Welcome, ladies and gentlemen to the First Quarter of Fiscal Year 2023 Earnings Conference Call for the 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 filed quarterly reports. You are cautioned not to place 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 the Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to be 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 first quarter fiscal year 2023 earnings conference call. I am 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 begin with an overview of our first quarter revenue results and an update on our key operating developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet, and financial condition at quarter end, and our 2023 financial guidance, which we updated in today's press release, and then we'll open it up for questions. Beginning with a review of our revenue results for Q1, we reported net revenue of $107.6 million for the first quarter, an increase of 11% year-over-year, which was driven by a 12% increase in the sale of our Advanced Wound Care products, partially offset by a 4% decrease in the sales of our Surgical & Sports Medicine products. First quarter sales net revenue results came in above the high end of the guidance range we provided on our fourth quarter earnings call, with sales of both our Advanced Wound Care and our Surgical Sports Medicine products exceeding the high end of our expectations in Q1. While sales results, both our prime product exceeded the high end of expectations in Q1, sales of Advanced Wound Care products drove the majority of the upside in the quarter. Advanced Wound Care product sales were driven by better-than-expected demand for both our PuraPly and non-PuraPly products in the first quarter, fueled by the continued strong demand for our well-established, highly differentiated PuraPly brand and the strength in adoption and utilization amniotic technologies. Importantly, our Advanced Wound Care product sales results exceeded…

Thank you, Gary. I'll begin with a review of our first 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 first quarter was $107.6 million, up 11%. Our Advanced Wound Care net revenue for the first quarter was $100.9 million, up 12% and net revenue from Surgical & Sports Medicine products for the first quarter was $6.7 million, down 4%. Gross profit for the first quarter was $81 million or approximately 75.3% of net revenue compared to 74.2% last year. Change in gross margin was driven primarily by increased sales volume in Advanced Wound Care products as well as a shift in product mix to our higher gross margin products. Operating expenses for the first quarter were $85 million compared to $72.2 million last year, an increase of $12.9 million or 18%. The increase in operating expenses in the first quarter was driven by a $10.3 million, or 16% increase in selling, general and administrative expenses, and a $2.6 million, or 30% increase in research and development costs compared to the prior year period. First quarter GAAP operating expenses included certain non-operating items totaling $1.9 million, consisting of employee severance and benefits as well as other exit costs associated with certain restructuring activities. This compares to $0.3 million of restructuring-related charges in the prior year. On February 3, 2023, we committed to a plan to restructure our workforce to improve productivity and enhance profitability. Reduction in force we reduced our count by 71 employees, or approximately 7% of all employees. The company incurred a total charge of $1.8 million in the first quarter in connection with the restructuring, primarily consisting of severance payments. Excluding restructuring items and non-cash intangible amortization of $1.2 million in both periods,…

Thank you, Dave. Our updated guidance reflects our expectations for measured growth in sales of Advanced Wound Care products in 2023, driven primarily by the impact of key products in the physician office setting is working through the national launches with recently published ASP. We also expect to navigate through continuing challenges in the office in 2023 due to customer uncertainty surrounding CMS' potential change for Medicare payments under the physician fee schedule for Advanced Wound Care treatment. We applaud CMS are pushing forward with their initiatives to publish ASPs for skin substitutes this year. We now have the opportunity to introduce our differentiated clinically proven solution to more patients nationwide, and this represents a significant long-term growth opportunity for Organogenesis. Importantly, executing on our strategy this year is expected to result in growing our share of patients treated with advanced modalities again in 2023. The emphasis on more patients being treated with advanced modalities is consistent with CMS' efforts to reduce the burden on the healthcare system. Rising costs may be attributable to untreated and properly treated wounds that resist healing and result in more serious complications such as amputations. By treating wounds with advanced modalities, we believe these complications can be avoided. Proper treatment with advanced cell and tissue products that demonstrate clinical efficacy have the added benefit of improving patients' lives while reducing the overall cost to the healthcare system and greater awareness of these advanced technologies among healthcare providers and patients should be a priority and can contribute to CMS' efforts to reduce costs. We also expect to strengthen our competitive position in the Surgical & Sports Medicine market in 2023. We are in year two of our strategic repositioning of the business following the expiration of the FDA's enforcement grace period in May of 2021.…

Thank you, sir. [Operator Instructions] And our first question will come from the line of Ryan Zimmerman with BTIG. Your line is open. Please go ahead.

Good evening. Thanks for taking the questions and congrats on the nice start to the year. Gary and Dave.

Thank you, Ryan.

Talk about guidance for a moment here. If I could start there. I have a number of questions, and I'm maybe take the latitude to ask a few tonight. Just number one on guidance. So relative to our expectations, you guys really had a nice speed about $12 million versus what we were looking for and I think your guidance at the time. And so relative to that guidance is going up about $4 million for the remainder of the year. Help us understand what you're seeing in the market that's maybe holding you back or if it's conservatism? Just want to understand kind of your philosophy and thinking around the guidance?

Yeah, Ryan, this is Dave. I mean, obviously, we're really pleased with the first quarter. It was a great performance. The commercial team did a really nice job. It's a great start to the year. No question about it. I think we do see some nice things in the operating environment that, but it's early days. It's just early in the year for us to pass through that entire amount is what we're thinking.

This is Gary, Ryan, I think about -- I'm sorry, the physician fee schedule is coming on in July, and we're just being cautious that we want to make sure that there's any disruption in the market confusion or anything. We're not expecting anything specific, but sometimes they can be confusion. We help our customers get through that. And we're just waiting maybe cautiously to see how that all plays out anymore.

That's very helpful, Gary. And to that point, we obviously watched the physician fee schedule closely to see kind of how CMS is posturing and what the rates are just past few quarters has been a little bit challenging in terms of competitive dynamics as a result of the lack of clarity on that fee schedule. I think if I recall, you were expecting that to moderate in the second quarter. And again, I appreciate you may not know what CMS will do. But as of right now, what's your current thinking around some of the dynamics that have or the forces that have taken advantage of the lack of transparency on that fee schedule?

We're seeing actually on a regional basis, some improvements and some of that is just the effectiveness of our national launches, working through some of the challenges that we've seen in the past. There still are a lot of products that are not on published list. I think it's about 135 CTPs, about 58 of them have been published. So there's still a lot that have not been. But regionally, we're seeing some improvements. That's what we're expecting to continue. We're expecting to continue to see improvement throughout the year, and that's kind of what's built into our guidance.

Very helpful. And I'm going to keep rolling here or if I may. Just a couple of other questions for me. Number one, Gary, I think I heard you high-teens growth in the outpatient setting. What was the growth in the physician office? I think you called it out?

Yes. It was high single-digits in accounts.

High single-digit. Okay. And so to that point, having seen some of your competitors report already, what's your sense of the market just broadly in the Advanced Wound Care Space, what are you expecting in terms of patient volumes in the door -- what are you seeing in this quarter? And is it -- are we seeing any improvement just broadly speaking, in the market?

Well, we clearly have seen improvement in the first quarter. In fact, I think the normal seasonality that we've typically seen from Q4 to Q1 is significantly less we're seeing 20% unit growth across our portfolio, virtually all of our major brands as a brand have moved forward. And given our XT product, which we're seeing a lot better performance than we expected, which is why we've changed the guidance a little bit on sure a lot. So we're seeing definitely more patients being treated or units being applied. We're adding more accounts than we even expected. So definitely see some positive trends -- we'd like to see those trends continue. Again, we're being a little cautious perhaps, and we want to see that trend continue, and we think it will. But right now, there's definitely strength in the market.

Okay. Last one for me, and I'll hop back in queue. But on ReNu, obviously, a lot of good milestones coming and in conjunction with that, I guess I want to ask if the FDA says you don't have to do a Phase 3 -- second Phase 3 trial, excuse me, do you have a sense of what you would save in cost for that? And as I think about that in the context of say, your adjusted EBITDA guidance, could that prove to be upside to that guidance? Maybe what are you factoring in there for the cost of a secondary trial that begins later this year?

I don't know, Dave, if you want to

Yes. I mean, obviously, Ryan, the trials are significant if we're able to only go with the so far and skip that second Phase 3, it would be a significant change the financial profile going forward over the next couple of years.

Okay. But just to be clear, Dave, right now, your -- those costs are built into your model, and that's assumed in the guidance as having to proceed forward

We expect that. Yes. And of course, it's a couple of years for the entire amount. We talked about the first patient enrollment at the end of Q3. So is back-end loaded to cost in this year. So more of that would still in '24 and beyond.

Yes. Makes sense. Okay. I'm going to wrap up there, but really, really good quarter

Thank you, Ryan

Thanks, Ryan.

Thank you. We are currently showing no remaining questions in the queue. That does conclude today's conference. Thank you for participating.