Good afternoon, ladies and gentlemen and welcome to the Fourth 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 report.

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 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 present in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. And 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..

first, 2021 net revenue included sales of our ReNu and NuCel products through May 31, 2021, which marked the expiration of the FDA’s grace period; second, our 2021 net revenue included the sales of our Dermagraft product.

Dermagraft manufacturing was suspended in the fourth quarter of 2021 as part of our multiyear plan to consolidate our manufacturing facilities here in Canton on our campus; third, our 2022 net revenue guidance reflects the impact of a more challenging operating environment, particularly in the first half of 2022.

In January, rising omicron cases impacted patient consultations, treatment and elective procedures, staffing shortages, increased restrictions and limitations on access challenged our ability to engage with new customers. Additionally, we faced incremental headwinds in January as our own employees were impacted by the virus.

Dave will share more color on the first quarter revenue expectations in a few moments, but it’s important to note that we have seen a material improvement in our business trends after the challenging January period. We expect to see steady improvement in COVID-related headwinds as we move through the first half of the year.

And our guidance reflects a more favorable operating environment over the second half of 2022. Additionally, with the contributions to growth from new products, coupled with an easier comparison, we expect accelerating growth into the back half of the year.

And while these items represent what we believe temporary headwinds to our year-over-year reported growth rate, the company’s target multiyear growth profile has not changed.

We are confident that continued execution of our strategic plan will result in strong adoption and utilization of our product solutions for the Advanced Wound Care and Surgical & Sports Medicine markets.

Our strategic plan also prioritizes continued operational progress, continued development and commercial introduction of highly innovative and highly efficacious products and continue to improve our long-term profitability profile.

We expect to continue to improve our position as a leader in the industry as we deliver on our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care.

With that, let me turn the call over to Dave for a review of our financial results for the fourth quarter, our balance sheet and financial condition as of the end of the quarter and a review of the 2022 financial guidance we introduced in this afternoon’s press release.

Dave?.

Gary, thank you. I will begin with a review of our fourth 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 the strong net revenue growth in the quarter given the challenging operating environment.

Net revenue for the fourth quarter of 2021 was $128.6 million, up 20%. And excluding ReNu and NuCel, we grew adjusted net revenue by 28%. Our Advanced Wound Care net revenue for the fourth quarter of 2021 was $121.4 million, up 30%.

And net revenue from Surgical & Sports Medicine products for the fourth quarter of 2021 was $7.2 million down 45%, driven by the impact on sales of our ReNu and NuCel products, which we stopped marketing after May 31, 2021, due to the expiration of the FDA’s enforcement grace period.

Net revenue from PuraPly products for the fourth quarter of 2021 was $62.6 million, up 38%. As Gary indicated earlier, we’re pleased with the continued strong performance from the PuraPly brand, with sales increasing 35% year-over-year in 2021.

Gross profit for the fourth quarter of 2021 was $96 million or approximately 75% of net revenue compared to 76% last year. Operating expenses for the fourth quarter of 2021 were $75.5 million compared to $59.7 million last year, an increase of $15.8 million or 26%.

The increase in operating expenses in the fourth quarter of 2021 was driven by a $13.9 million increase in selling, general and administrative expenses and a $2 million increase in research and development costs compared to the prior year period.

The year-over-year increase in selling, general and administrative expense was primarily due to higher commissions related to the strong year-over-year increase in sales. The year-over-year increase in R&D was driven by planned step-up in clinical study spend and related costs necessary to seek regulatory approvals for certain of our products.

Operating income for the fourth quarter of 2021 was $20.5 million compared to an operating income of $21.6 million last year, a decrease of $1.1 million or 5%. Fourth quarter GAAP operating margin was 15.9% of net revenue, excluding the aforementioned $1.8 million of restructuring costs.

Our non-GAAP operating margin was 17.3% in the fourth quarter of 2021. Total other expenses for the fourth quarter of 2021 were $0.9 million compared to $2.9 million last year, a decrease of $2 million or 70%, driven primarily by the reduced interest rate for borrowings under our new credit agreement signed in August 2021.

Net income for the fourth quarter of 2021 was $51.7 million or $0.39 per share compared to net income of $18.3 million or $0.15 a share last year, an increase of $33.4 million or $0.23 a share.

Note fourth quarter net income included a benefit of $32 million in income taxes recognized resulting from the release of the valuation allowance previously recorded against the full amount of our net U.S. deferred tax assets.

Adjusted EBITDA of $26.3 million for the fourth quarter of 2021 or 20.5% of net revenue compared to adjusted EBITDA of $24.9 million or 23% of net revenue last year. We provided a full reconciliation of our adjusted EBITDA results in our earnings press release issued this afternoon. Turning to the balance sheet.

As of December 31, 2021, the company had $114.5 million in cash, cash equivalents and restricted cash and $73.6 million in total debt obligations, of which $0.2 million were capital lease applications.

And this compared to $84.8 million in cash, cash equivalents and restricted cash and $84.8 million in debt obligations, of which $15.1 million were capital lease obligations as of December 31, 2020. We also have up to $125 million of available borrowings on our revolving credit facility as of year-end December 31, 2021.

As Gary mentioned, the company’s balance sheet and financial condition has never been stronger. Our improving profitability profile and related cash flow generation, along with our enhanced balance sheet and financial conditions, has well positioned us to continue to executing our strategic growth initiatives in the years to come.

Turning to a review of our 2022 net revenue guidance, which we introduced in our press release this afternoon. For the 12 months ended December 31, 2022, the company expects net revenue between $485 million and $515 million, representing an increase of approximately 4% to 10% year-over-year.

The 2022 net revenue guidance range assumes net revenue from Advanced Wound Care products increasing approximately 6% to 12% year-over-year. Net revenue from Surgical & Sports Medicine products decreases approximately 9% to 19% year-over-year. And net revenue from the sale of our PuraPly products increased approximately 4% to 9% year-over-year.

As Gary mentioned, our 2021 revenue results included approximately $11 million through May 31, 2021, the end of the grace period for our ReNu and NuCel products. Excluding sales of NuCel – ReNu and NuCel for the first 5 months of 2021, our 2022 revenue guidance implies growth of 6% to 13% on an adjusted basis.

Additionally, 2021 revenue results include sales of our Dermagraft product of approximately $20 million. As Gary mentioned, we suspended manufacturing of Dermagraft at the end of the last year and will resume production upon completion of our new facility in Canton.

In terms of our profitability guidance for 2022, the company expects to generate GAAP net income of between $56.5 million and $71.5 million, adjusted net income of between $60.2 million and $75.2 million, EBITDA between $73.5 million and $88.9 million and adjusted EBITDA between $79.9 million and $95.3 million.

In addition to the formal net revenue guidance, we would also like to provide a few considerations for investors to bear in mind when evaluating our growth expectations for fiscal year 2022. This additional color is intended to help the investment community better understand the assumptions supporting our net revenue expectations for 2022.

First, the largest contributor to our total company net revenue growth in fiscal year 2022 will be sales of our amniotic products, which at the midpoint of the full year net revenue range assumes amniotic growth of approximately 12% year-over-year in 2022.

Second, we expect our remaining non-PuraPly non-amniotic products, which collectively form the group PMA and other to decrease at the midpoint of the range, approximately 5% year-over-year in 2022. Third, as Gary detailed earlier, we experienced COVID-related headwinds in January.

And while our business trends have improved quarter-to-date, we expect our first quarter net revenue to decline between 5% and 8% year-over-year on a reported basis. Note, excluding the sales of ReNu and NuCel from the prior periods, our first quarter sales expectations reflect flat to down 3% on a year-over-year – on an adjusted basis.

Our 2022 net revenue guidance assumes modest improvement in the operating environment as we move through the first half of the year and a more normalized environment in the second half of 2022.

Importantly, our guidance assumes stronger growth trends in the second half of 2022, driven by the combination of increasing contributions from planned new product launches, an assumption that we see progressive improvements in COVID-related headwinds and a return to a more normalized operating environment and an easier comparison related to ReNu and NuCel not contributing to prior year sales beginning in June 1, 2021.

In addition to our formal financial guidance for 2022, we are providing some considerations for modeling purposes.

For the full year 2022 period, we expect gross margins of approximately 76%, total GAAP operating expenses to increase approximately 9% to 13% year-over-year, total interest and other expenses of approximately $3.5 million, non-cash D&A and non-cash stock expense of approximately $12 million and $6 million, respectively, our weighted average diluted share count of approximately $134 million.

We also expect our full year 2022 CapEx to approximately $70 million to $75 million, with the year-over-year increase in CapEx reflecting the beginning of our multiyear manufacturing build-out of the Canton campus. With that, operator, I will turn it back to you..

And our first question is coming from the line of Ryan Zimmerman with BTIG. Your line is open..

Hey. Thanks for taking the question and it’s nice to scale the progress and you guys have made this year on. I guess to start, for Gary or Dave, I appreciate all the color on the guidance and when you back out ReNu and NuCel. But I guess with Dermagraft, one, that contribution kind of put you at that maybe a mid-teens adjusted growth rate for 2022.

When does that Canton facility – and I might have missed this, when does the Canton facility come back online and Dermagraft can start contributing?.

It’s going to be in 2024..

Okay. So, we shouldn’t expect anything then in 2022. Okay. And then the second question I had was just around some of the dynamics you saw in the quarter. If I heard you correctly, amniotics were up, yet some of your PMA and other products were down pretty significantly.

And I believe that’s – some of that was related to COVID headwinds in the HOPD setting.

But I am wondering if you could kind of speak, Gary, to kind of that dichotomy in utilization between the amniotics versus, say, the PMA and other in the quarter?.

Sure. So, in the PMA and other you are correct, it was the COVID headwinds. The primary site of care for our Apligraf, Dermagraft, PMA products is the HOPD. And that’s where we saw the most impact of COVID as it is related to access.

So, that’s pretty clear from the data that we have that – it’s a direct result of just not having access into that site of care for those products. On the amniotic side, they did do well. They performed – exceeded our expectations.

We did see a slight decline as expected in the first month and then started to grow as expected and actually better than expected. So, we put a lot of time and focus on the amniotic portfolio in Q4, and it helped in exceeding our expectations..

Okay. If I could just squeeze one more in. The reimbursement rates for amniotics obviously, was a big focus at the end of last year. There might be some dynamics that with the MAX in the first quarter. How much of the guidance in the first quarter, Dave, reflects that headwind that you may see from MAX kind of readjusting their reimbursement.

And if you can kind of give us – maybe help us understand that relative to say, the COVID dynamics as we think about the first quarter and the pacing through the year?.

Yes. So, they are somewhat comingled as we talked about in the third quarter, right. So, it’s really that – you are talking about the launch of Affinity, right. And as that moves forward, I think there is access challenges from that standpoint. But this team has got a tremendous amount of experience launching new products into these markets.

And so obviously, it’s been incorporated into the guidance and plays into the first quarter and full year cadence that we just discussed..

Okay. Thank you. I will hop back in queue. Thanks for taking the questions..

And our next question is coming from the line of Danielle Antalffy with SVB Leerink. Your line is open..

Hi. Good afternoon guys. Thanks so much for taking the question and congrats on a strong enter to the year. Just a question on one of the growth drivers, I am relatively new to the Organogenesis story, but we spoke a few weeks ago at our conference about expansion into new channels like dermatology.

And just wondering if you could talk a little bit more about how meaningful is the growth driver that expansion or into other new channels might be in 2022? And then I have one follow-up..

Sure. Let me jump in, and then Dave, you can jump in as well. So, we certainly aren’t going to get into all of our channel strategies, but we do expect growth in the surgical channel this year with some of our products. We also are seeing, in certain specialties like dermatology, nice growth. And that’s one in particular that’s growing quite nicely.

So, we do expect some growth support from those adjacent channels. But we certainly aren’t guiding to exactly what those channel opportunities would be..

Yes. I would agree. I think we have seen some good progress in ‘21 and that momentum continues into ‘22. And as Gary mentioned, it’s incorporated into the guidance, but we don’t typically split that out..

Yes. Understood. And I guess just a quick follow-up on that.

I mean when you are calling on new physician offices, is that one of the components that you are seeing in COVID surges, like, for example, Omicron is a little bit more difficult to get into new offices? And have you seen that start to ease up?.

We certainly did see it at the end of Q4 and into January. And what it really impacted was bringing new products into the office. That was the challenge. It really wasn’t a brand – our traditional brand products did well and really helped with the growth in Q4 and will also help in Q1 and Q2 as well.

But it was getting the new products introduced and getting them integrated into those facilities, which was more of the challenge because of staffing issues..

Got it. And just one last question for me, and that’s on the strength from a competitive positioning perspective and the full product portfolio and also the significant number of feet on the street.

I guess how much of a competitive moat have you built there? There are other players in this market, but clearly, you guys are outpacing market growth and will continue to do so.

So, just wondering if you feel like the sales force is at a place where you feel like the competitive moat is big enough, or do you expect to continue adding there? And maybe just talk a little bit about what more needs to be done or if you feel like you have got a big enough competitive moat around you guys today? Thanks so much..

Sure. Thank you, Danielle. We certainly have what we believe is a competitive advantage with not only the size, but the expertise of our sales force. And we expect to continue to add to that sales force both in the additional sites of care today that we participate in. But as we grow our office strategy, we expect to add additional sales force there.

We are looking at specialties within wound care where additional sales representatives would be added and – on the surgical side, we also expect that we will be adding additional sales force.

And as we get further down our pipeline with TransCyte, which is in the burn space, that would be an additional sales force small, it’s a pretty efficient market. And ultimately, if successful, with ReNu there would be a specialty sales force there.

So, we expect to continue to add in our traditional markets and continue to add in the adjacencies that we are seeing additional growth from..

Thanks so much. Sorry for the questions, I appreciate it..

Great questions. Thank you, Danielle..

Our next question is coming from the line of Steven Lichtman with Oppenheimer. Your line is open..

Hi. Thank you, guys. Gary, you mentioned new product flow in 2022.

Can you walk through some of the key products in your focus right now and also maybe specifically on Novachor?.

Sure. So, Novachor is one of the products that we will be launching in the second half. It will be more of a soft launch and physician experience kind of a launch. But we do expect it to provide some growth in the second half of the year and be a growth driver for us in years to come. PuraPly MZ is the other product that we have.

We expect to launch it in the second half of the year. It would not be material and we don’t reflect it in our guidance at all, even though it will be launched. So, those are the two products, Novachor being more of a contributor this year and PuraPly MZ, a more of a contributor next year and years to come..

Got it. Great. And then just secondly, as you look at your Advanced Wound Care guide for the year, what gets you sort of toward the lower end versus the higher end? Is it mostly around COVID? Is it about Novachor ramp? Any sort of color you could provide on sort of the upper versus lower..

Yes, I will start and then Dave, you can jump in. Clearly, the Nova – excuse me, the Omicron and COVID-related issues. We – as I have mentioned in our prepared remarks, we are seeing an improved trend in February, and we are seeing improved access. So, that speaks well. But until we get through the quarter, we won’t know exactly what that is.

And also, we are re-launching Affinity, and you – re-launching it in the first quarter when you have other seasonal issues as well. So, there is a little bit of noise that we want to see a little bit more data before we are comfortable. But that’s what the range is for those two items.

Dave?.

Yes. I would agree it’s really that dynamic of the extension of what we saw in January further into the full quarter. And obviously, we have guided for the full quarter and how that – how the pace of recovery and improvement in the dynamics paces through the year..

Got it. Great. Thanks guys. Thank you..

Thanks..

And we are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation. You may now disconnect..