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spk01: Good evening, ladies and gentlemen, and welcome to ANACA's first quarter 2022 earnings conference call. As a reminder, today's call is being recorded. I will now turn the call over to Mark Namara, Vice President, Investor Relations, ESG, and Corporate Communications. Please proceed.
spk02: Thank you, Sarah. Good evening, everyone. Thank you for joining us for ANACA's first quarter conference call and webcast. Our first quarter earnings press release was issued after the close of the market today and is available on our investor relations website, located at www.annika.com, as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Mike Levitz, Executive Vice President, Chief Financial Officer, and Treasurer. Please take a moment to open the slide presentation and refer to slide number two. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance, or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which includes adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP financial measures. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the available presentation slide deck and in our first quarter 2022 press release. And now I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?
spk00: Thanks, Mark. Good evening, everyone, and thanks for joining us. please turn to slide three. 2022 is a pivotal year and an exciting time for ANACA as we celebrate our 30th year in business on our journey to becoming a leading provider of early intervention joint preservation solutions. And we're off to a strong start. Since our last call, we've continued to make great progress with our product development and commercial efforts, which I'll review in more detail shortly. I'd like to start by covering our first quarter highlights, And then I'll review updates to our new product development pipeline and turn the call over to Mike for his review of our Q1 financials and guidance for 2022. We ended the quarter with revenue up 7% over the first quarter of 2021, mainly driven by OA pain management, which was up 18%, primarily on favorable order timing. Our joint preservation and restoration business was essentially flat with the first quarter of last year. We were initially hampered in January due to Omicron, but as procedures lifted in February, we saw some positive recovery through the rest of the quarter. While the downstream macroeconomic effects of staffing shortages and supply chain issues could remain as headwinds for the industry for some time, we were encouraged to see COVID-related impacts abate during the quarter and are cautiously optimistic for market improvement through the year. Our non-orthopedic business was down 34% due to a tougher comparison to last year as there were last-time buys for certain legacy products which elevated our prior year first quarter revenues. Our focus in Q1, with some in-person meetings resuming, was on ramping up our sales and marketing efforts to drive awareness of ANACA and our full joint preservation product offering. In March, we showcased our full early intervention product portfolio at the American Academy of Orthopedic Surgeons meeting with strong engagement in our booth and events, despite lower general show attendance. We were very pleased to see strong surgeon interest in Tactuset, our HA-enhanced bone hoid filler, wrist motion, our total wrist arthroplasty system, and elbow motion with inlay glenoid, our bone-preserving, anatomic, total shoulder arthroplasty system. Also during the quarter, we ramped up our medical education efforts to train surgeons on the safe and effective use of our products. Since the acquisitions of Arthur Surface and Parkis, medical education has been a growing focus area for ANACA as we've been building our organizational capabilities. Until recently, restrictions had been preventing many in-person events from taking place. I'm pleased that since the beginning of 2022, we have held a number of U.S. in-person medical education events with over 140 surgeons trained to date. This will continue to be a strategic focus area for Anika as we introduce new products to new and existing customers. Lastly, as we continue to build commercial strength, I am very pleased to announce that Rob Delp joined Anika in April as Vice President of U.S. Sales, reporting directly to me. Rob comes to Anika with over 26 years of orthopedic industry experience. He was previously with Zimmer Biomat as president of the Americas, leading their sales teams where he had responsibility for sales of biologics, regenerative solutions, sports medicine, and upper and lower extremity products, which aligns perfectly with Annika's portfolio. He also had responsibility for sales of reconstructive products. Rob has also successfully built and managed direct and hybrid sales organizations focused both in the ASC and hospital settings. and led the Zimmer Biomat US sales integration. Rob will be instrumental in executing our commercial strategy as we launch key new products in the shoulder and foot and ankle spaces within the next six to 24 months, especially with his strong surgeon and distributor relationships. In addition, Ben Joseph, who many of you have met, will continue focusing on upstream and downstream marketing, as well as business development, and working with Rob's team to grow Annika into a leader in joint preservation. I'm very excited to have Rob as part of the ANICA team. He's a great cultural fit and is excited to work with our team to build a great growth company. Please now turn to slide four so I can provide some updates to our product pipeline. Within the next six to 24 months, a number of new product launches are planned in the shoulder and foot and ankle spaces that will further give ANICA the right to win in joint preservation and will result in revenue acceleration in the 2023 to 24 timeframe. We continue to make significant progress and are on track with these product launches. While I believe many of you are familiar with this slide, we have updated it to include respective addressable markets. I'd like to provide a few progress updates on recent launches and more details on the expansion of our shoulder product offering. In the fourth quarter of last year, we launched the new indication for our regenerative product, Tacticet, for the augmentation of suture anchor fixation in sports medicine procedures. This expanded the available Tactuset market to beyond $100 million by allowing us to create a new market for hardware augmentation while continuing to expand our existing insufficiency fracture Tactuset franchise. Progress with Tactuset is going very well, capturing about four points of market share in only two years since its introduction in late 2019, and we expect continued growth throughout this year. New indications and additions to that franchise are now in development with the start of a preclinical study last quarter and another one on track to start this year. Now I'd like to give a notable update on our shoulder development efforts. We highlighted high opportunity spaces within the shoulder market, already our largest concentration of business and joint preservation, as a $1 billion market opportunity for ANACA. and we're assembling a product portfolio uniquely suited for the ASC setting. As you'll recall, we previously discussed three shoulder product imperatives that are driving our NPD focus and new products for soft tissue fixation, bone preserving implants, and rotator cuff repair. I am pleased to provide an update for the first of those three. Our shoulder fixation product in development is a family of knotless suture anchors that is planned to launch in the second half of this year enabling Anika to provide a cornerstone sports medicine product commonly used for performing double row repairs of the rotator cuff and other areas like foot and ankle procedures where the convenience of a knotless anchor is desired. The first family to launch will be peak anchors. With rotator cuff repair procedures approaching 700,000 annually in the U.S., they represent one of the highest volume soft tissue procedures in the ASE setting, allowing us to access even more of this exciting market. This new suture anchor offering, in combination with the recently launched indication for augmenting suture anchor fixation for using Cactuset, is building strength and synergy in our joint preservation portfolio, providing additional growth opportunities in the shoulder and specifically focused on the ASC call point. We also continue to make great progress on a rotator cuff repair system that includes a regenerative component for augmentation, for which we are currently performing preclinical studies and have 510K submissions planned for later this year. This system will further build and establish Anika's shoulder portfolio as an innovative and winning offering in the ASC, driving the growth we are so excited about in the 2023 to 2024 timeframe. All three pillars of our joint preservation product portfolio, including sports medicine, regenerative solutions, and bone-preserving joint solutions, have key new product releases within the next six to 24 months that will build to a very strong shoulder product portfolio designed to work well in the ASC. We also continue to be excited about our longer-term opportunities to bring to the U.S. our Hyalofast cartilage repair solution and Singol for short- and long-term joint pain relief, in line with what we have stated previously. Please turn to slide fives. 2022 is a building year for Anika as we continue to invest in our commercial capability and product portfolio to take advantage of the market shift to the ASC. We have five key areas of focus for Anika this year. First, we expect to continue our market leadership position in the HA-based OA pain management market with monovisc and orthovisc, generating cash flow for investment to grow. Next, we're focused on strengthening our commercial organization to grow our sports medicine soft tissue repair bone-preserving joint technologies, and regenerative products in the market with a focus on the ASC. With the addition of Rob Delp to lead U.S. sales and his successful track record, we believe this is an exciting next step as Rob is ready to roll up his sleeves and lead a great commercial team. Third, we'll continue to advance our pipeline with several new 510Ks to be filed in 2022 and new product introductions within the next six to 24 months, targeting Cactuset expansion, multiple shoulder solutions and implants for the foot and ankle with products launching in the second half of 2022 and 2023. We'll report out on the single pilot trial in the fall. We've been very pleased with the success of this product in the 30 plus countries outside the United States where it's sold today and look forward to next steps in the process to ultimately bring it to the U S market. Finally, We have now fully launched our in-person medical education programs to train on the safe and effective use of our products, and we look forward to training many more surgeons in hands-on labs this year. Now I'll turn the call over to Mike for a review of our first quarter, along with our outlook for 2022, and then I'll wrap things up and we'll take questions. Mike?
spk05: Thank you, Cheryl. Please turn to slide six. I will now walk you through our financial results for the first quarter of 2022. Total revenue for the quarter was $36.7 million, an increase of 7% over the prior year. The increase was primarily in OA pain management, where revenues rose 18% to $22.7 million due to both continued COVID recovery and favorable order timing in international and veterinary. As a reminder, revenues in OA pain management can vary significantly on a quarterly basis based on ordering patterns by our partners and distributors in the United States and internationally. more so over the last couple of years due to the global impact of COVID, but that quarterly volatility generally stabilizes on an annual basis. Our joint preservation and restoration revenue decreased 1% from $12.2 million to $12.1 million, as the business saw some recovery after early quarter COVID headwinds. Our non-orthopedic revenue was $1.8 million, down 34% from last year, reflecting higher revenues from significant end-of-life purchases during the first quarter of last year. Our gross margin in the first quarter was 59%, and includes the impact of $1.6 million in non-cash acquisition-related expenses from the 2020 acquisitions of Arthur Surface and Parkas. Our adjusted gross margin, which excludes the acquisition-related expenses, was 64%, reflecting unfavorable volume and reserves driven by supply chain and staffing challenges. From a spending standpoint, our research and development and SG&A expenses together total $25.4 million in the first quarter, up from $24.5 million in the same period of 2021, as we expanded medical education and are continuing to strengthen ANACA's internal capabilities in support of our global commercial growth objectives. Our net loss for the quarter was $2.9 million, or 20 cents per share, compared to net income of $2.8 million, or 20 cents per diluted share, in the first quarter of last year. The decrease was largely due to a non-cash tax-affected benefit of $5.5 million, or 38 cents per share, in the first quarter of last year, associated with the change in fair value of contingent consideration. Our adjusted net loss was $1.6 million, or $0.11 per share, down compared to adjusted net income of $800,000 or $0.06 per diluted share in the prior year. And our adjusted EBITDA in the quarter was $2.6 million, down from $4.8 million in the first quarter of last year. The year-over-year decrease is primarily due to the lower adjusted gross margin in the quarter from supply chain and staffing challenges, and to a lesser extent from our incremental investments to support growth acceleration initiatives. Lastly, with regards to our cash flow and capital structure, we had operating cash outflows of $1.9 million for the quarter, compared to outflows of $2.4 million in the first quarter of last year. And our capital expenditures in the quarter totaled $1.3 million, up from $400,000 last year, as we invest in commercial infrastructure to support our growth strategy. Our balance sheet remains strong, with $90.3 million in cash at the end of the first quarter. Please turn to slide seven. Now I'd like to review our financial outlook for fiscal year 2022. Based on our progress to date, we are reiterating our full year 2022 total revenue outlook of low to mid single digit percentage growth over 2021. We are pleased that the direct impact of COVID has been lifted and now expect our results to be toward the upper end of our full year guidance range. while acknowledging ongoing supply chain staffing and other ongoing macroeconomic challenges. In line with our previous guidance, we expect joint preservation and restoration to continue to be our fastest growing product family, with full year revenue growth in the mid single to low double digit percentage range over the last year. We expect growth to accelerate in the second half of this year, reflecting the expansion of our product portfolio, as well as our continued focus on sales force execution. In OA pain management, we continue to expect above-market, low single-digit percentage growth over 2021 in this more mature part of our business, and we are encouraged by the favorable performance to start the year. In our much smaller non-orthopedic product family, we expect revenues to decrease approximately 20% as compared to 2021, down from last year primarily due to higher results in 2021 from last-time buys of legacy products and order timing. This guidance is an improvement from our previous expectations of a decrease of 30% from last year. With regards to gross margin, given ongoing supply chain and staffing challenges, we continue to expect adjusted gross margin for the year to be in the low to mid 60% range. We remain focused on driving margin expansion on a multi-year basis, but expect these macro headwinds to limit progress this year. With regards to spending, as we've discussed previously, in 2022 we are investing ahead of growth in support of our longer-term growth and profitability target, with increased spending over last year on key research and development programs, consistent with the product pipeline Cheryl outlined, as well as on capabilities that support our commercial transformation, including increased spending in medical education, industry events that enable us to expand our brand and product portfolio awareness, and system and process enhancements. As a result of the targeted spending investments, as well as the near-term supply chain and staffing challenges impacting our gross margin, we continue to expect adjusted EBITDA margin for the year to be in the low to mid single digits. Please turn to slide eight. We remain laser focused on building the foundation that supports acceleration coming out of this year to achieve our multi-year growth and profitability targets, as well as healthy revenue diversification. The investments we are making in new product development and commercial execution initiatives in our faster growing joint preservation and restoration business support our stated multi-year targets of accelerating to an overall mid-teens revenue growth rate, as well as an adjusted gross margin of 70% and adjusted EBITDA margin of 20%. While due to the extended impact of COVID over the last couple of years, we are approximately three to four quarters behind the original five-year target from 2019 of doubling revenue by 2024. We are executing on the areas within our control, with multiple new products launching within the next six to 24 months, targeting our large and growing addressable market, as well as putting in place the people, processes, and tools necessary to scale the business. In summary, as we continue to execute on our transformation, we are excited about the significant opportunities in front of us to achieve our mission and drive value creation for our stakeholders. I will now turn the call back over to Cheryl.
spk00: Thanks, Mike. Please turn to slide nine where I'll wrap up and then we'll take questions. We remain excited as we transform the business and we're focused on executing our growth story in joint preservation where we believe we have a unique market opportunity and right to win. We continue to make significant progress on our new product development pipeline, including a not-with-suit-your-anchor to launch in the second half of this year, fully launching our in-person medical education programs and commercial execution with the recent addition of Rob Delp to lead that effort. And we view the shift of procedures to the ASC setting as a tailwind for ANACA with our focus in that space. The unique product portfolio that we have built differentiates ANACA as the company focused on the joint preservation customer and the early intervention orthopedic continuum of care, delivering value in the ASC and to our shareholders. As always, I'd like to thank the ANICA employees for their hard work as we continue our transformation. We're happy to take your questions now.
spk01: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question And we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Chris Cooley with Stevens.
spk03: Good afternoon, everyone, and thank you for taking the questions, and congrats on a solid start here to the new year. I guess just for me, maybe two quick ones here this afternoon. I'd be curious... Obviously, you just laid out kind of an enhanced guide for the calendar year 2022. And with that, you talked about kind of, sorry, looking back down here, low single-digit growth in the OA paying franchise. I'm just curious how you're thinking about that from the perspective of volume and pricing. Obviously, a lot of discussion here in this sector today. over the last several months as we come into the second half of the year. So just want to make sure I understand the underlying assumptions there that get you to that kind of low single-digit growth for the full year, and then I've got a follow-up.
spk05: Hi, Chris. It's Mike. I'm happy to speak to that on the number side, and Cheryl, feel free to jump in, obviously. So our view of the market in OA pain is about a 1% growth in that market. and we expect to grow ahead of the market. U.S. franchise that we sell through J&J MyTech is the market leader. This is a mature market, and we're pleased to be the market leader in that space. The guide is consistent with what we've been saying and what I think we've been delivering. We did have faster growth in the first quarter, and that was driven by favorable order timing and some recovery in the non-U.S. parts of our business, like our international business as well as, to a smaller extent, our veterinary business or veterinary products that we sell. But we are right in line. Our J&J MyTech business grew right in line with our full-year guide of low single-digit growth. There were not any dynamics that were unusual relative to pricing. And, you know, again, we have a strong market position in that mature market.
spk03: I appreciate the additional color there. Also just wanted to touch base. in particular on the Singhal pilot trial. I'm assuming that would be, in terms of just putting that report out, that would be done at a major medical meeting, but just kind of thoughts there that would be presented, and you'd have, I guess, continued discussions with the agencies. Just want to kind of make sure I'm thinking about that timeline correctly. Thanks so much.
spk00: Yeah, thanks, Chris. Hi, it's Cheryl. Thanks for your question. So the Singhal pilot trial has, as we've as we've discussed, completed enrollment and we expect to have a data readout and report on that in the fall. So we will provide an update to the street on that once we kind of get to that point in the year, but we're looking forward to it and things are on track for us to be able to do that. Nothing has changed there.
spk03: Thank you.
spk00: You're welcome.
spk01: Thank you. Next, we'll move on to Jim Fedote, Fedote and Company.
spk04: Hi, good afternoon. Thanks for taking the questions. It sounded like you indicated that the OA pay management business was, you know, unusually strong in the quarter. Can you give us a little more color on that, you know, and is that going to impact the second quarter? Sure.
spk05: Hi, Jim, it's Mike. Yeah, it was stronger in the quarter, largely due to favorable timing in areas outside the United States, as well as we also have veterinary products that we sell. And so we did not change our expectation for the full year guide of low single-digit growth in that space, and that's in line with how J&J MyTech grew, our revenues from them grew in the first quarter. In terms of guidance for the second quarter, you know, we're not giving specific guidance for on a quarterly basis. But, you know, I think historically what we've seen is, you know, the second quarter generally is a stronger quarter for the J&J MyTech business. But given that we've got the favorability and timing that we saw in the first quarter, we would expect that to increase. to be a bit of an offset in the second quarter because we just think some people probably accelerated some of their purchases. So that's why we're not changing our guide for the year. We're pleased with the solid start. We are raising our view that we expect to finish towards the upper end of our guide on a total company basis. And that's driven by, you know, the favorable performance in the OA pain management and retiring some risk there just as we work our way through the year, as well as a little bit as well in non-orthopedic. It's a much smaller part of our business, but we were pleased with the orders that we have there, and we updated that guidance a little bit as well.
spk04: And then on the joint preservation, you know, you continue to expect, you know, mid-single to low double-digit growth there, but it was down in the first quarter. So, you know, can you talk about why it was down and was 1Q21, you know, unusually strong? Was Omicron, you know, the big factor there? And then can you just talk about why you think it's going to bounce back in the next three quarters?
spk00: Hi, Jim. It's Cheryl. Thanks for the question. Yeah, you know, I think we, along with the rest of the industry, saw – a pretty tough January because of Omicron and then recovery throughout the quarter. That's exactly what we saw. If you look at our numbers, you'll see we were, we were essentially flat to last year and we're, you know, we're excited about the rest of this year and then moving through the rest of our, our strategic planning period into 23 and 24 because of the growth catalyst that we've got, we expect to see the market improving. That's, you know, The general environment, healthcare environment seems to be improving. We've got a number of new product launches planned in the next six to 24 months. We're back in person doing medical education, training on the safe and effective use of our products. We just brought, we think, a really great talent on in Rob Delp, who used to run the America's U.S. sales for all of Zimmer Biomat, and he's ready to roll up his sleeves and dig in and really bring a level of Salesforce execution to the organization and commercial execution. And we look to have those growth catalysts really drive us to that acceleration that we're expecting to see in 2023 and 2024. Okay.
spk04: Now, I know Rob's only been there, you know, probably a few weeks, but, you know... initial impressions since he's gotten there about the specific to the size of the sales force. Do you think you have the right number now or do you think he'll be adding in 2022?
spk00: Well, I won't speak for Rob yet because you're right. He joined us in April and I don't want to put any definitive statements out there yet about his thoughts around the size of the sales force. But I think in general, and I've said this before and I'll just reiterate it. I don't think from a, size of salesforce perspective because we have a hybrid salesforce you know we've got a we've got a strong number of folks from an internal perspective and then a very large number of independent distributors that we work through in that hybrid model that we have in the united states will continue to drive excellence around that structure and optimization around that structure and look forward as we move forward with our product launches, our medical education, and driving sales execution to continue to really look to that acceleration in the 23 to 24 timeframe.
spk04: All right. Thank you.
spk00: You're welcome.
spk01: Thank you. And there are no further questions. I'd like to turn the conference back over to Cheryl Blanchard for any additional closing remarks.
spk00: Thanks, Sarah. And thank you all very much for your attention and your interest in ANACA. We look forward to speaking next on our second quarter call in August, and I wish everyone a good night. Thank you.
spk01: Thank you. And that does conclude today's teleconference. We do appreciate your participation. You may now disconnect.
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