Anika Therapeutics Inc.

Good evening, ladies and gentlemen, and welcome to ANECA's fourth quarter and year-end 2023 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. I will now turn the call over to Mark Namaroff, Vice President, Investor Relations, ESG, and Corp Communications. Please proceed.

Thank you. Good afternoon, everyone. Thank you for joining us for ANACA's fourth quarter and year-end 2023 conference call and webcast. Our earnings press release was issued after the close of the market today and is available on our investor relations website located at www.anaca.com as our supplementary PowerPoint size 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 Levitt, Executive Vice President, Chief Financial Officer, and Treasurer. Please take a moment and 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 risks and results could differ materially 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 our 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 that non-GAAP measures provide an additional way of viewing aspects of our operation 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 presentation slide deck and our fourth quarter and year-end 2023 press release. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please refer to slide three. We are pleased to report strong fourth quarter results which nicely rounded out the year for Anika. Over the course of the year, we achieved key milestones. We learned a lot about the business and we are taking decisive action to further focus our strategy to optimize performance and drive even stronger results. We began 2024 with renewed energy and a clear, more accelerated path to profitability. Let me start with our key achievements. First, revenue growth in adjusted EBITDA exceeded expectations in the fourth quarter and full year. We had a record year in OA pain management, with revenues up 12% for the quarter and 11% for the year on strong growth of Monavis globally and the sustained double-digit growth of Singal outside the U.S. While we benefited from some favorable order timing of transfer shipments to J&J MyTech, The underlying business is strong, and we continue to grow our number one market position in the U.S. and anticipate that position strengthening. Singal continues to do very well as the next generation non-opioid OAPing product of choice in over 35 countries, and we continue to explore more near-term opportunities for commercial partnerships in the U.S. and select Asian markets. We are continuing to interact with FDA and are doing all we can to obtain clarity on what they will require for non-clinical data so that we can move ahead with those remaining tests with certainty. We remain excited to bring this tremendously effective product to the US market and provide a meaningful non-opioid pain medicine to help alleviate the osteoarthritis knee pain of the 32.5 million US citizens who continue to suffer on a daily basis. In fact, we expect Singall's expansion into the U.S. to double our OA pain market opportunity from $1 billion to $2 billion. Singall is and will continue to be positioned to win. OA pain management is our core business and will continue to be a key driver of growth and profitability for ANACA, with Singall in the U.S. providing a significant future value-building opportunity. In joint preservation, our HA regenerative solutions Sports medicine and Arthur Surface businesses also progress nicely throughout the year. In regenerative solutions news, we've already completed well over 100 surgeries with our integrity implant system since its limited market release at the end of last November. This is a significant ramp, especially during a limited release, and it speaks to the exciting preclinical data, strength of the regenerative implant itself, and the full system approach we took in the design. Physician feedback has been incredibly positive, and most importantly, their first patients are doing very well, with many having reached their eight-week follow-up. We are intentionally constraining the early rollout to ensure we incorporate surgeon feedback from the limited release and refine the arthroscopic delivery and deployment instruments. The full market release of Integrity is on track for mid-2024. and based on the current usage and limited release, is expected to drive accelerated growth in our regenerative business in the back half of the year. Integrity, along with Hyalafast, will serve as key technology platforms for near-term regenerative product expansion. I'm excited to share more details on that refreshed regenerative-focused R&D roadmap on future calls. Hyalafast, our HA single-stage, off-the-shelf cartilage repair product, continues to sell very well outside the U.S., with a market leadership position in a number of key countries and active geographic expansion underway. As a reminder, HyloFast was granted breakthrough device designation by the FDA, and the U.S. clinical trial, last patient out milestone, remains on track for early next year. We also remain on track to begin filing the modular PMA this year with a target product launch by 2026. Hylafast remains a key value driver for Annika and will be a meaningful and differentiated entrant into the $1 billion plus U.S. cartilage repair market. As I mentioned at the outset, we also learned a lot last year, largely as it relates to our joint preservation and restoration business, where we delivered 7% growth for the quarter and 9% growth for the year as the ramp from our new products was offset by slower sales of our more mature products. We've been intentional in developing high-value products to fill key gaps in our portfolio while advancing our core HA and HA-based regenerative businesses to ultimately capture a larger market opportunity in the fast-growing early intervention orthopedic space. Those investments have yielded great products in Tactuset, X-Twist, RevaMotion, and Integrity. We are now turning our focus to reaping the rewards of those investments and driving revenue with these new products this year and beyond. In sports medicine and arthrosurface, we made important progress with our new product launches, including Xtwist and RivaMotion. Xtwist Peak is now beginning to gain significant traction in the market, particularly with surgeons in the ASC who are looking for competitive alternatives. The biocomposite version of Xtwist entered the market in Q1 this year in a limited release, and we are receiving great initial feedback on its clinical performance. With both versions now available, we can address the entire $600 million-plus U.S. rotator cuff market. We expect the new biocomposite suture anchor to be a key driver for the Xtwist product line in 2024. Our new RevoMotion reverse shoulder system which competes in the faster-growing $1 billion U.S. reverse shoulder market, was fully launched at the end of Q3 last year, and we are continuously engaging with our distributors to drive adoption, as well as actively training surgeons on the safe and effective use of the system. Clinical feedback remains very positive, and our top distributors continue to do very well, despite a slower-than-expected pace of adoption, given the more complex sales cycle. We secured key contracts in the fourth quarter that we expect to further open up market access, and the recent momentum positions us well to drive growth in 2024, especially now that CMS is reimbursing shoulders in the ASC, where we are well positioned with our two instrument trade design. The key takeaway here is that the underlying adoption for X-Twist is strong and growing, and REBA motion is increasing. And as we work to improve our channel and commercial execution, we expect that the pace of adoption will continue to accelerate. In fact, we recently returned from this year's American Academy of Orthopedic Surgeons meeting, where we met with a number of surgeons who showed real excitement around our new products. I'm very proud of our accomplishments in 2023, with the important product launches of X-Twist, RevoMotion, and Integrity, and the completion of the U.S. Hyalofast clinical trial enrollment. These major developments behind us, clarity on the current pace of growth in JPR, and the meaningful progress we made on key investments, such as meeting the MDR regulatory requirements in Europe, we are now in a position to refine and focus where we place our future investments. That renewed focus will be on driving ANACA's new products that provide for the greatest growth opportunities and on selective development of our highly differentiated HA and HA based regenerative technologies, which set the foundation for our future. I will note here that beginning in mid 2023, we undertook a strategic review of the business with the support of Piper Sandler. As part of this review, we evaluated a wide range of options for the company to increase shareholder value, including a potential sale. We remain open to all value enhancing opportunities and regularly review what makes the most sense for our business. We have a lot of conviction in our newly focused strategy, leveraging our core strengths and highest value opportunities as we accelerate our pivot to profitability. And we are making this pivot from a position of strength with a healthy balance sheet, positive cash flow generation, and a solid cash position with no debt. In addition, we are taking action to lower spending and more immediately accelerate EBITDA in 2024 while we simultaneously grow our top line. In terms of cost actions, we recently made the very difficult but necessary decision to reduce our global headcount by about 9% and are actively reducing spending for 2024. Together, these actions are expected to drive annualized cost savings of approximately $10 million excluding the impact of one-time costs. Going forward, we will have a refined focus with our new products that are driving our growth and have the highest value-building potential. With these actions already well underway, we expect that adjusted EBITDA will be between $25 to $30 million this year, an increase of over 75% at the midpoint as we accelerate our pivot to profitability. Now I'd like to turn the call over to Mike to review the details of the fourth quarter and full year results and our outlook for 2024.