Q1 2024 Anika Therapeutics Inc Earnings Call
Good evening, ladies and gentlemen, and welcome to <unk> first quarter 2024 earnings conference call. At this time all lines are in a listen only mode.
Operator: Good evening, ladies and gentlemen, and welcome to Anika's first quarter 2024 earnings conference call. At this time, all lines are in a listen-only mode.
Operator: Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this call is being recorded. I will now turn the call over to Mark Namaroff, Vice President, Investor Relations, ESG, and Corporate Communications.
Operator: Following the presentation, we will conduct a question and answer session.
Mark Namaroff: Instructions will be provided at that time for you to queue up for a question.
Speaker Change: Anyone has any difficulties getting the conference. Please press star zero for operator assistance at any time.
Mark Namaroff: I would like to remind everyone that this call is being recorded.
Mark Namaroff: I will now turn the call over to Mark <unk>, Vice President Investor Relations ESG and corporate Communications. Please proceed.
Mark Namaroff: Thank you good afternoon, everyone. Thank you for joining us for <unk> first quarter 2024 conference call webcast. Our Q1 earnings press release was issued after the close of the market today and is available on our Investor Relations website, located anika dot com as are the supplementary Powerpoint slides that will be used for that discussion.
Mark Namaroff: Thank you. Good afternoon, everyone.
Mark Namaroff: Thank you for joining us for Anika's first quarter 2024 conference call and webcast. Our Q1 earnings press release was issued after the close of the market today and is available on our investor relations website, located at anika.com, as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Mike Levitz, Executive Vice President, Chief Financial Officer, and Treasurer.
Mark Namaroff: Today.
Mark Namaroff: With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Mike <unk>, Executive Vice President and Chief Financial Officer and Treasurer.
Mark Namaroff: Please take a moment and open the slide presentation and refer to slide number two. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance, or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today.
Speaker Change: Please take a moment and open the slide presentation and refer to slide number two.
Mark Namaroff: Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, including adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are used in addition to the results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operation and performance. Together with GAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business.
Mark Namaroff: Before we begin please understand that certain statements made during the call today constitute forward looking statements as defined in the Securities Exchange Act of 1034.
Mark Namaroff: These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ material materially from any anticipated future results performance or achievements.
Mark Namaroff: We make no obligation to update these statements should future financial data or events occur that differ from the forward looking statements presented today.
Mark Namaroff: Please also see our most recent SEC filings for more information about risk factors that could affect our performance.
Mark Namaroff: In addition, during the call we may refer to several adjusted or non-GAAP financial measures.
Mark Namaroff: Which includes adjusted gross margin adjusted EBITDA adjusted net income and adjusted earnings per share, which are used in addition to the results presented in accordance with GAAP financial measures.
Mark Namaroff: We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance.
Mark Namaroff: But when considered with GAAP financial measures and the reconciliation of GAAP measures.
Mark Namaroff: To provide an even more complete understanding of our business are.
Speaker Change: A reconciliation of adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our first quarter 2024 press release, and now I would like to turn the call over to our President and CEO, Dr. Cheryl Blanchard Cheryl thanks.
Mark Namaroff: A reconciliation of adjusted non-GAAP financial results to the most comparable GAAP measurements is available at the end of the presentation slide deck and our first quarter 2024 press release. Now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard.
Cheryl Renee Blanchard: Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please turn to slide three.
Cheryl Renee Blanchard: Thanks, Marc good afternoon, everyone and thanks for joining US please turn to slide three.
Cheryl Renee Blanchard: Last quarter, we outlined the actions we're taking to focus our business, optimize performance, and drive even stronger results as we accelerate our path to profitability. With continued strength in our market-leading OAP management platform and expanding and highly differentiated HA-based regenerative solutions pipeline, and continued cost discipline, we delivered a good start to the year and are on track to achieve our 2024 guidance. And we are confident that the core elements of our strategy position us well to maximize value creation in an orderly fashion in 2024 and beyond.
Speaker Change: Last quarter, we outlined the actions, we're taking to focus our business optimize performance and drive even stronger results as we accelerate our path to profitability.
Cheryl Renee Blanchard: With continued strength in our market, leading OA pain management platform and expanding and highly differentiated based regenerative solutions pipeline and continued cost discipline. We delivered a good start to the year and are on track to achieve our 2020 for guidance.
Cheryl Renee Blanchard: And we are confident that the core elements of our strategy position us well to maximize value creation in an orderly fashion in 2024 and beyond.
Cheryl Renee Blanchard: In the first quarter, our overall revenue was up 7% compared to Q1 last year, driven by another strong quarter in OA pain management. We also completed the cost reduction initiatives that we spoke about last quarter, including significant headcount reductions, putting Anika on the path to realize $10 million in annualized cost savings.
Cheryl Renee Blanchard: In the first quarter, our overall revenue was up 7% compared to Q1 last year driven by another strong quarter in OA pain management.
Cheryl Renee Blanchard: We also completed the cost reduction initiatives that we spoke about last quarter, including significant head count reductions, putting anika on the path to realize $10 million in annualized cost savings.
Cheryl Renee Blanchard: These cost savings will enable Anika to deliver 75% growth in adjusted EBITDA in 2024, accelerating our profitability for the year. Let me now review our key achievements from the quarter. First, OAP Management had another great quarter with revenue of $24.3 million, representing a 7% increase year-over-year on growing market demand and some favorable order timing.
Cheryl Renee Blanchard: These cost savings will enable anika to deliver 75% growth in adjusted EBITDA in 2020 for accelerating our profitability for the year.
Cheryl Renee Blanchard: Let me now review our key achievements from the quarter.
Cheryl Renee Blanchard: OA pain management had another great quarter with revenue of $24 3 million, representing a 7% increase year over year on growing market demand and some favorable order timing.
Cheryl Renee Blanchard: And, we're pleased to announce that we have extended the exclusive distribution agreement with our established Canadian commercial partner, PendaFarm, to sell Syngal, MonoVisk, and OrthoVisk through 2030, building on the existing market leadership position in Canada. Sengal remains a key driver as the next generation non-opioid OA pain product of choice in now over 40 countries outside the United States. We continue to see strong growth and are exploring partnership opportunities in select Asian markets, and we remain confident that Singel will truly be a game-changer when it is approved in the U.S. To that end, as we continue to interact with the FDA on a regular basis, we recently received feedback from the agency in response to our proposals that were requested by FDA during the Type C meeting in April of last year. While the FDA feedback provided some clarity, there's additional We have reverted back to the FDA with questions.
Cheryl Renee Blanchard: And we're pleased to announce that we've extended the exclusive distribution agreement with our established Canadian commercial partner tend to farm to sell Cingal and Monovisc Ortho. This through 2030 is building on the existing market leadership position in Canada.
Cheryl Renee Blanchard: Cingal remains a key driver as the next generation non opioid pain product of choice and now over 40 countries outside the United States. We continue to see strong growth and are exploring partnership opportunities in select Asian markets and we remain confident that cingal will truly be a game changer when.
Cheryl Renee Blanchard: It is approved in the U S.
Cheryl Renee Blanchard: To that end as we continue to interact with the FDA on a regular basis. We recently received feedback from the agency in response to our proposals that were requested by FDA. During the type C meeting in April of last year.
Cheryl Renee Blanchard: While the FDA feedback provided some clarity there is additional information <unk> regarding what FDA will require for non clinical data.
Cheryl Renee Blanchard: We have reverted back to the FDA with questions.
Cheryl Renee Blanchard: As we've said previously, we will begin the remaining non-clinical testing once we have received additional clarity from the FDA. Moving to joint preservation and restoration, we had revenues of $13.8 million, up 3%. We are seeing good progress following the recent launches of several new innovative solutions. These early results have energized our teams as we work diligently to increase the adoption of our new products, which offset headwinds from some of our more mature products during the quarter.
Cheryl Renee Blanchard: As we've said previously we will begin the remaining non clinical testing once we have received additional clarity from the FDA.
Cheryl Renee Blanchard: Moving to joint preservation and restoration, we had revenues of $13 8 million up 3%. We are seeing good progress following the recent launches of several new innovative solutions.
Cheryl Renee Blanchard: Early results have energized our teams as we work diligently to increase the adoption of our new products, which offset headwinds from some of our more mature products during the quarter.
Cheryl Renee Blanchard: Let me first describe the progress we are making on the regenerative side. We have now completed more than 200 cases with over 40 surgeons using our <unk> based integrity implant system since its limited market release at the end of last November which is double the number since our last update we continue to receive incredibly positive.
Cheryl Renee Blanchard: Let me first describe the progress we are making on the regenerative side. We have now completed more than 200 cases with over 40 surgeons using our HA-based Integrity Implant System since its limited market release at the end of last November, which is double the number since our last update. We continue to receive incredibly positive clinical feedback as it becomes increasingly adopted by surgeons, not only for rotator cuff repair but also in other tendon repair applications, such as in the foot and ankle.
Cheryl Renee Blanchard: Clinical feedback as it becomes increasingly adapted by surgeons not only for rotator cuff repair, but also in other tendon repair applications such as in the foot and ankle.
Cheryl Renee Blanchard: The full market release remains on track for the middle of this year and is expected to increase growth in our regenerative business in the back half of 2024. Hyalafast continues to do very well outside the U.S., now selling in over 35 countries.
Cheryl Renee Blanchard: Full market release remains on track for the Middle of this year and is expected to increase growth in our regenerative business in the back half of 2024.
Cheryl Renee Blanchard: <unk> continues to do very well outside the U S now selling in over 35 countries.
Cheryl Renee Blanchard: As a reminder, HyloFast, our HA single-stage cartilage repair system, was granted breakthrough device designation by the FDA. We expect to begin filing the modular TMA this year with a target product launch by 2026, creating a highly differentiated entrant into the $1 billion plus U.S. cartilage repair market opportunity, with great clinical feedback on integrity and 15-year data, likely published this year on Tylefas Anika now has two highly differentiated regenerative platforms to leverage as the basis for additional near-term regenerative products.
Cheryl Renee Blanchard: As a reminder, <unk> fast are H, a single stage cartilage repair system was granted breakthrough device designation by the FDA, we expect to begin filing the modular PMA. This year with a target product launch by 2026, creating a highly differentiated entry into the $1 billion plus U S cartilage repair market.
Cheryl Renee Blanchard: Community.
Cheryl Renee Blanchard: With great clinical feedback on integrity, and 15 year data likely publishing this year on tile a fast anika now has two highly differentiated regenerative platforms to leverage as the basis for additional near term regenerative products, we continue to build out our exciting regenerative pipeline Andrew.
Cheryl Renee Blanchard: We continue to build out our exciting regenerative pipeline, and we look forward to providing additional details about it in the future. We also remain encouraged by the performance of our exquisite fixation system, which has been a standout product for us. More than 10,000 X-Twist anchors have now been implanted globally since the limited release of the PEAK version early last year, which is a real milestone for us.
Cheryl Renee Blanchard: Look forward to providing additional details about it in the future.
Cheryl Renee Blanchard: We also remain encouraged by the performance of our external fixation system, which has been a standout product for us.
Cheryl Renee Blanchard: 10000 extra acres have now been implanted globally since the limited release of the peak version early last year, which is a real milestone for us between the bio composite version now fully launched this month and next with Pete we are addressing the entire $600 million U S rotator cuff market.
Cheryl Renee Blanchard: Between the biocomposite version, now fully launched this month, and X-Twist PEAK, we are addressing the entire $600 million U.S. rotator cuff market. Lastly, regarding our RevoMotion reverse shoulder system, we regularly engage with our distributors to improve our channel and commercial execution, and we're actively training surgeons on the safe and effective use of the system. The pace of adoption remains slower than anticipated due to a more complex sales cycle, including obtaining facility approvals.
Cheryl Renee Blanchard: Lastly, regarding our Regal motion reverse shoulder system, we regularly engage with our distributors to improve our channel and commercial execution and we're actively training surgeons on the safe and effective use of the system. The pace of adoption remains slower than anticipated due to a more complex sales cycle, including obtaining facility approval.
Cheryl Renee Blanchard: <unk>.
Cheryl Renee Blanchard: That said, we are encouraged by the recent CMS decision to now reimburse shoulder arthroplasty procedures in the ASC and that surgeons are taking RevoMotion to their surgery centers due to our efficient two-instrument tray system design. I'm proud of the work we've done to build on our momentum and enhance execution across our business. We are laser focused on maximizing value for our shareholders. I remain open to paths that will help us achieve this objective while continuing to invest in our greatest opportunities.
Cheryl Renee Blanchard: That said we are encouraged by the recent CMS decision to now reimburse shoulder arthroplasty procedures in the ASC and the surgeons are taking leaver motion to their surgery centers due to our efficient to instrument tray system design.
Cheryl Renee Blanchard: I am proud of the work we've done to build on our momentum enhanced execution across our business. We are laser focused on maximizing value for our shareholders and.
Cheryl Renee Blanchard: We remain open to pads that will help us achieve this objective while continuing to invest in our greatest opportunities.
Cheryl Renee Blanchard: On a separate note, we announced earlier today that Mike made a personal decision to step down as CFO, effective June 3rd. On behalf of all of us at Anika, I'd like to thank Mike for his leadership over the past four years. Mike joined Anika in mid-2020 following our two acquisitions. His strategic and operational insights have helped Anika navigate this period of significant change while positioning the company for an exciting future. I appreciate everything Mike has done for Anika, and we all wish him the best.
Cheryl Renee Blanchard: On a separate note we announced earlier today that Mike made a personal decision to step down as CFO effective June <unk>.
Cheryl Renee Blanchard: On behalf of all of us at Anika I'd like to thank Mike for his leadership over the past four years.
Cheryl Renee Blanchard: Mike joined Anika in mid 2020, following our two acquisitions his strategic and operational insights have helped anika navigate this period of significant change while positioning the company for an exciting future.
Cheryl Renee Blanchard: I appreciate everything Mike has done for Anika and we all wish him the best.
Cheryl Renee Blanchard: We're excited to welcome Steve Griffin as our new CFO on June 3rd. Steve comes to Anika with more than 15 years of experience in public company CFO and other senior finance leadership roles and a proven track record of value creation at both large and small public companies. We are confident that Steve will help us build on our momentum to achieve meaningful growth and profitability potential across the business. Mike will remain with Anika through the end of the year and will work closely with Steve and me to ensure a smooth transition of responsibilities.
Cheryl Renee Blanchard: We're excited to welcome Steve Griffin as our new CFO on June 3rd.
Cheryl Renee Blanchard: Steve comes to Anika with more than 15 years of experience in public company CFO and other senior finance leadership roles and a proven track record of value creation at both large and small public companies.
Cheryl Renee Blanchard: We are confident that Steve will help us build on our momentum to achieve the meaningful growth and profitability potential across the business.
Cheryl Renee Blanchard: Mike will remain with Anika through the end of the year and will work closely with Steve and need to ensure a smooth transition of responsibilities.
Cheryl Renee Blanchard: We're glad to continue benefiting from his expertise during that time and, in the near term, look forward to introducing you all to Steve. Mike, I'll now turn it over to you for a few words on our financial results. Thank you very much.
Cheryl Renee Blanchard: We're glad to continue benefiting from his expertise during that time and in the near term looking forward to introducing you all to Steve.
Mike: I'll now turn it over to you for a few words on our financial results.
Michael L. Levitz: Thank you very much, Cheryl. While I have decided to leave Anika to spend more time with my family, I am very thankful for the opportunity to have been a part of the Anika team over the last four years. When I joined the company, it was just starting to absorb its acquisitions of Parkes Medical and Arthrosurface in the midst of the first few months of the COVID pandemic. However, COVID lasted much longer than expected, and its impacts were more widespread.
Mike: Thank you very much Cheryl.
Michael L. Levitz: Well I have decided to leave anika to spend more time with my family I am very thankful for the opportunity that had been a part of the Anika team over the last four years.
Michael L. Levitz: When I joined the company. It was just starting to absorb its acquisitions of <unk> medical and Arthur surface in the midst of the first few months of the Covid pandemic.
Michael L. Levitz: Covid lasted much longer than expected.
Michael L. Levitz: <unk> were more widespread.
Michael L. Levitz: The company has navigated this challenging period and made meaningful strides, including thoughtful investments in strengthening the core OA business and advancing a meaningful portfolio and pipeline of products that leverage Anika's HA expertise, while at the same time maintaining a healthy balance sheet and making targeted cost reductions to support sustainable and growing cash generation. Anika's foundation is strong, and the company has a tremendous opportunity with its established and differentiated products and pipeline to both fulfill its mission to customers and their patients and deliver value for its shareholders.
Michael L. Levitz: The company has navigated this challenging period and made meaningful strides, including thoughtful investments strengthening the core OE business and advancing a meaningful portfolio and pipeline of products that leverage <unk> expertise.
Michael L. Levitz: At the same time, maintaining a healthy balance sheet, and making targeted cost reductions to support sustainable and growing cash generation.
Michael L. Levitz: And at its foundation is strong and the company has tremendous opportunity with its established and differentiated products and pipeline to both fulfill its mission to customers and their patients and deliver value for our shareholders.
Michael L. Levitz: These last four years, I have so appreciated the opportunity to work closely with Cheryl, with my peers and team in finance and IT, with the many wonderful, dedicated people across Anika globally and with such a quality board of directors. Cheryl is a smart and resilient leader who exemplifies the Anika core values of doing the right things the right way, focused on driving high-quality products that truly improve lives.
Michael L. Levitz: These last four years I have so appreciated the opportunity to work closely with Cheryl.
Michael L. Levitz: With my peers in team in finance and it.
Michael L. Levitz: So many wonderful dedicated people across anika globally, and with such a quality board of directors.
Michael L. Levitz: Sheryl is a smart and resilient leader, who exemplifies the anika core values of doing the right things the right way.
Michael L. Levitz: Focused on driving high quality products.
Michael L. Levitz: Truly improve lives.
Michael L. Levitz: Steve is joining a talented team, and I look forward to supporting this transition as Anika's next CFO and to following Anika's success for years to come. Now, please refer to slide four in the online presentation, where I will walk through the results for the first quarter of 2024. Unless otherwise stated, all comparisons will be against the same period in the prior year. I'm pleased to report total revenue for the first quarter grew to $40.5 million, driven by growing demand as well as favorable order timing.
Michael L. Levitz: Steve is joining a talented team and I look forward to supporting this transition is Anika is next CFO and following amicus success for years to come.
Michael L. Levitz: Now please refer to slide four in the online presentation, where I will walk through the results for the first quarter of 2020 forward unless otherwise stated all comparisons will be against the same period in the prior year.
Michael L. Levitz: Revenue in our largest product family, OA Pain Management, increased 7% in the first quarter to $24.3 million due to growing demand as well as favorable ordering patterns from both J&J, MyTech, and the United States and from our international distributors. Our joint preservation and restoration revenue increased 3% in the first quarter to $13.8 million, driven by our recent product launches in the U.S. led by Exwis and Integrity. This growth was partially offset by lower sales of certain of our more mature products.
Michael L. Levitz: Yes.
Michael L. Levitz: I'm pleased to report total revenue for the first quarter grew to $40 $5 million driven by growing demand as well as favorable order timing.
Michael L. Levitz: Lastly, our non-orthopedic revenue increased 29% to $2.4 million on growing demand and year-over-year order timing in a high-risk veterinary sale. Moving to gross margin, our gross margin in the first quarter was 61%, up from 60% on lower intangible amortization, and adjusted gross margin with 62% in the quarter down from 64% due primarily to the timing of the impact of production inefficiencies and reserves in the quarter. Moving Our operating expenses in the first quarter totaled $29.7 million; that's down $5.7 million.
Michael L. Levitz: Revenue in our largest product family OA pain management increased 7% in the first quarter to $24 $3 million.
Michael L. Levitz: Due to growing demand as well as favorable ordering patterns from both J&J mitek in the United States and from our international distributors.
Michael L. Levitz: Our joint preservation and restoration revenue increased 3% in the first quarter to $13 8 million driven by our recent product launches in the U S led by <unk> and integrity.
Michael L. Levitz: This growth was partially offset by lower sales of certain of our more mature products.
Michael L. Levitz: Lastly, our non orthopedic revenue increased 29% to $2 $4 million on growing demand and year over year order timing and high disc veterinary sales.
Michael L. Levitz: Moving to gross margin our gross margin in the first quarter was 61% up from 60% on lower intangible amortization.
Michael L. Levitz: Our adjusted gross margin was 62% in the quarter down from 64% due primarily to the timing of it.
Michael L. Levitz: <unk> production inefficiencies and reserves in the quarter.
Michael L. Levitz: Moving to operating expenses.
Michael L. Levitz: These lower operating expenses reflect fewer non-recurring costs as well as effective cost control following the launches of key products and addressing the new regulatory requirements in the EU to continue to sell our legacy products. As a reminder, Anika incurred $5.8 million in non-recurring costs in the first quarter of last year for the Parkes Arbitration Settlement, shareholder activism, and other items. In comparison, operating expenses in the first quarter of this year reflected $1.4 million of nonrecurring items, including severance costs for the headcount actions we took in the first quarter and shareholder activism costs. Our net loss for the quarter was $4.5 million, or $0.31 per share, compared to a net loss of $10.4 million, or $0.71 per share.
Michael L. Levitz: Our operating expenses in the first quarter totaled $29 7 million Thats down $5 7 million. These.
Michael L. Levitz: These lower operating expenses reflect fewer nonrecurring costs as well as effective cost control following the launches of key products and addressing the new regulatory requirements in the EU to continue to sell our legacy products there.
Michael L. Levitz: As a reminder, anika incurred $508 million of nonrecurring costs in the first quarter of last year for the purchase of arbitration settlement.
Michael L. Levitz: Shareholder activism and other items.
Michael L. Levitz: In comparison operating expenses in the first quarter this year reflected $1 $4 million of nonrecurring items, including severance costs for the head count actions, we took in the first quarter and shareholder activism costs.
Michael L. Levitz: Our net loss for the quarter was $4 5 million or <unk> 31 per share compared to a net loss of $10 4 million or 71% 71 per share excuse me.
Michael L. Levitz: We generated adjusted net income of $1 2 million in the first quarter or <unk> <unk> per diluted share up from an adjusted net loss of $2 2 million or <unk> 14 per share.
Michael L. Levitz: We generated adjusted net income of $1.2 million in the first quarter, or $0.09 per diluted share, from an adjusted net loss of $2.2 million, or $0.14 per share. As we highlighted on our last earnings call, beginning this year, the calculations of adjusted net income and adjusted EPS have been revised to exclude stock-based compensation net of tax, and this revised calculation is reflected for all periods presented. Anika generated adjusted EBITDA in the quarter of $2.5 million, up from a negative $1.2 million, and our adjusted EBITDA margin in the quarter grew to 6%, up from a negative 3%.
Michael L. Levitz: Yes.
Michael L. Levitz: As we highlighted on our last earnings call beginning this year the calculations of adjusted net income and adjusted EPS had been revised to exclude stock based compensation net of tax and this revised calculations reflected for all periods presented.
Michael L. Levitz: Anika generated adjusted EBITDA in the quarter, a $2 5 million up from a negative $1 2 million.
Michael L. Levitz: And our adjusted EBIT margin in the quarter grew to 6% up from a negative 3%.
Michael L. Levitz: The nine-point improvement was primarily due to the combined benefit of both revenue growth and reduced spending. Lastly, with regard to our cash flow and capital structure. Operating cash flows were just below break-even in the first quarter, a $3.5 million improvement from cash outflows of $3.6 million, reflecting lower non-recurring costs and reduced spending. Our capital expenditures in the quarter totaled $1.8 million, up $0.4 million, reflecting continued investments in manufacturing capabilities, supporting growth in our OA pain management process. We ended the quarter with $68.6 million in cash and no debt. Please turn to slide five.
Michael L. Levitz: The nine point improvement was primarily due to the combined benefit of both revenue growth and reduced spending.
Michael L. Levitz: Lastly, with regards to our cash flow and capital structure.
Michael L. Levitz: Operating cash flows were just below breakeven in the first quarter of $3 $5 million improvement from cash outflows of $3 $6 million, reflecting lower nonrecurring costs and reduce spending.
Michael L. Levitz: Our capital expenditures in the quarter totaled $1 $8 million up zero point $4 million, reflecting continued investments in manufacturing capabilities supporting growth in our OA pain management product lines.
Michael L. Levitz: We ended the quarter was $68 $6 million in cash and no debt.
Michael L. Levitz: Please turn to slide five.
Speaker Change: Now I'd like to review, our full year financial outlook for 2024.
Michael L. Levitz: Now I'd like to review our full year financial outlook for 2024. Based on our progress to date, we are reiterating our guidance for 2024, with total company revenue of $168 to $173 million, representing growth of 1 to 4%. In OA pain management, we continue to expect revenue to grow to $102-$104 million, up 0-2%. This reflects continued above-market growth in end-user sales, led by growth of Monibus globally and Syngal outside the U.S.
Michael L. Levitz: Based on our progress to date, we are reiterating our guidance for 2024 with total company revenue of $168 million to $173 million representing growth of 1% to 4%.
Michael L. Levitz: In OA pain management, we continue to expect revenue to grow to $102 million to $104 million of.
Michael L. Levitz: <unk> zero to 2%.
Michael L. Levitz: This reflects continued above market growth in end user sales led by growth of Monovisc globally, and cingal outside the U S.
Michael L. Levitz: This year, the impact of the continued above-market growth is offset by unfavorable order timing year over year. On a quarterly basis, we also expect ordering patterns to be lumpy, as they've been historically, with higher revenue in the second half of 2024 based on projected timing of transfer shipments compared to quarterly timing last year. In joint preservation and restoration, we continue to expect revenues to grow to $58 to $60.5 million, up 6 to 10 percent, as faster growth in our new products, led by X-Twist and Integrity, is partially offset by lower sales of certain legacy products.
Michael L. Levitz: This year the impact of the continued above market growth is offset by unfavorable order timing year over year.
Michael L. Levitz: On a quarterly basis, we also expect ordering patterns to be lumpy as they've been historically.
Michael L. Levitz: With higher revenue in the second half of 2024 based on projected timing of transfer shipments compared to quarterly timing last year.
Michael L. Levitz: And joint preservation and restoration, we continue to expect revenues to grow to $58 million to $65 million up 6% to 10% as faster growth in our new products led by ex Swift and integrity.
Michael L. Levitz: It's partially offset by lower sales of certain legacy products.
Michael L. Levitz: We continue to expect that growth to be weighted more towards the second half of the year due both to normal seasonality and the full market release of Integrity, which remains right on schedule. For non-orthopedic, we expect revenues to be $8 to $8.5 million, a decrease of 14 to 19 percent. With regard to gross margin, we continue to expect adjusted gross margin for 2024 of 66 to 66.5%. From a spending perspective, We executed on the planned workforce reduction and other spending reductions in the first quarter and are on track to deliver the $10 million of annualized operating expense savings as previously announced.
Michael L. Levitz: We continue to expect that growth to be weighted more towards the second half of the year due both to normal seasonality and the full market release of integrity, which remains right on schedule.
Michael L. Levitz: And non orthopedic, we expect revenues to be 8% to $8 5 million a.
Michael L. Levitz: A decrease of 14% to 19%.
Michael L. Levitz: With regard to gross margin, we continue to expect adjusted gross margin for 2024 of 66 to 66, 5%.
Michael L. Levitz: From a spending perspective, we executed on the planned workforce reduction and other spending reductions in the first quarter and are on track to deliver the $10 million of annualized operating expense savings as previously announced as.
Michael L. Levitz: As we have said, a partial year impact will be realized this year due to the timing of the act. In 2024, we plan to use a portion of the savings to fund the filing of the first PMA module for Hyalofast in the United States, as well as additional clinical follow-up for HA-based regenerative products such as Integra. We continue to expect our adjusted EBITDA in 2024 to be between $25 and $30 million, representing an increase of over 75% at the midpoint.
Michael L. Levitz: As we have said a partial year impact will be realized this year due to the timing of the actions.
Michael L. Levitz: In 2024, we plan to use a portion of the savings to fund the filing of the first PMA module for <unk> in the United States as well as additional clinical follow up for our <unk> based regenerative products such as integrity.
Michael L. Levitz: <unk>.
Michael L. Levitz: We continue to expect our adjusted EBITDA in 2024 to be between 25% and $30 million, representing an increase of over 75% at the midpoint.
Michael L. Levitz: This translates to an adjusted EBITDA margin improvement of over 6 points, growing to at least 15% for the year. We continue to be positioned to deliver positive adjusted net income this year and generate positive free cash flow, even as we invest in higher capital spending this year, focused on our OA pain management manufacturing operations, in part reflecting timing from last year. In summary, the first quarter was a solid start to 2024, demonstrating the strength of our market-leading core OA franchise and growing momentum from our new products like Integrity, and Anika is on track for significant bottom-line growth this year. I will now turn the call back to Cheryl.
Michael L. Levitz: This translates to an adjusted EBITDA margin improvement of over six points growing to at least 15% for the year.
Cheryl: We continue to be positioned to deliver positive adjusted net income this year and generate positive free cash flow, even as we invest in higher capital spending this year focused on or OA pain management manufacturing operations in part reflecting timing from last year.
Cheryl: In summary, the first quarter was a solid start to 2020 for demonstrating the strength of our market, leading core OE franchise and growing momentum from our new products like integrity and Anika is on track for significant bottom line growth this year.
Cheryl: I will now turn the call back to share.
Cheryl Renee Blanchard: Thanks, Mike. Please turn to slide 6.
Cheryl: Thanks, Mike Please turn to slide six it.
Cheryl Renee Blanchard: It's clear that Anika's renewed focus is proving effective as we accelerate our path to profitability. But it's still early days, and we're continuing to take the necessary steps to optimize performance. We'll remain nimble in our approach, and we are confident that Anika is on the right path. With our product portfolio and exciting pipeline, we will continue to improve the lives of millions of patients in need of early intervention orthopedic care. We appreciate the support of our Anika colleagues, without whom none of this would be possible. And we appreciate the support of our shareholders as we work to deliver value for your investments. With that, we'll open up the line for questions.
Cheryl: It's clear that Anika has renewed focus is proving effective as we accelerate our path to profitability. It's still early days and we're continuing to take the necessary steps to optimize performance.
Cheryl Renee Blanchard: We'll remain nimble in our approach and we are confident the anika is on the right path with our product portfolio and exciting pipeline. We will continue to improve the lives of the millions of patients in need of early intervention orthopedic care.
Cheryl Renee Blanchard: We appreciate the support of our Anika colleagues without whom none of this would be possible and we appreciate the support of our shareholders as we work to deliver value on your investments with that we'll open up the line for questions.
Speaker Change: Thank you, ladies and gentlemen, we will now conduct the question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
Operator: Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press Part 2. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question comes from the line of George Sellers from Stephens. Your line is now open.
George Stone Sellers: You will hear it return.
Operator: <unk> request.
Operator: If you would like to cancel your request. Please press star two please.
Operator: Please ensure you lift the handset if you're using a speaker phone before pressing any keys.
Operator: One moment. Please for your first question.
Operator: Your first question comes from the line of George Sellers from Stephens. Your line is now open.
George Stone Sellers: Good afternoon, and thanks for taking the question.
George Stone Sellers: Good afternoon, and thanks for taking the question. Maybe just to start on guidance.
George Stone Sellers: Maybe just to start on guidance.
Michael L. Levitz: Just curious, the OA pain management business continues to outperform. It was pretty strong throughout 2023 with a couple of quarters of double-digit growth and another strong quarter here. I'm just curious, how should we think about sort of the cadence through the remainder of the year to get to your guidance? Are, you know, those tough comps, what sort of limiting. And then also, how should we think about for the joint preservation and restoration piece, some of the new products like the HA-based patch system, how should we think about those contributing more significantly to revenue growth?
George Stone Sellers: Just curious the OA pain management business continues to outperform.
Michael L. Levitz: Pretty strong throughout 2023 with a couple of quarters of double digit growth and another strong quarter here.
Michael L. Levitz: I'm just curious how should we think about sort of the cadence through the remainder of the year to get to your guidance are those tough comps what sort of limiting.
Michael L. Levitz: Stronger or an increase in that in that guidance.
Michael L. Levitz: And then also how should we think about for the joint preservation and restoration piece.
Michael L. Levitz: The new products like the.
Michael L. Levitz: The H eight data patch system, how should we think about those contributing more significantly to revenue growth.
Michael L. Levitz: Thanks.
Michael L. Levitz: Hi George, it's Mike. Thank you for your questions. First, to the guidance on OA pain management, one of the things that we mentioned last year and we wanted to continue to mention is that the underlying business is growing above market. One of the things that those that have followed this company know quite well is that we do generally have volatile order timing because we deal with big companies like Johnson & Johnson. And so that definitely occurred last year. Q2 last year was very high, and we called that out in the period and said that it was not sustainable. That was just the timing of how they managed their inventories.
Michael L. Levitz: Hi, George it's Mike. Thank you for your questions.
Michael L. Levitz: First to the guidance on the OA pain management.
Michael L. Levitz: One of the things that we mentioned.
Michael L. Levitz: Last year and we wanted to continue to mention is that the underlying business is growing above market. One of the things that those that have followed this company know quite well as we do generally have volatile order timing because we deal with big companies like Johnson <unk> Johnson.
Michael L. Levitz: And so.
Michael L. Levitz: That definitely occurred last year Q2 last year was was very high and we called that out in the period and said that was that was.
Michael L. Levitz: Not sustainable that was just timing of how they manage their inventories.
Michael L. Levitz: So this year, we have a tough comp as we go into the second quarter because of that. And so the way to think about the cadence this year is, again, our guidance. We reiterated our guidance.
Michael L. Levitz: So this year, we have a tough comp as we go into the second quarter because of that and so.
Michael L. Levitz: The way to think about the cadence this year is it.
Michael L. Levitz: Again, our guidance, we reiterated our guidance there is no change to our guidance for the year, So zero to 2% for the year because of the timing of transfer shipments.
Michael L. Levitz: There's no change to our guidance for the year, so 0% to 2% for the year because of the timing of transfer shipments. I do expect the second half to be higher than the first half this year for revenues in our OA pain management business, just based upon the year-over-year comp. So last year, Q2 was bigger. This year, Q3 will be bigger. So that's how I would think about the cadence.
Michael L. Levitz: I do expect the second half to be higher than the first half this year for revenues in our OA pain management business Alright, just based upon the year over year comp. So last year Q2 was bigger this year.
Michael L. Levitz: Q3 will be bigger.
Michael L. Levitz: So that's how I would think about the cadence.
Michael L. Levitz: So you'll see, we guided zero to 2%, but we grew 7% this quarter. I would expect, given the tough comp, next quarter, on a year-over-year basis, it'll be down. But that's not any issue or challenge.
Michael L. Levitz: Youll see we guided zero to 2%, but we grew 7% this quarter I would expect that given the tough comp next quarter on a year over year basis, it'll be down, but thats not any issue or challenge just because of the timing last year frankly.
Michael L. Levitz: It's just because of the timing last year, frankly. With regard to the joint preservation cadence and growth this year, we reiterated the guidance of 6 to 10 percent. The growth this year is driven, as we said on the last call, is going to be second half loaded in the sense that we knew we were launching the Integrity product in the middle of the year. And, as Cheryl said, we remain right on track to do that.
Michael L. Levitz: With regards to the.
Michael L. Levitz: <unk> joint preservation cadence.
Michael L. Levitz: The growth this year, so we reiterated the guidance of 6% to 10%.
Michael L. Levitz: The growth. This year is driven we said on the last call was going to be second half.
Michael L. Levitz: Loaded in the sense that we knew were launching the integrity product in the middle of the year and as Sheryl said, we remain right on track to do that we're very excited about what we're seeing in limited market release and that product is right on track and so as we look at joint preservation.
Michael L. Levitz: We're very excited about what we're seeing in the limited market release, and that product is right on track. And so as we look at joint preservation, we have again reiterated our guidance. We expect the second half to be stronger, both due to Integrity moving into full market release, as well as the continued growth and ramp of our new products. We're very pleased this first quarter to have the EXWYS Biocomposite launch, and EXWYS continues to be a really nice product and doing exactly what we expected it to do when we gave our guidance. So I hope that it's helpful to all.
Michael L. Levitz: Again reiterated our guidance, we expect the second half to be stronger both due to integrity moving into full market release as well as the continued.
Michael L. Levitz: Growth and ramp of our new products. We're very pleased with this first quarter to have the extra as bio composite launch an extra is continues to be a really nice product and doing exactly what we expected it to do when we gave our guidance.
Speaker Change: So I hope that's helpful George.
Michael L. Levitz: That's really helpful, Keller. I appreciate that, potentially beyond this year.
Speaker Change: Yes, that's fair.
Speaker Change: Really helpful color I appreciate that and then maybe.
Michael L. Levitz: Looking.
George Stone Sellers: I'm just curious, we've seen some announcements of some studies at various other companies. I'm just curious how y'all are thinking about the competitive dynamics, about potentially some competing offerings in the HA injection market, or about what Hyalafast is going to bring to the table when that's approved. Has there been any change from your perspective on competition in the market as we look beyond this year?
Speaker Change: Potentially beyond this year I'm just curious we've seen some announcements of some studies at various other companies I'm just curious how you all are thinking about the competitive.
George Stone Sellers: Dynamics.
George Stone Sellers: Potentially it could.
George Stone Sellers: <unk> offerings in the ha injection market.
George Stone Sellers: Or with what how fast it's going to bring to the table when that's approved.
George Stone Sellers: There have been any change from your perspective on competition in the market as we look beyond this year.
George Stone Sellers: Hey, George this is Cheryl can I just ask you to clarify what competition, you're referring to just to make sure I answered your question.
Cheryl Renee Blanchard: Hey George, this is Cheryl. Can I just ask you to clarify what competition you're referring to just to make sure I answer your question?
George: Sure. So one specific example would be organic Genesis announcing the phase III trial results from their renew injection just curious if you all view that as a competing offering.
George Stone Sellers: Sure, so one specific example would be Organogenesis announcing the phase three trial results for their Renu injection. Just curious if you view that as a competing offering to OrthoVisc and MonoVisc, and then also products like CardiHeal gaining momentum in the market if that's a competitive concern.
George Stone Sellers: <unk> and Monovisc.
George Stone Sellers: And then also.
George Stone Sellers: Products like car to heal.
George Stone Sellers: Gaining momentum in the market if that's.
George Stone Sellers: Competitive.
George Stone Sellers: Serge.
Cheryl Renee Blanchard: Got it. Thank you. I appreciate that.
Speaker Change: Got it. Thank you I appreciate that yes.
Cheryl Renee Blanchard: Yeah, Organogenesis did just announce a readout from their first Phase III clinical trial. It's difficult for me to comment on that because they didn't provide any data. So, I'll be in a better position to have thoughts about that from a competitive perspective once I see their data, but they haven't put any data out yet. And then, on the cartilage repair side, from a CartiHEAL perspective, obviously, CartiHEAL will be launching here soon into the space where they'll be competing with the Macy product in their place with a situation with a product that has to remove healthy bone to be implanted.
Speaker Change: Yes, Phil organogenesis digits to announce.
Cheryl Renee Blanchard: A readout on their first phase III clinical trial.
Cheryl Renee Blanchard: It's difficult for me to comment on that because they didnt provide any data so I'll be in a better position to have a thought about that from a competitive perspective once I see their data, but they didn't put any data out yet and then on the cartilage repair side from a car to heal perspective, obviously.
Cheryl Renee Blanchard: <unk> car to heal we'll be launching here soon into the space, where they will be competing with the macy products with.
Cheryl Renee Blanchard: In part heals place with a situation with a product that.
Cheryl Renee Blanchard: Hester remove healthy bone to be implanted.
Cheryl Renee Blanchard: So, I think it will be going after a smaller segment of the cartilage repair market, that being the osteochondral defect market. HyloFast, I'm very excited to bring that to market, and we'll start filing that modular PMA this year. We've got 15 years of data that is likely to be published this year.
Cheryl Renee Blanchard: I think it will be going after a smaller segment of the cartilage repair market that being the osteochondrosis defect market.
Cheryl Renee Blanchard: Holocaust I'm very excited to bring that to market and we will start filing that modular PMA. This year. We've got 15 years of data that is likely publishing this year. It is off the shelf single stage.
Cheryl Renee Blanchard: It is off-the-shelf, single-stage, and something that we know how it plays in the market based on our commercial experience, OUS, and doesn't require you to take healthy bone, doesn't require a second surgery. And so, we're very excited to compete with that inside the United States. We just announced that we now sell HyloFast in over 35 countries outside the United States. So, I'm ready to go with HyloFast, and we've got surgeons waiting for it here in the United States. Okay, great.
Cheryl Renee Blanchard: And.
Cheryl Renee Blanchard: Something that we know how it plays in the market based on our commercial experience O U S and doesn't require you to take healthy bone doesn't require a second surgery and so we're very excited.
Cheryl Renee Blanchard: To compete.
Cheryl Renee Blanchard: To compete with that inside the United States. We just updated that we now sell Halifax in over 35 countries outside the United States. So.
Cheryl Renee Blanchard: I'm ready to go with Halo fast and we've got surgeons like waiting for it here in the United States.
Speaker Change: Okay, Great. That's really helpful commentary. Thank you all for the time.
Cheryl Renee Blanchard: Okay, great. That's really helpful commentary. Thank you all for your time.
Speaker Change: Thank you.
Cheryl Renee Blanchard: Your next question comes from the line of Jim Sidoti from Sidoti <unk> Company. Your line is now open.
James Philip Sidoti: Your next question comes from the line of James Sidoti from Sidoti and Company. Your line is now open.
James Philip Sidoti: Okay.
James Philip Sidoti: Hi, good afternoon, and thanks for taking the question. Can you talk a little more about the growth rate for the joint business? It's down from the fourth quarter of 23, and you talked about some of the mature products not growing as quickly. Are you de-emphasizing sales of those products, and will you continue to sell those going forward?
James Philip Sidoti: Hi, good afternoon, and thanks for taking the questions.
James Philip Sidoti: So can you talk a little more about the.
James Philip Sidoti: The growth rate for the.
James Philip Sidoti: The.
James Philip Sidoti: Joint business.
James Philip Sidoti: Yes.
James Philip Sidoti: Phil.
James Philip Sidoti: The fourth quarter of 'twenty three.
James Philip Sidoti: Talked about some of the mature products.
Speaker Change: Let's quickly.
James Philip Sidoti: Are you.
James Philip Sidoti: <unk> sales of those products.
James Philip Sidoti: Continued to fill those going forward.
Cheryl Renee Blanchard: Hi Jim. Thanks for the question. Yeah, I would tell you that our new products are doing really well. I mean, we just announced that we have over 10,000 implantations of X-Twist. Integrity is doing very well, even in the limited market release, where our goal there was to get feedback on an LMR. And we're feeling a real pull from the market with that product. We are facing headwinds with some of our more mature products.
Speaker Change: Hi, Jim Thanks for the question.
Speaker Change: Yes, I would tell you that.
Cheryl Renee Blanchard: Our new products are doing really well I mean, we just announced that we're over 10000 implantation of X twist integrity is doing very well even in the limited market release, where our goal there was to get feedback in an LMR and we're feeling a real pull from the market with that product.
Cheryl Renee Blanchard: We are facing headwinds with some of our more mature products and while we have a subset of distributors that are doing very well for us and growing strong double digits. We've talked about the fact that that is an area that we continue to focus on and that we are not happy with currently so we continue to focus.
Cheryl Renee Blanchard: And while we have a subset of distributors that are doing very well for us and growing strong double digits, we've talked about the fact that that is an area that we continue to focus on and that we are not happy with currently. So we continue to focus on commercial execution and on really driving those new products that are differentiated and have great clinical results. And again, I would just say in that business; we have great products that are doing well, and really, new products are driving growth in the face of some of those headwinds.
Cheryl Renee Blanchard: On commercial execution, and really driving those new products that are differentiated and have great clinical results and again I would just say in that business. We have great products that are doing well and really the new products are driving the growth in the face of some of those headwinds.
Speaker Change: Okay. So it sounds like Youre going to continue to sell those products and maybe step ups.
Cheryl Renee Blanchard: Okay, so it sounds like you're going to continue to sell those products and maybe step up some of the marketing efforts for those products.
Cheryl Renee Blanchard: The marketing efforts for those products.
Speaker Change: Yes, we are continuing to sell those products and we continue to train and educate on them. We continue to make some investments in them I will just highlight again one of the things that we announced last quarter with our cost reduction initiatives really put us in a place where that again, we report on one segment, but that <unk>.
Cheryl Renee Blanchard: Yeah, we are continuing to sell those products, and we continue to train and educate on them. We continue to make some investments in them. I will just highlight again one of the things that we announced last quarter with our cost reduction initiatives really putting us in a place where, again, we report on one segment, but that part of the business is no longer kind of a drag on our just-it-eve-it-does. So we've been thoughtful about how we're making our investments there and where we can invest to really drive that growth and focus on the products that we think are more differentiated.
Cheryl Renee Blanchard: Part of the business is no longer kind of a drag on our adjusted EBITDA. So we've been thoughtful about how we're making our investments there and where we can invest to really drive that that growth and.
Cheryl Renee Blanchard: We're focusing on the products that we think are more differentiated.
Cheryl Renee Blanchard: Okay, and then if we switch to Cingal, you've talked about working with the FDA to figure out what clinical data.
James Philip Sidoti: Okay, and then if we switch to Singhal, you talked about working with the FDA to figure out what non-clinical data they require. You know, once you guys come to an understanding, how long do you think it'll take to get that data to the FDA?
Singhal: They require once you guys.
Singhal: We're understanding how long do you think it'll take to to get that data to the FDA.
Singhal: Yes, it's a great question as soon as I have.
Cheryl Renee Blanchard: Yeah, it's a great question. As soon as I have complete clarity on the additional non-clinical testing that we're going to need to do, I will be in a better position to answer that question. So it is not, again, just to reiterate, it is not what some years ago the company was talking about doing a significant clinical trial. It is really just the remaining non-clinical testing that the FDA has been talking to us about. As soon as I have that clarification, I will be the first one to talk about it.
James Philip Sidoti: Okay. All right.
Cheryl Renee Blanchard: Complete clarity on the additional non clinical testing that we're going to need to do I will be in a better position to answer that question. So it is not again just to reiterate it is not.
James Philip Sidoti: What some years ago. The company was talking about doing a significant clinical trial. It is really just the remaining non clinical testing that the FDA has been talking to us about soon as I have that clarity.
James Philip Sidoti: I will be the first one to be talking about it.
James Philip Sidoti: Okay, Alright, and then on pain management.
Cheryl Renee Blanchard: And then on pain management, you know, your numbers in the past few quarters, even with the lumpiness to the distributor, your numbers have been growing very, very nicely. Your competitor reported last night that they're seeing some good growth. So, you know, it feels like that market's very healthy right now. Is that more attributable to procedure growth or pricing improvements?
Cheryl Renee Blanchard: Your numbers the past few quarters, even with the Lumpiness to the distributor your numbers have been.
Cheryl Renee Blanchard: Growing very very nicely your competitor.
Cheryl Renee Blanchard: Core to glass that they're seeing some some good growth.
Cheryl Renee Blanchard: It feels like the market is very healthy right now.
Cheryl Renee Blanchard: Is that more attributable to procedure growth.
Cheryl Renee Blanchard: Pricing improvements.
Cheryl Renee Blanchard: Yes, I think Theres a couple of things that have happened first of all I think the companies that were more subject to the the ASP.
Cheryl Renee Blanchard: Yeah, I think there's a couple of things that have happened. First of all, I think the companies that were more subject to the ASP changes that happened have anniversaried out of that dynamic. I think we're really just starting to see it happen this quarter.
Cheryl Renee Blanchard: Changes that happened have anniversaried out of that dynamic I think really just starting to see it happen. This quarter. So over a period of time that that complete market in the U S actually shrunk a bit because of that ASP dynamic with with a couple.
Cheryl Renee Blanchard: So, you know, over a period of time, that complete market in the U.S. actually shrunk a bit because of that ASP dynamic. With a couple of those companies that have anniversaries out of that dynamic, I think we're going to start to see growth in that market in dollars. That market, although it had some dollar shrinkage because of that ASP dynamic, never stopped growing from a unit perspective. And so we continue to see kind of low single-digit growth in that market in the United States.
Cheryl Renee Blanchard: Those companies that have anniversaried out of that dynamic I think we're going to start to see growth of that market.
Cheryl Renee Blanchard: That market also had some dollars shrinkage because the ASP dynamic it never stopped drilling from a unit perspective, and so we continue to see kind of low single digit growth of that market in the United States and it is a healthy market. It is still the kind of along with immediate release steroids that can be used for can you do.
Cheryl Renee Blanchard: And it is a healthy market. It is still, along with immediate release that can't be used repeatedly, the frontline treatment for osteoarthritis before people move on to a total knee replacement. So it does continue to have very healthy underlying market fundamentals.
Cheryl Renee Blanchard: Lee the frontline.
Cheryl Renee Blanchard: <unk> for osteoarthritis before people move on to a total knee replacement. So it does continue to have very healthy underlying market fundamentals and I would just add.
Michael L. Levitz: And I would just add, consistent with what I said at your end, we're seeing really healthy growth in our single action volume, but the pricing has essentially been fairly consistent over the last couple of years. For us, a decline of low to mid-single digits on a fairly consistent basis. But the volume growth in our single and in our monovisc products is very healthy.
Michael L. Levitz: Consistent with what I said at year end.
Michael L. Levitz: We're seeing really healthy growth and are seeing injection volume.
Michael L. Levitz: But the pricing has essentially been fairly consistent over the last couple of years for us declining low to mid single digits on a fairly consistent basis, but the volume growth.
Michael L. Levitz: In our.
Michael L. Levitz: Cingal and Monovisc.
Michael L. Levitz: Monovisc products is very healthy.
James Philip Sidoti: Okay, all right, and then two quick ones for Mike. Gross margin, you know, adjusted gross margin for the quarter was 62%, but you're guiding 66 to 66 and a half for the year, so is that because of a bunch of one-time things in the first quarter, or do you expect product mix to become much more favorable in the back half of the year?
Speaker Change: Okay, Alright, and then two quick ones for Mike.
James Philip Sidoti: Gross margin adjusted gross margin for the quarter was 62%, but youre guiding 66 to 66 and a half of the year. So is that because of a bunch of one times in the first quarter or do you expect product mix to become much more favorable in the back half of the year.
Michael L. Levitz: Hi Jim. Both, actually.
Mike: Hi, Jim.
Mike: Both actually so we expect favorable mix.
Mike: As we go through the year compared to the first quarter and we just had a number of one time things in the quarter. So we had production inefficiencies that got amortized into the period, we expected that that was built into our guidance. We also had some reserves that were recorded in the period oftentimes that's happened throughout the year.
Michael L. Levitz: So we expect favorable mix as we go through the year compared to the first quarter, and we just had a number of one-time things in the quarter. We had production inefficiencies that got amortized into the period. We expected that. That was built into our guidance. We also had some reserves that were recorded in the period. Oftentimes, those happen throughout the year. It happened in Q1. That's why we felt comfortable reiterating our guidance for the year, and we expect it to improve for the balance of the year so that we're in line with the full year guidance.
Michael L. Levitz: Happened in Q1 so.
Michael L. Levitz: That's why we felt comfortable reiterating our guidance for the year.
Michael L. Levitz: And we expect that to approve improve for the balance of the year. So that were in line with our.
Michael L. Levitz: The full year guidance.
Michael L. Levitz: Okay, and and do you know the aid of $900,000 is seven questions that are in the SG&A line?
Michael L. Levitz: Okay.
Michael L. Levitz: The eight or $900000 severance question.
Michael L. Levitz: The SG&A line.
Michael L. Levitz: The severance costs were split between the areas; they're recorded in the areas to which they're related, and so they're split evenly between Research and Development and SGR. Got it. Okay.
Michael L. Levitz: The severance costs were split in the areas. They are recorded in the areas to which they related and so they are split evenly between that research and development and SG&A.
James Philip Sidoti: Got it. Okay. All right. Thank you. That's it for me.
Speaker Change: Got it okay alright. Thank you that's it for me.
Speaker Change: Thanks, Jim.
James Philip Sidoti: Your next question comes from the line of Mike Podolsky from Barrington Research. Your line is now open.
Michael John Petusky: Your next question comes from the line of Mike Petusky from Barrington Research. Your line is now open.
Michael John Petusky: Hey, good evening.
Michael John Petusky: Good evening. I'm curious about the sort of the severance and sort of the cost reduction, when did that happen? Did that happen sort of in March, second half of March? When did that happen? Like, I'm just curious how this is sort of going, how much of that actually impacted Q1 versus, you know, Q2.
Michael John Petusky: So I'm curious on the on the on the.
Michael John Petusky: The sort of the severance and sort of the cost reduction.
Michael John Petusky: When did that happen does that happen sort of in March 2nd half of March one when did that happen like I'm. Just curious how this has sort of gone off.
Michael John Petusky: How much of that actually impacted Q1 versus Q2.
Michael L. Levitz: Yeah, hi Mike. It was at the end of Q1, so it really didn't have an impact yet in Q1, so you're going to see this year basically an impact of that in three quarters, but not fully annualized until next year.
Speaker Change: Yeah, Hi, Mike It was at the end of Q1, so it really didn't have an impact yet in Q1, so you're going to see this year basically and impact of that on three quarters, but not fully annualized until next year sure. Okay, alright, and from a cash perspective, the severance was actually paid out.
Michael John Petusky: Sure. And from a cash perspective, the severance was actually paid out in the second quarter. All right, and then, Cheryl, on the FDA feedback, you know, you said some clarity, you talked about non-clinical data. What's your confidence level that, you know, you're not going to get surprised and they're going to come back to you and say, actually, we're going to need a material clinical trial to sort of finish this out? I mean, what's your confidence level that this is not on the table?
Michael John Petusky: In the second quarter.
Speaker Change: Okay. Okay. That's helpful.
Michael John Petusky: Alright, and then Cheryl on the on the FDA feedback you said some clarity talking about non clinical data, what's your confidence level.
Michael John Petusky: Youre not going to get surprised and theyre going to come back and say.
Michael John Petusky: Actually.
Speaker Change: Got it.
Cheryl: Material clinical trial to sort of finish this out I mean, what's your confidence level that that is not on the table.
Cheryl: Yes, I would never want to try to speculate around.
Cheryl Renee Blanchard: Yeah, I would never want to try to speculate about FDA, but we have met, with our clinical data, the endpoints that they set out for the company to meet. We've done so with statistical significance in multiple phase 3 clinical trials, and FDA continues to reiterate that our clinical data will be a review issue.
Cheryl Renee Blanchard: Around FDA, but we have met with our clinical data the endpoints that they set out for the company to meet.
Cheryl Renee Blanchard: We've done so with statistical significance in multiple phase III clinical trials and FDA continues to reiterate that our clinical data will be a review issue. So there I'm not going to get.
Cheryl Renee Blanchard: So, I'm not going to get any additional clarity on that topic until we actually file, but we do have continued ongoing dialogue with them. They did give us some feedback here recently. We went back to them with some additional clarifying questions, and I look forward to continuing to give updates on this as we make progress.
Cheryl Renee Blanchard: Any additional clarity on that topic until we actually file, but we do have continued ongoing dialogue with them. They did give us some feedback here recently, we went back to them with some additional clarifying questions and I look forward to continuing to give updates on this as we make progress.
Michael John Petusky: Moving over to integrity, any learnings from the last 100 or so cases and new surgeons? Any feedback that is worthy of mention?
Cheryl Renee Blanchard: Shifting over to integrity and any learnings from the last 100, or so cases in new surgeons any feedback.
Michael John Petusky: Yes.
Michael John Petusky: Worthy of mention.
Cheryl Renee Blanchard: Yeah, thanks for asking. The feedback has been really quite stellar. The surgeons, a number of the surgeons now have patients in a number of shoulder applications, although primarily rotator cuff repair, and a number of foot and ankle applications, and some even in other parts of the body with appropriate on-label use where the feedback has just been, this is great, the implant, the patch implant itself is strong, it's manipulatable under arthroscopy, it's simple surgical technique, the We're also really experiencing a pull from surgeons and distributors on this product, so we're very excited to get to that full market release.
Speaker Change: Yeah. Thanks for asking the feedback has been really quite stellar.
Cheryl Renee Blanchard: Surgeons are number of surgeons now have patients in a number of shoulder applications, although primarily rotator cuff repair and a number of foot and ankle applications and some even.
Cheryl Renee Blanchard: In other parts of the body with appropriate on label use where the feedback has just been this is great. It's a it's a path that implant to patching plan itself is strong its manipulated bill.
Cheryl Renee Blanchard: Under arthroscopic, it's it's simple surgical technique. The fixation elements are great. Their patients are having great outcomes and it has just given us really great feedback and the confidence that we need to as we remain on track for our full market release in mid <unk>.
Cheryl Renee Blanchard: Here, we're also really experiencing uphold from surgeons and distributors on this product. So we're very excited to get to that full market release.
Michael John Petusky: And then just last one, jumping back to the gross margin question, Mike, would you expect sort of, you know, particularly given, you know, the inefficiencies in production, manufacturing, I suspect? Is this sort of the cadence of gross margin, should we look for sort of gradual improvement, or are the factors that sort of impacted Q1's gross margin completely behind, and it should be a much cleaner number even starting in Q2?
Speaker Change: And then just last one.
Michael John Petusky: Jumping back to the gross margin question, Mike would you expect sort of particularly given.
Michael John Petusky: Bob.
Michael John Petusky: Inefficiencies in production manufacturing I suspect.
Michael John Petusky: Is this the sort.
Michael John Petusky: The cadence of gross margin I mean should we look for sort of gradual improvement or are the.
Michael John Petusky: The factors that sort of impacted Q1 gross margin.
Michael John Petusky: Completely behind and it should be a much cleaner number even starting in Q2.
Michael L. Levitz: Good question. And, Mike, you know, we don't give quarterly guidance in part because of the lumpiness of the business, which can impact things on a quarterly basis. You know, one of the things that we did this year, our guidance is essentially consistent with what we guided to last year and what we actually delivered last year. And in Q1 of last year, we had a low gross margin, and then it was higher in the remainder of the year.
Speaker Change: Good question, Mike, We don't give quarterly guidance in part because of the Lumpiness of the business, which can impact things on a quarterly basis.
Michael L. Levitz: One of the things that we did this year our guidance is essentially consistent with what we guided to last year and what we actually delivered last year and in Q1 of last year, we had a low gross margin and then it was higher than the remainder of the year.
Michael L. Levitz: I don't know that Theres anything unique to the subsequent quarters.
Michael L. Levitz: I don't know that there's anything unique to the subsequent quarters that I can speak to just because it can move. I think it's fair to say, you know, you could take the guidance for the year, and if you wanted to spread it evenly, you'd probably be, you know, that's a pretty reasonable place to go in terms of the gross margin percent. But keep in mind that from a gross profit dollars perspective, the revenue growth that we expect to be weighted towards the second half, both in OA pain management and in joint preservation. But from a percentage basis, we might get some as it moves into Q2 from the timing of things, but it's hard to say at this point. I guess what I was really trying to get at.
Michael L. Levitz: That I can speak to just because.
Michael L. Levitz: It can move I think it's fair to say.
Michael L. Levitz: You can take the guidance for the year and if you wanted to spread it evenly you probably be that's a pretty reasonable place to go in terms of the.
Michael L. Levitz: Gross margin percent.
Michael L. Levitz: But keep in mind that from a gross profit dollars. The revenue growth that we expect to be weighted towards the second half both in OA pain management and in joint preservation. So.
Michael L. Levitz: But from a percentage basis.
Michael L. Levitz: We might get some that moves into Q2 and from the timing of things, but it's hard to say at this point.
Michael L. Levitz: I guess, what I was really trying to get at whatever production inefficiencies, you're referring to has that been rectified.
Michael L. Levitz: I guess what I was really trying to get at, whatever production inefficiencies you're referring to, have those been rectified? Has that been, you know, essentially fixed?
Michael L. Levitz: Essentially fixed.
Michael L. Levitz: Yes.
Speaker Change: That's all I've got for now thank you.
Michael L. Levitz: Yes. That's all I've got for now. Thank you. Great. Thanks, Mike.
Speaker Change: Great. Thanks, Mike.
Speaker Change: There are no further questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Okay.
Operator: Oh.
Operator: Okay.
Operator: [music].
Operator: Sure.
Operator: Yes.
Operator: Okay.
Operator: Yes.