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spk09: Good afternoon ladies and gentlemen and welcome to the third quarter 2021 earnings conference call for Organizenesis Holdings Inc. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors, of the company's most recent annual and quarterly reports. you are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, although it may voluntarily do so from time to time. The company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary Escalini, Sr., Organogenesis Holdings, President and Chief Executive Officer. Please go ahead, sir.
spk15: Thank you, operator, and welcome everyone to Organogenesis Holdings' third quarter 2021 earnings conference call. Today, I'm joined on the call by our Chief Financial Officer, Dave Francisco. Let me start with a brief agenda of what we'll cover during our prepared remarks today. I'll start with an overview of our financial performance in the third quarter, including a discussion of the key drivers of the strong revenue growth and profitability our team delivered in Q3. After my opening remarks, Dave will provide you with a more in-depth review of our third quarter financial results and the updated guidance for 2021 that we updated in this afternoon's press release. And then we'll open up the call for questions. Beginning with the review of our third quarter revenue performance, I'm pleased to report that we delivered another quarter of strong performance despite a tougher than expected operating environment. During the quarter, we reported revenue growth of 13% year-over-year to $113.8 million, driven by 19% growth of our advanced wound care products, which offset a 41% decrease in the sale of our surgical and sports medicine products. As expected, our surgical and sports medicine results reflected the headwinds for our renew and new cell product lines following the expiration of the FDA enforcement grace period for those products, which ended on May 31st of this year. Excluding net revenue from these products, our net revenue increased 20% year over year on an adjusted basis in the third quarter. A full reconciliation of our non-GAAP adjusted net revenue to gap net revenue is included in our earnings release. Our performance in Q3 continues to reflect our strong execution against our key pillars of our growth strategy, which includes leveraging our comprehensive and differentiated portfolio of products, diversifying our revenue sources across multiple sites of care and physician specialties, and leveraging our broad commercial reach Let me provide more color on how each of these long-term drivers of growth contributed to our revenues performance despite the tougher operating environment in the third quarter. First, regarding the strength of our portfolio, we have a broad portfolio of products across the continuum of wound care with a unique customer value proposition through a combination of our Purify brand, which is the only skin substitute with purified collagen and PHMB, a broad-spectrum antimicrobial, our amniotic portfolio with the only fresh amniotic membrane on the market and our PMA approved products for VLUs and DFUs. Our sale of pure applied products increased 39% in the quarter. This growth was driven by strong utilization from existing customers and a contribution from new customers. Excluding the expected loss of renew and new sell product lines, sale of our amniotic products were essentially flat. in the third quarter, and the sale of our PMA and other products increased 14% year over year in Q3. Second, we continue to diversify our revenue by expanding into new physician specialties in multiple sites of care to better position the company for sustained long-term growth. Additionally, we continue to leverage our organogenesis physician solutions platform to further penetrate the office market, and as a result, we continue to expand the number of customers and customer accounts in the office channel, and we're experiencing increased utilization of our products from existing customers. Lastly, on enhancing our commercial reach, we continue to make significant investments to grow our sales force, and we believe our team of 330 direct sales representatives represents a key competitive advantage for organogenesis. With respect to the overall operating environment in the third quarter, as we highlighted on our Q2 call, we expected a measure of softness in Q3, growth trends as a result of the seasonality we typically experience. And although we expected to see steady improvement in COVID-related headwinds as we moved through the second half of 21, we began to see more COVID impacts in July and in early August in key areas of the country, and we were monitoring it very closely. We ultimately did experience a tougher-than-expected operating environment in Q3 as healthcare facilities in COVID hotspots around the country implemented restrictions on access, which negatively impacted patient consultations, treatments, and elective procedures. Notably, our commercial strategy in recent years has resulted in a broader diversification of our revenue, specifically less exposure to acute care and outpatient settings, which historically have experienced greater COVID-related headwinds. However, in the third quarter, we experienced the spillover of these COVID-related headwinds in the office setting, which has in the past been a little more resilient. Our strategic initiatives focused on diversifying our revenue and leveraging our strong product portfolio, and it allowed us to drive 20% growth on an adjusted basis in the third quarter, despite tougher operating environment. We're encouraged by the continued expansion of our customer accounts in the office channel and the growth and utilization of our products from existing customers. That said, the unexpected COVID headwinds had a material impact on our full commercial launch of Affinity during the quarter. Staff shortages, increased restrictions and limitations on access challenged our ability to engage with new customers, impacting the adoption of our new novel technology, and ultimately had a material impact on sales for our amniotic products in Q3. As a result of these challenging headwinds, As we've done in the past, we successfully leveraged our diverse portfolio and drove better than expected sales in our pure applied brand. To recap the key takeaways for the quarter, we delivered another quarter of strong growth against a difficult comparison in the prior year and impressive financial performance, particularly with respect to our strong operating cash flow generation in the period. We ended the quarter with more than $100 million in cash on the balance sheet, and our team executed well despite the tough environment we experienced. And we made great progress towards our strategic initiative. Long term, we will continue to lead the space, launching highly innovative and highly efficacious products as we deliver on our mission to provide integrated healing solutions that substantially improve outcomes and reduces the overall cost of care. One more item I'd like to address before I turn the call over to David. Recently, we've had several inquiries regarding Medicare not having a published rate for affinity in the fourth quarter. As part of our strategy to grow the brand nationwide, in Q1 of this year, we voluntarily reported our ASP for affinity and we're very pleased to receive a published ASP for Q3. Our Q4 ASP submission was impacted by a filing error. which initially resulted in an incorrect rate issued by CMS and ultimately resulted in Affinity not having a published rate for the fourth quarter. However, we are confident that the nationally published rate will be reinstated on January 1st, 2022. And contrary to some speculation in the market, Affinity continues to be covered and reimbursed by all MACs in the fourth quarter. With that, I'd like to turn the call over to David to review our financial results in the third quarter, our balance sheet and financial condition, and our updated guidance.
spk07: Thank you, Gary. I'll begin with a review of our third quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. As Gary mentioned, we are pleased with the strong revenue growth in the quarter, given the challenging environment, as well as the prior year comparable. Net revenue for the third quarter of 2021 was $113.8 million, up 13%. and normalizing for the loss of Renu and NuCell, we grew adjusted net revenue by 20%. Our advanced wound care revenue for the third quarter of 2021 was $107.3 million, up 19%, driven by our expanded sales force and increased adoption of our PurePly line extensions launched in the second half of 2020. Revenue from surgical and sports medicine products for the third quarter of 2021 was $6.4 million, down 41% driven by the impact of sales of our renew and new-sell products, which we stopped marketing after May 31st, 2021, due to the expiration of the FDA's enforcement grace period. Revenue from Pure Apply products for the third quarter of 2021 was $56.9 million, up 39%. As Gary indicated earlier, we are pleased with the continued strong performance from the Pure Apply brand, as sales have increased 33% year-over-year over the first nine months of 2021. Regarding our commercial footprint, we ended the quarter with 330 direct reps and expect to achieve our goal of ending the year with 340 direct representatives, compared to 300 as of December 31, 2020. Gross profit for the third quarter of 2021 was $87.6 million, or approximately 77% of revenue, compared to 77% last year. Operating expenses for the third quarter of 2021 were $71.3 million, compared to $55 million last year, an increase of $16.3 million, or 30 percent. The increase in operating expenses in the third quarter was driven by an $11 million increase in selling, general, and administrative expenses, and a $5.2 million increase in research and development costs compared to the prior year period. The year-over-year increase in selling, general, and administrative expense was primarily due to a $4.8 million increase related to additional headcount, primarily in our direct sales force, and increased sales commissions due to the increased sales. The $2.3 million increase in marketing travel expenses as compared to the low prior year comparable amid COVID-related travel restrictions in the third quarter of 2020. Third quarter 2021 selling general administrative expense also included three items that did not impact our prior year results. A $1 million of restructuring costs associated with the closing of the La Jolla facility, a $1.1 million write-off of certain design and consulting fees previously capitalized related to the unfinished construction work on the 275 Dan Road building, and a $0.9 a million-dollar non-cash benefit related to the change in the fair value of the earn-out liability in connection with the CPN acquisition. The year-over-year increase in R&D expense was primarily driven by an increase in the clinical study and related costs necessary to seek our regulatory approvals for certain of our products. Operating income for the third quarter of 2021 was $16.3 million compared to an operating income of $22.8 million last year, a decrease of $6.5 million, or 29%. Third quarter gap operating margin was 14.3% of net revenue, excluding the aforementioned restructuring costs right off of previously capitalized construction expenses and the change in the fair value of the earn-out liability. Operating margin was 15.4% in the third quarter of 2021. Total other expenses for the third quarter of 2021 were $3.4 million compared to $2 million last year, an increase of $1.4 million, or 71%. driven primarily by a $1.9 million loss on extinguishment of debt related to the repayment of our 2019 credit agreement during the period. Net income for the third quarter of 2021 was $12.6 million, or 9 cents a share, compared to net income of $20.8 million, or 19 cents a share, a decrease of $8.2 million, or 10 cents per share. Adjusted EBITDA was $21.7 million for the third quarter of 2021, or 19% of net revenue, compared to adjusted EBITDA of $24.6 million, or 24% of net revenue last year, a decrease of $3 million. We have provided a full reconciliation of our adjusted EBITDA results in our earnings release issued this afternoon. Turning to the balance sheet, as of September 30th, 2021, the company had $102.7 million in cash and restricted cash and $83.2 million in debt obligations, of which $9.4 million were capital lease obligations. This compared to $84.8 million in cash and restricted cash and $84.8 million in debt obligations, of which $15.1 million were capitalized lease obligations as of December 31, 2020. As mentioned last quarter, we secured a new credit agreement in early August. The agreement provides for a credit facility in the aggregate amount of $200 million, consisting of a $75 million term loan and $125 million revolving credit facility. The new facility reduces our borrowing costs and enhances our financial flexibility. which, along with our improving profitability profile and related cash flow generation, has well positioned us to continue to execute on our strategic growth initiatives in the years to come. Turning to a review of our 2021 revenue guidance, which we updated in our press release this afternoon, for 12 months ended December 31, 2021, the company now expects net revenue between $458 million and $470 million, representing an increase of approximately 35% to 39% year-over-year. as compared to net revenue of $338.3 million for the 12 months ended December 31, 2020. This compares to our prior guidance range of $456 million to $472 million. The 2021 net revenue guidance assumes net revenue from advanced wound care products between $425 million and $434 million, representing an increase of approximately 44% to 47% year-over-year. This compares to our prior guidance, which called for growth of 44% to 48% year-over-year, Net revenue from surgical and sports medicine products between $33 million and $36 million, representing a decrease of approximately 18% to 24% year-over-year, unchanged from our prior guidance range. Net revenue from sale of our PureApply products between $196 million and $204 million, representing an increase of approximately 33% to 39% year-over-year. And this compares to our prior guidance range, which called for growth of 22% to 27% year-over-year. In addition to the formal revenue guidance, we'd like to provide a few considerations for investors to bear in mind when evaluating our growth expectations for fiscal year 2021. This additional color is intended to help the investment community better understand the assumptions supporting our revenue expectations for 2021. First, the largest contributor of our total company net revenue in fiscal year 2021 will be sales of our amniotic products, which at the midpoint of our full year total revenue range now assumes amniotic growth of approximately 52% year over year in 2021. This compares to our prior guidance range, which assumed at the midpoint of approximately 68% year-over-year, and reflects our updated expectations for the timing of our full commercial launch of Affinity. Second, we expect sales of our remaining non-terrapline, non-amniotic products, which collectively form the group called PMA and Other, to increase at the midpoint of the range at approximately 14% year-over-year in 2021. This compares to our prior guidance range, which assumed growth at the midpoint of approximately 11% year-over-year, reflecting better-than-expected performance in the third quarter. Third, we expect to see only modest improvement in COVID-related headwinds as we move through the fourth quarter. Our guidance now reflects a more challenging operating environment versus what our prior guidance had assumed. However, despite the COVID-related headwinds in the second half of 2021, our full year guidance reflects the strong growth range of 35% to 39% and remains at the midpoint of our previous guidance of $464 million, or 37%. As detailed on our prior earnings calls this year, our guidance also continues to reflect the expectation of lower year-over-year growth in the second half of 2021 compared to the prior year. As highlighted on previous earnings call, this expectation is driven primarily by two factors. First, the strong performance of our advanced wound care business in the second half of 2020. We expect to see our year-over-year growth trends in the second half of 2021 moderate as we lap the 56% growth from the second half of 2020. Second, an estimated 18 million headwind to growth over the last seven months of 2021 related to the removal of renew and new cell from the market beginning June 1st, 2021. With respect to our expectations for financial performance in 2021, we continue to expect to report positive GAAP net income and positive adjusted EBITDA for the fiscal year of 2021. In addition to our formal financial guidance for 2021, we're providing some consideration for modeling purposes. For the full year 2021 period, we now expect gross margins of approximately 75%, total GAAP operating expenses to increase approximately 27% year-over-year, Note our 2021 GAAP operating expenses include approximately $5 million of restructuring expenses related to our La Jolla, California facility, of which $2.9 million occurred in the first three quarters of 2021. Non-cash DNA of approximately $10 million, non-cash stock comp of approximately $3.5 million, weighted average diluted shares of approximately $134 million, and we expect full-year 2021 CAPEX of approximately $30 million, of which approximately two-thirds is related to growth and gross margin improvement initiatives. Finally, we expect total interest and other expenses of approximately $9.5 million as the lower borrowing costs associated with the refinanced facilities partially offset by exit costs expensed in the third quarter of 2021. With that operating, I'll turn the call back over to you.
spk09: If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our air equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. And our first question will come from Ryan Zimmerman from BTIG. Your line is now open.
spk08: everyone. Appreciate all the color you gave today on guidance and commentary on CMS. I guess starting with guidance for both you guys, you know, as we think about the recovery into the fourth quarter, you have peer apply kind of going up, offsetting, you know, some of the slower amniotic sales specifically due to the affinities delay. And so just help us understand kind of how the wound market is recovering in the fourth quarter and why, you know, we should expect to see stronger pure apply sales, maybe offsetting some of the other slower areas like a surgical and sports medicine or amniotics. Thank you.
spk15: Sure. So, I mean, the environment really is not improving dramatically. You know, we continue to see the impact of COVID. I think for our pure apply products, you know, one of the areas that's really helped the product is we have more accounts, more physician specialties. It's a more established brand, and we're able to focus our large sales force on selling that product because of its brand equity and because of the customers we have. So we've been able to drive a little extra growth within those existing accounts and some additional accounts. So it's really the utility of the product and the focus of our sales force. We've done that in the past. And it really had an impact. Dave, if you have a different opinion.
spk07: No, I think that's right. I mean, it's just, as you said, it's a well-established brand. It continues to be something that the customers find a lot of clinical utility in, and we continue to see good growth from that product line.
spk08: And just, Gary, to dig in a little further than that, and then I have one follow-up, but are you seeing offsetting usage of some of the other products? Are you seeing offsetting usage, I guess, of CareApply just significantly given your focus on it relative to potentially other products that are in your portfolio or others? And then I just want to ask a follow-up on Affinity.
spk15: Sure. So, you know, Pure Apply is a very different product. I mean, ultimately all the products get to a point of healing. So our focus when you're, you know, selling Affinity, excuse me, Pure Apply is it's a different focus. It's a different patient. It's a patient earlier on in the process. where Affinity is more of a recalcitrant wound later in the process, and it's different sites of care. So our sales reps will then focus on a dermatologist or a plastic surgeon office where that product, PureApply, can be utilized where you wouldn't with Affinity. So it really does expand the use of the product. There can be some, because ultimately the objective is to heal the wound, but the type of patient and the sites of care are a little bit different. So we don't expect a significant amount of, you know, cannibalization or cross usage.
spk08: Okay. I appreciate that. And then just lastly for me, as we think about affinity, I mean, it's been obviously a subject of investor discussion this quarter. And so, you know, how much of affinity, the impact in guidance that you've laid out, you know, how much do you think that that's due to the delay in rollout versus maybe other factors and, You know, what impact have you seen in the fourth quarter from CMS's error with the MACs in terms of utilization? And any color you can provide maybe on what kind of their expectation or what they've said or indicated about the plan going forward would be appreciated. Thank you. Yeah, sure.
spk15: So, you know, CMS has not provided any color. We wouldn't discuss any discussions we have with them, but we do expect to get the rate reestablished, as I mentioned. So when we file for a published ASP, when you move to a published ASP, you will have a pause, and that's considered in our guidance when you move to that published ASP. And that pause is related to benefit verifications and other changes that happen with the product. So you'll have those types of impacts. You also have the rest of the country, which is the strategy here, where you're not selling the product, where you have the opportunity to sell to the entire country and build the brand more broadly and build a base for long-term growth. So there are changing dynamics, clearly, when you move to a published ASP, which is, again, something that we file for and we believe is in the best interest for the long-term growth of the product. So, you know, clearly not being able to get at those new customers in those regions where we haven't sold the product at all has really had an enormous impact. So, you know, you get the benefit of those additional, you know, regions, and you may have some loss in existing regions, but overall you end up at a better place. But we weren't able to get at those new regions and get at those customers. That's interesting. a major impact on, you know, affinity for the quarter. Dave, would you have any other thoughts on that?
spk07: Yeah, I would agree. It's really all about access and, you know, kind of adopting that new technology. So, it was really challenging in the period. Okay. Thank you. Sure.
spk09: Your next question comes from . Your line is open.
spk03: Hi, thanks, guys, for taking the question, and congrats on a really strong quarter in a tough environment. You know, maybe, and I apologize, Gary, if I missed it, but just because of the questions and focus around reimbursement, around affinity and Pure Apply, just wondering if you provided, if you could provide any color on, like, the trajectory of growth, the cadence of growth, you know, in the second and third quarter, and maybe what your expectations are in the fourth quarter, understanding, you know, guide by product like that, but just, you know, whether you're expecting things to improve or remain stable, just anything you'd be willing to share would be helpful, and I have one follow-up.
spk15: Sure. Sure. So we certainly expect sales of Affinity to approve in Q4. Even with the loss of published ASP, there will be a pause again in October. So we expect to see that. And we did see that. And we're now starting to see the product pick back up once benefit verifications are done and folks understand that the product is still being reimbursed. So We feel like there will be a slight improvement and the product will grow in Q4. We expect to have a published ASP in January, and then we will relaunch the product again in January. And we would expect a pause again when you have a change in your ASP and you now have a published ASP, which is different. There will be benefit fabrication process, which normally happens in Q1. anyway, as deductibles reset for our customers. So we do expect that there'll be some pause going into Q1, but ultimately we expect Affinity to continue to be a growth driver for the company going forward.
spk03: Okay. And just maybe to understand the value of the product. I know we spent a fair amount of time making calls out to clinicians about the product early in our you know, diligence and, you know, covering the company over the past several years. And the feedback has certainly been positive. But I thought it might be helpful just for folks to understand, you know, given the array of amniotic products that are out there, just remind us, like, what is special about it? Where is it used, you know, that you maybe would not use a dehydrated tissue amnion or, you know, just maybe a little more color on where, where clinicians really seek it and use it, and particularly, I guess, in the physician channel only at this point.
spk15: Correct. So it is unique. It is the only fresh amnion in the space, so it has living cells in the product. Similar to many of our other products, you know, that's part of who we are is living active technology. So when a wound is recalcitrant, meaning it hasn't really closed more than 50%, in four weeks and the clinician is challenged and they feel an active product like Affinity is really what's needed to jumpstart the wound, that's really the value of the product. It's when you have that wound that's really difficult and again, the clinician feels an active living type technology would help that wound move on to healing through the proliferative phase ultimately to healing.
spk02: Thanks for that, and good luck. Thank you, Matt.
spk09: Next question comes from Stephen Lickman with Oppenheimer. Your line is open.
spk05: Thank you. Hi, guys. Gary, just on the ASP update for the fourth quarter, for January, excuse me, what gives you the confidence that it will be on the next list? I know you mentioned not wanting to talk about any conversation with CMS, but Anything you guys have looked at relative to prior situations or any outside consultants or anything to give you that confidence?
spk15: Well, sure. We certainly have a lot of outside consultants that have given us a lot of confidence that that would happen. I think it's important to note that we received, you know, an ASP, a published ASP for the quarter. It was just incorrect and in the process of trying to get it corrected, we didn't meet the timelines and, you know, weren't able to get the ASP reestablished. So, You know, it was a filing error, and this happens often. What we've been told by our consultants is the MACs will typically, you know, reimburse it, and we are seeing that, so that's ended up being accurate. And then you refile correctly, and it will get reestablished again. So we have no reason to believe or any reason to believe that it wouldn't be reestablished at this point.
spk05: Okay, got it. And then relative to COVID, I just wanted to put a finer point of what you're seeing out there. It sounds like you're seeing pretty steady environment versus what you saw in the third quarter. And what part of your business specifically would see more of an impact versus others? As you mentioned, you diversified a lot, so certainly not all. But, you know, if you could talk a little bit more color on what's impacted and what you're seeing out there today.
spk15: So, I mean, our entire business is really impacted. You know, what's troubling is when you don't have access and you're launching a new technology like Affinity, it's challenging because you need multiple meetings, you need training. A clinician typically goes through benefit verification, obviously, and then a trial period with the product. So there's a lot of access that's required. So anything that's new or new customers are more challenged. Our existing accounts where we have great brand equity, we have great relationships, we're able to continue to sell and go a little deeper, which helped Pure apply, you know, this past quarter. That's really the challenge is, you know, branching out with new technologies into new accounts or new physician specialties when you don't have access.
spk06: Got it. Thanks, Gary. I'll jump back in queue.
spk02: Thank you.
spk09: If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. Again, we ask that you limit yourself to the one question and one follow-up. Next question comes from Daniel Antalfi with SVB Lyric. Your line is open.
spk10: Hi, this is Erin on for Danielle. Thanks so much for taking our questions. Yeah. So congrats on the quarter. I just wanted to kind of dive a little bit deeper into the COVID headwinds. I know you mentioned that staffing shortages, you know, is creating a challenge. I just was hoping to see, you know, if there's any way to quantify, you know, what that impact looked like. in 3Q. It just seems like, you know, this is kind of a larger headwind that that could potentially linger. So just wanted to kind of get a sense of how this may impact, you know, growth going forward.
spk07: Yeah, so the third quarter was an impact. We estimated to be about $4 million. I think as you move into Q4, it's a little bit more difficult to tease it out just because of the components that Gary had said about the access. You know, this is a a change in dynamics in the launch and you know, how much is this is associated with, uh, with, you know, specific COVID related, um, you know, it's, it's a little bit more challenging to, to tease out. Do you agree with that?
spk02: Yes, it is.
spk15: But we think it was about 4 million in the third quarter, but we do that. We, we clearly think that the headwind is, is gonna, you know, exist for Q4 and we're battling it and navigating it with our portfolio and our, and our customers. And we also think it could leak into the first half of next year as well based on what we're seeing. Okay, great.
spk10: Thanks so much for the color. And then just on the office channel, obviously the diversification of care setting has helped you power through some of the COVID headwinds. I just wanted to get a sense of how penetrated you are into the potential accounts and how much runway is potentially left in this channel.
spk15: So we don't really provide how many accounts, but what I've said before is the channel is large. It's about 12,000 offices, and we figure there's about 6,000 high potential offices we're not anywhere near penetrating that channel, significantly under-penetrating.
spk11: Okay, great. Thank you so much for taking your question.
spk15: My pleasure.
spk09: We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.
spk02: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. you Thank you. Thank you. Thank you.
spk13: Thank you. you
spk09: Good afternoon, ladies and gentlemen, and welcome to the third quarter 2021 Earnings Conference Call for Organizenesis Holdings, Inc. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors, of the company's most recent annual and quarterly reports, you are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary Escalini, Sr., Organogenesis Holdings, President and Chief Executive Officer. Please go ahead, sir.
spk15: Thank you, operator, and welcome everyone to Organogenesis Holdings' third quarter 2021 earnings conference call. Today, I'm joined on the call by our Chief Financial Officer, Dave Francisco. Let me start with a brief agenda of what we'll cover during our prepared remarks today. I'll start with an overview of our financial performance in the third quarter, including a discussion of the key drivers of the strong revenue growth and profitability our team delivered in Q3. After my opening remarks, Dave will provide you with a more in-depth review of our third quarter financial results and the updated guidance for 2021 that we updated in this afternoon's press release. And then we'll open up the call for questions. Beginning with the review of our third quarter revenue performance, I'm pleased to report that we delivered another quarter of strong performance despite a tougher than expected operating environment. During the quarter, we reported revenue growth of 13% year-over-year to $113.8 million, driven by 19% growth of our advanced wound care products, which offset a 41% decrease in the sale of our surgical and sports medicine products. As expected, our surgical and sports medicine results reflected the headwinds for our renew and new cell product lines following the expiration of the FDA enforcement grace period for those products, which ended on May 31st of this year. Excluding net revenue from these products, our net revenue increased 20% year over year on an adjusted basis in the third quarter. A full reconciliation of our non-GAAP adjusted net revenue to gap net revenue is included in our earnings release. Our performance in Q3 continues to reflect our strong execution against our key pillars of our growth strategy, which includes leveraging our comprehensive and differentiated portfolio of products, diversifying our revenue sources across multiple sites of care and physician specialties, and leveraging our broad commercial reach Let me provide more color on how each of these long-term drivers of growth contributed to our revenues performance despite the tougher operating environment in the third quarter. First, regarding the strength of our portfolio, we have a broad portfolio of products across the continuum of wound care with a unique customer value proposition through a combination of our Puriply brand, which is the only skin substitute with purified collagen and PHMB, a broad-spectrum antimicrobial, our amniotic portfolio with the only fresh amniotic membrane on the market, and our PMA-approved products for VLUs and DFUs. Our sale of pure applied products increased 39 percent in the quarter. This growth was driven by strong utilization from existing customers and a contribution from new customers. Excluding the expected loss of renew and new-sell product lines, sale of our amniotic products were essentially flat. in the third quarter, and the sale of our PMA and other products increased 14% year-over-year in Q3. Second, we continue to diversify our revenue by expanding into new physician specialties and multiple sites of care to better position the company for sustained long-term growth. Additionally, we continue to leverage our organogenesis physician solutions platform to further penetrate the office market, and as a result, we continue to expand the number of customers and customer accounts in the office channel, and we're experiencing increased utilization of our products from existing customers. Lastly, on enhancing our commercial reach, we continue to make significant investments to grow our sales force, and we believe our team of 330 direct sales representatives represents a key competitive advantage for organogenesis. With respect to the overall operating environment in the third quarter, as we highlighted on our Q2 call, we expected a measure of softness in Q3, growth trends as a result of the seasonality we typically experience. And although we expected to see steady improvement in COVID-related headwinds as we moved through the second half of 21, we began to see more COVID impacts in July and in early August in key areas of the country, and we were monitoring it very closely. We ultimately did experience a tougher-than-expected operating environment in Q3 as healthcare facilities in COVID hotspots around the country implemented restrictions on access, which negatively impacted patient consultations, treatments, and elective procedures. Notably, our commercial strategy in recent years has resulted in a broader diversification of our revenue, specifically less exposure to acute care and outpatient settings, which historically have experienced greater COVID-related headwinds. However, in the third quarter, we experienced the spillover of these COVID-related headwinds in the office setting, which has in the past been a little more resilient. Our strategic initiatives focus on diversifying our revenue and leveraging our strong product portfolio, and it allowed us to drive 20% growth on an adjusted basis in the third quarter, despite tougher operating environment. We're encouraged by the continued expansion of our customer accounts in the office channel and the growth and utilization of our products from existing customers. That said, the unexpected COVID headwinds had a material impact on our full commercial launch of Affinity during the quarter. Staff shortages, increased restrictions and limitations on access challenged our ability to engage with new customers, impacting the adoption of our new novel technology, and ultimately had a material impact on sales for our amniotic products in Q3. As a result of these challenging headwinds, As we've done in the past, we successfully leveraged our diverse portfolio and drove better-than-expected sales in our Purify brand. To recap the key takeaways for the quarter, we delivered another quarter of strong growth against a difficult comparison in the prior year and impressive financial performance, particularly with respect to our strong operating cash flow generation in the period. We ended the quarter with more than $100 million in cash on the balance sheet, and our team executed well despite the tough environment we experienced. And we made great progress towards our strategic initiative. Long-term, we will continue to lead the space, launching highly innovative and highly efficacious products as we deliver on our mission to provide integrated healing solutions that substantially improve outcomes and reduces the overall cost of care. One more item I'd like to address before I turn the call over to David. Recently, we've had several inquiries regarding Medicare not having a published rate for affinity in the fourth quarter. As part of our strategy to grow the brand nationwide, in Q1 of this year, we voluntarily reported our ASP for affinity and we're very pleased to receive a published ASP for Q3. Our Q4 ASP submission was impacted by a filing error. which initially resulted in an incorrect rate issued by CMS and ultimately resulted in Affinity not having a published rate for the fourth quarter. However, we are confident that the nationally published rate will be reinstated on January 1st, 2022. And contrary to some speculation in the market, Affinity continues to be covered and reimbursed by all MACs in the fourth quarter. With that, I'd like to turn the call over to David to review our financial results in the third quarter, our balance sheet and financial condition, and our updated guidance.
spk07: Thank you, Gary. I'll begin with a review of our third quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. As Gary mentioned, we are pleased with the strong revenue growth in the quarter, given the challenging environment, as well as the prior year comparable. Net revenue for the third quarter of 2021 was $113.8 million, up 13%. And normalizing for the loss of renew and new sell, we grew adjusted net revenue by 20%. Our advanced wound care revenue for the third quarter of 2021 was $107.3 million, up 19%, driven by our expanded sales force and increased adoption of our pure ply line extensions launched in the second half of 2020. Revenue from surgical and sports medicine products for the third quarter of 2021 was $6.4 million, down 41%, driven by the impact of sales of our Renew and New Cell products, which we stopped marketing after May 31, 2021, due to the expiration of the FDA's enforcement grace period. Revenue from PureApply products for the third quarter of 2021 was $56.9 million, up 39%. As Gary indicated earlier, we are pleased with the continued strong performance from the PureApply brand, as sales have increased 33% year-over-year over the first nine months of 2021. Regarding our commercial footprint, we ended the quarter with 330 direct reps and expect to achieve our goal of ending the year with 340 direct representatives compared to 300 as of December 31st, 2020. Gross profit for the third quarter of 2021 was $87.6 million, or approximately 77% of revenue, compared to 77% last year. Operating expenses for the third quarter of 2021 were $71.3 million compared to $55 million last year, an increase of $16.3 million, or 30%. The increase in operating expenses in the third quarter was driven by an $11 million increase in selling, general, and administrative expenses, and a $5.2 million increase in research and development costs compared to the prior year period. The year-over-year increase in selling, general, and administrative expense was primarily due to a $4.8 million increase related to additional headcount, primarily in our direct sales force, and increased sales commissions due to the increased sales. A $2.3 million increase in marketing travel expenses as compared to the low prior year comparable amid COVID-related travel restrictions in the third quarter of 2020. Third quarter 2021 selling general administrative expense also included three items that did not impact our prior year results. A $1 million of restructuring costs associated with the closing of the La Jolla facility, a $1.1 million write-off of certain design and consulting fees previously capitalized related to the unfinished construction work on the 275 Dan Road building, and a $0.9 million non-cash benefit related to the change in the fair value of the earn-out liability in connection with the CPN acquisition. The year-over-year increase in R&D expense was primarily driven by an increase in the clinical study and related costs necessary to seek our regulatory approvals for certain of our products. Operating income for the third quarter of 2021 was $16.3 million compared to an operating income of $22.8 million last year, a decrease of $6.5 million or 29%. Third quarter gap operating margin was 14.3% of net revenue, excluding the aforementioned reconstruction costs right off of previously capitalized construction expenses and the change in the fair value of the earn-out liability. Operating margin was 15.4% in the third quarter of 2021. Total other expenses for the third quarter of 2021 were $3.4 million compared to $2 million last year, an increase of $1.4 million or 71%, driven primarily by a $1.9 million loss on extinguishment of debt related to the repayment of our 2019 credit agreement during the period. Net income for the third quarter of 2021 was $12.6 million or $0.09 a share, compared to net income of $20.8 million or $0.19 a share, a decrease of $8.2 million or $0.10 per share. Adjusted EBITDA was $21.7 million for the third quarter of 2021, or 19% of net revenue, compared to adjusted EBITDA of $24.6 million, or 24% of net revenue last year, a decrease of $3 million. We have provided a full reconciliation of our adjusted EBITDA results in our earnings release issued this afternoon. Turning to the balance sheet, as of September 30, 2021, the company had $102.7 million in cash and restricted cash and $83.2 million in debt obligations. of which $9.4 million were capital lease obligations. This compared to $84.8 million in cash and restricted cash and $84.8 million in debt obligations, of which $15.1 million were capitalized lease obligations as of December 31st, 2020. As mentioned last quarter, we secured a new credit agreement in early August. The agreement provides for a credit facility in the aggregate amount of $200 million, consisting of a $75 million term loan and $125 million revolving credit facility The new facility reduces our borrowing costs and enhances our financial flexibility, which, along with our improving profitability profile and related cash flow generation, has well positioned us to continue to execute on our strategic growth initiatives in the years to come. Turning to a review of our 2021 revenue guidance, which we updated in our press release this afternoon, for 12 months ended December 31, 2021, the company now expects net revenue between $458 million and $470 million, representing an increase of approximately 35% to 39% year-over-year, as compared to net revenue of $338.3 million for the 12 months ended December 31, 2020. This compares to our prior guidance range of $456 million to $472 million. The 2021 Net Revenue Guidance assumes net revenue from advanced wound care products between $425 million and $434 million, representing an increase of approximately 44% to 47% year-over-year. This compares to our prior guidance, which called for growth of 44% to 48% year-over-year. Net revenue from surgical and sports medicine products between $33 million and $36 million, representing a decrease of approximately 18% to 24% year-over-year, unchanged from our prior guidance range. Net revenue from sale of our PureApply products between $196 million and $204 million, representing an increase of approximately 33% to 39% year-over-year. And this compares to our prior guidance range, which called for growth of 22% to 27% year over year. In addition to the formal revenue guidance, we'd like to provide a few considerations for investors to bear in mind when evaluating our growth expectations for fiscal year 2021. This additional color is intended to help the investment community better understand the assumptions supporting our revenue expectations for 2021. First, the largest contributor of our total company net revenue in fiscal year 2021 will be sales of our amniotic products, which at the midpoint of our full year total revenue range now assumes amniotic growth of approximately 52% year-over-year in 2021. This compares to our prior guidance range, which assumed at the midpoint of approximately 68% year-over-year and reflects our updated expectations for the timing of our full commercial launch of Affinity. Second, we expect sales of our remaining non-Puriply non-amniotic products, which collectively form the group called PMA and Other, to increase at the midpoint of the range at approximately 14% year-over-year in 2021. This compares to our prior guidance range, which assumed growth at the midpoint of approximately 11% year-over-year, reflecting better than expected performance in the third quarter. Third, we expect to see only modest improvement in COVID-related headwinds as we move through the fourth quarter. Our guidance now reflects a more challenging operating environment versus what our prior guidance had assumed. However, despite the COVID-related headwinds in the second half of 2021, our full-year guidance reflects the strong growth range of 35% to 39% and remains at the midpoint of our previous guidance of $464 million, or 37%. As detailed on our prior earnings calls this year, our guidance also continues to reflect the expectation of lower year-over-year growth in the second half of 2021 compared to the prior year. As highlighted on previous earnings call, this expectation is driven primarily by two factors. First, the strong performance of our advanced wound care business in the second half of We expect to see our year-over-year growth trends in the second half of 2021 moderate as we lap the 56% growth from the second half of 2020. Second, an estimated 18 million headwind to growth over the last seven months of 2021 related to the removal of renew and new sell from the market beginning June 1st, 2021. With respect to our expectations for financial performance in 2021, we continue to expect to report positive gap net income and positive adjusted EBITDA for the fiscal year of 2021. In addition to our formal financial guidance for 2021, we're providing some consideration for modeling purposes. For the full year 2021 period, we now expect gross margins of approximately 75%, total gap operating expenses to increase approximately 27% year over year. Note our 2021 gap operating expenses include approximately $5 million of restructuring expenses related to our La Jolla, California facility, of which $2.9 million occurred in the first three quarters of 2021. Non-cash DNA of approximately $10 million, non-cash stock comp of approximately $3.5 million, weighted average diluted shares of approximately $134 million, and we expect full-year 2021 capex of approximately $30 million, of which approximately two-thirds is related to growth and gross margin improvement initiatives. Finally, we expect total interest and other expenses of approximately $9.5 million, as the lower borrowing costs associated with the refinanced facilities partially offset by exit cost expensed in the third quarter of 2021. With that operating, I'll turn the call back over to you.
spk09: If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star one. And our first question will come from Ryan Zimmerman from BTIG. Your line is now open.
spk08: Everyone, appreciate all the color you gave today on guidance and commentary on CMS. I guess starting with guidance for both you guys, as we think about the recovery into the fourth quarter, you have peer-applied kind of going up, offsetting some of the slower amniotic sales specifically due to the affinities delay. And so just help us understand kind of how the wound market is recovering in the fourth quarter and why, you know, we should expect to see stronger peer-reply sales, maybe offsetting some of the other slower areas like surgical and sports medicine or amniotics. Thank you.
spk15: Sure. So, I mean, the environment really is not improving dramatically. You know, we continue to see the impact of COVID. I think for, you know, Our Pure Apply products, one of the areas that's really helped the product is we have more accounts, more physician specialties. It's a more established brand, and we're able to focus our large sales force on selling that product because of its brand equity and because of the customers we have. So we've been able to drive a little extra growth within those existing accounts and some additional accounts. It's really the utility of the product and the focus of our sales force. We've done that in the past, and it's really had an impact. Dave, if you have a different opinion.
spk07: No, I think that's right. As you said, it's a well-established brand. It continues to be something that the customers find a lot of clinical utility in, and we continue to see good growth from that product line.
spk08: Gary, to dig in a little further on that, and then I have one follow-up, but are you seeing – offsetting usage of some of the other products? You know, are you seeing offsetting usage, I guess, of Pure Apply just given your focus on it relative to potentially other products that are in your portfolio or others? And then I just want to ask about Affinity.
spk15: Sure. So, you know, Pure Apply is a very different product. I mean, ultimately, all the products get to a point of healing. So our focus when you're, you know, selling Affinity, excuse me, Pure Apply is it's a different product. It's a different patient. It's a patient earlier on in the process where Affinity is more of a recalcitrant wound later in the process, and it's different sites of care. So our sales reps will then focus on a dermatologist or a plastic surgeon office where that product, PureApply, can be utilized where you wouldn't with Affinity. So it really does... expand the use of the product. There can be some, because ultimately the objective is to heal the wound, but the type of patient and the sites of care are a little bit different, so we don't expect a significant amount of cannibalization or cross-usage.
spk08: Okay, I appreciate that. And then just lastly for me, as we think about affinity, I mean, it's been obviously a subject of investor discussion this quarter, and so how much of affinity is the impact and guidance that you've laid out, you know, how much do you think that that's due to the delay in rollout versus maybe other factors? And, you know, what impact have you seen in the fourth quarter from CMS's error with the MACs in terms of utilization? And any color you can provide maybe on what kind of their expectation or what they've said or indicated about the plan going forward would be appreciated. Thank you. Yeah, sure.
spk15: So, you know, CMS has not provided any color. We wouldn't discuss any discussions we have with them, but we do expect to get the rate reestablished, as I mentioned. So when we file for a published ASP, when you move to a published ASP, you will have a pause, and that's considered in our guidance when you move to that published ASP, and that pause is related to benefit verifications and other changes that happen with the product. So you'll have those types of impacts. You'll also have the rest of the country, which is the strategy here, where you're not selling the product, where you have the opportunity to sell to the entire country and build the brand more broadly and build a base for long-term growth. So there are changing dynamics, clearly, when you move to a published ASP, which is, again, something that we file for and we believe is in the best interest for the long-term growth of the product. So, you know, clearly not being able to get at those new customers in those regions where we haven't sold the product at all has really had an enormous impact. So, you know, you get the benefit of those additional regions, and you may have some loss in existing regions, but overall you end up at a better place. But we weren't able to get at those new regions and get at those customers. And, you know, that's... a major impact on, you know, affinity for the quarter. Dave, would you have a hand with that?
spk07: Yeah, I would agree. It's really all about access and, you know, kind of adopting that new technology. So, it was really challenging in the period. Okay. Thank you.
spk02: Sure.
spk09: Your next question comes from . Your line is open.
spk03: Hi, thanks, guys, for taking the question, and congrats on a really strong quarter in a tough environment. You know, maybe, and I apologize, Gary, if I missed it, but just because of the questions and focus around reimbursement, around affinity and Pure Apply, just wondering if you provided, if you could provide any color on, like, the trajectory of growth, the cadence of growth, you know, in the second and third quarter, and maybe what your expectations are in the fourth quarter, understanding, you know, guide by product like that, but just, you know, whether you're expecting things to improve or, you know, remain stable, just anything you'd be willing to share would be helpful, and I want to follow up.
spk15: Sure. Sure. So we certainly expect sales of Affinity to approve in Q4. Even with the loss of published ASP, there will be a pause again in October. So we expect to see that. And we did see that. And we're now starting to see the product pick back up once benefit verifications are done and folks understand that the product is still being reimbursed. So We feel like there will be a slight improvement and the product will grow in Q4. We expect to have a published ASP in January, and then we will relaunch the product again in January, and we would expect a pause again when you have a change in your ASP and you now have a published ASP, which is different. There will be benefit fabrication process, which normally happens in Q1. anyway, as deductibles reset for our customers. So we do expect that there'll be some pause going into Q1, but ultimately we expect Affinity to continue to be a growth driver for the company going forward.
spk03: Okay. And just maybe to understand the value of the product. I know we spend a fair amount of time making calls out to clinicians about the product early in our you know, diligence and, you know, covering the company over the past several years. And the feedback has certainly been positive. But I thought it might be helpful just for folks to understand, you know, given the array of amniotic products that are out there, just remind us, like, what is special about it? Where is it used, you know, that you maybe would not use a dehydrated tissue amnion or, you know, just maybe a little more color on where, where clinicians really seek it and use it, and particularly, I guess, in the physician channel only at this point.
spk15: Correct. So it is unique. It is the only fresh amnion in the space, so it has living cells in the product. Similar to many of our other products, you know, that's part of who we are is living active technology. So when a wound is recalcitrant, meaning it hasn't really closed more than 50%, in four weeks and the clinician is challenged and they feel an active product like Affinity is really what's needed to jumpstart the wound, that's really the value of the product. It's when you have that wound that's really difficult and again, the clinician feels an active living type technology would help that wound move on to healing through the proliferative phase ultimately to healing.
spk02: Thanks for that, and good luck. Thank you, Matt.
spk09: Next question comes from Stephen Lickman with Oppenheimer. Your line is open.
spk05: Thank you. Hi, guys. Gary, just on the ASP update for the fourth quarter, for January, excuse me, what gives you the confidence that it will be on the next list? I know you mentioned not wanting to talk about any conversation with CMS, but Anything you guys have looked at relative to prior situations or any outside consultants or anything to give you that confidence?
spk15: Well, sure. We certainly have a lot of outside consultants that have given us a lot of confidence that that would happen. I think it's important to note that we received an ASP, a published ASP for the quarter. It was just incorrect and in the process of trying to get it corrected, we didn't meet the timelines and weren't able to get the ASP reestablished. So You know, it was a filing error, and this happens often. What we've been told by our consultants is the MACs will typically, you know, reimburse it, and we are seeing that, so that ended up being accurate. And then you refile correctly, and it will get reestablished again. So we have no reason to believe or any reason to believe that it wouldn't be reestablished at this point.
spk05: Okay, got it. And then relative to COVID, I just wanted to put a finer point of what you're seeing out there. It sounds like you're seeing pretty steady environment versus what you saw in the third quarter. And what part of your business specifically would see more of an impact versus others? As you mentioned, you diversified a lot, so certainly not all. But if you could talk a little bit more color on what's impacted and what you're seeing out there today.
spk15: So, I mean, our entire business is really impacted. You know, what's troubling is when you don't have access and you're launching a new technology like Affinity, it's challenging because you need multiple meetings, you need training. A clinician typically goes through benefit verification, obviously, and then a trial period with the product. So there's a lot of access that's required. So anything that's new or new customers are more challenged. Our existing accounts where we have great brand equity, we have great relationships, we're able to continue to sell and go a little deeper, which helped Pure apply, you know, this past quarter. That's really the challenge is, you know, branching out with new technologies into new accounts or new physician specialties when you don't have access.
spk06: Got it. Thanks, Gary. I'll jump back in queue.
spk02: Thank you.
spk09: If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. Again, we ask that you limit yourself to the one question and one follow-up. Next question comes from Daniel Antalfi with SVB Lyric. Your line is open.
spk10: Hi, this is Erin on for Danielle. Thanks so much for taking our questions. Yeah. So congrats on the quarter. I just wanted to kind of dive a little bit deeper into the COVID headwinds. I know you mentioned that staffing shortages, you know, is creating a challenge. I just was hoping to see, you know, if there's any way to quantify, you know, what that impact looked like.
spk07: um in 3q it just seems like you know this is kind of a larger headwind that that could potentially linger um so just wanted to kind of get a sense of how this may impact you know growth going forward yeah so the third third quarter was an impact uh we estimated to be about four million dollars i think as you move into q4 it's a little bit more difficult to tease it out just because of the components that gary had said about the access you know this is a a change in dynamics in the launch and, you know, how much is this is associated with, uh, with, you know, specific COVID related, um, you know, it's, it's a little bit more challenging to, to tease out. Do you agree with that?
spk02: Yes, it is.
spk07: Yeah.
spk15: But we think it's about 4 million in the third quarter, but we do that. We, we clearly think that the headwind is, is gonna, you know, exist for Q4 and we're battling it and navigating it with our portfolio and our, and our customers. And we also think it could leak into the first half of next year as well based on what we're seeing. Okay, great.
spk10: Thanks so much for the color. And then just on the office channel, obviously the diversification of care setting has helped you power through some of the COVID headwinds. I just wanted to get a sense of how penetrated you are into the potential accounts and how much runway is potentially left in this channel.
spk15: So we don't really provide how many accounts, but what I've said before is the channel is large. It's about 12,000 offices, and we figure there's about 6,000 high potential offices we're not anywhere near penetrating that channel, significantly under-penetrated.
spk11: Okay, great. Thank you so much for taking your question.
spk15: My pleasure.
spk09: We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.
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