Q4 2024 Organogenesis Holdings Inc Earnings Call

Okay.

Operator: Please stand by. Welcome, ladies and gentlemen, to the fourth quarter and fiscal year 2024 earnest conference call for Organogenesis Holdings, Inc. At this time, all participants have placed in listen-only mode.

Please standby.

Welcome, ladies and gentlemen to the fourth quarter and fiscal year 2024 earnings conference call for our organic Genesis Holdings, Inc. At this time all participants have placed in listen only mode. Please note that this conference call is being recorded that the recording will be available on the company.

Operator: Please note that this conference call is being recorded and that 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 can cause actual results to differ materially from those indicated, including the risk and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's most recent annual report, and its subsequently filed quarterly. You are cautioned not to place undue reliance upon any forward-looking statements, which may speak only as the date makes.

This 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.

The risks and I'm supposed to say.

And the company's filings with the Securities and Exchange Commission, including item one a risk factors of the company's most recent annual report any subsequently filed quarterly reports.

You are cautioned not to place undue reliance upon any forward looking statements, which may speak only as the date me.

Operator: Although it may voluntarily do so, from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by a program.

Although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statements, whether as a result of information future events or otherwise, except as required by applicable securities laws.

Operator: This call will also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAP. We generally refer to these as non-GAP financial measures. Reconciliations of these 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.

This call will also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP, which ill refer to these as non-GAAP financial measures.

Reconciliations of these 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 web.

Operator: I would now like to turn the call over to Mr. Gary S.

Right.

Gary S.: I would now like to turn the call over to Mr. Gary S. <unk> SR.

Gary Gillheeney: Gillheeney, Sr., Organogenesis Holdings, President, Chief Financial Officer, and Chair of the Board. Please go ahead. Thank you operator and welcome everyone to Organogenesis Holdings fourth quarter fiscal year 2024 earnings conference call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer.

Speaker Change: Organic excuse me I'm going to Genesis.

Speaker Change: Holdings', President Chief Finance Financial Officer, and chair of the Board. Please go ahead Sir.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Thank you operator, and welcome everyone to Organogenesis Holdings' fourth quarter fiscal year 2024 earnings conference call.

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

Gary Gillheeney: Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our fourth quarter revenue results and provide an update on 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 quarter end, as well as our financial guidance for 2025, which we introduced in our press release this afternoon.

Speaker Change: Let me start with a brief agenda or what we'll cover during our prepared remarks I'll begin with an overview of our fourth quarter revenue results and provide an update on key operating and strategic developments in recent months.

Speaker Change: Dave will then provide you with an in depth review of our fourth quarter financial results, our balance sheet and financial condition at quarter end as well as our financial guidance for 2025, which we introduced in our press released this afternoon and then we will open the call up for questions.

Gary Gillheeney: And then we will open the call up for questions. Beginning with a review of our revenue results for Q4, we delivered sales results above the high end of the guidance range outlined on our third quarter call, growing 27% in the period. Our fourth quarter results reflect strong momentum in underlying business trends and customer demand in excess of what our guidance had assumed. As discussed in our recent investor calls, our fourth quarter and fiscal year 2024 guidance reflected the expectation that the final ruling from the MACs on the proposed LCDs would be announced in the fourth quarter with an effective date of January 1, 2025.

Speaker Change: With a review of our revenue results for Q4, we delivered sales results above the high end of the guidance range outlined on our third quarter call growing 27% in the period.

Speaker Change: Fourth quarter results reflect strong momentum and underlying business trends and customer demand in excess of what our guidance had assumed.

Speaker Change: As discussed in our recent Investor calls, our fourth quarter and fiscal year 2024 guidance reflected the expectation that the final ruling from the Max on the proposed LCD would be announced in the fourth quarter with an effective date of January one 2025.

Gary Gillheeney: The LCD was finalized in the fourth quarter. However, the stated effective date of February 12th, 2025 was later than we had assumed. We believe the stronger customer demand we experience in the second half of the fourth quarter is a direct result of less disruption in the marketplace related to the delayed effective date for the final LCD ruling from the MAS. As mentioned on previous earnings calls, we applaud the MACs for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute product. We have been pushing for reform for many years and believe the LCDs represent a substantial first step forward toward cleaning up the marketplace and providing access to all who need the care.

Speaker Change: The LCD was finalized in the fourth quarter. However, the state of the effective date of February 12, 2025 was later than we had assumed.

Speaker Change: We believe the stronger customer demand we experienced in the second half of the fourth quarter is a direct result of less disruption in the marketplace related to the delayed effective date for the final LCD ruling from the Mac.

Speaker Change: As mentioned on previous earnings calls, we applaud the Max for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute products.

Speaker Change: We have been pushing for reform for many years and believes the LCD represent a substantial first step forward towards cleaning up the marketplace and providing access to all who need the care.

Gary Gillheeney: That said, we continue to believe the max evidence-based approach to coverage of skin substitute products should include both clinical and real-world data. Importantly, we continue to push for CMS to introduce the requisite changes to the payment policies for SCIM substitutes as well. As discussed on our last earnings call, we have communicated to CMS that they should transition to a value-based payment methodology where skin substitute categories are paid on a fixed per square centimeter basis. This value-based payment methodology has the potential to substantially reduce Medicare Part B expenditures, improve patient access, enable physicians to prescribe treatment options based on the individual needs of the patient, and provide the best outcomes for patients in the healthcare system.

Speaker Change: That said, we continue to believe the Max evidence based approach to coverage a skin substitute products should include both clinical and real world data.

Speaker Change: Importantly, we continue to push for CMS to introduce the requisite changes to the payment policies for skin substitutes as well.

Speaker Change: As discussed on our last earnings call, we have communicated to CMS that they should transition to a value based payment methodology, where skin substitute categories are paid on a fixed per square centimeter basis. This value based payment methodology has the potential to substantially reduce Medicare part D expenditures improve.

Speaker Change: Access enable physicians to prescribe treatment options based on the individual needs of the patient and provide the best outcomes for patients and the healthcare system.

Gary Gillheeney: As a leader in this market, we have been and will continue to actively engage with CMS to advocate for the requisite changes to the current system.

Speaker Change: As a leader in this market, we have been and will continue to actively engage with CMS to advocate for the requisite changes that the current system.

Gary Gillheeney: We are proud of the team's strong execution in the fourth quarter. They reacted quickly to the news of the delayed effective date and focused on ensuring our customers were both informed and well-positioned to continue to treat our patients with our full portfolio of highly innovative products. We believe the better-than-expected revenue results we delivered in the fourth quarter represent further evidence that Organogenesis' strong brand equity, established commercial infrastructure, and deep customer relationships taken together represent a substantial competitive advantage as we move through and navigate this uncertain market. On January 24, 2025, the MACS announced the second delay in the implementation of the LCDs until April 13, 2025.

Speaker Change: We are proud of the team's strong execution in the fourth quarter. They reacted quickly to the news of the delayed effective date and focused on ensuring our customers were both informed and well positioned to continue to treat our patients with our full portfolio of highly innovative products.

Speaker Change: We believe the better than expected revenue results, we delivered in the fourth quarter represent further evidenced that organogenesis has strong brand equity.

Speaker Change: Stablish commercial infrastructure and deep customer relationships taken together represent a substantial competitive advantage as we move through and navigate this uncertain market.

Speaker Change: On January.

Speaker Change: <unk> 24 to 2025, the Max announced the second delay in the implementation of the LCD until April 13th 2025. The news of this decision created additional ambiguity and disruption in customer behavior, which has resulted in a more challenging operating environment to date in 2025.

Gary Gillheeney: The news of this decision created an additional ambiguity and disruption in customer behavior which has resulted in a more challenging operating environment to date in 2025. They will discuss our guidance in more detail later on the call, but for now, I'll say that our team is focused on our targeted commercial strategy and on providing excellent service and support for our customers in this dynamic environment.

Speaker Change: Dave will discuss our guidance in more detail later on the call, but for now I'll say that our team is focused on our targeted commercial strategy and are providing excellent service and support for our customers in this dynamic environment.

Gary Gillheeney: We have introduced our financial guidance for 2025, assuming that the final LCD will be effective on April 13, 2025. As discussed on prior calls, when coverage and reimbursement changes are implemented, the business experiences disruption in demand and utilization trends as customers transition to the new policy. Based on the April 13, 2025 effective date, we expect the environment to continue to be challenging throughout the first half of 2025, followed by an assumed stabilization in the market, as such a significant improvement in our business trends beginning in the third quarter. By way of reminder, the LCDs, as finalized in November of 2024, only apply to DFU and VLU indications for skin substitute products.

Speaker Change: We have introduced our financial guidance for 2025, assuming that the final LCD will be effective on April 13th 2025.

Speaker Change: As discussed on prior calls when coverage and reimbursement changes are implemented the business experiences disruption in demand and utilization trends as customers transition to the new policies.

Based on the April 13th 2025 effective date, we expect the environment to continue to be challenging throughout the first half of 2025, followed by and assumes stabilization in the market as such a significant improvement in our business trends beginning in the third quarter.

By way of reminder, the LCD is finalized in November of 2024, only apply the <unk> indications for skin substitute products.

Gary Gillheeney: If the LCDs take effect as scheduled, a total of 18 products would remain covered, including our Aplograph and Dermagraph products for both DFU and VLU, and our Affinity and NuShield products for DFU. However, more than an estimated 200 products would be classified as non-covered. We continue to believe these material changes from the MACs in the coverage of skin substitutes represent an enormous opportunity for Organogenesis to serve more patients and, importantly, will be a positive for the long-term health of the wound care market.

Speaker Change: Lcd's take effect as schedule, a total of 18 products would remain covered including our apograph in dermagraph products for both <unk> and our affinity unusual products for <unk>.

Speaker Change: However, more than an estimated 200 products will be classified as non covered we continue to believe these material changes from the Max and the coverage of skin substitutes represents an enormous opportunity for organogenesis to serve more patients and importantly will be a positive for the long term health of the wound care market.

Gary Gillheeney: Before turning the call over to Dave, I wanted to provide a brief update on a key area of strategic focus for the company. We believe gathering robust and comprehensive clinical and real-world outcomes data is essential in developing a competitive product portfolio and driving further penetration in the markets where we compete. We continue to invest in generating clinical data for our existing and pipeline products and believe such data enhance sales efforts with physicians and reimbursement dynamics with payers over time.

Speaker Change: Before turning the call over to Dave I wanted to provide a brief update on our key area of strategic focus for the company.

Speaker Change: We believe gathering robust and comprehensive clinical and real world outcomes data is essential in developing a competitive product portfolio and driving further penetration in the markets, where we compete.

Speaker Change: We continue to invest in generating clinical data for our existing and pipeline products and believe such data enhanced sales efforts with physicians and reimbursement dynamics with payers over time.

Gary Gillheeney: To that end, I'd like to share an update on our Renew program, as well as key clinical milestones for 2025. We completed the enrollment in our second phase three prospective multi-centered, double-blinded, randomized saline-controlled clinical trial to evaluate the efficacy of RENEW in patients with knee osteoarthritis in the second quarter of 2024. study enrolled 594 randomized subjects with KL severity of 2 to 4 neo osteoarthritis. We performed the pre-specified interim analysis on 50% of the plan 474 subjects after six months of follow-up in the fourth quarter of 2024. The Data Monitoring Committee, or DMC, recommended the clinical trial proceed without modification and without increase in sample size.

Speaker Change: To that end I'd like to share an update on our renewable program as well as key clinical milestones for 2025.

Speaker Change: We completed the enrollment in our second phase III perspective, multicenter double blinded randomized saline controlled clinical trial to evaluate the efficacy of renew in patients with knee osteoarthritis in the second quarter of 2024.

Speaker Change: The study enrolled 594 randomized subjects with KL severity of two to four knee osteoarthritis.

Speaker Change: We performed the pre specified interim analysis on 50% of the planned 474 subjects. After six months of follow up in the fourth quarter of 2024.

Speaker Change: The data monitoring committee or DMC recommended the clinical trial proceed without modification and without increase in sample size the.

Gary Gillheeney: The DMC also reviewed available safety data and found the safety data to be consistent with the known safety profile for renew. Regarding our next steps, we expect to have all patients completing the study by the end of the second quarter of 2025. We expect to complete the initial statistical analysis and have top-line data results from the second Phase 3 study to share publicly in September of 2025. Our current timeline targets completion of the final clinical study report required for the BLA submission in the fourth quarter, which has us on track for a BLA submission by the end of 2025.

Speaker Change: The DMC also reviewed available safety data and found the safety data to be consistent with the known safety profile for renewable.

Speaker Change: Regarding our next steps, we expect to have all patients completing the study by the end of the second quarter of 2025.

Speaker Change: We expect to complete the initial statistical analysis and have top line data results from the second phase III study to share publicly in September of 2025.

Speaker Change: Our current timeline targets completion of the final clinical study report required for the BLA submission in the fourth quarter, which has us on track for a BLA submission by the end of 2025.

Gary Gillheeney: We continue to believe that if approved, introducing Renu to a large and growing pain management market represents a transformational opportunity for the company. We believe Renu, if approved, will potentially address an unmet clinical need for all patients suffering from symptomatic Neo-A, a degenerative joint disease that affects more than 30 million Americans. Today we have a clear roadmap and timeline for our Renew BLA submission, and if successful, Renew would be the only FDA-approved biologic intraarticular injection to improve pain symptoms related to symptomatic knee osteoarthritis.

Speaker Change: And we continue to believe that if approved introducing renew to a large and growing pain management market represents a transformational opportunity for the company. We believe renew if approved will potentially address that unmet clinical need for all patient suffering from symptomatic knee OA.

Speaker Change: Generative joint disease that affects more than 30 million Americans.

Speaker Change: Today, we have a clear roadmap and timeline for a renewed BLA submission and if successful renew would be the only FDA approved biologic intra articular injection to improve pain symptoms related to symptomatic knee osteoarthritis.

Dave Francisco: With that, let me turn the call over to Dave. Thanks, Gary. I'll begin with a review of our fourth quarter financial results, and 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 $126.7 million, up 27%.

Speaker Change: Let me turn the call over to Dave.

Dave Francisco: Thanks, Gary I'll begin with a review of our fourth quarter financial results and unless otherwise specified all growth rates referenced during my prepared remarks are on a year over year basis.

Dave Francisco: Net revenue for the fourth quarter was $126 7 million up 27%.

Dave Francisco: As Gary mentioned, these results were ahead of the expectations we provided on our Q3 call, which called for a total fourth quarter revenue in the range of $100 million to $125 million. Our Advanced Wound Care Net Revenue for the fourth quarter was $119 million, up 27%. And Net Revenue from Surgical and Sports Medicine Products for the fourth quarter was $8 million, up 24%. Gross profit for the fourth quarter was $96 million, or 75.5% of net revenue, compared to 72.1% last quarter. Operating expenses for the fourth quarter were $85.4 million compared to $73.2 million last year, an increase of $12.2 million, or 17%.

Dave Francisco: Gary mentioned these results were ahead of the expectations, we provided on our Q3 call, which called for a total fourth quarter revenue in the range of $100 million to a $125 million.

Dave Francisco: Our advanced wound care net revenue for the fourth quarter was $119 million up 27% and net revenue from surgical and sports medicine products for the fourth quarter was $8 million up 24%.

Dave Francisco: Gross profit for the fourth quarter was $96 million or <unk> 75, 5% of net revenue compared to 72, 1% last year.

Dave Francisco: Operating expenses for the fourth quarter were $85 4 million compared to $73 2 million last year, an increase of $12 2 million or 17%.

Dave Francisco: This year-over-year change in operating expenses was driven by a 12.5 million, or 20%, increase in selling, general, and administrative expenses compared to the prior year period. Research and development expenses declined 3% year-over-year, but increased 11% sequentially due to the timing of expenses associated with clinical trials and research. Operating income for the fourth quarter was $10.2 million compared to an operating loss of $1.3 million last year, an increase of $11.5 million. Gap net income for the fourth quarter was $7.7 million, compared to a net loss of $0.6 million last year, an increase of $8.3 million. And net income to common for the fourth quarter was $5.9 million, compared to a net loss of $0.6 million last year.

Dave Francisco: This year over year change in operating expenses was driven by a $12 5 million or 20% increase in selling general and administrative expenses compared to the prior year period.

Dave Francisco: Research and development expenses declined 3% year over year, but increased 11% sequentially due to the timing of expenses associated with clinical trials and research.

Dave Francisco: Operating income for the fourth quarter was $10 2 million compared to an operating loss of $1 3 million last year, an increase of $11 5 million.

Dave Francisco: GAAP net income for the fourth quarter was $7 7 million compared to a net loss of <unk> $6 million last year, an increase of $8 3 million.

Dave Francisco: And net income to common for the fourth quarter was $5 9 million compared to a net loss of <unk> 6 million last year.

Dave Francisco: Net income to common includes the impact of both the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted EBITDA for the fourth quarter was $18.2 million or 14.4% of net revenue compared to $7.5 million or 7.5% of net revenue last year.

Dave Francisco: Net income to common includes the impact of both the cumulative dividend and the noncash accretion to redemption value on our convertible preferred stock.

Dave Francisco: Adjusted EBITDA for the fourth quarter was $18 2 million or 14, 4% of net revenue compared to $7 5 million or seven 5% of net revenue last year.

Dave Francisco: We're pleased with the financial results we delivered in the fourth quarter, where we leveraged the better-than-expected revenue results to drive adjusted EBITDA that exceeded the high end of our guidance range by more than $2 million.

Dave Francisco: We're pleased with the financial results, we delivered in the fourth quarter, where we leverage the better than expected revenue results to drive adjusted EBITDA exceeded the high end of our guidance range by more than $2 million.

Dave Francisco: Turning to a brief review of our financial results for the 12 months ended December 31st, 2024. Net revenue was $482 million compared to $433.1 million for the year ended December 31st, 2023, an increase of $48.9 million or 11%. The increase in net revenue was driven by an increase of $48.1 million or 12% in the net revenue of advanced wound care products, an increase of $0.8 million or 3% in net revenue of surgical and sports medicine products. Adjusted EBITDA was $49.8 million, or 10.3% of net revenue, compared to adjusted EBITDA of $42.6 million, or 9.8% of net revenue, for the year ended December 31st, 2023.

Dave Francisco: Turning to a brief review of our financial results for the 12 months ended December 31 2024.

Dave Francisco: Net revenue was $482 million compared to $433 1 million for the year ended December 31, 2023, an increase of $48 9 million or 11%.

Dave Francisco: The increase in net revenue was driven by an increase of $48 1 million or 12% and the net revenue advanced wound care products and an increase of <unk> 8 million or 3% and net revenue of surgical and sports medicine products.

Dave Francisco: That EBITDA was $49 8 million or 10, 3% of net revenue compared to adjusted EBITDA of $42 6 million or nine 8% of net revenue for the year ended December 31 2023.

Dave Francisco: Turning to the balance sheet, as of December 31st, 2024, the company had $136.2 million in cash, cash equivalents and restricted cash, and no outstanding debt obligations. This compared to $104.3 million in cash, cash equivalents and restricted cash, and $66.2 million in net debt obligations as of December 31st, 2023. As discussed in our third quarter call, the private placement of Series A convertible preferred stock to Avista Healthcare Partners in November 2024 provided important capital to execute our long-term growth strategies and substantially enhanced our balance sheet and financial conditions. We used a portion of the $122.7 million of net proceeds from this transaction to pay off the outstanding borrowings of $66.6 million on our long-term debt facility.

Dave Francisco: Turning to the balance sheet as of December 31, 2024, the company had $136 2 million in cash cash equivalents and restricted cash and no outstanding debt obligations. This compared to $104 3 million in cash cash equivalents and restricted cash and $66 2 million in net debt obligations as of December 31, 2023.

Dave Francisco: As discussed on our third quarter call at the private placement of series a convertible preferred stock to Avista health care partners. In November 2024 provided important capital to execute our long term growth strategies and substantially enhanced our balance sheet and financial condition. We.

Dave Francisco: We used a portion of the $122 7 million of net proceeds from this transaction to pay off outstanding borrowings of $66 6 million on our long term debt facility. We appreciate the support from a leading health care Investor and believe it reflects the Vista is confidence in the compelling opportunity investing organic Genesis presents.

Dave Francisco: We appreciate the support from a leading healthcare investor and believe it reflects Avista's confidence in the compelling opportunity investing in Organogenesis presents.

Dave Francisco: Turning now to a review of our 2025 financial guidance, which we introduced in this afternoon's press release. For the 12 months ended December 31st, 2025, the company expects net revenue between $480 million and $535 million, representing year-over-year change in the range of a roughly flat to an increase of 11 percent. The 2025 Net Revenue Guidance Range assumes net revenue from advanced wound care products between $450 million and $500 million, representing a year-over-year change in the range of a decline of 1% to an increase of 10%. net revenue from surgical and sports medicine products of between $30 million and $35 million, representing a year-over-year increase of 6% to 23%.

Dave Francisco: Turning now to a review of our 2025 financial guidance, which we introduced in this afternoon's press release.

Dave Francisco: For the 12 months ended December 31, 2025, the company expects net revenue between $480 million and $535 million representing year over year change in the range of a roughly flat to an increase of 11%.

Dave Francisco: The 2025 net revenue guidance range assumes net revenue from advanced wound care products between $450 million and $500 million, representing a year over year change in the range of a decline of 1% to an increase of 10%.

Dave Francisco: Net revenue from surgical and sports medicine products of between $30 million and $35 million, representing a year over year increase of 6% to 23%.

Dave Francisco: With respect to our GAAP profitability and EBITDA guidance for the company, the company expects GAAP net income in a range of $9.5 to $38.8 million, EBITDA on a range of $27 million to $66.6 million, non-GAAP adjusted net income in the range of $15.3 million to $44.6 million, and adjusted EBITDA on the range of $43.6 million to $83.2 million. In addition to our formal financial guidance for 2025, we're providing some considerations for modeling. As Gary mentioned, we introduced our financial guidance for 2025 with the assumption that the final LCD will be effective on April 13, 2025.

Dave Francisco: With respect to our GAAP profitability and EBITDA guidance for the company. The company expect GAAP net income in a range of nine 5% to $38 8 million.

Dave Francisco: EBITDA in a range of 27 million to $66 6 million non.

Dave Francisco: non-GAAP adjusted net income in the range of $15 3 million to $44 6 million and adjusted EBITDA in the range of $43 6 million to $83 $2 million.

Dave Francisco: In addition to our formal financial guidance for 2025.

Dave Francisco: Regarding some considerations for modeling purposes.

Gary S.: As Gary mentioned, we introduced our financial guidance for 2025 with the assumption that the final LCD will be effective on April 13th 2025.

Dave Francisco: Given this implementation implementation date delay, we expect the environment will be very challenging throughout the first half of 2025, followed by a significant improvement in our business trends beginning in the third quarter. For modeling purposes, we expect the first quarter revenue in the range of $85 million to $95 million. and our profitability guidance for 2025 assumes gross margins in the range of 76 to 78 percent. GAAP operating expenses will be down 2% to flat year-over-year, and excluding non-cash intangible amortization of approximately $3.3 million and a non-recurring FDA payment related to our renewed BLA filing of $4.6 million, our total non-GAAP operating expenses will increase approximately 3% to 6% year-over-year.

Gary S.: Given this inflammation implementation date delay we expect the environment will be very challenging throughout the first half of 2025, followed by a significant improvement in our business trends beginning in the third quarter.

Gary S.: For modeling purposes, we expect our first quarter revenue in the range of $85 million to $95 million.

Gary S.: And our profitability guidance for 2025 assumes gross margins in the range of <unk>, 76% to 78%.

Gary S.: GAAP operating expenses were down 2% to flat year over year, and excluding noncash intangible amortization of approximately $3 3 million and a nonrecurring FDA payment related to our renewable BLA filing of $4 6 million. Our total non-GAAP operating expenses will increase approximately 3% to 6% year over year.

Dave Francisco: Note the expected increase in non-GAAP operating expenses this year is primarily related to incremental investments in clinical studies and regulatory-related spending in preparation for renewed BLA efforts, as well as strategic investments to support key commercial and organizational efficiency initiatives. Finally, our full year profitability guidance range also assumes total interest in other income of approximately $4 million compared to expense of $1.5 million last year. A GAAP tax rate and non-GAAP tax rate of 26 and 27% respectively. non-cash depreciation of approximately $14.8 million, non-cash stock compensation expense of approximately $12 million.

Gary S.: Note the expected increase in non-GAAP operating expenses. This year is primarily related to incremental investments in clinical studies and regulatory related spending in preparation for our renewable BLA efforts as well as strategic investments to support key commercial and organizational efficiency initiatives.

Gary S.: Finally, our full year profitability guidance range also assumes total interest and other income of approximately $4 million compared to expense of $1 5 million last year.

Gary S.: GAAP tax rate and non-GAAP tax rate of 26, and 27% respectively.

Gary S.: Noncash depreciation of approximately $14 8 million noncash stock compensation expense of approximately $12 million.

Dave Francisco: Capital expenditures of approximately $45 million and a weighted average diluted share of approximately $134 million.

Gary S.: Capital expenditures of approximately $45 million and a weighted average diluted share of approximately $134 million.

Operator: With that, I'll turn the call over to the operator to open your call to your questions. Thank you. If you would like to ask a question, please press star 11 on your telephone. if you're using a speakerphone. Please make sure your mute function is turned off to allow the signal to reach you. We also ask that you please wait for your name and company to be announced before you proceed with your question. One moment for the first question.

Gary S.: With that I'll turn the call over to the operator to open your call to your questions.

Gary S.: Thank you if you would like to ask a question. Please press star one on your kind of skews.

Speaker Change: If you're using a speaker phone.

Speaker Change: Please make that your mute make sure your mute function is turned off to allow the signal to reach our equipment.

Speaker Change: We also ask that you. Please wait for your name and company. It will be announced before you proceed with your questions one of them. So the first question.

Brooks O'Neill: And our first question will come from the line of Brooks O'Neill of Lake Street Capital Markets. Your line is... Thank you very much. Good afternoon, you guys. I guess I'd like to start by just asking if you mentioned you expect the first half to be very competitive. Would you just give us a feel for what you're seeing in the marketplace right now from competitors? And maybe importantly, also sort of the typical behavior you're seeing from doctors as it relates to, you know, loading up inventory of your products or competitors' products, Yeah, sure, Brooks.

Brooks O'neil: And our first question will come from the line of Brooks O'neil.

Speaker Change: Lake Street capital markets. Your line is open.

Brooks O'neil: Thank you very much good afternoon guys.

Speaker Change: I guess I'd like to start by just asking if you mentioned you expect the first half to be very competitive.

Speaker Change: Could you just give us a feel for what youre seeing in the marketplace right now from competitors and maybe importantly, also sort of the typical behavior you are seeing doctors as it relates to.

Speaker Change: Loading up inventory of your products or our competitors' products et cetera.

Dave Francisco: This is Dave. Thanks for the question. So we're not really seeing a major change in the competitive environment. It's really more customer buying behavior. As you recall, we had anticipated that the the LCD would be implemented on the 1st of January. And so we expected some disruption in the fourth quarter, when that didn't happen and got pushed to February and now actually pushed out to mid-April. We're seeing some, you know, kind of changing in buying behaviors with our customers. When any kind of time that there's, you know, a reimbursement dynamic change, then, you know, customers pause oftentimes, test the reimbursement, need to get comfortable with it.

Dave Francisco: Yes sure Brooks. This is Dave Thanks for the question. So we're not really seeing a major change in the competitive environment, it's really more customer buying behavior as you recall, we had anticipated that.

Dave Francisco: The LCD would be implemented on the first of January and so we expected some disruption in the fourth quarter when that didn't happen and got pushed to February and now actually pushed out to mid April we're seeing some kind of changing in buying behavior with our customers when any kind of time that there is.

Speaker Change: Reimbursement dynamic change then.

Speaker Change: Customers pause oftentimes tests, the reimbursement need to get comfortable with it and what we're seeing right now is exactly that and as far as what you said about stocking and such obviously some of our technologies as you know that are on the covered list our living technologies. So with that short shelf life, we don't have that option with customers.

Dave Francisco: And what we're seeing right now is exactly that. And as far as what you said about stocking and such, you know, obviously, some of our technologies, as you know, that are on the covered list are living technologies. So with that short shelf life, we don't have that option.

Dave Francisco: Interesting.

Dave Francisco: And then, I'm curious, you talked or Gary talked a little bit about the process of moving forward with RENEW, and I'm just curious if you could update us on what you're currently thinking the timeline would look like after submission. of your application, and how quickly do you think you might hear back and be able to put the product on the market? here. So we're expecting to file the BLA submission at the end of 2025. We would expect to hear from the FDA probably in Q four of 2026 with expectation of getting approval at the end of 26, perhaps the beginning of 27.

Speaker Change: Okay interesting and then.

Speaker Change: I'm curious you or.

Speaker Change: Gary talked a little bit about the.

Speaker Change: The process of moving forward with renew.

Speaker Change: And I'm just curious if you could update us on what Youre currently thank you.

Speaker Change: The timeline would look like after submission.

Speaker Change: Of your application how quickly do you think you might hear back and be able to put to market the product out in the market.

Speaker Change: Sure. So we're expecting to file the BLA submission at the end of 2025.

Speaker Change: We would expect to hear from the FDA probably in Q4.

Speaker Change: 2026 with expectation of getting approval at the end of 'twenty six perhaps the beginning of 2007.

Operator: That's our current timeline. Okay, great. Thank you very much. You're welcome. Thank you. One moment for the next question.

Brooks O'neil: That's our current timeline Brooks.

Speaker Change: Okay, great. Thank you very much.

Brooks O'neil: Youre welcome.

Brooks O'neil: Thank you one moment for the next question.

Ross Osborn: And our next question will be coming from the line of Ross Osborn of Cantor Fitzgerald. Your line is open. Hey guys, congrats on the strong quarter and thanks for taking our question.

Speaker Change: And our next question will be coming from the line of Ross <unk> of Cantor Fitzgerald. Your line is open.

Ross <unk>: Hey, guys congrats on the strong quarter and thanks for taking our questions.

Dave Francisco: So maybe starting off on your Salesforce, we'd be curious to hear if you experience any heightened levels of attrition or if retention has been pretty good through the quarter and how that's trended here today. Yeah, actually, we did see some attrition in the quarter, but it wasn't really that significant, Ross, and we've done a nice job of backfilling those heads and, you know, seeing some good talent out there. So we feel good about where we are right now. And, you know, again, the team executed extraordinarily well in 24. So we're pleased. Yeah, glad to hear it.

Ross <unk>: Just starting off on your sales force would be curious to hear.

Ross <unk>: Experienced any heightened levels of attrition or retention has been pretty good in the quarter and how that's trending year to date.

Ross <unk>: Yes, actually we did see some attrition in the quarter, but it wasn't really that significant Ross and we've done a nice job of back filling those heads and seeing some good talent out there. So we feel good about where we are right now.

Ross <unk>: Again, the team executed extraordinarily well.

Ross <unk>: 24, so we're pleased.

Speaker Change: Yes glad to hear it and then in terms of your products that were not on our glass.

Dave Francisco: And then in terms of your products that were not on the covered list, any update on how those RCTs are going? Is the RCT Could you repeat the question? Yes, just curious how your progress on your RCTs are going for the products not on the covered Sure. So our Pure Apply study, which we started, we expect to have an interim analysis. interim analysis in Q4, and we expect to have a publication in Q1 of 26 for that study with the expectation of having it ready and available for reconsideration by the MAX by Q1 of 26 when we believe they'll be considering, assuming the LCD goes forward, reconsideration of products.

Speaker Change: Update on how those licenses.

Speaker Change: Rct's could.

Speaker Change: Could you repeat the question.

Speaker Change: Yes, just curious how your progress on your R&D teams are going for the products on the covered loans.

Speaker Change: Sure so our.

Speaker Change: Pure applies study, which show we started we expect to have an interim analysis.

Speaker Change: An interim analysis in Q4, and we expect to have a publication in Q1 of <unk> 26 for that study.

Speaker Change: With the expectation of having it ready and available for reconsideration by the Max by Q1 of 26, when we believe they will be considering assuming the LCD goes forward reconsideration of products.

Operator: Okay, got it. Thank you for taking our question. Thank you. And as a reminder, if you would like to ask a question, please press star 11 on your.

Speaker Change: Okay got it thank you for taking my questions.

Speaker Change: Sure.

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

Ryan Zimmerman: And our next question will be coming from the line of Ryan Zimmerman of BTIG. Your line is open. Oh, thank you. Good afternoon, everyone. Thanks for taking our question. Congrats on the quarter. Maybe we could start. Gary, you know, listening to one of your competitors last night. They extract LCDs to go through as a You've made the statement that it's your prevailing assumption, your current operating assumption. I just want to be clear, you have no reason to believe it would be changed at this point. I know this is your assumption, but is there anything you can say from your perspective, having had those discussions?

Speaker Change: And our next question will be coming from the line of Ryan Zimmerman of <unk>. Your line is open.

Ryan Zimmerman: Thank you good afternoon, everyone. Thanks for taking my question congrats on the quarter.

Speaker Change: Maybe just start.

Ryan Zimmerman: Gary.

Ryan Zimmerman: Listening to one of your competitors last night.

Ryan Zimmerman: The exact LCD to go through as written.

Ryan Zimmerman: You've made.

Ryan Zimmerman: Statement.

Ryan Zimmerman: Prevailing assumption Youre current operating assumption I, just want to be clear I mean, you have no reason to believe it would be change at this point I know this is your assumption, but is there anything you can say from your perspective.

Ryan Zimmerman: Having had those discussions.

Gary Gillheeney: Are you, you're operating under the view that nothing is changing as Red That's correct. I mean, I think it's clear to CMS and the MACS that the costs are continuing to spiral. And though the LCD is not perfect, we think it's a good step and it's a it's a mechanism to gain some of the savings that they're looking to gain. So we think from that perspective, it's it's likely more likely than not that it would go forward. I don't think it will be delayed. That's not something that I think could happen. I mean, it's possible it could be rescinded, because delaying it again would cause significant confusion in the market.

Ryan Zimmerman: Are you you're operating under the view that nothing is changing as written right now.

Ryan Zimmerman: That's correct I mean, I think it's clear to CMS and the Max at the costs are continuing to spiral.

Ryan Zimmerman: And though the LCD is not perfect. We think it's a good step and it's a it's a mechanism to gain some of the savings that they are looking to gain so we think from that perspective.

Ryan Zimmerman: It's likely more likely than not that it would go forward.

I don't think it will be delayed.

Ryan Zimmerman: That's not something that I think could happen I mean, it's possible it could be rescinded.

Ryan Zimmerman: Because delaying it again is cause would cause significant confusion in the market and I think CMS is hearing how confusing the market is and patients are not being served appropriately with all of the confusion going on so.

Gary Gillheeney: And I think CMS is hearing how confusing the market is, and patients are not being served appropriately with all of the confusion going on. So, you know, that's another reason to implement it in April. It's certainly another reason not delay it. But if for some reason they weren't happy with it, it would be, you know, rescinded is probably a better answer, quite frankly.

Ryan Zimmerman: That's another reason to implement it in April.

Ryan Zimmerman: It's certainly a another reason not to delay it but if for some reason they werent happy with it it would be.

Ryan Zimmerman: And it is probably a better answer quite honestly at this point in time and start again, but I think it will be implemented.

Gary Gillheeney: at this point in time and start again, but I think it'll be implemented. Very helpful.

Ryan Zimmerman: Okay.

Dave Francisco: And then, you know, as we think about it in the context of the guidance. We appreciate that you're giving a wider range on guidance. for the year, given some of the unknowns that are going to play out here in the first half of the year. Maybe Dave and Gary, you take us through kind of your assumption on both the low end and the high end. And what I really want to kind of understand is what's convertible in your mind from a product standpoint? What's at risk from a product. as you try and, you know, move.

Ryan Zimmerman: Very helpful and then as we think about it in the context of the guidance.

Ryan Zimmerman: I appreciate that you are giving a wider range on guidance for the year given some of the unknowns that are going to play out here in the first half of the year.

Speaker Change: But maybe David Gerry take us through kind of your assumptions on both the low end and the high end and what I really wanted to kind of understand as well.

Speaker Change: Convertible in your mind from a product standpoint, what's at risk from a product standpoint.

Speaker Change: As you try and move.

Dave Francisco: product usage or sales. Yeah, sure. I think the idea there on the first half, really, is the fact that because it got delayed from February to mid-April was the kind of issue there that just extends that confusion and ambiguity in the marketplace. So our expectation was, you know, back when it was going to happen in the middle of February, that we would start to see some switching and transition in February. Now that's obviously pushed to the second quarter. So we've got a longer period of this uncertainty. When we think about the back half, though, so I think, you know, back to your question about low-end versus high-end, the one question is, is how quickly do you convert those products in the back half of Q2?

Speaker Change: Product usage or sales to the products that are on the covered lives.

Speaker Change: Yeah sure I think the idea there on the first half really is the fact that because it got delayed from February two.

Speaker Change: To mid April was the kind of issue there that just extends that confusion and ambiguity in the marketplace. So our expectation was back when it was going to happen in the middle of February that we would start to see some switching in transition in February now Thats, obviously pushed to the second quarter. So we've got a longer period of this uncertainty when we think about the back half, though so I think back to two.

Speaker Change: Your question about low end versus high end. The one question is how quickly do you convert those products in the back half of Q2, assuming it goes into place in April 13th that's one component. How successful are we and then I think as you think about the back half and as we talked about the business trends changing once we get to the third quarter.

Gary Gillheeney: Assuming it goes into place in April 13th, that's one component. How successful are we? And then I think as you think about the back half, and as we talked about the business trends changing once we get to the third quarter, you know, as Gary mentioned in his prepared remarks, we're three products out of, you know, 18. So we see a major, major shift into competitive dynamics in the back half and see a lot of opportunity for share gains amongst ourselves and other traditional players in the market. And us as a market leader, we think we'll take a proportionate share of that.

Gary S.: Gary mentioned in his prepared remarks were three products out of <unk>. So we see a major major shift in the competitive dynamics in the back half and see a lot of opportunity for share gains amongst ourselves and other traditional players in the market and us as a market leader. We think we will take our proportionate share of that so we see the back half being stronger than the first.

Gary Gillheeney: So we see the back half being stronger than the first. In addition, Ryan, to converting our own products, obviously there's significant market share available as Dave mentioned. very large component of the market, particularly just DFU and VLU is available. What we're also finding out is some customers are only using products that are on that approved list, even for non-DFU and VLU, to avoid any potential confusion of using a product inappropriately and not getting reimbursed. So, you know, we feel that the DFU-VLU open market is substantial, but there's also non-DFU and VLU that we're seeing now with covered products.

Speaker Change: Okay.

Speaker Change: Okay. In addition, Ryan to converting our own products.

Speaker Change: Obviously, there is significant market share available as Dave mentioned I mean, this a very large component of the market.

Speaker Change: Particularly just <unk> is available we're also finding out as some customers.

Speaker Change: Our only using products that are on that approved list even for non <unk> to avoid any potential confusion of using our product and appropriately and not getting reimbursed. So we feel that the <unk> open market is substantial but theres also non <unk> that we're seeing now with.

Covered products.

Speaker Change: And but just.

Gary Gillheeney: You know, maybe the follow-up. point, I think one of the big Components of the advanced wound care business is Puriply, right? And as of today, it's not on the list, but just to remind everyone, you know, not necessarily all Puriply usage. are basically relegated to DFU and VLU. I guess what I'm trying to understand is... That entire business line isn't going away, you know, come April 13. Some of that is preserved outside of. what's included in That's completely accurate. Just as a benchmark, about 55% of the market is DFU-VLU, the rest of it is non-DFU-VLU, so as a guide, that's generally what we've seen in the space.

Speaker Change: Maybe to.

Speaker Change: Follow up on this point I think one of the big.

Speaker Change: Components of the advanced wound care business is pure play right in and as of today, it's not on the list, but just to remind everyone.

Speaker Change: Not necessarily all purify usage is strictly.

Strictly relegated to <unk>, I guess, what I'm trying to understand is it.

Speaker Change: That entire business line isn't going away.

Speaker Change: Come April 13, and some of that is preserved outside of potentially whats included in the LCD.

Speaker Change: That's completely accurate just as a benchmark about 55.

Speaker Change: Percent of the market is <unk> the rest of it is non <unk>. So.

Speaker Change: As a guide that's generally what we've seen in the space I think are our.

Gary Gillheeney: I think our pure-applied product relationship to non-DFU is a little higher. used a lot in dermatology and other wounds, so Pure Apply has a better ratio than that for us. So you're right, Ryan. There's a lot of revenue still available. very clear, including the surgical side, including the surgical side.

Speaker Change: Pure play product relationship to <unk> is a little higher.

Speaker Change: Used a lot in dermatology and other wounds. So pure play has a better ratio than that for us. So you're right Brian Ryan There's a lot of revenue is still available.

Speaker Change: Very clear.

Speaker Change: Including the surgical side, including the service side.

Ryan Zimmerman: Very, very helpful.

Gary S.: Alright very helpful. Gary.

Gary S.: Okay.

Gary S.: Yeah.

Operator: Thank you and at this time I'm not showing any more questions in the queue. And at this time, we thank you for participating in today's conference call. You may all disconnect. Thank you very much. Thank you. Thanks for watching!

Gary S.: Thank you.

Gary S.: This time im not showing any more questions in the queue.

Gary S.: Okay.

Gary S.: And at this time, we thank you for participating in today's conference call.

Gary S.: You may all disconnect you very much thank you.

Gary S.: Okay.

Gary S.: [music].

Gary S.: Okay.

Gary S.: [music].

Gary S.: Okay.

Gary S.: [music].