Organogenesis Holdings Inc. (NASDAQ:ORGO) Q1 2024 Earnings Call Transcript May 9, 2024
Organogenesis Holdings Inc. beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.03. ORGO isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome ladies and gentlemen to the First Quarter and Fiscal Year 2024 Earnings Conference Call for Organogenesis Holdings Inc. Please note, that this conference call is being recorded and 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 current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company’s filings with the Securities and Exchange Commission, including Item 1A, Risk Factors, of the company’s most recent annual report and a sequential filing with quarterly reports.
You are cautioned not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether a result of new information, future events or otherwise, except as required by applicable security laws. This call will also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.
I would now like to turn the call over to Mr. Gary S. Gillheeney Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir.
Gary Gillheeney: Thank you, operator and welcome, everyone, to Organogenesis Holdings first quarter fiscal year 2024 earnings conference call. I’m joined on the call today by Dave Francisco, our Chief Financial Auditor. Let me start with a brief agenda of what we’ll cover during our prepared remarks. I will begin with an overview of the first quarter revenue results and an update on our key operating and strategic developments in recent months. Dave will then provide you with an in-depth review of our fourth quarter financial results, our balance sheet and financial condition at year-end as well as our financial guidance for 2024 which we introduced in our press release this afternoon. Then I will share some closing thoughts before we open the call for your questions.
Beginning with a review of our revenue results for Q1, our sales results came in above the high-end of the guidance range outlined on our fourth quarter call reflecting a continuation of the positive momentum in business trends in early 2024 that we discussed on our call at the end of February. Our commercial team continues to see progress in their broad based efforts to reengage with our customers to bring our products back to their healing algorithms and formularies. We believe our first quarter results support our confidence that we focused our commercial team on the right strategy to navigate this challenging operating environment. We are encouraged by the evidence that the commercial support programs we implemented to enhance our existing customer relationships, regained lost accounts and to drive growth in our customer base by emphasizing our differentiated products and that clinical validation are continuing to prove effective.
Turning to an update on our progress on our ReNu program. Our ongoing Phase III clinical trial evaluating the use of ReNu for the management of symptoms associated with knee osteoarthritis have continued to progress favorably in recent months. Last week, we announced top line results from our first Phase III clinical trial to evaluate the safety and efficacy of ReNu for the management of symptoms associated with knee osteoarthritis. The top line data was positive and the primary endpoint was achieved with a p value of 0.0177. The study demonstrated a statistically significant reduction in knee OA pain at six months as assessed by the Western Ontario McMaster Universities Osteoarthritis Index pain scale compared to the subjects treated with saline control.
In addition to improving knee OA pain symptoms, ReNu maintained patient function compared to saline control with a p value of less than 0.0001. ReNu showed a favorable safety profile, which is consistent with our prior studies. If approved, we believe introducing ReNu to a large and growing pain management market represents a transformational opportunity for Organogenesis. If approved, introducing ReNu as an innovative pain management solution for the millions of patients suffering from knee OA represents a significant new addressable market opportunity for Organogenesis. Specifically, by 2027, an estimated 34.4 million Americans are expected to be affected by knee OA. While there is no known treatment that completely cures knee OA, it is possible to treat disease symptoms with the goal of avoiding or delaying costly and invasive knee replacement surgery.
We believe ReNu, if approved, will address an unmet clinical need for all patients suffering from moderate to severe symptomatic knee osteoarthritis, and we are particularly excited about the unique opportunity for ReNu to serve the most severe knee OA patients who have limited non-surgical options, representing an estimated 5 million Americans. If successful, ReNu would be the only FDA-approved biologic intra-articular injection to improve pain symptoms even in the most severe cases of knee OA. By way of reminder, 30% of the enrolled patients in the first Phase III trial were of the most severe knee OA patient population also known as KL4s. Based on the positive results of this clinical trial along with our accumulated safety and efficacy data from our published 200 patient RCT and ReNu’s RMAT designation for knee OA, we intend to request a meeting with the FDA to discuss the clinical data requirements for a biologic license application file.
Our team is targeting completion of data analysis by the end of May and we look forward to sharing further information shortly thereafter on ReNu’s performance in this important Phase III prospective double-blinded multicenter saline control parallel group clinical trial of 515 patients. We’re also pleased with the notable progress we are seeing in our second Phase III trial. We continue to see momentum in the pace of enrollment and our current timeline has us achieving full enrollment by the end of the year, well ahead of our original expectation when we started enrolling patients in this study last September. Before turning the call over to Dave, I wanted to share a few thoughts on recent developments in the area of Medicare reimbursement and coverage.
On April 25th, a collaborative proposed LCD was published by seven Medicare Administrative Contractors. The proposed LCD addresses skin substitute grafts, cellular and/or tissue-based products for the treatment of diabetic foot ulcers and venous leg ulcers in the Medicare population. As outlined by CMS, the LCD was issued to make sure that Medicare covers and people with Medicare have access to skin substitute products that are supported by evidence and that show they are reasonable and necessary for the treatment of diabetic foot and venous leg ulcers in the Medicare population and that coverage aligns with professional guidelines for appropriately managing these wounds. The proposed LCD also calls for limiting the applications to four per case, as well as including allowances for additional treatment applications in cases where medically necessary.
We applaud CMS and the MACs for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute product. We have been pushing for reform for many years and believe this proposed LCD represents a substantial step forward towards cleaning up the marketplace. Importantly, we are confident that Organogenesis will be well positioned to gain market share now and in the future. The proposed LCD includes 15 covered skin substitute products, which the MACs believe have the requisite published peer reviewed clinical evidence to support reimbursement. Importantly, the proposed LCD also includes a list of approximately 200 skin substitutes that are currently sold in the market today that have been designated as non-covered. Two of our commercialized brands are included on the proposed LCD covered list, Apligraf and Affinity, the latter of which is the only living amniotic offering on the covered list.
We have four commercialized brands, PuraPly, NuShield, Novachor and [Cygnus] that were designated as non-covered as part of the proposed LCD. We have a strategy to leverage existing strong clinical and real world data including RCTs and have already initiated new RCTs to secure additional clinical evidence. We expect to have compelling cases to present to the MACs to secure coverage for additional products on the covered list later this year and into next year. We strongly believe these material changes from CMS and the MACs in reimbursement of skin substitute, if ultimately adopted, will be positive for the long-term health of the Wound Care market. While there will be a period of transition and disruption if these sweeping changes are implemented, we believe that Organogenesis’ strong brand equity, established commercial infrastructure and a plan to establish additional clinical validation to secure coverage of key commercialized products, which taken together represent a substantial competitive advantage for us that has us well positioned to maximize the enormous opportunity to serve more patients with our highly innovative and highly efficacious products.
With that, I’ll turn the call over to Dave.
Dave Francisco : Thanks, Gary. I’ll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the first quarter was $110 million up 2%. As Gary mentioned, these results were well ahead of expectations we provided on our fourth quarter call, which calls for a total first quarter revenue in the range of $98 million to $104 million as we experienced strong momentum building at the end of February that carried into March. Our Advanced Wound Care net revenue for the first quarter was $103.9 million up 3%, and net revenue for Surgical and Sports Medicine products for the first quarter was $6.1 million down 9%.
Gross profit for the first quarter was $81.3 million or 73.9% of net revenue compared to 75.3% last year. The gross margin was impacted year-over-year primarily due to shifts in product mix compared to the prior year period. Operating expenses for the first quarter were $85.1 million compared to $85 million last year, an increase of $0.1 million or less than 1%. The year-over-year change in operating expenses in the first quarter was driven by a $1.5 million or 2% decrease in selling, general and administrative expenses, offset by a $1.6 million or 14% increase in research and development costs compared to the prior year period. Operating loss for the first quarter was $3.9 million compared to an operating loss of $4 million last year, a decrease of $0.1 million.
Net loss for the first quarter was $2.1 million compared to net loss of $3 million last year, a decrease of $0.9 million. Adjusted net loss for the first quarter was $1.4 million compared to $0.7 million last year, an increase in adjusted net loss of $0.8 million. As a reminder, adjusted net income is defined as GAAP net income adjusted to exclude the effects of amortization and other certain items and resulting income taxes on those items. Adjusted EBITDA for the first quarter was $2.6 million or 2.3% of net revenue compared to $3.8 million or 3.5% of net revenue last year. We have provided a full reconciliation of our adjusted net income and adjusted EBITDA results in our earnings release. Turning to the balance sheet. As of March 31, 2024, the company had $89.3 million in cash and cash equivalents and restricted cash and $64.9 million in debt obligations.
That compared to $104.3 million in cash, cash equivalents and restricted cash and $66.2 million in debt obligations as of December 31, 2023. We also have up to $125 million of available borrowings on our revolving credit facility as of March 31, 2024. Turning to a review of our 2024 financial guidance, despite strong momentum that we are experiencing in the business, we are reaffirming our prior guidance that we referenced in our press release this afternoon to account for the potential near-term disruption in the market that we expect from the LCDs. For the 12 months ended December 31, 2024, the Company continues to expect net revenue between $445 million and $470 million representing a year-over-year increase in the range of 3% to 9% as it compared to net revenue of $433.1 million for the year ended December 31, 2023.
The 2024 net revenue guidance range assumes net revenue from Advanced Wound Care products between $415 million and $435 million representing a year-over-year increase in the range of 2% to 7%. Net revenue from Surgical and Sports Medicine products of between $30 million and $35 million representing a year-over-year increase in the range of 9% to 27%. In terms of our profitability guidance for 2024, the company expects to generate GAAP net income loss in a range of $10.6 million net loss to net income of $4.6 million and adjusted net income loss in a range of $8.1 million adjusted net loss to adjusted net income of $7.1 million. We also expect EBITDA in the range of $5.8 million to $25 million and adjusted EBITDA in the range of $15.8 million to $35 million.
For modeling purposes, we expect the second quarter revenue in the range of approximately $120 million to $125 million. Note that all modeling considerations outlined in the fourth quarter call remain largely unchanged. With that, I’ll turn the call back over to Gary for some closing remarks.
Gary Gillheeney: Thanks, Dave. As a market leader, I’m confident that the MACs prioritization of demonstrated clinical efficacy will strengthen our competitive position over the long-term. Additionally, our ReNu program continues to exhibit significant promise to provide clinically meaningful benefits to millions of patients suffering from knee OA symptoms and our attention this year is on developing a clear regulatory path supported by robust safety and efficacy data. If approved, introducing ReNu as an innovative pain management solution for the millions of patients suffering from knee OA represent a significant new addressable market and a transformational opportunity for Organogenesis. I am very pleased with our advancements and the execution on our priorities that ultimately will allow us to deliver on our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care.
With that, I’ll turn the call over to the operator to open the call up for your questions. Thank you.
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