Good day. And thank you for standing by. Welcome to the Aziyo Biologics Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like hand the conference over to Leigh Salvo, Investor Relations. Please go ahead.

Thank you. And thank you all for participating in today's call. Earlier today, Aziyo released financial results for the quarter ended June 30, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical fact or relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For listening description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Aziyo's annual report on Form 10-K for the year ended December 31, 2021. As such, factors may be updated from time-to-time in Aziyo's other filings with the SEC, including Aziyo's quarterly report on Form 10-K for the quarterly period ended June 30, 2022, to be filed with the SEC, accessible on the SEC's website3 www.sec.gov. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 11, 2022. Aziyo Biologics disclaims any intention or obligation except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Also during this presentation, we refer to gross margins excluding intangible asset amortization, which is a non-GAAP financial measure. Reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in Company's earnings release for the second fiscal quarter ended June 30, 2022, which is accessible on the SEC's website and posted on the Investor page of Aziyo's website at www.aziyo.com. And with that, I will turn the call over to Aziyo's Executive Chairman, Kevin Rakin.

Okay. Thank you, Leigh. It's a pleasure to be with you all today. I just want to take a moment and introduce Randy because we announced a couple of days ago that Randy has assumed the role of permanent CEO. Just a quick background. Randy, he's a proven leader. I think you'll hear today that he's a very passionate guy, subject matter expert on regenerative medicine with a background having being CEO of Osiris. Also present CEO of the California Institute for Regenerative Medicine. Randy's created significant shareholder value over his career. Great Public Company experience. So, we feel very fortunate to have Randy on board. Moreover, Randy has history of the Company. He's one of the co-Founders and he's been on our Board but of course being CEO is a different role and you will hear from him today about some of his excitement and vision for the future. I'm really pleased to build in our longstanding partnership by stepped up to being the Executive Chair, and we spent I think it's fair to say fair amount of time probably every day we've been talking over the last six weeks. I also want you to know on a personal level I really appreciate how Randy's literally been on the road every week for the last six weeks and you'll hear some of these findings over that time. So, he has really hit the ground running and he immersed himself in this job even while he was Interim CEO. We have a terrific base business here at Aziyo but we have felt that we could build a more compelling vision for creating significant shareholder value on top of this space business or leverage this space business. And that’s what I think you'll hear today. But let me make one last point as in my capacity as a shareholder. So, going to the other shareholders out there, a HighCape I find is one of the significant shareholders in Aziyo. We've been involved in this company from the beginning. And we're determined to build value but we're going to do that within the constraints we operate in. So, I want to be really clear that the debt refinancing we announced yesterday is a major step forward to strengthening our balance sheet. There's some other things in the works but we are not going to do any kind of dilutive offering at this kind of share price that we're at right now. And you'll hear within Randy's plans how we're going to work within the constraints we have and the resources that we have. So, that's some introductory comments to set the stage. I'm going to pass the call on to Matt Ferguson, our CFO, who's going to give you some of the financial highlights before we hear from Randy.

Okay. Thanks, Kevin. And it's good to have you here today with us on this call. As Kevin noted, we're using a little bit different format here today. And so, I'm just going to hit on a few highlights of the financials and for additional details I would refer you to the press release that we put out just about a half hour ago. And so as we get into it, the main comments I wanted to make or the main points I would like to highlight, one is that for the second quarter we had a really strong quarter overall from a topline growth perspective. We turned in 20% year-over-year revenue or net sales growth from our current products that is excluding the sales last year of a discontinued product. And we really had significant contributions both from our Richmond, California-based Human Tissue business as well as our Roswell, Georgia, CanGaroo and Cardiovascular business. And really with contributions all around, I would say that our most important growth drivers in the Q2 and I think likely to be the case in coming quarters and year frankly where CanGaroo and SimpliDerm and I would just note that in combination they actually grew 35% year-over-year in the second quarter. So, really great performance in those parts of the business. Beyond the topline revenue growth, I would just note more from a balance sheet and cash flow perspective. I'm very pleased that we were able to report yesterday that we closed the debt financing transaction that Kevin referred to. We've been working on that for quite some time and I am really pleased that we were able to partner with SWK Holdings on that and I'd just like to give a big thank you to them who I would say really dug…

Thank you, Matt. And it's a pleasure to join you all this afternoon. My first conference call with Aziyo and I'm very excited to be here and I'll share some thoughts in what I would say are our initial observations of my time with the company. So, first let's just get into it, I'll try to keep my comments 50 today. Aziyo today, this is as you heard from Matt and you heard from Kevin, this is a very strong Company with a very real business as a platform to build on. So, just looking at the numbers, we're talking in $47 million to $50 million in annual sales growing in the mid-to-upper double-digits. There's over 1500 institutions globally that use Aziyo products on a day-to-day basis. So, it's a very real base for which to build a powerful company on. It also has the parts to be a fully integrated company. So, we have research and development capabilities that have led to the creation of our proprietary products. We have strong manufacturing capabilities in our Roswell, Georgia facility as well as our Richmond, California facility. And we have a pretty remarkable commercial infrastructure and this is the point I'll be making for a couple of time. But we have a commercial infrastructure that allows the work that we do in development and manufacturing to be more than a science experiment and in fact develop real products that have real commercial utility and validity as we take them out into the marketplace. And so, what I one of the things that get me so excited is that when I look at this, I see these great parts and I see this base to our company and I have to think that those parts can actually be assembled in an even…

[Operator Instructions] Our first question comes from the line of Josh Jennings with Cowen. Your line is now open.

Hi, good afternoon. Thanks for taking the questions. And Randy, it's good to -- congratulations on taking the CEO seat formally. Nice start with this quarter under your belt. I wanted just a couple of follow-up questions, I know it's still early that you're being in the leadership position. But just in terms of the clinical data pursuit to support your franchises, we should be thinking about funding trials and centers. Are you talking about funding major randomized control trials to support the CanGaroo RM launch and SimpliDerm and then the other products that'll come out of the pipeline or just how do how should we be thinking about this clinical data accrual that’s going to come?

Yes, thanks Josh. So, we currently have two different studies that are ongoing right now in HEAL study and our RECON study which are generating data. We will start to get readouts on those and I think that you can expect to see data from both of those in the second half of this year. So, those things are up and running. With regards to SimpliDerm, I think you're dead on. We see tremendous opportunity in the SimpliDerm market particularly with at these acquisition of the AlloDerm product. We think there is an update market there to take, we also think there's a big market there to improve on. And so, we'll be designing some studies there going forward but we don’t have those built into the formula yet sufficiently for me to comment on them.

Alright. Next just on the outsides about the strategic partnership route. I mean, you have a number of strategic partnerships in play with the bone matrix's unit. And should we think that commercial partnerships more extensive for SimpliDerm or cross-support is more stronger strategic partnerships in with CanGaroo distribution as well, any other hints you can provide in terms of that strategy? And just to follow-up on that, I think one of the elements of our understanding of the potential to pushed out your revenue growth that is some tuck-in M&A and you guys just signed that credit facility. Just how, how should we thinking about tuck-in M&A opportunities over the next 12 to 36 months as well. Thanks for taking the questions.

Yes. No, Josh, great, two great power questions. So, with regards to different types of partnerships, we've obviously been very successful in the orthopedic side of the house. Again, SimpliDerm is a pretty interesting of addressing these, in that we've actually had a lot of success with our commercial team running a distributor model there. And that's working pretty well and it's simple. It's nice. And that's working pretty well and it's simple and it's nice and clear and clean. And financially it's pretty advantageous for us. And so, I think we like the idea of expanding that model on the SimpliDerm side. But I would say probably not to start there with a major commercial partnership. Where I think I see the most prominent opportunity is on the cardiovascular in CanGaroo side of the house. So, I was in NYC about a couple of days before I started getting calls from people I've had relationships with historically asking basically would I really going to go and build these great regenerative medicine products in this space and if so, can we talk about partnerships for them. And so, we have few to start with and I don’t want to be in any way dismissive of those. We have a great relationship with Boston Scientific which is specific to products in for the CIED market within the United States. So, current products within the field within the United States. And then we have another more non-exclusive partnership with BIOTRONIK. And I said both of those partnerships we think are very good. We also think though the dynamic of this space says that if you're in the CIED space, you need a pouch. And there's a lot of pressure that to basically make sure that you have a chair before the music starts. And so, it's a big, it's sort of a big world out there and we've a pretty big canvas on which to paint particularly when you think about modifications we can make to these products. So, that I think that gives you a sort of a good idea of our thinking around partnership. And your last question with regards to M&A, I think it's something opportunistically we would seek in time. Josh, but I'll tell you right now we have more opportunity in front of us, we're drinking from a firehose. And we are laser focused on getting that. We see a market that needs our products. If we build those products, we think they'll be taken up and we see a path to get that done through partnerships and so we're going to kind of keep our eyes focused on that for right now. If something too good to be true comes along, well maybe it is and we will certainly take a hard look at it but we're focused all organic right now.

Understood. Thanks, a lot.

Our next question comes from the line of Matthew O’Brien with Piper Sandler. Your line is now open.

Hi, good afternoon. This is Simran on for Matt. Randy, first off congrats on the new role. I guess if we can just start off with the Q2 performance. Maybe you guys can 35% growth in the core business. Maybe you can parse out kind of the growth driven by CanGaroo, growth driven in SimpliDerm, just performance of each of those business lines and how the non-core business kind of trended during the quarter?

So, I'll sort of start by putting a little color around this question. I'll turn it over to Matt to give a good financial CFO answer to this question. Simran that you probably that you're probably more interested in. I'll say first, I'm not a big fan I'm just going to say it, I'm not a big fan of core/non-core. We make very serious products that go into patients who depend on the quality of our work for their lives. And there is no part of that we don’t take very seriously. And I know those are our terms not yours. But there is something I think going forward, you can look for us to drop from our lexicon. We -- they are all our children and we certainly rub them all. They might have different growth trajectories that might have different sales cycles and customer base, some B2C, some B2B. They are all very important very high quality products. And so, going forward, they're all core to me. With regards to breaking them out, Matt?

Yes. Well Simran, I think it's a good question. We're really pleased with what we saw from CanGaroo and SimpliDerm and that led us to one at least break out the growth rate for this two highly proprietary product as a group and really pleased to see 35% growth there. Clearly as you pointed out, our contract manufacturing business and the other products that go into that non-core line, we have seen really nice growth for multiple quarters there. And that business, lot of great people contributing to that and that part of the business is really going well. In general, for the second quarter, it seems like kind of a long time ago now but thinking all the way back to April or so that we started off well and I think we had a good steady consistent performance throughout the quarter. I think it was a pretty clean and predictable period for us. So, I hopefully got to most of your question there, if there's anything I missed or like Randy or me to follow-up on, please let us know.

No, that was perfect. And then, I guess switching gears to RM specifically, lots of excitement there. Is it so it sounds like it's still on track for approval in the second half? I guess, could you maybe provide some color on what your discussions with the FDA are looking like at this point. And then, I guess it's a follow-up to that, what's the commercial strategy here? Are you able to start selling RM sometime in Q4 and then is there any pricing power that you can leverage?

Yes. Those are great questions. So, my again limited short-term involvement with this with the RM product specifically and after meeting with the regulatory and the development teams. I'll just tell you my take away from it. I think we have a product that is going through the review process well and it's going to be reviewed. But I'll also tell you I now been around this industry for a long time and I've worked with the FDA. And we have a review right now that's going through two agencies or toward involves two agency: CDRH and Drug. And so, I just wouldn’t handicap and really wouldn’t get into whether it's this quarter or next quarter or that sometime next year. And I'll say also because for our new way of thinking, it's we're thinking about this company differently. We're not thinking about this company in terms of incremental revenue growth, we're thinking this company in transformational revenue growth but actually goes perfectly with your sort of with sort of your last point. With the right strategic partners and importantly with the right strategic partnership in place. These kind of questions fall away and become sort of thus less important on what day in the quarter do we start selling or can we ink out a little bit more. So, we're thinking about this in a more transformational way driven more by partnerships where and you guys pit to get used to. Where we look more like a biotech company and hopefully we start thinking about our valuations with a B on it and then in terms of market capital instead with an M on it. But, yes.

Alright, perfect. And then, if I could just squeeze one last one in here I guess for Matt. You guys have $25 million in the debt financing and it sounds like there are opportunities to secure additional funding. I guess, can you provide a bit more color on your capital allocation priorities and how that I guess what that looks like over the next 12 months in terms of deployment?

Yes. Simran, again really good question. And it may be a little early to get into a great amount of detail in terms of the next 12 months. But what I can tell you is that the deal that we announced yesterday is a really important one for us. It does bring cash under the balance sheet immediately and it does only open the availability to do an additional working capital based that facility up to $8 million. So, that's something that we'll be working on in the near term. This is a business that has a really a manageable burn rate. Our EBITDA for the last quarter was only about our EBITDA loss was only about $5 million. Our cash usage from operations was below that. So, we feel like we're in good shape. We are working on a number of other things which I can't comment yet on in detail. But as we mentioned in the prepared remarks, our goal is to avoid going back to the equity markets and avoid dilution in any significant sort of way and we think we've got some really good opportunity just to do that. So, I guess in part my answer would be stake in, we think we'll have more to announce before too long here.

Okay, perfect. That's it from me, thank you.

Thank you.

Our next question comes from David Rescott with Truist. Your line is now open.

Hey, guys. Thanks for taking the questions. And Randy, and congrats on formally at the end of the new role here. I want to start just on some of the commentary you made around partnerships and CanGaroo and the CIED market overall. And you mentioned that there is a 60, 40's, or between the over in the market leader as it relates to the kind of number of higher percentage of the CIED envelopes going into these products versus the overall market around 5%'age. So, my question is what I guess do you think is the biggest driving factor on that, I mean is my guess is that some of the reimbursement in a way that some of the reimbursement had happened in the dynamics that they have but you may may be able to bundle some of these products. That sounds when they're in it, really. I would be able to given that you're going to this partnership routes, I'm wondering what -- how you think about the partnerships that you currently have as it relates to addressing the CIED pouch marker with CanGaroo and its current state. Do you believe that and I know you what you've seen thus far, the partnerships whether or not bidding to shift around at all as you think about going into market with CanGaroo?

Yes, thanks David. Boy, you hit one of the things sort of right on the head. With regards to bundling, contracting, inventorying, the products where we have more of a sales agent type relationship under recurring partnership. It really I mean I wouldn’t even say disadvantages, is it almost sort of takes the product in a lot of cases just almost completely out of the game. This goes to our commercial team, they are remarkable at what they can do and what they can overcome. But we would -- it's a lot of those really massive barriers fall away if the agreements would be through it differently. And I think there is good reason to believe that will happen.

Okay. That's helpful. And then, I guess as it relates to the guides here, I mean obviously a strong acceleration in CanGaroo and SimpliDerm. If I look at kind of the growth in the back half of the year and the 14% of growth in Q1, 20% growth in our Q2 excluding the FiberCel product, it definitely looks I think a little maybe conservative. So, just wondering how are you thinking about the cadence at least given with some of the acceleration you've seen with CanGaroo and SimpliDerm thus far. How you're thinking or at least look into in the Q3 and then what maybe if at all I mean for the conservatism that's built into the full-year especially if we should think about maybe the new CanGaroo RM product contributing maybe in Q4?

Yes. So David, I think right now 45 days into it. I have seen a company that is really strong. I've seen a company that's firing on all on all cylinders. But 45 days into it, I don’t think I have the confidence yet to turn this. I just don’t know enough in order to change guidance. And I'll also just say style is particularly going forward as we get to know each other. I am far more of a point to the score board at the end of the game kind-of-guy. Then I am sort of talk smack before or during the game. And so, I just don’t know enough to do anything with and to comment on guidance. And even if I did, I'm not sure I would.

Okay. And maybe just one last one. I know that these on the commentary at least for the interim low and I think just as we said in our operational metrics, or a function metrics by of September 2023 that are contingent on drawing on this additional $4 million term loan. Just wondering if at all I know you probably got no specifics around what those are but just wondering if at all you could comment maybe on what we should be thinking about or maybe what kind of the operational function much as you guys were thinking about when you look out to that 3Q, 2023 timeframe?

Yes. I think that's probably in my camp, Dave. I think the intent is very much that second tranche will be available to us both from the point-of-view of SWK and for ourselves. Specifically, the operational metric is the clearance of CanGaroo RM and the financial metrics have to do with gross profit at levels that are really not much higher than where growth profits is today. So, we'll have more details out at some point we'll have an okay test going out the four details of the loan. But that's the gist of it and we fully expect that as second tranche to be available to us sometime in 2023.

Right, very helpful. Thank you.

Our next question comes from Ross Osborn with Cantor Fitzgerald. Your line is now open.

Hi, thanks for taking my questions. And congrats on the new role, Randy Mills. So, looking at 2Q revenue, could you maybe parse out growth from higher utilization at existing accounts and accounts versus adding new accounts during the quarter?

Boy, I sure can't but maybe even can or maybe even can, I don’t know. Ross, I can speak to it a little bit. We certainly look at that internally and I can say that we saw contributors from both of those elements both new accounts as well as utilization within existing accounts. I would say without getting into the exact numbers which I don’t have right in front of me but we got more of a contribution from existing accounts than from new accounts. And no, I think that speaks to the stickiness of our products with our customer base and it’s a good indicator of overall healthy business.

Great. Now, that's exactly what I was looking for. Thanks for parting that clarity. And then maybe just one more on OpEx. SG&A set up all of that sequentially, could you tell us a piece on the drivers there and then maybe how we can how we should think about the cadence for the balance of the year?

Sure. And again, I can speak to that. 2Q, we did have a little bit of a bump-in in some of our OpEx. Sort of that was non-cash stock-based comp which is not too much to be concerned about. We did also have some things that I think where more transitory in terms of we had that the transition in the CEO seat which had some expense that went along with it that probably will in fact spill over into Q3. And we have had some higher legal expenses other G&A type expenses that I think will probably come down over time as well. So, I think Q2 is probably not a bad indicator for maybe where we'll be in the current quarter and perhaps even into Q4. But we're definitely looking hard at all of our discretionary spending and making sure that we're managing our business judiciously.

That's good. Well, thanks for taking my questions and congrats in on the quarter.

Okay, thank you.

That concludes today's question and answer session. I'd like to turn the call back to Randy Mills for closing remarks.

Thank you, very much. I appreciate you all listening. I look forward to getting out and on the road and seeing and meeting you all at upcoming events as they unfold. We'll be sending out a list of those. And I hope you have a great day. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.