MiMedx Group, Inc.

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 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, 2013.

We do not undertake to update or revise any forward-looking statements, 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 Chairman and CEO.

Thank you, Thornton, and good morning. We appreciate you joining us for our first quarter shareholder call.

I have with me Bill Taylor, our President and Chief Operating Officer; and Mike Senken, our Chief Financial Officer; Thornton Kuntz, our Vice President of Human Resources and Administration; and some other corporate officers.

First, as our press release indicated, we had a great quarter. Our revenue exceeded upper end of guidance and it was increased by 69% over the first quarter of last year.

We had our 10th consecutive quarter of meeting or exceeding our revenue guidance. We had our 9th consecutive quarter of positive adjusted EBITDA.

Adjusted EBITDA increased by 77% over the quarter a year ago, and we added 47 direct sales professionals during the first quarter.

We want to reiterate our second quarter revenue guidance of $21.5 million to $23.5 million, and our full 2014 revenue guidance of $95 million to $110 million.

I'd like to start by putting a few things in perspective relative to the growth and maturing of the amniotic membrane tissue sector of advanced wound care. I participated in bringing new health care technologies in the marketplace on numerous occasions over the decades.

There will always be opportunities with which to take advantage of new concepts and innovative products. We believe that a well-run business protects their technology through patents, but fights their tactical battles by exerting a leadership in the marketplace.

Both of these initiatives must be well planned, coordinated and managed.

The number of organizations who are attempting to enter the wound care market with amniotic membrane allografts has increased. That activity is included to the vision we had 3 years ago when we brought this innovative new technology into advanced wound care after having supplied it for use in the eyes for a number years.

I'm glad everyone is beginning to see the huge opportunity that exists for certain amniotic membrane products and wound care. However, the majority of these new entrants into this market do not understand the rigors associated with the reimbursement process.

To begin with, they must undertake relatively sophisticated clinical and scientific trials and publish the results in peer-reviewed Level 1 journals. After that process is complete, which will generally take at least 2 years, as a minimum, then the process of actually obtaining approvals from the Medicare, intermediaries and health plans begins.

That, in itself, is rigorous and difficult. So when you hear about companies entering this market, they look for meaningful revenues from them several years from now and that's assuming they have strong, clinical performance, which is not necessarily good assumption.

Bill is going to talk about this in more detail shortly.

Now we've been fairly specific about our patents. If organizations choose to bring a single amniotic product to the market with the significant disadvantages that it will have, they may avoid most of our patents.

We relish positive, professional competition. What we do not tolerate, will not tolerate, are organizations that violate our patents and make false claims that relate to our products.

I want to discuss these issues and the issues associated with filing patent law suits against the Musculoskeletal Transplant Foundation; Liventa, which was formerly AFCell; and Medline.

Obviously we've put a lot of time, effort and funding in the development of our patent portfolio. We will continue making investments in that portfolio.

We devoted a substantial amount of staff time and legal time with the crafting of our patents, and we've done it very carefully. We currently have 13 issued patents covering our amniotic membrane tissue allografts, and we'll have a couple more issued very shortly.

In addition, we have over 50 other patents that have been filed in this area. We take our responsibilities related to these [indiscernible] assets very seriously, and we'll have very decisive -- and we will behave very decisively relative to enforcement of our patents.

We relish good competition because it draws attention to the attributes of amniotic membrane technology. However, if someone wants to enter this market, then they need to develop their own technology and not steal ours.

We'll aggressively file litigations in defense of theft of our intellectual property. In the meantime, we will continue to build our organization so that whatever is in the marketplace, whether it's in the marketplace or federal court, we'll continue to develop the leadership role we have.

Let me take a moment to discuss the volatility of our shares with you. This is primarily caused by short sellers as we've discussed in the past.

When they come out with their blogs, they force certain individual investors out of the stock. They are artists and very good at starting invalid movement and then they exploit it because they work together generally in groups.

the management of the public companies has as their goal to increase corporate value and see the stock go up accordingly; short sellers have as their goal pushing the stock lower in the short term. Those 2 offsetting forces should be healthy, however, they are not governed by the same laws and regulations.

If the management of a company puts out misinformation, they're subject to litigation and prosecution. Short sellers have no such constraints, therefore, they are free to do whatever it takes to create a wave of concern and hysteria and push the stock to lower levels.

This is the real issue that a company has with trying to balance out the effects that short sellers have in the short term.

What a company can effectively do is to continually provide shareholders with goals and objectives and relentlessly meet or exceed those goals.

At this point, MiMedx has an excellent track record from that standpoint. We've had 10 straight quarters of meeting or exceeding our revenue estimates.

Most of those had been cases where we have exceeded -- in most of those cases, we've exceeded the estimates. We've only had one surprise so far, and that was related to the FDA untitled letter.

We're working through those issues. Therefore, what your management can effectively do is to continue to meet and exceed our goals and the stock price will take care of itself.

Therefore, I think as we move forward and have additional short-selling [indiscernible], which I'm sure will come, I would recommend you listen to the group of people who'll have a significant legal overhang if we miscommunicate. That's the management at MiMedx.

Bloggers have only one thing in mind, and that is to drive the stock price down temporarily and make a quick profit.

Also, I want you to keep in mind that MiMedx is a type of corporate entity that, at some point, will become part of a large health care organization. There will be a point where some corporate entity makes our Board of Directors an offer we cannot refuse.

And on that day, if the short sellers are still involved, they will have a very bad day. Therefore, understand, management is doing all the things that are legally possible to reduce this volatility.

However, we're a top-performing company with a lot of good visibility, which makes us an ideal target for this type of short-selling activity.

I want to also bring up an issue to you that I think you'll find of interest. Yesterday, in our board meeting, we presented our board a copy of the company's first year 5-year strategic plan.

With all my previous organizations, we've always had a 5-year plan that was management's and the board's guide to our future. This plan was updated annually at our December board meeting, where we also clearly vetted the subsequent year's budget.

We will not discuss many aspects of this plan because there are numerous competitive issues involved.

From time-to-time, we'll provide some insights into our specific market opportunities, generally when we are about to enter a new market. Based on our 5-year plan, we expect rapid revenue growth in our wound care business in 2014 and 2015.

We project that during 2015, revenue from a number of the opportunities we have in the Surgical and the Sports Medicine area will begin to develop rapidly. Therefore, if we can execute our plans as we currently envisioned them, we believe we will continue to have a robust growth rate through 2018.

At that time, the company will be many times larger than it will be this year in terms of revenues. We're certainly going to keep you informed as these events unfold.

Now let me take a moment to give you some insight in how we feel second quarter will unfold. There are a number of significant issues, which we think will be resolved, and should provide comfort relative to our future growth possibilities.

First, we share any hope to have some news relative to our micronized tissue from our activities at the FDA. We will be providing additional data to the FDA staff during this quarter, and I hope it is -- this will be sufficient files to complete the plans for our first VLA and obtain a transition agreement, which will delineate the regulatory possibilities for our micronized products in its various forms.

Second, we're optimistic that the results of the rapid increase of our sales force and clearing up the confusion relative to the new CMS reimbursement policies will be evident in our second quarter results. We saw significant revenue momentum in March and that certainly continues in April.

The April revenue results have continued to be very strong. If this trend continues, we will provide a new second quarter forecast if the results warrant.

Third, we expect to announce a publication with some additional clinical and scientific papers during the quarter. These will continue to add to the body of evidence we have compiled on our amniotic membrane allografts.

All this work started many years ago, and they're beginning to show the results now very rapidly.

Fourth, on a personal note, it looks like I will have my SEC trial this quarter. This will be nice to get this 5-year issue resolved.

Let me make a comment about our trade show that's currently going on. It's our SAWC, the Society of Advance Wound Care, that's taking place in Orlando, Florida.

We've noticed that there is a significant difference this year in the booth placards and the literature being displayed by our -- generally, our small competitors. Because of our leadership role in the amniotic membrane tissue, we've necessarily been very prolific with our scientific and clinical publications.

Our competitors, they ignore those requirements for building credibility. However, we've noticed this year that everyone else is trying to get in on the clinical and scientific credibility bandwagon.

It is interesting to watch when you're -- in this leadership role, your competitors trying to emulate your successes. This new focus on clinical and scientific rigor is very good to the advanced wound care sector of health care.

This is the type of leadership we've been trying to provide for the last 3 years. I'm now going to turn the comments over to Bill Taylor.

Bill?

Thanks, Pete. Well, the first quarter played out essentially the way we projected it to, or slightly better, in terms of revenue.

We successfully dealt with the confusion regarding skin substitutes in the hospital out-patient setting, we significantly ramped up our sales and reimbursement organizations, we had our first pre-IND meeting with the FDA, we received additional CMS MAC coverage, we saw 2 new peer-reviewed studies published and we had a record revenue in the month of March. We had an excellent quarter by all reasonable means.

Regarding reimbursement, I spoke at length during the February and March shareholder calls about our progress in educating facilities about CMS' new payment methodology. So I won't go into details again here.

The bottom line is that we believe most of the issues related to the change in methodology were resolved by late February, the sales in March and, so far, in April, reflect that. Sales this month are strong and we reiterated our guidance of $21.5 million to $23.5 million through the second quarter.

Our focus now in terms of reimbursement is to build additional clinical data to gain additional commercial health plan coverage and also to continue differentiating EpiFix from the competition in the advanced wound care space. We're also building our scientific and clinical data for AmnioFix in various surgical, orthopedics and sports medicine applications and the potential associated reimbursement.

On the clinical front, recall that we have a 7-center EpiFix VLU, or venus leg ulcer, randomized controlled trials with 90 patients in it that has recently finished enrolling, and we expect to complete the study this quarter and then submit the publication. The interim data, with roughly 75% of the patients' data complete, was presented in the SAWC yesterday, and it showed a statistically significant improvement over standard of care with a P value of 0.0023.

Nearly 64% of the EpiFix group exhibited greater than a 40% wound closure at the 4-week time point, compared to only 25% in the standard of care group.

Additionally, we have 2 more DFU, diabetic foot ulcer, studies underway. One of which, we estimate, will finish enrollment this quarter.

Also, a second multi-center VLU study has been initiated. We reported last quarter that all 8 MACs would provide coverage for EpiFix, assuming, of course, that it was determined to be a reasonably and medically necessary procedure, which meant coverage in all 50 states.

One development at the end of March has occurred with Novitas, which covers both Jurisdiction H, otherwise known as JH, which includes Texas, Oklahoma, Louisiana, New Mexico, Colorado, Mississippi and Arkansas. And Jurisdiction L, or JL, which includes Washington D.C., Delaware, Maryland, New Jersey and Pennsylvania.

Novitas issued a draft local coverage determination, or LCD, on February 6, that was to go into effect on March 27 for both Jurisdictions H and L. That policy allows the payment of any skin substitute Q-Code product, including EpiFix, with the case method usually medical and reasonable and necessary criteria.

In what appears to be a very unusual move, on the day this new LCD became effective, Novitas pulled it, which caused a great deal of confusion as you can imagine.

A few days later, they instructed that coverage would revert to the old LCD. After multiple requests for clarification by physicians and our reimbursement group, JL, the one in the East Coast, confirmed they will continue to cover EpiFix as they have over the past year or so.

But JH, the one with Texas and Oklahoma and so forth, is operating on the old LCD, which does not include EpiFix. Rather, it is limited -- it has a limited group of products that it covers, mainly the 2 that drive a large amount of wastage, namely Apligraf and Dermagraft, because they are single-sized products 10x to 20x larger than the medium diabetic foot ulcer.

So at this time, one of the jurisdictions within the MAC -- within this MAC covers EpiFix and the other jurisdiction does not.

We will be working very hard to get this turned around. Now that said, we are still very confident we can meet our second quarter guidance of $21.5 million to $23.5 million, even without this issue being clarified and, thus, we reiterated our guidance.

I'd like to also note that since this new LCD was to go into effect March 27, we did not hire very many people in the JH region. Only about 5 of our recent additions were affected in this region.

So those people are now focusing on DRG surgery cases and federal accounts. So this has been taken into consideration as we reiterated our guidance.

Now switching gears to the sales front, our organization continues to grow. As you know, we had 76 sales professionals at the end of last year and 122 at the end of March.

We are up to 128 today. And they're doing a very nice job getting up to speed on our technology and getting through their various value analysis committees.

You will recall that our estimate for them to get $85,000 a month or $1 million in annual run rate even in 6 months. It's a little early to tell about this last group that joined in February or later but, so far, it looks like this group is on track so far with our projected ramp rate.

So we expect our hiring rate to slow down a little bit now as we front-loaded the early part of this year.

At this stage, we still expect to end the year with 130 to 150 sales professionals in our direct sales organization.

Now regarding the FDA and our efforts on the BLA. We gave a detailed update on our interim shareholder call at the end of March.

To recap, we had our first FDA meeting related to our first BLA for micronized, and we thought it was a very good meeting. The overall tone and tenor of the meeting was positive and it was apparent that the FDA team genuinely wants to see micronized amniotic membrane products go successfully through this BLA regulatory process.

We're pleased with their efforts and direction so far and we look forward to the next steps.

The FDA has now assigned a project team, and our team members will interact with them as we compile our IND application. We expect a few more exchanges of dialogue and information with them before we will further our discussions related to a possible transition plan.

Next, I'm sure many of you are wondering whether our first Medtronic shipment occurred in the first quarter. It did not.

I am happy to say, however, that we've received our first purchase order and the first shipment is going out today. As mentioned before, the initial stocking orders [indiscernible] their limited launch, and their full launch will occur after their June national sales meeting.

We are very excited about this relationship and look forward to seeing it develop.

As a reminder, this is a nonexclusive agreement, whereby we supply AmnioFix to Medtronic as a private label for spine applications.

Now regarding our patents. Earlier this week, we had 2 more amniotic patents issued and we expect more in the coming weeks.

Also, as you've seen by the press release on Tuesday, we initiated our first patent lawsuit as well as additional false advertising claims.

Most egregious among the false and misleading representations are statements suggesting that clinical results from the use of products, process, using the MiMedx Purion process are the results of clinical tests on products processed by MTF and marketed by Liventa and Medline. These misrepresentations also must be stopped.

MiMedx has spent millions of dollars on product development and the clinical effectiveness of our allograft were supported by numerous clinical and scientific peer-reviewed published studies. Since our allografts are the only tissue products on the market processed using our patented and proven Purion process, it is misleading for Liventa and Medline to suggest that the clinical effectiveness of their products is the same as ours.

Now I'd like to take a brief moment to discuss the MiMedx process tissues, like EpiFix and AmnioFix, versus other amniotic tissues that have been making some noise lately.

The process used to clean and make human tissue safe for transplant, yet retain key elements such as cytokines and growth factors, is critical. Not all of these processes are created equal.

Many are quite harsh to the tissue and fully or mostly decellularize the tissue. This is a very important distinction, very important.

Our view is that the clinical success of amniotic tissues is a result of a combination of the layering or the configuration of the membrane such as amnion-only versus amnion and chorion, as well as the method that's used to process the tissue. The multilayer constructs provide the thicker collagen scaffolds compared to single-layer constructs.

Also, when amniotic tissue is fully or mostly decellularized, the vast majority of the growth factors, cytokines, enzyme inhibitors and so forth are removed from the tissue. This leaves the tissue with essentially just the collagen scaffold, or ECM, extracellular membrane, not much difference in other types of collagen scaffolds.

The literature shows that products that are only collagen scaffolds generally do not have the clinical performance of other more advanced therapies that do have the vast amount of growth factors and other constituents like EpiFix does. Now you don't have to take my word for it.

I suggest you look at peer-reviewed published data to make your own conclusions. We have a comprehensive list of MiMedx tissue-related studies on our website.

We have 14 peer-reviewed and published scientific and clinical articles on our patent-protected amniotic tissue.

Most of our amniotic tissue competitors do not have any published studies. We also have another 3 or 4 peer-reviewed scientific and clinical articles that should be published very shortly.

Now among the upcoming new publications is a characterization of the embedded growth factors, cytokines, et cetera, of our tissue. We also expect a comparative tissue publication to occur shortly.

All the processes used to process the tissue were obviously different. But what we've seen scientifically is that the decellularized, dehydrated, single-layer amniotic material out there tends to have about 1/20 or less of the growth factors, cytokines, et cetera, as our tissue.

So not only is the process important, but our multilayer aspects also provide meaningful differences because they significantly increase the extracellular matrix element of the graft in sort of a deeper repository of the growth factors.

As a frame of reference, our multilayer tissue has about 5x the cytokines and growth factors of single-layer amnion when both are processed by our propriety Purion process. So that's gives you a frame of reference.

And as this is becoming quite evident with the publications focusing on our Purion-processed tissue, these growth factors are a critical element in the tissues' function in helping to heal chronic wounds.

Here is one example. Many of you have heard about a new entrant to our field, Alliqua.

They have a single-layer, decellularized, dehydrated amnion tissue called Biovance. Actually, it is not new.

They licensed it from Celgene, who used to be in the amnion business a number of years ago and discontinued it. Based on what we've seen scientifically, with single-layer, decellularized amniotic tissue having 1/20 or so of the growth factors from cytokines compared to EpiFix, our scientists and clinicians postulate that a tissue like Biovance would only marginally be better than conservative therapy.

In fact, a published paper in the wound care journal in April 2009 highlighted a small study of Biovance using diabetic foot ulcers. The results of that small study indeed came out as we would have predicted, whereby only 4 diabetic foot ulcers out of 14 were healed in 12 weeks.

That's 4 out of 14. It's about 29%.

This data speaks for itself. So does ours.

Only our study show a much, much higher success rate.

So like I said earlier, processed amniotic tissue is not all equal. Most competitive processes are very harsh to the tissue, in that they remove the vast majority of the elements that play a role in helping wounds, particularly chronic wounds, heal.

Our patent-protected tissues preserve these characteristics and generate clinical results that are world-class. With that, I'll turn it back over to Pete.

Bill, thank you. Okay, it's Mike Senken's turn.

Thanks, Pete. The company recorded revenues for the first quarter of approximately $19.6 million, an increase of 69% or $8 million over prior year first quarter revenue of $11.6 million.

Beginning with the first quarter 2014, we will be reporting revenue in 2 rather than 3 revenue categories, as we had in the past. The first is wound care, which now includes both the sheet and powdered versions.

The second category is surgical, sports medicine and OEM, or SSO, for short, which includes our AmnioFix sheet and injectable versions; our OEM products for spine, orthopedics and surgical applications; as well as ophthalmics and dental applications. As a reminder, MiMedx decided to exit the HydroFix business in Q4 2013.

Based upon this new reporting format, wound care revenue represented 75% of total revenue at $14.7 million, with the SSO revenue coming in at $4.9 million.

Wound care revenue growth was driven by increased penetration in commercial accounts, as well as continued growth in government accounts. Gross margins for the quarter were 85% as compared to 84% in the first quarter 2013.

Improvement in gross margins was driven by both products and customer mix. R&D expense for the quarter were approximately $1.4 million or 7% of quarterly revenue, which represents an increase of 11% as compared to prior year.

The increase in R&D spending is driven primarily by increased investments in clinical trial. Selling, general and administrative expenses is approximately $15.9 million for the quarter or 81% of total revenue.

The increase in spending reflects the accelerated build-out of our direct sales force.

In the first quarter, the company added 46 new direct sales associates, bringing the total to 122 while also adding an additional 11 reimbursement associates to provide assistance to customer claims staff.

The company reported positive adjusted EBITDA of approximately $2 million for the quarter ended March 31, 2014, which is a $900,000 improvement as compared to an adjusted EBITDA of $1.1 million in the first quarter of 2013. It is the ninth consecutive quarter of reporting positive adjusted EBITDA.

Year-over-year improvement in adjusted EBITDA is the result of higher sales volume and improved gross margin. Included in this morning's press release is a reconciliation of adjusted EBITDA to reported net loss.

The net loss for the first quarter was approximately $900,000 or $0.01 per diluted common share as compared to the reported net loss of $1.6 million or $0.02 per diluted common share for the quarter ended March 31, 2013.

It should be noted that the 2013 first quarter net loss included financing expense of approximately $1.3 million related to the debt discount on our senior secured promissory notes.

Turning now to the balance sheet. The company reported approximately $67.9 million in total current assets, an increase of approximately $2.5 million as compared to $65.4 million, as of December 31, 2013.

The increase includes $2.9 million in accounts receivable due to higher sales volume as well as an increase in prepaid expense and other current assets related to trade shows, sales support and training activities, somewhat offset by a decrease in cash of $1 million and a decrease in inventory of approximately $241,000. Total assets were $87.3 million, an increase of $2.7 million as compared to December 31, 2013.

The company reported $9.6 million in total liabilities with 0 debt on the balance sheet, which is unchanged from year-end. The current ratio improved to 7.9 as of March 31, 2014 as compared to 7.6 as of December 31, 2013.

Total stockholders' equity increased by $2.7 million to $76.2 million as compared to $73.6 million as of December 31, 2013. There are approximately 105.8 million shares of common stock outstanding, 268,000 of warrants, 17.1 million stock options and 900,000 of restricted stock units outstanding as of March 31, 2013.

Turning now to cash flow. The company reported negative cash flow from operating activities of approximately $1.6 million for the quarter as compared to a negative $2.1 million for the quarter ended March 31, 2013.

The negative cash flow from operating activities for the quarter was driven mainly by an increase in working capital as a result of our sales growth. Cash used in investing activities in the quarter included capital expenditures and patent application costs of approximately $634,000.

Capital expenditures included IT infrastructure and production processing equipment in support of our continued growth. Cash flow from financing activities for the quarter were approximately $1.2 million, primarily from the exercise of stock warrants and options.

The company did not draw down on its working capital line of credit during the quarter. And finally, total headcount at the end of the quarter was 288 associates, which represents an increase of 66 as compared to December 31, 2013.

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

Thank you, Mike. Let's have the call open now for questions.

So I apologize if it's noisy. I'm actually at the SAWC.

My question is first are -- you had a very strong quarter in the wound care if you look at the year-over-year increase, and I'm trying to get a handle on -- the only hole I can poke in this is your surgical -- your SSO division was a little lighter than we're looking for. And I'm wondering about how much revenues did you shift from that division as it was measured under the old way to the new way other than wound care, so from the injectable, just to help me kind of work through my numbers?

And then my second question is, with all these reps coming on, I think historically it's taking 6 to 9 months. Well, with the last batch, how quickly did they ramp up to that $1 million run rate?

And do you think that this next group would be any different from the last batch?

Well, Bill, if we look at this year versus last year, of course, last year as we had said very often on these calls that we've reported all of our injectables as part of surgical...

Micronized.

Micronized, as part of the surgical and sports medicine group. And then over the course of last year, we introduced SKUs specifically for wound care applications.

But we did continue to report the micronized in surgical and sports medicine for consistency sake. We have also said on calls that, in trying to go back and determine how much of the micronized was being used in wound care application, we did some analysis on our TUR cards.

Our tissue utilization records. And in that analysis, it appeared as though almost 50% of the micronized product was actually being used in wound care application.

Is there an impact if you compare year-over-year and the fact that the numbers would show a $500,000 decline? The answer is yes because now we have, what we're calling, our powdered product, which is the micronized product, in wound care.

But to quantify it specifically, that's difficult. Now that all being said, I think one other comment on the first quarter in terms of the SSO group, keep in mind that, that group includes a distributor sales.

And over our history with distributor sales, we've seen them move up and down, so they're lumpy. We had a very strong fourth quarter in terms of distributor sales in the AmnioFix platform and the injectable related to that, and it was not as robust in the first quarter, but that's normal.

It was no indication that there was any softness coming from the SSO group.

And I'll add also in there, just if we were -- and I don't have the exact numbers in front of me, but if we did look at these numbers, like we did last year, when all of our micronized were in the wound care, which -- that's why we've changed it now -- or excuse me, were in surgical and sports medicine rather than in wound care. The wound -- if we reported the same way, obviously our wound care numbers would be down and our surgical, sports medicine would be up because everything was in the surgical, sports medicine section.

So moving on to your next question, on the reps. We are seeing -- I think our last batch, on average, we're looking at that right around 6 or 7 months to get up to the $1 million run rate.

This batch of people, I think, are looking very similar to that. We do have a few glimmers that are actually people that are actually quicker than that.

It's a little too early to give you kind of an estimate on what we think the whole group is going to do. I think what I can say though is that based on what we've seen so far, we still feel very comfortable with the 6-month estimate.

We don't see anything that's going to drag out to be longer than that based on what we can see right now. A few people have actually gotten off to some really quick starts, which is great.

And then sort of clarity, Mike, I don't know if have this on your fingertips, maybe you can look through and give it, too. But what would have wound care growth been if you've reported the numbers the same way in Q1 as you did all of last year?

And then have you seen any impact from the FDA discussions about the micronized version, impacting that business with your customer base? And that's all I have.

I'll comment on your last question. We have necessarily been very conservative with the way we've shown our micronized in the marketplace.

Our conversations with the FDA, I think, as Bill said, are going very, very smoothly. And we're doing the things that are prudent, the management group would do under the circumstances.

We have not really been aggressive in terms of promoting our micronized version of the product because, until we clear that hurdle with FDA, we don't expect and want to do that. So that's kind of the...

And if I could add in a second.

Go ahead.

Okay. We don't advertise on the micronized now, we're just letting the orders come in as they have been.

So we haven't pulled it back. And we're not, incrementally, doing any advertisement.

Okay. And on your other question, Bill, quite frankly, we've resisted reporting any numbers on micronized, really, for competitive reasons.

But let me give you a different perspective on this. We said coming into this year, a significant amount of our growth is going to come from commercial wound care.

And on the commercial side, in terms of wound care, that is primarily in the sheet form, that is not in the powdered form. And the growth in the first quarter was very significant on the commercial side.

As I look at the trajectory over the last couple of quarters and your progress on the profitability side, how should we be thinking about when, over the near term, you may hit actually positive GAAP EPS? Is that something that you foresee here in the second quarter?

Just kind of looking at the way your revenues have grown, and I acknowledge this, you've been ramping up sales and marketing with some of the other infrastructure to support that growth. But will you break even here in Q2?

Let me answer that, Matt. I'll start by saying this.

Everyone should understand that our business focus has been on building the footprint in wound care as rapidly as possible because of the significant weakness of our primary competitors. When you have that kind of weakness, you exploit it.

We had an opportunity to bring a number of excellent people in, primarily sales, to our organization in the first quarter. We now have to let them exploit their expertise and establish their presence in their respective markets.

So wound care revenue has been our focus. But I also know and we all know that the question you just asked is going to begin to be one of the primary questions we have to deal with.

I believe, if you examine our profit and loss statements, you know it's not going to take much in the way of revenue to continue to build EBITDA as a percent of revenue strongly, and then it's going to pop operating profit and then after-tax profit. So you can do your math.

We don't expect to see any major change in our gross profit margins. And it's all revenue-dependent.

And the issue is simply this, when we do pass through operating profit breakeven, from that point forward, our operating profits will increase very rapidly as revenues go up. That's the operating leverage we have and that's the beauty of our financial model.

It's a nice thing to have and play out when you're exhibiting the kind of gross profit margins we have. So we're not going to give you an answer because we don't know the answer.

But we'd simply say that when you get to the revenues we are projecting for second quarter, we should be getting fairly close. And again, once we pass through that breakeven, the numbers are going to increase dramatically or faster.

Maybe I can inject one other point, specifically on the second quarter. And that is, Matt, obviously, we added a lot of people in the first quarter.

A number of them, over the course of the quarter. And so they didn't start on January 1.

And so, you should expect absolute dollars of SG&A to increase in the second quarter just because you're going to have a full quarter's worth of run rate in terms of expenses. Now how much that is in relation to our revenue and our margins will certainly dictate what falls to the bottom line.

Okay. All right.

And I guess the follow-up to that, and I realize that especially as we get into later this year and, more importantly, into next year, as you start working through some of those biological licenses and the necessary trial work, but as far as once you do break through profitability, is it your expectation or intention, over the near term, to just kind of maybe spend the overage so that you're covering -- kind of hovering around breakeven? Or once you break through, even though you're going to be investing a fair amount in some of the biological license initiatives, will we still see a pretty nice progression in your operating income and net income for that matter?

Matt, to be frank about it, which we generally are, once we break -- you look at the operating leverage we have, once we break through the revenue levels that will start giving us operating profits, it's going to move very dramatically regardless of what we do. We won't be able to spend that dramatic.

And we've analyzed this around every week. So once -- we shouldn't be too concerned about this company producing operating profits and after-tax profits, it's going to happen.

And when it happens, it's going to be very dramatic. We're doing some things now that prudent management would do.

But Bill Taylor and I and, for that matter, Mike and the rest of these executives around here, we understand cash is king. We'll continue to grow cash.

We're going to be very profitable, unless something dramatic happens to curtail revenues and we don't see that happening at this point.

Okay. Maybe just 2 follow-ups or 2 additional questions anyway.

I picked up last night that your partner for the government side, AvCare [ph], was awarded $150,000 purchase contract for the injectable EpiFix and AmnioFix. And I'm just curious, the award, it looks pretty clear, must the FDA-approved, but I'm curious if that gives you some leverage when you're meeting and talking with the FDA, saying, "Here, the U.S.

Army wants to use our products. We should be allowed to continue selling this while we work towards a biologic license."

Or am I reading too much into it?

Well, Matt, you've given us a little bit of a surprise. I got a phone call this morning from the principle of AvCare [ph], which I didn't have time to take because of this call.

So maybe he's passing something on to us that you picked up before we have. But it sounds like it's good news.

We just don't know about it at this moment.

All right. And then maybe one last one, and this is probably a little bit more for Mike.

As far as with the announced lawsuits, how should we be thinking or modeling legal expense going forward?

Well, that's a good question. I think if I was in the management of those other companies, I would probably do -- what prudently they should do is I'd just back off.

There's not a lot of revenue yet in any of these organizations. And in the case of MTF, they had a $26 million patent infringement suit they lost about 3 years ago.

And I don't know whether they want to go down that path again, we're just going to have to see. But we certainly have the capital to pursue this to any degree we desire and hope that these people would be reasonable, they'll respect what we've done here in terms of our patent portfolio, in notifying them of the violations.

But we'll see what plays out, there'll be a legal process back and forth on that.

Yes. I don't think we foresee it as having a material impact on our results, Matt.

If I could follow up on the reimbursement comments that you made in the 8-K with the Blue Cross-Blue Shield plans. Can you just remind us how many covered lives those 23 Blue Cross-Blue Shield plans address?

And then also if you could remind us what percent of the wound care market is Medicare versus commercial pay?

Bruce, it turns out Debbie Dean, who is the executive, who would have that on her -- right on the tip of her tongue, is not in the room with us. I have actually some of that on my desk, but I don't have it off the top of my head either, neither does Bill or Mike.

So ask another question. I'll depart the room and try to come back with that document.

Okay. Next question is about the Medtronic shipment.

So that went out today. Can you just tell us a little bit about the sort of how this thing is going to calendarize over the course of the year?

So we've got the first stocking order going out this quarter. Then when do you think the sales are going to fall into a more normalized rate for the OEM shipments?

Okay. Well, let me just kind of rehash what we said before.

Previously, we've indicated that we had in our plan roughly $1 million this year in our budget for that as a frame of reference, we disclosed it last year. One of our larger -- or really our largest surgical and sports medicine distributor last year was roughly $6 million in revenue and they are a regional supplier of metal and so forth, spine surgeries and other types of surgeries, they both -- orders both the sheet form as well as the injectable form, and they were about $6 million last year.

So that gives you a frame of reference from our small, regional company versus a large company like Medtronic in the long term. In terms of the buildup here, this initial order was kind of -- the initial order for their limited launch that they're doing right now with a few of their distributors, and then they expect to do the full launch after their June national sales meeting.

Their fiscal year, I believe, is May 1, if I remember correctly through the end of April. So we have a different fiscal year than calendar.

So we expect then through the back half of the year that those numbers will build. But again, I think the first few orders will be kind of stocking orders.

It will take probably another month or 2 after that to see how it levels out and see what kind of normal ordering patterns are going to be for them. So I think by the end of the year, we should have a little better visibility to what those normal patterns look like.

Bruce, I have a document in my hand that should be reasonably accurate. In terms of the Blue Cross-Blue Shield, or the only health plans that we currently have coverage with, it looks like about 51-million-plus covered lives.

The largest of those, we've announced previously, is HCSC, there's about 14 million lives there. So -- and the rest of the sheet is some of our goals and we finish out all of these large health plans.

The rest of health plans, it should be about 215,000 covered lives, so...

Million.

Million -- excuse me. Million, million.

Incremental.

So we're probably got a ways to go, but we're quite busy and very focused on pulling in the rest of these health plans.

Okay. And then can you remind us just what percent of the market is Medicare in the wound care side?

75%.

That's 75%. Okay.

Then last question just on the process with the FDA, do you have the next meeting scheduled yet? Will there be any meetings after the next meeting?

And when, roughly, do you think you might have resolution on these issues?

What I have said is that I hope to have some resolution for shareholders second quarter. So everybody can figure out what that date is.

So Bill and Mike, I guess let me start out with a couple of financial questions. I guess your guidance for the year, the midpoint is $100 million.

And Q4, roughly, our math indicates it has to come close to $30 million. And if you choose the top end of the guidance, the math indicates it would've been plus or minus $40 million.

I guess I'm just curious, how you are seeing the progression, what you are factoring in from Medtronic contribution? And you're, obviously, have worked out the math and I'm curious in your internal analysis for Q4, specifically as we are going to anniversary the reimbursement, current reimbursement, and then people are going to start preparing for the new reimbursement landscape.

Okay. Really, the midpoint actually -- we've adjusted our numbers to $95 million to $110 million, so the midpoint is $102.5 million.

And our progression, I think we have a very strong progression. Just to get to that midpoint though, I think the progression is not quite as high as what you just indicated.

I think based on our numbers, I think the fourth quarter is more like in the low 30s, third quarter would be in the high 20s, and that would get it to roughly $103 million, if you look at the midpoint. So I'm not exactly sure where you got such a high number there on the 40 side.

Your number seems too high, Suraj.

I'm just factoring in based on the progression guidance for Q2, factoring in Q3. But I guess in respect of $30 million or $32 million, I guess what I'm trying to understand is we're going to see a significant step-up, Q4 is going to be quite a bit of, at least we would think, a quarter influx.

And I'm just curious how you all are thinking about Q4 from a Medtronic perspective and on a market, in general, perspective.

Yes. On the wound care side, really -- what -- it really doesn't come into consideration on the wound care, unless there's a big change like there was this year.

And that's what happened actually in the first quarter, not the fourth quarter last year. So we expect that in July, we'll hear from CMS if they are planning on making any changes to the reimbursement.

And again, we've mentioned it before that with the large change they made this year, typically they don't make another very large change. Doesn't mean they won't, but typically they don't.

We expect that they'll probably make some tweaks to it. And as we mentioned before, we gave them data, met with them 1 month or 2 ago, and made a suggestion to them to add another tier for very large wounds because we think the data will lead to that kind of conclusion, we presented that to them.

In terms of the tail-end of the year, we do expect that we'll start having some building revenue from Medtronic and potentially other -- as we've mentioned before that we cannot commercialize this technology on the surgical and sports medicine side only on our own. So we continue to have conversations with companies as well.

But on the wound care side, I want to focus on that, we've added now over 50 people since the end of last year. Most of them were added between February and April.

So over 50 sales reps now added between February and April. If you just do the math out on them, and when they are projected to hit their $1 million run rate, 6 months from say, March, puts you into a very sizable fourth quarter.

So I think that should help you kind of see how the progression builds. And again, I'll remind you that we only had 76 people at the end of last quarter.

So we've increased the number of salespeople by more than 2/3. So it's a huge difference.

Let me make a quick comment about Medtronic. Again, we've been very conservative with our discussion about where that private label contract can go, and we still remain, because we don't have the insight yet.

But I don't think Medtronic and the largest device manufacturer in the world is going to come to Marietta Georgia and negotiate with a company our size without having some significant ideas about the size of the marketing and development of that product. They had 40% of the U.S.

spine market, and our product will ride in at a lot of those procedures. So we expect to see some robust growth.

We just don't know exactly when it will come, how fast it will develop because we don't think Medtronic would have come here with a small niche market in mind without having some fairly robust plans.

Fair enough. Pete or Bill, one of the other callers earlier asked about profitability.

Let me kind of rephrase that question. How do you see leveragability in this model?

You all have done a phenomenal job so far in terms of bringing people onboard, capitalizing on competitor woes and growing the market for yourself. And Pete, you've rightly said, there will be a certain point.

I guess I'm just trying to understand, if I -- I don't remember correctly if you all have ever said about comp structure for reps. But from the current level of SG&A, how do you see it playing out over the next, I would say, 24 months that would give us some sense of, okay, now, EBIT margins are going to start moving up?

Because the gross margins to us it seems like it's relatively going to flatten out. They don't have too much room to grow.

And what's going to happen in the OpEx line at least from a qualitative perspective?

Well, Suraj you're absolutely correct, gross margins are probably going to be stable in this range. Over the next several years, it might have some valid pressure on them.

But a company that has this kind of operating leverage, gross margins where they are, the kind of product we have and the markets we serve, we're going to be an operating profit company of 30%. Now I'm not going to talk today about when that might occur because I don't know.

But I can tell you it's the kind of companies that Bill Taylor and Pete Petit have run before. With this kind of operating leverage, we ought to get there.

We'll focus -- we haven't been focused very much on EBITDA margin because there's a lot of accounting noncash charges that get dropped in on our profit and loss statement. So we'll be passing through EBITDA margin of 10%, 20%, 30% and beyond.

And operating profit will follow right behind that. So we will be a nicely profitable, high operating profit company, whether it's 12 months from now, 24 months from now, that's going to begin to show itself.

And there's not much we can do about it. You cannot -- you won't be able to spend, and it wouldn't be prudent to spend, in terms of just expenses unless we have the kind of opportunity we just have in wound care.

We've been, I think, very, very prudent at the way we've reached out and taken market share because of some weaknesses. It wasn't because of our -- necessarily all of our strength, it's some competitive weaknesses.

We've taken advantage of that. But as that begins to play out, the operating profits will show themselves.

And it will be very -- once they show themselves, they'll developed very strongly and rapidly.

Well, thank you. I think we had an excellent Q&A session and the key questions are getting answered hopefully, and you're getting some comfort around those.

We appreciate your confidence in the company, confidence in the management. And we look forward to continue to provide you with informative press releases as information's becomes available.

Thank you.