Q1 2022 Anika Therapeutics Inc Earnings Call
Please standby.
Good evening, ladies and gentlemen, and welcome to <unk> first quarter 2022 earnings Conference call.
Today's call is being recorded I will now turn the call over to Mark <unk>, Vice President Investor Relations E. S T and corporate Communications. Please proceed.
Thank you Sara good evening, everyone and thank you for joining us for Anika as first quarter conference call and webcast.
Our first quarter earnings press release was issued after the close of the market today and is available on our Investor Relations website located at Www Dot Dot com as are the supplementary Powerpoint slides that will be used for the discussion today.
With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Mike <unk> Executive Vice President Chief Financial Officer and Treasurer.
Please take a moment to open the slide presentation and refer to slide number two.
Before we begin please understand that certain statements made during the call today constitute forward looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could.
Differ materially from any anticipated future results performance or achievements, we make no obligation to update these statements should future financial data or events occur that differ from the forward looking statements presented today.
Please also see our most recent SEC filings for more information about risk factors that could affect our performance.
In addition, during the call we may refer to several adjusted or non-GAAP financial measures, which include adjusted gross margin adjusted EBITDA adjusted net income and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP financial measures. We believe the non-GAAP measures provide an additional way of viewing aspects of our <unk>.
Operations and performance, but when considered with GAAP financial measures and a reconciliation of GAAP measures. They provide an even more complete understanding of our business.
Reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the available presentation slide deck and in our first quarter 2022 press release.
And now I'd like to turn the call over to our President and CEO , Dr. Cheryl Blanchard Cheryl.
Thanks, Mark and good evening, everyone and thanks for joining US please turn to slide three.
'twenty two is a pivotal year and an exciting time for Anika as we celebrate our 30th year in business on our journey to becoming a leading provider of early intervention joint preservation solutions and we're off to a strong start.
Since our last call. We've continued to make great progress with our product development and commercial efforts, which I'll review in more detail shortly.
Like to start by covering our first quarter highlights and then I will review updates to our new product development pipeline and turn the call over to Mike for his review of our Q1 financials and guidance for 2022.
We ended the quarter with revenue up 7% over the first quarter of 2021, mainly driven by OA pain management, which was up 18% primarily on favorable order timing.
Our joint preservation and restoration business was essentially flat with the first quarter of last year.
We were initially hampered in January due to omicron, but as procedures lift and in February we saw some positive recovery through the rest of the quarter.
While the downstream macroeconomic effects of staffing shortages and supply chain issues could remain as headwinds for the industry for some time, we were encouraged to see COVID-19 related impacts abate during the quarter and are cautiously optimistic for market improvement through the year.
Our non orthopedic business was down 34% due to a tougher comparison to last year as they were last time buys for certain legacy products, which elevated our prior year first quarter revenues.
Our focus in Q1.
In person meetings resuming was on ramping up our sales and marketing efforts to drive awareness of Anika and our full joint preservation product offering.
In March we showcased our full early intervention product portfolio at the American Academy of orthopedic Surgeons meeting with strong engagement in our booths and events despite lower general show attendance.
We were very pleased to see strong surgeon interest and taxes that are enhanced bone void filler risk motion, our total risked arthroplasty systems and motion within like one way or bone preserving anatomic total shoulder arthroplasty system.
Also during the quarter, we ramped up our medical education efforts to train surgeons on the safe and effective use of our products.
Since the acquisitions of Arthur surface, and Pargas Medical education has been a growing focus area for Anika as we've been building our organizational capabilities.
So recently restrictions had been preventing many in person events from taking place.
I'm pleased that since the beginning of 2022, we have held a number of U S. In person medical education events with over 140 surgeons trained to date.
This will continue to be a strategic focus area for anika as we introduce new products to new and existing customers.
Lastly, as we continue to build commercial strengths I am very pleased to announce that Rob Delp joined the Anika in April as Vice President of U S sales reporting directly to me Rob comes to Anika with over 26 years of orthopedic industry experience.
He was previously with Zimmer biomet as president of the Americas, leading their sales teams, where he had responsibility for sales of biologics regenerative solutions sports medicine, and upper and lower extremity products, which aligns perfectly with Anika as portfolio. He also had responsibility for sales of reconstructive products.
Rob has also successfully built and managed direct.
And hybrid sales organization focused both in the ASC and hospital settings.
And led the Zimmer Biomet U S sales integration.
Rob will be instrumental in executing our commercial strategy as we launched key new products in the shoulder and foot and ankle spaces within the next six months to 24 months, especially with his strong surgeon and distributor relationships.
In addition, then Joseph's who many of you have met will continue focusing on upstream and downstream marketing as well as business development and working with Rob seem to grow anika into a leader in joint preservation.
I'm very excited to have Rob as part of the Anika team. He is a great cultural fit and is excited to work with our team to build a great growth company.
Please now turn to slide four so I can provide some updates to our product pipeline.
Within the next six months to 24 months, a number of new product launches are planned in the shoulder and foot and ankle spaces that will further give anika has a right to win and joint preservation and will result in revenue acceleration in the 2023 to 24 time frame.
We continue to make significant progress and are on track with these product launches.
I believe many of you are familiar with this slide we have updated it to include respective addressable markets.
Like to provide a few progress updates on recent launches and more details on the expansion of our shoulder product offering.
In the fourth quarter of last year, we launched the new indication for our regenerative products tack to set for the augmentation of suture anchor fixation in sports medicine procedures.
This expanded the available taxis that market to beyond $100 million.
By allowing us to create a new market for hardware augmentation, while continuing to expand our existing insufficiency fractures cactus that franchise.
Progress with taxes that is going very well capturing about four points of market share in only two years since its introduction in late 2019.
And we expect continued growth throughout this year new.
New indications in addition to that franchise are now in development with the start of a preclinical study last quarter and another one on track to start this year.
Now I'd like to give a notable update on our solar development efforts, we highlighted high opportunity spaces within the shoulder market already our largest concentration of business in joint presence preservation.
$1 billion market opportunity for Anika, and we are assembling a product portfolio uniquely suited for the ASC setting.
As Youll recall, we previously discussed three shoulder product imperatives that are driving our NPD focus and new products were soft tissue fixation bone preserving implants and rotator cuff repair.
I am pleased to provide an update for the first of those three are shoulder fixation product and development is a family of notwithstanding <unk>. It is planned to launch in the second half of this year, enabling anika to provide a cornerstone sports medicine product, commonly used for performing double row repairs of the rotator cuff and other areas like flu.
Ankle procedures, where the convenience of it notwithstanding as desired.
<unk> family to launch will be peak anchors with rotator cuff repair procedures approaching 700000 annually in the U S. They represent one of the highest volume soft tissue procedures in the ASC setting, allowing us to access even more of this exciting market.
This new suture anchor offering in combination with the recently launched indication for augmenting suture anchor fixation for using <unk>.
Building strength in synergy in our joint preservation portfolio, providing additional growth opportunities in the shoulder and specifically focused on the ASC call point.
We also continue to make great progress on our rotator cuff repair system that includes our regenerative component for augmentation for which we are currently performing preclinical studies and have five 10-K submission is planned for later this year.
This system will build we will further build and establish anika shoulder portfolio as an innovative and winning offering in the AFC driving the growth. We are so excited about in the 2023 to 24 timeframe.
All three pillars of our joint preservation product portfolio, including sports Medicine, regenerative solutions and bone preserving joint solutions have key new product releases within the next six months to 24 months that will build to a very strong shoulder product portfolio designed to work well in the ASC.
We also continue to be excited about our longer term opportunities to bring to the U S. Our high eliphaz cartilage repair solution and Cingal for short and long term joint pain relief in line with what we have stated previously.
Please turn to slide five.
2022 is a building year for Anika as we continue to invest in our commercial capability and product portfolio to take advantage of the market shift to the ASC we.
We have five key areas of focus for Anika this year.
First we expect to continue our market leadership position in the HLA based OA pain management market with Monovisc in north of us generating cash flow for investment to grow.
This year.
Now I'll turn the call over to Mike for a review of our first quarter, along with our outlook for 2022, and then I'll wrap things up and we'll take questions Mike.
Thank you Sir please.
Please turn to slide six.
I will not walk you through our financial results for the first quarter of 2022.
Total revenue for the quarter was $36.7 million, an increase of 7% over the prior year.
The increase was primarily in pain management, where revenues rose, 18% to $22.7 million due to both continued COVID-19 recovery and favorable order timing it international in veterinary.
As a reminder, revenues Inoue pain management can vary significantly on a quarterly basis based on ordering patterns by our partners and distributors in the United States and internationally Morceau over the last couple of years due to the global impact of Covid, but that quarterly volatility generally stabilises on an annual basis.
Are joined preservation and restoration revenue decreased 1% from $12 $2 million to $12 $1 million as the business saw some recovery after early quarter Covid headwinds.
Or non orthopedic revenue was $1.8 million down 34% from last year, reflecting higher revenues from significant end of life purchases during the first quarter of last year.
Our gross margin in the first quarter was 59% and includes the impact of $1.6 million in non-cash acquisition related expenses from the 2020 acquisitions abarca, a surface and pockets.
Are adjusted gross margin, which excludes the acquisition related expenses was 64%, reflecting unfavorable volume in reserves driven by supply chain and staffing challenges.
From a spending standpoint, our research and development and SG&A expenses together totaled $25.4 million in the first quarter.
From $2004 $5 million in the same period of 2021, as we expanded medical education and are continuing to strengthen <unk> internal capabilities and support of our global commercial growth objectives.
Our net loss for the quarter was $2.9 million or 2000.
Per share <unk>.
Compared to net income of $2 $8 million or 20 per diluted share in the first quarter of last year.
The decrease was largely due to a non-cash tax effected benefit of $5 $5 million with 38 cents per share in the first quarter of last year associated with the change in fair value of contingent consideration.
Are adjusted net loss was one $6 million or.
Or 11 per share down compared to adjusted net income of $800000 or six cents per diluted share in the prior year.
And our adjusted EBITDA in the quarter was $2.6 million down from $4 $8 million in the first quarter of last year the.
The year over year decrease is primarily due to the lower adjusted gross margin in the quarter from supply chain and staffing challenges and to a lesser extent from our incremental investments to support growth acceleration initiatives.
Lastly, with regards to our cash flow and capital structure, we had operating cash outflows of one 9 million for the quarter compared to outflows of $2.4 million in the first quarter of last year.
And a capital expenditures in the quarter total $1.3 million up from $400000 last year as we invest in commercial infrastructure to support our growth strategy.
Our balance sheet remained strong with $93 million in cash at the end of the first quarter.
Please turn to slide seven.
Now I would like to review our financial outlook for fiscal year 2022.
Based on our progress to date, we are reiterating our full year 2022 total revenue outlook of low to mid single digit percentage growth over 2021.
We are pleased that the direct impact of Covid has been lifting and now expect the results to be toward the upper end of our full year guidance range while.
While acknowledging ongoing supply chain staffing and other ongoing macroeconomic challenges.
In line with our previous guidance, we expect joined preservation and restoration to continue to be our fastest growing product family will full year revenue growth in the mid single to low double digit percentage range over last year.
We expect growth to accelerate in the second half of this year, reflecting the expansion of our product portfolio as well as our continued focus on salesforce execution.
And Oh, a pain management, we continue to expect above market low single digit percentage growth over 2021, and this more mature part of our business and we are encouraged by the favourable performance to start the year.
And are much smaller non orthopedic product family, we expect revenues to decrease approximately 20% as compared to 2021 down from last year, primarily due to higher results in 2021 from last time buys of legacy products and order timing.
This guidance is an improvement from our previous expectations of a decrease of 30% from last year.
With regards to gross margin given ongoing supply chain and staffing challenges. We continue to expect adjusted gross margin for the year to be in the low to mid 60% range.
We remain focused on driving margin expansion on a multiyear basis, but expect these macro headwinds to limit progress this year.
With regards to spending as we've discussed previously and 2022, we are investing ahead of growth and support of our longer term growth and profitability targets with the increased spending over last year on key research and development programs consistent with the product pipeline Cheryl outlined.
As well as on capabilities that support our commercial transformation, including increased spending in medical education industry events that enable us to expand our brand in product portfolio awareness and system and process enhancements.
As a result of the targeted spending investments as well as the near term supply chain and staffing challenges impacting our gross margin. We continue to expect adjusted EBITDA margin for the year to be in the low to mid single digits.
Please turn to slide eight.
We remained laser focused on building the foundation that supports acceleration coming out of this year to achieve our multiyear growth and profitability targets as well as healthy revenue diversification.
The investments, we are making a new product development and commercial execution initiatives and our faster growing joined preservation and restoration business support our stated multiyear targets of accelerating to an overall mid teens revenue growth rates as well as an adjusted gross margin of 70% and adjusted EBITDA margin of 20%.
While due to the extended impacted COVID-19 over the last couple of years, we are approximately three to four quarters behind the original five year target for 2019 of doubling revenue by 2024.
We are executing on the areas within our control with multiple new products launching within the next six to 24 months targeting are large and growing addressable market.
As well as putting in place the people processes and tools necessary to scale the business.
In summary, as we continue to execute on our transformation. We are excited about the significant opportunities in front of us to achieve our mission and drive value creation for our stakeholders.
I will now turn the call back over to share.
Thanks, Mike Please turn to slide nine where I'll wrap up and then we'll take questions.
We remain excited as we transform the business and we're focused on executing our growth story interlinked preservation, where we believe we have a unique market opportunity and right to win.
We continue to make significant progress on our new product development pipeline, including a notwithstanding your anchor to launch in the second half of this year fully launching or in person medical education programs and commercial execution with the recent addition of Rob dealt to lead that effort and.
We view the shifted procedures to basc setting as a tailwind for annika with our focus in that space.
Unique product portfolio that we have built differentiates annika SV company focused on the giant preservation customer and the early intervention orthopedic continuum of care.
Delivering value in the AFC and to our shareholders.
As always I would like to thank the Annika employees for their hard work as we continue our transformation.
Happy to take your questions now.
Mmm, Thank you <unk>.
Ask a question. Please take note bypassing star one on your telephone keypad.
You're using a speaker phone please make sure your mute function.
Turned out to align your signal to reach our equipment.
Again.
Or one to ask a question.
For just a moment to allow everyone an opportunity.
And we'll take our first question from Chris <unk> with Steven.
Good afternoon, everyone and thank you for taking the questions and congrats on a solid start here to the new year.
I guess just for me that'd be two quick ones here. This afternoon.
Curious.
Obviously just laid out.
Kind of an enhanced guide for the calendar year 2022.
And with that.
Talked about kind of.
I'm, sorry, looking back down here.
Low single digit growth.
And the pain franchise.
Curious, how you're thinking about that from the perspective of volume in pricing, obviously, a lot of discussion here in the sector.
Over the last several months since we come into the second half of the year. So just wanted to make sure I understand the underlying assumptions there.
Get you to that kind of low single digit growth for the full year and then I've got a follow up.
Hi, Chris It's Mike I'm happy to speak to that on the number side and feel free to jumped and obviously.
So our view of the market in pain is about a 1% growth in that market.
We expect to grow ahead of the market R. U S franchise that we sell through J&J Mitek.
Is the market leader this as a mature market.
And we are pleased to be the market leader in that space.
The guide is consistent with what we've what we've been saying and whether it but I think we've been been delivering we did have faster growth in the first quarter.
And that was driven by favorable order timing and some recovery in the.
The non use parts of our business like our international business as well as to a smaller extent or veterinary business or veterinary products that we sell.
But we are right in line are J&J Mitek business grew right in line with our full year guide of low single digit growth.
Not any dynamics that were unusual relative to pricing.
And.
Again, we have a strong market position in that mature market.
I appreciate traditional color.
Also just wanted to touch base.
In particular on the Cingal pilot trial, I'm, assuming that would be.
In terms of just showing.
Report out that would be done at a major medical meeting, but just kind of thoughts there that would be presented then you'd have I guess.
In your discussions with the agencies just wanted to kind of make sure I'm thinking about that timeline correctly. Thanks, so much.
Yeah, Thanks, Chris Hi, it's Sheryl. Thanks for your question. So the single pilot trial has has as we as we have discussed completed enrollment and we expect to have a data readout and report on that in the fall so.
So we will provide an update to the street on that once we get to that point in the year, but we're looking forward to it and things are on track for us to be able to do that nothing has changed there.
Thank you.
You're welcome.
And clearly move on again.
For $30.
Hi, good afternoon, thanks for taking my questions.
It sounded like you indicated that payment.
Payments with businesses.
Unusually strong in the quarter.
Who will give us a little more color on that.
And is that going to impact the second quarter.
Hygiene, it's Mike.
Yes, it was stronger in the quarter largely due to favourable timing in areas outside the United States as well as we also have veterinary products that we sell.
So we did not change our expectation for the full year guide of low single digit growth.
In that space and that's in line with how J&J might Mitek grew.
Our revenues from them grew in the in the first quarter.
In terms of guidance for the second quarter, we're not giving specific guidance for on a quarterly basis.
But I think historically, what we've seen is.
Second quarter generally as a stronger quarter for the J&J mitek business, but given that we've got the favorability and timing that we saw in the first quarter. There will be we would expect that too.
To be in a bit of an offset in the second quarter. Because we just think some people probably accelerated some of their purchases. So that's why we're not changing our guide for the year. We're pleased with the solid start we are.
Raising our our view that we expect to finish towards the upper end of our guide on a total total company basis.
And that is driven by the favourable performance in the pain management and retiring some risk they're just as we work our way through the year as well as a little bit as well in north non orthopedic. It's a much smaller part of our business, but we are pleased with the orders that we are there and we updated that guidance a little bit as well.
Okay and then.
Joined preservation you continue to expect.
Mid single to low double digit growth there, but it was down.
The first quarter. So can you talk about.
Why it was down.
Q21.
Unusually strong.
Ron.
The Big factor there and then can you just.
Just talk about why you think it's going to bounce back.
Next to the quarters.
Hi, Dan it's Sheryl thanks for the question.
Yeah, we.
I think we along with the rest of the industry saw.
A pretty tough January because of crime and then recovering throughout the quarter.
That's exactly what we saw if you look at our numbers you'll see we were we were essentially flat to last year and we're we're excited about the rest of this year and then moving through the rest of our strategic planning period into 23 and 24.
Because of the growth catalysts that we got we expect to see the market improving that's.
The general environment healthcare environment seem to be improving we've got a number of new product launches planned in the next six to 24 months or back in person doing medical education training on the safe and effective use of our products.
We just brought we think a really great talent on and robbed out who used to run.
The America U S sales for all of them are biomass and he's ready to roll up his sleeves and dig in and really bring.
A level of Salesforce execution to the organization and commercial execution and we look to have those growth catalysts really drive us to that acceleration that we're expecting to see in 2023 and 2024.
Okay, now I know, Rob only been there probably.
But.
Initial impressions since he's got me or about the specific to the size of the sales force do do you think you have the right number now or do you think you'll be adding 2022.
Well I won't speak for Rob yet because you are right. He joined US in April and I I don't want to put any definitive statements out there yet about his thoughts around the size of the salesforce, but I think in general and I've said this before and I'll just reiterate it I I don't think from a size of Salesforce perspective, because we have a hybrid.
Salesforce.
We've got a we've got a strong number of folks from an internal perspective, and then a very large number of independent distributors that we work through in that hybrid model that we have in the United States.
We'll continue to drive excellence around that structure and optimization around that structure and look forward as we move forward with our product launches, our medical education and driving sales execution to continue.
Really look to that acceleration in the 23 to 24 timeframe.
Alright, thank you.
You're welcome.
Mmm, Thank you and then.
There are no further questions I'd like to turn the conference back over to.
Zero point in turn for any additional closing remarks.
Thanks, Sarah and thank you all very much for your attention and your interest in Annika.
We look forward to speaking next on our second quarter call in August and I wish everyone. A good night. Thank you.
Thank you and that does conclude today's teleconference. We do appreciate your participation you may now disconnect.
Mmm.
[music].