Ladies and gentlemen, thank you for standing by and welcome to the MiMedx Third Quarter 2020 Financial Results Conference Call. At this time, all participants on a listen-only mode. [Operator Instructions]. I would now like to turn the conference call over to your speaker today, Hilary Dixon, of MiMedx. Thank you. Please go ahead, Madam.

Thank you, operator and welcome to today's conference call to discuss our third quarter 2020 financial results. With me today are Tim Wright, Chief Executive Officer; and Pete Carlson, Chief Financial Officer. Additional members of senior management will also be available to answer your questions. Before we begin, as a reminder, the will begin trading on the NASDAQ Stock Market at start of trading yesterday, November 4, 2020 under the ticker symbol MDXG. Also o October 15, we filed our definitive proxy statement and announced that we will hold our 2020 Annual Meeting of Shareholders on November 20, 2020 at 10 AM Eastern Time in a virtual only format. The press release reviewing third quarter 2020 financial results was issued yesterday November 4, and is available on our website. I'd also like to remind you that remarks made during today's call include forward-looking statements that are subject to risk and uncertainty. Actual results may differ materially. We describe some of these factors in our risk factor section of our 2019 Annual Report on Form 10-K. In the second quarter 2020 quarterly report on Form 10 10-Q. This call will also include references to certain non-GAAP financial measures, we provide reconciliations of those measures to the most comparable GAAP measures in the earnings press release on the investor relations portion of our website at www. Mimedx.com. With that, I'm pleased to turn the call over to MiMedx, Chief Executive Officer, Tim Wright.

Thank you, Hilary. Good morning everyone. Thank you for joining us this morning. The third quarter was a period of significant progress for Linux. As we continue to execute on our strategy. I'm pleased with many accomplishments in all areas of our business including R&D, supply chain and operations, and commercial operations. Moreover, we continue to make meaningful difference in the lives of patients and families suffering from chronic unhealed wounds. We remain at the forefront of patient care and treatment. Now with an established seasoned executive team in place, we are well-positioned to make deeper advancements in the large and expanding new care market. On today's call, I plan to recap key recent milestones, share highlights of our third quarter results and reiterate areas where we are investing in the business to drive near term and long term results. I do want to express my deep appreciation to our 700 plus employees and their families for their incredible ongoing commitment and dedication to MiMedx. I'm exceptionally proud of our team's performance in Q3. And for their perseverance over the last eight months as we weathered the unprecedented COVID pandemic together and with our customers. It must be noted, we're still in the pandemic, so we must remain vigilant. Some of our turnaround efforts have been complicated by COVID. But that has not deterred our focus on the fundamental business objectives to restore our financial integrity and our reputation. Build out are a cohesive and capable management team, maximize the core business and to continue to advance our musculoskeletal pipeline in strategically address any headwinds we may encounter. Our performance this quarter resulted in a strong rebound in sequential sales growth, with a 22% increase over the prior quarter. Since the onset of COVID in March, we mobilize to ensure…

Thank you, Tim, and good morning, everyone. Today, I will discuss our third quarter results which demonstrates improvement in our business and recovery from the soft second quarter, our cash position and some upcoming activities. We are pleased to have completed a strong day of trading on the NASDAQ stock market and are excited for the increased liquidity this brings to our shareholders. Our third quarter results reflect positive momentum for revenues on a sequential basis. However, as I've discussed before, I need to clarify the impact of the company's transition in revenue recognition methodology on our reported results. Net sales for the third quarter of 2020 were $64.3 million primarily recognized on an ad shift basis. Included in this amount is $1 million of cash collected related to sales made prior to the revenue recognition transition. We refer to these as the remaining contracts. Net sales for the third quarter of 2019, were $88.9 million primarily recognized on a cash receipt basis. Included in this amount is a benefit of $21.4 million resulting from the transition in revenue recognition that occurred in that period. Adjusted net sales which excludes impacts of the company's transition and revenue recognition and cash collected on those remaining contracts were $63.3 million in the third quarter of 2020, a decrease of 6.2% from the third quarter of 2019. Cash collections in the third quarter of 2019 were higher than shipments in that period. On an as-shipped basis revenue between the two periods was relatively consistent. Further, adjusted net sales in the third quarter of 2020 represented an increase of 22% over the second quarter of 2020, which was significantly impacted by restricted access and other limitations caused by the pandemic. While we are very optimistic, I would caution you that we are still in…

Hey, guys. Thanks for taking the questions. As you know current treatments for Knee OA such as cortisone injections and HA injections. There are questionable efficacy. And in the case of cortisone can cause accelerated degeneration of knee cartilage. Our research indicates that AmnioFix is a superior and safer treatments for Knee OA than both cortisone and HA injections. And as such, we think that AmnioFix will likely gain FDA approval and eventually become a widely used potentially frontline treatment for Knee OA? If we're correct, then this could mean that AmnioFix is potential revenue for the Knee OA indication alone could amount to well north of a $1 billion. Do you believe that our assessment of the market potential for AmnioFix is realistic? And why or why not?

Yes. This is, Tim. Thank you for your comments and your question. Certainly, the AmnioFix injectable for Knee OA could be an important contribution to other treatment modalities. Certainly non-steroidals, hyaluronic acid steroids, even the current modalities that are being studied in the clinic, like anti-NGF, win inhibitors -- These -- all these therapies have their own limitations. One of our main goals in our Phase 3 clinical trials is to demonstrate the -- put obviously, the clinical efficacy, but also the safety of amniotic tissue. So we do learn. We do feel there is a promising value creator here for the business. I would like to have Bob Stein, to provide his comments on this as well. And then we'll address your comment around the potential size of the market and so on.

Thank you, Tim. Thank you, Eiad. I do believe that our AmnioFix injectable product is having very powerful impact pain and function in the osteoarthritis. Earlier studies by Dr. Alden have supported that. And our ongoing study looks very promising at this stage. We were able to enroll the entire intended patient population into that study a little bit early. And the reason for that even in the face of COVID and slowed down enrollment for a while, is that our dropout rate is much lower than we had anticipated. Our study was designed for a anticipated 10% dropout rate and our actual dropout rates only been 3%. And that allowed us to accrue the number of patients we believe, we need to see a statistically and clinically significant difference, in a slightly smaller sample size. Pretty good size study though. It's over 460 patients that have been enrolled. And the blinded endpoints will be available in the second quarter of next year. And the 12 month blinded observation period will be completed before the end of the year. So that's going to allow us to start to have dialogue with the FDA under the regenerative medicine advanced therapy designation. And to begin to plan our Phase 3 studies. So we're quite enthusiastic about it as an intervention. And there will be additional data that we'll be able to describe at the appropriate time. Although not in the first part of the six month observation, but after we've had an appropriate opportunity to vet it internally and have discussions with the FDA.

Yes. Thank you, Bob. And yes, just going back to -- if you think about the, the size of the knee osteoarthritis market that you're referring to. I believe we've stated before that the market is significant. I think everyone knows that. There are over 242 million patients worldwide suffering the symptomatic OA of the knee and the hip. Even if you cut that in half, it's a significant opportunity for us as we drill down on if you will, the epidemiology. We're not quite ready to fully characterize the total addressable market. But as we work through over the next month, we've placed a lot of effort in if you will, characterizing this market. I appreciate Preston's [ph] points, deep, deep diligence in this particular area. And look forward to speaking to you more about this.

Thank you very much, Tim. And one more question. You mentioned during your introductory comments some contract wins. Are you open to providing any details about those contract wins?

I would love to. But I don't think its appropriate this time. We have been very successful in contract wins. This is part of our -- really part of our growth strategy. I also would like to note that once again, the largest U.S. Commercial payer will be providing coverage for a product on December 1st for EpiFix. This is an important accomplishment for the organization. There's no other amniotic tissue on the market today that that has the benefit of this coverage. I believe it benefits payer, it benefits patients, it benefits the company. So Eiad, we're executing against the need to grow our core business. We're also executing under the leadership of Bob Stein, our Phase 2b, Phase 3 trials in the musculoskeletal area, which in the future, I would like to be able to be in a position to provide a very robust update.

Thank you very much.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Arne Amberg [ph] from [Indiscernible]. Your line is now open.

Thank you so much for taking my question. In reference to the win with the large commercial carrier, you indicated that you intend to start to expand the salesforce. While you've given us an idea of total employees, can you help us understand where you are in terms of Porter carrying salesman, Medical sales reps. And what the expansion plans mean?

Ernie, thank you for your question. And having a large and growing sales force is an important part of our tasks. So you have a focus on a good topic there. We have not been updating externally the count of our sales representatives. During the year, we did -- the last number we talked about just because it's out there was -- there were 285 sales professionals as of the end of last year, December of 2019. We do recognize the need to increase our field forces. And as Tim said, we are focused on having the right people in the right places, as we put the resources out to distribute our product. So while we don't have the quantification and are not sharing that at this time. Rest assured that we are always focused on the resources we have in the field, distributing the product. And I'll also would go back to another thing Tim said about the resources around those sales representatives, with our medical liaison, our market access our reimbursement, resources, all are helping get the word out and facilitate the transactions with our customers.

Thank you.

Thank you.

The investigation expenses, the character of the expenses in the last quarter. Looks like they changed significantly. And Pete said that, he couldn't specifically talk going forward, because then they'll be variable. Do you have any limits on the contractual reimbursement you have for former management?

Yes, Ernie, you are correct in the characterization. We have hit a transition in those overall activities. As you noted that at the end of the second quarter with the filing of the 2019 10-K we created -- we completed our restatement activities. The investigation that's referenced in that line item was completed in 2019. And as you know, the indemnification payments are one of the largest components of the current spending. Those agreements are not limited. So we are not able to put a cap on that. I would just note that the agreement do provide the opportunity to seek reimbursement for expenses that have been advanced in fees paid for in case the individual covered has a final ruling of guilt against them.

Thank you. Just one other one. In terms of the contract, when you've talked about for DFUs. How does that add additional wins that you have talked about here on the call? How does that get you in terms of covered lives in the area? And are there still significant wins to be gotten there?

It's a great question. Rohit, I'd like Rohit to take that question. And certainly, I agree with you. The MiMedx has always enjoyed commercial payer coverage along with Medicare coverage. This coverage with one of the largest carriers is very significant for us. So Rohit.

Yes. Good morning. And it's an excellent question, because I'm very excited about the opportunity with the larger payer expanding our reach further. One of the areas that we focus on is -- you have covered lives, and then you have covered indications, right. So as we develop clinical data, as we have discussions, as we prove our value to the payers, one of the things that we continue to do is not just expand into more covered lives, but expand into more indication. So if you have DFU, can you add VLU. If you have DFU, and VLU, can you expand to wounds from head to toe. So that continues to be a priority. But I would emphasize again, it validates -- the coverage validates the strength of our clinical data. As Tim and Pete have highlighted, we believe we are the only amniotic based tissue with this payer. That's why we have this coverage. So very excited to get started organizing, in order to capture that opportunity. We expect there will be some learning experience for both us and them as we go through this in the initial phase. But we are excited about a substantial opportunity for our business as we go forward. And continue to leverage our clinical data to expand indications as well.

Ernie, it's Pete Carlson. Thank you for your questions. What I would know, relative to covered lives is with this we're well over 300 million in covered lives.

Thank you.

Thank you. And our next question comes from Brian Finn from FIN Capital. Your line is now open.

Hey, guys. Congrats on some of the recent wins here. With some of these insurers. I guess I had two questions. The first question was on kind of quarter to date, if you guys can give any commentary on Q4 sales. And then on the commercial side, you guys are very dominant in some geographies and other geographies. You must have a presence. Want to kind of understand sort of how Rohit is addressing that going forward here and kind of what the plans are to get more reps in certain areas?

Brian, thank you for the comment on the quarter. And I'll start with the first question, and Rohit can add his thoughts on that about the quarter to date, and then get, as you say, get into the geographies in the right places that Tim talked about. We haven't talked it externally and don't plan to at this point talk about sales on an interim basis during the quarter. As Tim talked about and I mentioned, we are seeing -- beginning to see things stabilized. But we also know that we're in uncertain times. We've seen shutdowns occur outside the U.S. And we just -- we don't know where things are going to go here in the U.S. But again, I would go back to the beginning to see stabilization and accounts and access and I'll let Rohit give his added thoughts on that.

Thanks, Pete. And it's an excellent question, because we ask that question of ourselves also everyday in terms of business stabilization and progress. We continue to see some substantial recovery, but there's still some -- it shifts around during the course of the quarter and we continue to expect seeing some of that as we go forward. As to the volume of patients and the patient access to therapy because we are and then also our access to those facilities, whether it be a wound care clinic, a private office or a hospital, it is sometimes essential. I'm very proud of that we have been nimble, especially over the last quarter to adjust that tactics and strategies to be able to provide the support that we need for our customer and also educate our customer with the virtual platforms that we can leverage to do that. As far as the geographic distribution of salespeople is concerned, as Tim has mentioned, we want to put the right people at the right place. And that's kind of suggesting what you just call out. The way we think about how we would people is based on our current sales, the future potential or the untapped potential that we have, and also accessibility. So if there is a state or a place where there's a huge amount of potential, do we have access to that based on the facilities that exist there. Based on the payer contracts, because some payers can be a significant player in a market based on local presence and things like that. So we take all of those factors into account or as doing that process right now and making sure that we have the people placed in the right markets to address the growth potential that exists for therapy and making sure that patients throughout the country have access to a therapy.

Cool. Thank you guys.

Thank you, Brian.

And thank you. I would now like to turn the call back over to Tim Wright for closing remarks.

Well, thank you for joining us on the call today. We've accomplished a tremendous amount over the past year culminating in yesterday's we listing on NASDAQ. It's clearly an important milestone for our employees and our shareholders. Additionally, we continue to increase our engagement with the financial community and we'll be participating in a number of healthcare investor conferences over the coming months. With a leading market platform and growing body of evidence and clinical research, we are definitely focused on operationalizing our strategy, we feel we're well positioned for the future. In addition to the comments Rohit made on our sales organization, I wanted to just add to that to build on top of that, our strong market access team, they've been able to deliver on contracts and on payer coverage, very important. Our Medical Education team. Rohit is very focused on building out our medical education support for our sales reps in all of our geographic territories. So on behalf of the entire MiMedx's team, thank you for your continued support and commitment to MiMedx. As always, I welcome your questions and feedback and look forward to engaging you more in the future. Operator, you may close the call.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating You may now disconnect