Good day, ladies and gentlemen and welcome to the MiMedx Group Q4 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Mr. Thornton Kuntz, Vice President, Administration. Sir, you may begin.

Thank you, operator and good morning everyone. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties. Actual results may differ materially from those set forth in, contemplated by, or underlying the forward-looking statements based on factors described in this conference call and in our reports filed with the Securities and Exchange Commission including our Form 10-K for the year-ended December 31, 2013 and our most recent 10-Q. We do not undertake to update or revise any forward-looking statements, except as may be required by the Company’s disclosure obligations in filings it makes with the Securities and Exchange Commission under Federal Securities laws. With that, I’ll turn the call over to Pete Petit, MiMedx’s Chairman and CEO.

Thank you, Thornton and good morning. Thank you for joining us. As usual, I have with me Bill Taylor, our President and Chief Operating Officer; and Mike Senken, our Chief Financial Officer. Certain other corporate executives are also on the call including Thornton Kuntz; you just heard from our Senior Vice President, Administration. I’m going to keep my comments very short this morning. I believe that our 2014 year and our fourth quarter have been reasonably batted already. We have already reported that our revenues were $118.2 million in the press release just prior to the JP Morgan meeting. We discussed numerous aspects of our business in our October 12th Analyst Meeting in New York; eight members of the management team spoken, other members were there to answer questions. I think we highlighted our strategic initiatives and our outlook for 2015 quite adequately at that meeting. As a matter of fact if you would still like to hear and view the presentation from the Analyst Meeting, they are available on our website. Frankly very little has changed from what we presented in October. Of course you now know, we finished the year by exceeding our revenue estimates. This time last year, we saw a temporary dip in our stock price because there were concerns that some of our new competitors would immediately take market share from us at the Department of Veterans Affairs or VA. The focus was on the VA because there was not that long arduous road required for reimbursement coverage. However, as you have seen in our press release, our VA revenues were actually up 18% year-over-year and 24% in the fourth quarter over fourth quarter of 2013. Therefore, I don’t think those concerns year ago were realistic. Today we have similar concerns that have developed around…

Thanks, Pete. The fourth quarter of 2014 and the full year 2014 were absolutely incredible. Organization continues to grow significantly and create new opportunities, utilizing our unique PURION Process amniotic tissue. And the fourth quarter was certainly an excellent quarter on all fronts. So let’s talk first about our sales and sales organization growth. In 2014, we grew a 100% in revenue and our fourth quarter grew by over $6 million or 18% compared to Q3 of 2014 but were $21 million over or 120% compared to fourth quarter of 2013. So, our growth was led by commercial wound care but other areas also grew significantly. So, you may also recall that a year ago that many of our competitors that did not have commercial coverage were saying that they were targeting the VAs like Pete said. Many investors were concerned they would capture a large part of our VA business. Yet as the year played out, they frankly stopped talking about their VA efforts and we grew our federal business by 18%. And as Pete mentioned, in the fourth quarter, grew by 24% compared to the fourth quarter of ‘13. So, our federal business is strong and continues to grow. In our call in October, I mentioned that we were at over 150 field sales personnel and would be at 160 or more by year-end. Well, we were close to 170 at the year-end and today we’re a little bit over a 180 field sales personnel. And we are targeting the addition of about 20 more sales executives by the end of this quarter or the first week in April; and that will put us over 200. So, you recall that late last year, we were targeting over 200 people by the end of this year. So, we’re quite…

Thank you, Bill. Okay, Mike.

Thanks Pete. The Company recorded revenue for the fourth quarter of approximately $39.6 million, an increase of 120% or $21.6 million over prior year fourth quarter revenue of $18 million. On a market segment basis, wound care revenue was $32.2 million, which represents approximately 200% increase over prior year and 24% sequential growth. Surgical, sports medicine and OEM revenue was $7.4 million which represents approximately 4% decrease over prior year and 2% decline versus Q3. The slight decline in Q4 was driven by lower sales to distributors. Please remember that year-over-year comparisons will be impacted slightly by the inclusion of total micronized revenue in 2013 in surgical, sports medicine and OEM segment whereas in 2014 EpiFix micronized revenue was included in wound care and AmnioFix micronized revenue was included in surgical, sports medicine and OEM revenue. On a customer segment basis, commercial revenue was $28.7 million, which represents 210% increase over prior year and 27% sequential growth. Federal revenue was $10.8 million, which is a 24% increase over prior year and flat sequentially. Growth was driven by penetration in new accounts as well as increased sales at existing accounts in both customer segments. For the 12 months ended December 31, 2014, we reported revenue of $118.2 million which is a 100% increase over prior year revenue of $59.2 million. On a market segment basis, wound care revenue was $93.6 million, which represents a 183% increase over prior year. Surgical, sports medicine and OEM revenue was $24.7 million, which is a decrease of 6% as compared to prior year. The decrease is due to previously mentioned micronized revenue reporting change. On a customer segment basis, year-to-date commercial revenue was $78.4 million, which represents 208% increase over prior year. Federal revenue was $39.8 million, which represents an 18% increase over prior year.…

Thank you, Mike. Okay, we’ll open the call up to questions.

Thank you. [Operator Instructions]. Our first question comes from William Plovanic with Canaccord Genuity. Your line is open.

Great, thanks. Good morning. Can you hear me okay?

Yes.

Perfect. So, I appreciate the color on January and February in terms of how the business is progressing, just one point of clarification if you could. You said that it’s tracking to your internal estimates. How does your internal estimates compare against your external guidance?

Bill, I’d simply say that our external guidance has always been conservative.

Okay, because I think -- okay. My next question and this is a basic one, how do we think about tax rate going forward and then, can you give me the shares for Q4, Mike?

Okay. So, in terms of the tax rates going forward, of course we have a valuation allowance on our deferred tax assets. There are specific rules in place as to when you can recognize that deferred tax asset. Obviously at this point, we have not achieved that the basic requirement that allows us to reverse that valuation allowance. If you think about taxes in 2015, based upon the fact that we have guided to a 15% operating margin, you can assume over the course of next year that -- 2015, I am sorry, that we will recognize that deferred tax asset. But if you’re thinking in terms of the book tax rate, it can be anywhere from a credit in excess of 3% to somewhere around 0%. And as far as cash tax rate goes, we’ve looked at this, and obviously there is a lot of variables that go into this but somewhere in the range of 9.5% to 12%.

I guess what I’m trying to get at is once you do all the reversals and everything, how should we think about your P&L tax rate from a GAAP reporting basis as we modeled out ‘15 and ‘16. It’s just -- you’re going to have one-time reversal and then use a 40% tax rate, use a 30% tax rate as we look at here, how should we think about it?

I would initially go with the higher rate in let’s say ‘16. Next year, we’ll basically, if you assume zero, that’s probably good assumption. This is for book now.

Right, for GAAP reporting. And then your shares in the fourth quarter and you only gave us an annual, so can you provide the number of shares that you’ve used on a fully diluted standpoint?

Yes. Let me get that number. And as soon as I pull it up, I’ll give it to you. So, if you have any other questions or we want to move onto another question, I’ll interject the quarterly shares.

Sure. My last question is, obviously you’re accelerating your hiring practice into areas outside of wound care into uro, gyne, what have you. I take it’s your initial entrance into those markets went very well, how do we think about that addition or all the new adds going into these areas outside of wound care or you’re still adding in wound care and then incrementally into uro, gyne, plastics all that? That’s all I have. Thanks.

Yes. Good question. Actually, we’re still adding quite a few people into wound care, it’s just -- in the past, last year it was almost all in wound care; we’re splitting it up and we’re still adding a lot. Just as a frame of reference, in the fourth quarter of last year, we still only had penetration into the large wound care clinics like the Healogics, Accelecare et cetera of about 50% of their clinics because we just still don’t have enough boots on the street in wound care in order to get full coverage. So, still got a lot of market share to take up in wound care, so a lot of our adds are still in wound care. So, I don’t know the exact number but something like a quarter or so of our hires are being in those other areas besides wound care. And I think as this year progresses, it will probably start growing as a percentage of the new hires. But that’s probably the best estimate. I don’t have the exact number but that’s probably reasonably close.

Okay. Let me jump back in and answer your question on the quarterly share count. Basic is 106.3 million and diluted is 114.5 million.

Thank you.

Thanks Bill.

Bill, let me mention one thing. This is Pete. We still have a lot of coverage to complete just in wound care. We’ve got secondary cities to fill out; we’ve got one example and I won’t use the city’s name but some place where we have one person and we really need three to four. So, there is lots of coverage still to complete in just the wound care area.

Our next question comes from Mike Matson with Needham & Company. Your line is now open.

Hey, good morning guys. This is actually Brad in for Mike. Can you hear me okay?

Yes.

So, just first off clarifying, you guys are still selling [indiscernible] right, just not marketing and is that a small amount of Q4 revenue?

The answer to that question is correct, we’re still -- the product still in the market.

And then is there any clarification longer term for the BLA timeframe?

Well, BLA is going to take us two to three years to complete, although we’re quite ahead of schedule and we’re making great progress. And all the conversation I had earlier about FDA, we hope to get some clarification here because basically the whole industry and numerous other organizations getting very focused on the same issue that we’ve had to deal with basically on solo here for 17 months.

And answer to your other question, micronized revenue in the fourth quarter was 11%.

Great, thanks. And then the new products, so was that all four that you rolled out that you talked about at the Investor Day, can you just talk about what segment they were in or any additional color?

We’ll give more color on the next call. I think we’re just now rolling it out; we just don’t want to give any additional heads up to our competition than what’s necessary. We’d like them to see what we’ve done in the market and then we’ll share with you in April.

Okay, fair enough. Sales through the distributors, can you talk about how Medtronic is going and when you would expect sales to Zimmer to start or sales from Zimmer?

Well with Zimmer, we expect I believe later this quarter early next quarter will be our first shipment there, getting ready to do the product launch on that with them next month. So that’s looking pretty good. And then on the Medtronic side, we continue to have meetings with them and getting their folks encouraged. As you know it’s kick off little slower than I think either of our companies would have liked. But I think this year, we’re going to pick up some more momentum and build from there. So, I don’t know that we’ve mentioned the exact number, so we won’t go there right now.

And are you expecting the Covidien acquisition to provide any sort of disruption there?

Actually I think long-term, it could give us some additional opportunity but we don’t anticipate any significant disruption.

And then last one for me, it doesn’t seem like you bought that much share back in Q4, is it safe to say that in Q1 it was added that more a comfortable of level and you expect more in Q1?

That is correct.

Great, thanks guys.

Thanks Brad.

Our next question comes from Matt Hewitt with Craig-Hallum. Your line is open.

Hey, good morning guys. It’s Dillon on for Matt. Can you hear me?

Hey Dillon, yes, hear you fine.

Good deal. Kind of following off the last question, obviously asked a couple, cash balance you guys stated before it’s going to be tough for you guys to spend the revenue over as moving forward. The repos were up to $20 million last quarter. Are you guys looking to do anything other than that M&A, any technology that interest you or internationally an area that wasn’t touched on, building buying the manufacturing facility across the pond, kind of any color there?

First of all, we remain inquisitive but we’re not aggressive about it because we review new technology every two weeks here in some depth. We frankly have not seen anything that we feel very compelling. Our technology is we should have conveyed by now, we view as going to be used in numerous healthcare procedures. It’s a strong base technology. And there is a lot of things that people bring to us and we see in the marketplace but most of those things are low technology. Our sales force are all very highly trained people in the physiology of wounds and those kind of things. And we just don’t see rolling up a bunch of ancillary products just to have a stronger presence in each of these facilities that we think that would be detrimental. So, we remain inquisitive, we are keeping our sights on everything that goes on in this space. And at this point, we haven’t seen anything that’s intriguing enough to make us turn that into an acquisition. We’ve done numerous acquisitions in our business activities over the decade. So, I think we know how to do those effectively. And when something shoes itself, we will move forward. But at this point, we will continue to build cash and use it, some of it as we’ve already demonstrated with the buyback of some of our stock when the time is right.

On the international front Dillon, we have tailing the last year and this quarter starting to focus a lot more energy on the international front. And we’ve uncovered a number of opportunities that we think are going to be very good for us. In terms of expectations though that will really help fuel our growth at the back half of 2016 and in 2017 in terms of material revenues. We will do what we can to get some things happening before then but as you know, the regulatory process actually in a lot of those countries are actually longer than it is in the States relative to tissue, kind of little bit backwards from devices where typically a lot of those countries are little easier to get into on a device side than the States; tissue is a little bit the other way around. But we’ve got some -- several initiatives going on right now internationally. And I think we will be able to start talking more of those -- more about those later this year and you will start seeing some financial results coming into next year and in the following year.

Okay. Sounds great. And then kind of shifting gears over to end markets outside of advanced wound care, I know you guys have stated in the past and on the call here that that is an important driver for you guys going forward. In your ‘15 guidance, is there a lot baked in from those other markets or are you guys just kind of all throwing it into the advanced wound care bucket right now?

There is growth in our plan for this year. I don’t know that we’ve articulated what that is but there is growth baked into that. And I think it will start accelerating throughout this year if it goes as we anticipate; by the fourth quarter, it will have some very, very strong growth rates going into next year.

And what Bill is referring to is growth rates outside of wound care.

Yes. Wound care will continue to grow strong but I think you have got to see some good things in the surgical areas as the year progresses.

Okay. And then really just basic lastly for me, gross margins. Every quarter, when I think that they’ve topped out, you guys post another sequential and year-over-year increase. Have your expectations changed over the past couple of quarters relative to peak margins moving forward? I know you guys give us operating margin but just kind of wondering on that basis.

Dillon, this is Pete. We always tend to improve our operations week-by-week, month-by-month, quarter-by-quarter and then so Dillon, we manage to continue to increase our gross margins even when some of the product mix would indicate it should go the other way. I wouldn’t at this stage be too concerned about any kind of significant drop in our gross profit margins. We expect it to be in this range. And over time, there will be some decreases and particularly as we step into the European area, there is going to be some decreases. But in the near-term, we expect these margins to be fairly constant.

Dillon, if I could add something here. If you just look at the mix in the fourth quarter, obviously there was a very heavy mix on the direct sales, the wound care sales; and on a percentage basis, the surgical; sports and OEM were down. And that’s one of the major reasons why you see a tick up of a percent quarter-over-quarter.

Okay, thanks. And congrats on another good year.

[Operator Instructions]. Our next question comes from Bruce Jackson with Lake Street Capital Markets. Your line is open.

Hi, guys. Nice quarter.

Thanks Bruce.

Okay. So you mentioned the randomized controlled study that you published last, this summer with the cost effectiveness data and that gave you a reason to approach some of the larger private commercial payers. Are you making any headway on that front?

I would say, we absolutely are but I’d also say as I’ve done many times, the reimbursement climate today is tougher than I’ve ever seen in my decades of being in healthcare. I don’t have a lot of experience in this area and I know a lot of people that are executives that have plans and they saw the back down the hatches. So, it’s very difficult for new technology to work its way through the doors of the Chief Medical Officers and Medical Directors and into their committees and get some kind of a acknowledgment that there is something new and better. So, we’ve been I think very astute at it; we brought things along very quickly. We hope to make in what I call the big five health plans, a lot of progress between now and midyear; we have got one of those already, Cigna, and we’re trying to bring the other four to us. And we’ve got and made a lot of progress with other health plans. We probably have 55% to 60% of the covered lives out there have written coverage policy on us. We hope by midyear to have that number up into the certainly 80 plus percent. So, we’re making steady progress and we work on it here every day. And I have to be involved with on basically daily basis. So, we’re making progress but it is tough.

Okay. Then with the expansion into the surgical arena, you mentioned that the uro/gyn area is an area of focus for you. I am assuming that the prostate surgery application is one area that you’re working on. Are there any clinical studies that are planned to publish this year to help support that effort?

Well, we just published one literally a few weeks ago. The first retrospective study came out of Florida Hospital and Dr. Patel. And we’ve got some prospective studies that we’re about to launch along those same lines. But the results have been quite satisfactory to say the least and a lot of -- quite a bit of enthusiasm from those physicians who do and nerve sparing prostatectomy, particularly with The da Vinci system over what the results have been.

And then, are there any other applications that you’re selling to in that market right now in addition to the prostatectomies?

Yes, there are various other surgeries in gyn space that we’re just getting into right now. I don’t have the exact procedures off the top of my head here, but we’re really starting with the urology and the prostatectomy first. And those are kind of the thought leaders, particularly in the robotic surgery area. And if you follow the trajectory of those robotic companies, generally they start in the urology area and then over time the gyn area gets substantially larger with various procedures. So, basically any procedure where reduction in scarring is needed, enhanced healing and reduction of inflammation, anything like that and there are a lot of adhesion problems with those pelvic surgeries and abdominal surgeries that we think we can help quite a bit with. So I think you’re going to be pleased with the growth that we have over the coming year.

Okay, good. Then last question on the FDA and the back and forth you’ve had with the transition letter. Just from a practical standpoint, what does this mean for your marketing efforts? I think that you’re sort of trying now to arouse the IR of the FDA by marketing the product too aggressively. Is that still the case or do you now feel like you’ve got some freedom go out and be more aggressive?

I think when you’ve dealt with the FDA as long as I have over the decades, I always respect them. They have their goals in mind and as industry, we have ours in mind and we have to come together, generally speaking. We’re just trying to get clarity. And we’ve had numerous experts give us advice over the last 17 months. Now trade associations and other corporations who know they’re going to be affected by the same type of let’s just call it confusion at this point, are all charming in. So, the good think about it is we’ve got numerous groups saying the same thing we’ve been saving for the 17 months trying to get clarity and understanding why this happened to us is a standalone and nothing else is transpired along these same lines for 17 months until this request for additional guidance -- on this guidance document came out. So, we’re looking forward to some clarity. Industry I think can deal with most, anything as long as there is some logic and some clarity to it, it’s when it’s confusing and answers aren’t coming forward and those kinds of things and that’s kind of situations we’ve been in. So we’re doing everything we know how to do. We have done everything that agency has asked to do in terms of IND BLA process and we’ve done it quickly and efficiently. At the same time, we like clarity on what, where this is going and we’d like to be certain at the agency’s using their own regulations to make these changes. And that’s how it goes. So, you won’t see any significant changes in our behavior because I think we’ve done the right things and we’ll continue to do the right things. But we hope to see some clarity come out of this fairly quickly and hopefully some public betting and hearings on these changes and thereby understanding why and the goals of agency.

Okay. That’s great. Thanks again. Great quarter.

Thanks.

Thank you. I am showing no further questions. I would now like to turn the call back to Pete Petit, CEO, for closing remarks.

Well, thank you so much for being on the call. I hope it’s been informative and I can tell you that we look very much forward to reporting our first quarter results to you in late April and I want to clarify whole a lot of issues for us at that time. Thank you.

Ladies and gentlemen, thank you participating in today’s conformance. This does conclude the program. You may all disconnect. Everyone have a great day.