Q2 2021 Organogenesis Holdings Inc Earnings Call
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Please standby good afternoon, ladies and gentlemen, and welcome to the second quarter of 2021 earnings Conference call for organic Genesis Holdings, Inc. At this time all participants have been placed in a listen only mode. 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 <unk>.
Item, 1 a risk factors on.
On the company's most recent annual and 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 the 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 those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP on.
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. Gill Hany, SR, Organogenesis Holdings, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator, and welcome everyone to Organogenesis Holdings' second quarter 2021 earnings Conference call.
And I am joined on the call today by day Francisco, our Chief Financial Officer.
So let me start with a brief agenda of what we'll cover during our prepared remarks.
I'll start with an overview of our revenue performance in the second quarter.
Including a discussion of the key drivers of the strong growth and improving profitability our team delivered in Q2.
After my opening remarks, Dave will provide you with a more in depth review of our second quarter financial results and our revised guidance for 2021 that we published in this afternoon's press release, and then we'll open it up for questions.
Let me begin with a review of our second quarter revenue performance and I am pleased to report that we delivered another quarter of strong financial performance, while continuing to make excellent progress.
Our strategic priorities during the second quarter, we reported revenue growth of 79% year over year to $123.2 million.
Our growth on the period was driven by 87% growth on our sale of sort of our advanced wound care products with strong contributions from our amniotic portfolio in the pure play brand.
In surgical sports Medicine, we grew revenue by 27% year over year. Despite the expected headwinds from our renew and new cell product lines. Following the exploration of the Fda's enforcement Grace period for those products, which ended on May 31 of this year.
And for the avoidance of doubt our strong second quarter growth is not just a reflection of an easy comparison from the prior year, where we also grew.
Revenue, 6%, rather our second quarter total revenue results represents growth of 90% over the second quarter of 2019 driven.
Driven primarily by 102% growth from the sale of our advanced wound care products and importantly, both of these rates reflect a sequential acceleration in the growth trends over 2019, which we view as strong evidence that our business continues to perform well.
Our better than expected performance in Q2 reflect our continuing execution against the pillars of growth.
And our strategy, which include leveraging our comprehensive portfolio of products diversifying our revenue sources across multiple sites of care and physician specialties and leveraging leveraging our broad and growing commercial reach.
Let me provide more color on how each of these long term drivers of growth contributed to the strong revenue performance in the second quarter.
First regarding the strength of our portfolio sales of our amniotic products were once again, the largest contributor to our year over year growth in the second quarter.
And as mentioned previously we are pleased with the strong demand for these products given the amniotic portfolios high degree of efficacy that clinicians and their patients truly value on the market.
Additionally, sales of our pure play products increased 32% in the period, representing the third consecutive quarter of double digit growth after coming off pass through status in the fourth quarter of last year.
This strong growth further validate the clinical utility of our brand and our strategic positioning of the product family with new Skus as well as additional clinical data sites of care and physician specialties.
We are proud of the unique customer value proposition our portfolio offers through the combination of our pure play brand, which is the only skin substitute with a broad spectrum antimicrobial agent, our amniotic portfolio with the only fresh amniotic membrane on the market and our PMA approved products for both.
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Secondly, we continue to diversify our revenue by expanding into new physician specialties and multiple sites of care to better position the company for sustainable growth long term.
<unk> physician specialties, we have widened our scope and therefore expanded our therapeutic wound targeting where we believe our advanced modalities are well positioned to win.
Additionally, we have been continuing our efforts to further penetrate the office channel with offerings and further leveraging our channel expansion through our acquisition of CPM Bioscience, which we have recently rebranded as organogenesis physician solutions or Ocs.
As a result, we continue to expand the number of customer accounts in the office channel and we are experiencing increased utilization of our products from our existing customers.
Lastly on enhancing our commercial reach we continue to make significant investment to grow our sales force and we believe our team of 325 direct representatives represents a key competitive advantage for organogenesis in the market.
With respect to the overall operating environment in the second quarter as expected, we continued to see improving trends across our served markets. During the second quarter with a backdrop of these improving trends coupled with our operational improvements in the quarter with adding 35, new sales representatives in Q2.
Increasing available product of our amniotic portfolio and continuing to grow active accounts. The business is well positioned to continue to execute and to grow going forward.
However, we are closely monitoring the potential impact to demand from the recent COVID-19 surge in key areas of the country. Nonetheless as mentioned our commercial strategy has resulted in broader diversification of our revenue, which has resulted in less exposure to the acute care and outpatient settings, which continued to face the most COVID-19 related hedge.
Winds.
In summary, we are very pleased with our revenue performance in the second quarter, where we reported 79% revenue growth.
Our highly differentiated competitive advantage has allowed us to continue to gain share on the market and deliver another strong quarter.
We're also pleased with the significant improvement in profitability in Q2 as evidenced by the impressive growth in adjusted EBITDA, which increased nearly $25 million year over year and more than $9 million quarter over quarter.
Our second quarter, adjusted EBITDA margin improved more than 20 percentage points year over year to 24% of net revenue.
These financial results continue to reflect the underlying profitability potential of our business in the years to come.
Additionally, as you may have seen in a separate press release. This afternoon, we closed on the refinancing of our bank facilities, which significantly lowers our cost of capital provides greater liquidity and therefore financial flexibility as well as further validates the momentum behind our strengthening financial profile.
Before turning the call over to Dave just to recap some of the key takeaways for the quarter, we delivered another quarter of outstanding financial performance with strong revenue growth and significantly improving our profitability.
We've made great progress towards our long term strategic initiatives by increasing the sites of care launching new products.
Entering new sales channels with our portfolio and our team capitalized on improving operating environments have contributed to gaining market share and expanding the market of our products.
And with that let me turn the call over to day for a review of our financial results for the second quarter, our balance sheet and financial condition as of quarter end and a review of the 2021 financial guidance. We updated in this afternoons press release, David Thanks.
Thanks, Gary I'll begin with a review of our second quarter financial results unless otherwise specified all growth rates referenced during my prepared remarks for on a year over year basis as Gary mentioned, we delivered another excellent quarter net revenue for the second quarter of 2021 was $123.2 million up 79%.
Our advanced wound care revenue for the second quarter of 2021 was $111.4 million up 87% with strong contribution to growth from all product groupings.
Revenue from surgical and sports medicine products for the second quarter of 2021 was $11.8 million up 27% with strong year over year contribution to growth from the amniotic portfolio, which more than offset the impact related to the exploration of the Fda's enforcement Grace period for renew and new cell products on May 31.
Revenue for pure play products for the second quarter of 2021 was $37.6 million up 32% as Gary indicated earlier, we are pleased with the continued strong performance from the pure play brand net sales have increased 29% year over year over the first 6 months of 2021.
Regarding our commercial footprint, we ended the quarter with 325 direct sales reps and believe we are well positioned to achieve our goal of ending the year with over 340 direct sales representatives compared to 290 as of March 31.2021.
Gross profit for the second quarter of 2021 was $93.3 million or approximately 76% of revenue compared to 71% last year on increase of approximately 480 basis points year over year and up approximately 60 basis points quarter over quarter.
The increase in gross profit resulted primarily from increased sales volume as well as the shifted product mix to a higher gross margin products operating.
Operating expenses for the second quarter of 2021 for $69.7 million compared to $51.2 million last year, an increase of $18.5 million for 36%.
The increase in operating expenses in the second quarter of 2021 was driven by a $15.8 million increase in selling general and administrative expenses and a $2.7 million increase in research and development costs compared to the prior year period.
For your increase in selling general and administrative expense was primarily due to a $10.2 million increase related to additional head count primarily on our direct sales force and increased sales commissions due to increased sales of $4.2 million increase in marketing and travel expenses as compared to the low prior year comparable amid COVID-19 related travel restrictions in the second quarter of 2 <unk>.
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As well as $3.3 million increase in volume related and other expenses second.
Second quarter 2021, selling general and administrative expenses included 2 items that did not impact prior year periods results.
Zero point $9 million of restructuring costs associated with the closing of the La Jolla office, and a $2.8 million noncash benefit related to the change in the fair value of the earn out liability in connection with the CP on acquisition.
The year over year increase in R&D expense was primarily driven by an increase in the clinical study and related cost necessary to seek regulatory approvals for certain of our products.
Operating income for the second quarter of 2021 was $23.6 million compared to an operating loss of $2.3 million last year, an increase of $25.8 million second quarter GAAP operating margin was 19, 1% of net revenue.
Excluding the restructuring charge and the change in the fair value of the earn out operating margin was 17, 6% in the second quarter of 2021, representing a year over year improvement in operating margin of approximately 20 percentage points.
Total other expenses for the second quarter of 2021 for $2.4 million compared to $2.9 million last year, a decrease of $5 million or 16% driven primarily by lower interest expense related to lower average borrowings compared to the prior year period.
Net income for the second quarter of 2021 was $20.7 million or <unk> 15, a share compared to a net loss of $5.2 million for <unk> per share last year, an increase of $25.9 million or <unk> 20 per share.
Adjusted EBITDA of $25.1 million for the second quarter of 2021 compared to adjusted EBITDA of <unk> $3 million last year, an increase of $24.9 million.
Gary mentioned adjusted EBITDA margin for the quarter was approximately 20% of net revenue.
Provided a full reconciliation of our adjusted EBITDA results in our earnings release issued this afternoon.
Turning to the balance sheet as of June 32021, the company had $90.3 million in cash and restricted cash and $83.5 billion of debt obligations of which $13.7 million for capital lease obligations. This compared to $84.8 million in cash and restricted cash and $84.8 million of debt obligations of which 15.
1 were capital lease obligations as of December 31, 2021 as.
As detailed in our press release and 8-K on August 9.2021, and we secured a new credit agreement with SBB lead agent and we're pleased to expand our banking partnerships with bank of America, PNC and citizens Bank.
The agreement provides for a credit facility in the aggregate amount of 200 million consisting of a $75 million term loans and $125 million revolving credit facility the.
The new facility reduces our borrowing costs and enhances our financial flexibility, which along with our improving profitability profile and related cash flow generation is well positioned us to continue to execute our strategic growth initiatives in the years to come.
Turning to a review of our 2021 revenue guidance, which we updated in our press release. This afternoon for the 12 months ending December 31, 2021. The company now expects net revenue between $456 million and $472 million, representing an increase of approximately 35% to 40% year over year as compared to net revenue of 300.
$38.3 million for the 12 months ended December 31.2020.
This compares to our prior guidance range of 438 million to $454 million.
For 2021 net revenue guidance assumes net revenue from advanced wound care products of between $423 million and $436 million, representing an increase of approximately 44% to 48% year over year. This compares to our prior guidance, which calls for growth of 39% to 43% year over year.
Net revenue from surgical and sports medicine products of between $33 million and $36 million, representing a decrease of approximately 18% to 24% year over year. This compares to our prior guidance range, which called for sales decreased 27% for 34% year over year.
Net revenue from the sale of pure play products of between $179 million on $187 million, representing an increase of approximately 22% to 27% year over year. This growth range is unchanged from our prior guidance.
In addition to the formal revenue guidance, we would also like to provide a few considerations for investors to bear in mind, when evaluating our growth expectations for fiscal year 2021.
This additional color is intended to help the investment community better understand the assumptions supporting our revenue expectations for 2021.
First the largest contributor to our total net revenue per total company net revenue growth in fiscal year 2021 will be sales of our amniotic products, which at the midpoint of our full year total revenue range now assumes amniotic growth of approximately 68% year over year in 2021. This.
This compares to our prior guidance range, which assume growth at the midpoint of approximately 48% year over year.
Second we expect sales of our remaining non pure applied non amniotic products, which collectively for the group called PMA and other to increase at the midpoint of the range of approximately 10% year over year in 2021.
This compares to our prior guidance range, which assumed growth at the midpoint of 20% year over year third we expect to see steady improvement on COVID-19 related headwinds as we move through the second half of 2021, However, our guidance for the remainder of the year continues to reflect lower year over year growth in the second half of 2021 as compared to the prior year.
As a reminder, this is driven primarily by 2 factors first given the strong performance of our advanced wound care business in the second half of 2020, we expect our see our year over year growth trends in the second half of 2021 to moderate as we lap for 56% growth from the second half of 2020.
Second as discussed in our first quarter earnings call. We continue to expect an improving operating environment in second half of 2021 benefit growth trends in our surgical and sports medicine business, removing renew and new cell from the market. Beginning June 1.2021 represents a headwind headwinds to growth over the last 7 months of 2021 of approximately $18 million.
And therefore, a significant impact of the growth profile of the second half of 2021.
As we look beyond 2021, we are continuing down the BLA pathway for renewable for the treatment of knee osteoarthritis and based on favorable feasibility studies believe this product has potential beyond knee OA for additional osteoarthritis and tissue regeneration applications as such given the broad based growth opportunities for renewable we are targeting our investments on renew.
<unk> and have discontinued our R&D efforts for new sales.
With respect to for expectation for financial performance in 2021, we continue to expect to report positive GAAP net income and positive adjusted EBITDA for the fiscal full year 2021 period.
In addition to a formal financial guidance for 2021.
Riding some consideration for modeling purposes for.
For the full year 2021 period, we now expect gross margins of approximately 75%.
Total GAAP operating expenses to increase approximately 27% year over year. This compares to our prior expectation for an increase of approximately 25% year over year, which reflects the incremental selling expenses related to second quarter 2021 revenue performance as well as incremental costs related to a tight labor supply, partially offset by the benefit of the reduction in the CPM earn out liability.
Note. Our 2021 GAAP operating expenses include approximately 5 million of restructuring expenses related to our La Jolla, California facility of which approximately $1.9 million occurred in the first half of 2021.
Non cash G&A of approximately $9 million noncash stock comp of approximately 3 million weighted average diluted shares of approximately $134 million. We expect full year 2021, capex of approximately $30 million, which of which approximately 2 thirds is related to growth and gross margin improvement initiatives. Finally, we expect total interest and other expenses of approximately.
$9 million at the lower borrowing costs associated with refinance facilities will be partially offset by exit cost expense in the third quarter of 2021.
With that operator, I'll turn it back over to you.
Thank you Sue if you'd like to ask a question. Please signal by pressing star 1 on.
On your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
We do ask that you limit yourself to 1 question and 1 follow up.
If you would like to ask additional questions. We invite you to add yourself for the queue again.
Star 1.
Our next question will come from Ryan Zimmerman with BTG.
Good afternoon, Thanks for taking my questions.
On the quarter.
Maybe Gary to start on the guidance, specifically within AWP I'd love to get your perspective on your current capacity.
Your manufacturing capacity within amniotic.
It continues to be a positive surprise for the business I know you were constrained a little bit there and then.
My second question is around the non pure apply the PMA and other products.
Just would love to understand how the dynamics that were driving that performance.
Performance in the softer guidance on that category of products. Thank you sure.
Thank you Ryan.
Yes, we did have.
On a nice increase in capacity in Q2 for <unk>.
Our affinity and Amy on products so.
That was something that we were counting on and we actually focused a lot of our attention commercially on on driving and expanding our affinity sales and expanding the launch of that product as a result of that capacity so that that was.
On a nice bump.
Bump for the for the quarter for Us for sure on the PMA product side I mean, we're still seeing growth in our non PMA products I mean, all of our products are growing.
Very nicely. We're also seeing obviously some revenue from our our CPM bioscience.
As well.
So a combination of the acquisition and our legacy products doing doing well.
The expansion of our Trs as our sales representatives have also been very very powerful and helpful. In the quarter and we expect them to continue to provide results going forward as we've seen the productivity increase fairly dramatically in the quarter as well by selling the entire portfolio.
Hopefully that answers your question.
That's helpful. And then just to sneak 1 and 1 follow up per day, you mentioned the tight labor supply.
Where are you seeing that specifically because your sales force is growing nicely.
Can you just help us understand kind of where you are maybe a little more constrained on labor, yes, sure. It's not really a constraint is just the costs are going up so we're seeing a kind of change in the dynamic of new reps coming in and it's beyond the commercial resources as well. So we're just feeling it a bit there I just wanted to provide a little bit of color from that standpoint.
Thank you for taking the questions.
Thank you.
Next question comes from Matt <unk> with credit Suisse.
Hi, Thanks, so much for taking the question. So just 1 on <unk>.
On our mental.
I know you put up a really strong quarter here. So it doesn't seem like it's something you're seeing.
Widely right now, but when you when you talk about.
On being sort of mindful of some other risks related to COVID-19 or delta.
What what.
Where are you seeing if you are seeing anything now where might we start to see that or what.
Help us understand how that might flow through and impact your business here in the back half and then I had 1 follow up.
Sure. So we are seeing impacts.
Particularly in the Missouri, Alabama, Oklahoma area.
We started to see that in the last several weeks. We're also seeing impacts in the Texas area, particularly Houston.
And in Florida.
Florida was primarily in the northern area that was affecting us, but we're now seeing it coming up the west coast and the Naples Fort Myers area, which is an important area for us. So we're certainly monitoring it those areas are important to us.
Particularly Texas and Florida in the advanced wound care side and.
Kind of the Midwest as you know, we're pretty strong in the South and then the Midwest. So we do expect to have an impact.
Fortunately for US we've continued to expand our office presence, where we did not see much of an impact and we continue to open additional channels.
In the surgical side.
And some of those areas like trauma, some really complex wounds limb salvage or not as susceptible to elective surgery.
Kind of issues that you find in a COVID-19 environment, but we're definitely seeing the impact in the hospitals.
We haven't seen a revenue impact yet but.
We are cautious about it but those are the areas that we see things starting to.
Get a little concerning.
Yes.
Great and then if I could just.
For you to have 2 follow ups, if I could 1 just on the cadence of your engine amniotic tissue products being.
An important part of the <unk>.
Half of the year and I just.
I'm wondering if you could dovetail or reconcile your comments on debt related in the physician office channel in other words.
Based on some of the things you mentioned based on the channel.
On the accounts that you're adding there and the integration of CPM on it.
Any anything you can give us in terms of the magnitude or contribution to growth with that in the back half maybe versus the rest of your business.
And then I realize this is not an operating question, but I do have to.
Ask about the.
The shareholder agreement that you've disclosed in the 8-K just because.
Because of all the issues related to some of the disbursements in the pressure on the stock I'd love to get your sense about.
Right.
How you arrived at that.
Do you think it.
It means in terms of your.
Plans for for further.
<unk>.
On capital capital true capital transactions again, it's a very complicated question because it is not.
Nothing to do with your operating results, but obviously for folks on the call I think I understand that it's an important topic to maybe highlight an ear out.
Sure I'd be happy to address it. So your first question regarding the amniotic contribution in the second half.
We don't expect to see a large contribution in Q3 for our Ami on as it will really be Q4, and the reason for that Matt is we did get a bump in Q2 as I mentioned in capacity, but that capacity is going to remain at the same level in Q3, we won't see another bump in capacity until Q4 and then we.
A fairly significant increase in capacity. So we would expect more of a contribution in Q4 than in Q3, but collectively will still be a strong contributor to growth.
We did commit to 2.5 times debt capacity.
'twenty, 1 versus 'twenty, and we definitely expect to see that.
And you've seen the results in Q2 with the increase in capacity on those additional accounts. It really did drive revenue as we expect it will in Q4.
On related to the shareholder agreement I think.
And as we stated in the 8-K, our large legacy shareholders that hold over 40% of organic Genesis stock, which is Alan Natus, Alberta, Ronnie Dennis or Ronnie when our stock.
Related trust in companies that they control have agreed with the company effective August 9th that they will not sell any shares of the company's capital stock that they hold until at least March 1.2022, unless any such sale is completed in an orderly fashion as part of an underwritten secondary public offering.
<unk>.
The company recognized and I wasn't really happy with the sales I'm sure most people werent. So.
The board has agreed that they recognize that periodic unexpected selling by them in.
And the market may cause some volatility of disruption.
So they are there.
Entry entry into the lockup reflects their commitment to conduct any of these sales.
At least through March of 2022 in an orderly fashion, so I think the recognition.
That that could create some disruption in the market is certainly unintended needs to be addressed and we addressed it.
That's great. Thank you.
Sure.
Thank you. The next question comes from Richard <unk> with SBB Leerink. Your line is open.
Hi, This is Aaron on for rich thanks for taking our questions.
On the quarter.
I just have a quick 1 on purified trend on it.
Revenue Okay.
Step down into Q1 Q.
But your guidance.
Which remains unchanged from the prior update.
The acceleration on the back half versus 2019 levels. I was just wondering if you can maybe talk about some other trends that you're seeing with this product.
And then I'll have another day.
Sure. So we are happy with the growth of 32% growth in pure apply as I mentioned earlier.
Earlier and addressing Matt's question.
Our affinity capacity increased dramatically in the second quarter as planned and our commercial focus shifted dramatically too.
Expanding the launch of our affinity products in the geographies in which we sell it today.
So that was it.
Committed effort and that had an impact on pure apply sales.
And now that we've kind of cut through that launch period or expanded launch period, we expect the product to continue to grow.
Nicely in the back half of the year. So that was something that we planned which is why we've reconfirmed our guidance for pure apply we haven't changed at all it was what we did expect so.
Second Dave you can jump in second half, we expect pure Florida to grow quite nicely.
Gary I mean, 32% up in the quarter and 2009 for 6 months of the year and holding the guidance we feel good about the trajectory there.
Thank you.
Okay, great. Thanks, and then I was just wondering if maybe you can provide.
On some other pipeline products.
Now the core and translate and then also just on it.
If you wouldn't mind walking us through kind of the BLA timelines for Aneel.
What to expect in terms of timeline for the trial.
Sure. So we're still expecting to launch.
<unk> site.
In 2020 to be more of a soft launch and.
Full launch.
At the end of 2023, our Novacor product, we're expecting to have on the market by the end of this year, but really won't be a contributor until 2022.
But that launches moving forward.
Nicely on.
On the renewable from.
<unk>, we are still expecting that we will complete the enrollment of the study by Q1 of 2022.
We're expecting that our interim analysis will be available around the end of the first quarter beginning of the second quarter. We expect to complete the study in mid 2023 and submit for approval and hopefully get approval in mid to end of 2020 for again assuming.
1 phase III trial as.
As all that's required.
Okay, great. Thanks for taking my question.
Thank you as a reminder, if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad.
Our next question comes from Steve Lichtman with Oppenheimer <unk> company.
Yes.
Thanks, Hi, guys congratulations on the quarter.
Gary I know early day, but now that we're past the FDA, forcing grace period Im wondering what youre seeing on the ground relative to the impact of your competitors.
Have you seen a big enough impact of smaller competitors given.
For more exposure to the impacted products as debt.
Net net you've been able to.
Overall, we obviously youre growing ahead of the market, but do you see that is 1 factor.
Yes, I think it's a little too early to tell at this point.
Obviously, we're not selling the product.
There are competitors out there that have.
Similar products that may be.
Still on the market I am not sure. So we're trying to figure that all out right now we don't have enough.
Data at this point to see what the real impact has been.
Okay Fair enough and then just secondly, thanks for the update on renew and new sales.
Can you talk a little bit more about what you're seeing out of renew that.
On giving you the confidence of the broader applicability of the product that's why you decided to not pursue.
On new sales.
Yes, I think.
What's important.
And our decision for new sellers, we assumed that new cell would be on the market remain on the market and would help fund that study.
It's a good product a strong product.
But without being able to sell the product and fund that study we thought a better return would be looking at additional indications are for new.
We do have several that we're studying now that we're pretty excited about we haven't made any final decisions, but we think the market potential for renewed indications are significantly higher than what new sales may be so it's worth the additional investment without the obviously associated revenue.
Compared to yourself.
Got it great. Thanks.
Sure.
Thank you. Our next question comes from Ryan Zimmerman with BTG.
On a couple of follow ups didn't get rid of it sooner, but just a couple questions on.
Dave These EBITDA margins.
With a 20% and so I know you are in a very important growth phase in and certainly the top line is the focus but love to get your thoughts just on the EBITDA margins over time and your ability to generate cash here is increasing and just how you're thinking about the use of cash I think it would be helpful for investors to get you.
Our perspective on that thanks for taking the follow up yeah sure I mean, obviously the back half of last year, we had a big step up in revenue and then COVID-19 related kind of savings and so we did flow a lot to the bottom line. We saw the same thing in Q1, and then had great performance from Q2. So I think it does illustrate the level of profitability for the business has and the operating leverage.
Potential, but I think as we mentioned, we still need to build out the infrastructure. It's not just the commercial teams, it's beyond that to really function as a high growth company. So you're right. We're focused very much on the top line and ensuring that we continue to invest in that.
But that level of profitability is going to generate a lot of cash flow in the future. So we've been talking a lot about that internally about how to deploy that capital I think there was a question earlier as to whether or not we needed any more equity capital and I think at this stage. The answer is no, but we'll continue to look for opportunities to add to the portfolio through.
Potential growth acquisitions.
Okay.
Well said.
Great I appreciate it very much thank you.
Thank you Ron.
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 very much.
Okay.
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To standby good afternoon, ladies and gentlemen, and welcome to the second quarter of 2020.1 earnings conference call for organic Genesis Holdings, Inc. At this time all participants have been placed on a listen only mode. 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.
The risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1 day risk factors.
On the company's most recent annual and 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.
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 those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press.
Our release on the Investor Relations portion of our website.
I would now like to turn the call over to Mr. Gary S. Gill Hany, SR, Organogenesis Holdings, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator, and welcome everyone to Organogenesis Holdings' second quarter 2021 earnings Conference call.
I'm joined on the call today by day Francisco, our Chief Financial Officer.
So let me start with a brief agenda of what we'll cover during our prepared remarks.
Start with an overview of our revenue performance for the second quarter.
A discussion of the key drivers of the strong growth and improving profitability our team delivered in Q2.
After my opening remarks, Dave will provide you with a more in depth review of our second quarter financial results and our revised guidance for 2021 that we published in this afternoon's press release, and then we'll open it up for questions.
Let me begin with a review of our second quarter revenue performance.
I'm pleased to report that we delivered another quarter of strong financial performance, while continuing to make excellent progress against our strategic priorities. During the second quarter, we reported revenue growth of 79% year over year to $123.2 million.
Our growth in the period was driven by 87% growth on our sale of sort of our advanced wound care products with strong contributions from our amniotic portfolio in the pure play brand.
In surgical sports Medicine, we grew revenue by 27% year over year. Despite the expected headwinds from our renew and new cell product lines. Following the exploration of the Fda's enforcement Grace period for those products, which ended on May 31 of this year.
And for the avoidance of doubt our strong second quarter growth is not just a reflection of an easy comparison from the prior year, where we also grew on.
Our revenue, 6%, rather our second quarter total revenue results represents growth of 90% over the second quarter of 2019 driven.
Driven primarily by a 102% growth from the sale of our advanced wound care products and importantly, both of these rates reflect a sequential acceleration in the growth trends over 2019, which we view as strong evidence that our business continues to perform well.
Our better than expected performance in Q2 reflect our continuing execution against the pillars of growth.
And our strategy, which include leveraging our comprehensive portfolio of products diversifying our revenue sources across multiple sites of care and physician specialties and leveraging leveraging our broad and growing commercial reach.
Let me provide more color on how each of these long term drivers of growth contributed to the strong revenue performance in the second quarter.
First regarding the strength of our portfolio sales of our amniotic products were once again, the largest contributor to our year over year growth in the second quarter.
And as mentioned previously we're pleased with the strong demand for these products given the amniotic portfolios high degree of efficacy that clinicians and their patients truly value in the market.
Additionally, sales of our pure play products increased 32% in the period, representing the third consecutive quarter of double digit growth after coming off pass through status in the fourth quarter of last year.
This strong growth further validate the clinical utility of our brand and our strategic positioning of the product family with new Skus as well as additional clinical data sites of care and physician specialties.
We are proud of the unique customer value proposition our portfolio offers through the combination of our pure play brand, which is the only skin substitute with a broad spectrum antimicrobial agent, our amniotic portfolio with the only fresh amniotic membrane on the market and our PMA approved products for both.
I'll use an DF use <unk>.
Secondly, we continue to diversify our revenue by expanding into new physician specialties and multiple sites of care to better position the company for sustainable growth long term.
<unk> physician specialties, we have widened our scope and therefore expanded our therapeutic room targeting where we believe our advanced modalities are well positioned to win.
Additionally, we have been continuing our efforts to further penetrate the office channel with offerings and further leveraging our channel expansion through our acquisition of CPM Bioscience, which we have recently rebranded as organogenesis physician solutions or ots.
As a result, we continue to expand the number of customer accounts in the office channel and we are experiencing increased utilization of our products from our existing customers.
Lastly on enhancing our commercial reach we continue to make significant investment to grow our sales force and we believe our team of 325 direct representatives represents a key competitive advantage for organogenesis in the market.
With respect to the overall operating environment in the second quarter as expected, we continued to see improving trends across our served markets. During the second quarter with the backdrop of these improving trends coupled with our operational improvements in the quarter with adding 35, new sales representatives in Q2.
Increasing available product of our amniotic portfolio and continuing to grow active accounts. The business is well positioned to continue to execute and to grow going forward.
However, we are closely monitoring the potential impact to demand from the recent COVID-19 surge in key areas of the country. Nonetheless as mentioned our commercial strategy has resulted in broader diversification of our revenue, which has resulted in less exposure to the acute care and outpatient settings, which continued to face the most COVID-19 related <unk>.
Winds.
In summary, we are very pleased with our revenue performance in the second quarter, where we reported 79% revenue growth.
Our highly differentiated competitive advantage has allowed us to continue to gain share on the market and deliver another strong quarter.
We're also pleased with the significant improvement in profitability in Q2 as evidenced by the impressive growth in adjusted EBITDA, which increased nearly $25 million year over year and more than $9 million quarter over quarter.
Our second quarter, adjusted EBITDA margin improved more than 20 percentage points year over year to 24% of net revenue. These financial results continue to reflect the underlying profitability potential of our business in the years to come.
Additionally, as you may have seen in a separate press release. This afternoon, we closed on the refinancing of our bank facilities, which significantly lowers our cost of capital provides greater liquidity, India for financial flexibility as well as further validates the momentum behind our strengthening financial profile.
Before turning the call over to Dave just to recap some of the key takeaways for the quarter, we delivered another quarter of outstanding financial performance with strong revenue growth and significantly improving our profitability. We've made great progress towards our long term strategic initiatives by increasing the sites of care.
We're launching new products.
Entering new sales channels with our portfolio and our team capitalized on improving operating environments have contributed to gaining market share and expanding the market of our products.
And with that let me turn the call over to day for a review of our financial results for the second quarter, our balance sheet and financial condition as of quarter end and a review of the 2021 financial guidance. We updated in this afternoons press release, David Thanks.
Thanks, Gary I'll begin with a review of our second quarter financial results unless otherwise specified all growth rates referenced during my prepared remarks for on a year over year basis as Gary mentioned, we delivered another excellent quarter net revenue for the second quarter of 2021 was $123.2 million up 79%.
Our advanced wound care revenue for the second quarter of 2021 was $111.4 million up 87% with strong contribution to growth from all product groupings.
Revenue from surgical and sports medicine products for the second quarter of 2021 was $11.8 million up 27% with strong year over year contribution to growth from the amniotic portfolio, which more than offset the impact related to the exploration of the Fda's enforcement Grace period for renew and new cell products on May 31.
Revenue for pure play products for the second quarter of 2021 was $37.6 million up 32% as Gary indicated earlier, we are pleased with the continued strong performance from the pure play brand net sales have increased 29% year over year over the first 6 months of 2021.
Regarding our commercial footprint, we ended the quarter with 325 direct sales reps and believe we are well positioned to achieve our goal of ending the year with over 340 direct sales representatives compared to 290 as of March 31.2021.
Gross profit for the second quarter of 2021 was $93.3 million or approximately 76% of revenue compared to 71% last year on increase of approximately 480 basis points year over year and up approximately 60 basis points quarter over quarter.
The increase in gross profit resulted primarily from increased sales volume as well as a shift in product mix to a higher gross margin products operating.
Operating expenses for the second quarter of 2021 were $69.7 million compared to $51.2 million last year, an increase of $18.5 million for 36%.
The increase in operating expenses in the second quarter of 2021 was driven by a $15.8 million increase in selling general and administrative expenses and a $2.7 million dollar increase in research and development costs compared to the prior year period.
The year over year increase in selling general and administrative expense was primarily due to a $10.2 million increase related to additional head count primarily on our direct sales force and increased sales commissions due to increased sales of $4.2 million increase in marketing and travel expenses as compared to the low prior year comparable amid COVID-19 related travel restrictions in the second.
For a 2020.
As well as $3.3 million increase in volume related and other expenses.
Second quarter 2021, selling general and administrative expenses included 2 items that did not impact prior year period results.
The <unk> $9 million of restructuring costs associated with the closing of the La Jolla office, and a $2.8 million noncash benefit related to the change in the fair value of the earn out liability in connection with the <unk> acquisition.
The year over year increase in R&D expense was primarily driven by an increase in the clinical study and related cost necessary to seek regulatory approvals for certain of our products.
Operating income for the second quarter of 2021 was $23.6 million compared to an operating loss of $2.3 million last year, an increase of $25.8 million second quarter GAAP operating margin was 19, 1% of net revenue.
Excluding the restructuring charge and the change in the fair value of the earn out operating margin was 17, 6% in the second quarter of 2021, representing a year over year improvement in operating margin of approximately 20 percentage points.
Total other expenses for the second quarter of 2021 for $2.4 million compared to $2.9 million last year, a decrease of <unk> 5 million or.
For <unk>, 16%, driven primarily by lower interest expense related to lower average borrowings compared to the prior year period.
Net income for the second quarter of 2021 was $20.7 million or <unk> 15, a share compared to a net loss of $5.2 million for <unk> per share last year, an increase of $25.9 million or <unk> 20 per share.
Adjusted EBITDA of $25.1 million for the second quarter of 2021 compared to adjusted EBITDA of <unk> 3 million last year, an increase of $24.9 million as Gary mentioned adjusted EBITDA margin for the quarter was approximately 20% of net revenue. We have provided a full reconciliation of our adjusted EBITDA results in our earnings release issued this afternoon.
Turning to the balance sheet as of June 32021, the company had $90.3 million in cash and restricted cash and $83.5 billion of debt obligations of which $13.7 million for capital lease obligations. This compared to $84.8 million on cash and restricted cash and $84.8 million of debt and debt obligations of which <unk>.
$15, 1 were capital lease obligations as of December 31, 2021.
As detailed in our press release and 8-K on August 9.2021, we secured a new credit agreement with SBB lead agent and we are pleased to expand our banking partnerships with bank of America, PNC and citizens Bank.
The agreement provides for a credit facility in the aggregate amount of 200 million consisting of a $75 million term loan and $125 million revolving credit facility.
The new facility reduces our borrowing cost and enhances our financial flexibility, which along with our improving profitability profile and related cash flow generation is well positioned us to continue to execute our strategic growth initiatives in the years to come.
Turning to a review of our 2021 revenue guidance, which we updated in our press release. This afternoon for the 12 months ending December 31, 2021. The company now expects net revenue between $456 million and $472 million, representing an increase of approximately 35% to 40% year over year as compared to net revenue of 300.
$38.3 million for the 12 months ended December 31.2020. This.
This compares to our prior guidance range of 438 million to $454 million.
The 2021 net revenue guidance assumes net revenue from advanced wound care products of between $423 million and $436 million, representing an increase of approximately 44% to 48% year over year. This compares to our prior guidance, which called for growth of 39% to 43% year over year.
Net revenue from surgical and sports medicine products of between $33 million and $36 million, representing a decrease of approximately 18% to 24% year over year. This compares to our prior guidance range, which called for sales decreased 27% for 34% year over year.
Net revenue from the sale of pure play products of between $179 million on a $187 million, representing an increase of approximately 22% to 27% year over year. This growth range is unchanged from our prior guidance.
In addition to the formal revenue guidance, we would also like to provide a few considerations for investors to bear in mind, when evaluating our growth expectations for fiscal year 2021. This additional color is intended to help the investment community better understand the assumptions supporting our revenue expectations for 2021.
First the largest contributor to our total net revenue per total company net revenue growth in fiscal year 2021 will be sales of our amniotic products, which at the midpoint of our full year total revenue range now assumes amniotic growth of approximately 68% year over year in 2021.
This compares to our prior guidance range, which assume growth at the midpoint of approximately 48% year over year.
Second we expect sales of our remaining non pure applied non amniotic products, which collectively form the group called PMA and other to increase at the midpoint of the range of approximately 10% year over year in 2021.
This compares to our prior guidance range, which assumed growth at the midpoint of 20% year over year third we expect to see steady improvement in COVID-19 related headwinds as we move through the second half of 2021, However, our guidance for the remainder of the year continues to reflect lower year over year growth in the second half of 2021 as compared to the prior year.
As a reminder, this is driven primarily by 2 factors first given the strong performance of our advanced wound care business in the second half of 2020, we expect our see our year over year growth trends in the second half of 2021 to moderate as we lap for 56% growth from the second half of 2020.
Second as discussed in our first quarter earnings call. We continue to expect an improving operating environment in second half of 2021 benefit growth trends in our surgical and sports medicine business, removing renewing new cell from the market. Beginning June 1.2021 represents a headwind headwind to growth over the last 7 months of 2021 of approximately $18 million.
And therefore, a significant impact of the growth profile of the second half of 2021.
As we look beyond 2021, we are continuing down the BLA pathway for renewable for the treatment of knee osteoarthritis and based on favorable feasibility studies believe this product has potential beyond knee OA for additional osteoarthritis and tissue regeneration applications as such given the broad based growth opportunities for renewable we are targeting our investments on renew.
<unk> and have discontinued or any efforts for new zone.
With respect for expectation for financial performance in 2021, we continue to expect to report positive GAAP net income and positive adjusted EBITDA for the fiscal full year 2021 period.
In addition to a formal financial guidance for 2021.
Some consideration for modeling purposes.
For the full year 2021 period, we now expect gross margins of approximately 75% <unk>.
GAAP operating expenses to increase approximately 27% year over year. This compares to our prior expectation for an increase of approximately 25% year over year, which reflects the incremental selling expenses related to second quarter 2021 revenue performance as well as incremental costs related to a tight labor supply, partially offset by the benefit of the reduction in the CPM earn out liability.
Note. Our 2021 GAAP operating expenses include approximately 5 million of restructuring expenses related to our La Jolla, California facility of which approximately $1.9 million occurred in the first half of 2021.
Non cash G&A of approximately $9 million noncash stock comp of approximately 3 million weighted average diluted shares of approximately $134 million. We expect full year 2021, capex of approximately $30 million, which of which approximately 2 thirds is related to growth and gross margin improvement initiatives. Finally, we expect total interest and other expenses.
Approximately $9 million is the lower borrowing costs associated with refinance facilities will be partially offset by exit cost expense in the third quarter of 2021.
With that operator, I'll turn it back over to you.
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First question will come from Ryan Zimmerman with BTG.
Good afternoon, thanks for taking the questions.
On the quarter.
Maybe Gary to start on the guidance specifically.
AWP I'd love to get your perspective on your current capacity.
Your manufacturing capacity within amniotic.
It seems to be a positive surprise for the business I know you're constrained a little bit there and then my second question is around the non pure apply the PMA and other products.
And just would love to understand kind of dynamics that were driving that.
<unk> and then the softer guidance on that category of products. Thank you for sure.
Ryan.
Yes, we did have.
A nice increase in capacity in Q2 for our affinity and Amy on products. So that was something that we were counting on and we actually focused a lot of our attention commercially.
On on driving and expanding our affinity sales and expanding the launch of that product as a result of that capacity so that that was on.
Nice.
Bump for the for the quarter for Us for sure on the PMA product side I mean, we're still seeing growth in our non PMA products I mean, all of our products are growing.
Very nicely. We're also seeing obviously some revenue from our our CPM bioscience.
As well so.
So a combination of the acquisition and our legacy products doing doing well.
The expansion of our Trs as our sales representatives have also been very very powerful and helpful. In the quarter and we expect them to continue to provide results going forward as we've seen the productivity increase fairly dramatically in the quarter as well by selling the entire portfolio.
Hopefully that answers your question.
That's helpful. And then just to sneak 1 and 1 follow up per day, you mentioned the tight labor supply.
Where are you seeing that specifically because your sales force is growing nicely. So.
Can you just help us understand kind of where you are maybe a little more constrained on labor yes.
Sure. It's not really a constraint is just the costs are going up so we're seeing a kind of change in the dynamic of new reps coming in and it's beyond the commercial resources as well. So we're just feeling it a bit there just wanted to provide a little bit of color from that standpoint.
Okay. Thank you for taking my questions.
Thank you.
Next question comes from Matt <unk> with credit Suisse.
Hi, Thanks, so much for taking the question so.
1 on <unk>.
Higher metal.
I know you put up a really strong quarter here. So it doesn't seem like it's something you're seeing.
Widely right now, but when you when you talk about.
On being sort of mindful of some of the risks related to COVID-19 or delta.
What what.
Are you seeing if you are seeing anything now where might we start to see that or what.
Help us understand how that might flow through and impact your your business here in the back half and then I had 1 follow up.
Sure. So we are seeing impacts.
Particularly in the Missouri, Alabama, Oklahoma area.
We started to see that in the <unk>.
Last several weeks, we're also seeing impacts in the Texas area, particularly Houston.
And in Florida.
Florida was primarily in the northern area that was affecting us, but we're now seeing it coming up the west coast and the Naples Fort Myers area, which is an important area for us. So we're certainly monitoring it those areas are important to us.
Particularly Texas and Florida in the advanced wound care.
<unk> and <unk>.
The Midwest as you know, we're pretty strong in the south and in the Midwest. So we do expect to have an impact.
Fortunately for US we've continue to expand our office presence, where we did not see much of an impact and we continue to open additional channels.
In the surgical side.
Some of those areas like trauma, some really complex wounds limb salvage or not as susceptible to elective surgery.
Issues that you find in a COVID-19 environment, but we're definitely seeing the impact in the hospitals.
We haven't seen a revenue impact yet but.
We are cautious about it but those are the areas that we see things starting to.
Get a little concerning.
Great and then if I could just on.
For you to have.
2 follow ups, if I could 1 just on the cadence of your engine amniotic tissue products being.
An important part of the back half of the year and I just.
I'm wondering if you could dovetail or reconcile your comments on debt related in the physician office channel in other words.
Based on some of the things you mentioned based on the channel.
On the accounts that you're adding there and the integration of CPM on it.
Any anything you can give us in terms of the magnitude or contribution to growth with that in the back half maybe versus the rest of your business.
And then I realize it's not an operating question, but I do have to.
Ask about the.
The shareholder agreement that you've disclosed in the 8-K just because.
Because of all the issues related to some of the disbursements in the pressure on the stock I'd love to get your sense about.
On.
How you arrived at that.
What do you think.
It means in terms of your.
Plans for for further.
No.
Capital capital true capital transactions again, it's a very complicated question because it is not.
Nothing to do with your operating results, but obviously for folks on the call I think understand that it's an important topic to maybe highlight on here out.
Sure I'd be happy to address it. So your first question regarding the amniotic contribution in the second half.
We don't expect to see a large contribution in Q3 for our Amiens, it'll really be Q4, and the reason for that Matt is we did get a bump in Q2 as I mentioned in capacity, but that capacity is going to remain at the same level in Q3, we won't see another bump in capacity until Q4 and then we.
A fairly significant increase in capacity. So we would expect more of a contribution in Q4 than in Q3, but collectively we will still be a strong contributor to growth.
We did commit to 2.5 times the capacity in 'twenty, 1 versus 'twenty, and we definitely expect to see that.
And you've seen the results in Q2 with the increase in capacity on those additional accounts. It really did drive revenue as we expect it will in Q4.
On related to the shareholder agreement I think.
And as we stated in the 8-K, our large legacy shareholders that hold over 40% of organic Genesis stock, which is Alan <unk>, Alberta, Ronnie Dennis ironic when our staff and related trust in companies that they control have agreed with the company effective August 9.
They will not sell any shares of the company's capital stock that they hold until at least March 1.2022, unless any such sale is completed in an orderly fashion as part of an underwritten secondary public offering.
The company recognized and I wasn't really happy with the sales I'm sure most people werent. So.
The board has agreed that they recognize that periodic unexpected selling by them.
And the market may cause some volatility of disruption.
So they are there.
Entry entry into the lock up reflects their commitment to conduct any of these sales.
At least through March of 2022 in an orderly fashion, so I think the recognition.
That could create some disruption in the market is certainly unintended and needs to be addressed and we addressed it.
That's great. Thank you.
Thank you. The next question comes from Richard <unk> with SBB Leerink. Your line is open.
Hi, This is Aaron on for rich, thanks for taking our questions and congrats on the quarter.
I just have a quick 1 on purified trend it looks like revenue, okay that might step down into Q1 Q.
But your guidance.
It remains unchanged from the prior update.
Implied acceleration in the back half versus 2019 levels. I was just wondering if you can maybe talk about some other trends that you're seeing with this product.
And then I'll have another day.
Sure. So we are happy with the growth of 32% growth in pure apply as I mentioned.
Earlier in addressing Matt's question.
Our affinity capacity increased dramatically in the second quarter as planned and our commercial focus shifted dramatically too.
Spanning the launch of our affinity products in the geographies in which we sell it today.
Yes.
A committed effort and that had an impact on pure apply sales.
And now that we've kind of cut through that launch period or expanded launch period, we expect the product to continue to grow.
<unk> nicely in the back half of the year. So that was something that we planned which is why we've reconfirmed our guidance for <unk>.
<unk>, we haven't changed at all it was what we did expect so.
Second Dave you can jump in second half, we expect the pure Florida growth quite nicely. Thank you.
Gary I mean, 32% up on the quarter and 2009 for 6 months of the year on holding the guidance, we feel good about the trajectory there.
Thank you.
Okay, great. Thanks, and then I was just wondering if maybe you can provide.
On some of the pipeline products.
Now on the core and translate and then also again.
If you wouldn't mind walking us through kind of the BLA timelines for Aneel and 1.
In terms of timelines for the trial and conversion sure.
So we're still expecting to launch true.
<unk> site.
In 2020 to be more of a soft launch and.
Our full launch at the end of 2023, our novel core product, we're expecting to have on the market by the end of this year, but really won't be a contributor on until 2022.
But that launches moving forward.
Nicely on.
On the renewable from.
<unk>, we are still expecting debt, we will complete the enrollment of the study by Q1 of 2022.
We're expecting that our interim analysis will be available around the end of the first quarter beginning of the second quarter. We expect to complete the study in mid 2023 and submit for approval and hopefully get approval in.
Mid to end of 2020 for again, assuming 1 phase III trial as.
As all that's required.
Okay, great. Thanks for taking our question Youre welcome.
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Our next question comes from Steve Lichtman with Oppenheimer and company.
Yes.
Thanks, Hi, guys congratulations on the quarter.
Gary I know early day, but now that we're past the FDA and forcing Grace period Im wondering what youre seeing on the ground relative to the impact of your competitors.
More exposure to the impacted products as debt.
Net net you'd been able for you.
Take care overall, we obviously are growing ahead of the market, but do you see that is 1 factor.
Yes, I think it's a little too early to tell at this point.
Obviously, we're not selling the product.
There are competitors out there that have.
Similar products that may be.
Still on the market I am not sure. So we're trying to figure that all out right now we don't have enough.
Data at this point to see what the real impact has been.
Okay Fair enough and then just secondly, thanks for the update on renew and new sales.
Can you talk a little bit more about what you're seeing out of renew that.
We're giving you the confidence of the broader applicability of the product that's why you decided to not pursue.
On new sales.
Yes, I think.
What's important to us.
And our decision for new sellers, we assumed a new sale would be on the market remain on the market and would help fund that study.
It's a good product a strong product.
But without being able to sell the product and fund that study we thought a better return would be looking at additional indications of renew.
We do have several that we're studying now that we're pretty excited about we haven't made any final decisions, but we think the market potential for renewed indications are significantly higher than what new sell maybe so it's worth the additional investment without the obviously associated revenue.
Compared to new cell.
Got it great. Thanks, Eric for.
Sure.
Thank you. Our next question comes from Ryan Zimmerman with BTG.
I had a couple for sorry, didnt get rid of it sooner, but just a couple of questions.
Dave These EBITDA margins north of 20% and so I know you are in a very important growth phase in and certainly the top line is the focus but love to get your thoughts just on.
On the EBITDA margins over time, and your ability to generate cash here is increasing and just how you're thinking about the use of cash I think it would be helpful for investors to get your perspective on that thanks for taking the follow up yeah sure I mean, obviously the back half of last year, we had a big step up in revenue and then COVID-19 related kind of savings and so we did flow of.
A lot to the bottom line. We saw the same thing in Q1, and then had great performance in Q2. So I think it does illustrate the level of profitability for the business has and the operating leverage potential, but I think as we mentioned, we still need to build out the infrastructure. It's not just the commercial teams, it's beyond that to really function as a high growth company. So you're right. We're focused very much on the top.
And ensuring that we continue to invest in net.
But that level of profitability is going to generate a lot of cash flow in the future. So we've been talking a lot about that internally about how to deploy that capital I think there was a question earlier as to whether or not we needed any more equity capital and I think at this stage. The answer is no, but we'll continue to look for opportunities to add to the portfolio through.
Potential growth acquisitions.
Good day.
Well said.
Great I appreciate it very much thank you.
Thank you Ron.
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 very much.