Artivion, Inc. 2026 Q2 Earnings Call

Good afternoon. Thank you for joining the call today. Joining me from Artivion's management team are Pat Mackin, CEO, and Lance Berry, COO and CFO. Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties that are forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements.

Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today's call on the investor relations section of Artivion's website. Lastly, I'd like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all of our comments today will be using our non-GAAP results. Additionally, all % changes discussed will be on a year-over-year basis. Revenue growth rates will be on the adjusted currency, constant currency rates, and expenses as % of sales will be based on adjusted revenues. With that, I'll turn the call over to Artivion CEO, Pat Mackin.

Hey, thanks, Brian. Good afternoon, everybody. Through the second quarter of 2026, we continue to execute on our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. We delivered total constant currency revenue growth of 9% and adjusted EBITDA growth of 7% over prior year. Revenue growth was again driven primarily by On-X and stent grafts, including AMDS. Before expanding further on product line performance, I want to take a moment to address two milestones that we were most focused on coming into this year and recently achieved. In late June, we received U.S. FDA approval for the PMA for our AMDS Hybrid Prosthesis in line with our previously communicated expectations. The third quarter will be the first full quarter in which AMDS is sold in the U.S. under the full PMA.

That is meaningful because PMA approval obviates the lengthy IRB review process and new accounts that previously had to work through. We expect to accelerate new account conversion and set sales going forward. We are also pleased to complete the acquisition of Endospan and its NEXUS aortic arch stent graft system during the second quarter, again, ahead of the timing we had anticipated. This acquisition completes our market-leading three-pronged aortic arch portfolio. We believe this technology, alongside AMDS and Arcevo, positions us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, NEXUS is a platform technology, not just a single product. It supports three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time.

As it relates to NEXUS, our message here is consistent with last quarter. Through 2026, our focus will be on building inventory, working through value analysis committees, and augmenting our U.S. sales team. We continue to expect a full U.S. commercial launch of the NEXUS system in January of 2027. As a reminder, the device is approved to treat chronic aortic dissections, which represents about a $100 million market opportunity. With that, now let me turn to the second quarter results. From a product category perspective, stent graft revenues grew 12% on a constant currency basis in the second quarter compared to the same period last year. This is an acceleration from the 10% growth we reported in the first quarter and came against tougher year-over-year comparison, so we're encouraged to see this progress.

Importantly, one of our key areas of focus coming out of the first quarter was on AMDS set sales. We are pleased to see improvement in set sales relative to the first quarter, with implant trends also remaining strong. As we said last quarter, we view implant reordering as the most critical indicator, as strong reordering patterns reflect positive user experience and ultimately longer-term adoption and higher growth. Looking ahead, we expect U.S. AMDS set sales to further accelerate following the recent AMDS PMA approval and as the barriers associated with the initial upfront $100,000 investment associated with the stocking continue to wane. Ultimately, we see our comprehensive stent graft portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantages within this segment. Turning to On-X. Our second quarter On-X revenues grew 18% year-over-year on a constant currency basis.

This growth was again driven by global market share gains and the newer U.S. opportunity unlocked by data showing improved outcomes with mechanical versus bioprosthetic valves in younger patients. Also came against a much tougher year-over-year comparison than in prior quarters. The data supports our conviction that the On-X valve is the best aortic valve on the market for patients under the age of 65. Meanwhile, tissue processing came in slightly ahead of our expectations, generating approximately $26 million in revenue, representing an increase of 1% year-over-year on a constant currency basis against a challenging comp due to recovery from the 2024 cyber incident in Q2 of 2025.

We had a strong finish to the quarter in terms of tissue releases, resulting in some volume we might otherwise had expected in the third quarter shifting into the second quarter. Overall, we remain on track with our expectations. I also want to briefly highlight the Ross procedure data that was recently published in JACC, the Journal of the American College of Cardiology. The study reported a 12-year outcomes of 455 adult Ross procedures that were performed at a single high volume center. This study provides compelling long-term evidence regarding the performance of our proprietary SynerGraft pulmonary valve. The results were outstanding. With survival compared to the age-matched general population, the autograft reintervention rate was 1%, and the pulmonary homograft intervention rate was at less than 2%, and that's at 12 years. As a result, the overall reintervention at 12 years was about 3.5%.

Importantly, 95% of the pulmonary homografts implanted in this study were Artivion SynerGraft valves. These results further reinforce SynerGraft's differentiated clinical profile and market leadership. We believe this level of long-term clinical evidence is unmatched in the pulmonary homograft market and strengthens physician confidence in the Ross procedure, as well as our product. Collectively, these data reinforce our conviction that supply, not demand, continues to be the primary constraint in growth for this segment of our tissue business. BioGlue revenue declined modestly in the quarter on a constant currency basis. As we discussed last quarter, this product line carries a meaningful amount of stock in distribution business, which creates normal quarter-to-quarter variability, and we continue to expect mid-single growth for BioGlue over the full year. Lastly, on our pipeline, we continue to make progress on the ARTIZEN clinical trial for our Arcevo LSA product.

We've now enrolled 30 patients in the trial, which is a non-randomized clinical trial, up to 132 patients in the U.S. and Europe at 30 centers. This is for the treatment of aortic dissection and aneurysm in the arch. We anticipate completing enrollment in mid-2027. We are optimistic the trial will be successful based on, in part, the positive clinical results from our current generation frozen elephant trunk, E-vita Open Neo, outside the U.S. Following a one-year follow-up period and assuming the trial meets its endpoints, we anticipate FDA approval for our Arcevo in 2029, unlocking an incremental $80 million of annual U.S. market opportunity. In conclusion, the second quarter was a quarter of meaningful progress against our long-term strategy. We delivered the AMDS PMA approval we had targeted for mid-year. We completed the NEXUS acquisition ahead of schedule. Stent graft revenue accelerated against a tougher comp.

On-X continued to take share, and our preservation services business is growing, constrained generally by supply, not demand. The fundamentals that underpin our growth strategy remain exceptionally strong. A comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total adjustable market over time. With that, I'll now turn the call over to Lance.

Thanks, Pat, and good afternoon, everyone. Before I begin, I would like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $125.8 million for the second quarter of 2026, up 9% compared to Q2 of 2025. Meanwhile, adjusted EBITDA increased approximately 7%, from $24.8 million to $26.4 million in the second quarter of 2026. Adjusted EBITDA margin was 21% in the second quarter of 2026, an approximately 90 basis point decrease from the prior year, primarily driven by the anticipated increased investments in R&D, including investments in the NEXUS pipeline following the acquisition of Endospan.

From a product line perspective, stent graft revenues increased 12%, On-X grew 18%, tissue processing revenues grew 1%, and BioGlue revenues decreased 2% in the second quarter of 2026. On a regional basis, revenues in North America increased 8%, EMEA increased 10%, Asia Pacific increased 9%, and Latin America increased 11%, all compared to the second quarter of 2025. Overall, we were pleased to see a return to growth across international markets. Q2 gross margins were 64%, a decrease from 64.7% in the second quarter of 2025, as favorable pricing was more than offset by unfavorable geographic mix and some higher costs in our Austin facility as we incur early costs associated with ramping production. General administrative and marketing expenses in the second quarter were $79.8 million, compared to $57.7 million in the second quarter of 2025.