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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
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
ARTIVION, INC.
(Exact name of registrant as specified in its charter)
Delaware59-2417093
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueAORTNew 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. o
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 April 28, 2023
Common Stock, $0.01 par value40,875,444


Table of Contents
TABLE OF CONTENTS
2

Table of Contents
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
In Thousands, Except Per Share Data
(Unaudited)
Three Months Ended
March 31,
20232022
Revenues:
Products$62,291 $57,542 
Preservation services20,938 19,671 
Total revenues83,229 77,213 
Cost of products and preservation services:
Products19,533 17,408 
Preservation services9,969 9,086 
Total cost of products and preservation services29,502 26,494 
Gross margin53,727 50,719 
Operating expenses:
General, administrative, and marketing50,365 38,955 
Research and development7,223 10,128 
Total operating expenses57,588 49,083 
Operating (loss) income(3,861)1,636 
Interest expense6,096 3,948 
Interest income(75)(16)
Other (income) expense, net(963)133 
Loss before income taxes(8,919)(2,429)
Income tax expense4,613 960 
Net loss$(13,532)$(3,389)
Loss per share:
Basic$(0.33)$(0.08)
Diluted$(0.33)$(0.08)
Weighted-average common shares outstanding:
Basic 40,432 39,850 
Diluted40,432 39,850 
Net loss$(13,532)$(3,389)
Other comprehensive loss:
Foreign currency translation adjustments3,616 (3,775)
Comprehensive loss$(9,916)$(7,164)
See accompanying Notes to Condensed Consolidated Financial Statements
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Table of Contents
Artivion, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
In Thousands
March 31,
2023
December 31,
2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$30,773 $39,351 
Trade receivables, net62,760 61,820 
Other receivables3,952 7,764 
Inventories, net76,273 74,478 
Deferred preservation costs, net47,415 46,371 
Prepaid expenses and other19,508 17,550 
Total current assets240,681 247,334 
Goodwill245,648 243,631 
Acquired technology, net149,833 151,263 
Operating lease right-of-use assets, net41,473 41,859 
Property and equipment, net38,716 38,674 
Other intangibles, net30,807 31,384 
Deferred income taxes2,373 1,314 
Other assets7,542 7,339 
Total assets$757,073 $762,798 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable$9,473 $12,004 
Accrued expenses9,678 12,374 
Accrued compensation9,028 13,810 
Taxes payable6,911 2,635 
Current maturities of operating leases3,398 3,308 
Accrued procurement fees2,155 2,111 
Current portion of long-term debt1,620 1,608 
Other liabilities1,698 1,825 
Total current liabilities43,961 49,675 
Long-term debt306,279 306,499 
Contingent consideration 45,200 40,400 
Non-current maturities of operating leases40,774 41,257 
Deferred income taxes23,826 24,499 
Deferred compensation liability6,127 5,468 
Non-current finance lease obligation3,582 3,644 
Other liabilities7,407 7,027 
Total liabilities$477,156 $478,469 
Commitments and contingencies
Shareholders' equity:
Preferred stock  
Common stock (75,000 shares authorized, 42,366 and 41,830 shares issued and outstanding in 2023 and 2022, respectively)
424 418 
Additional paid-in capital342,883 337,385 
Retained deficit (30,749)(17,217)
Accumulated other comprehensive loss (17,993)(21,609)
Treasury stock, at cost, 1,487 shares as of March 31, 2023 and December 31, 2022
(14,648)(14,648)
Total shareholders' equity279,917 284,329 
Total liabilities and shareholders' equity$757,073 $762,798 
See accompanying Notes to Condensed Consolidated Financial Statements
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Table of Contents
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
In Thousands
(Unaudited)
Three Months Ended
March 31,
20232022
Net cash flows from operating activities:
Net loss$(13,532)$(3,389)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization5,734 5,881 
Change in fair value of contingent consideration4,800 (1,800)
Non-cash compensation3,341 3,166 
Non-cash lease expense 1,802 1,920 
Write-down of inventories and deferred preservation costs1,123 989 
Deferred income taxes(2,167)(2,966)
Other 754 496 
Changes in operating assets and liabilities:
Receivables3,540 (1,710)
Prepaid expenses and other assets(2,014)1,494 
Inventories and deferred preservation costs(3,222)(1,359)
Accounts payable, accrued expenses, and other liabilities(6,313)(3,320)
Net cash flows used in operating activities(6,154)(598)
Net cash flows from investing activities:
Capital expenditures(2,238)(2,239)
Acquisition of intangible assets(605)(469)
Net cash flows used in investing activities(2,843)(2,708)
Net cash flows from financing activities:
Proceeds from exercise of stock options and issuance of common stock2,581 2,318 
Redemption and repurchase of stock to cover tax withholdings(590)(1,730)
Repayment of term loan(690)(694)
Other(130)(129)
Net cash flows provided by (used in) financing activities1,171 (235)
Effect of exchange rate changes on cash and cash equivalents(752)(61)
Decrease in cash and cash equivalents(8,578)(3,602)
Cash and cash equivalents beginning of period39,351 55,010 
Cash and cash equivalents end of period$30,773 $51,408 
See accompanying Notes to Condensed Consolidated Financial Statements
5

Table of Contents
Artivion, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
In Thousands
(Unaudited)

Common
Stock
Additional
Paid-In
Capital
Retained DeficitAccumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders'
Equity
SharesAmountSharesAmount
Balance at December 31, 202241,830 $418 $337,385 $(17,217)$(21,609)(1,487)$(14,648)$284,329 
Net loss— — — (13,532)— — — (13,532)
Other comprehensive income— — — — 3,616 — — 3,616 
Equity compensation326 3 3,510 — — — — 3,513 
Exercise of options196 2 2,004 — — — — 2,006 
Employee stock purchase plan56 1 574 — — — — 575 
Redemption and repurchase of stock to cover tax withholdings(42) (590)— — — — (590)
Balance at March 31, 202342,366 $424 $342,883 $(30,749)$(17,993)(1,487)$(14,648)$279,917 


Common
Stock
Additional
Paid-In
Capital
Retained
Earnings (Deficit)
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders'
Equity
SharesAmountSharesAmount
Balance at December 31, 202141,397 $414 $322,874 $1,975 $(9,887)(1,487)$(14,648)$300,728 
Net loss— — — (3,389)— — — (3,389)
Other comprehensive loss— — — — (3,775)— — (3,775)
Equity compensation205 2 3,338 — — — — 3,340 
Exercise of options140 2 1,678 — — — — 1,680 
Employee stock purchase plan37  638 — — — — 638 
Redemption and repurchase of stock to cover tax withholdings(91)(1)(1,729)— — — — (1,730)
Balance at March 31, 202241,688 $417 $326,799 $(1,414)$(13,662)(1,487)$(14,648)$297,492 
6

Table of Contents
Artivion, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.    Basis of Presentation and Summary of Significant Accounting Policies
Overview
The accompanying Condensed Consolidated Financial Statements include the accounts of Artivion, Inc. and its subsidiaries (“Artivion,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements as of, and for the three months ended, March 31, 2023 and 2022 have been prepared in accordance with (i) accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and (ii) the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the US Securities and Exchange Commission (the “SEC”). Accordingly, such statements do not include all the information and disclosures that are required by US GAAP for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in Artivion’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023.
Significant Accounting Policies
A summary of our significant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements” contained in our Form 10-K for the year ended December 31, 2022. Management believes that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition. The Condensed Consolidated Financial Statements are prepared in accordance with US GAAP, which require us to make estimates and assumptions. We did not experience any significant changes during the three months ended March 31, 2023 in any of our Significant Accounting Policies from those contained in our Form 10-K for the year ended December 31, 2022.
New Accounting Standards
Recently Adopted
In March 2020 the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform Topic 848 (“ASC 848”). The amendments in this ASU were put forth in response to the market transition from the LIBOR and other interbank offered rates to alternative reference rates. US GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022 and cannot be applied to contract modifications that occur after December 31, 2022. In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The objective of the new reference rate reform standard is to clarify the scope of Topic 848 and provide explicit guidance to help companies applying optional expedients and exceptions. We adopted ASU 2020-04 and ASU 2021-01 on a prospective basis in fiscal year 2022. The adoption of ASU 2020-04 and ASU 2021-01 did not have a material impact on our financial condition or results of operations.
7

Table of Contents
2.    Financial Instruments
The following is a summary of our financial instruments measured at fair value on a recurring basis (in thousands):
March 31, 2023Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$7,154 $ $ $7,154 
Total assets$7,154 $ $ $7,154 
Long-term liabilities:
Contingent consideration  (45,200)(45,200)
Total liabilities$ $ $(45,200)$(45,200)
December 31, 2022Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$10,098 $ $ $10,098 
Total assets$10,098 $ $ $10,098 
Long-term liabilities:
Contingent consideration  (40,400)(40,400)
Total liabilities$ $ $(40,400)$(40,400)
We used prices quoted from our investment advisors to determine the Level 1 valuation of our investments in money market funds. The estimated market value of all cash equivalents is equal to cost basis as there were no gross realized gains or losses on cash equivalents for the three months ended March 31, 2023 and 2022.
On September 2, 2020 we entered into a Securities Purchase Agreement to acquire 100% of the outstanding equity interests of Ascyrus Medical LLC (“Ascyrus”). Ascyrus developed the AMDS, the world’s first aortic arch remodeling device for use in the treatment of acute Type A aortic dissections. As part of the acquisition, we may be required to pay additional consideration in cash of up to $100.0 million to the former shareholders of Ascyrus upon the achievement of certain milestones and the sales-based additional earn-out.
The contingent consideration represents the estimated fair value of future potential payments. The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. We applied a discount rate based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then applied a risk-based estimate of the probability of achieving each scenario to calculate the fair value of the contingent consideration. This fair value measurement was based on unobservable inputs, including management estimates and assumptions about the future achievement of milestones and future estimate of revenues, and is, therefore, classified as Level 3 within the fair value hierarchy. We used a discount rate of approximately 13% and estimated future achievement of milestone dates between 2025 and 2026 to calculate the fair value of contingent consideration as of March 31, 2023. We will remeasure this liability at each reporting date and will record changes in the fair value of the contingent consideration in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Increases or decreases in the fair value of the contingent consideration liability can result from changes in passage of time, discount rates, the timing and amount of our revenue estimates, and the timing and expectation of regulatory approvals.
We performed an assessment of the fair value of the contingent consideration and recorded an expense of $4.8 million and income of $1.8 million for the three months ended March 31, 2023 and 2022, respectively, in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss, as a result of this assessment.
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The fair value of the contingent consideration component of the Ascyrus acquisition was updated using Level 3 inputs. Changes in fair value of Level 3 assets and liabilities are listed in the tables below (in thousands):
Contingent Consideration
Balance as of December 31, 2022$(40,400)
Change in valuation (4,800)
Balance as of March 31, 2023$(45,200)
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Although we believe that the recorded fair values of our financial instruments are appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
3.    Inventories, net and Deferred Preservation Costs
Inventories, net at March 31, 2023 and December 31, 2022 were comprised of the following (in thousands):
March 31,
2023
December 31,
2022
Raw materials and supplies$36,322 $36,715 
Work-in-process11,319 10,476 
Finished goods28,632 27,287 
Total inventories, net $76,273 $74,478 
To facilitate product usage, we maintain consignment inventory of our On-X heart valves at domestic hospital locations and On-X heart valves and aortic stent grafts at international hospital locations. We retain title and control over this consignment inventory until the device is implanted, at which time we invoice the hospital and recognize revenue. As of March 31, 2023 we had $12.7 million in consignment inventory, with approximately 42% in domestic locations and 58% in international locations. As of December 31, 2022 we had $12.7 million in consignment inventory, with approximately 41% in domestic locations and 59% in international locations.
Total deferred preservation costs were $47.4 million and $46.4 million as of March 31, 2023 and December 31, 2022, respectively.
Inventory and deferred preservation costs obsolescence reserves were $2.1 million and $2.2 million as of March 31, 2023 and December 31, 2022, respectively.
4.    Goodwill and Other Intangible Assets
Indefinite Lived Intangible Assets
As of March 31, 2023 and December 31, 2022 the carrying values of our indefinite lived intangible assets were as follows (in thousands):
 March 31,
2023
December 31,
2022
Goodwill$245,648$243,631
In-process R&D2,1202,080
Procurement contracts and agreements2,0132,013
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We monitor the phases of development of our acquired in-process research and development projects, including the risks associated with further development and the amount and timing of benefits expected to be derived from the completed projects. Incremental costs associated with development are charged to expense as incurred. Capitalized costs are amortized over the estimated useful life of the developed asset once completed. Our in-process research and development projects are reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. We did not record any impairment of indefinite lived intangible assets during the three months ended March 31, 2023. In-process research and development, procurement contracts and agreements are included in Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022.
Based on our experience with similar agreements, we believe that our acquired procurement contracts and agreements have indefinite useful lives, as we expect to continue to renew these contracts for the foreseeable future.
We evaluate our goodwill and non-amortizing intangible assets for impairment on an annual basis during the fourth quarter of the year, and, if necessary, during interim periods if factors indicate that an impairment review is warranted. As of March 31, 2023 we concluded that our assessment of current factors did not indicate that goodwill or non-amortizing intangible assets are more likely than not to be impaired. We will continue to evaluate the recoverability of these non-amortizing intangible assets in future periods as necessary.
As of March 31, 2023 and December 31, 2022 the carrying value of goodwill, all of which is related to our Medical Devices segment, was as follows (in thousands):
Medical Devices Segment
Balance as of December 31, 2022$243,631
Foreign currency translation2,017
Balance as of March 31, 2023$245,648
Definite Lived Intangible Assets
The definite lived intangible assets balance includes balances related to acquired technology, customer relationships, distribution and manufacturing rights and know-how, patents, and other definite lived intangible assets. As of March 31, 2023 and December 31, 2022 the gross carrying values, accumulated amortization, and approximate amortization period of our definite lived intangible assets were as follows (in thousands, except weighted average useful life):
March 31, 2023Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average
Useful Life
(Years)
Acquired technology$200,312$50,479$149,83318.2
Other intangibles:
Customer lists and relationships31,06811,48919,57920.5
Distribution and manufacturing rights and know-how9,4556,3533,1025.0
Patents4,2863,1921,09417.0
Other5,8222,9232,8994.4
Total other intangibles$50,631$23,957$26,67410.2
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December 31, 2022Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average
Useful Life
(Years)
Acquired technology$198,420$47,157$151,26318.2
Other intangibles:
Customer lists and relationships31,03011,10019,93020.5
Distribution and manufacturing rights and know-how9,2745,7963,4785.0
Patents4,2463,1801,06617.0
Other5,3602,5432,8174.4
Total other intangibles$49,910$22,619$27,29110.3
Amortization Expense
The following is a summary of amortization expense as recorded in General, administrative, and marketing expenses on our Condensed Consolidated Statement of Operations and Comprehensive Loss (in thousands):
Three Months Ended
March 31,
20232022
Amortization expense$3,882 $4,084 
As of March 31, 2023 scheduled amortization of intangible assets for the next five years is as follows (in thousands):
Remainder
of 2023
20242025202620272028Total
Amortization expense$11,358 14,802 12,832 12,606 12,504 12,388 $76,490 
5.    Income Taxes
Income Tax Expense
Our effective income tax rate was an expense of 52% and 40% for the three months ended March 31, 2023 and 2022, respectively. Our income tax rate for the three months ended March 31, 2023 and 2022 was primarily impacted by changes in our valuation allowance against our net deferred tax assets, non-deductible executive compensation, the foreign derived intangible income deduction, the research and development tax credit, changes in our uncertain tax position liabilities, and tax shortfalls on stock compensation.
Deferred Income Taxes
We generate deferred tax assets primarily as a result of finance and operating leases, net operating losses, excess interest carryforward, accrued compensation, and stock compensation. Our deferred tax liabilities are primarily comprised of intangible assets acquired in previous years, finance and operating leases, and unrealized gains and losses.
We maintained a net deferred tax liability of $21.5 million and $23.2 million as of March 31, 2023 and December 31, 2022, respectively. Our valuation allowance against our deferred tax assets was $19.6 million and $17.9 million as of March 31, 2023 and December 31, 2022, respectively, primarily related to net operating loss carryforwards and disallowed excess interest carryforwards.
6.    Leases
We have operating and finance lease obligations resulting from the lease of land and buildings that comprise our corporate headquarters and various manufacturing facilities; leases related to additional manufacturing, office, and warehouse space; leases on company vehicles; and leases on a variety of office and other equipment.
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Information related to leases included in the Condensed Consolidated Balance Sheets was as follows (in thousands, except lease term and discount rate):
Operating leases:March 31,
2023
December 31,
2022
Operating lease right-of-use assets$56,610 $56,061 
Accumulated amortization(15,137)(14,202)
Operating lease right-of-use assets, net$41,473 $41,859 
Current maturities of operating leases$3,398 $3,308 
Non-current maturities of operating leases 40,774 41,257 
Total operating lease liabilities$44,172 $44,565 
Finance leases:
Property and equipment, at cost$6,533 $6,408 
Accumulated amortization(2,679)(2,498)
Property and equipment, net$3,854 $3,910 
Current maturities of finance leases$526 $513 
Non-current maturities of finance leases3,582 3,644 
Total finance lease liabilities$4,108 $4,157 
Weighted average remaining lease term (in years):
Operating leases11.711.9
Finance leases7.67.8
Weighted average discount rate:
Operating leases5.8%5.9%
Finance leases2.1%2.1%
Current maturities of finance leases are included as a component of Other current liabilities on our Condensed Consolidated Balance Sheets. A summary of lease expenses for our finance and operating leases included in General, administrative, and marketing expenses on our Condensed Consolidated Statements of Operations and Comprehensive Loss was as follows (in thousands):
Three Months Ended
March 31,
20232022
Amortization of property and equipment$131$137
Interest expense on finance leases2125
Total finance lease expense152162
Operating lease expense1,8021,920
Sublease income (92)
Total lease expense$1,954$1,990
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A summary of our cash flow information related to leases was as follows (in thousands):
Three Months Ended
March 31,
Cash paid for amounts included in the measurement of lease liabilities:20232022
Operating cash flows for operating leases$1,796$1,525
Financing cash flows for finance leases132130
Operating cash flows for finance leases2124
Future minimum lease payments and sublease rental income are as follows (in thousands):
Finance
Leases
 Operating
Leases
Remainder of 2023$442$4,246
20246065,819
20255855,620
20265665,008
20275614,867
Thereafter1,67037,103
Total minimum lease payments$4,430$62,663
Less amount representing interest(322)(18,491)
Present value of net minimum lease payments4,10844,172
Less current maturities(526)(3,398)
Lease liabilities, less current maturities$3,582$40,774
7.    Debt
Credit Agreement
On December 1, 2017 we entered into a credit and guaranty agreement for a $255.0 million senior secured credit facility, consisting of a $225.0 million secured term loan facility (the “Term Loan Facility”) and a $30.0 million secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Agreement”). We and each of our existing domestic subsidiaries (subject to certain exceptions and exclusions) guarantee the obligations under the Credit Agreement (the “Guarantors”). The Credit Agreement is secured by a security interest in substantially all existing and after-acquired real and personal property (subject to certain exceptions and exclusions) of us and the Guarantors.
On June 2, 2021 we entered into an amendment to our Credit Agreement to extend the maturity dates of both our Term Loan and Revolving Credit Facility. As part of the amendment, the maturity dates of both our Term Loan and Revolving Credit Facility were each extended by two and one-half years, until June 1, 2027 and June 1, 2025, respectively, subject to earlier springing maturities triggered if our 4.25% Convertible Senior Notes, described below, remain outstanding on April 1, 2025 and December 31, 2024, respectively. With respect to the Term Loan, if the Convertible Senior Notes remain outstanding on April 1, 2025, the Term Loan’s maturity date will be April 1, 2025, or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 91 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2027. In the case of the Revolving Credit Facility, if the Convertible Senior Notes are still outstanding on December 31, 2024, the Revolving Credit Facility’s maturity date will be either December 31, 2024 or, if the Convertible Senior Notes’ own maturity date has been extended, the earlier of (i) 182 days prior to the Convertible Senior Notes’ new maturity date and (ii) June 1, 2025. Under the amendment, the Term Loan Facility bears interest, at our option, at a floating annual rate equal to either the base rate, plus a margin of 2.50%, or LIBOR, plus a margin of 3.50%. Prior to the amendment, the optional floating annual rate was equal to either the base rate plus a margin of 2.25%, or LIBOR, plus a margin of 3.25%. We paid debt issuance costs of $2.1 million, of which $1.8 million will be amortized over the life of the Term Loan Facility and included in current and long-term debt on the Condensed Consolidated Balance Sheets. The remaining $361,000 of debt issuance costs and $474,000 of non-cash debt extinguishment costs were recorded in Interest expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
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As discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 the Credit Agreement contains certain customary affirmative and negative covenants, including covenants that limit our ability and the ability of our subsidiaries to, among other things, grant liens, incur debt, dispose of assets, make loans and investments, make acquisitions, make certain restricted payments (including cash dividends), merge or consolidate, change business or accounting or reporting practices, in each case subject to customary exceptions for a credit facility of this size and type. Beginning in 2021 if we repay borrowings under our Revolving Credit Facility to 25% or less, no financial maintenance covenants, including the minimum liquidity covenant and the maximum first lien net leverage ratio covenant, are applicable. We are in compliance with our debt covenants as of March 31, 2023.
On December 19, 2022 in accordance with adopting ASU 2020-04 and 2021-01, we entered into an amendment to our Credit Agreement to replace the LIBOR based benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”) based benchmark interest rate for our Term Loan Facility and our Revolving Credit Facility. Based on historical analysis of the differences between the benchmark rates, SOFR is adjusted to arrive at a Term SOFR rate that serves as the replacement base rate for LIBOR under our amended credit facilities. Under this amendment, at the maturity of our existing LIBOR-based loan on December 30, 2022, the interest rate at the repricing of our Term Loan Facility was calculated as Term SOFR plus a fixed percentage credit spread of 3.50%. The loan under the Revolving Credit Facility bears interest at Term SOFR plus a margin of between 4.00% and 4.25%, depending on our consolidated leverage ratio. As of March 31, 2023 the aggregate interest rate of the Credit Agreement was 8.66% per annum.
Convertible Senior Notes
On June 18, 2020 we issued $100.0 million aggregate principal amount of 4.25% Convertible Senior Notes with a maturity date of July 1, 2025 (the “Convertible Senior Notes”). The net proceeds from this offering, after deducting initial purchasers’ discounts and costs directly related to this offering, were approximately $96.5 million. On January 1, 2021 we adopted ASU 2020-06 and adjusted the carrying balance of the Convertible Senior Notes to notional. The Convertible Senior Notes balance was $100.0 million recorded in Long-term debt on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022. The Convertible Senior Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. The initial conversion rate of the Convertible Senior Notes is 42.6203 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $23.46 per share, subject to adjustments. We use the if-converted method for assumed conversion of the Convertible Senior Notes for the diluted earnings per share calculation. The fair value and the effective interest rate of the Convertible Senior Notes as of March 31, 2023 was approximately $90.7 million and 5.05%, respectively. The fair value was based on market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy.
The interest expense recognized on the Convertible Senior Notes includes $1.2 million for the three months ended March 31, 2023 and 2022 related to the aggregate of the contractual coupon interest and the amortization of the debt issuance costs. Interest on the Convertible Senior Notes began accruing upon issuance and is payable semi-annually. There were $1.7 million and $1.9 million of unamortized debt issuance costs related to Convertible Senior Notes as of March 31, 2023 and December 31, 2022, respectively.
Holders of the Convertible Senior Notes may convert their notes at their option at any time prior to January 1, 2025, but only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (iii) we give a notice of redemption with respect to any or all of the notes, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after January 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.
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We cannot redeem the Convertible Senior Notes before July 5, 2023. We can redeem them on or after July 5, 2023, in whole or in part, at our option, if the last reported sale price per share of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. We may redeem for cash all or part of the Convertible Senior Notes at a redemption price equal to 100% of the principal amount of the redeemable Convertible Senior Notes, plus accrued and unpaid interest to, but excluding, the redemption date. No principal payments are due on the Convertible Senior Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the Convertible Senior Notes do not contain any financial covenants and do not restrict us from conducting significant restructuring transactions or issuing or repurchasing any of its other securities.
Loan Balances
The short-term and long-term balances of our Term Loan and other long-term borrowings were as follows (in thousands):
March 31,
2023
December 31,
2022
Term Loan balance$213,188 $213,750 
Convertible Senior Notes100,000 100,000 
2.45% Sparkasse Zollernalb (KFW Loan 1)
241 296 
1.40% Sparkasse Zollernalb (KFW Loan 2)
680 733 
Total loan balance314,109 314,779 
Less unamortized loan origination costs(6,210)(6,672)
Net borrowings307,899 308,107 
Less short-term loan balance(1,620)(1,608)
Long-term loan balance$306,279 $306,499 
Interest Expense
Interest expense was $6.1 million and $3.9 million for the three months ended March 31, 2023 and 2022, respectively. Interest expense includes interest on debt and uncertain tax positions in both periods.
8.    Commitments and Contingencies
Liability Claims
In the normal course of business, we are made aware of adverse events involving our products and tissues. Future adverse events could ultimately give rise to a lawsuit against us, and liability claims may be asserted against us in the future based on past events that we are not aware of at the present time. We maintain claims-made insurance policies to mitigate our financial exposure to product and tissue processing liability claims. Claims-made insurance policies generally cover only those asserted claims and incidents that are reported to the insurance carrier while the policy is in effect. The amounts recorded in these Condensed Consolidated Financial Statements as of March 31, 2023 and the Consolidated Financial Statements as of December 31, 2022 represent our estimate of the probable losses and anticipated recoveries for incurred but not reported claims related to products sold and services performed prior to the balance sheet date.
9.    Revenue Recognition
Sources of Revenue
We have identified the following revenues disaggregated by revenue source:
Domestic hospitals – direct sales of products and preservation services.
International hospitals – direct sales of products and preservation services.
International distributors – generally these contracts specify a geographic area that the distributor will service, terms and conditions of the relationship, and purchase targets for the next calendar year.
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CardioGenesis cardiac laser console trials and sales – CardioGenesis cardiac trialed laser consoles are delivered under separate agreements.
For the three months ended March 31, 2023 and 2022 the sources of revenue were as follows (in thousands):
Three Months Ended
March 31,
20232022
Domestic hospitals$40,883$36,993
International hospitals28,95728,414
International distributors12,93911,064
CardioGenesis cardiac laser therapy450742
Total sources of revenue$83,229$77,213
Also see segment disaggregation information in Note 12 below.
Contract Balances
We may generate contract assets during the pre-delivery design and manufacturing stage of E-xtra Design Engineering product order fulfillment. We assess the balance related to any arrangements in process and determine if the enforceable right to payment creates a material contract asset requiring disclosure. No material arrangements in process existed as of March 31, 2023 and 2022.
We also incur contract obligations on general customer purchase orders that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product or service, we have determined that the balance related to these contract obligations is generally immaterial at any point in time. We monitor the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate. The value of orders accepted but unfulfilled as of March 31, 2023 and 2022 was not material.
10.    Stock Compensation
Overview
We have stock option and stock incentive plans for employees and non-employee Directors that provide for grants of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock units (“PSUs”), and options to purchase shares of our common stock at exercise prices generally equal to the fair value of such stock at the dates of grant. We also maintain a shareholder-approved Employee Stock Purchase Plan (“ESPP”) for the benefit of our employees. The ESPP allows eligible employees to purchase common stock on a regular basis at the lower of 85% of the market price at the beginning or end of each offering period.
Equity Grants
During the three months ended March 31, 2023 the Compensation Committee of our Board of Directors (the “Committee”) authorized awards from approved stock incentive plans of RSUs and PSUs to certain employees and company officers, which, assuming that performance under the PSUs were to be achieved at target levels, together totaled 376,000 shares and had an aggregate grant date fair value of $5.0 million.
During the three months ended March 31, 2022 the Committee authorized awards from approved stock incentive plans of RSUs and PSUs to certain employees and company officers, which, assuming that performance under the PSUs were to be achieved at target levels, together totaled 452,000 shares and had an aggregate grant date fair value of $8.3 million.
The Committee authorized, from approved stock incentive plans, grants of stock options to purchase a total of 314,000 shares to certain company officers during the three months ended March 31, 2022. The exercise prices of the options were equal to the closing stock prices on their respective grant dates. The Committee did not authorize any grants of stock options during the three months ended March 31, 2023.
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Employees purchased common stock totaling 56,000 and 37,000 shares in the three months ended March 31, 2023 and 2022, respectively, through the ESPP.
Stock Compensation Expense
The following weighted-average assumptions were used to determine the fair value of options and shares purchased under the ESPP:
Three Months Ended
March 31, 2023
Stock OptionsESPP
Expected lifeN/A0.5 Years
Expected stock price volatilityN/A0.66
Risk-free interest rateN/A4.77%
The following table summarizes total stock compensation expenses prior to the capitalization of amounts into Deferred preservation and Inventory costs (in thousands):
Three Months Ended
March 31,
20232022
RSA, RSU, and PSU expense$2,641 $2,768 
Stock option and ESPP expense872 572 
Total stock compensation expense$3,513 $3,340 
Included in the total stock compensation expense, as applicable in each period, were expenses related to RSAs, RSUs, PSUs, and stock options issued in each respective year, as well as those issued in prior periods that continue to vest during the period, and compensation related to the ESPP. These amounts were recorded as stock compensation expense and were subject to our normal allocation of expenses to inventory costs and deferred preservation costs. We capitalized $172,000 and $174,000 in the three months ended March 31, 2023 and 2022, respectively, of the stock compensation expense into our inventory costs and deferred preservation costs.
11.    Loss Per Common Share
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except per share data):
Three Months Ended
March 31,
Basic loss per common share20232022
Net loss$(13,532)$(3,389)
Net loss allocated to participating securities6018
Net loss allocated to common shareholders$(13,472)$(3,371)
Basic weighted-average common shares outstanding40,43239,850
Basic loss per common share$(0.33)$(0.08)
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Three Months Ended
March 31,
Diluted loss per common share20232022
Net loss$(13,532)$(3,389)
Net loss allocated to participating securities6018
Net loss allocated to common shareholders$(13,472)$(3,371)
Basic weighted-average common shares outstanding40,43239,850
Diluted weighted-average common shares outstanding40,43239,850
Diluted loss per common share$(0.33)$(0.08)
We excluded stock options from the calculation of diluted weighted-average common shares outstanding if the per share value, including the sum of (i) the exercise price of the options and (ii) the amount of the compensation cost attributed to future services and not yet recognized, was greater than the average market price of the shares because the inclusion of these stock options would be antidilutive to loss per common share. For the three months ended March 31, 2023 and 2022 all stock options and awards were excluded from the calculation of diluted weighted-average common shares outstanding as these would be antidilutive due to the net loss.
12.    Segment Information
We have two reportable segments organized according to our products and services: Medical devices and Preservation services. The Medical Devices segment includes external revenues from product sales of aortic stent grafts, On-X, surgical sealants, and other product revenues. Aortic stent grafts include aortic arch stent grafts, abdominal stent grafts, and synthetic vascular grafts. Aortic arch stent grafts include our E-vita Open NEO, E-vita Open Plus, AMDS, NEXUS, and E-vita Thoracic 3G. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, and E-liac products. Surgical sealants include BioGlue Surgical Adhesive products. The Preservation Services segment includes external services revenues from the preservation of cardiac and vascular tissues. There are no intersegment revenues.
The primary measure of segment performance, as viewed by our management, is segment gross margin or net external revenues less cost of products and preservation services. We do not segregate assets by segment, therefore, asset information is excluded from the segment disclosures below.
The following table summarizes revenues, cost of products and preservation services, and gross margins for our operating segments (in thousands):
Three Months Ended
March 31,
20232022
Revenues:
Medical devices$62,291 $57,542 
Preservation services20,938 19,671 
Total revenues83,229 77,213 
Cost of products and preservation services:
Medical devices19,533 17,408 
Preservation services9,969 9,086 
Total cost of products and preservation services29,502 26,494 
Gross margin:
Medical devices42,758 40,134 
Preservation services10,969 10,585 
Total gross margin$53,727 $50,719 
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The following table summarizes net revenues by product and service (in thousands):
Three Months Ended
March 31,
20232022
Products:
Aortic stent grafts$26,150$25,506
On-X17,65614,371
Surgical sealants16,70315,681
Other1,7821,984
Total products62,29157,542
Preservation services 20,93819,671
Total revenues$83,229$77,213
13.    Subsequent Events
Endospan Loan
On September 11, 2019 Artivion and Endospan Ltd. (“Endospan”), an Israeli corporation, entered into a loan agreement (“Endospan Loan”), in which Artivion agreed to provide Endospan a secured loan of up to $15.0 million to be funded in three tranches of $5.0 million each. The first tranche of the Endospan Loan was funded upon execution of the agreement in September 2019. In September 2020 we funded the second tranche payment of $5.0 million upon the certification of the NEXUS IDE from the US Food and Drug Administration (the “FDA”).
On April 16, 2023 Endospan completed an enrollment certification of 50% of the required number of patients in the primary arm of the FDA approved clinical trial for NEXUS, which, assuming compliance with other requirements under the Endospan Loan, may trigger a third tranche payment of $5.0 million. We expect to fund the $5.0 million payment during the second quarter of fiscal year 2023.
We elected the fair value option for recording the Endospan Loan and are evaluating the fair value impact of the anticipated funding of the third tranche payment.
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Forward-Looking Statements
This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements give our expectations or forecasts of future events as of the date of this Form 10-Q. In some cases, words such as “could,” “may,” “might,” “will,” “would,” “shall,” “should,” “pro forma,” “potential,” “pending,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “future,” “assume,” and variations of these types of words or other similar expressions identify forward-looking statements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date of this Form 10-Q.
All statements included herein, other than statements of historical facts, that address activities, events, or developments that we expect or anticipate will or may occur in the future, or that reflect our beliefs about the future and/or expectations, are forward-looking statements, including statements about the following:

Our belief that new products, new indications, global expansion, and business development are the four growth areas that will drive our business in the future;
The potential impact the COVID-19 pandemic and the war in Ukraine may have on demand for and sales of our products and services, business operations, manufacturing operations, supply chain, cash flow, workforce, clinical and regulatory timelines, and our research and development projects;
The potential impact general global, regional, or national economic downturns and macroeconomic trends, including heightened inflation, interest rate and currency fluctuations, as well as general or localized economic slowdowns or recessions may have on demand for and sales of our products and services, including ordering trends for international distributors based on currency fluctuation against the US dollar, and our business operations, manufacturing operations, supply chain, and workforce;
Our beliefs about the robustness of our global supply chain in light of current global and macroeconomic conditions and about the potential impact of supply chain disruptions, particularly disruptions to single and sole source suppliers and third-party manufacturing partners;
Our beliefs about our R&D and product pipeline, including our beliefs about the timing of our clinical trials and product launches;
Our beliefs and anticipation regarding the favorable attributes, benefits, and clinical advantages of our products and services, the basis on which our products and services compete, the benefits of our physician education activities, and the advantages of our relationships with organ and tissue procurement organizations and tissue banks;
Our beliefs about the future regulatory status of our medical devices, our compliance with applicable laws and regulations, and our ability to make timely transitions to our Notified Bodies and obtain renewals for our Conformité Européene Mark product certification impacted by Brexit and the transition to the Medical Device Regulation in Europe, and the impact these transitions, renewals, and related processes may have on our business, including any impact on our customers' ordering patterns and our ability to supply products;
Our beliefs regarding our global expansion efforts, including the international growth opportunity that would be provided by obtaining regulatory approval for BioGlue in China;
Our beliefs regarding the impact lower INR anticoagulation therapy and transcatheter heart valve replacement may have on the number of patients choosing On-X mechanical heart valves;
Our beliefs about the advantages of our intellectual property and its significance to our segments and our business as a whole, and our beliefs about the present value and potential impairment of our intangible assets and leases;
Our beliefs about our workforce, including our ability to attract and retain talent at all levels, and about our relationship with our workforce, including our works council in Germany and union in Brazil;
Our beliefs about potential information security vulnerabilities, and the associated potential adverse effects on our business;
The dependencies affecting our ability to realize the anticipated business opportunities, growth prospects, synergies, and other benefits of the agreements with Endospan and Baxter and our acquisition of Ascyrus, and our beliefs about the costs and timelines for certain regulatory approvals and clinical trial milestones related to PerClot and the NEXUS stent graft system in the US and the AMDS globally;
Our beliefs regarding the fair value of our acquisitions, divestitures, and other business development activities and the estimates and assumptions about the future achievements of milestones and future revenues and cash flows related to those business development activities, including our ability to achieve the milestones in the Baxter Transaction;
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Our beliefs about the anticipated benefits from our corporate reincorporation and rebranding and the risks posed by the same;
Our belief that revenues for preservation services, particularly revenues for certain high-demand cardiac tissues, can vary from quarter-to-quarter and year-to-year due to a variety of factors including: quantity and type of incoming tissues, yields of tissue through the preservation process, timing of receipt of donor information, staffing levels, timing of the release of tissues to an implantable status, demand for certain tissue types due to the number and type of procedures being performed, and pressures from competing products or services;
Our beliefs regarding the seasonal nature of the demand for some of our products and services and the reasons for such seasonality, if any, and regarding the impact of consignment inventory on product sales, if any;
Our belief that our cash from operations and existing cash and cash equivalents will enable us to meet our current operational liquidity needs for at least the next twelve months, our expectations regarding future cash requirements, and the impact that our cash requirements might have on our cash flows for the next twelve months;
Our expectation regarding the impact on cash flows of undertaking significant business development activities and the potential need to obtain additional debt financing or equity financing;
Our belief that we will incur expenses for research and development projects, including for clinical research projects to gain regulatory approvals for products or indications, including On-X, aortic stent grafts, and BioGlue products, and for new products and technologies which will