MiMedx Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

There are 7 speakers on the call.

Operator

Afternoon and thank you for standing by. Welcome to the Mimetics First Quarter 2023 Operating and Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

I would now like to turn the conference over to your host, Mr. Matt Notariani, Head of Investor Relations for MiMedx. Thank you. You may begin.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to the MiMedx First Quarter 2023 Operating and Financial Results Conference Call. With me on today's call are Chief Executive Officer, Joe Capper and Chief Financial Officer, Pete Carlson. As part of today's webcast, We are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at memetics.com.

Speaker 1

Joe will kick us off with some opening remarks and Pete will provide a summary of our operating highlights and financial results for the quarter. And then Joe will conclude with some additional updates, including a discussion of our financial goals. We will then be available for your questions. Before we begin, I would like to remind you that our comments today will include forward looking statements, including statements regarding future sales growth, Future margins and expenses, expected market sizes for our products and potential timelines for clinical trial and FDA submissions and reviews. These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors.

Speaker 1

Actual results, market sizes, timing and FDA review will depend on a number of factors, including competition, Access to customers, the reimbursement environment, unforeseen circumstances and delays, the results of our clinical trials, Our interpretation of those results and other factors. Additional factors that could impact outcomes and our results Include those described in the Risk Factors section of our annual report on Form 10 ks and our quarterly reports on Form 10 Q. Also, our comments today include non GAAP financial measures and we provide a reconciliation to GAAP measures in our press release, which is available on our website at www.mimetics.com. And with that, I'm now pleased to turn the call over to Joe Capper. Joe?

Speaker 1

Thanks, Matt. Good afternoon, everyone. Well, it's only been 2 months since our last call. We have a lot of exciting news to share, Starting with our outstanding Q1 performance, setting the stage for what we anticipate will be an extremely successful 2020 trade. I've been on board now for a full quarter.

Speaker 1

And as I stated on our last call, this early assessment process continues to present a business That far surpasses my original expectations. During these 1st 90 days, I've spent time analyzing all parts of the business, formalizing our strategic planning process, meeting with customers, business partners and several of you in the shareholder community, all in an effort to determine our best path forward. While still early on, it's becoming clear to me that we Great in a relatively less orderly area of the healthcare industry, which is abundant and untapped opportunity. I will discuss in more detail our plan to ensure the company capitalizes on these many opportunities, while continuing to optimize Our operating platform. But first, I want to take on some of the most noteworthy highlights from the Q1.

Speaker 1

Q1 year over year net sales grew by nearly 22% to 71,700,000 The highest Q1 net sales performance we have delivered in 5 years. Gross profit margin is 82.7% which was an improvement sequentially. And adjusted EBITDA was $5,500,000 up from a loss of $1,700,000 a year ago, A $7,200,000 swing in the right direction. These positive results all reflect superb On the part of the entire company, among these impressive numbers, our adjusted EBITDA warrants special attention. To be able to generate $5,500,000 of positive adjusted EBITDA so early in the year clearly shows And we are beginning to unlock leverage in the business, which will undoubtedly improve with scale.

Speaker 1

We have no interest in revenue just for the sake of growing. We must and will improve our profitability as we grow. Naturally, this will increase free cash flow generation, Our balance sheet will improve and we will create growth funding optionality. Our better than expected performance becomes that much more impressive When you consider that our expense burden in Q1 is typically higher than other quarters during the year. Specifically, we had about $3,000,000 of expense during the quarter as a result of payroll taxes resetting January 1 and the cost of our national sales meeting, both of which will not recur for the remainder of the year.

Speaker 1

These expenses and the annual bonus payout were used in cash Specific to the Q1, as such, we expect to build cash as we move further into the year. Pete will unpack the numbers in more detail, but suffice it to say, we could not be more excited about this great start to the year. Our best in class products, highly skilled team and improving financial profile give me tremendous confidence in our ability As it relates to the key elements of our strategic focus. On our last call, I spoke about the 3 areas in which we are concentrating our time and resources In order to drive growth and sustain value creation, as a reminder, our first growth objective is to build on our leadership position in the Wound and Surgical markets by enhancing our Product portfolio and expanding geographically. Success in achieving this objective will be dictated by how well our Commercial organization performs over time.

Speaker 1

This Q1 was certainly an example of what commercial excellence looks like. To that end, during the quarter, we achieved year over year revenue growth across all sites of service. We had a welcome sales increase in the private office segment. You may recall that this has been a particularly challenging area for us, given the current Medicare reimbursement environment, This creates an opportunity for certain companies to manipulate the system. During the quarter, the OIG published a report relating The reimbursement practices we have repeatedly raised as concern.

Speaker 1

While the LIT report is clearly aligned with our position, It is premature to determine if and when these practices will be reined in. We continue to stay close to the rule making process and remain optimistic It will result in a well level playing field. In the Surgical Recovery segment, we continue to build momentum particularly around our new products, Which were launched in the 2nd part of last year. We believe the future for growing our footprint across a variety of surgical procedures remains bright, particularly as a body of real world evidence for a wide range of applications continues to grow. And finally, we made more headway developing our business in Japan With initial sales starting to commence in this important international market, we anticipate adoption to begin to ramp in the coming months and quarters.

Speaker 1

Our second growth objective is to develop opportunities in adjacent markets to create additional growth drivers for the company. Thank you, Doctor. S. As a means to 1st and foremost strengthen our position in the market segments in which we currently compete by broadening our offering. As such, we have formalized the process for assessing and prioritizing various strategic opportunities as they arise.

Speaker 1

Additionally, we will look for ways to leverage our technology and commercial strength in order to develop adjacent opportunities With the knee OA project representing our major investment. To that end, we were excited to get the knee OA study officially up and running and to begin enrolling patients during the quarter. As a reminder, in this first of 2 required studies, we expect enrollment of approximately 470 patients With 3 arms, a 6 month observation period and 6 additional months of monitoring. We will continue to report on the project as we achieve critical milestones or have newsworthy information to share. Finally, our 3rd objective is to build a corporate discipline around expense management, rationalization and continuous process improvement In order to ensure our growth becomes more profitable over time, as the Q1 results indicate, this approach I anticipate that the team will continue to execute on our plan, resulting in further Margin improvement and enhanced ability to scale over time.

Speaker 1

Additionally, the wound and surgical contribution margin improved to 28.5 percent in Q1. As you will recall, our goal is to get to 30% and we are well on our way. Another efficiency metric we've spoken about is to get our corporate expenses as a percent of our net sales to 20% or below. For Q1, this number improved to 20.4% as a result of efforts to curb G and A across the enterprise. All in all, the team did an excellent job building on the momentum we had coming out last year.

Speaker 1

Our formula for success lies in our ability to consistently identify and execute against the most relevant growth drivers for our business. As I mentioned on our last call, if we remain focused and execute on the plan I just outlined, I'm confident we will continue to build on this franchise Have the opportunity to create tremendous value and once again establish Pimetics as a world class healthcare company. Now, let me turn the call over to Pete, who will recap our Q1 results. Pete?

Speaker 2

Thank you, Joe. Good afternoon, everyone, and thanks for joining us today. Before I begin my remarks about the Q1, I want to reflect on my time with MiMedx as I prepare to move on to future opportunities And Al, it has been a pleasure serving as MiMedx's CFO these last several years. I am proud of the team's progress since I joined And I'm honored to have helped lead an organization with products that impact the lives of a large and growing number of patients. In addition to continuing to expand access to our products over the last 3 years, we've also built a robust Finance and Accounting organization that is positioned to deliver as the business scales in the future.

Speaker 2

I thank the team for all the efforts. Moving on now to our Q1. As a reminder, unless otherwise specified, all results referenced in my prepared remarks First, as Joe mentioned, our Q1 2023 net sales were $71,700,000 compared to $58,900,000 Joe outlines many of the specific drivers of this performance in his remarks And I'm pleased to also report on the numerous areas of strength we saw at the start of the year. On a sequential basis,

Speaker 1

While our

Speaker 2

Q1 is historically the lowest revenue quarter of the year due to deductible resets and generally Lower patient traffic. Our 1st quarter net sales figure represents the smallest step down from the preceding Q4 that we have seen in recent years. You may recall that in the Q1 of 2022, we were faced with challenges associated with the Omicron wave of COVID-nineteen, which we did not have to deal with in the Q1 of 2023. Also, our Q1 results benefited, albeit modestly, From one additional shipping day compared to the Q1 of 2022. Looking ahead over the next three quarters, We have 1 fewer shipping day in Q2, 1 fewer shipping day in Q3 and the same number of shipping days in Q4 compared to each of these periods in 2022.

Speaker 2

Moving to gross profit and gross margins. Our first quarter gross profit was $59,300,000 compared to $49,000,000 And our gross margin was 82.7% compared to 83.1%, roughly flat on a year over year basis. On a sequential basis, improvement in our gross margin versus a several quarter trend that saw pressure from lower production yields weigh in our performance. Well, there are several factors impacting gross margin, including product mix, I want to highlight the efforts of our quality, operations And regulatory team in improving our production efficiency. As you know, this has been a major focus for us in 2023 And we continue to think the business is capable of delivering gross margin percentages in the mid-80s over the long term.

Speaker 2

Selling, general and administrative expenses or SG and A were $52,300,000 compared to $49,600,000 The increase was primarily driven by higher commissions from the higher sales along with higher travel expenses in the Q1, both of which more than offset savings associated with actions taken in the Q4 of 2022 related to headcount. Our research and development expenses were $6,500,000 compared to $6,000,000 The increase over the prior year period was driven primarily by costs associated with the start of our knee OA trial in the Q1. Investigation, restatement and related expenses were $3,700,000 compared to $2,600,000 Based on a recent filing with the court, it appears the long running SEC civil matter against the company's former CFO is nearing a resolution. Once this resolution is finalized, we anticipate the costs associated with that matter to cease And the costs included in this category can decrease materially in the near term. We may continue to incur legal expenses resulting from the investigation, but this matter with the SEC We'll conclude a sizable expense burden the company has shouldered over the past several years.

Speaker 2

Net loss was $5,000,000 Compared to a net loss of $10,500,000 Adjusted EBITDA was income of $5,500,000 or 7.7 percent of net sales compared to a loss of $1,700,000 or negative 2.9 percent of net sales. On a segment basis, net sales in Lubes and Surgical totaled $70,600,000 compared to 58 $300,000 reflecting growth of approximately 21%. The Wound and Certoturgical Segment contribution of $20,100,000 represented 28.5 percent of wound and surgical med sales Compared to a segment contribution of $13,200,000 which represented 22.6% of wound and surgical net sales during the Q1 of 2022. Turning to regenerative medicine, operating expenses totaled $5,000,000 compared to $4,000,000 This increase was driven by the commencement of our knee OA clinical trial, which began pre Screening and enrolling patients during the quarter. We expect spending to continue to ramp through the year as additional sites come online and patient enrollment activity increases.

Speaker 2

Finally, Our SG and A expenses in corporate and other totaled $14,600,000 representing 20.4% of our total net sales Compared to $15,500,000 which represented 26.4 percent of total net sales, Excluding stock compensation, our corporate and other SG and A expenses totaled $12,100,000 representing 16.9 percent of our total net sales compared to $13,600,000 which represented 23% of total net sales in the Q1 of 2022. As of March 31, 2023, the company had $61,200,000 of cash and cash equivalents compared to $66,000,000 as of December 31, 2022. The sequential decline in our cash and cash equivalents was driven by Several factors that typically hit in the Q1, such as the payment of annual employee incentive compensation As well as investments in working capital, primarily accounts receivable and inventory that reflect increased sales activity. Based upon our current position and expectations for the business, I want to reemphasize that we remain well capitalized and do not foresee the need for external financing. I will now turn the call back to Joe.

Speaker 2

Joe?

Speaker 1

Thanks, Pete. As you know, people will be leaving MiMedx in the coming months. I would like to take this opportunity to recognize and thank Pete For the incredible work he has done during his time with MiMedx. Pete joined at a pivotal point in the company's history We're eager to make final changes to strengthen our accounting and finance organization. Pete did an outstanding job And the company is on solid financial footing, thanks to his leadership and experience.

Speaker 1

He leaves behind a strong team and a lengthy list of accomplishments. We are grateful for all that Pete has contributed to MiMedx and wish him our sincere best in all future endeavors. The search for our next CFO is ongoing and we look forward to bringing in an individual of similar caliber in the coming months. People continue to work with the company to ensure that a smooth and seamless transition takes place. In summary, as you have just heard, we started the year with an excellent Q1 during which we recorded quarterly revenue of $71,700,000 Up nearly 22% year over year, gross profit margin of 82.7%, adjusted EBITDA of $5,500,000 Continue to rollout our new products in the U.

Speaker 1

S, began selling products in Japan and continue to drive efficiency and expense rationalization Throughout the organization, Pete just spoke about our cash position and the fact that we do not foresee the need for additional In order to fund our current business segment, short of any meaningful investment opportunities. To add a bit more color, Two additional developments are worth mentioning. First, you will recall our previously announced $10,000,000 commitment to Term Therapeutics contingent upon 510 FDA clearance with our Flex product. However, this milestone was not met and we no longer expect to make payment this year. 2nd, as Pete mentioned, we believe we are nearing the end of A portion of the legal expense overhang related to past issues, which has not been insignificant.

Speaker 1

With the conclusion of such matters In our sights, we look forward to a more productive use of capital. Looking ahead, we expect to build cash from this point forward. I'll close by stating that while 1 quarter does not represent a trend, I believe our business is in an exciting phase of growth As we seek to combine commercial success with operational excellence in pursuit of sustainable, profitable growth And as a result, a very bright future. With all that I have learned since joining LiveMedics, I'm confident we can do just that. Given our strong start to the year, I want to reiterate our expectation for low double digit top line growth for the foreseeable future.

Speaker 1

With that, I'd like to open the call to questions. Operator, we are now ready for our first question. Please proceed.

Operator

Thank you. A confirmation tone will indicate your line is in the question Our first question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.

Speaker 3

Great. And congratulations on a strong quarter here. And Pete, good luck on the transition. It was great working together and hope to see you again soon. Maybe to start just on the top line performance in the quarter, certainly ahead of our expectations.

Speaker 3

And Joe and Pete, we've been hearing a lot this earnings season so far about a procedure volume rebound on several of the earnings calls over the past 2 weeks That was showing up in our data earlier in the quarter and then again in some of the results we've seen, it's pretty evident that No, things sort of changed this quarter when we think about throughput capacity and generally speaking patients coming back into the system. So So when we think of the surgical end channel first, how much of what we saw in the quarter was easy comps Versus patients coming back into the system and I would even second that for the physician office channel, how much of it was easy comps versus We're finally getting back to a more normalized patient flow dynamics in that channel as well. And then I'll have a couple of follow ups. Thanks.

Speaker 1

I'll let you start, Pete.

Speaker 2

Good afternoon, Anthony, and thanks for those comments as well as the questions. When we look at it overall, I would say Probably as much as 5% of our growth is driven by the combination of the easier comp last due to the COVID impact that we talked about as well as the extra day. So that is driving some of the growth and the better We knew that was going to be a factor, obviously, both of those items. The there and as you saw, You may not have had a chance to see, but in our 10 Q, you can see that we had growth in both of those channels you mentioned. In the hospital, The growth is 17 ish percent and in the private office, it's over 30%.

Speaker 2

So we there are multiple factors beyond just the easier compare a year ago and the extra day. We have seen volumes up. And as Joe said in his prepared remarks, we saw it across really all care settings. The team has really been executing well. We do think there is, I would say, a trend of not only the additional patient volume, But some aspect of practices working with us wherever that maybe they hadn't been recently because of the reimbursement environment and so So they were making more economic decisions.

Speaker 2

That one's really hard to quantify. And then we did and you see this principally in the Surgical area and that's reflected in some of that in that hospital growth. Our new products were are Key contributor to the growth overall. So we're very pleased with how those are performing. And All of those factors are drivers for the top line growth you see, which did exceed not only your expectations that you mentioned, but even some of our internal expectations.

Speaker 2

And I think your comment about patient volume is an appropriate comment. We've seen the same reports across the spectrum of just higher volumes. Yes. Joe, anything you'd add?

Speaker 1

Yes. Just a little bit more, Anthony. First of all, thanks for the question. In preparing for today's call, we spent a good bit Time on this trying to bifurcate how much of it was market driven, how much of it was just pure Right? Because we want to get the right thrown in message across.

Speaker 1

So what Pete just talked about was kind of the dynamics in the market And we did see upticks in all the sites of service. But I think it's important to kind of give a little bit of color About the quarter itself, each month in the quarter was significantly better than each month in the prior year. And then each month of the quarter, Rob, there's only 3 built on the previous month to the point where in March, we saw A sales number that frankly we didn't see until very late last year. So the team is executing much, much better. So a good portion of that growth did come from superior quarterly performance, superior execution.

Speaker 1

And I said, one Quarter doesn't make a trend, so time will tell. We continue to see above market growth rates for the rest of the year. It will tell you that The organization is just performing better than our comps.

Speaker 3

Very helpful color there. And I guess a logical follow-up is just when you think of a Plus 21.7 percent performance and what appears like at least to some degree some sustainable drivers over the next Few quarters, Joe, you reiterate the low double digit sort of long term growth rate, but to push you a little bit here. I mean, Not to get ahead of ourselves, but is it possible that you certainly trend above that long range target For the remainder of 2023.

Speaker 1

Well, first, I'm glad that you picked up on that. And yes, part of that, Anthony, is Because the Q1 does have noise in it, given that last year's Q1 It was slightly different. We got to give it a little bit more time to see what's really there. I do like the momentum coming out of the 4th quarter. I I like the momentum we saw in the Q1.

Speaker 1

It's still very early for me. I've been here for a whopping 90 days. So I'm still getting The feel for the rhythm of this business, the ebbs and flows of the business, and so it's just going to take me a little bit more time, right? And I think Q1 or excuse me, Q2, Q3 will tell that story. And I'd hate to get way out ahead of ourselves, as you indicate, and start pounding our chest and say Everything is great because you always have challenges and there's still, I think, some things that have to shake out in the private office before we really know what's happening there.

Speaker 1

So I really like it in that kind of low double digit area. And look, it's not us trying to sandbag Seriously, we're just trying to give you our realistic expectation for the full year.

Speaker 3

No, understood. Last one for me and I'll get in queue here. The $5,500,000 in adjusted EBITDA also well ahead of expectations. And maybe just To close out here, I mean, how much of that was purely the revenue beat versus some of the restructuring activities that are ongoing? Again, congratulations on the quarter.

Speaker 2

Thanks, Anthony. The adjusted EBITDA number has multiple components to it. Certainly, sales volume is positive with the high gross margins. But as we noted, the gross margins in the quarter were also up On a sequential basis, relatively flat to a year ago. But from getting our gross margins back up, Approaching the mid-80s and we think we can get to the mid-80s within the next 12 to 15 months or so.

Speaker 2

That's very helpful to our bottom line performance. But we also did have efficiencies and leverage. We know there's leverage in the system here. We're very pleased to see the SG and A cost grow at such a much It's lower level than the revenue grew in the quarter. And we've always said is we get our revenue growing that You would not need to model out expenses growing at the same level.

Speaker 2

Certainly, the activities and some of the We took in the Q4 contributed again just in some of the personnel moves we made at that BP and higher level Have a $5,000,000 annual run rate. So you're seeing $1,000,000 plus of that running through here in the Q1. All of those factors are good. Being cautious on expenses, both in the G and A level and in the selling level And then gross margin improvements, the team has done a great job there. It is process and efficiency matters and there's more to come.

Speaker 2

And then obviously, at 80 plus percent margins, a good bit of that falls to the bottom line when you have strong quarter like we did in revenue.

Speaker 1

Thank you again.

Operator

Our next question comes from the line of Karl Behrens with Northland. Please proceed with your question.

Speaker 4

Thanks for the question and congratulations on the strong quarter. And Pete, thanks for all your help. I think most of my questions have been addressed here, but I wanted to drill it Down a little bit more on the physician segment being up 30%. Obviously, there was pent up demand and you're seeing some of that work off mid COVID in the extra day. But were there any other factors that you attribute to that 30% gain?

Speaker 4

More specifically, I mean, do you think the OIG Do you have any effect in terms of private practices avoiding products that wouldn't The recommendation in your favor? Thanks.

Speaker 1

Yes, I think so. There's 2 things that really happened. 1, there was a A call that CMS hosted in January early in the quarter. And that could have caused a slight change in behavior because it brought more attention to it And they talked about potential areas that they can move. And then late in the quarter, we had the OIG letter, which Certainly, probably helped somewhat.

Speaker 1

How much? Again, we don't know yet. And that's why we're a little bit cautious about Their expectations going forward, because I think it's going to take a little bit of time for this to settle out. But yes, that probably had somewhat of an impact. Great.

Speaker 1

Thanks.

Operator

Our next question comes from the line of Swayamp Pakula with H. C. Wainwright, please proceed with your question.

Speaker 5

Thank you. Thanks for taking my questions. Pete, I wish you the best and it's nothing like leaving on a high note. So good luck and talk to you soon. So just to follow-up on Anthony's line of questioning.

Speaker 5

One of the things you folks have been talking to us this afternoon is on execution And how good the execution has been. So part of that execution formula It's the sales force being with you for a longer period, right? So as the experience increases, they're going to get better and better. So can you just talk to that effect? And I know I think about couple of years ago, There were some new some addition to their sales force.

Speaker 5

And I'm just trying to figure out how much of that is helping out because That can potentially provide some sustenance.

Speaker 1

I think it's helping a lot. I think the sales force Leadership that was put in place a few years back had made a lot of changes to bring order to the organization, And I think they did a great job with that. So I'm extremely pleased with not just the leadership, but the performance of the sales organization. To your point, When you settle down, turn over a little bit, you have a bit more stability. But when you have good clear direction, You have better performance as well.

Speaker 1

So I think all the above, RK. I think the team is doing a very good job. And I expect As we grow this business, as Pete indicated, you will see more leverage out of the S in SG and A. Clearly, you're going to get more leverage out of G and A because We have more control over that. And I think the organization did a good job of streamlining and cleaning a bit of that up.

Speaker 1

As Pete indicated, we're starting to reap the benefit of that. But my expectation is we'll see EBITDA improvement along the way. And where it goes, I'm not quite sure yet We're not there and we don't know what it's going to take to get there. But I fully anticipate EBITDA margin improvement as this business scales. And a good bit of it will come By leveraging that sales organization.

Speaker 5

Okay, fantastic. Thanks for that. And then talking about On patient volumes, so what are the metrics that you folks Follow on the patient volumes and do you see that consistently increasing into the second quarter as well because We are about a month and a half into it now. And I'm trying to think about How we could think about at least for the Q2 because that was also when you compare it to again Q2 of 'twenty two And it's still a lighter quarter for you folks, over the full year last year.

Speaker 1

So the first one you were talking about patient metrics, and I'm not sure that's something that we've traditionally put out. So we're using pretty much the same metrics that you are. And then the second part of your question was really around Q2? I'm sorry, you were breaking up a little bit. But you said Q2?

Speaker 1

Look, right now again What's that?

Speaker 5

You're right. It was Q2.

Speaker 1

Yes. Right now, We're really kind of sticking to kind of annual guidance of that low double digit and there will be some movement quarter to quarter. But I'm going to RK, I'm going to cop out on that one and say I need more time to figure out the rhythm of this business, frankly. Well, I'll tell you, we're doing everything we can to grow this business and we have new products in the pipeline. And it's not just sales force execution, but we see that continuing to improve.

Speaker 1

We have Japan starting with Tempur Online. We have drivers in the business that will help us grow, but we're just not comfortable yet And we're certainly not comfortable giving quarterly guidance at this juncture.

Speaker 2

And RK, it's Pete. Just going back to last year and you mentioned some of the quarterly swing there. One of the things nobody really can What a handle on is this vacation impact that hit the Q3 harder than people expected last year. Is that now a recurring trend just like some of these other things? Are we in a new normal or not?

Speaker 2

And we don't we have no idea of that. That's hard to predict from that standpoint.

Speaker 5

Thank you. One last question from me. On the new product contribution, is there any additional color that you can provide And obviously, as Japan matures, That will be a major contributor as you just said.

Speaker 2

RK, it's Pete. The new products have been successful. We are really pleased with those. They were a good contributor in the Q4 and continued that Contribution here in the Q1. So they are a big driver of year over year growth.

Speaker 2

Remember, we've got 2 of them out there. One is a particulate and one is a sheet product that has some unique characteristics different than other products we have in the portfolio. The other is that comparison year over year starts to run out as we get into September. So we're It's a big driver here in 1st and second quarter of year over year growth, but then it becomes less as you get to Q3 and obviously Q4. We're very pleased.

Speaker 2

It's really helping our surgical recovery strategy and it's a variety of procedures. And frankly, we see that expanding as time goes on. Both the number of clinics or hospitals using and physicians using the product as well as the nature of procedures being used, It's one of these things that as we have more and more case studies from actual Applications, we can share those stories and it really builds on itself. And we've made an investment in medical education and a concentrated And that's one of the ways we get that information out. We get people, doctors, Practitioners who have credibility and can share stories talking across the footprint, and that can really help the team.

Speaker 2

So We're very pleased with it. It's the 2 different types of products that ties into the surgical recovery strategy and The real world evidence, the case evidence is going to be a strong driver because surgeons are that's an area that has a high bar for Data, if you will, and this is the way we get data.

Speaker 1

You're exactly right. It's the it drove surgical recovery, drove the 17% growth. But you're right. In order to continue to see growth there, we're going to need to continue to invest in research because they want data.

Speaker 5

Fantastic. Thank you both and congratulations again on a great quarter.

Speaker 2

Thanks, RK.

Operator

Our next question comes from the line of John Vandermosten with Zacks. Please proceed with your question.

Speaker 6

Thank you. And Joe and Pete, thank you for taking my question. I thought I'd start out with a question on new products. You said that was one of the big drivers for Performance in the Q1. And I know that there had been a goal to roll out some new products every year to kind of keep that going on.

Speaker 6

How is that Coming along for 2023. And then I think you had mentioned something about, Tern Therapeutics and perhaps that milestone had been delayed. Will that be related to one of the new products? And how will that kind of fold into that goal of new product

Speaker 5

Yes. So just the kind

Speaker 1

of commitment within the organization was to try to get 2 to market each year. And we're not tied to that number. It doesn't have to be a 2, but it's not a bad guidepost because this market does require innovation to stay relevant. So it's an area that we continue to invest and we have a fairly robust pipeline of opportunities continue to introduce to the market in the coming years. Tern clearly was one of those that would have introduced an antimicrobial Xenograft into our portfolio would have been a first, it would have been a 510 Approval, which would have been a predicate for us to build upon.

Speaker 1

Unfortunately, the 510 milestone was not We continue to work with them. We continue to think that the antimicrobial is the right way to go. So we'll See how that unfolds. But you're right, the milestone was missed contractually. We're not committed to make that payment this calendar year.

Speaker 1

So That will need to be renegotiated.

Speaker 2

Yes. John, it's Pete. Certainly, that was in our sites as a new product for the year. A reminder that we have access to that antimicrobial technology without this specific Product approval. So there are really 2 parts to that transaction.

Speaker 2

And we are doing work there whether we get something out this year or very soon next year. But we're working actively with this antimicrobial technology and think it can be very helpful in generating those new products. And as Joe said, it's a spirit of new product Development, the goal was putting a number on something that hadn't happened for a while, and it was really a mindset reshift For the company as much as externally, we were really trying to get make sure the focus across The company was on product development and we've been successful on that and we will reap those rewards as we go forward.

Speaker 6

Okay. Thanks. And again, on the kind of looking forward to revenue growth in Japan, I sense that probably it's still early days and they're not Substantially material yet, the revenue contribution, I mean. How do you expect that to evolve over the year? And then I I know you had been training a bunch of providers.

Speaker 6

Is that still going strong, that training exercise?

Speaker 1

It is. We have some of our own folks on the ground there as well, not a lot, but we have a network of physicians that have been trained several 100 And we're starting to see the product used in procedures. So it's being pulled through from our partner in Japan. We expect the market to develop nicely, but it's so, right? There's a lot of missionary work that needs to be done in these early days.

Speaker 1

The fact that we have some sales already is very heartening and we anticipate in the coming months, the coming quarters That will begin to build. Again, a little early to put numbers on it, but we're very optimistic about how the project is starting to unfold.

Speaker 6

Okay, great. Thank you, Joe. Thank you, Pete.

Powered by Quartr
Earnings Conference Call
MiMedx Group Q1 2023
00:00 / 00:00