MiMedx Group, Inc

We do thank you for your patience. Please continue to hold. Our conference will be getting started momentarily. Please continue to hold. Thank you. Thank you. Good afternoon and thank you for standing by. Welcome to the MiMedx Second Quarter 2023 Operating and Financial Results Conference Call. At this time all participants are in 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 Mr. Matt Notarianni, Head of Investor Relations for MiMedx. Matt, please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to the MiMedx Second Quarter 2023 Operating and Financial Results Conference Call. With me on today's call are Chief Executive Officer Joe Capper and Chief Financial Officer Doug Rice. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from their investor relations website at mymedics.com. Joe will kick us off with some opening remarks, and Doug will provide a summary of our operating highlights and financial results for the quarter. And then Joe will conclude with some additional updates, including a discussion of our financial goals. We will then 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 and expenses, expected market sizes for our products, and potential timelines for 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, the reimbursement environment, unforeseen circumstances and delays, 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.mymedics.com. With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt, and good afternoon, everyone. Thank you all for joining us on today's call. It is my pleasure to report on another outstanding quarter of solid financial performance and operational excellence. In short, our momentum is strong and we expect it to continue. As you will hear today, Q2 exceeded even our lofty expectations for the business. I am particularly proud of the team's tremendous progress on delivering adjusted EBITDA approaching levels this company has not seen for several years due to the numerous enhancements we have set in motion. Our recent decision to increase focus on our wound and surgical businesses was driven by the substantial opportunity in those markets and our highly competitive offerings in the space. Our distinct advantages stem from our gold standard technology and industry-leading sales and operations infrastructure. That powerful combination gives us a strong foundation from which to build, enabling us to outpace market growth for what we believe will be years to come. We anticipate that the company is at the front end of a multi-year growth phase with the means to capitalize on the numerous opportunities before us. The focused go-to-market strategy and disciplined execution that drove our strong first half performance is certainly repeatable. Before we provide you with more detail on how we envision our long-term growth plan unfolding, Let me first touch on some of the more noteworthy accomplishments from the second quarter. Due to year-over-year net sales grew by approximately 21.5% to $81.3 million, the highest quarterly net sales performance we have delivered in nearly four years. Gross profit margin improved to 83.3%, another nice step up sequentially. Adjusted EBITDA was $14.1 million. up from an adjusted EBITDA loss of almost $1 million a year ago, representing a $15 million improvement. We ended the quarter with $68.7 million in cash, up $7.5 million from the end of Q1. We announced the suspension of our knee osteoarthritis development project, an important strategic pivot which hones our focus in the wound and surgical markets. And we were pleased to welcome Doug Rice to the team as our new Chief Financial Officer. Doug is a highly accomplished and seasoned healthcare executive whose considerable experience makes him ideally suited for our next stage of growth. In fact, we are already seeing the value of his contributions in the brief time he's been on board. This second consecutive quarter of exceptional performance was driven by an incredibly high level of execution across the entire company. Moreover, any business that is going to win in the market has to have a solid financial foundation, great products, attractive opportunities, and a team that can execute. I am confident we have that at MiMedx. While our Q2 financial performance exceeded our expectations from top to bottom, Our adjusted EBITDA margin, again, rates additional attention. As anticipated, the business is starting to generate fairly dramatic margin improvement with scale. The Q2 adjusted EBITDA of $14.1 million represents a 17% return on net sales. However, if we pro forma out the Q2 spend on the knee OA trial, things start to look significantly better as our adjusted EBITDA margin would have been in excess of 20%. As you can see, we are starting to unlock the leverage in the business, which, as I mentioned last quarter, will increase free cash flow generation, improve our balance sheet, lead to growth funding optionality, and accelerate value creation. As is my practice, I will provide a quick update on the company's progress on the three key elements of our strategic focus. As a reminder, these are the areas in which we are concentrating our time and resources in order to drive growth and ensure long-term success. Our top priority is to build on our leadership position in the wound and surgical markets by enhancing our product portfolio and expanding geographically. To that end, The second quarter represented another period of commercial excellence, during which we once again experienced growth in all sites of service. The two products we launched in September of last year continued to gain wide market acceptance in various surgical settings, helping to grow our Q2 sales in the hospitals by 17%. As we work to refine our approach in surgical markets, we are making significant investments in clinical research, and our medical affairs efforts. We believe our success in the surgical sector will be greatly enhanced with a growing body of real world evidence supporting a wide range of surgical applications. In the private office sector, we recorded another strong quarterly performance, growing at 25% year over year. The positive trend we saw here in Q1 continued into the second quarter, which is likely being driven in part by the OIG's guidance for companies to register their products on the CMS price list and adhere to the ASP reimbursement methodology. We anticipate this transition could continue to provide us with revenue growth support into the second half of the year. We also hope to be in position to launch another new product later this year, likely in Q4, into the private office setting. As you may have seen, The CMS proposed position fee schedule for calendar year 2024 was published a few weeks ago. The proposal indicates that CMS has decided not to make any major modifications to how skin substitutes are currently reimbursed, but continue to drive enforcement of current policy per the OIG's guidance. If this position holds through the comment period, we would not expect to see any potentially disrupted policy changes at least throughout 2024, which would be a net positive for us in the near term. We will continue to provide input and work with various stakeholders as CMS strives to develop a reimbursement model that ensures patient access to these critical products and safeguards against abuse leading to overpayment. Finally, we were encouraged by the strides we were making in Japan. as we work through the early market development phase. During the quarter, we continue to see an increased level of interest in and utilization of this first of its kind product in the Japanese market. As such, we expect adoption to ramp in the coming months and quarters. Our next priority is to develop opportunities in adjacent markets to create additional growth drivers for the company. With our strategic focus now firmly concentrated on the wound and surgical business, One of the more obvious opportunities is to expand our skin substitute offering beyond amniotic tissue. According to market data, amniotic allografts account for less than 43% of the skin substitute market, with xenografts and synthetics making up the balance. An expansion of our skin substitute offering beyond amniotic tissue immediately more than doubles our total addressable market while leveraging our entire commercial infrastructure. As such, we have concerted efforts, both internally and externally, toward the expansion of our product portfolio. Additionally, we continue to look for ways to leverage our technology and commercial strength to develop opportunities adjacent to the skin substitute market. Our final objective is to build a corporate discipline around expense management, rationalization, and continuous process improvement. As the Q2 results indicate, this approach continues to take hold within the organization. Our efforts to enhance efficiencies and production yields and operations resulted in another sequential improvement in gross margin, and we continue to get leverage from our overall operating expenses. As a reminder, we've highlighted two efficiency goals, which we have been striving to achieve by year end. One is to get a wounded surgical contribution margin above 30% of sales, and the second is to get corporate G&A below 20% of sales. For Q2, we more than achieved both of these targets, well ahead of schedule. I anticipate that we will continue to execute on our plan, resulting in further margin improvement and an enhanced ability to scale over time. The team certainly turned in another great performance in Q2. Executing against this three-point strategy and building on the momentum established as we enter the year. Our plan is to continue to identify and execute against the most relevant road drivers for our business. If we stick to this formula, I have no doubt we will build on this franchise, have the opportunity to create tremendous value, and move MiMedx into the ranks of healthcare's most admired companies. I'd also like to mention that shortly after the end of the quarter, the 11th Circuit Court of Appeals ruled in our favor by affirming the dismissal of the putative securities class action lawsuit brought against the company and others in 2019. The case was on appeal with the United States District Court of the Northern District of Georgia. We were obviously glad to receive this positive news, as it should put to rest one of the largest remaining potential claims against the company stemming from past challenges. Now let me turn the call over to Doug for more detail on our financial results on what is his inaugural call as the Chief Financial Officer for MiMedx.