CryoLife Germany TopCo GmbH

CryoLife Germany TopCo GmbH

Düsseldorf

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2024 bis zum 31.12.2024

Artivion, Inc.

Kennesaw, Georgia/USA

Konzernlagebericht

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including those set forth under Part I, Item 1A.“Risk Factors” of this Form 10-K. The following discussion and analysis do not include certain items related to the year ended December 31, 2022, including year-to-year comparisons between the year ended December 31, 2023 and the year ended December 31, 2022. For a comparison of our results of operations for the fiscal years ended December 31, 2023 and December 31, 2022, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024.

Overview

Artivion, Inc. (“Artivion,” the “Company,” “we,” or “us”), is a leader in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures for patients with aortic disease. We have four major product families: aortic stent grafts, On-X mechanical heart valves and related surgical products, surgical sealants, and implantable cardiac and vascular human tissues. 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 ONE, NEXUS DUO, and NEXUS TRE, and E-vita Thoracic 3G products. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, TuvaTM BX, and E-liac products. Surgical sealants include BioGlue Surgical Adhesive (“BioGlue”) products. In addition to these four major product families, we sell or distribute PhotoFix bovine surgical patches (“PhotoFix”) and CardioGenesis cardiac laser therapy (prior to our abandonment of that business as of June 2023). We began to manufacture and supply PerClot® hemostatic powder (“PerClot”) during the second quarter of 2023 (as part of the Transitional Manufacturing and Supply Agreement (“TMSA”) of the Baxter Transaction, described below). For the year ended December 31, 2024 we reported annual revenues of $388.5 million, increasing 10% over the prior year. Excluding the effects of foreign exchange, revenues increased 9% over the prior year. The increase in revenues was due to increases in revenues from aortic stent grafts, On-X products, surgical sealants, and preservation services, partially offset by a decrease in revenues from other products and certain limited impacts resulting from the Cybersecurity Incident.

For the year ended December 31, 2024 we reported a net loss of $13.4 million. See the “Results of Operations” section below for additional analysis of the full year 2024 results. See Part I, Item 1, “Business,” for further discussion of our business and activities during 2024.

Critical Accounting Policies

A summary of our significant accounting policies is included in Part II, Item 8, Note 1 of the “Notes to Consolidated Financial Statements.” We believe 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 consolidated financial statements are prepared in accordance with accounting principles generally accepted in the US, which require us to make estimates and assumptions. The following are accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and may involve a higher degree of judgment and complexity.

Deferred Preservation Costs

Deferred preservation costs include costs of cardiac and vascular tissues available for shipment, tissues currently in active processing, and tissues held in quarantine pending release to implantable status. By federal law, human tissues cannot be bought or sold; therefore, the tissues we preserve are not held as inventory. The costs we incur to procure and process cardiac and vascular tissues are instead accumulated and deferred. Deferred preservation costs are stated at the lower of cost or net realizable value on a first-in, first-out basis and are deferred until revenue is recognized. Upon shipment of tissue to an implanting facility, revenue is recognized, and the related deferred preservation costs are expensed as cost of preservation services. Cost of preservation services also includes, as applicable, lower of cost or net realizable value write-downs and impairments for tissues not deemed to be recoverable, and includes, as incurred, idle facility expense, excessive spoilage, extra freight, and re-handling costs. The calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing. Donated human tissue is procured from deceased human donors by organ and tissue procurement organizations (“OPOs”) and tissue banks that provide the tissue to us for processing, preservation, and distribution. Deferred preservation costs consist primarily of the procurement fees charged by the OPOs and tissue banks, direct labor and materials (including salary and fringe benefits, laboratory supplies and expenses, and freight-in charges), and indirect costs (including allocations of costs from support departments and facility allocations). Fixed production overhead costs are allocated based on actual tissue processing levels, to the extent that they are within the range of the facility’s normal capacity.

These costs are then allocated among the tissues processed during the period based on cost drivers, such as the number of donors or number of tissues processed. We apply a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable. We estimate quarantine and in process yields based on our historical yield experience with similar tissues and re-evaluate these estimates periodically. Actual yields could differ significantly from our estimates, which could result in a change in tissues available for shipment and could increase or decrease the balance of deferred preservation costs. These changes could result in additional cost of preservation services expense or could increase per tissue preservation costs, which would impact gross margins on tissue preservation services in future periods.

We regularly evaluate our deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or net realizable value. We also evaluate our deferred preservation costs for costs not deemed to be recoverable, including tissues not expected to ship prior to the expiration date of their packaging. Lower of cost or net realizable value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services, based on recent average service fees at the time of the evaluation. Impairment write-downs are recorded based on the book value of tissues deemed to be impaired. Actual results may differ from these estimates. Write-downs of deferred preservation costs are expensed as cost of preservation services, and these write-downs are permanent impairments that create a new cost basis, which cannot be restored to its previous levels if our estimates change. Fair Value Measurements - Contingent Consideration

Contingent consideration represents a recurring fair value estimate of potential future payments. The fair value of the contingent consideration liability is estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. A discount rate is applied based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then we apply 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.

New Accounting Pronouncements

See Part II, Item 8, Note 1 of “Notes to Consolidated Financial Statements” for further discussion of new accounting standards that have been adopted or are being evaluated for future adoption.

Results of Operations

Revenues increased 10% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in revenues for the year ended December 31, 2024 was due to an increase in revenues from aortic stent grafts, On-X products, surgical sealants, and preservation services, partially offset by a decrease in revenues from other products. Excluding the effects of foreign exchange, revenues increased 9% for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The following table reconciles revenues to constant currency revenues for the periods presented:

A detailed discussion of the changes in product revenues and preservation services revenues for the year ended December 31, 2024 is presented below.

Products

Revenues from products increased 11% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase was due to an increase in revenues from aortic stent grafts, On-X products, and surgical sealants, partially offset by a decrease in revenues from other products and certain limited impacts resulting from the Cybersecurity Incident. A discussion of the changes in product revenues for aortic stent grafts, On-X products, surgical sealants, and other product revenues is presented below. Sales of certain products through our direct sales force and distributors across Europe and various other countries are denominated in a variety of currencies including Euros, Brazilian Reals, Polish Zlotys, British Pounds, Canadian Dollars, and Swiss Francs with a concentration denominated in Euros. Each currency is subject to exchange rate fluctuations. For the year ended December 31, 2024, as compared to the year ended December 31, 2023, the US Dollar weakened in comparison to major currencies, resulting in revenue increases when these foreign currency denominated transactions were translated into US Dollars. Future changes in these exchange rates could have a material, adverse effect on our revenues denominated in these currencies. Additionally, our sales to many distributors around the world are denominated in US Dollars, and although these sales are not directly impacted by currency exchange rates, we believe that some of our distributors may delay or reduce purchases of products in US Dollars depending on the relative price of these goods in their local currencies.

Aortic Stent Grafts

Aortic stent grafts include aortic arch stent grafts, abdominal stent grafts, synthetic vascular grafts, and original equipment manufacturing (“OEM”) aortic stent graft products. Aortic arch stent grafts include our E-vita Open NEO, E-vita Open Plus, AMDS, the NEXUS family of products, and E-vita Thoracic 3G products. Abdominal stent grafts include our E-xtra Design Engineering, E-nside, E-tegra, E-ventus BX, TuvaTM BX, and E-liac products. Aortic stent grafts are used in endovascular and open vascular surgery for the treatment of complex aortic arch, thoracic, and abdominal aortic diseases. Our aortic stent grafts are primarily distributed in international markets.

Revenues from the sales of aortic stent grafts increased 15% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This increase was primarily due to a change in the volume and mix of units sold, and to a lesser extent, an increase in average sales prices, and the effect of foreign exchange rates. Constant currency revenues from the sales of aortic stent grafts increased 13% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Revenues for the year ended December 31, 2024 increased primarily in Europe, the Middle East, and Africa (collectively, “EMEA”) and, to a lesser extent, in Latin America and Asia Pacific (“APAC”). The revenue increase in EMEA for the year ended December 31, 2024 was primarily due to an increase in volume of higher priced products within the aortic stent graft product line in direct (to hospitals) markets.

On-X Products

The On-X products include the On-X aortic and mitral heart valves and the On-X ascending aortic prosthesis (“AAP”) for heart valve replacement. Revenues from the sales of On-X products include revenues from the distribution of CarbonAid® CO₂ diffusion catheters and from the sale of Chord-X® ePTFE sutures for mitral chordal replacement. On-X product revenue also includes revenue generated from pyrolytic carbon coating services for OEM customers. Revenues from the sales of On-X products increased 13% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This increase was primarily due to an increase in the volume of units sold and, to a lesser extent, an increase in average sales prices.

Constant currency revenues from the sales of On-X products increased 13% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Revenues for the year ended December 31, 2024 increased in all geographies, with the most significant increase in North America. The increase in revenues in North America for the year ended December 31, 2024 was impacted by recent gains in the market share. On-X OEM sales accounted for less than 1% of product revenues for the year ended December 31, 2024 and 2023. Domestic revenues from the sales of On-X products accounted for 61% and 60% of total On-X revenues for the year ended December 31, 2024 and 2023, respectively.

Surgical Sealants

Surgical sealants include BioGlue products used as an adjunct to standard methods of achieving hemostasis (such as sutures and staples) in adult patients in open surgical repair of large vessels (such as aorta, femoral, and carotid arteries).

Revenues from the sales of surgical sealants increased 9% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This increase was primarily due to an increase in the volume of milliliters sold and, to a lesser extent, an increase in average sales prices.

Constant currency revenues from the sales of surgical sealants increased 9% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in revenues was primarily due to revenue increases in EMEA, North America, and Latin America, with the most significant increase in EMEA. The increase in revenues in EMEA for the year ended December 31, 2024 was primarily due to an increase in unit sales in direct markets.

Domestic revenues from surgical sealants accounted for 47% and 48% of total surgical sealant revenues for the year ended December 31, 2024 and 2023, respectively.

Other

Other revenues are comprised of revenues from PhotoFix and PerClot (as part of the TMSA of the Baxter Transaction described below), and CardioGenesis cardiac laser therapy (prior to our abandonment of that business as of June 2023). Other revenues decreased 17% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decrease in other revenues for the year ended December 31, 2024 was primarily due to an decrease in PerClot product revenues and, to a lesser extent, a decrease in CardioGenesis revenues as a result of our abandonment of the CardioGenesis cardiac laser therapy business as of June 30, 2023, partially offset by an increase in PhotoFix revenues due to a change in mix of units sold and an increase in average sales prices. On July 28, 2021 we entered into an asset purchase agreement, TMSA, and other ancillary agreements related to the sale of PerClot, a polysaccharide hemostatic agent used in surgery, to a subsidiary of Baxter International, Inc. (“Baxter”), and an agreement to terminate all of our material agreements with Starch Medical, Inc. (“SMI”) related to PerClot (collectively the “Baxter Transaction”). On May 23, 2023 the FDA granted Premarket Approval (“PMA”) of PerClot for use to control bleeding in certain open and laparoscopic surgical procedures. Pursuant to the terms of the TMSA of the Baxter Transaction, we transferred the ownership of the PMA to Baxter following approval and began manufacturing and supplying PerClot for Baxter for a period of 21 months, subject to short-term renewal provisions.

Preservation Services

Preservation services include service revenues from processing cardiac and vascular tissues. Our cardiac valves are primarily used in cardiac replacement and reconstruction surgeries, including the Ross procedure, for patients with endocarditis or congenital heart defects. Our cardiac tissues are primarily distributed in domestic markets. The majority of our vascular preservation services revenues are related to shipments of saphenous veins, which are mainly used in peripheral vascular reconstruction surgeries to avoid limb amputations. Competition with synthetic product alternatives and the availability of tissues for processing are key factors affecting revenue volume that can fluctuate from quarter to quarter. Our vascular tissues are primarily distributed in domestic markets. We continue to evaluate modifications to our tissue processing procedures in an effort to improve tissue processing throughput, reduce costs, and maintain quality across our tissue processing business. Preservation services revenues, 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, timing of the release of tissues for implant, demand for certain tissue types due to the number and type of procedures being performed, and pressures from competing products or services.

Revenues from tissue processing increased 6% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in revenues was primarily due to an increase in average sales prices.

Cost of Products and Preservation Services

Cost of products

Cost of products increased 17% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Cost of products for the year ended December 31, 2024 and 2023 included costs related to aortic stent grafts, On-X, surgical sealants, and other products. Cost of products for the year ended December 31, 2024 included a $2.0 million idle capacity charge resulting from the previously disclosed cybersecurity incident that occurred during the fourth quarter of 2024. The remaining increase in cost of products as compared to the year ended December 31, 2023 was primarily due to an increase in volume of On-X and aortic stent grafts shipped and an increase of the cost of certain aortic stent grafts and other products shipped, partially offset by favorable product mix.

Cost of Preservation Services

Cost of preservation services remained flat for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Cost of preservation services included costs for cardiac and vascular tissue preservation services. Cost of preservation services for the year ended December 31, 2024 was negatively impacted by an increase in cost of certain tissues shipped, offset by a decrease in volume of certain tissues shipped.

Gross Margin

Gross margin increased 9% for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The increase in gross margin for the year ended December 31, 2024, as compared to the year ended December 31, 2023 was due to an increase in the volume of all products shipped as well as favorable pricing of certain aortic stent grafts, surgical sealants, On-X products, and tissues shipped during 2024. This increase was partially offset by an increase in the cost of certain aortic stent grafts, including an idle capacity charge resulting from the cybersecurity incident that occurred in the fourth quarter of 2024, and certain tissues shipped as well as unfavorable geography mix of On-X products and certain aortic stent grafts shipped during 2024. Gross margin as a percentage of total revenues decreased for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Gross margin as a percentage of total revenues was negatively impacted by an increase in the cost of certain aortic stent grafts, largely due to an idle capacity charge resulting from the fourth quarter cybersecurity incident, and other products, unfavorable geography mix of On-X products shipped, partially offset by favorable pricing of certain tissues, favorable product mix of certain aortic stent grafts, and On-X products shipped during the year ended December 31, 2024.

Operating Expenses

General, administrative, and marketing expenses decreased 13% for the year ended December 31, 2024, as compared to the year ended December 31, 2023, which includes the impact of the Ascyrus contingent consideration fair value adjustment gain of $11.0 million and loss of $23.5 million for the year ended December 31, 2024 and 2023, respectively. The remaining general, administrative, and marketing expenses for the year ended December 31, 2024 increased $7.0 million as a result of higher personnel-related expenses due to an increase in headcount and $2.6 million of expenses associated with the fourth quarter cybersecurity incident.

Research and Development Expenses

Research and development expenses decreased 1% for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Research and development spending for the year ended December 31, 2024 and 2023 was primarily focused on clinical work to gain regulatory approvals for certain aortic stent grafts, and, to a lesser extent, On-X products.

Gain from Sale of Non-Financial Assets

Gain from sale of non-financial assets for the year ended December 31, 2023 consisted of the net $14.3 million received as part of the Baxter Transaction upon receipt of the PerClot PMA in May 2023.

Interest Expense

Interest expense was $34.3 million and $25.3 million for the year ended December 31, 2024 and 2023, respectively. The increase in interest expense for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to an increase in the interest rates and higher unused commitment fees on our new credit facilities as a result of our debt refinancing in January 2024 as well as an increase in non-cash amortization of debt discounts and debt issuance costs.

Loss on Extinguishment of Debt

During the year ended December 31, 2024 we recorded a loss on extinguishment of debt of $3.7 million in connection with the extinguishment of our previously existing credit facilities. See Part II, Item 8, Note 10 of the “Notes to Consolidated Financial Statements” for further discussion of our new credit facilities.

Other Expense, Net

Other expense, net was $9.9 million and $3.1 million for the year ended December 31, 2024 and 2023, respectively. Other expense, net for the year ended December 31, 2024 primarily included a net $5.4 million loss from realized and unrealized effects of foreign currency gains and losses and a $4.5 million loss associated with fair value adjustments to loans issued pursuant to our Endospan agreements. Other expense, net for the year ended December 31, 2023 primarily included a $5.0 million loss associated with fair value adjustments to loans issued pursuant to our Endospan agreements, partially offset by a $2.1 million gain from realized and unrealized effects of foreign currency gains and losses. See Part II, Item 8, Note 4 - “Agreements with Endospan” of the “Notes to Consolidated Financial Statements” for further information on our agreements with Endospan.

Income Tax Expense

Our effective income tax rate was an expense of 78% and 42% for the year ended December 31, 2024 and 2023, respectively. The increase in the effective income tax rate for the year ended December 31, 2024 was primarily due to changes in the jurisdictional mix of our earnings and valuation allowance, higher nondeductible executive compensation, state taxes and provision to return adjustments.

Non-GAAP Measures of Financial Performance

To supplement our Consolidated Financial Statements presented in accordance with US GAAP, we use constant currency revenues, which is a non-GAAP financial measure. We define constant currency revenues as revenues minus the exchange rate effect. We define exchange rate effect as the year-over-year impact of foreign currency movements using current period foreign currency rates applied to prior period transactional currency amounts. We have provided non-GAAP financial measures in this report as we believe that these figures are helpful in allowing management and investors to more accurately assess the ongoing nature of our operations and measure our performance more consistently across periods. Management uses constant currency revenues internally to assess the operational performance of the Company, as a component in compensation metrics, and as a basis for strategic planning. We believe the provided non-GAAP measures are meaningful in addition to the information contained in the US GAAP presentation of financial performance. Investors should consider this non-GAAP information in addition to, and not as a substitute for, financial measures prepared in accordance with US GAAP. In addition, this non-GAAP financial information may not be the same as similar measures presented by other companies.

Seasonality

Historically, we believe the demand for most of our aortic stent grafts is seasonal, with a decline in demand generally occurring in the third quarter due to the summer holiday season in Europe. Historically, we believe the demand for surgical sealants is seasonal, with a decline in demand generally occurring in the third quarter followed by stronger demand in the fourth quarter. We believe that this trend may be due to the summer holiday season in Europe and the US. We do not believe the demand for our On-X and other products is seasonal. Demand for our cardiac preservation services has traditionally been seasonal, with peak demand generally occurring in the third quarter. We believe this trend for cardiac preservation services is primarily due to the high number of surgeries scheduled during the summer months for school-aged patients. Based on experience in recent years, we believe that this trend is lessening as we are distributing a higher percentage of our tissues for use in adult populations. Demand for our vascular preservation services has also traditionally been seasonal, with lowest demand generally occurring in the fourth quarter. We believe this trend for vascular preservation services is primarily due to fewer vascular surgeries being scheduled during the winter holiday months.

Liquidity and Capital Resources

Our primary uses of liquidity include the payment of operating expenses, capital expenditures, servicing of debt and the funding of acquisitions or other collaborative arrangements. Our primary sources of funding are operating cash flows and borrowings under our debt facilities. As of December 31, 2024 we had approximately $320.2 million of total nominal indebtedness outstanding. Our liquidity as of December 31, 2024 consisted of cash and cash equivalents of $53.5 million, unused commitments of $30.0 million under a revolving credit facility and unused commitments of $100.0 million on delayed draw term loan facility (see “Credit Facilities” below). As of December 31, 2024 approximately 48% of our cash and cash equivalents were held in foreign jurisdictions. Our practice is to maintain sufficient liquidity through cash from operations and our revolving credit facility to mitigate the impacts of any adverse financial market conditions on our operations. We believe that cash generated from operations, together with amounts available under the revolving credit facility will be sufficient to meet working capital requirements and anticipated capital expenditures, and other strategic uses of cash, if any, and debt payments, if any, over the next twelve months. Our future cash requirements are expected to include interest payments under our credit facilities, expenditures for clinical trials, research and development expenditures, general working capital needs, capital expenditures, other corporate purposes and may include cash to fund business development activities including obligations pursuant to arrangements with Endopsan and the acquisition of Ascyrus. These items may have a significant effect on our future cash flows during the next twelve months. Subject to the terms of our credit facilities, we may seek additional borrowing capacity or financing, pursuant to our current or any future shelf registration statement, for general corporate purposes or to fund other future cash requirements. If we undertake any further significant business development activity, we may need to finance such activities by obtaining additional debt financing or using a registration statement to sell equity securities. There can be no assurance that we will be able to obtain any additional debt or equity financing at the time needed or that such financing will be available on terms that are favorable or acceptable to us.

Significant Sources and Uses of Liquidity Credit Facilities

On January 18, 2024 we entered into a credit and guaranty agreement with Ares Management Credit funds (the “Ares Credit Agreement”) for $350.0 million of senior secured, interest-only, credit facilities, consisting of a $190.0 million secured term loan facility (the “Term Loan Facility”), a $100.0 million secured delayed draw term loan facility (the “Delayed Draw Term Loan Facility” and, together with the Term Loan Facility, the “Term Loan Facilities”) and a $60.0 million “senior-priority” secured revolving credit facility with a priority claim ahead of the other secured facilities (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Credit Facilities”). Upon closing, we borrowed $190.0 million under the Term Loan Facility and $30.0 million under the Revolving Credit Facility. The proceeds of the initial borrowings were used along with cash on hand to pay off our previously existing credit agreement and pay related fees and expenses. The $100.0 million of undrawn availability under the Delayed Draw Term Loan Facility was established solely to make funds available in the event of a repurchase or repayment of the Convertible Senior Notes on or prior to a scheduled maturity date of July 1, 2025 (see below). The final scheduled maturity date of the Credit Facilities is January 18, 2030. There are no scheduled repayments of principal required to be made prior to the final maturity date. We have the right to prepay loans under the Ares Credit Agreement in whole or in part at any time, subject to certain premium payment requirements. Amounts repaid in respect of loans under the Term Loan Facilities may not be reborrowed. The Credit Facilities currently bear interest at the Adjusted Term Secured Overnight Financing Rate (“Adjusted Term SOFR”) plus applicable margins. As of December 31, 2024 the aggregate interest rate was 11.09% and 8.59% per annum for the Term Loan Facilities and Revolving Credit Facility, respectively. See Part II, Item 8, Note 10 of the “Notes to Consolidated Financial Statements” for further discussion of our new Ares Credit Agreement. 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 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. We became eligible to redeem the Convertible Senior Notes beginning on July 5, 2023, following the expiration of their non-redemption period. We are able to redeem the Convertible Senior Notes 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. As of December 31, 2024 we are not aware of any current events or market conditions that would allow holders to convert the Convertible Senior Notes. On December 23, 2024 in accordance with an Indenture (the “Indenture”) dated June 23, 2020, between Artivion, Inc. (formerly CryoLife, Inc.) and U.S. Bank Trust Company, National Association, as Trustee, relating to our Convertible Senior Notes, we gave notice to the Trustee, the Conversion Agent, and the Holders (each as defined in the Indenture) that we elected to change the “Default Settlement Method” (as defined in the Indenture) for conversions of the Convertible Senior Notes to “Physical Settlement” (as defined in the Indenture). As a result, all conversions after the date of the notice will be settled by delivery of shares of our common stock using Physical Settlement in accordance with the Indenture.

Cash Flows

The following table summarizes cash flows from operating activities, investing activities, and financing activities for the periods indicated (in thousands):

Operating Activities

Net cash provided by operating activities increased $3.4 million during the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to an increase in cash collections resulting from a 10% increase in revenues, partially offset by higher personnel-related costs associated with an increase in headcount, an increase in cash paid for taxes, and higher inventory purchases and increased preservation costs related to the increase in revenues.

Investing Activities

Net cash used in investing activities was $28.2 million and $0.5 million for the year ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024 cash flows used in investing activities primarily included $11.2 million of cash used for capital expenditures and $17.0 million for the funding of loans made pursuant to the Endospan agreements. Cash flows used in investing activities during the year ended December 31, 2023 included $9.8 million of cash used for capital expenditures and $5.0 million for the funding of loans made pursuant to the Endospan agreements, which were partially offset by $14.3 million of proceeds received as part of the Baxter transaction from the sale of non-financial assets.

Financing Activities

Net cash provided by financing activities was $2.2 million and $0.9 million for the year ended December 31, 2024 and 2023, respectively. The current year cash provided by financing activities was primarily due to $5.7 million of proceeds from exercise of stock options and issuances of common stock and $0.7 million of net proceeds received on our new credit facilities after repaying and extinguishing all obligations on our old credit facilities, all of which were partially offset by payments of $2.5 million for debt issuance costs and $1.0 million for repayments of short-term notes payable.

Scheduled Contractual Obligations and Future Payments

Our long-term debt obligations and interest payments include $320.0 million of scheduled principal payments and $119.2 million in anticipated interest payments related to our Initial Term Loan Facility, Revolving Credit Facility, and Convertible Senior Notes. While interest payments will be settled in cash, we plan to settle the $100.0 million principal outstanding on our Convertible Senior Notes due July 1, 2025 by issuing shares of our common stock. We have contingent payment obligations that include up to $100.0 million to be paid to the former shareholders of Ascyrus upon the achievement of certain milestones. As part of the transaction with Baxter, we may be required to pay up to $3.0 million if certain milestones are met. Pursuant to the Amended and Restated Loan Agreement with Endospan Ltd. (“Endospan”) dated July 1, 2024, we anticipate making the remaining $8.0 million tranche payment subject to Endospan’s achievement of milestones related to its pursuit of regulatory approval for NEXUS ONE in the US. Our operating and finance lease obligations result from the lease of land and buildings that comprise our corporate headquarters and our 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.

Capital Expenditures

Capital expenditures for the year ended December 31, 2024 and 2023 were $11.2 million and $9.8 million, respectively. Capital expenditures in the year ended December 31, 2024 were primarily related to routine purchases of computer software, manufacturing and tissue processing equipment, leasehold improvements needed to support our business and computer equipment.

Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We have a significant amount of indebtedness with a mix of fixed and variable rates of interest. Floating rate debt carries interest based generally on Secured Overnight Financing Rate (“SOFR”) plus an applicable margin. Increase in interest rates could therefore significantly increase the associated interest payments that we are required to make on this debt. See Part II, Item 8, Note 10 of the “Notes to Consolidated Financial Statements” for a further discussion. We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on our variable rate debt portfolio, cash equivalents, and investments as of December 31, 2024, our pre-tax operating results would decrease by an estimated $2.0 million over a twelve-month period. Foreign Currency Exchange Rate Risk We have exposure to foreign currency exchange rate fluctuations worldwide resulting from intercompany transactions, other cross currency obligations and certain intercompany loans. Specifically, a portion of our international aortic stent grafts, surgical sealants, On-X products, and other product revenues are denominated in Euros, Brazilian Reals, Polish Zlotys, British Pounds, Canadian Dollars, and Swiss Francs and a portion of our General, administrative, and marketing expenses are denominated in Euros, Brazilian Reals, Polish Zlotys, British Pounds, Canadian Dollars, Swiss Francs, and Singapore Dollars. We manage our foreign currency exchange risk primarily by incurring, to the extent practicable, operating and financing expenses in the local currency in the countries in which we operate. We do not hedge our operating results against currency movement as they are primarily translational in nature. Assuming a hypothetical 10% change to the foreign currency exchange rates in effect as of December 31, 2024 on our operating results, intercompany trade, and certain intercompany loan and interest balances, our pre-tax operating results would decrease by an estimated $8.0 million over a twelve-month period.

Konzernbilanz

Artivion, Inc. and Subsidiaries

Consolidated Balance Sheets

In Thousands, Except Par Value

ASSETS

Gewinn- und Verlustrechnung

Artivion, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

In Thousands, Except Per Share Data

Konzernanhang

Notes to Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

Artivion, Inc. ("Artivion," the "Company," "we," or "us"), is a leader in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures for patients with aortic disease. We have four major product families: aortic stent grafts, On-X mechanical heart valves and related surgical products ("On-X" products), surgical sealants, and implantable cardiac and vascular human tissues. 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, the Ascyrus Medical Dissection Stent ("AMDS") hybrid prosthesis, the NEXUS ONE TM ("NEXUS ONE"), NEXUS DUO TM ("NEXUS DUO"), and the NEXUS TRE TM ("NEXUS TRE") aortic arch stent graft systems (the "NEXUS family of products"), and E-vita Thoracic 3G products. Abdominal stent grafts include our E-xtra Design Engineering (including Artivex), E-nside, E-tegra, E-ventus BX, Tuva BX, and E-liac products. Surgical sealants include our BioGlue

Surgical Adhesive products ("BioGlue"). In addition to these four major product families, we sell or distribute PhotoFix bovine surgical patches ("PhotoFix") and CardioGenesis cardiac laser therapy (prior to our abandonment of that business as of June 2023). We began to manufacture and supply PerClot hemostatic powder ("PerClot") during the second quarter of 2023 (as part of the Transitional Manufacturing and Supply Agreement ("TMSA") of the Baxter Transaction, described in more detail in Note 2 below).

Basis of Presentation and Principles of Consolidation

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior-year amounts have been reclassified to conform to the current year presentation.

Foreign Currency Translation and Transactions

Assets and liabilities of international subsidiaries whose functional currency is the local currency are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average exchange rates throughout the year. The related translation adjustments, including the effects of foreign exchange rate changes on intra-entity foreign currency transactions that are of a long-term investment nature, net of tax, are reflected in Accumulated other comprehensive loss in the stockholders' equity section of our Consolidated Balance Sheets. Foreign currency exchange rate realized and unrealized gains and losses resulting from transactions are included in Other expense, net in our Consolidated Statements of Operations and Comprehensive Loss and resulted in a net loss of $ 5.4 million, a net gain of $ 2.1 million and a net loss of $ 3.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. Currency translation adjustments resulting from intra-entity loans that are of a long-term investment nature, net of tax, are included in Accumulated other comprehensive loss and resulted in a net loss of $ 8.6 million, a net gain of $ 6.6 million and a net loss of $ 5.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates and assumptions are used when accounting for trade receivables allowances, inventories, deferred preservation costs, acquired assets or businesses, intangible assets, deferred income taxes, valuation of loan receivables and purchase options, commitments and contingencies (including product and tissue processing liability claims, claims incurred but not reported, and amounts recoverable from insurance companies), non-cash compensation, certain accrued liabilities (including accrued procurement fees, income taxes, and financial instruments including contingent consideration), and other items as appropriate.

Revenue Recognition

Contracts with Customers

We routinely enter into contracts with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and, in most cases, prices for the products and services that we offer. These agreements, however, do not obligate us to provide goods or services to the customer, and there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, we have a standard list price established by geography and by currency for all products and services, and our invoices contain standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. Our performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. We identify performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. We generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time we have an unconditional right to receive payment. Our prices are fixed and are not affected by contingent events that could impact the transaction price. We do not offer price concessions and do not accept payment that is less than the price stated when we accept the purchase order. We do not have any material performance obligations where we are acting as an agent for another entity.

Revenues for products, including: aortic stent grafts, surgical sealants, On-X products, and other medical devices, are typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Revenues from consignment are recognized when we receive a notification of implantation. We recognize revenues for preservation services when tissue is shipped to the customer.

Significant Judgments

There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product or service obligation to the customer. This is consistent with the time in which the customer obtains control of the product or service. Performance obligations are also generally settled quickly after the purchase order acceptance, therefore, the value of unsatisfied performance obligations at the end of any reporting period is immaterial.

We consider variable consideration in establishing the transaction price. Forms of variable consideration potentially applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue in the periods in which the related revenue is recognized and adjusted in future periods as necessary.

Commissions and Contract Costs

Sales commissions are earned upon completion of each performance obligation, and therefore, are expensed when incurred. These costs are included in General, administrative, and marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss. We generally do not incur incremental charges associated with securing agreements with customers which would require capitalization and recovery over the life of the agreement.

Practical Expedients

Our payment terms for sales direct to customers are substantially less than the one-year collection period that falls within the practical expedient in the determination of whether a significant financing component exists.

Shipping and Handling Charges

Fees charged to customers for shipping and handling of products and tissues are included in Product and preservation service revenues. The costs for shipping and handling of products and tissues are included as a component of Cost of products and cost of preservation services.

Taxes Collected from Customers

Taxes collected on the value of transaction revenue are excluded from Revenues and Cost of products and preservation services and are included in Accrued expenses until remitted to governmental authorities.

Advertising Costs

The costs to develop, produce, and communicate our advertising are expensed as incurred and are reflected as General, administrative, and marketing expenses. The total amount of advertising costs included in our Consolidated Statements of Operations and Comprehensive Loss was $ 1.7 million, $ 1.9 million and $ 1.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Stock-Based Compensation

We have stock option and stock incentive plans for employees and non-employee directors that provide for grants of restricted stock awards ("RSA"s), restricted stock units ("RSU"s), performance stock units ("PSU"s), and options to purchase shares of our common stock at exercise prices generally equal to the fair values of such stock at the dates of grant. We also maintain a stockholder approved Employee Stock Purchase Plan (the "ESPP") for the benefit of our employees. The ESPP allows eligible employees the right 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. The RSAs, RSUs, PSUs, and stock options typically vest over a one to three-year period. The stock options typically expire within seven years of the grant date.

We value our RSAs, RSUs, and PSUs based on the stock price on the date of grant. We expense the related compensation cost of RSAs and RSUs using the straight-line method over the vesting period. We expense the related compensation cost of PSUs based on the number of shares expected to be issued, if achievement of the performance component is probable, using a straight-line method over each vesting tranche of the award which results in accelerated recognition of expenses. The amount of compensation costs expensed related to PSUs is adjusted as needed if we deem that achievement of the performance component is no longer probable or if our expectation of the number of shares to be issued changes. We use a Black-Scholes model to value our stock option grants and expense the related compensation cost using the straight-line method over the vesting period. The fair value of our ESPP options is also determined using a Black-Scholes model and is expensed over the vesting period.

The fair value of stock options and ESPP options is determined on the grant date using assumptions for the expected term, volatility, dividend yield, and the risk-free interest rate. The expected term is primarily based on the contractual term of the option and our data related to historic exercise and post-vesting forfeiture patterns, which is adjusted based on our expectations of future results. Our anticipated volatility level is primarily based on the historic volatility of our common stock, adjusted to remove the effects of certain periods of unusual volatility not expected to recur, and adjusted based on our expectations of future volatility, for the life of the option or option group. Our model includes a zero-dividend yield assumption and we do not anticipate paying dividends in the future. The risk-free interest rate is based on recent US Treasury note auction results with a similar life to that of the option. Our model does not include a discount for post-vesting restrictions, as we have not issued awards with such restrictions.

The period expense for our stock compensation is determined based on the valuations discussed above and forfeitures are accounted for in the period awards are incurred.

Income (Loss) Per Common Share

Income (loss) per common share is computed using the two-class method, which requires us to include unvested RSAs that contain non-forfeitable rights to dividends (whether paid or unpaid) as participating securities in the income per common share calculation.

Under the two-class method, net income is allocated to the weighted-average number of common shares outstanding during the period and the weighted-average participating securities outstanding during the period. The portion of net income that is allocated to the participating securities is excluded from basic and dilutive net income per common share. Diluted net income per share is computed using the weighted-average number of common shares outstanding plus the dilutive effects of outstanding stock options and awards and other dilutive instruments as appropriate.

Financial Instruments

Our financial instruments include cash equivalents, accounts receivable, notes receivable, accounts payable, and debt obligations. The carrying values of financial assets and liabilities, such as receivables and accounts payable, approximate their fair value due to their short-term duration, and the carrying value of debt obligations approximate their fair value as they contain variable interest rates that approximate market values. Other financial instruments are recorded as discussed in the sections below.

Fair Value Measurements

We record certain financial instruments, including cash equivalents, at fair value on a recurring basis. We may make an irrevocable election to measure other financial instruments at fair value on an instrument-by-instrument basis. Fair value financial instruments are recorded in accordance with the fair value measurement framework.

We also measure certain assets and liabilities at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as certain financial assets, long-lived assets, and indefinite lived intangible assets for impairment, allocating value to assets in an acquired asset group, applying accounting for business combinations, and the initial recognition of liabilities such as contingent consideration. We use the fair value measurement framework to value these assets and liabilities and report these fair values in the periods in which they are recorded or written down.

The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:

• Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and

• Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.

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. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to our unobservable estimates and assumptions. Our assumptions could vary depending on the asset or liability value and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. We may also engage external advisors to assist in determining fair value as appropriate.

Although we believe that the recorded fair values of our financial instruments are appropriate, these fair values may not be indicative of future fair values.

Fair Value Measurements - Contingent Consideration

Contingent consideration represents a recurring fair value estimate of potential future payments. The fair value of the contingent consideration liability is estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. A discount rate is applied based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then we apply a risk-based estimate of the probability of achieving each scenario to calculate the fair value of the contingent consideration. This fair value measurement is 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. See Notes 3 and 5 for further discussion.

Fair Value Measurements - Loan Receivables

We elect to account for certain loan receivables under the fair value option on a recurring basis, resulting in increases and decreases in the fair value of such loans being recorded to Other expense, net for each reporting period. This fair value measurement is based on unobservable inputs, including management estimates and assumptions about the probability of future achievement of milestones, and is, therefore, classified as Level 3 within the fair value hierarchy. See Notes 4 and 5 for further discussion.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of highly liquid investments at the time of acquisition. The carrying value of cash equivalents approximates fair value. We maintain depository accounts with certain financial institutions. Although these depository accounts may exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal.

Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

Accounts Receivable and Allowances

Our accounts receivable are primarily from hospitals and distributors that either use or distribute our products and tissues. We assess the likelihood of collection based on a number of factors, including past transaction history and the credit worthiness of the customer, as well as the potential increased risks related to international customers and large distributors. We determine the allowance for uncollectible accounts based upon specific reserves for known collection issues, as well as a non-specific reserve based upon historical aging trends. We charge off uncollectible amounts against the reserve in the period in which we determine they are uncollectible. Our accounts receivable balances are reported net of allowances of $ 1.6 million and $ 1.9 million as of December 31, 2024 and 2023, respectively.

Inventories

Inventories are comprised of finished goods for our product lines including: aortic stent grafts; surgical sealants; On-X products; other medical devices; work-in-process; and raw materials. Inventories for finished goods are valued at the lower of cost or net realizable value on a first-in, first-out basis and raw materials are valued on a moving average cost basis. Typically, upon shipment or upon notification of implant of a medical device on consignment, revenue is recognized, and the related inventory costs are expensed as cost of products. Cost of products also includes, as applicable, lower of cost or net realizable value of write-downs and impairments for products not deemed to be recoverable and, as incurred, idle facility expense, excessive spoilage, extra freight, and re-handling costs.

Inventory costs for manufactured products consist primarily of direct labor and materials (including salary and fringe benefits, raw materials, and supplies) and indirect costs (including allocations of costs from departments that support manufacturing activities and facility allocations). The allocation of fixed production overhead costs is based on actual production levels, to the extent that they are within the range of the facility’s normal capacity. Inventory costs for products purchased for resale or manufactured under contract consist primarily of the purchase cost, freight-in charges, and indirect costs as appropriate.

We regularly evaluate our inventory to determine if the costs are appropriately recorded at the lower of cost or net realizable value. We also evaluate our inventory for costs not deemed to be recoverable, including inventory not expected to ship prior to its expiration. Lower of cost or net realizable value write-downs are recorded if the book value exceeds the estimated net realizable value of the inventories, based on recent sales prices at the time of the evaluation. Impairment write-downs are recorded based on the book value of inventory deemed to be impaired. Actual results may differ from these estimates. Write-downs of inventories are expensed as Cost of products, and these write-downs are permanent impairments that create a new cost basis, which cannot be restored to its previous levels if our estimates change. Write-downs to our inventories totaled $ 3.8 million, $ 4.4 million and $ 4.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Deferred Preservation Costs

Deferred preservation costs include costs of cardiac and vascular tissues available for shipment, tissues currently in active processing, and tissues held in quarantine pending release to implantable status. By federal law, human tissues cannot be bought or sold; therefore, the tissues we preserve are not held as inventory. The costs we incur to procure and process cardiac and vascular tissues are instead accumulated and deferred. Deferred preservation costs are stated at the lower of cost or net realizable value on a first-in, first-out basis and are deferred until revenue is recognized. Upon shipment of tissue to an implanting facility, revenue is recognized, and the related deferred preservation costs are expensed as cost of preservation services. Cost of preservation services also includes, as applicable, lower of cost or net realizable value write-downs and impairments for tissues not deemed to be recoverable, and includes, as incurred, excessive spoilage, extra freight, and re-handling costs.

The calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing. Donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ("OPOs") and tissue banks that provide the tissue to us for processing, preservation, and distribution. Deferred preservation costs consist primarily of the procurement fees charged by the OPOs and tissue banks, direct labor and materials (including salary and fringe benefits, laboratory supplies and expenses, and freight-in charges), and indirect costs (including allocations of costs from support departments and facility allocations). Fixed production overhead costs are allocated based on actual tissue processing levels, to the extent that they are within the range of the facility’s normal capacity.

These costs are then allocated among the tissues processed during the period based on cost drivers, such as the number of donors or number of tissues processed. We apply a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable. We estimate quarantine and in process yields based on our historical yield experience with similar tissues and re-evaluate these estimates periodically. Actual yields could differ significantly from our estimates, which could result in a change in tissues available for shipment and could increase or decrease the balance of deferred preservation costs. These changes could result in additional cost of preservation services expense or could increase per tissue preservation costs, which would impact gross margins on tissue preservation services in future periods.

We regularly evaluate our deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or net realizable value. We also evaluate our deferred preservation costs for costs not deemed to be recoverable, including tissues not expected to ship prior to the expiration date of their packaging. Lower of cost or net realizable value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services, based on recent average service fees at the time of the evaluation. Impairment write-downs are recorded based on the book value of tissues deemed to be impaired. Actual results may differ from these estimates. Write-downs of deferred preservation costs are expensed as cost of preservation services, and these write-downs are permanent impairments that create a new cost basis, which cannot be restored to its previous levels if our estimates change. Write-downs to our deferred preservation costs totaled $ 0.6 million, $ 0.4 million and $ 0.4 million for the years ended December 31, 2024, 2023 and 2022, respectively, primarily due to tissues not expected to ship prior to the expiration date of the packaging.

Property and Equipment, net

Property and equipment, net is stated at cost less depreciation. Depreciation expense is recorded over the estimated useful lives of the assets, generally three to ten years , on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the remaining lease term at the time the assets are capitalized or the estimated useful lives of the assets, whichever is shorter.

Property and equipment, net consists of the following (in thousands)

Depreciation expense was as follows (in thousands):

Goodwill and Other Intangible Assets

Our intangible assets consist of goodwill, acquired technology, customer lists and relationships, patents, and other intangible assets, as discussed in Note 7. Our goodwill is attributable to a segment or segments of our business, as appropriate, as the related acquired business that generated the goodwill is integrated into our operations.

We evaluate goodwill and other indefinite lived 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 October 31, 2024 and 2023 our indefinite lived intangible assets consisted of goodwill, in-process research and development, and acquired procurement contracts and agreements. We performed a qualitative analysis of our indefinite lived intangible assets as of October 31, 2024 and determined that the fair value of the asset groups and the fair value of the reporting unit more likely than not exceeded their associated carrying values and were, therefore, not impaired. No impairment indicators were identified from the date of our annual assessment through December 31, 2024.

Our definite lived intangible assets consist of acquired technologies, customer lists and relationships, distribution and manufacturing rights and know-how, patents, and other intangible assets. We amortize our definite lived intangible assets over their expected useful lives using the straight-line method, which we believe approximates the period of economic benefits of the related assets. Our indefinite lived intangible assets do not amortize but are instead subject to periodic impairment testing as discussed below.

Impairments of Long and Indefinite Lived Intangible Assets

We assess the potential impairment of our: (i) net property and equipment, (ii) amortizing intangible long-lived assets to be held and used and (iii) operating lease right-of-use assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include, but are not limited to, the following:

• Significant underperformance relative to expected historical or projected future operating results;

• Significant negative industry or economic trends;

• Significant decline in our stock price for a sustained period; or

• Significant decline in our market capitalization relative to net book value.

If we determine that an impairment review is necessary, we will evaluate the assets or asset groups by comparing their carrying values to the sum of the undiscounted future cash flows expected to result from their use and eventual disposition. If the carrying values exceed the future cash flows, then the asset or asset group is considered impaired, and we will write down the value of the asset or asset group to its concluded fair value. We determined that no impairments existed for the years ended December 31, 2024, 2023 and 2022.

Accrued Procurement Fees

Donated tissue is procured from deceased human donors by OPOs and tissue banks that provide the tissue to us for processing, preservation, and distribution. We reimburse the OPOs and tissue banks for their costs to recover the tissue and include these costs as part of deferred preservation costs, as discussed above. We accrue estimated procurement fees due to the OPOs and tissue banks at the time tissues are received based on contractual agreements between us and the OPOs and tissue banks.

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 vehicles; and leases on certain office and other equipment, as discussed in Note 9. Certain of our leases contain escalation clauses, rent concessions, and renewal options for additional periods.

We exercise judgment in the determination of whether a financial arrangement includes a lease and in determining the appropriate discount rates to be applied to leases based on our general collateralized credit standing and the geographical market considerations impacting lease rates across all locations. When available, we use the implicit discount rate in the lease contract to discount lease payments to present value. If an implicit discount rate is not available in the lease contract, we use our incremental borrowing rate. We elected the package of practical expedients that allow us to omit leases with initial terms of 12 months or less from our balance sheet, which are expensed on a straight-line basis over the life of the lease. We have elected not to separate lease and non-lease components for future leases.

Our leases do not include terms or conditions which would result in variable lease payments other than for small office equipment leases with an additional charge for volume of usage. These incremental payments are excluded from our calculation of lease liability and the related right-of-use asset. We do not include option terms in the determination of lease liabilities and the related right-of-use assets unless we determine at lease commencement that the exercise of the option is reasonably certain. Our leases do not contain residual value guarantee provisions or other restrictions or financial covenant provisions.

Debt Discounts and Debt Issuance Costs

Direct costs incurred in connection with the issuance of debt and debt discounts are deferred and amortized to interest expense over the term of the debt. Debt issuance costs and debt discounts associated with term loans and convertible debt are amortized to Interest expense using the effective interest method and are reflected as reductions of the loan balances in the Consolidated Balance Sheets. Debt issuance costs and debt discounts associated with revolving credit facilities are amortized to Interest expense on a straight-line basis and are reflected as a component of Other long-term assets in the Consolidated Balance Sheets.

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. Thus, a claims-made policy does not generally represent a transfer of risk for claims and incidents that have been incurred but not reported to the insurance carrier during the policy period. Any punitive damage components of claims are uninsured.

We accrue our estimate of unreported product and tissue processing liability claims as a component of Other long-term liabilities and record the related recoverable insurance amounts as a component of Other long-term assets. The amounts recorded represent our estimate of the probable losses and anticipated recoveries for unreported claims related to products sold and services performed prior to the balance sheet date.

Legal Contingencies

We accrue losses from a legal contingency when the loss is both probable and reasonably estimable. The accuracy of our estimates of losses for legal contingencies is limited by uncertainties surrounding litigation. Therefore, actual results may differ significantly from the amounts accrued, if any. We accrue for legal contingencies as a component of Accrued expenses and/or Other long-term liabilities in our Consolidated Balance Sheets. Gains from legal contingencies are recorded when the contingency is resolved.

Uncertain Tax Positions

We periodically assess our uncertain tax positions and recognize tax benefits if they are "more-likely-than-not" to be upheld upon review by the appropriate taxing authority. We measure the tax benefit by determining the maximum amount that has a "greater than 50 percent likelihood" of ultimately being realized. We reverse previously accrued liabilities for uncertain tax positions when audits are concluded, statutes expire, administrative practices dictate that a liability is no longer warranted, or in other circumstances, as deemed necessary. These assessments can be complex, and we often obtain assistance from external advisors to make these assessments. We recognize interest and penalties related to uncertain tax positions in interest expense, net in our Consolidated Statements of Operations and Comprehensive Loss. See Note 8 for further discussion of our liabilities for uncertain tax positions.

Deferred Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes. We assess the recoverability of our deferred tax assets and provide a valuation allowance against our deferred tax assets when, as a result of this analysis, we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized.

Assessing the recoverability of deferred tax assets involves judgment and complexity including the consideration of prudent and feasible tax planning. Estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include, but are not limited to, the following:

•The ability to carry back deferred tax asset attributes to a prior tax year;

•Timing of the anticipated reversal of book/tax temporary differences;

•Projected future operating results;

•Anticipated future state tax apportionment;

•Timing and amounts of anticipated future taxable income;

•Evaluation of statutory limits regarding usage of certain tax assets; and

•Evaluation of the statutory periods over which certain tax assets can be utilized.

Significant changes in the factors above, or other factors, could affect our ability to use our deferred tax assets. Such changes could have a material, adverse impact on our profitability, financial position, and cash flows. We will continue to assess the recoverability of our deferred tax assets, as necessary, when we experience changes that could materially affect our prior determination of the recoverability of our deferred tax assets.

New Accounting Pronouncements

Recently Adopted

In November 2023 the Financial Accounting Standards Board (the "FASB") issued Accounting Standard Update ("ASU") 2023-07, Segment Reporting Topic 280 - Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This amendment requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We adopted ASU 2023-07 on a retrospective basis in fiscal year December 31, 2024. The adoption of ASU 2023-07 did not have a material impact on our financial condition or results of operations.

Not Yet Effective

In December 2023 the FASB issued ASU 2023-09, Income Taxes Topic 740 - Improvements to Income Tax Disclosures. This amendment is expected to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities, on an annual basis, to disclose specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold and certain information about income taxes paid. This revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2024. We are currently evaluating the impacts of the new standard.

In November 2024 the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses to improve the disclosures about a public business entity’s expenses for more detailed information about the types of expenses in commonly presented expense captions such as cost of sales; selling, general, and administrative expenses; and research and development. The updated accounting guidance, among other things, requires quantitative disclosures for employee compensation, selling expenses, and purchases of inventory. The updated guidance is effective for financial statements issued for fiscal years beginning after December 15, 2026. We are currently evaluating the impacts of the new standard.

2. Sale of PerClot

Overview

On July 28, 2021 we entered into an asset purchase agreement, Transitional Manufacturing and Supply Agreement ("TMSA"), and other ancillary agreements related to the sale of PerClot®, a polysaccharide hemostatic agent used in surgery ("PerClot"), to a subsidiary of Baxter International, Inc. ("Baxter") and an agreement to terminate all of our material agreements with Starch Medical, Inc. ("SMI") related to PerClot (collectively the "Baxter Transaction"). Under the terms of the Baxter Transaction, Baxter will pay an aggregate of up to $ 54.5million in consideration (we will receive up to $41.0 million and SMI will receive up to $13.5 million), consisting of (i) $25.0 million we received at closing, of which $6.0 million was paid to SMI; (ii) $18.8 million upon our receipt of Premarket Approval ("PMA") from the US Food and Drug Administration (the "FDA") for PerClot and our transfer of the PMA to Baxter, of which $4.5 million was paid to SMI; and (iii) up to $10.0 million upon Baxter’s achievement of certain cumulative worldwide net sales of PerClot prior to December 31, 2026 and December 31, 2027, of which up to $3.0 million would be payable to SMI. In addition, at the conclusion of our manufacturing and supply services for Baxter, Baxter will pay $0.8 million upon transfer of our PerClot manufacturing equipment. Under the terms of the Baxter Transaction, we will continue to provide to Baxter certain transition services relating to the sale of SMI PerClot outside of the US. Within the terms of the TMSA, we will manufacture and supply PerClot for Baxter post PMA for a contractual period of 21 months, subject to short-term renewal provisions.

PerClot PMA

On May 23, 2023 the FDA granted PMA of PerClot for use to control bleeding in certain open and laparoscopic surgical procedures. Pursuant to the terms of the TMSA of the Baxter Transaction, we transferred the ownership of the PMA to Baxter following approval. In May 2023 we received a payment of $18.8 million from Baxter, of which $4.5 million was paid to SMI. As a result, we recorded a pre-tax gain of $14.3 million as the assets were previously derecognized upon closing of the Baxter Transaction in fiscal year 2021, which was included as Gain from sale of non-financial assets within the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023.

Following receipt of the PMA, under the terms of the TMSA, we began manufacturing and supplying PerClot for Baxter and recorded $3.3 million and $5.1 million of PerClot revenues in the Consolidated Statements of Operations and Comprehensive Loss during the year ended December 31, 2024 and 2023, respectively.

We accounted for the TMSA in accordance with the provision of ASU 2016-02, Leases Topic 842 ("ASC 842") by bifurcating the lease and non-lease components and recognizing each component based on ASC 842 and ASU 2014-09, Revenue from Contracts with Customers Topic 606. The amount of lease revenue was $0.5 million and $0.3 million for the year ended December 31, 2024 and 2023, respectively.

3. Acquisition of Ascyrus

Overview

On September 2, 2020 we entered into a Securities Purchase Agreement (the "Ascyrus 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.

Under the terms of the Ascyrus Agreement, we will pay an aggregate of up to $200.0 million in consideration, consisting of: (i) a cash payment of approximately $60.0 million and the issuance of $20.0 million in shares of Artivion common stock, in each case, that were delivered at the closing of the acquisition, (ii) a cash payment of $10.0 million and the issuance of $10.0 million in shares of Artivion common stock upon FDA approval of the Investigational Device Exemption ("IDE") application for the AMDS in 2021, (iii) if the FDA approves PMA application submitted for the AMDS, a cash payment of $25.0 million, (iv) if regulatory approval of the AMDS is obtained in Japan on or before June 30, 2027, a cash payment of $10.0 million, (v) if regulatory approval of the AMDS is obtained in China on or before June 30, 2027, a cash payment of $10.0 million and (vi) a potential additional consideration cash payment capped at $55.0 million (or up to $65.0 million to $75.0 million if the Japanese or Chinese approvals are not secured on or before June 30, 2027 and those approval milestone payments are added to the potential additional consideration cash payment cap) calculated as two times the incremental worldwide sales of the AMDS (or any other acquired technology or derivatives of such acquired technology) outside of the European Union during the three-year period following the date the FDA approves a PMA application submitted for the AMDS.

Accounting for the Transaction

As part of the acquisition, we may be required to pay additional consideration up to $100.0 million to the former shareholders of Ascyrus upon the achievement of certain milestones and the sales-based additional earnout described above. On September 2, 2020 the fair value of the total potential purchase consideration of $200.0 million included the total purchase consideration, as well as the contingent consideration liability discussed below. Our allocation of the purchase consideration was allocated to Ascyrus’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values as of September 2, 2020.

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 presented in Note 5. We used a discount rate of approximately 17% and estimated future achievement of milestone dates between 2025 and 2026 to calculate the fair value of contingent consideration as of December 31, 2024. We remeasure this liability at each reporting date and record changes in the fair value of the contingent consideration in General, administrative, and marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss. Increases or decreases in the fair value of the contingent consideration liability can result from changes in the passage of time, discount rates, the timing and amount of our revenue estimates, and the timing and expectation of regulatory approvals.

We perform quarterly assessments of the fair value of the contingent consideration and recorded a net fair value gain of $11.0 million and a net fair value loss of $23.5 million for the year ended December 31, 2024 and 2023, respectively, in General, administrative, and marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss. The reduction in the fair value of liability for the year ended December 31, 2024 was primarily due to an increase in the credit risk spread resulting from the change in the inputs related to the newly issued Credit Facilities in the first quarter of 2024, as further discussed in Note 10. The contingent consideration liability reflected in the Consolidated Balances Sheets was $52.9 million and $63.9 million as of December 31, 2024 and 2023.

In December 2021 the FDA approved our IDE application for AMDS. Upon the approval, we funded a cash payment of $10.0 million and issued $10.0 million in shares of Artivion common stock pursuant to the Ascyrus Agreement.

In December 2024 the FDA granted a Humanitarian Device Exemption ("HDE") for use of the AMDSTM Hybrid Prosthesis in acute DeBakey Type I dissections in the presence of malperfusion. The HDE allows for commercial distribution of AMDS in the US prior to anticipated approval of a Premarket Approval ("PMA") Application which we continue to pursue and anticipate receiving in 2026.

4. Agreements with Endospan

On September 11, 2019 Artivion’s wholly owned subsidiary, JOTEC, entered into an exclusive distribution agreement ("Endospan Distribution Agreement") with Endospan Ltd. ("Endospan"), an Israeli corporation, pursuant to which JOTEC obtained exclusive distribution rights for NEXUS ONE, and under subsequent amendments, the NEXUS DUO and NEXUS TRE (collectively the "NEXUS family of products") and accessories in certain countries in Europe in exchange for a fixed distribution fee of $9.0 million paid in September 2019 which has been reflected in "Other intangibles, net" in our Consolidated Balance Sheets. We also entered into a loan agreement to provide Endospan a secured loan of up to $15.0 million ("Endospan Loan").

We also entered into a securities purchase option agreement ("Endospan Option") with Endospan for $1.0 million paid in September 2019. The Endospan Option Agreement prior to amendment described below provided Artivion the option to purchase all the outstanding securities of Endospan from Endospan’s securityholders at the time of acquisition, or the option to acquire all of Endospan’s assets, in each case, for a price between $ 350.0 and $450.0 million before, or within a certain period of time after FDA approval of NEXUS, with such option expiring if not exercised within 90 days after receiving notice that Endospan has received approval from the FDA for NEXUS.

On July 1, 2024 Artivion and Endospan entered into an amendment to the Endospan Option ("Endospan Option Amendment") which amended the terms of the previously existing Endospan Option. Under the terms of the Endospan Option Amendment, the price to acquire all of Endospan’s outstanding securities from Endospan’s securityholders at the time of acquisition, or the option to acquire all of Endospan’s assets under the Endospan Option was reduced from $250.0 million to $175.0 million, resulting in an upfront acquisition purchase price of $135.0 million, inclusive of the loan off-set. There is no longer a minimum earnout payment of $100.0 million and the maximum earnout payment of $200.0 million remains the same. We also agreed to fund Endospan additional secured loans of up to $ 25.0 million ("Additional Endospan Loan" and together with the Endospan Loan, the "Endospan Loans").

Variable Interest Entity Assessment

We consolidate the results of a variable interest entity ("VIE") when it is determined that we are the primary beneficiary. Based on our initial evaluation of Endospan and the related agreements with Endospan, we determined that Endospan is a VIE. Although the arrangement with Endospan resulted in our holding a variable interest, it did not empower us to direct those activities of Endospan that most significantly impact the VIE economic performance. Therefore, we are not the primary beneficiary, and we have not consolidated Endospan into our financial results. We evaluated Endospan for VIE classification as of December 31, 2024, 2023 and 2022 and determined that Endospan meets the criteria of a non-consolidating VIE.

Valuation

The agreements with Endospan were entered into concurrently and had certain terms that are interrelated. In our evaluation of the initial relative fair value of each of the Endospan agreements to determine the amount to record, we utilized discounted cash flows to estimate the fair market value for the Endospan Loan and for the Endospan Distribution Agreement. We estimated the fair value of the Endospan Option utilizing a Monte Carlo simulation model. Inputs in our valuation of the Endospan agreements included cash payments and anticipated payments based on the executed agreements with Endospan, projected discounted cash flows in connection with the Endospan transaction, our expected internal rate of return and discount rates, and our assessed probability and timing of receipt of certification of certain approvals and milestones in obtaining FDA approval.

Endospan Option

Utilizing a Monte Carlo simulation model, we determined that the fair value of the Endospan Option in 2019 was $4.9 million. As a result of a decrease in forecasted operating results, we fully impaired the value of the Endospan Option primarily during the fourth quarter of December 31, 2021.

Due to the revised terms in the Endospan Option Amendment in July 2024, we performed another fair value measurement utilizing a Monte Carlo simulation model and revalued the Endospan Option. We determined that the fair value of the Endospan Option was $3.1 million which is reflected in Other long-term assets in our Consolidated Balance Sheet as of December 31, 2024.

Endospan Loans

Artivion and Endospan entered into the Endospan Loan, dated September 11, 2019, 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 in 2019, 2020 and 2023, respectively.

We elected the fair value option for recording the Endospan Loan. We assess the fair value of the Endospan Loan based on quantitative and qualitative characteristics, and adjust the amount recorded to its current fair market value at each reporting period. We performed an assessment of the fair value of the Endospan Loan and determined that the fair value of the first two tranches decreased and had no value as of December 31, 2021.

In 2023 we funded the $ 5.0 million third tranche payment and determined that the loan continued to have no fair value. Consequently, we recorded an expense of $ 5.0 million during the year ended December 31, 2023. After entering into an amendment to the Endospan Loan in July 2024 (the "Endospan Loan Amendment"), we determined that the Endospan Loan had a fair value of $ 0.3 million as of December 31, 2024. As a part of the Endospan Loan Amendment, Artivion agreed to fund the Additional Endospan Loan up to $ 25.0 million. The Additional Endospan Loan is contracted to be funded in three tranches of $ 7.0 million, $ 10.0 million and $8.0 million, subject to Endospan’s achievement of milestones related to its pursuit of regulatory approval for NEXUS ONE that are specified in the Endospan Loan Amendment. The first two tranches totaling $17.0 million were funded during the year ended December 31, 2024. We performed a fair value assessment of the Additional Endospan Loan and determined that the fair value was $9.2 million as of December 31, 2024 which is reflected in Other long-term assets in the Consolidated Balance Sheets as of December 31, 2024.

Distribution Agreement

The Endospan Distribution Agreement, reflected in Other intangibles, net in the Consolidated Balance Sheets and amortized on a straight-line basis, was $1.8 million as of December 31, 2023 and was fully amortized as of December 31, 2024.

5. Financial Instruments

A summary of financial instruments measured at fair value was as follows (in thousands):

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 years ended December 31, 2024, 2023 and 2022.

The fair value of the contingent consideration component of the Ascyrus acquisition and Endospan Loans were updated using Level 3 inputs. We recorded the Endospan Loans, classified as Level 3, as a result of the Endospan Option Amendment in July 2024. See Note 4 for further discussion of the Endospan Option Amendment. Changes in fair value of Level 3 assets and liabilities are listed in the tables below (in thousands):

6. Inventories and Deferred Preservation Costs

Inventories consist of the following (in thousands):

Deferred preservation costs consist of the following (in thousands):

To facilitate product usage, we maintain consignment inventory of our On-X heart valves at domestic hospital locations and On-X heart valves, aortic stent grafts, and AMDS products at international hospital locations. We retain title and control over this consignment inventory until we receive a notification of implantation, at which time we invoice the hospital and recognize revenue. As of December 31, 2024 we had $12.2 million in consignment inventory, with approximately 39% in domestic locations and 61% in foreign locations. As of December 31, 2023 we had $10.7 million in consignment inventory, with approximately 44% in domestic locations and 56% in foreign locations.

7. Goodwill and Other Intangible Assets

Indefinite Lived Intangible Assets

The carrying values of our indefinite lived intangible assets were as follows (in thousands):

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 evaluate our goodwill and indefinite lived 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. We did not record any impairment of indefinite lived intangible assets, including goodwill, during the years ended December 31, 2024, 2023 and 2022. In-process research and development, procurement contracts and agreements are included in Other intangibles, net in the Consolidated Balance Sheets as of December 31, 2024 and 2023.

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.

Changes in the carrying value of our goodwill, all of which was related to our Medical Devices segment, was as follows (in thousands):

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. The major intangible asset classes consist of the following (in thousands, except weighted average useful life):

Amortization Expense

Amortization expense recorded in General, administrative, and marketing expenses in our Consolidated Statements of Operations and Comprehensive Loss was as follows (in thousands):

The estimated future amortization expense of intangible assets with definite lives as of December 31, 2024 for the next five years is as follows (in thousands):

8. Income Taxes

Income Tax Expense

The components of loss before income taxes are as follows (in thousands):

Income tax expense consists of the following (in thousands):

Effective Tax Rate Reconciliation

The income tax expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss differs from the income tax benefit computed by applying the US federal statutory income tax rate of 21% to loss before income taxes due to the following (in thousands):

Deferred Taxes

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are as follows (in thousands):

We regularly assess the realizability of deferred tax assets and establish valuation allowances if it is more likely than not that some or all deferred tax assets will not be realized. The following table reflects changes in the valuation allowance (in thousands):

As of December 31, 2024 and 2023 we maintained a net deferred tax liability of $19.1 million and $20.8 million, respectively. As of December 31, 2024 and 2023 we maintained valuation allowances against our deferred tax assets of $32.6 million and $32.9 million, respectively, primarily related to net operating loss carryforwards and disallowed excess interest carryforwards.

As of December 31, 2024 we had $4.6 million of federal net operating loss carryforwards related to prior acquisitions for which we have a full valuation allowance against and will fully expire at the end of 2032, $17.5 million of state net operating loss carryforwards, the majority of which will expire in 2025, $7.0 million of foreign net operating loss carryforwards, the majority of which have an indefinite carryforward period, and $0.3 million in research and development tax credit carryforwards, the majority of which will expire in 2032.

As of December 31, 2024 we had a deferred tax asset of $9.2 million of disallowed interest expense deduction carryforwards as a result of the interest deductibility rule imposed by the "Tax Cuts and Jobs Act" of 2017 ("Tax Act"), and later modified by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). This deferred tax asset can be carried forward indefinitely. This rule disallows interest expense to the extent it exceeds 30% of adjusted taxable income. For the years ended December 31, 2024 and 2023 our interest deduction was limited to $18.5 million and $20.4 million, respectively.

Reinvestment of Unremitted Earnings

We intend to reinvest substantially all of the unremitted earnings of our non-US subsidiaries to fund working capital, strategic investments, and debt repayment and postpone their remittance indefinitely. Accordingly, no provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company is permanently reinvested with respect to the outside basis differences in its significant non-US subsidiaries.

Uncertain Tax Positions

The following table reflects changes in our uncertain tax position liability, excluding interest and penalties (in thousands):

We recorded non-current liabilities of $0.6 million and $0.4 million related to interest and penalties on uncertain tax positions in our Consolidated Balance Sheets as of December 31, 2024 and 2023, respectively. We included expense of less than $0.1 million for December 31, 2024 and 2023, and expense of $0.1 million for December 31, 2022, for interest and penalties related to unrecognized tax benefits in our Consolidated Statements of Operations and Comprehensive Loss.

As of December 31, 2024 our uncertain tax liability of $5.1 million, including interest and penalties, was recorded as a reduction to deferred tax assets of $0.5 million, and a non-current liability of $4.6 million in our Consolidated Balance Sheets. The amount of uncertain tax liabilities that are expected to affect our tax rate if recognized were $4.0 million, $4.4 million and $3.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2023 our total uncertain tax liability, including interest and penalties of $5.2 million, was recorded as a reduction to deferred tax assets of $0.1 million and as a non-current liability of $5.1 million in our Consolidated Balance Sheets.

We believe it is reasonably possible that approximately $0.2 million of our uncertain tax liability will be recognized in 2025 due to the lapsing of various federal and state and foreign statutes of limitations, of which substantially all would affect the tax rate.

Other

Our tax years 2019 and forward generally remain open to examination by the major taxing jurisdictions to which we are subject. However, certain returns from years prior to 2019, in which net operating losses and tax credits have arisen, are still open for examination by the tax authorities.

9. 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.

Balance sheet information related to leases consists of the following (in thousands, except lease term and discount rate):

The components of lease expense included in General, administrative, and marketing expenses in our Consolidated Statements of Operations and Comprehensive Loss consists of the following (in thousands):

Supplemental cash flow information related to leases consists of the following (in thousands):

Future maturities of lease liabilities are as follows (in thousands):

10. Debt

Debt consists of the following (in thousands):

(a) Additional unamortized debt issuance costs totaling $1.7 million related to the Revolving Credit Facility as of December 31, 2024 are included in "Other long-term assets" in the Consolidated Balance Sheets.

Maturities

The aggregate principal amount of maturities of debt for the next five years and thereafter are as follows (in thousands):

Our liquidity needs arise from the funding of our cost of operations and capital expenditures and from debt service on our indebtedness. We believe that cash generated from operations, together with amounts available under our Revolving Credit Facility and our intent to settle our $100.0 million Convertible Senior Notes by issuing common stock shares (see "Convertible Senior Notes" discussion below) will be adequate to permit us to meet our obligations over the next twelve months from the date of this report.

Credit Facilities

On January 18, 2024 we entered into a credit and guaranty agreement with Ares Management Credit funds for $350.0 million of senior secured, interest-only, credit facilities, consisting of a $190.0 million secured term loan facility (the "Term Loan Facility"), a $100.0 million secured delayed draw term loan facility (the "Delayed Draw Term Loan Facility" and, together with the Term Loan Facility, the "Term Loan Facilities") and a $60.0 million "senior-priority" secured revolving credit facility which has a priority claim ahead of the other secured facilities (the "Revolving Credit Facility" and, together with the Term Loan Facilities, the "Credit Facilities"). Upon closing, we borrowed $190.0 million under the Term Loan Facility and $30.0 million under the Revolving Credit Facility. The proceeds of the borrowings were used along with cash on hand to pay off our previously existing credit agreement (the "Old Credit Facilities" as defined below) and pay related fees and expenses.

The remaining $30.0 million of undrawn availability under the Revolving Credit Facility as of December 31, 2024 may be drawn for working capital, capital expenditures, and other general corporate purposes. The proceeds from borrowings under the Delayed Draw Term Loan Facility, which remains undrawn as of December 31, 2024, may be used solely to repurchase or repay our outstanding 4.25% Convertible Senior Notes due July 1, 2025 and to pay related fees and expenses. Subject to the satisfaction of a specified maximum total net leverage ratio and other customary conditions, we may borrow under the Delayed Draw Term Loan Facility at any time and from time to time on or prior to the maturity date of the convertible bonds on July 1, 2025. Loans borrowed under the Delayed Draw Term Loan Facility generally have the same terms as the loans under the Term Loan Facility. See Convertible Senior Notes below for additional details.

Ranking; Guarantees

The Credit Facilities are 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.

Maturity and Redemption

The final scheduled maturity date of the Credit Facilities is January 18, 2030. There are no scheduled repayments of principal required to be made prior to the final maturity date. We have the right to prepay loans under the Ares Credit Agreement in whole or in part at any time, provided that any prepayment of loans under the Term Loan Facilities (or loans under the Revolving Credit Facility to the extent of reducing the balance of outstanding loans below $30.0 million) will be subject to a prepayment premium of 5.00% if the prepayment occurs prior to January 18, 2025 and 1.00% if the prepayment occurs thereafter and prior to January 18, 2026. Amounts repaid in respect of loans under the Term Loan Facilities may not be reborrowed.

Covenants

The Credit Facilities contain 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. The covenants include a financial maintenance covenant that requires the company’s total net leverage ratio, as defined in the agreement, to be not greater than 6.25x for the test periods from the second quarter of fiscal year 2024 through the fourth quarter of fiscal year 2024 and not greater than 5.75x from the first quarter of fiscal year 2025 and thereafter. As of December 31, 2024 we are in compliance with our debt covenants.

Interest

The Revolving Credit Facility bears interest, at our option, at a floating annual rate equal to either the base rate plus a margin of 3.00%, or the Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR")plus a margin of 4.00%. In addition, we will be required to pay fees of 0.50% per annum on the daily unused amount of the Revolving Credit Facility and 1.00% per annum on the daily unused amount of the Delayed Draw Term Loan Facility. The Term Loan Facilities initially bear interest, at our option, at a floating annual rate equal to either the base rate plus a margin of 5.50%, or the Adjusted Term SOFR plus a margin of 6.50%. If, after the second quarter of fiscal year 2025, the company reports total net leverage ratio, as defined in the Credit Facilities, of less than or equal to 3.75x the interest margins applicable to the Term Loan Facilities will be reduced by 25 basis points, to 5.25% and 6.25%, for base rate and Adjusted Term SOFR loans, respectively. As of December 31, 2024 the stated and effective interest rate for the Term Loan Facility was 11.09% and 11.86%, respectively. As of December 31, 2024 the stated interest rate was 8.59% per annum for the Revolving Credit Facility.

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 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. Interest on the Convertible Senior Notes began accruing upon issuance and is payable semi-annually. The fair value and the effective interest rate of the Convertible Senior Notes as of December 31, 2024 was approximately $128.8 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.

Interest expense recognized on the Convertible Senior Notes includes approximately $5.0 million, $5.0 million and $4.9 million for the aggregate of the contractual coupon interest and the amortization of the debt issuance costs during the years ended December 31, 2024, 2023 and 2022, respectively. Interest on the Convertible Senior Notes began accruing upon issuance and is payable semi-annually. There were approximately $0.4 million and $1.1 million of unamortized debt issuance costs related to convertible senior notes as of December 31, 2024 and 2023, 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.

We became eligible to redeem the Convertible Senior Notes beginning on July 5, 2023, following the expiration of their non-redemption period. We are able to redeem the Convertible Senior Notes 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 our other securities. As of December 31, 2024 and 2023 we are not aware of any current events or market conditions that would allow holders to convert the Convertible Senior Notes.

On December 23, 2024 in accordance with the Indenture (the "Indenture") dated June 23, 2020, between Artivion, Inc. (formerly CryoLife, Inc.) and U.S. Bank Trust Company, National Association, as Trustee, relating to our Convertible Senior Notes, we gave notice to the Trustee, the Conversion Agent, and the Holders (each as defined in the Indenture) that we elected to change the "Default Settlement Method" (as defined in the Indenture) for conversions of Notes to "Physical Settlement" (as defined in the Indenture). As a result, all conversions of Notes after the date of the notice will be settled by delivery of shares of our common stock using Physical Settlement in accordance with the Indenture.

Old Credit Facilities and Loss on Extinguishment of Debt

Our Old Credit Facilities, entered into on December 1, 2017, provided for a $255.0 million senior secured credit facility, consisting of a $225.0 million secured term loan facility (the "Old Term Loan Facility") and a $30.0 million secured revolving credit facility (the "Old Revolving Credit Facility"). On June 2, 2021 we entered into an amendment to our Credit Agreement to extend the maturity dates of both our Term Loan and its 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 as defined.

In connection with the proceeds received from our new Credit Facilities, we repaid all outstanding amounts under the Old Credit Facilities and recorded a loss on extinguishment of debt of $3.7 million, primarily comprised of the write-off of unamortized debt issuance costs, in our Consolidated Statements of Operations and Comprehensive Loss for year ended December 31, 2024.

Debt Discount and Debt Issuance Costs

In connection with the debt issued under the Credit Facilities, we capitalized $2.7 million in debt issuance costs. The Credit Facilities were also issued at an original issue discount of $7.5 million. Non-cash amortization of debt issuance costs and debt discounts for our Credit Facilities, Convertible Senior Notes, and Old Credit Facilities totaled $3.9 million, $1.9 million and $1.8 million for the years ended 2024, 2023 and 2022, respectively. Due to our intent to settle the Convertible Senior Notes with common shares instead of cash drawn on our Delayed Draw Term Loan Facility, non-cash amortization for the year ended December 31, 2024 includes full amortization of the $1.7 million associated with the Delayed Draw Term Loan Facility.

Other Borrowings

Government Supported Bank Debt

In April 2014 JOTEC obtained the first loan Sparkasse Zollernalb, which is government sponsored by the Kreditanstalt für Wiederaufbau Bank (KFW). The first loan bears an interest rate of 2.45% and matured during the first quarter of 2024. In December 2015 JOTEC obtained the second loan Sparkasse Zollernalb sponsored by KFW. The second loan bears an interest rate of 1.40% and is scheduled to mature during the third quarter of 2025.

Financed Insurance Premiums

On April 19, 2023 we issued notes payable in the aggregate of $3.6 million to finance our insurance premiums. The notes payable had a term of one year at an interest rate of 6.65% per annum. The notes payable balance of $1.0 million, reflected in Other current liabilities in the Consolidated Balance Sheet as of December 31, 2023, was fully repaid in the first quarter of 2024.

11. 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 Consolidated Financial Statements as of December 31, 2024 and 2023 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.

PROACT Xa Clinical Trial Termination

On September 23, 2022 we announced that we were stopping the PROACT Xa clinical trial as recommended by the trial's independent Data and Safety Monitoring Board. The PROACT Xa clinical trial was a prospective, randomized, trial designed to determine if patients with On-X mechanical aortic valves could be maintained safely and effectively on apixaban rather than on warfarin. As a result of PROACT Xa's early termination, we recorded $4.5 million of termination and wind-down expenses that are included in Research and development operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2022. The majority of these costs include administrative costs, that we paid during the fourth quarter of 2022 and the first quarter of 2023, as well as the estimated cost of clinical drugs purchased for patients participating in the study that are not expected to be recovered.

12. Employee Benefit Plans

401(k) Plan

We have a 401(k) savings plan ("401(k) Plan") providing retirement benefits to all US employees who have completed at least three months of service. We made matching contributions of each participant's contribution up to 4.0% of each participant’s salary in 2024, 2023 and 2022. Our contributions approximated $2.8 million, $2.6 million and $2.6 million for the years ended 2024, 2023 and 2022, respectively. We may make discretionary contributions to the 401(k) Plan; however, no discretionary contributions were made in any of the past three years.

Deferred Compensation Plan

Our Deferred Compensation Plan ("Deferred Plan") allows certain of our US employees to defer receipt of a portion of their salary and cash bonus. The Deferred Plan provides for tax-deferred growth of deferred compensation. Pursuant to the terms of the Deferred Plan, we agree to return the deferred amounts plus gains and losses, based on investment fund options chosen by each respective participant, to the plan participants upon distribution. All deferred amounts and deemed earnings thereon are vested at all times. We have no current plans to match any contributions. Amounts owed to plan participants are unsecured obligations of the Company. We have established a rabbi trust in which it will make contributions to fund our obligations under the Deferred Plan. Pursuant to the terms of the trust, we will be required to make contributions each year to fully match our obligations under the Deferred Plan. The trust’s funds are primarily invested in Company Owned Life Insurance ("COLI"), and we plan to hold the policies until the deaths of the insured.

Deferred compensation liabilities are reflected in the Consolidated Balance Sheets based on the anticipated distribution dates. Deferred compensation liabilities of $0.3 million and $8.0 million are reflected in Other current liabilities and Deferred compensation liability, respectively, as of December 31, 2024 in the Consolidated Balance Sheets. Deferred compensation liabilities of $0.5 million and $6.8 million are reflected in Other current liabilities and Deferred compensation liability, respectively, as of December 31, 2023 in the Consolidated Balance Sheets. The cash surrender value of COLI reflected in Other long-term assets in the Consolidated Balance Sheets was $7.8 million and $6.9 million as of December 31, 2024 and 2023, respectively. Changes in the value of participant accounts and changes in the cash surrender value of COLI are recorded as part of our operating expenses and are subject to our normal allocation of expenses to inventory and deferred preservation costs.

13. Revenue Recognition

Disaggregation of Revenue

Revenues are disaggregated by following geographic regions:

•North America: consists of US and Canada. We market our medical device products and preservation services (predominantly in the US), primarily to physicians through our direct sales representatives who are managed by region managers.

•Europe, the Middle East, and Africa ("EMEA"): in certain countries, we market approved medical device products to physicians, hospitals, and distributors through our direct sales force. In countries where we have no direct sales forces, regional sales managers market to distributors who buy medical device products directly from us and sell to hospitals in their respective countries.

•Asia Pacific ("APAC"): we market medical device products that are approved in each country to distributors in the region.

•Latin America ("LATAM"): we market medical device products that are approved in each country to distributors in the region except for Brazil where we sell directly to end customers and distributors.

Net revenues by geographic location based on the location of the customer were as follows (in thousands):

Also see segment disclosure in Note 16 below.

14. Stock Compensation

Overview

We are currently authorized to grant and have available for grant the following number of shares under our stock plans as of December 31, 2024:

During 2020 the Stockholders approved a new 2020 Equity and Cash Incentive Plan ("ECIP") and funded it with 2.7 million of newly issuable shares. On August 11, 2020 4.1 million shares were registered under the 2020 ECIP, consisting of the newly issuable shares as well as 1.4 million of the shares that remained available for grant under the 2009 ECIP as of that date. On May 16, 2023 the Stockholders approved additional 3.0 million shares to be registered under the 2020 ECIP.

Stock Awards

In 2024 the Compensation Committee of our Board of Directors (the "Committee") authorized awards from approved stock incentive plans of RSAs to non-employee directors and RSUs and PSUs to certain employees and Company officers, which, assuming that performance under the PSUs at target levels, together totaled 781,000 shares and had an aggregate grant date market value of $16.2 million. The PSUs granted in 2024 ("2024 Annual PSU") have a one-year performance period and are based on attaining specified levels of revenue growth and specified levels of EBITDA, as defined in the PSU grant documents, for the 2024 calendar year. If the highest performance threshold was met, the 2024 Annual PSU represented the right to receive up to 150% of the target number of shares of common stock. The 2024 Annual PSU earned approximately 104% of the target number of shares and was subsequently modified during February 2025 to earn approximately 130% of the target number of shares.

In 2023 the Committee authorized awards from approved stock incentive plans of RSAs to non-employee Directors and RSUs and PSUs to certain employees and Company officers, which, counting PSUs at target levels, together totaled 681,000 shares and had an aggregate grant date market value of $9.7 million. Two types of PSUs were granted in 2023, an annual grant ("2023 Annual PSU") with a one-year performance period and an LTIP PSU grant ("2023 LTIP PSU") with a one-year performance period. If the highest performance threshold was met, the 2023 Annual PSU represented the right to receive up to 150% of the target number of shares of common stock. The performance component of the 2023 Annual PSU was based on attaining specified levels of revenue growth and specified levels of EBITDA, as defined in the PSU grant documents, for the 2023 calendar year. The 2023 Annual PSU earned approximately 148% of the target number of shares. If the highest performance threshold was met, the 2023 LITP PSU grant represented a right to receive up to 200% of the target number of shares of common stock. The 2023 LTIP PSU grant earned approximately 200% of target number of shares.

In 2022 the Committee authorized awards from approved stock incentive plans of RSAs to non-employee Directors and RSUs and PSUs to certain employees and Company officers, which, counting PSUs at target levels, together totaled 871,000 shares and had an aggregate grant date market value of $13.5 million. Two types of PSUs were granted in 2022, an annual grant ("2022 Annual PSU") with a one-year performance period and an LTIP PSU grant ("2022 LTIP PSU") with a one-year performance period. If the highest performance threshold was met, the 2022 Annual PSU represented the right to receive up to 150% of the target number of shares of common stock. The performance component of the 2022 Annual PSU was based on attaining specified levels of revenue growth and specified levels of EBITDA, as defined in the PSU grant documents, for the 2022 calendar year. The 2022 Annual PSU earned approximately 51% of the target number of shares and was subsequently modified on February 13, 2023 to earn approximately 89% of the target number of shares. If the highest performance threshold was met, the 2022 LITP PSU grant represented a right to receive up to 200% of the target number of shares of common stock. The 2022 LTIP PSU grant earned approximately 140% of target number of shares.

A summary of the RSA activity for the year ended December 31, 2024 is presented below:

The weighted average per share grant date fair value of RSAs granted during 2023 and 2022 were $15.45 and $17.91 , respectively. The total fair value of RSAs that vested during 2024, 2023 and 2022 was $3.3 million, $1.8 million and $1.8 million, respectively.

A summary of the RSU activity for the year ended December 31, 2024 is presented below:

The weighted average per share grant date fair value of RSUs granted during 2023 and 2022 were $14.59 and $14.55 , respectively. The total fair value of RSUs that vested during 2024, 2023 and 2022 was $3.7 million, $1.7 million and $1.9 million, respectively.

A summary of the PSU activity for the year ended December 31, 2024 is presented below:

The weighted average per share grant date fair value of PSUs granted during 2023 and 2022 was $14.43 and $18.93 , respectively. The total fair value of PSUs that vested during 2024, 2023 and 2022 was $5.6 million, $2.8 million and $2.1 million, respectively.

Stock Options

The Committee did no t authorize any grants of stock options during 2024. The Committee authorized grants of stock options from approved stock incentive plans to certain Company officers and employees totaling 110,000, and 1,031,000 shares in 2023 and 2022, respectively, with exercise prices equal to the stock prices on the respective grant dates.

A summary of stock option activity for the year ended December 31, 2024 is presented below:

The weighted average per share grant date fair value of stock options granted during 2023 and 2022 was $7.87 and $5.31, respectively. The total intrinsic value of options exercised during 2024, 2023 and 2022 was $0.3 million, $0.7 million, and $1.1 million, respectively. The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

Employees purchased common stock totaling 118,000, 141,000 and 95,000 shares in 2024, 2023 and 2022, respectively, through our ESPP.

Stock Compensation Expense

The following weighted-average assumptions were used to determine the fair value of options:

The following table summarizes stock compensation expense and the associated income tax benefits recognized (in thousands):

For the years ended December 31, 2024, 2023 and 2022, we recognized tax benefits on total stock compensation expense, which are reflected in Income tax expense in the Consolidated Statements of Operations and Comprehensive Loss, of $2.4 million, $3.2 million, and $2.7 million, respectively.

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 our 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 $0.7 million, $0.7 million, and $0.6 million in the years ended December 31, 2024, 2023 and 2022, respectively, of the stock compensation expense into our inventory costs and deferred preservation costs.

As of December 31, 2024 we had total unrecognized compensation expense of $12.4 million related to RSAs, RSUs, and PSUs and $1.3 million related to unvested stock options. As of December 31, 2024 this expense is expected to be recognized over a weighted-average period of 1.32 years for RSUs, 0.86 years for stock options, 0.85 years for PSUs, and 0.41 years for RSAs.

15. 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):

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 years ended December 31, 2024, 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 to the net loss.

16. Segment and Geographic 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 TM, NEXUS ONE TM, NEXUS DUO TM, NEXUS TRE TM, E-vita Thoracic 3G, and Artivex TM. Abdominal stent grafts include our E-xtra Design Engineering, E-nside TM, E-tegra TM, E-ventus TM BX, Tuva BX, and E-liac TM 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.

Our Chief Operating Decision Maker ("CODM") is the Company’s Chairman, President, and CEO. The CODM reviews financial information to assess segment performance and determine how to allocate resources across segments.

The primary measure of segment performance, as assessed by our CODM, is segment gross margin or net external revenues less cost of products and preservation services. The CODM regularly reviews these costs, recognizing them as significant segment expenses. 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 reportable segments (in thousands):

Net revenues by product were as follows (in thousands):

Net revenues by geographic location attributed to countries based on the location of the customer were as follows (in thousands):

Revenues attributed to customers in Germany accounted for 9%, 8% and 9% of total revenues for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024 and 2023, $18.4 million and $17.5 million of our long-lived assets were held in the US, respectively, where the corporate headquarters and a portion of our manufacturing facilities are located. Our long-lived international assets were $18.0 million and $20.9 million as of December 31, 2024 and 2023, respectively, of which 96% were located in Hechingen, Germany. As of December 31, 2024 and 2023, $241.0 million and $247.3 million, respectively, of our goodwill was allocated entirely to our Medical Devices segment.

Kapitalflussrechnung

Artivion, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

In Thousands

Eigenkapitalspiegel

Artivion, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

In Thousands

Bestätigungsvermerk

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Artivion, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Artivion, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Deferred Preservation Costs

Description of the Matter

At December 31, 2024, the Company’s deferred preservation costs, net, balance was $51.7 million. As discussed in Note 1 to the consolidated financial statements, the calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing. Donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ("OPOs") and tissue banks, that provide the tissue to the Company for processing, preservation, and distribution. Deferred preservation costs consist primarily of the procurement fees charged by the OPOs and tissue banks, direct labor and materials (including salary and fringe benefits, laboratory supplies and expenses, and freight-in charges), and indirect costs (including allocations of costs from support departments and facility allocations). Fixed production overhead costs are allocated based on actual tissue processing levels, to the extent that they are within the range of the facility’s normal capacity. These costs are then allocated among the tissues processed during the period based on cost drivers, such as the number of donors or number of tissues processed. The Company applies a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable. Estimated yields are based on the Company’s historical yield experience with similar tissues and these estimates are evaluated periodically to determine whether the appropriate historical volume and time periods are being used to calculate the yields applied to in-process tissues to determine the equivalent units on hand at each period end.

Auditing management’s deferred preservation costs was complex and required judgment due to the detailed calculations within the Company’s costing model to determine the amount of preservation costs deferred, including the estimation of the number of in-process tissue equivalent units based on historical volumes and yields by tissue type that is utilized to determine the number of tissues in process that will ultimately become implantable to which the deferred costs will be applied.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the process used by management to calculate the Company’s deferred preservation costs, including controls over management’s review of the completeness and accuracy of the deferred preservation cost model and key inputs such as the historical yield information used to estimate the in-process tissue equivalent units as a component of the deferred preservation costs, as discussed above.

To test the appropriateness of the amounts recorded as deferred preservation costs, we performed audit procedures that included, among others, testing the nature of costs being deferred and the accuracy of the calculation of deferred preservation costs by agreeing the amounts to and testing the underlying reports and analyses supporting the calculation of costs to be deferred. We tested the yield estimates applied to determine the equivalent units of in-process tissues by understanding and testing the historical information utilized and comparing the yields utilized in the period end model to those historical results. We also compared the reconciliation of the ending balance of deferred preservation costs as calculated in the Company’s deferred preservation cost calculation model to amounts recorded in the general ledger.

We have served as the Company's auditor since 2013.