Morning, everyone. For everyone listening, my name is John McAulay. I am one of the medical technology analysts here at Stifel. It is my pleasure to welcome Artivion to this year's Stifel Healthcare Conference. We have the company's Chairman, President, CEO, Pat Mackin, along with Lance Berry, the COO and CFO. Thank you both for being here. I want to start off today on the third quarter results and then the updated 2026 guidance you provided just last week, as well as some of the earlier 2027 directional comments you made before we get into the product-specific stuff. First, starting off on the fourth quarter, as I look at the rest of your guidance, the midpoint of the range actually contemplates a sequential revenue step-down in the fourth quarter, which is pretty unusual based on your typical seasonality.
I just thought we could start off with talking about what is actually implied in that guidance and if there are any reasons to think it might be better.
I think at a high level, if you step back and look at the second half, we essentially, I would say, reiterated the midpoint of our second-half guidance, is essentially what we did. There is some timing with our preservation services business was better than anticipated in Q3, which we think is really just timing between Q3 and Q4. If you look at the second half in total, it is basically in line with what we expected. The preservation services, if you think about that really has no implication on going forward beyond Q4. That is really just a timing thing between Q3 and Q4. Overall, that business is probably going to come in a little ahead of expectations for the year.
I would tell people really not to look at the second half more in total than trying to parse out Q3 versus Q4 due to the timing thing. Also just be aware if you are looking at the raw dollars of the guide, that currency was pretty neutral in Q3, but is a healthy percentage point headwind in Q4. Those would just be the two things I would tell people to keep in mind as you look at that. Really, you have to look through the numbers a little bit, but in total, the second half is kind of shaping up the way we expected it to.
Got it. You also talked about on the call that next year, the PerClot revenues that you've been generating as you produce it for Baxter are going to end. You indicated that it's about a two-point negative impact on revenue growth, four points to EBITDA. in a given year for you guys, I would think about you as sort of a 10% top-line grower, 15%-20% adjusted EBITDA. Purely in a vacuum, the PerClot impact would imply something like 8% revenue growth, low double digit to mid-teens adjusted EBITDA for next year. At a high level, is that sort of the right way we should be thinking about things?
I'll let Lance comment on some of the numbers, but let me just take a step back for a second. We sold PerClot, this is a hemostat, we sold it to Baxter five years ago. We've been operating under a transition services agreement. If we'd run that and discontinued ops, we wouldn't be talking about it right now. We probably should have done that. It's a non-strategic asset. The transition service agreement is going away, right? At the higher level is, organically, we are committed to growing double-digit top line and twice as fast on the bottom line. This PerClot thing is, it's getting a lot of attention, and I understand it's like, as reported, but I'll let Lance comment on the financial part of it. It's not something we even really talk about in the company.
Yeah. I guess, thanks for the background, Pat, because it was pretty long time ago that we actually sold this. It's just taken quite a while for Baxter to get to the point where they could ready to transition and take over the manufacturing. They had numerous regulatory approvals they had to get for that, and we really only very recently got confirmation that, yes, they're ready to take it over and it's going to end, which is, then we can be clear with everyone that it's going to go away. If you look at, John, you talked about more of that 8% top line and probably like mid-teens-ish kind of EBITDA growth is where the consensus is now factoring that in.
As Pat said, if you look at that on an organic basis, that's right at the 10% and 20% that we're telling people in general in any given year, that's what we're shooting for, is trying to do that or better. I think really that's the way to think about it. On an organic basis, that's consistent with what we've kind of told you in any given year about this time of year, about the next year, and that's what we're telling you again.
That's helpful. The 2027 PerClot impact isn't taking place in a vacuum. You also have a product launch next year, NEXUS. You've talked about a $100 million U.S. addressable market. Could what you gain from NEXUS potentially offset PerClot?
Yeah, again, we're just giving some directional comments on 2027. We'll have a lot more information in February. We'll actually know a lot more about NEXUS in February. We'll be a good month into the actual launch at that point and have done a lot of various, probably maybe multiple trainings. I think we'll have more information at that point. Right now, we're telling people, "Hey, let's just stick with the high level, more organic 10% and 20% as a better starting point, and we'll have more information." We got quite a bit of time between now and then to gather a lot more information and being a lot more intelligent on impact of 2027 for NEXUS and lots of other things too.
Got it. Switching to gross margins, just again, as I look ahead for the business here, it seems like your mix is moving towards higher margin products. You've got PerClot coming off the books. You've got the tissue business growing below the other assets. In general, should we be thinking about this business as one with gross margin expansion in 2027 as opposed to 2026? It seems like that's the directionally things should be trending.
Directionally, yes. We can get into February, we'll get more into magnitude, but there are definitely some tailwinds for gross margin, all the things that you mentioned.
Mm-hmm. I want to shift gears now to AMDS, starting off with utilization reorders. You talked about it on the third quarter call, higher utilization or more reorders than you saw in the second quarter. Can you just give us a bit more color about what you are seeing from sort of the top sites in terms of utilization, growth, and how that might be an indicator for other sites working up the curve?
Yeah. Just to remind folks, right, there is two sources of revenue for AMDS. There is the starter sets, which you need to buy four. We have four sizes. You need to buy all four sizes to start your account, and then there is reorders. So, there is kind of the two buckets. What we had said was once we get the PMA, we thought it would help on the reorders just because you no longer have to do the IRB kind of constraining things that they had in some of the centers. We have definitely seen, I made a comment in October, we have seen a pretty significant acceleration of implants, which ultimately is the metric where is most important for the company, looking at AMDS and its adoption. As you can imagine in any launch, there is 800 centers, 400 of them do the most volume.
We are seeing various levels of adoption in each of those centers that we are in. We are not in all of those accounts as of yet, but we are definitely seeing the implants accelerating, and we expect to see that to continue.
Mm-hmm. I want to go to the set part of the business as well.
Yeah.
On the latest earnings call, you said many factors impacting the set sales, creating the challenges that are impacting set sales and new site openings are transient. I was just hoping you could talk a little more about using that word transient and what you can say that might give investors more confidence that these dynamics actually are transient and a timeline where we might expect things to resolve.
Yeah, I think the big thing is that there is such an economic benefit to the hospital if they are actually using the AMDS device as opposed to just doing a hemiarch. They can get a return on the $100,000 investment in fairly short order. At a high level, the economics are on our side, and we really just have to get hospitals to understand that. We have to navigate through the financial arm of the hospital, which can be challenging and not something our reps are typically doing, and that has taken some time. But we still believe that there is a compelling economic benefit to the hospital, and they should be willing to buy this. It is an emergency situation. They need it on the shelf. It is not like we could even bring it in if we wanted to. That is why we think it is transient.
I think also, I mean, we are continuing to open new accounts every month, right? The progress is slower than we would hope, but it is still progress, and we are continuing to move it forward. Those are all the reasons why we think it is transient, and we will actually get into all these top 400 accounts that we want to get into.
Great. Just in terms of the AMDS target sites, there has been a lot of numbers out there. I have heard 1,000, I just heard 800, I heard 400. My back-of-the-envelope math is you are probably in somewhere between 150 and 200 today, but I think it would just be helpful if we could sort of have a framework for where you are in terms of new sites opening, just how much more there is to go in this set opportunity.
Yeah. I start at the big picture. I start at 800 centers. There's about 800 centers that do an acute type A. We've targeted heavily the 400 centers, which is where we think 70%, two-thirds of the volume exists. Your number, we don't give out numbers, but I think if you look at your numbers, I mean, that's in the ballpark of kind of where we are. If you, by any stretch, if you look at that number of 150 to 200, we're not even in half the 400 accounts, and we're not even in a quarter of the 800 accounts. There's lots of runway, and I would actually argue that these smaller centers is where this technology actually is probably most important. Again, we're not targeting those, but that's where I think these patients can really benefit. You're talking about community hospitals.
You can't transfer the patient because the mortality rate's so high, but that device can reduce mortality significantly. We see lots of opportunity to continue to sell these starter sets, and I think for several years. We're also, I would make a point that we're always looking at our options on what can we do for accelerating these starter sets. Lance mentioned the reimbursement, but we're constantly kind of looking for friction points and how we can make those easier to overcome.
Mm-hmm. Would you call it anything specifically, like that you're doing to make it easier?
Yeah, I mean, we look at the term consignment keeps coming up.
We are doing some pilots on different consignment models, where they have to pay more than the person who does not get consignment. We will see how that goes. I mean, we are open to different things, and again, we ultimately want to get into as many centers as possible, but I think the 400 is really where the meat of the opportunity is.
Mm-hmm. You mentioned consignment there. Just in general, I was curious about your perspective on shifting to that. Would you want to get through these first 400 under the set agreement and then try to pursue the longer tail with consignment, or is consignment not on the table?
I think, again, you have to look at the facts, right? Number one, DRG-209 makes it so your break-even on this, your starter set is like three cases. Right. It is not like it is a I think if you get to the right financial person in a hospital, buying a starter set is not a huge deal. You do three cases and it pays for itself, right? Number two, this is an emergency operation that changes mortality and stroke rates. It is a life-saving, life-altering event. You should have this. There is no competition, right? I mean, that is why we have been kind of resistant to switch to consignment. It is like, why would we? You have tremendous economic reasons to do it, tremendous clinical reasons to do it.
We are going to keep pushing the envelope on how we get those consignments out there or get these starter sets out there. But we will look at other options. We are not going to be so dug in that we are not going to learn from different things that we can do.
As we look ahead then, just given where you are today, do you think that we're still in a place where actual new site openings, set sales can increase in 2027? Or is this a situation where you're probably dealing with a headwind because you've sort of gotten through this initial bucket, but then it's harder to get these next groupings?
Yeah, it's harder to predict, right? Trying to predict what hospital administrators do is not a business I want to get into, right? Which has been one of the challenges is like figuring out how long is it taking us to get It's different at every hospital. What I would say is, I feel very confident implants will continue to grow and accelerate. I think we're very confident in that. We will also sell more sets. The difference between having sets being higher than this year is going to be how well we do with hospital administrators, right? I think the combination of those things, we feel comfortable that AMDS will be a growing segment driven by implants. There will be a point where the lines are going to cross, where implants will always be bigger than sets, but I don't think we're there yet.
I don't know if you want to
Yeah. I mean, I think we talked about last year was really all about set sales, and really very little on implantation. This year, both matter. As Pat said, at some point, we will continue to have set sale revenue for years probably. But the implants are going to be the thing that's the overwhelming majority and going to be what underlying growth ends up being is going to be heavily dictated by implants.
right now, they're both important. Every day, the implants become more important.
Got it. That gets into my next question, just about your longer-term expectations for AMDS in this market. You sized it at roughly 6,000 procedures a year in the U.S. We've done some work, some survey work here at Stifel. We've seen doctors come back roughly with a 30%-40% longer term utilization rate. These things can always go up over time.
as they use it more. Just curious about what you're thinking AMDS's role can be in this market, because you've got ARCEVO coming as well. That's on
the frozen elephant trunk side. That segment of the market is always seemingly going to exist. Just how much of the market do you think AMDS can reasonably carve out?
Again, I think this is, again, one of the things that is most encouraging about the launch is we have the largest clinical trial ever done in acute type A is called PERSEVERE. It showed a 72% reduction in mortality and a 58% reduction in major adverse events. Phenomenal clinical data, and we continue to hear that from the marketplace today. The market research we did show this is the standard of care for acute type A dissections, which is over 50, so higher than your number. The indication right now is for clinical and radiographic malperfusion, which is about two-thirds of the patients, okay? That does not even consider the patients who have non-malperfusion that have DANE, which is a leak in the surgical graft from a hemiarch, okay?
If you have a leak in your graft, which happens about 30%-40% of the time, you have a 3X increase in mortality at five years and a 4X increase in reoperation at 10 years. The clinical data is on our side, right? I know you are going to talk to a bunch of customers next week of ours at the Aortic Symposium. We are not hearing anything from anybody about the opportunity for AMDS still exists. It is quite large, and we think we can get this to standard of care. It is just going to take us a little bit of time.
Got it. That is helpful. I want to switch now to NEXUS. Just to sort of frame it, I believe you have talked about this being a $100 million opportunity, roughly 2,000 procedures a year in the U.S. Just how should investors be thinking about the ramp up here? How fast could this go in terms of, one, I think share gain, but also market development?
Yeah. Since we just talked about AMDS a lot, let me just do a compare and contrast, because all the stuff that people are not happy about on the AMDS adoption of starter sets, we do not have starter sets, okay? AMDS, emergency operation, 2:00 in the morning, we are making you buy a starter set with four. NEXUS is an elective procedure for a chronic dissection. That means we have two or three weeks to plan it. There is no upfront. There is no inventory. We ship in the devices for the procedure, you put in what you are going to use, and you build a PO, okay? From a VAC standpoint, we are doing cases right now with no VAC approvals, because this is a very unique device, again, life-saving, a catheter device, has some very unique features.
There is only one other player in the marketplace who is already set pricing, so getting through VACs has been quite easy. We have already got a bunch of VACs on that we have gone through. We will launch on January 1. We have built our inventory, we have got our reps, and we have got our first surgeon training. We are doing our launch next week at VEITH, and then we have got surgeon training in December. I think NEXUS will ramp more quickly, although it will follow a typical model of a launch, right? Which is you have to train surgeons, you have to do cases, and you have to get through the VAC. We are going to start the year in a certain number of centers with VACs and surgeons trained, and we are going to end the year with a bunch more VACs and surgeons trained.
I think that you will see NEXUS kind of ramp through 2027.
You said more quickly. Is that more quickly in comparison to AMDS or typical product launch?
Well, again, you just do not have this barrier of having to get the starter set, right? Because there is no inventory. It is shipped in for the case.
I see. Just in terms of getting ready for NEXUS, just sort of level setting where you are today, manufacturing, rep hires, VACs, physician trainings, just
Yeah
how ready are you for Jan 1?
Yeah. We acquired this company in Q2. They got FDA approval in Q2. We told our customers when we first bought the company that we did not have inventory to launch, and that we would do cases kind of here and there to support your patients, but we will be taking the second half of 2026 to build our launch inventory, which is what we've done. So, we will be in a very good position to launch on Jan 1. We've hired our reps. As I mentioned, we've gotten into a bunch of VACs, and we've got our first surgeon training in December. We will build, like any launch, we will build surgeon trained and VACs throughout the quarters in 2027. So, there's only about 150 accounts, which again, is very different from AMDS. This is like the high-end vascular operators, endovascular guys.
We're going to go after all 150 of those centers. In 2027, by the end of 2027, we will be well-positioned in a lot of those centers.
Mm-hmm. You said 150 centers.
Yeah
As the target, do these centers potentially have a backlog of patients that they've sort of built up as saying, "Well, I want to treat them, but I don't have the device yet"? Could we see an earlier bolus of patients come through?
Yeah. I mean, there's a competitor in the market, so they've had the ability to treat some of these. I will argue one of our big advantages is we have a 20 French catheter. Theirs is a 24, so it's a much easier to access technology. But we know that there's surgeons that are holding patients who have been waiting for this technology. Again, this is very unique, right? These are patients that are at high risk of open surgery, so they're not going to operate on them doing a frozen elephant trunk. They need to do a catheter surgery. A lot of them have been waiting for this technology. There's a lot of things about this technology. It was purpose-built for the aortic arch, whereas our competitors was not. They took a left subclavian branch device and shoved it up into the innominate, which we didn't do.
We built a purposely endo arch device. I think there's a lot of reasons why this technology, I think, is going to do quite well in this market.
Mm-hmm. If there's any questions from the audience, feel free. You talked about competition. I also want to talk about the shift to endovascular care over time. It's interesting. I was just speaking with a doctor about these upcoming meetings, and he says, "We always do this thing where we raise our hands, and we sort of estimate how many of these procedures will still be open procedures in a few years." We've seen it in a number of spaces in the cardiovascular space. I'm just wondering, in your mind, could the NEXUS market grow over time? Could this be something that eventually is taking share from open procedures as it goes into different risk stratifications?
Yes. I mean, I think the other thing is a good question, right? If you step back and look at our portfolio, we're a bit agnostic, to be honest, right? We have our frozen elephant trunk in a U.S. pivotal trial that's half enrolled. We expect to finish that enrollment in the first half of next year. That gives us the surgical option of a total arch. We've got NEXUS approved in the U.S. as a single branch. That gives us the endovascular option. Our next PMA trial is the two and three branch NEXUS device. That gives you a full portfolio to cover the arch, whether it's open or endo. The answer to your question is going to be, what are the results of the two and three branch stroke rates in those trials compared to the ARCEVO trial?
Because if it's too high, it'll be more open. If it's equivalent, it'll be more endo. I spend a lot of my time with cardiac and vascular surgeons, and when you talk to them, I mean, it's probably going to be 80/20 with NEXUS 1 to a total arch with a frozen elephant trunk. If you get a two, three branch with a similar stroke rate, it'll probably be like 50/50. The reason being, a lot of those arch cases also have to have a concomitant procedure, an aortic valve, a mitral valve, right? I think in the next five years, it's going to be maybe 50/50 once you get a two and three branch, once those get approved.
But it's probably going to be 50/50 for a while until you come up with something like an endo-Bentall, where you can actually do a catheter delivery of a valve with branches, which is not an easy thing to do.
Mm-hmm. You are on both sides of it with the NEXUS technologies.
Yeah. Again, we want the best technology for the patient. The pricing is similar; the margin is similar. We work with, again, with cardiac and vascular, and they work together as well, so it is very kind of synergistic with what we are doing as a company.
Mm-hmm. In terms of NEXUS competing, you talked about the difference in franchise between your device and TBE. You are also going up against a company that has got a big presence in the aortic space. Their reps have long-standing relationships. They sell a number of devices. From your perspective, how do you compete with their ability to bundle products in these existing relationships? How do you break through that?
Yeah. I mean, I think we are in a different zip code when it comes to You are talking about the most advanced aortic arch technology on the planet. That is a very good company. They have got great products. They have got great reps. All those things are true. We have done formal research on our NEXUS device versus their device in Zone 0 , which is where our indication is, and we beat them two-thirds of the time. So, we will be the share leader in this segment.
Mm-hmm. I also want to hit on ARCEVO. Just maybe first remind everyone the timeline there.
Yeah
And the market opportunity.
Yeah. ARCEVO, again, it's a total arch. This is a surgical procedure where you replace the total arch. It's part surgical graft. Typically, we've gotten rid of the surgical graft. We're just going with a stent graft. The novelty in the patent on this device is actually a subclavian branch that comes off the stent graft. We've enrolled 57 patients out of a trial of 132. We expect to enroll that in the first half and expect to launch that in 2029.
Then we have another PMA two years after that. So that's our whole business model is predicated around, we've got our two new PMAs in Q2 with NEXUS and with AMDS. Our next one will be ARCEVO in 2029, and then we'll have another one after that with our multi-branch NEXUS.
Mm-hmm. On ARCEVO specifically, this is another market where you are going. This isn't like AMDS where you are sort of building something. You are going up against a product that's already approved from Terumo. For ARCEVO, where do you feel the clinical differentiation is versus the device on the market, and just how do you think you can win in that segment?
Yeah. Again, I think this goes back to our business model, right? I talked about the aortic arch, and I talked about AMDS, we have no competition. We just talked about NEXUS, we have one competitor, but we beat them because this device was actually built for Zone 0 in the arch. ARCEVO, we didn't come. We actually have a frozen elephant trunk called NEO that we sell around the world. We decided to bring a disruptive technology with a left subclavian branch called ARCEVO, because that's the most difficult part of the operation, is getting at the left subclavian branch. It could cut like 20 minutes off the procedure. So, we love going head-to-head with them with this technology, and we've got a late breaker on next Friday.
Dr. Roselli from the Cleveland Clinic's going to be presenting the first 30 patients in the ARTIZEN trial on ARCEVO, and we've had phenomenal feedback from surgeons. So, just talk to the guys that are in the trial and see what they say when you ask them that question.
That's great. I wanted to go back to tissue. You talked about the dynamics that played up sort of in the third quarter versus the fourth quarter business mix. It feels like the business has been just more difficult to predict since the cyberattack. Was it December 2024?
Two years ago.
I'm just curious, has there been any change in the underlying market fundamentals? Do you think there's a point where that business can consistently grow again?
Yeah, so I think if you look at our predictability, the growth rates have, because of the really the noise in the previous years,
Yeah
have been bounced around quarter to quarter. Coming into this year, we've said, "Hey, look, I think it'd be better if we just think about this more as a flat business and kind of $24 million a quarter, plus or minus some normal variation," right? Because this is driven by underlying heart donations, which obviously aren't necessarily static quarter to quarter, right? So, they fall within a reasonable range, but there is some variation. So, if you look at this year, we've actually done a little better than that. I think we've been a little bit north of $25 million each quarter this year. And actually, all three quarters have been very similar.
Now we are saying, "Hey, look, some of that. We are going to give some of that back in Q4." A little bit of timing between the two quarters, but if you look at it for the full year, I mean, it looks like right now we are probably going to come in a little bit, not a lot, a little bit above $96 million, which would be $24 million a quarter.
So overall, that business looks like it is going to do a little bit better this year than we thought. If you think about it more like, hey, if $24 million a quarter is a baseline, that is a little bit above. Now, going forward, I think we are going to tell people the safe thing is to think about it more flat. But we are constantly looking at ways to say, "Hey, how can we eke out a little bit of growth?
How can we eke out a little more yield out of the same amount of hearts that we are getting? Is there a little more opportunity for price in some of these areas? How can we get this to be a little bit positive?" So, we are going to be trying to get it a little positive. I think the safe thing is to think about it as flat.
Okay. Because I remember in the past you were talking about the SynerGraft for Ross procedures, sort of being as a high-growth market. Is the underlying limiter there supply?
Yeah, we sell every single pulmonary valve we have. The Ross is growing like crazy, and they can only do as many as we can supply.
At the end of the quarter, we have zero pulmonary valves left in our freezers.
Yep. It's a supply.
It is 100%. It's 100% supply.
It's supply.
It's constrained by human heart donations.
Mm-hmm. We're coming up on time. Just final question here on the On-X business. You were growing sort of high 20s before. In the quarter, it seems like U.S. still strong, Europe, outside the U.S., a little slower. Just anything to highlight in these dynamics? Europe get better; U.S. can keep this going? Any thoughts there would be helpful.
Yeah, I mean, first of all, international, you got to understand, we sell this all over the world. This is a product that's been on the market for a long time. We have a lot of direct business. We also have a lot of stocking distributor business. You're just going to see some variation quarter to quarter in that. That's why we made the comment about the U.S. still being in the mid to high teens this quarter, which is what we've seen. So, there's really nothing to point out from a trend or anything like that. I think that's just you're going to see some of that. What we did talk about, though, is for the past several years, our international business has been somewhat constrained in their ability to go after new business. That's just due to supply constraints.
We've been honestly spending quite a bit of money to expand our On-X manufacturing, and we're not quite done yet, but we're starting to finally see some capacity increases, and we were in a better inventory position exiting Q3 than we've been in years. So now we're getting to the point where we can tell that international team, "Look, you're good to go chase new business. You can go bid on that tender. You can go open that new account." They really hadn't had the freedom to do that in the past. So, I think going forward, it doesn't immediately turn into revenue, but I think that's something that can be really helpful for the On-X business to continue to keep this good growth going.
Appreciate the color. Thank you guys for being here today.
Yeah, thanks for having us.
Thanks.