Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Start time: 10:00

End time: 10:44

CryoLife, Inc. (NYSE:CRY)

Q3 2008 Earnings Call

October 30, 2008 10:00 am

Executives

Steven G. Anderson - President and Chief Executive Officer

Ashley Lee - Executive Vice President, Chief Operating Officer, Chief Financial Officer

William F. Northrup, III, M.D. - Vice President, Medical Relations and Education

Analysts

Matt Dolan - Roth Capital Partners

Greg Brash - Sidoti & Company

Raymond Myers - Emerging Growth Equities

Operator

Greetings, ladies and gentlemen, and welcome to the CryoLife Third Quarter 2008 Financials Conference Call. At this time all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. (Operator instructions.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Steven Anderson, President and Chief Executive Officer of CryoLife. Thank you, Mr. Anderson, you may begin.

Steven G. Anderson

Good morning, everyone, this is Steve Anderson, CryoLife’s CEO, and I would like to welcome all of you to CryoLife’s Third Quarter ’08 conference call. With me today is Ashley Lee, the company’s Executive Vice President, Chief Operating Officer and Chief Financial Officer , and Dr. William Northrup, the company’s Vice President of Medical Relations and Education. As you will recollect.

Dr. Northrup is a cardiovascular surgeon who specialized in cardiac reconstruction procedures before joining CryoLife in March of this year.

This morning we released the revenues and earnings for the third quarter. We reported total revenues of $26.8 million, and increase of 21% over the same period last year, and the highest third quarter revenues in the company’s history. Fully diluted earnings for the quarter were $0.12, a 71% year-to-year increase.

The third quarter of ’08 was the seventh consecutive quarter of profitability for the company. Cardiac revenues were up 26% for the quarter, vascular revenues were up 36% quarter to quarter. BioGlue revenues were up 13% for the same period. Ashley will give you a more detailed analysis of the quarter in just a couple of moments.

First, I would like to give you the agenda for today’s call. Ashley will give you a detailed analysis of the quarter’s financial performance by product. He will also give an update on the sales of Hemostase, the powdered hemostatic agent that we began distributing in May. I will comment on the progress that has been made on the Trophic Solutions animal testing of the organ transport solution, the CE mark and IDE timetables for the submission of BioFoam, and an update on our BioDisc Nucleus Pulposus Replacement product.

Dr. Northup will comment on the recent Ross Summit meeting that was held in our corporate offices on October 10th and 11th. He will also review five recent papers that document the long-term success of the Ross Procedure that uses a preserved pulmonary valve.

After Dr. Northrup’s comments, Ashley will return to give you revenue guidance for the remainder of 2008 and then for the first time will give guidance for fiscal year 2009. After Ashley’s guidance comments have been completed, we will open the call for questions.

At this time, Ashley will comment on the company’s financial performance for the third quarter.

Ashley Lee

Thank you, Steve.

To comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995, I would like to make the following statement: Comments made in this call, which look forward in time, involve risk and uncertainties and are forward-looking statements within the meaning of the 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. Additional information concerning risk and uncertainties is contained from time to time in the company's SEC filings, including the Risk Factor section of our Form 10-K for the year ended December 31, 2007, and our Form 10-Q for the quarter ended September 30, 2008, which we expect to file by the end of this week, and in the press release that went out this morning.

This morning we reported our results for the third quarter of 2008. Revenues for the third quarter of 2008 increased 21% to $26.8 million, compared to $22.2 million in the third quarter of 2007. Excluding orthopedic revenues of $38,000 and $566,000 in the third quarters of 2008 and 2007 respectively, total revenues increased 24%.

Net income in the third quarter of 2008 was $3.6 million, or $0.13 per basic and $0.12 per fully diluted common share, compared to $1.9 million or $0.07 per basic and fully diluted common share in the third quarter of 2007.

Revenues for the first nine months of 2008 increased 14% to a nine-month record of $79.5 million compared to $69.7 million in the first nine months of 2007. Excluding orthopedic revenues of $662,000 and $3.7 million in the first nine months of 2008 and 2007 respectively, total revenues increased 19%.

Net income in the first nine months of 2008 was $10.2 million, or $0.37 per basic and $0.36 per fully diluted common share, compared to $4.6 million, or $0.17 per basic and $0.16 per fully diluted common share in the first nine months of 2007.

Tissue processing revenues in the third quarter of 2008 increased 25% to $14.2 million, compared to $11.3 million in the third quarter of 2007. Tissue processing revenues in the first nine months of 2008 increased 15% to $41.3 million, compared to $36 million in the first nine months of 2007. The increase in tissue processing revenues was due primarily to increased demand for the company’s cardiac and vascular process tissues, the introduction of CryoValve SG Pulmonary Human Heart Valve, and to a lesser extent, price increases partially offset by decreases in shipments of orthopedic tissue.

Cardiac revenues were $7 million for the third quarter of 2008, compared to $5.6 million in the third quarter of 2007, an increase of 26%. The increase in cardiac revenues was due to favorable tissue mix and a 3% increase in cardiac units shipped, which together increased revenues by 21%, and an increase in average service fees, which increased revenues by 5%.

Cardiac revenues were $19.6 million for the first nine months of 2008, compared to $15.6 million in the first nine months of 2007, an increase of 26%. The increase in cardiac revenues was due to favorable tissue mix, and an 11% increase in cardiac units shipped, which together increased revenues by 17%, and an increase in average service fees, which increased revenues by 9%.

Revenues from the distribution of CryoValve SG Pulmonary Human Heart Valves were $1.7 million and $3.4 million for the three months and nine months ended September 30, 2008.

Vascular revenues were $7.1 million for the third quarter of 2008, compared to $5.2 million in the third quarter of 2007, an increase of 36%. The increase in vascular revenues was driven by a 34% increase in vascular units shipped, which increased vascular revenues by 32%, and by fee increases, which increased revenues by 4%.

Vascular revenues were $21.1 million for the first nine months of 2008, compared to $16.8 million in the first nine months of 2007, an increase of 25%. The increase in vascular revenues was driven by a 22% increase in vascular units shipped, which increased revenues by 20%, and by fee increases, which increased revenues by 5%.

Orthopedic revenues were $38,000 for the third quarter of 2008, compared to $566,000 in the third quarter of 2007. Orthopedic revenues were $662,000 for the first nine months of 2008, compared to $3.7 million in the first nine months of 2007. These decreases in orthopedic revenues were anticipated, following the company’s cessation of procuring and processing orthopedic tissues of January 1, 2007.

BioGlue revenues were $11.6 million for the third quarter of 2008, compared to $10.3 million in the third quarter of 2007, an increase of $13%. This increase was primarily due to the aggregate impact of favorable product mix and a 9% increase in the number of BioGlue milliliters shipped, which increased revenues by 10%, and an increase in average selling prices, which increased revenues by 3%.

BioGlue revenues were a record $36.5 million for the first nine months of 2008, compared to $32.4 million in the first nine months of 2007, an increase of 13%. This increase was primarily due to the aggregate impact of a favorable product mix, and a 4% increase in the number of BioGlue milliliters shipped, which increased revenues by 10%, and an increase in average selling prices, which increased revenues by 3%.

Other medical device revenues were $616,000 for the third quarter of 2008, compared to $265,000 in the third quarter of 2007. Other medical device revenues were $1 million for the first nine months of 2008, compared to $723,000 in the first nine months of 2007.

Other medical device revenues in the third quarter and nine months of 2008 included $549,000 and $726,000 in sales of Hemostase MPH, which we began distributing in May of this year.

Total product and tissue processing gross margins were 64% for the third quarter of 2008, compared to 63% in the third quarter of 2007. Total product and tissue processing gross margins were 64% for the first nine months of 2008, compared to 61% in the first nine months of 2007.

Tissue processing gross margins were 46% for the third quarter of 2008, compared to 42% in the third quarter of 2007. Tissue processing gross margins were 46% for the first nine months of 2008, compared to 41% in the first nine months of 2007. Tissue processing gross margins improved in 2008 compared to 2007 primarily as a result of price increases and a favorable product mix in 2008.

General administrative and marketing expenses were $12.1 million for the third quarter of 2008, compared to $11.2 million in the third quarter of 2007. G&A expenses were $36.5 million for the first nine months of 2008, compared to $34.4 million in the first nine months of 2007. The increase in G&A expenses for the three and nine months ending September 30, 2008 was primarily due to increased marketing expenses.

These expenses included personnel costs, corporate advertising, and promotional materials to support the company’s expanding tissue service and product offerings in revenue growth.

Additionally there were increases in stock compensation expense over the same periods in the prior year.

Research and development expenses were $1.2 million and $1.1 million in the third quarters of 2008 and 2007 respectively. Research and development expenses were $3.9 million and $3.1 million in the first nine months of 2008 and 2007 respectively.

R&D expenses in 2008 primarily focused on the company’s SynerGraft tissues and products, Protein Hydrogel Technologies, and research in cold storage and preservation of internal organs. You should refer to our SEC filings for detailed discussions of factors affecting our results of operations, including our form 10-Q that we plan to file by the end of this week.

As of September 30, 2008, we had $20.5 million in cash, cash equivalents, and marketable securities of which $1.6 million was received from the U.S. Department of Defense as advanced funding for the development of BioFoam Protein Hydrogel Technology, and $5 million was designated as long-term restricted money market funds as required under the terms of our credit agreement.

Now I will turn it back over to Steve.

Steven G. Anderson

Thanks, Ashley. We have recently received feedback from our European notified body on their review of our CE submission for the BioDisc Nucleus Pulposus Replacement product. We are reviewing their comments and questions to formulate our response.

During the quarter we were awarded another grant of $848,000, of which $212,000 has been received from the Department of Defense for our continued development of our BioFoam surgical matrix product. Our CE mark application for BioFoam is targeted to be submitted to our European notified body in December. We would expect that we would receive approval for the BioFoam CE mark in April of ’09.

Our plans are to launch this product throughout Europe beginning in the second quarter of 2009. After CE approval, we plan to conduct several post-approval studies to evaluate BioFoam in liver resections. These will be conducted at three European clinics, with approximately 15 patients per clinic.

For approval in the United States, we will need to submit an IDE application and conduct a clinical trial. We are currently targeting a December submission for the BioFoam IDE. The U.S. human study indication will be as an adjunct to control bleeding following liver resection surgery.

We will initially be requesting a pilot clinical study at one or two centers, in 10 to 20 patients. We would expect our follow on pivotal U.S. study to include up to 200 patients. We estimate that it will take about two years to complete the pilot and pivotal studies in the United States.

A 510(NYSE:K) prearket notification for the SynerGraft Processed CryoValve SG Human Pulmonary Valve was submitted to the FDA in mid-October to obtain a claim related to a reduced immune response in patients receiving this valve.

A long-term post-market study for the SynerGraft Processed Pulmonary Valve is under development. We are currently planning to include a minimum of 120 patients; 30 prospective and 90 retrospectively, with four to five prospective sites and three to four retrospective sites.

Annual follow-up data from this study will be provided to the FDA.

Our animal study for the organ transport solution is ongoing. The study is being conducted using a pig autotransplant model, as pig kidneys are highly susceptible to cold ischemic times. The study is a direct comparison of cold storage using the Trophic organ transport solution with cold storage, using the UW solution, which at present is the standard of the organ transport transplant community.

The third arm of the study compares the Trophic organ transport solution with kidneys that have been stored using machine perfusion, and this study will monitor the excursion and recovery of serum creatinine levels post-transplant.

At this time, Dr. Northrup will comment on the recently-held Ross Summit that was held here at CryoLife on October 10th and 11th.

William F. Northrup, III, M.D.

Thank you, Steve. The Ross Summit was held at CryoLife Corporate Headquarters on October 10 and 11, with 61 cardiac surgeons from nine countries. Primary goal of the meeting was to facilitate a renaissance of the pulmonary autograft operation, developed in 1967 by Mr. Donald N. Ross in the U.K. The operation, which is usually referred to as the Ross Procedure, involves trading a normal pulmonary valve for an abnormal aortic valve in the same person.

The term for this is an “autograft” and substituting the borrowed valve with a transplanted valve from another person. The term for this is an “allograft.” It is the only aortic valve replacement operation that can provide a living valve with the capacity to grow in the case of the pediatric population.

It is a technically demanding operation which has steadily declined in popularity over the past several years, especially in adults, in favor of simpler procedures involving primarily mechanical valves and stented bioprostheses.

In just the past two years, at least five articles reporting large series of patients undergoing the Ross Procedure with follow-up into the second decade have appeared in the most respected peer-reviewed cardiology and cardiac surgical journals, with information that was previously unreported.

All of these patient series are from different centers by different surgeons from the U.K., the Netherlands, Germany, and the U.S. Surprisingly, all of these papers demonstrated restoration of normal life expectancy with the Ross Procedure when compared to specific populations appropriately matched per gender, age, and the reference country.

Based on these data, the Ross Procedure appears to be only the second heart valve operation, after mitral valve repair, with the potential to restore normal life expectance. These reports are in contrast to data in the same peer-reviewed literature regarding all other aortic valve replacement options where excess mortality, above and beyond expected survival, has been consistently documented, especially in younger patients. The dimensions of this excess mortality have been in the range of 1-2% per year over expected.

In addition to this impressive survival data with the Ross Procedure, it is equally clear from these peer-reviewed journals that some surgeons have been able to achieve more predictable, long-lasting functional autografts than others. Some of these surgeons formed the nucleus of our Ross Summit faculty, in order for others to learn, in a manner of speaking, the secrets of their success.

Finally, since the midterm data on CryoLife’s decellularized SynerGraft Human Pulmonary Heart Valve, which was approved by the FDA this past February, have been favorable, as reported this past June at the Western Thoracic Surgical Association annual meeting, we felt the timing was ideal to host the Ross Summit at CryoLife, Incorporated.

In the context of facilitating a renaissance of the Ross Procedure, the Ross Summit embraced four objectives. The first was to examine data supporting a patient’s survival advantage for the Ross Procedure, compared to other aortic valve replacement operations. The second was to examine and define the critical technical success factors required for a lifelong-lasting functional autograft. The third objective was to examine data on the impact of decellularization on pulmonary allograft function and durability. The fourth was to examine strategies to restore the Ross Procedure to the surgical menu of aortic valve operations among individual cardiac surgeons.

The Ross Summit consisted of interactive lectures, videos, and hands-on wet labs with pig hearts. Some of our distinguished international faculty included Professor Sir Magdi Yacoub, from London, U.K., Professor Hans Henrik Sievers from Luebeck, Germany, and Dr. Hanneke Takkenberg from Rotterdam, the Netherlands. Mr. Ross, age 86, was also honored in person for inventing his ingenious operation.

Additional updated data from Professor Yacoub’s ongoing prospective randomized trial between the Ross Procedure and the aortic allograft operation gave additional support to the impressive life expectancy advantage of the Ross Procedure.

Numerous technical nuances were shared by our distinguished faculty, which have already influenced some of the other faculty members to add these new technical maneuvers to their repertoire based on the early feedback we have already received.

Finally, we launched the Ross Community at www.therosscommunity.org as an educational forum for physicians and patients with an interest in the Ross procedure. The educational proceedings of the Ross summit, will soon be available on the Ross community website, and on a DVD. We hope that as it evolves, it will serve to facilitate an eventual consensus regarding the original objectives of the Ross Summit.

There was general agreement already that the Ross procedure was indicated for any patient with life-threatening aortic valve disease, with a life expectancy of 20 years, at the time of the operation, making it an appropriate choice for patients with a broad age range, from infancy well into the seventh decade.

Inasmuch as these objectives are clearly a work in progress. We are planning the next Ross Summit at CryoLife Incorporated, for September 24 - 26, 2009.

Steve Anderson

Thank you Dr. Northrop, and now Ashley will give some guidance for the fourth quarter of 2008, and for the fiscal year 2009.

Ashley Lee

Thanks Steve. Our (inaudible 00:26:28) revenues are composed of products in tissue processing revenues, plus other revenues. We expect product and tissue processing revenues for the full year of 2008 to be between $105 and $107 million dollars.

Product and tissue processing revenues could be affected by several factors, including but not limited to, the general economic environment, and its effect on demand for the company’s products and processed tissues, and changes in foreign currency exchange rates, and their effects on revenues generated in international markets. This guidance assumes foreign currency exchange rates stay near current levels.

Other revenues for 2008 may reach between $700 and $900-thousand dollars, primarily related to funding received from the Department of Defense, in connection with the development of BioFoam. The amount of other revenues is largely dependent on actual expenses incurred, related to the development of BioFoam. We expect general, administrative and marketing expenses of between $49 and $51 million, and R&D expenses of between $5.5 and $6.5 million for the full year of 2008.

We expect product and processing revenues for the full year of 2009 to be between $116 and $122 million-dollars. We expect tissue processing revenues to be between $60 and $63 million and BioGlue revenues to be between $51.5 and $53.5 million, for the full year of 2009.

Other medical device revenues, which consist primarily of sales of Hemostase MPH, are expected to be between $4.5 and $5.5 million in 2009. Product and tissue processing revenues could be affected by several factors, including but not limited to, the general economic environment, and its effect on demand for the company’s products and processed tissues, and changes in foreign currency exchange rates, and their effects on revenues generated in international markets. Again, this guidance assumes foreign currency exchange rates stay near current levels.

Other revenues for 2009 may reach between $500,000 and $1.1 million, primarily related to the funding received from the Department of Defense in connection with the development of BioFoam. Again, the amount of other revenues is largely dependent upon actual expenses incurred, related to the development of BioFoam.

In formulating a revenue guidance for 2009, we considered many factors, first, the overall economic environment, and the uncertainty regarding healthcare policy of the new presidential administration. These factors may end up putting cost-containment pressures on Medicare and hospital systems in general. Fortunately, many of our products, and especially our processed tissues, address medical conditions for which there are few good options, and we have little competition in these areas.

Another factor that we considered is the dramatic move in foreign currency exchange rates. The dollar has made a significant move against the Euro and the British pound. For the first nine months of 2008, we generated $2.3 million in revenues, denominated in Euros, and $1 million in revenues, denominated in British pounds.

If exchange rates remain at current levels, or the dollar continues to strengthen against the euro and pound, we would expect this to have an adverse affect on our revenues. Additionally, it will be more expensive for our foreign customers who purchase product from us in U.S. dollars.

Although we have considered these factors in preparing the revenue guidance that we have discussed earlier, there is no guarantee that the will not cause our actual results to differ from our guidance.

We expect general, administrative and marketing expenses of between $53 and $56 million, and R&D expenses of between $6 and $7 million, for the full year of 2009. The R&D expectations include an estimated range of between $500,000 and $1 million, to be funded by the Department of Defense, in connection with development of BioFoam.

As for income taxes, if we continue to remain profitable, and to forecast future profitability, we expect that we will reverse our valuation allowance on our deferred tax assets. The result of this is that we would recognize a very large, one time, income tax benefit, which would increase net income significantly and increase our balance sheet; specifically, deferred tax assets and shareholders equity.

From that time forward, we would expect to recognize income tax expense at a rate more closely aligned with published, corporate income tax rates, which would put us in the high 30% range going forward. That concludes my comments and I’ll turn it back over to Steve.

Steve Anderson

At this time, I’ll open up the call for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator instructions) Our first question comes from Matt Dolan with Roth Capital Partners.

Steve Anderson

Hello Matt.

Matt Dolan - Roth Capital Partners

Hi guys, good morning, can you hear me? Okay, thanks a lot. First question on the guidance, a couple variables it seems at work here, could you give us -- and you did touch on the economy and exchange rates, but I guess specific to the economy, what are you hearing even in October, I would assume with the severity of a lot of the procedures you’re involved in, it’s a much more mild impact, but do you expect that to have any impact on ordering patterns, number one, and secondly, in 2008, I don’t see a break-out bi-product as detailed as we’ve had in the past, so maybe just update us on bi-product line, which ones are tracking in line or ahead of expectations, and which ones are slightly lower than you may have anticipated?

Steve Anderson

Okay, that was a lot, but I’ll try to answer all of that. In regards to the current economic environment, if you look at the month of October, we haven’t seen a noticeable effect on our business as it relates to the current economic environment.

So things have changed dramatically since the end of September, we’re not really seeing much of an effect at this point as it relates to our business. But again, we think it’s prudent for us to -- we can’t ignore that when we formulate our 2009 guidance, and we’ve tried to take some of that into account. So hopefully that answers that question.

As it relates to 2008, and the guidance for individual product lines, we did not break that out separately in the press release, we do expect all of our product lines to be within the guidance that we have given out previously.

Matt Dolan - Roth Capital Partners

Okay, great that’s helpful. The second question, on looking out to next year, I think we talked about adding five reps to a U.S. infrastructure in the near term. Any plans -- now that you have your budget for 2009 together -- any plans to continue that expansion in 2009? And by how much?

Steve Anderson

We are continuing our expansion of the sales force, Matt, as you know, we’ve converted some of our better sales reps and more qualified sales reps into cardiac specialists that will handle only the allographed heart valves, and the balance of the sales force will handle glue and the vascular tissues. And we do anticipate adding another five sales reps in the Unites States over the next year. We have added five at the present time to fill in behind the people that were promoted into cardiac specialists, so that plan is still in place.

Matt Dolan - Roth Capital Partners

Okay, great, and last one on gross margin, it looks like you’re closing in on 65% this year, that’d be up over 200 basis points over 2007. How should we think about that going forward as your mix continues to favor that gross margin? Is 200 basis points in 2009 aggressive or is that something that could continue?

Steve Anderson

Well, you know Matt, we don’t give specific guidance on gross margins, and I won’t give it now, but I’ll tell you that there are a lot of factors that we need to consider as we move into 2009. I think most notably, we expect Hemostase MPH to become a more significant component of our revenue mix, and as we’ve discussed in previous conference calls, the gross margins on Hemostase MPH are in the upper 50% range, so it’s a little bit lower than what our composite gross margins are during the course of this year.

The other thing is -- which is really kind of hard for us to predict with any degree of accuracy -- is where are foreign currency exchange rates going to go? The dramatic move in foreign currency rates over the last month in particular, we expect that to have an effect on both our top line and gross margins for all of our international business.

If the dollar weakens from current levels, that would certainly be beneficial for us, but if it continues to strengthen, we think that would put a little bit of pressure on margins, especially as it relates to our international business. So you know, we don’t have specific guidance, but there are some other factors that might not lead to another 200 basis point improvement year-over-year.

Matt Dolan - Roth Capital Partners

Sure. Great, okay thanks a lot guys, congrats on the results.

Steve Anderson

Okay, thanks.

Operator

Our next question comes from the line of Greg Brash with Sidoti & Company.

Greg Brash - Sidoti & Company

Hi guys, thanks for taking my call. I just wanted to continue on with the gross margin. In this quarter, I guess the product gross margin was down a little bit sequentially. Is that product-mix issue where you’re doing a little better with the NPH and the dollar appreciating, is that pretty much what caused it to come in around 83.5 versus 86 in the prior quarter?

Ashley Lee

It was largely due to exchange rates, the effect of Hemostase MPH on the revenue mix, and then we had some small write-downs of some inventory. So they (inaudible).

Greg Brash - Sidoti & Company

Okay, and then you mentioned the impact of foreign exchange on 2009. If rates stay where they are today, could you quantify what impact you think that would have on 2009 revenue?

Ashley Lee

Yeah, I can, we’ve done some work on this, and if you look at the first nine months of this year, and you look at the exchange rates that are in effect at the end of October, our revenues would have been a million dollars lower in -- they will be a million dollars lower in 2009, assuming constant units. But we have already provided for all of that in our guidance.

Greg Brash - Sidoti & Company

Okay, that’s very helpful. And then I’m just curious on the CryoValve SG, it looks like you’re doing pretty well with that, is pricing holding up? Are doctors giving you any pushback because you are pricing at a premium to the other graphs?

Ashley Lee

We have had no pricing issues with the decellularized heart valve, and we’ve shipped about 270 of them so far. It’s hard to know how many have been implanted, because the implant cards come in slowly, and of course, there’s a certain percentage that never come back. But it’s our opinion that most of the ones that we’d have shipped have been implanted.

Greg Brash - Sidoti & Company

Okay. And it just looks like unit growth on the cardiac side is slow a little bit over the last couple of quarters, is there anything to be concerned about there? Or is it competition or anything a long those lines?

Ashley Lee

No, I don’t think that we’re seeing a lot on the competitive front at this point, so I don’t think there’s really anything to be overly alarmed about at this point.

Greg Brash - Sidoti & Company

Okay, and is the -- just one last question, is the Hemostase MPH, is that tracking your expectations? Are you pleased with how the product is selling and the physician feedback?

Ashley Lee

Yes, we are, we’re getting a lot of attraction with that product, and we think it’s also very complimentary to BioGlue, and we think that it’s had some impact on the BioGlue sales increases.

Greg Brash - Sidoti & Company

Okay, I mean do you think doctors are pretty brand-loyal on this market? Obviously, you’re doing pretty well, and you’re still initial launch year, but are they pretty open to trying the product?

Ashley Lee

They are open to trying the product. When you see it work, it’s a very impressive visual reaction, because it works instantaneously so I think from that stand and it’s effective, so I think that it will continue to grow.

Greg Brash - Sidoti & Company

Okay, thanks guys.

Operator

Our next question comes from the line of Raymond Myers with Emerging Growth Equities.

Raymond Myers - Emerging Growth Equities

Hi Ashley, good morning Steve, congratulations on a great quarter. I notice that your expenses in the quarter were down a bit sequentially, SG&A of only $12.1 million, R&D down to $1.2 million. Can you explain why each of those were down?

Ashley Lee

I don’t think it was anything out of the ordinary as it relates to G&A; the revenues were down slightly sequentially. The first two quarters of every year, we attend a lot of conventions and things of that nature, so the expenses are ordinarily a little bit higher in the first couple of quarters.

R&D is just really so project driven, it just depends on the progress we make on projects, and when we can initiate studies and so forth, so I don’t think there’s anything to be read into R&D being a little bit below our expectations, because currently, we’re still on track, as Steve mentioned earlier, for BioFoam, as it relates to the CE mark and IDE.

Raymond Myers - Emerging Growth Equities

You raised your guidance for R&D for the full year this quarter correct?

Ashley Lee

I don’t recall exactly where it was at the end of the third quarter, so you might be right, we might have raised it slightly, but I’m not sure about that.

Raymond Myers - Emerging Growth Equities

So well whether it was raised or not, it’s tracking -- the guidance is tracking higher, much higher than you run rate at Q3, so does that imply that there are some major projects or major expenses that are either starting or finishing somehow expense in Q4?

Ashley Lee

Yeah, but most notably, the animal studies continue for the organ preservation solutions, so that will be a major expenditure during the fourth quarter of this year, and I think that we’re also continuing to do some work on BioFoam, as when we get closer to the CE and IDE submissions. So yeah, there are some things that are ongoing right now that would lead to that increase.

Raymond Myers - Emerging Growth Equities

Okay, good. You didn’t give a sales force number. What is the number of your sales force now?

Ashley Lee

I think that we have roughly 35 people that are vascular reps and about five that are cardiac specialists, so it’s about 40; and then on top of that we have the five regional managers and a couple of people in sales management.

Raymond Myers - Emerging Growth Equities

Great. Okay thanks, that’s all for now.

Ashley Lee

Okay.

Operator

There are no further questions; I’d like to turn the call back to management for any concluding remarks.

Steve Anderson

Thank you for joining us for the third quarter financial report, and we look forward to meeting with you on teleconference after the close of the fiscal year, so I would expect that to be in February of 2009.

Operator

Ladies and gentlemen, this concludes today’s teleconference, thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CryoLife Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts