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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 1-13165   

CRYOLIFE INC.

(Exact name of registrant as specified in its charter)

Florida

59-2417093

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1655 Roberts Boulevard, NW, Kennesaw, Georgia

30144

(Address of principal executive offices)

(Zip Code)

(770) 419-3355  

(Registrant’s telephone number, including area code)  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

CRY

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x     No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes x     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

     

Large Accelerated Filer

x     

Accelerated Filer     

o     

     

Non-accelerated Filer     

o     

Smaller Reporting Company     

o     

Emerging Growth Company     

o     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at July 18, 2019

Common Stock, $.01 par value

37,495,602

 


TABLE OF CONTENTS

Part I – FINANCIAL INFORMATION

 

3

Item 1. Financial Statements.

3

Summary Consolidated Statements of Operations and Comprehensive Income (Loss)

3

Summary Consolidated Balance Sheets

4

Summary Consolidated Statements of Cash Flows

5

Summary Consolidated Statements of Shareholders’ Equity

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

33

Item 4. Controls and Procedures.

34

Part II - OTHER INFORMATION

34

Item 1. Legal Proceedings.

34

Item 1A. Risk Factors.

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

51

Item 3. Defaults Upon Senior Securities.

51

Item 4. Mine Safety Disclosures.

51

Item 5. Other Information.

51

Item 6. Exhibits.

52

 

Signatures

53

2


Part I – FINANCIAL INFORMATION  

Item 1. Financial Statements.  

CRYOLIFE, INC. AND SUBSIDIARIES  

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE DATA)  

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

Revenues:

Products

$

51,168

$

49,313

$

99,569

$

92,911

Preservation services

19,971

19,183

39,075

37,533

Total revenues

71,139

68,496

138,644

130,444

Cost of products and preservation services:

Products

14,489

13,550

28,315

27,707

Preservation services

9,684

9,095

19,090

17,658

Total cost of products and preservation services

24,173

22,645

47,405

45,365

Gross margin

46,966

45,851

91,239

85,079

Operating expenses:

General, administrative, and marketing

34,623

34,727

71,143

72,075

Research and development

5,841

5,719

11,389

11,089

Total operating expenses

40,464

40,446

82,532

83,164

Operating income

6,502

5,405

8,707

1,915

Interest expense

3,811

4,103

7,705

7,759

Interest income

(233)

(30)

(349)

(89)

Other expense, net

185

1,466

262

1,285

Income (loss) before income taxes

2,739

(134)

1,089

(7,040)

Income tax benefit

(93)

(360)

(1,446)

(3,411)

Net income (loss)

$

2,832

$

226

$

2,535

$

(3,629)

Income (loss) per common share:

Basic

$

0.08

$

0.01

$

0.07

$

(0.10)

Diluted

$

0.07

$

0.01

$

0.07

$

(0.10)

Weighted-average common shares outstanding:

Basic

37,156

36,318

36,968

36,233

Diluted

37,838

37,249

37,789

36,233

Net income (loss)

$

2,832

$

226

$

2,535

$

(3,629)

Other comprehensive income (loss):

Foreign currency translation adjustments

2,995

(11,765)

(786)

(4,626)

Comprehensive income (loss)

$

5,827

$

(11,539)

$

1,749

$

(8,255)

See accompanying Notes to Summary Consolidated Financial Statements.

3


CRYOLIFE, INC. AND SUBSIDIARIES

SUMMARY CONSOLIDATED BALANCE SHEETS  

(IN THOUSANDS)

June 30,

December 31,

2019

2018

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

39,747

$

41,489

Restricted securities

508

747

Trade receivables, net

54,771

47,108

Other receivables

6,967

4,324

Inventories

45,422

45,478

Deferred preservation costs

32,416

33,174

Prepaid expenses and other

8,726

6,848

Total current assets

188,557

179,168

Property and equipment, net

30,823

31,028

Operating lease right-of-use assets, net

22,413

--

Goodwill

188,106

188,781

Acquired technology, net

113,567

118,184

Other intangibles, net

40,977

41,897

Deferred income taxes

3,975

4,111

Other

8,705

7,922

Total assets

$

597,123

$

571,091

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

6,942

$

7,547

Accrued compensation

9,432

10,733

Current portion of long-term debt

1,164

1,160

Current maturities of operating leases

5,021

--

Taxes payable

2,489

2,250

Accrued expenses and other

12,420

12,833

Total current liabilities

37,468

34,523

Long-term debt

215,013

215,721

Non-current maturities of operating leases

19,241

--

Deferred income taxes

26,672

27,267

Other

16,576

18,513

Total liabilities

314,970

296,024

Commitments and contingencies

 

 

Shareholders' equity:

Preferred stock

--

--

Common stock (issued shares of 38,943 in 2019 and 38,463 in 2018)

389

385

Additional paid-in capital

265,694

260,361

Retained earnings

37,519

34,984

Accumulated other comprehensive loss

(6,858)

(6,072)

Treasury stock at cost (shares of 1,484 in 2019 and 1,484 in 2018)

(14,591)

(14,591)

Total shareholders' equity

282,153

275,067

Total liabilities and shareholders' equity

$

597,123

$

571,091

See accompanying Notes to Summary Consolidated Financial Statements.

4


CRYOLIFE, INC. AND SUBSIDIARIES  

SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS  

(IN THOUSANDS)  

Six Months Ended

June 30,

2019

2018

(Unaudited)

Net cash flows from operating activities:

Net income (loss)

$

2,535

$

(3,629)

Adjustments to reconcile net income (loss) to net cash from operating activities:

Depreciation and amortization

8,731

9,105

Non-cash compensation

4,119

3,117

Deferred income taxes

(301)

(2,871)

Other non-cash adjustments to income (loss)

4,032

1,478

Changes in operating assets and liabilities:

Receivables

(10,446)

(6,720)

Inventories and deferred preservation costs

262

1,125

Prepaid expenses and other assets

(3,131)

(2,257)

Accounts payable, accrued expenses, and other liabilities

(3,894)

(8,308)

Net cash flows provided by (used in) operating activities

1,907

(8,960)

Net cash flows from investing activities:

Capital expenditures

(3,344)

(3,353)

Other

(302)

(278)

Net cash flows used in investing activities

(3,646)

(3,631)

Net cash flows from financing activities:

Repayment of term loan

(1,393)

(1,400)

Proceeds from exercise of stock options and issuance of common stock

3,582

943

Redemption and repurchase of stock to cover tax withholdings

(2,664)

(1,811)

Other

(349)

(692)

Net cash flows used in financing activities

(824)

(2,960)

Effect of exchange rate changes on cash, cash equivalents, and restricted securities

582

517

Decrease in cash, cash equivalents, and restricted securities

(1,981)

(15,034)

Cash, cash equivalents, and restricted securities beginning of period

42,236

40,753

Cash, cash equivalents, and restricted securities end of period

$

40,255

$

25,719

See accompanying Notes to Summary Consolidated Financial Statements.

5


CRYOLIFE, INC. AND SUBSIDIARIES  

SUMMARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 

(IN THOUSANDS)  

Accumulated

Additional

Other

Total

Common

Paid-In

Retained

Comprehensive

Treasury

Shareholders'

Stock

Capital

Earnings

Loss

Stock

Equity

Shares

Amount

Shares

Amount

Balance at March 31, 2019

38,756 

$

388 

$

261,991 

$

34,687 

$

(9,853)

(1,484)

$

(14,591)

$

272,622 

Net income

--

--

--

2,832 

--

--

--

2,832 

Other comprehensive income:

Foreign currency translation income

--

--

--

--

2,995 

--

--

2,995 

Comprehensive income

5,827 

Equity compensation

40 

--

2,439 

--

--

--

--

2,439 

Exercise of options

156 

2 

1,551 

--

--

--

--

1,553 

Redemption and repurchase of stock to cover tax withholdings

(9)

(1)

(287)

--

--

--

--

(288)

Balance at June 30, 2019

38,943 

$

389 

$

265,694 

$

37,519 

$

(6,858)

(1,484)

$

(14,591)

$

282,153 

Accumulated

Additional

Other

Total

Common

Paid-In

Retained

Comprehensive

Treasury

Shareholders'