Aziyo Biologics, Inc.

Good day, ladies and gentlemen. Welcome to the ASEO Biologics First Quarter 2023 Financial Results Conference Call. If you know you would like to ask a question, please press star 1 on your telephone keypad to join the queue. Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to Matt Steinberg, FinPartners.

Thank you, Operator, and thank you all for participating in today's call. Earlier today, ASEO released financial results for the quarter ended March 31st, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts 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 on our public filings with the SEC, including ASEO's annual report on Form 10-Q for the quarter ended March 31, 2023, to be filed with the SEC, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in ASEO's other filings with the SEC. The conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 10, 2023. ASEO biologics disclaims 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, the most directly comparable GAAP financial measure, is available in the company's financial results release for the first quarter ended March 31st, 2023, which is accessible on the SEC's website and posted on the investor page of the ASEO website at www.aseo.com. And with that, I will turn the call over to ASEO CEO, Randy Mills.

Thank you, Matt. Welcome to our first quarter 2023 earnings call. Today, I'll start with an overview of recent highlights. I will then describe how our efforts fit into the overall strategy for ASEO. Matt Ferguson, our ACE CFO, will provide details and context for our financial results, and lastly, I'll wrap up with the priorities for the company moving forward. After that, we'll open the line for your questions. We have a lot of ground to cover, so let's jump in. First, it would be hard to miss the exceptional financial performance delivered by our businesses. Sales were up 14% to a record $13.1 million for the quarter. And this top line growth was seen across all of our four businesses. Furthermore, we saw substantial improvement in gross margin up 11 points year over year to 49%. The improvement in gross margin is largely attributed to process improvements made by our operations team led by Erica Elchin. Recall Erica was one of the leadership changes that we made in the second half of last year and the efforts of her and her team are starting to produce some really impressive results. Next up, We made great progress on the business development front, which included creating a partnership with Lemaitre Vascular to distribute our cardiovascular portfolio. With this deal, we gain access to Lemaitre's expert 58-person sales team dedicated to the needs of the cardiovascular surgeon, increasing coverage approximately five-fold. Similarly, we are now operationalizing our non-exclusive distribution partnership with Sientra, a leader in breast reconstruction surgery for our best-in-class product, Simpliderm. Like with LaMate, this partnership greatly expands sales coverage for Simpliderm with the addition of Cientra's 55 sales professionals. Again, approximately a five-fold increase over our current coverage. These transactions enable us to improve patient access and outcome, and at the same time, they increase our commercial footprint in a capital-efficient manner. Lastly, we've made progress with FDA. Following the receipt of our NSC letter for Kangaroo RM, we were granted a meeting with the review teams from both the Center for Devices and the Center for Drugs, as Kangaroo RM is regulated as a combination product at FDA. The meeting was productive with the results being a clear understanding of the additional information requested by the agency for the resubmission of Kangaroo RM-510K. The request is limited to in vitro quality control testing and importantly does not require the generation of any animal or human data. Our R&D teams are laser focused on generating this information and are confident we will be able to provide the agency with the required information. Now let's put this strong performance into the context of our overall strategy for ASEO. At ASEO, our mission is to humanize medical devices for better patient outcomes. We believe that a very practical application of regenerative medicine is improving the interface between the medically essential device and the patient that it's intended to treat. Complications that arise at the device-patient interface, whether it be from movement or erosion or fibrosis or infection, is an enormous problem and also represents a massive opportunity. When you just look at the surgical procedures that Kangaroo and Simpliderm address, each year there are over 90,000 complications so severe that they require surgical re-intervention. and at a cost of the healthcare system of $7.5 billion. That's not to mention the very real morbidity and mortality that the patient and their family experience. Now here's what we think is really exciting. We're developing technology that combines the proven benefits of a biologically-based material with therapeutic delivery to create the drug-eluting biologic. The combination of these two can produce synergistic effects. And that's because there are so many therapeutically relevant drugs that are also highly protein bound, keeping them at the site and active much longer than you would get with simple drug elution. And we saw this effect rather dramatically in our preclinical studies for Kangaroo RM. Weeks after the drug elution was complete, the biologic pouch still had the ability to kill a six log challenge of pathogenic bacteria. So we're starting with relatively simple therapeutics here, like antibiotics with Kangaroo RM, but we really think that's just the tip of the iceberg. So now let's look at how we're putting this technology to work across our different businesses. Azio is organized into four business units according to the markets served. These are Kangaroo, which is an envelope technology used primarily with pacemaker implantation today, but it also has indications in neurosimulation and the like. Simpliderm, our acellular dermis technology, which is used in breast reconstruction. Cardiovascular, which leverages porcine-derived extracellular matrix for cardiac and vascular surgery. And then lastly, orthobiologics, our allograft business that's focused on spine and orthopedics surgery. Our kangaroo and simpliderm businesses are, and we believe will continue to be, high growth opportunities for us. They are also two product lines that best leverage our drug-eluting technology moving forward. Focusing on Kangaroo for a minute, we saw very healthy top line and gross margin improvements. This is a product that we distribute through two channels. One is through a proprietary sales force, and the other is through our distribution partner, Boston Scientific. Kangaroo has tremendous value both with and without antibiotic supplementation. There has been some great clinical work published that shows the benefit of kangaroo, particularly in the subcutaneous defibrillator placement, where migration and fibrosis are a real threat to efficacy. There's a new paper out in JAK, the Journal of the American College of Cardiology, demonstrating this effect. Look for it. We also have some exciting data being presented at the upcoming annual Heart Rhythm Society meeting in New Orleans. We will be there from May 19th to the 21st at booth 319. If you're there, stop by. We would love to see you. And again, all of this great activity is on our currently marketed version of Kangaroo without antibiotics. But as mentioned in the opening, we are preparing for the resubmission of Kangaroo RM, our pouch product that eludes the antibiotics rifampin and minocycline. I know the question that everyone wants to know, when will we be ready to resubmit to FDA? What I can tell you now is that we are confident we can produce a high quality submission and two, it will be filed within the calendar year. We will provide further updates as we gain more specificity. Now moving to Simpliderm. Here we saw a top line growth of 40%. Surgeons love this product. We sell Simpliderm through our own distributor network and as recently announced, we have added breast implant manufacturer Sientra as a partner. This makes a lot of sense for both organizations as breast implant surgery frequently requires the use of an acellular dermal product. We also saw very nice increase in gross margin on SimpliDerm resulting from process improvements in manufacturing. Cost of goods reduction on SimpliDerm is an important goal for us And we believe these improvements along with volume increases we expect to see with the Cientra partnership will increase the profitability of this line substantially. On the other side of the house, we have our more mature businesses in terms of revenue growth potential, but which are still great cash producers for the organization. These are our cardiovascular and orthobiologics businesses. And yet, even here, we saw solid growth this quarter. Our cardiovascular business was up 12%. And our new partnership with LaMate will open up our product representation significantly, adding 58 direct sales reps to our current coverage. In this new model, We sell product to a mate in bulk at a transfer price that is approximately about half of what we're recognizing in the end market. Now, despite that going forward, we estimate that we'll realize a gross margin of approximately 60% on what should be much higher volumes. And again, with virtually no selling costs, therefore. As with our other strategic moves, we expect that this partnership will improve our profitability and our cash flow. Our final business unit is Orthobiologics. It is our largest in terms of revenue, and here we've made remarkable progress under new leadership. For the period, sales grew 7% to $6.7 million and gross margin improved 14 points. These improvements are driven by strong demand for the product and by process improvements the team has implemented along the way, both of which we think are likely to continue. So all in all, a very strong quarter. With that, I'll stop talking and turn it over to Matt to give us some financial highlights.