Q4 2021 Organogenesis Holdings Inc Earnings Call
Yes.
Good afternoon, ladies and gentlemen.
For the fourth quarter 2021 earnings conference call 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.
A recording will be available on the company's website for replay shortly.
Before we begin I would like to remind everyone to our remarks today may contain forward looking statements 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, one a risk factors of the company's most recent annual report.
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 photos.
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 are not calculated in accordance with generally accepted accounting principles or GAAP.
I'll refer to 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 release on the Investor Relations portion of our website.
I would now like to turn the call over to Mr. Gary S. <unk> SR.
Genesis Holdings, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator, and welcome everyone to Organogenesis Holdings' fourth quarter 2021 earnings conference call.
I'm joined on the call today Bye Bye, Dave Francisco, our Chief Financial Officer.
Well, let me start with a brief agenda of what we'll cover today during our prepared remarks.
I will start with a high level review of our fourth quarter and full year results, including our commercial operating and financial highlights.
Then provide a review of the progress we've made against our strategic initiatives in 2021.
As well as some color on our growth expectations for 2022.
After my opening remarks, Dave will provide you with a more in depth review of our fourth quarter financial results our balance sheet.
And financial condition at yearend and the financial guidance for 2022 that we included in this afternoon's press release, and then we'll open it up for questions.
Let me begin with a review of our results for Q4.
Another quarter of strong performance rounding out a transformative year for the company.
We reported net revenue growth of 20% year over year to $128 $6 million driven by 30% growth in our advanced wound care products, which offset a 45% decrease in the sale of surgical and sports medicine products in the quarter, both segments exceeded our expectations driven.
Primarily by the strength in our amniotic franchise.
As expected the decline in surgical sports medicine, and reflects the headwinds of our renew and new cell products. Following the exploration of the FDA enforcement Grace period on May 31st.
Excluding net revenues from these products total net revenue increased 28% year over year on an adjusted basis in the fourth quarter.
In addition to a better than expected net revenue result in Q4, we generated strong adjusted EBITDA of more than $26 million, representing a 25% of sales in the period.
Turning to our results for the full year net revenue increased 38% year over year and increased 45% year over year on an adjusted basis.
In addition to the impressive net revenue growth in 2021, we delivered notable financial performance as well the combination of increasing gross margins and strong operating leverage resulted in more than 89 million of adjusted EBITDA. This year.
Our fourth quarter and fiscal year 2021, net revenue results reflect the continuation of the key drivers of our growth strategy and competitive advantages. We have discussed in recent years, including the investments we've made to expand our sales force the.
Benefits of our comprehensive and differentiated portfolio of products that address patient needs to treat wounds across all stages of the healing process and strong execution of our commercial strategy focused on leveraging multiple channels, new product introductions and brand loyalty.
Let me update you on the progress of each of these in 2021 first we've made significant investments to grow our team of direct sales Representatives. We ended 2021 with 340 direct sales representatives compared to 300 at the end of 2020, an increase of 13% year over year.
And we have prioritized this area of investment over the last four years and as a result, the number of direct sales representatives have increased at a CAGR of 15% since the end of 2017 are.
Our fourth quarter and fiscal year 2021, net revenue results clearly benefited from the investments we've made to grow our direct commercial team in the recent years.
Second our comprehensive portfolio of products is a key competitive advantage for organogenesis and continues to be a primary driver of our impressive growth in recent years.
Our pure apply franchise performed extremely well in the fourth quarter and full year growing 38, and 35% respectively.
Pure play as well establish unique patent protected brand.
It's the only skin substitute on the market with purified collagen and ph M. B, a broad spectrum antimicrobial for all wounds, except for third degree Burns.
Pure plays back with proven clinical outcomes is highly efficacious in the early stages of wound healing and therefore remains a key component to the healing algorithm from our clinicians and patients.
We've strategically expanded the brand since we launched the product in 2015, bringing new products and line extensions to address varying wound attributes across size depth and complexity.
These new products and line extensions have enabled access to multiple sites of care and physician specialties and continue to drive strong demand for the brand.
Our portfolio of highly differentiated amniotic products continues to experience strong net revenue growth with sales, increasing 15% year over year in Q4, and up 38% on an adjusted basis, which exceeded our expectations.
Lastly, our PMA and other products net revenue declined 8% year over year in the fourth quarter, reflecting COVID-19 headwinds for Apograph in Dermagraph and the H O B P D setting their primary side of care.
For the full year, our PMA and other products grew 12% year over year.
Finally, we continue to make progress in diversifying our revenue.
Through the sale into new physician specialties and across multiple sites of care led by target project product development commercial strategies to win in these adjacent channels there.
The breadth of our portfolio increased awareness of the benefits of our advanced modalities and our broad commercial reach key success factors for this strategic imperative.
We continue to expand the number of customers across various sites of care and experienced strong growth in new physician specialties in Q4 and for the full year of 2021.
<unk> to the overall operating environment in the fourth quarter as highlighted on our Q3 call. We continued to experience health care facilities implementing COVID-19 related restrictions on access.
Nonetheless, our strategic initiatives focus on leveraging our technology platforms and product portfolio diversifying our revenue source and expanding our commercial reach allowed us to drive 28% growth in net revenue on adjusted basis, Despite the challenging operating environment.
To recap the takeaways for Q4, we delivered another quarter of strong growth and impressive financial performance against difficult comparisons in the prior year.
Our team executed very well, despite the challenging operating environment, and we made progress towards our strategic initiatives.
As I reflect back in 2021, we entered this year building off a strong foundation for from 2020, where our team strong execution of our strategic plan resulted in impressive operating and financial results. Despite the unprecedented challenges related to the pandemic in 'twenty two.
We delivered 30% net growth and a significant improvement in our product excuse me profitability as we generated over $49 million of adjusted EBITDA over the second half of 2020.
In 2021, we were able to deliver another extraordinary year of financial performance with adjusted net revenue growth of 45% and adjusted EBITDA margins of 19%.
We generated more than $89 million of adjusted EBITDA in 2021, and we ended the year with the strongest balance sheet and financial condition in the company's history.
In addition to the financial performance, we made great progress against our strategic initiatives.
Including strengthening our commercial team a key competitive advantage for us in the market ending the year with 340 direct sales reps.
We increased our capacity of our amniotic capacity by three times exceeding our goal of two five times by year end.
We made significant progress in our multi year plan to consolidate our manufacturing operations from California into Massachusetts to reduce the company's cost structure as part of our long term goal to achieve 80% gross margins.
We also opened up all La Jolla Innovation Center, continuing our heritage of strong research and development.
We've expanded our clinical evidence with six six new publications supporting the efficacy of our products.
And finally, we strengthened our board of directors, adding two new independent directors with the appointment of perhaps future do a bubble and Michael Driscoll.
I'm proud of our team's dedication and strong execution in 2021.
Before I turn the call over to Dave Let me review, our 2022 net revenue guidance, which we introduced in this afternoon's press release.
For the full year 2022 period, we expect net revenues in the range of 485 million to $515 million, representing growth of 4% to 10% year over year, and 6% to 13% on an adjusted basis.
Our as reported growth expectation for 2020 to reflect the continuation of our multi year strategic growth initiatives, which has resulted in net revenue CAGR of 34% from 2018 to 2021.
We continue to believe that the long term growth opportunity for organogenesis is very compelling and we remain confident in our long term target of sustainable low double digit growth.
That said there are three key headwinds to bear in mind, when evaluating the as reported growth range implied by our 2022 guidance.
First 2021 net revenue included sales of our renew and new sell products through May 31.
2021, which mark the expiration of the F D a grace period.
Second our 2021 net revenue included the sales of our Dermagraph product Dermagraph manufacturing was suspended in the fourth quarter of 2021 as part of our multiyear plan to consolidate our manufacturing facilities.
Here in canton on our campus.
Third our 2022 net revenue guidance reflects the impact of a more challenging operating environment, particularly in the first half of 2022.
In January rising arm to crime cases impacted patient consultations treatment in elective procedures staffing shortages increased restrictions and limitations on access challenged our ability to engage with new customers. Additionally, we face incremental headwinds in January as our own employees, where.
Impacted by the virus.
Dave will show will share more color on the first quarter revenue expectations in a few moments, but it's important to note that we have seen a material improvement in our business trends after the challenging January period.
We expect to see steady improvement in Covid related headwinds as we move through the first half of the year and our guidance reflects a more favorable operating environment over the second half of 2022 .
Additionally, with the contributions to growth from new products, coupled with an easier comparison, we expect accelerating growth into the back half of the year.
While these items represent what we believe temporary headwinds to our year over year reported growth rate the company's target multi year growth profile has not changed.
We are confident that continued execution of our strategic plan will result in strong adoption and utilization of our product solutions for the advanced wound care and surgical sports medicine markets. Our strategic plan also prioritizes continued operational progress continued development commercial introduction of highly innovative and highly <unk>.
Vacation products and continue to improve our long term profitability profile.
We expect to continue to improve our position as a leader in the industry as we deliver on our mission to provide integrated healing solutions that substantially improve outcomes, while lowering the overall cost of care.
With that let me turn the call over to Dave for a review of our financial results for the fourth quarter, our balance sheet and financial condition as of the end of the quarter and a review of the 2022 financial guidance. We introduced in this afternoon's press release Dave.
Gary. Thank you I will begin with a review of our fourth quarter financial results unless otherwise specified all growth rates referenced during my prepared remarks are on a year over year basis.
Gary mentioned, we were pleased with the strong net revenue growth in the quarter given the challenging operating environment net revenue for the fourth quarter of 2021 was $128 6 million up 20% and excluding renew and new so we grew adjusted net revenue by 28%.
Our advanced wound care net revenue for the fourth quarter of 2021 was $121 4 million up 30%.
Net revenue from surgical and sports medicine products for the fourth quarter of 2021 was $7 2 million down 45% driven by the impact on sales of our renew and new cell products, which we stopped marketing. After may 31, 2021 due to the exploration of the Fda's enforcement Grace periods.
Net revenue from pure play products for the fourth quarter of 2021 was $62 6 million up 38% as Gary indicated earlier, we're pleased with the continued strong performance from the pure play brand with sales increasing 35% year over year in 2021.
Gross profit for the fourth quarter of 2021 was $90 million or approximately 75% of net revenue compared to 76% last year.
Operating expenses for the fourth quarter of 2021 was $75 5 million compared to $59 7 million last year, an increase of $15 8 million or 26%.
The increase in operating expenses in the fourth quarter of 2021 was driven by a $13 $9 million increase in selling general and administrative expenses and a 2 million dollar increase in research and development costs compared to the prior year period.
The year over year increase in selling general administrative expense was primarily due to higher commissions related to the strong year over year increase in sales.
The year over year increase in R&D was driven by planned step up in clinical studies spend and related costs necessary to seek regulatory approvals for certain of our products.
Operating income for the fourth quarter of 2021 was $20 5 million compared to an operating income of $21 6 million last year, a decrease of $1 1 million or 5%.
Fourth quarter GAAP operating margin was 15, 9% of net revenue, excluding the aforementioned $1 8 million of restructuring costs. Our non-GAAP operating margin was 17, 3% in the fourth quarter of 2021.
Total other expenses for the fourth quarter of 2021 0.9 million compared to $2 9 million last year, a decrease of $2 million or 70% driven primarily by the reduced interest rate for borrowings under our new credit agreement signed in August 2021.
Net income for the fourth quarter of 2021 was $51 7 million or 39 cents per share compared to net income of $18 3 million or 15 cents a share last year, an increase of $33 4 million or <unk> 23 cents a share.
Fourth quarter net income included a benefit of $32 million of income taxes recognized resulting from the release of the valuation allowance previously recorded against the full amount of our net U S deferred tax assets.
Adjusted EBITDA of $26 3 million for the fourth quarter of 2021 or 25% of net revenue compared to adjusted EBITDA of $24 9 million or 23% of net revenue last year. We provided a full reconciliation of our adjusted EBITDA results in our earnings press release issued this afternoon.
Turning to the balance sheet as of December 31, 2021, the company had $114 million 5 million in cash cash equivalents and restricted cash and $73 6 million of total debt obligations of which to your point 2 million were capital lease obligations.
As compared to $84 8 million in cash cash equivalents and restricted cash and $84 8 million in debt obligations of which $15. One were capital lease obligations as of December 31, 2020.
We also have up to $125 million available borrowings on our revolving credit facility as of yearend December 31 2021.
You mentioned, the company's balance sheet and financial condition has never been stronger our improving profitability profile and related cash flow generation, along with our enhanced balance sheet and financial conditions as well positioned us to continue to execute on executing our strategic growth initiatives in the years to come.
Turning to a review of our 2022 net revenue guidance, which we introduced in our press released this afternoon.
For the 12 months ended December 31, 2022, the company expects net revenue between $485 million and $515 million, representing an increase of approximately 4% to 10% year over year.
The 2022 net revenue guidance range assumes net revenue from advanced wound care products, increasing approximately 6% to 12% year over year.
Revenue from surgical and sports medicine products decreased approximately 9% to 19% year over year.
Net revenue from the sale of our pure play products increased approximately 4% to 9% year over year.
As Gary mentioned, our 2021 revenue results included approximately $11 million through May 31, 2021.
At the end of the Grace period for a redo of new cell products, excluding sales of new cell renew and new cell for the first five months of 2021, our 2022 revenue guidance implies growth of 6% to 13% on an adjusted basis. Additionally, 2021 revenue results include sales of our Dermagraph product of approximately $20 million it's Gary.
Mentioned, we suspended manufacturing of Dermagraph at the end of last year and will resume production upon completion of our new facility in canton.
In terms of our profitability guidance for 2022, the company expects to generate GAAP net income of between $56 5 million and $71 5 million adjusted net income of between $62 million and $75 2 million.
EBITDA of between $73 5 million and $88 9 million and adjusted EBITDA between $79 9 million and $95 3 billion.
In addition to the formal net revenue guidance. We will also like to provide a few considerations for investors to bear in mind, when evaluating our growth expectations for fiscal year 2022. This additional color is intended to help the investment community better understand the assumptions supporting our net revenue expectations for 2022.
First the longest largest contributor to our total company net revenue growth in fiscal year 2022 will be sales of our amniotic products, which at the midpoint of the full year net revenue range assumes amniotic growth of approximately 12% year over year in 2022.
Second we expect our remaining non pure apply non amniotic products, which collectively form the group PMA and other to decrease at the midpoint of the range approximately 5% year over year to 2022.
Third as Gerry detailed earlier, we experienced COVID-19 related headwinds in January and while our business trends have improved quarter to date, we expect our first quarter net revenue to decline between 5% and 8% year over year on a reported basis.
Excluding the sales of renew and new cell for the prior periods, our first quarter sales expectations reflect fat flat to down 3% on a year over year on an adjusted basis.
Our 2022 net revenue guidance assumes modest improvement in the operating environment as we move through the first half of the year at a more normalized environment in the second half of 2022.
Importantly, our guidance assumes stronger growth trends in the second half of 2022, driven by the combination of increasing contributions from planned new product launches and assumption that we see progressive improvements in COVID-19 related headwinds and a return to a more normalized operating environment and an easier comparison related to renew and new cell not contributing to prior year sales beginning in June .
2021.
In addition to our formal financial guidance for 2022.
Some considerations for modeling purposes for the full year 2022 period, we expect gross margins of approximately 76%.
Total GAAP operating expenses to increase approximately 9% to 13% year over year.
Total interest and other expenses of approximately $3 5 million.
Non cash DNA and noncash stock expense of approximately $12 million and 6 million respectively. Our weighted average diluted share count of approximately $34 million. We also expect our full year 2022, capex to approximately $70 million to $75 million with the year over year increase in capex, reflecting the beginning of our multi year.
Manufacturing build out of the campus.
With that operator, I will turn it back to you.
Thank you, Sir ladies and gentlemen, I'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
We do ask that you limit yourself to one question and one follow up.
We would like to ask additional questions.
Budget to add yourself to the queue again by pressing star one.
And our first question coming from the line of Ryan Zimmerman with <unk>. Your line is open.
Hey, Thanks for taking the question and tell the progress that you guys have made this year.
I guess to start.
For Gary or Dave I appreciate all the color on the guidance and when you back out renew and new cell, but I.
With zero Mcgrath.
That contribution kind of puts you had maybe a mid teens adjusted growth rate for 2022, when does that canton facility and I might have missed this when does that canton facilities come back online and Dermagraph can start contributing.
In 2024.
Okay. So we shouldn't expect anything then okay and then.
The second question I had was just around some of the dynamics you saw in the quarter.
If I heard you correctly amniotic square up some of your PMA and other products were down.
Pretty significantly and I believe that some of that was related to COVID-19 headwinds and the H L. P. D setting, but I'm wondering if you could kind of speak Gary to kind of that dichotomy in utilization between the amniotic versus say the PMA and other in the quarter.
Sure so in the Permian and other Youre correct. It was the Covid headwinds the primary side of care for our Apograph Dermagraph PMA products is the H O P D and that's where we saw the most impact of Covid as it related to access.
So that you know that's pretty clear.
The data that we have that Oh, it's a direct result of just not having access into that site of care for those products.
Yeah on the amniotic side, you know they did do well.
It performed exceeded our expectations, we did see a slight decline as expected in the first month.
Started to grow.
As expected and actually better than expected so.
We put a lot of time and focus on the amniotic portfolio in Q4 and and helped.
Beating our expectations.
Okay. If I can just squeeze one more in.
The reimbursement rates for antibiotics, obviously it was a big.
Focus at the end of last year.
There might be some dynamic that with the Max and the first quarter, how much of the guidance in the first quarter Dave.
Flex that headwind that you may see from Max that are readjusting their reimbursement and if you can kind of.
Give us maybe help us understand that relative to say the COVID-19 dynamics as we think about the first quarter and the pacing through the year.
Yes, so theres somewhat commingled as we've talked about in the third quarter right. So it's really that youre talking about the launch of affinity right.
As that moves forward I think there is access challenges from that standpoint, but this team has got a tremendous amount of experience launching new products into these markets and so obviously, it's been incorporated into the guidance and plays into the first quarter and full year cadence that we just discussed.
Okay. Thank you I'll hop back in queue. Thanks for taking the questions.
Yeah.
And our next question coming from the line of Danielle <unk> with SBB Leerink. Your line is open.
Hey, good afternoon, guys. Thanks, so much for taking the question congrats on a strong end to the year.
Yes.
A question on what are the growth drivers I'm relatively new to the Oregon of Genesis story, but we spoke a few weeks ago at our conference about expansion into new channels like dermatology and just wondering if you could talk a little bit more about how meaningful of a growth driver.
That expansion or into other new channels might be in 2022, and then I have one follow up.
Yeah.
Sure, let me jump in and David can jump in as well so.
We.
We certainly aren't going to get into all of our channel strategies, but we do expect growth.
In the surgical channel this year with some of our products.
We also are seeing in certain specialties like dermatology.
Nice growth.
That's one in particular, that's growing quite nicely. So we do expect some.
Both support from those those are chase adjacent channels, but we certainly aren't guiding to exactly what those channel opportunities would be yes, I would agree I think we've seen some good progress in 'twenty, one and that momentum continues into 'twenty, two and as Gary mentioned, that's incorporated into the guidance, but we don't typically split that out.
Yeah, I understood and I guess, just a quick follow up on that I mean, when you are calling on new physician offices is that one of the components, though youre seeing and with Covid searches like for example, Oh, Macau and its a little bit more difficult.
You get into new offices and have you seen that start to ease up.
We certainly did see it at the end of Q4 and into January .
What it really impacted was bringing new products into the office with them.
That was the challenge it really wasn't a brand our traditional brand products did well and really help with the growth in Q4 and will also help.
In Q1, and two as well, but it was getting the new products introduced and getting them integrated into those facilities, which was more of the challenge because of the staffing issues.
Got it and just one last question for me and that's on.
The.
Strength from a competitive positioning perspective, and the full product portfolio and also the <unk>.
A number of feet on the street I guess, how much of a competitive moat have you built there there are other players in this market, but clearly you guys are outpacing market growth and will continue to do so so just wondering if.
If you feel like the sales force is at.
At a place where you feel like the competitive mode Big enough or do you expect to continue adding there and maybe maybe just talk a little bit about.
What more needs to be done or if you feel like you've got a big enough competitive moat around you that today. Thanks, So much sure. Thank you Danielle.
We certainly have what we believe is a competitive advantage with not only the size, but the expertise of our sales force and we expect to continue to add to that sales force both in the additional sites of care today that we participate in.
But as we grow our office strategy, we expect to add additional sales force there.
We are looking at specialties within wound care, where additional sales representatives would be added and on the surgical side.
We also expect that we'll be adding additional sales force and as we get further down our pipeline.
With Trans site, which is in the burnt space that would be an additional sales force small, it's a pretty efficient market.
And ultimately if successful with renewed it would be a specialty sales force. There. So we expect to continue to add in our traditional markets and continue to add in the Adjacencies that we're seeing additional growth from.
Thanks, so much sorry for the ignorant questions I appreciate it.
Questions. Thank you Daniel.
And as a reminder, Liza and gentlemen, just a question. Please press star one on your telephone keypad.
And our next question coming from the line of Steven Lichtman with Oppenheimer.
Oppenheimer Your line is open.
Hi, Thank you guys.
Gary you mentioned new product flow in 2022 can you walk through some of the key products.
And your focus.
Well right now and also.
Maybe specifically on Novacor.
Sure. So you know Novacor is one of the products that we'll be launching in the second half it'll be more of a soft launch in a physician experience kind of a launch, but we do expect it to provide some growth in the second half of the year and be a growth driver for us in years to come.
Apply M Z is the other product that we have we expect to launch it in the second half of the year it would not be material and we don't reflect it in our guidance at all even though it will be launched so those are the two products novacor being more of a contributor.
This year in pure play M Z a more of a contributor next year and years to come.
Okay.
Great and then just secondly, as you look at your advanced wound care guide for the year.
What gets you towards the lower end versus the higher end is it is it mostly around COVID-19 .
At about the overall ramp.
Sort of color you could provide on sort of.
The upper versus lower.
Yeah, I'll start and then Dave you can jump in it's clearly as the Nova excuse me the omnicom and Covid related issues, we as I mentioned in our prepared remarks, we're seeing an improved trend in February .
And we're seeing improved access so that speaks well, but you know until.
Until we get through the quarter, we wont know exactly what that is and also we are relaunching affinity and.
We're launching it in the first quarter when you have other seasonal issues.
As well so there's a little bit of noise that we want to see a little bit more data before we were comfortable but that's what the the ranges for those two items is that yeah. I would agree it's a really that dynamic of the extension of what we saw in January further into this.
The full quarter and obviously, we've guided for the full quarter and how that how the pace of recovery and improvement in the dynamics pieces through the year.
Got it great. Thanks, guys. Thanks, Dave.
Thanks.
Okay.
And 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 you may now disconnect. Thank.
Thank you.
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