Greetings. Welcome to the Elutia Fourth Quarter and Full-Year 2023 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to Matt Steinberg with Finn Partners. Thank you. You may begin.

Thank you, operator, and thank you all for participating in today's call. Earlier today at Elutia released financial results for the quarter and full-year ended December 31, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts relate to expectations or predictions of future events, results or performance are forward-looking statements. Forward-looking statements, including without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K, year ended December 31, 2023, to be filed with the SEC, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC. The conference call contains time-sensitive information as accurate only as of the live broadcast today, March 7, 2024. Elutia disclaims any intention or obligation except required by law, to update or revise any financial projections or forward-looking statements, whether because of new information or future events or otherwise. Also, during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results release for the fourth quarter and December 31, 2023, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com. And with that, I'll turn the call over to Elutia's CEO, Randy Mills.

Thank you, Matt. I am super excited to be with you today and to share the story of Elutia. Our mission, humanizing medicine so that patients can thrive without compromise. We're going to talk about that word compromise today and what that means particularly with our flagship product that we're in the process of getting ready to launch CanGarooRM. But what we're really trying to do is we're trying to take away those instances in patient care where patients and physicians are forced to choose between two options when in fact we could actually give them both. So Elutia is a commercial-stage company. We have two proprietary product platforms CanGaroo, which is for our pacemaker and internal defibrillator space and SimpliDerm which we use in breast reconstruction. But more importantly and I think what a lot of people are on the call today, we are pioneering the drug-eluting biometrics to solve some of the most complex problems that exist. I'm going to be giving an update in this and I'm super excited to do it where we're going to be talking about our regulatory progress that we've made. We're really excited about that. We're really excited about moving on and watching this product. So that, let's just jump right into it. For the year, we had an exceptional year. We had a transformational year at Elutia and I couldn't be more proud of this team. Our commercial teams kept their eye on the ball, delivered 3.4% growth in CanGaroo and a stunning 38% growth in SimpliDerm. All the while, we were making these rather significant strategic shifts within the company, but everybody kept focused and kept their eye on the ball and really did a beautiful, beautiful job commercially and operationally. From a development standpoint, as many people on this…

All right. Thanks, Randy. Exciting stuff and we really are excited about all of the progress being made in CanGarooRM and SimpliDerm and all of the value-driving catalyst that we see in the near future and continuing for the medium to long-term here at Elutia. As a financial update, I'm just going to touch on a few of the highlights. We provided a lot of information in our earnings release and we're aiming to file our 10-K tomorrow. So, there will be tons more there as well. But just getting on a couple of the highlights here, our net sales were $24.7 million for 2023, modestly growing from $23.8 million in 2022, but that performance actually masked what really is going on underneath, which was the really significant growth of our proprietary products, CanGaroo and SimpliDerm. If you just look at those two growth was about 19% year-over-year and what was going on in cardiovascular, which as you probably recall, we've partnered with LeMaitre Vascular as the exclusive distributor in the United States for that. So, for most of 2023, we were selling at a transfer price for that product, roughly half of end-user pricing. So, while we're selling similar amounts of the product, we are not generating as much revenue. So that affects the optics of our top line. It also affects our gross margin, but at the operating level that's actually a positive thing for us and it also has allowed us to really focus on the two main growth drivers for the company, which has been a very positive thing overall. As an adjusted gross margin, as I mentioned, may look like it's down a little bit year-over-year 58% versus 63% on an adjusted basis and again we provide a reconciliation in the earnings release and our…

[Operator Instructions]. Our first question is from Frank Takkinen with Lake Street Capital Markets. Please proceed.

Congrats on the progress and appreciate all of the background on CanGarooRM market. I was hoping to start by following up on some of the FDA interactions. Was curious if you're comfortable divulging anymore about some of the requests they made. I heard loud and clear that they were not new data requests, which I think is most important to understand. But anything else you can divulge and then maybe bridge us to the expectation of the May, June timeframe to how you got to that estimation?

Yes, Frank. So basically no, we're not going to go too much into the details of the questions. That is not for a lack of transparency. It's actually centers around some of the intellectual property that we have in the technology that's you can imagine super important to us. What I can tell you about the questions are is they were of the clarifying variety, right. So, they were also completely contained within the scope of what we had responded to FDA from the NSC letter. So, they only had four issues. We provided them the data for that. So, none of the questions were outside of that. So, they're not that's good. They're not doing anything else there. And then the questions as I said were all sort of this clarifying writing, we submitted to them a pretty substantial package. When we answer these questions and you have validations and all kinds of other scientific reports, we submitted to them a pretty substantial package. So, within that as you expect -- as we expected and as we've said actually on our last call, we fully expect them to ask some of these types of questions. We knew what they were, we would have answered them ahead of time. But they've asked us these kinds of questions about tell us more about this method or submit us this underlying report for this for that, like that kind of stuff. As I said, really importantly, they didn't say this isn't sufficient, you're going to need to provide support here. We had no requests for any additional data there. With regards to the timeline with that, that's me being really conservative. The May, June timeframe and I don't mean just conservative in telling The Street our expectations. The most important thing for our company right now is to get this clearance over the goal line. And so, we have a very positive and interactive relationship right now going with the FDA. Our R&D teams are back and forth with them on a collaborative basis. The idea is to make sure the FDA has exactly what they want before we tell them to go and it's a race for the last 30 days. So, we're not going to do anything to save off a week or two weeks here or there that would in any way jeopardize that. So, I'm being really conservative. I'm being really we're being really careful, very methodical, but it's the most important thing for us right now. So, in my view, that's the only responsible way to aim.

Got it. That's helpful. That makes sense to me. And then maybe extending on some of the comments you made around the committee you put in place for under trying to understand how you're going to launch the product and whatnot. How quickly could you have supply up and running? And should we assume it's more of a limited launch in the second half and then a full launch in '25 or how do you think about that assuming it's cleared in the May, June timeframe?

Yes. So, right now, our and we are, right now, we are, I can't emphasize this enough, right now we are exactly on track of where we thought we would be. And so right now we are looking for soft launch or limited launch particularly in the third quarter. Most of that has to do with getting into hospital VACs, getting through hospital VACs on formulary, pulling up supply, although we have a pretty good manufacturing team that's ready to go with this. But really doing the underlying things that we need to do to get the launch rate, most of it has to do with reimbursement getting our formulary. We'll also be expanding the sales team as well during that time they'll be training and the like associated with that. So that's largely third quarter. Our expectation at this point right now is going into the fourth quarter. We would be taking the training wheels off and be ready to go.

Got it. That makes sense. And then maybe just transitioning for my last one, talking SimpliDerm, great to see that continue to grow at an impressive clip. How should we be thinking about a growth expectation in that line item for 2024?

I could speak to that a little bit, Frank. I think we are continuing to see SimpliDerm show really strong performance even as we're going through the current quarter. As you are aware, we have our distributor in that space Sientra is doing some restructuring right now. We actually have seen them continue to perform well even through that process and we are optimistic that they will come out of that even stronger than they were when they went into it. So, we really expect that we can continue to see the same type of growth that we saw in 2023, continue in 2024 as we move forward.

Yes, I mean, I was sort of color commentary that a little bit Frank. We obviously when that news came out, we thought about it and so it will be interesting to see how this goes. We haven't seen an effect. They've done a nice job with their team. Still the bulk, the vast majority of our product is sold through our own line, but both of them have been performing really, really, really well. So, we are excited and stoked about how CanGarooRM or SimpliDerm, I got a lot of is performing right now too.

Our next question is from Ross Osborn with Cantor Fitzgerald. Please proceed.

It's shaping up to be a very transformative year for the company. Apologize for background noise traveling today. But starting off, the CanGaroo number for the quarter came in a little bit below where we were expecting and realized the story is really all about where I am this year. But anything to call out from a market standpoint there?

No, I mean, we have shifted our focus now from CanGaroo to CanGarooRM. We still have our sales reps and our accounts in place, but CanGarooRM isn't a successful product, if it's doing anything like what CanGaroo does. This is a product that literally needs to be an order of magnitude or more bigger than that. So, while our reps are crushing it from an internal marketing standpoint, from an internal leadership standpoint, we have really focused our energy now on the product they're about to sell. And we haven't seen any softness in the underlying market for Reaport. In fact, I was blown away that we did a restructuring at the beginning of last year. And we essentially cut the commercial team in half. And at that time, we thought, if we hold 60% of our sales together there that would be really impressive. Well that team, not only did they hold it together, that's the most revenue we've ever had in CanGaroo. And it's just a tighter, leaner, but far more focused group of really incredible professionals and I cannot wait to give them the product that frankly they deserve to have and let them just go terribly.

Okay. Sounds great. I'm glad to hear it. And then maybe one more, but on SimpliDerm. That continues to exceed expectations. At what point does it make sense to devote more resources to that asset to reach its full opportunity? So, the 2025 story once you get RM out?

We think it's a great product too. We're not holding anything back from it. Is performing really impressively and it's continuing to perform really impressively. We are getting active work from an R&D standpoint on developing SimpliDermRM and we continue to have our own proprietary sales channel and the Sientra sales channel. It's kind of we actually feel really good about that product and how it's working. And if we used to say that is a really small numbers, the numbers are getting a little bigger and the growth rates stay high. So, we're pretty excited about that, but we're not holding back from it, Ross.

Okay. Sounds great. Thanks for taking my question. Congrats on the progress.

We have reached the end of our conference call. You may disconnect your lines at this time and thank you for your participation.