Good evening, ladies and gentlemen, and welcome to Anika's Fourth Quarter and Year End Earnings Conference Call. As a reminder, today's call is being recorded. I will now turn the call over to Mark Namaroff, Vice President, Investor Relations, ESG and Corporate Communications. Please proceed.

Thank you, Sarah. Good evening everyone and thank you for joining us for Anika's fourth quarter and year end conference call and webcast. Our fourth quarter earnings press release was issued after the close of the market today, and is available on our Investor Relations website located at www.anika.com as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Mike Levitz, Executive Vice President, Chief Financial Officer and Treasurer. Please take a moment to open up the slide presentation and refer to Slide number 2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined by the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations including statements with respect to the impact of the COVID, COVID pandemic on Anika, and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which included – includes adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP. We believe that non-GAAP financial measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the available presentation slide deck and in our fourth quarter and year end 2021 press release. Lastly, please note that we have changed the descriptions of two of our three product family categories to better describe those products and the markets we serve. Our joint pain management category is now being referred to as osteoarthritis or OA pain management. And our other category is now referred to as non-orthopedic. There are no changes to the products within each of those categories. The description of Joint Preservation and Restoration remains unchanged. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thanks, Mark. Good evening everyone and thanks for joining us. If you could turn to Slide 3, I'll plan to review some highlights from the fourth quarter and the full year, and then Mike will go into the financial details and review our outlook for 2022. 2021 was a significant step forward for Anika on our journey to expand our presence in the $8 billion joint preservation market. With hard work and focus on our strategic imperatives, we had a successful year on all fronts and made significant progress on our operational transformation to establish the foundation for our multi-year growth strategy despite the 2021 COVID curve falls. Our industry has certainly been experiencing volatile times, especially those companies and sectors that serve elective procedures with COVID bringing a set of dynamics, including clinical procedure disruptions with state and regional elective surgery shutdowns, staffing shortages and patients testing positive before a scheduled surgery and company disruptions including supply chain issues and employees contracting COVID are being quarantined due to close contact with others who did. Differentially for Anika gaining access to new customers and facilities through new product approval committees and contracting also remain unpredictable due to COVID. Clearly, this was a tough year and the ebb and flow of COVID is still with us. That said Anika has been managing through this uncertainty well and staying true to our transformation strategy with a stable business and a strong balance sheet. We remain focused on the large and growing addressable market in front of us leveraging our core strengths and joint preservation to drive accelerated revenue and profitability in the years to come. We entered the year with a few key objectives to execute on our commercial strategy to add the people, processes and systems we needed to scale the…

Thank you, Cheryl. Please turn to Slide 8. First, a brief housekeeping item. You will note that we have slightly revised the names of our product families, specifically our osteoarthritis or OA pain management product family was previously referred to as joint pain management. And our non-orthopedic family was previously referred to as other. I will now walk you through our financial results for the fourth quarter of 2021. Total revenue for the quarter was $35.8 million, an increase of 10% from last year. The increase was due primarily to favorable year-over-year order timing in our OA Pain Management product family, where revenues rose 17% to $19.7 million in the quarter. Revenues in our OA Pain Management product family can vary from quarter-to-quarter based on ordering patterns by our partners and distributors in the United States and internationally. And since 2020 quarterly ordering volatility has been exacerbated by the impact of COVID, but that generally stabilizes on an annual basis as we experienced in 2021. Our Joint Preservation and Restoration revenue in the quarter rose 1% to $13.3 million as the direct and downstream impacts of the COVID variants continued to limit the number of elective procedures and our non-orthopedic revenue was $2.8 million in the fourth quarter, up 5%. Our gross margin in the fourth quarter was 51% consistent with the same period last year, and includes the impact of $1.8 million of non-cash acquisition accounting related expenses from the 2020 acquisitions of Arthrosurface and Parcus along with $400,000 of product rationalization charges during the fourth quarter. Excluding these charges adjusted gross margin was 57%, down from 67% in the same period last year. The decrease from last year is due primarily to lower production volume and increased reserves in the quarter amid greater staffing and supply chain challenges…

Thanks Mike. Well we expect to see some short-term fluctuations both positive and negative as we transform the business during COVID, Anika remains focused on executing our growth story. We made meaningful progress this quarter on our new product development pipeline, commercial execution and adding the people, processes and systems to scale this business. And these efforts will drive real for all of our stakeholders into the future. As always, I'd like to thank the Anika employees for their hard work as we continue our transformation. We're happy to take your questions now.

Thank you. [Operator Instructions] We'll take our first question from Chris Cooley with Stephens.

Good evening and thanks so much for taking the question. If I may and I apologize for this at the outset may be a multi-part first question and then a more concise follow-up. I really do appreciate all of the additional color you provided regarding what is assumed in terms of the expectations for the coming year 2022, which you guys have always talked about as being kind of still as part of the transformational phase. But I was curious what specifically was assumed when we think about the HA market in terms of either just utilization their pricing dose regimen as you look ahead? And how that impacts your expectations into the 2022 year, I appreciate the COVID headwinds implicitly but just trying to think about maybe the broader category first and then I have a quick follow up?

Great. Hi Chris. This is Mike. Thanks for your question. So specifically on the OA Pain Management and the HA franchise that is a mature market, we've viewed that market as growing about 1% and we've given guidance that we expect to grow above that in the low-to-mid-single digits. And I'm sorry excuse me, low-single digits growth for the year. So we expect to grow faster than the market. We definitely believe there is a tailwind from the positive legislation that creates a level playing field in the United States for both the device companies and the – and the pharma companies. So we believe that to be a tailwind. We expect that to go into effect in the middle of this year in terms of from an effective impact. And that could be very positive, but as a reminder because we sell our products through a third-party, through Johnson and Johnson and Mitek we tend to be more cautious as it relates to what that can be because we really don't control the full value chain there. And so we also recognize that, that market's not back to 100% as there's limit limits in terms of the ability of staffing to handle these procedures. We do expect COVID to impact that through the year. So we're very pleased with how we landed for 2021. We are very excited for how we see things going forward. But there's – there's no headwinds from that, if anything, it's a tailwind from the new legislation. I would also say that a decent part of that business is outside the United States. And we were helped out in 2021 by some favorable timing that can be a lumpy business a little bit, a little from the distributor standpoint, in terms of when they placed their orders. And also the timing of COVID in various markets can be different than what it was in the United States. And so we, you notice we came in a bit higher than we expected to for 2021. But nonetheless, we expect that our international business will continue to grow very nicely in DHA franchise where we sell not only [indiscernible] (0:35:42) but also single, which continues to do very well. So that's what's behind our guidance. Again, we're early in the year. We've seen Omicron impact our results early in the year. And so that's, what's reflective. We don't want to get ahead of guiding what's going to happen with COVID. We want to focus on those things within our control.

Thanks Mike. That's really helpful. And then just from my follow up, if I may. Can you help us just think about obviously with Parcus and Arthrosurface now fully integrated. Help us think a little bit about seasonality this year in 2022 relative to 2121? And similarly with the step up in OpEx and also with the increased CapEx assumptions for the year; how should we think about cash flow? Thanks so much.

Yes. Chris this is Mike, since that was mostly a financial question I'll take that one and Cheryl, please jump in if I miss anything.

Sure.

With regards to seasonality, so it's interesting there's kind of the pre-COVID world and then there's the COVID world where nothing seems to be normal. Historically the fourth quarter is always the strongest quarter in the joint preservation business that's different in our OA Pain Management business and in some cases, Q2, historically I think for Mitek at least has been the strongest quarter. But over the last couple years with COVID, what we've seen is that there really is not the normal seasonality that we've seen in the past. We did see in the fourth quarter a significant jump in our joint preservation revenues compared to the third quarter which was good. But as a reminder Q3 was really impacted by the Delta variant, which continued into the fourth quarter. So as far as looking into 2022, we definitely have been impacted by COVID by Omicron specifically in January and that definitely impacted us both in terms of elective procedures and also just in terms of people being quarantined and impacted us from a staffing perspective as well in gross margin. So, we think that Q1 is – historically it's not the strongest quarter in the year on a seasonal basis. And I would say with how COVID hit us, I would view that to be the same this year. But again, we're really trying with our guidance not to try and predict COVID, but really talk about what's going on in the business. So I would expect things to strengthen through the year and this should be the more challenging quarter because of Omicron, hopefully things continue to improve as we've seen over the last month and the last few weeks. With regards to spending, there is a lot of product development going on right now. This is a key year. 2022 is a very exciting year for us with a number of key products. And so, there is going to be elevated spending in R&D associated with that. There is also clinical work that's going on that Cheryl described. I can't really call out seasonality by quarter because it really there is puts and takes as we kind of go through the year on spending. But I will tell you that I think spending is going to start out probably on the stronger side just in terms of us driving through these key product development initiatives because we see a really nice opportunity in front of us, which is why I talked about CapEx being a bit elevated because we really want to plan for these product launches over the next 12 to 24 months. With regards to cash flows, I think, that's really hard to guide. We were very pleased this past year to have another year of positive operating cash flows even in the midst of all these challenges with COVID and we expect that to continue in 2022, but I really can't guide on specific seasonality or specific timing of the cash flows, Chris.

Understood. And if I may squeeze maybe one another quickly and then I promise I'll get back in queue here, but just curious with the color earlier on the new WristMotion system there as well as with Tactoset for more so now for the augmentation there. Help me think a little bit about the contribution to growth either in the second half of the year or the fourth quarter? And then how you see – I know you don't break out single products, but when we think about new products, their contribution to that total top-line guide. Thanks so much.

Hi, Chris. This is Cheryl. Nice to hear from you. I'll take that one. Typically, the year in which you launch a product isn't a big ramp year. You're just starting to get out in a limited release, starting to do training on the safe and effective use of the product. Those product launches happened in Q3 and Q4 of last year. So, we've actually just started this year with our pretty significant efforts around training on their safe and effective use. I will tell you that one of the easiest ways and one of the best ways to get information out about new products is at larger congresses. Those are still either very hybrid or limited in attendance. So it's a little bit tough for us right now to be terribly predictive about what the near-term ramp of those looks like. I think I would take you back to just sort of thinking about the multi-year strategy. These happen to be the most recent product launches. We've got more product launches coming this year into next year and we really see the impact of those new product revenues as a percent of our top-line starting to hit in 2023, 2024 and beyond. And I would really think of it primarily that way. That said, we'll be busy this year with those product launches, even with the Tactoset that we launched in 2019 really continuing to focus on training on their safe and effective use and continuing to get in front of our surgeon customers as COVID starts to loosen up, hopefully.

Super.

And I would just add to that. We're very pleased with how Tactoset has done so far. It doubled in revenue again this past year. And we learned a lot from the feedback from our customers. And that's what's led us to – I would really look at some additional efforts associated with that from a clinical standpoint that Cheryl described. So the new products are already contributing. The total risk is already contributing, but – in fact that's part of what's driving the growth this year. I think one of the challenges that we're trying to manage through also is just access for new products and in new customers. And so, I think, the sense that we get is that certain institutions may have limited access to new products in part really reflecting on COVID. And I don't want to say that's an excuse, but I think they've been calling it out as a reason why they haven't been able to do that. So as that lifts, that will definitely help us with these new products. I think what we're seeing is a lot of encouraging signs and that's what's reflected in our guidance as we go into 2022.

Thank you both, Cheryl and…

The one other thing I would say is from a spending standpoint – sorry, you had asked earlier about that. I – so the MedEd is increasing, one of the things that we recognized last year is COVID changes the dynamics around getting in front of physicians. And that's really an important part of driving the growth of the business. So you will see an elevated level of spend in making sure that as we have these new products that we educate in the safe and effective use of those new products. And so, there is elevated spend for that this year.

Thank you. And we'll move on now to Young Li with UBS.

All right, great. Thank you so much for taking our questions. I guess maybe to begin, I'm just kind of curious near-term, how much visibility do you have into some of these deferred or cancer procedures getting rebooked and when do you think you can recapture most of that?

Yes, the visibility of when they get rebooked isn't something that we have direct line of sight to, but what I can tell you is we certainly saw in Q4 and specifically in January and we're starting to see it lighten a bit a lot of cancellations and sort of we're related to early on just cancellations of elective procedures by either states or regions, staffing issues at facilities causing things to be slower than the surgeons wanted them to be, surgeons getting sick, patients getting sick and testing positive, two days before their surgery. So, there is certainly no question in anybody's mind there that there is pent-up demand that's going to have to flow through the system. But I think the factor that we're trying to take into account relative to how we're thinking about our guidance for next year, is there is no doubt will be lingering dynamic mix related to COVID like staffing shortages, like the supply chain risks that we called out, those things aren't going to get fixed quickly. And so, while I think, we're certainly seeing just a couple of months of good data showing that things have started to pick up here, more recently, I think, those lingering effects are definitely going to play through and have an impact for the rest of the year. And I think our guidance reflects that. And Mike, I don't know if you want to add anything to that.

Yes, I think the only thing I would add is just to say that every month really is different. When we last reported out to you, we talked about October and that was looking like a good recovery in Delta, which it was, and then there was a pull-back in November, and then you saw, we exceeded our expectations in Q4 with a strong December. And so, then things started to look up then Omicron hit. And I think anybody that's been following this, COVID, as soon as you think you're done, then it comes back again. So, we had a challenging January because of Omicron and then February came back nicely and now we're going to see how March plays out, how much of the recovery in February was due to push outs from January into February and how is that going to play out. That's what we have to see. So, we've tried to be very thoughtful in our guidance to just acknowledge the realities of COVID that really can be volatile. What we are seeing is a lot of positive feedback from surgeons, and customers and whatnot around the new product introductions that we've had and just where we're going in general. But the elective procedures, it just is very choppy right now.

Okay, great. I appreciate the color. So, we do expect some good cadence of product updates for the year to use and invest the world. Lots of 510(k) products was wondering what are some of the plan for adding more reps or distributors and increasing some of the geographic footprint in the U.S. ahead of some of these new product launches?

Yes, it's a great question Young. We've actually talked a bit about where we think we're positioned relative to our current commercial team. Let me just remind everybody that we have over 30 direct reps in the field that leverage over a hundred and ten ninety-nine distributors and hundreds of reps beyond that within those ten ninety-nine distributorships. We have full geographic coverage in the United States right now, what you'll see us continuing to do is continue to optimize what it is we're doing. We've got more and more focus on the ASC environment going forward, and really making sure that we are bringing a targeted value proposition to that ASC environment with our focus on the early intervention space and with our new products, especially with a focus on shoulder and foot and ankle, as you can see in our new product development pipeline. So, we don't have current plans and we talked about this last year, we don't have current plans to add material numbers of people in the sales force. Again, we're adding talent constantly, but we don't have significant build plans for this year. We do have plans to be more and more focused on that ASC setting.

Okay, great. Thank you very much.

Thank you. Next, we'll take a question from Jim Sidoti with Sidoti & Company.

Hi, good afternoon. And thanks for taking the questions. I think what I'm hearing from you is revenue should improve every quarter throughout the year as new products come out and as COVID headwind subside. But if you are looking at the first quarter, and I know you're not thrilled about doing quarterly guidance. I mean, should we assume about flat year-over-year for the first to start out the year or do you think you could be down?

Yes, hi Jim. It's Mike. Yes, we don't generally give quarterly guidance. We guided for the full year that low- to mid-single-digit. One of the things to keep in mind for the first quarter specifically is that we had a sign significant amount of the last time buys in our non-orthopedic segment happened in the first quarter of last year. So, we're going to have an unfavorable comp in the non-orthopedic segment. So that's definitely going to be working against us in the quarter. The other thing is, as I said, we're two months in and it's been a very volatile quarter so far with Omicron challenging us in January, coming back positive in February. And what is March going to look like? And so short answer is, yes, it could be down year-over-year in part because of that unfavorable comp. Yes, I do believe that as I said earlier, I do believe that the first is probably going to be the most challenging of the year. Just normal seasonality and then also the year-over-year comps and specifically Omicron. Hopefully, things do improve as we've been seeing, but it's really early days and we don't want to get ahead of ourselves in predicting COVID.

Right. And that non-orthopedic revenue, I believe, you said was about 7% of revenue. So, if that's off 30% for the year, you are looking at about a $3 million head, does that sound right?

That's right. That's right. Yes, I mean, if you recall, last year we had guided – so one of the things in that segment, those are – it's a small part of our business and there are legacy products. There are some really great products in there, but there is also some that we decided back in 2020, didn't make sense to, especially with the MDR requirements in Europe, to spend more money on something that wasn't going to be growing and wasn't going to be adding to the bottom line. And so, we saw an incremental revenue there in the first quarter of last year, and then there was also favorable timing last year. So, we had guided last year that we were going to be down in that segment 5% when we started the year and we ended up being up 20%. So, yes, I mean, I think that getting back to a normalized level in that business, and then also just with some revenue coming off, because it wasn't revenue that was accretive. Yes, I think you could see a $2 million headwind there. I think that's the math around the 30% give or take.

Okay. And then can you just remind me how much the milestone payment you'll have to make this year?

Sure. We have a milestone payment that represents what we believe to be the last payment here under the Parcus and Arthrosurface agreements for $4.3 million to the Parcus to shareholders for earn out on the 2020 net sales milestone.

Okay. All right. Thank you.

Thank you, Jim.

Thank you. And that does conclude our question-and-answer session today and our conference call. Everybody may now disconnect.