Please stand by. Welcome ladies and gentlemen to the Second Quarter 2024 Earnings Conference Call for Organogenesis Holdings Inc. At this time, all participants are placed in listen-only mode. Please note, that this conference call is being recorded and 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 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 a sequential filing with 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 a result of new information, future events or otherwise, except as required by applicable security laws. This call will also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, Sir.

Thank you, operator and welcome, everyone, to Organogenesis Holdings second quarter fiscal year 2024 earnings conference call. I'm 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 second quarter revenue results and an update on our key operating and strategic developments in recent months. Dave will then provide you with an in depth review of our second quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial guidance for 2024, which we updated in our press release this afternoon. Then I'll share some closing thoughts before we open the call up for your questions, beginning with a review of our revenue results for Q2. Our sales results came in above the high end of the guidance range outlined on our first quarter call, reflecting strong execution in a continuation of the positive momentum in business trends in the first half of 2024. Our team's strong execution resulted in better than expected productivity by enhancing existing customer relationships, regaining lost accounts and capturing new accounts, and despite disruption in the marketplace, fueled by continued aggressive pricing strategies and, in certain circumstances, questionable competitive activities. We believe our second quarter results support our continued confidence that we focused our commercial team on the right strategy to navigate through this challenging operating environment. We are encouraged by the further evidence that our team is driving growth in our customer base by emphasizing our differentiated products in their clinical validation. In addition to the strong commercial momentum in Q2, we were pleased to share updates on the substantial progress we have made on our ReNu program in recent months, as announced…

Thanks Gary. I'll begin with a review of our second quarter financial results and unless otherwise specified, all growth rates referenced during my prepared remarks or on a year-over-year basis. Net revenue for the second quarter was $130.2 million, up 11%. As Gary mentioned, these results were ahead of expectations. We provided in our Q1 call which called for total second quarter revenue in the range of $120 million to $125 million, reflecting continued strong momentum in the business during the second quarter. Our advanced wound care net revenue for the second quarter was $123.2 million, up 12%, and net revenue from surgical and sports medicine products for the second quarter was $7 million, down 3%. Gross profit for the second quarter was $101 million, or 77.6% of net revenue compared to 77.6% last year. Operating expenses for the second quarter were $114.9 million compared to $81.3 million last year, an increase of $33.7 million, or 41%. Note that second quarter operating expenses included approximately $22.8 million of noncash impairment of building and unfinished construction improvement work previously capitalized, as well as the write down of costs related to the development of internal use software. Excluding the aforementioned noncash charges and approximately $0.8 million of noncash amortization expense, our second quarter operating expenses increased $11.3 million, or 14% the year-over-year. Change in operating expenses included, excluding these noncash items was driven by a $6.6 million or 10% increase in selling, general and administrative expenses and a $4.6 million, or 43% increase in research and development costs compared to the prior year period. The increase in research and development expenses was primarily due to expenses associated with clinical research and trials, primarily related to ReNu and support of our BLA efforts. Operating loss for the second quarter was $13.9 million compared…

Thanks Dave. Yes, in closing, our second quarter results reflect strong execution from our commercial team amidst the challenging operating environment. We strongly believe the material changes proposed by CMS in the max and reimbursement of skin substitutes, if ultimately adopted, will be a positive step for the long term health of the wound care market. We have a strategy to leverage our existing strong clinical and real world data, including RCT's, and have already initiated a new RCT to secure additional clinical evidence and we expect to secure coverage for additional products on the covered list later this year and early into next year. While there will be a period of transition and disruption if these sweeping changes are implemented, we believe that organogenesis is strong brand equity, established commercial infrastructure, and a plan to establish additional clinical validation to secure coverage of key commercialized products, which, taken together represent a substantial competitive advantage for us that has us well positioned to maximize the enormous opportunity to serve more patients with our highly innovative and efficacious products. And finally, we are excited by the continued progress in our ReNu program and have a clear target for submission of our BLA by the end of Q4 2025 if approved. Introducing Renu as an innovative pain management solution for the millions of patients suffering from knee OA represents a truly transformational opportunity for organogenesis and importantly, one that is consistent with our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care. I would also like to acknowledge the continued hard work and dedication to our mission demonstrated by our employees throughout the organization. Our strong performance and progress towards our key strategic initiative over the first half of 2024 is the result of their efforts. And with that, I'll turn the call back over to you operator to open the call up for questions.

Thank you, sir. [Operator instructions]. And our first question will come from Ryan Zimmerman from BTIG. Please go ahead.

Hey, guys, good afternoon and congrats on the quarter and the progress with ReNu. Maybe I want to start with guidance for a second, Gary and Dave, and just talk about you've had two really strong quarters to start the year. I know there's a lot of balls in the air with the LCD's. Can you talk about. And you kind of referenced the carry a little bit in terms of some of the dynamics in the market, but can you talk about kind of what you've seen thus far through July maybe what's giving you a little pause, particularly as I think about your third quarter guidance relative to our expectations?

Yes, so I'll talk a little bit about the environment. So we're clearly seeing still a positive trend in our business. We've seen it throughout the second quarter. We've increased the number of accounts that we have sequentially. We've actually ended up with more sales representatives in Q2 than in Q1. And we're continuing to see additional accounts coming back. That we had lost as of last year. When some of the LCD's that eventually were removed came into play, so we see that trend keep moving forward. We also see a lot of the competitive pricing challenges. That I think everyone is seeing. We've been fortunate to continue to grow through that. But that competitive pressure is still there. And at times it seems like it's increasing instead of decreasing. So those pressures are still there. But we're still seeing some positive trends in our base business. As it relates to guidance, I think as it relates to all of the uncertainty with the LCD's coming out and the continuing escalation of some of the competitive practices in pricing. Every day seems like there's another product on the market with a high price. we think that that's going to continue until it stops. Which would potentially be with the LCD's or some other actions. But that's, that's in our thoughts when we look at our guidance.

Yes, so, Ryan, great question. I mean, obviously, we established that guidance early in the year. It was prior to the proposed LCD that came out in late April. We have beat both quarters, and we feel great about that, which gives us a high level of confidence in delivering that low end of the range. But to Gary's point, the dynamics are still challenging. And there's a lot of unknowns about when the customer buying behavior might change. So you can see, obviously, we gave guidance for Q3, which was a pretty wide range. And then that implied guidance for Q4, which was also even wider range. So we still think it's biased towards Q4. But there may be some spillage into Q3 as well. Which is what we're just a little bit concerned about as far as July is concerned, I mean, we're seeing the normal summer seasonality. But we expect to move away from that. As long as the customer buying behavior doesn't change dramatically in the back half of this quarter.

Okay, and just a quick follow up on that. And then I have some questions on ReNu. Any expected timelines for updates to the LCD. I know I've asked you this before, and it's hard to pin the max down specifically. But anything that we should be on the lookout for from a timing perspective on those LCD's?

It's our opinion, obviously, we don't know, as you said, that something will happen that we think those LCD's will come effective in the last quarter and really affecting Q1 of next year. We just see the cost still rising, rising substantially out there in the system. I mean, almost doubling from year to year. And the physician fee schedule, came out. And at this point, there's really nothing on the payment side that would lead you to believe it's going to control those costs. There was no bundling recommended in that proposal, so the combination of escalated costs, nothing really happening in the physician fee schedule. You know, we just believe something will drop from an LCD perspective sometime in Q4 and be effective on January 1. But those are the factors that we think about, and there does seem to be a lot of activity surrounding these LCD's.

Yes, okay, very helpful. Gary and Dave, just turning to ReNu now. It's good to see we have a clear path for ReNu. I'm wondering if, I don't know if Patrick's available, but maybe, Gary, you want to speak to this? Just talk to us about kind of the nuances or the differences between your Phase III study and the Phase III confirmatory study. Just remind investors if there's anything that you think can differ in those studies. And then the second question to all of this is, what room do you have? When I think about the timelines to submit for BLA, what room do you have to potentially adjust your timelines, if at all? Maybe you're able to get the data and the follow ups done as quickly as possible, and then we could see something a little, maybe earlier than fourth quarter '25? Thank you.

Sure. So regarding the two studies, I mean, the second study is larger, so it has more power in that study, and we've made some operational adjustments in that study that we think will ultimately lead to better performance in the second study. So we feel pretty comfortable about. Obviously, the study is already completed from the perspective of all of the patients have been enrolled, and we expect last patient, last visit next June or June of 25. So that gives us the opportunity to aggressively move forward for a filing. So it is possible, though I think Q4 of 2025 is a reasonable time period. We did ask the FDA in our meeting to consider the six month data. They have not responded. We'll know when we get the formal minutes of that meeting, which come 30 days after our meeting on the 25, so though we have no indication at all that that would be accepted, that's a potential change that could move it forward a couple of quarters for sure. But at the, as of this point, we're assuming that we will complete the trial and file in Q4 2024-2025.

Our next question comes from the line of Brooks O'Neill with Lake Street. Please go ahead.

Good afternoon, guys. Thanks for taking my questions. I guess I'd like to start by saying that as I talked to various players in the industry, some have expressed the view that the reason for the elevated competitive activity is some suggestion that Max might again fail to implement, the LCD's. A, what's your opinion on that? And. Well, let's leave it at that. What. How do you -- How do you respond to that suggestion?

Well, I think, based on where we see the costs, and those costs are obviously public, that they really increased dramatically and since there's been no change to the position fee schedule, unless something happens between now and the end of the year, but not likely. If it wasn't included in the proposed rule, it would be very difficult to implement something that's not in that proposed rule. So there's no payment solution, at least for another year and a half. That leads me to believe that the LCD's maybe not in their current form, but in some form, will be implemented to try to control the cost, right now in the skin substitute market. So it may not be in the form that it is. There's been a number of comments from a number of companies, us as well, that we think it needs to make. they need to make some changes to really improve it where it can be actionable and effective. So it might change, but it's our opinion that something needs to be put in place in the eyes of the Macs and CMS. And ultimately, it will.

Makes sense to me. You presented to us some compelling evidence that several of your products have the clinical evidence that the Mac seem to be suggesting is necessary for reimbursement in the physician office setting. Do you have any sense that they hear your case and they understand that you actually do have a lot of well conceived clinical evidence for those products? Or is it a silent response on their end?

Well, as I mentioned for Newshield and PuraPly, AM and XT, we have a substantial amount of data, some of which the Macs did not have the opportunity to review before they issued their proposed LCD's. So we've submitted those studies for Neuschild, AM PuraPly, AM and XT. One is an RCT and the others are retrospective studies, one for PuraPly. That actually is a comparative effectiveness study against a product that's already approved on the list of 15. So we think these are large, robust data sets, that they are compelling enough that they should be included in the LCD if and when it comes out.

Makes sense to me. I'll ask one last one. Thanks for taking my questions. I saw after the close, I think you filed a mixed shelf, offering $250 million. I'm curious if you have any comment on whether that's just sort of normal good governance or do you think there's either an appetite on the part of selling shareholders or the company to actually go out to the market and raise some additional capital?

Yes, Brooks, thanks. This is Dave. Yes, you're absolutely right. I mean, it's just good corporate governance. It provides a tremendous amount of financial flexibility for us, gives the opportunity for certain individuals to sell their shares in a secondary if that was something that they chose to do. And this is something that we have not had in place since the fall of 2019. So it really just was an opportunity to get this done. And again, to your point, just good corporate governance. And I might add, too, as from a liquidity standpoint, as of today, we have over $90 million in cash, $125 million on the revolver, and then a fair amount of working capital available to us as well. So that's, again, to your point, it's just good corporate governance and wanted to get it done.

[Operator instructions] Our next question comes from the line of,[Operator instructions] Our next question comes from the line of Drew Ranieri from Morgan Stanley. Please go ahead.

Hi, guys. Thanks for taking the questions. Maybe just to start, Gary, I was just flipping through the queue, and you mentioned this briefly to one of the earlier questions, but in terms of the sales force, it looks like you added maybe a handful of reps sequentially. And it's really the first time we've seen you be net adders, then subtractors for a number of quarters. So maybe just talk to us about the rep strategy here. I mean, it sounds, and it looks like rep productivity itself is increasing, but just talk to us more about the Salesforce side, what you're envisioning for remainder of 2024?

Sure. So you're correct. We did add representatives during the quarter. As I mentioned earlier, we have been successful in gaining our accounts back. We did have sequential account growth and our depth in the accounts is getting deeper. So our productivity, even with adding the representatives, which takes a bit of time for them to be completely productive, was up 20%. So that continued growth of accounts and depth in the accounts led us to aggressively, add representatives. I think our goal at the, at the end of the year is to have about 306 or so representatives based on the trends that we're seeing. That's our goal. And we'll add them, through obviously throughout the year. But our goal is to, continue as we gain those accounts back and we're gaining new accounts. And, when the, if the LCD is eventually hit and the market is available, more market is available because fewer products are on the market, we want to be able to cover that additional market share as well.

Our next question comes from the line of Ross Osborne with Cantor Fitzgerald. Please go ahead.

Hi guys, this is Matthew Park on for Ross. Congrats on the strong quarter and thanks for taking the questions. I wanted to start off by getting a better understanding of timelines with the RCT's. Do you mind just walking us through the process to get PuraPly and new shield back on the approved list following the completion of these studies?

Sure. So PuraPly and new shield studies are complete. They are done. Now we are running an additional study in RCT for PuraPly AM that will take about a year. So our objective is to have that RCT completed within a year. But we do have studies both for Neuschield, which is an RCT that's done, it's published, and the PuraPly AM and XT are retrospective studies. Those are done and complete and we provided those as well. But a new study for PuraPly, to answer your question, AM is about one year from today.

Got it. That makes sense. Thanks for clarifying. And then I guess just one more for me. I guess turning to the surgical and sports medicine side, obviously I understand it's a much smaller piece of the pie, but can you just walk us through some of the drivers on hitting the low and high end of guidance here and any plans to introduce new products for this side of the business?

Thanks. Yes, sure. That's exactly what we've done is the expectation was it was always assumed that the back half would be stronger than the first. And the reason being is exactly as you said, we've got some very unique products that are specifically for the or that are coming out with larger sizes which are more applicable for the or in the back half. In addition to that, there's been a strategy to expand channel expansion strategy with adding incremental agencies. And obviously all that stuff is in the works. And so the high and the low is related to the kind of upside you're going to gain from those two strategies, but always anticipated the back half would be stronger.

[Operator instructions] There are no further questions at this time. That does conclude our conference for today. Thank you for your participation. You may now disconnect.