Earnings call transcript Q2 2023

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Operator

Welcome, ladies and gentlemen, to the Second Quarter of Fiscal Year 2023 Earnings Conference Call for Organogenesis Holdings Inc. [Operator Instructions]. 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.

of do commitment time the required to whether a voluntarily company time, forward-looking by may events as no future undertakes update result applicable it securities so except to from the statements or laws. Although otherwise, information, as new or revise measures generally call principles accepted This financial or also calculated not GAAP. references include are will accounting in contain to that accordance with

non-GAAP comparable We measures financial calculated to generally as measures. financial accordance most those those press release in available to of presented Relations in the are the website. in measures our earnings Reconciliations and non-GAAP GAAP Investor refer with of portion the

I Gillheeney, go Sir, now to please to Holdings over Executive call Mr. Sr., Officer. would ahead. Gary turn President like the organogenesis and Chief

Gary Gillheeney

Second Chief and call everyone, Officer. Fiscal I'm you, of Organogenesis Conference our Holdings the joined, XXXX on Thank Francisco, Financial to Year Dave Quarter Earnings Call. by welcome, today operator,

we taking remain will the brief our second uncertainty questions. Then Let in our our are if these I sheet related we in-depth quarter a our impacted XXXX our regarding go recent outlook an on and unchanged will products will then me and I'll or end. your start call revenue of discuss open the for that our and then prepared effective of at our our quarter and with steps what initial second thoughts results, agenda revenue the will condition on developments be you determinations, an LCDs, address provide the recent the LCDs up reclassification September. cover with will overview and local profitability months. in to coverage results, of operating remarks. quarter review with update during begin an key financial we Dave financial of balance

the the quarter of the for Surgical guidance our high our of $XXX.X in expectations driven exceeding the of Beginning and with at of revenue end reported on high by products provided our our the high Care above that earnings our the end QX. call, the of Medicine quarter, million revenue second sales for end came we of & second Sports range first the of in quarter, expectations net the products we which Advanced Wound sales

Second Care in Medicine year-over-year, was Sports products quarter in revenue net total Advanced which our by Surgical our decreased Wound sales X% driven a X% sales X% and a of the decrease of decrease & products.

highly with Wound driven our demand our of sales well-established, our Care brand being expectations products right line in sales were better-than-expected by differentiated for second the non-PuraPly the product PuraPly quarter Advanced in period. for with

Wound our our Advanced Care sales hospital were office expectation outpatient line in with physician in QX. setting product our results expectations exceeded and the in Importantly, a in

leadership and portfolio of setting in accounts leveraged outpatient our setting. As wound offices the increase physician the U.S. to care physician and served and diversified office both hospital centers expected, we across in position the number the

driven Additionally, we the year-over-year in in growth setting. by hospital QX, double-digit units in delivered mid-single-digit sold outpatient growth

are navigating key XXXX, recently through in we dynamic working as transitory driven proud a we Wound physician execution the discussed, the of the believe growth sales ASPs. our expected in and impact Care primarily of in setting on nationwide QX effectively. team's We marketplace by are products in and office published the of Advanced the And impact products launches

in position maximize our performed pleased the well further launches in competitive and these that than date, us have have leader wound the this years. right a better strategy national to the we remain market gives to that are as advanced we And confidence expected, positioned coming care

in progress on an recent update our to months. Turning operational

and way headquarters region. assess TransCyte to within are developing our focus in on building By and manufacturing for additional manufacturing and looking we overall were parallel, are our space Massachusetts of pipeline. at manufactured space firms that for existing California. capacity and the manufacturing manufacturing our We product products development with for And working reminder, alternatives portfolio for Dermagraft previously specifically invest continue to expanding capability in in for

previously communicated, definitive the expect the As a we plan to by quarter. third have of end

trial of patient also the second expect progress We've last with complete treatment ongoing made and the Our respect of in III by The trial visit ReNu end last for trial phase clinical III Phase Phase to of July, knee planned. study ReNu. milestone efficacy to achieve to continue and progress we the the osteoarthritis continues of as the completed the the was to year. for

trial, and patient enrollment by first start-up study underway activities research with the major the received and the we subject III have of our current Phase This III are with remain first the third XXX trial. the trial other contract for be design well FDA second protocol similar We with approval to quarter. will and vendors, to operations on track Phase a organization proceed end the

from meeting FDA response a Type regarding positive received approach including of ReNu. the aspects questions the confirmation testing the the the ReNu and B to relating asked of product, We we of in CMC manufacturing

valid current a to As FDA with for subsequent the BLA, and Phase XXX discussion III with approval. expect patient discussed, the BLA for have evidence regarding we sufficient to and data requirements scientific RCT intend a propose published trial, previously the as we clinical the combined

in on reminder, more a leverage FDA as the to continuing strategy. belief advantages the operational plan enable with will from moving our of with trial forward second is based our we This regulatory gives major investigators. the as us our current active As hear us that soon options the essentially

Lastly, physician XXXX on was published year a fee the that thoughts I'd in calendar share proposed for July. few schedule like to

that acknowledged making and policies for meetings input to for Medicaid the from and Services stakeholders is concerns in by XXXX, the additional pleased changes has Centers before raised stakeholders the substitute. seeking in are Medicare the We of any hold January skin town payment

all the substitutes for methodology. should occasions, CMS pay using have urged skin ASP we As on many

reduce Office provide clear made to Inspector General as March Part to has in expenditures. information. substantially required the XXXX pricing of already substitute B to its skin transitioning are all Manufacturers the ASP report, the And pricing potential ASP

transitioning that also patients We options of the for payments needs to individual ASP-based prescribe access patient would improve the the the enable physicians and patient based best care system. skin to outcomes on health treatment and believe provide substitutes

With that, let me turn call the to Dave. over

David Francisco

. prepared otherwise Thank review begin year-over-year financial our Unless of you, Gary. with are a I'll rates results. referenced all a on during remarks second basis. growth quarter specified, my

Net revenue for $XXX.X X%. down was million, quarter second the

million, revenue profit quarter for Care compared products was of quarter revenue was net million was for or Surgical X%. the & second $XXX.X and approximately down Our revenue for down Medicine $XX Advanced Gross Wound XX% last second year. X% net second quarter net $X.X from Sports the to million, XX.X% the

margin compared million primarily decrease prior year, compared by gross in $XX.X to million, year The last expenses for Operating were driven lower volume a of change to $XX.X quarter sales period. million the was X%. the $X.X second

million decrease and decrease a expenses, and operating million period. increase selling, the to in The administrative the year research offset prior second in general a compared partially X% in or expenses development by by X% quarter driven in costs $X.X was $X.X or

as expenses items well consisting restructuring year. compares included Second the prior nonoperating to a benefits employee of million reversal and activities. certain severance of restructuring-related quarter with costs modest charges $X.X This associated of as GAAP other exit in operating

higher periods, decreased including and Excluding our intangible the million of in amortization strategy strong quarter for for million future areas clinical by expenses second spending in non-GAAP driven pursuant or foundation both enhance of $X.X growth, studies. $X.X prioritize investments X% cost to operating ReNu noncash in restructuring management support our items year-over-year, to that our study-related

income the quarter were reconciliation detailed decrease for for second of was year million of year, million. net quarter $X.X items income compared these a compared a last expenses $X.X a $X.X have of million was of million. earnings $X.X press million $XX.X compared million million to and noncash year, release. the to million. to quarter Total million a in today's second or we decrease Note, for nonoperating Operating $X.X last second the other $X.X $X.X decrease $X.X last Net

defined last compared GAAP exclude effect a settlement income quarter and items. taxes income $XX.X million charges, resulting these decrease to on reminder, net And $X.X year, of is $X.X in adjusted as to GPO of Adjusted the income the income fees as million. restructuring a amortization, adjusted net second million net was

to Adjusted second quarter the million year. EBITDA or compared $XX.X last of revenue for $XX.X XX.X% was net revenue million XX.X% of net or

in provided have results We a full of adjusted our our EBITDA earnings release. reconciliation press

Turning to sheet. balance the

and XXXX, December had cash of million restricted cash the and As June $XXX.X XX, restricted compared debt million million in as cash, in equivalents to debt cash $XX obligations $XX.X and and obligations cash equivalents in XX, in and million cash of XXXX. $XX.X company

of June XXXX. to borrowings up have on revolving the credit as available million We of also facility $XXX XX,

With remarks. back some Gary that, for to call turn I'll closing the over Gary?

Gary Gillheeney

initial we before on recent your up and open questions, coverage. call share I Thanks, reimbursement in the want some to thoughts And Medicare the of Dave. area developments to

On Medicare August or cellular venous foot substitute diabetic tissue-based and/or products Medicare LCDs, the LCDs were contractors. treatment published coverage CTP X ulcers X, or graphs, administrative by leg of population. determinations, local address the in The and ulcers for in

legally be marketed. product and substitute LCDs a be that the require skin a Specifically, covered

these More than products. not XXX Organogenesis identified have jurisdictions, commercially been X including covered in products as of produced

and the as LCDs, the X products, to in of of covered September on not of that all were were covered parties that products. to Our engaging excluded the commercialized advance from we date We are the of move effective remain which list list and is these the products covered relevant XXXX. PMA XX, with status approved Dermagraft products listed believe improperly covered Apligraf these products

Further and Novitas for and diabetic local published and Dermagraft to outlook of Apligraf as for potential coverage to limit demand in recently The the only foot of revenue wounds. to on regions. products these in used for include the treatment it coverage ulcers our VLU presents Coast leg First venous a regarding of impact ulcers for remains CGS uncertainty products DFUs determination services these amount relates treatment significant uncertainty from when

year products we are information that date further covered May are to We the were XXXX. these we We appropriate not in As advance XX, relevant engaging provide with believe all the that at listed LCDs. of in were X intend such, future. fiscal excluded parties previously of XXXX provided as guidance on effective and the improperly the time withdrawing the

call the call up to for the to operator questions. turn I'll that, open With the over

Operator

from [Operator come Instructions]. question will And first Ryan BTIG. Zimmerman of our

Ryan Zimmerman

So Gary, let's LCDs. the with start

need improperly with what's they suggest going everyone going part is then were given that improperly to the you're and I question you revenue to excluded? why How from do what do few this, but What of investors exposure more here, have think but what's to I uncertainty, ? do we the drawing start to base? is I help at know excluded? much what here, to second How want you on you there's guidance. the And can And were much people the full if we first Medicare? a X have break think payer can they down, guidance. that least give color share mix to And understand be to I about the have believe risk kind withdrawn to of going you your to of there's recognize is excise change. exposure this can you

Gary Gillheeney

Sure.

Ryan, me then and in. start, Dave can jump Let

all as So clearly that and regarding And requirements why improperly skin. as of one the -- X well we the primarily provided excluded the is a we evidence that is final have in substitute. the your are that's products skin reason it all guidance is information draft the there's were we of believe guidance in

-- skin substitutes. we So our are products clearly

a the believe mean products growth. migration a what are, for to healing. that's we we that stimulate is for perform. healing definition They cell how through the And provide and are easily scaffold relates our They they not it they removed, I as meet substitutes. skin wound

draft as about not necessarily It's kind procedural in all final little the pre later. hurdle, requirement, not. was problems problem, a a of but the draft, that we'll the So bit it which in talk the procedural up showed identified one which -- is that was at ruling a

meet be our you products FDA on FDA Second the all legally marketed of requirements is you meet the legally are market. marketed. clearly, products requirements that -- the that to And be your to have

strongly very marketed. we skin marketed. and are we can are all we are legally So substitute our a overcome, legally products feel a that's hurdle that Obviously, of we

list. an an is clearly take these that all action error our covered move onto and will we era products So and to any opinion, the in this it's

errors number the inform will, We we to the one, directly with that believe of engage they've made. them

place and also procedural of we'll in legal We'll preparing believe implementing CMS issues that be errors to violations a explaining we memo this sending took process that and the the all policy.

characteristics optimistic resolve our feel Dave, that on very skin strength coverage that meet good, comment the the our market. we based products to on a want will issues we that clearly and our legally are arguments of So the we're and efforts these about... substitute of you

David Francisco

Ryan. sure, Yes,

a us the was So expected it good to in business. in full had before with, decision QX. the last really a suspend good you've today. seen, obviously, our guidance as Thursday, particularly HX, frankly, was guidance And good year difficult it to we in And for momentum QX, reaffirm here, strong

unfortunately, what's a in but to Gary happened is -- that is around we're the mentioned, high So timing is uncertainty confident of LCD our introduced level final unclear. as of address the ability really this,

at So this point. is that impact profitability to revenue unclear and

we that's took why out guidance. So

that . to is VLUs. And to of was going far those much to XXXX as that's that of particularly But and arena $XX framing $XX do disclose revenue our in how there the about As kind we is -- subset up, million. first for in about revenue related of estimate half a DFUs we're not it million

So I that hope helps.

Ryan Zimmerman

just so across mets. your up. crystal be want DFU of in did and that the $XX be VLU revenue, that Dave, -- not those understand was kind what impacted this $XX million to and X here, they is people I the global That million products constrained you are can to clear, clear frame to of to I just --

David Francisco

VLUs. So products those impacted in that the those are to related DFUs are and

Ryan Zimmerman

Okay.

that's So half. the first

a million next worst quarters. scenario $XX over the coming X to out environment. In million $XX case, conceivably, So is

David Francisco

That's a worst-case In correct. scenario.

as pointed a very that. we against Although, out, have argument Gary strong

Gary Gillheeney

also there's is mean if Apligraf I Ryan, I you about it, mean -- could -- just still if think so I approved. obviously

markets, think the these is other if restrictions in the of you which for Apligraf about So LCD, applications.

a my significantly this, as opinion, LCDs. the Apligraf, ever assuming has has applications these of stand value X than it So result in more in

with X we have, wound, DFU, care. The average if for wound you have patient X.X%. to VLU. the And graph only of pivotal was solve PMA applications only that you is units X the this product If in product studies Apligraf best at look the per approval number

at we the all look for XX,XXX average you retrospective is a -- have wounds, X.X. study patient If

clinician . has in looking would a is should DFU if and X, a the it they consider So all solve at I of product VLU to that argue Apligraf with these be and first

the PuraPly The as VA's have to the you still need also sales these knee. back, other as is hospitals. in thing And consider above PuraPly we that knee is well well used above as critical access

So going other the correct would But you clearly that pretty Dave scenario. factors gave the pushing number worst-case are a in there mitigating number. hard forward, we is be

David Francisco

that. talked Yes. for get way to clarity months I scenario, really XX, by first that. X I'm is only multiply some sorry, because the you the wanted half it's clear about XX if on that's in Obviously, be we to X it's you know But 'XX, the doesn't this the that just and worst-case resolved.

Ryan Zimmerman

a is helpful. year. keep some hear to you'll clearly. point. rolling next understand I your But and obviously, I'm of just out I of and those Gary, ability, purify think A And to That's here, because good follow-ups -- of you. and this by to your to Apligraf it want September going Dermagraft. people lap some swap That's sales confidence, some What of Right. Affinity you'll couple have

existing like of risk, can did you we're, that get much these much old? given suspend substitutions Dermagraft -- products size if if your excuse mean, trying I manufacturing, how you dynamics back marketing me, of to how and or through again, -- of

Gary Gillheeney

more focus has Apligraf of to shifting voice, of a area color. I'll the let So above reallocation major and time comment be our obviously, knee would But our we're if that. still shifting he and PuraPly any of share Dave working through resources.

So that process going through now. we're

go and can't color. you give you any clearly sales But both PuraPly an the Apligraf I But up. exact of knee to above expect Dave, and number, more and have we sales

David Francisco

found on Gary mentioned, morning. as Yes. just I mean, this mean, we I Thursday out

of MAX Gary talking existing products these mentioned, being Gary's that capacity still of CapEx increase a the our without minimal really to clearly, facilities, point working But we're above some in about that stuff. other through probably covering And we're to then have existing the about. MAX, as knee So there's fair within any that capacity requirements. first our we choice, Apligraf the here north of amount are opportunity with XX%

So demand capture to to starts out demand. from that certainly the have perspective, that, the to in we opportunity extent flow a swap that

resources important redeploying mentioned, given different the also, team. commercial as you about is strength that places voice I as think us of before, of we've share to just in our talked

Ryan Zimmerman

back one in not XXXX, for came mistaken. hop These in out Last me, I'm late queue. if I'll Okay. proposals

the now? It idea for was of that extent context to do publish question this was coming them what potentially kind what -- caught as is about? give So how to of seems some you off. kind can a decision maybe You just of if cut kind have came this the drove an us around

Gary Gillheeney

came out it. So over you're amended draft correct. ago, then ruling a year they The and

So we responded proposal. to the draft

draft So legally . you that that compliance or FDA they you products in proposal, marketed are were for you have clearance that FDA have. the for looking that approval

been was confusion and obviously cleared. called PuraPly, there we information. XXX(k) was XXX(k). thought product product. historically FortiDerm, We We provided a our have That around It's that watch XXX(k). some

were information and that guidance very and and of with regulations the we the other for all of XXXs, met requirements products, we And PuraPly. FDA the all which the requirements. again, provided we So felt the from comfortable provided regarding website, those

pretty meetings provided MAX and felt going as we in now hall in mind the May really a and be that look that comfortable in requirements not comfortable their issue every to of submitted But -- and felt -- well first the error and well, that it not for we 'XX town skin of we're the us, a an us. we comments been. which out one for November have discussion. as may the the that the misinterpreted data find we information the into And like provided that substitute pure brought we I perhaps that, substitute think wasn't skin to believe, and somehow So very we what I there being they PuraPly time.

Operator

Instructions]. [Operator

question will Ranieri from coming Stanley. Drew next be of Our Morgan

Andrew Ranieri

on kind it's hit impact are a But moving maybe risk couple Maybe you here? of revenue the help kind a -- the you Can pieces of profitability about questioning or on the on side lot the couple the Ryan's just of Maybe sizing more. just you touched of that there I you see. us could that more just know line following -- equation implications for here. well? a of But as think there.

David Francisco

it's one reasons of and a why, mean lack I on profit. clarity revenue also absolutely. Yes, the there's of again, the the

the So within mix from the volume of on that standpoint, the this margin be Thursday morning. a shift will and again, business. predicated we kind of will last gross And that amount identified happen again

some on we that from the we though, continue, prudent side, the say So we'll particularly headwinds. I'd as investments any make with cost always, and be challenges in standpoint. that revenue current

components our to forward. we're done we looking the in at everything all power in So preserve profit as do we'll And as obviously, those we've there. past, go

Andrew Ranieri

be? frame kind looking just change time? Or just Would with can ahead the you have that? and And rule time could of year the it XX and like deadline, like it. kind the of Got a to fully maybe be or takes any options how this of do around scenario permanent kind over What revisit you effect. September worst-case under

Gary Gillheeney

I'll start.

we frame rescinded. LCD for CMS, specific request no which So through there is really you time the will be to can

my There's as CMS been through request audits to also for to perhaps could have understanding. changed. well the precedent that You [indiscernible]

the issued, it also -- can to actually the can go once how you becomes reconsideration was You it reconsider once in the believe address or entire XX-day implemented. an any issue at with . request CMS, directly and LCDs effective, it LCD you period article that a to But there time, ask LCD. if you change for can in was then after

though, on they they lines There -- how specific are when too. have to respond time no have

So a to both do try or error. of to you rectification that's a but have a mistake challenge, go bit an always a opportunity of to the LCDs and to the get

Andrew Ranieri

Got it.

and the you to to more touched to like get the business help now side, like LCD Okay. expected. gears is a change little rule shift be event. this on heading the the trying in coming sense And just better just are many meaningful Maybe with you Gary, the bit obviously, of to have was what proposal, into just kind a seem expectations that were on you're guess PFS this I'm just bit. and Can talk about out year, they're you doesn't benign it but maybe maybe seeing seeing I expectations a there. around LCD really going understand maybe of PFS your event you the but us this like a than underlying on what business what

Gary Gillheeney

And clearly, the Dave Dave as in But was trends jump strong. I'll the mentioned, let business in.

First strong. was quarter

of our into We this And some then quarter Second was guidance. that high had doubt the end We we beat obviously, quarter. were brings to ready the reconfirm guidance. last issue strong.

strong. been additions the business So strong. been have has Account

exceeded Our national become is products expectations. which strategy, part have of our launches that published, our of have our

the of to in some as setting. way see improvement both as starting We as don't the well in outpatient the census staffing We're issues. staffing much see office and in

So you say. good if Dave, trends to the business, sure. want for something for

David Francisco

Yes. I absolutely mean I think I you but all, agree. hit Gary, them

performance well. really Gary's as definitely top the was It the of line. first as point, backbone for demand us. of on think the growth strong for good good the account which I half our profile business excess is the flow-through on to in expectations well, and was the again,

we've were had lot pleased, about that transition we concerned launches we national too, mentioned, than has been stronger through that Gary anticipated. as the a period So very been year

forward. the Thursday. And earlier, bullish a lot guidance So QX. event And this go on had coming we momentum mentioned of it we were we Gary think mentioned, out reaffirming I occurred on obviously of as as very I

Andrew Ranieri

question about X business, on right or you and recall competitor Apologies. capture I more your are Sports talk in some more & surgical are you that to of maybe share? sure topic. in heard But on expectations the publication what business readout just the make just strategy you maybe maybe kind Can seeing maybe I Surgical of incremental the Med data last with have for but to terms a being one trends here. Phase year-end can for And what just correctly, visit thinking you're pile III. on ReNu, you're trial. the to or still any that first milestone remind expecting the you us in of sorry XXXX around renewal for now,

David Francisco

Yes.

So surgical. Drew, in the our quarter. it And I'll on exceed start did expectations the

good performance So there.

of with in Fusion I still that back obviously, midpoint 'XX. recall, we of the lost a in we're the rebuild opportunity kind Bone with some some think, of in products as mode there

the And it. so significant like advantage that. yet infrastructure don't therefore, we in to have the really of take a change marketplace

to So opportunities. for continue we look

in period. a lot it opens again, traction in didn't than what expectations the get but QX, were I better but of it our doors, think

Gary Gillheeney

Yes.

Regarding trial. the ReNu

yes, patient the of last the trial. rolling the into end So year, second we're last visit at

to investors. anything or as in And that's efficacy disclose we'll the anything helpful So year. I There the the half relates that then available, readout, of unblind current to this don't any is study, have readout way, we designed well, is in trial and first efficacy readout. could it information be but in believe, that once year next an

Operator

is of from question follow-up BTIG. a Ryan Zimmerman next our And

Ryan Zimmerman

enough. just I'm back. couldn't it I get

And I'm to So impact million doing the if on the math it's million follow at an for of year, $XX questions. in of right, it's X the if simple prior first math want suggest, million up year. to the of last a I be? what impact way $XX months. is that And running One, this about Dave, you're the could X right to months $XX would like think half something the just the headwind

David Francisco

The bit It is, the half of Ryan. mention between second I'd a obviously, seasonality only is, and little thing the half. first there's

the of bit way outside that, it of think it. about a to be that. So might that's But north little

Gary Gillheeney

other this And I of there's the to lot a us regarding and and in some already. even the there market the perhaps change or you've about perspective, mean the of a talk there's reacts thing down threat confusion. confusion, often, from whenever just of lot a a creating change, and bit. reimbursement a things little a misinformation is start market noise heard that's a market slow whenever change

to there's component but these we that always we try that happen... up when that's So numbers, to come also fair, would assess that X an just be with issue that's

Ryan Zimmerman

excluded And question second the and then for exclusively products the is VLU. that just are DFU are

scope mind And still is PuraPly Or so I anything your any LCDs. these finalized proposals exposure kind looking the of of given And me, -- or what's excuse those LCDs? these at knee. you're selling just the mean -- in those these in for for above in that there the cases? is clearly not

Gary Gillheeney

folks it's in final VLU. LCDs than no -- most my understanding, and only other in draft either think our indicated nothing that in that and DFU form it's opinion. have There's understanding It's that these in I been or

get if our every changes. this error, in So going rectified, you we and to update opinion, I mean, in will appropriate anything when closing, clearly this, avenue are after aggressively and we was an

So thank you very much.

Operator

remaining This does Again, questions. showing conference. your participation. you. for Thank conclude we're today's Thank no you

Organogenesis (ORGO) 9 Aug 232023 Q2 Earnings call transcript