Good afternoon and thank you for standing by. Welcome to the MiMedx Third Quarter 2022 Operating and Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Matt Notarianni, Head of Investor Relations for MiMedx. Thank you. You may begin.

Thank you, Latonya, and good afternoon everyone. Welcome to the MiMedx third quarter 2022 operating and financial results conference call. With me on today's call are Interim Chief Executive Officer, Todd Newton; Chief Financial Officer, Pete Carlson; President, Wound and Surgical, Dr. Rohit Kashyap; and President, Regenerative Medicine, Dr. Robert Stein. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at mimedx.com. Todd and Pete will provide a summary of our operating highlights and financial results for the quarter and Todd will conclude with some remarks about our micronized dHACM Knee Osteoarthritis clinical trial program. At the conclusion of these remarks, Todd, Pete, Dr. Kashyap and Dr. Stein will be available for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including statements regarding future sales growth, future margin, expected market sizes for our products and potential time lines for clinical trials and FDA submissions and reviews. These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to many factors. Actual results, market sizes, timing and FDA review will depend on a number of factors, including competition, access to customers, unforeseen circumstances and delays, the results of our clinical trials, our interpretation of those results and other factors. Additional factors that could impact outcomes and our results include those described in the Risk Factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q. Also, our comments today include non-GAAP financial measures and we provide a reconciliation to GAAP measures in our press release, which is available on our website at www.mimedx.com. With that, I'm now pleased to turn the call over to Todd Newton. Todd?

Thanks, Matt, and good afternoon to everyone. With this being my first call with you, I will begin with my observations and assessment of our company, and then we'll move through our third quarter performance. On my first day in my current executive capacity, which was now 57 days ago, I told our team we needed to combine the strength of this company, which is its products and people with a renewed focus on four key fundamentals. One to deliver year-over-year top line growth that exceeds the underlying growth rate in the markets where we elect to operate, next to focus on profitability and improve our operating margin year-over-year so that we have the means to invest further in growth. Then to ensure our R&D activities are prioritized, productive and pursued with a sense of urgency because the innovations from these efforts are the lifeblood of future growth, and last, manage our balance sheet with an attitude and mindset that cash and equity capital are both precious commodities. And look, these are the basics of success. These aren't complicated, but admittedly they're not easy to achieve. Now let me tell you how I see our business. Our commercial stage placental derived products business, which we call wound and surgical, has successfully transitioned from being historically a single vertical wound care business to a two vertical business by expanding the use of our technology and products to meet the healing needs within the surgical recovery setting. Wound and surgical has a good future growth potential, very attractive gross margins and the potential to generate strong operating margins and cash flow. Additionally, wound and surgical has historically been a domestic business, and this is soon changing with the upcoming launch of EpiFix in Japan. However, in terms of our corporate expenses, our…

Thank you, Todd. And good afternoon everyone. As a reminder, unless otherwise specified, all results referenced in my prepared remarks are on a third quarter 2022 versus third quarter 2021 comparison basis. Beginning this quarter, we are reporting financial results by specific business unit, Wound & Surgical, Regenerative Medicine and Corporate and Other. This reporting methodology enables us to transparently isolate the profit and cash flow generation of the wound and surgical business more clearly demonstrate the investments we are making in regenerative medicine to advance the knee osteoarthritis clinical program toward BLA registration. And highlight the opportunity Todd has outlined for the company to reduce overall corporate expenses. We are using operating income, excluding investigation restatement and related expenses as a consistent segment performance metric. I believe our financial results and related trends are now easier to understand for two key reasons. First, the impact of the end of the FDA's period of enforcement discretion for our Section 351 products is behind us and no longer affects our year-over-year comparisons. Second, the new reporting structure provides greater visibility into our financial information cost and investments by our defined business units as we look to improve profitability of the company moving forward. Let me take a moment to walk through some of the specific details for what is included within each segment. I'll start with wound and surgical. This reflects virtually all current product sales. Traditionally sales generated from the upcoming launch of EpiFix in Japan will be reflected here. Note, that revenue and related costs from the domestic sales of Section 351 products sold prior to the end of enforcement discretion in 2021 are reflected within prior year results for the Regenerative Medicine Segment. Wound and surgical operating expenses include the cost of our commercial operations as well as…

Thanks, Pete. On our [indiscernible] program, we are currently actively engaged with the FDA soliciting their input. Recent activity has included the following: first, the Type B [indiscernible] meeting to seek FDA input on some important protocol questions we had for our upcoming registrational trial, particularly around patient dosage. We also submitted the clinical protocol for our next registrational study for FDA review, and we filed two chemistry manufacturing and control or otherwise called CMC amendments with the FDA that further described in detail the root cause related to the Phase 2b study readout in our proposed corrective actions to prevent the issue of potency loss over time that was experienced in the 2b study from recurring in this next proposed clinical study. So where are we currently? We’re at this moment addressing FDA comments on the registrational study protocol. In parallel, our team is also working through several other readying activities, such as study site selection and preparing investigational product bids, all with the aim to begin patient enrollment as quickly as possible. It is certainly our desire to have the studies first patient enrollment treated this calendar year, but that may not be feasible. The timing is subject to the FDA’s review of our responses to their comments, and as we work through this dialogue, we’ll have a better sense of when enrollment can start. In any event, priority number one for us is to lockdown to certain protocol. Management and our Board continued to believe our NeoA program is worthy of this continued focus and investment. Our micronized dHACM product has shown clear signals of efficacy in the treatment of NeoA. And while our Phase 2b study did not meet its primary endpoints, we saw this signal of efficacy in the first 190 patients treated. And we…

Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question comes from Anthony Petrone with Mizuho Group. Please proceed.

Thanks, and I hope everyone’s doing well. I think maybe I’ll start with the 4Q implied guidance and shift over to Pete and then I’ll have couple of follow-up questions on reimbursement in the announcement last night from CMS. Now Pete, on the guidance for 4Q 9% to 15% is wider than we’ve seen in the past. And obviously a number of puts and takes implied there. Several new products launched inclusive of EpiFix now having reimbursement approval in Japan. AxioFill and AmnioEffect are out there. On the other hand, there’s headwinds we’ve been hearing about all quarter and way of staffing headwinds in particular both in the inpatient and outpatient setting, certainly in the physician office setting as well. So how should we be thinking about what gets you to the high end of the range at 15% versus the low end of the range? And I’ll have a follow-up question again on reimbursement.

Hi Anthony, good to hear from you. You’ve cited the factors really that drive the range – drive us through the range. Certainly, the ramp up and start in Japan and how successful we can be here in the remainder of the fourth quarter once we’ve launched is going to be one of those factors that we have seen the product in use and that’s great. So that the – we have some uncertainty to it as to how high it could put us up in the range. We have the continued opportunity with the two new products. And then it – you’ve got a holiday period and traditionally the fourth quarter has higher volumes, particularly given people trying to get procedures done as their deductibles or before their reimbursement and deductibles get reset in January. We think that trends going to continue this year. So we’re comfortable, certainly within the range, I think the new products and then any reimbursement noise that could come through are the top and the bottom factors relative to the range.

Thanks, appreciate that. And then to follow-up on reimbursement, Todd, you mentioned the update from CMS last night – published last night that they’re not going to finalize their proposal on their terminology for skin substitutes specifically in the physician office setting. Maybe just to level set, can you sort of A, recap what percentage of wound care is physician office as a percent of that total number for MiMedx? And then the follow-up would be just recapping if the proposal went through, what does that represent in the way of a headwind? And where do you think ultimately we can settle out? Because it does look like CMS is acquiescing here to an extent. So any additional color there would be helpful. Thanks.

Yes, Anthony, I’ll answer your first question and then the second part, I’ll let Dr. Kashyap address. The private office business for MiMedx today is roughly a third of the wound and surgical business. It’s a – I’d call it a small third, probably more like 30% versus 33%. But anyway, that, that it’s about a third of our business. And Dr. Kashyap going to take the other.

I think with the – thanks, Anthony. And with the unknowns around reimbursement, it’s how to quantify the impact and on the business going forward. As Todd mentioned, in the current environment and with our strengths of evidence, with our strengths of the product portfolio, we feel confident that in a new reimbursement environment, we would be able to navigate it effectively based on where we have been in the past. So we continue to work on those elements in there, we continue to work with CMS to give them our feedback around the current reimbursement and how it’s impacting the business today and how it should be in the future. But we are confident of being able to adjust our strategy, obviously part of the market which is the outpatient, but the wound care clinic side is reimbursed under a similar type of format. And there be proposal calls for right now in the private market, and we are able to continue to grow that business in that space. So we expect that should there be no big surprises in the absolute amount of reimbursements, we should be able to navigate that space effectively.

That’s helpful. And just a quick follow-up there, and I’ll hop back in, it seemed to be pretty vague. And in terms of the comment period and when they’re going to open that up, is there anything more you can share there? Is this a sort of a 1Q event where they begin the comment period and end it in 1Q and we get an update into 2Q? Or is that window perhaps a little bit wider?

We know almost as much as you do in terms of that they haven’t been any more clarification. All we know is that the plan to have that common period in town hall in early 2023. And subsequent to that, they would give us more feedback. I would expect that any rule changes would still fall into the next calendar year as a result of that. But what is the next milestone date in terms of communication to the broader industry and the physician community as a result of the town hall and comments? We don’t have much clarity on that as well in terms of timing.

Okay. Thank you.

Our next question comes from RK with H.C. Wainwright. Please proceed.

Thank you. Thanks, Todd, Pete and Dr. Kashyap for the update. Todd, as you take charge of MiMedx and you look at the operation – ongoing operations, you made a statement saying that you put a mandate to the management asking them to improve the operating margins of the wounded surgical business. I think about 30%, I don’t know if that’s right or not, but so if – so from where do you stand, what – at a higher level, what are the areas where you think that real improvement can come to get your mandate?

RK, thank you for the question. I would say this, I’m really thinking about this and in terms of execution, I’m thinking about this all in terms of making decisions to advance the business with a sense of urgency. And so I was always told that if you want to make $2, you got to make $1 first. And I know that sounds like, it doesn’t – it says the obvious. As Dr. Kashyap and I have talked about the wound surgical business, we think that it can become more profitable than 30%, but we need to start with 30%. And so the four priorities that we laid out today are all about growth and also about improving profitability and capital discipline. And that’s really what I’m focused on here in these first 60 days or so. And what I think I’ll continue to be focused on for the next while.

Thanks for that. And then on the EpiFix launch in Japan, obviously, this launch was being worked on for quite a bit of time as we were waiting for the reimbursement to come through. And now that we have the reimbursement and you are executing the launch. Even though, we may not have meaningful revenues to talk about how is it working through in terms of getting the launch itself? And also what’s the sort of operational way that you do it in Japan? Is it a similar system that we offer here in the U.S. in terms of rebates and whatnot? Or is it a little bit different? And I’m trying to understand, how fast can you get to the stage where you can actually start predicting future quarter sales?

Yes. Good question. I think I’ll turn that over to Dr. Kashyap.

Good afternoon, RK, and that’s a great question. Again, you are very pleased with the reimbursement, the way it was established and the absolute yen value for the reimbursement as well. In the two sense that kick started our approach of how we can commercialize in Japan, because in the absence of reimbursement, we weren’t able to make progress in terms of making – having our sales channel in place, which is in the form of a distributor. So we are in the stages of finalizing that before we can commercialize our product. In the meantime, we have been very focused in trying to develop the market. And what I mean by that is we are working with significant KOLs over there. We have several physicians who have used the product both for VLU and DFU cases. The feedback from those cases has been positive, so that gives us confidence that both the profile of patients, the profile of wounds that we are targeting and the outcomes we expect will be positive and drive a good adoption of a product once we are ready to launch it fully in the marketplace. And our approach to launching it is kind of in some ways basic, but not to what complicated, but in Japan, the key element is as we have just spoken is that this is the first of its kind biologic amniotic product to be launched in Japan. And as a result of it, we have obligation as well as a responsibility to make sure that we can educate the market. And as a result, we are heavily focused on that for the first few quarters both through sales channel, but also through medical education in terms of doing that, generating some local evidence that cases can be shared in the marketplace as well. That will be a heavy emphasis. So while the revenue guidance that Pete just outlined includes some contribution from Japan in there as we expect to be commercial in Q4. We do expect that the revenue impact in 2023 will be meaningful to the overall corporate growth. I won’t be able to exactly quantify the amplitude of that, but we expect that to be a good contributor to growth in subsequent years after that as well.

Perfect. Thank you very much. Thanks for taking my questions. I’ll step back and get back in the queue.

Our next question comes from Carl Byrnes with Northland Capital. Please proceed.

Thanks for the question. Turning to Slide 7 and understanding that the procedure volumes were lower in July and August due to vacations and probably some scheduling issues with providers. But then sales demand rather increased in September. Would you characterize the environment now being more normalized or do you believe that there's still a bit of a warehousing of procedures that would reflect pent-up demand that might fall into the fourth quarter or bolster the fourth quarter and possibly even spill over into the first half of the next year? Thanks.

Yes. And I'll let Dr. Kashyap to comment about what he's being seen – been seeing or hearing anecdotally. But I think we will talk about the fourth quarter of course, when we get there, but what we have so far, I believe been experiencing in October is more a continuation of what we saw in September. And that was more a return to normalcy. July and August are always vacation limits, but this year the vacation impact was greater than normal. I think in September we saw a – more of a return to normalcy, and we were already on a good growth trajectory before we got to July and August as reflected in prior reporting on the basis of just the advanced wound care product portfolio. So September it will return to normalcy, and I think we continue to see that here early in Q4. But Dr. Kashyap, do you have anything else anecdote you want to add?

No, I think Todd, you answered Carl's question. Good afternoon, Carl. Q4 typically is a strongest quarter. It's – but it's very hard to differentiate the growth coming from Q3 to Q4 between what as a result of the pent-up demand or patients that have gone unseen in Q3 versus what's just the normal cyclic nature of growth in there. So we see continue to monitor that, continue to our market checks as we see that growth. But we are seeing what I would call and what Todd has described as return to what is a normal pace in Q4. Not necessarily able to in the break apart whether that's pent-up demand or that's just the normal trajectory. Q4, as Pete mentioned is driven a lot by procedure growth as a result of deductibles being met and people wanting to get their procedures done in this period before they either go on a new insurance plan or a new deductibles kick-in starting January 1st.

Thanks that's very helpful.

Our next question comes from John Vandermosten with Zacks. Please proceed.

Good evening everyone. Can I follow-up on 4Q guidance questions? I was wondering how you break down the increase over the prior year when you look at products that have been around since 2021 and then the new product launches that that recently went out. How do you break it down of those different components?

John, its Pete. We haven't provided that. That's all included in those pieces. If you go back to some things we talked about over the last year or so, we've given people a view of over a multi-year period how the existing portfolio concludes or contributes to our growth pattern versus the new products and versus the growth outside the U.S. our geographic expansion. So in that 11% to 14% range over a recurring number of years, the 2% to 3% was focused on these new products and 2% to 3% on the international expansion. Again that's over a multi-year period, so within a quarter or a year those numbers will move around. But that's the only thing we've said relative to that. And as Rohit indicated, what we've talked about here this $73 million to $76 million incorporates everything: our existing portfolio, the two new products here in the U.S. and the launch in Japan.

Okay, thank you. And I also wanted to follow-up. Thank you, Pete. Yes, Pete and also I wanted to follow-up on the comment you made about free cash flow. I think I heard you say it might be neutral for the year, and it looks like we're already down over $10 million. Did I hear that correctly?

You did. Free cash flow neutral, it's what we've talked about really over the last, it's coming out of the third quarter of last year that was what we talked about kind of through the end of 2022 being free cash flow neutral. Remember the fourth quarter does have higher volumes. You're right that when you look at the trailing 12 months or the nine months of a free cash flow number which as we define it as adjusted EBITDA less the capital expenditures and patent cost. And really it was just a way to say we're going to be sort of cash break-even in that kind of proxy for cash flow. So yes, that's what we've said and you're thinking about it correctly.

Okay, great. Well that's impressive based on where you are to-date for the cash flow. I also wanted to see if you could share any of the details of the clinical protocol for us for the Knee Osteoarthritis efforts, maybe top line, kind of big picture details on that?

Yes. I think we can give you a little bit of color on that. Why don't I turn that over to Dr. Stein to give an overview of those?

Hello. For the anticipated registrational trial that we're working hard to get started, we're looking at dosing patients with either saline or 40 or 100 milligrams of micronized mdHACM. And we will be looking at the impact that has on their level of pain and then improvement and function at six months. Other aspects of the protocol we're still in discussion with the FDA to make sure we have an agreed upon protocol that we think will demonstrate the utility and the safety of our product.

Okay, great. Thank you.

Thank you. At this time, I would like to turn the call back over to Mr. Newton for closing comments.

Well, thank you operator. In closing, I just want to reiterate that this quarter we accomplished a lot of achievements that I think we can build upon. The two new products had good showing in the couple of weeks in September when they were in the market. I think we feel optimistic about these moving forward as well as our ability to continue to innovate with new products. Japan represents a really important opportunity for us and an exciting opportunity as the first amniotic product into this market as Dr. Kashyap talked about. And we are close to being ready to start our registrational study for NeoA, and that's going to be an exciting time. We have to work through some open comments, of course with the FDA. There's no denying though that we need to be more profitable and we're working on that. We have goals in place. We now have to develop the detailed plans to realize those goals and that process is in place right now to be able to do that. And then we look forward to reporting back to your shareholders and investors in the near future as we take on these initiatives. And with that, I just would thank you for your interest in MiMedx, and if you have any questions about today's call or the information that we released, please contact Matt Notarianni at the [indiscernible] (0:44:38). Contact information is described in the press release today. Thank you very much. Thank you, operator.

Thank you. This does concludes today's teleconference and webcast. You may disconnect your lines at this time and have a great day.