Good afternoon, and thank you for standing by. Welcome to the MIMEDX First Quarter 2025 Operating and Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Matt Notarianni, Head of Investor Relations for MIMEDX. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MIMEDX first quarter 2025 operating and financial results conference call. With me on today's call are Chief Executive Officer, Joe Capper; and Chief Financial Officer, Doug Rice. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at mimedx.com. Joe will kick us off with some opening remarks and a summary of our operating highlights, and Doug will provide a review of our financial results for the quarter. And then Joe will conclude with some additional updates, including a discussion of our financial goals. We will then be available for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including statements regarding future sales, operating results and cash balance growth, future margins and expenses, our product portfolios and expected market sizes for our products. These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to many factors, including competition, access to customers, the reimbursement environment, unforeseen circumstances and delays. Additional factors that could impact outcomes and our results include those described in the Risk Factors section of our annual report on Form 10-K and our quarterly report on Form 10-Q. Also, our comments today include non-GAAP financial measures, and we provide a reconciliation to the most comparable GAAP measures in our press release, which is available on our website at mimedx.com. With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt, and good afternoon, everyone. Thank you for joining us on today's call. I am pleased to report that we had a very good start to the year, growing the top line by 4% against what should be our toughest comparison from Q1 last year when we posted 18% growth. And this was with one less business day in this year's quarter. Importantly, you will hear today that we are well positioned to accelerate our growth as we advance through the remainder of 2025 and beyond. Our efforts in our surgical business continued to pay dividends, producing double-digit growth in the quarter. We also held our own in the private office and associated care settings, notwithstanding the continued disruption caused by the current Medicare reimbursement system that lacks any rational fiscal accountability. As you may know, on the eve of their scheduled implementation of the proposed LCDs, the federal government once again announced a delay, this time until January 1, 2026. It goes without saying another day, another delay was a head scratcher as the private office setting is in tremendous need of Medicare reform. This action without any other immediate step to slow down the out-of-control spend represents another blow to Medicare beneficiaries, the trust fund and U.S. taxpayers.

Naturally, we had contingency plans in place in the event of another such delay, and we have modified our approach to ensure we remain competitive in these affected care settings as we bridge to a period of reform for which we will continue to actively advocate. I will discuss our plans in more detail, but first, let me touch on some of the highlights of the quarter. Q1 net sales grew year-over-year by 4% to $88 million, representing another solid quarter, especially given that Q1 2024 is our strongest quarterly growth comparison. Adjusted gross profit margin was 84% in the quarter. Adjusted EBITDA was $17 million or 20% of net sales. We ended the quarter with $106 million in cash, an increase of $2 million during the quarter. This is an excellent result as we typically burn more cash in Q1 compared to the remainder of the year due to certain front-end loaded expenses and other cash requirements. Our surgical business grew by 16% with contributions across the portfolio, including an uptick in HELIOGEN sales as adoption gains traction. We continued enrollment in our randomized controlled trial for EPIEFFECT, and we advanced conversations on a few complementary business development opportunities for both our wound and surgical markets. I would also like to address a central topic of the day, and that is tariffs. I am pleased to report that MIMEDX currently has no direct exposure to tariffs, and we do not expect them to affect our results. Turning now to our strategic priorities. As articulated on prior calls, we have our team's collective efforts organized and focused around three primary objectives. Our top strategic priority is to continue to innovate and diversify our product portfolio. Over the years, the company has built a tremendous core competency in its ability to…

Thank you, Joe, and good afternoon to everyone on today's call. I'm pleased to review our results with you all today. As Matt mentioned, many of the financial measures covered in today's call are on a non-GAAP basis, so please refer to our earnings release for further information regarding our non-GAAP reconciliations and disclosures, including the reconciliation tables in the back of our press release that provide more detail regarding the adjustments made to calculate our non-GAAP metrics. Moving on to the results. As Joe mentioned, our first quarter 2025 net sales of $88 million represented 4% growth compared to the prior year period. By product category, first quarter wound sales of $56 million declined 2% versus the prior year period, while surgical sales of $32 million were up 16%. We saw significant contributions from many parts of our business in the first quarter, including another solid double-digit year-over-year growth quarter from AMNIOEFFECT, a continued ramp in sales of our xenograft HELIOGEN, which combined with strong sales of AMNIOEFFECT to drive the performance in surgical. Our wound business was up against a tough comparable following the strong sales of EPIEFFECT in the first quarter last year. Additionally, the ongoing behavior in the private office and the turnover in sales reps that we experienced in the middle of last year have created some challenges for our wound franchise. These declines were partially offset with contributions from our newest wound care product CELERA. Our first quarter 2025 GAAP gross profit was about $72 million, flat compared to the prior year period. Our GAAP gross margin was 81% in the first quarter of 2025 compared to 85% last year. Excluding the incremental acquisition-related amortization expense of roughly $3 million in the quarter, our non-GAAP adjusted gross margin was 84%, down modestly compared to…

Thanks, Doug. As you have just heard, we had another solid quarter, and MIMEDX is well positioned to have a successful year. Once again we grew revenue and recorded a 20% adjusted EBITDA margin. I'm particularly pleased that we added another $2 million to our cash balance in spite of high Q1 cash requirements compared to the remainder of the year. Cash generation is a key measure of any successful enterprise. Before I move to the Q&A part of the call, I'll share some final thoughts about the proposed changes to the Medicare reimbursement system for skin substitutes and then touch on guidance. On our last call in reference to the scheduled LCD implementation, I said the following: based on feedback from our outside advisers and activity within the new administration, we deem any further delay as highly unlikely. We now know that another delay did, in fact, happen. Over the past few weeks, we've heard from many stakeholders that they were just as frustrated as us that no action was taken to bring down costs. With the spend escalating at such an alarming rate, the new administration's stated intent to reduce fraud, waste, and abuse, media coverage on the issue and increased activity on the part of OIG and DOJ, it seemed logical that the administration would step in and direct CMS to impose corrective action. But that is exactly what did not happen, at least for now. We spoke to many of you since the latest delay and know you share our disappointment. However, we will not let this setback deter us from achieving our long-term goals. We will continue to make the necessary adjustments to remain competitive, and we will continue to advocate for much needed reform. Stay tuned. Turning to the question of guidance. After our…

[Operator Instructions] And our first question comes from Carl Byrnes with Northland Capital Markets.

Congratulations on the results. I think in your prepared comments; you were looking for adjusted gross profit margin in the 82% to 83% range. I think it was like 84.1% in the first quarter. Do you expect that to be related to mix throughout the course of the year? That's it

This is Doug. Yes, you're spot on. With regards to mix, we know some ASPs on some of our products did decrease throughout the year. And so, we've got pressure there, and we've also got some higher ASP products that offset some of that, but it's mostly a mix thing with regards to manufacturing sort of COGS and gross margin.

Got it. And then also, if you can provide us with a bit of a progress report on EPIFIX in Japan, that would be helpful.

Yes, it's still relatively small in terms of overall contribution, but we're right where we thought we would be. It's growing nicely. It takes a bit of time to open up a new market, new product category, especially in a country like Japan, but it's pretty much on track. It's just not material enough to break out.

Your next question comes from Chase Knickerbocker with Craig-Hallum Capital Group.

Joe, maybe just first for me, a bigger picture question kind of on the overall reimbursement landscape. Just in your conversations with regulators and policymakers recently, can you give us an idea of kind of, I guess, a percentage chance of kind of your confidence level that when it comes to mid-January and 2026 that we do see reimbursement change in this market, in the private office market, whether that be price reform or the LCD going into place or both? And then can you just kind of give us your updated thoughts on what you think is most likely to occur from a specific perspective on those kinds of items?

Yes, Chase, first of all, as we stated, the LCDs would have been a good first step to kind of slow down this wildly out of control spend in the category. As you know, it would have required clinical evidence around efficacy and safety for the first time, which is a good basic standard, right? So, while we were originally advocating for something to be done with pricing methodology, once that did not happen within the physician fee schedule last summer, we got behind implementation of the LCDs as kind of our last best chance to rein in the spend and the behavior in the marketplace. Again, we've heard either directly or indirectly through our advisers from many stakeholders that are involved in the process and everyone was kind of just as frustrated as we were that there was not some change implemented. The real answer has always been CMS has to do something with the pricing methodology; again, which is typically done through the physician fee schedule. And we have and we will continue to advocate for that change. And we've not stopped doing that throughout the entire process. I personally was in Baltimore 2 days ago, meeting with CMS on this topic once again. While they can't say much, obviously, during rule-making phase, it was clear to me that they understand the situation is at a crisis level. So, if there is a change in the physician fee schedule, that is kind of a structured process. Typically, you get the proposed rule right around July 4. And then there's a comment period, last, later into the year. Final rules are used to publish sometime in November, implementation January 1, in this case, January 1, 2026. We do, however, believe that CMS has statutory authority to take action outside…

Maybe on the kind of new product side, people are getting pretty aggressive out there on the price. Obviously, now that the LCD has been pushed. Can you just queue us in on kind of to what extent you expect to kind of shift your private office volumes over to CELERA or these new product offerings? I mean how successful do you think you can be in kind of shifting those volumes from kind of a percentage of that business? And then just kind of your general thoughts on you're taking kind of a middle ground here. Can you help us out with kind of how physicians are thinking about at least what you're hearing from them in the near term, how they're thinking about even these higher-priced offerings versus kind of where you will be in the marketplace, how they're thinking about kind of the differences of those and how they're willing to utilize them in their practices?

Yes. I'm going to stay away from forecasting how much of our business might convert to a higher-priced product. Look, this was not our first choice. This was a step we felt it was necessary to take to protect some portion of our business. It's a little bit more nichey for us. Again, 25% exposure in that category. And within our current customer mix, you don't have the majority of them are probably not moving in that direction. Let's just put it that way. And to the extent that they do because there's some fear of missing out, they're looking for products that are priced higher than our existing portfolio, but more moderately priced as compared to what we're seeing out there in the marketplace today. What we're seeing out there is rather upseeing. And remember, when a doctor decides to use a product that's several thousand dollars, they still have exposure and risk around audit. And we know that audits are increasing at quite a high rate, right? So, the higher the build charges, the higher the potential clawback in the event of an unsuccessful audit outcome. So I think for us, it's a little bit more nichey. That's why in my prepared remarks; I cautioned against looking at this as some sort of a windfall. I would look at it as just a tactic or step that we're taking to protect as much business as we can until reform takes place.

And just last for me, strong surgical growth in the quarter. Can you queue us in on what portion of growth was driven by HELIOGEN? And then is there any specific surgical indication that is having an outsized impact on the growth? And then kind of what's driving that? Is it just better sales execution? Or was there a recent data set that's kind of really driving volumes in the surgical side?

I think it's just better execution. We had growth across the category. AMNIOEFFECT, obviously, is growing nicely. AMNIOFIX continues to grow nicely. HELIOGEN, as you mentioned, is new to the off of a base of 0 last year. So, any growth is good there. We actually still continue to retain a good portion of our AXIOFILL business waiting for an outcome there. So really across the portfolio. And I would just say more use in areas where the products have already been used. It wasn't some new revelation and some new data set. But I do appreciate you pointed it out because, again, that's a portion of our business that has no ASP exposure, and you see the kind of execution we're getting there. If you go back a few years prior to when we had this flood of new products entered the category, even our private office business was growing at a very nice clip. So, look, we again, we feel really good about the business at large. And our ability to grow the entire business at double digits once we get through this phase. But obviously, the surgical business is a bright spot for us.

Our next question comes from Ross Osborn with Cantor Fitzgerald.

Maybe just one for me at this point of the call. Would you walk through what efforts you guys are putting in place now to get ready for what is hopefully a better market environment next year? I think you called out some sales turnover. So just curious on what the bench looks like there in terms of hiring, any manufacturing initiatives that are planned to support incremental demand next year when we're in a much better marketplace.

Yes. I think sales force turnover, you mentioned that it was relatively high about a year ago, and that's come way down. Once we got through sort of that late second quarter, third quarter surge last year when we had folks chasing dollars. We got through that, I would say, at a more normalized rate. In terms of growth for the rest of this year and into next year, it's just executing our plan, right? We talked about need to continue to expand our product portfolio and service offerings, both within the wound care business and within the surgical market. That's really important for us. We know we need to continue to invest in the commercial strength, the clinical and scientific research to support additional surgical applications for use in the products. So, we'll continue to do those things. Teetering around from a Corp Dev standpoint, a couple of new assets we might be able to bring into the portfolio in some format. And that could help augment growth next year as well as long as it fits within our strategic plan. So, we have a lot going on and feel really good about it. Once this kind of distraction settles down and we can stop talking about it so much, we get some advancement and the industry gets cleaned up and becomes much more investable, we think the business is going to be in great shape.

Yes. And maybe, Ross, just to add to that real quick. I mean, and you see it with SAWC later this week as well as DDW next week. I mean the commitment to generating and publishing all the various proof points that we can to show the breadth of the utilization of our portfolio, I think, is meaningful. DDW, in particular, is a show that you wouldn't normally think of as a skin substitute showcase. And yet we've got normal presentation there. And I think that's the sort of the tip of the spear as it relates to various surgical applications for the products.

Our next question comes from Anthony Petrone with Mizuho Group.

Maybe, Joe, just jumping back to, obviously, the LCDs. I know not a topic that obviously, the team wants to continue to focus on here, but 2-parter here for you on this topic. One is, in prior announcements on LCD changes as this has evolved, the primary care channel kind of shifted their purchasing patterns. So, do you think this latest iteration will drive any changes in purchasing pattern shifts near term? So that would be the first part. The second part is, it seems like for DOGE, looking at fraud and waste. The company has previously put out $1 billion -- up to $1 billion of billable claims here that potentially are fraudulent. And so how do you look at this under the lens of DOGE and sort of tackling waste?

I'll go backwards. So, DOGE is, we're led to believe or told that DOGE is well aware of the issue that it's on the worklist. I sincerely believe that folks were able to convince the new administration that a postponement was necessary because the LCDs weren't necessarily the right way to address pricing and spending issue. And there's some merit to that argument, I get it, right? It was the last best option. And I think the MACs were put in a position that they had to do something. This is a project that they worked on for some time. So yes, I think it's a DOGE issue. But again, if you take Dr. Oz for his word, he's said that eradicating fraud waste and abuse within CMS, which has, I don't know, $1.5 trillion budget out of the $7 trillion total U.S. budget. He's got a big portion of it. If you take them in his word that this is going to be a focus area for them. And again, this is kind of low-hanging fruit for them, right? So, your number that you stated of $1 billion, we started stating that number last year as a run rate. We know the total spend -- prior year was close to $4 billion. We had gotten that number directly from the MAGs that the run rate by midyear was closer to $1 billion a month. And more recently, we've heard numbers that are much higher than that, right? I won't quote them because I'm not 100% sure of the sourcing on it. But it would make sense that the issue continue to escalate. So, and all that makes it very difficult to answer the first part of your question, ordering patterns with delays. Do I think there's going to be…

And ladies and gentlemen, there are no further questions at this time. So, I'll hand the floor back to Joe Capper, CEO, for any closing remarks. Thank you.

Thank you, and thank you, everybody, for your attendance and your continuous interest in the company. We will talk to you all after our next quarter. Operator, that concludes today's call.

Thank you, and all parties may disconnect. Have a good day.