Good morning, everyone. Suraj Kalia, Senior Medical Device Analyst at Oppenheimer. Pleased to have management from Artivion joining us this morning. Lance Berry, CFO, and Amy Reeves, VP Finance are here with us this morning. Folks, do appreciate you taking the time. Lance, without much further ado, hope it's okay I can jump into Q&A.
Yep. Fire away. Glad to be here.
Perfect. Lance, obviously, you know, you guys have two new product categories that are, you know, the key or more recently have been the focus of the story. Let's start out with AMDS. I know you guys aren't breaking it out specifically, but, 2025 is in the bag. You know, stent grafts grew quite a bit over your, stated growth rate. How should we think about 2026 specifically for, AMDS contribution? Any additional color you can provide for us?
Yeah, you know, clearly 2025, we got off to a really good start with AMDS in the first year of launch of the product. Grew our stent graft business really fast, quite a bit faster than historical. For those that haven't followed the story, we typically tell people to think about our stent graft business as being kind of a mid-teens% type growth business on a full year basis. This year for 2026, we've guided people to, you know, we think we can grow in the low 20s% for the stent graft business overall on a global basis. Obviously AMDS is still making quite a significant contribution in year two, even though it has some real comps, you know, to come up against, particularly in the second half of the year.
We still think we can grow quite a bit faster than our historical growth rate with year two of the AMDS launch.
Lance, does the metric of, let's say, four sizes per site, initial upfront purchase order for AMDS, does that still hold true at $25K a pop? Is that the right way still to think about it?
Yes. I think just so for those that haven't followed the story, AMDS only has four sizes of the device, which is great. We require the facility to purchase one of each size to put on the shelf. This is an extremely emergency procedure. There will not necessarily be a rep in the case, so they need to just have it there on the shelf. If you wanna think about it, they have to purchase a set basically to have access to the product. Then whenever they implant one, they'll call us and immediately reorder, and we'll bill them for another one. We charge $100,000 for a set, so four sizes at $25,000 a piece.
That's the investment a hospital has to make to have AMDS on the shelf. You know, in 2025, the vast majority of our revenue really was selling these sets to hospitals to just get the product initially on the shelf as opposed to actually reorders of implantations. As we look to 2026, we still have a significant opportunity to open accounts at $100,000 apiece. Now we should start to see, you know, growing levels of actual implant reorders as we have more and more accounts that have it on the shelf.
To that point, Lance, does it mean there will be a one is to one correlation? Let's say Mount Sinai had four sizes on the shelf, and now they have ordered one of a particular size. That is your cue that has been an implant done, and that is the way we should start thinking about specifically on actual implants versus upfront purchases. By the same token, just how y'all are thinking about as you all are entering into FY 2026, new store, same store, specifically for AMDS. I know there were quite a bit in that question.
Yeah. I think that is the way to think about it. Yeah, Mount Sinai is gonna, you know, a surgeon there wants the product. That's gonna champion it through the fairly extensive process of, you know, getting through the value analysis committee and getting a purchase order for $100,000, and we ship them the four sizes and bill them the $100,000. Then it's on the shelf and, you know, a patient comes in with an acute type A dissection. They use one of the sizes, and the next morning they call us, and we overnight them a replacement for that size and bill them for the implant reorder. So we have, you know, 100% visibility essentially to every implant through that reorder process.
It's not like they're just stocking stock on the shelf, and then they bleed it down and call us when they need more. It's literally a one for one. If they have an implantation, they call us, we ship them a replacement. We do have really good visibility to that, and have, you know, clarity on that. At the moment, you know, reps are trying to go into every first case if they can, you know. We have a lot of feedback on the implantations, and honestly, the feedback's all been fantastic. It's been for a completely new technology. I've never seen such universally positive feedback in my career. It's been great so far. That's kinda how that works. I'm trying.
Suraj, the second part of your question, remind me again.
Lance, one of the things that even in last year we had, and I remember talking to you and Pat about, initial target was like 120 sites, 150 sites. As you think about exiting FY 2026, how many sites should we think-
Yeah
Really, our target was just actual sales of $100,000 each, right? Any, you know, just help us dissect
Yeah
it.
You know, I think most people that follow us closely, they have their own, a model for what they think we sold in the U.S last year. You know, we obviously had some implantations associated with that, so take a little bit off, divide it by 100,000, and that's probably a rough estimate of how many accounts we're in right now. Some accounts actually buy two sets because they wanna, you know, what if we have back-to-back days and, you know. For the most part, our revenue came from opening new accounts. Now the question is like, what can we get out of those accounts in 2026? You know, you would think that we would target the biggest accounts first and just move down the line but, really it's not necessarily that case.
Sometimes the biggest accounts are the most bureaucratic and most challenging to get through the process, so a lot of our earlier accounts that we first, you know, had sales for were honestly smaller accounts where there was less bureaucracy, the cardiac surgeon had more pull, and was able to just get it on the shelf in a fairly straightforward way, which is awesome, but obviously those are lower volume, you know, accounts. It is kind of all over the board for the accounts that we've opened. You know, logically, I would think we would've opened the biggest ones first, but that's not actually how it turns out. Then the other thing too is, you know, this is a fairly, you know, high ASP, low volume procedure, right?
You know, we talk about the whole US market is 6,000 a year with 80% of those done in 600 accounts, you know. That's an average of like eight to 10 per year for the big quote, big accounts, right?
Mm-hmm.
Even then you have some that are gonna be less than that and some that are more. You know, it's you know, some accounts are gonna be kinda one a quarter, you know, type account. We're gonna have to get more accounts up and going before we can get, you know, a lot of really good information on a stratifying account by account and adoption and all that. Right now it's just more kinda like, "Hey, are we getting more implants this month than last month?" You know, it's really much more high level. I'd say we have seen a slow but steady progression as we've gotten new accounts up to speed and seeing implants occur.
I think the job in 2026 is, hey, we need to open just as many accounts or more as we did last year, but also the accounts that we opened last year, we need to get using this. Not just one surgeon. If there's three surgeons in the account, we need to get all three of them using it, and so that'll be a big focus of the sales force in 2026.
Lance, if I could push you on this, and forgive me for belaboring this. You know, obviously one of the key questions comes up as it relates to Artivion is, hey, how much do you have for AMDS in your models, right? You know, ballpark, like last year at least our estimate was about roughly around $8-ish million. We might be off, a little bit. When you exit, maybe just give us a range of how many sites do you think y'all would have, quote-unquote, penetrated, exiting FY 2026 so that we sort of have a barometer. Is it 200? Is it 160?
Yeah. We’ve stayed away from those details, and we’re gonna continue to stay away from it. Honestly, it’s just one more thing you can track and, you know, try and have heartburn over. I mean, I think our main thing is we said, “Hey, we think we can grow our stent graft business in the low 20s%.” I think it’s gonna be, you know, very challenging if not impossible for us to do that if we don’t do really well with AMDS in year two, and I think that’s probably the metric that you can look to to know how things are going quarter to quarter with the AMDS launch. You know, as we get further into it, you know, we may start sharing some more information.
Right now, I think just looking at the total stent graft business, you can get a pretty good barometer on how it's going.
One last on AMDS, Lance. It isn't like the full approval is holding you guys back, per se.
Yes
in some sense.
Yeah. Yeah. That's correct. I mean, I think from a practical standpoint, the HDE has given us, you know, something very similar to a PMA approval type access to the market. Now, you know, there is one more step, accounts have to go through to get access to the product, which is they have to get an IRB approval, which, you know, in general, our reps have figured out how to help surgeons navigate that process, and it ends up frequently being the value analysis committee that's the longer pole in the tent than IRBs.
You know, I am sure there are some accounts out there that will be easier to get into once we have a clean PMA approval, but for the most part, we don't view that as something that's holding us back or is necessarily gonna create a big inflection point in the second half of the year. Now, having said that, it'd be really nice to have it, to quit having to work on it, and to stop having to deal with IRBs, and just to have one less objection. We're looking forward to it and pushing to get it. You know, for practical purposes, you know, we're in the market today.
Oh. Got it. Fair enough. Lance, let's shift gears to, you know, your flagship product, On-X, right? By all accounts, even predating your arrival at the company, right, I remember in the yesteryears, there was so much of interest in On-X. I think so most of the metrics suggest you guys are still on a roll. Help us understand, to the extent that you can share, where we are in terms of market share in the U.S, OUS, you know, and what, you know, in FY 2026 and beyond is roughly how should we think about the CAGR for On-X, given where we are currently?
It's been an amazing product, which again, predates me. I mean, I've never seen a product have post-double-digit growth for so many consecutive years. It's pretty amazing. I think it just shows just how differentiated it is, and the need for the product. You know, at the moment, we have of mechanical valve market, current mechanical valve market, 60%-65% share in the U.S, closer to 30%-35% OUS. Not nearly as penetrated OUS. What's interesting is, you know, last year there were two different papers presented that we had nothing to do with, showing the significant clinical benefits for mechanical heart valves for patients under the age of 65 versus you know, SAVR bioprosthetic valves.
I mean, it was pretty clear data that would say, "Hey, if you're a relatively healthy 65-year-old, you really should be considering a mechanical valve versus a bioprosthetic valve." If we did some pretty strong market research around that, and we think that represents a roughly $100 million US market expansion opportunity, which is obviously very significant in relation to our current sales. With us having a 65% market share, you know, I think we're positioned really well to benefit in an outsized way from that.
We're starting to get geared up to really get after that opportunity, and really make sure that data is disseminated not only to cardiac surgeons, but also to referring cardiologists who have a significant opinion and outweighed opinion for patients on what they ultimately end up with. You know, the patient was probably seeing the cardiologist for years before they ever see a cardiac surgeon, right? They have a significant sway, and so we need to make sure that data gets disseminated to them as well. We're gearing up to get that going.
Then also, if you think, you know, we're really focused on the U.S mainly right now, but I mean, as I think most people know, we made some significant investments to expand our footprint for On-X manufacturing, in our facility in Austin, Texas. You know, partly it's because we see this as a multi-year opportunity, one, just for the U.S, but beyond that, the data would apply just as much to, you know, international patients as it would for those in the U.S, and we have a lower market share there. In some ways, we have just as big an opportunity outside the U.S as we do inside the U.S. It's really exciting. You know, we've really told people to think about that historically as kind of a low double-digit growth rate business.
This year we've said, "Hey, we think we can grow in the mid-teens, you know, on a global basis." U.S. probably faster than that. We think we can do that for you know that's probably a multi-year type opportunity. It's not just a one-year kind of thing. Last year we actually grew faster than that. It was closer to the twenties for 2025. It's really exciting and you know we think it's something that could be at an elevated growth rate for years.
Lance, when do we see the cross pull-through for On-X from AMDS and eventually from Nexus in the sites where there is overlap? Are you seeing any spillover benefits just because of your product portfolio? Your product portfolio, you're really the clinical data and whether it's On-X, AMDS, NEXUS, it's a portfolio approach with, to a certain extent, level one evidence, right? What is the pull-through you're seeing of collateral benefits for On-X adoption within your mid-teens growth, or is it too early to tell from AMDS?
You know, we've definitely seen some cross-sell or pull-through, and I think you can think about it in two different ways. You know, of course, the big thing that's really compelling is this data, right? One, just the five-year post-approval study on On-X that shows, you know, an 87% reduction in major bleeding as compared to the control, which pretty much, you know, substantially alleviates the one drawback to a mechanical valve, you know, which is being on blood thinner. You know, there's that data and then this data showing the significant mortality and reoperation benefits for mechanical valves versus bioprosthetic valves in patients under the age of 65. What AMDS has given us is the opportunity to get that data in front of people.
You know, we have centralized training once a month, we call them dissection academies, where we're trying to bring people in, and AMDS is the hook, if you will, to come and be trained on AMDS. We're able to get in front of them with key opinion leaders and share this data with them, and it's really compelling. I'd say, you know, obviously with 65% share, you know, we're already in a lot of accounts, you know, but not all of them. We've definitely seen surgeon conversions from being able to get people to dissection academies, share with them this data. Let them talk to their peers that are using On-X. We have seen that.
Also what we've seen is existing customers and being able to get this data in front of them, have a discussion with them about it, and seeing a larger percentage of their patients getting mechanical valves versus bioprosthetic valves. I think we've already. I think you can see that in the numbers, right? I mean, the elevated growth rates of On-X would say that both are occurring. you know, we still have an opportunity to open a lot of accounts for AMDS. That's a lot of surgeons we need to train, and so we still have a good opportunity there.
Well, Lance, obviously NEXUS, you know, we saw the data a few months ago, and by all accounts, it was, you know, pretty compelling data. Maybe I'll put you on the spot here, Lance. Have you all communicated already to understand your desire to acquire?
Well, I mean, I think they know, given the fairly substantial amounts of money that we've given them over the past years, that we want them to get approved and the approval to look good. So I mean, I think they know that we're their biggest fans, all along. You know, I would say I would agree with your comments. The data looked really good. I think everybody was pretty excited. Not surprised. I think we expected the one-year data to look good following what the 30-day data looked like. I think we were pleased about that. You know, based on that, we've told people we think they will get approval. You know, we think they'll get approval in the second half of this year. And what we've got, right?
Products aren't approved till they're approved, and I think we've all lived through that, right? We certainly think it'll get approved, and we have no reason to believe it'll be delayed, but until it's approved, it's not approved. You know, we certainly know what we're generally expecting from a label, but until you have a final label and IFU and all those things, you know you don't have them, so you have to get them and evaluate. Now, with those caveats in place, what we've told people is, "Look, we expect them to get approved, and your working assumption should be if they get approved, that we'll exercise our option and acquire them." Because we're believers in the device.
We've been selling the device for 5+ years in Europe, and we've seen it firsthand, and we think it's great. I think that should be everyone's working assumption, and then when it gets final approval and final label, we'll do our final checks and diligences, and hopefully all's good, and we'll exercise our option.
The path still is to tap into your credit line for the remaining $135 million, which would potentially push your debt leverage ratio to 2.5, maybe?
I think it'd probably be even higher than that. It'd probably get closer to three. But that is the plan. I think for those that hadn't followed the company, we last fall, we amended our credit facility to lower our interest rate and add a delayed draw term loan feature for $150 million, pretty much specifically to be able to fund this potential acquisition. We have, you know, we have financing available to us if they get approval, and we exercise our options, so we're in good shape there. That will put our leverage up, you know, a little higher, but we would expect it to come down really fast.
We are growing EBITDA very quickly, and I think as we move into 2027, we'll start to be meaningfully free cash flow positive, not just positive, but meaningfully cash flow positive, and be able to start paying down debt and to be able to make progress on net debt in two ways, not just one. It will go up a little bit for a little while, but I think it'll come down really quickly.
Fair enough. Lance, going to your FY 2026 guide, you know, you guys have given bare On-Xs. We have a rough idea on stent grafts, but the two other components are tissue preservation and BioGlue, right? Tissue preservation, I think, your comments were they were gonna be flattish. BioGlue maybe, you know, NSD or somewhere in the ballpark. Lay out the line for us, 'cause tissue preservation comes up a lot in client conversations, like what moves the needle. I know it's like Pat has said it and you've said it on calls, that the moment you get it's shipped out the door. There's no wait time. Lay out the landscape for us. How should we think about these two respective buckets?
Yeah. Maybe let's talk about BioGlue first. It's a little quicker and easier. You know, BioGlue's been a fantastic product for a very long time too. It's got its own little niche within the niche, where it's the only product that has an acute type A dissection indication, which obviously fits fantastic with our call point and product focus. It's just a super mature market. You know, market shares have been steady for a decade plus. Now, I don't have no reason to believe there'll be any additional new competition, given it's a relatively small market size, and it would be a PMA for someone to launch a new product. I'm not aware of anyone working on one, so I don't expect any new competition. At this point, you know, growth is pretty much.
It's kinda procedure growth plus a little bit of price. That's kinda what you can expect, right? I mean, it's a 20-plus-year-old product, distribution all over the planet for years. So there's just not a lot of things. There's no levers to pull. You know what I mean? So it kinda is what it is. The tissue business is kinda the same way. It's been around even longer than BioGlue. It's a great product. The majority of our revenue comes from highly differentiated SynerGraft pulmonary valve. It's the only decellularized pulmonary valve. It's amazing long-term clinical results. Our key opinion leaders use it and love it. But the reality is, I mean, it's a, you know, multi-decades product. It's constrained by heart donations.
As you can imagine, we have pulled every trick we could come up with over the years to get more hearts and to get, you know, better yields. At this point, it's just hard to move the needle. You know, we can't influence heart donations and, you know, improvement on the yield side is really pretty incremental at this point. There's just. It's a great business. It's very steady. It provides a lot of cash flow. You know, it doesn't have awesome gross margins, but it has very little additional cost, which is great 'cause it can help us fund all these other really kinda game-changing products that we have. Growth is just really hard to come by.
Honestly, you know, kinda calling it flat as opposed to mid-single digits was a little bit like, "Hey, let's just de-risk this." Like, "Let's just, you know, lower expectations a little bit, modestly and hopefully, you know, remove some heartburn from people on what this is gonna do.
Fair enough. Lance, in the last few minutes that we have remaining, I'll pose a multi-part question, okay? Please let me know if I meander too much. One of the things you guys have, you and Pat have talked on the road is about the inherent OpEx leverage in the model. You grow top line X, your expectation is over time you grow the bottom line is two X. At least that's the way. What are the different levers you all are thinking about? Obviously, AMDS and NEXUS are gonna be critical, you know, just in terms of the ASP perspective. But just kinda help us understand, one, what are the different levers? The second thing is now, you know, the geopolitical component, your own U.S. business, you know, that's what? A little over 40%.
Yeah, it's close to half. Yes.
Right. Just on an SG&A perspective, right, where are we in terms of reps, and how do you see this playing out as AMDS gets full approval, let's say NEXUS gets later, end of the year, beginning of next year, is in the bag. Just help us understand, dissect these different. Sorry, I threw in a lot in there, and I promise-
Kind of walk through it, you know. We're about a 65% gross margin business and have been that historically for pretty long time, fairly steady. As we bring these new products to the U.S, it's really the first US new product launches we've had in, you know, decades. We have a series of them now that are gonna come, right? AMDS is the first, hopefully NEXUS is the second. We just started a clinical trial for our C will be the third. These are all products in kinda the 90% gross margin range, so way accretive to the current corporate average. Then On-X in the US, which is hopefully gonna be growing, you know, outsized, is. It maybe not be 90%, but it's 80%+.
You know, it's still very accretive. We have not historically had gross margin expansion, but now we have this opportunity through mix. You know, we guided to 50 basis points of gross margin expansion this year, and so we think, you know, that's something we have for years to come. We've been doing a great job in SG&A. We think we can keep that going. We're guiding to 200 basis points of SG&A leverage in 2026, and I think that's basically two things. One, we have the G&A opportunity that, you know, all mid-size, small mid-size public companies should have typically. But then on the sales and marketing, it's pretty interesting in that, one, you know, our sales reps in general don't cover cases, so our sales force is way more leverageable, and it's pretty built out around the world now.
We don't need to make any big investments in sales force. Maybe some incremental ads around the edges, but for the most part it's very leverageable. You know, if you look at marketing, like we're launching a small number of new products mainly in the U.S., right? It's not huge, gigantic, you know, marketing dollars. We got a really probably better than typical sales and marketing leverage opportunity that we have had and will continue to have. Then if you look at R&D, you know, we say, "Hey, we can fund all these clinical trials and PMA products in kind of a range of 7%-8% of sales." The reason we can do that is really we're only driving R&D mainly in one of our four product lines if you think about it.
For stent grafts, that is an enormous percentage that we're reinvesting in the innovation, which is why we can continue to, you know, fund these PMA clinical trials but not have this, you know, crazy up and down investment. We can keep it in a fairly tight range. This year we do have a headwind of about 100 basis points on R&D, but it's kind of we were at the very low end in 2025. We're gonna be closer to the high end in 2026. Normally, we'd expect it to be more in the middle and not have that really much of a headwind or tailwind, but that's why we feel comfortable. Just the business model is so good, and it just supports this expansion for the next several years.
Fair enough. Lance, we are up on time. Always appreciate discussing the business with you. Thank you so much for taking the time this morning.
Thanks for having us, Suraj. Good to see you.
Thank you. Take care.