been impacted or obscured in 2021 and 2022 and potentially beyond.
Historically, we believe the demand for most of our aortic stent grafts is seasonal, with a decline in demand generally occurring in the third quarter due to the summer holiday season in Europe. We are uncertain whether the demand for AMDS and NEXUS products is seasonal, as these products have not fully penetrated many markets and, therefore, the nature of any seasonal trends may not yet be obvious.
Historically, we believe the demand for BioGlue and On-X products is seasonal, with a decline in demand generally occurring in the third quarter followed by stronger demand in the fourth quarter. We believe that this trend may be due to the summer holiday season in Europe and the US.
We do not believe the demand for our other products is seasonal.
Demand for our cardiac preservation services has traditionally been seasonal, with peak demand generally occurring in the third quarter. We believe this trend for cardiac preservation services is primarily due to the high number of surgeries scheduled during the summer months for school-aged patients. Based on experience in recent years, we believe that this trend is lessening as we are distributing a higher percentage of our tissues for use in adult populations.
Demand for our vascular preservation services has also traditionally been seasonal, with lowest demand generally occurring in the fourth quarter. We believe this trend for vascular preservation services was primarily due to fewer vascular surgeries being scheduled during the winter holiday months.
Liquidity and Capital Resources
Net Working Capital
As of March 31, 2022 net working capital (current assets of $244.5 million less current liabilities of $42.8 million) was $201.7 million, with a current ratio (current assets divided by current liabilities) of 6 to 1, compared to net working capital of $202.7 million and a current ratio of 6 to 1 at December 31, 2021.
Overall Liquidity and Capital Resources
Our primary cash requirements for the three months ended March 31, 2022 were for general working capital needs, capital expenditures for facilities and equipment, interest and principal payments under our Credit Agreement (defined below), and repurchases of stock to cover tax withholdings. We funded our cash requirements through our existing cash reserves and proceeds from stock option exercises.
We believe our cash from operations and existing cash and cash equivalents will enable us to meet our current operational liquidity needs for at least the next twelve months. Our future cash requirements are expected to include interest and principal payments under our Credit Agreement and Convertible Senior Notes (described in “Significant Sources and Uses of Liquidity” section below), expenditures for clinical trials, research and development expenditures, general working capital needs, capital expenditures, and other corporate purposes and may include cash to fund business development activities including obligations in the agreements related to the Endospan and Ascyrus transactions. These items may have a significant effect on our future cash flows during the next twelve months. Subject to the terms of our Credit Agreement, we may seek additional borrowing capacity or financing, pursuant to our current or any future shelf registration statement, for general corporate purposes or to fund other future cash requirements. If we undertake any further significant business development activity, we may need to finance such activities by obtaining additional debt financing or using a registration statement to sell equity securities. There can be no assurance that we will be able to obtain any additional debt or equity financing at the time needed or that such financing will be available on terms that are favorable or acceptable to us.
Significant Sources and Uses of Liquidity
On December 1, 2017 we entered into a credit and guaranty agreement for a $255.0 million senior secured credit facility, consisting of a $225.0 million secured term loan facility (the “Term Loan Facility”) and a $30.0 million secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Agreement”). We and each of our existing domestic subsidiaries (subject to certain exceptions and exclusions) guarantee the obligations under the Credit Agreement (the “Guarantors”). The Credit Agreement is secured by a security interest in substantially all existing and after-acquired real and personal property (subject to certain exceptions and exclusions) of us and the Guarantors.
On June 2, 2021 we entered into an amendment to our Credit Agreement to extend the maturity dates of both our Term Loan and Revolving Credit Facility. As part of the amendment, the maturity dates of both our Term Loan and Revolving Credit Facility were each extended by two and one-half years, until June 1, 2027 and June 1, 2025, respectively, subject to earlier springing maturities triggered if our 4.25% Convertible Senior Notes, described below, remain outstanding on April 1, 2025 and December 31, 2024, respectively. With respect to the Term Loan, if the Convertible Senior Notes remain outstanding on April 1, 2025, the Term Loan’s Maturity Date will be April 1, 2025, or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 91 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2027. In the case of the Revolving Credit Facility, if the Convertible Senior Notes are still outstanding on December 31, 2024, the Revolving Credit Facility’s Maturity Date will be either December 31, 2024 or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 182 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2025. Under the amendment, the Term Loan Facility bears interest, at our option, at a floating annual rate equal to either the base rate, plus a margin of 2.50%, or LIBOR, plus a margin of 3.50%. Prior to the amendment, the optional floating annual rate was equal to either the base rate plus a margin of 2.25%, or LIBOR, plus a margin of 3.25%.
On June 18, 2020 we issued $100.0 million aggregate principal amount of 4.25% Convertible Senior Notes with a maturity date of July 1, 2025 (the “Convertible Senior Notes”). The net proceeds from this offering, after deducting initial purchasers’ discounts and costs directly related to this offering, were approximately $96.5 million. On January 1, 2021 we adopted ASU 2020-06 and adjusted the carrying balance of the Convertible Senior Notes to notional. The Convertible Senior Notes balance
was $100.0 million recorded in Long-term debt on the Condensed Consolidated Balance Sheets as of March 31, 2022. The Convertible Senior Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. The initial conversion rate of the Convertible Senior Notes is 42.6203 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $23.46 per share, subject to adjustments. We use the if-converted method for assumed conversion of the Convertible Senior Notes for the diluted earnings per share calculation. The fair value and the effective interest rate of the Convertible Senior Notes as of March 31, 2022 was approximately $116.5 million and 5.05%, respectively. The fair value was based on market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy.
The interest expense recognized on the Convertible Senior Notes includes $1.2 million for the aggregate of the contractual coupon interest and the amortization of the debt issuance costs for the three months ended March 31, 2022, and 2021. Interest on the Convertible Senior Notes began accruing upon issuance and is payable semi-annually.
Holders of the Convertible Senior Notes may convert their notes at their option at any time prior to January 1, 2025 but only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) we give a notice of redemption with respect to any or all of the notes, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after January 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.
We cannot redeem the Convertible Senior Notes before July 5, 2023. We can redeem them on or after July 5, 2023, in whole or in part, at our option, if the last reported sale price per share of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. We may redeem for cash all or part of the Convertible Senior Notes at a redemption price equal to 100% of the principal amount of the redeemable Convertible Senior Notes, plus accrued and unpaid interest to, but excluding, the redemption date. No principal payments are due on the Convertible Senior Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the Convertible Senior Notes do not contain any financial covenants and do not restrict us from conducting significant restructuring transactions or issuing or repurchasing any of its other securities.
As of March 31, 2022 approximately 38% of our cash and cash equivalents were held in foreign jurisdictions.
The following table summarizes cash flows from operating activities, investing activities, and financing activities for the periods indicated (in thousands):
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| Three Months Ended | ||||
| March 31, | ||||
| 2022 |
| 2021 | ||
Cash flows used in: |
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Operating activities | $ | (598) |
| $ | (3,039) |
Investing activities |
| (2,708) |
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| (810) |
Financing activities |
| (235) |
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| (2,095) |
Effect of exchange rate changes on cash and cash equivalents |
| (61) |
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| 1,088 |
Decrease in cash and cash equivalents | $ | (3,602) |
| $ | (4,856) |
Net Cash Flows from Operating Activities
Net cash used in operating activities was $598,000 and $3.0 million for the three months ended March 31, 2022 and 2021, respectively.
We use the indirect method to prepare our cash flow statement and, accordingly, the operating cash flows are based on our net income, which is then adjusted to remove non-cash items, items classified as investing and financing cash flows, and changes
in operating assets and liabilities from the prior year end. For the three months ended March 31, 2022 these non-cash items included $5.9 million in depreciation and amortization expenses, $3.2 million in non-cash compensation, $3.0 million of deferred income tax changes, $1.9 million of lease expenses, and $1.8 million in fair value adjustments of financial instruments.
Our working capital needs, or changes in operating assets and liabilities, also affected cash from operations. For the three months ended March 31, 2022 these included the unfavorable effect of $3.3 million due to timing differences between the recording of accounts payable and other current liabilities, $1.7 million due to the timing differences between recording receivables and the receipt of cash, $1.4 million due to an increase in inventory balances and deferred preservation costs, partially offset by $1.5 million due to a decrease in prepaid expenses and other assets.
Net Cash Flows from Investing Activities
Net cash used in investing activities was $2.7 million and $810,000 for the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 cash used in investing activities primarily included $2.2 million of cash used for capital expenditures.
Net Cash Flows from Financing Activities
Net cash used in financing activities was $235,000 and $2.1 million for the three months ended March 31, 2022 and 2021, respectively. The current year cash used in financing activities was primarily due to $1.7 million for repurchases of common stock to cover tax withholdings and $694,000 for the repayment of debt, partially offset by $2.3 million of proceeds from the exercise of stock options and issuances of common stock.
Our long-term debt obligations and interest payments include $316.9 million of scheduled principal payments and $63.8 million in anticipated interest payments related to our Credit Agreement, Convertible Senior Notes, and other governmental loans.
We have contingent payment obligations that include up to $100.0 million to be paid to the former shareholders of Ascyrus, upon the achievement of certain milestones. We are obliged to make a $5.0 million third tranche payment under our loan agreement with Endospan upon receipt of certification that certain clinical trial milestones have been achieved. As part of the Baxter Transaction, we may be required to pay up to $9.0 million if certain milestones are met.
Our operating and finance lease obligations result from the lease of land and buildings that comprise our corporate headquarters and our various manufacturing facilities; leases related to additional manufacturing, office, and warehouse space; leases on Company vehicles; and leases on a variety of office equipment and other equipment.
Capital expenditures were $2.2 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively. Capital expenditures for the three months ended March 31, 2022 were primarily related to routine purchases of manufacturing and tissue processing equipment, leasehold improvements needed to support our business, computer software, and computer equipment.
See the “Risk Factors” identified in Part II, Item 1A of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our interest income and interest expense are sensitive to changes in the general level of US interest rates. In this regard, changes in US interest rates affect the interest earned on our cash and cash equivalents of $51.4 million as of March 31, 2022 and interest paid on the outstanding balances, if any, of our variable rate Revolving Credit Facility, Term Loan Facility, and Convertible Senior Notes. A 10% adverse change in interest rates, as compared to the rates experienced by us for the three months ended March 31, 2022, affecting our cash and cash equivalents, Term Loan Facility, Revolving Credit Facility, and Convertible Senior Notes would not have a material effect on our financial position, results of operations, or cash flows.
We have balances, such as cash, accounts receivable, accounts payable, and accruals that are denominated in foreign currencies. These foreign currency denominated balances are sensitive to changes in exchange rates. In this regard, changes in exchange rates could cause a change in the US Dollar equivalent of cash or funds that we will receive in payment for assets or that we would have to pay to settle liabilities. As a result, we could be required to record these changes as gains or losses on foreign currency translation.
We have revenues and expenses that are denominated in foreign currencies. Specifically, a portion of our international aortic stent grafts, surgical sealants, On-X, and other product revenues are denominated in Euros, British Pounds, Swiss Francs, Polish Zlotys, Canadian Dollars, and Brazilian Reals and a portion of our General, administrative, and marketing expenses are denominated in Euros, British Pounds, Swiss Francs, Polish Zlotys, Canadian Dollars, Brazilian Reals, and Singapore Dollars. These foreign currency transactions are sensitive to changes in exchange rates. In this regard, changes in exchange rates could cause a change in the US Dollar equivalent of net income from transactions conducted in other currencies. As a result, we could recognize a reduction in revenues or an increase in expenses related to a change in exchange rates.
An additional 10% adverse change in exchange rates from the exchange rates in effect on March 31, 2022 affecting our third-party balances denominated in foreign currencies could impact our financial position or cash flows by approximately $8.0 million. An additional 10% adverse change in exchange rates from the weighted-average exchange rates experienced by us for the three months ended March 31, 2022 affecting our revenue and expense transactions denominated in foreign currencies, would not have had a material impact on our financial position, profitability, or cash flows.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (“Disclosure Controls”) as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. These Disclosure Controls are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including to the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.
Our management, including our President and CEO and our Executive Vice President of Finance, Chief Operating Officer, and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Artivion have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Our Disclosure Controls have been designed to provide reasonable assurance of achieving their objectives.
Our management utilizes the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our Disclosure Controls over financial reporting. Based upon the most recent Disclosure Controls evaluation conducted by management with the participation of the CEO and CFO, as of March 31, 2022, the CEO and CFO have concluded that our Disclosure Controls were effective at a reasonable assurance level to satisfy their objectives and to ensure that the information required to be disclosed by us in our periodic reports is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized, and reported within the time periods specified in the US Securities and Exchange Commission’s rules and forms.
Changes to Disclosure Controls and Procedures
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
From time to time, we are involved in legal proceedings concerning matters arising from the conduct of our business activities. We regularly evaluate the status of legal proceedings in which we are involved in order to assess whether a loss is probable or whether there is a reasonable possibility that a loss or additional loss may have been incurred and to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made.
Based on current knowledge, we do not believe that there are any pending matters that could potentially have a material adverse effect on our business, financial condition, results of operations, or cash flows. We are, however, engaged in various legal actions in the normal course of business. There can be no assurances in light of the inherent uncertainties involved in any potential legal proceedings, some of which are beyond our control, and an adverse outcome in any legal proceeding could be material to our results of operations or cash flows for any particular reporting period.
Risks Relating to Our Business
Our business involves a variety of risks and uncertainties, known and unknown, including, among others, the risks discussed below. These risks should be carefully considered together with the other information provided in this Quarterly Report on Form 10-Q and in our other filings with the SEC. Our failure to adequately anticipate or address these risks and uncertainties may have a material, adverse impact on our business, reputation, revenues, financial condition, profitability, and cash flows. Additional risks and uncertainties not presently known or knowable to us, or that we currently believe to be immaterial, may also adversely affect our business.
Since early 2020, businesses, communities, and governments worldwide have taken, and continue to take, a wide range of actions to mitigate the spread and impact of COVID-19, leading to an unprecedented impact on the global economy. Hospitals and other healthcare providers have adopted differing approaches to address the surge and resurgence of COVID-19 cases, including their impact on healthcare workers, such as postponing elective and non-emergent procedures, restricting access to their facilities, cancelling elective procedures, or re-allocating scarce resources to some critically ill patients. Although many areas have seen a decline in COVID-19 cases, the potential for additional impact from new variants of COVID-19 remains. These conditions have and could continue to impact our activities, including:
Our product sales. Certain regions experienced continued impact on revenues in the first quarter of 2022 due to the COVID-19 pandemic, and in particular, the Omicron variant. In addition to COVID-19’s impact on procedure volumes, including an impact on procedure volumes due in part to COVID-19-related healthcare staffing shortages, we have observed additional downstream effects on our business, including an increase in delays or difficulty in collecting certain outstanding receivables, particularly with certain governmental payors in regions heavily impacted by COVID-19. The extent to which our financial performance will be impacted by the pandemic through the remainder of 2022 and beyond will depend largely on future developments, including changes in hospital utilization rates and staffing, the prevalence and severity of new variants, global availability and acceptance of COVID-19 vaccines and their effectiveness against variants, and the prevalence of public and private vaccine mandates and local lockdowns. COVID-19’s continued or increased impact on our financial performance may also increase the risks we face with respect to managing our indebtedness.
Our business operations. In 2020 we took several steps to address the impact of COVID-19 on our employees, cash consumption, and operations, including reducing expenditures and delaying investments. The reductions and delays we adopted could adversely impact our business operations or delay our recovery from the effects of the pandemic. Although we have begun to scale back many of these steps in most geographies, the COVID-19 virus
and its variants remain highly contagious and may have additional impact on our business operations. COVID-19 also continues to impact our business partners, including the various regulators and notified bodies that we rely on, which increases the regulatory risks we face, and specifically, the risks we face with respect to timely review and approval of new and renewal certifications, clearances, and approvals for our products.
Our manufacturing operations. The COVID-19 pandemic has continued to impact the global supply chain; the pandemic’s impact on workforces, global mobility, material availability, demand, costs, and shipping and reorder time and reliability has reportedly continued or worsened in many cases. Although we have yet to experience any material effects of this impact on our supply chain or operations, we face an increasing risk that upstream disruptions may occur. Risks relating to the lingering effects of global supply chain disruptions may even continue after COVID-19’s risk as a global pandemic has subsided.
Our workforce. As some global economies have begun to emerge from the COVID-19 downturn, the expiration of COVID-19-related hiring freezes, increased opportunities for remote work, the Great Resignation and increasing compensation pressure have resulted in a war for talent and an unprecedent number of career changes. The resulting worker shortages at all levels have impacted supply chains and distribution channels and employers’ ability to adequately staff their operations. This has impacted not only our own ability to attract and retain employees, but also the ability of our customers who face increasing staffing pressures throughout their healthcare organizations.
Our research and development projects. In 2020 and parts of 2021 we reduced spending on research and development projects, including clinical research projects. These reductions could adversely impact future revenue, and additional reductions in spending could be implemented, further impacting future revenue. In addition, our ability to conduct our ongoing research and development projects in markets that are affected by COVID-19 has been, and could continue to be, adversely impacted. Enrollment and timelines for our clinical trials have been, and might continue to be, impacted as healthcare providers reprioritize resources, address staffing shortages, and limit access to healthcare facilities or as patients decline to participate or are hesitant to voluntarily visit healthcare facilities. In addition, staffing shortages and COVID-19-related impacts on government and regulatory agencies have slowed and might continue to slow timelines for regulatory actions, including approvals and re-certifications.
If COVID-19 or its variants continue to spread, if efforts to contain COVID-19 or its variants continue or are unsuccessful, if we experience new outbreaks of COVID-19 in areas previously successful in containing its spread, if staffing shortages continue to impact us, governmental or regulatory bodies, or our customers, if vaccine mandates become more prevalent, or if COVID-19, its variants, or disruptions to the global supply chain impact our supply chain or employee productivity, it could materially, adversely affect our revenues, financial condition, profitability, and cash flows. The nature and extent of these developments are highly uncertain and unpredictable and may vary greatly by region. These adverse developments or a prolonged period of uncertainty could adversely affect our financial performance.
Our international operations subject us to a number of risks, which may vary significantly from the risks we face in our US operations, including:
Greater difficulties and costs associated with staffing, establishing and maintaining internal controls, managing foreign operations and distributor relationships, and selling directly to customers;
Broader exposure to corruption and expanded compliance obligations, including under the Foreign Corrupt Practices Act, the UK Bribery Law, local anti-corruption laws, Office of Foreign Asset Control administered sanction programs, the European Union’s General Data Protection Regulation, and other emerging corruption and data privacy regulations;
Overlapping and potentially conflicting, or unexpected changes in, international legal and regulatory requirements or reimbursement policies and programs;
Longer and more expensive collection cycles in certain countries, particularly those in which our primary customers are government-funded hospitals;
Changes in currency exchange rates, particularly fluctuations in the Euro as compared to the US Dollar;
Potential adverse financial impact and negative erosion of our operating profit margin over time due to increasing inflationary pressures, particularly through our supply chain; our exposure may be increased through our limited ability to raise prices and through global expansion where business occurs with, or pricing is set directly by, government entities, or we are party to long term pricing agreements with governments or local distributors, impacting our ability to pass on rising costs;
Potential adverse tax consequences of overlapping tax structures; and
Potential adverse financial and regulatory consequences resulting from the exit of the UK from the European Union, or “Brexit.”
Our operations and performance may also be impacted by regional and global geopolitical conditions, domestic and foreign trade and monetary policies, and other factors beyond our control. As an example of these risks, Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from the US and foreign governments and retaliatory actions from Russia, resulting in significant banking and trade disruptions. The war has also resulted in significant devastation to the people and infrastructure in the region, significantly impacting trade and transportation which may impact our global supply chain, increase prices, and limit our ability to continue to do business in affected regions.
To date, sanctions and other disruptions in the region have not materially impacted our business or ability to supply products to Russia, Belarus, Ukraine, and the region generally, however; continuation or escalation of the war or increased export controls or additional sanctions imposed on or by Russia, its allies, or related entities could adversely affect our financial performance. Although we do not have any direct operations in Russia or Ukraine, it is difficult to predict the ultimate course of the war and we may face business operations and supply chain disruptions as a result, including disruptions related to shortages of materials, higher costs of materials and freight, freight delays, increased energy costs or energy shortages, travel disruptions, currency fluctuation, and disruptions to banking systems or capital markets.
The market for our products and services is competitive and affected by new product introductions and activities of other industry participants. We face intense competition in virtually all of our product lines. A significant percentage of market revenues from competitive products are generated by Baxter International, Inc.; Ethicon (a Johnson & Johnson Company); Medtronic, Inc.; Abbott Laboratories; Edwards Lifesciences Corp.; C.R. Bard, Inc., a subsidiary of Becton, Dickinson and Company; Integra Life Sciences Holdings; LifeNet; CORCYM; Anteris Technologies, Inc.; Aziyo Biologics; Cook Medical; Gore & Associates; Terumo Aortic Corp.; LeMaitre Vascular, Inc.; Maquet, Inc.; Pfizer, Inc.; and BioCer Entwicklungs-GmbH. Several of our competitors enjoy competitive advantages over us, including:
Greater financial and other resources for research and development, commercialization, acquisitions, and litigation and to weather the impacts of COVID-19 and increased workforce competition;
Greater name recognition as well as more recognizable trademarks for products similar to products that we sell;
More established record of obtaining and maintaining regulatory product clearances or approvals;
More established relationships with healthcare providers and payors;
Lower cost of goods sold or preservation costs; and
Larger direct sales forces and more established distribution networks.
Tissue preservation services are a significant source of our revenues, and as such, we face risks if we are unable to:
Source sufficient quantities of some human tissue or address potential excess supply of others. We rely primarily upon the efforts of third-parties to educate the public and foster a willingness to donate tissue. Factors beyond our control such as supply, regulatory changes, negative publicity concerning methods of tissue recovery or disease transmission from donated tissue, or public opinion of the donor process as well as our own reputation in the industry can negatively impact the supply of tissue;
Compete effectively, as we may be unable to capitalize on our clinical advantages or our competitors may have advantages over us in terms of cost structure, pricing, back-office automation, marketing, and sourcing; or
Mitigate sufficiently the risk that tissue can become contaminated during processing; that processed tissue cannot be end-sterilized and hence carries an inherent risk of infection or disease transmission or that our quality controls can eliminate that risk.
As an example of this risk, in the fourth quarter of 2020 we became aware that a supplier shipped to us a lot of saline solution that we use in our tissue processing that contained some contamination. The contamination was identified by our routine quality controls. While we were able to mitigate the impact of this contamination through our own efforts and additional testing that was reviewed with the FDA, the contaminated solution impacted a small percentage of the tissue processed with this lot of
solution, requiring us to write-off approximately $826,000 in contaminated tissues in the fourth quarter of 2020. The written off and temporarily quarantined tissue impacted our ability to fully meet demand for certain tissues and sizes in the fourth quarter of 2020, the first quarter of 2021, and to a lesser extent the second quarter of 2021. Our inability to meet some demand for tissue in the third quarter resulted in part from a shortage of trained staff capable of meeting the increased demand for releasing this quarantined tissue. See also, Part I, Item 1A, “Risk Factors—Operational Risks— We are dependent on our specialized workforce.”
In addition, US and foreign governmental authorities have adopted laws and regulations that restrict tissue preservation services. Any of these laws or regulations could change, including becoming more restrictive or our interpretation of them could be challenged by governmental authorities.
BioGlue Surgical Adhesive (“BioGlue”) is a significant source of our revenues, and as such, any risk adversely affecting our BioGlue products or business would likely be material to our financial results. We face the following risks related to BioGlue:
Competing effectively with our major competitors, as they may have advantages over us in terms of cost structure, supply chain, pricing, sales force footprint, and brand recognition;
We may be unable to obtain approval to commercialize BioGlue in certain non US countries as fast as our competitors do of their products or at all. We also may not be able to capitalize on new BioGlue approvals, including for new indications, in non US countries;
BioGlue contains a bovine blood protein. Animal-based products are subject to increased scrutiny from the public and regulators, who may seek to impose additional regulations, regulatory hurdles or product bans in certain countries on such products; BioGlue is a mature product and other companies may use the inventions disclosed in expired BioGlue patents to develop and make competing products; and
BioGlue faces potential adverse regulatory consequences resulting from the exit of the UK from the European Union, or “Brexit, as well as the impact of COVID-19 on regulatory authorities’ ability to timely recertify the Conformité Européene Mark (“CE Mark”) for BioGlue” See Part I, Item 1A, “Risk Factors—Industry Risks— Our products and tissues are highly regulated and subject to significant quality and regulatory risks.”
Aortic stent grafts are a significant source of our revenues, and as such, any risk adversely affecting aortic stent grafts would likely be material to our financial results. We face the following aortic stent grafts related risks based on our ability to:
Compete effectively with our major competitors, as they may have advantages over us in terms of cost structure, supply chain, pricing, sales force footprint, and brand recognition;
Develop innovative, high quality, and in-demand aortic repair products;
Respond adequately to enhanced regulatory requirements and enforcement activities, and particularly, our ability to obtain regulatory approvals and renewals globally;
Meet demand for aortic stent grafts as we seek to expand our business globally; and
Maintain a productive working relationship with our Works Council in Germany.
On-X products are a significant source of our revenues, and as such, any risk adversely affecting our On-X products or business would likely be material to our financial results. We face risks based on our ability to:
Compete effectively with some of our major competitors, as they may have advantages over us in terms of cost structure, supply chain, pricing, sales force footprint, and brand recognition;
Take market share in the mechanical heart valve market based on the FDA’s approved lower International Normalized Ratio (“INR”) indication for the On-X aortic heart valve or complete the associated FDA mandated post-approval studies;
Address clinical trial data or changes in technology that may reduce the demand for mechanical heart valves, such as data regarding transcatheter aortic valve replacement, or “TAVR” devices;
Manage risks associated with less favorable contract terms for On-X products on consignment at hospitals;
Respond adequately to enhanced international regulatory requirements or enforcement activities; and
Receive timely renewal certifications in certain markets.
The majority of our foreign product revenues are denominated in Euros and, as such, are sensitive to changes in exchange rates. In addition, a portion of our dollar-denominated and euro-denominated product sales are made to customers in other countries who must convert local currencies into US Dollars or Euros in order to purchase these products. We also have balances, such as cash, accounts receivable, accounts payable, and accruals that are denominated in foreign currencies. These foreign currency transactions and balances are sensitive to changes in exchange rates. Additionally, as a result of recent sanctions against Russia and the ongoing war in Ukraine, it is possible that foreign currency restrictions or the development of multiple exchange rates could arise in certain countries. It is also likely that inflation spikes will occur in Russia and neighboring countries putting those economies at risk of becoming highly inflationary. Fluctuations in exchange rates of Euros or other local currencies in relation to the US Dollar could materially reduce our future revenues as compared to the comparable prior periods. Should this occur, it could have a material, adverse impact on our revenues, financial condition, profitability, and cash flows.
We account for the completion of acquisitions using the purchase method of accounting. Our financial results could be adversely affected by a number of financial adjustments required by purchase accounting such as:
We may incur added amortization expense over the estimated useful lives of some acquired intangible assets;
We may incur additional depreciation expense as a result of recording purchased tangible assets;
We may be required to incur material charges relating to any impairment of goodwill and intangible assets;
Cost of sales may increase temporarily if acquired inventory is recorded at fair market value;
If acquisition consideration consists of earn-outs, our earnings may be affected by changes in estimates of future contingent consideration; or
Earnings may be affected by transaction and integration costs, which are expensed immediately.
As an example of this risk, in the fourth quarter of 2021, we fully impaired the value of the Endospan Option and fully wrote-down the value of the Endospan Loan, primarily driven by a decrease in forecasted operating results. This impairment, and other potential risks like those mentioned above, may adversely affect the market value of our common stock.
The materials and supplies used in our product manufacturing and tissue processing are subject to regulatory requirements and oversight. If materials or supplies used in our processes fail to meet these requirements or are subject to regulatory enforcement action, they may have to be scrapped, or our products or tissues could be rejected during or after processing, recalled, or rejected by customers. In these cases, we may have to immediately scrap raw or in process materials or expense the costs of manufacturing or preservation.
As an example of this risk, in the fourth quarter of 2020 we became aware that a supplier shipped to us a lot of saline solution that we use in our tissue processing that contained some contamination. The contamination was identified by our routine quality controls. While we were able to mitigate the impact of this contamination through our own efforts and additional testing that was reviewed with the FDA, the contaminated solution impacted a small percentage of the tissue processed with this lot of solution, requiring us to write-off those contaminated tissues in the fourth quarter of 2020 and impacting our ability to fully meet demand for certain tissues and sizes in the fourth quarter of 2020, the first quarter of 2021, and to a lesser extent the second quarter of 2021.
In addition, if these materials or supplies or changes to them do not receive regulatory approval or are recalled, if the related suppliers and/or their facilities are shut down temporarily or permanently, for any reason, or if the related suppliers are otherwise unable or unwilling to supply us, we may not have sufficient materials or supplies to manufacture our products or process tissues. In addition, we rely on contract manufacturers to manufacture some of our products or to provide additional manufacturing capacity for some products. If these contract manufacturers fail to meet our quality standards or other requirements or if they are unable or unwilling to supply the products, we may not be able to meet demand for these products. Our ability to fully recover all possible losses from these suppliers and contract manufacturers may have practical limitations imposed by factors like industry standard contractual terms or the financial resources of the adverse party. As a further example of this risk, our supplier of TMR handpieces was informed in the fourth quarter of 2021 that the sole-source manufacturer of
tubing used in the handpiece assembly had gone out of business, requiring us to work with our supplier to identify and qualify a new supplier before a disruption in handpiece availability occurs.
Finally, the COVID-19 pandemic has continued to impact the global supply chain; the pandemic’s impact on workforces, global mobility, material availability, demand, and shipping and reorder time and reliability has reportedly continued or worsened in many cases. The ongoing war in Ukraine may add to or exacerbate challenges faced by the global supply chain. See Part I, Item 1A, “Risk Factors – Business and Economic Risks - We are subject to a variety of risks due to our international operations and continued global expansion.” Although we have yet to experience any material effects of this impact on our supply chain or operations, we face an increasing risk that upstream disruptions may occur. Risks relating to the lingering effects of global supply chain disruptions may even continue after COVID-19’s risk as a global pandemic and the war in Ukraine have subsided.
Some of the materials, supplies, and services used in our product manufacturing and tissue processing, as well as some of our products, are sourced from single- or sole-source suppliers. As a result, our ability to negotiate favorable terms with those suppliers may be limited, and if those suppliers experience operational, financial, quality, or regulatory difficulties, or if those suppliers and/or their facilities refuse to supply us or cease operations temporarily or permanently, or if those suppliers take unreasonable business positions, we could be forced to cease product manufacturing or tissue processing until the suppliers resume operations, until alternative suppliers could be identified and qualified, or permanently if the suppliers do not resume operations and no alternative suppliers could be identified and qualified. We could also be forced to purchase alternative materials, supplies, or services with unfavorable terms due to diminished bargaining power.
As an example of these risks, in 2019 we lost our supply of handpieces for cardiac laser therapy resulting from a manufacturing location change at our supplier that ultimately required a Premarket Approval (“PMA”) supplement and FDA approval before handpiece manufacturing and distribution could resume. Even though the FDA approved the PMA-S, our supplier was unable to fully resume production due to factors outside of our control. Due to these and other supplier issues, we had virtually no supply of handpieces during the first three quarters of 2021. Although handpiece supply resumed on a limited basis during the last quarter of 2021, we remain dependent on a sole-source manufacturer for these handpieces.
By way of additional non-limiting examples, our BioGlue product has three main product components: bovine protein, a cross linker, and a molded plastic resin delivery device. The bovine protein and cross linker are obtained from a small number of qualified suppliers. The delivery devices are manufactured by a single supplier, using resin supplied by a single supplier. We purchase grafts for our On-X AAP from a single supplier and various other components for our On-X valves come from single source suppliers.
Our preservation services business and our ability to supply needed tissues is dependent upon donation of tissues from human donors by donor families. Donated human tissue is procured from deceased human donors by OPOs and tissue banks. We must rely on the OPOs and tissue banks that we work with to educate the public on the need for donation, to foster a willingness to donate tissue, to follow our donor screening and procurement procedures, and to send donated tissue to us. We have active relationships with 59 OPOs and tissue banks throughout the US. As with any vendor, we believe these relationships with our OPOs are critical in the preservation services industry and that the breadth of these existing relationships provides us with a significant advantage over potential new entrants to this market. We also use various raw materials, including medicines and solutions, in our tissue processing. Some of these raw materials are manufactured by single suppliers or by a small group of suppliers.
Our aortic stent graft systems consist of two main product components: the stent graft and the delivery system. The stent graft is manufactured from several different raw materials that are manufactured internally or at various external suppliers, including single suppliers. The delivery systems we manufacture are comprised of several different raw materials and subassemblies. Our internal manufacturing processes include injection molding and machining of plastic parts, suturing of stent grafts, processing of Nitinol, and weaving of textiles. Our conventional polyester grafts consist of two main product components: polyester fabric and collagen coating. The polyester fabric is woven from a few different yarns that are supplied by an external supplier. The collagen suspension we manufacture is comprised of a collagenous tissue that is supplied by a single supplier. The conventional ePTFE grafts we manufacture are comprised of various raw materials supplied by several suppliers. For some products the ePTFE grafts are heparin coated. For these products, the heparin suspension we manufacture is comprised of a heparin solution that is also supplied by an external supplier.
We also conduct all of our own manufacturing operations at three facilities: Austin, Texas for On-X products, Hechingen, Germany for internally manufactured aortic stent grafts, and Kennesaw, Georgia for BioGlue, PerClot, PhotoFix, and tissue preservation services. The AMDS product is solely manufactured by a supplier in Charlotte, North Carolina, the CardioGensis
handpieces are solely manufactured by a supplier in Merrilville, Indiana, and the NEXUS product is solely manufactured by Endospan in Herzlia, Israel. If one of these facilities ceases operations temporarily or permanently, for any reason including a pandemic or climate change related event, our business could be substantially disrupted.
Although we work diligently to maintain adequate inventories of raw materials, components, supplies, subassemblies, and finished goods, there can be no assurance that we will be able to avoid all disruptions to our global supply chain, or disruptions to our sterilization or distribution networks. Any of these disruptions could have a material, adverse effect on our revenues, reputation, or profitability.
Our business and future operating results depend in significant part upon the continued contributions of our specialized workforce, including key personnel, qualified personnel with medical device and tissue processing experience, and senior management with experience in the medical device or tissue processing space, some of whom would be difficult to replace. Our business and future operating results, including production at our manufacturing and tissue processing facilities, also depend in significant part on our ability to attract and retain qualified management, operations, processing, marketing, sales, and support personnel. Our primary facilities are in Kennesaw, Georgia; Austin, Texas; and Hechingen, Germany, where the supply of qualified medical device and tissue processing and other personnel is limited, competition for such personnel is significant, and we cannot ensure that we will be successful in attracting or retaining them. We face risks if we lose any key employees to other employers or due to severe illness, death, or retirement, if any of our key employees fail to perform adequately, or if we are unable to attract and retain skilled employees. This risk was exacerbated during 2021, and is expected to continue, as the competition for talent in the medical device industry and in the workforce generally has intensified substantially. As some global economies have begun to emerge from the COVID-19 downturn, the expiration of COVID-19 related hiring freezes, the Great Resignation, increased opportunities for remote work, and increasing compensation pressure have resulted in a war for talent and an unprecedent number of career changes. The resulting competition and worker shortages at all levels have impacted supply chains and distribution channels and our ability to attract and retain the specialized workforce necessary for our business and operations.
One of our growth strategies is to pursue select acquisitions, licensing, or distribution rights with companies or technologies that complement our existing products, services, and infrastructure. In connection with one or more of these transactions, we may:
Issue additional equity securities that would dilute our stockholders’ ownership interest;
Use cash we may need in the future to operate our business;
Incur debt, including on terms that could be unfavorable to us or debt we might be unable to repay;
Structure the transaction resulting in unfavorable tax consequences, such as a stock purchase that does not permit a step-up in basis for the assets acquired;
Be unable to realize the anticipated benefits of the transaction; or
Assume material unknown liabilities associated with the acquired business.
As part of our efforts to drive growth by pursuing select acquisition, license, and distribution opportunities that are aligned to our objectives and complement our existing products, services, and infrastructure or to divest non-core product lines, we have completed several transactions in recent years and may pursue similar additional transactions in the future. Examples of these activities include the following:
On December 1, 2017 we acquired JOTEC AG, a Swiss entity that we converted to JOTEC GmbH and subsequently merged with our Swiss acquisition entity, Jolly Buyer Acquisition GmbH and its subsidiaries;
On September 11, 2019 we entered into various agreements with Endospan, Ltd. (“Endospan”), an Israeli medical device manufacturer (the “Endospan Transaction”). The Endospan Transaction included an exclusive distribution agreement for the NEXUS stent graft system (“NEXUS”) in Europe; an agreement (“Endospan Loan”) for a secured loan from Artivion to Endospan; and a security purchase option agreement for Artivion to purchase all the then outstanding Endospan securities from Endospan’s existing securityholders upon FDA approval of NEXUS;
On September 2, 2020 we acquired 100% of the outstanding shares of Ascyrus Medical LLC (“Ascyrus”), the developer of the Ascyrus Medical Dissection Stent (“AMDS”); and
On July 28, 2021 we entered into various agreements with Baxter International, Inc. (“Baxter”) and Starch Medical, Inc. (“SMI”) related to the sale of our PerClot assets to Baxter and the termination of our existing material agreements with SMI (collectively the “Baxter Transaction”).
Our ability to realize the anticipated business opportunities, growth prospects, cost savings, synergies, and other benefits of these transactions depends on a number of factors including our ability to:
Leverage our global infrastructure to sell and cross-market the acquired products;
Drive adoption of NEXUS and AMDS in the European and other markets, including our ability to manage the substantial requirements for NEXUS procedures for product training, implant support, and proctoring;
Bring acquired products to the US market, including our acquired aortic stent grafts;
Harness the aortic stent graft product pipeline and our research and development capabilities;
Obtain regulatory approvals in relevant markets, including our ability to timely obtain FDA PMA for PerClot as contemplated under the terms of the Baxter Transaction, to obtain Conformité Européene Mark (“CE Mark”) product certification for pipeline products, and to obtain or maintain certification for pipeline and current products at all, and obtain timely CE Mark recertification for BioGlue;
Execute on development and clinical trial timelines for acquired products;
Manage global inventories, including our ability to manage inventories for product lines with large numbers of product configurations and manage manufacturing and demand cycles to avoid excess inventory obsolescence due to shelf life expiration, particularly for processed tissues and aortic stent grafts;
Carry, service, and manage significant debt and repayment obligations; and
Manage the unforeseen risks and uncertainties related to these transactions, including any related to intellectual property rights.
Additionally, our ability to realize the anticipated business opportunities, growth prospects, synergies, and other benefits of the Endospan Transaction depends on a number of additional factors including Endospan’s ability to: (a) comply with the Endospan Loan and other debt obligations, and avoid an event of default; (b) successfully commercialize NEXUS, raise capital and drive adoption in markets in and outside of Europe; (c) meet demand for NEXUS; (d) meet quality and regulatory requirements; (e) manage any intellectual property risks and uncertainties associated with NEXUS; (f) obtain FDA approval of NEXUS; and (g) develop NEXUS product improvements to meet competitive threats and physician demand. As an example of this risk, the forecasted operating results related to NEXUS decreased in the fourth quarter of 2021, resulting in an impairment in the value of the Endospan Option, and a full write-down the value of the Endospan Loan, reflecting decreased expectations with respect to the anticipated benefits of the Endospan Transaction.
Many of these factors are outside of our control and any one of them could result in increased costs, decreased revenues, and diversion of management’s time and energy. The benefits of these transactions may not be achieved within the anticipated time frame or at all. Any of these factors could negatively impact our earnings per share, decrease or delay the expected accretive effect of the transaction, and negatively impact the price of our common stock. In addition, if we fail to realize the anticipated benefits of a transaction, we could experience an interruption or loss of momentum in our existing business activities.
In order to reflect our evolution to focus on providing innovative technologies to surgeons who treat patients with aortic disease, we changed our name to Artivion, Inc., effective January 18, 2022 (the “Corporate Rebrand”). The Corporate Rebrand also involved the adoption of a new ticker symbol on the New York Stock Exchange, “AORT.” We may face unanticipated disruptions to our business arising from the Corporate Rebrand, and it may expose us to additional risks, including:
Disruptions to our day-to-day business operations including disruptions to our ability to receive or our customers’ ability to make timely payments;
Disruptions to access to certain markets or segments due to delays or other issues with regulatory approvals or updates arising from the Corporate Rebrand;
Unanticipated delays or other impact on our pending regulatory applications or clinical trials arising from the Corporate Rebrand;
Confusion within the marketplace, particularly with multiple points of contact in our downstream product flow involving purchasing and accounts payable departments and end users;
Intellectual property risks associated with the adoption of a new corporate identity and trade dress; and
Loss of brand equity associated with our legacy brands, including our CryoLife and JOTEC brands that will become less prominent over time.
The Corporate Rebrand involved significant financial and resource investment and will continue to do so as we complete our global brand transitions over the coming years. The anticipated benefits of the Corporate Rebrand may not be achieved within the anticipated timeframe, without additional near or long-term investment, or at all. Any of these factors could negatively impact our revenues, earnings per share, decrease or delay the expected accretive effect of the Corporate Rebrand, and negatively impact the price of our common stock.
We rely upon a combination of sophisticated information technology systems as well as traditional recordkeeping to operate our business. In the ordinary course of business, we collect, store, and transmit confidential information (including, but not limited to, information about our business, financial information, personal data, intellectual property, and, in some instances, patient data). Our information technology and information security systems and records are potentially vulnerable to security breaches, service interruptions, data loss, or malicious attacks resulting from inadvertent or intentional actions by our employees, vendors, or other third parties. In addition, due to the COVID-19 pandemic, we have implemented remote work arrangements for some employees, and those employees may use outside technology and systems that are vulnerable to security breaches, service interruptions, data loss or malicious attacks, including by third parties.
As an example of these risks, on November 1, 2019 we were notified that we had become a victim of a business e-mail compromise. During the fourth quarter of 2019, a company email account was compromised by a third-party impersonator and a payment intended for one of our US vendors in the amount of $2.6 million was fraudulently re-directed into an individual bank account controlled by this third-party impersonator. Our cyber-insurance covered all but $25,000 of the unrecovered losses from this compromise.
While we have invested, and continue to invest, in our information technology and information security systems and employee information security training, there can be no assurance that our efforts will prevent all security breaches, service interruptions, or data losses. We have limited cyber-insurance coverage that may not cover all possible events, and this insurance is subject to deductibles and coverage limitations. Any security breaches, service interruptions, or data losses could adversely affect our business operations or result in the loss of critical or sensitive confidential information or intellectual property, or in financial, legal, business, and reputational harm to us or allow third parties to gain material, inside information that they may use to trade in our securities.
The commercialization of medical devices and processing and distribution of human tissues are highly complex and subject to significant global quality and regulatory risks and as such, we face the following risks:
Our products and tissues allegedly have caused, and may in the future cause, patient injury, which has exposed, and could in the future expose, us to liability claims that could lead to additional regulatory scrutiny;
Our manufacturing and tissue processing operations are subject to regulatory scrutiny, inspections and enforcement actions, and regulatory agencies could require us to change or modify our operations or take other action, such as issuing product recalls or holds;
Regulatory agencies could reclassify, re-evaluate, or suspend our clearances or approvals, or fail, or decline to, issue or reissue our clearances or approvals that are necessary to sell our products and distribute tissues;
Regulatory and quality requirements are subject to change, which could adversely affect our ability to sell our products or distribute tissues; and
Adverse publicity associated with our products, processed tissues, or our industry could lead to a decreased use of our products or tissues, increased regulatory scrutiny, or product or tissue processing liability claims.
Further, on May 25, 2017 the European Union adopted a new Medical Device Regulation (MDR 2017/745) (“MDR”), which was fully implemented on May 26, 2021. The MDR places stricter requirements on manufacturers and European Notified Bodies regarding, among other things, product classifications and pre- and post-market clinical studies for product clearances and approvals which could result in product reclassifications or the imposition of other regulatory requirements that could delay, impede, or prevent our ability to commercialize existing, improved, or new products in the European Economic Area (“EEA”) and other markets that require CE Marking. Additionally, to the extent the MDR places stricter requirements on manufacturers of custom-made devices, those new requirements could delay, impede, or otherwise impact the availability of our E-xtra Design Engineering products. Finally, COVID-19 has impacted the predictability and timelines associated with the MDR transition.
Since the implementation of the MDR, Notified Bodies must review any proposed changes to determine if they require evaluation under the MDR or if they can still be evaluated under currently held MDD certifications. Our inability to obtain certifications for changes under the transitional provisions of the MDR’s Article 120 or successfully submit proposed changes requiring MDR evaluation will delay implementation of those changes which could adversely impact our ability to obtain or renew certifications, clearances, or approvals for our products.
Finally, we anticipate additional regulatory impact as a result of the United Kingdom’s exit from the European Union (“Brexit”). The UK Medicines and Healthcare Products Regulatory Agency (“MHRA”) has announced that CE Marking will continue to be recognized in the UK and certificates issued by EU-recognized Notified Bodies will continue to be valid in the UK market until June 30, 2023. Going forward, all devices marketed in the UK will require UK Conformity Assessed Marks certified by a UK Approved Body (the re-designation of the UK Notified Body).
In 2019, our notified body in the UK, Lloyd’s Register Quality Assurance Limited (“LRQA”), informed us that it would no longer provide Notified Body services for medical devices effective September 2019. The governing German competent authority, the Regierungspraesidium-Tubingen, granted us an extended grace period until December 31, 2021 to transfer LRQA-issued certifications for BioGlue and PhotoFix to a new Notified Body. We are currently in the process of transferring BioGlue and PhotoFix to our new Notified Body, DEKRA. While positive progress has been made, DEKRA has been unable to complete the registration and the renewal of our BioGlue CE Mark because DEKRA has been unable to complete its last audit, a Phase 2 onsite audit, due to COVID-19 restrictions on travel, staffing shortages, and workload related to the transition to the MDR. We are currently requesting derogations from certain individual European countries to allow us to continue to commercialize BioGlue in those countries until we can complete the certification process with DEKRA. Failure to timely obtain key derogations in certain countries, or any other delays in this transition, may have a material adverse effect on our ability to supply demand in affected jurisdictions, have a material, adverse impact on our business, and may also impact our Medical Device Single Audit Program (“MDSAP”) certifications. Failure to timely obtain new MDSAP certifications following their expiration may impact our ability to distribute covered products in Australia, Brazil, Canada, and Japan.
In December 2019 we learned that the FDA is preparing to issue a proposed rule for reclassification of more than minimally manipulated (“MMM”) allograft heart valves to Class III medical devices, which could include our CryoValve SGPV. Following a comment period and subsequent publication of any final rule, should the CryoValve SGPV be determined to be MMM, we expect to have approximately thirty months to submit an FDA PMA application, after which the FDA will determine if, and for how long, we may continue to provide these tissues to customers during review of the PMA application. To date, the FDA has not issued such a proposed final rule.
If the FDA ultimately classifies our CryoValve SGPV as a Class III medical device, and if there are delays in obtaining the PMA, if we are unsuccessful in obtaining the PMA, or if the costs associated with these activities are significant, we could decide that the requirements for continued processing of the CryoValve SGPV are too onerous, leading us to discontinue distribution of these tissues.
Our growth and profitability depends in part upon our ability to develop, and successfully introduce, new products and services, or expand upon existing indications, clearances, and approvals, requiring that we invest significant time and resources to obtain new regulatory clearances/approvals, including investment into pre- and post-market clinical studies. Although we believe certain products and services in our portfolio or under development may be effective in a particular application, we cannot be certain until we successfully execute on relevant clinical trials, and the results we obtain from pre- and post-market clinical studies may be insufficient for us to obtain or maintain any required regulatory approvals or clearances.
We are currently seeking regulatory approval for BioGlue in China, where the Chinese regulatory body has made additional requests, and expressed several concerns, related to the application. We have obtained an extension of time until February 2024 in which to secure approval for BioGlue in China. If we cannot obtain approval by then or the costs to do so are prohibitive, we ultimately may be unable to see BioGlue in China.
Each of our trials, studies, and approvals is subject to the risks outlined herein.
We cannot give assurance that regulatory agencies will clear or approve these products and services or indications, or any new products and services or new indications, on a timely basis, if ever, or that the products and services or new indications will adequately meet the requirements of the market or achieve market acceptance. Pre- and post-market clinical studies may also be delayed or halted due to many factors beyond our control.
If we are unable to successfully complete the development of a product, service, or application, or if we determine for any reason not to complete development or obtain regulatory approval or clearance of any product, service, or application, particularly in instances when we have expended significant capital, this could materially, adversely affect our financial performance. Research and development efforts are time consuming and expensive, and we cannot be certain that these efforts will lead to commercially successful products or services. Even the successful commercialization of a new product or service in the medical industry can be characterized by slow growth and high costs associated with marketing, under-utilized production capacity, and continuing research and development and education costs, among other things. The introduction of new products or services may require significant physician training or years of clinical evidence in order to gain acceptance in the medical community.
Some of our products, including our On-X products, are sterilized using Ethylene Oxide (“EtO”). Although we have a small-scale EtO facility in Austin, Texas, we rely primarily on large-scale EtO facilities to sterilize our products. In addition, some of our suppliers use, or rely upon third parties to use, EtO to sterilize some of our product components. Concerns about the release of EtO into the environment at unsafe levels have led to increased activism and lobbying as well as various regulatory enforcement activities against EtO facilities, including closures and temporary closures, as well as proposals increasing regulations related to EtO. The number of EtO facilities in the US is limited, and any permanent or temporary closures or disruption to their operations could delay, impede, or prevent our ability to commercialize our products. In addition, any regulatory enforcement activities against us for our use of EtO could result in financial, legal, business, and reputational harm to us.
Our business and future growth depend on the continued use of our products for approved uses. Generally, regulators contend that, unless our products are approved or cleared by a regulatory body for alternative uses, we may not make claims about the safety or effectiveness of our products or promote them for such uses. Such limitations present a risk that law enforcement could allege that the nature and scope of our sales, marketing, or support activities, though designed to comply with all regulatory requirements, constitute unlawful promotion of our products for an unapproved use. We also face the risk that such authorities might pursue enforcement based on past activities that we discontinued or changed. Investigations concerning the promotion of unapproved uses and related issues are typically expensive, disruptive, and burdensome and generate negative publicity. If our promotional activities are found to be in violation of the law, we may face significant fines and penalties and may be required to substantially change our sales, promotion, grant, and educational activities. In addition, we or our officers could be excluded from participation in government healthcare programs such as Medicare and Medicaid.
In response to perceived increases in healthcare costs in recent years, there have been, and continue to be, proposals by the governmental authorities, third-party payors, and elected office holders and candidates to impact public health, control healthcare costs and, more generally, to reform the healthcare systems. Additional uncertainty is anticipated as debates about healthcare, vaccines, and public health continue in light of the COVID-19 pandemic which may have an impact on US law relating to the healthcare industry. Many US healthcare laws, such as the Affordable Care Act, are complex, subject to change, and dependent on interpretation and enforcement decisions from government agencies with broad discretion. The application of these laws to us, our customers, or the specific services and relationships we have with our customers is not always clear. Our failure to anticipate accurately any changes to, or the repeal or invalidation of all or part of the Affordable Care Act and similar or future laws and regulations, or our failure to comply with them, could create liability for us, result in adverse publicity and negatively affect our business, results of operations, and financial condition.
Further, the growth of our business, results of operations and financial condition rely, in part, on customers in the healthcare industry that receive substantial revenues from governmental and other third-party payer programs. A reduction or less than expected increase in government funding for these programs or a change in reimbursement or allocation methodologies, or a change in reimbursement related to products designated as “breakthrough devices” by the FDA, could negatively affect our customers’ businesses and, in turn, negatively impact our business, results of operations and financial condition. Any changes that lower reimbursement for our products or reduce medical procedure volumes, could adversely affect our business and profitability.
Our products and processed tissues allegedly have caused, and may in the future cause, injury or result in other serious complications that may result in product or other liability claims from our customers or their patients. If our products are defectively designed, manufactured, or labeled, or contain inadequate warnings, defective components, or are misused, or are used contrary to our warnings, instructions, and approved indications, we may become subject to costly litigation that can have unpredictable and sometimes extreme outcomes.
We maintain claims-made insurance policies to mitigate our financial exposure to product and tissue processing liability and securities, claims, among others, that are reported to the insurance carrier while the policy is in effect. These policies do not include coverage for punitive damages. Although we have insurance for product and tissue processing liabilities, securities, property, and general liabilities, if we are unsuccessful in arranging cost-effective acceptable resolutions of claims, it is possible that our insurance program may not be adequate to cover any or all possible claims or losses, including losses arising out of natural disasters or catastrophic circumstances. Any significant claim could result in an increase in our insurance rates or jeopardize our ability to secure coverage on reasonable terms, if at all.
Any securities or product liability/tissue processing claim, even a meritless or unsuccessful one, could be costly to defend, and result in diversion of our management’s attention from our business, adverse publicity, withdrawal of clinical trial participants, injury to our reputation, or loss of revenue.
Our relationships with physicians, hospitals, and other healthcare providers are subject to scrutiny under various US and international bribery, anti-kickback, false claims, privacy, transparency, and similar laws, often referred to collectively as “healthcare compliance laws.” Healthcare compliance laws are broad, sometimes ambiguous, complex, and subject to change and changing interpretations. The ongoing war in Ukraine and the current and future sanctions imposed on Russia and others as a result may exacerbate these risks. See also Part I, Item 1A, “Risk Factors – Business and Economic Risks - We are subject to a variety of risks due to our international operations and continued global expansion.” Possible sanctions for violation of these healthcare compliance laws include fines, civil and criminal penalties, exclusion from government healthcare programs, and despite our compliance efforts, we face the risk of an enforcement activity or a finding of a violation of these laws.
We have entered into consulting and product development agreements with healthcare professionals and healthcare organizations, including some who may order our products or make decisions to use them. We have also adopted the AdvaMed
Code of Conduct, the MedTech Europe Code of Ethical Business Practice, and the APACMed Code of Ethical Conduct which govern our relationships with healthcare professionals to bolster our compliance with healthcare compliance laws. While our relationships with healthcare professionals and organizations are structured to comply with such laws and we conduct training sessions on these laws and Codes, it is possible that enforcement authorities may view our relationships as prohibited arrangements that must be restructured or for which we would be subject to other significant civil or criminal penalties or debarment. In any event, any enforcement review of or action against us as a result of such review, regardless of outcome, could be costly and time consuming. Additionally, we cannot predict the impact of any changes in or interpretations of these laws, whether these changes will be retroactive or will have effect on a going-forward basis only.
An increasing number of federal, state, and foreign data privacy laws and regulations, which can be enforced by private parties or governmental entities, have been or are being promulgated and are constantly evolving. These laws and regulations may include new requirements for companies that receive or process an individual’s personal data (including employees), which increases our operating costs and requires significant management time and energy. Many of these laws and regulations, including the European Union’s General Data Protection Regulation (“GDPR”) also include significant penalties for noncompliance. Although our personal data practices, policies, and procedures are intended to comply with GDPR and other data privacy laws and regulations, there can be no assurance that regulatory or enforcement authorities will view our arrangements as being in compliance with applicable laws, or that one or more of our employees or agents will not disregard the rules we have established. Any privacy related government enforcement activities may be costly, result in negative publicity, or subject us to significant penalties.
We own trade secrets, patents, patent applications, and licenses relating to our technologies and trademarks and goodwill related to our products and services, which we believe provide us with important competitive advantages. We cannot be certain that we will be able to maintain our trade secrets, that our pending patent applications will issue as patents, or that no one will challenge the validity or enforceability of any intellectual property that we adopt, own, or license. Competitors may independently develop our proprietary technologies or design non-infringing alternatives to patented inventions. We do not control the maintenance, prosecution, enforcement, or strategy for in-licensed intellectual property and as such are dependent in part on the owners of these rights to maintain their viability. Their failure to do so could significantly impair our ability to exploit those technologies. Additionally, our technologies, products, or services could infringe intellectual property rights owned by others, or others could infringe our intellectual property rights.
If we become involved in intellectual property disputes, the costs could be expensive, and if we were to lose or decide to settle, the amounts or effects of the settlement or award by a tribunal could be costly.
The agreements governing our indebtedness contain, and any instruments governing future indebtedness of ours may contain, covenants that impose significant operating and financial restrictions on us and certain of our subsidiaries, including (subject in each case to certain exceptions) restrictions or prohibitions on our and certain of our subsidiaries’ ability to, among other things:
Incur or guarantee additional debt or create liens on certain assets;
Pay dividends on or make distributions of our share capital, including repurchasing or redeeming capital stock, or make other restricted payments, including restricted junior payments;
Enter into agreements that restrict our subsidiaries’ ability to pay dividends to us, repay debt owed to us or our subsidiaries, or make loans or advances to us or our other subsidiaries;
Enter into certain transactions with our affiliates including any transaction or merger or consolidation, liquidation, winding-up, or dissolution; convey, sell, lease, exchange, transfer or otherwise dispose of all or any part of our business, assets or property; or sell, assign, or otherwise dispose of any capital stock of any subsidiary;
Enter into certain rate swap transactions, basis swaps, credit derivative transactions, and other similar transactions, whether relating to interest rates, commodities, investments, securities, currencies, or any other relevant measure, or transactions of any kind subject to any form of master purchase agreement governed by the International Swaps
and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement;
Amend, supplement, waive, or otherwise modify our or our subsidiaries organizational documents in a manner that would be materially adverse to the interests of the lenders, or change or amend the terms of documentation regarding junior financing in a manner that would be materially adverse to the interests of the lenders;
Make changes to our and our subsidiaries’ fiscal year without notice to the administrative agent under the agreement;
Enter into agreements which restrict our ability to incur liens;
Engage in any line of business substantially different from that in which we are currently engaged; and
Make certain investments, including strategic acquisitions or joint ventures.
Our current and future levels of indebtedness could adversely affect our ability to raise additional capital, limit our operational flexibility, and hinder our ability to react to changes in the economy or our industry. It may also limit our ability to borrow money, require us to dedicate substantial portions of our cash flow to repayment, and restrict our ability to invest in business opportunities. Because most of our borrowings are at a variable rate of interest, we are exposed to interest rate fluctuations.
A failure to comply with the covenants in our existing Credit Agreement could result in an event of default, which, if not cured or waived, could have a material, adverse effect on our business, financial condition, and profitability. In the event of any such default, the holders of our indebtedness:
Will not be required to lend any additional amounts to us; and
Could elect to declare all indebtedness outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit, if applicable.
If we are unable to repay those amounts, the holders of our secured indebtedness could proceed against their secured collateral to seek repayment out of proceeds from the sale or liquidation of our assets. If our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.
In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists from time to time propose to involve themselves in the governance, strategic direction, and operations of a company. Such involvement may disrupt our business and divert the attention of our management, and any perceived uncertainties as to our future direction resulting from such involvement could result in the loss of business opportunities, be exploited by our competitors, cause concern for our current or potential customers, cause significant fluctuations in stock price, or make it more difficult to attract and retain qualified personnel and business partners.
Investors and other key stakeholders are increasingly focusing on areas of corporate responsibility, and particularly matters related to environmental, social, and governance (“ESG”) factors. Institutional investors have expressed expectations with respect to ESG matters that they use to guide their investment strategies and may, in some cases, choose not to invest in us if they believe our ESG policies are lagging or inadequate. Other stakeholders also have expectations regarding ESG factors, such as employees or potential employees who desire to work for a company that reflects their personal values. These areas of focus are continuing to evolve, as are the criteria that investors assess companies’ performance in these areas. Investors are increasingly looking to companies that demonstrate strong ESG and sustainability practices as an indicator of long-term resilience, especially in light of events such as the COVID-19 pandemic. Keeping up with and meeting these expectations may disrupt our business and divert the attention of our management, and we may be unable to make the investments in ESG that our competitors with greater financial resources are able to make. Failure to meet the expectations of investors and other
stakeholders in these areas may damage our reputation, impact employee retention, impact the willingness of our customers to do business with us, or otherwise impact our financial results and stock price.
In December 2015 our Board of Directors discontinued dividend payments on our common stock for the foreseeable future. If we do not pay cash dividends, our shareholders may receive a return on their investment in our common stock only through appreciation of shares of our common stock that they own. In addition, restrictions in our credit facility limit our ability to pay future dividends.
Effective January 1, 2022, we reincorporated in Delaware. Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, the organizational documents adopted in connection with our reincorporation contain provisions that restrict persons who may call shareholder meetings, allow the issuance of blank-check preferred stock without the vote of shareholders, and allow the Board of Directors to fill vacancies and fix the number of directors. These provisions of Delaware law and our articles of incorporation and bylaws could prevent attempts by shareholders to remove current management, prohibit or delay mergers or other changes of control transactions, and discourage attempts by other companies to acquire us, even if such a transaction would be beneficial to our shareholders. The effects of reincorporation in Delaware are detailed in our 2021 Special Proxy Statement and Notice of Special Meeting filed with the SEC on October 7, 2021.
(c) The following table provides information about purchases by us during the three months ended March 31, 2022 of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934:
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| Total Number |
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| of Common Shares |
| Dollar Value | |
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| Total Number of |
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| Purchased as |
| of Common Shares | |
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| Common Shares |
| Average Price |
| Part of Publicly |
| That May Yet Be | ||
|
| and Common Stock |
| Paid per |
| Announced |
| Purchased Under the | ||
Period |
| Units Purchased |
| Common Share |
| Plans or Programs |
| Plans or Programs | ||
01/01/22 - 01/31/22 |
| -- |
| $ | -- |
| -- |
| $ | -- |
02/01/22 - 02/28/22 |
| 61,891 |
|
| 17.80 |
| -- |
|
| -- |
03/01/22 - 03/31/22 |
| 29,352 |
|
| 21.39 |
| -- |
|
| -- |
Total |
| 91,243 |
| $ | 18.95 |
| -- |
| $ | -- |
The common shares purchased during the three months ended March 31, 2022 were tendered to us in payment of taxes on stock compensation and were not part of a publicly announced plan or program.
Under our Credit Agreement, we are prohibited from repurchasing our common stock, except for the repurchase of stock from our employees or directors when tendered in payment of taxes or the exercise price of stock options, upon the satisfaction of certain requirements.
None.
Not applicable.
None.
The exhibit index can be found below.
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Exhibit | Description | ||
Delaware Certificate of Incorporation, effective January 1, 2022. (Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed January 4, 2022). | |||
Delaware Certificate of Amendment of Certificate of Incorporation, effective January 18, 2022. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed January 20, 2022). | |||
Amended and Restated Bylaws of Artivion, Inc., a Delaware Corporation (Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed January 20, 2022). | |||
10.1†* | Form of Artivion, Inc. Equity and Cash Incentive Plan Option Award Agreement | ||
10.2†* | Form of Artivion, Inc. Equity and Cash Incentive Plan PSU Award Agreement | ||
10.3†* | Form of Artivion, Inc. Equity and Cash Incentive Plan Restricted Stock Unit Award Agreement | ||
10.4†* | Form of Artivion, Inc. Equity and Cash Incentive Plan Special PSU Award Agreement | ||
31.1* | Certification by J. Patrick Mackin pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2* | Certification by D. Ashley Lee pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | ||
32** | Certification Pursuant To 18 USC. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002. | ||
101.INS* | XBRL Instance Document | ||
101.SCH* | XBRL Taxonomy Extension Schema Document | ||
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101 | ||
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_________________________
*Filed herewith.
**Furnished herewith.
†Indicates management contract or compensatory plan or arrangement
NATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| ARTIVION, INC. |
| (Registrant)
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/s/ J. PATRICK MACKIN | /s/ D. ASHLEY LEE |
--------------------------------------- | ---------------------------------- |
J. PATRICK MACKIN | D. ASHLEY LEE |
Chairman, President, and | Executive Vice President, and |
Chief Executive Officer | Chief Financial Officer |
(Principal Executive Officer) | (Principal Financial and |
| Accounting Officer) |
|
|
May 6, 2022
------------------------
DATE
Exhibit 10.1
Artivion, Inc.
1655 Roberts Boulevard N.W.
Kennesaw, Georgia 30144
Date of Grant:
Name:
Address:
Re:Grant of Non-Qualified Stock Option
Dear
This letter sets forth the agreement (the “Agreement”) between you (“Employee”) and Artivion, Inc., a Delaware corporation (the “Company”), regarding your option to acquire shares of the Company’s Common Stock.
1.Grant of Option. Subject to the terms set forth below, the Company hereby grants to Employee the right, privilege, and option to purchase up to ______________ of Common Stock (the “Option Shares”) at the purchase price of $________ per share. The date of grant (“Grant Date”) of the option is _____________________. This option is intended to be and shall be treated as a “Non-Qualified Stock Option,” which is an option that is not intended to be an “incentive stock option” pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). This option is granted pursuant to the Artivion, Inc. 2020 Equity and Cash Incentive Plan (the “Plan”).
2.Time of Exercise of Option. Prior to its termination as set forth in Section 5 below, this option shall vest, and the Employee may exercise the option granted herein on the following dates, or thereafter, provided the option is exercised prior to its termination:
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Vest Date |
Number of Option Shares Exercisable |
Percentage |
Option Expiration Date |
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3.Continued Vesting Upon Retirement. Effective for grants made on or after January 1, 2022, upon the Employee’s Retirement, as determined by the Compensation Committee (the “Committee”), this option will continue to vest and settle in accordance with the provisions in Section 2 subject to an agreement between the Employee and the Company for continuation of the Employee’s non-compete agreement for the remaining vesting period of the option (the “Non-
Compete Agreement”). Upon approval of the Committee, you will be entitled to exercise this option for the lesser of five years from your retirement or the remaining life of the option. In consideration of continued retirement vesting, the Participant (or other holder of such Award) must, if requested by the Company, execute a release, in the form provided by the Company, releasing the Board, the Company, its Subsidiaries, and their respective equityholders, officers, directors, managers, employees, representatives, and agents from any and all claims and causes of action of any kind or character the Participant (or holder) may have, but excluding all vested benefits the Participant may have under any employee benefit plan that is subject to ERISA. Such release must be executed no later than 21 or 45 days (whichever is provided in the form of release) following the date the release is provided to the Participant (or other holder) and must have become irrevocable to entitle the Participant (or other holder) to any payment. Whether or not a release is timely executed or becomes irrevocable, this Award will automatically be forfeited, terminate and be null and void in the event the Participant violates the Non-Compete Agreement, as determined by the Committee in its discretion. For purposes of this Agreement and unless otherwise determined by the Committee, “Retirement” means a termination of employment on or after the date the Employee (a) has attained age 60, (b) performed ten years of service for the Company, and (c) has provided at least six months’ notice of retirement.
4.Method of Exercise. The option shall be exercised by written notice directed to the Committee, at the Company’s principal executive office, and except as set forth below, must be accompanied by payment of the option price for the number of Option Shares purchased in accordance with the Plan’s requirements. The payment for the number of Option Shares purchased may be payable in cash or by tendering unrestricted shares of the Company’s common stock in accordance with the Plan. To the extent permitted by applicable law, you may elect to pay for the number of Option Shares purchased by irrevocably authorizing a third party to sell shares of the Company’s common stock acquired upon exercise of the Option Shares and remitting to the Company a sufficient portion of the sale proceeds as payment of the entire option price for the number of Option Shares purchased, including any tax withholding resulting from such exercise. The Company shall make delivery of such shares in accordance with the Plan, provided that if any law or regulation requires the Company to take any action with respect to the shares specified in such notice before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action.
5The Plan. The Plan, as amended from time to time by the Board of Directors of the Company, is hereby incorporated in this Agreement, and to the extent that anything in this Agreement is inconsistent with the Plan, the terms of the Plan shall control. Employee acknowledges that the Company has provided a copy of the Plan to Employee.
6.Termination of Option. Except as herein otherwise stated, the option, to the extent not previously exercised, shall terminate in accordance with the Plan and upon the first to occur of the following events:
(a)Disability. The expiration of 36 months after the date on which Employee’s employment by the Company is terminated, if such termination be by reason of Employee’s permanent and total disability, provided, however, that (i) the option shall be exercisable only to the extent that Employee had the right to exercise the option at the time of termination, and (ii) if the Employee dies within such 36-
US 8293707v.6
month period, any unexercised option held by such Employee shall thereafter be exercisable in accordance with the provisions of, and shall terminate upon the first to occur of the events described in, Section 5(b) and (d);
(b)Death. In the event of Employee’s death while in the employ of the Company, the expiration of 12 months following the date of his or her death, provided that the option shall be exercisable following the Employee’s death only to the extent that Employee had the right to exercise the option at the time of his or her death;
(c)Termination not for Cause. In the event of Employee’s termination of employment not for “Cause” (as defined below), the expiration of the earlier of one year following the date of termination or the life of the option; or
(d)Other. Upon the earlier to occur of (i) 84 months following the Grant Date, or (ii) 90 days following termination of Employee’s employment by the Company (except if such termination be by reason of death, disability, termination without Cause or Retirement). It is in the Compensation Committee’s sole discretion to determine whether the Employee’s employment with the Company terminates by reason of disability or Retirement.
Employee shall be deemed to be employed by the Company if he or she is employed by the Company or any of its subsidiaries. Notwithstanding the above, in no event may the option be exercised after 84 months following the Grant Date. “Cause” means the definition of “Cause” in any employment agreement between Employee and the Company or, if there is no such agreement or definition, (i) an intentional act of fraud, embezzlement, theft or any other material violation of law that occurs during or in the course of the Employee’s employment with the Company, (ii) intentional or grossly negligent damage by Employee to the Company’s assets, (iii) intentional or grossly negligent disclosure by Employee of the Company’s confidential information contrary to the Company policies, (iv) a material breach of Employee’s obligations under any agreement with the Company (including, but not limited to, any confidentiality, non-competition or non-solicitation agreement), (v) intentional engagement by Employee in any activity which would constitute a breach of the Employee’s duty of loyalty or of the Employee’s assigned duties, (vi) intentional breach by the Employee of any of the Company’s policies and procedures, (vii) the willful and continued failure by Employee to perform the Employee’s assigned duties (other than as a result of incapacity due to physical or mental illness), or (viii) willful conduct by the Employee that is demonstrably and materially injurious to the Company, monetarily or otherwise.
7.Reclassification, Consolidation, or Merger. The number of Option Shares may be adjusted in accordance with the Plan if certain events such as merger, reorganization, consolidation, recapitalization, stock dividends, stock splits, or other changes in the Company’s corporate structure affecting its Common Stock occur.
8.Rights Prior to Exercise of Option. This option is not transferrable by Employee, except by will or by the laws of descent and distribution or as otherwise set forth in the Plan, and during Employee’s lifetime shall be exercisable only by Employee. This option shall confer no rights to the holder hereof to act as stockholder with respect to any of the option Shares until payment of the option price and delivery of a share certificate has been made.
US 8293707v.6
9.Employee’s Representations and Warranties. By execution of this Agreement, Employee represents and warrants to the Company as follows:
(a)The entire legal and beneficial interest of the option and the Option Shares are for and will be held for the account of the Employee only and neither in whole nor in part for any other person.
(b)Employee resides at the following address:
(c)Employee is familiar with the Company and its plans, operations, and financial condition. Prior to the acceptance of this option, Employee has received all information as he or she deems necessary and appropriate to enable an evaluation of the financial risk inherent in accepting the option and has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof.
10.Restricted Securities. Employee recognizes and understands that this option and the Option Shares are currently registered under the Securities Act of 1933, as amended (the “Act”), but may not remain so registered, and are not registered under any state securities law. Any transfer of the option (if otherwise permitted hereunder, and once exercised, the Option Shares) will not be recognized by the Company unless such transfer is registered under the Act, the Georgia Uniform Securities Act of 2008, as amended, (the “Georgia Act”) and any other applicable state securities laws or effected pursuant to an exemption from such registration which may then be available. If the Option Shares are not registered, any share certificates representing the Option Shares may be stamped with legends restricting transfer thereof in accordance with the Company’s policy with respect to unregistered shares of its Common Stock issued to employees as a result of exercise of options granted under the Plan. The Company may make a notation in its stock transfer records of the aforementioned restrictions on transfers and legends. Employee recognizes and understands that the Option Shares may be restricted securities within the meaning of Rule 144 promulgated under the Act; that the exemption from registration under Rule 144 may not be available under certain circumstances and that Employee’s opportunity to utilize such Rule 144 to sell the Option Shares may be limited or denied. The Company shall be under no obligation to maintain or promote a public trading market for the class of shares for which the option is granted or to make provision for adequate information concerning the Company to be available to the public as contemplated under Rule 144. The Company will be under no obligation to recognize any transfer or sale of any Option Shares pursuant to Rule 144 unless the terms and conditions of Rule 144 are complied with by the Employee. By acceptance hereof, Employee agrees that no permitted disposition of any Option Shares shall be made unless and until (i) there is at the time of exercise of the option in effect a registration statement under the Act, or (ii) Employee shall have notified the Company of a proposed Option disposition and shall have furnished to the Company a detailed statement of the circumstances surrounding such disposition, together with an opinion of counsel acceptable in form and substance to the Company that such disposition will not require registration of the shares so disposed under the Act, the Georgia Act, and any applicable state securities laws. The Company shall be under no obligation to permit such transfer or disposition on its stock transfer books unless counsel for the Company shall concur as to such matters. Employee
US 8293707v.6
recognizes and understands that if and for so long as Employee is a designated Section 16 officer of the Company, and for up to six months thereafter, any sales of Option Shares will be subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the regulations promulgated thereunder. Employee also recognizes and understands that any sale of the Option Shares will also be subject to Rule 10b-5 promulgated under the Exchange Act. Employee agrees that any disposition of the Option Shares shall be made only in compliance with the Act, the Exchange Act, and the rules and regulations promulgated thereunder.
11.Tax Matters. No later than the date as of which an amount first becomes includable in the gross income of the Employee for federal income tax purposes with respect to the exercise of any option under the Plan, Employee shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under the Plan are conditional on such payment or arrangements and the Company shall have the right to deduct any such taxes from any payment of any kind otherwise due to Employee.
12.Section 409A. This Agreement is intended to comply with, or otherwise be exempt from, Section 409A of the Code. This Agreement shall be administered, interpreted and construed in a manner consistent with such Code section. Should any provision of this Agreement be found not to comply with, or otherwise be exempt from, the provisions of Section 409A of the Code, it shall be modified and given effect, in the sole discretion of the Committee and without requiring your consent, in such manner as the Committee determines to be necessary or appropriate to comply with, or effectuate an exemption from, Section 409A of the Code.
13.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and permissible assigns.
14.Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Georgia. If any term or provision hereof shall be held invalid or unenforceable, the remaining terms and provisions hereof shall continue in full force and effect. Any modification to this Agreement shall not be effective unless the same shall be in writing and such writing shall be signed by authorized representatives of both of the parties hereto. The terms of paragraphs 8 and 9 hereof shall survive exercise of the option by Employee and shall attach to the Option Shares. The option contained in this letter shall not confer upon Employee any right to continued employment with the Company, nor shall it interfere in any way with the right of the Company to terminate the employment of Employee at any time. This letter can be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.
[Signatures on following page]
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Please signify your acceptance of the option and your agreement to be bound by the terms hereof by promptly signing one of the two original letters provided to you and returning the same to the President of the Company.
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Sincerely, |
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THE COMPANY: |
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ARTIVION, INC. |
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Attest: |
D. Ashley Lee |
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Executive Vice President and CFO |
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Jean F. Holloway |
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Secretary for the Company |
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EMPLOYEE: |
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Exhibit 10.2
Total No. of Units:
ARTIVION, INC.
EQUITY AND CASH INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Artivion, Inc. 2020 Equity and Cash Incentive Plan (the “Plan”) will have the same defined meanings in this Performance Share Award Agreement, including the Notice of Stock Unit Grant (the “Notice of Grant”) and the Terms and Conditions of Performance Share Award, attached hereto as Exhibit A, together the (“Award Agreement”).
NOTICE OF PERFORMANCE STOCK UNIT GRANT
The undersigned Participant has been granted a Performance Share Unit, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Date:
Total Number of Target Units of Stock Unit Award:
Vesting Schedule:
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Performance Stock Units |
Vest Date |
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The Award will vest, and common stock (“Shares”) of Artivion, Inc. (the “Company”) will be issued, based on attaining specified levels of [metrics to be determined] and (ii) the satisfaction of time-based service vesting requirements (except as provided in Section 1 of Exhibit A), as more specifically described below. The weighting of the performance goals (i.e., the percentage of the Target Number of Performance Shares eligible to vest based on the achievement of each goal) shall be as follows: [metric weighting to be determined].
As used herein, [metrics to be defined].
Vesting Schedule
[Performance vesting of shares based on performance against metrics to be determined and defined, with payouts ranging from a threshold of 60% of target shares to a maximum of 150% of target shares.]
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For all of the fixed Shares above, 50% of the fixed Shares will vest on the first anniversary of the Grant Date, 25% of the fixed Shares will vest on the second anniversary of the Grant Date, and the final 25% of the fixed Shares will vest on the third anniversary of Grant Date.
By Participant’s electronic acceptance and the electronic signature of the Artivion, Inc (the “Company”) representative below, Participant and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including exhibits hereto, all of which are made a part of this document. Should the Plan and this Award Agreement conflict, the Plan governs. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
After reviewing the documents noted above, please accept this Performance Share Award online where indicated on ETrade.com and retain a copy for your files. Please note that your electronic acceptance of this Performance Share Award is required. The Performance Share Award will be cancelled if not accepted within 30 days of the Grant Date noted above.
GRANTED BY:
ARTIVION, INC.
//James P. Mackin//
President and CEO
GRANTED TO:
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Exhibit A
TERMS AND CONDITIONS OF PERFORMANCE SHARE AWARD
1.Effect of Termination of Service. Participant must be an employee of the Company, CryoLife International, Inc., or another eligible employer approved by the Company’s Compensation Committee (the “Committee”) of its Board of Directors (each, an “Eligible Employer”) on the applicable vesting date to be entitled to the vesting of the Award on such date. If Participant ceases to be an employee of an Eligible Employer for any reason (excluding retirement but including, without limitation, by reason of death or disability), then the portion of the Award that has not vested as of the date of termination of service shall automatically be forfeited and cancelled as of the date of such termination of service, unless the Committee waives this employment requirement or accelerates the vesting as permitted by the Plan. Effective for grants made on or after January 1, 2022, upon a Participant’s Retirement, as determined by the Committee, this Award will continue to vest and settle in accordance with the provisions of the Notice of Grant subject to an agreement between the Participant and the Company for continuation of the Participant’s non-compete agreement for the remaining vesting period of the Award (the “Non-Compete Agreement”). In consideration of continued retirement vesting, the Participant (or other holder of such Award) must, if requested by the Company, execute a release, in the form provided by the Company, releasing the Board, the Company, its Subsidiaries, and their respective equityholders, officers, directors, managers, employees, representatives, and agents from any and all claims and causes of action of any kind or character the Participant (or holder) may have, but excluding all vested benefits the Participant may have under any employee benefit plan that is subject to ERISA. Such release must be executed no later than 21 or 45 days (whichever is provided in the form of release) following the date the release is provided to the Participant (or other holder) and must have become irrevocable to entitle the Participant (or other holder) to any payment. Whether or not a release is timely executed or becomes irrevocable, this Award will automatically be forfeited, terminate and be null and void in the event the Participant violates the Non-Compete Agreement, as determined by the Committee in its discretion. For purposes of this Award Agreement and unless otherwise determined by the Committee, “Retirement” means a termination of employment on or after the date the Participant (a) has attained age 60, (b) performed ten years of service for the Company, and (c) has provided at least six months’ notice of retirement.
2.The Company’s Obligation to Pay. Each Performance Share represents the right to receive one (1) share of Company common stock at the target level, and subject to adjustment up or down based upon the Company’s [metric to be determined] performance for ____ as further described in the Notice of Grant, on the date the Performance Share vests in accordance with the vesting schedules described in the Notice of Grant (or at such later time as indicated in this Award Agreement or the Plan). Unless and until the Award vests, Participant will have no right to payment of Shares with respect to any such Performance Shares. Prior to actual payment of any Shares with respect to any Performance Shares, such Performance Shares will represent an unfunded, unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The number of Shares subject to the Award, i.e., the relevant percentage of target shares that will be issued if time vesting requirements are satisfied, will be determined on and as of the date of filing of the Company’s Form 10-K for fiscal ____ with the Securities and Exchange Commission. Shares will be rounded down to the nearest whole number. No fractional Shares
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will be issued. Notwithstanding anything to the contrary contained herein, at any time prior to the first anniversary of the Grant Date, the Committee, in its sole discretion, may reduce the number of Shares to be issued hereunder, but in no event may the number of Shares to be issued be reduced below the target number of Shares. Participant will receive written notice of any such reduction.
3.Time of Payment.
a.Payment After Vesting. Except as otherwise provided in the Plan, any Performance Shares that vest in accordance with this Award Agreement shall be paid to Participant (or in the event of Participant’s death, to Participant’s estate), in whole Shares within thirty (30) days after the date on which such Performance Shares vest or as soon as administratively practicable thereafter, but in no event later than the date that is two and one-half months following the later of (i) the end of the Company’s taxable year; or (ii) the end of Participant’s taxable year that includes the vesting date. Notwithstanding anything in the Plan or this Award Agreement to the contrary, payment to Participant of Shares upon the vesting of a Performance Share shall be delayed to the extent required by Section 409A of the Internal Revenue of 1986, as amended (the “Code”).
b.Accelerated Vesting Upon a Change of Control. If the vesting of the balance, or some lesser portion of the balance, of the Performance Shares subject to this Award Agreement is accelerated upon a Change of Control, as such term is defined in the Plan, of the Company, and such Change of Control is not a “change in the ownership or effective control” or “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 1.409A-3(i)(5) of the United States Treasury Regulations, then such accelerated Performance Shares shall not be paid until the applicable vesting date of such Performance Shares, as set forth on the Notice of Grant, or if earlier, the date of Participant’s death, disability or “separation from service” within the meaning of Section 409A of the Code from the Company (a “Separation from Service”); provided, however, that if the payment pursuant to this Section 3(b) is to be made upon Participant’s Separation from Service and as of the date of Participant’s Separation from Service Participant is a “specified employee” within the meaning of Section 409A of the Code then payment of the Shares with respect to the Performance Shares subject to this Section 3(b) shall not be made until the date that is six (6) months and one day following the date of Participant’s Separation from Service if earlier payment would result in the imposition of the additional tax under Section 409A of the Code.
4.Rights with Respect to Performance Shares Prior to Vesting. Participant may not transfer or otherwise assign the Award or the Shares subject to the Award prior to vesting. As this Award vests, Participant may receive certificates representing the vested portion or the Shares to be issued or the Shares may be issued in uncertificated form. Prior to issuance of Shares, Participant is not entitled to any rights as a shareholder with respect to the Shares underlying this
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Award. As a result, subject to the provisions of the Plan, Participant will have no rights to vote such Shares or to receive dividends or other distributions, if any, payable with respect to such Shares after the Grant Date but prior to the issuance of the Shares subsequent to vesting.
5.Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no Shares will be issued to Participant unless and until satisfactory arrangements (as determined by the Committee) have been made by Participant with respect to the payment of federal, state, local or foreign income, employment and other taxes which the Committee determines must be withheld (“Tax Related Items”) with respect to the Shares so issuable. The Committee hereby allows Participant, pursuant to such procedures as the Committee may specify from time to time, to satisfy such Tax Related Items, in whole or in part (without limitation) by one or more of the following: (a) paying cash; or (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value, as defined in the Plan, equal to the amount of the Tax Related Items required to be withheld. If the obligation for Tax Related Items is satisfied by withholding a number of Shares as described above, Participant will be deemed to have been issued the full number of Shares subject to the vested Performance Shares, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax Related Items due as a result of any aspect of the Award. If Participant fails to make satisfactory arrangements for the payment of the Tax Related Items at the time any portion of the Award is scheduled to vest, Participant will permanently forfeit such portion of the Award and no Shares will be issued to Participant pursuant to them.
6.Notices. All notices delivered pursuant to this Award Agreement shall be in writing and shall be (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt, or (iv) sent by email to corpsecretary@Artivion.com. All notices or other communications shall be directed to the following addresses (or to such other addresses as such parties may designate by notice to the other parties):
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To the Company: |
Artivion, Inc. |
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1655 Roberts Blvd., NW |
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Kennesaw, GA 30144 |
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Attention: Corporate Secretary |
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To Participant: |
The address set forth in the Notice of Grant. |
7.Miscellaneous. Failure by Participant or the Company at any time or times to require performance by the other of any provisions in this Award Agreement will not affect the right to enforce those provisions. Any waiver by Participant or the Company of any condition or of any breach of any term or provision in this Award Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Award Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Award Agreement shall be deemed to be amended automatically to exclude the offending provision. This Award Agreement may be executed in multiple copies and each executed copy shall be an original of this Award Agreement. This Award
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Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Award Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought, except where specifically provided to the contrary herein. This Award Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each section of this Award Agreement are for convenience only. This Award Agreement, together with the Plan, contains the entire agreement of the parties hereto, and no representation, inducement, promise, or agreement or other similar understanding between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein or in the Plan.
8.Section 409A. This Award Agreement and the Award granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A of the Code. This Award Agreement and the Award shall be administered, interpreted and construed in a manner consistent with such Code section. Should any provision of this Award Agreement or the Award be found not to comply with, or otherwise be exempt from, the provisions of Section 409A of the Code, it shall be modified and given effect, in the sole discretion of the Committee and without requiring Participant’s consent (notwithstanding any other provisions hereof), in such manner as the Committee determines to be necessary or appropriate to comply with, or effectuate an exemption from, Section 409A of the Code. Each amount payable under this Award Agreement as a payment upon vesting of a Performance Share is designated as a separate identified payment for purposes of Section 409A of the Code.
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US 8293706v.5
Exhibit 10.3
ARTIVION, INC.
EQUITY AND CASH INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Artivion, Inc. Equity and Cash Incentive Plan (the “Plan”) will have the same defined meanings in this Restricted Stock Unit Award Agreement, including the Notice of Restricted Stock Unit Grant (the “Notice of Grant”) and the Terms and Conditions of Restricted Stock Unit Award, attached hereto as Exhibit A, together the (“Award Agreement”).
NOTICE OF RESTRICTED STOCK UNIT AWARD GRANT
The undersigned Participant has been granted a Restricted Stock Unit Award, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Date:
Total Number of Restricted Stock Units:
Vesting Schedule:
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Restricted Stock Units |
Vest Date |
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By Participant’s electronic acceptance and the electronic signature of the Artivion, Inc (the “Company”) representative below, Participant and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including exhibits hereto, all of which are made a part of this document. Should the Plan and this Award Agreement conflict, the Plan governs. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
After reviewing the documents noted above, please accept this Restricted Stock Unit Award online where indicated on ETrade.com and retain a copy for your files. Please note that your electronic acceptance of this Restricted Stock Unit Award is required. The Restricted Stock Unit Award will be cancelled if not accepted within 30 days of the Grant Date noted above.
US 8293708v.5
GRANTED BY:
ARTIVION, INC.
President and CEO
GRANTED TO:
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Exhibit A
TERMS AND CONDITIONS OF restricted stock UNIT AWARD
1.Effect of Termination of Service. Participant must be an employee of the Company or another eligible employer approved by the Company’s Compensation Committee (the “Committee”) of its Board of Directors (each, an “Eligible Employer”) on the applicable vesting date to be entitled to the vesting of the Award on such date. If Participant ceases to be an employee of an Eligible Employer for any reason (excluding retirement but including, without limitation, by reason of death or disability), then the portion of the Award that has not vested as of the date of termination of service shall automatically be forfeited and cancelled as of the date of such termination of service, unless the Committee waives this employment requirement or accelerates the vesting as permitted by the Plan. Effective for grants made on or after January 1, 2022, upon a Participant’s Retirement, as determined by the Committee, this Award will continue to vest and settle in accordance with the provisions of the Notice of Grant subject to an agreement between the Participant and the Company for continuation of the Participant’s non-compete agreement for the remaining vesting period of the Award (the “Non-Compete Agreement”). In consideration of continued retirement vesting, the Participant (or other holder of such Award) must, if requested by the Company, execute a release, in the form provided by the Company, releasing the Board, the Company, its Subsidiaries, and their respective equityholders, officers, directors, managers, employees, representatives, and agents from any and all claims and causes of action of any kind or character the Participant (or holder) may have, but excluding all vested benefits the Participant may have under any employee benefit plan that is subject to ERISA. Such release must be executed no later than 21 or 45 days (whichever is provided in the form of release) following the date the release is provided to the Participant (or other holder) and must have become irrevocable to entitle the Participant (or other holder) to any payment. Whether or not a release is timely executed or becomes irrevocable, this Award will automatically be forfeited, terminate and be null and void in the event the Participant violates the Non-Compete Agreement, as determined by the Committee in its discretion. For purposes of this Award Agreement and unless otherwise determined by the Committee, “Retirement” means a termination of employment on or after the date the Participant (a) has attained age 60, (b) performed ten years of service for the Company, and (c) has provided at least six months’ notice of retirement.
2.The Company’s Obligation to Pay. To the extent vested, each Restricted Stock Unit represents the right to receive one (1) share of Company common stock, subject to the terms and conditions set forth in the Notice of Grant. Unless and until the Award vests, Participant will have no right to payment of Shares with respect to any such Restricted Stock Units. Prior to settlement of the Award, such Restricted Stock Units will represent an unfunded, unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3.Time of Payment. Except as otherwise provided in the Plan, any Restricted Stock Units that vest in accordance with this Award Agreement shall be paid to Participant (or in the event of Participant’s death, to Participant’s estate), in Shares within thirty (30) days after the date on which such Restricted Stock Units vest or as soon as administratively practicable thereafter, but in no event later than the date that is two and one-half months following the later of (i) the end of the Company’s taxable year; or (ii) the end of Participant’s taxable year that includes the vesting date. Notwithstanding anything in the Plan or this Award Agreement to the contrary, payment to
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Participant of Shares upon the vesting shall be delayed to the extent required by Section 409A of the Internal Revenue of 1986, as amended (the “Code”)
4.Rights with Respect to Award Prior to Vesting. Participant may not transfer or otherwise assign the Award or the Shares subject to the Award prior to vesting. As this Award vests, Participant may receive certificates representing the vested portion or the Shares to be issued or the Shares may be issued in uncertificated form. Prior to issuance of Shares, Participant is not entitled to any rights as a shareholder with respect to the Shares underlying this Award. As a result, subject to the provisions of the Plan, Participant will have no rights to vote such Shares prior to the issuance of the Shares subsequent to vesting.
5.Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding Shares on or after the Grant Date and, on the record date for such dividend, Participant holds RSUs granted pursuant to this Agreement that have not been settled, the Company shall pay to Participant an amount in cash equal to the cash dividends Participant would have received if Participant were the holder of record as of such record date, of the number of Shares related to the portion of Participant’s RSUs that have not been settled as of such record date, such payment (“Dividend Equivalents”) to be made on or promptly following the date that the Company pays such dividend (however, in no event shall the Dividend Equivalents be paid later than 30 days following the date on which the Company pays such dividend to its shareholders generally).
6.Withholding. Notwithstanding any contrary provision of this Award Agreement, no Shares will be issued to Participant unless and until satisfactory arrangements (as determined by the Committee) have been made by Participant with respect to the payment of federal, state, local or foreign income, employment and other taxes which the Committee determines must be withheld (“Tax Related Items”) with respect to the Shares so issuable. The Committee hereby allows Participant, pursuant to such procedures as the Committee may specify from time to time, to satisfy such Tax Related Items, in whole or in part (without limitation) by one or more of the following: (a) paying cash; or (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value, as defined in the Plan, equal to the amount of the Tax Related Items required to be withheld. If the obligation for Tax Related Items is satisfied by withholding a number of Shares as described above, Participant will be deemed to have been issued the full number of Shares subject to the vested Award, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax Related Items due as a result of any aspect of the Award. If Participant fails to make satisfactory arrangements for the payment of the Tax Related Items at the time any portion of the Award is scheduled to vest, Participant will permanently forfeit such portion of the Award and no Shares will be issued to Participant pursuant to them.
7.Notices. All notices delivered pursuant to this Award Agreement shall be in writing and shall be (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt, or (iv) sent by email to corpsecretary@Artivion.com. All notices or other communications shall be directed to the following addresses (or to such other addresses as such parties may designate by notice to the other parties):
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To the Company: |
Artivion, Inc. |
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1655 Roberts Blvd., NW |
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Kennesaw, GA 30144 |
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Attention: Corporate Secretary |
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To Participant: |
The address set forth in the Notice of Grant. |
8.Miscellaneous. Failure by Participant or the Company at any time or times to require performance by the other of any provisions in the Award Agreement will not affect the right to enforce those provisions. Any waiver by Participant or the Company of any condition or of any breach of any term or provision in this Award Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Award Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Award Agreement shall be deemed to be amended automatically to exclude the offending provision. This Award Agreement may be executed in multiple copies and each executed copy shall be an original of this Award Agreement. This Award Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Award Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought, except where specifically provided to the contrary herein. This Award Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each section of this Award Agreement are for convenience only. This Award Agreement, together with the Plan, contains the entire agreement of the parties hereto, and no representation, inducement, promise, or agreement or other similar understanding between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein or in the Plan.
9.Section 409A. This Award Agreement and the Award granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A of the Code. This Award Agreement and the Award shall be administered, interpreted and construed in a manner consistent with such Code section. Should any provision of this Award Agreement or the Award be found not to comply with, or otherwise be exempt from, the provisions of Section 409A of the Code, it shall be modified and given effect, in the sole discretion of the Committee and without requiring Participant’s consent (notwithstanding any other provisions hereof), in such manner as the Committee determines to be necessary or appropriate to comply with, or effectuate an exemption from, Section 409A of the Code. Each amount payable under this Award Agreement as a payment upon vesting is designated as a separate identified payment for purposes of Section 409A of the Code.
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Exhibit 10.4
Total No. of Units:
ARTIVION, INC.
EQUITY AND CASH INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Artivion, Inc. 2020 Equity and Cash Incentive Plan (the “Plan”) will have the same defined meanings in this Performance Share Award Agreement, including the Notice of Stock Unit Grant (the “Notice of Grant”) and the Terms and Conditions of Performance Share Award, attached hereto as Exhibit A, together the (“Award Agreement”).
NOTICE OF PERFORMANCE STOCK UNIT GRANT
The undersigned Participant has been granted a Performance Share Unit, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Date:
Total Number of Target Units of Stock Unit Award:
Vesting Schedule:
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Performance Stock Units |
Vest Date |
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The Award will vest, and common stock (“Shares”) of Artivion, Inc. (the “Company”) will be issued, based on attaining specified levels of [metrics to be determined] and (ii) the satisfaction of time-based service vesting requirements (except as provided in Section 1 of Exhibit A), as more specifically described below. The weighting of the performance goals (i.e., the percentage of the Target Number of Performance Shares eligible to vest based on the achievement of each goal) shall be as follows: [metric weighting to be determined].
As used herein, [metrics to be defined].
Vesting Schedule
[Performance vesting of shares based on performance against metrics to be determined and defined, with payouts ranging from a threshold of 10% of target shares to a maximum of 200% of target shares.]
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For all of the fixed Shares above, 100% of the fixed Shares will vest on the first anniversary of the Grant Date.
By Participant’s electronic acceptance and the electronic signature of the Artivion, Inc (the “Company”) representative below, Participant and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including exhibits hereto, all of which are made a part of this document. Should the Plan and this Award Agreement conflict, the Plan governs. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
After reviewing the documents noted above, please accept this Performance Share Award online where indicated on ETrade.com and retain a copy for your files. Please note that your electronic acceptance of this Performance Share Award is required. The Performance Share Award will be cancelled if not accepted within 30 days of the Grant Date noted above.
GRANTED BY:
ARTIVION, INC.
//James P. Mackin//
President and CEO
GRANTED TO:
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Exhibit A
TERMS AND CONDITIONS OF PERFORMANCE SHARE AWARD
1.Effect of Termination of Service. Participant must be an employee of the Company, CryoLife International, Inc., or another eligible employer approved by the Company’s Compensation Committee (the “Committee”) of its Board of Directors (each, an “Eligible Employer”) on the applicable vesting date to be entitled to the vesting of the Award on such date. If Participant ceases to be an employee of an Eligible Employer for any reason (excluding retirement but including, without limitation, by reason of death or disability), then the portion of the Award that has not vested as of the date of termination of service shall automatically be forfeited and cancelled as of the date of such termination of service, unless the Committee waives this employment requirement or accelerates the vesting as permitted by the Plan. Effective for grants made on or after January 1, 2022, upon a Participant’s Retirement, as determined by the Committee, this Award will continue to vest and settle in accordance with the provisions of the Notice of Grant subject to an agreement between the Participant and the Company for continuation of the Participant’s non-compete agreement for the remaining vesting period of the Award (the “Non-Compete Agreement”). In consideration of continued retirement vesting, the Participant (or other holder of such Award) must, if requested by the Company, execute a release, in the form provided by the Company, releasing the Board, the Company, its Subsidiaries, and their respective equityholders, officers, directors, managers, employees, representatives, and agents from any and all claims and causes of action of any kind or character the Participant (or holder) may have, but excluding all vested benefits the Participant may have under any employee benefit plan that is subject to ERISA. Such release must be executed no later than 21 or 45 days (whichever is provided in the form of release) following the date the release is provided to the Participant (or other holder) and must have become irrevocable to entitle the Participant (or other holder) to any payment. Whether or not a release is timely executed or becomes irrevocable, this Award will automatically be forfeited, terminate and be null and void in the event the Participant violates the Non-Compete Agreement, as determined by the Committee in its discretion. For purposes of this Award Agreement and unless otherwise determined by the Committee, “Retirement” means a termination of employment on or after the date the Participant (a) has attained age 60, (b) performed ten years of service for the Company, and (c) has provided at least six months’ notice of retirement.
2.The Company’s Obligation to Pay. Each Performance Share represents the right to receive one (1) share of Company common stock at the target level, and subject to adjustment up or down based upon the Company’s [metric to be determined] performance for ____ as further described in the Notice of Grant, on the date the Performance Share vests in accordance with the vesting schedules described in the Notice of Grant (or at such later time as indicated in this Award Agreement or the Plan). Unless and until the Award vests, Participant will have no right to payment of Shares with respect to any such Performance Shares. Prior to actual payment of any Shares with respect to any Performance Shares, such Performance Shares will represent an unfunded, unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The number of Shares subject to the Award, i.e., the relevant percentage of target shares that will be issued if time vesting requirements are satisfied, will be determined on and as of the date of filing of the Company’s Form 10-K for fiscal ____ with the Securities and Exchange Commission. Shares will be rounded down to the nearest whole number. No fractional Shares
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will be issued. Notwithstanding anything to the contrary contained herein, at any time prior to the first anniversary of the Grant Date, the Committee, in its sole discretion, may reduce the number of Shares to be issued hereunder, but in no event may the number of Shares to be issued be reduced below the target number of Shares. Participant will receive written notice of any such reduction.
3.Time of Payment
a.Payment After Vesting. Except as otherwise provided in the Plan, any Performance Shares that vest in accordance with this Award Agreement shall be paid to Participant (or in the event of Participant’s death, to Participant’s estate), in whole Shares within thirty (30) days after the date on which such Performance Shares vest or as soon as administratively practicable thereafter, but in no event later than the date that is two and one-half months following the later of (i) the end of the Company’s taxable year; or (ii) the end of Participant’s taxable year that includes the vesting date. Notwithstanding anything in the Plan or this Award Agreement to the contrary, payment to Participant of Shares upon the vesting of a Performance Share shall be delayed to the extent required by Section 409A of the Internal Revenue of 1986, as amended (the “Code”).
b.Accelerated Vesting Upon a Change of Control. If the vesting of the balance, or some lesser portion of the balance, of the Performance Shares subject to this Award Agreement is accelerated upon a Change of Control, as such term is defined in the Plan, of the Company, and such Change of Control is not a “change in the ownership or effective control” or “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 1.409A-3(i)(5) of the United States Treasury Regulations, then such accelerated Performance Shares shall not be paid until the applicable vesting date of such Performance Shares, as set forth on the Notice of Grant, or if earlier, the date of Participant’s death, disability or “separation from service” within the meaning of Section 409A of the Code from the Company (a “Separation from Service”); provided, however, that if the payment pursuant to this Section 3(b) is to be made upon Participant’s Separation from Service and as of the date of Participant’s Separation from Service Participant is a “specified employee” within the meaning of Section 409A of the Code then payment of the Shares with respect to the Performance Shares subject to this Section 3(b) shall not be made until the date that is six (6) months and one day following the date of Participant’s Separation from Service if earlier payment would result in the imposition of the additional tax under Section 409A of the Code.
4.Rights with Respect to Performance Shares Prior to Vesting. Participant may not transfer or otherwise assign the Award or the Shares subject to the Award prior to vesting. As this Award vests, Participant may receive certificates representing the vested portion or the Shares to be issued or the Shares may be issued in uncertificated form. Prior to issuance of Shares, Participant is not entitled to any rights as a shareholder with respect to the Shares underlying this
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Award. As a result, subject to the provisions of the Plan, Participant will have no rights to vote such Shares or to receive dividends or other distributions, if any, payable with respect to such Shares after the Grant Date but prior to the issuance of the Shares subsequent to vesting.
5.Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no Shares will be issued to Participant unless and until satisfactory arrangements (as determined by the Committee) have been made by Participant with respect to the payment of federal, state, local or foreign income, employment and other taxes which the Committee determines must be withheld (“Tax Related Items”) with respect to the Shares so issuable. The Committee hereby allows Participant, pursuant to such procedures as the Committee may specify from time to time, to satisfy such Tax Related Items, in whole or in part (without limitation) by one or more of the following: (a) paying cash; or (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value, as defined in the Plan, equal to the amount of the Tax Related Items required to be withheld. If the obligation for Tax Related Items is satisfied by withholding a number of Shares as described above, Participant will be deemed to have been issued the full number of Shares subject to the vested Performance Shares, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax Related Items due as a result of any aspect of the Award. If Participant fails to make satisfactory arrangements for the payment of the Tax Related Items at the time any portion of the Award is scheduled to vest, Participant will permanently forfeit such portion of the Award and no Shares will be issued to Participant pursuant to them.
6.Notices. All notices delivered pursuant to this Award Agreement shall be in writing and shall be (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt, or (iv) sent by email to corpsecretary@Artivion.com. All notices or other communications shall be directed to the following addresses (or to such other addresses as such parties may designate by notice to the other parties):
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To the Company: |
Artivion, Inc. |
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1655 Roberts Blvd., NW |
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Kennesaw, GA 30144 |
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Attention: Corporate Secretary |
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To Participant: |
The address set forth in the Notice of Grant. |
7.Miscellaneous. Failure by Participant or the Company at any time or times to require performance by the other of any provisions in this Award Agreement will not affect the right to enforce those provisions. Any waiver by Participant or the Company of any condition or of any breach of any term or provision in this Award Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Award Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Award Agreement shall be deemed to be amended automatically to exclude the offending provision. This Award Agreement may be executed in multiple copies and each executed copy shall be an original of this Award Agreement. This Award Agreement shall be subject to and governed by the laws of the State of Georgia. No change or
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modification of this Award Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought, except where specifically provided to the contrary herein. This Award Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each section of this Award Agreement are for convenience only. This Award Agreement, together with the Plan, contains the entire agreement of the parties hereto, and no representation, inducement, promise, or agreement or other similar understanding between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein or in the Plan.
8.Section 409A. This Award Agreement and the Award granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A of the Code. This Award Agreement and the Award shall be administered, interpreted and construed in a manner consistent with such Code section. Should any provision of this Award Agreement or the Award be found not to comply with, or otherwise be exempt from, the provisions of Section 409A of the Code, it shall be modified and given effect, in the sole discretion of the Committee and without requiring Participant’s consent (notwithstanding any other provisions hereof), in such manner as the Committee determines to be necessary or appropriate to comply with, or effectuate an exemption from, Section 409A of the Code. Each amount payable under this Award Agreement as a payment upon vesting of a Performance Share is designated as a separate identified payment for purposes of Section 409A of the Code.
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Exhibit 31.1
I, James Patrick Mackin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Artivion, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 6, 2022
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s/ J. PATRICK MACKIN |
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Chairman, President, and |
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Chief Executive Officer |
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Exhibit 31.2
I, David Ashley Lee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Artivion, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 6, 2022
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/s/ D. ASHLEY LEE |
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Executive Vice President, and |
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Chief Financial Officer |
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Artivion, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of James Patrick Mackin, the Chairman, President, and Chief Executive Officer of the Company, and David Ashley Lee, the Executive Vice President, and Chief Financial Officer of the Company, hereby certifies, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, in his capacity as an officer of the Company and to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ J. PATRICK MACKIN |
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/s/ D. ASHLEY LEE |
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J. PATRICK MACKIN |
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D. ASHLEY LEE |
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Chairman, President, and |
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Executive Vice President, and |
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Chief Executive Officer |
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Chief Financial Officer |
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May 6, 2022 |
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May 6, 2022 |