MiMedx Group, Inc. (MDXG) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the MiMedx Group Inc, First Quarter 2015 Earnings 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 is being recorded. I would now like to turn the call over to your host for today Miss. Alexandra Haden, General Counsel and Secretary. Madam, you may begin.

Thank you. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties. Actual results may differ materially from those set forth in, contemplated by, or underlying the forward-looking statements based on factors described in this conference call and in our reports filed with the Securities and Exchange Commission including our Form 10-K for the year-ended December 31, 2014. We do not undertake to update or revise any forward-looking statements, except as may be required by the Company’s disclosure obligations in filings it makes with the Securities and Exchange Commission under Federal Securities laws. Pete?

Good morning and welcome to our first quarter shareholder call. And I have with me Bill Taylor, our President and Chief Operating Officer and Mike Senken, our Chief Financial Officer. You’ve just Lexie Haden, our General Counsel. There are other corporate executives also on the call. Let me begin by making a statement that has become routine. The first quarter of 2015, was the 14th consecutive quarter of MiMedx meeting or exceeding our revenue guidance. This case we ended up in the upper range. We’ve calculated that unusually severe winter storms cost us at least a million in revenue for the quarter. We also take that into account when or whether when we give our first quarter forecast, but this one we had some exceptionally severe storms. Also the normal disturbances associated with pricing changes, whatever it is in the first quarter as it was in the first quarter a year ago when we had the same type of disruptions. It takes staff at most Wound Care centers a significant time to make these changes in their systems and always the latest patient treatment. On our [indiscernible] we had, but I would classify as a good quarter. As you look at on the rest of the year, we expect our quarterly performance to be very similar to the way it was last year, that is historically our first quarter has proven to be the weakest relative to quarter-over-quarter growth. The reimbursement confusion on the weather issues are behind us now and we expect robust growth each quarter during the reminder of the year. As in last year we currently expect the third quarter to be the fastest growth for us sequentially. From a strategic standpoint MiMedx has become the clear leader in advanced wound care therapy. We generally know approximately the number of patients being serviced by our competitors and we certainly far exceeded our largest competitor by the end of last year and we’re way ahead of the others. I predict by the end of 2015, our major competitor Organogenesis, would have deteriorated to the point that they will have a very limited presence in advanced wound care. The saying that their executives decisions over the last decade left them as such a burnout position, with added to that outdated technology and no new innovations. Being at Organogenesis, I’ll simply add this comment. The evidence continues to be relative to how much time and effort they’ve spend over the last several years in trying to disrupt and destroy MiMedx. This effort has been primarily focused at paralysis [ph], but it’s also focused in other places. It’s quite amazing how much time and effort was devoted to this activity rather than attempting to improve the tenured product line that had made contributions to advanced wound care ten years ago, but was never improved or configured to reduce a significant wastage. We will keep you upraised as we continue to gather additional information on this matter. So MiMedx is going to finish 2015, with an extremely broad footprint across the country in wound care. We have radically added health plan coverage in the first quarter as we mentioned in our April 13 press release. In fact that was a stellar performance in bringing - forward it to a number of reimbursement initiatives that we have been pursuing from really some years. With the body of clinical and scientific evidence that includes approximately 20 peer reviewed publications, we may able to convince large majority of health plans, we’ve had MiMedx with coverage for EpiFix. We’re making rapid progress in finalizing the reminder of the significant plans by the end of this year. Now, as I mentioned, we expect to be the dominant advanced wound care provider from this point forward. We’ve done excellent job in just the last three years in building that position. We came from nowhere. However, because of our generic medicine product line, we are very focused in other healthcare procedures. We’ve highlighted our activity initiatives in certain surgical areas, we’ve built the foundation elements of a sales distribution group that support the surgical initiatives. A surgical area we grew 125% first quarter-over-first quarter. I think you’ll continue to see the surgical area grow rapidly in the quarters ahead. I think it’s time to quit thinking MiMedx is a wound care company, but instead is a regenerative [ph] medicine company with initiatives across numerous medical disciplines. Now, relative to surgical area, I wish to announce that we’d been quietly furling development of our collagen fiber product, which was a foundational technology from MiMdex eight years ago. And that will make some of our initial shareholders extremely happy because I’ve heard for many years from them as to why we did not continue to export advantages of this unique collagen fiber. Our CollaFix is the collagen fiber about the diameter of a human hair. The fibers are extremely strong and stiff, they have a strength and stiffness that is very equivalent to tendons and ligaments. The fibers were written and developed around [indiscernible] collagen and because of this large supply of human collagen available to us from our placentas, we’ve now focused the CollaFix technology towards a human collagen product. This product has shown to be very promising for the repair of tendons and ligaments because of their strength and stiffness - because their strength and stiffness matches that of the native tissue. The repair can be exercised and utilized rather quickly and actual tendon and ligament cells grow into the collagen scapulas opposed to scar tissue. CollaFix has proven in adult stage to be extremely effective in terms of producing repairs that are as strong as native tissue. This technology will provide an opportunity for us to develop the product line and incorporate some of our amniotic membrane allograft’s with this strong fibers to produce some interesting surgical products. You will have standby for further information that we have a con [ph] - but we do have a considered effortness area. Bill Taylor is going to give a few additional details. Now, I want to make a few comments on our patent litigation. We’ve arrived at a press release some months ago to help shareholders understand the process and its complexities. I can simply tell you that we’ve won every milestone in moving these several law suits alone. We’re highly confident in our ultimate success or we would not have followed patent suits in first place. Also I’ll remind that patents are not always ultimate business weapon without a superior and well managed sales and marketing effort and supporting business structure. I think we’ve obviously proven our ability to develop the sales and marketing of our allograft’s and I would estimate that we will soon prove that we have similar expertise in protecting ourselves from a patent standpoint. You saw in our press release this morning that our board authorized another $10 million on our share repurchase program. There are times we certainly consider our stock undervalued and with the cash flow that we currently have and the future projected cash flow, we feel very comfortable in repurchasing shares. Also this should clearly indicate the confidence that the board of directors has in our future. But I’m going to make a couple of comments about our OIG investigation. As we previously press released, the OIG as at this point decided not to involve themselves in the case. The case is not quite closed, but it certainly reaching its final state. However, it’s very not worthy that OIG reached this conclusion in relative to the short four months period. I’ve emphasized how quickly we respond their request and our data and information left no doubts in our minds that they were no - not any issues here at MiMedx. However, hope this gives you some insight how well managed and professional have been this activities are. In our focus, we are an honest integrity. Our management are all extremely experienced and we plan extremely well and we execute extremely well. The issues of this nature should not come up in the ordinary course of business. However, I have indicated you that we have dealt with number of issues that have been the results of actions of one of our competitors. We report to you on these cases and see you and we can discuss through it later in that case. Also please note, we’ve increased our full year 2015 revenue guidance from $175 million to $190 million up to a $180 million to $190 million. As occurred last year and the previous year, I expect that we will continue to raise that guidance unless someone has seen the issues develop. I’m going to refer to Bill Taylor, who might strengthen the highlight some of the specific rate of growth that occurred in the first quarter. Bill?

Thanks, Pete. Good morning everyone. First quarter played out differentially [ph] as we anticipated and we’re very well positioned to meet or exceed our increased full year projection. We anticipate our quarter reported growth will replicate the primary [ph] established last year. The seasonality of the first quarter is well established and the rest of the year will show accelerated growth. Our team did a great job in strategic and tactical planning last year in preparing for this year and the evolving market dynamics. The planning it takes to successfully manage these market variables is extremely complex. Frankly it’s so complex that many of our competitors refused to give any revenue guidance. Fortunately our team is very seasoned and understands those variables and what we can do to strategically to affect them in a positive way and for three and a half years we’ve shown that we can accurately project our performance quite well. As you can see from our press release, we increased our guidance $180 million to $ 190 million for the year, which is a sign that we feel very good about our opportunities this year. Of course it helps that our business is very diverse and although our platform technology comes from one source, the placenta, it certainly has a multitude of applications where it can be used and that diversifies our customer base and therefore gives us many opportunities to grow even when the market dynamics in certain sectors in a given quarter. People often ask me how we can be so accurate of our projections overtime, particularly with the companies growing at more than a 100% per year over three plus years. Really comes down to the multitude of opportunities that are provided by our Purion Process tissues. Remember we’re regenerative medicine company, not just wound care. So when you have so many opportunities for growth and you plan well on multiple fronts, but still if something negative happens on one or two fronts, you still have enough other opportunities to meet your numbers. And then if things go the right way and you did a very good job planning and those negative things don’t happen, then you exceed your guidance. It’s really just as simple. So a good example of this happened in the first quarter. We did a very good job planning and executing and we planned for typical amount of inclement weather, by the end of February we were right on target with our planning. Then early March, one more big winter storm came through that made the winter a bit more harsh than we planned for, shutting down wound clinics and physician offices from the Mid-West all the way through the North East. Several offices were shut down for a few days. We just missed the upper end of our guidance by $200,000. So if you do the math, you’ll notice that our first quarter revenue averaged just over $600,000 per business there. Now, remember the spread between our low and high guidance was $1 million for the first quarter, so our margin for error from top to bottom was just over one day’s sales, so think about that. As the weather been average, we would have exceeded our guidance by a very nice margin. Now, let me talk about a couple of the key factors from the first quarter, the factors that I think we frankly managed very well. First, as everyone knows, the biggest change for us in the quarter was the expiration of the pass through status for EpiFix. I’ll remind you that some people mistakenly thought this reflected the majority of MiMedx’s revenue. As we’ve stated in the past, it’s only related to large EpiFix sizes used in hospital outpatient or ASC settings with Medicare patients. It does not relate to any of our sales to federal facilities nor does it relate to grafts sold to physician offices or grafts used in DRG cases nor does it reflect on graft sheets in patients with commercial insurance in hospital outpatient centers. It does not also apply to surgical or it’s surgical or sports medicine business. Also, I’ll remind you that an estimated 50% EpiFix grafts used in hospital outpatient settings last year were not eligible for the pass through payment because they were less expensive than the price threshold to qualify for that added payment. To mid last year we indicated the applicable portion of our business that could be negatively affected estimating around 8% or 9%. When the business is growing at a 100% plus a year, such an effect is certainly quite smaller relative to our full year revenue growth. Now that said, we still want to ensure that patients in need of our innovative technology have access to the best product in the market. We developed a strategy during the year, whereby we offered additional sizes of bundle [ph] or we developed a mesh version of EpiFix. Our regular grafts up to 7 centimeters are under the bundle, which represents some 80% or so of the DFUs and VLUs. Then with our meshed configuration, we can cover wounds up to almost 20 square centimeters. According to our data from last year, this should get us coverage around 96% or 97% of the wound in these outpatient clinics. One thing to remember is that effectively this meshed EpiFix is a lower dose being applied to a wound as compared to our regular sheet EpiFix. So it may take an extra application to fully close the wound, which will partially offset the lower price in many cases. By the way our mesh is the same as our regular sheet EpiFix, but with punched holes. It is not like a skin autograft that is penistrating and stretched, it’s simply punched holes. By way of example, our large mesh can cover that wound that I mentioned up to about 28 square centimeters, but it only uses 12 square centimeters of material. So the sales price of the material is less than a non mesh sheet of the same size due to it having less material. Our portfolio of EpiFix products is by far the widest selection in this industry and we expect it to enable us to grow significantly in this coming year. Another item consider that gives you an indication of the expected growth this quarter is that our mesh was only available for part of the quarter. We launched it our national sales meeting in early February. As you can imagine, a lot goes into a new product launch such as GPO and IDN contracts that need to be updated, submission to value analysis committees, training of our sales representatives et cetera. We made significant progress during the quarter and expect a very nice upswing in mesh sales this quarter and beyond. Now, briefly let me mention our GPO and IDN contracts. You’ve seen some information related to these over the last few months. I’m not sure the full expect [ph] of what we’ve done here is really understood by shareholder, but I can tell you that our smaller competitors are definitely feeling the effects. Over the last eighteen months or so we’ve been quietly working diligently with these various GPOs and IDNS in securing contracts and now they get us on contracted thousands of hospitals, but based on a clinical and scientific body of work as well as our cost effectiveness, it puts us in a advantageous position relative to our competition. Many of our contracts are set up facilities that opt in to a specific GPO contract must either use a MiMedx product at an 80% or higher committed level or in some cases that the exclusive amniotic tissue in their hospital. Additionally a few of our competitors that recently issued press release is indicating that they signed a specific GPO contract, but they left of those particular press releases with the fact that we have the same contract, but with the exception that if a hospital opts into it they’re committing to an 80% MiMedx usage. So just because you’re in, doesn’t really mean you’re in. Within the last year we were roughly in 50% of the wound care centers across the country. These GPO and IDN contracts will really help strengthen the position in the accounts and help and grow into the balance of those centers throughout the rest of this year. One are we had already spoken about much, we’re gaining some tractions, our product lines that are used in surgical cases for large wounds such as burns, surgical dehiscence. Many of these can be classified as wounds, we consider them as part of our surgical DRG business and as such are not reported our wound care numbers. You can see from our press release that our surgical business grew this quarter pretty significantly and a size of a portion of that revenue is more grafts used in this area. We are also rolling out this year our burn graft called EPIBURN. It’s specifically conducive of burns and we’ve had some very nice success early on and we expect to continue to significantly to grow this business. This product line consists of larger grafts that are used in various burns of the face, neck, ears and around joints where contraction can be a factor of the healing process. Truly, for those special areas at this stage rather than the very large torso or leg burns. We’re very excited about this new focus as well as other surgical wound grafts. Also our AmnioFix group of products grew this past quarter as well, going on with our focus on internal surgical applications. We attended several trade shows in the quarter and had great physician interaction and interests in orthopedics and urology. Our focus on building our urology business is going very well with numerous top robotic surgeons trialing the product and we’re kicking off our prospective RTT [indiscernible] technique to compliment our first published study that should we’re turning sexual function about half the time it took, without the use of the product. Regarding our federal business, you probably noticed that it grew in the first quarter. I still believe that there’s a substantial amount of business that we can target in these accounts that we’ve not yet touched. Some of you may have seen the $6.5 million BPA or Blanket Purchase Agreement for federal accounts that we recently signed. We purchased paid [ph] another few of these overtime, but this is a big one and I expected to sign several more of similar or larger dollar volume over the course of this year. Also, I’m sure many of you may be wondering about the status of our agreement with our federal distribution partner AdCare [ph]. The original three year contract was set to conclude this month. We’ve been very pleased with our partnership over the past three years, as they’re a well established company with years of experience with the federal government and are also a Service Disabled Veteran-Owned Small Business or SDVOSB. We extended our contract with them and we also have our own contract now with the federal government. We decided that we should begin the process ourselves and early this year we were awarded our own FSS contract. We can sell into the market through our own contract or through our distributor. A contract extension with our distributor enables us to transition the business over to our contract through mid next year, but also enables facilities that desire to order a product from an SDVOSB to continue during that period of time. We’re very satisfied with our relationship and we could not have entered the federal market as quickly or as deeply on our own as we did by partnering with them over these past few years, thankful for that relationship. With the growth we’ve experienced in the past three years, we’re now in a position now to have our own contract and fulfillment commitments on our own. So we’re going to use our new agreement to expand our federal business and in upcoming calls, I expect to just update you on some of these initiatives that should continue to drive incremental revenue for us. As we do so, we may have some quarter-to-quarter variability’s, since some of these orders can be stocking orders rather consignments, I expect to see a very strong trend overtime growing the business significantly. Now, relating to our field sales force. We continue our expansion activities and have brought in some additional strong sales executives and management. I think we had roughly a 140 or so field sales personnel in the third quarter last year. We added about 28 or 30 more by the end of the year to get up to about 168 or 170 field sales personnel into 2014. In the first quarter of this year we added about another 25 sales professionals to bring our total to 193 at the end of the quarter, we should hit 200 any day now. That means we have at least 25 people that have been here for three months or less and above 50 that have been here less than six months. As you know in the past it’s taken our reps on average our about six months to get to the million dollar pre-year run rate. This stage we might be a little longer maybe seven or eight months based on our hiring profile, but doing the simple magic and see that we expect a strong second quarter and rest of the year in terms of sales growth. If we can hire another 40 or so sales professionals per year [ph] through our current plan by the end of the year, we’ll be in a strong position ending this year and going into next year. Now, talking about our clinical studies, as you know we submitted our first IND for [indiscernible] last year, we intend to begin Phase IIB trial in the first quarter. I’m very pleased to announce that we have four sites enrolling patients and a total of 11 sites that are in process. This year [ph] we’ve already enrolled and randomized a number of patients out of our total of a 146. Our projections are that we may be able to complete enrollment of this study during this calendar year and we’re pushing hard to do so. And for a second IND, we’ve been assembling additional clinical data from the field to improve our position for [indiscernible] injectable study. And once that data is summarized, we’ll submit our second IND. Our sheet products, we have an EpiFix study that will hive over a 100 patients in all surely and then we expect to close it out and complete the study later this quarter or early third. That will continue to add to our body of evidence demonstrating that EpiFix is truly the best in class in chronic would healer. We have another five RCTs in process and another half dozen in the preparatory stages. Our commitment to leading the industry in scientific and clinical research definitely continues. Now, I’ll talk briefly about product development. Normally we don’t talk a lot about these evolving projects, but we are excited as Pete mentioned about expanding our focus on CollaFix. Our main focus over the past several years has been on our amniotic technology, although we’ve quietly been moving CollaFix along. We talked in the past about finding uses for the placenta material that we’re currently through our way, happy to announce that we’re elevating the priority of CollaFix and now are in the process of converting collagen source to be human placental tissue rather than bovine collagen. I’m sure that’s striking a chord with the long time MiMedx shareholders and we’ll have a number of them very excited. Those of you don’t know what CollaFix is, I’ll explain it a little bit deeper than what Pete did. This is one of the two original technologies on which MiMedx was founded and basically its proprietary technology that purifies collagen to about 99.9% pure collagen then it process it into a continuous fiber about the size of a human hair, then it’s cross linked to make it stronger. It can then be made into various woven of rated constructs that can be used in tendon and ligament repair, but as well in injuries such as specially sutures or meshes. The fiber is about twice as strong as the human tendon with about the same stiffness, which allows various contracts to mimic native tissue bio mechanics. We’re very excited about this renewed focus on CollaFix and in how it will be a fantastic addition to our surgical and sports medicine line of products. A little later this year, we’re going to talk more about our first few products that are in the timelines associated them, but I’ll give you a hint. Several are expected to be five, ten Ks, so the timelines of the launch will be reasonably short. So again we’ll give you more to come in future calls. And one last thing, you may remember on the last call I mentioned, we negotiated at least on a new 25,000 square foot office building in our current business park. It is signed and the construction has begun and the target completion date is early June. So we’ll move several of our groups in that building in the summer and create a bit more space for us here to expand. We’re very excited about this growth and look forward to the next phase in growing to $200 million and beyond. With that I’ll turn it over to Mike.

Thanks, Bill and good morning. The company recorded revenues for the first quarter of approximately $40.8 million, an increase of 108% or $21.2 million over prior year first quarter revenue of $19.6 million. On a market segment basis, wound care revenue was $29.8 million, which represents approximately 103% increase over prior year. The company believes that the recently introduced new sized in out new mesh configurations, which are working their way through the value analysis committee process will gain momentum beginning in Q2 and continue over the balance or the year. Surgical, sports medicine and OEM SSO for sure revenue was $11 million, which represents approximately125% increase over prior year. The growth in SSO revenue is a reflection of our strategic focus to grow both the SSO segment as well as the wound care segment. On a customer segment basis, commercial revenue was $27 million, which represents 158% increase over prior year, while federal revenue was $13.8 million, which is a 51% increase over prior year. As expected and reflected in our guidance commercial revenue was impacted by seasonality in the change in reimbursement somewhat offset by the addition of new customers in the afro mentioned introduction new sizes and the new mesh configurations. Government sales reflected penetration in new facilities as well as increased sales at existing facilities. Gross margins for the quarter were 87% as compared to 85% in the first quarter of 2014. The improvement was driven by product mix. R&D expenses for the quarter were approximately $1.8 million or 4% of quarterly revenue as compared to $1.4 million in Q1 of 2014. The year-over-year increase in R&D spending is driven primarily by increased investment in clinical trial. Selling, general and administrative expense was approximately $29.3 million for the quarter, with 72% of quarterly revenue as compared to $15.9 million or 81% of quarterly revenue in 2014. The year-over-year increase in SG&A was due to the continued build out of our direct sales force in both wound care and surgical markets, additions to the reimbursement team and other support areas as well as the increased legal cost. The company reported positive adjusted EBITDA margin up 22% or approximately $8.8 million for the quarter ended March 31, 2015, which is a $6.8 million improvement as compared to an adjusted EBITDA up $2 million in the first quarter of 2014. It is the thirteenth consecutive quarter of reporting positive adjusted EBITDA. Included in our press release is a reconciliation of adjusted EBITDA to reported net income. The improvement is driven by the increased sales volume, improved gross margin and corresponding operating leverage. Operating income in the first quarter was in line with our guidance and approximately $4.2 million or 10.4% of quarterly revenue, which represents an improvement of $5.1million as compared to an operating loss of $0.9 million in the first quarter of 2014. The company reported net income for the first quarter of approximately $4.1 million or $0.04 per basic and diluted common share, as compared to a net loss of approximately $0.9 million or $0.01 per basic and diluted common share in the first quarter of 2014. Turning down to the balance sheet, the company reported approximately $82.3 million in total current assets including $38.7 million in cash, $6 million in short-term investments, which are comprised of fully insured and liquid certificates of deposits, $31 million in accounts receivable and $4.2 million in inventory. Day sales outstanding for the quarter were 68 days, as compared to 61 days at the end of the prior quarter. Inventory returns were 4.9 for the quarter, as compared to 2.8 at the end of the past quarter. Current liabilities were up slightly in the quarter. The company repurchased approximately 1.4 million shares in the quarter under the share repurchase program, bringing the cumulative total to approximately 2.3 million shares repurchased under the plan. As mentioned in this morning’s press release the board has authorized an additional $10 million for the share repurchase program. Turning now to the statement of cash flow, the company reported positive cash flow from operating activities of approximately $4.2 million for the quarter as compared to a negative $1.6 million for the first quarter of 2014. Positive cash flow from operating activities for the quarter was driven mainly by an increased and adjusted EBITDA somewhat offset by increased working capital. Cash used in investing activities in the quarter of $1 million was primarily for investments in fixed assets in support of the company’s growth. Cash flow from financing activities for the quarter was a negative $11 million, including $12.3 million for share repurchases somewhat offset by the proceeds received from the exercise of stock options. And finally we added 38 associates in the quarter, bringing our total head count to 424, which represents a 47% increase as compared to March 31, 2014. And we’re turning now to our guidance. The company has increased the lower end of our 2015 revenue guidance, with the range now between $180 million and $190 million and an operating profit of greater than 15%. Our guidance for the second quarter is $44 million to $46 million in revenue and in excess of a 11% operating profit. Also, management will be participating in three investor conferences this quarter beginning with the Deutsche Bank Healthcare Conference in Boston on May the 6th, the Craig-Hallum Institutional Investor Conference in Minneapolis on May the 27th and the Jefferies 2015 Global Healthcare Conference in New York City, the first week in June, with the exact date still to be determined. Please check back to the investor relations page on our website for current updates. With that I’ll turn the call back over to Pete. Pete Petit Thank you, Mike. I hope that our comments have been helpful. Hope you can tell that we’re looking forward to another very robust year of growth in revenues and operating profits. We’re looking forward to build on our surgical, sports medicine, OEM markets very rapidly this year. Therefore, we certainly expect MiMedx to grow under one of the most respected regenerative medicine companies in the industry, with exceptional revenue growth and profitability. Thanks and we will open it up to questions.

[Operator Instructions] Our first question comes from the line of Mike Matson of Needham and Company. Your line is open, please go ahead.

Hi, thanks for taking my question. I guess I wanted to start with the surgical business obviously it was much stronger than expected. Can you give us an insight into the various factors there that drove the growth and specifically I was wondering if you could tell us what benefit you saw from the robotic prostatectomy’s if any this quarter?

Well, we certainly grew in a number of areas and we did have growth in that area, the robotic prostatectomy’s, we haven’t broken those numbers out that much, at least at this stage. The one thing I will also point out is, in the first quarter we did not have any Zimmer revenue yet. That is expected to go this quarter. So we were pretty strong across the board in terms of our own product line as well as the [indiscernible], orthopedic as well as the urology and in surgical side of things. Also I want to highlight our EPIBURN. We had a very nice quarter with that. Again we did kind of a quite rollout of that. We had a sizable revenue in that area that last year would have been more in the EpiFix numbers and wound care, but since we have now our very specific product for burns, we include that in the surgical side of things because it’s more of a DRG focus.

Okay and you mentioned Zimmer, but what about Medtronic. Was there any kind of spots or stocking orders or is that more just selling product into them, if they’re selling it on their own?

It was kind of a continued phase of what we had in the fourth quarter. It was not a sizable jump up. We’re still working with them and moving our way up the management there to try and get much deeper focus on their end that they’re capable of.

Okay and then, just wondering if you could comment on what you’re seeing since April night in the Novitas regions, where they’ve started to cover some of the competitive products or you’ve been able to sort of maintain your share and pricing in those markets.

Well, first of all I can say, we haven’t seen any things that we classify as disruptive. Second of all, use my role to simply say it’s quite difficult to understand when American healthcare system is based on evidence based medicine, why Medicare and immediately would open up something of this nature, where they don’t require any evidence based medicine in order to participate, so it’s quite confusing. I think they’ve got something else in mind in terms of opening up like they haven’t and then again limited as I see what happens. Because at this stage they basically open that LCD up with any requirement for evidence based medicine, there’s no requirement for clinical studies or anything else and that’s a quite unusual. So we’ll see what plays out, but it may end up - they opened up initially and then as we paired back.

Yeah, this is Bill. One of the things I just want to highlight. There were already a few other areas that were like that because the Novitas states on the East Coast, I can’t remember which ones they are. It’s going to be Palmetto [ph] on the East Coast, we’re just like that that we’re open to anybody with a Q code and we’ve had –continued to lead the market in those areas. So our expectations, it will be the same in Novitas’s. There’s a lot of noise from the competitors, but what we’re seeing just like we saw Palmetto was that it was a lot noise, but a lot of folks didn’t realize two years ago that they could get into Plametto when they announced a year ago that they have coverage there, but they still don’t have very strong penetration. So we think we’re going to be just fine.

Okay and then my last question, just for Mike on the DSOs. I think you said they were 68 and that was up from 61, so it’s a fairly sizable increase if I heard you correctly. So can you explain that and does that have anything to do with the business mix that you had more of federal sales or something in the quarter?

I think Mike, some of it is the first quarter phenomenon. When we talk about weather and you talk about the first quarter getting off to a slow start, that’s also reflected in our shipments. And the shipments are weighted towards the backend of a quarter when you’re these calculations not on an average, but based upon a quarter end number. It can distrait the numbers a little bit. In addition to that with the surgical and sports area being up, there are higher shipments to distributors and their terms are a little bit different than to direct customers.

Okay, alright. That’s all I have, thanks a lot.

Thank you, Mike.

Thank you. Our next question comes from the line of William Plovanic of Canaccord Genuity. Your line is open, please go ahead.

Great, thanks. Good morning. Can you hear me okay.

Yeah, Hey, Bill.

Couple of questions here, just on the - I think there was an interesting comment with the EPIBURN product, you’re shifting basically revenues from the wound care bucket into the SSO bucket. And Mike, I don’t know if you’ve done the math on that, but if I work it, how much would have been classified? I think of anybody want to poke a hole in the quarter it would be that the SSO grew that faster, so this kind of takes that away, if some revenue is shifting between the buckets.

Bill, quite frankly I don’t think we want to fully disclose how much of the EPIBURN was included for competitive reasons. As Bill mentioned, it was a significant amount, but that - I mean let’s not also underestimate the fact that the exploration of the past year did have some impact. So overall we think we did well in EPIBURN.

Let me just add Bill, it wouldn’t fill the whole gap that you saw, but would fill a nice chunk of it. We’ll put it that way.

Good that’s helpful.

The next is you’ve talked about the mesh product as something that kind of - I think it was launched in February, when did that start gaining traction and then I was wondering if you would be willing to give us samplings of kind of monthly cadence to revenues, just so we can get comfortable with Q2?

Well, I’d say that it literally started picking up some momentum until March and we’re seeing that momentum continue. In terms of a cadence, I don’t know that we can get that detailed, but we’re seeing it grow the way we’d like. Obviously we’d like to grow even faster, but I think we’re pretty satisfied with where we’re at right now.

Bill, let me address the cadence issue. With 14 straight quarters of saying what we’re going to do and doing it, I don’t know it’s why as not say, we’re going to continue that. And we’ve always said and I’ll say it for a number of times again that if we’ve got issues, we will let the street understand them and I can’t surprise you, we’ll get them out early and get them an amount there. So we feel cut about the quarter and we’ve got our wholly second quarter numbers.

Perfect and then housekeeping questions, your tax rate was very low. I think you’re guiding 30% for the year, how should we think about the rest of the year and then your bought back a bunch of stock, what is the actual number of shares that we should be using for forward share count? Thanks.

So in terms of tax rate Bill, fundamentally the taxes that we recorded in the first quarter were state income taxes and that can be in the 3% to 5% range over the course of this year. As far as federal taxes are concerned, we’ve mentioned before that we have that differed tax asset that still holds the full valuation allowance. We do anticipate over the course of this year that that valuation allowance will be released. And so, in effect your federal tax rate will be zero.

Bill, was that not a good number?

It’s a great number and then just the share a question. Thank you.

In terms of share counts, so at the end of the quarter we were at, on a weighted average basis fully diluted 113.6 million shares. Total outstanding shares were 108.5 million. We don’t include in our forecast an assumption that we’re buying back shares, we kind of look at it as an opportunistic activity. So all I could tell you is, we ended the quarter at 108.5 million shares.

And then Mike, just on the tax thing, should I assume that 3% to 5% tax rate for the balance of the year and then Q4 is probably one we’d see the catch up for the valuation allowance?

I think at this stage that’s a good assumption Bill.

Great, thank you.

Thank you. Our next question comes from the line of Bruce Jackson of Lake Street Capital. Your line is open, please go ahead.

Good morning, thanks for taking the questions. So looking again at the surgical business, how many of the direct reps are dedicated to that business right now?

So on that one we have a group of folks that manage our spine and orthopedic folks as well as in our direct people on the surgical, so we add all those people we’ve got. I think we’re right around 20, with both the groups, when you include the direct surgical as well as the folks that manage the distributors and field agents.

Okay and then the incremental revenue growth was just quite strong. Was most that burn and could you suggest like current quarter, where the growth rate is coming from?

I wouldn’t say Bruce, that most of it was burn. There was a nice piece of growth that came from burn, but in the surgical market, we experienced kind of lumpy orders from our distributors. If I look back to 2014, we had strong distributor sales in the first quarter and the third quarter and weaker distributor sales in the second and the fourth. And this year is playing out, we believe the same way that last year did, so again burn was important to us, but it wasn’t the only reason for the growth on the surgical sports and OEM.

And we had some growth on the direct surgical side. If we add in there, so it’s really a combination of both those, a little bit of the distributor orders, but then the growth on our direct, on whether it be the burn or the prostatectomy and other type of surgical grafts.

Okay, great. Then with CollaFix, the first product, the Bovine Collagen product, that was a tendon or peer product, so is that going to be the first application again this time around. Have you done any animal studies and if so, how does that compare with the first version of the product? And then to the extent that you can tell us about what the regulatory strategy might be for that, whether it’s going to be a 510ks or PMA that would be very helpful?

We’ve done enough work to see that the placenta collagen is expected to perform equally as good as the Bovine. I don’t really want to go into lot more detail on that, but it looks very good obviously without the potential issues of Bovine source, which is when you get from a closed hurt and there’s a lot of concerns about BSC, which are not the same with human tissues. So we feel very good about that and we have ample supply based on, frankly parts of the placenta that we just throw away right now. In terms of our focus, again for competitive reasons I’m not going to go into a lot of details just yet, but you can expect probably first, at least one or two applications are likely to be 510ks. What we talked before about CollaFix in terms of a tendon repair, if it’s used to augment a tendon, then we expect that to be a 510k path. But if it’s used to bridge a gap in a tendon, that’s likely to be a PMA and our thought process has not changed on that. We do believe that that is still as we expected it a few years ago. So again if you had to bridge a centimeter of gap in the tendon then that will be a longer regulatory path, but we do expect several products earlier than something like that.

Okay, great. Thank you very much.

Thanks, Bruce.

Thank you. Our next question comes from the line of Matt Hewitt of Craig-Hallum. Your line is open, please go ahead.

Good morning, gentlemen. Thanks for the update. A couple of questions from me, first the shift on the government business going direct versus your long-term partner. How will that impact margins and when do you anticipate we’ll start see that, I would assume benefit?

This is Pete. Well, there will obviously be some gross margin implications there, but I would expect you’ll gain to see a little bit second quarter and it will feel as we begin to take more of that business of your own FSS.

And one of the things is, we don’t want to make this change abruptly because we want to make sure that the facilities have smooth transitions and don’t have any issues. And also we’ve been told that some of the facilities definitely like ordering from a Service Disabled Veteran-Owned Small Business because they have certain requirements for a portion of their spend to be from a better known business. So we don’t want to force those changes too soon, but yeah, we’ll have slightly improved margins.

Okay, great. And sticking on the margins front, thank you for the clarification on the mesh product regarding the punching holes, is it safe to assume that you can use those punches essentially in the injectable and will that enable some gross margin expansion?

We don’t like to waste anything here.

Very perceptive Matt.

Okay and then I guess last question for me. It sounds like Zimmer is taking a little bit longer to ramp and I’m curious if you think that’s being held up by the Biomet acquisition and maybe has that comes to a close and is consummated that you could see Zimmer coming back at a faster pace or ramping that opportunity for you guys?

Yeah, with Zimmer actually relative to Medtronic are ranking faster, I can say that. With us of course any larger company like that is not going to move as quickly as what we could move or would like to move. But we actually expect to start shipping first product to them this quarter. It will be a little different because we’re working a project with them or we’re actually shipping directly to their hospitals as opposed to a really large stocking order that goes straight to their facility. And in part that is because of their integration activities they expect to happen with Biomet, so they prefer to get started quickly even though the numbers may not be huge. They’d rather get started quickly, so that means once the Biomet acquisition goes through, they can leverage both sales forces, once all that’s finalized. So we’re very optimistic there because they have a focus from senior level management there that this is a very important product line for them, which is a little different than the mid level support that we have at Medtronic.

Great, thank you very much for the update.

Thanks, Matt.

Thank you. [Operator Instructions] Our next question comes from the line of Martin Bell, private investor. Your line is open, please go ahead.

Hi, Pete, how are you doing?

Good morning Marty, how are you?

Good. Just as an individual investor, when I see stock starting to go down and I wonder what happened, I look online to see if there was a press announcement or news, I don’t see anything. And I’m often tempted and I kick myself for doing it, but working a message for it, thinking those as we know are people who are shorts [ph] trying to put out information. You’ve spoken about Organogenesis, but I did see stuff on the board and wondered if it’s - we’re talking about some product from selecting [ph] with, headlines that it’s going to be MiMedx’s downfall. Is there anything about that product you can tell us?

Well, first of all Pete, don’t look at those blogs much at all. I’ve learned over years that all it does is raise your blood pressure a little bit. But anyway, Bill said, he’s seen that, I haven’t.

Marty, I know what you’re talking about. Biovance is from Alliqua. Alliqua is a company that’s in part been invested by Celgene. A good management team, I think they’ve got a lot of good things going for them, but they’re ruining their focus on wound care and that product Biovance, before Alliqua had it, was actually Celgene’s product. They had actually done a small clinical with that product on diabetic ulcers. It was published in 2009, frankly before we even became involved with surgical biologics. They had a 29% healing rate in 12 weeks, which is not that much better than a standard of care. The single layer amnion, it’s [Indiscernible]. And Celgene, the big company they are was not effective with moving that. I would assume because it did not have very good clinical efficacy and that’s also the company that recently bought Celleration, which has missed therapy, which we took a look at as well and declined because our technology frankly doesn’t need that. I would just say that, a company that buys that technology may not be as enthusiastic about their amniotic tissue is with what we are because if they were, they wouldn’t have bought that company. So that’s my true sense.

That’s good to hear. Thank you very much.

Marty, let me add something to this because I know the volatility of our shares. It’s something that none of our shareholders like and certainly we don’t like. And we’ve done the things know how to do to reduce that as much as possible. But I can tell you that having run public companies now for 33 or 34 years, we have some very unusual activity in this company and it’s not many things I haven’t seen are dealt with. But I also take that right back to the fact that, there’s two elements one again competitor; number two, there have been some hedge funds that have bet heavily against us recently. Last year we’ve taken some strong short positions and are doing their utmost to get the story out and get it sold. I just cannot understand it, I’m not fairly sophisticated investor and to take a company like ours that has a base technology we have, the management experience that we have, a track record of 14 straight quarters and the real thing is going to ruin short stays and have done that before, is when the press release comes out and says, company X has been acquired by company Y. I understand, except the fact that they who have taken a position and they’re probably way under water and they need to try to figure out ways to exit gracefully. But I just don’t understand, we’re just not a good short candidate and of course I’m the CEO, so take that for what it is, but I just don’t understand that. But it’s there until we continue to be quarter after quarter relentless, doing what we’ve been doing for 14 straight quarters and some day maybe they’ll realize. But I apologize for the volatility. All we can do as a management team to work it through and we’re continuing to fair it out, the issues that seem to be causing some of it. So try to stay away from the blogs and you’ll see this management team keeps our shareholders very informed and as I’ve always said, if we’ve got a problem that we’ve misstated something or we’ve miscalculated some, we’ll get out to shareholders quickly with it. So thanks for your patience.

Thank you for all you’re doing. I don’t think at least as a shareholder we could ask for much more. Thank you.

Well, thank you.

Thank you. Our next question is a follow up from the line of William Plovanic of Canaccord Genuity. Your line is open, please go ahead.

Hi, great. Thank you for letting me have a follow up question here. Just in clarity, so with the reclassification of some of the AmnioFix is you start to sell the EPIBURN and I’m sorry, the EpiFIx to EPIBURN. Do you think there could be some further shift of buckets as we go through 2015, where some of the EpiFix is still be sold into burn, so we could see some degradation of that wound growth because of that and enhanced SSO growth or has that all taken place in Q1, ’15?

I don’t think you’re going to see much of a difference going forward and just to remember last year, we were used in some burns, but not a lot on EpiFix. It’s hard to delineate exact numbers because we don’t always get our TUR cards back, the Tissue Utilization Records. So it’s been more of a focused effort for us on burn here recently. So I guess that would be normally be in last year’s numbers, but we haven’t added focus on it. So I guess that’s the way to look at it.

Yeah, Bill. Maybe a follow up to the question you asked earlier and my struggles with it. Just keep in mind what’s happening is similar to what we had with the micronized from ’13 to ’14, where we had one brand of micronized and then we came out with an EpiMiecronized and an AmnioMicronized and then started reporting them in the two different segments. We’ve done on the same thing on the burn side, so we’ve created a brand called EPIBURN and what it’s doing is - whereas last year it would have been a larger sized EpiFix that happened to be recorded as part of wound, it’s now being recorded in surgical and sports. The difficulty we have in looking it at all of our large sized revenue last year is to those points. The only way you can drill down into it is, hopefully you can find the tissue utilization records which give you those larger sizes that were actually used in burn cases. And quite frankly we haven’t done that detail analysis, we decided to come up with the brand EPIBURN because we felt it was a significant market and we wanted to get clarity there, but that’s what’s happening here. So it’s more difficult to analyze that when you think.

Okay, but the take away though is that you’ve probably - whatever the magnitude was Q1, ’15 versus Q1, ’14. That should be similar as we go through the year, so the ramp as we think about sequentially Q2 versus Q1 in each of those buckets should be more normalized as we think of a business. Of course you also don’t have the transition into the bundle.

I would agree with that statement. I think that’s right.

Okay, that’s helpful. That’s all I had. Thank you very much.

Thank you, Bill.

Thank you and with no further questions in queue, I’d like to turn the conference back over to Mr. Pete Petit for any closing remarks.

Well, thank you for joining us this morning and hopefully the conversations and our answers to your questions have been helpful. We look forward to continue to give you all good news and we’ll go from there. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.