Good day, ladies and gentlemen, and welcome to the MiMedx Group, Inc. Third Quarter 2016 Earnings 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 be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Thornton Kuntz, Senior Vice President of Administration. Please go ahead.

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, 2015 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 and filing it makes with the Securities and Exchange Commission under Federal Securities laws. With that, I'll turn the call over to MiMedx CEO and Chairman, Pete Petit.

Thank you, Thornton and good morning. I appreciate you to joining us for our third quarter shareholder call. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; and Chris Cashman, our Chief Commercialization Officer, there are certainly other executives in the room. I would like to thank that our third quarter should be viewed as a good solid performance. As previously noted, we exceeded our revenue guidance for the record of $64.4 million, which was a 31% increase over the third quarter of 2015. This revenue exceeded upper end of our guidance and the analysts' consensus estimates of $63.1 million. For nine months ended September 30th, our revenues increased 29% over 2015 to $175.1 million. From our standpoint, our most important financial metric is our adjusted gross profit margin which came in at 88%. As I've said on numerous occasions, this is the clear indicator of outperformance operation in any market pricing pressures. We continue to make improvements in our production processes, which offsets any pricing pressures we have seen so far. Our adjusted EBITDA for the quarter was $11.4 million and we've had an adjusted net income of $6.2 million. This provided an adjusted diluted net income per share of $0.06. As we have said on previous occasions, our operating profit and net income are controlled by managements' decisions regarding our feature-short and entry term investments. We made decisions earlier this year to invest more rapidly in three new product line introductions to expedite their introduction and that has taken place. In the third quarter we introduced our Lyophilized OrthoFlo product as well as our AmnioFill product line. In the second quarter we introduced our umbilical cord allografts. All these new product introductions have reduced our operating profit this…

Thanks Pete. We had a very through shareholder call back in early September where we spent a lot of time covering our clinical studies and our FDA outlook. Therefore I will not cover those areas today. As Pete mentioned, the third quarter was another good by our team with several very strong performances various groups. Our commercial Wound Care team had a particularly strong performance, even considering the summer vacations schedules of physicians and patients. Our analytics' team has done an excellent job of mining various databases that has identified numerous growth areas for our sales force and we'll see a significant opportunity for continued revenue growth over the coming years. We've outlined our territory management plans for the next five quarters and are very excited about the expansions I believe that we see. Central to these plans are the addition of sales personnel. As of today, our fueled sales force is up to 300 professionals and we have plans to hire about 25 more in the next months as our sales momentum continues to build into over the next three months. As our sales momentum continues to build, we will also continue with our detailed plans for hiring nationally through the end of next year over those five quarters. So our progress in the third quarter with respect Stability Biologics was hampered some production issues. The revenue from SB products in the quarter was noticeably less than we expected due to the additions. We had deployed several of our Marietta resource to San Antonio to address these issues and we have been making progress. Had we not experienced these factors, we likely would have had additional revenue, thanks to our Wound Care, Surgical and Orthopedic team performance with [indiscernible] products. We are very pleased with these groups ability to…

Thanks Bill. Good Morning. We are pleased with our Q3 performance. Our sales force is now just about 300 individuals and we'll grow to approximately 325 in the next three months. Our Q3 performance was led by a strong effort in commercial Wound Care. We are benefiting from our new sales alignment instituted in the first quarter, which allows for greater focus and attention on our core business. The business planning and sales management system we implemented has enhanced the guidance, direction, measurability and focus to really improve our results as we expect it from this process. SSO had a slow start, which is normally the case during the summer months. However, outside of the FDA issues described by Bill, the rest of SSO came on very strong to close out the quarter making up the initial ground lost towards sales objectives. We added a number of additional distribution partners in the Orthopedic and Spine areas as well as for our Physician office initiative which I will speak to in a minute as part of new product comments. Internationally, we attend the World Union of Wound Healing Societies conference held in Florence, Italy at the end of September. There was great interest in our product and our booth was literally swamped. We sponsored a Lunch Symposium entitled the dynamic impact of EpiFix amniotic membrane allografts. The chair of the Lunch Symposium was Dr. Severin Läuchli a recognized though leader in Switzerland. He spoke on the Swiss experience with EpiFix. Dr. Tom Serena presented the scientific and clinical evidence of EpiFix dHACM membrane. Dr. Mathew (Gerapolis) presented application techniques therapeutic approaches using EpiFix and AmnioFix allograft for would healing and surgical procedures. I want to empathize this was a very important meeting for MiMedx as we now count within our sales…

Thanks Chris and good morning. The Company reported revenue for the third quarter of approximately $64.4 million, an increase of 31.4% or $15.4 million over prior year third quarter revenue of $49 million. Wound Care revenue was $49.8 million which represents an increase of 39% over prior year and 18.5% sequentially with growth driven by additions to our commercial Wound Care sales team. SSO revenue was $14.6 million which represents growth of 10% over prior year and a decline of 5% sequentially. Growth in SSO revenue was lower than expected due to ongoing integration issues of the Stability Biologics acquisition. With the continued expansion in our sales coverage, we added 400 new customers in the quarter. For the nine months ended September 30, 2016 reported revenues were $175.1 million, which represents an increase of $39.7 million or 29.3% as compared to prior year. Year-to-date, Wound Care revenue in $131.2 million as compared to $101.2 million in the prior year and SSO revenue is $43.9 million as compared to $34.3 million in the prior year. As discussed in prior earnings conference call, due to the impact to result of the acquisition of Stability Biologics that closed on January 13, 2016 and the release of evaluation allowance on the deferred tax asset and its effect on net income in 2015, the Company has decided to include additional adjusted non GAAP measures in our press release an earnings call, to provide a means of comparing normal ongoing operating results on a year-over-year basis. The additional measures include adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted EPS to normalize result for comparison purposes in addition to reporting GAAP results. Tables are provided in our press release, which reconciles non-GAAP to GAAP reported results. GAAP gross margin for the quarter were 87.6% as…

Thank you, Mike. Let's open the call for questions and answers.

[Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum.

Good morning, gentlemen, and congratulations on the strong quarter.

Thanks Matt.

A handful question here, first, could you provide what's the Stability Biologics contribution was in the quarter just so I can figure out organic piece there?

The direct contribution Matt was $2.6 million and I caveat that because that doesn't include the success of our product through their channel, but of their product, it was $2.6 and that compares to approximately $4.1 million in the previous quarter.

And then if you could help us with the disruption that you saw in those products. Is there any way to quantify how much impact you saw in the quarter?

This is Bill. Had we not has the issue we faced, my personal belief is that we would have been above where we were last quarter.

Okay. That's really helpful. Thank you. Shifting gears a little bit, international, where is that now, I mean are you generating sales are yet or is this still about kind of laying groundwork for next year?

Yeah. Matt, it's Chris. We really are laying the groundwork, as I stated earlier in that World Union Meeting, that was significant meeting for us. In many ways they are major introduction, the full EU market as, all these doctors were global. But we lay the groundwork now. We have the approvals in Italy, in U.K. for allowance, we're in Switzerland. So, we're starting to make some good inroads there and we're started to dive deeper into the relationship local distribution partners that are all trained up and going. So, not a lot of significant revenue to report yet, but the groundwork is laid and we're excited about it.

Then, as far as the new product that you've recently launched or intending to launch here shortly, what segment - and forgive me, if you mentioned those on the mid quarter call, but what segment will these product be falling into, just form a modeling perspective?

So, on the AmnioFill side, because that's predominantly occurs in the operating room, I think that you will see and Mike can jump in here, I think the plan is to probably report is in the SSO segment.

Correct.

Then on the OrthoFlo side, again the bulk of that as we have begun to share with you OrthoFlo historically might have been done more in the hospital, because of the cryo preserve version of it and the handling characteristics. But with the Lyophilized version, physician office pain management has become square on the bull's-eye of where we're going to be focusing the future. So that will continue to be in the SSO.

If I could just jump in on that too, on the AmnioFill side, while we're reported in it SSO, it is going to be sold by both our sales force. We have a number of our Wound Care folks that are very active surgical suite, in inpatient surgeries for DS wounds and so forth. So, it will be sold by both group, but for reporting purposes, it will be in SSO, just to make it little bit simpler. Then, we've got the core products, which AmnioCord will be reported in SSO and EpiCord will be reported in Wound Care.

Perfect. Alright. Thank you. Then, I guess two final ones from me here. Number one, DSOs, I think Mike you mentioned that you are adding resources to help bring that number down. Do you have a target in mind whether not necessarily here in Q4, but do you have target in mind, maybe as you exit 2017, you want to get to X number of days.

I think looking at our customer base and our mix, quite frankly, our targets are probably closer to 75% than the 89% that we're at.

Then one last one, as I've been doing checks here over the past few weeks, Hurricane Matthew, it sounds like there was some disruption in the southwest, hospitals and facilities closing. Have you factored that in your guidance? It sounds like some facilities were closed for a couple of days? How does that impact your business here in the fourth quarter? Thank you.

So, we do factor it in that. We take it into account. We do have various situations. But I think that for us, Q4 is always is normally a strong quarter for us revenue wise and we'll be able to handle those issues as well as continue on the growth trajectory that we've seen for the fourth quarter.

I mentioned in my comments that October started out quite well for us.

Great. Thank you.

Thank you Matt.

Thank you. Our next question comes from the line of Ethan [indiscernible] from Needham. Your question please.

Hi guys congrats on the quarter. A couple of quick questions from me. Could you maybe discuss any updates on the perspective trial of AmnioFix da Vinci prostatectomies?

This is Pete. Dr. Patel study and of course he did a retrospective publication year so ago that was well received. Now that prospective result should be pretty much finalized by the end of this year. We expect publication by mid next year, but the trial has gone exceptionally well and 230 patients in the trials, so robust trial and looking forward to having that information published.

Okay. Great. And could you maybe talk about what procedures you guys are most focused on in the Surgical business?

Sure Ethan. Specifically to the abdominal pelvic area, I think you let into that question about Dr. Patel and the prospective study, we are still very focused in urology as a lead procedural candidates. We still do it prostatectomy procedure and that revenue continues to grow and there is good acceptance of good traction there. We also focus in on colorectal areas, especially when there are resection or there is asymptotic size adjoining two opposing tissues and you need to have enhanced sealing. We also see use both in general surgery as well as general surgery as well. So, that's the abdominal pelvic area, again we're creating and really driving a new market opportunity and it's totally focused on enhanced sealing. Now, there's never been a tissue that's been introduced that is so rich in specialty proteins and growth factors as is AmnioFix and our technology platforms. So, our team is doing a good job there. On the SSO side - I'm sorry on Surgical, specifically within Spine and Orthopedic side, we're focused with our membrane and reconstructive procedures, like knee replacements where with enhanced sealing and modulate the in-patient as well as some of the other sports medicine areas in Spine again for acting as a barrier to scar tissue formation.

Okay great. Thank you. That's it.

Thank you. Your next question comes from the line of Bruce Jackson, Lake Street Capital Markets.

Best quarter and thanks for the comprehensive overview. Just a quick question about the OEM business, so - with specifically with the new Zimmer agreement, have you booked any revenue off of that? And can you just talk to us about the anticipated ordering patterns for that going forward?

This is Bill. We have booked revenue starting in the third quarter on that. We won't go into detail on how much. But it's already - let just say, puts them in a different category than our other OEM relationships, probably the best way to put it. And we do expect that, then we'll have essentially quarterly orders from them as the business builds. I think that will translate into monthly orders. But the initial build, that are most likely to be quarterly orders.

Then are you exploring any additional OEM agreements?

Always.

Okay. Great. Then finally with the international expansion, so you are working and doing the regulatory work in Germany. When we will likely see some actual revenue from that country?

Well, Germany is going to take a little longer than some of these other countries. I think we're probably still - it's safe to say a year out before we might see some type of approval on allowance in the country. So, could be later - late 2017 going into 2018.

Thanks very much. That's it for me.

Thanks Bruce.

[Operator Instructions]. Our next question comes from the line of Joe Munda from First Analysis.

Good afternoon guys. Can you hear me okay. So, quick, I guess piggybacking off of Bruce's question with Zimmer and the agreement there, I mean are they - as far as, and you may not have the answer to this, but are you selling - are they selling OrthoFlo along with selling their Gel-One product, or are they shifting, or do you think that they are shifting specifically to OrthoFlo and using that as their hyaluronic acid choice, if you will?

Well they have dedicated group, and I don't want to speak too much about their inner working. So, I'll be respectful of their business. But they do have a dedicated group that is selling their Amnioflo and they have made it a product that is at the forefront of that effort in the physician offices. And that's what we're excited about.

Then switching gears towards AmnioFill, I guess doing a little deep dive when the announcement came out with ACell being a primary competitor. I was just wondering if you can - trying to give us a high level comparison if you will, the benefits of AmnioFill versus Acell's product? I know there is this (collagen) base I believe?

Well it is the Xenograft, and of course its collagen-based and you know there is a few growth factors in it, but it does not contains the benefit that you would see in an amnion human derived amnion based product where we have both the human collagen ECM as well as we've reported the growth factors that we're now at 200 points [indiscernible] counting proteins and chemokines, cytokines. So from a - if you will a safety factors that we've talked about a lot internal sterilization, the growth factor composition, it is and of course our expertise, and then we look at the processing side of it. We are very excited about the differentiation of it. so, as well as the scalability of this process. Again, I think Pete has said if before, we weren't using all of the placenta, there's also no there is an opportunity to continue to take ways [indiscernible] internal processes and drive this from the placental disk. So it is a highly, highly differentiated product and I think you'll see that in marketplace.

I'm sorry, Chris. I just realize the question on OrthoFlo, I don't mean to flip back and forth here. Pete opened up his comments regarding the reimbursement and your experience there. I mean are you - can you get us an update as far as what the pathway looks like right now for OrthoFlo getting reimbursement, I guess or QMS code, if you will, its own QMS code. Can you give us some idea what that probably could look like as far as timing is concerned and what you guys are doing right now to achieve that?

Yeah, I'd say a couple of words, and then I'm going to hand it over to Bill as well. As we said, with the Lyophilized version, we are going to focus in the physician office. There is a significant opportunity there. As I stated earlier, there is over 8 million injections every year and it's growing at a significant rate and over $1 billion will be spent this year between PRP and hyaluronic acid. So we believe that there is still a meaningful out of pocket market for us over the next say, year and a half, two years. As our initial data comes out and Bill will speak to this a little more, but we do have plans and I'm not sure that we fully have disclosed all those plans on trials, but we have significantly wrapped up those efforts.

Relative to reimbursement, we have a number of efforts underway based on clinical data that we are gathering for incremental reimbursement for various products, OrthoFlo being one of them. I don't want to go in a lot of details there. There are a lot of variables in terms of timing and the extended which - we will be able to get reimbursement and for what setting we'll be able reimbursement, whether it be for physician office or outpatient, et cetera. So about all we can say now is we do have plans for achieving reimbursement before these various products. I really don't want to go in a lot of detail on timing for how we are moving about it, because obviously that's one of our competitive advantages. So, but do - it's not going to be anything that is imminent, because these things obviously do take time. But I think if you look out downrange in the neighborhood of two-ish years from now, I think we'll have a different landscape than what we have today.

And Joe, if I can just add one another thing, I think there is two points to remember. One, not every patient - lot of patients aren't going to respond to the options and products that are in there today, whether it's HA-based product or PRP. So that's one opportunity where obviously we have - the patients will turn to something new and the doctors. But, number two, OrthoFlo as well as our AmnioFix product portfolio are very differentiated from a technology standpoint. HA is literally hyaluronic acid, and so, it will - it will create some lubrication in the joint for a period of time. But it doesn't have the new proteins and growth factors, cytokines that are in OrthoFlo in the amniotic fluids, and that is a huge differentiator. So, again that's why we are bullish on the other part of this.

Okay. That's helpful. Just a one -- couple of more follow-ups, regarding Stability Biologics, I just want to make sure I have this right $2.6 million versus $4.1 last year. But this year, they're selling their own proprietary products as opposed to distributing other people's product last year, right?

Joe that was sequential numbers, not last year.

It's quarterly, yes, that's the case. Remember we try to convey this in a numerous ways, up until this year they were basically not a manufacturer, they were a distributor, although last fall they begin to process. So they are now manufacturer, in essence where were haven't to give them substantial help.

Okay. And then any update on their rep count or are they still running roughly 100 reps since the last turn?

I think that's a fair number to work with. In my earlier comments I said that we've added other additional agent distributors to our network, but we're always reconciling in rationalizing those groups, so that's a good number.

Okay. Thanks.

Thanks, Joe.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Pete, Chairman and CEO.

Thank you. Well again, we appreciate you joining us for this update. We look forward to continue to report results that line with what we just reported. We are optimistic about the changes we made earlier in this year in terms of our systems and everything else. And we spend our time hopefully in the penalty box for slightly missing our numbers first quarter. And hopefully we'll continue to report what we've done in last two quarters for you in terms of results. Thank you and we'll be in touch.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.