CryoLife, Inc. (NYSE:CRY)
Q4 2015 Results Earnings Conference Call
February 16, 2016 08:00 AM ET
Pat Mackin - President and CEO
Ashley Lee - EVP, COO and CFO
Jeffrey Cohen - Ladenburg Thalmann
Tom Gunderson - Piper Jaffray
Joe Munda - First Analysis
Greetings. Welcome to the CryoLife Fourth Quarter and Year-End 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Pat Mackin, President and CEO for CryoLife. Thank you, Mr. Mackin. You may now begin.
Good morning, everyone. This is Ashley Lee. Before we begin, I’d like to make the following statements to comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made in this call that look forward in time, involve risks 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.
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. Additional information concerning risks and uncertainties that may impact these forward-looking statements is contained from time-to-time in the Company’s SEC filings and in the press release that was issued last night.
Now, I’ll turn it over to Pat.
Thanks, Ashley, and good morning everyone. We’re very pleased to report record revenue in the fourth quarter of 2015 capping off what we think was a very productive year for the Company. I will begin today’s call with a brief review of our fourth quarter results followed by a recap of our significant accomplishments over the course of 2015, which have positioned the Company for improved growth and margin expansion in 2016 and beyond. Following my initial comments, Ashley Lee, our CFO, will provide a detailed review of our fourth quarter financial results and our 2016 financial guidance. I will conclude with a review of our key strategic initiatives for 2016 and then we’ll open the line for questions.
This morning we reported record revenue of $39.8 million for the fourth quarter, a 7% increase year-over-year. This includes our third consecutive quarter of year-over-year growth in tissue processing revenues, which were up 3% year-over-year. Product revenues were up 10% year-over-year, driven by continued growth of ProCol and PhotoFix and good results from CardioGenesis.
Gross margin for the quarter was 67%, which is several hundred basis points better than our historical results in recent years. The main drivers of gross margin of fourth quarter are product mix, and the efficiency and throughput initiatives we’ve implemented over the course of 2015 in our tissue processing businesses, much of which we expect to continue into 2016 and support improved overall gross margin.
In addition to these positive financial results, we also announced the acquisition of On-X Life Technologies in late December and the divestiture of the HeRo product line to Merit Medical in early February. I will cover these developments in more detail in my later remarks.
Turning now to an operational update, 2015 was a year of significant progress for the Company. When I joined CryoLife in September 2014, I spent my first 100 days, taking a deep dive into our businesses, meeting our customers, our employees and reviewing the state of our operations. Following this review, we entered 2015 with a set of strategic initiatives designed to reposition CryoLife for improved growth and margin expansion. Over the course of the year, we delivered on those initiatives and as a result, we are entering 2016 in a stronger position with significant new growth drivers for our high margin medical device products segment, along with improved opportunities for our tissue processing business.
Our key accomplishments for the year include the following: First, we made significant progress enhancing the quality systems and efficiency of our tissue processing operations, which positions this business for mid-single-digit growth and improved margins in 2016. This major accomplishment involved a closeout of the FDA warning with no additional observations in March, followed by the continued investment in new protocols to improve the efficiency of our procurement, processing and customer service operations. As a result, we were able to improve tissue gross margins from 37% in the first quarter to 48% in the fourth quarter, that’s an 1100 basis-point improvement in just one year.
Tissue revenue was lower than we forecasted in the fourth quarter caused by inventory constraints on certain tissue products and high demand from our customers. So, the good news is that demand for our tissue remains high and we have the potential in 2016 to leverage the efficiency improvements we implemented in 2015, to increase availability and drive meaningful increase in tissue processing revenue in the future.
Second, over the course of the year, we strengthened our executive team with the appointment of several highly experienced leaders. This was highlighted by the appointment of Jean Holloway as Senior Vice President and General Counsel; Bill Matthews as Senior Vice President of Operations, Quality and Regulatory; and John Davis, Senior Vice President of Global Sales and Marketing. These executives have broader understanding of the healthcare industry from their work at much larger medical device companies. As a result, our team is well-positioned to manage the business, as we grow CryoLife.
Third, we had several important developments regarding new products in 2015; this includes the January launch of PhotoFix which delivered $1.4 million in sales in 2015. PhotoFix continues to represent a near and midterm opportunity for growth. In 2016, we expect sales will continue to ramp with additional growth potential, driven by the significant increase in our cardiac surgery sales force that’s calling on cardiac surgeons as a result of the acquisition of On-X. We continue to believe that PhotoFix has the potential to become a leading product in the $30 million plus market for biological patches using cardiac surgery.
Fourth, we also made important progress in the area of expanding the indications of some key products. In July, we received an expanded indication of approval in BioGlue in Japan and we are now able to sell that product to a much broader cardiac surgery patient population. Since the approval, we have seen very strong increases and adoption in the expanded patient population. Also, in the expanded indication product segment, in November, we reached a resolution on our patent dispute with Medafor regarding PerClot, which removes an ongoing legal dispute that could have taken years and million dollars to resolve. The resolution had minimal impact on our commercial timeline, delaying our U.S. commercial launch to February of 2019. This shift in the timeline also allows us to take a pause with our PerClot clinical trial to work with the FDA to attempt to amend the PerClot pivotal trial protocol, which we believe would support a more rapid enrollment and more robust data collection of the clinical results. We have a meeting with the FDA later this month to discuss these amendments and we’re hopeful of restarting the trial in the second half of 2016.
Fifth, we took yet another important step in our international expansion plans by going direct in France on October 1st and expanding our French direct sales team with the addition of our country manager to lead our six-person direct sales team. Transitioning to a direct sales model in selective international markets is a strategic initiative for CryoLife because it carries the potential to enhance our revenue and gross margin and also allows us to implement a more focused sales and marketing strategy, and provides a platform for future new product introduction, such as our On-X valves.
Our results in the fourth quarter in France were in line with our expectations. And as we look to 2016, we expect to see a positive impact on revenue and gross margin as we benefit from the ability to sell expanded product portfolio directly to our hospital customers.
Sixth, and the final area of key accomplishments in 2015 is in the area of strategy and supporting business development activities. Over the course of the year, we looked at a number of potential transactions while maintaining a strong financial discipline and focusing on deals with the greatest strategic benefit.
As a result, in late December, we announced the acquisition of On-X Life Technologies which significantly enhances the size of our addressable market and growth potential. This was followed by the announcement earlier this month of the sale of the HeRo Graft product line, further strengthening our focus on the Cardiac surgery market. This primary focus on the cardiac surgery market will pay off in many ways. This will concentrate our sales and marketing resources as well as our R&D and clinical programs.
The cardiac surgery market is a very large market with lots of opportunity to create a unique company that has a novel differentiated technology that carries the potential to improve patient outcomes and reduce cost. We are very excited about the On-X -- of adding the On-X portfolio to CryoLife, given the significant growth opportunities and synergies of the combined company. We closed the On-X acquisition on January 20th and since then we’ve become even more encouraged by what we’ve seen about the potential benefits of the acquisition.
First, it allows us to enter a $220 million mechanical valve market with a differentiated high margin product. On a strategic level, the mechanical valve market is highly synergistic with CryoLife’s cardiac surgery business. We believe the transaction will strengthen our focus and critical mass in the aortic and mitral valve repair and replacement segment, creating a more robust platform that we can leverage with additional products in the future.
Second, the combination of our direct sales organization and On-X team of direct reps more than double the size of our previous cardiac surgery sale force in the U.S. This combined team is highly experienced and has a broader product portfolio to cross-sell. We see tremendous upside potential for the On-X valves, given the limited sales support these products have received previously. We further strengthened the focus of our commercial organizations in cardiac surgery with the sale of the HeRo Graft business in early February. Outside the U.S., we will introduce On-X products into our direct markets over the course of 2016. As a reminder, these include markets like the United Kingdom, Ireland, Germany, Australia and France.
Third, we have learned even more about the robust clinical data supporting the On-X valve and discussed the product with more physicians. In turn, we’ve become increasingly more confident in its potential to take market share. As a reminder, On-X has the only FDA approved mechanical aortic valve that is approved for an INR range of 1.5 to 2.0. As we’ve discussed, a lower INR range is more optimal, as it lowers the risk of patients of having complications from bleeding without at the same time increasing the risk of stroke, which is a major concern of doctors in patients. We believe this is a significant differentiator and will provide us with a distinct competitive selling advantage.
Last, the addition of On-X diversifies our business mix, provides additional margin expansion opportunity, and reduces our reliance on the tissue business.
Since closing the acquisition, the integration of our On-X team is off to a great start. We have had a meaningful progress combining and training the sales force, optimizing their respective territories. Given the shift in some territories in addition of new products, our sales force is in the process of updating existing relationships and making introductory calls on their new accounts. We have a robust integration plan for both the U.S. and international segments of the business. And once the newly combined teams have had time to further establish themselves in their territories, we anticipate our On-X valve business will grow at a double-digit growth rate between 2016 and 2020 with gross margins in the U.S. close to 90%. Internationally, we expect to drive margin higher as we transition from distributor model to a direct sales model in select geographies over the next few years.
Overall, by executing our strategic initiatives for 2015, we have taken a strong first step in repositioning CryoLife into a higher growth and more profitable company. The On-X acquisition is a transformative event for us that we expect will immediately benefit revenue mix and growth trajectory, which should in turn drive gross margin expansion in double-digit compounded growth in adjusted earnings from 2016 to 2020.
I will now turn the call over to Ashley for a detailed review of our fourth quarter and full year 2015 results and 2016 financial guidance.
Thanks Pat. This morning we’ve reported our results for the fourth quarter and the full year of 2015. The following factors influenced our performance: Compared to the prior year total company revenues increased 7% to $39.8 million for the fourth quarter, which represented an all-time quarterly record for the Company. Foreign currency unfavorably affected revenues by $379,000 or approximately 1% compared to the fourth quarter of the prior year. Tissue processing revenues increased 3% compared to the fourth quarter of the prior year, while product revenues increased 10% over the fourth quarter of last year. The main factors affecting those results were the continuing success from our newest product introductions, PhotoFix and ProCol, and better than expected results in our TMR product line.
On the bottom-line, we reported $0.09 per fully diluted share for the quarter. However, excluding $1.1 million in business development expenses and $615,000 in amortization, non-GAAP adjusted EPS was $0.13.
Focusing on geographic revenues, compared to the prior year, our domestic revenues increased 10% to $30.8 million for the fourth quarter of 2015. This increase was driven primarily by improved results in the TMR business, price increases, and improved tissue mix for tissue processing services and the recent launches of ProCol and PhotoFix.
Our fourth quarter international revenues were $9 million, down 2% compared to the fourth quarter of 2014. International revenues accounted for 23% of our business in the fourth quarter. The decrease in international revenues was driven by the effects of foreign currency which adversely affected 4Q revenues by $379,000. The strong dollar has also affected our U.S. dollar based foreign business, particularly in Brazil.
Focusing on individual product lines, tissue processing revenues increased 3% for the quarter compared to the prior year, primarily due to price increases and improved tissue mix. As Pat mentioned, we are seeing positive effects of the processing improvement initiatives that we implemented earlier this year. Our tissue processing yields have increased dramatically and that has had a positive effect on the top-line and on gross margins which improved to 48% in the fourth quarter.
Worldwide BioGlue revenues in the fourth quarter increased 1% year-over-year, driven primarily by the commencement of direct sales in France, partially offset by a decrease in international revenues due to FX.
PerClot revenues decrease 11% for the fourth quarter of 2015 compared to the fourth quarter of 2014. The decrease was primarily due to competition from other powdered hemostats in the European market and FX.
Revenues from our TMR product line increased 62% in the fourth quarter of 2015 compared to 2014, which resulted primarily from a 29% increase in handpiece volume and from the sale of $1.1 million in capital equipment during the quarter.
We’re pleased to report that gross margins were ahead of our expectations and improved to 67% in the fourth quarter, up from 63% in the third quarter, 61% in the second quarter, and 58% in the first quarter. This primarily reflects results from the increased throughput and productivity in the tissue processing operations, the sale of $1.1 million in TMR capital equipment during the quarter, and product mix.
As of February 12, 2016, we had approximately $40 million in cash, cash equivalents and restricted cash and securities. This reflects cash used in the acquisition of On-X along with net proceeds from the recent sale of the HeRo product line.
And now for our 2016 financial guidance, we expense revenues to be between $178 million and $180 million, which represents a mid-single-digits percentage pro forma increase compared to 2015 when adjusting 2015 revenue to include On-X and exclude the HeRO Graft. We expect tissue processing and product revenues to be up mid-single-digits on a percentage basis year-over-year. We estimate gross margins will be approximately 63% for 2016; this includes the effects of an estimated $3.3 million write-up of acquired On-X inventory. Excluding the effects of that write-up, we expect gross margins to be approximately 65% in 2016. We forecast R&D expenses to be between $13 million and $15 million. And finally, we expected adjusted net income per share to be between $0.29 and $0.32. Adjusted net income is defined as pre-tax income plus amortization, business development, which includes transaction and integration related costs and adjustments for any other unusual items.
The formula for calculating adjusted net income differs from the methodology that we have previously utilized and that we are now adding back amortization. We feel that this is important, as we move into 2016 as we expect amortization to increase significantly with the On-X acquisition. And adding back amortization to 2016, ‘15 and ‘14 results will provide a better comparison of operating performance of the Company. We will continue to report GAAP results as required.
That concludes my comments, and I’ll turn it back over to Pat.
Thanks, Ashley. Before we open up the call to your questions, I’ll provide an overview of our key initiatives for 2016. First, we’re highly focused on achieving the financial guidance for revenue growth and adjusted EPS that Ashley just outlined. Second is realizing the potential of the On-X business. We anticipate in 2016, the combined team can deliver high-single-digit percentage or even greater revenue growth on the On-X portfolio. Third, we will continue to drive efficiency in our tissue processing businesses, both in terms of increasing our supply of our key in demand tissue and supporting gross margin expansion. Fourth, we will continue to grow BioGlue through our increased cardiac surgery sales force, our direct operations in France and our new indication adoption in Japan. Fifth, we will prepare future growth drivers for the Company through our clinical programs, which include enrolling patients in the PerClot U.S. IDE as well as BioGlue, China. Six, we will continue to evaluate potential business development opportunities to enhance our focus in critical mass and cardiac surgery.
If we accomplish these goals, CryoLife will enhance its position as a leader in the cardiac surgery market with continued upside potential for revenue growth and margin expansion.
So in closing, we are very excited about the future prospects of the Company and believe our experienced leadership team is well-suited to deliver on our goals. I’d like to thank you -- I’d like to thank all that are at the Company for their contributions in 2015. You should never forget how important your work is to the wellbeing of so many lives around the globe.
With that, we will now open up the lines for questions. Operator, please take us through that process.
Thank you. [Operator Instructions] Our first question is from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Good morning. Firstly, could you walk me through what your anticipated balance sheet looks like currently with post the closing of On-X?
Well, I think the key changes are going to be the $75 million term loan that we entered into in January of this year as well as the issuance of the common stock that was used in the transaction. So, the sum total of all of that was approximately $128 million. The majority of that amount is going to be allocated to long-term assets including goodwill and other intangibles, the amounts allocated to current assets including receivables and inventory. I think preliminarily we’re looking at around $15 million to $17 million, but again, that’s preliminary we have not finished the purchase price allocation yet.
Okay, got it. And could you talk about the timing of the close and also the timing of the close on HeRo, as far as inventories and precise timing, as far as closing revenues to you?
Yes. So, we closed the sale of the HeRo product line to Merit Medical on February the 3rd. And just to give you a little bit of perspective, and this is actually included in the press release that went out this morning. We recorded about $7.5 million in revenues in 2015. And the gross margins were in the mid 50% range. Going forward, we did continue to sell the HeRo product line up through February the 3rd, so you will see a small amount of revenue in the 2016 results related to that. In addition to that, we will continue to manufacture the HeRo Graft for Merit for a period of up to six months. It could be less than that. It just depends on the progress that they make in transferring the manufacturing to one of their facilities. So, you will see some contract revenue related to HeRo could be up to six months after close. And we will recognize just a very small margin on that transition supply agreement with Merit.
Okay, so what would you anticipate would be the revenue for On-X in the first quarter, based on the close and how that might look relative to its $33 million run rate historically?
Yes. So, this is Pat. Good morning, Jeff. I think this is one, we’re not going to start breaking out On-X revenues for the first quarter. I think as I made remark in my comments, we’ve got a lot of moving parts. I mean we announced the deal on the 23rd of December; we closed it on the 20th of January. Since the announcement of the deal, we’ve had a sales training meeting here in the U.S.; we had a global meeting, so we’ve had a couple of weeks of sales training; we’ve merged three sales forces; we’re going direct in six countries. So, we’ve got a lot of kind of moving parts here. And I’m very confident in this product line growing at a double digit rate over the five-year period. I think breaking out the quarterly revenues for the first 90 days is not really what we’re looking at here. We’re looking at more of a long term -- we feel very confident this asset can grow. We want to get it off to the right start.
Okay, got it. The TMR revenue for Q4 seemed tremendously strong. So, you said you had $1.1 million from capital equipment. Could you talk about number of placements and general trends as far as utilization that you saw into the fourth quarter…?
I think one of the challenges with that -- when you have a capital component, I mean this is -- I think this is the only product at CryoLife that has a capital component to it. And these consoles can cost up to, up in the $300,000, $400,000 range. And those are put through hospital capital budgets and those can take a long time. And so you can never really predict when they’re going to come out. And we obviously have had a number of consoles in the work, so that was I believe, I think four consoles to four different centers. And a lot of time hospitals will look at their yearend budgets and if they’ve been budgeted from a capital standpoint. So that’s what we saw, which is great news, we’ve got the placement and then the placements -- that will start the kind of the handpiece usage. So it’s hard to predict that. And that’s one of the challenges of that product line -- this could be somewhat lumpy because it’s got that big capital component.
Okay, one more if I may. Could you talk a little bit about, the vascular market and your outlook as far as the Company’s focus in hemodialysis and also talk about ProCol?
Yes. So, I mean when we did it, I made some remarks around the strategy and the M&A work that we did and we clearly looked at -- CryoLife had some good assets in both the cardiac surgery field with BioGlue and the valves, the tissue valves, and then likewise in the vascular space. We had a nice product offering on vascular tissue as well as HeRo and ProCol. Our -- my view in looking at this was that we were in too many things for a small company and we really needed to focus. So, we actually looked at both markets pretty heavily. And our determination is there was a lot more assets as well as the size of the market as well as the kind of the synergy with the Company, given that how important BioGlue is how important cardiac tissue is. We just felt like the cardiac path was a much better path to go down.
So, we still have a very healthy business in the vascular tissue area; that’s not going to change. Our 51 reps are calling on cardiovascular centers. So that is not a big stretch for them to continue to sell the vascular tissue. ProCol has actually done fairly well this year, this past year. And that’s something that as we sold HeRo defocusing on the dialysis space but we still have a good product in that area. Again, I think it’s all -- it’s relative. We’re clearly shifting to a much more focus in the kind of cardiovascular technology space away from the vascular -- pure vascular dialysis space.
Our next question comes from the line of Tom Gunderson with Piper Jaffray. Please go ahead with your question.
So, on the On-X, Pat, you said in the prepared remarks, growth rate, strong double-digits 2016 to 2020 but -- and I understand there is a lot of immediate -- a lot of varying things that are going on to integrate the business this year. But, is it fair to assume as we build our models that that 13% compounded annual growth that you showed in the chart, back in December from 2010 to 2014, continued into 2015 and will continue into 2016 or does the disruption in change of ownership and the things that you outlined, mean that there is a step back in ‘16 and then things start going forward either later this year or into ‘17?
Yes. So, a couple of comments. We did see in 2015 for On-X, their growth kind of stalled overseas but they were still seeing double-digit growth in the U.S. So, that was kind of a change from the previous kind of five years, if you will. And there is some reasons for it. Number one, we were in negotiation with On-X throughout the period and we had actually asked them to not sign up certain distributors in certain markets because it would make us more complicated for us to unwind. We’d asked them to actually terminate certain distributors. I try to -- on something like this, I try to go up to 100,000 feet. Number one, I am highly convinced that this is a differentiated technology that’s going to take market share.
I will give you just a snippet from -- I was at a cardiac surgery meeting this weekend with 45 heart surgeons and I showed them the PROACT results. And I asked them, do you think this data is compelling enough to get somebody to switch from their mechanical valve that they are using? And 83% of them yes. So my job and this organization’s job over the next five years is to convince every heart surgeon on the planet that they should be using On-X valve over any other valve. So, that’s why I start -- and so I believe that. That’s very exciting.
Now, I am focused on in the first quarter and the second quarter of this acquisition integration is just put the pieces in place to make sure we can actually deliver the message, right. So, merging three sales forces, training those sales forces, getting them to meet their new customers, going direct in six geographies. So, again, I am hopeful that we will actually beat the numbers that we are putting out there, but I want to give ourselves a little bit of cushion, given all the choppiness that we’ve got. But the long term view of this is that we are expecting a double-digit growth rate over the five-year period. So, you can kind of figure out what to put in your model. But, I think for 2016, there is a lot of moving parts. And we are hoping to exit at a higher growth rate than we’re starting out at.
Got it. Thanks. And then, on the service side, on tissue, good job obviously on increasing the quality, which gave you more to sell and also better margins is going -- marching from 37% to 48% over the course of the year, was part of that strength in Q4 just because you got a Q4 effect or should we take this 48% and hold it through ‘16 or maybe even increase it?
Yes. I think Q4, there was some kind of end of year one timer thing that kind of made Q4 look a little better. We think the mid-40s is -- we’re guiding to the mid-40s. We are going to be working -- continuing to work to try to push that even higher. But again, we want to -- there are things we think we can do to improve the gross margin. But, we feel like we are modeling kind of the 45%-46% range for 2016. And again, we are aggressively moving to get that better. But, I don’t want to set ourselves up for some we can’t deliver. So, that’s a huge improvement over where we started a year ago.
Our next question is from the line Joe Munda with First Analysis. Please proceed with your question.
First of all, Ashley, I guess on -- in your prepared remarks, you mentioned an inventory write-down related to On-X products; is that correct?
No, actually it’s a write-up. Whenever you buy a company like this, one of the things that you have to do is write-up their inventory; it’s standard practice. And I think the thought is that in inventory that you acquire in an acquisition, you really not allow to make a normal profit on that inventory. So, you have to write that inventory up. So, we think that that $3.3 million is going essentially run through our P&L over the balance of 2016 and then as you enter into 2017, you are going to see much higher margins on the On-X business.
Okay. So, it is going to run through for the course of the year; we’re not going to see one-time in the first quarter or the second quarter…
No, you’re not going to see a one-time thing. It will kind of like bleed out readably over the course of 2016, as consistent with our revenues. But, it is an amount that we will report on, on a quarterly basis. So, you’ll know what it is at the end of each quarter.
And I think the other way to look at it Joe -- I mean this again, this is just kind of how you have to account for the acquired inventory. But, the gross margin we’re guiding to is in the 63% range. And, if we didn’t have to write that inventory up, it’d be at 65%. So, once it flows through, you get about 2-point margin bump and that will be coming we think at the end of the year.
Okay, that makes sense. Pat, as far as PerClot is concerned, you gave us some color here on trial, as well as the R&D and guidance. I guess what are we looking at? You mentioned mid-point of the year. Can you give us some sense what it’s going to look like as far as R&D is concerned or the cost related to the trial possibly in 2016 and going into 2017; what are your thoughts there?
Yes. So, I think, I mean the good news about it -- so we got enjoined. So, we talked about the injunction; the good news is we settled with bar and we’re not spending more legal bills. And all we’ve really done is aligned our timelines for the clinical program with the legal situation. The patent just to remind people, the patent expires in February of 2019. So, my view was why kind of load-up my P&L with a bunch of clinical expense in ‘16 and ‘17 heavy to wait around for a year to get the approval.
So, we’re basically -- we’re going back to meet with the FDA later this month and we’re looking at one, getting to a point what we’re very confident with the data collections, we’re going to have some discussions with them about that as well as we’re going to have some discussions about streamlining the trial and so we get more rapid enrollment. And our goal here is really spread out the trial and the spending because it really gets to your question over kind of ‘16 and ‘17 and then have ‘18 for the approval year and then be ready to go at the beginning of ‘19.
So that’s the plan. I mean I think we think there is probably $6 million to $7 million left on the PerClot trial and we’re going to try to spread that. There won’t be much by way of R&D in the first half of this year, particularly on that -- I mean on that program. And as I said in my comments, we expect to start back up in the middle of ‘16. And then, so you would spread that over kind of back half of ‘16, all of ‘17 and maybe the front half of ‘18. So, just to give you a sense; and I’m just telling you what I think right now, part of -- we’ll get more details after we have our meeting with the FDA.
Okay. Thank you. That’s very helpful. I’ve got two more here. You mentioned France in your prepared remarks. Can you give us some idea of what France represented as a percentage of total revenue in Q4?
Yes. Off the top of my head, it’d be hard to do. I can tell you kind of what we talk -- we spoke about publicly. So, we were doing $3 million in France in BioGlue, when we went through our distributor. And we feel again -- so, the part of the challenge here is the currency has been moving all through that period. But we saw our revenue or projected our revenue would go up from $3 million to roughly $4.5 million -- between 4$.5 million and $5 million when we went direct because that just basically eliminates the middleman and go in straight to the end user. So your revenue goes up, your margin goes up and that’s consistent with the whole idea of going direct.
So, it’s about 3%; I just had somebody calculated for us, so about 3%. But I think the more important point is we had 3 just by going direct; we take that business up to 4.5 to 5. And then exactly the reason we’ve been telling you guys all along, which is, it’s a strategic initiative, because now we’re direct in France. And when we acquire a company like On-X, by the way that was the same distributor those reps were selling the On-X out. So that group’s now going to be selling BioGlue and On-X for us, straight to the end user, increase revenue, increase margin. And then when we bring our next product on, they can do the same thing. So, again that’s part of the overall strategy here, was to get that foundation and be able to leverage it going forward.
Okay, thank you. And then Ashley, just some housekeeping items here. Depreciation for the quarter, operating cash flow, and I guess CapEx for the full year?
CapEx for the full year was around $3.5 million. I think going forward into 2016, we’re anticipating that CapEx is going to be around $7 million and that includes some money to expand our capacity down at On-X. Operating cash flow for the full year of 2015 was around $11.5 million; and in the fourth quarter, it was I think about $1.5 million roughly.
Okay. And then, I’m sorry depreciation?
Depreciation for the full year runs between $4 million and $5 million.
And I think for 2016, we’re anticipating that the number is going to be around $5 million including On-X.
Thank you. There are no additional questions at this time. I’d like to turn the floor back to management for closing comments.
Well, I want to thank everybody for joining this morning. And as we talked about throughout the call, we had a good fourth quarter. We accomplished a lot in ‘15 that set ourselves up for ‘16. I think one of the key takeaways here is that we are very bullish on the On-X valve. We are going to positioning our channels, both in the U.S. and overseas in our direct markets, to deliver this message because we think it’s a very strong message. And having that many reps selling the On-X valve as well as selling our product line, we think is going to provide some significant opportunity on the cross-selling. So, our goal here this year is to deliver our numbers, integrate the On-X transaction and deliver really the platform for the future growth.
And as Ashley talked about in the financials, as this inventory write-up kind of flows through the P&L, our margins are going to improve, as we go direct in the direct markets. Our margins are going to improve as we sell more business in the U.S. with On-X, the margins are going to improve. So again, I think we’ve got a lot of nice opportunities here to improve our topline growth as well as our profitability to Company. So, we’re looking forward to it. And I look forward to keeping you guys posted throughout the year. Thanks for calling in.
Thank you. This concludes today’s conference. Thank you for your participation. You may now disconnect your lines at this time.
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