MiMedx Group, Inc

Greetings and welcome to the MiMedx Second Quarter 2024 Operating and Financial Results Conference Call. At this time, all participants are in a 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 zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Notarianni, Head of Investor Relations. Thank you, sir. You may begin.

Thank you, Operator, and good afternoon, everyone. Welcome to the MiMedx Second Quarter 2024 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 the investor relations website at mymedics.com. Joe will kick us off with some opening remarks and a summary of our operating highlights, and Doug will provide a review of our 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, adjusted EBITDA, free cash flow and cash balance growth, future margins and expenses, and expected market sizes for our products. These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to many factors. Actual results and market sizes 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 factor 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 mymedics.com. With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt, and good afternoon, everyone. We thank you for joining us on today's call, as we were very pleased to report the results of another solid quarter. For the second quarter, we continued to achieve year-over-year top-line growth, albeit at a slower rate. There are two factors that impacted the magnitude of our growth. First, we had a very tough comparison due to our strong performance in Q2 2023. And second, there continues to be dislocation in the private office setting caused by certain competitors and providers utilizing artificially high-priced skin substitutes and questionable business practices targeted at Medicare beneficiaries. While less than 25% of our total revenue is tied to Medicare in the private office and adjacent settings, we have felt the impact of this behavior. I assure you, we are working on various options in the event no action is taken to curtail these practices. I will speak more on this topic later in the call. Importantly, the remainder of our business continues to flourish. We believe our industry will and must return to a more rational, data-driven regulatory and reimbursement environment. In the meantime, it is important to realize just how well we have positioned MiMedx to navigate these short-term headwinds. and we expect to emerge on the other side stronger than ever before. Over the past year, we have orchestrated a significant financial transformation for our company, and we remain laser focused on executing our strategy, which will ensure success for years to come. This much improved financial profile enables us greater flexibility and optionality as we navigate near-term disruption. Moreover, I am confident we have the right plan and team in place to continue our momentum. As an industry leader, we continue to provide input and lobby the relevant governing bodies in an effort to help restore good fiscal governance to the Medicare portion of the private office setting. Now I'll take a few minutes to discuss the highlights of the second quarter and then update you on the progress we're making regarding our strategic priorities. For the second quarter, net sales grew year over year by $6 million, or 7% to $87 million, marking another solid growth quarter. Gross profit was 83%. Adjusted EBITDA was $20 million, with 23% of net sales in the quarter, representing an increase of $6 million over the prior year period. We ended with $69 million in cash, a healthy increase of $21 million in the quarter. We began the limited market release of Heliogen, which is the commercial name for the bovine-derived particulate we acquired earlier in the year. We were thrilled to announce the well-deserved promotion of Kim Mohler to Chief Commercial Officer for MiMedx. Kim has done a remarkable job over the last four years building the MiMedx commercial organization into the high-performing team it is today. And a few weeks ago, we were excited to have Nature Scientific Reports, which is a leading peer-reviewed journal with a reputation for publishing best-in-class scientific literature, publish a study demonstrating the benefits of mimetics placental-based allografts in surgical applications where pathological fibrosis results in detrimental scarring and dysfunctional tissue. Turning now to our strategic priorities. As outlined on prior calls, our plan is focused in three areas. First, we will continue to innovate and diversify our product portfolio. We have clearly built a strong core competency in the development and rapid commercialization of products designed to meet emerging physician and patient needs in all sites of care. Two of our most recent product introductions continue to perform at a high level. AmnioEffect grew nearly 40% year over year in the surgical market. And EpiEffect, which we launched late last year, continued to show significant strength in the private office. Both products have received widespread market acceptance and excellent physician feedback. Additionally, we continue to make progress building our EpiFix business in Japan, where we posted another quarter of exceptionally high growth. Building on the success of these recent product introductions, we expect a similar performance as we move towards full market release of our first xenograft. As a reminder, this new product is a 510K cleared bovine-derived collagen matrix particulate, which we have branded Heliogen, and is indicated for the management of moderately to heavily exudating wounds and to control minor bleeding. During our soft launch, the product has been successfully applied in various surgical procedures, including in Achilles tendon repair. That takes me to our second area of focus, which is to develop and deploy programs intended to expand our footprint in the surgical market. In the past, we've spoken about the importance of generating real-world evidence and scientific research demonstrating support for the use of our placental-derived allografts in a variety of surgical procedures. We are currently working with key opinion leaders to produce evidence in surgical case studies, as we know data is especially critical in this part of the market. To that end, the Nature Scientific Reports article I mentioned earlier is one of the more exciting and significant publications we have seen in quite some time. The prestige of this journal alone demonstrates the importance of the work. This study evaluated two configurations of mimetics proprietary placental-based allografts for their ability to regulate fibrotic processes or scarring of connective tissue. The study found that both are dehydrated and lyophilized human amniotic chorion membranes demonstrated in vitro modulation of collagen production, deposition, and maturation in support of the hypothesis that amniotic membranes may function to interrupt pathological fibrosis and restore tissue homeostasis. The practical implications of these findings are immense. The possibility of reduced scarring or adhesion formation through the use of mimetics proprietary technology could enable accelerated and improved quality of healing with decreased incidence of recurrence. This creates the potential for enhanced surgical outcomes from improved functionality to superior cosmetic results simply by incorporating Mimetic's proprietary membranes into the procedure. We are already seeing the real-world benefits of such applications in a number of surgical applications. OBGYNs, for example, are using our tissue to help promote healing during C-section closure. and there are numerous other use cases and novel applications starting to develop. Considering the potential benefits demonstrated in this study and applying that to the tens of millions of surgeries performed in the U.S. annually, the size of the opportunity could be staggering for my medics. The importance of this type of research and other supporting investments in order to continue to demonstrate the superiority of our technology cannot be overstated. We have the company's strategic compass pointed squarely in the direction of a greater surgical presence, and we will continue to ramp up necessary clinical and marketing investments to support these opportunities. And of course, we're excited to move into full market release of Heliogen, our first xenograft particulate, which we will promote for use in surgical cases where such products may be more appropriate for various reasons. We expect this first xenograft product to provide for greater access into parts of the markets we have historically been precluded from competing. Our third initiative is to introduce programs designed to enhance customer intimacy. As a reminder, the primary focus of this initiative is to develop programs which improve relationships and ultimately lower our customer churn. In our markets, customer turnover is high relative to other industries. which impacts margins. We believe we have an opportunity to change this dynamic and build much stickier associations through an expanded customer-centric offering, thereby increasing the lifetime value of each customer. The long-term plan is to embed a customer-centric mindset and processes into all facets of the organization, from product development to inventory visibility and account management. As mentioned a few months ago, we recently launched Mimetics Connect, our new customer portal, providing a far more streamlined digital connection with referring practices. The adoption rate is exceeding our expectations with nearly 25% of our active customers now using MiMedx Connect to interface with the company for processes such as insurance verification and product ordering. We will continue to enhance the feature-centered platform and believe it will eventually become another distinct competitive advantage for the company. Now let me turn the call over to Doug for more detail on our financial results. Then I will close with comments about the private office reimbursement dynamic and full year guidance.