MiMedx Group, Inc. (NASDAQ:MDXG) Q4 2016 Earnings Conference Call - Final Transcript

Feb 23, 2017 • 10:30 am ET

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MiMedx Group, Inc. (NASDAQ:MDXG) Q4 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day, ladies and gentlemen, and welcome to the MiMedx Group Incorporate Q4 2016 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference call, Mr. Thornton Kuntz. You may begin, sir.

Executive
Thornton Kuntz

Thank you, Tim. Good morning, everyone.

(Forward-Looking Cautionary Statements)

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

Executive
Pete Petit

Good morning, and thank you for joining us for our 2016 yearend conference call. I have with me Bill Taylor, our President and Chief Operating Officer; Mike Senken, our Chief Financial Officer; Chris Cashman, one of our executive vice presidents; and the other executive VPs; and some other executives also in the room with us. I'll make some comments about our 2016 results, our fourth quarter results and our outlook for 2017. Also, I will give some updates on our wrongful discharge lawsuits.

I'm going to start by giving you some additional information on the small revenue reduction for Q4 that we've just announced. First, in my 35 years of being a Chairman and/or CEO of healthcare public companies, this is a first reduction of a preliminary revenue release that we can recall. Even though it's a minor amount of revenue, about 0.6%, we do not like issues of this nature to ever develop.

This issue came up late in our detailed review process of AvKare's inventory. This resulted from a February 2016 contract amendment to our long-standing AvKare agreement, clarifying the wind-down details. As you may recall, AvKare has been our distributor for Veteran's Administration and Department of Defense Hospitals for over four years. Approximately two years ago, we decided we should have our own Federal Supply Schedule number.

And once it was issued, we notified AvKare that we'd begin to phase over to our own FSS number. That transition began slowly, but our AvKare contract would expire on June 30, 2017, with a three-month wind-down period through September 30, 2017. At that point, we're required to repurchase any inventory of AvKare's that may be remaining, which we expect to be minimal.

Because the end of the contract is nearing, we felt it was prudent to increase our sales returns and allowances reserves specifically for AvKare, which has the effect of reducing our Q4 revenue by $1.8 million. Over the last year, we've continued to rapidly reduce the inventory that AvKare's purchased, which is located at approximately 100 VA facilities around the country. If we assist AvKare in doing an effective job of reducing this inventory, some of our reserves will flow back into our revenue.

We consider 2016 as an excellent performance year for MiMedx, particularly related to our revenue growth. As we informed shareholders early in the year, our profit growth would not be as robust because we've made conscious decisions to speed up the introduction of three new product lines and the associated expenses with those. That was accomplished, and we believe it'll pay rewards for us beginning