Artivion, Inc. (AORT) Earnings

Management highlights

- **Key Milestones Achieved** * Received U.S. FDA PMA approval for the AMDS hybrid prosthesis in late June 2026, in line with prior expectations. Q3 2026 will be the first full quarter of sales under full PMA approval, which eliminates the requirement for lengthy IRB review for new accounts, and management expects accelerated new account conversion and sales growth. * Completed the acquisition of Endospan and its Nexus AorticArch StentGraph system ahead of schedule, completing Artivian's three-pronged, market-leading AorticArch portfolio. Artivian is now the only company globally with a complete portfolio of AorticArch solutions. The Nexus platform also supports three additional PMA development programs that will extend Artivian's aortic arch market leadership. - **Pipeline Progress** * The Artisan Clinical Trial for the CEVO LSA next-generation frozen elephant trunk product (for aortic dissection and aneurysm treatment) has enrolled 30 of the planned 132 patients across 30 U.S. and European centers. Enrollment completion is expected in mid-2027, with FDA approval anticipated in 2029, unlocking an $80 million annual U.S. market opportunity. * New 12-year clinical data for the Synagraph pulmonary valve, published in the *Journal of the American College of Cardiology*, showed exceptional outcomes: overall 12-year re-intervention rate of 3.5%, with 95% of tested pulmonary homografts being Artivian Synagraph valves. This unmatched long-term evidence strengthens physician confidence and reinforces that growth for the tissue segment remains constrained by supply, not demand. - **Commercial and Operational Updates** * AMDS set sales and implant trends improved in Q2 2026 compared to Q1 2026, with strong reordering that signals positive user experience and ongoing adoption. Management expects U.S. AMDS sales to accelerate further post-PMA approval as the upfront stocking cost barrier wanes. * ONIX growth continues to be driven by global market share gains, supported by clinical data showing improved outcomes for mechanical valves compared to bioprosthetic valves in patients under 65, reinforcing management's conviction that ONIX is the best aortic valve for this patient demographic. * BioGlue revenue declined modestly due to normal quarter-to-quarter variability from its stocking distribution model; full-year mid-single-digit growth remains expected. * Endospan integration is progressing smoothly, with most of the existing Endospan team retained. The company is currently building Nexus inventory, working through Value Analysis Committee approvals, and augmenting the U.S. sales team ahead of the planned January 2027 full commercial launch. The approved Nexus device addresses a $100 million U.S. market opportunity for chronic aortic dissections.

Guidance

- Management maintained full-year 2026 guidance, reaffirming an expected adjusted constant currency revenue growth range of 7% to 11%, corresponding to a reported revenue range of $480 million to $496 million. FX is expected to contribute an approximate 1 percentage point tailwind to full-year as-reported revenue. - Full-year 2026 adjusted EBITDA is reiterated to be in the range of $92 million to $99 million, which includes expected acquisition-related expenses of ~$8 million for Endospan launch and commercial infrastructure investments, as well as Endospan's ongoing operating and R&D costs. The guidance assumes inconsequential Nexus revenue in 2026, in line with the January 2027 launch plan. - Management expects a difficult year-over-year comparison for the tissue preservation business in Q3 2026, which will normalize in Q4; the Q2 2026 upside for this segment was primarily timing of tissue releases that shifted planned Q3 volume into Q2, not incremental demand. - Sequential revenue improvement is expected in the second half of 2026, driven by accelerating U.S. AMDS and ONIX sales. - The first meaningful Nexus revenue contribution is expected to begin in January 2027. Management expects Nexus launch investments to result in broadly neutral earnings for full-year 2027, with combined R&D and clinical spending expected to reach a targeted 7% to 8% of sales by the end of 2027. - 2027 is expected to see meaningfully positive free cash flow, following elevated 2026 investment and acquisition-related cash outflows, with lower capital expenditures than 2026.

Segment performance

Total Q2 2026 constant currency revenue was $125.8 million, up 9% year-over-year (YoY). Adjusted EBITDA was $26.4 million, up 7% YoY, with an adjusted EBITDA margin of 21% (down 90 basis points YoY). By product segment: 1. **StentCraft (Stent Graphs)**: Revenue grew 12% YoY (accelerated from 10% growth in Q1 2026), contributing approximately 45% of total Q2 revenue. 2. **ONIX**: Revenue grew 18% YoY against a tough year-over-year comparison, contributing approximately 32% of total Q2 revenue. 3. **Tissue Processing**: Revenue of ~$26 million, grew 1% YoY, contributing approximately 21% of total Q2 revenue. 4. **BioGlue**: Revenue declined 2% YoY, contributing approximately 2% of total Q2 revenue. By region, all segments grew YoY: North America +8%, EMEA +10%, Asia Pacific +9%, Latin America +11%.

Risks & headwinds

- Geopolitical instability in the Middle East, where Endospan's primary manufacturing facility is located, creates potential supply chain uncertainty. While the facility has maintained consistent delivery through ongoing conflict, there is risk of disruption that could impact Nexus production and launch timelines. Dual-sourcing contingencies for PMA-approved products take significant time to implement, so near-term backup options are limited. - The $100,000 upfront stocking cost for AMDS remains a barrier to faster new account adoption, even after PMA approval, and adoption may accelerate more slowly than management expects. - Sales growth for the tissue processing segment continues to be constrained by supply, which could limit upside even if demand remains strong. - Free cash flow in 2026 is heavily impacted by acquisition-related transaction payments and investments, resulting in a projected negative full-year free cash flow position ahead of improved 2027 performance. - New product launches require significant upfront investment in sales, training, and R&D, which could pressure margins in 2027 if revenue ramp proceeds more slowly than expected.

Analyst Q&A

• Q: Q2 revenue beat consensus expectations, so why did management maintain rather than raise full-year guidance, and what does this imply for second half product performance?

  A: The Q2 beat was primarily driven by $2 million of upside in tissue preservation from early end-of-quarter tissue releases that shifted planned Q3 volume into Q2, not incremental full-year demand. Both the AMDS PMA approval and Endospan acquisition were already included in prior guidance. Management chose to maintain guidance as a conservative step after a challenging Q1, but reaffirmed increased confidence in hitting the existing guidance range given accelerating StentCraft and ONIX growth against difficult comparables.

• Q: How will Artivian balance sales force coverage for new products (AMDS, Nexus) with existing legacy product lines to avoid performance declines for older products?

  A: The existing 60-person U.S. commercial team already serves the shared customer base of aortic cardiac surgeons for AMDS, ONIX, and Synagraph pulmonary valves, where Artivian already has established account relationships. Nexus targets primarily vascular surgeons at 150 high-volume core accounts, so Artivian is building a small dedicated vascular sales team that will work collaboratively with the existing cardiac team, leveraging existing Value Analysis Committee approval processes and synergies between the two product lines. The limited target account size for Nexus means a small team can fully cover the opportunity.

• Q: What changed for AMDS after PMA approval that will reduce adoption barriers, particularly around the $100,000 upfront stocking cost?

  A: Under the prior HDE approval, customers faced significant administrative friction: most accounts waiting for POs after completing IRB and VAC approvals, due to the unusual large upfront payment requirement. PMA approval eliminates the IRB process requirement, relaxes marketing restrictions, and allows Artivian to communicate comprehensive clinical data (including additional data on malperfusion benefits that could not be marketed under HDE) and clear reimbursement messaging (covering the new Medicare DRG 209 and private payer reimbursement rates). These changes remove friction from the account adoption process, though no large immediate step change in orders is expected.

• Q: What is the outlook for 2027 top line and EBITDA performance following the Nexus launch?

  A: It is still early to provide full formal 2027 guidance, which will be shared in the Q3 2026 call. Some commercial investment for Nexus training and sales reps is required, but the concentrated target account base means investments will not be large. Excluding Nexus-specific investments, the underlying core business has a strong operating model that is expected to generate significant operating leverage and solid revenue growth in 2027.

• Q: What is the status of international stent graph supply chain issues and Middle East-related supply risks for Endospan manufacturing?

  A: Good progress was made resolving international supply chain challenges in Q2, and management remains on track to return to full strength by early 2027, with no changes to existing 2026 guidance assumptions. The Endospan manufacturing facility in Israel has maintained consistent deliveries through ongoing conflict, with no supply disruptions to date. Artivian is working on contingency plans for the broader Endospan supply chain, but dual-sourcing a PMA facility cannot be completed quickly, so some near-term risk remains.