Q3 2023 MiMedx Group Inc Earnings Call

Good afternoon, and thank you for standing by and welcome to my Medics third quarter 'twenty, three operating and financial results Conference call.

This time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Matt Notary Ani head of Investor Relations for my medics. Thank you you may.

Begin.

Yes.

Thank you operator, and good afternoon, everyone and welcome to the Magnetics third quarter 2023, operating and financial results Conference call with me on today's call are Chief Executive Officer, Joe Capper, and Chief Financial Officer, Doug Rice.

Part of today's webcast, we are simultaneously displaying slides that follow.

You can access the slides from the Investor Relations website at <unk> Dot com.

Joe will kick us off with some opening remarks, and John will provide a summary of our operating highlights and financial results for the quarter and then Joe will conclude with some additional updates including a discussion of our financial goals. We will then be available for your questions.

Before we begin I would like to remind you that our comments today will include forward looking statements, including statements regarding future sales EBITDA and free cash flow and cash balance.

Future margins and expenses and expected market sizes for our products.

These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors.

Actual results and market sizes will depend on the number of factors, including competition and access to customers the reimbursement environment unforeseen circumstances and delays and other factors.

Additional factors that could impact outcomes and our results include those described in the risk factors section of our annual report on Form 10-K, and our quarterly reports on Form 10-Q.

So if our comments today include non-GAAP financial measures, which we provide a reconciliation to GAAP measures in our press release, which is available on our website at <unk> Dot com.

With that I'm now pleased to turn the call over to Joe Capper Joseph.

Thanks, Matt and good afternoon, everyone.

Thank you all for joining us on today's call. It is my pleasure to report on another excellent quarter.

As you will hear today the company is executing across the board.

Firstly operationally and financially.

In addition to delivering outstanding results for the period, we continued to improve the operational effectiveness of the company and preparing for the launch of another new product.

I will detail these positive developments one by one.

With our strong financial performance.

Q3 marked the third consecutive quarter during which we grew revenue by 20 plus percent.

This type of consistent sales performance with above market growth rates is a testament to the team's stellar execution and our sound strategic plan.

We've also been clear in our messaging that we expect to generate greater profitability as the business grows.

On our last call, we guided to an adjusted EBITDA margin of above 20% for the second half of 2023, demonstrating excellent leverage as the business scales.

We are happy to report that we did indeed achieve this objective in Q3.

We have a powerful combination of highly talented individuals' innovative solutions that help people heal.

<unk> industry, leading sales and operations infrastructure.

Our multifaceted approach and the wound and surgical markets is generating impressive results, we were targeting when we repositioned the business this past summer.

As importantly, the organization is.

Well situated to continue our momentum and significant growth for the foreseeable future.

More on our long term growth plans in a minute first I'd like to touch upon some of them more noteworthy accomplishments from the quarter.

Q3 year over year net sales grew by approximately 21% to $81 $7 million another outstanding growth quarter.

Gross profit margin was 82% and would have been even higher but for contractually committed last time buy of some lower margin products.

Adjusted EBITDA was 17 $6 million or 21, 6% of sales up from an adjusted EBITDA of $2 4 million in Q3 of last year, representing a year over year increase of over $15 million.

We ended the quarter with $81 2 million in cash $12 $5 million in the quarter.

We announced a collaboration with.

A global leader in wound care, which plans to use our ethics product doing the wound healing phase <unk> phase III study in venous leg ulcers.

And we recently announced the launch of.

Our new products designed to meet expanded needs of customers in the private office segment.

I'd also point out that our efforts to streamline operations and build on our leadership position in the wound and surgical markets are working as designed and it helped us dramatically improve our financial profile over the last few quarters.

As you will recall this was of course, we've chartered for my wife nine months ago.

My intent has been to create value by focusing our commercial efforts and I'm talking to leverage in the business as we call.

There are clearly under white track as evidenced by the nearly 22% adjusted EBITDA margin in the third quarter.

Moving now to the Companys progress on our three primary co Packers.

As a reminder, these are the areas in which we are concentrating our time and resources in order to best position the company for long term success.

Our highest priority is to continue to build on our leadership position in the window surgical market by enhancing our product portfolio and expanding geographically.

The third quarter. This focus again produced growth in all sites of service.

Sales grew by about 18% over the prior year quarter in the hospital sector, which continues to benefit from our two new product introductions late last year.

<unk> researched.

Research and are looking to expand our medical affairs efforts.

That's which are critical to support our growth in general and more specifically in the surgical suite, which is certainly a focus for the customer.

The private office segment, the new status by 17%.

Still a healthy growth rate slowed a bit sequentially likely driven by the massive amount of confusion created by the ill fated attempt to introduce new local coverage determinations or LC piece for skin substitutes by three of the Medicare administrative contractors or Macs.

The proposed Lcp's cover 15 states were scheduled to go into effect on October 1st I would have to set an arbitrary cap of four allografts for application.

Yeah.

Potentially reducing levels of care.

Yes, you do also have dramatically restricted them, a number of products and companies eligible for reimbursement.

Ultimately the plan was abandoned but not before creating much confusion.

We believe this uncertainty impacted ordering behavior during the quarter as providers grapple with how they might have been modified care protocols.

Our position on this subject has been clear.

We'll continue to advocate in favor of changes that would level, the playing field by eliminating the opportunity to gain reimbursement system, while ensuring access to products like ours that is true.

But it's to be highly effective.

That said, we recently strengthened our offering and a private office setting.

The newest addition to our advanced wound care solutions product portfolio.

The effect was recently added to the Medicare a S P less clear.

Clearing the way for its full commercial launch now underway.

That'd be effect offers ethic tri level configuration of amniotic, bouillon and intermediate layers with handling characteristics and product attributes that make it a part of the treatment options for deep tunnel.

Total news for cases or securing the graphs in place with sutures, it's desire.

We are excited to highlight this product because so many of our customers at CWC later this week.

We remain committed to organic product development and innovation of our market, 18% to drive technology as we see this as an essential element of future growth.

Speaking of best in class products, as I mentioned, where they used to be supporting many room, which has chosen to use our epic.

Fixed product.

Phase three trial for as far as its next generation premium product now in development.

According to let alone by incorporating market leader and extensively studied.

Intuit's trial it is to maintain consistency among the study subjects and optimize the potential of complete healing throughout the study duration.

It's rewarding to receive such a high quality third party validation of our technology.

Yeah.

Finally, we remain encouraged by the strides we continued to make in developing the Japanese market.

Those that are familiar with launching new products in Japan, no. There is typically a longer lead time to realize the potential of a product in other geographies.

However, given the large market opportunity it is well worth the time and effort.

We are encouraged by the early strides we are making and remain optimistic about the future of this business.

Our next priority is to develop opportunities in adjacent markets to create additional growth drivers for the company.

As I stated on previous calls we are evaluating ways to expand our skin substitute portfolio.

Yeah on amniotic tissue.

Xena crafts outdoor synthetics now.

Notwithstanding the superior qualities of our central drive out of that this is a market driven strategy, which will open up I guess on the Mark.

Where it is difficult if not impossible for us to compete today.

We believe this approach will be highly complementary to our current business, allowing us to leverage our entire commercial infrastructure.

On the surface it seems like an area, where and inorganic efforts could make sense.

And given our much improved financial profile I know many of you are excited to see us move in that direction.

Is that applicable opportunities to rise, but you won't give them careful consideration.

To be clear any potential inorganic targets would have to first and foremost an excellent cultural and strategic fit.

Which would accelerate our growth plans if at all.

Also have to have a clear pathway for becoming accretive.

And finally, our last objective is to build a corporate discipline around expense management rationalizations and continuous process improvement.

We continue to exceed the goals put in place to measure our progress in this area.

Objective is really more about building a culture that is focused on getting the best return from our limited resources.

It has been my experience that institutionalizing. This mindset early on will pay dividends in terms of getting operating expense leverage as the business scales.

During the quarter, we made excellent progress executing against these three strategic objectives.

Our results demonstrate that our approach is having the desired effects, we will continue to identify and execute against most relevant growth drivers for our business as we see sustained long term performance is the best way to create tremendous value.

Before I turn the call over to Doug I want to provide a few comments on the series B preferred stock repurchase we executed this past Friday.

First I would like to thank them for their past and continued support of the company.

We could not ask for a better partner.

That's our stock started to show signs of meeting the mandatory conversion criteria, we began conversations with people about how we might help them manage and orderly transition.

Ultimately this resulted in us buying back half of their position at six hours and 13 says her effectively converted common share for a total of $9 $5 million.

Our stock repurchase at this point in the company's evolution would not typically be my highest priority for use of capital.

However, this was opportunistic and made good sense since it stopped the 6% preferred dividend on the shares we purchased and then execute it at a discount to the convert price of $7.70.

Given the rate at which we are building cash at our much improved borrowing capacity, we do not see this as in any way impairing our ability to capitalize on strategic opportunities that may arise.

Now, let me turn the call over to Doug for more details on our financial results.

Thank you Joe Good afternoon, everyone and thanks for joining us today I am pleased to once again be presenting these strong quarterly results to you all today.

Before diving in I wanted to note that many of the financial measures covered in today's call are on a non-GAAP basis. So please refer to today's earnings release for further information regarding our non-GAAP reconciliations and disclosures.

First as Joe mentioned, our third quarter 2023 was the third consecutive quarter in which our net sales growth exceeded 20% year over year, despite having one fewer shipping days than the prior year period.

Third quarter net sales of $81 $7 million also represented modest sequential growth compared to the second quarter of 2023, which is all the more impressive given the traditional Q3 different health care seasonality as well as the broad based strength, we have seen across all of our sites of service during the first half of the year.

The commercial team has once again executed across all of our sites of service with strong double digit growth in each segment. Despite some of the confusion Joe mentioned.

Related to the armed them off reimbursement changes during the quarter.

Moving to gross profit and gross margin our third quarter gross profit was about $67 million and $11 million improvement compared to $56 million last year and our gross margin was roughly flat on a year over year basis at around 82%.

In the third quarter, our quality operations and regulatory teams continue to make progress on its yield improvement plans, which we expect will benefit us moving forward. These efforts include the introduction of certain automation enhancements that are designed to help us realize additional scale as we grow.

As Joe mentioned, the gross margin was negatively impacted in the quarter by a contractual last time buy for a noncore market White label product that we were manufacturing for a third party. This line was essentially being sold at cost. So we expect this pressure on our gross margin to subside moving forward.

With that said, we remain focused on continuing to leverage our growing scale and driving our gross margin percentage back into the mid eighties over the long term.

GAAP selling general and administrative expenses or SG&A was $52 $6 million or 63% of net sales compared to $53 $5 million or 79% of net sales in the prior year period. The decrease in SG&A. Both on a dollar and relative basis was the result of our ongoing expense management, which.

More than offset the higher commissions, we paid in the quarter due to our higher sales.

Our GAAP R&D expenses were $3 $2 million or $2 $8 million decrease compared to $6 million in the prior year period.

Year over year decline in R&D spend was principally driven by the strategic realignment, we announced in June of this year and the associated wind down of the regenerative medicine business unit and its R&D activities.

Moving forward, we anticipate our R&D spend to generally be in the range of 3% to 4% of sales, which we believe will provide sufficient support in developing our wound and surgical product pipeline.

I'm also pleased to report that our investigation restatement and related expenses were immaterial for the third quarter of 2023, because we have been able to finalize many of them that matters over the last few months, we anticipate spending on these expense lines will be immaterial moving forward.

GAAP net income was eight and a half million dollars compared to a net loss of $8 $4 million in the prior year period I share in Joe's excitement to be able to report this year over year improvement is a clear sign of the meaningful progress. The organization has made over the last 12 months.

Adjusted EBITDA was $17 $6 million or 21, 6% of net sales compared to an adjusted EBITDA of $2 $4 million or about three 5% of net sales in the prior year period.

As a reminder, in light of our strategic realignment, we anticipate that after this quarter, we will no longer bifurcate our business on a segment basis.

Turning to our liquidity and the financial results, we have posted over the last several quarters have led to stronger improvement in our net cash position as the business begins generating meaningful free cash flow at the end of Q3, the company had $81 $2 million of cash, reflecting a sequential step up versus June 30 of approximately $12.

$5 million.

With a continued focus on adjusted EBITDA generation, we believe our much improved financial profile will continue to strengthen and provide us opportunities to grow and diversify the business.

Additionally, our healthy cash flow allows us to be opportunistic and improving our balance sheet as was the case with the transaction Joe mentioned earlier regarding the neither a half million dollar repurchase of a portion of Haytham series D. Preferred shares we were particularly pleased to be able to execute this transaction utilizing less than this quarter's worth of operating cash flow.

Generated continuing to provide us with other options for growth funding in the future.

I will now turn the call back to Joe Joe.

Thanks, Doug.

As you've just heard we had another outstanding quarter once again exceeding expectations.

Quarterly revenue was up 21% year over year.

Gross profit margin was 82%.

Adjusted EBITDA was $17 6 million.

We increased our cash balance to over $81 million.

At the effect for launch.

And continued to realize margin improvements by driving expense rationalization.

The organization.

For the first three quarters of every year, we have delivered.

<unk> improving performance.

With Q3, having our highest quarterly sales and adjusted EBITDA margin of over 20%.

As you may recall after exceeding expectations last quarter, we raised full year guidance for revenue percentage growth to be in the mid to high teens.

Following a similar performance to Q3, we are now again, raising full year revenue percentage growth outlook to be in the high teens nearing 20%.

As a reminder, sales for the fourth quarter of 2022.

By far our highest quarterly sales of 2022.

At $74 4 million.

Actually making it our toughest comp of the year.

That being said given the current strength of the business and with the help of the Etsy effect watch we do expect to close 2020 free with another strong performance and ride that momentum into the new year.

Yeah.

As we stated on our last call. We also expect at least a 20% adjusted EBITDA margin the second half of 2023.

We should hasten transaction complete we now expect to end the year with over $80 million of cash.

Additionally, all fundamentals continue to point to.

A double digit percentage annual revenue growth rate for the foreseeable future.

Those of you who've been following the company for the past three quarters have witnessed a meaningful business transformation.

Driven by excellent commercial execution.

As I said strategic action to reposition the company and expense reduction initiatives, all resulting in a much improved financial profile for the company.

Unknown Executive: Good afternoon, and thank you for standing by.

I fully expect we will continue to execute our plan close the year out strong and set the business up for sustained long term growth.

Matt Notarianni: Welcome to my medics, third quarter, twenty-three operating and financial results conference call. At this time, all participants are in a listen-only mode.

In closing I would like to ask the entire <unk> team for their outstanding performance.

Matt Notarianni: A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

First three quarters of the year.

Matt Notarianni: I would now like to turn the conference over to your host, Mr. Matt Notarianni, head of investor relations from my medics. Thank you. You may begin. Thank you, operator, and good afternoon, everyone. Welcome to the my medics, third quarter, twenty-three operating and financial results conference call. With me on today's call, our chief executive officer, Joe Capper, and chief financial officer, Doug Wright. As part of today's webcast, we are simultaneously displaying the slides that you can follow.

Your enthusiasm and continued dedication to the company and to people in need of care I've been a source of personal exploration. During my short tenure I look forward to working with you as we seek to maximize the potential of this incredible company and take it to new heights with that wed like to open the call to questions operator.

Matt Notarianni: You can access the slides from your investor relations website at mymedics.com. Joe will kick us off with some opening remarks and Doug will provide a summary of our operating highlights and financial results to the quarter. And then Joe will conclude with some additional updates, including a discussion of our financial goals. We will then be available for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including statements regarding future sales, EBITDA, free cash flow, and cash balance costs, future margins and expenses, and expected market sizes for our products.

We're now ready for our first question. Please proceed.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.

Matt Notarianni: These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to manufacturers. Actual results and market sizes will depend on the number of factors, including competition, access to customers, the reimbursement environment, unforeseen circumstances and delays, and other factors. Additional factors that could impact outcomes and our results include those described in the risk factor section of our annual report on form 10K, and our quarterly reports on form 10Q. Also, our comments today include non-gap financial measures, which we provide a reconciliation to gap measures in our press release, which is available on our website at mymedics.com.

One moment, please while we poll for questions.

Yeah.

Okay.

Thank you. Our first question comes from the line of Chase Knickerbocker with Craig Hallum Group. Please proceed with your question.

Hi, Joe Hi, Doug. Thanks for the question guys. Congrats on the good quarter.

Maybe starting on the physician office segment first.

Maybe a little bit of additional color on how customers reacted to that LCD during the quarter, obviously still still good growth there maybe talk as to why you know you being listed on that LCD would still lead to some pausing and then if we look at kind of what we've seen so far in Q4 have we seen kind of a normal ordering behavior kind of come back now that that al.

It eased at all just some additional color there.

Yeah Chase Thank you Joe.

Yeah, we saw some confusion and ordering patterns in the third quarter in particular in the regions that were impacted in 15 states with covered by those three L C DS and it as.

Joseph Capper: With that, I'm now pleased to turn the call over to Joe Kapper. Thanks Matt, and good afternoon everyone. Thank you all for joining us on today's call. It is my pleasure to report on another excellent quarter. As you will hear today, the company is executing across the board, commercially, operationally, and financially. In addition to delivering outstanding results for the period, we continue to improve the operational effectiveness of the company and prepare for the launch of another new product.

We can compare that against the other.

So there was definitely some confusion and feedback.

<unk> back from the field was that docs for trying to figure out what they had to do how they might have to modify care protocols to adhere to the full application restriction and then there was a lot of noise as to what products what are you.

Going to be covered and which ones were not so we saw the impact that that good news for us is overall.

Joseph Capper: I will detail these positive developments one by one, starting with our strong financial performance. Q3 marked a third consecutive quarter, during which we grew revenue by 20 plus percent. This type of consistent sales performance with above market growth rates is a testament to the use of stellar execution and our sound strategic plan. We've also been clear in our messaging that we expect to generate greater profitability as the business grows. In fact, on our last call, we've guided to an adjusted EBITDA margin of above 20 percent for the second half of 2023, demonstrating excellent leverage as the We are happy to report that we did indeed achieve this objective in Q3.

Site of service continued to grow at very healthy rate and second part of your question is what are we seeing.

In October so far it looks like within those three Max.

Ordering behavior, you're starting to look for.

Get back to normal.

Okay.

Got it that's helpful and maybe stay on the physician office segment. If we look at kind of that'd be effect kind of growth in initial kind of launch here do you expect it so you know.

Cannibalized some ft cordon epic's users or is this going to be you know more de novo uptake or maybe some people who are using your products for commercial patients using something else for Medicare patients. How should we think about the customer set for appia effect earlier.

Joseph Capper: We have a powerful combination of highly talented individuals, innovative solutions that help people heal, and industry-leading sales and operations infrastructure. Our multi-facts and the approach in the ruined and surgical markets is generating the impressive results we were targeting when we repositioned the business this past summer. As importantly, the organization is well situated to continue our momentum and significant growth for the foreseeable future. More on our own current growth plan in a minute.

I think currently I don't think about it primarily in the private office setting and it will be used in applications that is not being used today of useful for us.

It seems you're just not being used today said should expand the market a bit and then there will be some cannibalization of the ft fixed product.

Got it and then just last for me you know I think it's fair to say that your stock and they have gotten caught up in the recent G. L. P. One crazy we've seen in the markets lately you know maybe just some general kind of high level thoughts. There from you guys. You know any sort of impact that you expect from proliferation of these drugs.

Joseph Capper: First, I'd like to touch on some of the more noteworthy accomplishments from the quarter. Q3, you and your net sales grew by approximately 21% to $81.7 million, another outstanding growth quarter. Those profit margin was 82%, and would have been even higher, but for a contractually committed last time by of some lower margin product. The adjusted EBITDA was 17.6 million or 21.6% of sales, up from the adjusted EBITDA of 2.4 million in Q3 of last year, represented a year-over-year increase of over $15 million.

Mid to long term in the markets that you are competing.

Yeah Chase, Yeah, I think you hit the right word.

The award of the property as a bit of a crazy in the market place.

So here's my thought I worked for three different companies that had some.

Business in the diabetes space.

And I would tell you that so I've been in that space I wasn't that space for almost 20 years and.

I can't remember back 15, 20 years ago, when we were appalled at increasing the rate of diabetes in the United States when it surpassed 8%.

Joseph Capper: We ended the quarter with 81.2 million cash, up 12.5 million dollars in the quarter. We announced the collaboration with very little, a global leader in wound care, which plans to use our FBFIX product during the wound healing phase of its Escarc's Phase 3 study in Venus Lake Ulcers. And we recently announced the launch at FBFIX, a new product designed to meet the expanded needs of customers in the private office segment. I'd also point out that our efforts to streamline operations and build on a leadership position in the wounded surgical markets are working as designed and have helped to dramatically improve our financial profile over the last few quarters.

And since that time, there has been numerous drugs.

Alex like continuous glucose sensors automated insulin delivery systems, all kinds of education.

To help drive down against this of babies in this country a lot of diabetic lot of diet products.

Fortunately the epidemic continues to expand in the U S. So I don't know that it's a product that's going to cure the problem by all indications everything that I can tell you is G. L. P. One drugs do work people are losing weight with them, which is wonderful if at some point in the future.

These these would expand with minimal adverse effects and it had some.

The potential impact on the rate of diabetes that would be wonderful I do I think it's going to happen I would say that historical evidence would suggest otherwise.

Joseph Capper: As you will recall, this was the course we charted when I arrived nine months ago. My intent has been to create value by focusing our commercial efforts and unlocking leverage in the business as we call. We are clearly in the right track as evidenced by the nearly 22% of the adjusted EBITDA of margin in the fair quarter. Moving out to the company's progress on our three primary growth drivers. As a reminder, these are the areas in which we are concentrating our time and resources in order to best position the company for long term success.

I think it's great I think.

People can use these drugs if it has a weight loss kit had wonderful do I think it's gonna have translate into a decrease in the rate of diabetes in the United States I think that is a bridge too far evidence would suggest otherwise, but even if it did lets talk for a second about potential impact on diabetic foot ulcer. He is like.

And our indications for use of our product.

The evidence would suggest that there is not a strong correlation between obesity and lower extremity ulcers in fact I.

Joseph Capper: Our highest priority is to continue to build on our leadership position in the wounded surgical markets by enhancing our product portfolio and expanding geographically. For the third quarter, this focus again produced growth in all sites of service. Sales grew by about 18% over the prior year quarter in the hospital sector, which continues to benefit from our two new product introductions late last year. We continue to invest, include a research and are looking to expand our medical affairs efforts.

I think you cited this in your very thoughtful initiation that you published last week the.

The evidence would suggest the opposite in fact, they have to use are often associated with people have low PMI, but are just generally unhealthy smokers hypertension or diet et cetera et cetera.

Just don't think that's that behavior is going to change much.

Because we have lots of new drug and you know I think it was epic has been out since 2016 and that was the.

Joseph Capper: Investments which are critical to support our growth in general and more specifically in the surgical suite, which is certainly focused for the customer. In the private office segment, we've reached out by 17%, while still a help with this growth rate slowed a bit subconsciously, likely driven by the massive amount of confusion created by the ill-fated attempt to introduce new local covers of terminations or LCDs for skin substitutes by three of the Medicare administrative contractors for masks.

The one of the first G. L. P drugs in this category at the time it was launched.

If it's a diabetes was somewhere around nine 1%.

Two or three years after its launch the incidence of diabetes in the U S was at 11, 3% that was a number that was published pre COVID-19 I can't imagine that COVID-19 if anything positive.

That number so maybe it will at some point had an impact on the incidents of diabetes in the U S. But it certainly is not doing so right now so.

Joseph Capper: The proposed LCDs discovered 15 states were scheduled to go into effect on October 1st and would have set an arbitrary cap of four outbursts for applications for patients, potentially reducing levels of care. The LCDs also had dramatically restricted number of products and companies eligible for reimbursement. Ultimately, the plan was abandoned, but not before creating much confusion. We believe this uncertainty impacted ordering behavior during the quarter, as providers grapple with how they might have to modify care protocols.

I just don't see the correlation at this point.

Got it thanks for those thoughts.

Washington.

Okay.

Thank you. Our next question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.

Alright, Thanks, and good afternoon, congrats on a strong quarter here setup into 2024, maybe I'll put it back to the L. C D. Joe if I can for a moment.

Just wondering when you look at sort of the verbiage in late September.

Joseph Capper: Our position on this object has been clear. We will continue to advocate in favor of changes that would level the playing field by eliminating the opportunity to gain the reimbursement system while ensuring access to products like others that had proven to be highly effective. That said, we recently strengthened our offering in the private office setting. The newest addition to our advanced wound care solutions product portfolio at the effect was recently added to the Medicare ASP list, clearing the way for its full commercial launch now underway.

You know there was references to just you know the implementation time frame that.

There wasn't enough time to sort of transition.

Practices over and that potentially can impact patient care, but you also sort of just a certain amount of bad with advocacy from the.

You know a various different medical societies out there in favor of you know sort of taken a second look here. So.

Well, maybe just a little bit behind the scenes you know what what do you think was the tipping point on putting the brakes here.

Joseph Capper: At the effect, all for a thick, tri-level configuration of Ambion, Coyon and intermediate layers with handling characteristics and product attributes that make it prefer to treatment options for deep, tunneling wounds or cases or securing the graph in place with sutures is desired. We are excited to highlight this product and so many of our customers at SAWC later this week. We remain committed to organic product development in the innovation of our market-eating potential drive technology, as we see this as an essential element of future growth.

And as we look at the new sort of just comment periods. I mean, what are the next big updates here.

Yeah, we should be thinking about from these you know local Max and as well as other macs that potentially may look to change their policies.

Adding into 2024 and 2025, and then I'll have a couple of follow ups.

Thanks Nancy.

First of all we we really don't know because they never pull back the curtain and let you know why they made the decision that they made.

You're asking me for my personal opinion I never thought it had a chance of being implemented because.

Joseph Capper: We can invest in class products as I mentioned, we are pleased to be supporting many wounds, which is chosen to use our at the effect or at the fixed product in its phase three trial for escorics. Its next generation to treatment product now in development. According to many wounds, by incorporating market leading and extensively studied epi-fix into its trial, it aims to maintain consistency among study subjects and optimize the potential for complete treatment throughout the study duration.

Because I thought it was arbitrary and capricious quite frankly.

And there was no good evidence to support the four application cap and it was I think flimsy evidence to support the restriction on some of the products in and.

And organizations that war.

Eliminated from participating. Thank you asked me I think we've been trying to make up for some sins of the past.

But in any case I guess, we'll never really know.

I think it was probably more the outdoor across the industry, both clinically and.

Joseph Capper: It's rewarding to receive such a high quality third-party validation of our technology. Finally, we remain encouraged by the strides we continue to make in developing a Japanese market. Those that are familiar with launching new products in Japan know there is typically a longer lead time to realize the potential of a product than in other geographies. However, given the large market opportunity, it is well worth the time and effort we are encouraged by the early strides we are making and remain optimistic about the future of this business.

From from our industry.

This was.

Not a great way to approach the problem that they're trying to solve and they indicated that they would continue to analyze and collect more evidence and try to see if there's a.

A better way to approach these LCD in the future so.

As I indicated in my commentary, we continue to work with various stakeholders, who have an influence on this.

We continue to advocate for policy that would.

Eliminates some of the gamesmanship, that's permitted around reimbursement of these products at the same time, maintaining access for our products like ours that have tremendous evidence show effectiveness.

Joseph Capper: Our next priority is to develop opportunities in adjacent markets to create additional growth drivers for the company. As I say in the previous calls, we are evaluating ways to expand our skin substitutes with portfolio beyond antibiotic tissue to include zinegrass and or synthetics. Notwithstanding the superior qualities of our potential derived alabaz, this is a market-driven strategy which will open up segments of the market where it is difficult if not impossible for us to compete today.

I do I think something will change at some point in the future, Yes, I do I know what it is absolutely not.

And I would say, though that up all the companies in the category.

We are I believe far and away best position.

To continue to support the private office setting regardless of the change if it moves.

If there's some sort of a restricted utilization we have evidence to support use of our product.

Joseph Capper: We believe this approach will be highly complementary to our current business, allowing us to leverage our entire commercial infrastructure. On the surface, this seems like an area where an inorganic effort could make sense and given our much improved financial profile, I know many of you are excited to see us move in that direction. As a applicable opportunity to rise, we will give them careful consideration. To be clear, any potential inorganic target would have to first informals be an excellent cultural and strategic fit, which would accelerate our growth plan.

If for some reason that moves towards the bundle, we have probably less impacted some of our other large competitors in the category. So we're going to continue to support this sector. We think it makes a lot of sense.

It's great access for patients that can't necessarily be treated in the hospital and it continues to grow as a result, so again I think we're just really well positioned regardless of the outcome, but we'll continue to try to influence it.

That's very helpful. And then maybe just two nuances in there I mean, one was the you know advocacy and push from my medics that.

Joseph Capper: It would also have to have a clear pathway for becoming creative. And finally, our last objective is to build a corporate discipline around expense management, rationalization and continuous process improvement. While we continue to exceed the goals put in place to measure our progress in this area, this objective is really more about building a culture that is focused on getting the best return from our limited resources. It has been my experience that institutionalizing this mindset early on will pay dividends in terms of gaining operating expense leverage as a business scale.

All of these products be you know sort of disclosed on.

Medicare B pricing list as opposed to wholesale acquisition cost.

And then there was another decision in these L T d's, where they actually wanted to limit.

Applications to four for.

Or altera, which was below the 10 applications previously.

So maybe just on those two specifically I mean is there anything.

You know that that my medics is aware off on those two levers.

First of all certainly go into Medicare part D is positive for our ft fix and other products that were included in the 58.

Joseph Capper: During the quarter, we made excellent progress executing against these three strategic objectives. Our results demonstrate that our approach is having the desired effects. We will continue to identify and execute against most relevant growth drivers for our business, as we see sustained long-term performance as the best way to create tremendous value.

They're hand, you know limiting the applications crawls or just seems like you know, perhaps too limiting is there anything on those two levers you can share.

No not really.

Again, we continue to work with them and hopefully this gets you know the clouds part overtime, we get more clarity.

Joseph Capper: Before I turn the call over to Doug, I want to provide a few comments on the series that he preferred stock we purchased the executed this past Friday. First, I would like to thank Capeman for their past and continued support of the company. We could not ask for better partner. As our stock started to show signs of meeting the mandatory conversion criteria, we began conversations with people about how we might help them manage and orderly transition.

We always thought that the application restriction was somewhat arbitrary.

It's a good point, if some evidence but it was misconstrued the way this is being applied.

Hopefully that goes away because that could be disruptive for patients that need more than four applications.

Or are they they end up going into a more expensive care settings, excuse me care setting and frankly to get treat it. So it's not really good for Medicare long term as far as continuing to influence the use of the E. S. P versus the what we think that's right.

Joseph Capper: Ultimately, this resulted in us buying back half of their position at six hours and 13 cents per effectively converted common share for a total of $9.5 million. A stock we purchased at this point in the company's evolution would not typically be my highest priority for use of capital. However, this was opportunistic and made good sense since it stopped the 6% preferred dividend from the shares we purchased and was executed at a discount for the convert price of $7.70. Given the rate at which we are building cash and are much improved barring capacity, we do not see this as in any way impairing our ability to capitalize and strategic opportunities that may arise.

The easiest way to go into near term, that's kind of the low hanging fruit and to their credit.

CMS has been pressuring people to move in that direction as you know Oh Gee.

So letter earlier in the year.

Pretty much directing them to to adhere to these guidelines.

And we have seen a lot of products move on the E. S P price cuts.

If you look at the list a couple of years ago. It was maybe 12 products on the list and now its probably up to around 75. So the market is moving in the right direction and quite frankly, it could be one of the reasons. We've performed so well and that site of service for the first three quarters of the year.

Douglas Rice: Now, let me turn the call over to Doug for more detail on our financial results. Doug? Thank you, Joe. Good afternoon, everyone, and thanks for joining us today. I am pleased to once again be presenting these strong quarterly results to you all today.

The playing field is starting to level of it.

Mhm last one and I'll hop here real quick just on EBITDA.

Second a handful three to exceed 20% yeah, maybe just.

Douglas Rice: Before diving in, I wanted to note that many of the financial measures covered in today's call are on a non-gap basis. So please refer to today's earnings release for further information regarding our non-gap reconcilations and disclosures. First, as Joe mentioned, our third quarter 2023 was the third consecutive quarter in which our net sales growth exceeded 20% year over year. Despite having one fewer shipping day than the prior year period. Third quarter net sales of $81.7 million also represented modest sequential growth compared to the second quarter of 2023, which is all the more impressive, given the traditional Q3 dip in health care seasonality, as well as the broad base strength we have seen across all of our taxes service during the first half of the year.

High level, there was a restructuring program earlier this year.

And achieving that 20% as you look forward next couple of years.

So how much of the EBITDA expansion will just be you know from organic growth.

As opposed to a follow on restructuring program congratulations again thanks.

Thanks, Anthony This is Doug I'll take your question Ed Wirth.

Cited exiting the year with a lot of momentum we had a really solid.

Q3, we saw improved execution that will continue.

Into Q4, and now with the new product introduction.

We're gonna have a lot of upside.

Douglas Rice: The commercial team has once again executed across all of our taxes service with strong double digit growth in each segment, despite some of the confusion Joe mentioned related to the on then off reimbursement changes during the quarter. Moving to gross profit and gross margin, our third quarter gross profit was about $67 million and $11 million improvement compared to $56 million last year. And our gross margin was roughly flat on a year over year basis at around 82%.

Outside in growth it'll help us scale, our we expect our gross margin stay in stock up from an EBITDA perspective, we also expect to scale.

Marketing and realize efficiencies.

All along our P&L so as our improved focus as you mentioned from the suspension of our loyalty program helps going into next year, we feel like we have a lot of momentum and our ability to continue to grow into the double digits.

Thanks, Yeah yeah.

And then the only other thing I might add is just the some of those legacy.

Douglas Rice: In the third quarter, our quality operations and regulatory team continue to make progress on its yield improvement plans, which we expect will benefit us moving forward. These efforts include the introduction of certain automation enhancements that are designed to help us realize additional scale as we grow. As Joe mentioned, gross margin was negatively impacted in the quarter by a contractual last time by for a non core market, quite label product that we were manufacturing for a third party.

<unk> expenses kind of across the board, there's they're smokers, there's SG&A leverage. There's obviously you know you kind of get a sense of where the R&D timeline looks and then obviously not having any other ancillary piece.

He says you know.

Whether we adjust them or not should show a really nice kind of leveraged P&L.

Thanks again.

Douglas Rice: This line was essentially being sold at cost so we expect this pressure on our gross margin to survive moving forward. With that said, we remain focused on continuing to leverage our growing scale and driving our gross margin percentage back into the mid 80s over the long term. Gap selling general and administrative expenses or SDNA was $52.6 million or 63% of net sales compared to $53.5 million or 79% of net sales in the prior year period.

Thank you.

Yeah.

Thank you. Our next question comes from the line of Carl's Burns with Northland Capital markets. Please proceed with your question.

Thanks for the question and congratulations on your quarter and the progress here.

Most of my questions have been.

Yes.

That hasn't been curious if you see an opportunity for further purchases in the series B preferred such as it's done in an organized in orderly fashion and then I have a follow up to that thank you.

Douglas Rice: The decrease in SDNA both on a dollar and relative basis was a result of our ongoing expense management, which more than offset the higher commissions we paid in the quarter due to our higher sales. Our gap R&D expenses were $3.2 million, a $2.8 million decrease compared to $6 million in the prior year period. This year we are declined and R&D spend was principally driven by the strategic realignment we announced in June of this year and the associated one down of the regenerative medicine business unit and its R&D activities.

Yeah, So just a little more clarity on that and I think I've mentioned my commentary that's not my first my my highest priority for use of capital at this stage of the company's evolution. However, it was kind of opportunistic we got real close to the mandatory conversion.

Two months ago. In fact, we were above the $77 seven checkmark for several days as you may recall it requires us to stay above that for 20 out of any concern.

Douglas Rice: Moving forward, we anticipate our R&D spend to generally be in the range of 3 to 4% of sales, which we believe will provide sufficient support in developing our room and surgical product pipeline. I'm also pleased to report that our investigation, restaiment and related expenses were immaterial for the third quarter of 2023 as we have been able to finalize many of the matters over the last few months. We anticipate spending on these expense lines will be immaterial moving forward.

Trading days.

So it did not trigger it.

It prompted us to start having conversations with hate them.

What is your long term intent.

With the common once it once it converts so they were pretty transparent that it's typically not the approach to hold that stock for a long period of time, they would look to probably exited in some organized way. So it was really that's how the conversations evolved it was very opportunistic why we didn't buy all of it and he already asked but frankly it was just to keep some sort of.

Douglas Rice: GetMedIncome was $8.5 million compared to a net loss of $8.4 million in the prior year period. I share in Joseph's excitement to be able to report this year of a year improvement as a clear sign of the meaningful progress the organization has made over the last 12 months. Adjusted EBITDA was $17.6 million or 21.6% of net sales compared to an adjusted EBITDA of $2.4 million or about 3.5% of net sales in the prior year period.

Dry powder, because we are looking to do other things with the business and they also agreed to a 12 month lock up on the other half.

The other equity whether it converts or not so we felt like any potential disruption as they exited the position was eliminated a quite a bit because of our we purchase a path with their agreement to.

To lock up the other half for the time being.

Douglas Rice: As a reminder, in light of our strategic realignment, we anticipate that after this quarter, we will no longer bifurcate our business on a segment basis. Turning to our liquidity, the financial results we have posted over the last several quarters have led to strong improvement in our net cash position as the business begins generating meaningful free cash flow. At the end of Q3, the company had $81.2 million of cash reflecting a sequential step up versus June 30 of approximately $12.5 million.

Great. Thanks, that's very helpful and then.

Kind of a segue to ethics in Japan do you have any updates with respect to the number of docs that have been trained to use product.

I will well into the hundreds I think several hundred I think about one point, we might put out a number of 500 it continues to grow.

Getting a nice feedback from the physicians there several physicians have used the <unk>.

Various procedures they have reordered the product and they haven't gotten paid on our product and all of these are very important steps when you're talking about developing a new business in a new market I want to remind everybody that this is a first of its kind in the Japanese market. So this will take time to develop and get.

Douglas Rice: With a continued focus on adjusted EBITDA generation, we believe our much improved financial profile will continue to strengthen and provide its opportunities to grow and diversify the business. Additionally, our healthy cash flow allows us to be opportunistic in improving our balance sheet. As was the case with the transaction Joe mentioned earlier, regarding the $9.5 million refurchase of a portion of Haython Series B preferred shares. We are particularly pleased to be able to execute this transaction utilizing less than this quarter's worth of operating cash flow generated, continuing to provide us with other options for growth funding in the future.

Physicians comfortable with how to use it and as importantly, whether or not they're getting paid for it. So we're seeing.

Pretty significant percentage growth on utilization, but off a very low base right. So we're we're pretty optimistic about what this could look like a few years down the road, but again, it's very early on.

Joseph Capper: I will now turn the call back to Joe. Thanks, Doug. As you have just heard, we had another outstanding quarter. Once again, exceeding expectations. Quarterly revenue was up 21% year over year. Rose profit margin was 82%. Adjust the EBITDA with 17.6 million. We increased our cash balance to over $81 million. Ready to F the effect for launch and continue to realize margin improvement by driving expense rationalization throughout the organization. For the first three quarters of a year, we have delivered consistently improving performance.

Understood Congratulations again thanks.

Thanks Carl.

Yeah.

Yeah.

Thank you. Our next question comes from the line of RK with H C ran white. Please proceed with your question.

Thank you Tom and thanks for taking my question then is okay, if I'm happy right.

A couple of quick questions and looking at book.

Total revenues for this quarter and comparing it against last quarter.

It's kind of similar numbers.

Joseph Capper: With Q3 having our highest quarterly sales and an adjusted EBITDA margin of over 20%. As you may recall, after exceeding expectations last quarter, we raised full year guidance for revenue percentage growth to be in the mid to high teens. Following a similar performance to Q3, we are now, again, raising full year revenue percentage growth outlook to be in the high teens, learing 20%. As a reminder, sales with a fourth quarter of 2022 were by far our highest quarterly sales of 2022 at 74.4 million. Naturally making it our toughest company year.

And you know I I see that the guidance, who gave us higher teens so what's the.

More support shortfall on these numbers.

First just on at a high level on the business.

And also trying to see you know I'll watch the problem.

Probability of that you don't get into you know nobody twenties them based on what you're seeing.

I think that the first part of your question was what happened from Q2 to Q3. Your comment was relatively flat sequentially, which is a home run.

Right as as you know these types of businesses typically have a seasonal decline in Q3, which we did not experience. This here on the contrary, we were able to take the business up a little bit. We also had one less workday.

Joseph Capper: Not being said given the current strength of the business and with the help of the epic effect launch, we do expect to close 2023 with another strong performance and ride that momentum into the new year. As we stated on our last call, we also expect at least a 20% adjusted EBITDA margin, the second half, 2023. And with recent hastened transaction complete, we now expect to end the year with over $80 million of cash.

Seasonal decline, one less workday and flat to up is a homerun in my opinion in this business.

I think the second part of your question was.

Why would we not continued to see something in the low twenties as we move through the rest of the year and into next year.

Joseph Capper: Additionally, all fundamentals continue to point to a double-piget percentage annual revenue growth rate for the foreseeable future. Those of you who have been following the company for the past three quarters have witnessed a meaningful business transformation driven by excellent commercial execution, the slice of strategic action to reposition the company and expense reduction initiatives all resulting in a much improved financial profile for the company. I fully expect that we will continue to execute our plan, close the year out strong and set the business up for sustained long-term growth.

The comp for Q4 2022.

Is by far our toughest comp of the year.

The revenue was.

Clearly clear in a way the highest revenue the business experienced last year as you recall that was the quarter in which we launched two new products in the surgical setting like revenue was somewhere around 74, and a half million dollars.

So a double digit growth off of that what would be a meaningful number and we think we're well positioned to do that.

Think of the business with Closeouts in the high teens, if not 20%, but it's still a pretty good hill to climb to get those numbers and as you know fourth quarter can be disruptive dependent on how holidays fall et cetera et cetera. We think this year, we have great momentum.

Joseph Capper: Incosing, I would like to thank the entire MiMedx team for their outstanding performance throughout the first three quarters of the year. Your enthusiasm and continued dedication to the company and to people in need of care have been a source of personal inspiration during my short tenure. I look forward to working with you as we see to maximize potential of this incredible company and take it to new heights.

And into the fourth quarter.

Clearly our sales organization.

Executing better than other organizations in the market.

We have the strongest leadership team than any other company in the marketplace. So I think we're well positioned to continue to drive that momentum we're launching another product.

Unknown Executive: If that will like to open the call to questions, operator, we are now ready for our first question. Please proceed. Thank you.

And at the effect into the private office segment now it takes time to ramp up any new product I saw that rollout will happen over the next.

Unknown Executive: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you.

Two or three quarters before we see full effect of it but we could get a nice impact from that in Q4, So couldnt get there maybe but you know these shoppers are pretty darn good it's pretty darn good numbers.

Yes, I agree with you and I'm just.

I'm not.

I'm not I was not negative on that Mike.

My comments I'm not supposed to be negative I was actually trying to see what else is there that can actually pushed this in Ohio.

Thank you very much for that answer.

Chase Knickerbocker: Our first question comes from the line of Taste Nicarb Blocker with Craig Hallam Group. Please proceed with your question. Hi, Joe. Thanks for the question, guys.

The other question I have is hum regarding seeking opportunities outside of.

Joseph Capper: Congrats on the good quarter. Maybe starting on the position office segment first. Maybe a little bit of the additional color on how customers reacted to that LCD during the quarter. Obviously still good growth there. Maybe talk as to why you know you being listed on that LCD would still lead to some pausing and then in if we look at kind of what we've seen so far on queue for. Have we seen kind of normal ordering behavior kind of come back knows that LCD has been told just some additional color there.

Yes.

Introducing another product in the fourth quarter as you had previously said I'm just and you also just made some comments on it but in addition to that Hum do you have any work youre doing in terms of trying to do this buyback and keep some you know.

I'd already you know what sort of opportunities would you be looking far as you go into you know 24, and even even into 'twenty five.

Joseph Capper: Yeah, Chase. Thank you. That's Joe. Yeah, we saw some confusion in ordering patterns in the third quarter. If we're particular in the regions that were impacted in 15 states were covered by those three LCDs. I think you can compare that against the other max. So there was definitely some confusion and kind of feedback from the field was that dogs were trying to figure out what they had to do, how they might have to modify care protocols to adhere to the four application restriction. And then there was a lot of noises that what products were going to be covered in which ones were not so we saw the impact.

I think you're referencing potential inorganic.

Opportunities in it.

As I've indicated a couple of calls now strategically we have determined that expanding our skin substitute product line to include non human skin substitute, Virginia class and synthetics make a lot of sense.

If we add that those products to our portfolio, we double our total available market just in the U S. Because unfortunately.

Amniotic tissue is restricted for use in certain market segments.

So that's a priority for us and it also.

It has us.

Joseph Capper: Good news for us who's overall that title service continued to grow at a very healthy rate. The second part of your question is what are we seeing in up to over so far it looks like within those three max that order names are starting to revert back to normal. We got it. That's helpful. And maybe stay in the position of the segment if we look at kind of epi-effect kind of growth in an initial kind of launch here.

More opportunity within the hospital or in the surgical suite, which is another focus area for us so products that allow us to move in that direction at an accelerated rate are ones that we would prioritize.

And then after that anything within the wound care wound care continuum that will allow us to broaden our offering but the leverage our current operational infrastructure of both commercial and internal infrastructure. So you can imagine with those products might look like but I think our highest priority would be to expand its gets up.

Joseph Capper: Do you expect it to cannibalize some Epi-cord and epi-effects users, or is this going to be, you know, more denoval uptake, or maybe some people who are using your products for, you know, commercial patients using something else for Medicare patients? How should we think about the customer set for epi-effect early here? I think early on think about it primarily in the private office setting, and it will be used in applications that it's not being used in today or useful for our procedure to stop being used in today. So it should expand the market a bit, and then it will be some cannibalization of the epi-effects product.

Now I'll also tell you that there's internal development as well right we continue to develop.

Placental derived allografts.

We have a rich pipeline for those as well as a potentially internal development of Geographics.

We're also looking externally because as you know that could accelerate the plan.

That's right and in my opinion, that's the only time you do acquisitions like this as if it will accelerate your strategic plan cant just be done for the sake of doing them.

Thanks, Thanks for taking all my questions.

Thanks RK.

Joseph Capper: Got it. And then just last for me, you know, I think it's fair to say that your stock may have gotten cut up in, you know, the recent GLP1 craze we've seen in the markets lately. You know, maybe just some general kind of high level thoughts there from you guys, you know, any sort of impact that you expect from proliferation of these drugs, you know, in the mid to long term in the markets that you, you know, can feed in.

Thank you. Our next question comes from the line of Jon Vander Boston with Zacks. Please proceed with your question.

Thank you and good afternoon, Joe dug into that.

Did I understand the medical cooperation a little more that sounds like a great opportunity to get involved with clinical trials, even more further proof that the FDA is recognizing that your product are there any other opportunities like this and with the medical and just does that guarantee that your product will be used for their device what if it's approved.

Joseph Capper: Yeah, Chase, I think you had the right, the reward of the properties a bit of a craze in the marketplace. So here's my thought on it. I worked for three different companies that had some business in the diabetes space. And I will tell you that so I've been in that space, I was in that space for almost 20 years, and I can't remember back 15, 20 years ago, when we were appalled at the increase in the rate of diabetes in the United States when it surpassed 8%.

Yes, firsthand, we were very excited about it and we're glad to be supporting that trial. We think it's important it's probably going to be the largest b L. U trial in at least a decade and the product looks very promising.

I'd be affects that'd be fix was selected because it has more evidence of more around its clinical efficacy than any other product in the category. So they know it works they want to ensure closure.

Joseph Capper: And since that time, there has been numerous drugs, products like continuous glucose sensors, automated insulin delivery systems, all kinds of education to help drive down the incidence of diabetes in this country. A lot of diet products. And unfortunately, the epidemic continues to expand in the US. So I don't know that it's a product that's going to cure the problem. By all indications, everything that I can tell these DLP one drugs do work before losing weight with them, which is wonderful.

The trial so they get the best results in that because I think they said that in their press release Wednesday announced as far as other opportunities. We're always looking to work with our people who have complementary products I don't have anything to talk about today, but certainly.

Working with other people in and around our product category. It makes a lot of sense.

Joseph Capper: If at some point in the future, you know, these would expand with minimal adverse effects. And it had some potential impact on the rate of diabetes. That would be wonderful. Do I think it's going to happen? I would say that historical evidence would suggest otherwise. So I think it's great. I think more people can use these drugs that if it has a weight loss impact, wonderful. Do I think it's going to translate into a decrease in the rate of diabetes in the United States?

Okay, and then thinking about free cash flow should we expect a sequential expansion in that in the fourth quarter.

Yeah John.

Really pleased with where our free cash flow ended up in the quarter.

Sequentially, an increase versus Q.

Q2 to $7 million I would expect Q4 to look similar.

There's a lot of puts and takes in Q4, but.

We should go.

Joseph Capper: I think that is a bridge too far evidence would suggest otherwise. But even if it did, let's talk for a second about potential impact on diabetic foot ulcer abuse, like ulcer indications for use of our product. The evidence would suggest that there is not a strong correlation between obesity and lower extremly ulcers. In fact, I think you cited this in your very thoughtful initiation that you published last week. The evidence would suggest the opposite.

The prepared remarks, but we expected adjusted EBITDA it would be north of 20%. That's what it was in Q3, we would expect the same in.

In Q4, and I would expect.

But our free cash flow would look somewhere.

Okay got it.

Expanding on the earlier analyst question about equity.

Do you feel that are having more products in the wound product portfolio will actually provide some kind of synergistic benefit there or might there be cannibalized.

Joseph Capper: In fact, the abuse are often associated with people who have low BMI, but are just generally unhealthy, smokers, hypertension, or diet, et cetera, et cetera. I just don't think that that behavior has been changed much because we've launched a new drug. I think it's been out since 2016, and that was one of the first GLP drugs in the category at the time it was launched. The incidence of diabetes was somewhere around 9.1%, two or three years after it's launched into the diabetes in the US, it was at 11.3%.

Cannibalization.

It would be great.

Our product.

Yeah, I think a little bit of both but clearly if that can be used in other procedures.

We talked about specifically with <unk>.

Training is required so it's going to expand utilization, but there you know frankly, there might be some cannibalization of etsy.

Picks as well.

Okay, great. Thank you for taking my question.

Thanks, Joe.

Joseph Capper: That was the number that was published pre-COVID. I can't imagine that COVID did anything positive for that number. So maybe it will at some point have an impact on the incidence of diabetes in the US, but it certainly is not doing so right now. So I just don't see the correlation at this point.

Thank you.

There are no further questions at this time I would like to turn the floor back over to Joe for closing remarks.

Thanks, operator, and thank you for your questions and for your continued interest and support in the company that concludes today's call and we will talk to you. After our next quarter report. Thank you.

Chase Knickerbocker: John, thanks for those thoughts and I'll thanks for the question, John. Thanks, James.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Anthony Petrone: Thank you. Our next question comes from the line of Anthony Petrone with Mizzouho Group. Please proceed with your question. Thanks and good afternoon. Congrats on a strong quarter year set up into 2024. Maybe I'll put it back to the LCD Joe if I can for a moment. I just wonder when you look at sort of the verbiage in late September, you know, there was references to just, you know, the implementation timeframe that there wasn't enough time to sort of transition practices over and that potentially could impact patient care, but, you know, you also saw just a certain amount of advocacy from the, you know, various different medical societies out there in favor of, you know, sort of taken a second look here.

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Mhm.

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Mhm.

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Anthony Petrone: So, you know, maybe just a little bit behind the scenes. You know, what do you think was the tipping point on putting the breaks here? And as we look at the new sort of just common periods, I mean, what are the next big updates here that we should be thinking about from these, you know, local max. And as well as other max that potentially may look to change their policies, heading into 2024 and 2025. And then I'll have a couple of follow ups. Thanks, Nancy.

Hum.

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Joseph Capper: Well, first of all, we really don't know because they never pulled like the curtain and like, you know, why they made the decision that they made. If you're asking me for my personal opinion, I never thought it had a chance of being implemented because I thought it was arbitrary and capricious quite frankly. And there was no good evidence to support the application cap. And it was, I think, a clumsy evidence to support the restriction on some of the products and organizations that were eliminated from participating.

Hum.

Mhm.

Hum.

Mhm mhm.

Hum.

Hum.

[music].

Uh-huh.

Mhm.

Joseph Capper: Yes, but I think we've been trying to make up for some sense of the past. But in any case, I just will remember really now, I think it was probably more the up or across the industry both clinically and from from industry that this was, you know, not not a great way to approach the problem is to try to solve. And they indicated that they would continue to analyze and collect more evidence and try to see if there's a better way to approach these also these in the future.

Hum.

Hum.

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Joseph Capper: So as I indicated in my commentary, we continue to work with various stakeholders who have an influence on this. We would, we continue to advocate for policy that would eliminate some of the gamesmanship that's permitted around reimbursement of these products at the same time maintain access for products like ours that have tremendous evidence that show effectiveness. So I do, I think something will change at some point in the future. Yes. Do I know what it is?

Joseph Capper: Absolutely not. And I would say though that of all the companies in the category, we are, I believe, far and the way best position to continue to support private office setting regardless of the change that it moved into some sort of a restricted utilization. We have evidence to support use of our product. If for some reason it moves towards a bundle, we have probably less impact that some of our other large competitors in the category.

Joseph Capper: So we're going to continue to support this sector. We think it makes a lot of sense. It's great access for patients that can't necessarily be treated in the hospital and continues to grow as a result. So again, I think we're just really well positioned regardless of the outcome, but we'll continue to try to influence.

Joseph Capper: That's very helpful. And then maybe just two nuances in there. I mean, one was the, you know, advocacy and push from MiMedx that all of these products be, you know, sort of disclosed on Medicare B pricing list as opposed to wholesale acquisition cost. And then there was another decision in these LCDs where they actually wanted to limit applications to four. Or, or ulcer, which was below the 10 applications previously. So maybe just on those two specifically, I mean, is there anything, you know, that that MiMedx is aware of on those two levers first, certainly going to Medicare part B is positive for.

Joseph Capper: At the fix and other products that were included in the 58. On the other hand, you know, limiting the applications per ulcer just seems like, you know, perhaps two limiting. Is there anything on those two levers you can share. No, not really. We're, you know, again, we continue to work with them and hopefully this gets, you know, the clouds park over time. We get more clarity. We always thought that the application restriction was somewhat arbitrary.

Joseph Capper: It was a good point that some evidence, but it was misconstrued in the way that it's being applied. So hopefully that goes away because that could be disruptive for patients that need more than four applications. Or they end up going into a more expensive care saving, excuse me, care saving frankly to get treated. So it's not really good for Medicare long term. As far as continuing to influence the use of the ASP versus the lack, we think that's the easiest way to go into near term.

Joseph Capper: It's kind of a low hiding group and to their credit. You know, the CMS has been pressuring people to move in that direction. As you know, the OIG published a letter earlier in the year. Pretty much directing them to adhere to these guidelines. And we have seen a lot of products move on the ASP prices. If you look at the list a couple of years ago, there was maybe 12 products on the list and now it's probably up to around 75.

Joseph Capper: So the market is moving in the right direction and quite frankly, that could be one of the recently performed so well in that site of service for the first three quarters of the year because the fine field is starting to level that.

Douglas Rice: That's one and I'll hop in real quick just on EBITDA second half all three to see 20%. You know, maybe just high level. There was a restructuring program earlier this year helps in achieving that 20% as you look, you know, forward next couple of years. You know, how much of the EBITDA expansion will just be, you know, from organic growth as opposed to a follow on restructuring program. Congratulations again. Thanks. Thanks Anthony.

Douglas Rice: This is Doug. I'll take your question. We were excited exiting the year with a lot of momentum. We had a really solid Q3. We saw improved execution will continue into Q4 and now with the new product introduction. We're going to have a lot of upside and growth. It will have a scale. We expect our gross margin stays back up from EBITDA perspective. We also expect to scale, you know, in sales and marketing and realize efficiencies all along our PNL.

Douglas Rice: So as our proof focus as you mentioned from the suspension of our NEOA program helps going into next year. We feel like we have a lot of momentum and ability to continue to grow into the double digit. Thank you. Yeah, and Anthony, the only other thing I might add, it's just some of those legacy, you know, expenses kind of across the board, there's focus, there's SG&A leverage, there's obviously, you know, you kind of get a sense of where the R&D timeline looks and then obviously not having any other inflammatory pieces, you know, hitting us, whether we adjust them or not, should show a really nice kind of leverage, you know, thanks again. Thank you.

Carl Byrnes: Our next question comes from the line of Carl Byrnes with Northland capital markets. Please proceed with your question. Thanks for the question and congratulations on your quarter in the progress here. I think most of my questions have been addressed, but as a bit curious, if you see an opportunity for further purchases of the series be preferred, such that it's done and organized in orderly fashion, and then I have a follow up to that. Thank you.

Joseph Capper: Yeah, so let's a little more clarity on that, and I think I mentioned my commentary that not my first, my highest priority for use of capital at this stage in the company's evolution, however, it was kind of opportunistic. We got real close to the mandatory conversion a few months ago. In fact, we were above the $77.77 mark for several days, as you may recall, requires us to stay above that for 20 out of any 30 consecutive trading days.

Joseph Capper: So did not trigger, but it prompted us to start having conversations with Nathan as to what is your long term intent with the common ones it wants to convert. And they were pretty transparent that it's typically not their approach to hold that stock for a long period of time and would look to probably exited in some organized way. So it was really that's how the conversations evolved. It was very opportunistic. Why we didn't buy all that we only bought half the frankly with just to keep some some dry powder because we are looking to do other things with the business.

Joseph Capper: And they also agreed to a 12 month block up on the other half of the equity, whether it converts or not. So we felt like any potential disruption as they actually the position was limited quite a bit because of our we purchase a pamphlet and their agreement that to lock up the other half for the time being.

Carl Byrnes: Great. Thanks. That's very helpful.

Joseph Capper: And then I'm kind of segueing to epithix in Japan. Do you have any updates with respect to the number of docs that have been trained to use product? I will well into hundreds. I think you know several hundred. I think one point we might have put out a number of 500 continues to grow. We're getting nice feedback from the positions there several positions have used the product in various procedures. They have reordered the product and they have gotten paid on the product. All these are very important steps when you're talking about developing a new business in a new market.

Joseph Capper: I want to remind everybody that this is a first of its time in the Japanese market. So this will take time to develop and get positions comfortable with how to use it and as importantly whether or not they're getting paid for it. So we're seeing. It's a pretty significant percentage growth on utilization but also a very low base, right? So we're pretty optimistic about what this could look like a few years down the road, but again, it's very early on.

Carl Byrnes: As you said, congratulations again, thanks. Thanks, Carl. Thank you.

R.K.: Our next question comes from the line of R.K, with H.C. Renoight. Please proceed with your question. Thank you. Thanks for taking my question. This is okay if I'm hitly. So a couple of quick questions. Looking at what, you know, the total revenues for this quarter and comparing it against last quarter, it's kind of similar numbers. And, you know, I see that the guidance you gave is higher teens. So what's the, what's the push or pull on these numbers just on at a high level on the business and also trying to see, you know, what's the probability that it'll get into, you know, lower 20s based on what you're seeing.

R.K.: I think that the first part of your question was what happened from Q2 to Q3, your comment was relatively flat sequentially, which is a home run for this business, right? As, as you know, these types of businesses typically have a seasonal decline in Q3, which we did not experience this year. In the contrary, we were able to take the business up a little bit. We also had one less work day. So seasonal decline, one less work day and flat up is a home run in my opinion in this business.

R.K.: I think the second part of your question was why would we not continue to see something in the low 20s as we move through the rest of the year and into next year. The comp for Q4 2022 is by far our top of this comp of the year. The revenue was clear in a way, the highest revenue in the business experience last year. As you recall, that was the quarter in which we launched two new products in the surgical setting and revenue was somewhere around $74.5 million.

R.K.: So, double digit growth off of that would be a meaningful number. We think we're well positioned to do that. We think the business will close out in the high teens, if not a 20%. But still a pretty good hill to climb to get those numbers. And as you know, fourth quarter can be disruptive, depending on how holidays fall, et cetera, et cetera. We think this year we have great momentum going into the fourth quarter.

R.K.: Clearly our sales organization is executing better than other organizations in the market. We have the strongest leadership team and any other company in the marketplace. So I think we're well positioned to continue to drive that momentum. We're launching another product in happy effect into the private office segment. Now takes time to ramp up any new product so that roll out will happen over the next two, three quarters before we see four fact of it, but we could get nice impact from that in Q4.

R.K.: So, look, could we get there maybe, but these numbers are pretty darn good numbers. Yes, I agree with you. I was not negative on it. My comments are not supposed to be negative. I was actually trying to see what else is there that can actually push this higher. Thank you very much for that answer.

Joseph Capper: The other question I have is regarding seeking opportunities outside of just introducing another product in the fourth quarter as you have previously said and you also just made some comments on it. In addition to that, given what you are doing in terms of trying to do this by back and keep some powder ready, what sort of opportunities would you be looking for as you go into 24 and even into 25? I think you're referencing potential inorganic opportunities.

Joseph Capper: And as I've indicated on a couple of calls now strategically, we have determined that expanding our skin substance to product line to include non human skin substance gene grass and synthetics make a lot of sense. If we add those products to our portfolio, we double our total available market just in the US, because unfortunately, amniotic tissue is restricted from use in certain market segments. So that's a priority for us. And it also gives us more opportunity within the hospital within the surgical suite, which is another focus area for us.

Joseph Capper: So products that allow us to move in that direction and accelerate rate are ones that we would prioritize. And then after that, anything within the wheelchair continuum that will allow us to a broaden our offering would be leverage our current operational infrastructure, both commercial and internal infrastructure. So you can imagine what those products might look like, but I think our highest priority would be the expanded skin subline now. I will also tell you that there's internal development as well, right?

Joseph Capper: We continue to develop a central derived aligrafs and we have a rich pipeline for those as well as a potentially internal development of zero graphs, but we're also looking extra on it because as you know, that could accelerate the plan. And in my opinion, that's the only time you do acquisitions like this is if it will accelerate your strategic plan. Can't just be done for the sake of doing.

R.K.: Thanks. Thanks for taking all my questions. Thanks, okay. Thank you.

John Vandermosten: Our next question comes from the line of John Vandermostin with Zach. Please proceed with your question. Thank you. And good afternoon, Joe again, Matt. I wanted to understand the minimum cooperation a little more. That sounds like a great opportunity to get involved with clinical trials, you know, more further proof that the FDA is recognizing the product. Are there any other opportunities like this and with the bedroom just does that guarantee that your product will be used with their device?

John Vandermosten: What if it's approved? Yeah, first yeah, we were very excited about it and we're glad to be supporting that trial. We think it's important. It's probably going to be the largest BLU trial in at least a decade and the product looks very promising at the effects of the fix was selected because it has more evidence and more around its clinical advocacy than any other product in the category. So they know it works.

John Vandermosten: They want to ensure closure throughout the trial so they get the best results. And I think they said that in their press release when they announced as far as other opportunities, we're always looking to work with people who have complimentary products. I don't have anything to talk about today, but certainly working with other people in and around our product category makes a lot of sense. And then think of that free cash flow.

John Vandermosten: Should we expect a sequential expansion in that in the fourth quarter? Yeah, John, we're really pleased with where our free cash flow ended up in the quarter sequentially and increase versus or Q2 $7 million. I would expect Q4 to look similar. I think there's a lot of twists and takes in Q4, but you know, we should go in our prepared remarks that we expected adjusted even out of the more of 20%.

John Vandermosten: That's what it was in Q3. We would expect the same in Q4 and I would expect that our free cash flow would look similar. Okay. And I want to expand on that earlier, and especially about FB effective. Do you feel that having more products in the room product portfolio will actually provide some kind of synergistic benefit there or might there be, you know, accountability in the group of products? Yeah, I think a little bit of both clearly at the effect can be used in other procedures, which we talked about specifically when suturing is required.

John Vandermosten: So it's going to expand utilization. But there, you know, frankly, there might be some cannibalization of at the fix as well. Okay. Great. Thank you for taking my question. Thanks. Thank you. There are no further questions at this time. I would like to turn the floor back over to Joe for closing remarks. Thanks, operator. And thanks for your questions and for your continued interest and support in the company. That concludes today's call, and we will talk to you after our next quarter report. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Joseph Capper: John Vandermosten, John Vandermosten, John Vandermosten John Vandermosten, John Vandermosten, John Vandermosten, John Vandermosten, John Vandermosten, John Vandermosten, John Vandermosten, John Vandermosten,[inaudible]