MiMedx Group Inc (MDXG) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2016 MiMedx Group's Earnings Conference Call. (Operator Instructions) As a reminder, this call will be recorded.

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

Thank you, operator, and good morning, everyone. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon the current beliefs and expectations of our management and are subject to risk 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, 2015. We do not undertake to update or revise any forward-looking statement, except as may be required by the company's disclosure, obligations and filings it makes with the Securities and Exchange Commission under federal securities laws.

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

Thank you, Thornton. Good morning, and thank you for joining us for our first quarter conference call. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; and Chris Cashman, our Chief Commercialization Officer. There are other corporate executives with us.

As we reported in our pre-announcement on April 10, our revenues came in at $53.4 million, which was a 31% increase over the first quarter of 2015. Our Wound Care revenue grew at 32% and our SSO revenue grew at 28%.

We have previously mentioned 3 factors that affected revenue for the first quarter. The revenue is primarily affected by the implementation of a new and relatively sophisticated Sales Management System, which required all the Wound Care and Surgical sales force to actually tag tissues into the systems through their iPhones or iPads. There were some flaws in the tagging process, which caused a great deal of confusion.

However, I would like to point out that when we compared the first 15 business days of January to the first 15 days of April, our revenues were up over 25% in April. We believe this is a clear indication that many of issues that confronted our sales organization in the first quarter have been resolved. However, I want to make it very, very clear that this is a 25% plus revenue increase and the first several weeks of the second quarter should not be translated into a quarterly expectation. There are numerous factors that could affect this order rate during the quarter.

Now let me mention one other thing and that is this new Sales Management System will soon prove to be one of MiMedx's most effective assets. We've put a lot of time and effort into this over the last year. It will prove to be a very effective way to manage our sales efforts and activities, something we must do at this stage of our growth in order to be - maintain the growth rates we expect in the future. It'll be an asset that won't be matched by any of our competitors and will just further entrench us in terms of our customers and our efficiencies and effectiveness in our sales processes.

Now relative to SSO revenue. Our newly acquired surgical biologicals subsidiary came in short of their projected first quarter revenue. As we discussed on our April 11 call, this is primarily related to their new products not obtaining approval through the numerous VAC committees at hospitals. These committees have become a major constraint on the introduction of any technology, even when we have GPO contracts and IDN contracts with those institutions.

However, once the products is through the VAC committee, we believe our contracts can give us a major advantage on the ongoing revenue and ordering processes.

We just completed a three and a half day sales management meeting. I think I can safely say that the two separate sales organizations, Wound Care and SSO, are beginning to understand a necessity to coordinate and support each other as we begin to separate their functions in our numerous hospital accounts. It is my experience with our predecessor organization that this is a "process", and it can take many months before sales force efficiency is returned to normal and management structural changes of this significance are accomplished, plus the added disruption of a new, in our case, Sales Management System.

As we clearly indicated on the April 11 call, with first quarter revenues falling approximately $2 million below our low-end estimate, our adjusted earnings per share would be affected as well as our adjusted EBITDA. Thus our adjusted earnings per share came in at $0.04 per share versus the expected $0.06 per share. Our adjusted EBITDA came in at $9.1 million. Mike Senken will discuss other numerous financial metrics in a few minutes.

We've recently introduced products that are made from the umbilical cord, which are called AmnioCord and EpiCord.

In the last few weeks, we've seen an enthusiastic acceptance of these new products, both in Wound Care and in certain surgical procedures. Since AmnioCord and EpiCord are significantly thicker than our traditional AmnioFix and EpiFix allografts, it can be stitched into position when required.

In addition, they have much more bulk than our existing allografts.

In mid-year, we're going to announce the introduction of another new product line manufactured from our donated placental tissue. We'll provide the products when we actually launch the product due to competitive issues.

With all these new product introductions comes some degree of uncertainty in terms of the revenue ramp rate.

In addition, we've already experienced some of the slower than expected ramp rate on the Stability Biologics products.

However, we've already begun to ramp up their process and capabilities at the San Antonio facility, because with experiencing product demand, where we have production constraints relative to the SB products only. Therefore, there is certainly some additional degree of uncertainty relative to ramp rate on Stability products.

For these reasons, as well as conservatism, we are lowering our revenues estimate for the year. We're taking them down to a range of $242.5 million to $250 million. This range will still provide a minimum of 30% revenue growth over 2015. We believe the growth rate for Wound Care will be approximately 28%, and the growth rate for SSO should be approximately 35% to 40% for the year.

There will be cost buying reduction in adjusted operating earnings, adjusted earnings per share and adjusted EBITDA. Our gross profit margin is projected to be at the low end of our previous guidance approximately 87%. This is primarily caused by the Stability Biologics margins on the skin allografts being lower than MiMedx traditional gross profit margins. However, their Physio products should show product margin in the same vicinity as the legacy MiMedx products.

Stability's products are being produced in a facility in San Antonio that is still maturing in terms of processes, procedures and increased production rates. Therefore, as the year progresses, we believe the gross product margin of products produced at the San Antonio facility should increase fairly significantly.

I would like now to provide our analysts and shareholders an apology. Because we made the acquisition of Stability Biologics, our financial statements would be burdened with a number of new "noncash" charges through the purchase accounting rules.

In addition, there will be some other noncash items associated with our preferred tax asset.

Because of those complexities, these are a series of tables in the back of the press release, which need to be studied. And I use the word studied.

We have tried to simplify things as much as possible but with this new accounting rules, it is difficult no matter what you attempt to do to clarify matters.

As you recall, I've been a Chairman and CEO of public companies for 35 years. I remember the good old days when you had a choice to do an acquisition through a pooling method or purchase accounting methods, with some tax differences between the two.

In pooling, you simply add the balance sheet and profit and loss statements together and went about your business. As you should know, public corporations can no longer do acquisitions through a pooling of interest, but must do them through the purchase accounting method.

This requires a significant number of write-ups, write-downs, accruals, the majority of which are noncash. Therefore, the company's income statement gets even more confusing.

This is why I always refer to adjusted EBITDA when I'm trying to evaluate the cash producing and asset building possibilities of a public company's income statement.

This is also the reason we will start reporting earnings on an adjusted basis as most companies have begun to do.

When I turn the call over to Mike Senken, please settle in for a lengthy explanation of some of these noncash charges and onetime items that affect our GAAP members. However, I would encourage you to focus on adjusted EBITDA and adjusted earnings per share to obtain the realistic insights and the cash producing and asset building capabilities of our business. We discussed on numerous occasions, the excellent financial leverage that MiMedx has, starting with our higher gross profit margins. From there down, the profit and loss statement, management makes decisions on how to invest in numerous parts of the business and obtain the resulting return on those investments.

Now let me provide a brief update on the status of the FDA public hearings on the draft guidance for HCT/Ps. As you may recall, Commissioner Califf's office canceled a previously scheduled April 13 meeting right after he was confirmed as the new FDA commissioner. This last week, they rescheduled this meeting and added a scientific meeting. When FDA canceled the first meeting, there was an indication there would be a scientific hearing preceding the next hearing on the draft guidance documents. The scientific meeting is scheduled on September 8 and the guidance hearing is scheduled for September 12 and 13. They added another day to the schedule, requested by industry, and they're holding the meeting in an auditorium that seats 500 people, rather than 100 people. So those are both positive matters.

As I previously stated, I believe these two meetings are very good news that will help clarify these issues considerably by adding a scientific component to the deliberations.

The new commissioner is stressing the need for science-related guidance documents and everything else involved in these regulatory processes.

As you are aware, MiMedx is very focused on a regular [signing] of post everything we accomplished.

After the hearing is complete, there will be a short period of time for comments from industry. We certainly plan to be in attendance and speak at the draft guidance meeting. And we already have our reservation. Also requested a time to speak at the scientific meeting.

Now after these meetings, comments will be requested from industry. After those are received, I would expect it will be late fall or early 2017 before any revised guidance documents are published again for review.

Okay, I'll turn the call over now to Bill Taylor, who has a number of operational issues to discuss. Bill?

Thanks, Pete. We've already discussed the three key elements that contributed to our revenue shortfall in the first quarter. I want to spend a couple of minutes on one of those items to describe it in a little more detail.

This is related to the tissue tagging process. This process is necessary because in any given hospital, we may have as many as three or more sales representatives in the account and having access to sell the same tissue. Most device and pharma companies do not have this kind of issue and when they have multiple reps in the same hospital, they are generally selling distinctly different products.

In our case, they may actually be selling the same product, but in its different surgical specialty. For instance, a hospital may keep all the tissue in one location. At that location, we have multiple sizes of AmnioFix available, including, for instance, a 2x12 centimeter version. That 2x12 could be used by podiatric surgeon on a foot and ankle case, which may be served by one of our direct Wound Care reps. That same 2x12 could also be used in a nerve sparing prostatectomy by a surgeon who is served by one of our direct surgical reps. And that same 2x12 could be used by an orthopedic physician on a total knee replacement who is served by a sales agent.

So you can see that the tracking of which rep was responsible for the sale is a bit more challenging in our models compared to other companies. So when reps are spending time addressing concerns as to who should or should not have tagged a tissue, they're spending less time selling. That was one of the significant issues we had in the first quarter.

Now we believe the majority of these issues are now behind us, and we should not have that kind of disruption again.

Regarding our integration of Stability Biologics, it's progressing forward with particular attention at present focused on increasing the production capacity in San Antonio. Our processing teams are working well together in streamlining the process and implementing some lean manufacturing techniques to improve overall workflow inefficiencies. While these changes don't happen overnight, we expect to have some nice improvements over the course of this quarter.

Some of the VAC committees, the value analysis committees are not moving as fast as we would like with respect to Physio, but we continue to get very positive feedback regarding the product performance. We are working with physicians who have been using products for some time in order to produce some clinical case series, and we'll leverage those case series into our upcoming prospective clinical trials.

Moving on to our new products. We've not spoken a lot about our umbilical products, EpiCord and AmnioCord. We first mentioned this class of products at our Analyst Day last year.

We started our soft rollout in late Q1 and are in the middle of our full rollout this quarter. As you know, we've discussed for quite some time that we are looking for clinical uses for the remaining parts of the placenta that until recently we had to discard. The umbilical cord is one of those pieces. We believe these products are a very good complement to our EpiFix and AmnioFix product lines as they provide a significant amount of growth factors. They are considerably thicker than our amniotic tissue allografts. They can provide more cushioning and protection for the healing process.

Yet another new product that we anticipate launching just after mid-year also comes from a formerly discarded part of placenta, which is called placental disc. We expect this collagen-rich product will also have both Wound Care and Surgical applications, and it will - we expect it to be a Section 351 product.

We also think we'll have the ability to replace certain competitive products in the market today. Now for competitive reasons, we're not going into any more detail than this, but I do ask you to stay tuned over time.

With respect to CollaFix, we don't have much to report other than initial project continues to move forward as we have anticipated. We've completed the processing transition from bovine source collagen, to human placental collagen, and we've proven the fiber strength is equivalent, if not slightly better, than the bovine collagen source. And we progressed to our development and our initial 510(k) application, we will update shareholders accordingly.

Turning now to our sales force. We continue to add sales executives and sales managers in all of our business areas. We add to our Wound Care team as we are finding that we're still not fully penetrated in Wound Care throughout the country. We still need a denser footprint and are adding additional expertise in areas where we are underpenetrated.

We've also added to our SSO team and are particularly excited about the recent hires that have specific expertise selling adhesion barriers in surgery. We believe that experience should augment our surgical sales force quite well as we continue to promote the AmnioFix property that reducing scar tissue transformation.

Our total field sales force now is around 250 people, and we continue to add almost every month, and that does not include our team that focuses on managing and expanding our IDN and GPO contracts.

Let me talk a little bit about market share. The latest data as presented by SmartTRAK shows a continued strength of MiMedx market share and market share gains.

According to SmartTRAK, the CTPs, which are defined in the market as cellular and tissue products segment of the advanced wound biologics space. So they state that this market, the CTP market, ended 2015 on a high note, up about 17%, reaching $588 million for the year and quarter four of 2015 was up over 15% to $158 million.

For the year, amniotic tissue accounted for $234 million of this subsegment or about 40% of the overall CTP market. That's an increase of over 60% compared to 2014.

Now our view of the market is a little bit more broad than the SmartTRAK's market. MiMedx has been identified by SmartTRAK as the clear leader in the CTP market with 25% market share. Integra is second with just over 19%.

And as I understand it the majority of the revenue is actually the burn area as opposed to the chronic wounds. This data suggests that we are not only gaining market share, but we're also expanding the market in advanced wound care as we have predicted over the past few years. The 17% market growth rate is more than double the chronic wound incidence growth rate, so that market expansion growth is clear.

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

Thanks, Bill. This past week was a busy week as we had previously stated that we would be revealing our sales management systems and forecasting. We also had our field sales management in last week as Pete earlier shared.

We emphasized and talked through the importance of the sales teams staying in the assigned lanes and tagging the tissue appropriately, so we can continue to track utilization and tighten up our forecasting and inventory prospects. Gaining greater ability for management to direct the local account executives business and also consignment inventories.

We continued the SMS rollout, training on use in future capabilities. We gave them further insight into the dashboards and the analysis that will be possible in the remainder of the year. The RSP has built out regional business plans based on the account executives' tactical and strategic initiatives confirmed for each territory. These management reports will ultimately reside in salesforce.com and be interactive, allowing for any account to be called up and analyzed as part of the planning and trends measuring process.

Additionally, we confirmed quarterly sales forecasts with the area vice presidents and regional sales directors. They presented their plans, refined the focuses based on management feedback and committed to the guided revenues as have been communicated. This included an account by account analysis of commercial and federal opportunities and the existing account trends.

We also strengthened alignment of sales focuses and teams with a dedicated morning spent identifying, collaborating on synergistic opportunities and coordinating account transitions for surgical from Wound Care. As we have now added an additional 20 direct account representatives for the abdominal pelvic surgery focus and trained them.

SSO and Stability were integral to this process to finding cross-selling opportunities and tactical steps to be taken in Spine and Ortho specialty areas.

Now turning to GPO and IDN progress. MiMedx had our highest revenue month in March and best quarter-to-date with business revenue associated with these contracts. AmnioCord and EpiCord have been added to many of these contracts and will continue to be added through Q2. Facilities continue to sign up and opt-in for sole-source or committed tier contracts, strengthening our position as the leading placental tissue provider in the marketplace.

These GPO IDN contracted relationships value evidence-based medicine, and so our relationships continue to be strengthened in the local facility markets, in the Wound Care clinic and in the operating room.

As you know, spring is a busy time for large health care association conferences and regional meetings. We just completed a successful symposium on advanced wound care, better known as SAWC, where we had significant booth traffic, a very well attended breakfast, educational symposium, booth presentations and nine posters presented. EpiCord was also highlighted.

We have in the first week of May the American Burn Association, which we will be highlighting our full portfolio of burn products and then the American Neurological Association, where we will again exhibit and then have an educational event on the continued adoption of AmnioFix in urology procedure base.

Thanks, and I'll now pass it back to Pete.

Thanks, Chris. Well, I'm going to pass it to Mike here. But again, please be patient as he goes through a great deal of data and information. Mike?

Thanks, Pete. The company recorded revenues for the first quarter of approximately $53.4 million, an increase of 31% or $12.6 million over prior year first quarter revenue of $40.8 million. Wound Care revenue of $39.3 million grew 32% and SSO revenue of $14.1 million grew 28% over prior year first quarter. We also added over 300 new customer accounts in the quarter.

Due to the impact of the results of the acquisition of Stability Biologics that closed on January 13, 2016, and the release of the valuation allowance on the deferred tax asset on reported tax expense in 2015, the company has decided to include additional adjusted non-GAAP measures in our press release and earnings call to provide a means of comparing normal ongoing operating results on a year-over-year basis.

Beginning this quarter, the company will report adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted EPS to normalize results for comparison purposes in addition to reporting GAAP results. Tables are provided in our press release, which reconcile non-GAAP to GAAP reported results.

Now moving on to the results. GAAP gross margins for the quarter were 85.1% as compared to 87.4% in the first quarter of 2015.

Adjusting for the amortization of the Stability Biologics inventory step up required by purchase accounting, gross margin was 86.5%. Included in the press release is a reconciliation of GAAP gross margin to adjusted gross margin. The lower gross margin is due primarily to product mix within SSO sales.

R&D expenses for the quarter were approximately $2.5 million or 4.7% of quarterly revenue as compared to $1.8 million in the first quarter of 2015. The increase was driven primarily by increased investments in clinical trials.

Selling, general and administrative expense was approximately $40.6 million for the quarter or 76.2% of quarterly revenue as compared to $29.3 million or 71.9% of quarterly revenue in 2015.

During the quarter, we added 18 direct sales reps, bringing the total direct sales headcount to 251 at March 31, 2016.

The year-over-year increase in SG&A spending was due to the continued build-out of our direct sales force in both Wound Care and Surgical markets, new product launch costs, additions to the reimbursement team and other support areas, as well as the addition of Stability Biologics personnel and associated cost. Also included in SG&A spending was approximately $713,000 in onetime costs related to the acquisition.

The company reported a positive adjusted EBITDA of $9.1 million for the quarter ended March 31, 2016, as compared to $8.8 million in the first quarter of 2015. It is the 17th consecutive quarter of reporting positive adjusted EBITDA. Included in our press release is a reconciliation of adjusted EBITDA to reported net income. And the improvements were driven by increased sales volume.

GAAP operating income in the first quarter was approximately $1.5 million or 2.7% of quarterly revenue, which includes $2 million in charges related to the Stability Biologics acquisition.

Operating income, excluding acquisition-related purchase accounting and onetime charges, was $3.5 million or 6.5% of revenue as compared to Q1 2015 operating income of $4.2 million or 10.4% of revenue.

Lower operating income in the quarter was driven by the aforementioned investments in clinical trials, addition to the sales and marketing organization for both Wound Care and SSO markets and including the additional personnel added through the acquisition.

The company reported net income for the first quarter of approximately $1.2 million, or $0.01 per basic and diluted common share as compared to net income of $4.1 million or $0.04 per basic and diluted common share in the first quarter of 2015.

On a non-GAAP adjusted basis, first quarter net income was $4.9 million or $0.04 per diluted common share, which is flat year-over-year.

Please refer to the table in our press release for a reconciliation of GAAP net income to adjusted net income. It should be pointed out that in addition to the adjustments for noncash share-based compensation expense, there are adjustments on an after-tax basis for the cost associated with the acquisition of Stability Biologics as well as the normalization of book tax rates for both years.

The company - turning now to the balance sheet. The company reported approximately $95.2 million in current assets, including $15.1 million in cash, $2.5 million in short-term investments, which are comprised of fully insured and liquid bank certificates of deposit, $53.9 million in accounts receivable, $18 million in inventory and $5.8 million in prepaid expenses and other current assets.

Day's sales outstanding for the quarter were 91 days as compared to 93 days at the end of the prior quarter. We continue to add collections and field reimbursement staff to improve collections performance, especially with new customers.

Inventory turns were 1.8 for the quarter as compared to 2.7 at the end of the prior quarter. The reduction in inventory turns was due to the purchase of inventory as part of the Stability Biologics acquisition as well as our revenue shortfall from plan in the first quarter.

Goodwill and intangible assets were $30.7 million and $33.7 million, respectively, as compared to $4 million and $10.8 million, respectively, at December 31, 2015. The increase was due to the Stability Biologics acquisition.

Current liabilities were $28.8 million as compared to $26.8 million at the end of the prior year with the increase in line with the growth in the business.

During the quarter, we recorded a preliminary liability of $33.2 million, which represents a contingent consideration payable to the former shareholders of Stability Biologics based upon a formula of sales less direct production cost for the years 2016 and 2017. Contingent consideration is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent payments are recognized in earnings. The earn out consideration will be payable - comprised of 60% cash and 40% in shares of company stock.

Turning now to the statement of cash flow. The company reported negative cash flow from operating activities of approximately $1 million for the quarter, driven mainly by the customary first quarter payments for annual incentive and year-end commission and approximately $4 million in working capital impact due to the acquisition of Stability Biologics.

Cash used in investing activities includes $2 million in fixed asset purchases and $7.6 million related to the purchase of Stability Biologics.

Cash flow used in financing activities for the quarter includes $3.5 million for share repurchases, bringing the total cash used since the inception of the program to $49.2 million. There is approximately $10.8 million still authorized under the current plan.

And finally, we added a total of 56 associates in the quarter, bringing our total headcount to 600. This includes the Stability Biologics team.

Turning now to our guidance. MiMedx estimates second quarter revenue to be in the range of $55.7 million to $57 million and full year revenue to be in the range of $242.5 million to $250 million.

Previous guidance issued on January 10, 2016, was for full year revenue to be in the range of $260 million to $270 million. The company is guiding full year 2016 adjusted earnings per share, estimated to be in the range of $0.30 to $0.32 per share as compared to $0.33 to $0.37 per share in our previous guidance.

Please see the tables included in our press release for a reconciliation of GAAP EPS to adjusted EPS.

And finally, MiMedx will be participating in the Deutsche Bank 41st Annual Healthcare Conference in Boston on Thursday, May 5. We'll hold our Annual Shareholder Meeting at our West Oak Parkway facility on Tuesday, May 18. Please check the Investor Relations page in our website for further updates.

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

Thank you, Mike. Let me again reference SmartTRAK's publication, which I believe came out on Monday. We believe the data that we see in there is relatively accurate, to very accurate. And if you'll read the rest of the report carefully, it should clear up a lot of the myths relative to revenues in this particular sector of health care.

Let me add one other thing. I know there's frustrations with shareholders because I received calls about our stock performance. We're currently very undervalued, or certainly undervalued, let me put it that way. But today, for instance, the XBI, which is up one of the indices we're involved in, and the NBI are down 3.6% and 2.1%. We get dragged around - and our stock gets dragged around by these indices, and the market is considered biotech, as high-risk assets since last August, and we're out of favor at this point in time.

Our company in terms of our growth rate, our cash development and all of our asset-base is certainly not the normal biotech company. Many of those companies have no revenues at all. And if they have revenues, they only have profits. So at some time here when the biotech sector is not as much out-of-favor, we'll certainly, I think, move fast and rest that group as we become fairly valued again.

All right, let me go ahead now and open the call up to questions and answers. Operator?

(Operator Instructions) Matt Hewitt with Craig-Hallum Capital.

A couple from me. First, in the SSO segment, how much of - I don't know if bury probably isn't probably the right word, but how challenging is it to get the hospital purchasing managers to open the doors to get these new products in? And how quickly, once you're in, are you able to make some meaningful progress within those facilities?

Well, Matt, let me make a quick comment and Bill and Chris can fill in detail. It simply comes down to getting through these value assessment committees. They are all today very dominant in most of the medium to large-sized hospitals, and it's not an imprudent thing to do. The hospitals, they are certainly under cost pressures and doctors can be sometimes whimsical about the products they want to use, and these committees have brought a strong discipline to it. We don't have a problem in getting turned down, it's just a case of getting through the process. And so once we get through the process, physicians, generally speaking, who had wanted to use a product, that's why it got referred to the committee. So it's generally a case of physicians have interest in product and using it, has to be referred to the committee, through the committee, then we go from there.

Yes, the only thing I would add to that, Matt, would be that, usually it is either one doctor or it's a group of doctors that is interested that goes through the process. Once approved, then it simply relies on the experience that they have from there on. I mean certainly the opportunity is open. We bring our clinical and science to bear, and then it's just a process as to the applications and the procedure expansion from there.

This is Chris. I'll just add, Matt, is that, I think in some cases, it takes a little bit longer when they are at least a perception by the purchasing agent that there's a lot of products in the category even though our data may - and many times, suggest differently, that we're actually different and unique compared to those. So sometimes, the more apparently crowded it is, it just takes us a little longer to get through. It doesn't mean we won't get through or having trouble getting through, it just affects the timing.

And then one more for me. So I attended the SAWC last week and sat in a number of presentations and there was a couple of things that stood out, number one, doctors that were presenting, all of them, every single one of them said that as a treatment of last resort, they were trying EpiFix, AmnioFix and showing remarkable results, and they would show the before and after pictures. But it was always as a treatment of last resort. What are the hurdles to make your products a treatment for the frontline, when that patient presents, with - whether it's the diabetic foot ulcer or a venous leg ulcer, whatever the wound is, what's it's going to take for your products to move up into the treatment paradigm?

Thanks, Matt. I think that's kind of a misperception. Generally, when physicians show those kind of posters, it's one of the first times they use the product, okay? And I think we've told people for the last four years, our best-selling tool is very simply saying: Here, doc, use an EpiFix, use an AmnioFix, on - particularly, EpiFix, use an EpiFix on one of your hardest to treat patients, and you'll be coming back, and you'll start treating all of your patients with chronic wounds. So I think that's what generally happens is, and at these trade shows, they don't spend a lot of time at the trade shows showing the common, and every day wounds. The typically want to show cases studies on wounds or issues that are particularly difficult. If it's common everyday wounds, they have a harder time getting their posters published.

So I understand how you can get the perception like that, but that's a misperception in that people only use it on those hard to heal wounds because our data shows and the volume of our graphs that have been going through shows that the physicians are using these on every day chronic ulcers and are getting some great results. But what happens with those kind of train wrecks, if you will, those are the ones that are the easiest thing to get doctors to be believers, and how well the tissue works and how we differentiate against our competitors.

Yes. If I could add one more thing to Bill's comments, it also, I think is you're hearing, Matt, is, very often, these patients were not in Wound Care clinics or they were not with that doctor, but they were referred in when the wound has progressed to a point where it's just recalcitrant and not healing. And so, so many other products or alternatives have been tried and EpiFix goes on and hence, you might hear, this was the last resort, but it truly is the first time the doctor may have seen them. So they would have used it upfront and earlier, but the reality is, and sadly, a lot of these patients don't ever make it out of the primary care until, again, they're in an extreme situation.

Do you think that there's some education that's being missed with those primary care physicians? And I'm sure your sales force is trying to get to them. But do you think maybe that's created a little bit of an impediment? Or is there may be some reimbursement? I know that you guys have tackled a lot of that and have garnered a lot of reimbursement over the past couple of years. But is there still some pockets where that last piece, once you've garnered that last piece of reimbursement or that last physician is trained, that you'll see those patients getting much earlier treatment with EpiFix or AmnioFix?

Yes, I think it's a market dynamic in general. I mean, when we talk to the wound care centers and those program directors on a constant basis, they're always looking for referrals and the doctors are always working with their peers for the referrals. We certainly have had a concerted effort in education as well as in our marketing programs. But the reality is that these wounds very often present in all different sites of service. And so you heard the numbers that Bill quoted earlier. The market does continue to expand. And we think that we played a part in that. And we think that amniotic tissue has played a part in that, EpiFix. But there does need to be more concerted effort to get these patients into new wound care centers and treated earlier. And I think that if that can occur, then you're going to see the cost and the economics are going to come into play and the value proposition makes a lot of sense, less amputations.

And I'll add to that. This is central to what we've been discussing for years as well in that out of the - well, over a million people who have chronic wounds that need to be treated with some sort of advanced therapy, when you look at the DFU and VLUs put together, it's over 1.3 million, 1.4 million cases. And only somewhere around 10% or less, probably less than 10% of those cases are actually being treated by some kind of advanced skin substitute.

Well, part of the problem is, as Chris mentioned, a lot of these people are being treated by primary care physicians that are not experts in wound care and they just give it some very basic treatment. And I think the great news for people that have this condition is that as SmartTRAK has indicated, this market in the last year has grown by 17% whereas the growth in the wounds, the chronic wounds are in probably mid-single digits.

So what that tells us is that we're getting - now more people are being treated now that previously were not being treated. And it's because the dynamics of where the majority of these people are being seen. And we're trying to work with a lot of people in the industry right now to help educate these general care physicians to get these people into wound care specialists because not all these wounds are easy to treat. They're very stubborn wounds and it takes a long time for them to heal.

Bruce Jackson with Lake Street Capital.

So two questions. First, you mentioned the sales rep totals at the end of the quarter were 251. Can we get the numbers for the Wound Care force and the SSO sales force?

I don't think we have ever broken those out, Bruce.

Well, we did it at one of the calls earlier. But I don't have them right in front of me. It's you look at SSO, that's our direct sales force as well as our sales force that manages our sales agents, in rough numbers, we're probably right around 40, maybe 40-plus on the SSO side. That would include some of the people from the Stability Biologics area. So maybe that puts us at 45 or so there. And the balance would be Wound Care. So that's a ballpark. We might be off a couple of numbers, but that's pretty close.

And then in the press release, you talked about the new OrthoFlo 2 product. Can you tell us just a little bit more about what the features are for that product, how it differs from the first OrthoFlo product and if you're still looking to launch that in the second half of the year?

Well, what we said in the press release is about as far as we're going to go for competitive reasons. But I think what we can say is that we do expect it to be in the second half of the year, early second half that we'll have that out there. And it will have some distinct logistical advantages over our competition and our initial version of OrthoFlo.

Distinct logistical advantages?

Yes, let your mind wander.

Okay. Thank you very much.

Joe Munda from First Analysis.

Real quick on the guidance, I went back and looked prior to the acquisition of Stability and the guidance range was about $245 million to $255 million. Now you're looking for $242 million to $250 million. Can you give us some explanation of the delta there and what we're seeing. As well as for the first quarter I can ever remember, Wound Care on a sequential basis is down. So any help there would be great as well.

Well, first of all, this is Pete. Let me just simply say that when you have an issue develop like we had, you become conservative to very conservative. If you go back and track what happened and you do all the analytics you can, and then you get very conservative. So let's start there. Now you've raised a couple of questions and eyebrows are going up. And Mike is trying to pull those metrics up because we don't know that I think you're talking sequentially fourth quarter to first quarter. Is that what you're talking about Wound Care being down?

Yes. I mean, I'm showing Wound Care was $39.9 million last year versus $39.3 million this quarter.

Well, remember that one of our main issues first quarter was related to the fact that the majority of our revenues come from Wound Care. And our system, the new Sales Management System, affected our Wound Care revenues frankly much more than they did SSO because of the large volume there. Our sales efficiencies went down considerably in the first quarter in Wound Care because of the system issues.

And if I can just add, Joe, also just seasonality-wise, Q4 is usually the strongest revenue quarter and Q1 historically is usually the tightest just because of deductibles. And coming off the end of the year, deductibles reset and some insurance policies, all those things. So I think it was just the aggregate of all that occurring is probably what you're seeing.

Joe, I didn't want to speak off the top of my head, so I looked it up. But in the first quarter of last year, our sequential Wound Care was down 8%. So we -

Okay, I got you. Okay.

It actually performed better than we did the previous year when you look at that, so -

We weren't as effective as we should have been.

I'm pulling out the numbers. We were at $32.2 million and we went down to $29.8 million, okay?

Yes. Okay, go ahead. And then I guess on the guidance, between the $242 million to $250 million now, Pete, I think you touched on it, can you talk a little bit about maybe what Physio contributed in the quarter? I know you don't break it out, but I mean, any thoughts or comments on how we should look at this going forward for modeling purposes would be great.

Well, let me make a comment that I have found out in the last couple of weeks people missed. With Stability Biologics, the $19 million and $20 million revenue base that you've seen in our publications or disclosures, that was predominantly distributor-based revenues. They were buying someone else's product and reselling it. And remember the sales force they developed do that was one of our primary focuses. We wanted those independent sales reps who had generally metal in there in the bag, et cetera.

They became in effect January 1 or towards the end of the fourth quarter a manufacturer, which is totally different and basically got rid of those other products in general. So the revenues, basically we're starting over in January as a manufacturer. So some folks missed that and we discussed it in our first introductory call that they were becoming manufacturer in January. And revenues didn't drop to zero, but they dropped significantly. Because someone asked me, "Well, you just took the revenues from $20 million down to $15 million." I said, "No, we took it basically to zero and built them up to $15 million." So you have to take that into account. And Physio was a very small percent, very, very small percent of revenues from Stability, some of the other products with the majority of revenues in the first quarter.

Okay. But I mean, with the guidance you just put out, it's assuming that it's zero, right, I mean, $242 million to $250 million. And prior to acquisition, it was $245 million to $255 million?

Well, I used the word conservative, okay? And we've given you some expected growth rates in Wound Care. You see what we're doing there. And we're just going to be very conservative with the surgical side of the business until we see some of these things developing. And hopefully, we'll get back in the mode. We hope and we try to plan to get back in the mode of beating rates. I mean, that's what everybody would like to see, including the executive management here.

Joe, just to recalibrate, we did that on December 16. Obviously, we didn't anticipate the issues we had in the first quarter here with the system integration and the like. So we're starting from a bit of a shortfall to begin with.

Okay. And then I mean, the last question as far as that goes, the tissue tagging, what did you guys do before you implemented this system? Because I'm having a difficult time trying to understand how this has never happened before.

What's never happened before?

Where you've had multiple reps, I mean, the sales force is exponentially bigger than it's been in the prior quarters and how you've never had this tissue tagging issue, where one rep - like you were talking about, if one guy goes to a podiatrist, the other guy goes for the prostatectomy. How did you guys deal with that in the past?

Well, Joe, remember that up until the beginning of the year, we, in essence, were using one sales force in all these different specialties. And so the sales representatives, although they did tag often in the wound side, they did not have to tag all the tissue. Now that we've gone through a realignment and now that we have these lanes that we focus in for these sales teams, the tagging has become more important. So when we talk about tagging and some of the hiccups going through Q1, that's why that distraction of learning that process so that it feeds into sales force, so that it feeds in inventory controls, it feeds into our SMS system, that's more about the process and procedures that we're implementing and less about how we did it historically.

And historically, it was done automatically. Each product line automatically went to one sales rep, which is different than the way we're doing it now. So we didn't have to manually do it, it was all automatic.

So wait, the rep is almost cannibalizing the other rep. Is that what you're saying?

Not cannibalizing.

No, it's just it's more of a clean cut now. So if the sales representative sells in the abdominal pelvic area, then that AmnioFix goes to that sales representative in that territory. If the sales rep is an EpiFix rep, then obviously when EpiFix is tagged, it goes to that sale representative. So it actually makes it cleaner now as we've gone through the new alignments for the sales forces.

And there were commission issues there and arguments and those kind of things. And we weren't effectively managing the SSO part of the business. As it grew, we had to peel it apart as any company would have done. And we now have two separate sales organizations.

Mike Matson with Needham & Company.

Pete, I appreciate the commentary around the trends that you're seeing in the first few weeks of the quarter. But I guess what I was wondering is how back end-loaded are your quarters typically? And is there a risk here that you're coming into the quarter, you're growing 25%? And I understand you're not necessarily saying you're going to do 25% for the whole quarter, but that you get into the back few weeks of the quarter and some sales don't materialize and you end up coming in below expectations again.

Well, Mike, I think in our part of the business, generally the third month of the quarter is where our sales organization and the rest of the organization gets very focused on cleaning a lot of matters up. There's tissue out there that's been implanted during the quarter that doesn't get processed until towards the end of the quarter. It happens also on a monthly basis, where tissue will be implanted, and then the salespeople get around to chasing their commissions and clean that up at the end of each month. So I don't see things coming unglued at the third month of this quarter. We've been, I think, as open as we can be and you know pretty much everything we know about what caused the issues first quarter. And they're generally systems-related. And it's encouraging to us, that's why we gave you the metrics that the first three weeks of the second quarter are dramatically different than the first three weeks of the first quarter because of generally these systems-related issues.

So we think we're on the right track now and growth should be more predictable, et cetera. But because of those kinds of questions, we're trying to be very conservative, see where it goes from there.

Just a quick addition to that is after a tissue is implanted, it can be a week or it can be several weeks after it's implanted before we actually get the purchase order. And we don't book the revenue until we get the purchase order. So the tissue might have been implanted two, three, four weeks before we actually count it as revenue. So that's an important piece. So as Pete mentioned, at the end of every month, we tend to see an uptick because the reps are chasing down their purchase orders and trying to get the hospitals to issue them, even though the tissue is planted or implanted earlier in the month. Same thing at the end of the quarter.

And what about sales to the distributor - the stocking distributors on the SSO side? Is that more back end-loaded typically or -

Yes, there's a bit of that, but we really don't have - we've reduced our distributor relationships considerably, even in SSO. We have - most of those feet on the street are independent sales reps. Their commission -

Free agents.

Sales agents.

And then you may not answer this, but I'm going to ask it anyway, kind of following up on Joe's question. So you guided to $15 million of Stability sales originally for the year, I think. So can you tell us what - with your new guidance, how much you're assuming for Stability?

Just talk in terms of total SSO, right?

Yes, we said this on the other call when we got asked the same question. What we want to try to do is or we will do is grow Stability up now through the SSO side of the business. So you'll see it in there, and we'll get to the point where we answer some questions specific on their main product lines, which is Physio, the bone growth product and their burn products, we'll give you some insight there. But right now, it just rolled up to the SSO side of our guidance.

It would just be helpful to sort of know the contribution from that versus the base business kind of to get at sort of what's the organic growth...

Well, I think you've got to look at again what we did at Stability as a couple of different things. One of them is to give us access to their rep network. And that should contribute revenue "from our base business." As Pete mentioned, we have reduced our dependence upon distributors in the SSO market. Well, you've got to replace it with something, and so you're replacing it with these reps. So a portion of the acquisition was really to take advantage of their rep network. And on top of that, you have new products like a Physio. So I don't think it's as clean as you think it is, Mike.

Well, at the same time, Mike, I probably understand one of the reasons for the question is we need to be graded on how well we do acquisitions, okay? You guys want to figure out as we go through the next couple of quarters, all right, did we blow it here with a bad acquisition or we've gotten an acquisition that's going to pay off nicely for us?

Like our first one.

Like our first one. So I think you're going to find out that we've done a good job with this. But at the same time, we'll give you some more metrics that you can wrap your forecast around and understand how well we do those kind of business transactions.

Okay. And then just of the original guidance that you'd given for Stability then, the $15 million, how much of that would have been for - was that all from the Stability products themselves? Or did that include some of the cross-selling that Mike was referring to?

It included a little bit of sales, some distributor business. But that wouldn't have lasted much past the first and certainly second quarter. But most of it was their particular products.

But there was cross-selling there, too.

Cross-selling, well, I'm sorry. Yes, when they cross-sell our products, they get credit for it.

And then can you break out the growth of the government and commercial sales? It wasn't in the press release this time.

Mike, we're not going to break out those specifics anymore. We have said before, we have a process going on, where as we announced a while ago that we are starting to sell in, some cases, direct to the government as opposed to sell through distribution, and that program and that conversion continues. But in light of competitive situations and the like, we really don't want to get down into that level of detail and also recognize the sensitivity of these relationships.

Jason Wittes with Brean Capital.

I wanted to ask first about you made a comment about SSO and going through the committees and having the clinical data in place. And I guess I'm wondering, do you have all clinical data in place for all the products that you offer? And could you kind of delineate kind of which products you think have data in place and which may not and how that's impacting the decisions at these committees?

Jason, first of all, we always have data. The question is, is it enough? You start with some - with case studies and you go with the published case study series, then you get into randomized controlled trials.

Well, I think, obviously, the amniotic lines are well-known. You've got a plethora of 25-plus clinical trials, six RCTs done and the amnion lines, another 27, 28 industry - physician-sponsored. So clinical trial is on top of that. So the science in the clinical - in our core businesses is incredibly strong. And of course, from that come OrthoFlo, AmnioCord, EpiCord. And so they're pretty well covered and understood, both scientifically and what the clinical possibilities are. As you start to look at CollaFix, that will become well studied as we go through the 510(k) process. We do have some historical data on that, that will show some of the research work on strength and viability.

As you look forward on the Stability side, again we understand it from a scientific standpoint. We continue to study it. We share that with the committees as part of the packages. We've got some casework as well, and we're - I think we've said in the past that we're now teeing up the clinical trials that we want to do next both for Physio as well as on AlloBurn, those two lead products. So we continue to build that, but it doesn't necessarily always mean that you don't get through VAC, you do. And they'll also do their own work internally within the facilities. And that's an important criteria here, too.

So it really ends up being the - and\ let me add one last thing, the GPO and IDN arrangements that we have are also a key piece to this because they've come to expect a certain data portfolio from us, and we've worked well together. And so that also lends credence and credibility to the process.

So I was thinking also - that's very helpful. But I was thinking for some of the surgical applications, for instance, prostatectomy, things like that, you mentioned that it's being used as a barrier plus. I think you're saying you can make claims that it also reduces scar tissue. Is that something that's accepted by the committees? Or is that something that you're building the data case for? Or how do we think about it in those circumstances?

We have 16 to 18 clinical studies going right now and are getting ready to add to those. We're spending millions and millions of dollars a year with all types of surgical clinical studies plus additional wound care clinical studies. And you never have enough - in my opinion, you never have enough clinical data and scientific data. You just keep pounding away, pounding away, each committee is different, each hospital is different. But Jason, we will just continue to pour a lot of our assets into these studies and try to stay way ahead of the needs.

Okay. One other question, and I'll jump back. You mentioned Stability had a lot of different impacts on the balance sheet. I'm looking at DSOs. They look like they actually went down a couple of days, which is good. But I'm wondering if there's Stability impacts on accounts receivable and how that may translate on DSOs.

Stability DSOs are in line with our direct DSOs.

And do understand that this management team, we understand the importance of bringing DSOs down, so does our board. And we work at that continuum. Mike has added a lot of staff on the collection side, just the small physician's offices that we keep adding. We add 300-something new clients each quarter, 444. Just keeping up with that just keeps us busy. But we understand the importance of cash is king and understand the collection issues.

(Operator Instructions) Mark Landy with Northland Capital Markets.

I guess it's been delved into a lot, so I'll try and keep my questions short and maybe look at it this way. How should we think about the Stability earn out based on when you announced the transaction versus now with guidance? How has that changed?

Well, as you know, it's a two-year earn out, and it's based on their contribution margin, I'll call it gross profit margin does not have normal overhead embedded in it, so it's an easy to calculate metric. But it does hold them accountable for producing product that have good, strong contribution or gross profit margins. And so they should be quite focused on that as they are and we're helping them with that.

The projections that we probably published that become part of the purchase accounting added noncash charges may change, okay? And so quarter-by-quarter, we'll see where that goes. But we took their forecast, took them down somewhat. But over the next year, their first year, I can't tell you where it will be there. Their Physio product has huge potential. Their other products have strong potential. We just have to see them going through the manufacturing facility, out the door and get billed and revenues developed from them. So we're still going to play that by ear. But the risk, that's why we do a transaction of this nature, which has an earn out associated with it.

With new products, new companies in the manufacturing field here, there was too many questions. And we weren't going to do more than the down payment we made. And then the rest of it, we have to see how it plays out. So that's about all I can say about it.

So Mike, just on an accounting perspective, is this going to be an annual adjustment or you'll adjust it quarterly?

Well, you have to review it on a quarterly basis. The valuation that we developed initially is preliminary and we're relooking at that to see whether or not any changes are appropriate. But we are allowed by GAAP to take a look at that. But at a given point in time, once we have solidified what those projections are, then what you do is you analyze that earn out on a quarterly basis. And if you have sufficient evidence that it's either going to be higher or lower, then you would book it in that given quarter.

Okay, fair enough, all righty. I guess this is a question for Bill. Bill, relating to the answer that you gave on OrthoFlo, I just want to get some clarification. I think the way I read the press release is that there is a new product coming in the OrthoFlo family, which is yet to be announced. And then there is an update or a second generation to the current product that has been already released. Is that the correct way to read it? Or is it one product that you're updating?

Well, we may have confused you a little bit there. It's really it's one. It's an updated or you can look at it as a new product in the OrthoFlo family, but it's the same thing. So it's not two different new OrthoFlos, it's one.

And is it for the same indication?

Yes, we expect to be the similar - the same indication, yes. Intended use.

Okay, all righty. So I was just going to make sure that you won't going to give us the reasons for the changes and what you learned from initial rollout. I think you already told us that, that would remain internal, correct?

That's right.

And then just maybe having a look at prior guidance versus the current guidance. So just obviously not getting - to hold the numbers to decimal points, it seems that Wound Care for the most part is in line with what guidance was prior to Stability and that the majority of the shortfall has been a reduction in Stability - not Stability, SSO from the prior guidance that was given in December. But if we have a look at the make-ups of where the headwinds have come from, I think you've mentioned manufacturing constraints, delays with value-added committees, and then obviously sales force disruptions.

And I think that's a combination of obviously adding Stability, and then also, which was discussed at the analyst meetings, splitting your internal sales force into the two distinct channel, the SSO and Wound Care, which in its own creates a lot of headwind. Can you just help us understand how you resolve those as you go through the year? Which are the easy ones resolved? Is the manufacturing constraint something that you have a grasp around and can get through within the next quarter? Data for value-added committees, is that a six-month process? So now as we look at the year and we see the current headwinds, how do we think about those kind of trailing off that we can get to just a normalized sales business?

Let me make a quick comment. I think all of us would simply say quarter-by-quarter here, those headwinds should diminish. We keep bringing clinical data in here every week, every month that's impactful. The manufacturing efficiencies at our San Antonio facility are improving rapidly. MiMedx has done an excellent job over the last four or five years of improving our manufacturing facilities, becoming very vertically integrated in terms of our processing. We're doing the same thing with our same management team to assist Surgical Biologics with improving those processes in our San Antonio facility. So I expect we'll have a really effective facility and that will improve quarter-by-quarter.

And then the sales issues we've had with our Sales Management System, it's a process there. It's a system improvement that you make each month that go by. But at the same time, it's management finally learning the system and using it very effectively. The sales individuals themselves begin to use it very effectively. And again, quarter-by-quarter, we should get increase in efficiencies there.

I'll just start on the operation side, too, I can talk a little bit more, then Chris can talk a little bit more on the sales. But I liken this to, on the Stability side, very much like several years ago when we acquired Surgical Biologics. It took us the first couple of months to really understand the operations and what we could do to streamline it. Then really the next three months, there was a noticeable improvement in the operation's gross margins, streamlining, updating, even in the same facility, increasing capacity where by using some lean manufacturing techniques. And then probably over the course of about a year or 18 months, we continued to make improvement.

I expect with Stability, we're going to be doing the same thing. So we've got a pretty good handle now on some things that we can do in the short term to improve efficiencies, improve capacity, improve margins. We'll be implementing several of those things this quarter. Bigger impact will likely be in the third quarter. But we should still have an impact in the second quarter and continue to roll that out through the year. Chris?

Yes, I would put it into three categories on the sales side. The VAC committees will continue to progress as we go through these quarters. There will always be VAC committees at various hospitals. But I think that as we get more reference centers and as we have more successes within these GPO/IDN-aligned facilities, that will get better as the quarters go on. But it is a process and it will certainly continue through this quarter, Q2.

Secondly, as Pete shared, the SMS system gets ingrained this past quarter. Now we're in the more of the business planning and getting better returns on that. And I'll add to that, that in my comments, we've added now 20 new additional direct surgical reps with the abdominal pelvic area. They need to get established, they need to get integrated in the process, they need to get obviously a fine understanding of the VAC committees and the processes in their facilities and their territories. As we get better at that, then you'll see continuing returns on those efforts. Where a wound rep normally took up to six month to begin to get established historically, I think because we're starting more from the ground zero in the surgical area, it might take a little longer, maybe six to nine months directionally.

And then the final part of that is the integration of Stability into our SSO network and the regional sales directors we use to manage those agents as well. And again, we had great meetings this past week, looking at cross-selling opportunities and how to manage the various agency networks and how to get the most out of that. So that's going to continue through this quarter and again - but I think it is a quarter-by-quarter thing, as Pete said. I just wanted to give a little more color.

Just two quick follow-ups. Bill, where are you on your yields? Where are they now? And where do you need them to get to? And then just lastly for Chris, Chris, as you go out to the independent guys, independent reps and you renegotiate contracts with them, are you able to do that all at once now? Do you have to wait until they anniversary and do them in a rolling fashion? And that's all I have.

Yes, on the agency agreements, we do look at those continually. They're obviously usually annual agreements. They can be renewed. They have quotas within them. So we look at the quotas, we look at the performance, we decide whether or not to renew and move forward. So we're not really doing it all at once, but we are looking at them quarterly to decide whether the relationship is bearing fruit and whether or not they warrant continued investment.

And on the yields questions, without getting into detail here, I can say that we're almost never satisfied with the yields that we get out of any of our production. We always want to find ways to increase the yields. I will say on the Stability side after our reviews, there's substantial room for improvement and efficiencies there, much like there was on the Surgical Biologics side five years ago when we acquired them. So we expect to see some pretty significant changes over the coming quarters.

So good work you do on Stability. All righty, thanks guys. I appreciate the time.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back to Pete Petit for any closing remarks.

Thank you. Well, it's been almost an hour and a half. I hope we've conveyed a good deal of information that's informative and help you put the pieces together. I think that our track record up to this point has been almost flawless. We apologize for the miss. But you've seen the way professional experience of the company executives manage things. And we'll pick it up from here and hopefully continue to make good progress here quarter-to-quarter. And again, our goal is to meet and exceed. Thank you very much.

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