Artivion, Inc. (NYSE:AORT) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET

Company Participants

Sam Bentzinger - Gilmartin Group
Pat Mackin - Chairman, President & CEO
Ashley Lee - EVP & CFO

Conference Call Participants

John McAulay - Stifel
Frank Takkinen - Lake Street Capital
Suraj Kalia - Oppenheimer & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Artivion 3Q 2022 Financial Conference Call. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to your host, Sam Bentzinger from the Gilmartin Group.

Sam Bentzinger

Good afternoon, and thank you for joining the call today. Joining me today from Artivion's management team are Pat Mackin, CEO; and Ashley Lee, CFO.

Before we begin, I'd like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today.

Now I'll turn the call over to Artivion's CEO, Pat Mackin.

Pat Mackin

Thanks, Sam. I'm pleased to report that our solid business momentum continues as we've now delivered our fourth consecutive quarter of strong constant currency top-line revenue growth. Constant currency total revenue growth was 11% compared to Q3 and the first nine months of 2021. Further, we remain on track to deliver on each of our commitments we made at our investor meeting in March.

For the third quarter, we saw top-line growth across all of our product categories. More specifically, on a constant currency basis compared to Q3 of '22 versus Q3 of 2021, On-X grew 19%, tissue processing grew 13%, BioGlue grew 9% and stent grafts grew 7%. For the first nine months of the year, on a constant currency basis, stent grafts were up 22%, On-X is up 14%, tissue processing is up 10% and BioGlue is down 4%, all compared to the first nine months of last year.

Regarding BioGlue, we have secured derogation and derogation extensions that will allow us to continue selling in virtually all European countries through year end, by which time we believe we should have the CE Mark. In the third quarter, while our derogation extension requests were pending, it was unclear if we'd be able to continue to sell BioGlue into the U.K. and France in Q4. As a result, we estimate an additional $1.5 million in orders in Q3 that we believe typically would have been placed in Q4.

Fortunately, in October, we received these derogation extensions, by which time, the Q3 orders for BioGlue to those countries has already been fulfilled. Therefore, we expect BioGlue's contribution in Q4 to reflect this increase in the Q3 orders. If customers had not made these increased BioGlue purchase in Q3, our total revenue growth in the third quarter and the first nine months of the year would have been 10%, both on a constant currency basis compared to the prior year.

Our success on all these fronts has reinforced our confidence that we can deliver on our three growth initiatives we outlined in our Investor Day in March, which we continue to believe will drive double-digit constant currency revenue growth through 2024 and beyond. As a reminder, our three initiatives are as follows. First, we will drive continued growth in On-X and aortic stent grafts. Second, we continue to benefit from our investments in our commercial channels and new regulatory approvals in Asia Pacific and Latin America. And third, we will drive growth in '23 and beyond through PMA approvals in the U.S. for PerClot and the On-X PROACT Mitral low INR indication.

As mentioned previously, On-X revenues grew 19% on a constant currency basis in the third quarter of 2022 compared to the third quarter of last year, driven by strength in the U.S. where revenues grew 21% compared to last year. And in Europe, our revenues increased 25% compared to last year, both on a constant currency basis. For stent grafts, revenue in the third quarter increased 7% on a constant currency basis compared to the third quarter of last year. Even though our year-over-year growth in stent graft revenue was down sequentially compared to the second quarter, year-to-date growth through the end of the third quarter stands at 22% on a constant currency basis.

Our next initiative is to expand our presence in Asia Pacific and Latin America through new regulatory approvals and commercial footprint extension, which also remain on track. I'm pleased to report that we're continuing to execute very well on this strategy, as demonstrated by the third quarter constant currency revenue growth of 25% and 22% in Asia Pacific and Latin America respectively. We continue to expect these regions to be important growth contributors over the coming years.

Regarding our third initiative, we remain on track to receive regulatory approvals for the low INR label of the On-X mitral valve and for PerClot by the end of the year. If the low INR label is approved, we believe we will take significant market share in the U.S. with the On-X mitral valve, just as we've done and continue to do with the On-X aortic valve. If PerClot is approved by December 31, 2022, we'll receive $25 million payment from Baxter for that milestone under our divestiture agreement and we'll begin to generate revenue for supplying PerClot to Baxter for approximately two years thereafter.

In addition to our progress on each of these initiatives, we continue to make progress on the AMDS clinical trial. For AMDS, we have 11 patients enrolled in our PERSEVERE trial, which is a non-randomized clinical trial in up to 25 U.S. centers, 100 patients who have been experienced an acute type A dissection. The combined primary efficacy and safety endpoints for the trial are the reduction in all-cause mortality, new disabilitating stroke, myocardial infarction and new-onset renal failure requiring dialysis as well as re-expansion of the true lumen of the aorta. We now anticipate completing the full enrollment in the first half of 2023. Following the one year follow-up period, assuming the trials meet its endpoints, we anticipate that we should receive FDA approval for the AMDS in early 2025.

In addition, our partner, Endospan is making good progress on the U.S. IDE TRIOMPHE trial for its NEXUS aortic arch stent graft system. In that trial, there are approximately 29 patients already enrolled and treated and a total of 40 patients enrolled and approved for treatment. Endospan estimates trial completion in June of 2023 and a PMA approval in 2025, again, assuming the trial's endpoints are met. To reiterate, if these PMA trials proceed as anticipated, we anticipate FDA approval for AMDS and NEXUS in 2025. At that time, assuming we exercise our option for Endospan, these products would increase our addressable market opportunity by an estimated $900 million.

Regarding PROACT Xa, while we were obviously surprised and disappointed by the termination of the trial, as recommended by the Data and Safety Monitoring Board, our #1 priority is always and will be patient safety. I'd like to put into perspective what the impact of stopping the PROACT Xa trial means for Artivion. First, if PROACT Xa had been successful, we would not have seen any revenue impact associated from the positive trial outcome for another three years if the trial had remained on schedule. Despite the termination of the trial, our current year revenue guidance and the three year revenue outlook we presented at our Analyst Day has not changed.

Second, we believe, as many KOLs believe, that our mechanical aortic valve is the best in the market. Our aortic valves have taken market share every year since we acquired On-X, and we do not expect that to change. No doubt, a positive trial outcome would have been beneficial in accelerating the pace of our market share gains for the aortic valve, but we fully expect the On-X valve business to continue to grow with or without a positive trial result due to its superior clinical benefits and indications over competitors.

Third, our growth drivers remain unaffected and our pipeline is poised to add more than $1 billion in addressable market by the time PROACT Xa would have been completed. We therefore, still have the opportunity to substantially grow our revenues and earnings.

Finally, there are positive financial implications from shutting down the trial. The majority of the $10 million we expected to spend on PROACT Xa in each of the years '23 and '24 will now largely be redirected to offsetting the impact of inflationary pressures, enhancing cash flows and EBITDA. Clinical trial setbacks are unfortunately an inherent part of innovation, and our product portfolio exemplifies many successes as we continue to do so. We will continue to prioritize and support innovation as we seek to develop products and improve the lives of patients around the world.

With that, I will now turn the call over to Ashley.

Ashley Lee

Thanks, Pat, and good afternoon, everyone. Total revenues were $76.8 million for the third quarter, up 6% on a GAAP basis and up 11% on a constant currency basis, both compared to Q3 of 2021. As Pat mentioned, we saw strong constant currency growth across all product lines. On a year-over-year basis, in the third quarter of 2022, On-X revenues increased 17%, tissue processing revenues increased 13% and BioGlue revenues increased 5%, aortic stent graft revenues decreased 6% due to currency headwinds. On a constant currency basis compared to the third quarter of '21, On-X revenues increased 19%, tissue processing revenues increased 13%, BioGlue revenues increased 9% and aortic stent graft revenues increased 7%.

On a regional basis, third quarter 2022 revenues in Asia Pacific increased 24%, Latin America increased 20%, North America increased 12% and Europe decreased to 8%, all compared to the third quarter of '21. On a constant currency basis, revenues in Asia increased 25%, Latin America increased 22%, North America increased 13% and Europe increased 5%, all compared to the third quarter of 2021.

Gross margins were 63.4% in Q3 compared to 66.2% for the third quarter of 2021. The decrease was driven primarily by inflationary impacts on materials and labor as well as product mix within our aortic stent graft and BioGlue product lines. Inflation remains persistently high and will weigh on our gross margins. However, with the continued growth in our top-line revenues, general expense management, along with funds now available due to the cessation of the PROACT Xa study, we still anticipate delivering on our adjusted EBITDA commitments we made in March at our Investor Day.

G&A expenses in the third quarter were $41.1 million compared to $39.1 million in the third quarter of '21. Excluding non-recurring acquisition-related and business development benefits and charges, G&A expenses were $39.9 million for the third quarter of '22 compared to $37.3 million in the third quarter of '21.

R&D expenses for the third quarter included a $4.7 million charge for estimated costs associated with the termination and wind down of the PROACT Xa study, as recommended by the Data and Safety Monitoring Board. The majority of these costs include future administrative and site costs that will be incurred 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 and not expected to be recovered. These costs are non-recurring and we have excluded them for purposes of calculating adjusted EBITDA and non-GAAP earnings per share.

On the bottom line, we reported GAAP net loss of approximately $13.7 million or $0.34 per fully diluted share in the third quarter of '22. Non-GAAP net loss was $1.9 million or $0.05 per share in the third quarter. GAAP and non-GAAP net loss includes a $3.7 million or $0.07 per share loss due to foreign currency revaluations. Excluding these amounts and the wind down costs associated with the PROACT Xa trial, non-GAAP income was $853,000 or $0.02 per share.

As of September 30, 2022, we had approximately $38 million in cash, $315 million in debt and the full $30 million available to us under our revolving credit facility. Adjusted EBITDA for the third quarter of '22 was $10.4 million compared to $9.3 million for the third quarter of 2021.

Regarding our capital structure and the impact of a rising rate environment, as we've stated, we do not believe that we need to raise additional capital to fund our debt, our investments in our channels or our pipeline. Even if LIBOR or SOFR increases to approximately 5%, which would place our all-in rate on our debt at approximately 8.5%, we believe we will still be able to comfortably service our debt and continue to invest in growth. With the cessation of the PROACT Xa study, we will have an additional $10 million of funds for each of '23 and '24, previously allocated to the study, which can now be mostly directed -- re-directed to earnings and cash flow.

Our Term Loan B contains no financial covenants that would place us in default, unless we were to have more than $7.5 million drawn on our revolving credit facility at the end of any calendar quarter, which we do not. As of now, we have the full $30 million available under our credit facility and do not currently foresee the need to draw on the facility. Additionally, our convertible notes do not contain any financial covenants. Please refer to our press release for additional information about our non-GAAP results, including a reconciliation of these results to our GAAP results.

And now for our 2022 outlook. In our last call, we stated we had faced a $10 million currency headwind in 2022 versus 2021. Since that time, the dollar has continued to strengthen, resulting in incremental FX headwinds. And for the fourth quarter alone, we faced approximately $4 million in currency headwinds compared to the fourth quarter of last year, putting our prior year constant currency revenue comparator at approximately $75 million.

With that in mind, our slightly narrowed full year constant currency growth guidance of between 9% and 10% implies full year revenues in the range of $313 million to $316 million. This contemplates our expectation for fourth quarter revenue to be in the range of between 78.5 and $81.5 million, which accounts for the impact of the previously discussed $1.5 million in BioGlue stocking orders that we benefited from in the third quarter.

I will turn the call back over to Pat for his closing comments.

Pat Mackin

Thanks, Ashley. So to summarize, our fourth consecutive quarter of strong execution continues to confirm our growth strategy is working and delivering the results we've envisioned. We continue to further expand our global commercial footprint and invest in our clinical programs. In the next three years, we expect revenue to grow double-digits to approximately $400 million and to generate $75 million to $80 million in adjusted EBITDA as well as reducing our net leverage to less than 3x, even despite the headwinds we faced from inflation and its impact on gross margins.

Our success in the third quarter positions us well to deliver on these metrics. To summarize, we saw 19% constant currency growth with On-X, 13% growth in tissue, 9% growth in BioGlue and 7% constant currency growth with our aortic stent graft program. We posted 25% constant currency growth in Asia Pacific and 22% in Latin America, while we continue to invest in these regions.

And lastly, we have a very robust pipeline. We expect to receive PMA approval for PerClot and the On-X PROACT Mitral by the end of the year as well as we have two U.S. clinical trials enrolling, the Endospan NEXUS TRIOMPHE and AMDS PERSEVERE study. They are currently enrolling and we expect to expand our total addressable market opportunity by $900 million by early 2025, assuming we execute on the Endospan option.

At this point, we have all the essential pieces in place for sustained growth and continued focus on execution. In all, the future for Artivion is bright and we solidify our position as a leading company in aortic repair. I want to thank all our Artivion employees around the world for continuing day in and day out to deliver on our mission.

With that, operator, please open the lines.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Rick Wise with Stifel.

John McAulay

This is actually John on for Rick today. So just first one for me, kind of on what you saw in the third quarter, how things trended throughout? It seems like European performance was a little lower than we were expecting. What kind of complications, if any, did you face over there? And generally, how did you exit the quarter in that regard? And then on the second count, I'm just curious, kind of as we head into '23, do you see these macro pressures in any ways easing, whether it be staffing, supply chain, FX as you look ahead into next year? I know it's still early for that, but I'm just curious what your opinion is on that?

Pat Mackin

I would say, on the European side, I mean, the only real kind of softness we saw in Europe was on the stent graft side. And that was primarily related to kind of staffing issues in our facility in Germany. We've seen, as you know, throughout the year, we're -- year-to-date, we're up 22% on stent grafts and we had guided 15% to 20%. So we're still ahead of where we expected to be.

It's really been kind of a growing teams exercise. We're growing very rapidly in Asia. We're growing rapidly in Latin America. We have huge demand on these products. And we're challenged by getting stock on shelves. And we're hiring rapidly at our manufacturing facility in Germany. So that will abate. The good news is, that's a very high demand product. I mean, literally, every time the products become available, they kind of fly out the door. I think that was the biggest kind of slowdown in -- was in from a European perspective.

On the second macro question, I mean, clearly, if you look at our gross margin, I mean, the inflationary impact on labor and materials has had a direct hit on our gross margins. And that's something that, again, is good news, bad news. I think unfortunately, those are probably here to stay. Whether or not it gets worse, we'll see what happens with the Fed and how often they raise the rates. But clearly, I mean, everything we're reading, it certainly looks like we're staring down the barrel of a recession. And in a way that is -- our business is fairly recession-proof, given that we treat severe aortic disease.

Currency, I mean, again, a lot of it depends on the actions that these governments takes. I saw that the U.K. just raised their rates by 0.75, which should buoy up the pound. But as far as currency projections for next year, maybe I'll let Ashley comment on that headwind.

Ashley Lee

Yes. I mean, we probably read the same information that you guys are reading. And from all indications, at least right now, we anticipate that the dollar should weakened somewhat as we go throughout next year. And again, I mean, who knows what we'll actually end up seeing. But as far as the interest rate environment, which Pat alluded to, everything that we're seeing right now is that rates should hopefully peak some time in the first half of this year and then slowly start to moderate. So that's kind of the view that we have taken into account when we communicated our outlook for '23 in February.

John McAulay

And then just kind of a quick follow-up and then one quick more question. On the aortic stent graft side, could you quantify exactly how much of that, I guess, the shortfall that you saw this quarter was due to the supply issues? Do you have a number or some kind of percentage that would reflect that?

Pat Mackin

It's hard to say. I will tell you that the demand is kind of through the roof. Again, particularly given the conversations about the macro headwinds, I like where I'm sitting with what's going on with the economy when I have a product line that's got a super high demand on it. We can solve that -- that's a solvable problem. It's a lot harder to solve demand problems when they're going the other way.

So we're confident with the hiring that we're doing and some of the streamlining we're doing on the -- kind of on the operations side. I think it's a complex product line. I mean, that's part of -- I think part of the challenge and I've worked in businesses like this in other companies. And we have folks that work here, that worked at other companies, it's a pretty challenging supply chain. And we're growing fast in a lot of places and it just puts pressure on. But I don't have a number for you. The number you can look at is, I mean, we're growing 22% for the year and we told you we were going to grow 15% to 20%. So I mean, I think the quarter was a little off, but it's just more of a growing [pain] issue than anything else.

Ashley Lee

One thing I'll add to that, John, is that, fortunately, we've made the investment in the facilities and we've talked about that over the last several quarters. But the investments in the facilities have been made, most of the equipment purchases have been made. And as Pat alluded to earlier, we've made some changes to our compensation structure to address the labor issues. And we've been recently having some very really good success in getting people into the facility. So we think that these issues are going to abate and we'll be able to catch up with the demand that we're seeing.

John McAulay

And I may just sneak in one more on operating leverage here. R&D expenses, you kind of faced an incremental cost this quarter from the trial shutdown. But as we look ahead into the fourth quarter and next year, I mean, what should we expect to see there? Sales growth maybe could be a bit limited by FX next year. But on the R&D and SG&A lines, I mean, should we expect to start to see more meaningful leverage and more creation of EBITDA ahead?

Pat Mackin

I think we made some comments in the prepared remarks that kind of guides you in that direction. So we were spending $10 million a year on PROACT Xa, that's now out. So if we were spending $40 million on R&D, that's going to be around $30 million. So you see a direct kind of drop through with that expense not being there.

The other thing is, we've expected to get leverage in our three year plan. If you look back at what we presented in March in New York, we had EBITDA of $45 million this year going to $75 million to $80 million in '24 and we believe we can deliver that. We think we're going to grow EBITDA significantly faster than revenue next year even in the face of these headwinds. So we'll give more communication on that in February. But we -- in this market environment, one of the benefits of being a profitable company is we can control what we have in front of us. And we realize the importance of EBITDA and cash flow and we will see a significant increase in our EBITDA next year.

Operator

Our next question comes from Frank Takkinen from Lake Street Capital.

Frank Takkinen

I wanted to maybe start on PROACT Xa, looked like a really solid performance there. I was hoping you could share any anecdotal feedback you've heard from any of your accounts? And specifically speaking about PROACT Xa being halted, any negative feedback around future demand? And then if there's any commentary you can talk to around ordering patterns, if those have been impacted since PROACT Xa?

Pat Mackin

I mean -- so I realize that the trial got [ablate] in the third quarter, but we did post 19% revenue growth with the On-X valve in the quarter and 21% growth in the U.S. Yeah, the anecdotal comments have been actually -- I talked to a lot of surgeons that were in the trial and I've heard words like you guys were bold to do this trial. The way you stopped it so quickly with patients at the forefront does nothing, but build trust and confidence in your company. It's the best mechanical valve on the market. I've had a number of -- I have some big aortic surgeons say, I hadn't used your valve before the trial, but I started enrolling patients in the trial and using your valve. And I like your valve, I'm going to keep using your valve.

So we are -- and last, but not least, we're the only company in the U.S. market with a low INR label that reduces bleeding with 60%. So it doesn't change that. That paper will be published. And I think it will show although this is a -- the drug, Eliquis, failed with the On-X valve, the On-X valve didn't fail. I think what you'll see is the On-X Valve performs extremely well with Coumadin. And that data will be coming out probably in the spring. But it is the best mechanical valve in the market and we expect to continue to grow that business going forward.

Frank Takkinen

And then maybe just one more on the comments around inflationary pressures. Curious if you could just run the guideline on all your products and talk to pricing power and if you intend to pass through some of those inflationary pressures into the selling price next year?

Pat Mackin

I mean, in some ways, it's kind of by product by region. Where we have -- it's not rocket science, it's where we have very proprietary patented products, we obviously have a lot more pricing power. I'll give you an example. Our SynerGraft pulmonary valve, which is growing very rapidly. I mean, our tissue business is growing 13% right now. We've had significant growth with our pulmonary valve with the kind of raw procedure growing very rapidly. We're the market leader. The SynerGraft has no competition and it won't have any competition. So that's an example of where you can raise price.

In the tissue area, the vascular business, we have a couple of competitors. There's not a lot of differentiation. So if you raise price, you run the risk of potentially losing market share. The other thing is, a lot of our -- I think one of the pieces of good news here, a lot of our newer products, our Neo frozen elephant trunk, our E-nside thoraco-abdominal system, our AMDS system. Those are all very high gross margin products. Those are in the 75% to 85% range. So our newest, most differentiated products are very high gross margin. And that is a mantra for us going forward is that products that you see come out from us are going to be very high gross margin.

Some of our legacy products like tissue are a lower gross margin, depending on which product you're talking about in the stent graft portfolio, if it's in more of a competitive market, it will be a lower gross margin. But our newer cutting-edge technologies are very high gross margins, which is reassuring. But we will be passing along price. And where we have differentiation, where we have open contracts, we will be looking to pass price on to offset some of these inflationary pressures.

Operator

Our next question comes from Mike Matson from Needham Capital.

Unidentified Analyst

This is Joseph on for Mike. So we've heard some commentary from some companies indicating that cardiac surgeries are more or less being prioritized over other surgeries. Just wanted to know if this is consistent, I guess, with what you guys are seeing currently?

Pat Mackin

We just had a big training program this past weekend, and I had a chance to talk to a number of heart surgeons, and their comments were, yeah, there is staffing issues at the hospitals, but the aortic cardiac cases are getting done. I mean, one, as you can imagine, the seriousness of the disease, they get prioritized. And two, these are -- and I've said this a number of times, the procedures that we're in are typically the most profitable in the hospital. So both from the sickness and the disease of the patient and the importance of the procedure to that patient as well as the reimbursement and the importance of that to the hospital, we don't really see us getting affected by some of the staffing issues that are definitely out there that we hear about. They're finding a way to staff up these procedures.

Unidentified Analyst

And then, I guess, just turning towards Asia Pac and Latin America, it was great seeing strong growth in the quarter. Just wondering where you guys are at in progress or what inning are you in in terms of the sales force expansion, some of the investments from that? And then kind of like timeline when do you think you can start to leverage these investments?

Pat Mackin

We clearly -- we've invested a lot. And I think from my earlier comments, it was kind of laid out in our three year plan when you look at our EBITDA. We've expected to accelerate EBITDA in that plan pretty rapidly going from 23% -- 22% to 24%. We're going to start getting leverage in '23 from those markets. So we will still invest, but not at the levels we've been investing. We'll be getting kind of positive drop-through out of those markets kind of going forward.

Operator

Next on the line for a question, we have Suraj Kalia from Oppenheimer & Co.

Suraj Kalia

Given now that PROACT Xa has been stopped and you'll talk to your physicians either involved in the trial or otherwise, are you getting an inkling knowing for well that you all don't have access to the data that there could be potentially any subgroups that you all could parse through where the benefits of switching to Eliquis could be evident? Is there anything salvageable in PROACT Xa? Are you all getting any indications of that?

Pat Mackin

So in my conversations -- and I talked to a lot of the investigators. In my conversations, I mean, the first priority, as you can imagine, is to cross over the patients on Eliquis back to Coumadin from a patient safety standpoint. That will be done in the next kind of -- the trial will be actually done in the next 30 days. They will then kind of wrap up the information, crunch the data and we're looking ahead and present it probably in the spring, maybe AATS in May.

There's obviously a lot of people interested in that data because I've heard from physicians that in big centers that all their patients did fine and there was no issues. Unfortunately, when you look at the aggregate, that wasn't the case. So clearly, we're all interested to see what it was. I think the other thing, the silver lining here, is that the On-X performed extremely well in the Coumadin group. And that data I think is going to be reinforcing how strong the On-X valve is and we're going to wait until that data comes out. But I think that will be something -- even though this trial failed, I think it will reinforce that this is the best aortic mechanical valve in the market.

Suraj Kalia

Pat, sorry, jumping in between multiple calls. Did you all talk about NEXUS in Europe, the status, how things are going?

Pat Mackin

We mentioned NEXUS. The only thing we really mentioned about NEXUS was the U.S. pivotal trial. I would say, NEXUS has been kind of under our expectations thus far. And one of the limitations, and you and I have talked about it, is we've been -- it's a single branch device at this point, which is still a big advance over doing the open surgery. But this quarter, we're actually launching our dual branch device, which I think will make a meaningful impact. It gets into some technical surgical details, but I think that the appetite for people who are looking for a dual branch to not have to do some of the anatomical bypasses required for a single branch. So I'm very excited to see the uptake of this dual branch device. And I think it will make a meaningful difference on the NEXUS portfolio in Europe.

Suraj Kalia

And Ashley, if I could just throw this in there, I'll hop back in queue. Just the debt structure, especially in the current environment, how are you all thinking? Just give us a roadmap over the next two years.

Ashley Lee

We alluded to it a little bit earlier in the commentary. But our expectations for interest rates over the next year, we saw that the funds rate were going -- peaking out around 5%, and that's consistent with everything that we're reading and hearing right now and gradually tapering off in the second half of '23 and beyond. And taking that into consideration, we believe that we can comfortably service all of our debt obligations without having to raise any capital or draw on our credit facility going forward. So as it stands right now, we are comfortable with where we are and see no issues with addressing our capital structure.

Pat Mackin

And I know you were jumping between calls, Suraj. Ashley goes through the script in pretty -- a lot of detail around. I think there's a misunderstanding sometimes about our debt. Our convert has no covenants. In our Term Loan B, the only covenant is, we can't have more than $7.5 million drawn down at the end of the quarter from our credit facility, which we've not ever touched and we have no plans to touch it. So I think this whole idea that our -- we can cover our interest payments out of operations even with raising rates. We don't have really any financial covenants. So we don't really -- we're not that concerned.

And we said in our three year plan, as we accelerate our EBITDA and drive our top-line growth even in these inflationary headwinds, we're expecting our EBITDA to get up to $75 million to $80 million in '24, which at that rate, we're going to have a less than 3x net leverage. So like I said, I mean, I get the concern, but I think if you look at the performance of the business and the fact that we've got EBITDA and we're going to accelerate EBITDA next year, I think this leverage is going to become a non-issue in the next 24 months.

Operator

There are no further questions at this time. I would like to turn the floor back over to Pat MacKin for any closing remarks.

Pat Mackin

Well, thanks for joining. And again, we were pleased with the quarter. We saw another quarter with 11% top-line growth. Our EBITDA is on track for the year. And as we said, even with these inflationary headwinds, we have a lot of levers we can pull. And we'll look forward to the next call where we'll give out our guidance for 2023. But we're definitely going to be looking to keep our double-digit revenue growth and accelerating our EBITDA. And we're looking forward to closing out the year and kicking off a strong '23. So thanks for joining, and have a good rest of your day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect your lines at this time, and enjoy the rest of your day.