By:
Jianxin Ren, AIM Student at Marquette University
Summary:
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CryoLife, Inc. (NYSE: CRY) is a leading
company in the manufacturing, processing, and distribution of medical devices
and implantable human tissues used in cardiac and vascular surgical procedures
focused on aortic repair. The company was founded by Steve Anderson in 1984 and
is headquartered in Florida.
•
Comparing to the third quarter of 2017. CryoLife increased 47% to $64.6 million
in total revenues in the third quarter of 2018.
•
CryoLife acquired JOTEC AG, a Swiss entity that they converted to JOTEC GmbH.
And then, CryoLife merged with their Swiss acquisition entity, JOTEC GmbH.
•
CryoLife
completed adopting Accounting Standards Update (“ASU”) No. 2014-09, Revenue
from Contracts with Customers and the additional related ASUs (“ASC 606”) in
January 1, 2018.
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In November 6, 2017, CryoLife announces
that enrollment has started in the Company’s BioGlue clinical trial in China.
To gain approval to commercialize BioGlue in China, the result of this clinical
trial will be used as the sample to submit to Chinese Food and Drug
Administration (CFDA).
Business development is still one of
CryoLife’s major strategy. In order to grow their business, CryoLife keeps
seeking potential acquisitions, distribution right, or licensing of enterprises
or technologies that can be helpful for their current products, services, and
infrastructure and enhance their capacity
in the cardiac and vascular surgery areas. As a result of pursuing potential
acquisitions, the companies that were bought by CryoLife are
JOTEC and On-X. Along with acquisitions, they also try to license new non-core
products to business partners for further development. CryoLife can receive
outside funding to continue commercial development by licensing their products.
In
June 19, 2018, CryoLife made an announcement about Marna Borgstrom joining its Board
of Directors effective immediately. According to Pat Mackin, Chairman,
President, and Chief Executive Officer, “Marna has nearly 40 years of
escalating senior leadership experience at Yale New Haven Health System, where
she was an integral part of the system's strategy and evolution into a
multi-unit health system as the current CEO.” As an experienced leader with a deep
understanding of the healthcare industry, Marna Borgstrom could
help the company be more profitable and bring in advanced management
experience.
CryoLife
also adopted new accounting standards in January 1, 2018. The new accounting
standards give them an instruction about how to recognize revenue, including a
five-step model to identify when revenue recognition should be appropriated.
Based on ASC 606, CryoLife can recognize revenue when they determine the
transfer the control of promised goods to their customers. Under the new
accounting standards, CryoLife has been able to recognize more of their
retained earnings.
The
proprietary product of CryoLife is BioGlue which can be used in cardiac,
vascular, pulmonary, and general surgical applications. BioGlue can provide a
tensile strength which is 4~5 times stronger than fibrin sealants. It starts to
polymerize within half a minute and reaches the required strength in under 2
minutes.
What has the stock done lately?
Since
reporting earnings on August 7th, the stock price of CryoLife has
gone down from $32.65 to $30.49 which represents 6.62% decrease. The tariffs that
are happening right create more volatility to the macroeconomic environment.
Although, CryoLife’s stock price did not perform well in the past
few months, it has still generated a considerable return for investors in the
long run.
Past Year Performance:
CryoLife
is currently on a downward trend, but its stock price has increased from $20.35
to $30.49 over the past year which represents 49.83% in value growth. The main
drivers of the increasing stock price include successful acquisitions and
strong financial performance. On-X revenues increased 36% in the third quarter
in 2018 than the third quarter 2017. During the same period of time, JOTEC has
32% increase.
Source:
FactSet
CryoLife’s
third quarter showed a positive revenue growth rate and margin. The gross
margin that is reported in Q3 was 66.1%. Because of two large meaningful
acquisitions and improvement in the management team, I assume the company is
going to expand its gross margin in the next few years. The takeover also has a
positive impact on On-X, increasing ~10% market share in the U.S. by benefiting
from CRY’s large salesforce. Although CRY’s stock price went down recently due
to macro factors, it also provides a good opportunity for investors to entry.
Source:
FactSet
