Good day, ladies and gentlemen, and welcome to the MiMedx Group, Incorporated Q1 2017 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 follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Thornton Kuntz, SVP 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, 2016 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 Pete Petit, MiMedx's Chairman and CEO.

Good morning. Thank you for joining us for our first quarter 2017 conference call. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; Chris Cashman, one of our Executive Vice Presidents and Chief Commercialization Officer; and Mark Landy, our Vice President, Strategic Initiatives. There are other executives in the room with us. I'm going to start by giving you some overviews of our first quarter revenues, profits and cash flows; I'll also review some of the discussion we had on the March night call when we announced our new strategic plan and vision from MiMedx and I'll give you couple of other updates. As we previously announced our first quarter revenues exceeded the upper end of our guidance and reached $72.6 million, that's a 36% increase over first quarter of 2016. This very nice increase took place in spite of our first quarter having normal seasonal constraints from health plan benefit resets and winter weather making it difficult for patients to visit their physicians. In addition, we had some slight dislocations associated with the termination of seven sales employees would cause replacement for new sales person [ph]. As we look forward in 2017, we are very confident about our revenues continuing to grow in a robust - at a robust pace as we have forecasted. We're confident our second quarter continuing our growth trends; however, we are very confident about third and fourth quarter growth trends because we will have completed the wind out of our AvKare contract and those administrative distractions. You saw the increase in our profitability over the fourth quarter as we've previously stated our profits as a percent of revenues and overall profit should increase very nicely during 2017 because we have most of our new…

Thanks, Pete. Q1 2017 was indeed an excellent quarter by nearly every measure we have, in particular compared to last year and even compared to previous years. This first was particularly satisfying and that we were able to perform quite well with significant sequential growth, even what is typically the softest quarter of the year due to weather and reimbursement resets. I think this is a testament to the changes we made last year in our Sales Management System or SMS, as well as the leadership and has emerged from our field sales force made a number of personnel reassigning's over the past five quarters and brought in some very seasoned professional managers who've contributed significantly to the organization making our business stronger. And a few sales managers that have been with us for several years are developing into better managers; not published on executing more detail sales initiatives and helping to grow the business by managing deeply into specific metrics and initiatives for each territory. We project another good in Q3 grope order to keep you even better to the end of the year to spend a good percentage of our time focused on efficiency than our silvers, as well as other areas of the company. In fact, we've had specific resources dedicated to process improvement issues. Over the past several years both our farm and did a fine job of proving I don't process, there are explosive growth however, our business complexity continues to increase therefore we have a need to create the additional focus of specific process improvement research. We don't run the company for what we need today we are building systems, integrating prophecies and creating an organization that will support and take us through $0.5 billion of revenue and beyond. As you know, Q2 of…

Thanks Bill, good morning. We're pleased with the progress that we made in the first quarter. We grew revenues 36% year-over-year overall, and revenues were strong in both of our market focuses of Wound Care and SSO. Wound Care grew first quarter 40% over prior year's quarter and SSO grew 26% over the prior year's quarter. What was most notable about this performance is that there was nothing special or exceptional. This is a continuation of our strong sales momentum carried forward from 2016 in our core business initiatives. Additionally, our three new product initiatives of EPI and AmnioCord, AmnioFill and OrthoFlo; all made solid contributions to our revenues and continue to find their place in our portfolio. I've shared before the first quarter is normally the slowest revenue quarter of the year, this is due to multiple different factors such as deductibles reset, many surgeons take-off in parts of January after a heavy case load during the holidays and year-end. The weather could be an issue and this year specific to MiMedx, a few centers associated with individuals, we had to let go for selling competing products went through transitions. Nevertheless, we continue to exhibit strong momentum in our business and we feel good about the ability to continue to deliver on revenue growth as we have communicated. Recall, our revenues fell short of guidance a year ago as we went through distractions of sales force realignments and implementation of a new sales management system. Now one year later our management understand their own business much better and our analytical processes and SMS planning are forming how we target our competitive threats, how we plan, launch and track our new product introductions, where we add our new representatives, how we realign territories with a purposeful cut to grow mission,…

Thanks Chris, and good morning. The company recorded revenues for the first quarter of approximately $72.6 million, an increase of 36% or $19.2 million over prior year first quarter revenue of $53.4 million. The increase reflects the continued momentum in commercial wound care sales in contributions from new product sales in AmnioFill, OrthoFlow, Epi and AmnioCord products. The increase was somewhat offset by a lower revenue contribution from stability biologics products primarily driven by the decision to discontinue sales of lower margin products, as well as the expected wind down of sale to AvKare as we transition to direct sales to our own FSS schedule. We saw strong growth year-over-year of 40% in wound care coming in at $54.9 million and SSO revenue growth of 26% coming in at $17.7 million for the quarter. GAAP gross margins for the quarter were 88% as compared to 85.1% in the first quarter of 2016. Adjusting for the amortization of the Stability Biologics inventory step up, gross margin was 88.1% in 2017 as compared to 86.5% in the first quarter of 2016. Included in the press release is a reconciliation of GAAP gross margin to adjusted gross margin. The year-over-year improvement in gross margin is due primarily to higher sales volume and improved product yield. R&D expenses for the quarter were approximately $4.2 million or 5.8% of quarterly revenue as compared to $2.5 million in the first quarter of 2016. The increase is driven primarily by increased investments in critical trials including the BLA trial for plantar fasciitis, as well as the large multi-center VOU and DFU trials. Our guidance assumes increased year-over-year investment in clinical trials as we pursue our biopharma strategy. Selling, general and administrative expense was approximately $53 million for the quarter or 72.9% of quarterly revenue as compared to…

Thanks Mike, and good morning everyone. As we have said today, a biopharmaceutical transition is progressing nicely and operationally we're making very good progress. Enrolment in our Phase 2b plantar fasciitis clinical trial is wrapping up and we are preparing to a numerous FDA needs. In line with current guidance, we expect to release interim Phase 2b plan to fasciitis data and file an IND for amniofixing fixing jet fuel as a treatment for knee pain caused by osteoarthritis during the summer. Through a lot of art work and some fortitude, MiMedx is in a unique and very fortunate position. Our core technology platforms provide a deep product pipeline, they give us the opportunity to very efficiently bring new products to market that address large unmet clinical needs. We believe the indications we are pursuing and will pursue in musculoskeletal pain, respiratory disease and cardiovascular may represent multi-billion dollar markets. In our view these indications stay nice of revenue growth rates in the years ahead and drive meaningful earnings leverage. The transition we're undertaking does not just encompass development, regulatory, and commercial activities. It is broadbased and includes benchmarking the company against the most appropriate peer group. This is extremely important because that drives alignment of corporate culture and provide the ability to recruit and retain the very best talent. Our recently filed proxy statement reflect some of the activities we have undertaken. How MiMedx is used by the capital markets and the peer group investor use to benchmark and value the company; it's an important component of our success. Until our biopharmaceutical transition is well understood, management must keep investors informed, educated, and up-to-date. We must do this to ensure we have correctly benchmarked, always valued within the appropriate context and introduced to the right institutional investment groups. Presentations made to management by the financial institutions confirm our views and the comments we presented on the March 9 shareholder update call. We believe that MiMedx at this point in its transition should be bent benchmark against the peer group comprising a mix of high growth make and biopharmaceutical companies. The average enterprise value to revenue multiple of one such life sciences peer group is 8.7% for 2017 and 6.9% for 2018 with a median of 8.3% and 6.9%. At its current market capital, MiMedx enterprise to revenue multiple is 4.7 for 2017 and 3.9 for 2018. This represents a 45% discount for both years. With that I'll pull - I'll hand the call back to Pete.

Thank you, Mark. Well, I hope you understand management's enthusiasm of what has been accomplished first quarter and our positive outlook for the remainder of this year and beyond. Also I hope you understand our enthusiasm related to our transition to a biopharma company and a huge opportunities at office to us. Also as we have certainly just discussed, we feel that MiMedx is at least two to three years ahead of our competition relative to reimbursement, GPO and IND contracts, the state-of-the-art production facilities with automation, capability to manufacture and the good manufacturing practices or GMP. Production facilities with increasing amounts of automation, a well-trained sales organization of over 325 individuals and growing; an information and technology infrastructure managing all aspects of our business. As we've clearly stated that we believe it's going to take the best competitors several years to match where we are today; then please consider where we will be at that point. Chris Cashman gave you numerous facts on certain actions by our competitors, please reflect on those. We hope the details on our first quarter as well as some additional commentary on a new strategic initiatives in the biopharma has been helpful, and puts into perspective where your company is headed the next several years. Now I'll open the call for questions.

[Operator Instructions] And our first question comes from Mike Matson from Needham & Company.

Hi, thanks for taking my questions. I guess I just wanted to start with the transition away from AvKare. So can you just talk about how that was structured? Were they a stocking distributor or you were paying them commissions? And then what sort of impact will this transition have on your revenue and margins?

Well, I'll comment on margins real quick they were afraid. You'll see our operating profit as a percent of revenues go up. I'll let Bill comment on the other.

Yes, we're a stocking distributor and what were the time as was got our FSS. Obviously we had some customers that brought RSS - FSS schedule, goodwill some of off theirs we actually had some that were in the middle of the box some products off of our contract and some on there. There were a number of - our newer products for instance in some of our new use were not converted that would last two years. So we were necessarily - and many cases saw possible contract into the same facility so that's one of the reasons why the transition has been rather complicated. If I can add Mike, as stated, we started this transition actually going back to 2015 celebrated in 2016 and its winding down in 2017. So it's any more urgent impact plus or otherwise is factored into our numbers.

Okay. But there were stocking distributors where - I assume you've signed the products of some sort of transfer price of your pricing which effectively go up and I know some of this is already kind of run through the piano like a house but is that correct that your pricing would end up being higher in the first margins on that business?

Yes, that's correct Mike. But again that has been kind of run through the P&L over the last - almost two years. So you're not going to see a dramatic change come the second half of this year as we wind it down, let me keep in mind that AvKare is a stocking distributor, we've been transitioning different facilities overtime and when a facility is "clean" and they've wound down the AvKare inventory then we move in there as a Director our FSS. As Bill mentioned there were a couple or few that we're kind of going through both FSS contracts which created some confusion and - but that will go away, come the middle of this year but again in terms of modeling out margins in the second half of this year, I would just say that what you've seen over the last - certainly over the last 6/9 months is already takes that into consideration.

And Mike this is Pete, let me conform what Mike said what I said. The margins gross margins have gone up gradually as we've moved away from selling more through them or through our direct FSS number. And therefore operating profits will follow through with that. Mike's pointing out that this transition has been underway for quite some time so the margins have been escalating during that period of time and will begin in July 1. All of those factors are pretty much behind us, so last half the year you should see us operating without any influence and the administrative overhang of having to very carefully work both of these contracts at the same time.

Okay, I understand. I mean your wound care growth in the last couple of quarters has accelerated, so I mean does that have anything to do with this transition or is it just the sales management system and just better productivity out from your reps and de-reps and things like that?

No, I think that can be attributed to what we did a year ago and try to explain to our shareholders that we've put in an extremely effective new sales management system. Again, from my standpoint I've transitioned in this way previous companies several times and as you grow rapidly there is various things you must get in place and we did that perhaps six months later than we should've but it took a little bit of - went out of sales first quarter last year, this is sales on-station has to get readjusted to managing things in a different way but I can assure you that we have an extremely effective sales management system. I think our sales personnel now are operating in a whole different realm of efficiency and effectiveness and that's what's given us this kind of momentum.

Okay, thanks. And then Bill's comment about the sales rep lawsuits; so I would assume - or am I correct in assuming that what the attorneys were drawing that these are officially dead or is there some potential for them to go out and hire new attorneys or some way that it's been?

Well, I think that needs to be read simply is an advance; it's rather rare for attorneys to withdraw. They can hire new attorneys, we're waiting to see what happens there but it should be an indication of the nature of this whole activity and the individuals involved and their own personal goals associated with it. And again it's been very detrimental to the company, we can't deny that, it's taken a lot of effort and time but as usual this management team has been affective and whatever we encounter and we've gotten got through it with us it's going to be behind us here but I can't speak to that other than to say that consider several attorneys resigning ought to speak greatly to the particular aspects of the case.

Okay. And then finally just - you've set us dollar EPS target out there for 2020. So the most recent quarters, I mean we've seen some moderate leverage but in order to hit that dollar and duly accelerate the leverage, so I guess the question would be what is that half of a dollar work like? I mean at this point I guess I got to believe it's more of a hockey stick effect where you're going to get us by the leverage from the short-term but then in the outer years it would some pretty dramatic leverage. I mean is that the right way to look at it?

I started to think so; I think I've tried to convey that the operating profits of this company - if we were wish to accelerate those, of course, this year they are accelerating quite dramatically anyway from our shelter right except expenses that we've put in last year on purpose to bring those new products to market. But whether businesses starts with about 90% gross profit margins even if you're investing heavily in sales force assets, research and development assets, you still overtime as those assets begin to mature should see rapid increase in EBITDA, adjusted EBITDA and operating profits. And we're very confident in next year, year after and so on and seeing our operating profits and adjusted EBITDA increase dramatically. So we're not wavering on those goals set for 2020.

Okay. And I guess just as a follow-up on that - this accelerated trials, I mean if the R&D level were to go up by a couple of points, I mean I would assume that that that might mean that that dollar gets pushed out a little bit; is that the right way to look at it?

Well, I think understand we currently have 30 studies going on all over the U.S., almost 200 physicians involved and I forget how many sites. So our R&D is going to go up a bit but it's not going to go up 2%, 3%; it's going to go up probably less than 1% because we'd be transitioning these adhoc studies we've been doing into more focused IND BLA studies. So we're very engaged and I've got a quite an effective staff in terms of MD's, nurses, other clinicians associated with keeping these studies moving. So we'll be just transitioning from some other adhoc studies. These two studies we're talking about having results on a good and getting published this year on VFU and VLU. Those have been very expensive studies and relatively speaking for us and have taken a lot of time, those will be completed by mid-year here. Those assets will be moved into these BLA-IND-BLA study. So it is not going to be this huge also in one year 3% jump in R&D expenses here.

Yes, and I mentioned too that it's short to medium term. I think by the time we get out to 2020, a lot of those that will kind of normalize as well. And plus some of these studies we're looking at - actually we've got some experience with our Ortho-Flow trials in the knee that we can actually enrol these trials very, very quickly. So much more quickly than we have in our previous larger scale studies. So that holds true as we expected to and we'll be able to move to them quite rapidly. Mike, just from a modeling perspective, that dollar in adjusted earnings assumes fully loaded R&D programs. So we're not increasing the amount of those programs, some of that might just be pulled forward. So it's just how they run through the years but the dollar amount stay the same, I'm out through that period.

Okay, that was helpful. Thanks a lot.

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

Good morning. Congratulations to the strong start of the year. A couple of questions, first on the gross margins - I want to go back to that a little bit, so - and thank you for the explanation as far as how the AvKare transition to your own supply schedule is going to help but that was an area gross margin where with some of the new products and some of the new markets, you would anticipate that trending down a touch going forward maybe, 86% to 87% range; is that still your kind of your long-term or short to medium term target or do you believe the Q1 rate of 88% is sustainable in the longer term?

I think according to our models when you look out to the 2020 projections; you are seeing them tick down closure to the 86%, 87% range but that's going to take some time and that's making certain assumptions in terms of what the margin profile is and in the high growth area of sports med. In the near-term and we put it in our guidance that we expected margins to rebound somewhat from last year and we're still holding to that for '17.

Okay. Secondly, maybe Pete, you could give us an update - I know there is a couple holdouts on the large insurer front; any progress with those?

There is always progress, what we want to convey to you is success and we don't have that success yet. The hold out certainly, well - our preferences with I believe personally that these particular health plans once we publicize the VOU and the DFU studies which are multi-center - 10 or 15 multi-centers, 100 plus patients or more; once we publicize those there's no leg to stand on in terms of not providing coverage.

Okay, fair enough. And then you mentioned there were some one-time costs that hit in the SG&A in the first quarter. How should we be thinking about that line item over the remainder year? Will that trend down a little bit here in Q2 and then get back to a normalized creep or doesn't stay elevated because of the new hires that you completed late in the '16 or early '17?

Sorry, Matt, I think that was my comment, that really referred more to 2016 with the stability acquisition. There was a small amount of onetime cost in '17 but not significant.

Okay. So the Q1 rate is kind of a normalized rate and we should see a little bit of growth off of that sequentially through the year?

Yes, I mean we're going to continue to add sales folks, I can't say that you know typically the first quarter is a little heavier in SG&A area because of sales meetings and the like. So we expect to see continued leverage of the SG&A, as a percentage of revenue in follow-on quarters.

Okay, great thank you. And that's it for me, thank you very much. Congratulations. Thanks Mike, okay, let me add that management has a pretty important commitment at 11:45. So if it's a modeling question I'd ask you to contact Mike and resolve that, if there is any other questions that Bill or myself - Chris. Next question?

Thank you know our next question will come from that Matthew O'Brien from Piper Jaffray.

Alright, thanks for taking my questions. I'll try to be quick. I'm sorry Pete, this is kind of a modeling question, I'm just looking at the Q2 guide. And you know it's - it's not - even at the midpoint not a huge increase sequentially even though that's not what you've done the last couple quarters and it also has a pretty meaningful contraction in the productivity of your sales force, quarter-over-quarter which again I haven't seen. So just curious as to why you're looking at it that way? Is there something specifically that leads you to that kind of conclusion or is it just a matter of conservatism?

Well we're always don't try to be conservative but this quarter is the last vestiges of all the administrative process and procedures and headaches it's been necessary to wind down AvKare and we just - this certain sales force the focus there and sales management be focused. So we're programming that into not as being as efficient as we could since this is the last quarter that wind all that up.

Okay and then any sense for the impact of the new products rolled out in 2016 in Q1 here and we should we think about that - I mean how are those things trending?

So all three of the products we're very pleased with. Cord came out. It's been about a year now almost and we've seen significant results in the hands of some of the providers, some of the cases are amazing quite frankly. With respect to AmnioFill and OrthoFlo Lyo , we continue to make very, very good progress on the Amnio-Fill front, venous wounds, pressure ulcers and it spreads across all our different verticals; so everybody is trained and we're going to hit full throttle that. So that's all very positive and of course on the Lyo - OrthoFlo Lyo front is the same, we just continue to build out our channel into the office and we've been very pleased with the early returns there too.

Okay, last one for me. The pain management opportunity looks pretty compelling and from a couple of different areas; but you know, just the timeline that you've laid out for the BOA - from what we've seen historically seems aggressive, not saying you can't get there but can you help handicap how impactful the pain management piece of business is going to be that your 3/1/20 forecast; i.e. if things get delayed a little bit how pushed out would some of those numbers be?

Well, let me make a quick comment. Again, we've tried to be conservative, we've got - if pain management doesn't blossom as fast as we think it will, we've got other parts of the portfolio that we feel are going to be stronger than we've laid out. So again, we're not - management will let you know very quickly if it looks like that particular goal is too optimistic. But we laid the groundwork Matt, we're going to continue to be in the elective pay world for the next year and a half or so, continue to capitalize on the Phase 2b study as that data comes out this summer on the plantar fasciitis; that will reinforce the studies that we've already done. And so that's going to give us a little bit of a jump start. Again, as we build out the channel will build out more and more momentum there and I think what we've learned anecdotally through the last five years or so that our both our Amnio-Fix and then also recent what OrthoFlo is showing in the amniotic fluid, we feel very good about the dosing and what we've learned so far with those results; so that all should go very favorably toward the studies in accelerating them.

So if pain management got pushed out by two years will that dollar turn into $0.80 or would it be even closer to the dollar?

Nice try.

Thought I'd give it a shot. Thank you.

Thank you. And that does conclude our question-and-answer session for today's conference. I would now like to turn the conference back over to Mr. Petit for any closing remarks.

Well, thank you very much. We appreciate you joining us for this hour and fifteen minutes, I hope it's been productive, and I hope that you've taken away from it management's enthusiasm for what we've got ahead. Check whether this is necessary, thank you.

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