Good morning and welcome to the MiMedx Second Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference call over to Hilary Dixon, MiMedx's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator and good morning. With me today are Tim Wright, Chief Executive Officer; and Pete Carlson, Chief Financial Officer. Additional members of senior management will also be available to answer your question. Before we begin, I want to point out that we issued two press releases recently announcing key additions to our senior management team Dr. Rohit Kashyap as the Executive Vice President and Chief Commercial Officer; and Dr. Robert Stein as Executive Vice President Research and Development. I also want to highlight that on August 3, we filed our definitive proxy statement and announced that we will hold our 2019 Annual Meeting of Shareholders on August 31, 2020 in a virtual format. The press release reviewing second quarter 2020 financial results was issued on August 4, and is available on our website. I'd also like to remind you that remarks made during today's call include forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and may differ materially from those anticipated due to many factors. Listeners are directed to the risk factors set forth in MiMedx's 2019 annual report on Form 10-K, and the second quarter 2020 quarterly report on Form 10-Q for factors that could cause actual outcomes and results to differ materially from those reflected in the forward-looking statement. The company assumes no obligation to update or supplement any forward-looking statements, except as required by law. This call will also include references to certain financial measures, such as adjusted EBITDA and adjusted EBITDA margin that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. Reconciliations of this non-GAAP financial measures to the most comparable measures, calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. With that, I'm pleased to turn the call over to MiMedx, Chief Executive Officer, Tim Wright.

Thank you, Hilary. And thank you to everyone joining us on the call this morning. I could not be more pleased to say that MiMedx's current and its financial reporting requirements, filing the second quarter Form 10-Q represents a significant milestone for our company. It's the first time since 2017 that MiMedx has timely filed an annual or quarterly report. Over the past year, my primary priorities have been to restore the financial integrity of the company, build a capable and cohesive management team, progressing the resolution of the company's legal matters, refining the company's approach around enforcement discretion in compliance with the FDA's regulatory guidance for human cell and tissue products, and refine the next steps in advancing our pipeline. Each of those priorities and our future growth is strengthening our leadership team. We are fortunate to have attracted two highly seasoned executives to MiMedx both of whom are well regarded high performing leaders. First, in late July, we announced Dr. Rohit Kashyap for joining MiMedx as Executive Vice President and Chief Commercial Officer. Dr. Kashyap is an accomplished strategic leader with experience in building, successful global commercial operations and a track record of delivering growth and transforming business, product portfolios and building high impact teams. Dr. Kashyap brings more than 20 years of medical device experience to MiMedx with a solid track record of performance and developing strategies for market creation and commercial models that will deliver value to patients and healthcare systems. I'm confident that with his breadth of industry experience, he will drive growth with our in-market brands, expand market awareness of the growing prevalence and difficult to heal chronic wounds and diseases such as diabetes that can cause such wounds and communicate the clinical and economic value of our product portfolio. Second, yesterday we welcomed…

Thank you, Tim. Good morning, everyone. And thank you for joining us today. In the past five months, the company has filed two 10-Ks with audited financial statements, and five 10-Q's. These milestones demonstrate our goals of transparency in action, as we continue to position the company for growth Tim discussed his reasons for taking the role here at MiMedx and noted the quality of the leadership team. I joined the company to help reestablish a practice of regular financial reporting and to raise the bar on our operating controls in the information systems. I am pleased that we are at the point where we can talk more transparently about the business on a timely basis. Now, let me talk about our second quarter results and take a minute to thank our managers and employees for their responsibility, diligence and commitment particularly during the COVID-19 pandemic. Our cost containment actions have been effective and have helped offset the impact of the pandemic on second quarter sales. The business is operating efficiently and we continue our efforts to ensure effective product support and service for our customers and access to our solutions for patients and families. Net sales for the quarter ended June 30, 2020 were $53.6 million primarily recognized on an as shift basis, a 20.4% decrease compared to net sales for the same period in 2019, recognized on a cash receipts basis. As a reminder, from January 1 to September 30, 2019, revenue was recognized on a cash basis consistent with the treatment in the 2018 Form 10-K. From October 01, 2019 forward, revenue is primarily recognized on an as shift basis similar to most companies. For the quarter ended June 30, 2020 revenue includes $1.7 million of cash collected related to sales made prior to the transition and…

Thank you, Pete. As you saw in our filing of our proxy statement last week, we've scheduled the 2019 Annual Meeting of Shareholders at the end of this month on August 31. The meeting will be held virtually in the best interest of safety for everybody. At that meeting, we plan to tell you where we are and outline our efforts along with the work we have ahead of us. By the end of the year, we will also hold our 2020 Annual Meeting of Shareholders. At that meeting, we will share our vision for where we are going over the next several years, and how we plan to achieve measurable progress to get there. We have effective products and a promising pipeline with the potential to address unmet patient needs as a platform technology across multiple applications. The science of regenerative tissue technology holds tremendous promise for millions of people who suffer with chronic difficult to heal wounds, and our commitment is to advance category science and demonstrate value so that patients can access the care they need. The MiMedx is under new and significantly experienced category leadership and our team is dedicated to transforming the culture, instilling operational excellence across the company and realizing the company's value potential. We continue to take actions that focus on our patients, enhance our business resiliency, and restore the company's financial integrity and reputation or moving forward. We will now take up your questions.

[Operator Instructions] Our first question is from Eiad Asbahi from Prescience. Please proceed with your question.

This is Eiad. Your most recent 10-K you guys disclosed promising preliminary results of your knee, OA and plantar fasciitis trials, which both showed significant separation between the treatment and the control group. Our assessment is that the pipeline could revolutionize the treatments of an assortment of musculoskeletal degenerative disorders, with OA alone, potentially adding billions to the value of the company? We're highly encouraged by the company now making major investments in the pipeline through the hire of scientists and other highly credible personnel? Can you articulate your base case on the dollar value potential of the pipeline?

Yes, as you know the osteoarthritis of the knee is a well characterized market. We're not in a position today to share with you base case or a upside case on this. I do believe that in our shareholder meeting on August 31 we will be prepared to share that with everyone.

And we have reached the end of the question-and-answer session, and I'll now turn the call over to management for closing remarks.

Thank you for joining us today. We have another caller.

We have a question from Brian Finn with FIN Capital. Please proceed with your question.

Congrats again on getting everything done here. I guess I had a question on kind of market share. And you know, the fact that over the last two years, you've had to play defense on a variety of fronts. And at this point seems like all those distractions are basically behind you. What are sort of the incremental things you guys can do to start competing and winning back market share over the next six to nine months here within the wound care market?

Brian, good morning. It's Pete Carlson. As we think about the growth opportunities really splitted between two components of our business. As we just mentioned, we still need to and do plan to in the near term, give people an understanding of some of the market size related to our injectable and granular products what we collectively refer to as micronized. And so that runs around 15% of our business. So if you think about the 85% that are the skin substitute tissue products, we think about growth really in four ways, and this is what you're going to see us act on. The first is just market growth that seems to be in the high single digits in most people's mind. And we tend to agree with that. We can take advantage of that growth in multiple ways including some boots on the ground. Secondly, we think and probably the biggest opportunities, we think there's an opportunity to expand the market beyond sort of the normal growth. You'll hear us talk about apathy as a competitor or barrier. And so this is where we want to use our clinical support, as well as economic data to educate more and more people about the effectiveness efficacy of our products. So that's the second area. The third is business development. We have [indiscernible] to focus on that area, and that can come in many ways, partnerships or other licensing arrangements, et cetera. And then the final, the fourth one that we talked about admittedly this is a little bit longer term. But we do believe there are opportunities outside the U.S. to further expand the product. So those four growth areas again just market growth, expanding the market, business development, and international opportunities are how we see. Tim, do you want to talk about how we can leverage the AHRQ results?

Yes, as many of you have based on our previous discussions with one another on calls, we discussed the AHRQ results. This was an independent study that was conducted with this agency. It was basically a meta-analysis that was conducted where there were 76 commercially available skin substitutes of which 25 had clinical studies included in the document. AHRQ conducted a literature search yielding 164 studies and 81 other submissions through their seats program. Only 22 of those randomized control trials met the inclusion criteria of the 22 randomized controlled trials for MiMedx had say included in the final briefing. Other 22 studies reviewed, only 12 are assessed as low risk of bias, of which five were MiMedx randomized controlled trials. The other 10 were assessed as moderate risk of bias. This assessment was the first amniotic membrane products that AHRQ had reviewed for the treatment of chronic wounds. EpiFix was noted to have the most randomized control trials and had a low risk of overall bias and a statistically significant finding. Of course, the overall conclusion in the 2020 assessment is that additional studies are needed which we fully support. This is in perfect alignment with our strategy to elevate the standard of care and commit to operational excellence and demonstrate our category of leadership.

Thanks Tim. And Brian, just to conclude that's the type of information we think will help us go-to-market and work on those forward growth opportunities we talked about. And we're also working with other data that we think will help people understand the importance of our product.

And that is the end of our question-and-answer session. And we'll hand it over to management for closing remarks.

Thank you for joining us today for this important call. As noted earlier, we will be increasing our outreach to members of the financial community with the goal of creating ongoing transparent dialogue. Unfortunately, we will not be able to meet you face-to-face this would be our preference. We're looking forward to introducing our new management team via conference and video calls where possible. We appreciate your interest and continued support. Thank you.

We have reached the end of today's conference, and you may disconnect your lines at this time. Thank you for your participation.