Aziyo Biologics, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ASEO Biologics Third Quarter 2022 Earnings Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Matt Steinberg, FinPartners. Sir, the floor is yours.

Thank you, Operator, and thank you all for participating in today's call. Earlier today, Zio released financial results for the quarter ended September 30, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical fact or relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the SEC including ASEO's annual report on Form 10-K for the year ended December 31, 2021, and such factors may be updated from time to time in ASEO's other filings with the SEC, including ASEO's quarterly report on Form 10-Q for the quarterly period ended September 30, 2022, to be filed with the SEC accessible on the SEC's website, www.sec.gov. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 14, 2022. Xeobiologics claims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Also, during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's earnings release for the third fiscal quarter ended September 30, 2022, which is accessible on the SEC's website and posted on the investor page of ASEO's website at www.aseo.com. And with that, I will turn the call over to ASEO CEO, Randy Mills.

Thank you very much. I am really excited to be with everyone today. I have now completed my first 100 days or so as the new CEO of Azio. Of course, while I'm new to the role of CEO, I am not new to the company, having been a co-founder of the company. During the first 100 days, though, I'm really pleased and proud of the team for two things. One is creating a clarity of vision, which I think is exceptional and unique. Two is the execution of that vision by the team. And so I'm going to talk about those two things in my remarks today. So as going back into my career as one-time CEO of Osiris Therapeutics for 10 years, took the company public as the president and CEO of the California Institute of Regenerative Medicine and a host of other positions, I've literally been the poster child of regenerative medicine. And so often we framed the argument as regenerative medicine versus medical devices. And wouldn't you rather have a regenerative medicine solution in your body versus a foreign medical device? But the reality is medical devices work really, really well. This is data for pacemakers, but it holds true for any Class II or Class III medical device. When you look at primary failures, that is how often the device itself fails, it is very rare. With pacemakers, it comes in at only 0.13%. But when you look at how well the device works for the patient, it's a completely different story. And so procedure failures, that is how often the implantation, in this case again of a pacemaker, how often that procedure is successful, 6% of the time those procedures will fail. So what's the difference? What's going on here between a primary device failure of 0.13% and a procedure failure of 6%? Well, it's like this device host interface where these failures are coming from. And if you're a patient, that's all that matters. It doesn't matter whether or not the device failed because of the device or whether or not it failed because you had an infection or a hematoma or erosion or any number of other device host complications that can arise. Our bodies simply don't like foreign objects being implanted in them. Same thing would happen if you had a splinter in your finger. Your body does what it can to either eject it or wall it off. And so that's, as a company, the field in which we're going after, this concept of device compatibility and where we think we have the biggest opportunity for both top line and bottom line growth. So today we have built a company around this premise at Azio. We have four fully integrated business units. all wrapped around a very sophisticated research and development and manufacturing team that's producing about $50 million in revenue with a significant growth rate going on. This is a commercial stage business with diversified portfolio of revenue and a late stage pipeline behind that. And we think that represents a tremendous opportunity for future growth. Looking at what the company has accomplished this quarter, I'm going to start off with what perhaps is the most important thing, and that is I'm going to provide some comments regarding a meeting that we recently held with FDA on the path to clearance for Kangaroo RM, which is our antibiotic-eluting envelope. Dr. Williams, our chief scientific officer, has recently just joined the company, and obviously I just joined the company. took over the responsibility for getting this product approved and wanted to hear directly from the Food and Drug Administration on what items specifically were outstanding before approval could be granted. And so we recently held a meeting with FDA, and we got very precise clarity around what FDA wanted to see from us, which really all centered around a device stability protocol going forward, so for improving the expiration dating on the product. More importantly, what the FDA didn't want was any additional data around product performance, safety, or efficacy, or anything of the like. And so we think we're in very good shape right now. We have a very clear path forward. We know what FDA wants, and we think we're in a good position to provide that information to FDA in time for a first quarter clearance of this product. And so we're super excited about that. Behind that, we've got a team that's executing. So strong growth with net sales of $12.4 million, which is an overall 8% increase. But when you look at our high-growth segments of our business, which is our Simpliderm and our Kangaroo, they have their highest quarter in company history with 18% year-over-year growth, which we think is further validating this strategy that device compatibility is actually a really significant unmet medical need going forward. We added former Shire head of business development, David Kultman, to our board of directors. Importantly, David's got a lot of strategic transaction experience, as obviously is the head of business development for Shire. And that's important for us as we continue to contemplate certain partnerships and transactions moving forward. Lastly, the companies raised the lower end of guidance from $47 to $50 million, tightened that a little bit up to $48 to $50 million. And so this has really been a great story of execution in this quarter. Matt's going to go into it more, but it's not just at the top line. We see control of operating expense. We see significant improvements in lowering costs. cost of goods and improving gross margin, and we think on these fronts we've really just begun. Just to familiarize you with our four different business units, it's really the first time we've talked about the company in this respect of four different business units. The first up that we have is our women's health business unit. Here, again, we don't make the primary medical device. we make the device that makes the breast implant possible. And so these are primarily used in procedures where a woman has received a diagnosis of some type of breast cancer, had a therapeutic mastectomy as a result, and then needs to have the breast reconstructed. And the product we make, Simpliderm, is used to contain the expander after it's been put in place as part of that reconstruction procedure. What do we like about this market? Well, one, we have a great product. The second centers around the market dynamics and the opportunity that exists here. The market leader in this space was recently acquired by a very large traditional pharmaceutical company, and they have stopped paying sales commissions on acellularized dermis. And that has created a pretty significant void in the market, as you can imagine. And so our strategy here is really straightforward. We are running after and capturing market share in that market space by increasing the number of independent reps that we have and also by the distributors that we are working with to speed our penetration into this marketplace. We also have significant efforts going on here to lower our cost of goods with certain process improvements that we put in place going forward. So we're very excited and very well positioned in the women's health market. The next up is cardiac device protection. Here's where we have our Marquee Kangaroo franchise. This is a pouch that goes around pacemakers and electronic defibrillators. It's about a $600 million market opportunity for us. Again, though, we really like the market dynamics here. So there's only four major players in the pacemaker market in the United States. The market leader here has established the need for an envelope because they have one. We happen to have the only other envelope on the market. And so we really like where that positions Azeo and the Kangaroo franchise. Our strategy here, also very straightforward. get Kangaroo RM approved and launch that product. It's an antibiotic-eluting version of the Kangaroo product, which will prevent bacterial colonization and further infection post-operatively. We think once we have that clearance in place, we are in a prime position for a partnership, a major global partnership for this product in the pacemaker and CIED space. From there, we're going to launch products into the sleep apnea and neuro stim space. So we see tremendous growth opportunity and upfront opportunity with our cardiac device protection business. Turning to cardiovascular, this is where we've leveraged. So the same actual material and technology that we use in our kangaroo business, which is this porcine-derived extracellular matrix, or ECM, also has tremendous value in the cardiovascular space. And so here, these products, Proxicor and Vascular and Tyke, are used to close open cardiac procedures, so to close the pericardium following open-heart surgery or to close a major vessel following a procedure such as an endarterectomy where you're opening the carotid or femoral artery, and then often used in children undergoing septal surgery. defects in the child. This is a great business for us. It's more of a mature business, so it's not a real top-line growing business, but it has very nice gross margins and contributes significantly to the company. And then lastly, I'll round this out by talking about our orthobiologics business. This one's a little different in how we approach the sale. So unlike the others, this is more of a B2B play. And what we do here, we've literally created the space of orthobiologics. And what we do here is we're able to go to other orthopedic or spine companies who perhaps don't have the same level of sophistication with biologics as we do, and we're able to provide them a turnkey solution to not just develop them a proprietary product, but also to manufacture and supply that product going forward. It's a relatively unencumbered space for us. And so here we see pretty reasonable top line growth, but we see fantastic growth at the bottom line. In fact, we're targeting a 2X growth in operating income from this unit in 2023, largely driven by process improvements aimed at lowering our cost of goods. So that's just to give you an idea of our current business. Matt's going to provide some color around our financial update. Matt Ferguson? Okay. Thanks, Randy.