Good evening, ladies and gentlemen, and welcome to the Anika Therapeutics First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference, Sylvia Cheung, Chief Financial Officer. Please go ahead.

Thank you, Chris. Good evening, everyone, and thank you for joining our first quarter 2019 earnings call. With me on the call today is Anika’s President and Chief Executive Officer, Joseph Darling. During today’s call, Joe and I will review our first quarter 2019 financial results and key business highlights, which were summarized in our earnings release issued today. A copy of the earnings release is available in the Investor Relations section of our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website in the Investor Relations section under the Events and Presentations tab. We invite you to take a moment to open the file and follow the presentation along with us. Please turn to Slide number 2. Before we begin, please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities and Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company’s actual results could differ materially from any anticipated future results, performance or achievements. Please see our SEC filings for more information about factors that could affect our results. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more helpful and complete understanding of our financial performance. A reconciliation of these non-GAAP financial results to the most comparable GAAP measure calculated and presented in accordance with GAAP is available in the Investor Relations section of our website. Please turn to Slide number 3, as I now turn the call over to our CEO, Joseph Darling. Joe?

Thank you, Sylvia, and good evening, everyone. Welcome to our first quarter 2019 earnings call. I am very pleased to announce that we’re off to a strong start in 2019. In the first quarter of 2019, we made progress in transforming Anika into a global commercial company positioned to deliver on a consistent and successful series of innovative product launches across the continuum of orthopedic and regenerative medicine therapies. We achieved double digit revenue growth year-over-year in all product lines, including in both our U.S. and international viscosupplement businesses, and we generated strong earnings and cash flow in the quarter. Additionally, as part of our commitment to return value to shareholders, the Anika Board of Directors has approved a $50 million share repurchase program to illustrate our belief in the future of our business and to underscore our commitment to returning value to our shareholders. Before we dive into the details for the quarter, I’d actually like to highlight three things that I hope you’ll take away from this call. First, we have taken significant steps over the last year to transform Anika into a global commercial company and position the company to accelerate growth and shareholder value creation in the coming years. Second, we are focused on delivering on the many organic and external growth opportunities for Anika. We have actively redeployed resources and added world-class talent as we leverage our strong market position to execute our growth objectives. Third, our fresh Board of Directors recognizes our progress towards delivering on these opportunities and are confident in our transformation strategy and our continued strong cash generation abilities as evidenced by the $50 million share repurchase program we announced today. As I have discussed in previous calls, our company and future growth are powered by our focus on our people,…

Thank you, Joe. Please turn to Slide number 9. Total revenue for the first quarter increased 16% to $24.7 million compared to $21.3 million for the first quarter of last year. The increase in total revenue was primarily due to growth in both our U.S. and international viscosupplement businesses and higher sales of HYAFF-based products following our recovery from the 2018 voluntary recall. We’re very pleased to deliver double digit revenue growth year-over-year in all product lines for the first quarter. Global viscosupplement revenue in the first quarter increased 11% year-over-year, driven by double digit growth in both the U.S. and international markets. U.S. viscosupplement market increased 11% due primarily to timing of orders, and importantly, increased collaboration with our commercial partner, Mitek, regarding marketing strategies. International viscosupplement revenue also increased 11% year-over-year, driven primarily by an 18% year-over-year growth of our single injection products. Domestically, on a sequential quarter basis, ORTHOVISC end user pricing decreased in the low single-digit percentage range, while MONOVISC U.S. end user pricing increased in the mid-to-high single-digit percentage range. On a year-over-year quarterly basis, end user volume for the quarter increased slightly for ORTHOVISC and increased by 20% for MONOVISC. Product gross margin was 70% for the first quarter compared to 63% for the first quarter of 2018. The year-over-year increase in product gross margin is primarily due to certain inventory charges and the impact of the voluntary recall recorded in the first quarter of last year. Total operating expenses in the quarter were $19.2 million compared to $29.1 million in the first quarter of 2018. The year-over-year decrease in total operating expenses was due primarily to a onetime charge of $8.4 million related to the retirement of Anika’s former CEO in the first quarter of last year. Net income for the quarter was…

Thank you, Sylvia. Please turn to Slide number 11. Today is a new day for Anika. We expect 2019 to be a transformational year as we evolved into a global commercial company positioned to deliver a continuum of orthopedic and regenerative medicine therapies over the next several years. While the last year brought certain challenges, we persevered with our strategic initiatives and believe we have stabilized the company’s operations and overall foundation. With an emphasis on our people, our pipeline and ultimately on maximizing financial performance, we will continue to take advantage of the multiple levers we have to drive near- and long-term growth across our business. These include the development of our hybrid commercial model and launch of our bone repair and rotator cuff therapies; international expansion of our orthobiologics franchise, specifically MONOVISC, CINGAL and HYALOFAST; advancing our deep and innovative orthopedic and regenerative medicine pipeline; looking at targeted partnerships and strategic tuck-in acquisitions; and also improving our operational efficiency and disciplined and balanced capital allocation. We are confident that we have the right people, products and strategies in place to drive long-term growth and value for our shareholders. All of us at Anika are focused on our initiatives that will support Anika’s transformation into a global commercial company. We are now happy to take your questions. Thank you.

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Mike Petusky with Barrington Research. Your line is now open.

Hey guys, good evening, and nice results. Sylvia, I guess first question I want to ask real - well, let me just say thanks so much for the adjusted EBITDA chart, that’s beautiful. Do you by any chance have the capital expenditure for the quarter?

Capital expenditure for the quarter, yes. And thank you for the comments, Mike. Capital expenditure for the quarter was roughly about $1 million.

$1 million, okay. All right, great. Okay. So then just moving to – I guess to the guidance. It sounds like it was completely reaffirmed that – there was nothing changed in that guidance versus a couple months ago, correct?

That is correct, Mike. I think the first quarter results was positive. We’re definitely pleased with the double digit growth. Having that said, it’s still early in the year. And Q1 results coming in ahead of our expectation and we discussed about the drivers there. And given the fact that we in the United States currently lack the visibility into the market and certainly don’t have pricing control, at this time we think that it’s more prudent to maintain our guidance and continue to monitor the developments in the market until we have a more certain set of data point to react to.

Okay. All right, great. So Joe, I guess on kind of the go-forward with CINGAL, obviously, you guys are going to have a more formulated plan in a few months. But given that it sounds like the Phase III is potentially much more expensive than the previous Phase III, I mean, might you to try to find out a partner to go in on this with, or some type of partnership agreement for the product? What are the range of possibilities or what are the things that you can share as far as what you guys are seriously considering there?

Yes. Mike, that’s a – first of all, that’s a great question. Thanks for asking it. Secondly, yes, we have considered partnerships to help fund the study. We are in discussions. And it’s difficult to talk about it, obviously, given the confidentiality of it, but that is one pathway we’re looking at. It would make a lot of sense, take some of the pressure off Anika itself, and allow a partner to come in and help fund it.

Okay. All right. And just one more question quick for Sylvia. The SG&A seemed like it really jumped quite a bit in Q1. Was there anything unusual in that SG&A or is that sort of the – roughly the new level going forward?

Mike, just so that I understand your question – SG&A overall year-over-year decreased largely due to the nonrecurring noncash charges in the previous year. There were some increases this year as we start to prepare for the hybrid commercial model. And during the quarter, there were some, and I would say not significant, asset write-off as we look at certain fixed assets that we have on our books. So for the most part, I would say that this would be indicative of future periods of SG&A expenses.

Okay. And just – I mean, SG&A historically has been more in the kind of the 20%, 22% of revenue range. Obviously, this is considerably higher. So you’re saying that this is more like the new normal?

Yes.

Okay, fair enough. Thank you.

Thank you, Mike.

Thank you. And our next question comes from the line of Joe Munda with First Analysis. Your line is now open.

Good evening, Joe and Sylvia. Can you hear me okay?

We sure can, Joe.

Yes, good evening.

Good evening. Congrats on the quarter. I was wondering if we can dig in a little bit to the results here. Joe, I’m curious to know – in your prepared remarks you guys talked about the timing of orders, and I’m wondering how much of this was stocking or if it was stocking to Mitek. And Sylvia, if you could give us some sense of what the breakout was U.S. visco versus international as well as CINGAL’s contribution in the quarter? Thanks.

Yes, a couple things, Joe. And then Sylvia will chime in. I think you’ve heard me say in previous calls that our relationship with J&J remains strong. They continue to invest in our business and have expressed interest in future partnership opportunities. I think they took a hard look at marketing strategy and tactics for Q1 and they executed on that. So I think that was a good boost for Q1 sales, was the refocused efforts that Mitek put on the products. In terms of the volume trends, I’ll have Sylvia address that.

Right. For the first quarter, U.S. visco is approximately low 70% of our total revenue and for international visco it’s around mid-teen from a revenue contribution standpoint – mid-teen of total revenue. I think you asked about the CINGAL contribution. CINGAL, this particular quarter we see that it’s slightly lower than last year. But overall, single injection, meaning MONOVISC and CINGAL, we saw 18% increase year-over-year. And I would like to caution you about the timing of distributor orders. Being a distributor-based company today, timing of when our distributors take products affects our quarterly results, as you know. We do still expect CINGAL to achieve double digit growth on a full year basis this year versus last year.

Okay. Then one follow-up if I may. Joe, the announcement of the buyback, $50 million; $30 million accelerated, $20 million on the back end over a course of time. I guess a key question we always get from investors is will Anika do some sort of M&A to augment the growth. And are you just – is there – are there interesting assets out there for you or the asking price is too high or you just haven’t found the right asset? Any color would be great. Thanks.

Yes, in terms of assets out there, Joe, I think you probably picked everyone in terms of – the pickings are slim, they’re overvalued. We want to be cautious about that. And clearly, we have targets that we’re still working through. So M&A is still an important part of our future and we’ve been very consistent on these earnings calls with identifying target opportunities and going after those target opportunities. As of yet, I can’t sit here today and tell you that we’re ready to close on one.

Yes, but – and I guess I wasn’t clear on my question. I’m just curious: the decision to do the buyback now, why not save that capital for M&A? Or this was the Board’s determination that this was the best use of the capital at this point?

Yes. Joe, yes, thank you for clarifying the question. So we ended the quarter with $167 million of cash, which is a pretty good position. We looked at – and this will go back to what I said earlier in terms of a balanced and disciplined approach to our capital allocation. From a cash generation standpoint, we continue to expect ourselves to be able to generate cash from operations. So setting aside $50 million is utilizing a portion of the cash, but we will continue to generate cash. And there’s still a meaningful portion on the balance sheet. And together with the line of credit capacity that we have, we believe that we’ll be able to effect any small tuck-in type M&A transactions that Joe was describing earlier.

Okay. And then, Sylvia, just one more if I may in regards to the buyback itself and the guidance that you provided, which is very helpful, I really appreciate it. How should we look at share count for the year given the mechanisms of the buyback as well as the $20 million potentially on the back end?

Yes. So we expect that the ASR program from a contract standpoint will be finalized by early next week and – to which we’ll need to file the document with the SEC. And you will see in the agreement the expected number of shares to be repurchased upfront. And from there, you can certainly factor that number into the EPS calculation. Typically, if you look at the industry – or just go back to the last two rounds of ASR that we did, we in general repurchased approximately – expected 60% to 70% of shares upfront. Obviously, the variable here is the price. But you can make assumptions on that. So I think from there with the duration of the ASR, which is expected to end prior to June of next year, I think you can run some estimated calculations to adjust the outstanding share numbers for EPS calculation standpoint.

Okay, thank you.

You’re welcome.

Thank you. And our last question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.

Good afternoon. Can you hear me?

Sure can, Jim.

Great, great. The bone repair product that you plan to launch in the back half of the year, can you give us some sense on how quickly you think that will ramp? And have you included sales from that in the current guidance?

Yes. So the way we’re approaching the bone repair launch, Jim – and we’ve been pretty consistent on this too – is we’ll start with a soft launch where we’re starting to seed the market with KOLs, getting them up to speed, educating them and getting trial usages. Later on in the year, it will be full execution of the sales strategy, where these four BDs will be out selling directly to customers. So we do have some revenue for this year, but recognizing that we’re going to do a soft launch first and then a hard launch later in the year. I wouldn’t say it’s significant.

From a revenue contribution standpoint, we had shared previously that due to the soft launch nature of the commercialization of the bone repair product we expect that the revenue would be below $1 million in 2019 and certainly expand from there as the adoption of the product upticks in 2020.

Okay, all right. Thank you.

Thank you. And that does conclude today’s question-and-answer session. I would now like to turn the call back to Joseph Darling, CEO, for any further remarks.

Chris, thank you. Thank you for your time today. We are pleased with our first quarter results and our progress in transforming Anika into a global commercial company. We do believe that 2019 will be a transformational year for Anika, and we look forward to continuing to update you as we execute on our strategic initiatives in the year ahead. Thank you and have a great evening.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect, and everyone have a great rest of the day.