Good afternoon and thank you for standing by. Welcome to the MiMedx First Quarter 2023 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, Mr. Matt Notarianni, Head of Investor Relations for MiMedx. Thank you. You may begin.

Thank you, operator and good afternoon everyone. Welcome to the MiMedx first quarter 2023 operating and financial results conference call. With me on today's call are Chief Executive Officer, Joe Capper; and Chief Financial Officer, Pete Carlson. 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. Joe will kick us off with some opening remarks and Pete will provide a summary of our operating highlights and financial results for the quarter, and then Joe will conclude with some additional updates, including the discussion of our financial goals. We will then 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 and expenses, 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, the reimbursement environment, 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 Joe Capper. Joe?

Thanks Matt. Good afternoon everyone. While it's only been two months since our last call, we have a lot of exciting news to share. Starting with our outstanding first quarter performance, setting the stage for what we anticipate will be an extremely successful 2023. I've been onboard now for a full quarter and as I stated on our last call, this early assessment process continues to present the business that far surpasses my original expectations. During these first 90 days, I've spent time analyzing all parts of business, formalizing our strategic planning process, meeting with customers, business partners, and several of you in the shareholder community, all in an effort to determine our best path forward. While still early on, it's becoming clear to me that we operate in a relatively less orderly area of the healthcare industry, which is abundant and untapped opportunity. I will discuss in more detail our plan to ensure the company capitalizes on these many opportunities, while continuing to optimize our operating platform. But first, I want to update [ph] on some of the most noteworthy highlights from the first quarter. Q1 year-over-year net sales grew by nearly 22% to $71.7 million, the highest first quarter net sales performance we have delivered in five years. Gross profit margin was 82.7%, which was an improvement sequentially and adjusted EBITDA was $5.5 million, up from a loss of $1.7 million a year ago, a $7.2 million swing in the right direction. These positive results all reflects superb execution on the part of the entire company. Among these impressive numbers are adjusted EBITDA warrants special attention. To be able to generate $5.5 million of positive adjusted EBITDA so early in the year clearly shows that we are beginning to unlock leverage in the business, which will undoubtedly improve…

Thank you, Joe. Good afternoon everyone and thanks for joining us today. Before I begin my remarks about the first quarter, I want to reflect on my time with MiMedx as I prepare to move on to future opportunities and how it has been a pleasure serving as MiMedx's CFO these last several years. I am proud of the team's progress since I joined and I'm honored to have helped lead an organization with products that impact the lives of a large and growing number of patients. In addition to continuing to expand access to our products over the last three years, we've also built a robust financing accounting organization that is positioned to deliver as the business scale in the future. I thank the team for all the efforts. Moving on now for our first quarter. As a reminder, unless otherwise specified, all results referenced in my prepared remarks are on a first quarter 2023 versus first quarter 2022 comparison basis. First, as Joe mentioned, our first quarter 2023 net sales were $71.7 million compared to $58.9 million. Joe outlined many of the specific drivers of this performance in his remarks and I'm pleased to also report on the numerous areas of strength we saw at the start of the year. On a sequential basis, while our first quarter is historically the lowest revenue quarter of the year due to deductible resets and generally lower patient traffic, our first quarter net sales figure represents the smallest step down from the preceding fourth quarter that we have seen in recent years. You may recall that in the first quarter of 2022, we were faced with challenges associated with the Omicron wave of COVID-19, which we did not have to deal with in the first quarter of 2023. Also, our first…

Thanks Pete. As you know, Pete will be leaving MiMedx in the coming months. I would like to take this opportunity to recognize and thank Pete for the incredible work he has done during his time with MiMedx. Pete joined at a pivotal point in the company's history where he needed to make vital changes to strengthen our accounting and finance organization. He did an outstanding job and the company is on solid financial footing, thanks to his leadership and experience. He leaved behind a strong team and a lengthy list of accomplishments. We are grateful for all that Pete has contributed to MiMedx and wish him our sincere best in all future endeavors. The search for our next CFO is ongoing and we look forward to bringing in an individual of similar caliber in the coming months. Pete will continue to work with the company to ensure that a smooth and seamless transition takes place. In summary, as you have just heard, we started the year with an excellent first quarter, during which we recorded quarterly revenue of $71.7 million, up nearly 22% year-over-year, gross profit margin of 82.7%, adjusted EBITDA of $5.5 million, continued to roll out a new product in the US, began selling product in Japan, and continue to drive efficiency and expense rationalization throughout the organization. Pete just spoke about our cash position and the fact that we do not foresee the need for additional capital raise in order to fund our current business plan, short of any meaningful investment opportunities. To add bit more color, two additional developments are worth mentioning. First, you will recall our previously announced $10 million commitment to Turn Therapeutics, contingent upon 510(k) FDA clearance with their FLeX product. However, this milestone was not met and we no longer expect to make a payment this year. Second, as Pete mentioned, we believe we are nearing the end of a portion of legal expense overhang related to past issues, which has not been insignificant. With the conclusion of such matters in our sights, we look forward to a more productive use of capital. Looking ahead, we expect to build cash from this point forward. I'll close by stating that while one quarter does not represent a trend, I believe our business is in an exciting phase of growth as we seek to combine commercial success with operational excellence in pursuit of sustainable profitable growth and as a result, a very bright future. With all that I have learned since joining MiMedx, I'm confident we can do just that. Given our strong start to the year, I want to reiterate our expectation for low double-digit topline growth for the foreseeable future. With that, we'd like to open the call to questions. Operator, we are now ready for our first question. Please proceed.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.

Great and congratulations on a strong quarter here. And Pete, good luck on the transition. It was great working together and hope to see you again soon. Maybe to start just on the topline performance in the quarter, certainly ahead of our expectations. And Joe and Pete, we've been hearing a lot this earnings season so far about a procedure volume rebound on several of the earnings calls over the past two weeks that were showing up in our data earlier in the quarter. And then again in some of the results we've seen, it's pretty evident that things sort of changed this quarter when we think about throughput capacity and generally speaking patients coming back into the system. So, when we think of the surgical end channel first, how much of what we saw in the quarter was easy comps versus patients coming back into the system? And I would even second that for the physician office channel, how much of it was easy comps versus we're finally getting back to a more normalized patient flow dynamics in that channel as well? And then I'll have a couple of follow-ups. Thanks.

Why don’t you start Pete?

Good afternoon, Anthony, and thanks for those comments as well as the questions. Look when we look at it overall, I would say probably as much as 5% of our growth is driven by the combination of the easier comp last year due to the COVID impact that we talked about as well as the extra day. So, that is driving some of the growth and the better -- we knew that was going to be a factor, obviously, both of those items. The -- and as you saw -- may not have had a chance to see, but in our 10-Q, you can see that we had growth in both of those channels you mentioned. In the hospital, the growth is 17%-ish and then in the private office, it's over 30% So, there are multiple factors beyond just the easier compare a year ago and the extra day we have seen volumes up. And as Joe said in his prepared remarks, we saw it across really all care settings. The team has really been executing well. We do think there is, I would say, a trend of not only the additional patient volume, but some aspect of practices working with us wherever that maybe they hadn't been recently because of the reimbursement environment and so they were making more economic decisions. That one is really hard to quantify. And then we did -- and you see this principally in the Surgical area and that's reflected in some of that -- in that hospital growth. Our new products were as our key contributor to the growth overall. So, we're very pleased with how those are performing and all of those factors are drivers for the topline growth you see, which did exceed not only your expectations that you mentioned, but even some of our internal expectations. And I think your comment about patient volume is an appropriate comment. We've seen the same reports across the spectrum of just higher volumes. Yes, Joe anything you'd add?

Yes, just a little bit more, Anthony. First of all, thanks for the question. In preparing for today's call, we spent a good bit time on this trying to bifurcate how much of it was market driven, how much of it was just pure execution, right? Because we want to get the right throwing a message across. So, what Pete just talked about was kind of the dynamics in the market and we did see upticks in all the sites of service. But I think it's important to kind of give a little bit of color about the quarter itself. Each month in the quarter was significantly better than each month in the prior year. And then each month in the quarter, while there's only three, built on the previous month. So, the point where in March, we saw a sales number that frankly we didn't see till very late last year. So, the team is executing much, much better. So, a good portion of that growth did come from superior quarterly performance of superior execution. And I said one quarter doesn't make a trend, so time will tell. You continue to see above-market growth rates for the rest of the year, it will tell you that the organization is just performing better than our comps.

No, very helpful color there. And I guess, a logical follow-up is just when you think about plus 21.7% performance in what appears like at least to some degree some sustainable drivers over the next few quarters, show you reiterate the low double-digit sort of long-term growth rate put to push a little bit here. I mean, not to get ahead of ourselves, but is it possible that you certainly trend above that long range target for the remainder of 2023?

First, I'm glad that you picked up on that. And yes, part of that, Anthony, is because the first quarter does have noise in it, given that last year's Q1 was slightly different. We've got to give it a little bit more time to see what's really there. I do like the momentum coming out of the fourth quarter I like the momentum we saw in the first quarter. It's still very early for me. Been here for a whopping 90 days. So, I'm still getting a feel for the rhythm of this business to ebbs and flows of the business. And so it's just going to take me a little bit more time, right? And I think Q1 -- or excuse me, Q2, Q3 will tell that story. And I'd hate to get way out ahead of ourselves as you indicate and start pounding our chest and saying everything's great because you always have challenges and there's still, I think, some things that have to shake out in the private office, but before we really know what's happening there. So, I really like it in that kind of low double-digit area. And look, it's not us trying to sandbank seriously. We're just trying to give you our realistic expectation for the full year.

No. Understood. Last one for me and I'll get in queue here. Is the $5.5 million in adjusted EBITDA also well ahead of expectations? And maybe just to close out here, I mean, how much of that was purely the revenue beat versus some of the restructuring activities that are ongoing? Again, congratulations on the quarter and thanks for taking my question.

Thanks, Anthony. The adjusted EBITDA number has multiple components to it. Certainly sales volume is positive with the high gross margins. But as we noted, the gross margins in the quarter were also up on a sequential basis, relatively flat to a year ago. But from getting our gross margins back up approaching the mid-80s and we think we can get to the mid-80s within the next 12 to 15 months or so, that's very helpful to our bottom-line performance. But we also did have efficiencies and leverage. We know there's leverage in the system here. We're very pleased to see the SG&A cost grow at such a much lower level than the revenue grew in the quarter. And we've always said is we get our revenue growing that you would not need to model out expenses growing at the same level. Certainly, the activities and some the actions we took in the fourth quarter contributed. Again just in some of the personnel moves we made at that VP and higher level have a $5 million annual run rate. So, you're seeing a $1 million plus of that running through here in the first quarter. All of those factors are good. Being cautious on expenses, both on the G&A level and in the selling level and then gross margin improvements, the team has done a great job there. It is process and efficiency matters and there's more to come. And then obviously, at 80%-plus margins, a good bit of that falls to the bottom-line when you have strong quarter like we did in revenue.

Thank you again.

Our next question comes from the line of Carl Byrnes with Northland. Please proceed with your question.

Thanks for the question and congratulations on the strong quarter. And Pete, thanks for all your help. I think most of my questions have been addressed here, but I wanted to drill down a little bit more on the physician segment being up 30%. Obviously, there was pent-up demand and you're seeing some of that work off mid-COVID and the extra day. But were there any other factors that you attribute to that 30% gain? More specifically, I mean do you think the OIG recommendation to CMS would have had any effect in terms of private practices avoiding products that wouldn't fit the recommendation in your favor? Thanks.

Yes, I think so. There's two things really happened. One, there was a call that CMS hosted in January early in the quarter and that could have caused a slight change in behavior because it a lot more attention to it and they talked about potential areas that they can move. And then late in the quarter, we had the OIG letter, which certainly probably helped somewhat. How much? Again we don't know yet. And that's why we're a little bit cautious about their expectations going forward. Because I think it's going to take a little bit of time for this to settle out. But yes, that probably had somewhat of an impact.

Great. Thanks.

Our next question comes from the line of Swayampakula with H.C. Wainwright. Please proceed with your question.

Thank you. Thanks for taking my questions. Pete, I wish you the best and it's nothing like leaving on a high note. So, good luck and talk to you soon. So, just to follow-up on Anthony's line of questioning, one of the things you folks have been talking to us this afternoon is on execution and how good the execution has been. So, part of the execution formula is the salesforce being with you for longer period, right? So, as the experience increases, they're going to get better and better. So, can you just talk to that effect? And I know -- I think about couple of years ago, there are some new -- some addition to their salesforce. And I'm just trying to figure out how much of that is helping out because that can potentially provide some sustenance?

I think it's helping a lot. I think the salesforce leadership that was put in place a few years back had made a lot of changes to bring order to the organization. And I think they did a great job with that. So, I'm extremely pleased with not just the leadership, but the performance of the sales organization to your point. When you settle down, turnover a little bit, you have a bit more stability. But when you have good clear direction, you have better performance as well. So, I think all of the above, RK, I think the team is doing a very good job. And I expect that as we grow this business, as Pete indicated, you will see more leverage out of the S in SG&A. Clearly, you're going to get more leverage out of G&A because we have more control over that. And I think the organization did a good job of streamlining and cleaning a bit of that up. As Pete indicated, we're starting to reap the benefit of that. But my expectation is we'll see EBITDA improvement along the way. And where it goes, I'm not quite sure yet, because we're not there and we don't know what it's going to take to get there. But I fully anticipate EBITDA margin improvement as this business scales. And a good bit of it will come by leverage of that sales organization.

Okay, fantastic. Thanks for that. And then talking about patient volumes, so what are the metrics that you folks follow on the patient volumes? And do you see that consistently increasing into the second quarter as well because we are about a month and a half into it now. And I'm trying to think about how we could think about at least for the second quarter, because that was also, when you compare it to, again, second quarter of 2022, that is still a lighter quarter for you folks over the full year, last year?

So the first one you were talking about, patient metrics, and I'm not sure that's something that we've traditionally put out. So we're using pretty much the same metrics that you are. And then the second part of your question was really around Q2. I'm sorry -- you were breaking up a little bit. But you said Q2. Look, right now, again, we're just -- What's that?

You're right. It was question -- it was for Q2.

Yeah. Right now we're really kind of sticking to kind of annual guidance of those double digit and there'll be some movement quarter-to-quarter. But, I'm going to, okay, I'm going cop out on that one and say I need more time to figure out the rhythm of this business, frankly. I'd say we're doing everything we can to grow this business. We have new products in the pipeline. It's not just Salesforce execution, but we see that continuing to improve. We have Japan starting to come online. We have drivers in the business that will help us grow, but we're just not comfortable yet, saying that, you know, and we're certainly not comfortable giving quarterly guidance to this country.

And RK, it's Pete. Just going back to last year, and you mentioned some of the quarterly swing there, one of the things nobody really can put a handle on is this vacation impact that hit the third quarter harder than people expected last year. Is that now a recurring trend, just like so many of these other things? Are we in a new normal or not? And we have no idea. That's hard to predict from that standpoint.

Thank you. One last question from me. On the new product contribution, is there any additional color that you can provide on that? Obviously, as Japan matures, that will be a major contributor, as you just said.

Okay. It's Pete. The new products have been successful. We're really pleased with those. They were a good contributor in the fourth quarter and continued that contribution here in the first quarter. So they are a big driver of year-over-year growth. Remember, we've got two of them out there. One's a particulate, and one's a sheet product that has some unique characteristics different than other products we have in the portfolio. The other is that comparison year-over-year starts to run out as we get into September. So we're, it's a big driver here in first and second quarter of year-over-year growth, but then it becomes less as you get to third quarter and obviously fourth quarter. We're very pleased. It's really helping our surgical recovery strategy, and it's a variety of procedures. And frankly, we see that expanding as time goes on, both the number of clinics or hospitals using and physicians using the product, as well as the nature of procedures being used. It's one of these things that, as we have more and more case studies from actual applications, we can share those stories, and it really builds on itself. And we've made an investment in medical education and a concentrated effort there. And that's one of the ways we get that information out. We get people, doctors, practitioners who have credibility and can share stories talking across the footprint, and that can really help the team. So we're very pleased with it. It's the two different types of products. It ties into the surgical recovery strategy. And the real world evidence, the case evidence, is going to be a strong driver. Because surgeons are, that's an area that has a high bar for data, if you will, and this is the way we get data.

Yeah, you're exactly right. It drove surgical recovery, it drove 70% growth, but you're right. In order to continue to see growth there, we're going to need to continue to invest in research because they want data.

Fantastic. Thank you both, and congratulations again on a great quarter.

Thanks, RK.

Our next question comes from the line of John Vandermosten with Zacks. Please proceed with your question.

Thank you, and Joe and Pete, thank you for taking my question. Thought I'd start out with a question on new products. You said that, was one of the big drivers for performance in the first quarter, and I know that there had been a goal to roll out some new products every year to kind of keep that going on. How is that coming along for 2023? And then I think you had mentioned something about Turn Therapeutics, and perhaps that milestone had been delayed. Will that be related to one of the new products, and how will that kind of fold into that goal of new product launch?

Yeah, so just the kind of commitment within the organization was to try to get two to market each year. We're not tied to that number, it doesn't have to be two, but it's not a bad guidepost because this market does require innovation to stay relevant. So it's an area that we continue to invest and we have a fairly robust pipeline of opportunities to continue to introduce to the market in the coming years. Turn clearly was one of those. That would have introduced an antimicrobial xenograft into our portfolio. It would have been a first. It would have been a 510(k) approval, which would have been a predicate for us to build upon. Unfortunately, the 510(k) milestone was not met. We continue to work with them. We continue to think that the antimicrobial is the right way to go. So we'll see how that unfolds. But you're right, the milestone was missed contractually. We're not committed to make that payment this calendar year. So that will need to be renegotiated.

Yeah, John, it's Pete. Certainly that was in our sights as a new product for the year. A reminder that, we have access to that antimicrobial technology without this specific product approval. So there are really two parts of that transaction. And we are doing work there, whether we get something out this year or very soon next year. But we're working actively with this antimicrobial technology and think it can be very helpful in generating those new products. And as Joe said, it's a spirit of new product development. The goal was putting a number on something that hadn't happened for a while, and it was really a mindset re-shift for the company as much as externally. We were really trying to get, make sure the focus across the company was on product development, and we've been successful in that. And we will reap those rewards as we go forward.

Okay. Thanks. And again, looking forward to revenue growth in Japan, I sense that probably, it's still early days, and they're not substantially material yet, the revenue contribution, I mean. How do you expect that to evolve over the year? And then I know you had been training a bunch of providers. Is that still going strong, that training exercise?

It is. We have some of our own folks on the ground there as well. Not a lot, but we have a network of physicians that have been trained, several hundred. And we're starting to see the product use and procedure. So it's being pulled through from our partner in Japan. We expect the market to develop nicely, but it's slow. There's a lot of missionary work that needs to be done in these early days. The fact that, we have some sales already is very heartening. And we anticipate in the coming months, the coming quarters that we'll begin to build. Again, a little early to put numbers on it, but we're very optimistic about how the project is starting to unfold.

Okay, great. Thank you, Joe. Thank you, Pete.

[Operator Instructions] And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Joe Capper for closing remarks.

Thanks, operator. And thanks, everybody. We appreciate your continued support of the company. That concludes today's call.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.