MiMedx Group, Inc

Good afternoon, and thank you for standing by. Welcome to the MiMedx Third Quarter 2022 Operating and Financial Results Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Matt Notarayani, Head of Investor Relations for MiMedx. Thank you. You may begin.

Thank you, LaTanya, and good afternoon, everyone. Welcome to the Mimetics Third Quarter 2022 Operating and Financial Results Conference Call. With me on today's call are Interim Chief Executive Officer Todd Newton, Chief Financial Officer Pete Carlson, President Wound and Surgical Dr. Rohit Kashyap, and President Regenerative Medicine Dr. Robert Stein. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the investor relations website at memedics.com. Todd and Pete will provide a summary of our operating highlights and financial results for the quarter, and Todd will conclude with some remarks about our micronized D-HACM knee osteoarthritis clinical program. At the conclusion of these remarks, Todd, Pete, Dr. Kashyap, and Dr. Stein will be available for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including statements regarding future sales growth, future margins, expected market sizes for our product, and potential timelines for clinical trials and FDA submissions and reviews. These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to many factors. Actual results, market sizes, timing, and FDA review will depend on a number of factors, including competition, access to customers, unforeseen circumstances and delays, the results of our clinical trials, our interpretation of those results, and other factors. Additional factors that could impact outcomes and our results include those described in the risk factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q. Also, our comments today include non-GAAP financial measures, and we provide a reconciliation to GAAP measures in our press release, which is available on our website at www.memetics.com. With that, I'm now pleased to turn the call over to Todd Newton. Todd?

Thanks, Matt, and good afternoon to everyone. With this being my first call with you, I will begin with my observations and assessment of our company, and then we'll move through our third quarter performance. On my first day in my current executive capacity, which was now 57 days ago, I told our team we needed to combine the strength of this company, which is its products and people, with a renewed focus on four key fundamentals. One, to deliver year-over-year top-line growth that exceeds the underlying growth rate in the markets where we elect to operate. Next, to focus on profitability. and improve our operating margin year over year so that we have the means to invest further in growth. Then to ensure our R&D activities are prioritized, productive, and pursued with a sense of urgency because the innovations from these efforts are the lifeblood of future growth. And last, manage our balance sheet with an attitude and mindset that cash and equity capital are both precious commodities. And look, these are the basics of success. These aren't complicated, but admittedly, they're not easy to achieve. Now, let me tell you how I see our business. Our commercial stage placenta-derived products business, which we call wound and surgical, has successfully transitioned from being historically a single vertical wound care business to a two vertical business by expanding the use of our technology and products to meet the healing needs within the surgical recovery settings. Wound and Surgical has a good future growth potential, very attractive gross margins, and the potential to generate strong operating margins and cash flow. Additionally, Wound and Surgical has historically been a domestic business, and this is soon changing with the upcoming launch of EpiFix in Japan. However, in terms of our corporate expenses, our level of spend is simply too high for the size of our business. The profitability goal I have set for the management team is pretty straightforward. We need to gain more operating leverage. And I have put in front of our leadership team two challenges that they have embraced and are now underway working to realize. One is to improve our wound and surgical segment contribution margin to 30% of segment sales. If we are able to do this, combined with our targeted long-term revenue growth rate, This business unit could be generating annual cash approaching $100 million by the end of 2023. The second challenge goes back to corporate overhead. We need to push our corporate expense as a percentage of sales down below 20%. As a first step in bringing corporate overhead expense down, in early October, we restructured certain corporate support functions, which resulted in a reduction in our executive headcount. This initial small step will reduce annual corporate expense by nearly $3 million on an annual basis. We will be implementing further improvements as we continue to evaluate our cost structure and profitability. We currently have two research and development priorities. The first is to continue to introduce innovative products into wound and surgical, such as the two new products we introduced in September. And the second is to start as soon as practical a well-designed and well-controlled registrational clinical study for the use of our micronized product in the treatment of knee osteoarthritis, or what I'll refer to today as knee OA. I will speak more about the knee OA program status shortly. As I review our balance sheet, there is one very important aspect to stress. Our R&D pipeline, including the knee OA program, and other growth initiatives such as Japan do not require us to write any checks or make commitments that we aren't comfortable funding from existing cash and the anticipated cash flow resulting from our wound and surgical business. Therefore, today, we do not foresee the need to raise capital to achieve our goals. We feel fortunate to have this financial stability at a time when the capital markets are volatile. and many other companies are facing looming overhangs because of their need for additional capital. Let's transition now to the third quarter. We launched two new products in September, AmnioEffect and AxioFill, which we anticipate will bolster our momentum in the surgical recovery market. With AmnioEffect, we've added a thicker tri-layer placental allograft to offer surgeons superior handling characteristics including the capability to suture the allograft in place with sutures, which is often a need seen in a wide variety of surgical procedures. AmnioEffect offers users many of the same attractive handling properties as our cord-based products, but can come in many different sizes, including larger sizes. For AxioFill, early user feedback has confirmed that the product is very versatile. It can be applied as a particulate or as a paste. which makes it attractive for a wide range of complex surgical wounds of varying shapes, depth, or size. And it's compatible with negative pressure wound therapy as well as hyperbaric oxygen therapy. Also in September, we received a positive reimbursement approval decision for our EpiFix product in Japan for the treatment of refractory or hard-to-heal lower extremity diabetic or venous ulcers. The posted reimbursement rate is very attractive and should support clinician adoption and use. Since the reimbursement decision, physicians in Japan have treated the first patients with FB6. Over the next couple of months, our focus will be on generating physician awareness and education, as well as complete in-country distributor contracting. Japan represents a new and attractive addressable market that we estimate to be around $500 million in size. EpiFix is the first and only amniotic tissue product cleared for use in Japan, and we anticipate this market will be a good source of top-line revenue growth starting in 2023 and a profitable standalone market accreted to our overall operating margins by 2024. And now turning to our third quarter financial results, revenues were softer in July and August as the easing of COVID-19 travel restrictions resulted in higher than normal seasonal vacation activity and a higher than normal seasonal impact then on procedure volumes. These combined to negatively impact our product sales during the summer months. But in September, demand rebounded very well, indicating to us that the July and August growth pause was temporary. Overall, third quarter sales grew by 7.3% over the third quarter last year, while wounds in surgical cells grew by 7.6%. So I'm going to turn now to call over to Pete to further discuss the quarterly results along with specifics of our segment reporting being introduced this quarter. Pete?