Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2021 Earnings Conference Call for Organogenesis Holdings, Inc. 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 and quarterly reports.

You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made..

Thank you, Jeff, and welcome, everyone, to Organogenesis Holdings First Quarter 2021 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 today during our prepared remarks.

I'll start with an overview of our revenue performance in the first quarter and a review of the key drivers of the impressive growth our team delivered despite the challenging operating environment. I'll then share a brief review of our operating highlights for the first quarter.

And after my opening remarks, Dave will provide you with a more in-depth review of our first quarter financial results and the formal guidance for 2021 that we updated in this afternoon's press release. And then we'll open the floor and the calls rather for questions.

Beginning with a review of our first quarter revenue performance, I am pleased to report that we had another strong quarter in which we delivered strong financial results while making excellent progress advancing our strategic priorities.

During the first quarter, we reported total revenue growth of 66% year-over-year, driven by 77% growth in our Advanced Wound Care products and 13% growth in the sales of our Surgical & Sports Medicine products compared to the prior year.

Our better-than-expected growth in Q1 reflects a continuation of the key drivers of our growth strategy, including the benefits of our comprehensive portfolio of products, the investments that we've made to broaden our reach by expanding our sales force and the strong execution of our commercial strategy, focusing on leveraging multiple channels, new product introductions and brand loyalty..

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. As Gary mentioned, we were pleased with our strong start to 2021.

Net revenue for the first quarter of 2021 was $102.6 million compared to $61.7 million last year, an increase of $40.6 million or 66%. Revenue from Advanced Wound Care products for the first quarter of 2021 was $90.7 million compared to revenue of $51.3 million last year, an increase of $39.4 million or 77%.

Revenue from our Surgical & Sports Medicine products for the first quarter 2021 was $11.8 million compared to $10.4 million last year, an increase of $1.4 million or 13%. And lastly, revenue from our PuraPly products for the first quarter of 2021 was $41.3 million compared to $32.5 million last year, an increase of $8.8 million or 27%.

As of March 31, 2020, we had approximately 290 direct sales representatives compared to 300 at year-end 2020. We continue to expect to end 2020 with approximately 340 direct reps. Gross profit for the first quarter of 2021 was $77.1 million compared to $42.9 million last year, an increase of $34.1 million or 79%.

Gross margin for the first quarter of 2021 was 75% of revenue compared to 70% last year, an increase of 560 basis points year-over-year..

And our first question will come from the line of Matt Miksic from Credit Suisse..

And congrats on a really strong quarter and revised outlook here. So I had one question on some of the top line trends and one follow-up on the P&L. So in terms of -- if I could ask to -- maybe, Gary, if you could clarify this -- where the raise -- I think the raise comes in as impressive and welcome, of course, more than the beat.

But the ability to raise, I guess, this much and also sort of still confirm that you're really not going to be selling any of these 2 products, ReNu and NuCel. Maybe talk -- it's a pretty dramatic change from where you maybe left Q4. Maybe walk us through that again, the math, just one more time.

And what gives you the confidence to deliver that sort of upside to your full year guidance at this point..

Sure. So I think PuraPly is probably the most important change in our guidance. Obviously, PuraPly performed extremely well in Q1. And we had 4 product launches, as you know, right at the end of Q4. And it was one of the areas that we focused on to see if those products would continue to grow as they did in Q1.

And all trends right now are very positive for all of the 5 products that we put out in 2020 before they came out late in the fourth quarter, and they're all growing extremely well. So that gives us a lot of confidence that the brand continues to grow. It continues to expand in multiple sites of care as we've discussed as part of our strategy.

So that's given us a lot of confidence. Our amnions continue to grow. Our capacity, our goal is to have 2.5x the capacity of Affinity this year versus 2020. And we're on our way to seeing that happen. So we're pretty comfortable right now that the amount of Affinity that we're able to produce will be meeting our goal of 2.5x.

So I think the combination of those 2. And we're also seeing some positive trends in access, particularly at the end of the quarter and in May both in the outpatient setting for wound care. And we started to see improvement in trends, depending upon the region in the Surgical & Sports Medicine area as well.

So we've just got a lot of positive tailwinds that are kind of pushing us along, that's given us more confidence in the broader part of our business, not just one aspect of our business. I don't know, Dave..

That's super helpful..

No, I think that's -- you're absolutely right. I mean, it's just the strength in PuraPly over the last 2 quarters really gives us the confidence to increase that quite a bit and strength of the amnions as well. I agree..

And just maybe before I jump to the P&L, just to clarify, I mean, I think you framed last quarter that your guidance didn't include the products that are at risk of enforcement or not really knowing which way the FDA would act. They've been more clear, I guess, in how they like the industry to think about commercialization post May 31.

Is that where we end here? Or what's the process going forward for these products? And then as I mentioned, I do have just one quick follow-up on the P&L, if I could..

No, I think you've interpreted it correctly. I think it ends for these products and until you get through the BLA process. So certainly, will be fewer products, I assume, in the market post BLA approval. So our focus is to get through the trial as quickly as we can and put as many resources as possible to make sure that it's a successful trial.

But I don't think there's any confusion or lack of clarity any longer. The FDA has been clear, 351s should not be sold post May 31..

Okay. Fair enough. Maybe raises the value of these products on the other side of that, but we'll have to see how that plays out. The -- on the P&L, this is an area where if I could interpret your comments over the past couple of quarters, the growth has been, at times, really strong.

Maybe it's too strong for you to sort of almost catch up with, the spend behind that or in support of that. You showed some outsized gains in EBITDA in the back half of last year, which you talked about moderating. And then I think you've sort of exceeded expectations again here in the first quarter.

Maybe help us understand the pace of growth in spending or if there's any -- if there's a catch-up that we should be thinking about here in Q2 or Q3. Or how we should be modeling this idea of a positive EBITDA number for the full year, but maybe some more shape to that trend..

Yes. So we did give you some guidance about the 22% up for the full year. Obviously, Q1 was nowhere near that on a year-over-year basis. But recognize that we did still have COVID savings. So we lap that next quarter, and we expect to see some increased spending that will not continue on those savings standpoint.

And then additionally, we'll continue to add reps. And as we continue to grow throughout the year, we'll continue to have incremental commission expense. And then also on the R&D side, it was a little light, and so we expect to continue to push harder on those clinical spending and increase that cadence as well..

Your next question comes from the line of Ryan Zimmerman from BTIG..

Congrats. Really impressive. I want to ask maybe a bigger picture question, Gary, a 2-part question. But the longer-term revenue outlook for Organogenesis, I think, initially it was around 10% to 15% when you guys became public. And then longer term, I think it was in the mid-teens.

Is your view of that outlook changed at all given how strong the performance has been? And then the second part of that question that dovetails with it is, if you could talk a little bit about the strength you're seeing, this growth you're seeing here, that we're seeing in the numbers, is this a reflection of share dynamics? Or are you seeing an uptick in market growth broadly in Advanced Wound Care, just because it is pretty astounding..

Sure. Well, thank you. So as it relates to our long-term growth, I think we have guided recently to low to mid-teens grower after this year. Obviously, the comp gets hotter as the revenue continues to grow. But we think we're a little more bullish on the company's growth as a result of the success of our new product launches.

When we first came out, obviously, those products were not in the market. So -- and I think that's been very helpful, and we think low to mid-teens grower over the next several years is still possible for the company.

I don't know, Dave, if you have any other thoughts?.

Yes. I mean at this moment the law of large numbers, too, right? So there could be moderation from that standpoint as well..

And I think when we see the number of patients that we're treating and the number of accounts that we're acquiring as customers, we definitely feel that there's a margin -- a market shift in our favor. So we definitely see that happening in the market. And some of the other dynamics from some of the other competitors seems to reflect that.

We also think with our expansion in the office channel, we really are expanding the market. There's a lot of offices that have dabbled in wound care and are now starting to participate with Advanced Wound Care products and starting to get educated in Advanced Wound Care products, starting to treat more patients and more types of wounds in the office.

And that is something that we think will continue to grow. So it's a combination of market share shift and just expanding the market with multiple channels. And again, the physician specialties that we talk about often that we now serve -- we never had sold in some of those markets before and for indications that we've never sold to before.

So it's a combination of all of that, that is really helping to drive the revenue..

Okay. Fair enough. And then as we think about PuraPly, I mean you were facing headwinds, pretty significant headwinds on pricing given the loss of the pass-through. And you've clearly demonstrated the ability to work through that with the products introduced.

And so I was wondering if you could talk a little bit about kind of how you think about the adoption of PuraPly going forward in light of what is now 2 quarters of really strong growth beyond -- in the face of these headwinds, these pricing headwinds from the loss of pass through..

Well, with the multiple sites of care that I've mentioned often. We sell a lot of PuraPly in the hospital today. We sell it, obviously, in the office. We have multiple sizes for different types of wounds. It's sold in different physician specialties. So the market is still young for this product.

The procedures that could utilize this technology and the physician specialties that are getting introduced to the technology continues to advance. So we see PuraPly being a nice grower for us for many years to come..

Congrats again, guys. Very impressive..

Your next question comes from the line of Richard Newitter from SVB Leerink..

Just to echo, nice quarter. Congrats on the performance. Maybe I can just start off on the regulatory change and rather than so much what that means for you guys in stopping selling, what does that mean for the industry and others who have to stop selling that potentially go away.

In my understanding, there are a lot of smaller players that were selling products like this that are going to have to stop.

Maybe talk a little bit about what that means from you guys from an incremental share gain opportunity standpoint And is any of that factored into your guidance increase?.

Well, certainly, none of it's factored into our guidance increase. We haven't guided to any sales post May 31. But clearly, there's going to be a change in the market. Not everyone is going to be -- going down the BLA pathway. So there'll be fewer products on the market on the other side. We think that's a positive thing.

Obviously, our expectation is we certainly would like to be on the other side if we're successful with our BLA. So we just think it's a positive thing. In the interim, it's certainly a painful thing for us. It's not as significant of a business for us today as some others. So I think it depends on the company.

The pain will be a little different based on how much of that revenue is part of the revenue mix for that particular company. But there's going to be fewer, without question, players in the market immediately and then post BLA..

And then just thinking about PuraPly and Affinity. In the past, you said, I believe that you thought Affinity could eventually be as they get sound figures in PuraPly, Gary. And PuraPly, your PuraPly outlook continues to creep higher. Easily looks like it will be more than a $200 million product based on our math in 2022 and beyond.

So I guess, one, do you still feel like that comment holds relative to the level that PuraPly appears to be reaching? And then just on Affinity, does -- were there any capacity constraints this quarter such that demand was outstripping the supply? And when did that self correct?.

And to your first question about Affinity surpassing PuraPly. PuraPly is certainly making it more and more of a challenge for that to happen based on the success of the product. But yes, we do believe it still has the potential to be our largest product over time, even with the success of PuraPly.

Though, as I said, PuraPly is making that a little bit more challenging. We had no issues with supply. We actually were able to increase the amount of capacity and increased our yield so we're feeling pretty good about where we are today.

But it's important to note too that as we increase our capacity, we want to see that capacity to be stable before we allocate those units to our commercial organization because we certainly want to be sure that we're a reliable supplier for our customers. So our capacity is going up.

We're starting to increase allocations, but we're very cautious to make sure that, that capacity is sustainable going forward..

Your next question comes from the line of Steven Lichtman from Oppenheimer..

Congratulations on the quarter. Just wanted to touch base on the amnions. You're set to build on Affinity, I believe, later this year with Novachor.

Gary, are you still on target to launch that around year-end? And how do you see Novachor for building upon the success of your current franchise?.

Sure. We do expect to be launching PuraPly -- excuse me, Novachor at the end -- very end of the year. It won't be a contributor really until '22, for sure, probably the second half of '22. So as you may recall, Novachor shares the manufacturing facility with Affinity. So we're balancing the capacity of both of those products.

So we see Novachor as just being unique. Like Affinity, the sister product, it has unique properties. It's a little bit different than Affinity, so it has a little more utility in certain wound types. So it gives us more flexibility.

And we think it will perform extremely well like Affinity does and gives us options and flexibility in both sites of care and types of wounds. So we're pretty comfortable and confident that Novachor will be a strong contributor in 2022 and beyond..

Great. And then just secondly, obviously, CPN Biosciences has been a solid acquisition for you guys. I mean, given the state of the business and the EBITDA, should we be thinking about potential additional additions either on a -- on either side of your businesses to bolster or opportunities for synergy looking ahead..

Well, we're certainly always looking for opportunities for products and channel expansion for sure. And we're hoping that we'll be able to add to our portfolio this year, which will enhance not only the office channel, but certainly in the surgical side of the business as well.

We're expanding our reach into the extremities and trauma area with our existing portfolio. That's a pretty exciting area for us, and we'd like to continue to increase and strengthen our portfolio in that area as well..

Great. Congratulations, guys..

Thank you very much..

We are currently showing no remaining questions in the queue. At this time, that does conclude our conference call for today. Thank you for your participation..

Thank you..