Greetings, and welcome to the MiMedx Group Inc. Fourth Quarter and Full Year 2023 Operating and Financial Results Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Matt Notarianni, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. And good afternoon, everyone. Welcome to the MiMedx fourth quarter and full year 2023 operating and financial results conference call. With me on today's call are Chief Executive Officer, Joe Capper; and Chief Financial Officer, Doug Rice. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations Web site at mimedx.com. Joe will kick us off with some opening remarks and Doug will provide a summary of our operating highlights and financial results for the quarter. And then Joe will conclude with some additional updates, including a 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, EBITDA, free cash flow and cash balance growth, future margins and expenses and expected market sizes for our products. These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors. Actual results and market sizes will depend on a number of factors, including competition, access to customers, the reimbursement environment, unforeseen circumstances and delays 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. 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 Web site at www.mimedx.com. With that, I'm now pleased to turn the call over to, Joe Capper. Joe?

Thanks, Matt. And good afternoon, everyone. Thank you all for joining us on today's call. I am very pleased to report that we had another outstanding quarterly performance in Q4, closing out an excellent 2023. Revenue for the full year grew by 20%, surpassing our guidance. As you will hear, the company continues to perform at an extremely high level in all facets of the business. When I joined MiMedx just over a year ago, I stated that our mission was to transform the company into a highly focused, growth oriented, profitable medtech business. In order to achieve that goal, we needed to make a significant strategic pivot, restructure parts of the business, rationalize expenses and drive productivity improvements. I am delighted to report that our exceptional leadership team delivered on this challenging vision for MiMedx. The pivot was fairly rapid and no small feat. As a result, we have made a dramatic improvement to our financial profile. I believe when we look back at 2023 in a few years, it will prove to be the seminal year and the company established a strong foundation, which was built upon for years to come. I have great confidence in the talented people I am fortunate to work with each day, and believe we are just getting started towards capitalizing on the many opportunities for us. While we are pleased with the progress we made in 2023, we entered the new year clear eyed that much work remains as we pursue our strategic objectives. More on the long term growth plans in a bit. First, I'd like to touch on a handful of the more noteworthy accomplishments for the quarter full year. Q4 net sales grew year-over-year by approximately 17% to $87 million, another outstanding growth quarter. Full year sales closed at…

Thank you, Joe. And good afternoon to everyone on today's call. Thank you for joining us. It's great to be able to report our strong fourth quarter and full year results with you all today. As a reminder, many of the financial measures covered in today's call are on a non-GAAP basis, so please refer to today's earnings release for further information regarding our non-GAAP reconciliations and disclosures. Additionally, during the fourth quarter, we bifurcated our GAAP financial reporting to reflect the current and historical results of our recently disbanded regenerative medicine segment as discontinued operations. Accordingly, my comments today on our fourth quarter and full year '23 results are made on a continuing operations basis and exclude the historical costs of the regenerative medicine business unit, which was disbanded beginning in late June 2023. For a full discussion of the impact of these discontinued operations, please refer to our 10-K filing for the period ended December 31, 2023. Moving on to top line results. As Joe noted, our fourth quarter and full year 2023 net sales of $87 million and $321 million represented 17% and 20% growth compared to their respective prior year periods as we capped off a very strong end to the year. In the case of Q4, our 17% year-over-year growth rate was the fifth consecutive quarter of strong double digits growth we have seen and demonstrates both strong market adoption and a high level of commercial execution by our sales organization across each of our sites of service in the period. You'll recall we launched our latest addition to our post acute product portfolio EPIEFFECT at the beginning of fourth quarter and began to see a nice uptake of the product in the physician office channel in the first quarter of the launch. We continue…

Thanks, Doug. As you just heard, we had another outstanding quarter, once again exceeding expectations. Revenue was up 17% in the quarter and 20% for the full year. Gross profit margin increased to 84%. Adjusted EBITDA grew to $21 million or 24% in the quarter. We continued to build cash and took other steps to improve our overall financial profile, then we moved into the full commercial launch of EPIEFFECT. Over the course of 2023, we posted consistently improving performance, culminating with the strong Q4 results we've just highlighted. As we look to the horizon, we believe the company is very well positioned to build on this success. Naturally, our prior year comps will become increasingly challenging as we progress into 2024 after achieving such outstanding results last year. However, given our established momentum, we expect revenue growth percentage to be at least in the low double digits with an adjusted EBITDA margin above 20% for the full year 2024. Additionally, I fully expect that we will continue to execute our strategic plan and build a business capable of sustaining these growth rates for the foreseeable future. In closing, I would like to thank and congratulate the entire MiMedx team for putting an exclamation point on 2023 by closing out the fourth quarter in grand fashion. Throughout this past year, we took several crucial steps necessary to commence transformation of MiMedx into a truly exceptional company that is the benchmark for our industry. Much work remains but one can not deny the meaningful progress made to date. Most importantly, our team is proud of the positive impact we make in the lives of countless people struggling with chronic and acute wound healing. We never lose sight of that mission and it motivates us every day to strive for excellence. I look forward to continuing to work together as we enter this next chapter of our story. With that, I would like to open the call to questions. Operator, we are now ready for our first question. Please proceed.

[Operator Instructions] Our first question comes from the line of Chase Knickerbocker with Craig Hallum.

First, if we take a look at the 23% physician office growth in the quarter. Can you give me a sense of what portion of this growth was from EPIEFFECT? And then as we turn into 2024, do you think this tailwind that you mentioned from the confusion around the LCD is kind of sustainable in the way that you can hold on to that volume that you've gained in the confusion in the back half of the year here?

I'll start and Joe can provide color. But Q4 was -- we grew in all sides of care. We're super excited about just continued execution. I would say that, while we are not going to give numbers on EPIEFFECT, we certainly enjoyed the launch and strong physician adoption of EPIEFFECT. We also saw AMNIOEFFECT continue to grow a year after its launch. So we continue to capture share and also enjoy the market position that we're in with the market growth that we're experiencing.

It's tough to bifurcate between how much of it was tailwind associated with the LCD noise settling down into kind of converting back to more routine ordering patterns versus the lift we got out of EPIEFFECT. We don't typically publish revenue by product SKU. But I would say think about the amount of momentum we had in the private office setting throughout the course of the year. So a lot of that was just sort of a shift and dynamics in that marketplaces or in that portion of the market as CMS started to crack down on some of the behavior. Later in the year, we had the proposed LCD that created some disruption and that settled down as well. But those types of growth rates were pretty consistent for us throughout the course of the year, Chase. So we have pretty good momentum in tailwinds all year in that setting.

And then that kind of leads into my next question. I mean, if we think about that core growth opportunity that you just kind of briefly mentioned there with kind of just more companies reporting ASPs in the private office and kind of playing field leveling. Where do you think we're at in that kind of in that growth opportunity from a standpoint of all the companies reporting ASPs, are we still halfway through? And I ask are those kind of growth rates that we've seen in '23 kind of sustainable into 2024 in the private office?

I would think that we probably still have growth rates like that private office in the first part of the year, because a lot of that's going to be associated frankly with the continued rollout of EPIEFFECT. The movement from -- as companies register more of their products on the CMS ASP price list, hard to say, whether that's something that's outside of our control and really it's a behavior or a trend we would like to see continue. But there was a pretty big movement over the course of the last year. So hard to predict how much more of a movement we would have. Matt, you got anything on that?

Chase, I think the only other thing maybe to think about is, there's probably, I don't know, rough numbers, 80 or so SKUs that are now on the ASP list. We know from obviously the LCDs and some of the other published documents out there that there are probably about 200 or so SKUs in the category. So not quite halfway there but with each quarterly refresh the ASP list, you're seeing five, six, seven, eight get added each time.

Maybe just last for me, one for you Joe and one for Doug. Any additional commentary from any sort of engagement you've had with CMS after that LCD got scrapped about any kind of future changes to reimbursement in the market? And then Doug, just on the EBITDA guidance for 24%. To make the year look more towards kind of the 20% EBITDA margin kind of range, it looks like you've got a model of pretty decent pickup in SG&A. Maybe just talk me through what you expect from SG&A growth in the year?

Mine is kind of easy because, frankly, we don't really know, Chase, what's going to happen. As you know, there's been a lot of talk about CMS doing something to address the cost in this category, all the way from bundling to enacting some sort of in between measure like they attempted to do in the second half of last year. So we are not really sure. I think the message though for you should be regardless of the outcome, we're probably better positioned than most people, if not all of our competitors in that setting. We have not played the LCD game. We just never had that approach to the market where we tried to maximize return or maximize price by gaining one payer channel versus another payer option versus another, I should say. I think we're fairly well positioned. And we've run sensitivity analysis on worst case scenarios if this is bundled we think we're in a pretty good position. Frankly, stability in that particular setting would be welcomed in my opinion regardless of the near term disruption it may cause.

And then Chase with regards to EBITDA and 2024, we were certainly pleased with the way that we exited the back half of the year with 20% plus EBITDA in both Q3 and Q4. We think we're going to get pickup on two out of our three P&L lines. We feel like there's room to improve with the great work that our quality operations regulatory team is doing and providing efficiencies. We'll see some benefit from mix, but gross margin should improve some. I've provided some comments in my script but we expect mid-80s there. I would expect SG&A improvement on a relative basis. We do continue to invest in sales force. And medical education training is going to be big for us. But with our spending discipline and the leverage we're getting from our top line growth, I would expect some pickup on SG&A. From an R&D perspective, however, we exit the year at 2% on a continuing ops basis for R&D. I would provide in my comments that we expect 2024 to be mid single digits relatively for R&D as we invest in studies around EPIEFFECT, in Japan and other places just to continue to differentiate our product and provide the bodies of evidence in peer reviewed journals to help with both our physicians and our payer constituents. All that really leads to 20% plus EBITDA guidance for next year.

Our next question comes from the line of Carl Byrnes with Northland Capital Markets.

First, how should we look at or think about the conversion rate of EBITDA to free cash flow with I think for the quarter $24 million and EBITDA about $10 million with respect to free cash flow? And then I have a follow-up as well.

Again, pleased with our execution. And really the big event for us was late last summer when we suspended our knee OA program really improved our cash profile and cash generation. Our free cash flow conversion was roughly 50% in Q4 as we went from EBITDA to free cash flow of $10 million for really the back half of the year we're at 56%. So as we sort of move into 2024, while we don't guide cash flow, we expect improvements there. Joe in his comments alluded to the efficiencies around interest expense was over $6 million last year. We expect that to be much slower this year. We've got a lot of our legal issues behind us, professional fee spend and so on will go down. And together with our top line growth and strong EBITDA margins, we expect free cash flow conversion to continue to improve.

And then with respect to getting into xenografts and synthetics, would that be an area where you look to develop new products or would it be M&A driven or potentially a combination of both?

More than likely a combination of both. So we have efforts ongoing both internally and externally to expand that skin substitute portfolio to include the products you just mentioned.

And the last question, and thanks again. With respect to new products, are you still on track to add one to two new products per year? Should we be looking at an additional product addition this year and then a couple additional products in '25?

I think it's an aspirational goal. If we get one to two out of year, I think that's pretty good. But when you have -- right now, we're kind of focused on the launch that's ongoing. And we have multiple products in development, in process, if you will. When you stage them as a function of when they're ready and then really when you want to move them into commercial launch based on other priorities you may have. So yes, I think it's an aspirational goal.

Our next question comes from the line of RK with H.C. Wainwright.

This is RK from H.C. Wainwright. Couple of quick questions. Just I'm trying to see if you can give additional color on the launch of EPIFIX in Japan. And also when would you think that market will become meaningful for you folks?

We talked about today was really kind of activity based results, mainly because the numbers are still relatively small for us. And as you know, as we've spoken about in the past, we're a first mover in this market. So there's a lot of kind of missionary work that needs to be done from an education standpoint, from a reimbursement standpoint, et cetera. We were really pleased with the progress we made throughout the course of the year, the number of physicians that were trained, the number of hospitals that started to bring the product on board, essentially all the largest wound care centers in the country are now touching the product. And we have some of the largest or most prestigious key opinion leaders that are ordering the product and reordering the product, reimbursement is in place. So it's just early stage. Now you have to wait for results to come back and for doctors to get used to using the product. And whenever you're launching a new product, it takes a while. Whenever you're launching a first of its kind product, it takes a bit longer. And when you’re doing it in a business culture that moves at a different pace than what we're used to, it takes even longer. So pleased with the activity, it doesn't cost us a lot of money to be there. It won't take long before we're at a point where it's potentially accretive or at least breakeven. So it's not a big resource to reinforce and we think it's smart investment given where we are. In terms of when it will be a material contributor, I don't know. It's probably going to take still a bit longer before we can start talking about it in terms of revenue contribution. I could tell you that the percent increases are phenomenal, the percent increase is off of small numbers. So it's going to take a while, RK.

And the other question, another strategy question, you have been talking about this adjacent market strategy for a couple of quarters now. So trying to figure out like when we would have some tangible products in that field either organically or inorganically? And how -- is this a different leg of growth that we should expect to happen once the current momentum that you have gained in the private office gets to a plateau region?

So I got most of that. I think it was around timing on when we would have new product introductions associated with potential external agreements around xenos or synthetics, right? So why do we prioritize that? We prioritize that because those two areas of the skin substitute market make up about half of it. And the market that we're in today, as you know, is only the amniotic space, which is a little bit less than half of the total skin substitute market. So it just makes good natural sense for us to leverage the entire commercial infrastructure we have in place and move more through that channel. So that was the basic rationale there. In terms of timing, hopefully, I think, sooner rather than later, but I can't give you any more specific than that.

Our next question comes from the line of Anthony Petrone with Mizuho.

Maybe, Joe, start a little bit with US physician office wound care. Going back to some of the trends last quarter that given the sort of shifts that we saw from Novitas, First Coast and some other local MACs that there was a little bit of confusion there in terms of ordering patterns. Now there's a few kind of months here to sort of let this sit in as to where I guess we are in this transition for reimbursement in wound care. So can you give us a little bit of an update on ordering patterns, did it normalize to some extent in the fourth quarter? And probably more importantly, how are those ordering patterns as we sit here exiting February? And then I'll have a couple of follow-up questions.

Ordering patterns did normalize. And then we also got a little bit of an accelerant, because we had a new product launch in the physician office as we talked about. We started the year seeing similar trends as we start the New Year. Obviously, our comps are going to be a bit more challenging in 2024 but we did see very similar trends through the first part of the year, first part of quarter, I should say.

While we're on the topic, I'll say that Q4 also benefited from just -- we saw procedural volume increases as a company. And as a top line sort of cadence perspective let's say that seasonality is returning, so Q4 certainly benefited from that and also sort of vis-a-vis our 2024 guidance. So if you think about our cadence I think Q1 is going to be back to sort of the traditional seasonality there where Q1 deductibles, reset and things like that will be our lowest quarter and we'll finish with Q4 being our strongest quarter. But I wanted to remind everybody of that.

And couple of quick follow ups. One would just be when we think about just next horizons and updates from the local MACs, will they be with the CMS proposal season June, July or will they be off cycle? Just latest thoughts there. And the last one, just maybe a recap from Joe and/or Doug on sort of the M&A wallet. Cash balance is certainly healthy. You can tap obviously the credit markets. Just thinking about the size of acquisition targets that we should be thinking about from the inorganic side?

My guess on the CMS would be the annual cycle will probably, if there's anything to talk about or any potential changes, that's probably where we're going to see it. The MACs can do anything in one off cycle as we saw last year. But given the way that ended up, my guess is it's probably going to be more tied to the annual cycle. But we really don't know, right? As I indicated, they can do stuff off cycle. So we'll see how it unfolds this year. In terms of M&A, you're right. The financial profile, our balance sheet, has much improved over the course of the year. So it gives us a little flexibility. In terms of size of deals, at this point, we wouldn't restrict ourselves. Obviously, if we did anything in terms of M&A, it would be to accelerate a strategic plan. So A, it would have to fit strategically and culturally, it would have to be accretive or lead to accretion in a given amount of time and we wouldn't overburden organization. So it's hard to say, hard to put brackets around it at this point. And I don't think we are productive, I would just say, if it makes sense, we'll take a look at it.

Appreciate that. Thank you.

And hopefully, you're seeing -- Anthony, the way we've run the business over the last 12 months and probably even more so since Doug has joined the team, we tend to have a fairly disciplined approach to both the P&L and the balance sheet. And that does give you greater flexibility to scale the business over time. But we certainly wouldn't revert back to that, we wouldn't change our behavior around that kind of financial discipline, because we like a new shiny object that's out there.

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

Good afternoon everybody, and thank you for the low double digits revenue growth guidance. I wanted to ask another question on that regarding how the trend might be. Should we expect even increase over the year or should we expect some quarters to be a little bit stronger than others on a year-over-year basis with that low double digit guidance?

I can start, Joe can provide color. But obviously, excited to exit last year at 17% and close the whole year at 20%. But we knew that as we anniversaried new products, we were going to sort of slow that headline rate going into 2024. And we've talked about sort of low double digits as a kind of sustainable growth rate for us, and 2024 will be no exception. From a cadence perspective, I would not expect the growth rate to be, I would expect, accelerating revenue as we get through the year and new products continue to ramp. EPIEFFECT, AMNIOEFFECT, we've talked about and with growth there. But I would expect that the first quarter would be our lowest returning to traditional seasonality and certainly the back half of the year will be the majority of our revenue.

And then looking at the balance sheet, you had some movement there especially in the debt line and I think we will probably replace that $48 million with $28 million by the end of the quarter. Does that sound right just based on…

Well, it would be more like $18 million. We repaid the $30 million of revolver just a few days ago and that leaves us with $20 million of term loan A outstanding. And we're excited that we finished the year with over $80 million of cash on a sort of net debt or net cash basis. We were $30 million positive there and excited to have the ability to reach back out for more dry powder with the new facility and the $75 million capacity if and when we need it.

And it sounds like you have that $75 million available and that the cash balance will be pretty much the same as it was at the end of the fourth quarter at the end of the first quarter?

Well, we repaid $30 million. So on a net basis, yes, I would expect -- but we typically burn more cash in the first quarter too, we do, it’s an important point.

And then looking at what you announced about a quarter ago, MediWound and the studies that they were putting forward. Has there been any progress on that and how is it working within? And any updates on how that collaboration is going?

We’re I think just starting to get the sites up and running. So it's early stage.

And that was a Phase 3 if I remember my reading on that? Is that correct?

Yes, that's right, it was.

And then looking at Japan, just one more question there. We did have a few on that. I think you mentioned that over 500 physicians are trained and there were 70 accounts that were penetrated. What is the penetration rate? I know you have relatively low sales. But I'm just wondering how much further you can go in terms of physician training and also formularies, I suppose, or supply -- being available to supply those physicians, what's that penetration rate?

It's still relatively low. We've gotten to a lot of the big facilities and the key opinion leaders. But we need to go deeper into these accounts and we need to start to drive greater penetration in terms of usage the number of patients that are getting access to the product. So it's still working through the normal dynamics. You can imagine it's a higher reimbursement than anything else they're used to in terms of current standard of care. So that takes a bit to digest if they're going to want to see ROI on that. And so it just takes time.

There are no further questions in the queue. I'd like to hand it back to Joe Capper for closing remarks.

Thank you, operator. And thank you everybody for your questions and your continued interest in the company. We look forward to speaking to you again at the end of first quarter, which will be in a few months. Thanks, everybody. Have a great evening.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.