Provides Access into $2 Billion
Global Stent Graft Market with Highly Competitive Technologically
Advanced Product Portfolio
Adds Robust New Product Pipeline and Significantly Enhances
R&D Capabilities
Accelerates European Direct Strategy and Meaningfully Expands
Cross-Selling Opportunities
Expected to Drive High Single-Digit Revenue Growth with Gross
Margin and Operating Margin Expansion
Conference Call and Webcast Tomorrow, October 11, 2017 at 8:30
am ET
ATLANTA, Oct. 10, 2017 /PRNewswire/ -- CryoLife, Inc.
("CryoLife"; NYSE: CRY), a leading medical device and tissue
processing company focused on cardiac and vascular surgery,
announced today that it has entered into a definitive agreement to
acquire JOTEC AG ("JOTEC"). JOTEC is a German-based,
privately-held developer of technologically differentiated
endovascular stent grafts, and cardiac and vascular surgical
grafts, focused on aortic repair. The combination of CryoLife
and JOTEC will create a Company with a broad and highly competitive
product portfolio focused on aortic surgery, and will position
CryoLife to compete strongly in the important and growing
endovascular surgical markets.
Pat Mackin, Chairman, President,
and Chief Executive Officer of CryoLife, said, "We believe this
acquisition will enable CryoLife to deliver sustained, high
single-digit revenue growth, while also diversifying our revenues
into a significantly larger addressable market. JOTEC has a
technologically differentiated product portfolio addressing the
$2 billion global market for stent
grafts used in endovascular and open repair of aortic diseases.
Their advanced product portfolio has allowed them to achieve
a 17 percent revenue CAGR over the past five years, significantly
outpacing the growth in the overall European market. We
expect the acquired portfolio to continue to post double-digit
growth outside of the United
States for at least the next five years. In addition,
the acquisition will leverage our global infrastructure and
accelerate our ability to go direct in Europe, and will foster considerable
cross-selling opportunities between the CryoLife and JOTEC product
portfolios. The transaction will also drive gross margin
expansion and accelerate our trajectory towards 20 percent or
higher operating margins. We believe this will position
CryoLife to deliver growth in non-GAAP EPS at a CAGR of at least 20
percent over the next five years."
Mr. Mackin added, "We also expect the JOTEC new product pipeline
and R&D capabilities to drive longer-term growth beyond the
five year horizon, particularly as their most innovative products
enter the U.S. market. We plan to utilize CryoLife's clinical
and regulatory expertise to gain FDA approval for these products,
which we believe will allow for entry into the U.S. market."
Thomas Bogenschütz, Chief Executive Officer of JOTEC, commented,
"CryoLife is ideally positioned to accelerate adoption of our
products through its highly complementary and global cardiac and
vascular surgery business. We are looking forward to working
with CryoLife's team to drive growth of our existing business,
expand into new geographies, and accelerate our R&D initiatives
in key markets such as the U.S."
JOTEC generated revenue of approximately €41 million in 2016,
representing compound annual growth of approximately 17 percent
over the preceding five years. JOTEC generated revenues of
€43 million, or approximately $51
million at current currency exchange rates, for the twelve
months ended June 30, 2017.
Strategic Rationale for the Transaction
- Provides CryoLife with:
-
- Technologically advanced and highly competitive product
portfolio that is taking market share
- A strong new product pipeline and outstanding R&D
capabilities
- Near-term and longer-term revenue growth drivers through 2028;
and
- Access to the $1.2 billion U.S.
stent graft market, which is expected to grow to approximately
$1.5 billion by 2021
- Increases CryoLife's addressable market opportunity via access
to the current $2.0 billion global
stent graft market, which is expected to grow to approximately
$2.5 billion by 2021
- Accelerates CryoLife's direct sales strategy in key European
markets
- Creates significant cross-selling opportunities by leveraging
CryoLife's and JOTEC's existing direct sales organizations
- Drives projected high single-digit revenue growth, expands
gross margin, and yields 20 percent plus operating margin over a
five-year period
Terms of the Agreement
Under terms of the definitive agreement, CryoLife will acquire
JOTEC for an upfront payment of $225
million, subject to certain adjustments, consisting of 75
percent in cash and 25 percent in CryoLife common stock issued to
JOTEC's shareholders. CryoLife expects to finance the
transaction and related expenses, as well as refinance its existing
$69 million term loan, with new
$255 million senior secured credit
facilities, consisting of a $225
million institutional term loan B and a $30 million undrawn revolving credit facility,
$56.25 million in CryoLife common
stock, and available cash on hand. The senior secured credit
facilities are fully underwritten by Deutsche Bank, Capital One and
Fifth Third Bank, and are expected to be syndicated to investors
prior to closing of the acquisition.
The definitive agreement has been approved by both companies'
boards of directors. The transaction is expected to close
later this year, subject to customary closing conditions.
Financial Commentary
Third quarter revenues were adversely affected due to the impact
of the recent hurricanes on our business in Florida and Texas, which we estimate to be approximately
$1.0 million, and additionally due to
the continued delay in obtaining the re-certification of our
AAP. Including the impact of these factors, third quarter
revenue was approximately $45.1
million, compared to our third quarter revenue guidance of
between $46.5 and $47.5
million. In addition, in connection with the
transaction, CryoLife notified certain of its distributors that it
had elected to terminate its relationship with those distributors
based on a decision to distribute product through the to be
combined Company's direct sales channel. As a result of this
decision, at the end of the respective contract terms, CryoLife
will be buying back a portion of the inventory that was previously
sold to these distributors, which will result in a $1.1 million third quarter reversal of previously
recorded revenues. Considering all of these factors,
preliminary third quarter revenues were approximately $44.0 million. Additional revenue reversals
and revisions to the third quarter estimates are possible in
subsequent quarters.
Management expects to update its 2017 financial guidance in its
third quarter financial conference call and to issue initial
financial guidance for the combined Company in its year-end
conference call.
Moving forward, the Company expects pro forma compound annual
revenue growth in the high single-digits on a percentage basis over
the next five years. Non-GAAP earnings per share is expected
to be dilutive in 2018 and accretive in 2019. Over the next
five year period, the Company expects 20 plus percent compound
growth in non-GAAP earnings per share.
Advisors
In connection with the transaction, Vinson and Elkins is acting as lead legal counsel to
CryoLife. Walder Wyss Ltd is acting as lead legal counsel to
JOTEC.
Webcast and Conference Call Information
CryoLife will hold a teleconference call and live webcast
tomorrow at 8:30 a.m. Eastern Time to
discuss the proposed transaction, followed by a question and answer
session hosted by Mr. Mackin.
To listen to the live teleconference, please dial 201-689-8261 a
few minutes prior to 8:30 a.m. A replay of the teleconference
will be available October 11 through October
18 and can be accessed by calling (toll free) 877-660-6853
or 201-612-7415. The conference number for the replay is
13671595.
The live webcast and replay can be accessed by going to the
Investor Relations section of the CryoLife website at
www.cryolife.com and selecting the heading Webcasts &
Presentations.
About CryoLife
Headquartered in suburban Atlanta,
Georgia, CryoLife is a leader in the manufacturing,
processing, and distribution of medical devices and implantable
living tissues used in cardiac and vascular surgical
procedures. CryoLife markets and sells products in more than
80 countries worldwide. For additional information about
CryoLife, visit our website, www.cryolife.com.
About JOTEC
Headquartered in Hechingen, Germany, JOTEC develops, produces, and markets
medical devices for aortic and peripheral vascular disease.
JOTEC's product portfolio encompasses conventional vascular
grafts and interventional implants for vascular and cardiac surgery
and radiology and cardiology. JOTEC was founded in 2000.
For additional information about JOTEC, visit the website,
www.jotec.com/en/.
Statements made in this press release that look forward in
time or that express management's beliefs, expectations,
or hopes are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements reflect the views of management at the
time such statements are made. These statements include
our belief that this acquisition will position
CryoLife to deliver sustained high single-digit revenue growth,
while also significantly expanding our total addressable market and
diversifying our revenue, that JOTEC has a technologically
differentiated portfolio addressing the $2
billion global market for stent grafts used in endovascular
and open repair of aortic diseases that is taking market share, our
expectation that this global market is expected to grow to
approximately $2.5 billion by 2021;
our expectation that the acquired portfolio will continue to
post double-digit growth outside of the
United States for at least the next five years, will
leverage our global infrastructure and accelerate our ability to go
direct in Europe, and will foster
considerable cross-selling opportunities between the CryoLife and
JOTEC product portfolios; our belief that this transaction will
drive gross margin expansion and accelerate our trajectory towards
20 percent or higher operating margins and will position CryoLife
to deliver growth in non-GAAP EPS at a CAGR of at least 20 percent
over the next five years; our expectation that the JOTEC new
product pipeline and R&D capabilities will drive long-term
growth beyond the five year horizon, particularly as JOTEC's most
innovative products enter the U.S. market; our expectation that the
U.S. stent market is expected to grow to approximately $1.5 billion by 2021; our belief that CryoLife's
clinical and regulatory expertise to gain FDA approval for these
products will allow for entry of JOTEC products into the U.S.
market; our belief that CryoLife is ideally positioned to
accelerate adoption of JOTEC products through its highly
complementary and global cardiac and vascular surgery business; and
our estimates of revenue reversals in the third quarter 2017 or
subsequent quarters associated with distributor buybacks and
estimates of the revenue impacts for the third quarter 2017 of the
recent hurricanes in Florida and
Texas. These forward-looking
statements are subject to a number of risks, uncertainties,
estimates, and assumptions that may cause actual results to differ
materially from current expectations. These risks and
uncertainties include that the expected benefits of the
acquisition may be incorrect or may not be achieved, our expected
assumptions regarding the growth in the global and US stent graft
markets may be incorrect; the acquired portfolio may not continue
to post double digit growth for the next five years; we may be
unable to sufficiently leverage our global infrastructure or
accelerate our ability to go direct in Europe or to foster cross-selling
opportunities, between CryoLife and JOTEC product portfolios, we
may be unable to drive margin expansion or unable to deliver
non-GAAP EPS at a 20 percent or higher CAGR over the next five
years; JOTEC's new product pipeline and R&D capabilities may be
unable to drive long term growth, even if CryoLife is able to
successfully introduce JOTEC products to the U.S. market; CryoLife
may be unable to successfully introduce JOTEC products to the U.S.
market; CryoLife may be unable to accelerate adoption of JOTEC
products in its current or future markets. As with most
acquisitions, the successful integration of JOTEC's business with
ours may take longer and prove more costly than expected, and we
may experience currently unforeseen difficulties related to the
JOTEC products and our and JOTEC's combined sales forces' ability
to successfully market them. If we experience problems that
slow the integration of JOTEC's business with CryoLife's business,
we may not be able to secure the anticipated financial and
operational benefits of the acquisition as soon as anticipated, or
at all. We may also inherit unforeseen risks and
uncertainties related to JOTEC's business, particularly if the
information received by CryoLife during the due diligence phase of
this transaction is incomplete or inaccurate. Our plans with
respect to the transaction's financing could change based on
currently unforeseen circumstances. Also, certain factors,
such as those relating to transaction closing conditions, could
delay or prevent the closing of the transaction. Any of these
risks could cause the financial impact of the acquisition to be
less beneficial than currently anticipated. Our estimates of
the revenue impacts related to distributor buybacks and recent
hurricanes may be incorrect. These risks and uncertainties
include the risk factors detailed in our Securities and Exchange
Commission filings, including our Form 10-K for the year ended
December 31, 2016, and our subsequent
filings with the SEC. CryoLife does not undertake to update its
forward-looking statements.
Contacts:
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|
|
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CryoLife
|
The Ruth
Group
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D. Ashley
Lee
|
Zack Kubow
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Executive Vice
President, Chief Financial Officer and
|
646-536-7020
|
Chief Operating
Officer
|
zkubow@theruthgroup.com
|
Phone:
770-419-3355
|
|
Logo:
http://mma.prnewswire.com/media/570765/CRYOLIFE__INC__LOGO.jpg