Okay, ladies and gentlemen and welcome to the Second Quarter 2017 MiMedx's Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions] As a reminder today's program is being recorded. I will now like to introduce your host for today's program Thornton Kuntz, SVP of Administration, please go ahead.

Thank you, operator and good morning everyone. Before we began please be reminded that our comments today may include forward looking statements. These statements are subject to risks and uncertainty and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings which are available on our website www.mimedx.com. We do not undertake to update or revise and forward-looking statement except as maybe required by the company's disclosure obligations in filings with the Securities Exchange Commission under federal securities laws. During the call, we will discuss non-GAAP financial measures when talking about the company's performance. you can find a reconciliation of these measures to GAAP financial measures in our press release and on our website. Finally, MiMedx is not responsible for the accuracy of our earnings teleconference transcripts provided by third parties. We only authorize and archived webcast as stated on our website. With that, I will turn the call over to Pete Petit, MiMedx's Chairman CEO.

Thank you, Thorn. Good morning. We appreciate you joining us for our second quarter update. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken our Chief Financial Officer, Debbie Dean, our Executive Vice President; and Chris Cashman, our other Executive Vice President and Chief Commercialization Officer. There are other corporate executives in the room with us. First, I'd like to simply comment on the fact that we had an outstanding quarter and most importantly, we expect this trend to continue. I wish to congratulate all of our executives, management, staff for their hard work and expertise which allows the progress to continue. Our press release certainly gives the second quarter highlights, just a couple of course is, our revenues are $76.4 million, and exceeded our guidance of $73.5 or $75 million. Our second quarter revenue grew 33% over our second quarter revenue of 2016. Our net income of $8.3 million is 309% increase over second quarter a year ago. We had positive net cash flow from operations of $13.5 million compared to $7.3 million in the second quarter a year ago. And like to sink in a comment on the fact that our day sales outstanding accounts receivable dropped to $72 million a year or so, we commented to you that we'll be bringing that number down considerably, and we as always fulfill our commitment. I hope all our shareholders received the copy of our 2017 business report. We took the time to explain our corporate assets and our format clearly demonstrates the strength we have built over the last six years. I still do not think that the strength and advantages of this asset base is full appreciated. A discussion around our transition to our former company needs to be taken very seriously.…

Thanks Pete. As you've heard, our second quarter 2017 was an excellent quarter for MiMedx with a very strong year-over-year and sequential quarter revenue growth. It was also very strong operationally as we increased our gross margins and completed our final quarter in our contract with AVkare. The sale performance from our team to achieve such strong sales even with the administrative effort put forward to finalize the work under that contract. So, I'd like to thank the entire MiMedx team for their hard work and focus which led to such a great quarter and prepared the foundation for very strong back half of the year. Now regarding our field sales force, we continue to grow in every quarter. The opportunities for our products continue to expand and we expect further growth over the next several years. at present, we're including offers accepted the people have not yet started were about 350 total sales personnel. We project to be 375 or more by the end of this year. We are hiring in Wound Cares, surgical and pain management. Our detailed planning with the help of our informatics group continues to be focused on multiple quarters in advance which helps us in our predictability as well as our continued growth. So, we really are focusing a lot of time on our informatics growth. So, as you will recall, our sales expansion focus over the past several years has been to expand our customer base and to go direct to customers through a combination of our own sales force and sales agents and generally away from distributors. We have maintained our long-term distributor rates but have strategically decided to focus our energy on direct sale revenue adding additional distributors. Because of this focused effort over the past four years we expanded our…

Thanks, Bill. MiMedx continues to invest in research illustrating the clinical and economic impact of our various products. They are currently approximately 30 clinical trials underway or under development and we will be completing several large multi-center clinical trials this summer and preparing them formal publication. Research investigation includes clinical work across MiMedx's broad product portfolio with investigations including EpiFix, EpiBurn, EpiCord, AmnioFix, AmnioFix injectable, OrthoFlo and AmnioFill. The first of these studies includes the recently completed large multi-center venous blood ulcer trough [ph] performed at 15 slides which included 109 patients. In the United States, the estimated payer burden associated with the treatment of the over use is nearly 15 billion in 2014 and this number is only expected to rise. This landmark study has been submitted to a prestigious journal for publication and we anticipate that it will find its way to general circulation in the medical literature in the next couple of months. We are pleased with the results of this clinical trial, especially with the broad inclusion criteria, including diabetes. Our hiring level of standard care was used in this trial compared with five VOU trials. And an average wound size of 7.6 square centimeters or another FDA approved skin substitute trial was only 1.3 square centimeters. Additionally, we followed ICH E6(R1) guidelines from good clinical practice and SEA's guidance for industry chronic subcutaneous, ulcer and burn wounds, clinical trial designs that is the standard for FDA and top tier research organizations around the world. In our Phase 2b AmnioFix injectable IND trial, we have also recently fulfilled our enrollment with pharmas across 14 sites with 147 patients for [indiscernible] which is an extremely common condition. The first patients in this trial had an immune compatible blood work completed at enrollment three months and 12 months.…

Thanks, Debbie and good morning. We are pleased with the sales progress we made in the second quarter. We grew revenues 33% year-over-year overall and revenues were strong in both of our market focuses of Wound Care and SSO. Just as we expected, the implementation of our new sales management since 2016 has grown to become a major asset and facilitator of our strong revenue growth and we are reaping the benefit of this disciplined approach. The processes, accountability and reporting continue to make a positive impact on our sales activity. So too are the corresponding informatics and organizational structure investments made at the same time in 2016 delivering results as planned. We finished the quarter with over 340 personnel in the sales organization and today are approaching 350. Our internal search and hiring team alongside our sale management have done an excellent job of maintaining the pace of new hires. The debt and experience of the sales organization continued to improve, aided by our internal training department and the sales force alignments provide greater specialization for our product line focuses. We are very positive that we will continue to deliver robust revenue growth. The second quarter produced a very strong show with revenues exceeding the upper end of the guidance by $1.4 million. We were very pleased by the growth in SSO as it achieved 42% growth over the prior year's quarter and 27% sequential quarter-over-quarter growth. We attribute this to our improved focus and planning taking hold for this SSO group. Revenue contributions from our new product introductions of AmnioCord, AmnioFill and OrthoFlo in 2016 and additionally we continue the adoption of hospital members accessing our market leading GPO and IDN contracts. We continue to educate and train on the new products and they are performing in line…

Thanks, Chris and good morning. The company recorded revenues for the second quarter of approximately $76.4 million which represents an increase of 33% or $19.1 million over prior year's second quarter revenue of $57.3 million. Wound care revenue was $54.7 million, and SSO revenue was $21.7 million with growth driven by addition to our sales team, as well as new product introductions somewhat offset by the time dedicated to completing the transition of the remaining VA facilities through the MiMedx FSS schedule and the wind down of the remaining AVKare inventory. Stability Biologics revenue for the quarter was $2.3 million. We believe that the positive momentum we saw in Q2, we are well on-track to hit our annual growth target in wound care and SSO. Tailwinds for the second half of the year includes a completed wind down of the AVKare inventory, with both of the various clinical trial, as well as continued momentum in sales of our new products; AmnioFill, OrthoFlow, EpiCord and AmnioCord. Revenue for the six months ended June 30, 2017 was $149 million which represents an increase of 35% as compared to prior year. Year-to-date wound care revenue is $109.6 million and SSO revenue is $39.4 million. GAAP gross margins for the quarter were 88.7% as compared to 87.1% in the second quarter of 2016. The 160 basis point improvement was driven by higher sales volume, processing yield and efficiency improvement and lower onetime cost related to the Stability Biologics acquisition. On a year-to-date basis, GAAP gross margin was 88.3% as compared to 86.1% in 2016. 2016 year-to-date gross margins were impacted by $1.3 million in one-time acquisition-related costs. On an adjusted basis, gross margins have improved 110 basis points. Included in the press releases is the reconciliation of GAAP gross margins to address the gross…

Thank you, Mike. We'll open the call now for questions.

[Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital. Your question, please.

This is Charlie on for Matt, thanks for taking our questions and congrats on the great quarter. First off, DSOs, obviously a great improvement quarter-over-quarter; is this kind of a normalized range or are things going to get better from here? And also is AVKare contributing to that? Obviously, it ended at 6:30 I would think so but what can we expect?

Okay, sure. This is Mike. First of all, our target DSOs are 75%, we've stated that publicly. And you know, we hope to stay within that range and we feel good about the way forward, especially when you consider we -- as several of the comments have been made, we've purposely moved away from selling through distributors which tends to drag out your DSOs. As far as the AVKare impact, there was an impact of that but quite frankly, there were many other impacts this drove down the DSO. It was part of the impact but certainly not the full impact.

Okay, that makes sense. And then I guess related to the AVKare relationship, in December it took $1.8 million allowance; is that final? Because is there potential for that to be reversed; where we have that?

All right; when we book that adjustment as of year-end, it was our intention for that to be final. Because there is a 90-day run out period here, we'll see how much if any of that gets reversed. But as far as any financial exposures going forward, whether it's a hit to revenue or hit to expense, all of those financial exposures are fully covered.

Okay, all right. And then just related to the new products, it sounds like everything is going well for EPIcord, AmnioFill and OrthoFlo. Is there any of the three that stand out as a star or how material are they to driving revenue growth at this point?

This is Bill. Actually we've got highlights with really all of the products. We've gotten some really good wins with them all. We're not in a point where we're going to be breaking those revenues out or anything yet; but we've got some great traction with Emmie [ph], so great traction inflow other floor. And so further, you know, I think maybe down the road it will give you a little bit more color but they all are getting some good momentum. And as I mentioned, some of that such as AmnioFill, if not a clean bucket to say it's SSO because a lot of our wound care reps are still in that product which is great for them because they've never expand the bag and their portfolio given more solutions to the positions that they've worked with but we're were quite pleased with the progress of those. Also just to refresh your memory, EPICord does have a reversal codes for Medicare, they fall under our same few codes EPIfix, and there is a large number of the health plans that are covering it as they are covering EPIfix [ph], so we're getting some really good movement on EPIcord as well. So overall, we're very satisfied with the progress for new products.

Yes, that's great. Yes, thanks for all the color and again, congrats on a great quarter.

Thank you. Our next question comes from the line of Mike Matson from Needham & Company. Your question, please.

Yes, thanks. So it's great to see the revenue upside relative to consensus and your guidance in the quarter but you know, there wasn't as much upside from an earnings perspective, particularly from an EPS perspective. So I guess what my question is, are you sort of using this as an opportunity to consciously reinvest some of that upside back into things like R&D and SG&A and hiring more reps versus just like a lot of that fall through to the bottom line?

Mike, this is Pete. I think in the quarters ahead you will begin to see a more rapid increase in percent, increase in earnings per share and cash flow etcetera as we've seen in the past; we continue to make investments beginning in 2016 where we've made significant investments. But we're at a point now, R&D will continue to increase a bit but we should see increasing operating profit margins and EPS.

Okay. And then, Mike, it looks like the share count increased fairly substantially from the first quarter; and if you look back over the longer run, back to 2013, it's up over 20%. So just wondering what's driving that particularly, both in the short-term and I guess on the longer term as well?

Yes, I mean what drove that increase in the quarter is really our share price. You know, under the treasury stock method, you make an assumption on how much stock you're going to buyback based upon an exercises in -- and with a higher share price, the number of shares you're buying back and that formulae goes down which drives the overall number up, so it's just a mechanical calculation that drove it that way. You look at how rapidly the share price grew from the end of March to the end of the quarter, and that really is the primary reason. Again, just to point out, we have increased the -- where the board has increased the overall share repurchase authorization, and we intended to try to counter some other dilution with the share repurchase.

Okay, thanks. And then I guess this would be for Chris and/or Bill; just curious about you're -- you've hired a tremendous amount of reps over the years, you're continuing to add -- I know you said that 375 target for the year, just -- are you able to continue to find good reps -- reps that have the right kind of background or you're starting to have to kind of go outside of the wound care area and does that have any kind of impact on the productivity or they're kind of sales ramp that these reps have?

Well, it's Chris. We're certainly finding -- I'd say we're improving our ability to find even better more qualified, more experience representatives. Some come from the wound case space or tangentially associated but some are coming out of the medical and life sciences world, more broadly. So I think the answer is that there is still a very large pool out there. We look for experience and maturity and certain -- that's actually qualities, and we know that we can train them. Our training program has improved significantly over the last two years which we're very proud of and so is our medical education as I spoke to earlier. So we don't see a problem or any type of gap in the ability to find good people and train them.

This is Pete, let me comment on that. We necessarily in our early years of the development focused on individuals that have some wound care experience but with the asset base we've built now in terms of our clinical successes, our scientific successes, publications and our significant increase is good stressed in our training activities and training acumen; we can take individuals from general areas of healthcare and turn them into a pretty effective, efficient wound care sales reps pretty quickly. So our training program has a great deal to do with that.

All right, thanks a lot, appreciate it.

Thank you. Our next question comes from the line of Matthew O'Brien from Piper Jaffray. Your question, please.

Good morning, this is JP on for Matt, thanks for taking the questions. My first one was on SSO in the quarter, it was pretty impressive acceleration and that's above where we are kind of modeling on our side, trying to just get a little bit more details about what kind of applications are driving that, is there any sort of new contracts that are really driving that acceleration in that -- and the SSO in the quarter?

Well, a number of things as you could I've said, we have continued to invest in our SSO organization, we've talked about the process that was going to take some time. It is going to be a little more methodical than what you saw in the wound care side, a growth over the years and mainly because that's VRG based within the operating room; so we're not dealing with insurance but more of a cost in an economic value analysis that's associated in the operating room. Additionally, we're getting through the back, now we're starting to see more clinical data that is in support of the various applications, we're spending more time and getting more recognition with AmnioFix line with our core areas of urology and colorectal, we're standing in the plastic and reconstructive surgery and that's all taking hold. Our GPO's and IBM's again are market leading, they are very strong, they've got 80% peers on commitment -- full sales force commitment levels and that's very difficult also for competition to be able to kind of get through or have access to. So all those aspects are in a whole are what's creating the value proposition and we're starting to see the returns on those efforts. And additionally, as both Bill and I spoke to -- the new products now are becoming -- you know, taking hold and beginning to grow as well as we expected; and that also becomes a balance because our whole sales force sells that. So, both the SSO organization as wound care or both contributing on those new product sales and of course they show up in the SSO area.

Got it. And then on the VLU opportunity; can you kind of walk us through the process of what way the opportunity be? You know, what was you have this new data set out? How do you go about -- assuming you to go to reimburse insurance companies and get kind of coverage for that application? Like when can we really see that contributing to growth in terms of VLU sales?

Well, how about we daily talk about the reimbursement part and Chris can translate every work and talk about sales in terms of reimbursement.

Yes, we have -- it actually cracks obviously because the publications since we have all the numbers around that side, we have the letters and that prep from the payers that is coming, and so they will be reviewing that and we hope in short order adding VLU covers to our already VSU covers that we have. So they have obviously experience with our product line from a VSU perspective and we'll be sharing the value data and once it's troubling us with them and then expect that cutters will follow that which will obviously lead into Chris's part of the discussion.

Yes, I mean as I said earlier, there are 500 million lives that potentially can be picked up, I mean this is $75 million to $150 million opportunity. When you look at the interim results that we share back in March and is in our presentation, all of those – while your study is compared to -- really, the only other RCT study that's been out there for active brands and that thing is almost -- I think 19 years old now. But they had about 50% to 52% billing at 24 weeks without the [indiscernible] and then in our study we're seeing added 12 weeks and going into 16 weeks. So there is just a significant amount of improvement in here and I think there is going to be a similar study if it continues to pan out, in other way we think that's going to make a big impact in the market. So if you're earning out from an insurance standpoint, Debbie you can speak to that.

Yes, one other point I'd like to point out as I said in my remarks, the average wound factor really is are much larger and you have to remember when you think about that 7.6 in our study, for example, the commercial payer coverage is on a per square centimeter, so there are going to be larger wounds that are going to be treated, that's just kind of the profile [indiscernible]; and so it will be reimbursed on that basis and it will be covered -- you know, I mean the commercial setting as well.

Okay, but from a timing standpoint they'll get the data before the end of this year; we'll get some insurance cover in the VLU, and then hopefully, back half of next year start really selling into that opportunity. Can you just frame out the timing of all these things?

I think you're off a little bit here because we've already submitted it for publication, we already have the data, so -- and we believe it's going to be published very quickly. So -- and as Debbie mentioned, we've already taken that data and approached several of these payers, obviously we want to get published, we will send them the publication as well. So we're hopeful that we're going to start moving the needle on some of these payers later this year and into next year; this is what our goals are. So it should be here a bit faster than what you described. And from a commercial aspect, we're very engaged with the providers that are taking care of these wounds, whether it's a vascular surgeon or other. And so this is going to be a quick adoption once the positive policy comes into play.

Got it, thank you.

Thank you. Our next question comes from the line of Bruce Jackson from Lake Street Capital Markets. Your question please.

Hi, good morning. Thanks for taking my questions. First, with regard to the hiring targets for the sales reps, can you remind us where you are on that for the year?

Well, as of today we're just about 350 individuals Bruce, and we expect to go to 375, maybe a little more throughout the year here. So we're hiring across all three of our areas that we're focusing on now; of course, wound care still makes up a good portion of it but SSO as you see because of the results we're going to continue if that's there and we've just made a decision now to put on direct representatives in the pain management area and capitalized on some new data that would be coming out here shortly in the near-term. So we're going to continue our robust and hiring, we believe that there is a significant number of procedures that are available to various products that we have and we're going to be positioned to capitalize on that.

Okay, great. And then a lot of progress in terms of the new products, you didn't talk about Epiburn [ph] at all, I was wondering if you're getting any traction on that products?

We are, Epiburn [ph] has been received very well, we are pleased with it, we came out or should say authors came out with the burn supplement that was back in Q1 and that was also represented and I think Epiburn was probably the majority of discussion at the [indiscernible] burn meeting in Hawaii this past year as well. So we're getting very good traction whenever pleased but we are reaching a lot of patients, it is used for obvious reasons for extremities and face for the astatic results for function but we're also starting to see now doctors that are now expanding, they've got more and more comfortable into the torso, the back and larger areas of the body, so we're very pleased with how that's progressing.

Okay. And then one final question for Mike, you've got that earnout liability payment on the balance sheet; when do you think that's going to go down to zero?

There are two components to the earnout liability; one is based upon 2016 performance and one is based upon 2017 performance. So we would expect the '16 performance to be reduced in the third quarter and the '17 performance would be same timeframe next year.

Okay, great. Thank you very much.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Pete Petit for any further remarks.

Thank you. We appreciate you joining us this morning. I don't think our comments and updates could be interpreted as anything but very positive, management could not be more positive on our outlook and our future. Of the [indiscernible], you continue to hear from time to time on the short-sell side are generally very minor in nature and if something does come up with that nature we will be certainly quick to dispatch it, move on; there is very little risk associated with those kind of matters for the company. Again, I cannot emphasize from a business standpoint the progress this company has made and will be making, it's quite exciting to be here at this point in time and the results that we're producing should be recognized for what they are and that's very out of the ordinary and very positive. Thank you very much, we'll be in touch.

Thanks everyone.

Thanks.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program, you may now disconnect. Good day.