Good day, ladies and gentlemen. And welcome to the MiMedx Group Inc. Shareholder Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the call over to Alexandra Haden, General Counsel and Secretary. Please go ahead.

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 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, 2015. 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.

Good morning. This is Pete Petit. Thanks for joining our revenue update on the first quarter. I have with me today, Mike Senken, our Chief Financial Officer, and Chris Cashman, our Chief Commercialization Officer, as some other executives in the room with me, however Bill Taylor sends his regrets, he is on jury duty this morning. First, I have publicly stated for many years that if we were going to miss one of our commitments to shareholders we would give you the information as early as practically possible. This is the reason we are releasing our first-quarter revenues early. While we've released revenue early from time to time, it is because it's had benefits for shareholders such as just prior to the JPMorgan Healthcare Conference or our Analyst Meeting. This time we've released early in order to give shareholders insight that we did miss our first quarterly revenue forecast for the first time in 17 quarters. And we certainly apologize. We had given shareholders a revenue forecast for the first quarter of 55.5 million to 58 million. This was based on our normal expectations for the first quarter, which is generally low due to a number of changes that take place in reimbursement and patient qualification in the first quarter of every year. However, we also had some forecasts for our newly acquired Stability Biologics entity. However, those forecasts, in spite of us trying to be conservative, also fell below expectations. We showed a 31% revenue growth for the first quarter and over first quarter a year ago. However, three key issues contributed to our first quarter revenue shortfall. The first of these was the initial effects that installation of a very sophisticated Sales Management System had on our sales organization. The second issue related to our first quarter movement…

Thanks, Pete. I will go into some of the details related to the quarter's revenue, but first I want to acknowledge the fact that the team here is disappointed that we could not keep up our streak of over four years worth of meeting or beating our guidance. We take our ability to accurately project our sales performance very seriously and we are unable to do so for the first time in a very long time. That said, we've made some great progress on a lot of fronts and we will talk about them in more detail on the call at the end of the month. The main focus of this call is to describe the key short term issues that impacted our first quarter revenue. Let's first focus on our SMS, or Sales Management System. Our SMS is a robust reporting system that allows for planning, targeting, executing and measuring the daily, weekly, monthly and quarterly activities required by account executives and management. As we grow into many other surgical markets and as we expand our areas of focus such as Wound Care it has become more important to manage with detailed planning and metrics rather than just fostering existing relationships. Small portions of the system were in place last year. But in the first quarter we implemented some significant upgrades, which is a sophisticated business planning and management reporting program that delivers real time order reporting and sales dashboards utilizing the integration of our IT system and salesforce.com, so that corporate and sales organization initiatives and goals can be monitored and managed. Through Q1 we experienced growing pains in the system. Importantly, we instituted a tagging process of the tissue allograft, as Pete said. The sales representative must tag the graft within the SMS to capture how it…

Thanks, Chris. First, let me remind you that management will be at the Needham conference tomorrow, I believe our presentation is at 8 AM and again, it will be Chris, Mike and I, Bill expects to still be on jury duty, unfortunately. Let me reemphasize one other thing, we believe our system is working pretty effectively now. The questions now are, is our sales management group managing with the system as effective as they should be? Are our individual sales reps in their territories using the system to reach their tactical and strategic goals? Those are the things that require leadership on our part and management on our part and the system to back us up and be our support system. Okay, let me open the call now to questions and answers.

Thank you. [Operator Instructions] Our first question is comes from the line of Matt Hewitt with Craig-Hallum. Your line is open.

A couple questions from me and then I will hop back into queue. First of all I think I heard, it sounds like as of March you guys are back on track. Is there any pent up demand because of some of the issues that you had with the system? And so you could see Q2 bounce back maybe stronger than you had anticipated previously? Or when you lose a day is it just a lost day essentially and you are not going to be able to catch that up? And then I have got a follow-up.

Matt, good question, a question we focus on quite often. Often in the Wound Care area when a wound is lost for some reason that we have created, a competitive product may go on it. If it is weather related matters, where the patient couldn't get into the center and sometimes that happens in the first quarter, perhaps that patient will show up subsequently and is not lost. So, those are the things over the next two weeks we want to dig deeply into. We think, we know what is going on but when you go through something like this if you don't go through a thorough analysis in exquisite detail then you are not doing your job as management. So we want to just take the next two weeks to -- that we’ve got all the numbers in front of us, to really dig down and understand clearly what we have and what we don't have and what is working effectively and efficiently and what is not working so effectively.

Okay. And then just a quick follow up. You did provide some comments regarding Q2 guidance you are going to hold off, you're -- I don't want to put words in your mouth, but essentially reaffirming -- reiterating your full year guidance at the moment. Is there a way that you could provide some comfort to investors and shareholders regarding that full year number? I know it sounds like you have still got some work to do, but as you look at the remainder of the year I would assume that you have got at least some handle on what happened in Q1. Where does your confidence sit right now for the rest of the year?

Well, I think the press release was pretty clear and specific. Prudent management does what we're getting ready to do and that is when you have something like this cause some issues and you miss your first revenue forecast in over four years, you do some work. So, I guess I could simply say today, if the revenue forecast for the year changes it's not going to change very dramatically. There is nothing systemically wrong with advanced wound care, there is nothing systemically wrong with our product lines or issues like that. We have tried to lay out these key issues, it is really one or two, throw in a third if you want. But it's a growing pain scenario, and the question is, will this persist into the second quarter. We know third and fourth quarter with these new product introductions and these VAC committees and so on could be very nice perhaps upside surprises for us, but we're not ready to talk about that. We just need a little more time to go through our numbers here.

Thank you, our next question comes from the line of Mike Matson with Needham & Co. Your line is open.

So I guess I have gotten some questions from folks about the level of receivables that you guys have. I mean it increased quite a bit last year throughout the year, through the four quarters. And I just was wondering, were there any customers that returned product and then that kind of had to be deducted from your revenue in the quarter? And what's your feeling for the inventory levels in the channel particularly on the SS&O side?

Matt, first of all, I know one of our competitors has had a lot of -- let's just call them business issues. I have been running public companies for 35 years, we are not going to have those kind of issues. And the answer is, no, there wasn't any return in the quarter that caused us a problem. Our DSOs, I know cash is king, so does Bill Taylor. We have had some extenuating situations develop as we've entered some new markets. And we have also, as you have heard Mike Senken state, we have huge growth, 300 and 400 new customers arriving here every quarter. And we are doing probably a more efficient job now. Mike Senken had to beef up his accounts receivable staff and get a better job done in collecting from those numerous small -- smaller accounts rather than a few large accounts. So these are just normal growing pains, there is nothing here in this company that we see or we would be telling you about it, that is going to cause some kind of dramatic issue here for us. These are just -- when you think of what we have done with the growth that we have done and the lack of issues associated with that over the last four years, I mean there is a point where you are going to have -- it is inevitable. You are just going to have a pain here and a pain there as you put new systems in place and doing things. Our Accounts Receivable, we are very focused on that. And we know better than to let it grow much but we have had periods where it would come up and down. So it is some fluctuations. We fluctuate I know between 65 days and 90 days. I expect we are going to be in the 80 day range here over a lengthy period of time. We may bring it down in the high 70s, but we're going to be in that range. So I wouldn't be too concerned about it.

Okay. And then just I guess with the sales management system, one thing that I am not sure I completely understand is how did it actually disrupt sales in the quarter? So can you maybe walk me through the sales force's kind of interaction with it? Did it just take away a lot of their time that they otherwise would have been out selling the product? Or were there issues where the orders weren't getting booked or delivered or something like that?

All of those -- let me make a comment, and Chris can give you more detail. The key is that our sales force beginning January 1 had to start tagging their sales. Previously they just made a sale and it went through and commissions were allocated appropriately. Once we got to the point where we were separating our Surgical sales and our Wound Care sales and these issues of having two or three people in the same hospital and trying to claim when a tissue gets used, all of them are claiming it. Those kind of things had to be resolved. And any company that goes through the rapid growth we have gone through where your product line now gets sold by two different sales organizations and things like that you have to do it. Now, any time you ask a salesperson, or frankly any person in an organization, to do more work there is always an issue. And on the sales side, a salesperson is very focused on one thing -- getting cases done and getting a commission check at the end of the month, it is as simple as that and when you disrupt that a bit it causes all kinds of issues. Some of them cope with it better than others and some of the management group in their particular territory and region cope with it better than others. All those are training issues, they are execution issues, they are management and leadership issues. Chris?

Yes, I think that disruption is just the key word, Pete. And Mike, we went through robust testing, as you would with any integration of the IT system, and in this case bringing salesforce.com to bear. A lot of alignments, a lot of people calling on the same customer, which we have had in the past but we need to make sure that the system that reflects that and sometimes there were glitches that you just don't pick up in the early stage and you have to go through that process. And when that happens, as Pete said, you may not get that one patient and that one patient may, in Wound Care especially, have three, four, five applications throughout a month or a quarter. So that was one of the key items, the other piece is the tagging as we have discussed now a couple times and we are going to be better for the tagging process. That is going to give us the ability to be even more specific to our sales forecasting, it is going to give us even better controls over consignment inventory management, going to give us a better understanding of how our products are utilized and we get into a broader range of SKUs now and product lines. And so, it was just a necessary process that we had to go through and as you looked at the same time, assimilating a new sales network that came with Stability Biologics, it just was the confluence of events that all hit together.

Okay. And then just one more question just on the Stability acquisition. So, you are talking about the value committees at the hospitals being an issue. I know you gave some guidance around the revenue contribution that you expected from Stability this year. But I guess I had been under the impression, and maybe I was just making an assumption, but that that was existing revenue that they already had. So in other words, it was sales from hospitals where the committees had already approved it. So, were you assuming some cross-selling benefit in there and that you would pick up some new business to get to that? I think it was a $15 million number that you had guided to?

That is correct, Mike. And let me give you some additional insight there. I have been doing this a long time and I have learned how over the decades to calibrate what someone tells me. Stability is a new group of individuals, they have got their way of doing things, we have got our way of doing things. We were not only conservative, I would say very conservative with the initial input we got from them. We did our due diligence before we acquired the company, we knew a lot about what they were doing. But until you all get in the arena together and get in the ballgame together you don't see and understand, when they think about something how we need to think about it. And I think they have learned some lessons this quarter as we have. And also again, issues that came up from some of their assumptions about VAC committee approvals and how long it took and what their experience had been before. Now remember -- and this may come up, you will see from our filings, Stability was about a $20 million a year company last year and the year before. We stress to you, and please remember this, those were sales of some other people's -- some other company's products, they were a distributor when the process of doing as well as they did, they developed this very, very effective and efficient sales rep group, okay. They transitioned over the last few months of last year and into this year to their own products. So I tried to give a clear insight, revenues would go down from the previous two years because they transitioned to selling their own products. Gross margins are going to go but revenues are going to come down. And we just I think in case of surgical Stability Biologics, even though we were very conservative, we probably needed to be very, very conservative and so, we got a little surprise there. But we now have calibrated management, they have gotten used to how we focus on numbers and I think going forward we will have that very well buttoned up.

Thank you. Our next question is comes from the line of Jason Wittes with Brean Capital. Your line is open.

Just a follow-up on Stability, you mentioned it underperformed this quarter. Can you give us a sense in terms of what the contribution was this quarter?

Jason, we are not going to do that. I think going forward they're going to predominately show up in our SSO business and that is the way we will have to deal with it. We have got too many SKUs. I don't think everybody has full conceptualization of just how many product SKUs this Company has today. Because we have grown so fast we don't talk a lot about it. But we are no longer just the AmnioFix, EpiFix, Physio, there is so many SKUs involving each one of those it would drive you as analysts crazy and drive us crazy trying to help you understand SKU movement, et cetera, et cetera. So, we are going to just think of Stability as principally a surgical focused company that will -- their revenues will fall under our revenues and they are being assimilated as one product line. So they will come through that way.

Okay, that is fair. And then just you mentioned three items that you think drove the disappointment in the quarter. You didn't mention turnover. I assume there has been nothing unusual there especially on the Stability side in terms of sales force turnover that we should pay attention to?

That is correct, that is correct. I mean the larger you get, you know we have got 200 to 240 sales people out there, we are going to have some turnover from time to time, some of it is associated with us, some of it is associated with -- I've heard some folks have left us recently and they just didn't want to work as hard as our group tends to work. Chris, have you got anything?

No, that is a very fair statement. We drive hard, we are pushing to grow. We probably have a lower -- let's say a more stable sales organization than other places I have been. And we have great people. So I wouldn't say that that is any issue especially for this quarter.

And then you mentioned value committees especially on the SSO side. My sense is, and certainly this quarter shows it, the Wound Care business has been very predictable. Surgical is sort of a new endeavor but it sounds like you are still waiting to hear from quite a few value committees at the hospital level. And can you kind of give us a sense of where those discussions are at the moment and how they've progressed during the year? And how they sort of help with predictability of that SSO business?

Well, I think probably all of us would be guessing. But as always there is personalities involved in these VAC committees. I mean, we get to the point we know it is Dr. Jones is doing this and Dr. Smith took a vacation. And plus you have got consultants in there today, management consultants working with hospitals and a lot of their attention is on these VAC committees. And hospitals are very reticent to add new technology without something going through a thorough VAC committee approval process. So, I think I can safely say for our whole healthcare industry, VAC approval process is going to be more slower and more onerous and you better have more clinical data and studies, et cetera, et cetera. It is just going to does not going to get any easier, it is just going to continue to be more detailed and more requirement associated with it. And I think we will be able to cope with it well because we are a company that has a lot of clinical information and scientific information. But it is just quarter-by-quarter, it just seems to be, okay, it used to take 64.3 days and now it is taking 91.8 days, it just seems to be lengthening. So we just have to plan ahead and act accordingly.

But the -- just it seems like in Wound Care it is a pretty well oiled machine, although I'm sure you are hitting the same type of resistance. In SSO there is a lot of new SKUs that you're going after. I mean, should we assume that it is just a longer process there especially since there is more groundwork to be done at this point?

Yes, I think you are right on, exactly.

Yes, it is a longer process, it is a new procedure from the standpoint of SSO and being surgically oriented and various specialties, it’s not as streamlined or clean as Wound Care, predictable from that standpoint. But the other advantage and the positive that we did see in the Stability acquisition was the fact that we actually could put those products, align them with our activities, leverage also the GPOs and IDNs that we do enjoy. So VAC processes are slowing, we take ownership for a couple of the misses that we maybe forecasted into this quarter and fell into the next quarter. But the reality is that that is the way it is going to be going forward and we'll manage through that.

So, just a final question on that, just if I think about your outlook for the year. I appreciate that you are going to want to really make the real comment in a couple weeks. But it still sounds like you are in general comfortable with it. I guess looking at these numbers today, the shortfall was SSO related and I am just curious if you think that your numbers are conservative enough for this year, given all the moving pieces that are going on at this point.

Well, I made a comment a minute ago, I don't think you are going to see any dramatic changes in our year end numbers. We may do some fine tuning to whatever, but -- and it may get more loaded towards the end of the year because of our new products, et cetera., which we will just have to -- the next two weeks we will try to be very clear on that when we give you some more insights.

Thank you. Our next question comes from the line of Mark Landy with Northland Capital. Your line is open.

I guess most of them have been asked and answered, but Pete just or maybe to Chris mostly, on the VAC side. If you have a look at where you are right now relative to where you thought you would be in the planning process, can you give us a sense of how much is still to do and how much has been done?

Well, I think we've make good progress, I think it is just -- it is numbers and the sheer volume of the centers that we want to expand into. And you just, Mark, never know, as Pete said earlier, what obstacles you may hit or may not. And so, in general I'd say that we continue to make good progress. But with -- for example, we had one expectation for a facility, a large wound burn center type facility and that order didn't come through this quarter. And it just was things beyond our control but that is the way it is. So, as we continue to go forward we'll -- we own it, we will get better at the forecasting on the SSO side and I think that that is just the reality.

Maybe I can push it a little bit there, Chris. So, if you assume that revenues were going to be X relative to the plan in terms of timing from the VAC committees, are you at three quarters of X, are you at 80%, 90% thereof? I understand that it is system and a center-by-center basis. But there are also revenues associated with those centers as you look at it in total. So can you just give us a sense kind of on the revenue from the guidance perspective to where you are in getting those revenue bases through the VAC committees as a total rather than just on a center-by-center basis?

Well again, it is hard to tie the very specific revenue to any one of those processes. We are going to take a look at it over the next two weeks, as Pete said. We feel very good about what the future holds and I think it is just a smoothing out that you are going to see here. I mean, if you really think about it, we closed on the Stability deal in mid-January, we have introduced some new products and I think it is more just a timing issue with the VACs at this point.

Mark, I wanted to see what he was going to say to you. I would have told you we don't know.

You can beat him up afterwards, [multiple speakers], Pete you have given us three headline reasons for the miss. Is it possible or can you attribute what portion of the miss relative to consensus could be attributed to each of those three categories or is that just impossible?

How about giving us two weeks on that one?

Alright, next up, the DSO creep, a lot of people have been focusing on it and I think Mike Matson asked most of the questions there. Pete, can we take from your comments that really we can think of maybe -- we haven't really seen the numbers for the first quarter but exiting 2015 they had jumped up quite a bit. Because if we look at those as a high point and start to see them trickling down from there as you work them down. Or do you think they can creep a little bit more and then start to roll over?

Well, let me tell you some, our Board of Directors, our audit committee and even the Chairman of this Board understands DSOs and the implications thereof, et cetera, I can tell you that our audit committee, our Board, there have been thorough discussions of that and of course with our auditors too. We are very much on top of that and there is some extenuating circumstances why it grew, but we also know it needs to decrease, period, end of discussion, and it will. So I don't think you are going to see any significant increases going forward I think you will see us begin to bring that down. And I can certainly -- when I answer the audit committee there is people on there that I hear them loud and clear and I also know the implications of having -- letting your DSOs creep and we are just not going to do that.

And then the last question I have, Mike Senken. Mike, are you in a position to detail what the Stability table to Osiris is or is it still too early?

Mark, we are not going to disclose any specific payable to any supplier.

Fair enough.

Make your guesses, you'll do good.

Well, a lot of people have been asking, they have had their eye on it. So I think it is a number that some investors would like to know. It is up to you whether you disclose them or not. So I will leave it at that.

Thank you.

That is all I have, thanks, guys.

Thank you. [Operator Instructions] Our next question is comes from the line of Bruce Jackson with Lake Street Capital. Your line is open.

First off with, on Stability, you said there were some integration issues during the quarter. Are there any other integration activities that need to be done or is the acquisition now fully integrated?

I can speak from a financial standpoint, Bruce, that we have issues that I mean just timing wise will definitely roll into the second quarter. They have their ERP system, we have our ERP system and there is a lot of work that has to go into, how do you bring those things together. So, at least on the financial side, yes, the integration continues.

And I think on the operating side to a great extent we have made most of that progress, there is still a little bit to be made but again I want to emphasize just because it is a small business relative to us that mean the integration issues are any easier than if we acquired a business that was our same size. Often same size or larger, which I have done before or it can be easier because the system is already mature, working, processes and procedures are in place, small businesses like Surgical, they are ideal for us in terms of we understand how they are operated and we understand that we bring a lot to that and make them a lot more efficient and effective quickly. But it still takes disruption on the financial side, there is disruption on the sales side as we integrate and some of that will continue into second quarter.

Okay. And then with the revenue expectations for Stability, I believe it was about 15 million originally. Is that still the number you are targeting?

I'm going to give you that guidance in two weeks.

Okay, two weeks.

As I said, don't -- it is not going to be any huge, oh my God kind of things, I don't think. We are going to get some things very fine tuned here.

Okay. Then last year during Q3 you had like a major distributor transition. Were there any other changes to the distribution network that had an effect in the quarter?

No, that was something that we finally knew we needed to do and we did it. We are supplementing that distribution group with some of these Stability independent sales reps who are filling in those boards for us, it just takes time to fill them in.

Then last question, you said there were no competitive issues during the quarter, and you sort of touched on some of the market conditions with weather, you also have the deductible resets on the insurance. Sometimes the procedure volumes can be -- move around a little bit. What is your view on just the overall market conditions during Q1 and how much might that have contributed to what was going on?

Well, Bruce, every first quarter there is winter issues, but we had those last year and the year before and the year before that. So, I don't want to give an excuse or extenuating circumstance related to weather. I mean this was our growing pain, we made the decision to this, we weren't as effective and efficient as we would have liked to have been. And the tagging process and I can just tell you, our sales force didn't enjoy it. It doesn't take them long to tag a tissue, but it is something else they have to do and keep up with. And they are busy doing other things. But I think there has been a lot of learning here, a lot of training and a lot of leadership and management being exerted and once we get through this it is something we just had to do. You can't run a company our size with the sales focus we have and the number of product SKUs we have and not bring some order to it. And we have done that. And this will pay off richly here in the quarters ahead.

Thank you. Our next question comes from the line of Matt Hewitt with Craig-Hallum. Your line is open.

Just one follow-up for me. I know you have been focused on the revenue side of things, but is there any update or comment on the profitability guidance that you provided either for Q1 or the fiscal year?

Well, we haven't dealt with that and -- because we don't have the numbers. I mean we get our revenues and once we -- we see them fairly quickly but we have to of course get our auditors to go through them with us and that takes some days. The rest of the P&L, Mike is not there yet. But I think logically if our revenues are down a bit our profitability is going to follow suit. So, first quarter is not going to be something that we pull profits out of the hat when revenues are down. I mean, we have got strong gross profit margins, at the same time we watch our expenses carefully, it is not going to be something that I think sends a shockwave, but our profitability will be down somewhat.

Thank you. I am showing no further questions. I would like to turn the call back to Pete Petit for closing remarks.

Okay, thank you very much. Well, we would have rather had a different subject for the call, but I appreciate you being on with us. Please appreciate the fact that management is probably more frustrated with this than you are. But is a normal growing pain that after four plus years we just had to go through. And the blessing here is that our products, particularly on the Surgical side now, are being well received. We have got a lot of product SKUs, we have got a lot of valuation committee activity going on and this will all be beneficial to us and we had to take this step to put this sophistication of system in place or we would have gotten out of control here very quickly. So it is a blessing that it has happened, I'm sorry we didn't execute it as perfectly as we have done some other things here. But we will learn from this and move on. Thank you, I hope to see some of you at the Needham conference. Take care.

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