Good day, ladies and gentlemen, and welcome to the MiMedx Group Q2 earnings call. [Operator Instructions] I would now like to turn the conference over to Mr. Thornton Kuntz, Senior Vice President of Administration. Please go ahead, sir.

Thank you, operator, and good morning, everyone. 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, and our most recent 10-Q. We do not undertake to update or revise any forward-looking statements, except as may be required by the company's disclosure obligations in filing it makes with the Securities and Exchange Commission under Federal Securities laws. With that, I will turn the call over to Petit, MiMedx's Chairman and CEO.

Thank you, Thornton. Welcome and thanks for joining us for our second quarter conference call. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; and Thornton Kuntz, our Senior Vice President of Administration. There are also other executives in the room. We concluded another very strong quarter. We would like shareholders to take note of two key developments that should clearly signify that MiMedx will not experience a revenue drop, because of some type of dramatic change in demand for allograft products. First, CMS has issued its proposed payment policy for 2016 for skin substitutes. There are no significant changes in proposed reimbursement. I think there was some considerable misinformation circulating that there would be huge reimbursement reductions by CMS. Frankly, the MiMedx EpiFix allograft should save the Medicare and commercial system significant amounts of costs, and we continue to find ways to provide the most cost-effective solutions for our patients, providers and payers. We do not foresee any significant issues in reimbursement area in the near future. Second, but just as important, it has been reported by SmartTrack, that Medline, a major supplier of healthcare products to the hospital sector has announced it will be withdrawing its amniotic tissue from the market in September. This should be a clear indication that when a large well-established healthcare supply organization cannot develop significant revenues, so that they decide to leave the market, the MiMedx presence should be considered to be the major deterrent. Over the last several years we've established a very strong leadership position in advanced wound care sector of healthcare. This has been accomplished through investments in clinical and scientific studies, other investments in corporate infrastructure and significant investments in a sales force that is very well trained, and…

Thanks, Pete. Good morning, everyone. As you've seen our second quarter was yet another excellent quarter and we performed at the high-end of our projections. Our wound care growth was sizeable and we're on path to continue that growth. We continue to expand our sales force, our operational infrastructure and are expanding our product development efforts. Let me start out by talking about sales. Our second quarter illustrated yet another very strong growth in terms of number of patients treated and revenue, particularly with respect to wound care. You will recall that last year when EpiFix had pass-through status, approximately 80% of our commercial wound care business was our smaller grafts, which were 2 x 3 centimeter size or smaller and about 20% were larger sizes. With the expiration of pass-through this year, we purposely added sizes and configurations to help treat larger wounds, but yet still be at or under the bundle. We introduced our mesh product in late first quarter of this year. I know one of the concerns with the expiration of the pass-through was that we would lose all the big wounds, and our revenue would drop substantially. Well, I'm very happy to announce, it was a full quarter of sales of our mesh configuration, which covers wounds up to about 20 square centimeters. We are still at about the 80%, 20% small sizes versus big sizes. So 80% small sizes, 20% big sizes. Our average selling price for the large size is obviously reduced, because of the pass-through and the adjustments in our pricing. But we've retained and grown the overall number of procedures, and thus the number of patients treated. So looking at it another way, the expiration of pass-through status for EpiFix essentially was realigned in the first quarter. And our average graft…

Thank you, Bill. Hopefully that clarified a number of key issues. And let's go now to Mike Senken.

Thanks, Pete. The company recorded revenues for the second quarter of approximately $45.7 million, an increase of 79% or $20.1 million over prior-year second quarter revenue of $25.6 million. Growth was driven by both wound care and surgical sports medicine and OEM or SSO market. The company added over 400 new customers in the quarter, while also increasing product usage in existing accounts. Wound care revenue was $35.6 million, which represents a 73% increase over prior year. We saw strong unit sales growth, including the recently launched mesh configurations in wound care. SSO revenue was $10.1 million, which represents a 104% increase over prior year. Growth was driven by direct sales and surgical applications as well as distributor sales. On a customer segment basis, commercial revenue was $33.6 million, which represents a 103% increase over prior year, while federal revenue was $12.1 million, which is a 34% increased over prior year. For the six months ended June 30, 2015, reported revenues were $86.4 million, which represents an increase of 92% as compared to prior year. Gross margins for the quarter were 89%, which is equivalent to the second quarter of 2014, bringing total year-to-date gross margins to 88% as compared to 87% in the prior year. Our strong gross margins are driven by wound care sales. R&D expenses for the quarter were approximately $2.1 million or 4% of quarterly revenue as compared to $1.8 million in second quarter of 2014. On a year-to-date basis, R&D spending is up 22% over prior year. The year-over-year increase in R&D spending is driven primarily by increased investments in animal studies and clinical trial. Selling, general and administrative expense was approximately $32.7 million for the quarter or 71% of quarterly revenue as compared to $21.2 million or 83% of quarterly revenue in 2014. The…

Thank you, Mike. We've achieved rapid success in obtaining our leadership role in advance wound care. We will maintain that leadership position. We will continue to grow our market share in wound care. We've probably only penetrated about half of the market at this point in time. Now, watch our progress in the surgical area. We expect to acquire leadership role in certain sectors where our biologics can play a role in the procedure. I'm sure that our progress will also climb, wall of worry, as we have experienced with our climb to our leadership role in wound care, just patiently watch our progress. We want to let you know that we will hold our Annual Analyst Meeting in New York on October 13, certain institutional investors and analysts will be invited to that meeting. It was certainly quite a success last year and we hope to build off that success for this year's meeting. We thank you for joining us today. We appreciate your confidence in MiMedx and our management team. And always, we'll attempt to keep you very informed on our progress. Now, we'll open the call to questions-and-answers.

[Operator Instructions] And our first question comes from the line of William Plovanic of Canaccord Genuity.

So I think the first question I have here is just, you alluded to it several times, I don't know if you will provide granularity on it. But in terms of the wound care, obviously, ASP is coming down just because of the mix on sizing. I'm curious as to what the growth of the units was year-over-year in that wound care business?

Bill, it was substantial, but we don't have it in front of us. And it looks like probably it's just going forward we'll be in that number and we'll try to give you some guidance on that going forward.

I think it's interesting, but what do you think kind of the long-term growth for wound care? How should we think about that business for the next kind of three to five years, once you really penetrate into the commercial piece that you have and you have been able to cannibalize from your competitors?

Well, let me make a comment and then Bill can give maybe some specifics. I think from our standpoint, we still have a lot of market share to garner. We also have a lot of growth to broaden the market. As Bill mentioned earlier, we're going to market, because previously the two market leaders had a $1,600 to $1,800 product and that just wasn't going to be used on smaller wounds. Now, those smaller wounds grow to be larger wounds, using conventional care. So what's happening is physicians are using advanced wound care, namely our small grafts to close wounds earlier, and that reduces the possibility of infections and reduces costs also from that standpoint. So we're going the market, also we're taking market share. And we'll continue to do that. We have the most cost effective product. And even though there is a lot of noise in the market at this stage, a lot of it is just noise and it will dissipate, evidence, Medline. If anybody had feet on the street in terms of, probably over 1,000 sales people, Medline could have gotten the job done. But we've said all we need to say about that. Bill?

And I'll just add, again, we're seeing evidence. And I think in our October meeting, Analyst Meeting, we'll get even more detail from our analytics group. But we are clearly seeing an expansion of the marketplace in terms of number of patients treated, and there needs to be, because as of right now, there is roughly 1.2 million people with just a hard-to-heal diabetic foot ulcers and venous leg ulcers, and forget about pressure ulcers and some of the other products, but 1.2 million people with somewhere in the neighborhood of 15% of them getting treatment with advanced wound care. So that leads to huge amount of growth to be had there, when you can get a cost effective product like what EpiFix is. On top of that, we're really starting to expand our efforts internationally. So I think you're going to see for the next three to five years some continued strong growth, definitely double-digits growth for the next several years, when you look at the cost effectiveness as well as the international expansion.

And then my second question and then I'll get back into queue. It's just your account receivable was up pretty significantly on a sequential basis. I think it was up double the revenues. I'd had a bunch of questions on that this morning. Any special terms, stocking, anything in there or maybe you could just or color you could provide us?

One thing, we had a strong, very strong June and when revenues come in late in the quarter, that it shows. Mike?

Yes, I think I have mentioned it on in my prepared remarks. Obviously, you're adding the number of accounts that we're adding. We have a little bit of ketchup to do in terms of just having the resources to keep on top of it. Really other than that, it's just the normal back and forth with our accounts.

And our long-term planning is really right around that mid-70 to 75 timeframe. We've been unusually strong in the last several quarters. So I think long-term that 75 days are probably where we're going to target.

And we've been as high as 88 days, 89 days in the last year or so and down as low as low 60s, but it will fluctuate depending on mix ramp up and customers, et cetera, but we don't have special bunch of special terms.

And our next question comes from Matt Hewitt of Craig-Hallum Capital Group.

I've got actually just a few questions in a couple of different areas. Maybe first with, Mike, could you give us the percentage of revenues that micronized represents today?

It's consistent with last year, Matt.

So roughly around 12% to 14% in that neighborhood?

That's correct.

And then I guess on the micronized topic, you mentioned in the press release, and that its kind of been out for a little bit, but the congressional letter to the FDA regarding their use of untitled letters, could you provide a little bit of background for those that haven't been following that closely, what does that mean? And more importantly how can that help you with your untitled letter for the micronized product?

Well, there is a lot of communications back and forth between various congressional committees and FDA on this subject. There was a letter sent May 6 of last year by four senators, specifically on untitled letters and changes in regulations through guidance documents, so very lengthy detail letter. FDA finally, gave them answer about 60 days ago, the night before they were hoard on hearing on this subject. That's still an ongoing inquiry. There has been a formal of The House Energy and Commerce Sub-Committee on investigations, filed a formal investigation on this subject about 60 days ago, that's in a public record. So there is a lot of issues associated with untitled letters and guidance documents, trying to change the regulations. And from our standpoint, we're kind of poster child for some of that. And of course, there's other companies that have issues and it's just a hot topic at this stage with not only industry, but with Congress. And generally, when something like this becomes as prevalent as it has and with so much activity going on, there are issues. So to me it's just highlights of fact that we are not standing alone any longer. That there is industry trade associations now, as well as a numerous congressional committees focused on this subject, because it is a problem. It's an industry problem. It's a problem for the American populous and healthcare system.

And then shifting gears to international, you've touched on this here briefly. Where do you stand today as far as number of people, maybe in Europe, I think that's the first area you were going to? Do you have any countries where you are already selling product or when should we anticipate that really starting to roll into the mix?

So the challenges with tissue in Europe is little different than devices, and that in devices you can get to see marking in all the European Union countries. Tissue is kind of different than that. You have to go country-by-country, because there is still not a unified regulation that everybody has adopted over there. So it depends on the country. We're actually in, and registered in the U.K, and Italy, not in EU country, but we're in Switzerland, Ireland and a number of countries. Our revenue in those countries is still pretty minor, but we're just really working with some distributors over there to drive those sales. I think in terms of having a meaningful material size of international sales, we're still looking at the back half of 2016 and 2017. Because once you get through the regulatory side, you still have to deal with the reimbursement side, and it can't be different even within the countries as well. So we've got a lot of push on it from both the regulatory side as well as our sales management side. And I think we're going to get some additional wins and additional volume this year. But in terms of large percentage of our revenue, that's going to be back half of next year. But I think we're getting some good momentum.

And then one last one from me. With the Zimmer Biomet acquisition closed now, have you seen, or have you been getting some resumes that you can use those. I would assume strong sales people with good rolodexes to augment your team and your growth as we hit the second half of the year?

Well, probably all I can say relative to the resumes and rolodexes is we have continued to receive unsolicited resumes from a lot of different folks, some in that organization and others. So I think that's going quite well. We've actually relative to the launch, that we've had a number of now training sessions. Since that deal is closed, the Biomet specialist is here now, so that they can include our products in their sales pattern as well. So it's not happened as quickly as we'd like in terms of their uptake, but now that they've closed, we've got the Biomet people trained now, we think its going to start picking up in the back half of the year. So I really don't want to speak specifically to the folks that we've hired, but between these organizations and others there are some good people that are out there and available and we've taken advantage who were appropriate.

And our next question comes from Mike Matson of Needham & Company.

This is actually Brad in for Mike. Just the first one, Pete, I'm just wondering what -- I'm just kind of trying to take your brain what you expect from the guidance update from the FDA for the homologous use.

Brad, state that question again. I didn't quite understand it.

Just wondering what you expect from the guidance update from the FDA and the homologous use?

Well, to be brutally frank, I don't know. The homologous use, what information we have is it probably this fall, late fall, they will come with that decision. And then early next year, the minimal manipulation in homologous use will all kind of come together, and they'll try to figure out how to move forward. They're going to get a lot of pressure from Congress in terms of going through the normal rule making process? And I think because of all the focus on this, from congressional members, committee heads, as well as industry, there is a good case that that might be the way they have to proceed, but we'll see. Meantime, we're running our business and trying to stay informed and help them understand industry position on this matter.

And then with regarding CollaFix, I know, Bill, you said you didn't really want to talk about it. Just wondering if I can get anymore information on the potential regulatory pathway? I mean any anticipated broad timing sense and just any spending requirements that you could provide?

On our call, you may remember last time when we talked about the first one or two products we anticipate being 510(k), and then there's definitely some that are likely to be PMAs as well. Our current plan is to launch with the 510(k) products first. And the earliest would be probably 15, 16 months from now, at the earliest. So we still are refining those schedules as we're pulling the project back together. And I think come the Analyst Meeting in October, we'll have a little bit better clarity for the first product line there and the timing associated with it. But if you look at that 15 months to 18 months range, that earliest window on the first 510(k) that's probably the best estimate we're going to able to give you right now. Relative to investment, I don't know that we've disclosed that yet, and Mike can talk about it.

I did mentioned in my prepared remarks, we had some expectation or forecasting out in our CapEx for the second half of the year. We're, I guess, in effect building a clean room at our Kennesaw facility in anticipation of getting up and running with production there. So that's included in the forecast. And again, if you look at the first half of the year, we'll be up slightly in the second half of the year in terms of CapEx and CollaFix is part of that.

And then, Mike, inventory turns were up a bit. I mean, inventory kind of dipped down. Just wondering if there's anything to point out?

Well, here again, one of the things that we're dealing with as we're ramping up here and we have different configurations that are part of this. Part of the challenge is forecasting all of that out and having the right mix. And if you wonder, if you understate certain configurations and they're not in stock, it kind of bleeds down the inventory. We would actually expect the turns to actually come down. As we learned more quarter-by-quarter in terms of the mix demand, we'd like them to come down a little bit. We'd like more safety stock and we will fix that as we go along. We'll learn more about the demand for these new configurations.

And then just last quick one from me. Just wondering, I know Medline is dropping out of the market in September, but I mean competition is obviously rising. Just wondering, if you foresee that lead-in into any pressure on pricing?

Well, if anybody could have brought pressure on pricing it was Medline. They walked around in the market with 10% and 20% discounts and more in some cases. Our product is very, very, very well respected, not only clinically, but cost-wise because of the very effective sizes we have, et cetera. And on the commercial side, the pricing is pretty well locked down. We understand what happened with the CMS pricing. So we don't think for another year, until CMS make some moves perhaps on the physician side, and I'm just using that as an example, there's no being a significant pricing changes.

And our next question comes from Bruce Jackson of Lake Street Capital Markets.

Going with the patents right now, is Medline a slow party in the patent litigation?

Yes, they are.

And then in terms of the litigation strategy here, is the idea to get a resolution on these first three cases and then move onto the other companies or might you consider expanding out further?

Well, we haven't filed all the actions that we plan to file. We're just buying our time. We have more patents issuing for each month. And we've got our strategy well-planned.

And then right now, is the litigation expense hitting the SG&A line?

Yes, it is.

Could you give us, I know patent litigation expense can be kind of lumpy sometimes. Is it like a consistent amount per quarter? And do you have a rough idea of -- can you give us a rough idea of how much it is?

This quarter it was little over $1 million.

Did you get any orders from Medtronic or Zimmer?

We did have some Medtronic and Zimmer was close. I'm not sure that we had that shipment yet. I have to go back and double check.

I believe we shipped Medtronic. I don't believe we shipped the Zimmer order in the quarter.

It was close.

Then on last question with the clinical trial that you're running for the micronized product to support your BLA, how is the enrollment proceeding and how many patients do you so far?

The enrollment is proceeding. Nothing ever happens fast enough for Pete Petit, but anyway, the enrollment is proceeding at a normal pace. We're trying to increase that. I'd just simply say, we're under 25 patients probably enrolled.

But as far as we can tell right now, we brought a number of our facilities online. And I think we are still planning on completing the enrollment by the end of this year. We're pretty close to that.

And our next question comes from Mark Landy of Northland Capital Markets.

Mike, I guess a question for you to sparkle us. In terms of the accelerator or the additional growth spending that you incurred this quarter, was that accelerated spending that perhaps would have come out of 2016 or is that new spending that you guys have decided to incur given where the business is?

Well, we're ahead of our plan in terms of adding sales individuals. And we also added a few resources focused on CollaFix that weren't in our original plan or were in our plan later rather than earlier, so its decisions we make. We've always indicated, we're going to give guidance on bottomline, that we always reserved the right to pull in expenses if we see an opportunity. We've done that now for three years, going all the way back to when the sales people became available out of shire, and we'll continue to do that. So there's some of that going on. We can't disclose all of it just for competitive reasons, not to indicate where we maybe moving in some other areas, but its all of those things, Mark.

Mark, when we have an opportunity -- let me add this. When we have an opportunity, and we've said this before, before we were on the calls, when we have an opportunity on this to hire a sales person or persons, we get a tremendous return on investment there, tremendous at this stage of our growth. And so we're selective, but at the same time, some times we just can't pass up opportunities, and so trying to give guidance on our EBITDA or operating earnings if we see opportunities and we move on.

I guess, Pete, that kind of dovetails into my next question, which was what do you think the increase or when do you think we'll see some of the increased sales or growth coming through from the accelerated or the new spending that you've incurred or is that just kind of too tough to patch up right now?

Well, with a smile on my face, substantially quarters.

And then just a last one from me, Pete. I think you probably discuss this maybe more one on one, but with Integra buying TEI and getting into the industry, certainly that's a big positive, big validation for the space that. But how do you guys see it going forward with accelerating penetrations? Certainly, there is a lot of penetration and education to just happen in this market. How does that help you, of course, with having a solid competitor such as Integra in the market?

Well, I think, good professional, well, run corporate entities entering into the market are good for the market. They had credibility, et cetera. What's troublesome is, is smaller entities who are not as professional and do things that create credibility issues. So Integra is, as I've said to our group here, Integra to us is a first real competitive entity that's a large entity that's well-run and well-organized. They're going to focus primarily in the surgical area in lower extremity. That's an area that where we have some focus. If they try to attack wound care directly, they're going to have the same I think disappointing point results that Medline did, although again, they'll have a better trained sales organization. So we respect that and conducting ourselves accordingly.

And our next question comes from Jason Wittes of Brean Capital.

One or two, it sounds like the Medtronic, Zimmer contribution was limited at this quarter at best. I think you're not sure, if one of them shipped. Should we be anticipating much for the rest of the year from those two parties, or realize that's something and someone out of your control, but I'll be curious, if you had any visibility?

Well, let me say something, then Bill can comment. Again, we have been so busy with other opportunities that we really haven't had a lot of time to stress with their upper management and little management for some of the opportunities. We've had some training sessions, but we haven't had that kind of conversations that we probably should attempt to have. But again, we'd only have certain controller over that, and they've been in case of Zimmer very busy with other things, Bill.

Yes, we've actually been working and reaching out to see what we can do to help them drive additional business. And I think we're going to continue that over this last half of the year. But in terms of what impact to our revenue, we still expect it to be very, very minor and non-material.

And I wanted to ask about surgical, sports medicine. It's obviously becoming a major focus for you, guys. My understanding is that you started dedicating sales people sort of at the beginning this year. So does that translate into, I imagine you've doubled your revenues there already this quarter. But I imagine, with the gestation period, et cetera, with the sale force, is that something that should see even more significant growth in the second half or how we should we'd be thinking about sort of the progression for surgical, sports medicine?

We do expect that to continue to grow in the second half just from, we've told some people in the past too, in that particular area we do expect it's going to take a little longer for our folks to get up to our target revenue than it does in wound care, at least our historical wound care. Historically, we've estimated around six month to get up to there, roughly 1 million dollar annual run rate, we expect in the surgical area. It's going to generally take longer, probably more like eight, nine months on average to get to those kind of run rates. We still don't have enough experience there yet to validate that assumption. Although, I think we're on track from what we're seeing so far with that, but we don't have enough experience to fully validate it. So it takes a little bit longer, but we do expect to get there. So the expectation in the back half of the year, we'll see some additional, very solid growth there. And we'll keep adding to that team as well and gain some momentum not only through the penetration of our existing people, but with the new folks that we bring on board.

Did you disclose what the breakout was between sports and wound care with your direct sales force?

On the direct side, we did not break it out that way, because everything includes our sales agents, distributors and direct on the surgical, sports medicine side.

From the total prospective what is the rough percent breakdown?

If you're just going back to, call it, our SSO revenue for the quarter, as a percentage of total, the wound care is 78% and the SSO is 22%.

One last question. You mentioned that you're sort of back to an 80-20 mix in wound care on small versus large grafts. It sounds like you think that's kind of like the normalized number to think about that's not going to move much. That fits in with the way things work, with pre-reimbursement changes. And it sounds like you feel that sort of the way the market will remain or is that something that's also likely to change?

No, that's our feeling as we were back to where we were basically last year and the year before in terms of the mix. Obviously, first quarter was a little bit up, because we didn't have our mesh fully up to speed on at that time. But if you look at the statistics, there was an article probably two years ago or so out of Healogics that indicated that if you look at the size of the wound, particularly diabetic foot ulcers and venous leg ulcers, roughly 75% to 80%, just off the top of my head are 5 square centimeters or less. So we're right in line with the published data on wound side, is an area that we're in, give or take a couple of percent. So we feel that this is likely to be a long-term mix for us from large sizes, the small sizes based on that data.

And our next question comes from Joe Munda of First Analysis.

First off, last quarter you guys talked a little bit more in depth about EPIBURN. I didn't see a mention of it in the release or in the prepared remarks. Any clarity there as far as EPIBURN and a percentage of surgical sports revenues and just the underlying growth that you're seeing in that segment would be great?

On EPIBURN, as you know, last quarter we talked about the launch of that. We're still early in the development of that market. So we expect that's going to be a little bit lumpy in the developmental market going forward. So we did not have a large growth in that in the second quarter. But we do expect the back half of the year we'll start growing nicely in that area. But again, we're early on, we're not really in all the -- we're just in a smaller number of the burn centers across the country. We have a lot of room for growth there.

As far as revenues were concerned, any shot at giving us what the percentage was of the total of the segment?

We haven't disclosed that yet. I expect that down the road if that grows and becomes a more meaningful part of our business, we'll get into that.

And then some of the key points here. You guys talked about, obviously about international sales expansion and I appreciate the color of the markets that you're registered in. Can you give us some sense of the size of the European market as well as the plans to attack that market? I mean, is it going to continue to be a distribution model or is it going to replicate what you've done here in the U.S. as far as putting feet on the street.

Well, in term of the sales force side, and I think we're initially are looking at distribution partners, but the way we're setting things up is to make sure that we are in control of the registration. That way, if at some point in time we either need to change partners or if we want to go direct in those markets, we can. I think at the movement, it's very similar to what we did early on here as we went through distributors and sales agents early on and then converted to a direct sales force when we got the right momentum. I expect that would be similar internationally. So we're setting ourselves up, so we can make similar translation to the right points in time. Now, in terms of the market size, I don't have that information in front of me. I would say, generally speaking, the ASP in those international countries are less than the U.S. Certainly, there is still a huge amount of chronic wounds in those countries. Some of the countries use types of advanced wound care, but the use of, what we call in the U.S., advanced wound care products is not as prevalent in some of those countries. So there is going to be a little bit of a shift in the way that they treat them. A lot of the countries use autograft, so they take a piece of skin from a different area of the body and utilize it. But again, I think we're going to have a very good shot with our cost of goods and our cost to closure being able to really penetrate those markets over the coming years, because we've got a solution that's so cost effective compared to what there used to, and can limit and reduce the amount of amputations and other complications. So in terms of market size, I think you're just going to have to look at Europe as probably from a dollar prospective, smaller than the United States from a dollar prospective. But from a unit prospective, it's probably more or so I would expect, just based on the population.

As far as the surgical side of the business, I know, Pete, you're very bullish on what lies ahead for the company. I mean, can you give us some clarity, do you think it's going to be volume growth, do you think it's going to be the fact that you're building out a dedicated sales force and you're touching more accounts or is there a possible reimbursement down the line that you think could actually help accelerate adoption of the product?

Well, in the surgical area it's a little bit different market and different approach in a number of ways. We've got some innovative technology that positions, see some real advantages too, and bring in faster closure to surgical procedure less complications, less pain, et cetera, et cetera. So it's going to be used and works it's way through, generally speaking, the DRG process. So we have to keep our products price, so that they can affectively be used and priced into procedure. So it's a different market than advanced wound care. We have to select our niches carefully. We've got a publication already in the urology area. So it will be a niche-by-niche approach with higher-end of people who have experience in those particular areas. So we're going to be picking up accounts, because we hire the right people, and that's where the growth will come from initially. And then, as we get wider usage and more publications out, then the physicians will broaden the usage of the products.

Just two more here. Mike, your comments on hiring additional head people to in the credit collection area. Taking into account the sales guidance on the topline, are we expecting that we're at the peak of DSOs here and we're going to see them come down in the back half to a more normalized level going forward?

Yes, Joe, that's certainly our plan. As Bill mentioned, and I don't like to bring this out, in case any customer is listening, we target around 75 days. We were doing better than that. And it's not that we offer extended terms, we don't. And we haven't changed our terms, whether that be distributor or otherwise. Part of what happens, as you're growing and you're adding, let's say, new commercial accounts and new reimbursements, typically there is a slower process upfront in terms of getting the claims paid to the hospital or the clinic or the doctor's office. And then overtime, it becomes more normalized and even though our terms say, we don't care, if you don't get reimbursed, you still owe it to us, practically speaking, the payments are a reflection of how quickly they get reimbursed. And that's a big part of what's happening.

And then my final question, I mean as far as the guidance itself is concerned on the op margin side, I know you guys sited investments and accelerated growth now. But I mean how much of that revision can be related to, let's say, you have R&D, the hiring that you're doing on SG&A side and the litigation. I mean any clarity there as far as what's driving that op guidance down -- I'm sorry, the operating margin guidance down, would be really appreciated?

Well, generally in the past, we've given the following comment. We pay a lot of respect to EBITDA and operating margin. That's just embedded in our culture. But when we have opportunities particularly with very talented and experienced sales people, and we find niches where we're going to make a commitment and make it quickly, we're going to take those, because the return on investment is huge. We're not talking about percentage, we're talking about Xs. So we'll make those commitments. We budget here very, very precisely and we know what our business is doing. But we make these commitments and have opportunities that flash in front of us, we will take them. So that's what you see in here. And of course, the legal expenses related to patents and other things, right now they're higher, they should be coming down, but those are just part of the flow that we generally have knowledge of. It's these opportunities that flash in front of us, and we'll take advantages of them, because of the huge ROI.

And our next question comes from William Plovanic of Canaccord Genuity.

Just on that operating margin question. Pete, is there any reason to think that, as we look at 2016 and 2017 for that kind of longer-term guidance that you had provided that there would be any change to that in getting to that 25% operating margin guidance in a couple of years?

Bill, we don't see any major deterrents to that. Again, these are a little quarter-to-quarter perturbations that you see are going to be driven by these specific opportunities. But long-term, a company with the kind of operating leverage we have, I said it many times, should be producing those kind of operating profits and these large EBITDA.

Bill, maybe I can add to that as well. You consider the somewhat dramatic change that occurred with the expiration of pass-through and trying to kind of forecast out what the impact was going to be in terms of the different configurations. As we learn more, we'll adjust our spending in certain areas to get to where we think the investors want us to be.

Well, the investors want you to be, what you guide to. So just making sure there is no changer there. And then just on kind of a nuance, I know Mike that you had shifted some revenue out of wound and into SSO. I think that was the burn and that started in Q1 and kind of flows into Q2. I don't know if there are any other products that were with that. But I was just wondering, what was the magnitude to that in the year-ago quarter? Because I think what's happening also we might be underreporting the wound care and over-reporting the SSO line. And I'm just trying to kind of understand what the real comp is?

There's some impacts year-over-year, but honestly it's not material, where burn was reported last year. Again, burn became more of a focus for us, I think late third quarter more into the fourth quarter, so comparing year-over-year to date would not be material.

And then my last nuance question is just on taxes. You have been profitable for a while typically when we get to this situation and you print money for four quarters and then a full year, you're going to move at least on the P&L to a fully tax reporting company. I think I have 40% of my model as I look at '16 and '17. But what do you think that you'll be reporting on a GAAP P&L basis, as we look at '16 and '17? Understanding you're going to have tax loss carry forwards in your cash, it will be much different?

I'd say 35% to 40%. What you have in your model is I think fine, Bill.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Pete for closing remarks. End of Q&A

Well, thank you. Well, I think we've had a very informative call and a lot of really excellent questions. We will keep you intermittently informed. As we have always said, if we have good news, it's going to come, and if we have bad news, we'll get it out to you ahead of time. Thanks so much. Look forward to keeping you well-informed and giving you good results, and doing what we tell you we're going to do. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Have a great day everyone.