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Operator
Greetings and welcome to the Exogen, Inc. 2024 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference call is being recorded. It's now my pleasure to introduce your host, Harold Tamayo, Vice President of Finance and Investor Relations. Thank you, Harold. You may again.
Harold Tamayo
Thank you, Keith. Good morning, everyone. Joining me on today's call is Karen Zabary, Exigen's Chairman, Chief Executive Officer, and President, and Nir Naur, Chief Financial Officer. Karen will discuss the first quarter of 2024 financial results, and Nir will provide an analysis of our financial performance and guidance and discuss our outlook for the year, followed by a question and answer session. Today's call is being broadcast live via webcast, which is available on the investor sections of the Oxygen's website. Following the end of the live call, a replay will be available in the investor section of the company's website at www.oxygeninc.com. Before we get started, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements, including our financial guidance, our expectations regarding our ability to expand our footprints and expand revenue from core accounts, anticipated growth for revenue categories, marketing opportunities with nerve applications associated with breast OMF protection and surgical treatment of pain and new products. Our expectations regarding the timing of the launch of Avive Plus, our statement regarding the timing of the complete biologics license application submission for advanced nerve graft, as well as a statement regarding the timing for approval of the BLA. Our expectations that, assuming approval of the VLA, Advanced NERF Graft will be designated as a reference product and the expected market exclusivity of such a designation. And our expectations around cash flow, including that we will continue trending towards cash flow, blade keeping, and profitability. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risk and uncertainties, including not without limitation, the risks and uncertainties reflected in the company's annual and periodic reports, such as household staffing issues, regulatory processes and approvals, surgeon and product adoption, and market awareness of our products. The forward-looking statements are representative only as of the date they are made and accept as required by applicable law. We assume no responsibility to publicly update or revise any forward-looking statements. In addition, for reconciliation of non-GAAP measures, please reference today's press release in our corporate presentation on the investor sections of the company's website. Now, I would like to turn the call over to Karen. Karen?
Karen
Thank you, Harold. And thank you all for joining us today as we discuss our 2024 first quarter financial results. We had a solid first quarter and we're pleased with both the positive trends in revenue and bottom line. Our performance underscores the progress we continue to make towards profitability and generating positive cash flow. During today's call, I'm going to highlight the progress we've made across our business, as well as some changes we've made on the disclosure and reporting side, which both Nir and I will discuss later on in the call. Revenue for the quarter increased by 12.9% to $41.4 million compared to last year. We're pleased with this quarter's top line performance, which was at a run rate above the midpoint of our annual guidance. Looking closely at the quarter, growth was broad-based across our products and applications. We saw a strong January and February, and our typical step up in volume occurred in April rather than March this year. We remain confident that we will achieve our 2024 top line guidance. As part of the disclosure and reporting changes I alluded to in my opening comments, we've made the strategic decision to remove our revenue breakdown between scheduled and emergent trauma applications. Our growth strategy continues to be focused on going deeper in high potential accounts and to build a nerve repair business in these accounts across all of our targeted nerve repair applications. We believe the performance and key metrics pertaining to sales productivity, and our progress in our core accounts provide the most clarity on the business model versus estimates of revenue by application. We will continue to talk qualitatively about the applications for nerve repair and our growth to give you color on both the opportunities in front of us and the progress we're making. As I said earlier, our growth strategy continues to be focused on going deeper in our existing core accounts where we see significant opportunity to expand our footprint in multiple clinical applications, as well as increasing the number of core accounts. Most of our core accounts have the opportunity for significant expansion across surgeon users and applications, resulting in upside in total revenue. As a reminder, core accounts are defined as those generating more than $100,000 in revenue over the trailing 12 months and represent approximately 65% of our total revenue. Today, our largest core accounts are over a million dollars annualized, and we look to continue to grow our core accounts toward their full potential. We ended the first quarter with 115 direct sales representatives, down one sequentially and compared to a year ago. We believe our revenue growth can continue to be driven primarily by increased productivity of our sales force, and we will evaluate and add additional sales reps as their territories approach targeted levels. Our direct sales force is supplemented by independent sales agencies that represent approximately 10% of our total revenue. As the leader in the nerve repair market, driving innovation to provide advanced solutions for surgeons and their patients is a key pillar of our growth. We've previously announced three innovations to our portfolio, which included two new products to the production space and the resensation technique for implant-based breast neurotization. We saw strong surgeon and patient interest in implant-based breast neurotization and grew the number of surgical teams trained in this new technique. We're on track to expand our education efforts with three national resensation surgeon training programs in 2024. Nerve protection continues to represent a significant growth opportunity for Axigen. As previously mentioned, we saw a need for multiple product solutions to address the diverse types of non-transsected nerve injuries. Our first portfolio expansion was the launch of AxiGuard HA Plus Nerve Protector, and we have been pleased with the surgeon acceptance of the product and the progress of the launch, including the positive impact we're seeing on surgeon activation, and new use cases in targeted applications. We're continuing to expand our offering for nerve protection with a Vive Plus soft tissue matrix, which broadens our nerve protection portfolio and targets acutely traumatized nerves. A Vive Plus soft tissue matrix is a resorbable nerve protection implant that functions as a barrier, providing temporary protection and tissue separation during the critical phase of healing. We're pleased with the initial surgeon feedback we've received in our limited market release and are on track for a full launch in June. With these additions, we believe we offer the broadest portfolio, a protection portfolio for nerve repair, and this will continue to drive growth in the nerve protection market. Moving on to updates to our growing body of clinical evidence. Over the years, we've made significant investments to develop quality clinical evidence to demonstrate the safety, performance, healthcare economics, and utility of our nerve repair solutions. Our active clinical programs are progressing as expected. As of the end of the quarter, we have 258 peer-reviewed publications, including applications in trauma, breast, OMS, and pain. This January, we announced positive top-line results from the reposed clinical study comparing standard of care anorectomy of symptomatic neuromas to neurectomy and protection of the terminated nerve end with our AxiGuard NerveCap. This post-marketing study met its primary endpoint for reduction in pain as measured by the visual analog scale. In addition, the study investigators found that over the full 12-month course of follow-up, AxiGuard NerveCap demonstrated statistical superiority for reduction in the total pain reported by the subjects compared to the standard of care neurectomy. We believe that these findings will play an important role in surgeon clinical decision making. Turning now to the BLA for advanced nerve grafts, we completed a productive pre-BLA meeting with FDA. We're encouraged by the positive interactions and have aligned with FDA on a rolling submission process and the content of the modules for submission. We believe we're on track for the BLA filing to be completed in the third quarter of 2024 And the submission timeline will allow for a potential approval in mid-2025. In addition, as required under the Pediatric Research Equity Act, we have submitted and reached agreement with the FDA of an initial pediatric study plan proposal. A final decision of the proposed plan is made by the review division at the time of approval of the biologic marketing application. Another component of our transition to a biologic was the construction and validation of our new Axigen Processing Center. At the end of 2023, we fully transitioned all advanced processing to our new center. We believe the advancements of our processing facility will provide the appropriate biologic processing environment as well as expand our processing capacity. As a reminder, A BLA approval will complete the regulatory transition of advanced nerve graft from a 361 tissue product to a 351 biological product. Importantly, we believe advanced will be designated as the reference product for potential biosimilars, providing 12 years of market exclusivity from the approval. In conclusion, we're pleased with our results from the first quarter, which reflect the execution of our growth strategy. The exceptional performance of Axigen's talented team has been pivotal in achieving these outcomes. Looking ahead, we're focused on delivering and furthering our mission to revolutionize the science in nerve repair. I'll now hand the call over to Nir, who will provide further details on our reporting changes, review our financial highlights, and provide guidance. Nir?
Nir
Thank you, Karen. It's been very exciting five months since I joined the Axigen team. I've been listening carefully to the various themes and quickly learning the vast details behind this robust and innovative business. As part of my diligence, I have seen several different opportunities and changes to enhance our reporting. All of these changes were strictly voluntary and although our previous practices are acceptable alternatives, I believe that the new practices are more widely used in the industry and provide investors improved comparability of the company's financial statements to peers. In addition, these changes will provide better transparency and facilitate better resource allocation as we continue our journey to profitability. Our auditors have reviewed these changes and agree that they are acceptable. One of these changes involves our accounting policy for shipping and handling costs. As of the first quarter of 2024, our shipping and handling costs directly related to bringing our products to their final destination, including facility and warehousing overhead, are now included in cost of goods sold whereas previously they were included in sales and marketing expenses. Additionally, as of the first quarter of 2024, we ceased allocating certain costs to and from certain departments. Previously, such costs had been allocated based on the company's estimates of the proportionate share of total expense to each line item. It is important to recognize that all of these changes, which were completely voluntary, had no impact on net revenue, loss from operations, net loss, for common share or cash flows. We have made available our 2023 reclassified condensed consolidated statements of operations by quarter in our earnings release this morning to provide full transparency of these changes. Correspondingly, all the 2023 financial results that we refer to in include all of these changes. In addition, we will no longer be disclosing the breakout on emergent versus scheduled procedure revenue. This disclosure was based on estimates and provided qualitative information about the applications where our products are used. After looking into this disclosure and speaking with investors and advisors, I came to the conclusion that this disclosure does not provide the best insights into our business model and successful execution of our commercial strategy. Our strategy is focused on increasing our sales productivity and penetration into high potential accounts across multiple surgeon specialties and procedural applications. As a result, we have decided to align our reporting more closely with our strategy. And now turning to our financial results. For this quarter, our revenue was $41.4 million, representing 12.9% growth from the first quarter of 2023. This growth is attributed to a 4.9% increase in unit volume, added with a 5.3% mixed favorability and a 2.6% increase in prices. Our gross profit for the quarter was $32.6 million, an increase from the $28.5 million recorded in the first quarter of 2023. This represents gross margin of 78.8% up from 77.7% in the same period last year. Our total operating expenses for the quarter increased by 3.8% to $37.2 million, up from $35.8 million in Q1 of 2023. Our sales and marketing expenses for the first quarter grew by 1.9% to $19.8 million. Sales and marketing expenses as a percentage of total revenue decreased to 47.9% from 53% in the first quarter of 2023, as we saw improved sales productivity as well as determination of royalty payments on offense. Research and development expenses increased by 17.1%, to $7.4 million from $6.3 million in 2023, driven by costs related to the BLA. As a percentage of total revenues, total R&D expenses increased to 17.9% up from 17.3% in the last quarter of the previous year. General and administrative expenses remained almost flat at $9.9 million in Q1 of 2024, compared to $10.1 million in the first quarter of 2023. The quarter ended with a net loss of $6.6 million, or $0.15 per share, compared to a net loss of $7.1 million, or $0.17 per share, in the first quarter of 2023. However, we recorded an adjusted net loss of $2.7 million for the quarter, or $0.06 per share, a shift from an adjusted net loss of $4.1 million, or $0.10 per share, in the same period last year. Adjusted first quarter EBITDA was $1 million compared to an adjusted EBITDA loss of $3.8 million in the previous year. This change stands as a testament to our focused execution and improvement in operational efficiency and underscores our commitment to optimizing our cost structure. As of March 31st, our balance of cash-cash equivalents and investments was $23.6 million compared to $37 million at the end of the fourth quarter of 2023. Turning now to our guidance, as outlined in today's press release, we are maintaining our full year guidance for 2024. We expect revenue to be in the range of $177 million to $181 million, which represents an annual growth rate of approximately 11% to 14%. We also reiterate our gross margin guidance for the full year to be in the range of 76% to 79%. Additionally, we expect to be net cash flow positive cumulatively for the period from April 1st through year end. In summary, we're pleased with our performance in the first quarter. We will continue to execute our strategies, invest in innovation, drive revenue growth, and optimize resource allocation and profitability. And this time, we'd like to open the line for questions. Keith?
Operator
Yes. Yes, thank you. We will now be conducting a question and an answer session. If you would like to ask a question, please press star, then 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star, then 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And the first question comes from Michael Sarcone with Jefferies.
Michael Sarcone
Good morning, and thanks for taking my question.
Operator
Good morning.
Michael Sarcone
Karen, just the first one, you know, your comments on performance through the quarter. You talked about a strong January and February and then, you know, a volume uptick in April. Can you maybe give us a little bit of color on what happened in March and how that compares to, you know, what you've seen historically?
Karen
Yeah, as you know, we historically have seen as the summer months start a sort of step up into second quarter, and that usually leads in in March. And this year we did not see the lead in in March. We saw it actually, as I said in my notes, get pushed into April as where we saw the step up. I'm going to hypothesize here that it had to do with the timing of the Easter holidays, but that's just a hypothesis on my part. We have talked to a number of hospital systems that have also said they saw a shift in the March timeframe on their elective outpatient procedures that might support that. But what we just saw was a little difference in timing of when we saw that step-up occur. Having said that, we're really pleased to see that we saw growth again across products, across applications, continuing to build this business with a real focus in building out those core accounts and driving penetration in core accounts.
Michael Sarcone
Got it. Thanks. That's helpful. And just given that you saw the step up in April rather than March, does that have any implications for quarterly sales cadence through the balance of the year, you know, particularly, you know, if it differs from prior years?
Karen
I think in the end, we're still going to see the cadence that you see a second quarter step up and a third quarter step up that we've seen in the past. So I think we're not seeing a difference there. It's just a slight difference in timing of the week that it occurred in.
Michael Sarcone
Got it. Just one last one for me. Can you give us any updates on the CEO search?
Karen
Sorry, CEO search is in process. There's a group of independent directors who are leading the search. They've hired an outside search firm who is sourcing candidates and they're going through the interview process. Still work in process. Ultimately, we'll get an announcement as we finalize that. They want to be thoughtful in that selection. And then, of course, if you remember, I'll still be available from a consulting standpoint for a period of time to support that transition.
Michael Sarcone
Great. Thanks for the update, Karen.
Karen
Super. Thanks, Mike.
Operator
Thank you. And the next question comes from Mike Kretke with S&P Securities.
Mike Kretke
Hi, everyone. Thanks for taking our questions. Good morning. Can you just give a little bit more color on the decision to remove the schedule versus the emergent breakdown? I mean, was there anything you saw this quarter that was kind of at odds with what you expected or any change to how we should be thinking about the split between those two moving forward?
Nir
Yeah, thank you for the question. So as we mentioned, this breakout is based on estimates and provides this qualitative breakout between those two procedures. And after looking into that, especially with this emphasis on resource allocation that I promoted and talking to several analysts and investors, I got to the conclusion that it doesn't provide the best insights and the best way to look at our business and at our commercial strategy. Our commercial strategy has been to increase our penetration into high potential accounts, which each spans several procedures and applications. and surgeon specialties. So that is basically the rationale.
Karen
And then in your question, again, from a color commentary standpoint, we continue to see growth across multiple applications and products. We're not isolated into one area or one product, frankly. We're excited to continue to see the growth that we see in the protection area. If you remember, protection is both part of trauma and part of our scheduled cases. And so we are pleased to see that we're seeing all of these areas continue to grow. And that's one of the shifts, again, is to say that growth is predominantly happening in these core accounts. That's where our focus is. So I'm just thinking that the core account metrics are going to be more indicative of how we're growing our business.
Mike Kretke
Got it. Yeah, really appreciate the helpful color there. And then maybe just a quick follow-up, but you know, from a product mix standpoint, yeah, I know you're not going to give details on kind of the specifics, but, you know, how should we think about the contribution from some of the newer product launches in terms of, you know, 2024 and the second half of this year?
Karen
I'm sorry, so could you say the question again?
Mike Kretke
Yeah, just in terms of how we should think about the contribution from some of the newer product launches that you've had for the second half of this year and 2024 in general.
Karen
Okay. Well, first, we considered them in our guidance, so they were included in the guidance. They aren't part of a change in guidance with the launch of the two protection products. Avive Plus will launch here in June, so it will be ramping up. So like all new products, I think the back half of the year, while surgeons are going to be excited to try it, the revenue impact is still going to be modest because you've got to go through value analysis committees to get it into the accounts. So there's work that has to happen before it can really start to impact revenue. HA+, on the other hand, we've gone through a lot of that value analysis submissions, getting it allowed to be either brought into or stocked in hospitals, and we're starting to see a good steady use of the product and reuse of the product I can't give you an exact contribution, but we are really pleased to see that it is taking its rightful place in some of the surgeons' treatment algorithms and is becoming a product that they regularly use in certain use applications.
Mike Kretke
Understood. Thanks very much.
Operator
Thank you. And the next question comes from Caitlin Cronin with Canaccord Genuity.
Caitlin Cronin
Hey, guys. This is George. I'm for Caitlin. Yeah, so I just have a couple questions on our end. Just first, you know, what was procedural growth like in the quarter? You know, on a percentage basis year over year, and then maybe talk a little bit about, you know, just the general health of the overall market you're seeing at 24.
Karen
I'm sorry, again, it was hard to hear the question. If you could repeat the question.
Caitlin Cronin
Yeah, yeah. Do you hear me now?
Karen
Yes.
Caitlin Cronin
Yeah, so our first question was just understanding how procedural growth was like in the quarter on a year-over-year basis, and then, you know, just more generally on the health of the overall market that you're seeing in 24. Yeah.
Karen
We've seen good procedure growth. Let me break each of the segments. Trauma has seasonality to it. We saw the seasonality that we would expect in a Q1 with the noted exception of the timing of the step-up as people start to get more active. We saw that pushed into April instead of the trail part of March. In terms of Some of our scheduled areas, breast neurotization, we continue to see increasing demand by patients with strong interest in getting the resensation technique as a part of their reconstruction, whether they have either an implant-based or deep flap-based reconstruction. So we continue to see interest, and as we train surgeons and surgical teams, expansion in breast neurotization and growth in that area. In oral maxillofacial, we continue to see, and oral maxillofacial and pain are two smaller areas, We continue to see surgeon interest and are seeing procedural growth continuing where they're doing neurotization in those procedures or managing the pain with the surgical treatment of the nerves. So we saw a good cadence through the quarter in all of those areas and think that, again, we're on a trajectory of continuing to see growth, in particular in breast as we train more surgeons and get more surgeon teams engaged.
Caitlin Cronin
Yeah, great. That's very helpful. And then just one last one from us. Do you have any further clarity on the gross margin cadence in 24 as you sell through your old inventory from your previous facility?
Nir
Yeah, so it's as we mentioned in the last earnings call, the gross margin in the first half of the year is going to be higher than that in the second half of the year. where the main reason is that the inventory sold in the first half of the year comes from the one produced last year in the previous facility at a bit of a lower cost, whereas the one sold in the second half of the year is, was produced, will be produced at our current facility at a bit of a higher cost. That said, again, the guidance we reiterated for the entire year of 76 to 79%.
Operator
Thank you. The next question comes from Ross Osborne with Cantor Fitzgerald.
Ross Osborne
Hi, good morning. Thanks for taking our questions. So starting off and given the focus on core accounts, would you discuss what the site of service mix looks like for core accounts in your penetration level in hospital outpatient?
Karen
Again, it must be our speaker, but if you could repeat the question, it was hard to hear.
Ross Osborne
Sure. I was just asking what the site of service mix looks like for your core accounts and then the penetration level and hospital allocation.
Karen
Yeah. No, thank you. So our site of care, in our core accounts, we tend to be level one, level two, or level three trauma centers as the majority, and then some specialty hospitals where you may see it may be driven in that case by a breast center or it might be a military center that does nerve repair. So those are typically the best targets for us as well as obviously academic teaching hospitals. There are, however, in our core accounts, some freestanding ambulatory surgery centers, and that really is an artifact of the fact that the threshold is $100,000. That could be one active surgeon who's doing nerve repair. Obviously, if it is a freestanding ambulatory surgery center, it doesn't have the same potential as a large academic center. So when I say You know, our biggest centers are over a million dollars today. That's not going to be the ambulatory surgery center. That's going to be, you know, a level one, level two, level three trauma center, hospital, or academic center. So our focus, again, is continuing to build those high potential accounts, building out the core accounts, and continuing to drive that business. Now, when I talk about... say a level one trauma center, that's going to be a mix of inpatient and outpatient procedures. So we do see actually a fair amount of the surgery that's done in trauma is an outpatient procedure. You know, where that's possible, they're going to try and move that patient through the hospital in under 24 hours and technically it will be classified as an outpatient procedure. The ambulatory surgery centers are the ones that we have not typically been as focused on. And as I said, we have some, but we've not typically been as focused on that. Having said that, we have done quite a bit of reimbursement work. It's been an economic challenge for ambulatory surgery centers predominantly. We've done a lot of reimbursement work to make sure that there is a new structure where they can economically have it make sense for them to do nerve repair in these freestanding centers. And so under the new coding and payment structure that CMS has set up, it is now economically viable and certainly an attractive overall healthcare alternative to move these procedures into these ambulatory surgery centers. And we are starting to see some of that migration happen. a migration, not a revolution, but we see quarter over quarter, we continue to see growth of the procedures that are done in these ambulatory surgery centers, and we do expect for the future that that will continue.
Ross Osborne
Great. Thank you. That was very helpful. And then lastly for us, would you just talk to me about how your conversations have gone with the counts for budding of vibes of tissue, maybe relative to entering the year?
Karen
Sure. Well, we've done a limited market release, so it's not broadly available, but with some leading surgeons who are very anxious to get this product back into their treatment algorithm, we've provided it up front. Feedback that we've gotten to date has been extremely positive. Surgeons are very happy to have this alternative for nerve protection Again, meeting the need where there's a short-term, resorbable protection need, predominantly in acute trauma, although also sometimes in pain, surgical treatment of pain. And so we are excited to have this as an opportunity to provide them this added solution in their nerve treatment. Surgeon feedback has been very favorable, in fact, More positive, if you remember, we had a product called Avive that we voluntarily withdrew from the market a number of years ago because of changes the FDA did in regulatory classifications of birth tissue products and ultimately decided that we would withdraw that product. Surgeons liked that product. They liked this product better in terms of the handling and the characteristics of the product that they're using interoperatively. And so we're really pleased to get it out there and excited to get it in the hands of all of our sales reps and our customers to be able to use on these patients.
Operator
Thank you. And there are no further questions at this time, so I would like to turn the floor back over to Karen Zadari for any closing comments.
Karen
Well, thank you, Keith. Well, as we wrap up today's earnings call, I want to extend a thank you to our team here at Oxygen for their outstanding work and to everyone who participated in this call for their engagement and input. The commitment of our employees has been crucial in reaching the achievement we've talked about today as we continue to change the lives of patients with peripheral nerve injuries. Thank you.
Operator
Thank you. This concludes today's teleconference. We just connect your lines at this time. Thank you for your participation.
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