MiMedx Group Inc (MDXG) 2012 Q2 法說會逐字稿

Welcome to the MiMedx Group Incorporated second-quarter 2012 results conference call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

Your speakers for today's call are Mr. Pete Petit, Chairman and Chief Executive Officer; Mr. Bill Taylor, President and Chief Operating Officer; and Mr. Michael Senken, Chief Financial Officer.

I will now turn the call over to Mr. Senken. Mr. Senken, you may begin.

Thank you, Jon, and good morning, everyone. We'd like to begin the call with the Company's Safe Harbor statement. 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, 2011, and our most recent 10-Q. We do not undertake to update or revise any forward-looking statements except as may be required by the Company's disclosure obligations in filings it makes with the Securities and Exchange Commission under Federal securities laws.

I would now like to turn the call over to the Chairman and CEO of the Company, Pete Petit.

Thank you, Mike. Good morning. Welcome to our second-quarter shareholder conference call. I have with me today Bill Taylor, our President and Chief Operating Officer; and Mike Senken, our Chief Financial Officer, who you have just heard from.

I hope each of you has had a chance to read our press release that was released early this morning. If so, if you realize we had a quarter in which our financial goals were generally met, which meant a very nice increase in revenue and adjusted EBITDA over the first quarter.

Our revenues increased approximately 32% over our first quarter. This is very robust growth. Our adjusted EBITDA for the quarter almost tripled over our first quarter of 2012. Adjusted EBITDA was approximately 19% of our revenues. Please recall that our adjusted EBITDA is fairly close to our cash flow; less cash absorbed by growth in our accounts receivable, inventory, and CapEx, which is generally pretty minimal for us.

We expect to be able to continue to increase adjusted EBITDA as a percentage of revenue in the quarters ahead, and then produce a GAAP-related profit. We also expect our gross profit margins, which were up to 77% this quarter, to increase to over 80% in the quarters ahead.

As we expected, the majority of our quarterly revenue came from our AmnioFix family of tissue. These are the allografts used internally for surgery and soft tissue injections. We expect this trend to continue until we grow our wound care offering, EpiFix, in our government accounts, and we clear the reimbursement hurdles.

Once cleared, we expect that EpiFix growth to surpass AmnioFix. We believe the reimbursement constraints for EpiFix will change rapidly as our randomized controlled trial results for wound care are publicized. We anticipate that will begin to happen during the third quarter -- or, this quarter. Our goal is to have sufficient amounts of clinical trial data available so that by the end of this year the reimbursement constraints on the usage of allografts in wound care will be very minimal.

We expect our presence in the Veterans Administration hospitals to increase significantly in the quarters ahead. There are minimum reimbursement constraints in this area. And we believe that our EpiFix allografts will see robust growth as the VA physicians begin to focus on the dramatically improved outcomes from the use of our tissue in the treatment of their diabetic foot ulcer and intravenous leg ulcer patients; and, for that matter, in other procedures.

The most significant key to our future revenue growth is the completion of numerous clinical trials on our AmnioFix and EpiFix allografts. While many physicians will analyze the clinical data and outcomes we currently have and make decisions to use our allografts; the reimbursement group, such as health plans and Medicare intermediaries, are much more demanding. However, they should react positively as the results of our randomized controlled trials and other clinical outcomes become available, and eventually published in scientific publications.

We're beginning to allocate substantial funds to the studies, and Dr. Don Fetterolf, our Chief Medical Officer, and his staff are extremely busy in initiating, monitoring, and developing these studies and the associated publications.

Currently, we've seen enough data to be very confident that our Purion Process amniotic membrane allografts are both clinically and cost effective. We intend to focus our studies and our marketing initiatives on the clinical uses with the greatest market potential, of course.

One other key aspect of our growth is our ability to attract experienced and quality executives and managers to MiMedx Group. When a company grows as fast as we're growing, there is an insatiable need for new management and associates. Fortunately for MiMedx, a number of our former colleagues from the businesses with which we were previously associated have joined our team. Since these individuals worked for Bill Taylor and me over the years, we're very familiar with their capabilities. And they are very familiar with us, which enables them to be effective members of our team immediately upon their hire.

The talent pool is a major advantage for us in dealing with the challenges of rapid business growth. I'll make one other comment on MiMedx achieving profitability. Today there are so many non-cash charges that must be flushed through a public company's income statement that it distorts what I believe is the true profitability of a company.

If one were to remove the stock-based compensation element -- which I personally assert is basically double accounting -- our operating profits would have been in excess of $400,000 for the quarter. That's why many analysts focus on adjusted EBITDA to determine the real parameters of profitability. However, we're fast approaching the point that, in spite of all those non-cash charges, we will achieve operating profits and then after-tax profits.

Relative to MiMedx's need for capital, I will make the following comments. We're very fortunate that one of our private placements of approximately 2 years ago, we issued warrants that could be called if our stock traded at over $1.75 a share for 15 consecutive days. That milestone has been achieved, and the Company has called those warrants.

This is a win-win for the Company and investors, since the shares is commonly trading significantly higher than the exercise price of $1.50 per share. Those investors have until August 2 to pay the $1.50 exercise price for the shares. I personally will be exercising my warrants and turning them into common stock. We've had a large number of other private placement investors commit to do the same thing. If all the warrants are exercised, the Company will raise approximately $5 million. Those funds, along with our current cash, will put the Company in a strong position relative to our future needs of capital. In addition, if we can continue our robust revenue growth, our EBITDA, cash flow, and profits will be strong in the quarters ahead.

I would like to emphasize that while our growth is very exciting, it's also extremely challenging for the management team. While Bill Taylor and I have both been through these rates of growth before with our former organizations, it's always challenging. While the executives we have at MiMedx Group and the ones we have recently brought in are all experienced with organizations that have grown rapidly, we must remain extremely diligent to be certain that our processes and procedures stay ahead of the demand.

Scaling up every one of our key business processes is an enormous task. There are a lot of people putting in long hours at MiMedx and I'm extremely proud to be involved and associated with this organization. I'm certain we'll have issues that I would classify as growing pains from time to time, but it's not because we do not have a talented management group or they are not working very diligently.

These are the normal issues associated with rapid growth. I'm certain that all of you have noticed the strong performance of the stock price over the last 60 days. This is partially the result of your executives visiting with institutional investors in New York and Boston, a number of which have decided to make investments in the Company.

We are pleased that the market is beginning to recognize the potential of our products and the opportunities ahead of us. Our goal here is to continue to attract quality, long-term investors who understand our Company well, and will tolerate some of the future minor disappointments that are bound to occur.

Okay, I'm going to turn it over to Bill Taylor, our President and Chief Operating Officer. Bill?

Thank you, Pete. Before I give go into the operations, I want to take a moment to remind you of all the markets we serve here at MiMedx. MiMedx is a regenerative biomaterials company, not just a wound care company. Our largest revenue to date comes from our offerings in the spine, orthopedic, and sports medicine markets, followed then by wound care and then our ophthalmic offerings.

We're at the halfway point of the year, and right now we're on top of the goals we set for ourselves. This is the third consecutive quarter where we met or exceeded our revenue goals, and the second consecutive quarter where we've shown very strong growth in adjusted EBITDA.

On our $4.9 million revenue, we've nearly achieved our longer-term target of 80% gross margins, falling just 3% short of it at 77%. With expected higher revenue next quarter, and likely a higher percentage of direct sales from our own sales reps resulting from our implementation of a more blended sales model, we're working towards achieving 80% gross margins -- hopefully in the third quarter.

Our 32% revenue increase over last quarter clearly demonstrates that we're continuing to have very strong revenue growth. We have a number of sales agents and distributors that are very effective, and are growing their business with us in a very robust manner. We've made a lot of progress on the sales administration side as well, and we're adding systems and processes to effectively handle revenue that is multiple times our current pace.

In addition, these systems and processes will allow us to continue our -- to grow with our own direct sales force in the future. On that note, you may recall that we took a very pragmatic approach to initially building our salesforce. We contracted with multiple independent sales agents and distributors to drive our sales, rather than hiring a direct sales force before the business could sustain the expense.

Our plan from the beginning was to migrate towards a blended sales force over time; keep the sales agents and distributors that are performing well; and then, over time, replace the underperforming groups with either new, independent sales agent groups or our own sales organization in that territory. Many of the very large organizations, such as Medtronic Spine, use this blended model very successfully. Over the past six months, we began preparation for adding future direct hires by consolidating many of our smaller distributors under master distributors, or, as we call them, hubs; and by pruning sales agents and distributors that were not meeting our standards.

This has helped free up our management time to start selectively targeting and considering certain territories in which we will add direct salespeople. Originally, the addition of a direct sales force was targeted for 2013, but some rather interesting opportunities presented themselves to us. And considering our strengthened balance sheet, we decided to accelerate the direct sales plan to capitalize on those opportunities. We believe this near-term investment will pay dividends by strength in our 2013 fiscal year.

Now that our revenue and EBITDA have grown, we have identified target territories and personnel for consideration as our first sales force direct hires. Over the past month, we've added a handful of direct sales reps, and we expect to have more than a dozen in place and trained over the next several weeks. The majority of these sales associates are focused on government accounts such as VAs. We will monitor their performance closely, and we expect them to start paying for themselves in a reasonably short period of time.

Also related to the government accounts, I mentioned on the last call that we have added EpiFix to the Federal Supply Schedule, or FSS. I'm pleased to also note that our AmnioFix and AmnioFix Injectable are also now on the FSS schedule. This streamlines purchasing in the VA accounts and eliminates the need to negotiate an open contract at each VA for each tissue that we sell.

On the scientific side, we've completed numerous experiments and characterizations of our Purion Process tissue and the offerings of some select competitors. As we've mentioned before, we believe we are the leaders in this space. And we will consider our pursuit of knowledge in and around this area, contributing even further to our recognition as the market leader in the amniotic tissue allograft space. We have internal and independent test results that show significant differences of our processed tissue over that of many of our competitors. And, over time, we will be releasing the results.

On the clinical front, we have a large number of clinical trials underway. I mentioned our first two on the last call -- a DFU, or diabetic foot ulcer, randomized controlled trial; and a VLU, or a venous leg ulcer RCT.

The DFU trial is moving faster than the VLU trial, and is the one that we will report on first. Also, in the next week or so, we will be initiating two additional DFU studies and a plantar fasciitis study with our injectable. We have other studies to follow as well; and we are in the process of interviewing investigators and drafting protocols in several different surgical and wound care applications.

The bottom line on the clinical side of our business is that our clinicians continue to be impressed with the clinical and cost effectiveness of our grafts.

On the processing operations front, we completed our capacity expansion, which gives us effectively three times our capacity from earlier this year when we had one shift; and about six times when we fully staff a second shift. As you would expect, our efficiencies will be slightly affected this quarter as we train the new people and they become proficient. On the whole, this is progressing well and on schedule.

Our placenta donor program also continues to keep pace with our processing capabilities. And we are aggressively expanding our hospital base, not only in Georgia, but in select locations across the country. Regarding our overall business, we've basically doubled our employee base of the past seven months, and we expect that growth to continue. We went from just under 50 employees in early January to over 100 now. And we expect to grow to 150 or more in the coming months.

As Pete mentioned, we have a strong network of people who we can draw from as we expand. And we do expect to keep pace with the added personnel demands as we grow, and we will keep pace very well.

With that, I'll turn it back over to Pete.

Bill, thank you. Let's hear from our Chief Financial Officer, Mike Senken.

Thanks, Pete. For the period ended June 30, 2012, the Company recorded revenues of approximately $4.9 million, an increase of 153%, or $3 million, as compared to $1.9 million in revenue for the same period in 2011; and a 32% quarter-over-quarter increase, which was in line with our plan.

The increase in sales revenue was driven by sales of our amniotic tissue platform, primarily in the spine and orthopedics market, which includes our AmnioFix Injectable. As discussed previously, management has been keenly focused on achieving positive, non-GAAP adjusted EBITDA, which is a reflection of the Company's operating cash burn before taking into consideration working capital and other financing and investing activities.

Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, with the additional adjustment being share-based compensation, which is a non-cash expense. Included in today's press release is a supplemental disclosure that reconciles our reported net income to adjusted EBITDA.

The Company reported positive adjusted EBITDA of approximately $923,000 for the quarter ended June 30, 2012, which is a $2.6 million improvement as compared to an adjusted EBITDA loss of approximately $2.3 million in the first quarter of 2011. The improvement was driven by increased sales volume, with improved average gross margins of approximately 77%, which is a 3% improvement over the previous quarter.

Operating expenses increased approximately $508,000, with increased spending in randomized controlled trials, our reimbursement hotline, and our sales and distribution network. We would expect these investments in our sales and marketing organization to increase in subsequent quarters.

The net loss for the quarter was approximately $744,000, or a loss of $0.01 per diluted common share, which is an improvement of approximately $1.8 million as compared to the reported net loss of $2.5 million, or loss of $0.03 per diluted common share for the quarter ended June 30, 2011.

In addition to the items previously mentioned, the net loss this quarter includes a total of approximately $1.5 million in non-cash-related expenses, including $585,000 in share-based compensation expense; $334,000 in amortization of intangibles, including amounts associated with the Surgical Biologics acquisition; $468,000 in non-cash-related financing expense tied to debt discounts; and $121,000 in depreciation expense.

Turning now to the balance sheet -- in addition to our goal of becoming a profitable company, we also had a goal of strengthening and simplifying our balance sheet to allow the Company the financial flexibility to achieve its growth objectives. I would like to highlight several significant accomplishments in this area.

Due to our revenue growth and improving gross margins, operating cash burn for the quarter was reduced to approximately $310,000 as compared to -- was reduced approximately $1 million to $310,000 -- as compared to $1.3 million for the first quarter of 2012. The growth in accounts receivable and inventory during the quarter were planned and reflective of our increased business activity, with days sales outstanding and inventory turns relatively stable quarter over quarter, which allowed us to reduce our operating cash burn. Our cash balance at the end of the quarter was approximately $2.7 million.

Additionally, as Pete mentioned earlier, we expect a significant number of the investors holding warrants that were called on July 13 to exercise those warrants by August 2, which will allow management the flexibility to accelerate investments in such critical areas as clinical trials; or to make opportunistic investments to accelerate the buildout of our direct sales organization. These investments would have an impact on short-term EBITDA growth, but could potentially accelerate our growth in the near-term.

Total liabilities declined approximately $2.6 million during the quarter to $11.8 million, driven by the payment of the 2011 earn-out liability through the issuance of approximately 2.6 million shares of MiMedx common stock. In early July, the Company also paid off the convertible debt obligation related to the acquisition by issuing 893,000 shares of common stock and paying cash of $177,000.

That leaves the only two remaining notes payable as Pete's $1.3 million convertible note due in December 2012, and the $5 million convertible note due in December 2013. The $4.2 million estimated earn-out provision included in current liabilities is payable in April of 2013 in MiMedx common stock.

And finally, our capital structure has been simplified further in early July by the voiding of the remaining 3.2 million contingent warrants on July 3, due to the share price of the stock trading at or above $1.75 for 10 consecutive trading days.

With that, I'll turn the call back over to Pete.

Thank you, Mike. Our goal of being the most experienced organization with amniotic membrane tissue allografts worldwide is being achieved. The scientific testing of our processed tissue as well as unprocessed tissue, and our clinical studies, are providing a significant database which, today, means we are achieving that goal.

In addition, when you add the fact that we have now manufactured, processed and shipped over 100,000 -- or, approximately 100,000 grafts, that solidifies the point that we are the clear leader in this exciting area of allograft technology, and we will remain the clear leader.

Relative to the quarter, I'd certainly classify our performance as excellent. We continue to report this type of progress in the future.

I'll now open the call for questions and answers.

(Operator Instructions). Bruce Jackson, Northland Capital.

Hi, good morning. Thank you for taking my questions. First, with the reimbursement, right now I believe that people are using a C code for Medicare. And do you anticipate getting approval for a Q code sometime later this year?

Yes, we -- this is Bill. We filed for a Q code. And in May, CMS had issued their preliminary decision to issue a Q code. So that was all very positive for us, in they don't make their final numbers made until -- or the final determination until, I think it's early November. But as I understand it, once you receive a preliminary decision, generally speaking, it will move forward to the final. So that's looking very promising for us right now.

Okay. And then with the manufacturing expansion, what are you scaling operations to, in terms of revenue right now? Do you have enough floor space? And how many shifts are you running?

We are running just one shift right now. And the way we are anticipating, is we've got to start bringing on a second shift probably in the neighborhood of the fourth quarter. Fourth quarter this year -- begin bringing people in, getting them trained, so we can have at least a partial line running on the second shift.

We have basically several lines in our clean room right now, and we'd bring up one entire line at a time to run most efficiently. So that's what we expect on the -- shift-wise. On the floor space, we have enough floor space to expand our clean room in our current facility to be about double the size that it is right now. We've got about 40,000 square feet in total for the Company. And the current manufacturing processing space is about 20,000 square feet of that.

Okay, great. And then, last question. On the randomized clinical trials, the first one we're going to see results for is one of the diabetic foot ulcer trials. Is that going to be this quarter?

That's what we expect, yes.

Okay. And then the one after that is going to be a -- I didn't quite catch it. Was it the venous ulcer trial?

We have a venous leg ulcer trial. The enrollment on that is not as fast as what we have had on our DFU trials. So that one is going to take probably throughout the end of this year before we're going to be able to close that out, is our best estimate right now.

We are starting two more DFU studies. And we seem to find enrollment in the DFU, at least with the investigators we have right now, seem to be quite a bit faster than VLU. So it's possible that even one of those additional DFU studies gets completed before our first BLU study.

Okay, great. Thank you very much.

Thank you, Bruce.

Bill Plovanic, Canaccord.

Great, thanks. Good morning, gentlemen. To go back, so the first DFU trial -- just in VLU trial, the ones that are ongoing, how many patients do you expect in those? Were those 80 per study? Is that the goal on those?

The numbers that we started with those, if I remember correctly, is 80. I think it's possible, on our first one, that we're going to be closing out with fewer than that because of the results that we're getting on the initial study. But most of our studies are targeting, initially, in the neighborhood of 80 patients.

Okay. And the new ones that you plan on starting -- the two more -- you are targeting 80?

That's right. That's what's in the protocol, if memory serves correctly. Yes.

Okay. And then as you look at -- I think one of the comments kind of surprising to me, that the growth you've seen thus far has been in the spine and ortho and sports med with it -- I believe it was with the injectable. Is that really where the growth is coming from today? Did I catch that?

Yes. Just to clarify, that's our AmnioFix line, which is our internal or surgical or injectable. And on AmnioFix, we have a membrane as well as an injectable. That comment was regarding the majority of our sales so far are in the AmnioFix line, which includes the membrane and injectable.

Okay. And then -- but it's more in the spine/ortho. You haven't really seen a ton of uptake yet in the diabetic foot. That is kind of still out there as an opportunity? Or am I reading this wrong?

That's correct. And the only thing that is slowing us down there is our reimbursement. We've got private pay; but the majority of that market, as we see it today, is going to be Medicare and/or VA. We're just having to break those barriers down, because while we have the C code, the Medicare intermediaries are now a lot different than they were a few years ago, and you have to do a lot of extra data for them.

Yes, as I understand it, four or five years ago, once you got a C code or a Q code, for the most part these wound care products would get reimbursed; wouldn't be pushed back on from the intermediaries or the MAC groups. But since there are so many wound care products out there now, the MAC groups are pushing back and asking for even more data, even after you get your C code or Q code.

And then, as we talk about this DFU market, so you have the first study coming in the next -- before year end. And then you'll start enrolling in the next one, so that data will be available first half of next year. How many of these Medicare do they need -- will they accept one study? Two studies? These intermediaries, how do they look at this?

As we have been told by various ones -- actually we have a couple of the MAC groups that are reimbursing right now. There are few that say they aren't, but will occasionally do it. But most of them either say they want one or two RCTs. I don't know the exact breakdown of that. But I do know Don Fetterolf, our Chief Medical Officer, has interacted with a large percentage of them, and he's gotten responses. Generally speaking, it's either one or two.

And this -- and remind me, so the one that you have coming up, that will be your first randomized controlled trial that you will have data on, that you can take to them, correct?

That's right. And then, as I mentioned, we're starting two more DFU studies in August that -- we expect those should be completed by the end of the year as well.

And remind me, the DFU -- the one that you'll get in the next quarter or so, when did you start enrollment on that?

I don't -- probably --

About 90 days ago, probably.

Yes, three or four months ago, something like that.

Okay. So that just gives us some clarity on -- if you are starting a couple more trials soon, the data year-end; you'll have two, three studies you can take to these intermediaries early next year.

That's our expectation, Bill.

Okay. And then, just last question, is the selling you've done so far into the spine/ortho/sports med businesses -- how much of that is into stocking distributors? And how much of that is going through the independent agent rep model that gets paid on implantation?

The majority of it is going through the distribution model, the distributors.

Okay, so everything we've seen thus far is either -- it's sell-through in a procedure, or it's stocking onto a hospital shelf. It's not going into a distributor inventory.

I guess, Bill, your concern would be, do we have a lot of inventory sitting on distributors' shelves?

Correct.

I think that's not the case. From what we can tell -- and we monitor that fairly carefully ourselves, and need to -- this is going right through the process now. If you roll the clock back six months, that might have been a bit of a case. But it seems like this last quarter that was going right on through into the system.

Yes, it's flowing through pretty quick. We're getting some pretty good turns, I think.

Great. That's all I had. Thanks, guys.

Thanks, Bill.

(Operator Instructions). [Tony Sipatoni], private investor.

Hi, guys. Two questions, please. Number one, the margins are obviously substantial and you are projecting an increase in them. What is accounting for the margins? And is it the same element that will provide for the increase that you are projecting in the future? Is it operating efficiencies? What's accounting for that?

And secondly, is a much more, I guess, 30,000 foot question and that is, what are analysts projecting for the Company, both short and long term?

Well let me take the 30,000 foot question. And then Mike can give you the detail. Tony, at this point, we have several analysts that are in the process of preparing reports. At least that's what we've been told. And they are querying us for more information and data, as they should. So at this point, we have no analyst reports out on the Company. But in the months ahead, we expect to have several. And I'll let Mike give you specifics.

Coming back to the question about the improvement on the margins, it's a combination of operating efficiency -- so obviously as our volume increases, we are absorbing fixed costs, which helped the overall margins. And in addition to that, the mix improvement; as we expand our sales into the wound care market and further expand into sports medicine, orthopedics and even spine, it takes a larger -- or those markets generate a larger margin than some of the base, legacy markets that we still serve, such as the dental market and the ophthalmic market.

Okay. That's actually pretty good news. At least I interpret it that way, that the analysts really haven't stepped up yet.

That's correct. And I think they are doing their homework, as they should. And we need to continue to show them the progress that we're currently showing them. And then I expect there will be a lot more coverage on the Company.

Thank you.

Thank you.

(Operator Instructions). Nathan Cali, Noble Financial.

Good morning. Congrats on the progress.

Thank you, Nathan.

Just one quick follow-up question to the Q code, with respect to receiving that in Q1, do you guys see -- is there visibility on pent-up demand once you do receive that Q code? And do you expect that to catalyze -- obviously, would hopefully catalyze additional revs in 2013. But is there any gauge on that? Do you have any outlook from that perspective?

Well let me make a comment, and then Bill could comment. In wound care, where the use of our allografts can be seen within a week or two of applying it to the wounds, the demand is very strong. Because physicians, as soon as they debride and do that properly, and apply our EpiFix, they come back within a week or two, quite excited. So there's a huge demand for our EpiFix product in wound care.

The only issue that has thwarted us to some extent there is particularly the Medicare C code reimbursement through the intermediaries. And that's where we've been putting a lot of work. And we are ready as soon as this first study comes out. Don Fetterolf and his staff will be out to all the intermediaries saying, all right, here it is. We told you it was coming, and you've seen the other data.

So we think, as soon as the barriers come down on our wound care reimbursement, there will be a huge increase in our volume. And we're trying to prepare for that, production-wise. Bill?

Yes, it's hard to put an exact number on that, but what I can tell you is we have -- in probably every territory that I can think of where EpiFix is being sold right now, the single biggest pushback is not having the Medicare MACs cover it. And once we get their coverage, and then we get that Q code and are able to get the reimbursement in the physician's office, we expect to have multiples increase, quarter over quarter. Not just a percentage increase. We're talking several times our business each quarter should advance with that.

Now, prior to that, we've got a renewed focus in the VAs. And we're starting to get some good movement now in wound care and VAs. And, hopefully, next quarter we'll be able to talk to you and see what that effort has provided. But that's looking very promising.

Do you think you are hearing that across the board from both -- as far as what you are hearing from the field, from your direct and indirect reps?

Yes, it's a consistent message across the field, and a consistent message from the physicians we talk with, as well. They are very interested, and they definitely want to use it. A lot of the physicians are trying to find ways to use it with their private-pay patients right now. And a lot of them having success there; so they're getting good experience with it. And they see that it's very cost effective. You don't have to have as many applications as other technologies. They can apply a size-appropriate graph, which obviously would have a different cost associated with it. So they're very excited about it.

Congrats, again, on the progress. Thanks for taking the questions.

Thanks, Nathan.

(Operator Instructions). Chris Mellon, Mellon Strategic.

Hi. Just a quick question. We are raising some money with the warrants. Is there any thought to putting some of that towards the collagen fiber?

Chris, good question -- and let me give a little more explanation there. What Chris is referring to is our collagen fiber that was one of the foundational components of MiMedx Group some years back. This management team did our best to bring that product into the market. We were continually thwarted by, over the last two years, by the Food and Drug Administration.

We went to Europe; we got approvals for it in Europe. But at this point, until we see some sort of change and perhaps philosophy at the FDA in terms of some new technology and a little more collaborative work with companies that are trying to bring new technology to market, I don't know that it's worth us putting a lot of effort into it. The message was pretty clear.

Since I've dealt with the FDA since 1976, I think I know the Agency pretty well. And there is a time where you just fold your cards, and there's a time you play your cards. At this stage, I don't think that the Company is going to be devoting any substantial funding to our collagen fiber.

We've had discussions over time with other companies that had a strong interest in it, just as we did; and have had the long-term, perhaps patience and funding to take it and develop it into something that it should be developed in, which is a very exciting breakthrough in soft tissue repair. But at this stage, all of our resources are pretty much focused -- are all focused on our amniotic membrane tissue allografts.

The data, the activity here with our management team, I don't know that we could load ourselves up with another major initiative.

Okay, thanks.

Now I'll turn it back to you, Pete, for closing remarks.

Okay. Well, thank you very much. I think we've had some good questions. And I'm glad to see some analysts are beginning to fire the questions at us that need to be answered. Hopefully we're going to continue to show this kind of progress. From what we can see, we have all the things going for us to be able to do that. This is an exciting new allograft, exciting new technology. We are the clear leaders in this space; we will remain the clear leaders in this space; and continue, hopefully, to produce the kind of exciting results we showed over the last few quarters. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.