Anika Therapeutics, Inc. (NASDAQ:ANIK) Q4 2023 Earnings Call Transcript

Anika Therapeutics, Inc. (NASDAQ:ANIK) Q4 2023 Earnings Call Transcript March 13, 2024

Anika Therapeutics, Inc. misses on earnings expectations. Reported EPS is $-4.3 EPS, expectations were $-0.26. ANIK isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good evening, ladies and gentlemen, and welcome to Anika’s Fourth Quarter and Year-End 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator instructions] I will now turn the call over to Mark Namaroff, Vice President, Investor Relations, ESG, and Corp Communications. Please proceed.

Mark Namaroff: Thank you. Good afternoon, everyone. Thank you for joining us for Anika’s fourth quarter and yearend 2023 conference call and webcast. Our earnings press release was issued after the close of the market today and is available on our Investor Relations website located at www.anika.com, as are our supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Mike Levitz, Executive Vice President, Chief Financial Officer, and Treasurer. Please take a moment and open the Slide Presentation and refer to slide number two. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934.

These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company’s actual risks and results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from our forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAP financial measures, which includes adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP financial measures.

We believe that non-GAAP measures provide an additional way of viewing aspects of our operation and performance. When considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our fourth quarter and yearend 2023 press release. And now, I’d like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Cheryl Blanchard: Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please refer to Slide 3. We are pleased to report strong fourth quarter results, which nicely rounded out the year for Anika. Over the course of the year, we achieved key milestones, we learned a lot about the business, and we are taking decisive action to further focus our strategy to optimize performance and drive even stronger results. We began 2024 with renewed energy and a clear, more accelerated path to profitability. Let me start with our key achievements. First, revenue growth and adjusted EBITDA exceeded expectations in the fourth quarter and full year. We had a record year in OA Pain Management, with revenues up 12% for the quarter and 11% for the year on strong growth of Monovisc globally and the sustained double-digit growth of Cingal outside the U.S. While we benefited from some favorable order timing of transfer shipments to J&J Mitek, the underlying business is strong, and we continue to grow our number one market position in the U.S. and anticipate that position strengthening.

Cingal continues to do very well as the next generation non-opioid OA pain product of choice in over 35 countries, and we continue to explore more near-term opportunities for commercial partnerships in the U.S. and select Asian markets. We are continuing to interact with FDA and are doing all we can to obtain clarity on what they will require for non-clinical data, so that we can move ahead with those remaining tests with certainty. We remain excited to bring this tremendously effective product to the U.S. market and provide a meaningful non-opioid pain medicine to help alleviate the osteoarthritis knee pain of the 32.5 million U.S. citizens who continue to suffer on a daily basis. In fact, we expect Cingal’s expansion into the U.S. to double our OA pain market opportunity from $1 billion to $2 billion.

Cingal is and will continue to be positioned to win. OA Pain Management is our core business and will continue to be a key driver of growth and profitability for Anika, with Cingal in the U.S. providing a significant future value building opportunity. In joint preservation, our HA regenerative solutions, sports medicine, and Arthrosurface businesses also progress nicely throughout the year. In Regenerative Solutions news, we’ve already completed well over 100 surgeries with our Integrity Implant System since its limited market release at the end of last November. This is a significant ramp, especially during a limited release, and it speaks to the exciting preclinical data, strength of the regenerative implant itself, and the full system approach we took in the design.

Physician feedback has been incredibly positive, and most importantly, their first patients are doing very well, with many having reached their eight-week follow-up. We are intentionally constraining the early rollout to ensure we incorporate surgeon feedback from the limited release and refine the arthroscopic delivery and deployment instruments. The full market release of Integrity is on track for mid-2024, and based on the current usage and limited release, is expected to drive accelerated growth in our regenerative business in the back half of the year. Integrity, along with Hyalofast, will serve as key technology platforms for near-term regenerative product expansion. I’m excited to share more details on that refreshed regenerative-focused R&D roadmap on future calls.

Hyalofast, our HA single-stage, off-the-shelf cartilage repair product, continues to sell very well outside the U.S., with a market leadership position in a number of key countries and active geographic expansion underway. As a reminder, Hyalofast was granted breakthrough device designation by the FDA, and the U.S. clinical trial, last patient out milestone, remains on track for early next year. We also remain on track to begin filing the modular PMA this year with a target product launch by 2026. Hyalofast remains a key value driver for Anika and will be a meaningful and differentiated entrant into the $1 billion-plus U.S. cartilage repair market. As I mentioned at the outset, we also learned a lot last year, largely as it relates to our joint preservation and restoration business, where we delivered 7% growth for the quarter and 9% growth for the year as the ramp from our new products was offset by slower sales of our more mature products.

We’ve been intentional in developing high-value products to fill key gaps in our portfolio, while advancing our core HA and HA-based regenerative businesses to ultimately capture a larger market opportunity in the fast-growing early intervention orthopedic space. Those investments have yielded great products in Tactoset, X-Twist, RevoMotion and Integrity. We are now turning our focus to reaping the rewards of those investments and driving revenue with these new products this year and beyond. In sports medicine and Arthrosurface, we made important progress with our new product launches, including X-Twist and RevoMotion. X-Twist peak is now beginning to gain significant traction in the market, particularly with surgeons in the ASC who are looking for competitive alternatives.

The biocomposite version of X-Twist entered the market in Q1 this year in a limited release, and we are receiving great initial feedback on its clinical performance. With both versions now available, we can address the entire 600 million-plus U.S. rotator cuff market. We expect the new biocomposite suture anchor to be a key driver for the X-Twist product line in 2024. Our new RevoMotion reverse shoulder system, which competes in the faster-growing $1 billion U.S. reverse shoulder market, was fully launched at the end of Q3 last year, and we are continuously engaging with our distributors to drive adoption, as well as actively training surgeons on the safe and effective use of the system. Clinical feedback remains very positive, and our top distributors continue to do very well, despite a slower-than-expected pace of adoption, given the more complex sales cycle.

We secured key contracts in the fourth quarter that we expect to further open up market access, and the recent momentum positions us well to drive growth in 2024, especially now that CMS is reimbursing shoulders in the ASC, where we are well positioned with our two-instrument trade design. The key takeaway here is that the underlying adoption for X-Twist is strong and growing, and RevoMotion is increasing and as we work to improve our channel and commercial execution, we expect that the pace of adoption will continue to accelerate. In fact, we recently returned from this year’s American Academy of Orthopedic Surgeons meeting, where we met with a number of surgeons who showed real excitement around our new products. I’m very proud of our accomplishments in 2023, with the important product launches of X-Twist, RevoMotion and Integrity, and the completion of the U.S. Hyalofast clinical trial enrolment.

With these major developments behind us, clarity on the current pace of growth in JPR, and the meaningful progress we made on key investments, such as meeting the MDR regulatory requirements in Europe, we are now in a position to refine and focus where we place our future investments. That renewed focus will be on driving Anika’s new products that provide for the greatest growth opportunities and on selective development of our highly differentiated HA and HA-based regenerative technologies, which set the foundation for our future. I will note here that beginning in mid-2023, we undertook a strategic review of the business with the support of Piper Sandler. As part of this review, we evaluated a wide range of options for the company, to increase shareholder value, including a potential sale.

We remain open to all value-enhancing opportunities, and regularly review what makes the most sense for our business. We have a lot of conviction in our newly focused strategy, leveraging our core strengths and highest value opportunities, as we accelerate our pivot to profitability and we are making this pivot from a position of strength, with a healthy balance sheet, positive cash flow generation, and a solid cash position with no debt. In addition, we are taking action to lower spending, and more immediately accelerate EBITDA in 2024, while we simultaneously grow our top line. In terms of cost actions, we recently made the very difficult, but necessary decision to reduce our global headcount by about 9%, and are actively reducing spending for 2024.

Together, these actions are expected to drive annualized cost savings of approximately $10 million, excluding the impact of one-time costs. Going forward, we will have a refined focus with our new products that are driving our growth, and have the highest value-building potential. These actions are already well underway. We expect that adjusted EBITDA will be between $25 million to $30 million this year, an increase of over 75% at the midpoint, as we accelerate our pivot to profitability. Now I’d like to turn the call over to Mike to review the details of the fourth quarter and full year results and our outlook for 2024.

Mike Levitz: Thank you, Cheryl. Please turn to Slide four in the online slide presentation. I’m pleased to report total revenue for the fourth quarter grew to $43 million, exceeding our expectations, driven by better than expected growth in U.S. and international OA pain management, our largest product family, as well as continued growth in joint preservation and restoration. Revenue and OA pain management increased 12% in the fourth quarter to $25.1 million, as our international business finished another strong year, driven by double-digit growth in both Cingal and MONOVISC and our U.S. revenues from J&J MITEK grew 7%, with the quarterly growth reflecting some favourable order timing year-over-year. Our joint preservation and restoration revenue increased 7% in the fourth quarter to $15.3 million, driven by continued growing international sales, as well as by our recent product launches in the United States with X-Twist and RevoMotion, which were partially offset by lower sales of our more mature products.

Lastly, our non-orthopedic revenue decreased 8% to $2.6 million on year-over-year order timing and high-disc veterinary sales. Moving to gross margin, our gross margin in the fourth quarter was 61%, and included the non-cash impact of $1.6 million of acquisition-related amortization expense from the acquisitions made in 2020. Our adjusted gross margin was 65% in the quarter, down slightly from the 66% last year, due primarily to revenue mix. Moving to operating expenses; in the fourth quarter, Anika recorded a non-cash impairment charge of $62.2 million on the intangible assets from the early 2020 acquisitions of Parcus Medical and Arthrosurface. As we previously mentioned, revenue growth of Sports Medicine and Arthrosurface in 2023 was lower than expected, as the ramp following the recent new product launches was not sufficient to offset lower sales of our more mature products.

As a result, we lowered our long-term outlook for the Sports Medicine and Arthrosurface product families, resulting in the impairment charge in the fourth quarter. Also based on this lower outlook, we’ve reduced our planned spending for 2024, as I will describe to you shortly. Apart from the impairment charge, our operating expenses totalled $27.9 million in the fourth quarter, down from $30.8 million in the same period as 2022, due to continued operating efficiency, managing expenses, a lower level of MDR activity based on our progress to date, and wrapping up major development projects as we move to limited market release of Integrity in November. Due primarily to the non-cash impairment charge, our net loss for the quarter was $63 million, or $4.30 per share, compared to a net loss of $4.9 million, or $0.34 per share, in the fourth quarter of last year.

Excluding the accounting for the intangibles from the 2020 acquisitions, we generated adjusted net income of $800,000 in the fourth quarter, or $0.05 per diluted share, up from an adjusted net loss of $3 million, or $0.21 per share, in the same quarter last year. Anika generated adjusted EBITDA in the quarter of $5.8 million, up from $1.4 million in the fourth quarter of last year, and our adjusted EBITDA margin in the quarter grew to 13%, up from 4% in the same period last year. The nine-point improvement was primarily due to the combined benefit of both revenue growth and reduced spending. Lastly, with regards to our cash flow and capital structure, we generated operating cash of $3.6 million during the fourth quarter, up from $500,000 in the same quarter last year, reflecting business growth, operating efficiency, and reduced spending.

Our capital expenditures in the quarter totalled $1.8 million, reflecting continued investments in manufacturing capabilities, supporting growth in our OA pain management product lines, as well as instruments associated with our new product launches. Our capital expenditures were approximately $2 million less than planned due to timing, where these expenditures are now expected to occur in 2024. We ended the fourth quarter with $72.9 million in cash and no outstanding debt, on positive free cash flow in the quarter of $1.8 million. The $13.4 million decrease in cash year-over-year is a result of $5 million used to repurchase our common stock in 2023, as well as over $8 million in non-recurring cost, associated with the settlement of the Parcus Medical arbitration, shareholder activism, and other non-recurring corporate costs.

Anika maintains a healthy balance sheet and is well-positioned to drive shareholder value as we employ a balanced capital allocation strategy, where we both continue to self-fund our growth initiatives and continue to opportunistically repurchase stock under our $20 million Authorized Stock Repurchase program, of which $15 million remains outstanding. Please turn to Slide 5; I would now like to walk you through our full year results for 2023, as compared to both the prior year and to our most recent guidance, and then I’ll provide our expectations for 2024. For the full year, Anika generated revenue of $166.7 million, an increase of 7% above our most recent guidance of $164 million to $166 million. By product family, our OA pain management revenues finished up 11% at $101.9 million, beating our recent guidance expectations.

This growth reflects 12% growth internationally, led by over 20% growth in Cingal, and 10% growth in the U.S. from J&J MITEK, on 6% growth in royalties from end-user sales, and 14% growth in transfer sales to J&J due to growing demand and some favorable order timing. Our joint preservation and restoration revenue grew 9% to $54.9 million for the year, in line with our most recent guidance. The increase was driven by growing momentum from our new products, as well as continued international growth, offset in part by lower revenues from our more mature products. Our non-orthopedic revenues totaled $9.9 million for the year, down 29% from the prior year, primarily due to high-risk veterinary order timing and last-time buys of other non-orthopedic products in 2022, finishing slightly favorable to our guidance.

For the full year, our GAAP gross margin was 62%, up from 60% in the prior year, and our adjusted gross margin was 66%, in line with last year and our 2023 guidance. Adjusted EBITDA margin for the year reached 9%, beating our guidance of 6% to 8% on reduced spending, following accomplishment of key objectives, such as the launch of a number of major products and addressing MDR requirements. Now I’d like to turn to review our financial outlook for 2024. As Cheryl mentioned, we have prioritized accelerated growth and profitability in 2024, with a focus on the products where we have the greatest growth opportunities. As such, we expect revenues for 2024 to grow to between $168 million and $173 million. That’s up 1% to 4% compared to 2023. This growth rate is down from 2023, primarily due to some order timing from J&J in OA pain management.

By product family, we expect OA pain management to grow to $102 million to $104 million. That’s up 0% to 2%. The underlying business remains strong, but our guidance reflects a difficult comparable in 2023 due to order timing. We continue to expect above market, mid-single digit growth in end user sales, led by growth in Monovisc and continued double digit growth of Cingal outside the United States. We expect joint preservation revenues to grow to $58 million to $60.5 million, up 6% to 10%, as faster growth in our newest products, Integrity, X-Twist, and RevoMotion, is offset by slower growth in our more mature products. We expect our non-orthopedic revenues to be $8 million to $8.5 million, a decrease of 14% to 19%. We expect adjusted gross margin for 2024 to improve slightly to a range of 66% to 66.5%.

Please note that our GAAP gross margin will improve more significantly and be more in line with our adjusted gross margin on much lower amortization of intangible assets from the 2020 acquisitions following the Q4 impairment charge. From a spending perspective, based on our cost reduction initiatives, we now expect our operating expenses to decrease in 2024. Following the successful 2023 US launches of X-Twist, RevoMotion and Integrity, as well as our progress addressing European MDR requirements, we are reducing our spending across both R&D and SG&A in 2024. This spending reduction includes the difficult decision to reduce approximately 9% of our global workforce here at the end of the first quarter. We expect to record a severance charge of approximately $1 million in the first quarter related to the headcount reductions.

Excluding the severance charge, these actions taken together are expected to provide approximately $10 million in savings on an annualized basis. Since the actions are taking place now at the end of the first quarter, the full annual savings will not be realized until 2025. In 2024, a portion of the savings will be used to fund the filing of the first PMA module for Hyalofast in the United States in support of its planned launched in the US by 2026, as well as additional clinical follow-up for our HA-based regenerative products such as Integrity. With these actions and anticipated revenue growth, we expect our adjusted EBITDA in 2024 to be between $25 million and $30 million, representing an increase of over 75% at the midpoint. This translates to an adjusted EBITDA margin improvement of over six points, growing to at least 15% for the year.

This also positions Anika to pivot to positive adjusted net income, as we currently reported, and generate positive free cash flow, even with higher capital spending focused on our OA pain management manufacturing operations, in part due to the timing from 2023. On an administrative note, please note the beginning of the first quarter of 2024, adjusted net income and adjusted EPS will also exclude stock-based compensation expense to better align with our calculation of adjusted EBITDA. Looking beyond 2024, we have accelerated our profitability growth and are now targeting reaching our multi-year 20% adjusted EBITDA target in 2025, a year earlier than previously expected. While due to the slower growth in Arthrosurface and sports medicine, we no longer expect to reach our previously stated multi-year revenue target by 2025, our accelerated profitability target is the result of our strong and growing core HA-based OA pain management and regenerative franchises, including our exciting new Integrity Implant System, as well as the lower spending levels and significantly higher EBITDA we now expect in 2024 and we’re just getting started, as we still have before us the benefits from our nearer term regenerative pipeline and the planned US launches of Hyalofast and Cingal once we gain FDA approval.

In summary, in 2023, we grew the top and bottom line ahead of expectation. We launched high-quality products and we took action to adjust spending that positions Anika for a bright future. In 2024, we will continue driving top-line growth, but even more significant growth in the bottom line, while advancing high-opportunity new products that form the basis of Anika’s future growth acceleration. We remain laser-focused on our mission and on driving shareholder value, and we greatly appreciate your support as we do this. I’ll now turn the call back over to Cheryl.

Cheryl Blanchard: Thanks, Mike. Please refer to Slide six. Before we open up the call for Q&A, I want to reiterate a few key points. 2023 was a very strong year for our business. We had a record year in OA pain management and exciting progress with our regenerative portfolio, which are both core to our future. Our products across the business continue to receive incredibly positive feedback, and we are encouraged about the opportunity ahead for our product portfolio. We also gained important clarity about the pace of growth in our joint preservation business and completed significant investments. Taking all of these elements together, we’ve determined to focus our strategy to optimize performance and drive even stronger results.

We’re confident that we are well on a path to deliver accelerated profitability this year and beyond. To our employees, past and present, I want to say thank you for your contributions and work at Anika and to our distributors and sales partners, we are absolutely continuing to invest in new products, training and those areas that have the most growth potential in 2024 and beyond. We appreciate your continued support and partnership in delivering our great products to surgeons and the patients they treat. Together, we are restoring active living for people around the world. And with that, we’ll open up the line for questions.

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Q&A Session

Operator: [Operator instructions] Your first question comes from the line of Jim Sidoti from Sidoti & Company. Your line is now open.

Alex Hantman: Yes. Hello. This is Alex Hantman on for Jim. My first question is, what areas of the company will be impacted by the workforce reduction?

Cheryl Blanchard: Hi, Alex, this is Cheryl. Thanks for joining us. Yes, the main areas that are being impacted are R&D and SG&A, primarily in marketing.

Mike Levitz: And from a spending standpoint, the $10 million in annualized savings is split pretty evenly between R&D and SG&A.

Alex Hantman: Got it. Thank you for the context. And I know we’ve discussed some of the changes to distributors for the joint preservation business. Are you happy with the results so far and do you expect any additional changes for 2024?

Cheryl Blanchard: Yes. Great question. In terms of commercial execution, what I will tell you is that our top distributors continue to do very well. We obviously continue to move forward with ongoing optimization. We’re really starting to feel from them and from the clinicians a real pull for Integrity and a significant acceleration from X-Twist, especially now that we’ve got biocomposite launched. RevoMotion is really starting to gain as we gain additional market access and continue on with great product feedback. So I think that we’re really doubling down on our strength relative to what we see working with those strong distributors and continuing to optimize going forward.

Alex Hantman: Great. Thank you for the context. And last question from me. When do you expect the next meeting with the FDA regarding Cingal?

Cheryl Blanchard: Yeah. We have ongoing dialogue with FDA. We had our type C meeting last year, as you know. The ongoing dialogue is productive, and we’re doing all we can to obtain that clarity on what they’re going to require for the nonclinical data, so we can move ahead with those remaining tests with certainty. So, I think the message there is rest assured that we’re doing all we can, and the dialogue is ongoing.

Operator: Your next question comes from the line of George Sellers from Stephens Inc. Your line is now open.

George Sellers: Hey, good afternoon, and thanks for taking the question. Maybe to start, I’m just curious if you could give some additional color on what RevoMotion contributed in the quarter and then also how many surgeons have you trained thus far and how should we think about sort of the progression of surgeons trained throughout 2024?

Cheryl Blanchard: Hi, George. Thanks for the question. In terms of training, we haven’t broken out training specifically by product because we tend to train across products within a training session. So what we have talked about is we trained about 600 surgeons last year in face-to-face training activities. So we’ll continue on with focused training around our new products as we’ve talked about and RevoMotion will be a part of that.

George Sellers: Okay, that’s helpful. And then maybe shifting gears a little bit to the guidance, just curious if you could break out the contribution from some of the new devices that you’ve recently launched like RevoMotion, the HA rotator cuff patch system, as well as some of the items that you talked about at AAOS that are going to be launched this year with AIM and the ProPass. How should we think about growth from those versus your legacy devices?

Mike Levitz: Hi, George, it’s Mike. In terms of the growth expectations for those new products, we are pleased with the growing momentum that we are seeing. In X-Twist, where it’s been out for now a few quarters and now we have the biocomposite that’s now a limited market release. So X-Twist is going to be a big contributor here for the growth in 2024. RevoMotion, we have just a few months with that launched in full market release at the end of the third quarter. That will also be contributing this coming year. So when you think about the growth that we’ve described in joint preservation, the new products, Integrity, X-Twist, and RevoMotion are the primary drivers of that growth. The growth in the more mature products is really not, there isn’t a lot of growth in the more mature products and that is offsetting the exciting growth that we are seeing in these new products.

So we’re very pleased with the acceleration that we’re seeing. We’re learning a lot as we bring these to the market in terms of our ability to commercialize those with our distribution force and are taking a lot of action to continue to see that acceleration in 2024.

Cheryl Blanchard: And I would add on Integrity, we mentioned that we’re in a limited market release and we’re really intentionally holding back on further availability of that product and at the same time are really feeling a pull of that product really because of everything we’ve talked about around it that we were very focused on delivering a regenerative patch that had greater regenerative capacity, that had very high strength even when wet and was manipulatable in a thinner version in the scope and that we took a real full system approach. And we’re feeling that pull. We’re excited to be able to get to that full market release and are on track to do that in the second half of the year where we see the opportunity to accelerate in that regenerative business with Integrity.

George Sellers: Okay, got it. That’s really helpful. And then one last one maybe if I can squeeze it in here. On the impairment charge that you discussed related to a lowered longer-term outlook, I believe you said for Arthrosurface and then the Sports Med business, can you just give us some additional color on sort of what changed, maybe some specific products and devices that you’re less constructive on as you think about the longer-term opportunity they present?

Mike Levitz: Sure, George, this is Mike. Yeah, we recorded the impairment charge based on a reassessment of the trajectory there coming out of the fourth quarter. As you know, the fourth quarter is always the biggest quarter in orthopedics. We had a number of new products. And so the key question that we wanted to see in 2023 is what’s the acceleration of new products compared to how are the more mature products doing? And what we found is that the more mature products were more challenged than we had wanted them to be and hoped that they would be and so that drove a revisiting of the valuation of the assets. The assets were originally valued back when the acquisitions happened at the beginning of 2020, just before COVID. And so once we went through that revaluation process, that’s what led to the impairment charge.

So we are seeing nice growth of these new products, even early days, but not enough to offset the slower growth than expected in the more mature products. And so that’s part of what Cheryl talked about in terms of driving focus and that’s why we’ve taken spending down to focus on those areas where we have the greatest opportunity and that’s why we’re able to drive such significant growth in the bottom line here as we go into 2024.

George Sellers: Okay, got it. Great. Thank you all again for the time.

Operator: Your next question comes from the line of Mike Petusky from Barrington Research. Your line is now open.

Mike Petusky: Hello, good evening. So Mike, I feel like you’ve answered this question about 85% of the way, and I’d love to get the other 15%. If you set aside the three new products that you guys have some hope for in JPR, will the rest of the business at the lower end of your guidance, does the rest of your business grow at all in 2024? Or do you assume sort of flat or worse performance in the legacy part of JPR?

Mike Levitz: Hi, Mike. Yeah, our guidance for 2024 is really driven by the new products. There is some contribution for the more mature products, but the key growth drivers that’s reflected in our guidance are the new products. What’s reflected in our range for 2024 is we have taken action to reduce spend and that can have an impact on sales and so we’re just watching that because, as Cheryl said, we’re prioritizing the bottom line over the faster growth in the top line and specifically there in joint preservation and around the more mature products and so, that’s something we’re going to watch and continue to balance.

Mike Petusky: I want to make sure that I understood what you just said. You said contribution. Are you saying there is a contribution to growth, meaning, more than flat from the legacy JPR in 2024?

Mike Levitz: Yeah, Mike, there is a contribution. One of the things that I’m balancing here is that when we talk about the contribution of the new products, the new products are principally launched in the United States. So there’s an international component that I’m weighing just in how I answer the question, but the primary growth driver in the United States are the new products. There is some variability that you can get in the international business where we don’t — we aren’t able to launch the products as quickly because of MDR requirements.

Mike Petusky: And Cheryl, I think I want to, and forgive me because I know you’ve tried to explain this, but I just want to make sure I understand. So Integrity, you sort of say, hey, we’re getting interest. We continue to be really enthusiastic, but we’re sort of holding back. Could you one more time sort of walk me through exactly what the — is there an issue in terms of the way you’re delivering this product? Can you just talk about what the holding, essentially the catalyst for the holding back is? Thanks.

Cheryl Blanchard: Absolutely. We very purposely in each of our product launches in the years that I’ve been here have done limited market releases in order to get feedback from a limited group of surgeons. Some of them are the designing surgeons that we work with primarily around the instrumentation and delivery system, surgical technique, elements like that. With Integrity, we took a very specific approach around designing a surgical technique that had ease of use, arthroscopic instrumentation, and fixation. The regenerative patch itself is doing great. And again, from a patient perspective, we’re hearing great things clinically. Also from the patch perspective around its manipulatability under arthroscope in wet conditions, its strength, its regenerative capacity in terms of the patient outcome, we always know when launching a new system that there are going to be tweaks that you want to make to the instrumentation and before we do a build that will allow us to go out to the full market, we want to make sure that those tweaks are complete and so that is what we’re doing right now.

We’re absolutely on track for doing it. There were minor tweaks that we got feedback on. They’re being implemented. And then we’ll do a much larger build, inventory build around that so that we have the inventory with the finalized instrumentation ready to go about midway through the year. My commentary about intentionally limiting is because we are feeling such a pull from the market with the limited group of surgeons that have been doing this. The word is out. The surgeons that have seen this product in training and at meetings like the academy are chomping at the bit to get it in their hands. And so we just want to make sure that those tweaks are done on the instrumentation, and then the full inventory build that we do around that full market release incorporates those.

So it is all on track. It is all as planned and it is sort of the normal way that we like to do a good, robust product launch here.

Mike Petusky: Just curious and I know any answer you give here would be anecdotal, but you had communicated on the third quarter call that you had hopes that Integrity at least had a chance to become a standard of care and I was just curious, have you gotten any physician feedback, surgeon feedback, that essentially would in any way sort of bolster your confidence or at least have it at roughly the same level that, hey, there really is a genuine shot that this could mean something?

Cheryl Blanchard: Oh, I think there is genuine feedback from the surgeons that have used the system that this is a highly differentiated product. In all the aspects I mentioned, and I will not repeat, although I love repeating it because we spent so much time, I think, developing a really great system and, frankly, a really great set of technologies around the Integrity implant itself that we intend on leveraging for additional near-term regenerative pipeline activities. So, yeah, I think the answer is absolutely yes and I think that is evidenced by the fact that we have done well over 100 surgeries since late November, which is a ramp that is really nice, especially, actually, in a limited market release.

Mike Petusky: Last one, and I will jump off. But, Cheryl, could you just talk about, because it does not come up very often in these conference calls, just as you think about the longer-term opportunities for Hyalofast in the U.S., can you just talk about why you think, hey, this also could be sort of a needle mover for the company longer term and its place in the market and why it could matter as an option going forward? Thanks.

Cheryl Blanchard: Yeah, absolutely. First and foremost, this is a product that has been for sale for over 15 years outside the United States. And, in fact, we will have 15-year data published on Hyalofast likely this year. There is a paper that is going through the review process right now. That is fairly unusual when you get to a product launch in the United States. We have got over 40 clinical publications on the product. We know how well it works. We have a lot of clinical data already. We also know what the United States market looks like and the market leader in the U.S. today is a product that is a two-stage procedure. It requires two separate surgeries. It is very costly. It is a product that requires the patient to go through two sets of rehab and sign up for a second surgery.

Hyalofast is going to be a single stage. So off the shelf, one surgery, available when a surgeon is in process of doing a scope and sees a cartilage defect to be able to pull it off the shelf and use it in the surgery that they are in. There is also, we think, a significant unmet need that is not being met today because the current market leader really, the technology requires a second surgery and the expense of it is another factor and so there is a well-established market in the United States today, but we think there is a market expansion opportunity for a product that is available off the shelf that just does not exist today with the current product and the current market leader. So, yes, we are very bullish on Hyalofast for all of those reasons.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.