Good afternoon, ladies and gentlemen, and welcome to the Third Quarter 2022 Earnings Conference Call for Organogenesis Holdings Inc. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A risk factors of the company's most recent annual report and its subsequently files quarterly report. You are cautioned not to place any undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time-to-time, the company undertakes no commitment to update or revise the forward-looking statements whether as a result of new information, future events or otherwise except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings' President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator and welcome everyone to Organogenesis Holdings third quarter 2022 earnings conference call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we will cover during our prepared remarks. I'll start with a high-level review of our third quarter revenue results and some recent operating highlights. After my opening remarks, David will provide you with a more in-depth review of our third quarter financial results, our balance sheet and financial condition at the end of the third quarter and the guidance for 2022 that we updated in today's press release. And then I'll open it up for questions. Beginning with a review of the third quarter, we reported net revenue of $116.9 million, an increase of 3% year-over-year, driven by a 2% increase in sales of our advanced wound care products and a 15% increase in the sale of our surgical and sports medicine products. Third quarter sales results came in below the guidance range we provided on our second quarter call driven primarily by softer than expected growth in our advanced wound care products. While sales of our surgical and sports medicine products were roughly in line with our prior expectations. We believe that hurricane Ian impacted demand in Florida in the last week of the quarter. We estimate that excluding this hurricane related business disruption, we would have delivered advanced wound care sale results within the lower end of our third quarter guidance range. As expected, we experienced continued improvement in COVID-related headwinds as patient visits improved in quarter three, but customers are continuing to struggle with staffing challenges, particularly customers in the physician office setting. While we were pleased to see these headwinds show measured improvement, we experienced the more challenging operating…

Thank you, Gary. I will begin with a review of our third quarter financial results. Unless otherwise specified all growth rates referenced during my prepared remarks are on a year-over-year basis. Net Revenue for the third quarter of 2022 was 116.9 million up 3%. Our advanced wound care net revenue for the third quarter of 2022 was 109.5 million, up 2% year-over-year, and net revenue from surgical and sports medicine products for the third quarter of 2022 was 7.3 million up 15%. Net revenue from our PuraPly products for the third quarter of 2022 was 63.7 million up 12%. Gross profit for the third quarter of 2022 was 90.7 million or approximately 77.6% of net revenue compared to 77% last year. The change in gross margin compared to the prior year was driven primarily by changes in product mix. Operating expenses for the third quarter of 2022 were 88.9 million, compared to 71.3 million last year, an increase of 17.6 million or 25%. The increase in operating expenses in the third quarter of 2022 was driven by a 17 million or 27% increase in selling, general and administrative expenses, and 0.6 million or 7% increase in research and development costs compared to the prior year. The year-over-year increase in selling, general and administrative expense was primarily due to additional headcount, primarily in our direct sales force, and higher spending and travel and marketing programs amid relaxed COVID-19 travel restrictions. The year-over-year increase in R&D was driven by a step up in clinical study spend and related costs necessary to seek regulatory approvals for certain of our products. Third quarter 2022 GAAP operating expenses included certain non-operating items. There was a $4.2 million charge related to the disposal of certain equipment related to the construction in progress in one of the…

Thank you, sir. [Operator Instructions]. Our first question is from Steve Lichtman with Oppenheimer. Steve?

Thank you. Hi, guys. I was wondering. Gary, if you could talk to you what, within the amnion business perhaps got worse from the second quarter call or didn't get better, as you would have expected at that time? Maybe you could drill down a little bit more specifically on that.

Sure. So I think the competitive pressure that we talked about, in Q2 has continued without the publishing of ASPs for all of the products that are out there. There is a lot of aggressive pricing and rebating and discounting that continues. So and we see that consistent, maybe slightly, a little bit higher, but we also see more confusion in the market with reimbursement. So, with the physician fee schedule coming out, there's a lot of confusion, particularly in the office setting where they don't necessarily have sophisticated reimbursement support in that setting, and understanding what it means as well as the non-published ASP issue. So a lot of noise, a lot of confusion and disturbance that we don't see clearing up, and certainly didn't predict that would be the case until CMS publishes these ASPs and brings clarity, obviously to physician fee schedule, or at least that clarity is being able to be delivered to the office base, so they understand exactly what's happening.

Okay. And then I guess, this is a follow-up on new products, you mentioned on the PuraPly side, but I don't think you mentioned anything on nova Novachor, so any update there? And then does the change in your thoughts on the facility expansion impact TransCyte at all, or is that separate?

So Novachor, we had a soft launch and that product is being launched right now. As we've guided we didn't expect that it would have a significant impact in this last quarter. But we expect that it'll have more of an impact certainly next year, the clinical results that we're getting from the field are very strong. The handling is a little different, a little better. And clinicians really appreciate the product. Regarding TransCyte, you're correct. Our TransCyte and Dermagraft were both scheduled to be manufactured in our new facility. So we do have alternatives that we're looking at. And we'll update you when those alternatives are actually coming forward. But we do have some additional alternative strategies in particular to get those products out on the market.

Okay. I'll leave it at the two and jump back in queue. Thanks.

Thank you very much. Our next question will be from Ryan Zimmerman with BTIG. Ryan?

Good afternoon. Thanks for taking the question. Gary want to follow up on a couple of things. You cited a lot of factors, this quarter, the hurricane impact to the office, staffing, et cetera. I don't know how to kind of parse out or not how the magnitude of each? And how to think about each of those factors. As we move into fourth quarter, I mean, I can appreciate that competition is not abating, as you had expected previously. But in this kind of a multi-part question, Gary, but what's your expectation for when that does abate. And then I have a couple of follow ups.

So I mean, the hurricane is, situational, it just happened. It just affected our last week of sales as folks started to shut down a little bit before it hit. And then the last day, we had some challenges getting product out, down into the Florida area. So that certainly affected our ability to jump into the range, the guidance range, but we were still, we're going to be at the lower end of the range. And that speaks more to reimbursement, confusion, as well as the competitive pressure, as you mentioned. So when does the competitive pressure end, I think, how does others feel, clearly publishing everyone's ASP is the first step and a major step of just leveling the playing field and allowing that competitive pressure on pricing and rebaiting to end. That's important. And once there's clarity, I think in CMS is Physician Fee Schedule ruling and how that that those changes are going to take place and how it will be calculated all the questions we've all asked, I think that overhang will kind of lift our feeling, as I've said before is, we see that the delay in the CMS filing, is a good thing that they're looking for more input than they're looking for industries input, as well as clinical input to what's the right strategy here to make sure patients still have access to that site of care and all of the products that those patients need. So we think, that will help significantly as well in the competitive area with reasonable results in the office and do extremely well at site and will continue to add share, with a reasonable change in that site of care.

Okay. Follow up for me if I could, though, just to be clear, I think CMS published the rate for Affinity in the fourth quarter down 12%. I just want to make sure that that's correct. And is that also more of a near-term impact and kind of how do you expect that to follow as we move into '23?

Yes, I mean, we don't talk about the pricing strategy going forward. But I mean, it definitely was down, we did take the price down. And part of that is related to this intense pricing competition that we're experiencing right now. So the commercial team is very focused on ensuring that they understand what's happening in each of these accounts and doing everything they can to combat the situation that we're in right now. But I mean, the fundamentals are strong still in the business. And I think the fact is that the commercial team as you know, quite broad. And we'll continue to push that forward. We continue to build out our customer base and so they're doing a great job from that standpoint. It's just not growing as fast as we would like, but clearly under the new guide excluding ReNu and NuCel and Dermagraft really getting down to our core, we're still growing modestly and so, we feel good about the foundation and fundamentals of the business.

And I don't know if you want to comment right now on '23, guys, I mean, I know it's early, but what is your expectation for just the overall growth rate of the business, be it advanced wound care or surgical and sports medicine, as we think about '23, and some of the puts and takes that may, that we should be considering in the context of all these dynamics.

Well, we don't really talk about '23. But some of the dynamics, Ryan, I mean, the way we look at it, so we certainly will have a much bigger sales force. We have a lot of new reps that we've added at the end of the year, that will help drive that customer growth that we've already seen, even this year. With the headwinds, we do have new products, as you mentioned, that will have more of an impact in '23. Our PuraPly brand is doing extremely well in the surgical setting. So that's an area that we focus on. And we're adding a lot of accounts, we've added double-digit growth in accounts that will be available to us next year with that larger sales force. So, as Dave said, the fundamentals of the base business, the core business is good. What happens going forward, we'll have to assess when we get more information on the competitive environment. CMS's decisions.

Just a last one for me, I'll hop back in queue. As we think about cost next year, Dave, I know there was some one-time dynamics this quarter that lifted up the OpEx. But assuming that comes back out, how do you kind of expect to manage cost and into the next year? And do you feel like you need a belt tighten? Just you're scaling back, obviously, the facility in Massachusetts? Is there any other belt tightening that consider to allow you to kind of keep up some of those margins?

Yes, Ryan. It's great question. I mean, obviously, as Gary said, we're not ready to talk about '23 yet, but we have made a lot of investment in '22, as you said, there's some kind of transitory costs in there that are not going to repeat. But we will obviously be prudent in our investment profile based on what the outlook is for revenue. We're really, as we both said, the fundamentals of the business are still here. They're strong. Again, we're continuing to build the customer base. We want to make sure that we have the resources and infrastructure to capture that demand when it returns at a stronger basis than it is today.

Thanks, guys.

[Operator Instructions]. We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you very much for your participation.

Thank you.