Welcome, ladies and gentlemen to the Fourth Quarter and Fiscal Year 2022 Earnings Conference Call for Organogenesis Holdings Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company’s website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company’s filings with the Securities and Exchange Commission, including Item 1A Risk Factors of the company’s most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to be 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. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings’ President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Organogenesis Holdings fourth quarter and fiscal year 2022 earnings conference call. I am joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we’ll cover during our prepared remarks. I will begin with an overview of our fourth quarter revenue results and the update on some of our key operating developments in the recent months. Dave will then provide you with an in-depth review of our fourth quarter financial results, our balance sheet and financial condition at year end and our 2023 financial guidance, which we introduced today with our press release. I will then share a few thoughts on our outlook for 2023 before opening the call up for questions. So beginning with a review of our revenue for Q4, we reported net revenue of $115.5 million for the fourth quarter, a decrease of 10% year-over-year, which was driven by a decrease – a 10% decrease in our sale of Advanced Wound Care products and a 6% decrease in sale of our Surgical & Sports Medicine products. Fourth quarter sales results came in above the low end of the guidance range we provided on our third quarter earnings call. And moreover, sales of both our Advanced Wound Care and Surgical Sports Medicine products exceeded the low end of the range for their respective guidance. That said, the composition of our Q4 revenue by product was different than what we guided. Specifically, the low end of our guidance range assumed a 12% decline in total net sales driven by mid-single-digit growth in sales of PuraPly products and nearly a 30% decline in sales of non-PuraPly products. As we outlined on our Q3 call, we expected our sales in the physician office setting…

Thank you, Gary. I will begin with a review of our fourth quarter financial results, and unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the fourth quarter of 2022 was $115.5 million, down 10%. Our Advanced Wound Care net revenue for the fourth quarter of 2022 was $108.8 million, down 10%. And lastly, net revenue from Surgical & Sports Medicine products for the fourth quarter of 2022 was $6.7 million, down 6%, with net revenue from PuraPly products for the fourth quarter of 2022 was $56.8 million, down 9%. Gross profit for the fourth quarter of 2022 was $88.4 million or approximately 76.5% of net revenue compared to 74.5% last year. The change in gross margin was driven primarily by changes in product mix and normalized fixed cost absorption as compared to the prior year period, which was impacted by our La Joya restructuring activities. Operating expenses for the fourth quarter of 2022 were $79.7 million compared to $75.5 million last year, an increase of 4.2% or 6%. The increase in operating expenses in the fourth quarter of 2022 was driven by a $3.1 million or 38% increase in research and development costs and a $1 million or 2% increase in selling, general and administrative expenses compared to the prior year period. Fourth quarter 2022 GAAP operating expenses including certain non-operating items totaling $0.8 million, consisting of employee retention and benefits as well as other exit costs associated with the company’s restructuring activities. This compares to $1.8 million of restructuring-related charges in the prior year. Excluding these non-operating items and non-cash intangible amortization of $1.2 million in both periods, non-GAAP operating expenses for the fourth quarter of 2022 increased 7% year-over-year, driven by higher clinical study-related spending in support…

Thanks, David. 2022 was a challenging year, but we are proud of the team’s commitment to our long-term growth strategies, and we expect that to continue this year. Although it may not be readily apparent based on the net revenue growth reflected in our 2023 guidance, our guidance reflects our expectations for measured growth in sales of Advanced Wound Care products in 2023, driven primarily by the impact of key products in the physician office setting working through nationwide launches with recently published ASPs. We also expect to navigate the continued challenges in the office setting in 2023 due to the competitive noise from smaller skin substitute players operating outside the published ASP framework and customer uncertainty surrounding CMS’ potential changes for Medicare payments under the physician fee schedule for its advanced wound care treatments. We applaud CMS for pushing forward with their initiatives to publish ASPs for skin substitutes this year. We now have the opportunity to introduce our differentiated and clinically proven solutions to patients nationwide. This represents a significant long-term growth opportunity for Organogenesis. And while sales of our Advanced Wound Care products in the office setting will be impacted in 2023, we expect to deliver stable growth in sales of our Advanced Wound Care products in the wound care centers and hospital outpatient centers. We expect growth in the number of new and active customers. We expect growth in the number of units sold and stronger adoption of our new products entering full commercialization. And importantly, executing on our strategy this year is expected to result in growing our share of patients treated with advanced modality, again, in 2023. We also expect to deliver continued progress in strengthening our competitive position in the Surgical & Sports Medicine markets in 2023. So we are in the –…

Thank you, sir. [Operator Instructions] And our first question will come from Ryan Zimmerman from BTIG.

Alright. Thanks for taking the questions. Gary and Dave, I appreciate all the color. I’m going to ask a number of questions, if that’s okay. I think there might be some capacity here on the call. And if there is others in queue, certainly, I’ll hop back. But I want to start with guidance for a bit here. And just talk about your assumptions underpinning the guidance from a macro perspective. I can appreciate the competitive noise, but I’m curious if you assume market growth for 2023. And if so, what is that market growth specifically? And then I want to ask also about if you can elaborate on why PuraPly has seen such drastic declines in usage for ‘23 because the pricing into ‘23 was held fairly flat, I think, as of the last update from CMS. And then I’ll ask some other questions if I could.

So I mean I’ll start. Dave, you can jump in. So there is clearly market growth in our 2023 guidance. As Dave mentioned, our non-PuraPly products are expected to grow at the midpoint at 28%, and that’s a reflection of all of the new accounts that we talked about during the year and that I mentioned that we’re expecting again in 2023. We have more active accounts. We have more units being sold both in the outpatient setting and in the physician office. So significant opportunities for growth in the non-PuraPly products. Now as it relates to PuraPly, PuraPly was published and will be published in 2023 for the entire year, and that typically causes a pause. We’ve actually seen that pause at the end of Q4. Once the physician fee schedule dropped in mid-December, we’ve seen a pause in the acquisition of PuraPly XT. So now with that product published, we have that pause that we will overcome with the growth of the rest of our portfolio. And once we get by this year, the comps going forward will be more relative.

Yes, absolutely, Gary. I think the only other thing on the growth perspective from ‘23 on the non-PuraPly side of the house, we obviously brought in incremental sales reps throughout 2022. These guys came in around July and August time frame and really up to speed and ready to contribute in ‘23.

Okay. And just I want to ask one thing on PuraPly while we’re still on the topic. I did see a disclosure in the 10-K as I was looking through it ahead of this call. As it relates to these rebates that may take effect from CMS to implement a rebate, it calls out the fact that there may be need to be refund amounts calculated for 2023. And I’m just wondering if you can elaborate on what that means, what you expect to potentially owe to CMS if that does follow through.

So I’ll transfer it to Dave, but we don’t know what that amount would be, if any. So that’s not something that’s calculable at this point in time.

Yes, it’s unclear at this point, Ryan, how that’s going to play out, so...

Just citing the risk factor in the 10-K.

Yes, that’s correct.

Okay. And then as far as – first off, on a more positive light, I think the clinical trial, the interim analysis looks fantastic. To be able to not have to up your power for that trial is really great. Just you elaborated a little bit, Gary, on kind of what the plan is going forward with CMS. You’re on track. You’re seeking IND. But help us understand some of the outcomes here. So if you can’t submit that 200-patient RCT in conjunction with the Phase 3 trial, what does the second trial potentially look like? Help us understand kind of time lines for when a neo indication could potentially be on market.

Sure. So if, in fact, our phase – our first Phase 3 trial with the 200-patient study was accepted, we would expect BLA approval in the first half of 2025. To answer your question, if the second study is required, which we are initiating, our next submission – or discussion rather with the FDA would be to use the first Phase 3 trial and the interim analysis of the second Phase 3 trial. And if accepted, that would be a BLA approval in Q1 of 2026. If the second trial has to go all the way through the end for 100% efficacy data, we are looking at the second half of 2026 for BLA approval.

Very helpful on that. And then if I could squeeze a couple more in.

Sure.

Competitive pressures, I think, were supposed to abate after the fourth quarter. CMS published a number of new products into the first quarter, yet they are persisting into 2023. And just help us understand kind of the line of sight and your current thinking around what happens now in terms of competitive pressure. Do you think this gets better over one more quarter, the entirety of the year? Just curious to get your perspective there.

Sure. So CMS did publish 41 additional products on the list. I believe they have removed several, which has created some confusion. And I think just the whole process has created confusion, which is why we still see – expect to see some impact in the market clearly in the first quarter. Now if CMS publishes the rest of those products, we would expect to see that competitive impact start to get much better for us once that information is absorbed in the market. But one of the other trends that we’re seeing is even with the competitive noise, we’re starting to see some of the customers actually, even with those rebating programs out there, reverting back to some of our technology because perhaps they are not getting the results. So we’re starting to see some improvement in just recruiting those customers back. And as we launch on a national basis with Affinity and now XT, there is – you have that competitive noise in accounts that we haven’t been in with those products. We’re starting to see some inroads a little earlier. So that tells me that clinicians are seeing the benefits of our products and perhaps not so much in some of the other products they are using on the dehydrated side. So we think it gets better, Ryan. We think it gets better because efficacy is going to win. We think it gets better because eventually, some of these others will get published. So to answer your question, we think it improves. But right now, it’s – we see it – the noise is the same and the confusion is the same. Though our trends in 2023 so far are encouraging.

Right. That’s helpful. And then – and I apologize, I’m bouncing around a little bit here. But the last question for me, and I’ll hop back in queue, given the guidance on the top line, implied expenses are up modestly, but there is – I mean they are essentially in line with kind of where your sales are, and I know some of these are non-cash. But that said, how are you thinking about kind of your spend into ‘23? And what are your levers to control that and get a little bit more adjusted EBITDA, net income? Because it is going to be down year-over-year based on the guidance.

Yes, Ryan. I mean the one thing I would say is that, obviously, this is an environment where, from our standpoint, we are looking at flattish top line, absolutely. And you can see there based on the prepared remarks, we also see a decline in gross margin, which is primarily related to the mix shift out of PuraPly. As you might imagine, that’s a fairly profitable business there, franchised. So what we’re trying to do is be prudent about the operating expenses that we’re investing back in. It’s relatively minor. I think the levers we’ve got are we’re digging in pretty deep to ensure that we’re optimizing our – all the tools that we have and redeploying resources where they’ll add the most value. So we’re looking at all those different things. And we think that the investment profile that we’ve got going forward, again, to your point, is consistent with where we are around on the top line.

Okay. I am going to stop there. And hop back in queue. But appreciate you answered all my questions today.

Sure, Ryan. Thank you.

Thanks, Ryan.

Thank you. We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.

Thank you.