Good day, everyone, and welcome to Anika’s Second Quarter 2021 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Mark Namaroff, Executive Director of Investor Relations and Corporate Communications. Please go ahead, sir.

Thank you. Good evening, everyone. Welcome to Anika’s second quarter conference call and webcast. Our Q2 earnings press release was issued after the close of the market today and is available on our Investor Relations website located at www.anika.com as our supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Mike Levitz, Executive Vice President, Chief Financial Officer and Treasurer. During today’s call, Cheryl and Mike will review Anika’s second quarter 2021 financial results with key business highlights as well as discuss our outlook for 2021. Please take a moment and open up the slide presentation referred to Slide number 2. Before we begin, please understand that certain statements made during the call today, constitute forward-looking statements as defined by the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations, including statements with respect to the impact of the COVID pandemic on Anika and are subject to certain risks and uncertainties. The company’s actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please see our SEC filings and our most recent Forms 10-K and 10-Q for more information about risk factors that could affect our performance. In addition, during the call today, we may refer to a number of adjusted or non-GAAP financial measures, which includes adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP financial measures. We believe that the non-GAAP financial measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results for the most comparable GAAP measurements are available at the end of the available presentation slides and in our second quarter press release. Now, I’d like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thanks, Mark, and good evening, everyone. Please turn to Slide 3. We are now halfway through what is shaping up to be a successful transformative year for Anika, even in light of the challenges we’ve all faced during the pandemic. It’s starting to feel like things can begin to return to a more normal dynamic even as COVID continues to throw 1,000 curve balls. As COVID restrictions begin to ease during the quarter, our sales and marketing teams continue to ramp up efforts to promote Anika’s growing product portfolio and brand at trade shows and conferences. Our teams have also been engaging surgeons directly as we have increased in-person training and the safe and effective use of our products. We’re seeing the first signs that this is paying off as surgeons, who were previously unaware of Anika is focused on joint preservation, now see that our portfolio provides meaningful solutions for them to treat their patients, so they can return to active living. I view this direct engagement as a tremendous opportunity as we communicate the new and transforming Anika story and describe our value proposition in the early intervention orthopedic continuum of care. We are, however, remaining cautious with respect to COVID, especially with the spike of the delta variant and its rolling impact on the healthcare systems in the U.S. and around the world. Just this week, it’s being reported that certain U.S. hospital systems are shutting down elective procedures temporarily. Even with this in mind, we’re confident that we can deliver on our 2021 targets of double-digit revenue growth with positive adjusted EBITDA and positive operating cash flows. We also feel very good with where we are in our multi-year strategy and are pleased with our performance this quarter even though we’re still early in this journey.…

Thank you, Cheryl. Please turn to Slide 7. Total revenue for the second quarter of 2021 was $38.1 million, an increase of over 24% from the second quarter last year. Year-over-year increase was due primarily to recovery from the initial impact of COVID on prior-year sales volumes. This was most pronounced in our joint preservation and restoration product family, where revenues rose 79% to $11.9 million in the quarter. This recovery also drove growth year-over-year in our joint pain management revenues, which increased 9% from Q2 of last year to $24.3 million in the quarter. These results also reflect some favorable timing globally in the second quarter. And as a reminder, for year-over-year comparisons, customer ordering patterns last year delayed a portion of the initial impact of the COVID pandemic on this product family from the second quarter into the second half of 2020. With the strong recovery from the initial impact of COVID and organic growth in our joint preservation and restoration products, our overall revenue mix increased in the second quarter. With joint preservation and restoration revenue increasing to 31% of Anika’s total revenue, up significantly from 22% in the same period last year. Other revenue rose slightly $1.9 million compared to $1.8 million last year. Our gross margin in the second quarter was 55%, up from 45% in the same period last year, and includes the impact of $3.8 million of non-cash acquisition accounting related amortization and fair value step up expenses associated with Arthrosurface and Parcus and $2.1 million of product rationalization charges. Excluding these charges, adjusted gross margin was 70% up from 64% in the same period last year. The year-over-year improvement is primarily the result of the recovery from the initial COVID impact as reflected in both higher royalty revenue and higher sales volumes.…

Thanks, Mike. Please turn to Slide 9. Anika has finally been able to begin to get out there with our exciting joint preservation transformation story. Our focus since the acquisitions early last year has remained on building out the processes, team, and tools that we need to scale this business in ways that will drive real value for all of our stakeholders with patients at the center of everything we do. This team is laser-focused on becoming the leader in joint preservation with a differentiated product portfolio, new product development pipeline, and commercial team to drive access along the early intervention continuum of care. We’re happy to take your questions now.

Thank you. [Operator Instructions] We’ll take our first question from Yong Lee of UBS.

Hi, great. Thanks, guys, for taking our questions.

Hi, Yong.

Hi, there. I guess maybe to start just I guess at a high level. You made some comments about the Delta variant impact and I guess I’m just wondering what are you seeing in the market out there and the hospitals shutting down elective procedures comment? I guess how much does that really impact Anika given a lot of your revenues and procedures are done and doc offices and ASCs?

Yes, it’s a great question. So our injection business is office-based and a lot of our sports medicine procedures are ASC based, but we still have total shoulders and more on the legacy Arthrosurface side of the business. Those procedures can still be done in hospitals and we have seen just this week, the various hospital systems that are delaying elective surgeries or temporarily suspending them or however, they’re describing it and we have seen cases get canceled as a result of that. Its – I think it’s difficult to predict to what extent that will impact us in the third quarter, but I think we have done a good job of kind of sizing that up and our numbers that we’re projecting out for you are taking all of that dynamic into consideration. Mike, I don’t know, if you have anything to add to that?

Yes, I think it’s important, this is a difficult time to make these types of estimates, but there is a historic seasonality that stronger in the fourth quarter. And I think, it will be interesting to see we see more and more people are getting vaccinated. I think things are moving in the positive direction overall and it feels like doctors are in a much better position to handle COVID and keep their practice is going. So we’ve weighed all of that as we think about our guidance and our direction and we’re really excited frankly about where this business is going. There is a short-term impact of this. We’ll see how that plays out, but we’re also seeing some really good dynamics out there in the field. So we’re watching it closely.

Okay, great. That’s very helpful. Maybe just to follow-up a little bit on the seasonality comments, consensus currently has around I think $36 million, $37 million, is that a range that you’re comfortable with just a little bit lower than the Q2 numbers? And I was also wondering if you can talk a little bit about the seasonality for the joint pain management business as far as the preservation and restoration businesses.

Yes, it’s a great question. So we raised our guidance for the full year to mid-single digit in the joint pain management business based on where we are year-to-date. One of the things that we’ve seen historically in the joint pain management business is that Q2 tends to be the strongest quarter of the year. As I look back I mean I’m new to the business, been here a year now, but as I look at the last several years, I think that’s been fairly consistent apart from COVID last year. So there is potentially some normal seasonality, but with COVID it’s a little bit hard to really – there’s not a whole lot that’s normal during this time of COVID. I mean that’s things are becoming much more normal this year than last year, thankfully. So I think in joint pain management, Q2 tends to be the strongest quarter of the year. I mean that’s reflected in our guidance. I think as you look at what we said for the full year. And the other thing that I think is relevant for the second quarter for joint pain management is we had some favorable timing on international sales. And that’s just we sell through distributors outside the United States and Q3 tends to be slower in Europe with the way that that works. So there was some favorable timing in the second quarter. So as it relates to joint preservation, I think that’s in traditional orthopedics, the fourth quarter tends to be the strongest quarter of the year. And we – I mentioned that in my earlier remarks, that we expect the growth to be weighted toward the fourth quarter this year. Again, COVID dynamics do play into that, but I think there’s just somewhat some normal seasonality in there, but what we’ll see how it goes this year. As I say, things are moving more to normal, but they are not fully back to normal.

Okay, great, very helpful. I’ll get back in queue. Thank you.

Thanks, Yong.

And next we’ll hear from Jim Sidoti of Sidoti and Company.

Hi, good afternoon. Thanks for taking the questions.

Hi, Jim.

It sounds like you’re expecting some pretty significant growth on the joint preservation side, you said you want six soft tissue products to shoulder to wrist and so I assume that’s really what’s fueling their growth in 2021. But as we look in 2022, 2023, is the pipeline forward the next couple of years have similar new product rollouts?

Yes. So we’ve talked also about the fact that we had launched Tactoset in late 2019 just before COVID hit. So Tactoset is another product that’s contributing to a lot of that joint preservation growth driver. The soft tissue repair products are part of it, the total wrist that we just launched and we’ll be moving into full launch in September. Those things will start to contribute meaningfully, especially into next year. We also talked about continuing expanding the Tactoset franchise and we’re making investments in moving those expansion plans forward with 510(k) moving forward here in this year. And then as you look into 2022 back to the – we didn’t put those slides in this deck, but if you go back to the Investor Day deck, we kind of showed the more detailed new product development pipeline from 2022 to 2024, where we have a number of projects listed around soft tissue repair, regenerative solutions, and some additional bone preserving implants. So there’s really a steady cadence of new product launches and that really kind of plays into also the fact that we continue to make investments in our commercial infrastructure to drive all of those R&D projects in those commercial launches as we move into the out years. So it’s really rolling all of that up together.

Yes. And Jim, just as we talked about at the Investor Day in June, it really is, as Cheryl said, an equally – an equal contribution from commercial execution and from the product innovation. I was just – I just had the opportunities out in the field in the last few weeks and one of the things that I saw was that this combined portfolio and this focus on joint preservation really is resonating with surgeons. And so I think when you put some of the pieces together, you hope one plus one is more than two and I think that’s really what we see and what we’re expecting. And so I think I wouldn’t want to understate the value of the commercial execution now that we have this broader portfolio with the regenerative solutions. The Anika brings to the table soft tissue repair and the bone-sparing technologies. So I think it really is both of those and we tried to delineate how that accelerates as we go through the next few years with the new product innovation on top of that.

And then if you look at the balance sheet, you’ve got almost $100 million in cash. You have to – you made a payment it sounds like earlier this month. But you still going to have quite a bit of cash on the balance sheet. Now I know acquisitions are in that 2024 target of double revenue, but are acquisitions on the table, is that something that you’re looking at or do you thinking you have enough on your plate right now with all the new products that you’re really not focused on acquisitions?

Yes, you’re right. The doubling the revenues target is really based on kind of its the organic growth that we’re driving and things that are in the pipeline and the commercial execution piece, but we do have an eye towards additional acquisition, specifically tuck-ins are what we got our eye on right now and we’re definitely interested. We remain focused on sort of staying in those soft tissue, bone preserving joint and regenerative solutions areas and staying on target in terms of our strategy. But we think there are some opportunities out there to complete some tuck-in acquisitions and those tuck-ins will simply add to the strategic imperative that we’ve already put out there and continue to accelerate our growth opportunities.

I would just add, I think this move to joint preservation growing from the $1 billion addressable market to the $8 billion addressable market. We recognize that we’re still a small player in that space. And so while we don’t need to do acquisitions to the organic growth, as Cheryl mentioned, we can definitely accelerate that growth where it makes sense. So we don’t feel a requirement to do it, but on the other hand, we see the big market opportunity in front of us. We see, we believe the strategy makes a lot of sense. And so we’re being very thoughtful about how we use the balance sheet to accelerate our growth.

All right. Thank you.

Thank you.

And next we’ll hear from Mike Petusky of Barrington Research.

Hey, Mike.

Good evening. Cheryl, I just think I missed this. The Tactoset expansion, what is that specifically?

Yes. We actually have not stated publicly what specifically that is, where we see additional opportunities from clinical unmet need perspective where we think Tactoset is a great fit and so we’re going through that development process and regulatory process right now. But we have yet to be public about what that looks like. But we look to be yet this year.

Okay. So maybe we’ll hear more about that in the next quarter or two something like that?

Next quarter or two, I would say, yes.

Okay. All right. Would you guys be willing to give an update i.e. on the slide deck, I see the estimate on the last patient out on HYALOFAST and CINGAL. Would you guys do want to give an update on sort of where enrollment is currently on the CINGAL pilot and on the HYALOFAST trial, like what percentage enrolled you are at this point on both of those?

Yes. Again, we haven’t been that specific with our updates. But we announced those dates in June at our Investor Day, based on a lot of detailed planning around understanding what the dynamics are as we try to run clinical trials in this COVID environment and especially with HYALOFAST, where we have a number of OUS sites that we can’t even travel to. So we took all of those things into consideration and those dates are still holding according to how we’re executing on those plans. And so I would just use those dates as your Northstars, you’re thinking about timing on those products. And again, we’ll continue to update progress on those things if anything changes, but everything continues to hold according to those dates we put out there in June.

Okay. All right. And then on – Mike, on sort of the pain management business and Mitek, Mike, I want to understand is sort of inventory at Mitek based on your best intelligence? Is that sort of normalized at this point or is there a bit of stocking? You sort of alluded to favorable timing, but I wasn’t entirely sure it was directly related to Mitek. Can you just clarify for me is to the best of your knowledge is in our inventory levels at Mitek normalized right now or possibly a little stocked or whatever you can say there?

Yes, absolutely. I’m happy to answer that question. So what I was alluding to on timing is a couple of elements. One, there is general seasonality in the U.S.

Okay, yes.

Business right. And so – and then outside the U.S., there was favorable timing that we don’t expect here in the coming quarters. Just in terms of the timing there and with those distributors. As it relates to Mitek’s inventory, the good news is that that there was an issue with that in the first quarter. And then as we said they were eating into that last year after the COVID impact. They didn’t finish and they’ve really gotten much closer to normal. So there is really not a – they’re much closer to normal on their level of inventory from the visibility we have.

So would you say there is still a little bit to be – little bit of excess to be worked for itself at this point or no?

I don’t view their inventory levels as being a driver of what our results are going to be. I’d – from as far as I can tell there that’s not an issue.

I think that’s all I’ve got. Thank you.

Thanks, Mike.

And there are no further questions at this time. I’ll turn the conference back over to Dr. Blanchard for any additional or closing remarks.

Great, thanks. Thanks, everyone, for your attention today, your support of Anika and we look forward to speaking next on our Q3 call this fall. Have a great night. Thanks a lot.

Thank you, doctor. This does conclude today’s conference. We thank you for your participation. You may now disconnect.