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Edited Transcript of MDXG earnings conference call or presentation 28-Apr-17 2:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 MiMedx Group Inc Earnings Call

Destin May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of MiMedx Group Inc earnings conference call or presentation Friday, April 28, 2017 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher M. Cashman

MiMedx Group, Inc. - Chief Commercialization Officer and EVP

* Mark Landy

* Michael J. Senken

MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP

* Parker H. Petit

MiMedx Group, Inc. - Chairman and CEO

* Thornton A. Kuntz

MiMedx Group, Inc. - SVP of Administration

* William Charles Taylor

MiMedx Group, Inc. - President, COO and Director

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Conference Call Participants

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* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Matthew Oliver O'Brien

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Michael Matson

Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the MiMedx Group Inc. Q1 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Thornton Kuntz, SVP of Administration. Please go ahead.

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Thornton A. Kuntz, MiMedx Group, Inc. - SVP of Administration [2]

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Thank you, operator, and good morning, everyone. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties. Actual results may differ materially from those set forth in, contemplated by, or underlying the forward-looking statements based on factors described in this conference call and in our reports filed with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2016, and our most recent 10-Q. We do not undertake to update or revise any forward-looking statements, except as maybe required by the company's disclosure obligations and filings it makes with the Securities and Exchange Commission under federal securities laws.

With that, I will turn the call over to Pete Petit, MiMedx's Chairman and CEO.

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [3]

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Good morning. Thank you for joining us for our first quarter of 2017 conference call. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; Chris Cashman, one of our Executive Vice Presidents and Chief Commercialization Officer; and Mark Landy, our Vice President for Contingent Initiatives. There are other executives in the room with us.

I'm going to start by giving you some overviews of our first quarter revenues, profits and cash flows. I will also review some of the discussion we had on our March 9 call when we announced our new strategic plan and vision for MiMedx, and I'll give you a couple of other updates.

As we previously announced, our first quarter revenues exceeded the upper end of our guidance and reached $72.6 million. That's a 36% increase over first quarter of 2016. This very nice increase took place in spite of our first quarter having normal seasonal constraints from health plan benefit resets and winter weather making it difficult for patients to visit their physicians. In addition, we had some slight dislocations associated with the termination of 7 sales employees for cause and replacement of new salespersons in those (inaudible)

As we look forward in 2017, we are very confident by our revenues continue to grow at a robust pace as we have forecasted. We're confident in our second quarter continuing our growth trends. However, we are very confident about our third and fourth quarter growth trends because we will have completed the wind-down of our health care contract and those administrative distractions. You saw the increase in our profitability over the fourth quarter. As we previously stated, our profits, as a percent of revenues and overall profit, should increase very nicely during 2017 because we have most of our new product expenditures and promotions behind us that we talked about taking place last year. Therefore, we should expect to see an increasing degrees of profitability as the year unfolds.

As we stated, we built cash rapidly during the quarter and that allowed us to repurchase over $12.6 million of our very undervalued stock during the first quarter. We still have approximately $17.3 million of our current repurchase program in place. We will continue to repurchase our shares when we consider them undervalued. We have had a significant increase in our market capitalization last month or so. However, according to the metrics established by a number of investment bankers, the company is still undervalued. When we combine our rapid rate of revenue growth -- rapid rate of profit growth, gross profit margins approaching 90%, and our proprietary technology (inaudible) biopharmaceutics pharmaceutical activities, MiMedx is still undervalued in our opinion and in the opinion of others.

I would like to take a few minutes to review our strategic vision for MiMedx. As we discussed, MiMedx has transitioned from a Wound Care and surgical products regenerative medicine business to a biopharma company that is also focused on therapeutic medicine. We are very capable of making this transition because of the strong asset base we've developed over the last 5 or 6 years. This asset base will allow MiMedx to proceed down 2 parallel pathways, which can both be classified as biopharma-related therapeutics as well as regenerative medicine. I'll remind you again how we defined biopharma, which is a term that's well defined in the regulatory literature. This simply means that MiMedx will have new products that will necessarily take a Biologics License Application, or BLA, pathway towards FDA "approval" for "indications for use". This will require the more lengthy and costly BLA process as opposed to using the Public Health Service Act 361 regulations the company's operated under, which governs the use of human tissue products.

Please remember, however, that we are already well into our first (inaudible) study leading to our first Biologics License Application from the FDA. With over 2 years into the study, and things could not have gone smooth up to this point, please recall that because of our clinical experience with this product as a 361, we were allowed to enter the ID process and Phase IIb for the approval of clinical efficacy and bypass the safety phase of IIa. We will be discussing results of our IIb study this summer, and we're in the process of preparing to enter into our Phase III study. We already have our manufacturing facility operating under "good manufacturing practices", which is much more complex in operating under just "good tissue practice", which we've been approaching under for many years.

To put this in perspective, you should understand that biopharma companies are in the business of isolating certain molecules, such as proteins, which are going to have certain therapeutic effects. They can spend years and millions of dollars just beginning the process of isolating new molecules, conducting preclinical tests on animals, conducted safety tests before they ever get into the initial phases of clinical efficacy testing, which is IIb. After completion of IIb, they complete the BLA process by completing Phase III trials. After that long and expensive pathway is complete, they will have FDA "approval" for the drug or biologic. At that point, reimbursement for this particular approved drug or biologic is relatively straightforward and is easily expedited. Emphasize expedited. This is contrary to what MiMedx went through, although very efficiently, over the last 5 years in obtaining broad national coverage for our products. We had an arduous task going payer by payer with our numerous clinical and scientific studies to document clinical efficacy. Once we had our BLA approval, we will submit to obtain a J code for our reimbursement. At that point, we will have an indication for "use" which came from the IND clinical study and FDA approval, and reimbursement generally flows quite broadly and quickly from there.

So what MiMedx has that is very unique and not just to utilize a few molecules on which we will have to initiate the full PMA or BLA process to obtain approval, but a tissue material that has at least 220 very active proteins that have proven to be very effective relative to healing, strong tissue reduction -- reduction of information, creation of angiogenesis and stem cell attractions. These are -- there are numerous ways that this mildew of proteins and factors could be brought to bear to improve clinical outcomes. Therefore, we believe we're uniquely positioned with not a few molecules, but over 220 proteins where we have already clearly characterized our method of action through our scientific studies and clinical effectiveness to our other numerous clinical studies.

Therefore, as we develop the IND/BLA study proposals, we have an excellent idea of how to plan and execute the study for maximum effectiveness and efficiencies. Generally, when we'd be able to move into our IND/BLA process towards the middle of those studies rather than beginning from step 1. We should be able to cut out several years of preliminary study activity and be very effective with our study plans where the cost of additional time are reduced. If you will (inaudible) simple facts based on the asset base we built over the last 6 years, you're going to see what significant advantages we're going to have as we run these parallel paths and continuing the sale of our 361-regulated products and then begin to bring our BLA "approved products" to the market. Under our 361 program, a market for "intended uses", as they've always been, under IND/BLA-approved products will be granted FDA approval for certain indications for use. That is when our reimbursement codes become J codes that's much more easily expedited.

I want also to point out that I do not think that any of our existing competitors are in a position to accomplish what we're doing right now without putting in at least several years of asset development. No one has the clinical staff and over 30 clinical studies currently underway on placenta-based products, the scientific staff with numerous scientific studies underway, the experienced regulatory staff and 3 production facilities with the main facility approved already under good manufacturing practices. In addition, no one has a U.S. Pharmacopeia Monograph for amniotic membrane products. No one has the patient portfolio that we have -- path portfolio, excuse me, that we have. No one has progressed through patent litigation for over 2 years like we have, which means we're approaching our first trial, where we expect to be successful. No one has a large and very effectively trained sales organization of over 325 individuals that we have. And I want to emphasize highly trained. These are specialized sales personnel that know the physiology of wound healing and the science behind it.

Now I'll provide a brief update on our lawsuits against 2 Pharma sales employees and their countersuits and their allegations associated with those countersuits. I'm on record as classifying the allegations and countersuit claims as being fallacious and misinformation. I think you know how to interpret that. You're already aware that the audit committee reported (inaudible) work closely with outside independent counsel to conduct investigation and allegations. There was no indication of any wrongdoing by management. As we previously announced, the investigation determined that there was no credible evidence to indicate that any changes to the company's previously issued financial statements will be necessary in light of these allegations. We believe the fallacious allegation were done to intimidate MiMedx. That approach obviously failed. We've been informed that all of the lawyers previously representing the 2 main defendants have withdrawn from their representation of these individuals or will be withdrawing today. Reflect on that. We have submitted information to the Georgia Federal Court that we believe demonstrates one of the defendants made false statements to the court. The other defendant submitted false information to the state and employment agency of Wisconsin. This should give you some idea of the type of individuals involved here. I expect these lawsuits will eventually go to trial and be settled with these individuals paying MiMedx retribution for their violation of our legal agreements by selling competitive products into the hospital accounts.

Thus, this most recent pebble in our path has been handled as professionally as could be expected. We're placing those matters behind us, and we're looking forward to a tremendously productive and fast growth in 2017 and beyond. We're now enthusiastically -- we welcome you to the new MiMedx as a bioPharma-focused organization. We look forward in the months ahead to reporting on our first Phase II study results in our micronized product. We will also be announcing shortly additional IND/BLA program for other FDA studies. Additionally, we will be announcing a result shortly of 2 randomized multicenter clinical trials for use of EpiFix of VLU as well as DFU patients. These are all very exciting advancements that will play out during 2017.

Okay. Now let me turn the discussion over to Bill Taylor, our President and Chief Operating officer. Bill?

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William Charles Taylor, MiMedx Group, Inc. - President, COO and Director [4]

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Thanks, Pete. Q1 2017 was indeed an excellent quarter by nearly every measure we had, in particular, compared to last year and even compared to previous years. This first quarter was particularly satisfying and that we were able to perform quite well with significant sequential growth even in what is typically the softest quarter of the year due to weather and reimbursement resets. I think this is a testament to the changes we made last year in our Sales Management System, or SMS, as well as the leadership that has emerged from our field sales force. We made a number of personnel reassignments over the past 5 quarters and brought in some very seasoned professional managers who have contributed significantly to the organization, making our business stronger. And the field sales managers that have been with us for several years are developing into better managers now focused on executing more detailed sales initiatives and helping to grow the business by managing deeply the specific metrics and initiatives for each territory. We project another good growth quarter in Q2 and even better through the end of the year. We spent a good percentage of our time focused on efficiencies in our sales organization as well as other areas of the company. In fact, we've added specific resources dedicated to process improvement initiatives. Over the past several years, most of our departments did a fine job improving their own processes. Through our explosive growth, however, our business complexity continues to increase, therefore, we have a need to create the additional focus and specific process improvement resources. We don't run the company for what we need today, we are building systems, integrating processes and creating an organization that will support and take us through $0.5 billion of revenue and beyond. As you know, Q2 of this year is the last quarter of our contract with AvKARE, our distributor for federal sales. We have had a strong relationship with them for nearly 5 years. More recently, we've operated with both our own FSS and the ones with AvKARE, and by the end of this quarter, we will be operating through just our FSS contract. This transition period has been complicated, and the challenges create certain inefficiencies. The great news here is that, starting July 1, these inefficiencies will be lessened considerably, and we expect improvement in our federal business in the third and fourth quarters as our efficiencies being direct in the federal sales channel are optimized. We've seen our upper end of the guidance in Q1, even witnessed[ph] inefficiencies, so we're looking forward to what we can do in the back half of the year once these are no longer present.

As our field sales force goes, we continue to focus on territory management and growth. We plan on ending Q2 with approximately 335 to 340 total field sales personnel. Our informatics team closely works with our sales management team and helps us map our territory management plan typically 3 to 4 quarters out. This helps our planning process significantly. So we already have a pretty clear picture of where we expect to add resources over the balance of the year and what's the sales trajectory will likely be.

Turning now to intellectual property. We have no significant new news since our February and March conference calls. We still feel good about our position and look forward to our upcoming patent trials. The first trial date has not yet been set, but we hope the judge will schedule it in the near term.

Next, I will discuss some key elements of these very strong assets. MiMedx has over 100 issued and allowed patents, with 46 of them being placental-based tissue and over 120 pending patent applications, of which are over 90 are placental-based tissue. MiMedx has asserted several of our patents against various infringers across the country. And our objective is very simple. We want the companies to either: a, make and sell their own innovations; b, procure our patented products from us under a private label; or c, stay out of the field. We won't tolerate the companies who infringe our rights. So what does this mean to MiMedx and how did it affect our competitors' freedom to operate? Well, let me give you a few examples. One of the parties in our current patent lawsuits has already changed their process as a result of our lawsuit by employing the procedure that does not appear to violate our patents. We believe this changes the direct result of our suit, and we view this competitor's actions as a significant business win for MiMedx since the resulting allografts are not as clinically and therapeutically effective as those offered and protected by MiMedx. Therefore, in order for that company to have freedom to operate, they had to change their process away from our patent. Now you probably remember 2 approaches where companies do have freedom to operate around our patents are: one, a single-layer product, which we have discussed many times over the years, and we have published data showing inferiority of such grafts; and two, allografts made from intact amniotic sac, which we discussed on the last few calls. Amniotic sac consists of amnion membrane and chorion membrane, that these are not separated, they must be cleaned thoroughly and is very difficult to remove all the blood to render it safe and effective. These cleaning methods are necessarily harsh and results in the inferior graft. So the answer to the myriad of questions we've received over time about whether MiMedx patents are defendable is, yes. I've described several of our recent wins, and I think it's obvious that our core patents have already proven to be defendable. We expect 2 of our cases to head to trial later this year, as I mentioned. The outcomes of those proceedings should determine whether the companies we have sued indeed have violated our patents. And then again, the fact that one of those competitors have already created different, in our scientific view, inferior grafts to try to avoid our patents means it's a good business win for our patent portfolio. But I'd also like to remind you some historical performances of a few companies in our space, Celgene, BioD and Osiris all entered the space prior to MiMedx and all had single-layer allografts. None of these 3 have been able to match our revenue or our growth rate in this product area. Our closest pure-play competitor in the placental tissue space was BioD, which was acquired by Derma Sciences last year. An interesting story relative to this is, in 2010, before we entered the space, we contacted BioD to inquire if we could find a way to work together. They declined. And we moved on and worked with Surgical Biologics. 6 years later, we ended the year and more than 10x BioD's revenue in 2016. Now for all those years, they made single-layer grafts only, which, of course, do not infringe our patents. After 6 years of competing with a single-layer graft, late last year, they introduced the dual-layer graft. It is our opinion that their multilayer graft steps on one or more of our patents. And we have given Derma Sciences and Integra notice of our position that they appear to be in violation of our IP.

To summarize on IP, we have said for years that we would invest in patents and defend them, but the real battle will be fought in the marketplace. I think our record shows that we've done quite well in that regard. That said, if we find companies that look to be violating our patents, we will protect our property and pursue legal remedies. I think the industry is beginning to find out that they do not have the freedom to operate that they thought they had when they try to copy our products. And when the notice is delivered, they can be assured it is not a box of chocolates, but rather something much more serious. The date of notice is important because it starts the clock on damages and not just damages, but allows the possibility of triple damages. So if a competitor is going to gamble if they have freedom to operate, they better hope that they are right, otherwise the damages can be quite large, and that doesn't even count the attorneys' fees that might be recovered. I expect that we -- after we successfully complete a few of our current patent lawsuits, we'll have a strong position and could possibly even get adjunctive relief on any new violators. So our notice of infringement that appears to be a box of chocolates to some, quite possibly could become a ticking time bomb for those companies that are not careful around our patents. Our clinical studies continue to move forward, and we expect some key data readouts over the next several months. Specifically, we will have data regarding 2 large studies on wounds, one VLU and one DFU that we spoken about before in our first biopharma injectable product, which is for plantar fasciitis. We hope to move into Phase III trials in that program later this year. Related to the clinical studies and our R&D pipeline, we're not yet ready to go into detail on this, but I want to give you a short glimpse of something we are considering. We are evaluating our pipeline and the planning and timing of our follow-on biologic drug products. We are considering alternatives that may allow us to initiate some of these phase studies a bit earlier than what we have originally planned. This may bump up our R&D spend by 1% or 2% in the short to midterm, but we expect it will pay dividends down the road, particularly if the regulatory environment becomes more balanced, and especially if some of our new products qualify for the 21st Century Cures Act. As we mentioned previously, management can control the throttle of our expenses up or down pretty well, and as we see opportunities that can give a large return on investment, we may decide to accelerate some areas of spending in order to drive an increase of revenue. So after we complete our review, we will advice and update our forecasted R&D expense projections. Now for clarity, we're talking about potential increments that are likely in the 1% to 2% range in R&D spending as a percent of overall revenue.

With that, I'll turn it over to Chris Cashman.

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Christopher M. Cashman, MiMedx Group, Inc. - Chief Commercialization Officer and EVP [5]

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Thanks, Bill. Good morning. We are pleased with the progress that we've made in the first quarter. We grew revenues 36% year-over-year overall, and revenues were strong in both of our market focuses of Wound Care and SSO. Wound Care grew first quarter 40% over prior year's quarter, and SSO grew 26% over prior year's quarter. What was most notable about this performance is that there was nothing special or exceptional. This is a continuation of our strong sales momentum carrying forward from 2016 in our core business initiatives. Additionally, our 3 new product initiatives: Epi and AmnioCord, AmnioFill and OrthoFlo lyo all made solid contributions to our revenues and continue to find their place in our portfolio. I have shared before that first quarter is normally the slowest revenue quarter of the year. This is due to multiple headwind factors, such as the deductibles reset, many surgeons take off in parts of January after a heavy caseload during the holidays and year-end. The weather can be an issue. And this year, specific to MiMedx, a few centers associated with individuals we had to let go for selling competing products went through transitions. Nevertheless, we continue to exhibit strong momentum in our business, and we feel good about the ability to continue to deliver on revenue growth as we have communicated. Recall, our revenues fell short of guidance a year ago as we went through distractions of sales force realignments and implementation of a new Sales Management System. Now one year later, our management understand their own business much better, and our analytical processes and SMS planning are forming how we target our competitive threats, how we plan, launch and track our new product introductions, where we add our new representatives, how we realign territories with a purposeful cut to grow mission, and a much improved Sales Management System and business planning process. We have raised the business acumen of our management, and our account executives had better information and improved focus due to our SMS program. For 2016, SmartTRAK reports that $680 million was spent in the U.S. skin dermal substitute area. That's a 15.4% growth over 2015. The data shows MiMedx has grown to a 31% market share from 24.9%, again a 6% increase over 2015. And MiMedx makes up approximately 2/3 market share of all amniotic product spend and is growing. However, MiMedx is not just taking share. The U.S. market continues to expand, and we believe that is largely based on the value proposition that EpiFix delivers leading the way. By 2020, estimates show a $1.1 billion spend, with amniotic products making up half of those dollars. Through our market awareness programs, peer-to-peer educational events and continuing clinical investments, which include large multicenter RCTs in DFU and VLU that will report top line data by summer, we feel very positive about the sustainability of our wound revenue trends for the next few years to come.

We believe the chronic wound care market remains an underpenetrated opportunity. In the U.S., in 2015, the annual cost of treating chronic wounds was $25 billion. Of the 6.5 million wounds that are treated, there are 3 million chronic nonhealing wounds each year and fewer than 150,000 patients receive a skin dermal substitute. MiMedx is focused on the Wound Care clinic has been the 1.4 million diabetic foot ulcers and venous leg ulcers. The commercial portion of our insurance coverage has been predominantly for DFUs. However, with the expected publication of new multicenter VLU clinical data, which the interim look reveals a significant improvement of healing at 12 and 16 weeks continuously improving on allografts healing rates taking 24 weeks. EpiFix will have an opportunity to expand into the approximately 500,000 total VLU patients each year. With expanded positive venous leg ulcer payment policy, we believe there's an immediate $75 million to $150 million that can be (inaudible) And this opportunity doesn't even contemplate the approximate 1 million acute pressure ulcers that could benefit from our products. I want to emphasize there are plenty of wounds left to address. We have shared our evolution into a biopharma company developing regenerative and therapeutic biologics. By 2020, we project we will have revenues of more than $0.5 billion comprised of our 4 regenerative products in wound and SSO. And we'll have expanded into the pain management office setting with both 361 and BLA indication products in soft tissue and joint pain. This office-based pain management market has $4.7 billion to spend, just in the knee, foot and ankle, with over $900 million in competitive hyaluronic acid products like Synvisc, Orthovisc, Supartz, Gel-ONE and so on. Our plantar fasciitis' top line Phase IIb study data will be disclosed midyear. We expect it will show similarly successful outcomes to predecessor studies and will be a boost to our sales efforts in the office. As we enter the late spring and summer months, we will continue to educate the marketplace and health care professionals on the risks of virus transmissions like Zika in tissue and allografts that are not terminally sterilized. The MiMedx flagship amniotic allografts have always been terminally sterilized. Surprisingly, a large cohort of competitors today aseptically process, but they do not sterilize. MiMedx's process internal sterilization validations provide a less than 1 in 1 million probability of a nonsterile unit, which is at least 1,000x higher safety margin than typical aseptically processed tissue products. This product process advantage continues to be a cause for hospitals and providers using competitive products to seriously contemplate converting and trialing EpiFix or AmnioFix and MiMedx.

In the last 6 months, 3 market-changing announcements have occurred which deserves noting. First, Integra acquired Derma Sciences in Q4 2016. Derma Sciences' AmnioMatrix and AmnioExcel products generated total wound revenue of approximately $3.3 million last year. Notably, concerning Integra's Omnigraft product, CMS Hospital outpatient numbers are just out for Q3 last year, and spend came in at $41,000 for the third quarter, and it totaled $68,000 for the 9 months of 2016. Based on this lack of Omnigraft progress, which was forecasted to approach $10 million in revenues last year, Integra has invested in their second amniotic technology platform in 2 years and fourth wound product for the same applications. Confusing? I think so. Putting any potential IP infringement aside, our new product introductions, a company has to win in the marketplace. We have studied their single-layer amniotic product, AmnioExcel, and shown that 69 of 70 factors important in wound healing are higher in EpiFix. Understand, they don't have commercial coverage like MiMedx. They don't have a compendium of studies supporting efficacy, thereby, use, like MiMedx. Actually, their only study shows 46% healing at 6 weeks. The concept that a portfolio products, as in offloading boots, dressings, ointments and skin substitutes, is able to be bundled in a highly strategic and successful manner is a misconception. They are independent utilization decisions. It is very important to note, in the Wound Care clinic and office setting, each has a value proposition and reimbursement coverage decision. Commodities cannot be leveraged to improve advanced therapy utilization. In fact, look at Derma Sciences' own history with its portfolio. The attributes are not there to make this successful, as evidenced by the performance since 2014. Second, just over a month ago, Organogenesis announced the acquisition of NuTech , a Birmingham-based provider of amnion technologies, predominantly in a fluid form for orthopedic and spine use. I guess, the mantra would be, "If you can't beat them, join them." Though I've been very active and vocal over the last 4-plus years about how amniotic technologies don't work and are regulated inappropriately. They attempted to cause many issues for MiMedx that the VA system, CMS, FDA and even one of their senior executives was a relator in an OIG investigation of MiMedx 2 years ago, which we quickly resolved. Their pure-play wound dressing comes off past through at year's end, so this is clearly a desperation move to bolster continued eroding Apligraf revenue and market share. And finally, Osiris announced that they are joining the way MiMedx has been processing shelf-stable amniotic products since they can't beat us and have profiled a lyophilized, shelf-stable product process for the market. They acknowledge the shortfalls in their graphics and related products in their press release of March 30 stating, "Crowd preservation requires ultralow temperature freezers and dry ice or liquid nitrogen for storage, which limits the widespread use of cellular therapies." They further claimed that they had come up with a lyophilized means to preserve living cells in their tissue membrane and stored at ambient temperature. They also stated that an article regarding this new process would be published in Nature the next day. Understand that this was not a peer-reviewed, scientific journal published paper. It was a full-page, paid-for advertisement profile. These advertisements are not reviewed for accuracy, nor is Nature featuring it for scientific reasons. It is a pay-for advertisement. MiMedx has shown a superiority of bioactive dHACM and we see no actual scientific evidence presented that would suggest Osiris can do what they say in regards to preserving living cells even after lyophilization. We fear that this promotional messaging will only serve to confuse professional wound care providers as Osiris moves to processing shelf-stable products, which MiMedx has been doing as a regenerative leader since 2006. More to come on this front.

So to reiterate, we continue to make very good progress in the marketplace establishing new procedural uses, market share acquisition and driving market use expansion across all our business verticals. We have very strong revenue growth momentum, which began in second quarter last year, and we expect it to continue this year as we have communicated.

And now I'll turn it over to Mike Senken.

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [6]

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Thanks, Chris, and good morning. The company recorded revenues to the first quarter of approximately $72.6 million, an increase of 36% or $19.2 million over prior year first quarter revenue of $53.4 million. The increase reflect the continued momentum in commercial Wound Care sales and contributions from new product sales in AmnioFill, OrthoFlo, Epi and AmnioCord products. The increase was somewhat offset by a lower revenue contribution from Stability Biologics products, primarily driven by the decision to discontinue sales of lower-margin products as well as the expected wind-down of sales to AvKARE as we transition to direct sales through our own FSS schedule. We saw strong growth year-over-year of 40% in Wound Care revenue coming in at $54.9 million and SSO revenue growth of 26% coming in at $17.7 million for the quarter. GAAP gross margins for the quarter were 88% as compared to 85.1% in the first quarter of 2016. Adjusting for the amortization of the Stability Biologics' inventory step-up, gross margin was 88.1% in 2017 as compared to 86.5% in the first quarter of 2016. Included in the press release is a reconciliation of GAAP gross margin to adjusted gross margin. The year-over-year improvement in gross margin is due primarily to higher sales volume and improved product yield.

R&D expenses for the quarter were approximately $4.2 million or 5.8% of quarterly revenue as compared to $2.5 million in the first quarter of 2016. The increase was driven primarily by increased investments in clinical trials, including the BLA trial for plantar fasciitis as well as the large multicenter VLU and DFU trial. Our guidance assumes increased year-over-year investments in clinical trials as we pursue our biopharma strategy.

Selling, general and administrative expense was approximately $53 million for the quarter or 72.9% of quarterly revenue as compared to $40.6 million or 76.2% of quarterly revenue in 2016. Included in 2016 spending was approximately $713,000 in onetime charges related to the acquisition of Stability Biologics. The year-over-year increase in SG&A spending was due to the continued build-out of our direct sales force in both Wound Care and surgical markets, additions to the reimbursement, credit and collection and informatics teams as well as legal costs and regulatory costs in support of international market expansion. We expect to see continued leverage in subsequent quarters while adding to our direct sales force over the course of this year.

The company reported a positive adjusted EBITDA of $12.4 million for the quarter ended March 31, 2017, as compared to $9.1 million in the first quarter of 2016. It is the 21st consecutive quarter of reporting positive adjusted EBITDA. Included in our press release is a reconciliation of adjusted EBITDA to reported net income. The improvement is driven by increased sales volume.

GAAP operating income in the first quarter was approximately $6.2 million or 8.5% of quarterly revenue as compared to $1.5 million in 2016. Operating income included charges related to the Stability Biologics acquisition of $75,000 and $1.4 million in 2017 and 2016, respectively. Higher operating income in the quarter was driven by increased sales volume and improved gross margins, somewhat offset by the aforementioned investments in clinical trials, additions to the sales and marketing organizations for both wound care and SSO markets and administrative support. The company reported net income for the first quarter of approximately $4.3 million or $0.04 per basic and diluted common share as compared to net income of $1.2 million or $0.01 per basic and diluted common share in the first quarter of 2016.

On a non-GAAP adjusted basis, first quarter net income was $7.4 million or $0.07 per diluted common share as compared to $4.9 million or $0.04 per diluted common share in the first quarter of 2016. Please refer to the table in our press release for a reconciliation of GAAP net income to adjusted net income.

Turning now to the balance sheet. The company reported approximately $121.9 million in total current assets, including $30.9 million in cash, $66.8 million in accounts receivable and $16.1 million in inventory. Days sales outstanding for the quarter were 83 days as compared to 86 days at the end of the prior quarter. We expect this trend to continue in subsequent quarters after introducing new processes focused on improved collection performance as well as the addition of credit and collection associates in support of our growth. Inventory turns were 2.2 for the quarter as compared to 2 at the end of the prior quarter. The improved turns reflect the normalization of inventory levels of new products launched in the third and fourth quarters of 2016. And total liabilities for the quarter were $59.5 million as compared to $60.3 million at the end of the prior quarter.

Turning now to the statement of cash flow. The company reported net cash from operating activities of $10.6 million as compared to net negative cash flow of approximately $1 million in the first quarter of 2016. The improvement was driven by higher net income and improved working capital management. Cash used in investing activities was approximately $1 million as compared to $9.3 million in the first quarter of 2016, which included the $7.6 million related to the purchase of Stability Biologics. Cash flow used in financing activities was $13.1 million, including $12.7 million in share repurchases. Since inception, the company has returned $68.7 million to shareholders in share repurchases, and there's approximately $17.3 million still available for repurchases under the current authorization of $86 million.

And finally, we ended the quarter with a total of 705 employees, an increase of 105 as compared to the prior year.

Now turning to our guidance. MiMedx estimates second quarter revenue to be in the range of $73.5 million to $75 million, and we raised the lower end of our full year revenue guidance to be in the range of $303.5 million, up from $302 million, with the high end of the range remaining at $307 million. The company is maintaining its full year guidance for 2017 GAAP EPS of $0.18 to $0.20 and adjusted EPS estimated to be in the range of $0.31 to $0.33. Please see the tables included in our press release for a reconciliation of GAAP EPS to adjusted EPS.

With that, I will turn the call over to Mark Landy.

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Mark Landy, [7]

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Thanks, Mike, and good morning, everyone. As you have heard today, our biopharmaceutical transition is progressing nicely. And operationally, we're making very good progress. Enrollment in our Phase IIb plantar fasciitis clinical trial is wrapping up, and we are preparing for numerous FDA meetings. In line with current guidance, we expect to release interim Phase IIb plantar fasciitis data and file an IND for AmnioFix injectable as a treatment for knee pain caused by osteoarthritis during the summer. Through lots of hard work and some fortitude, MiMedx is in a unique and very fortunate position. Our core technology platforms provide a deep product pipeline that give us the opportunity to very efficiently bring new products to market that has large unmet medical need. We believe indications we are pursuing and we'll pursue in musculoskeletal pain, respiratory disease and cardiovascular medicine represent multibillion dollar markets. In our view, these indications should sustain our impressive revenue growth rate in the years ahead and drive meaningful earnings leverage.

The transition we're undertaking does not just encompass developments for regulatory and commercial activities. It is broad-based and includes benchmarking the company against the most appropriate peer group. This is extremely important because that drives alignment of corporate culture and provides the ability to recruit and retain the very best talent. Our recent leap-out proxy statement reflects some of the activities we have undertaken. How MiMedx is used by the capital markets and the peer group investors use to benchmark and value the company is an important component of our success. Until our biopharmaceutical transition is well understood, management must keep investors informed, educated and up to date. We must do this to ensure we are correctly benchmarked, always valued within the appropriate context and introduced to the right institutional investment groups. Presentations made to management by financial institutions confirm our views and the comments we presented on the March 9 shareholder update call. We believe that MiMedx at this point in its transition should be benchmarked against a peer group comprising a mix of the high-growth med tech and biopharmaceutical companies. The average enterprise value to revenue multiple of one such life sciences peer group is 8.7 for 2017 and 6.9 for 2018, with a median of 8.3 and 6.9. At its current market cap, MiMedx enterprise revenue multiple is 4.7 for 2017 and 3.9 for 2018. This represents a 45% discount for both years.

With that, I'll call -- I'll hand the call back to Pete.

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [8]

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Thank you, Mark. Well, I hope you understand management's enthusiasm of what has been accomplished first quarter and our positive outlook for the remainder of this year and beyond. Also, if you understand our enthusiasm related to our transition to a biopharma company and the huge opportunities that offers to us. Also, as we have certainly just discussed, we feel that MiMedx is at least 2 to 3 years ahead of our competition relative to reimbursement, GPO and IND contracts, the state-of-the-art production facilities with automation, our capability to manufacture under good manufacturing practices, or GMP, production facilities with increasing amounts of automation, a well-trained sales organization of over 325 individuals and growing, and information and technology infrastructure of managing all aspects of our business. As we've clearly stated, we believe it's going to take the best competitor several years to match where we are today. Then, please consider where will be at that point in time. Chris Cashman gave you numerous facts on certain recent actions by our competitors. Please reflect on those. We hope the details on our first quarter as well as some additional commentary on our new strategic initiatives in the biopharma has been helpful and puts into perspective where your company is headed in the next several years.

Now I'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Mike Matson from Needham & Company.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [2]

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I guess, I just wanted to start with the transition away from AvKARE. So can you just talk about how that was structured? Were they a stocking distributor? Or were you paying them commissions? And then, what sort of impact will this transition have on your revenue and margins?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [3]

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Well, I'll comment on margins real quick. They were paid -- you'll see our operating profits as a percent of revenues go up. I'll let Bill comment on the other.

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William Charles Taylor, MiMedx Group, Inc. - President, COO and Director [4]

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Yes. They were a stocking distributor, and -- over time, as we got our FSS, obviously, we had some customers that bought off our FSS schedules. Some have bought off of theirs. We actually had some that were in the middle that bought some products off of our contract and some on theirs. There were a number of our newer products, for instance, and some of our newer SKUs that were not added to the FSS contract over the last 2 years. So we were necessarily, in many cases, selling off of both contracts into the same facility. So that's one of the reasons why the transition has been rather complicated.

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [5]

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If I can add -- this is Mike. We started this transition actually going back to 2015, accelerated in 2016, and it's winding down in 2017. So any margin impact, plus or otherwise, is factored into our numbers.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [6]

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Okay. But if they were a stocking distributor. Were the fewer -- I guess, I assumed you've assigned the products to them at some sort of transfer price so that your pricing would effectively go up. Now I know some of this has already kind of run through the P&L, I guess, but is it correct that your pricing would end up being higher in your gross margins on that business?

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [7]

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Yes, that's correct, Mike. But again, that has been kind of run through the P&L over the last -- almost 2 years. So you're not going to see a dramatic change come the second half of this year as we wind that down. I mean, keep in mind that AvKARE is a stocking distributor. We've been transitioning different facilities over time. And when a facility is "clean" and they wound down the AvKARE inventory, then we move in there as direct through our FSS. As Bill mentioned, there were a couple or a few that were kind of going through both FSS contracts, which created some confusion. And -- but that will go away come the middle of this year. But again, in terms of modeling out margins in the second half of this year, I would just say that what you've seen over the last -- certainly over the last 6, 9 months is -- already takes that into consideration.

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [8]

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And Mike, this is Pete. Let me conform what Mike said to what I said. The margins -- gross margins have gone up gradually as we moved away from selling more through them, more through our direct FSS number. And therefore, operating profits will follow through with that. Mike's pointing out that this transition's been underway for quite some time, so the margins have been escalating during that period of time. And we'll -- beginning July 1, all those factors are pretty much behind us. So last half of the year, you should see us operating without any influence and the administrative overhang of having to very carefully work both of these contracts at the same time.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [9]

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Okay. Understand it. I mean, your Wound Care growth in the last couple of quarters has accelerated. So I mean does that have anything to do with this transition? Or is it just the Sales Management System and just better productivity out of your reps and newer reps and things like that?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [10]

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No, I think that can be attributed to what we did a year ago and try to explain to our shareholders that we put in an extremely effective new Sales Management System. Again, when -- from my standpoint, I've transitioned in this way previous companies several times. And as you grow rapidly, there's various things you must get in place. And we did that perhaps 6 months later than we should have, but it kind of took a little bit of -- when our sales first quarter last year is a sales organization has to get readjusted to managing things in different way. But I can assure you that we have an extremely effective Sales Management System. I think our sales personnel now are operating in a whole different realm of efficiency and effectiveness. And that's what's given us this kind of momentum.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [11]

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Okay. And then Bill's comment about the sales rep lawsuits. So I would assume -- or am I correct in assuming that with the attorneys withdrawing, that these are officially dead? Or is there some potential for them to go out and hire new attorneys or some way that this could continue?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [12]

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I think that needs to be read simply as an event. It's rather rare for attorneys to withdraw. They can hire new attorneys. We're -- wait and see what happens there. But it's -- it should be an indication of the nature of this whole activity and the individuals involved and their own personal goals associated with it. And again, it's been very detrimental to the company. We can't deny that. It's taken a lot of effort and time. But as usual, this management team has been effective in whatever we encounter and we've gotten through it. To us, it's going to be behind us here. But I can't speak to that, other than to say that consider several attorneys resigning. I don't want to speak greatly to the particular aspects of the case.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [13]

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Okay. And then finally, just -- you've set this dollar EPS target out there for 2020. So the most recent quarters -- I mean, we've seen some moderate leverage, but in order to hit that dollar, you need to really accelerate the leverage. So I guess the question would be, what is that path to the dollar look like? I mean, at this point, I guess I got to believe it's more of a hockey stick effect where you're going to start leverage for -- in the shorter term, but then, in the outer years, there'll be some pretty dramatic leverage. I mean, is that the right way to look at it?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [14]

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I certainly think so. I think I've tried to convey that the operating profits of this company, if we would wish to accelerate those -- of course, this year, they're accelerating quite dramatically anyway from our accelerated expenses that we put in last year on purpose to bring those new products to market. But where the business starts with about 90% gross profit margins, even if you're investing heavily in sales force assets, research and development assets, you still, over time, as those assets begin to mature, you should see rapidly increase in EBITDA, adjusted EBITDA and operating profits. And we're very confident in -- next year, the year after and so on in seeing our operating profits and adjusted EBITDA increase dramatically. So we're not wavering on those goals set for 2020.

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Michael Matson, Needham & Company, LLC, Research Division - Senior Analyst of Medical Technologies and Diagnostics [15]

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Okay. And I guess just as a follow-up on that, these accelerated trials, I mean, if the R&D level were to go up by a couple of points, I mean, I would assume that, that might mean that, that dollar gets pushed out a little bit. Is that the right way to look at it? Or...

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [16]

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Well, I think -- understand we currently have 30 studies going on all over the U.S., with almost 200 physicians involved. And I forgot how many sites. So our R&D is going to go up a bit, but it's not going to go up 2%, 3%. It's going to go up probably less than 1% because we'd be transitioning these ad hoc studies we've been doing into more focused IND/BLA studies. So we're very engaged and I got a quite effective staff in terms of MDs, nurses, other clinicians associated with keeping these studies moving. So we'll be just transitioning from some other ad hoc studies. These 2 studies we're talking about having results on and getting published this year on BL -- on DFU and VLU. Those have been very expensive studies, and relatively speaking for us, and they've taken a lot of time. Those would be completed by midyear here. Those assets will be moved into these BLA/IND/BLA studies. So it's not going to be this huge, all said, 1-year 30% jump in R&D expenses here.

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Christopher M. Cashman, MiMedx Group, Inc. - Chief Commercialization Officer and EVP [17]

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Yes, and I'd mention, too, that it's short to medium term. I think by the time we get out to 2020, a lot of those, that will kind of normalize as well. And plus some of these studies we're looking on, actually, we've got some experience with our OrthoFlo trials in the knee that we can actually enroll these trials very, very quickly. so much more quickly than we have in our previous larger-scale studies. So if that holds true, as we expect it to, then we'll be able to move through them quite rapidly.

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Mark Landy, [18]

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Yes, Mike, just from a modeling perspective, that dollar in adjusted earnings assumes a fully loaded R&D programs. So we're not increasing the amount of those programs. Some of that might just be pulled forward. So it's just how they run through the years, but the dollar amount stay the same and out to that period.

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Operator [19]

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Our next question comes from Matt Hewitt from Craig-Hallum.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [20]

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A couple of questions. First, on the gross margins. I want to go back to that a little bit. So -- and thank you for the explanation as far as how the AvKARE transition to your own schedule is going to help. But that was an area, gross margin, where with some of the new products and some of the new markets you would anticipated that trending down a touch going forward maybe 86%, 87% range. Is that still your -- kind of your long-term or short, medium-term target? Or do you believe the Q1 rate of 88% is sustainable in the longer term?

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [21]

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I think according to our models, when you look out to the 2020 projections, you are seeing them tick down closure to the 86%, 87% range but that's going to take some time. And that's making certain assumptions in terms of what the margin profile is in the high-growth area of sports med. In the near term, and we put in our guidance, that we expected margins to rebound somewhat from last year. And we're still holding to that for '17.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [22]

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Okay. Secondly, maybe, Pete, if you can give us an update, I know there's a couple of holdouts on the large insurer front. Any progress with those?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [23]

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There's always progress, what we want to convey to you is success, and we don't have that success yet. The holdouts, certainly, well, our preferences with I believe, personally, that these particular health plans once we publicize the VLU and the DFU studies, which are multicenter, 10 or 15 multicenters, 100-plus patients or more, once we publicize those, there's no leg to stand on in terms of not providing coverage. So...

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [24]

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Fair enough. And then, you mentioned there were some onetime cost that hit in the SG&A in the first quarter. How should we be thinking about that line item over the remainder of the year? Will that trend down a little bit here in Q2 and then get back to a normalized creep? Or does it stay elevated because of the new hires that you completed late in the fourth -- or late in the '16 or early '17?

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [25]

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Sorry, Matt. I think that was my comment. That really referred more to 2016 with the Stability acquisition. There was a small amount of onetime cost in '17, but not significant.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [26]

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Okay. So the Q1 rate is kind of a normalized rate, and we should see a little bit of growth off of that sequentially through the year?

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [27]

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Yes. I mean, we're going to continue to add sales folks. I can't say that -- typically, the first quarter is a little heavier in the SG&A area because of sales meetings and the like. And so we expect to see continued leverage of the SG&A as a percentage of revenue in follow-on quarters.

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [28]

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Okay. Let me add that management has a pretty important commitment at 11:45. So if it's a modeling question, I'd ask you to contact Mike and resolve that. If there's any questions that Bill or myself -- Chris, can answer, let's key those up first. Next question.

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Operator [29]

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Our next question will come from Matthew O'Brien from Piper Jaffray.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [30]

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I'll try to be quick. I would -- sorry, Pete, this is kind of a modeling question. I'm just looking at the Q2 guide. And it's not -- even at the midpoint, not a huge increase sequentially, even though that's not what you did in the last couple of quarters. And then also is a pretty meaningful contraction in the productivity of your sales force, quarter-over-quarter, which again I haven't seen. So just curious as to why you're looking at it that way. Is there something specifically that leads you to that kind of/conclusion? Or is it just a matter of conservatism?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [31]

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Well, we're always going to try to be conservative. But this quarter is the last vestiges of all administrative process and procedures and headaches that's been necessary to wind down AvKARE. And we just -- this certain sales force defocus there and sales management defocus, so we're programming that into not as being as efficient as we could since this is the last quarter that wind that all up.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [32]

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Okay. And then any sense for the impact of the new products that you rolled out in '16 on Q1 here? And how should we think about that? I mean how are those things trending?

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Michael J. Senken, MiMedx Group, Inc. - CFO, Principal Accounting Officer and VP [33]

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So all 3 of the products we're very pleased with. Cord came out. It's been about a year now, almost, and we have seen significant results in the hands of some of the providers. Some of the cases are amazing, quite frankly. With respect to AmnioFill and OrthoFlo Lyo, we continue to make very, very good progress on the AmnioFill front, venous wounds and pressure ulcers and it spreads across all our different verticals. So everybody is trained. And we're going ahead full throttle that. So that's all very positive, and of course, on the lyo -- OrthoFlo lyo front, the same. We just continue to build out our channel into the office, and we've been very pleased with the early returns there, too.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [34]

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Okay. Last one for me. The pain management opportunity looks pretty compelling from a couple of different areas. But just -- the time line that you've laid out for the BLA, from what we've seen historically, seems aggressive, not saying you can't get there, but can you help handicap how impactful the pain management piece of the business is going to be to your 3 by 1 by 20 forecast, i.e. if things get delayed a little bit, how pushed out would some of those numbers be?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [35]

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Well, let me make a quick comment. Again, we've tried to be conservative. We've got -- if pain management doesn't blossom as fast as we think it will, we've got other parts of the portfolio that we feel are going to be stronger than we've laid out. So again, we're not -- management will let you know very quickly if it looks like that particular goal is too optimistic. But...

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William Charles Taylor, MiMedx Group, Inc. - President, COO and Director [36]

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Well, we've laid the groundwork, Matt. We're going to continue to be in the elective pay world for the next 1.5 years or so, and we'll continue to do -- capitalize on the Phase IIb study as that data comes out this summer on the plantar fasciitis. That will reinforce the studies that were already done. And so that's going to give us a little bit of a jump-start. Again, as we build out the channel, we'll build up more and more momentum there. And I think what we've learned, anecdotally, through the last 5 years or so that our -- both our AmnioFix and then also recent what OrthoFlo is showing in the amniotic fluid, we feel very good about the dosing and what we've learned so far with those results. So that all should go very favorably towards the studies and accelerating now.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [37]

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So if pain management gets pushed out by 2 years, would that dollar turn into $0.80? Or would it be even closer to the dollar?

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [38]

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Nice try.

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Operator [39]

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And that does conclude our question-and-answer session for today's conference. I would now like to turn the conference back over to Mr. Petit for any closing remarks.

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Parker H. Petit, MiMedx Group, Inc. - Chairman and CEO [40]

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Well, thank you very much. We appreciate you joining us at this 1 hour and 15 minutes. I hope it's been productive. And hopefully, you've taken away from its management's enthusiasm for what we got ahead. Check with us as necessary. Thank you.

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Operator [41]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, you may all disconnect. Everyone, have a wonderful day.