Q4 2023 Organogenesis Holdings Inc Earnings Call

February 29, 2024

Okay.

Operator: Welcome, ladies and gentlemen, to the fourth quarter and fiscal year 2023 earnings conference call for Organogenesis Holding Inc. At this time, all participants are being placed in listen-only mode. Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filing with the Securities and Exchange Commission, including item a, excuse me, including item 1a risk factors of the company's most recent annual report and its sequential filing with the quarterly report.

Welcome, ladies and gentlemen to the fourth quarter and fiscal year 2023.

Earnings Conference call for organic Genesis Holdings, Inc.

At this time, all participants are being placed in a listen only mode.

Please note that this conference call is being recorded and the recording will be available on the company's website for replay shortly.

Before we begin I would like to remind everyone that our remarks today may contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated.

Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission.

Okay.

Including item eight excuse me quite including item one a risk factors of the company's most recent annual report and its sequential filing.

Quarterly reports.

Operator: You are cautioned not to place undue reliance upon any forward-looking statement, which speaks only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by applicable security law. This call also includes references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures.

You are cautioned not to place undue reliance upon any forward looking statements.

Which speak only as of the date make.

Although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statements.

Whether a result of new information future events or otherwise, except as required by applicable security law.

This call.

Also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP.

We generally refer to these as non-GAAP.

Natural measures.

Operator: Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP is available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gohaney Sr., President, Chief Executive Officer, and Chair of the Board. Please go ahead.

Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

I would now like to turn the call over to Mr. Gary ESCO Hany senior.

Okay don't Genesis Holdings President.

Chief Executive Officer.

And chair of the Board. Please go ahead Sir.

Gary S. Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings' fourth quarter and fiscal year 2023 earnings conference call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks.

Okay.

Thank you operator, and welcome everyone to Organogenesis Holdings' fourth quarter and fiscal year 2023 earnings conference call.

I'm joined on the call today by Dave Francisco, Our Chief Financial Officer.

Gary S. Gillheeney: I will begin with an overview of the fourth quarter revenue results and an update on our key operating and strategic developments in recent months. Dave will then provide you with an in-depth review of our fourth quarter financial results, our balance sheet, and financial condition at year-end, as well as our financial guidance for 2024, which we introduced in our press release this afternoon. Then I will share some closing thoughts before we open the call to your questions.

Dave will then provide you with an in depth review of our fourth quarter financial results, our balance sheet and financial condition at year end as well as our financial guidance for 2024, which we introduced in our press release this afternoon.

Then I will share some closing thoughts before we open the call for your questions.

Gary S. Gillheeney: Our sales results came in at the low end of our guidance range outlined on our third quarter conference call and reflect the expected challenging operating environment as a result of the local coverage determinations having been announced and subsequently withdrawn last fall. More specifically, our fourth quarter guidance range assumes continued significant business disruption driven by customer confusion and uncertainty, as outlined on our last quarter's earnings call. We expected our sales reps to be spending more time servicing existing customers and regaining lost customers versus cultivating new customer adoption, thus impacting our year-over-year growth trends in the quarter. Additionally, the higher end of our guidance range assumed improvement in the operating environment as we moved through Q4, which ultimately did not materialize.

Our sales results came in at the low end of our guidance range outlined on our third quarter conference call and reflect the expected challenging operating environment as a result of the local coverage determinations, having been announced and subsequently withdrawn last fall.

More specifically our fourth quarter guidance range had assumed continued significant business disruption driven by customer confusion and uncertainty.

Outlined on our last quarter's earnings call, we expect that our sales reps to be spending more time servicing existing customers and regaining loss customers versus cultivating new customer adoption, thus impacting our year over year growth trends in the quarter.

Additionally, the higher end of our guidance range assumed improvement in the operating environment as we move through Q4, which ultimately did not materialize.

Despite the challenging quarter, we are pleased to see the positive momentum in the business trends, we experienced towards the end of December continue into early 2024, and our commercial team continues to see progress and their broad based efforts to reengage with our customers to bring our products back to the healing algorithms and formularies.

We're encouraged by the evidence that the commercial support programs, we implemented to enhance existing customer relationships and to regain lost accounts are proving effective importantly, we've dedicated a majority of our time and share of voice during the fourth quarter towards clarifying the misinformation in the market.

Gary S. Gillheeney: Importantly, we've dedicated a majority of our time and share of voice during the fourth quarter towards clarifying the misinformation in the market. We have refocused our commercial resources to drive growth in our customer base by emphasizing our differentiated products and their clinical value. Now, an update on our operational progress in recent months. Our ongoing phase 3 clinical trials evaluating the use of RENEW for the management of symptoms associated with knee osteoarthritis continue to progress as planned. As a reminder, Renu is a unique cryopreserved amniotic suspension allograft, or ASA, containing viable cells, extracellular matrix, and importantly, is rich in anti-inflammatory and regenerative growth factors.

We have refocused our commercial resources to drive growth in our customer base by emphasizing our differentiated products and their clinical value.

Turning to an update on our operational progress in recent months.

Our ongoing phase III clinical trials evaluating the use of renewable for the management of symptoms associated with knee osteoarthritis continue to progress as planned.

As a reminder, renew as a unique cryopreserved amniotic suspension allograft or assay containing viable cells extra cellular matrix, and importantly, as rich and anti inflammatory and regenerative growth factors.

Gary S. Gillheeney: We achieved the last patient last visit milestone in January for the first phase three clinical trial to evaluate the efficacy of RENEW for the treatment of symptomatic knee osteoarthritis, and preparations for the database lock and analysis are currently underway. We are currently targeting the completion of top-line data analysis by the end of April, which we intend to share publicly via press release. In 2021, Renew received the FDA's Regenerative Medicine Advanced Therapy, or RMAD, designation for osteoarthritis of the knee, which underscores the strength of our existing clinical evidence and its potential to address a largely unmet medical need.

We achieved the last patient last visit milestone in January for the first phase III clinical trial to evaluate the efficacy of renew for the treatment of symptomatic knee osteoarthritis and preparations for the database lock and analysis are currently underway.

We are currently.

Only targeting the completion of topline data analysis by the end of April, which we intend to share publicly via press release.

In 2021 renew received the Fda's regenerative medicine advanced therapy, or <unk> designation for osteoarthritis of the knee.

Which underscores the strength of our existing clinical evidence and its potential to address a largely unmet medical needs.

Gary S. Gillheeney: As previously discussed, we expect to have a subsequent discussion with the FDA regarding the clinical data requirements for the BLA, and we intend to propose the first Phase III clinical trial combined with the published 200-patient RCT as valid scientific evidence and sufficient for BLA approval. We are also pleased with the progress we're seeing in our second phase 3 clinical trial for RENEW. We now have 40 clinical sites up and running and have enrolled more than 200 patients to date. While it's difficult to predict the pace of enrollment with precision, our current timeline has us achieving full enrollment in the first quarter of 2025, ahead of our original expectations when we started enrollment in the second phase three clinical trial last September. Additionally, consistent with our first phase three clinical trial, we're on track to enroll between 25 and 30 percent of the most severe knee OA patient population, also known as KL4. While there is no known treatment that completely cures knee OA, it is possible to treat the disease symptoms with the goal of avoiding or delaying costly, invasive knee replacement surgery.

And as previously discussed we expect to have a subsequent discussion with the FDA regarding the clinical data requirements for the BLA and we intend to propose the first phase III clinical trial combined with a published 200 patient RCT is valid scientific evidence and sufficient for our BLA approval.

We are also pleased with the progress we're seeing in our second phase III clinical trial for renewed we now have 40 clinical sites up and running and have enrolled more than 200 patients to date.

While it's difficult to predict the pace of enrollment with precision. Our current timeline has is achieving full enrollment in the first quarter of 2025 ahead of our original expectations. When we started enrollment in the second phase III clinical trial last September.

Additionally, consistent with our first phase III clinical trial, we are on track to enroll between 25 and 30% of the most severe knee OA patient population also known as scale for us.

While there is no known treatment that completely cures knee OA. It is possible to treat the disease symptoms with the goal of avoiding or delaying costly invasive knee replacement surgery if.

David C. Francisco: If successful, Renu would be the only FDA-approved biologic intra-articulate injection to improve the symptoms of the most severe cases of OA. With that, I'll begin with a review of our fourth quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the fourth quarter was $99.7 million, down 14%.

If successful renew would be the only FDA approved biologic intra articular injection to improve symptoms are the most severe cases of OA.

With that let me turn it over to Dave.

Thanks, Gary I'll begin with a review of our fourth quarter financial results.

Unless otherwise specified all growth rates referenced during my prepared remarks are on a year over year basis.

Net revenue for the fourth quarter was $99 $7 million down 14%, our advanced wound care net revenue for the fourth quarter was $93 2 million.

David C. Francisco: Our advanced wound care net revenue for the fourth quarter was $93.2 million, also down 14%. Net revenue from surgical and sports medicine products for the fourth quarter was $6.5 million, down 3%. Gross profit for the fourth quarter was $71.9 million, or 72.1% of net revenue, compared to 76.5% last quarter. The decrease in gross profit and margin resulted primarily from shifts in product mix compared to the prior year period and a decrease in pricing for certain of our products. Operating expenses for the fourth quarter were $73.2 million compared to $79.7 million last year, a decrease of $6.5 million, or 8%.

So down 14% net revenue from surgical and sports medicine products for the fourth quarter was $6 5 million down 3%.

Gross profit for the fourth quarter was $71 9 million or <unk> 72, 1% of net revenue compared to 76, 5% last year.

The decrease in gross profit and margin resulted primarily from shifts in product mix compared to the prior year period, and a decrease in the pricing for certain of our products.

Operating expenses for the fourth quarter was $73 2 million compared to $79 7 million last year, a decrease of $6 5 million or 8% the.

David C. Francisco: The decrease in operating expenses in the fourth quarter was driven by a $6.9 million, or 10%, decrease in selling, general, and administrative expenses, offset partially by a $0.4 million, or 3%, increase in research and development costs compared to the prior year period. Fourth quarter GAAP operating expenses included $1.9 million of restructuring-related charges compared to $0.8 million in the prior year, as well as $0.3 million of compensation expenses related to the retention of those sales employees impacted by the LCA, compared to no such costs in the fourth quarter of 2020. Excluding these items and non-cash intangible amortization of $1.2 million in both periods, non-GAAP operating expenses for the fourth quarter decreased $7.8 million, or 10% year-over-year. The material reduction in our non-gap operating expenses reflects our proactive strategy to manage costs in light of the challenging operating environment. We made these difficult strategic decisions to further mitigate the impact to profitability from the lower fourth quarter revenue results. Operating loss for the fourth quarter was $1.3 million, compared to operating income of $8.7 million last year, a decrease of $10 million.

The decrease in operating expenses in the fourth quarter was driven by a $6 9 million or 10% decrease in selling general and administrative expenses offset partially by <unk> 4 million or 3% increase in research and development costs compared to the prior year period.

Fourth quarter GAAP operating expenses included $1 9 million of restructuring related charges compared to <unk> 8 million in the prior year as well as <unk> $3 million of compensation expenses related to the retention for those sales employees impacted by the LCD compared to no such costs in the fourth quarter of 2022.

These items are noncash intangible amortization of $1 2 million in both periods non-GAAP operating expenses for the fourth quarter decreased $7 8 million or 10% year over year.

The material reduction in our non-GAAP GAAP operating expenses reflects our proactive strategy to manage costs in light of the challenging operating environment. We.

We made these difficult strategic decisions to further mitigate the impact to profitability from the lower fourth quarter revenue results.

Operating loss for the fourth quarter was $1 3 million compared to operating income of $8 7 million last year, a decrease of $10 million net.

Net loss for the fourth quarter was <unk> 6 million compared to net income of $7 $5 million last year, a decrease of $8 1 million.

David C. Francisco: Net loss for the fourth quarter was $0.6 million, compared to net income of $7.5 million last year, a decrease of $8.1 million. Adjusted net income for the fourth quarter was $1.9 million, compared to $8.9 million last year, a decrease of $7 million. As a reminder, Adjusted Net Income is defined as gap net income adjusted to exclude the effect of amortization, restructuring charges, and other certain items, including compensation expenses related to retention for those sales employees impacted by the LCDs and resulting income taxes on these items. Adjusted EBITDA for the fourth quarter was $7.5 million, or 7.5% of net revenue, compared to $14.1 million, or 12.2% of net revenue last year. We believe our proactive efforts to optimize our cost structure were a key contributor to our ability to deliver positive adjusted net income and adjusted EBITDA, both of which exceeded the low end of our guidance ranges in Q4.

Adjusted net income for the fourth quarter was $1 9 million compared to $8 9 million last year, a decrease of $7 million.

As a reminder, adjusted net income is defined as GAAP net income adjusted to exclude the effect of amortization restructuring charges and other certain items, including compensation expenses related to retention for those sales employees impacted by the LCD and resulting income taxes on these items.

Adjusted EBITDA for the fourth quarter was $7 5 million or seven 5% of net revenue compared to $14 1 million or 12, 2% of net revenue last year, we believe our proactive efforts to optimize our cost structure was a key contributor to our ability to deliver positive adjusted net income and adjusted EBITDA, both of which exceeded the low end.

Our guidance ranges in Q4, we have provided a full reconciliation of our adjusted net income and adjusted EBITDA results in our earnings release.

Turning to a brief review of our financial results for the 12 months ended December 31 2023.

Net revenue was $433 1 million compared to $450 9 million for the year ended December 31, 2022, a decrease of $17 8 million or 4% of which approximately 90% of the year over year decline occurred in the fourth quarter.

The decrease in net revenue was driven by a decrease of $16 7 million or 4% and net revenue of advanced wound care products and a decrease of $1 million of 4% and net revenue of surgical and sports medicine products.

David C. Francisco: We have provided a full reconciliation of our adjusted net income and adjusted EBITDA results in our earnings release. Turning to a brief review of our financial results for the 12 months ended December 31st, 2023. Net revenue was $433.1 million, compared to $450.9 million for the year ended December 31, 2022, a decrease of $17.8 million, or 4%, of which approximately 90% of the year-over-year decline occurred in the fourth quarter. The decrease in net revenue was driven by a decrease of $16.7 million, or 4%, in net revenue of advanced wound care products and a decrease of $1 million, or 4%, in net revenue of surgical and sports medicine products.

Adjusted EBITDA was $42 6 million or nine 8% of net revenue compared to adjusted EBITDA of $49 3 million or 10, 9% of net revenue for the year ended December 31 2022 of.

A decrease of $6 7 million or 14% all of which occurred in the fourth quarter.

Turning to the balance sheet as of December 31, 2023, the company had $104 3 million in cash cash equivalents and restricted cash and $66 $666 2 million and debt obligations compared to $103 3 million in cash cash equivalents and restricted cash and $70 8 million in debt obligations as of December 31, two.

22.

We also have up to $125 million of available borrowings on our revolving credit facility as of December 31, 2023.

David C. Francisco: Adjusted EBITDA was $42.6 million, or 9.8% of net revenue, compared to adjusted EBITDA of $49.3 million, or 10.9% of net revenue, but the year ended December 31st, 2020, a decrease of 6.7 million, or 14%, all of which occurred in the fourth. Turning to the balance sheet, as of December 31, 2023, the company had $104.3 million in cash, cash equivalents, and restricted cash and $66.2 million in debt obligations, compared to $103.3 million in cash, cash equivalents, and restricted cash and $70.8 million in debt obligations as of December 31, 2022. We also have up to $125 million of available borrowings on our revolving credit facility as of December 31, 2021. Turning to a review of our 2024 financial guidance, which we introduced in our press release this afternoon, for the 12 months ending December 31st, 2024, the company expects net revenue of between $445 million and $470 million, representing a year-over-year increase in the range of 3% to 9% as compared to net revenue of $433.1 million for the year ended December 31st, 2024.

Turning to a review of our 2024 financial guidance, which we introduced in our press released this afternoon for the 12 months ending December 31, 2024, the company expects net revenue of between $445 million and $470 million, representing a year over year increase in the range of 3% to 9% as compared to net revenue of <unk>.

<unk> hundred $33 1 million for the year ended December 31 2023.

The 2024 net revenue guidance range assumes net revenue from advanced wound care products between $415 million and $435 million, representing a year over year increase in the range of 2% to 7%.

Our net revenue from surgical and sports medicine products between $30 million and $35 million, representing a year over year increase in the range of 9% to 27%.

In terms of our profitability guidance for 2024, the company expects to generate GAAP net income loss in a range of $10 6 million of net loss to net income of $4 6 million.

Adjusted net income loss in a range of $8 1 million adjusted net loss to adjusted net income of $7 one.

We also expect EBITDA in the range of $5 8 million to $25 million and adjusted EBITDA in the range of $15 8 million and $35 million.

In addition to our formal financial guidance for 2024, we're providing some considerations for modeling purposes.

As a reminder, the first half of 2023 exceeded our expectations and the strong business momentum continued into the early part of the third quarter ahead of the final LCD announcement in early August as a result, our expectations for growth in 2024 are skewed towards the back half given the 2023 comparable quarterly growth rates.

For modeling purposes, we expect first quarter revenue in the range of approximately $98 million to $104 million.

David C. Francisco: The 2024 Net Revenue Guidance Range assumes net revenue from advanced wound care products between $415 million and $435 million, representing a year-over-year increase in the range of 2% to 7%, and net revenue from surgical and sports medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 9% to 27%. In terms of our profitability guidance for 2024, the company expects to generate a gap net income loss in a range of $10.6 million of net loss to net income of $4.6 million, and adjusted net income loss in a range of $8.1 million adjusted net loss to adjusted net income of $7.1 million.

Our profitability guidance in 2024 assumes gross margins of approximately 76% to 77%.

GAAP Arctic operating expenses will increase approximately 10% to 12% year over year and total non-GAAP operating expenses will increase approximately 13% to 14% year over year, our non-GAAP 2020 for operating expenses exclude noncash intangible amortization of approximately $3 4 million.

Note that the expected increase in operating expenses. This year is primarily related to incremental investments in clinical studies and regulatory related spending in preparation for our renewable BLA efforts.

Our full year 2020 for operating expenses also reflect strategic investments to support key commercial initiatives.

Finally, our full year profitability guidance ranges also assumed total interest and other expenses of approximately $2 million to $3 million.

GAAP tax rate range of negative 3% at the low end of the range to positive 52% at the high end of the range and we continue to assume a non-GAAP tax rate adjustments of 27%.

David C. Francisco: We also expect EBITDA in the range of $5.8 million to $25 million and adjusted EBITDA in the range of $15.8 million and $35 million. In addition to our formal financial guidance for 2024, we're providing some considerations for modeling. As a reminder, the first half of 2023 exceeded our expectations, and the strong business momentum continued into the early part of the third quarter ahead of the final LCD announcement in early August. As a result, our expectations for growth in 2024 are skewed towards the back half, given the comparable quarterly growth in 2023. For modeling purposes, we expect first quarter revenue in the range of approximately $98 million to $104 million. Our profitability guidance for 2024 assumes gross margins of approximately 76% to 77%. Gap operating expenses will increase approximately 10% to 12% year-over-year, and total non-gap operating expenses will increase approximately 13% to 14% year-over-year.

Noncash depreciation of approximately $9 7 million non cash cash stock comp expense of approximately $10 million capex of $23 million and a weighted average diluted share count of approximately $133 million.

With that I'll turn the call back over to Gary for some closing remarks.

Thank you Dave.

Before we open up the call to your questions I wanted to share some additional thoughts on our outlook and underlying assumptions supporting our guidance for 2024.

While the environment remains challenging we're pleased to see the business trends show improvement early 2024, and our commercial team continues to see progress in their efforts to reengage with our customers.

We're encouraged by the evidence that our commercial support programs, we implemented to enhance existing customer relationships and to regain lost accounts are proving effective and we are proud of the team's continued commitment to our mission.

Our guidance reflects a return to revenue growth for 2024 fueled by new product launches across both advanced wound care and surgical sports medicine markets, including contributions from our new license agreement with buybacks Biologics. We view. This license agreement is a great example of our effort to identify growth and margin accretive high re.

Gary S. Gillheeney: Our non-gap 2024 operating expenses exclude non-cash intangible amortization of approximately $3.4 million. Note that the expected increase in operating expenses this year is primarily related to incremental investments in clinical studies and regulatory-related spending in preparation for a renewed BLAF. Our full year 2024 operating expenses also reflect strategic investments to support key commercial initiatives. Finally, our full-year profitability guidance ranges also assume total interest and other expenses of approximately $2-3 million, gap tax rate range of negative 3% at the low end of the range to positive 52% at the high end of the range, and we continue to assume a non-gap tax rate on adjustments of 27%, non-cash depreciation of approximately $9.7 million, non-cash stock comp expense of approximately $10 million, CapEx of $23 million, and a weighted average diluted share count of approximately $133 million.

Turn opportunities to leverage our valuable commercial infrastructure and leading market position in advanced wound care.

We are adding new products to our commercial teams solution offerings, which we expect will enhance our share of voice, while providing value to customers by broadening broadening our portfolio of differentiated treatment solutions.

Our financial guidance also reflects our intention to continue to invest strategically in our business to support key long term growth initiatives, including our renew clinical and regulatory strategy, which we believe represents a significant value driver in the future.

Importantly, despite our increased investments, we expect to deliver solid adjusted EBITDA and operating cash flow in 2024, which will help us continue to enhance our balance sheet and financial condition.

And we remain confident in the long term opportunity for our going to Genesis and we expect to remain a leader in the space with highly innovative efficacious products that deliver on our mission to provide integrated healing solutions that substantially improve outcomes, while lowering the overall cost of care.

And with that I'll turn the call over to the operator to open the call up to your questions. Thank you.

Thank you Sir.

If you would like to ask a question. Please signal by pressing star one on your telephone you will then hear an automated method advising your hand is right.

Gary S. Gillheeney: With that, I'll turn the call back over to Gary for some closing remarks. Thank you, dude. Before we open up the call to your questions, I wanted to share some additional thoughts on our outlook and the underlying assumptions supporting our guidance for 2024. While the environment remains challenging, we're pleased to see the business trends show improvement in early 2024, and our commercial team continues to see progress in their efforts to reengage with our customers. We're encouraged by the evidence that our commercial support programs we implemented to enhance existing customer relationships and to regain lost accounts are proving effective. We are proud of the team's continued commitment to our mission.

I would like to remove yourself from the queue. Please press star and one of them.

If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

One moment, while we compile the Q&A roster.

Our first question today will be coming from Ryan Zimmerman of <unk>. Your line is open.

Good afternoon. Thanks for taking my questions can you guys hear me okay.

We can Ryan good afternoon.

Great.

Thank you guys for all the color I appreciate certainly the early commentary on first quarter I guess Gary.

Be helpful to get your thoughts on just the recovery in the market kind of what Youre doing here I mean in the context of it sounds like business trends have improved in December but reconciling that with your first quarter guidance, which is still down.

Operator: Our guidance reflects a return to revenue growth for 2024, fueled by new product launches across both the advanced wound care and surgical sports medicine markets, including contributions from a new license agreement with Vivex Biological. We view this license agreement as a great example of our effort to identify growth in margin-accretive, high-return opportunities to leverage our valuable commercial infrastructure and leading market position in advance. We are adding new products to our commercial team solution offerings, which we expect will enhance our share of voice while providing value to customers by broadening our portfolio of differentiated treatment solutions. Our financial guidance also reflects our intention to continue to invest strategically in our business to support key long-term growth initiatives, including our renewed clinical and regulatory strategy, which we believe represents a significant value driver in the. Importantly, despite our increased investments, we expect to deliver solid adjusted EBITDA and operating cash flow in 2024, which will help us continue to enhance our balance sheet and financial conditions.

Just kind of how are you contemplating the recovery in the business given the guidance that you are sharing with the street for the first quarter.

Sure. So we did see an improvement at the end of December we actually seen some improvement in October and then it kind of flattened out and we experienced some turnover in.

In the fourth quarter.

Effected November and December the last two weeks, we really started to see improvement January which is typically a seasonally down period was flat.

But the trend really started to move positively in February and Thats. A result of all of the retention efforts not only with our accounts with our with our people as well.

And.

We had.

At our National sales meeting at the end of January and.

Relaunched our strategy and Thats been very effective sales.

Sales since our national sales meeting.

That has been really strong. So we're encouraged we're encouraged with the accounts that we're bringing back with the productivity of the reps. Some of the actions that we took in the fourth quarter, the streamline improved productivity and the commercial operations is starting to take.

Take effect and.

And producing results so.

We think.

Operator: We remain confident in the long-term opportunity for organogenesis, and we expect to remain a leader in the space with highly innovative, efficacious products that deliver on our mission to provide integrative healing solutions that substantially improve outcomes while lowering the overall cost of care. With that, I'll turn the call over to the operator to open the call to your questions. Thank you, sir. If you would like to ask a question, please signal by pressing star 11 on your telephone. You will then hear an automated message advising where your hand is. If you would like to remove yourself from the queue, please press star 11 again. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to recharge quickly.

Things will continue to get better in the in the second half of the quarter.

Okay Brian.

I would add too is recognize too that the first quarter of 2023 was quite strong at 11% growth. So it's a comp issue as well.

Yes, thank you for pointing that out Dave that's helpful. And then just to kind of dovetail off of that question I mean, when I look at it.

Adjusted EBITDA guidance.

Stepping back a little bit this year.

But that's also reflective of maybe some of those programs that you've been putting in place over the past quarter and so love to get your philosophy on how you're thinking about managing to profitability. This year. If maybe we should think that you are taking your foot off the gas.

A little bit there to bolster spend to drive growth to drive new products.

Just to understand some of the thoughts there and also how to think about the margin cadence here, Dave because when you look at the gross margin in the fourth quarter. It was down materially from from third quarter.

Operator: One moment while we compile the Q&A, Ross. Our first question today will be coming from Ryan Zimmerman of BTRG. Your line is open. Good afternoon. Thanks for taking the questions. Can you guys hear me okay?

How quickly does that bounce back in your view in the context of.

76% Guide 70, 677, I think it was.

Gary S. Gillheeney: We can, Ryan. Good afternoon. All right. Great. Thank you, guys, for all the color.

So you gave today thanks for taking the questions.

Gary S. Gillheeney: I certainly appreciate the early commentary on the first quarter. I guess, Gary, you know, it'd be helpful to get your thoughts on just the recovery in the market, you know, kind of what you're doing here. I mean, in the context of it sounds like business trends have improved in December, but, you know, reconciling that with your first quarter guidance, which is still down, just kind of how are you contemplating a recovery in the business, given the guidance that you are sharing with the street for the first quarter? Sure.

Inevitable that that would start to kick up over time, and where theres. Several things that are happening from that perspective, the second trial, moving and it's enrolling quite well as Gerry mentioned and so we've got some expenses associated with that and then obviously all the preparations go into making sure that we're ready to.

Submit the BLA. So there is quite a bit of work going on there and then I think when you think back to where we were in 'twenty three.

Gary S. Gillheeney: So we did see an improvement at the end of December. We actually saw some improvement in October and then it kind of flattened out. And we experienced some turnover in the fourth quarter, which affected November and December. The last two weeks, we really started to see improvement. January, which is typically, you know, a seasonally down period, was flat.

The last time, we guided before we issued the guidance in the fourth quarter was back in Q1 and at that time, we'd anticipated the operating expenses to <unk>.

non-GAAP operating expenses to be up 4% to 5%.

When we re guided in Q4, we expected those to be flat because we took several cost actions and then we came in at minus two so there's some of that is building that back up that infrastructure as we returned to growth in 'twenty four and so yes. We are very conscious of the profitability I think given the the declines that we saw in in 'twenty. Three we tried our best to manage the <unk>.

Gary S. Gillheeney: But the trend really started to move positively in February, and that's a result of all of the retention efforts, not only with our accounts but with our people as well. We had our national sales meeting at the end of January and relaunched our strategy, and that's been very effective; sales since our national sales meeting have been really strong. So we're encouraged.

Some line as well and I think we'll continue to do that but there are some key strategic investments that we have to keep making in 'twenty four and we'll keep moving forward on that.

You asked specifically about the gross margin and so I think we'll start to return to a more normal cadence, but it will migrate throughout the year as volume comes through.

David C. Francisco: We're encouraged with the accounts that we're bringing back and with the productivity of the reps. Some of the actions that we took in the fourth quarter to streamline and improve productivity in the commercial operations are starting to take effect and are producing results. So, we think things will continue to get better in the second half of the quarter. Ryan, the only thing I'd add is to recognize too that the first quarter of 2023 was quite strong at 11% growth, so it's a comp issue as well. Yeah, thank you for pointing that out, Dave.

We talked about recently, we are seeing some seeing some pressure on there from a price standpoint, but the big piece in Q4 was around mix some of the more higher contribution margin products were specifically.

Impacted quite significantly from these lcd's and we expect those to dig their way out as we go through Q4, I mean excuse me the 2024.

Okay, if I could just sneak one more in.

Kind of the ultimate question that investors have been asking is is there a resumption in your view.

Or in your guidance for the LCD is to return.

David C. Francisco: That's helpful. Sure. And then just to kind of dovetail off that question, I mean, when I look at the adjusted EBITDA guidance, you know, it is stepping back a little bit this year, but that's also reflective of maybe some of those programs that you've been putting in place over the past quarter. And so, you know, I'd love to get your philosophy kind of on how you're thinking about managing to profitability this year. If maybe, you know, we should think that you're taking your foot off the gas a little bit there to, you know, bolster spend, drive growth, drive new products, you know, would like to understand some of the thoughts there. And also how to think about the margin cadence here, Dave, because, you know, when you look at the gross margin in the fourth quarter, which was down materially from the third quarter, you know, how quickly does that bounce back in your view in the context of the 76% guide, 7677, I think it was, that you gave today. Thanks for taking the questions. Yeah, sure.

Gary just would appreciate your view on on the potential for that to occur and how you're factoring that into estimates for 2024.

So we obviously, we don't know whether there'll be any changes or any new LCD policies coming out against our thinking is.

They probably.

Wont be anything significant.

Certainly not in the beginning of the year I think with the physician fee schedule coming out there may be some.

Some dovetailing around what that might say so.

Think being an election year being the physician fee schedule coming out and.

The amount of issues that were in the last LCD is I think the process will be more robust more turns transparent and I think the physician fee schedule may have an impact on how they are designed so with all of that I think.

We don't see anything happening in the first half of the year.

Second half of the year.

I wouldn't expect anything significant but we don't know the answer obviously.

And we have not considered we have not considered any impact of an LCD change in our guidance.

Understood. Thank you for taking the questions.

Of course, thanks, Ryan Thanks, Brian.

David C. Francisco: So on the overall spend, I would say in 24, one piece is that there's a fairly material step up in R&D. And it's, you know, it's a pretty exciting time that's an inflection point within the renewal program. And obviously, you know, it was inevitable that that would start to kick up over time.

Thank you one moment to the next question.

Our next question will be coming from Roth Osborne of Cantor Fitzgerald. Your line is open.

Hey, guys. Thanks for taking our questions.

So maybe just a little bit more on the fourth quarter would you discuss the rep turnover it looks like your thoughts maybe about 45 reps.

And then as a follow up can you parse out rep productivity versus hiring new reps in 2024, and reaching your guidance range.

David C. Francisco: And, you know, there's several things that are happening from that perspective, the second trial moving in, it's enrolling quite well, as Gary mentioned, and so we've got some expenses associated with that. And then obviously, all the preparations go into, you know, making sure that we're ready to submit the BLA. So there's quite a bit of work going on there.

Yes, so I mean, obviously the reported rep count is frankly, it's a little bit misleading, we have two categories of reps as many companies probably do we have.

Specialist and then associates and as you kind of see those throughout the year and the fourth quarter, there's a fairly significant drop off in the associates and so.

David C. Francisco: And then I think when you think back to where we were in 23, the last time we guided before we reissued the guidance in the fourth quarter was back in Q1. And at that time, we'd anticipated the operating expenses to non-GAAP operating expenses to be up four to 5%. When we reguided in Q4, we expected them to be flat because we took several cost actions, and then we came in at minus two. So some of that is building that back up, that infrastructure as we return to growth in 24. And so, yeah, we are very conscious of profitability, I think, given the declines that we saw in in 23. We tried our best to manage the bottom line as well. And I think we'll continue to do that.

What youre seeing there is the best of the associates get promoted into the specialist role and specialist role is kind of really maintained there. So when you take a look at the total amount of associates and specialist then it looks like the level of productivity has increased quite significantly, but if you look at it just from the specialist standpoint, which is.

The ones that are generating the vast majority of the revenue, it's a minor uptick in 'twenty four.

Okay perfect. Thank you for clarifying that.

Then maybe just one on search on sports and Horizon is much smaller piece of business, but the guidance range in terms of growth. It's quite large could you maybe just walk us through some of the drivers and hitting a low and high end of that.

Yes, sure I mean, I think it's obviously a fairly wide range from a percentage basis, but it's a much smaller business that we continue to ramp up as you know we've been in kind of repositioning mode for some time since the FDA upregulation of both renew and new cell, but we're really now in a position to drive growth in our view we have the right leadership, we are building out the door.

David C. Francisco: But there are some key strategic investments that we have to keep making in 24 and we'll keep moving forward on that. You asked specifically about the gross margin, and so I think we'll start to return to a more normal cadence, but it will fluctuate throughout the year as volume comes through. You know, as we talked about recently, we are seeing some pressure on there from a price standpoint, but the big piece in Q4 was around mix. Some of the higher contribution margin products were specifically impacted quite significantly by these LCDs. And, you know, we expect those to dig their way out as we go through. I mean, excuse me, the 2020.

Direct reps broadening channel access and with that agency reach and bringing some new products to market. So we feel quite good about the opportunity set that we've got in front of us and 24 I think it is going to be a good year and we see a lot of opportunity for us going forward as well.

Okay, Perfect and then last one for US would you just walk us through the rationale for the license and maintenance agreement with buybacks.

Yeah sure I mean, it's it's an opportunity for us to bring another product to market.

Dehydrated product that's a dual layer that were commercialized right now and so from our standpoint, I think Gerry mentioned it it's growth accretive it's GM accretive in and profit EBITDA accretive. So we think it's a real opportunity for us to continue to identify opportunities out there that really kind of add to our bag and then leveraged it.

Gary S. Gillheeney: Okay, well, if I could just sneak one more in, you know, kind of the ultimate question that investors have been asking is, is there a resumption, in your view or in your guidance, for the LCDs to return? And, you know, Gary would appreciate your view on the potential for that to occur and how you're factoring that into the estimates for 2024. So obviously, we don't know whether there'll be any changes or any new LCD policies coming out. I guess our thinking is, it probably won't be anything significant, certainly not in the beginning of the year. I think with the physician fee schedule coming out, there may be some some dovetailing around what that might say. So we think, you know, being an election year and with the physician fee schedule coming out and the amount of issues that were in the last LCDs, I think the process will be more robust and more transparent.

<unk> commercial infrastructure that we have and the leadership position that we have in advanced wound care. So.

It's a great partnership we're excited about it and look forward to continuing to report out on the progress that we make there.

Okay. Thanks for taking my questions.

Thanks, Ross Thanks Ross.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone one moment for the next question.

And our next question will be coming from drew <unk> of Morgan Stanley. Your line is open.

Hi, Gary and David Thanks for taking the questions just maybe to touch on something that Brian brought up with this first question but.

As you are thinking about recapturing some of these these past accounts can you just maybe walk us through like what you are actually seeing on the ground level do you do these clinicians.

Matt back all of their business and you can get back to the run rate immediately or is there still kind of looking ahead and holding process to get back to where they were before some of the competitive changes.

Gary S. Gillheeney: And I think the physician fee schedule may have an impact on how they're designed. So with all of that, I think we don't see anything happening in the first half of the year or second half of the year. I wouldn't expect anything significant, but we don't know the answer, and we have not considered any impact of an LCD change in our guidelines.

It's really different based on site of care. So when you have an H O PD more of a hospital setting it's more of a process.

Kind of like a vac process.

Where you've got to get back through the committees and get back on formulary. So that takes a little bit longer against just the process in the office.

Gary S. Gillheeney: Understood. Thank you for taking the question. Thanks, Ryan.

Operator: Thank you. One moment for the next question. Our next question will be coming from Ross Osborn of Cantor Fitzgerald. Your line is open. Guys, thanks for taking our questions. Maybe just a little bit more on the fourth quarter.

A little quicker once you can get the attention obviously of the clinician.

Get them through that process, it's usually a lot faster, but what they typically like to see us.

They'd like to see the product that they actually are reimbursed so they'll start slow in both sites of care with a small order and then wait to see how the reimbursement works that it's as they understood it and as we.

David C. Francisco: Would you discuss the rep turnover? It looks like you lost maybe about 45 reps. And then, as a follow-up, can you parse out rep productivity versus hiring new reps in 2024 and reaching your guided goal? Yeah, so I mean, obviously, the reported rep count is, frankly, a little bit misleading. We have two categories of reps, as many companies probably do. We have specialists and then associates. And as you kind of see throughout the year and the fourth quarter, there's a fairly significant drop off in the associates. And so, you know, what you're seeing there is the best of the associates get promoted into the specialist role, and the specialist role has, you know, kind of really maintained there.

Educate them on it and then they're buying patterns start to move back to what they historically was so you have a longer delay in <unk>, but you also have the general delay of people want to see exactly what the reimbursement is in that the change is in fact.

Back to reimbursement is there and it's real particularly in the office. They don't follow this as close as the hospitals. So they are very cautious and coming back and testing reimbursement.

Got it great and maybe just on the licensing agreement that you discussed I appreciate that.

Growth accretive margin accretive.

David C. Francisco: So when you take a look at the total number of associates and specialists, then it looks like the level of productivity has to increase quite significantly. But if you look at it just from the specialist standpoint, which are the ones that are generating the vast majority of the revenue, it's a minor uptick of 20%. Okay, perfect.

Can you help us frame how significant this could be for your.

For your advanced wound care business for 24, just to give us a sense of.

Whats kind of like a true inorganic number versus organic appreciate that it is a license and Gary you also talked a bit in your prepared remarks about new.

David C. Francisco: Thank you for clarifying that. And then maybe just one on surgical and sports, and realizing it's a much smaller piece of business, but the guidance range in terms of growth is quite large. Could you maybe just walk us through some of the drivers and hit the low and high ends of that?

New products. So maybe just help us with how thats been factored into your guidance and what we should be on the lookout for are these more incremental or or just.

A better mix for you thanks for taking the questions.

Yes, So drew it's it's incorporated into our guidance and as we've done over the last several quarters, we've been kind of moving away from product specific.

David C. Francisco: Yeah, sure. I mean, I think it's obviously a fairly wide range on a percentage basis, but it's a much smaller business that we continue to ramp up. You know, as you know, we've been in, you know, kind of repositioning mode for some time since the FDA upregulated both renew and new cell. But you know, we're really now in a position to drive growth, in our view, we have the right leadership, we're building out the direct reps, broadening channel access, and you know, with that agency reach, and bringing some new products to market. So we feel quite good about the opportunity set that we've got in front of us. And, you know, 24. I think it's going to be a good year.

<unk> and so it's incorporated into guidance and as I mentioned in the discussion with Ross.

We're looking forward to let you know how it progresses going forward.

But we haven't been disclosing that level of detail even at the pure play level. So.

We haven't broken that out.

But it does give us does give us some flexibility and optionality in our product mix. It gives us more flexibility on sites of care and we certainly expect it to contribute to our growth.

In 2024.

Okay.

Got it and then just any other new products that we should be on the lookout for.

Broadly in your portfolio for 2024, thank you.

Well, we did mention that we have two products that we'll be launching.

David C. Francisco: And we, you know, see a lot of opportunity for us going forward as well. Okay, perfect. And then last one for us, would you just walk us through your rationale for the license and manufacturing agreement by the. Yeah, sure. I mean, it's an opportunity for us to bring another product to market. It's a dehydrator product that's a dual layer that we're commercializing right now.

Both in surgery and.

We're expecting that those those products will contribute.

Both in wound care and surgery. They are primarily first in the surgical area larger pieces.

Of our pure play technology.

Thank you.

We are showing some warm question.

Hi.

David C. Francisco: And so, you know, from our standpoint, I think Gary mentioned it, it's growth accretive, it's GM accretive, and profit, you know, EBITDA accretive. So we think it's a real opportunity for us to continue to identify opportunities out there that really kind of add to our bag and then leverage the, you know, broad commercial infrastructure that we have and the leadership position that we have in advanced wound So it's a great partnership.

This does conclude our conference for today. Thank you for your participation.

Thank you.

Yes.

Okay.

David C. Francisco: We're excited about it and look forward to, you know, continuing to report out on the progress that we make there. Great, thanks for taking our questions. Thanks, Ross.

Okay.

Yes.

Okay.

Yes.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. One moment for the next question. And our next question will be from Drew Ranieri of Morgan Stanley. Your line is open. Hi, Gary and David.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

[music].

Gary S. Gillheeney: Thanks for taking the questions. Just maybe to touch on something that Ryan brought up with his first question, but as you are thinking about recapturing some of these past accounts, can you just maybe walk us through what you are actually seeing on the ground level with these clinicians? These clinicians. Gary Gillheeney, Ross Osborn, Organogenesis Ho, It's really different based on the site of care.

Yeah.

Yes.

Gary S. Gillheeney: So when you're in HOPD, you know, more of a hospital setting, it's more of a process, kind of like a VAC process where you've got to get back through the committees and get back on formulary. So that takes a little bit longer. Again, it's just the process. In the office, it's a little quicker. Once you can get the attention, obviously, of the clinician and get them through that process, it's usually a lot faster.

Uh huh.

Yes.

Thanks.

[music].

Okay.

Yes.

Okay.

Gary S. Gillheeney: But what they typically like to see is the product that they actually are reimbursed for. So they'll start slow at both sites of care with, you know, a small order and then wait to see how the reimbursement works, that is, as they understand it and as we educate them on it.

Okay.

Yeah.

[music].

Gary S. Gillheeney: And then their buying patterns start to move back to what they historically were. So you have a longer delay in HOPD, but you also have the general delay of people wanting to see exactly what the reimbursement is and that the change is, in fact, back to reimbursement is there and it's real. Particularly in the office, they don't follow this as closely as the hospitals.

Okay.

[music].

Okay.

[music].

Okay.

Gary S. Gillheeney: So they're very cautious, coming back and getting reimbursed. Got it. And maybe just on the licensing agreement that you discussed, I appreciate that it's growth accretive and margin accretive. Can you help us frame how significant this could be for your advanced wound care business for 24 hours, just to give us a sense of what's kind of like a true inorganic number versus organic, appreciating that it is a license. And Gary, you also talked a bit in your prepared remarks about new products. So maybe just help us with how that's been factored into your guidance and what we should be on the lookout for. Are these more incremental or just a better mix for you?

Okay.

[music].

Okay.

Yes.

Okay.

Thanks.

Yeah.

Okay.

Thank you.

Okay.

So.

Okay.

David C. Francisco: Thanks for taking the question. Yeah, so Drew, it's it's incorporated into our guidance. And, you know, as we've done over the last several quarters, we've been kind of moving away from product-specific disclosure. And so, you know, it's incorporated into the guidance. And as I mentioned in the discussion with Ross, you know, we're looking forward to letting you know how it progresses going forward. But we haven't been disclosing that level of detail, even at the purified level. So we haven't broken that down yet.

Okay.

Yes.

Okay.

[music].

Okay.

David C. Francisco: But it does give us, Drew, it does give us, you know, some flexibility and optionality in our product mix. It gives us some more flexibility on sites of care. And we certainly expect it to contribute to our growth, you know, in 2024.

[music].

Okay.

[music].

Gary S. Gillheeney: And are there any other new products that we should be on the lookout for broadly in your portfolio for 2024? Well, we did mention that we have two products that we'll be launching, both in surgery and wound care. We're expecting that those products will contribute, both in wound care and surgery. They're primarily for the surgical area, larger pieces of our PureApply technology.

Okay.

[music].

Okay.

Gary S. Gillheeney: Thank you. We are showing some more questions in the queue at this time. This does conclude our conference for today. Thank you for your participation. Thank you. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.

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Operator: OrganogenesisHospital.com Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risk and uncertainties that could cause actual results to differ materially from those indicated, including the risk and uncertainties described in the company's filing with the Securities and Exchange Commission, including item a, excuse me, including item 1a risk factors of the company's most recent annual report and its sequential filing with the quarterly report.

Thanks.

Yes.

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Right.

Yes.

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[music].

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Sure.

Operator: You are cautioned not to place undue reliance upon any forward-looking statement, which speaks only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by applicable security law. This call also includes references to certain financial measures that are not calculated in accordance with General Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures.

Okay.

Thanks.

Okay.

Yes.

Okay.

Gary S. Gillheeney: Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gohaney Sr., holding the position of president, chief executive officer, and Chair of the Board. Please go ahead.

Okay.

[music].

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Yes.

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[music].

Gary S. Gillheeney: Thank you, operator, and welcome everyone to Organogenesis Holdings' fourth quarter and fiscal year 2023 earnings conference call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks.

Thank you.

Okay.

Thanks.

Okay.

Gary S. Gillheeney: I will begin with an overview of the fourth-quarter revenue results and an update on our key operating and strategic developments in recent months. They will then provide you with an in-depth review of our fourth-quarter financial results, our balance sheet, and financial condition at year-end, as well as our financial guidance for 2024, which we introduced in our press release this afternoon. Then I will share some closing thoughts before we open the call to your questions.

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[music].

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Gary S. Gillheeney: Despite the challenging quarter, we're pleased to see the positive momentum in the business trends we experienced towards the end of December continue into early 2024, and our commercial team continues to see progress in their broad-based efforts to re-engage with our customers to bring our products back into the healing algorithms and formularies. We're encouraged by the evidence that the commercial support programs we implemented to enhance existing customer relationships and to regain lost accounts are proving effective, and importantly, we've dedicated a majority of our time and share of voice during the fourth quarter to clarifying the misinformation in the market. We have refocused our commercial resources to drive growth in our customer base by emphasizing our differentiated products and their clinical values. Now, we turn to an update on our operational progress in recent months. Our ongoing Phase III clinical trials evaluating the use of RENEW for the management of symptoms associated with knee osteoarthritis continue to progress as planned. As a reminder, RENEW is a unique cryopreserved amniotic suspension allograft, or ASA, containing viable cells, extracellular matrix, and importantly, is rich in anti-inflammatory and regenerative growth factors.

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Welcome, ladies and gentlemen to the fourth quarter and fiscal year 2023 earnings Conference call core organic Genesis Holdings, Inc.

At this time, all participants are being placed in a listen only mode.

Please note that this conference call is being recorded and the recording will be available on the company's website for replay shortly.

Gary S. Gillheeney: We achieved the last patient last visit milestone in January for the first phase three clinical trial to evaluate the efficacy of Renu for the treatment of symptomatic knee osteoarthritis, and preparations for the database lock and analysis are currently underway. We are currently targeting the completion of top line data analysis by the end of April, which we intend to share publicly via the press. In 2021, Renew received the FDA's Regenerative Medicine Advanced Therapy, or RMAD, designation for osteoarthritis of the knee, which underscores the strength of our existing clinical evidence and its potential to address a largely unmet medical need.

Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission.

Okay.

Including item eight.

Okay.

Clothing item one risk factor of the company's most recent annual report and a sequential filing.

The quarterly report.

You are cautioned not to place undue reliance.

Any forward looking statements.

Which speak only as of the date Luke.

Although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statement.

Whether a result of new information future events or otherwise, except as required by applicable security law.

This call.

Also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP.

We generally refer to these as non.

GAAP financial measures.

A reconciliation of those non-GAAP financial measures to comparable measures calculated and presented in accordance with GAAP are available in the earnings press release, and the Investor Relations portion of our website.

I would now like to turn the call over to Mr. Gary <unk> senior.

Okay and on Genesis Holdings President.

<unk> Executive officer.

And chair of the Board. Please go ahead Sir.

Thank you operator, and welcome everyone to Organogenesis Holdings' fourth quarter and fiscal year 2023 earnings conference call.

I am joined on the call today by Dave Francisco, Our Chief Financial Officer.

Let me start with a brief agenda of what we'll cover during our prepared remarks, I will begin with an overview of the fourth quarter revenue results and an update on our key operating and strategic developments in recent months. Dave will then provide you with an in depth review of our fourth quarter financial results, our balance sheet and financial condition at year end.

As well as our financial guidance for 2024, which we introduced in our press release this afternoon.

Then I will share some closing thoughts before we open the call for your questions.

More specifically, our fourth quarter guidance range assumed continued significant business disruption driven by customer confusion and uncertainty.

As outlined on our last quarter's earnings call, we expect that our sales reps to be spending more time servicing existing customers and regaining lost customers versus cultivating new customer adoption, thus impacting our year over year growth trends in the quarter.

Additionally, the higher end of our guidance range assumed improvement in the operating environment as we move through Q4, which ultimately did not materialize.

Despite the challenging quarter, we are pleased to see the positive momentum in the business trends, we experienced towards the end of December continue into early 2024, and our commercial team continues to see progress in their broad based efforts to reengage with our customers to bring our products back to the healing algorithms and formularies.

David C. Francisco: The decrease in operating expenses in the fourth quarter was driven by a $6.9 million, or 10%, decrease in selling, general, and administrative expenses, offset partially by a $0.4 million, or 3%, increase in research and development costs compared to the prior year period. Fourth quarter GAAP operating expenses included $1.9 million of restructuring-related charges compared to $0.8 million in the prior year, as well as $0.3 million of compensation expenses related to the retention of those sales employees impacted by the LCR, compared to no such costs in the fourth quarter of 2020. Excluding these items and non-cash intangible amortization of $1.2 million in both periods, non-GAAP operating expenses for the fourth quarter decreased $7.8 million, or 10% year-over-year. The material reduction in our non-gap operating expenses reflects our proactive strategy to manage costs in light of the challenging operating environment. We made these difficult strategic decisions to further mitigate the impact to profitability from the lower fourth quarter revenue results. Operating loss for the fourth quarter was $1.3 million, compared to operating income of $8.7 million last year, a decrease of $10 million.

We're encouraged by the evidence that the commercial support programs, we implemented to enhance existing customer relationships and to regain lost accounts are proving effective.

Importantly, we have dedicated a majority of our time and share of voice during the fourth quarter towards clarifying the misinformation in the market.

We have refocused our commercial resources to drive growth in our customer base by emphasizing our differentiated products and their clinical value.

Turning to an update on our operational progress in recent months.

Our ongoing phase III clinical trials evaluating the use of renewable for the management of symptoms associated with knee osteoarthritis continue to progress as planned.

We are currently targeting the completion of topline data analysis by the end of April, which we intend to share publicly via press release.

In 2021 renew received the Fda's regenerative medicine advanced therapy, or <unk> designation for osteoarthritis of the knee.

Which underscores the strength of our existing clinical evidence and its potential to address a largely unmet medical need.

And as previously discussed we expect to have a subsequent discussion with the FDA regarding the clinical data requirements for the BLA and we intend to propose the first phase III clinical trial combined with the published 200 patient RCT is valid scientific evidence and sufficient for our BLA approval.

We are also pleased with the progress we're seeing in our second phase III clinical trial for renewed we now have 40 clinical sites up and running and have enrolled more than 200 patients to date.

Additionally, consistent with our first phase III clinical trial, we are on track to enroll between 25% and 30% of the most severe knee OA patient population also known as scale for us.

While there is no known treatment that completely cure is knee OA. It is possible to treat the disease symptoms with the goal of avoiding or delaying costly invasive knee replacement surgery.

If successful renew would be the only FDA approved biologic intra articular injection to improve symptoms are the most severe cases of OA.

With that let me turn it over to Dave Davis.

Thanks, Gary I'll begin with a review of our fourth quarter financial results.

Unless otherwise specified all growth rates referenced during my prepared remarks are on a year over year basis.

Net revenue for the fourth quarter was $99 $7 million down 14%, our advanced wound care net revenue for the fourth quarter was $93 2 million also down 14% net revenue from surgical and sports medicine products for the fourth quarter was $6 5 million down 3%.

Gross profit for the fourth quarter was $71 9 million or <unk> 72, 1% of net revenue compared to 76, 5% last year.

David C. Francisco: Adjusted EBITDA was $42.6 million, or 9.8% of net revenue, compared to adjusted EBITDA of $49.3 million, or 10.9% of net revenue. But for the year ended December 31, 2020, a decrease of 6.7 million, or 14%, all of which occurred in the fourth. Turning to the balance sheet, as of December 31, 2023, the company had $104.3 million in cash, cash equivalents, and restricted cash and $66.2 million in debt obligations, compared to $103.3 million in cash, cash equivalents, and restricted cash and $70.8 million in debt obligations as of December 31, 2022.

The decrease in gross profit and margin resulted primarily from shifts in product mix compared to the prior year period, and a decrease in the pricing for certain of our products.

Operating expenses for the fourth quarter was $73 2 million compared to $79 7 million last year, a decrease of $6 5 million or 8%.

David C. Francisco: We also have up to $125 million of available borrowings on our revolving credit facility as of December 31, 2021. Turning to a review of our 2024 financial guidance, which we introduced in our press release this afternoon, for the 12 months ending December 31st, 2024, the company expects net revenue of between $445 million and $470 million, representing a year-over-year increase in the range of 3% to 9% as compared to net revenue of $433.1 million for the year ended December 31st, 2024. The 2024 Net Revenue Guidance Range assumes net revenue from advanced wound care products between $415 million and $435 million, representing a year-over-year increase in the range of 2% to 7%, and net revenue from surgical and sports medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 9% to 27%. In terms of our profitability guidance for 2024, the company expects to generate a gap net income loss in a range of $10.6 million of net loss to net income of $4.6 million, and adjusted net income loss in a range of $8.1 million adjusted net loss to adjusted net income of $7.1 million.

Excluding these items and noncash intangible amortization of $1 2 million in both periods non-GAAP operating expenses for the fourth quarter decreased $7 8 million or 10% year over year.

The material reduction in our non-GAAP GAAP operating expenses reflects our proactive strategy to manage costs in light of the challenging operating environment.

We made these difficult strategic decisions to further mitigate the impact to profitability from the lower fourth quarter revenue results.

Operating loss for the fourth quarter was $1 3 million compared to operating income of $8 7 million last year, a decrease of $10 million.

Net loss for the fourth quarter was <unk> 6 million compared to net income of $7 5 million last year, a decrease of $8 1 million.

Adjusted net income for the fourth quarter was $1 9 million compared to $8 9 million last year, a decrease of $7 million.

Our guidance ranges in Q4, we have provided a full reconciliation of our adjusted net income and adjusted EBITDA results in our earnings release.

Turning to a brief review of our financial results for the 12 months ended December 31 2023.

David C. Francisco: We also expect EBITDA in the range of $5.8 million to $25 million and adjusted EBITDA in the range of $15.8 million and $35 million. In addition to our formal financial guidance for 2024, we're providing some considerations for modeling. As a reminder, the first half of 2023 exceeded our expectations, and the strong business momentum continued into the early part of the third quarter ahead of the final LCD announcement in early August. As a result, our expectations for growth in 2024 are skewed towards the back half, given the comparable quarterly growth in 2023. For modeling purposes, we expect first quarter revenue in the range of approximately $98 million to $104 million. Our profitability guidance for 2024 assumes gross margins of approximately 76% to 77%. GAAP operating expenses will increase approximately 10% to 12% year-over-year, and total non-GAAP operating expenses will increase approximately 13% to 14% year-over-year.

The decrease in net revenue was driven by a decrease of $16 7 million or 4% of net revenue of advanced wound care products and a decrease of $1 million of 4% and net revenue of surgical and sports medicine products.

Adjusted EBITDA was $42 6 million or nine 8% of net revenue compared to adjusted EBITDA of $49 3 million or 10, 9% of net revenue for the year ended December 31 2020 to.

A decrease of $6 7 million or 14% all of which occurred in the fourth quarter.

Turning to the balance sheet as of December 31, 2023, the company had $104 3 million in cash cash equivalents and restricted cash and 66, 6% to $66 2 million and debt obligations compared to $103 3 million in cash cash equivalents and restricted cash and $70 8 million in debt obligations as of December 31, two.

22.

We also have up to a $125 million of available borrowings on our revolving credit facility as of December 31, 2023.

David C. Francisco: Our non-GAAP 2024 operating expenses exclude non-cash intangible amortization of approximately $3.4 million. Note that the expected increase in operating expenses this year is primarily related to incremental investments in clinical studies and regulatory-related spending in preparation for a renewed BLAF. Our full-year 2024 operating expenses also reflect strategic investments to support key commercial initiatives. Finally, our full-year profitability guidance ranges also assume total interest and other expenses of approximately $2-3 million, a gap tax rate range of negative 3% at the low end of the range to positive 52% at the high end of the range, and we continue to assume a non-gap tax rate on adjustments of 27%, non-cash depreciation of approximately With that, I'll turn the call back over to Gary for some closing remarks. Thank you, dude.

<unk> hundred $33 1 million for the year ended December 31 2023.

The 2024 net revenue guidance range assumes net revenue from advanced wound care products between $415 million and $435 million, representing a year over year increase in the range of 2% to 7%.

Our net revenue from surgical and sports medicine products between 30 million and.

$35 million, representing a year over year increase in the range of 9% to 27%.

In terms of our profitability guidance for 2024, the company expects to generate GAAP net income loss in a range of $10 6 million of net loss to net income of $4 6 million.

Adjusted net income loss in a range of $8 1 million adjusted net loss to adjusted net income of $7 one.

We also expect EBITDA in the range of $5 8 million to $25 million and adjusted EBITDA in the range of $15 8 million and $35 million.

In addition to our formal financial guidance for 2024, we're providing some considerations for modeling purposes.

Gary S. Gillheeney: Before we open up the call to your questions, I wanted to share some additional thoughts on our outlook and the underlying assumptions supporting our guidance for 2024. While the environment remains challenging, we're pleased to see the business trend show improvement in early 2024, and our commercial team continues to see progress in their efforts to re-engage with our customers. We're encouraged by the evidence that our commercial support programs we implemented to enhance existing customer relationships and to regain lost accounts are proving effective. We are proud of the team's continued commitment to our mission.

As a result, our expectations for growth in 2024 are skewed towards the back half given the 2023 comparable quarterly growth rates.

For modeling purposes, we expect first quarter revenue in the range of approximately 98 million to $104 million.

Our profitability guidance in 2024 assumes gross margins of approximately 76% to 77% GAAP.

GAAP operating expenses will increase approximately 10% to 12% year over year and total non-GAAP operating expenses will increase approximately 13% to 14% year over year our.

Our non-GAAP 2024.

Operating expenses exclude noncash intangible amortization of approximately $3 4 million.

Gary S. Gillheeney: Our guidance reflects a return to revenue growth for 2024 fueled by new product launches across both the advanced wound care and surgical sports medicine markets, including contributions from a new license agreement with Vivex Biological. We view this license agreement as a great example of our effort to identify growth and margin-accretive, high-return opportunities to leverage our valuable commercial infrastructure and leading market position in advance. We are adding new products to our commercial team's solution offerings, which we expect will enhance our share of voice while providing value to customers by broadening our portfolio of differentiated treatment solutions. Our financial guidance also reflects our intention to continue to invest strategically in our business to support key long-term growth initiatives, including our renewed clinical and regulatory strategy, which we believe represents a significant value driver in the. Importantly, despite our increased investments, we expect to deliver solid adjusted EBITDA and operating cash flow in 2024, which will help us continue to enhance our balance sheet and financial condition.

Our full year 2020 for operating expenses also reflect strategic investments to support key commercial initiatives.

Finally, our full year profitability guidance ranges also assumed total interest and other expenses of approximately $2 million to $3 million.

GAAP tax rate range of negative 3% at the low end of the range to positive 52% at the high end of the range and we continue to assume a non-GAAP tax rate on adjustments of 27%.

Noncash depreciation of approximately $9 7 million noncash cash stock comp expense of approximately $10 million capex of $23 million and a weighted average diluted share count of approximately $133 million.

With that I'll turn the call back over to Gary for some closing remarks.

Thank you Dave.

Before we open up the call to your questions I wanted to share some additional thoughts on our outlook and underlying assumptions supporting our guidance for 2024.

While the environment remains challenging we're pleased to see the business trend show improvement early 2024, and our commercial team continues to see progress in their efforts to reengage with our customers.

Gary S. Gillheeney: We remain confident in the long-term opportunity for organogenesis, and we expect to remain a leader in the space with highly innovative, efficacious products that deliver on our mission to provide integrative healing solutions that substantially improve outcomes while lowering the overall cost of care. And with that, I'll turn the call over to the operator to open the call to your questions. Thank you, sir. If you would like to ask a question, please signal by pressing star 11 on your telephone. You will then hear an automated message advising you of your hand as, If you would like to remove yourself from the queue, please press star 1 again. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to recharge quickly.

Turn opportunities to leverage our valuable commercial infrastructure and leading market position in advanced wound care.

Gary S. Gillheeney: We can, Ryan. Good afternoon. All right. Great. Thank you, guys, for all the color.

And we remain confident in the long term opportunity for we're going to Genesis and we expect to remain a leader in the space with highly innovative efficacious products that deliver on our mission to provide integrated healing solutions that substantially improve outcomes, while lowering the overall cost of care.

And with that I'll turn the call over to the operator to open the call up to your questions. Thank you.

Thank you Sir.

Would you like to ask a question. Please signal by pressing star one on your telephone you will then hear an automotive market advising your hand is right.

Gary S. Gillheeney: So we did see an improvement at the end of December. We actually saw some improvement in October, and then it kind of flattened out, and we experienced some turnover in the fourth quarter, which affected November and December. The last two weeks, we really started to see improvement. January, which is typically, you know, a seasonally down period, was flat.

I would like to remove yourself from the queue. Please press star one line alone.

If you're using a speaker phone. Please make sure your mute function is turned off to allow a signal to reach our equipment.

Moment, while we compile the Q&A roster.

Our first question today will be coming from Ryan Zimmerman of <unk>. Your line is open.

Good afternoon. Thanks for taking the questions can you guys hear me okay.

We can Ryan good afternoon.

Great.

Thank you guys for all the color I appreciate certainly the early commentary on first quarter I guess Gary.

It'd be helpful to get your thoughts on just the recovery in the market kind of what Youre doing here I mean in the context of it sounds like business trends have improved in December but.

Reconciling that with your first quarter guidance, which is still down.

Gary S. Gillheeney: We're encouraged by the accounts that we're bringing back, and by the productivity of the reps. Some of the actions that we took in the fourth quarter to streamline and improve productivity in the commercial operations are starting to take effect and producing results. We think things will continue to get better in the second half of the quarter. Ryan, the only thing I'd add is to recognize too that the first quarter of 2023 was quite strong at 11% growth, so it's a comp issue as well. Yeah, thank you for pointing that out, Dave.

Just kind of how are you contemplating the recovery in the business given the guidance that you are sharing with the street for the first quarter.

Sure. So we did see an improvement at the end of December we actually seen some improvement in October and then it kind of flattened out and we experienced some turnover in.

In the fourth quarter.

Effective November and December the last two weeks, we really started to see improvement January which is typically a seasonally down period was flat.

But the trend really started to move positively in February and that's a result of all of the retention efforts not only with our accounts with our with our people as well.

David C. Francisco: That's helpful. Sure. And then just to kind of dovetail off that question, I mean, when I look at the adjusted EBITDA guidance, you know, it is stepping back a little bit this year, but that's also reflective of maybe some of those programs that you've been putting in place over the past quarter. And so, you know, I'd love to get your philosophy kind of on how you're thinking about managing to profitability this year. If maybe, you know, we should think that you're taking your foot off the gas a little bit there to, you know, bolster spend, drive growth, drive new products, you know, would like to understand some of the thoughts there. And also how to think about the margin cadence here, Dave, because, you know, when you look at the gross margin in the fourth quarter, which was down materially from the third quarter, you know, how quickly does that bounce back in your view in the context of the 76% guide, 76.77, I think it was, that you gave today. Thanks for taking the question. Yeah, sure.

And.

We.

We had our national sales meeting at the end of January and.

Relaunched our strategy and Thats been very effective sales since our national sales meeting.

Has been really strong so we're encouraged.

We are encouraged with the accounts that we're bringing back with the productivity of the reps. Some of the actions that we took in the fourth quarter, the streamline improved productivity and the commercial operations starting to.

Take effect and and.

And producing results so.

We think.

Things will continue to get better in the in the second half of the quarter.

Okay, Brian Brian the only thing I would add too is recognize too that the first quarter of 2023 was quite strong at 11% growth. So it's a comp issue as well.

Thank you for pointing that out Dave that's helpful. Sure and then just to kind of dovetail off of that question I mean, when I look at the adjusted EBITDA guidance.

Just stepping back a little bit this year.

But that's also reflective of maybe some of those programs that you've been putting in place over the past quarter and so love to get your philosophy kind of on.

How youre thinking about managing to profitability. This year. If maybe we should think that you are taking your foot off the gas a little bit there to bolster spend to drive growth to drive new products.

To understand some of the thoughts there and also how to think about the margin cadence here, Dave because when you look at the gross margin in the fourth quarter. It was down materially from from third quarter. How quickly does that bounce back in your view in the context of.

David C. Francisco: And, you know, there's several things that are happening from that perspective. The second trial is moving in, it's enrolling quite well, as Gary mentioned, and so we've got some expenses associated with that. And then obviously, all the preparations go into, you know, making sure that we're ready to submit the BLA. So there's quite a bit of work going on there. And then I think when you think back to where we were in 23, the last time we guided before we reissued the guidance in the fourth quarter was back in Q1. And at that time, we'd anticipated the operating expenses to non-GAAP operating expenses to be up four to 5%. When we re-guided in Q4, we expected them to be flat because we took several cost actions, and then we came in at minus two.

76% Guide 70, 677, I think it was.

You gave today, thanks for taking the questions.

Yes, sure. So on the overall spend I would say in 'twenty. Four one piece is there is a fairly material step up in R&D and it's pretty exciting time that sort of inflection point within the renewable program and obviously it was inevitable that that would start to kick up over time and there's several things that are happening from that perspective the <unk>.

Trial, moving and it's enrolling quite well as Gerry mentioned and so we've got some expenses associated with that and then obviously all the preparations go into making sure that we're ready to <unk>.

Submit the BLA. So there is quite a bit of work going on there and then I think when you think back to where we were in 2003.

Last time, we guided before we issued the guidance in the fourth quarter was back in Q1 and at that time, we'd anticipated the operating expenses, our non-GAAP operating expenses to be up 4% to 5% when.

When we re guided in Q4, we expected those to be flat because we took several cost actions and then we came in at minus two so some of that is building that back up that infrastructure as we returned to growth in 'twenty four and so yes. We are very conscious of the profitability I think given the declines that we saw in <unk> and 'twenty three we tried our best to manage the bot.

David C. Francisco: So some of that is building that back up, that infrastructure as we return to growth in 24. And so, yeah, we are very conscious of profitability, I think, given the declines that we saw in 23. We tried our best to manage the bottom line as well, and I think we'll continue to do that. But there are some key strategic investments that we have to keep making in 24, and we'll keep moving forward on that. You asked specifically about gross margin, and so I do think we'll start to return to a more normal cadence, but it will fluctuate throughout the year as volume comes through. As we talked about recently, we are seeing some pressure on it from a price standpoint, but the big piece in Q4 was around mix. Some of the higher contribution margin products were specifically impacted quite significantly by these LCDs, and we expect those to dig their way out as we go through them. I mean, excuse me, the 2020.

Line as well and I think we'll continue to do that but there are some key strategic investments that we have to keep making in 'twenty four and we'll keep moving forward on that.

You asked specifically about the gross margin and so yes, I think we will start to return to a more normal cadence, but it will migrate throughout the year as volume comes through.

Impacted quite significantly from these LCD <unk> and we expect those to dig their way out as we go through Q4, I mean excuse me the 2020.

Okay, if I could just sneak one more in.

Kind of the ultimate question that investors have been asking is is there a resumption in your view.

Or in your guidance for the LCD is to return.

Gary just would appreciate your view on on the potential for that to occur and how you're factoring that into estimates for 2024.

Sure.

So we obviously, we don't know whether there'll be any changes or any new LCD policies coming out against our thinking is.

Gary S. Gillheeney: I guess our thinking is It probably won't be anything significant, certainly not in the beginning of the year, I think, with the physician fee schedule coming out, there may be some dovetailing around what that might say. So we think, you know, being an election year and with the physician fee schedule coming out and the amount of issues that were in the last LCDs, I think the process will be more robust and more transparent. And I think the physician fee schedule may have an impact on how they're designed. So with all of that, I think we don't see anything happening in the first half of the year or second half of the year. I wouldn't expect anything significant, but we don't know the answer, and we have not considered any impact of an LCD change in our guide.

They probably won't be anything significant.

Certainly not in the beginning of the year I think with the physician fee schedule coming out there may be some.

Some dovetailing around what that might say so.

Being an election year being the physician fee schedule coming out and.

The amount of issues that were in the last LCD is I think the process will be more robust more turns transparent and I think the physician fee schedule may have an impact on how they are designed.

With all of that I think.

We don't see anything happening in the first half of the year.

The second half of the year.

I wouldn't expect anything significant but we don't know the answer obviously.

And we have not considered we have not considered any impact of an LCD change in our guidance.

Gary S. Gillheeney: Understood. Thank you for taking the question. Of course. Thanks, Ryan. Thanks, Ryan.

Understood. Thank you for taking the questions.

Thanks, Ryan Thanks, Brian.

Operator: Thank you. One moment for the next question. Our next question will be coming from Ross Osborn of Cantor Fitzgerald. Your line is open. Hey guys, thanks for taking our questions. Maybe just a little bit more on the fourth quarter.

Thank you Michael next question.

Our next question will be coming from Roth Osborne of Cantor Fitzgerald. Your line is open.

Hey, guys. Thanks for taking our question.

Maybe just a little bit more on the fourth quarter would you discuss our rep turnover.

Thank you, Bob maybe about 45 reps.

And then as a follow up can you parse out rep productivity versus hiring new reps in 2024, and reaching your guidance range.

Yes, so I mean, obviously the reported rep count is frankly, it's a little bit misleading, we have two categories of reps as many companies probably do we have.

Specialist and then associates and as you kind of see those throughout the year and the fourth quarter, there's a fairly significant drop off in the associates and so.

David C. Francisco: And so, you know, what you're seeing there is the best of the associates get promoted into the specialist role, and the specialist role has, you know, kind of really maintained there. So when you take a look at the total number of associates and specialists, then it looks like the level of productivity has to increase quite significantly. But if you look at it just from the specialist standpoint, which are the ones that are generating the vast majority of the revenue, it's a minor uptick in 20. Okay, perfect. Thank you for clarifying that. And then maybe just one on surgical and sports, and realize it's a much smaller piece of business. But the guidance range in terms of growth is quite large. Could you maybe just walk us through some of the drivers and hit the low and high ends of that?

What youre seeing there is the best of the associates get promoted into the specialist role and especially his role is kind of really maintained there. So when you take a look at the total amount of.

Associates and specialist then it looks like the level of productivity has increased quite significantly, but if you look at it just from the specialist standpoint, which are the ones that are generating the vast majority of the revenue it's a minor uptick in 'twenty four.

Okay perfect. Thank you for clarifying that and then maybe just one on search on sports and horizon is much smaller piece of business.

The guidance range in terms of growth that's quite large could you maybe just walk us through some of the drivers and hitting a low and high end of that.

David C. Francisco: Yeah, sure. I mean, I think it's obviously a fairly wide range on a percentage basis, but it's a much smaller business that we continue to ramp up. You know, as you know, we've been in, you know, kind of repositioning mode for some time since the FDA upregulated both renew and new cell. But you know, we're really now in a position to drive growth, in our view, we have the right leadership, we're building out the direct reps, broadening channel access, and you know, with that agency reach, and bringing some new products to market. So we feel quite good about the opportunities that we've got in front of us. And, you know, 24. I think it's going to be a good year.

Yes, sure I mean, I think it's obviously a fairly wide range from a percentage basis, but it's a much smaller business that we continue to ramp up.

We've been in kind of repositioning mode for some time since the FDA upregulation of both renew and new cell, but we're really now in a position to drive growth in our view, we have the right leadership, we're building out the direct reps broadening channel access and with that agency reach and bringing some new products to market. So we feel quite good about the opportunity set there.

We've got in front of US and 24, I think is going to be a good year and we see a lot of opportunity for us going forward as well.

David C. Francisco: And we, you know, see a lot of opportunity for us going forward as well. Okay, perfect. And then last one for us, would you just walk us through your rationale for the license and manufacturing agreement by the FDA? Yeah, sure. I mean, it's an opportunity for us to bring another product to market. It's a dehydrated product that's a dual layer that we're commercializing right now.

Okay, Perfect and then last one for US would you just walk us through the rationale for the license that may proxy agreement with buyback.

Yes, sure I mean, it's it's an opportunity for us to bring another product to market. It's a dehydrated product. That's a dual layer that were commercialized right now and so from our standpoint, I think Gerry mentioned it it's growth accretive it's GM accretive in and profit EBITDA accretive. So we think it's a real opportunity for us to continue to identify.

Hi opportunities out there that really kind of add to our bag and then leverage the broad commercial infrastructure that we have and the leadership position that we have in advanced wound care. So.

It's a great partnership we're excited about it and look forward to continuing to report out on the progress that we make there.

Yes.

Great. Thanks for taking my questions.

Thanks, Ross Thanks Ross.

Ross Everett Osborn: Thanks for taking our questions. Thanks, Ross. Thanks, Ross.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. One moment for the next question. And our next question will be coming from Drew Ranieri of Morgan Stanley. Your line is open.

One moment for the next question.

And our next question will be coming from drew <unk> of Morgan Stanley. Your line is open.

Hi, Gary and David Thanks for taking the questions just maybe to touch on something that Brian brought up with his first question, but.

Gary S. Gillheeney: Hi Gary and David, thanks for taking the questions. Just maybe to touch on something that Ryan brought up with his first question, but as you are thinking about recapturing some of these past accounts, just maybe walk us through what you are actually seeing on the ground level with these clinicians. , Gary Gillheeney, Ross Osborn, Organogenesis Ho: Yeah, it's really different based on the site of care. So when you're in HOPD, you know, more of a hospital setting, it's more of a process. It's kind of like a VAC process where you've got to get back through the committees and get back on formulary. So that takes a little bit longer; again, it's just the process. In the office, it's a little quicker. Once you can get the attention, obviously, of the clinician and get them through that process, it's usually a lot faster.

As you are thinking about recapturing some of these these past accounts can you just maybe walk us through like what you are actually seeing on the ground level do you do these clinicians just snapped back all of their business and you get back to the run rate immediately or is there still kind of look ahead holding process to get back to.

Where they were before some of the competitive changes.

Yes, it's really different based on site of care. So when you have an H O PD more of a hospital setting it's more of a process.

Kind of like a vac process.

Where you've got to get back through the <unk>.

The committees and get back on formulary, so that takes a little bit longer is.

Again, it's just the process in the office, it's a little quicker once you can get the attention obviously of the clinician.

And get them through that process, it's usually a lot faster, but what they typically like to see us.

Gary S. Gillheeney: But what they typically like to see is the product that they are reimbursed for, so they'll start slow at both sites of care with a small order and then wait to see how the reimbursement works, that is, as they understand it and as we educate them on it. And then their buying patterns start to move back to what they were historically.

They'd like to see the product that they actually are reimbursed. So they will start slow in both sites of care with a small order and then wait to see how the reimbursement works that is as they understood it and as we.

Gary S. Gillheeney: So you have a longer delay in HOPD, but you also have the general delay of people wanting to see exactly what the reimbursement is and that the change is, in fact, back to reimbursement is there and it's real, particularly in the office. They don't follow this as closely as the hospitals, so they're very cautious, coming back and being reimbursed. Got it. Great. And maybe just on the licensing agreement that you discussed, I appreciate that it's growth accretive and margin accretive. Can you help us frame how significant this could be for your advanced wound care business for 24, just to give us a sense of what's kind of like a true inorganic number versus organic, appreciating that it is a license.

Back to reimbursement is there and it's real it's particularly in the office. They don't follow this as close as the hospitals. So they are very cautious and coming back and testing reimbursement.

Got it great and maybe just on the licensing agreement that you discussed I appreciate that.

Growth accretive margin accretive.

Can you help us frame how significant this could be for your.

For your advanced wound care business for 2000 and for just to give us a sense of.

Whats kind of like a true inorganic number versus organic appreciate that it is a license and Gary you also talked a bit in your prepared remarks about new.

David C. Francisco: And Gary, you also talked a bit in your prepared remarks about new products. So maybe just help us with how that's been factored into your guidance and what we should be on the lookout for. Are these more incremental or just a better mix for you?

New products. So maybe just help us with how thats been factored into your guidance and what we should be on the lookout for are these more incremental or or just.

Better mix for you thanks for taking the questions.

Yes, So drew it's it's incorporated into our guidance as we've done over the last several quarters have been kind of moving away from product specific.

Closure and so it's incorporated into guidance and as I mentioned in the discussion with Ross.

We're looking forward to let you know how it progresses going forward.

But we haven't been disclosing that level of detail even at the pure play level. So.

We haven't broken that out.

But it does give us does give us some flexibility and optionality in our product mix. It gives us more flexibility on sites of care and we certainly expect it to contribute to our growth.

In 2024.

Okay.

Gary S. Gillheeney: And are there any other new products that we should be on the lookout for broadly in your portfolio for 2024? Well, we did mention that we have two products that we'll be launching, both in surgery. And, you know, we're expecting that those products will contribute both in wound care and surgery. They're primarily for the surgical area, larger pieces of our PureApply technology.

Got it and then just any other new products that we should be on the lookout for.

Broadly in your portfolio for 2024, thank you.

Well, we did mention that we have two products that we'll be launching.

Both in surgery and.

We're expecting that those those products will contribute.

Both in wound care and surgery, they're primarily first in the surgical area larger pieces.

Of our pure play technology.

Yeah.

Operator: Thank you. We are showing some more questions in the queue at this time. This does conclude our conference for today. Thank you for your participation.

Thank you.

We are showing some warm question.

Hi.

This does conclude our conference for today. Thank you for your participation.

Thank you.

Q4 2023 Organogenesis Holdings Inc Earnings Call

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