Good evening, ladies and gentlemen, and welcome to Anika's Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I'd now like to introduce Mark Namaroff, Vice President Investor Relations, ESG and Corporate Communications. Please proceed.

Thank you. Good afternoon, everyone, and thank you for joining us for Anika's Third Quarter Conference Call and Webcast. Our Q3 earnings press release was issued after the close of the market today and is available on our Investor Relations website located at anika.com, as are our supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Mike Levitz, Executive Vice President, Chief Financial Officer and Treasurer. Please take a moment and open the slide presentation and refer to Slide number 2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance, or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which include adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operational performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial measures to the most comparable GAAP measurements is available at the end of the presentation slide deck and in our third quarter 2023 press release. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please turn to Slide 3. We are pleased with our third quarter results, which underscore the strength of our strategy and reinforce our confidence in the powerful growth engine we've created. Following a period of purposeful investments to enable our transformation into the largest and highest opportunity areas of the joint preservation market, we are beginning to see the accelerated growth and momentum building across the business we've been working toward for some time. We delivered 14% growth in Joint Preservation and Restoration in the quarter and higher-than-expected growth in OA Pain Management, which has now grown 11% year-to-date. The acceleration in Joint Preservation and Restoration is being led by our newest products X-Twist and RevoMotion, which are gaining traction and generating a lot of interest in the markets we serve. The double-digit growth in the quarter positions us well for Q4 and as we head into 2024. The continued growth in our OA pain business follows a strong second quarter led by Monovisc growth globally and double-digit Cingal growth outside the US. Given the strong performance across our business, we are raising our revenue and EBITDA margin guidance for the year, which Mike will go into in a minute. Our expanding Joint Preservation and Restoration portfolio has been key to our continued growth and we achieved a number of important milestones in the third quarter. Our RevoMotion reverse shoulder arthroplasty system had a very successful full market release in September at the OSET Annual Meeting in Boston, attracting strong interest from surgeons. We also received the final 510(k) clearance from the FDA for our Integrity Implant System and we're on track for full launch in the first quarter of 2024. As a reminder, Integrity is our truly differentiated regenerative HA-based patch system for the augmentation of rotator cuff and other tendon repairs. Our X-Twist Fixation System also achieved a significant milestone this quarter, receiving 510(k) clearance for the biocomposite version, complementing the PEEK version that was released earlier this year. The clearance of X-Twist biocomposite now allows Anika to address the full $600 million rotator cuff market. We are on track to launch the biocomposite version in Q1 of 2024. We also reached a milestone in Medical Education training over 500 surgeons this year across our full Joint Preservation and Restoration portfolio. We're pleased to see that OA Pain Management continues to outperform. This includes J&J's above-market growth and share capture as they continue to expand their number one market position in the US OA Pain Management segment. Outside the US, Cingal has consistently delivered double-digit growth and is the next-generation non-opioid osteoarthritis pain product of choice in over 35 countries. Cingal's highly differentiated clinical profile and its demonstrated real-world benefits have underpinned its international growth. We continue to explore Cingal partnership opportunities in the US and select Asian countries with significant interest from several parties. We're also continuing to engage with the FDA to advance Cingal towards US regulatory approval. As a reminder, we had a Type C meeting with the FDA earlier this year, and we are awaiting feedback on our proposal to them on next steps to complete non-clinical work so that we can file an NDA as quickly as possible. We will continue to keep everyone updated on this process. Our Cingal market adoption and double-digit growth outside the US reinforces that this next-generation product would be a meaningful addition to US clinicians' arsenals to treat OA pain with a non-opioid product. On Slide 4, I would like to spend a few minutes reviewing our Integrity System, which will be a key value driver for Anika and a game-changer in how surgeons augment their rotator cuff and other tendon repairs. Integrity's key differentiating feature is the inherent structural integrity of the hyaluronic acid-based scaffolds compared to the current collagen patches on the market. This strength comes from its HA-based hybrid structure, resulting in a patch that is over 50% stronger than the leading collagen patch in tensile strength, suture retention, and tear resistance even when hydrated. That provides for the ability to confidently manipulate the patch intraoperatively and strongly affix it with a staple, tacks, or suture during the repair. Another key value driver for Integrity is in its regenerative capacity. The hyaluronic acid scaffolds support healing through improved cell infiltration, tissue remodeling, and tendon thickening. In a head-to-head animal study, the Integrity patch demonstrated about three times the regenerative capacity compared to the leading collagen patch. This data is important to both the surgeon and the patient. The combination of Integrity's strength, increased regenerative capacity, and an efficient reproducible delivery system is what is getting surgeons really excited. We are feeling a pull from surgeons excited for Integrity to launch. We're confident that it will become the standard of care in rotator cuff augmentation and along with our recently launched RevoMotion and X-Twist position us to drive growth for years to come. Please turn to Slide 5. We've been investing with purpose to establish Anika as a global leader addressing unmet needs in early intervention orthopedics. We are leveraging our core expertise in hyaluronic acid and portfolio across OA Pain Management, Regenerative, Sports Medicine, and Arthrosurface Joint Solutions. The investments we've made over the past three years are now beginning to bear fruit. In fact, most of the products on this slide are either launched or are launching in the first quarter of 2024 into larger markets than Anika has entered before in our direct business, setting up 2024 as an exciting year. In addition to those products, our value-driving Cingal and Hyalofast products have now advanced and are closer than they have ever been with line of sight to US regulatory filings for both products. We expect the next-generation OA Pain market served by Cingal adds an additional $1 billion plus to our existing $1 billion market opportunity served by MONOVISC and ORTHOVISC, and Cingal is perfectly positioned to win. Hyalofast addresses the $1 billion-plus cartilage repair market with a single-stage off-the-shelf regenerative product. Now that we are fully enrolled in our pivotal trial, this breakthrough device has a well-defined pathway to launch in the US market by 2026. In short, our highly differentiated new product pipeline is being realized. On Slide 6, I'll discuss our focus on commercial execution and profitability. Anika has a long history of generating strong profitability and cash flows. We've used these cash flows in recent years to significantly expand Anika's market and growth opportunities with key new products and critical internal investments to support sustainable long-term growth and our commitment to growing profitability. With the 2023 full market launches of RevoMotion and X-Twist PEEK and the 2024 launch of Integrity and X-Twist Biocomposite, we're expecting sustained double-digit growth in joint preservation in 2024 and beyond. We are also confident in the continued above-market growth of our core OA pain management products led by Monovisc globally and Cingal outside the US. With the investments we've made in R&D, scaling the business, and addressing MDR, we're now focused on actively managing our OpEx, while still supporting the significant growth and profitability acceleration in the coming years. As spending stabilizes, we are shifting the investments we do make toward commercial execution as we begin to establish a very targeted direct sales force going into 2024. These hires will be focused on regenerative solutions and sports medicine products to augment our hybrid sales channel and penetrate underperforming accounts and geographies. The hybrid channel is a cost-effective model and works very well where distributors are focused on our products. The direct reps will strengthen the areas where we can drive better focus and commercial execution to deliver on the significant growth opportunity in front of us. These investments to augment our hybrid sales force with targeted direct sales representatives are thoughtfully timed with the launch of our newest products such as Integrity, X-Twist, and Tactoset expansion. At the same time, and to be clear, we are committed to keeping total company costs stable as we leverage the investments we've already made to develop and launch these exciting new products. In summary, we continue to have a strong balance sheet with a healthy cash position and no debt and with our meaningful accomplishments this year are confident as we move forward to realize the significant opportunity in front of us. Now I'd like to turn the call over to Mike to review the third quarter results and our outlook for the remainder of the year. Mike?

Thank you, Cheryl. Please turn to slide 7. I'll now walk you through our financial results for the third quarter of 2023. I'm pleased to report total revenue for the quarter grew to $41.5 million, exceeding our expectations driven by accelerated double-digit growth in Joint Preservation and Restoration and better-than-expected growth in OA Pain Management. Our results also reflected the lower non-orthopedic revenue we discussed in prior quarters following our planned exit from product lines that did not fit our profitability objectives. The lower non-orthopedic revenues reduced total company growth in the quarter by approximately three percentage points. Our Joint Preservation and Restoration revenue increased 14% in the third quarter to $13.5 million. This accelerated growth was driven by our recent product launches in the United States with X-Twist and RevoMotion and by strong international growth, some of which reflected favorable order timing. Through the first nine months of this year, Joint Preservation revenues have grown 10% compared to the same period of 2022, a nice acceleration from historic growth rates as we see the early benefit of our recently launched products in the United States as well as continued international growth. Revenue in our largest product family, OA Pain Management, increased 2% to $24.9 million on increasing above-market global customer demand offset by lower transfer units in the quarter on order timing following a high second quarter. Through the first nine months of the year, our OA Pain Management revenues have grown 11% compared to the same period of 2022 on rising global demand led by Monovisc in the United States and both Monovisc and Cingal outside the United States. As expected, our non-orthopedic revenue declined 22% to $3.1 million and is down 34% year-to-date reflecting the continued impact of our exit from legacy product lines that do not support our growth and profitability objectives. Our gross margin in the third quarter increased to 60% and includes the non-cash impact of $1.6 million of acquisition-related amortization expense from acquisitions made in 2020, as well as product rationalization reserves of approximately $750,000 associated with legacy non-orthopedic products we no longer expect to sell. Our adjusted gross margin, which excludes the non-cash acquisition-related amortization and product rationalization reserves, was 66% in the quarter, down from 67% in the same quarter last year as higher costs were largely offset by favorable product mix and improved operating efficiency. From a spending standpoint, our operating expenses totaled $32.6 million in the third quarter, up from $28.6 million in the same period of 2022, primarily due to a $4.5 million nonrecurring charge in the quarter associated with the discontinuation of a software development project. Excluding this charge, our operating expenses were lower than last year on continued expense management as we approach the completion of the development and launch readiness of our new FDA-cleared products in support of their planned launch in the first quarter of 2024. Our net loss for the quarter was $6.6 million or $0.45 per share compared to a net loss of $4.2 million or $0.29 per share in the third quarter of last year. On an adjusted basis, net income improved to breakeven, up from an adjusted net loss of $725,000 or $0.05 per share in the prior year reflecting growth in the business and spending management. Anika generated adjusted EBITDA in the quarter of $4.7 million, up from $4.1 million in the third quarter of last year and our adjusted EBITDA margin in the quarter was 11%, up from 10% in the same period last year. Lastly, with regards to our cash flow and capital structure. We generated operating cash flows of $6.5 million during the third quarter, up from $2.7 million in the same period last year on growth in the business and spending management. Our capital expenditures in the quarter were approximately $700,000 and primarily reflected investments in instruments in support of our key product launches such as RevoMotion. We ended the third quarter with $70.7 million in cash and no outstanding debt. Anika maintains a healthy balance sheet and is well positioned to continue to self-fund our growth initiatives to drive shareholder value. Please turn to slide 8. Now I would like to review our updated financial outlook for fiscal year 2023. Based on our results to date and current momentum, we are raising our full year guidance with an updated total company revenue outlook for fiscal year 2023 of $164 million to $166 million, representing growth of 5% to 6% over 2022 on above-market growth in OA Pain Management and accelerated growth in Joint Preservation and Restoration, offset in part by lower non-orthopedic revenues. The lower non-orthopedic revenues are expected to reduce total growth this year by approximately 4 percentage points. As such, excluding non-orthopedic, Anika's revenues are expected to increase 9% to 10% this year over 2022. In OA Pain Management, we now expect revenue of $99.75 million to $101 million, up 8% to 10% over 2022 as our market-leading products continue to gain adoption globally. This outlook is up over $3 million from our previous range of $96 million to $97.5 million on strong progress year-to-date and positive momentum globally, and positions this core part of our business to reach a key milestone of $100 million this year. In Joint Preservation and Restoration, we now expect revenue of $54.75 million to $55.5 million, up 9% to 10% over last year, an acceleration due primarily to our new product launches in the United States as well as continued growth internationally. Our previous range was $54 million to $55.5 million. We continue to expect non-orthopedic revenue of approximately $9.5 million. That's a decrease of just over 30% from last year primarily due to last-time buys of legacy products and veterinary order timing in 2022. We continue to expect adjusted gross margin for the year to be roughly in line with the 65.9% we reported last year. And based on the higher revenue guidance, we are also raising our adjusted EBITDA margin guidance for the year to 6% to 8%, up from our previous guidance of low-single-digit. We continue to manage operating expenses prudently, as we've expiring some non-recurring costs in the first three quarters, primarily associated with the settlement of Parcus Medical arbitration, shareholder activism, and discontinuation of a software development project. As we look ahead to 2024, based on our recent and upcoming product launches and with the momentum we saw in the third quarter and are seeing as we move now into the fourth quarter, we expect 2024 to be a year of above-market revenue growth led by double-digit growth in Joint Preservation and continued above-market growth in OA Pain Management. With the growth in revenue and stabilized spending now that X-Twist, RevoMotion, and Integrity are all FDA cleared and on or coming to the market, we also expect to increase our adjusted EBITDA margin and bottom line in 2024 approaching breakeven adjusted net income was turned positive on excluding non-cash stock-based compensation. We look forward to providing additional details on our normal schedule as part of our year-end earnings call. In summary, as we head into the fourth quarter, we are pleased with our growing momentum, which is reflected in our increased revenue and EBITDA margin outlook for the year. We remain focused on delivering growth and operational execution to position Anika for long-term success.

Thanks, Mike. Please turn to Slide 9 before we open up the call for Q&A. We're excited about the acceleration and growth of our Joint Preservation and Restoration portfolio, as our new products gain market traction and we see our strategy in action. We are also pleased with the expansion of our market-leading OA pain management products both in the U.S. and outside the U.S. With the strength of our growing differentiated HA-based regenerative portfolio, as well as our value creation opportunities with Cingal and Hyalofast, Anika is very well positioned for and committed to continued top and bottom line growth in the years to come. Importantly, we have self-funded this transformation and continue to maintain a healthy balance sheet with a solid cash position and no debt. I'd like to take a moment to thank all of our employees for their continued hard work and dedication to supporting our efforts, as we build Anika into a leader in joint preservation and restoration. Together we're driving real momentum, as we work to achieve our mission of restoring active living for people around the world. And with that, we'll open up the line for questions.

Thank you. Today's first question comes from Mike Petusky with Barrington Research. Please go ahead.

Hi. Good evening. Congratulations on some of this progress. I guess, Cheryl, I wanted to ask on last quarter's call, you talked about some disappointment around some distributors not driving as hard to the hoop as you would like. I'm just curious sort of what's the status of your distributor base relative to where it was 90 days ago. And could you just talk maybe in whatever level of detail you can about the investments you're planning on making and sort of the timing of all that? Thanks.

Absolutely. Thanks, Mike. I appreciate the question. Yes, we've done a lot of work around really understanding the hybrid model that we've chosen to deploy for obvious reasons. It addresses not signing up for the full fixed cost of a fully direct sales force for a business the size we are. At the same time, there are compromises that you make in doing that because you go to 1099 distributors who are not necessarily fully focused on you. I'll tell you what we do see is we have a very large number of distributors that are very focused on us, and they are growing the business very nicely as we would expect them to, and really driving those opportunities as we see the possibilities to do. What we have seen though are some other distributors that are really not taking advantage of getting these great products out. We know that the surgeons love them when they see them. And so we've taken the approach using some pretty careful data analytics to understand those situations and specific geographies to make sure that we kind of use a very focused approach to hiring some truly direct sales reps, and those folks are going to be focused on sports medicine and regenerative solutions so a portion of our portfolio. And again, I want to highlight that this is a limited move that we're making to really make sure that we take advantage of specific geographies, where we're just not seeing the kind of growth that we're seeing everywhere else. We started the hiring process and we see ourselves moving into next year before we're sort of fully up and running with that. I'm not going to speak to the specific numbers, but it is a very focused effort. And we feel like it's something we're really excited to be able to get that focus with sports med and regenerative solutions.

Will that change the number of like, I guess, I don't know if you call them sales managers, but essentially the folks that currently manage the distribution relationships, does this strategy at all change those numbers as you sort of look out?

No, it doesn't. The reason is that those individuals are overseeing the distribution network, which includes Arthrosurface Joint Solutions. We have a lot happening with the recent product launch of RevoMotion. We will continue to work on our current hybrid sales force while taking this opportunity to focus on expanding into additional regions in sports and regenerative solutions. I should mention that we are committed to shifting our focus towards commercial execution, so we are not increasing our operating expenses by doing this.

I appreciate it, when you said that in the prepared remarks, but I think it's a good reminder for everyone. So I did want to ask real quick Cheryl on the Integrity patch; obviously, I know you guys are excited about all the new products, but essentially saying hey confident this could be standard of care. I mean, can you just talk about I guess why you have that confidence and is this the kind of product that could actually make a material impact as early as full year 2024? Thanks.

Yeah. I'll tell you the confidence comes from a number of things. We really put some significant energy toward ensuring that we were coming up with a product that addresses true unmet clinical needs. And one of the big pieces of feedback we heard from clinicians was the existing first-generation collagen patches that are in the market today just don't provide the kind of strength or suture retention strength, especially when it gets wet, which it does immediately intraoperatively. So we addressed that. We also hear that there's obviously always a greater need for increasing the regenerative capacity. We've addressed that. There was also a lot of feedback around simplifying surgical technique and instrumentation and fixation to give the surgeon the ability to be efficient and confident in the repair. And so we've really come at it from all directions. We've done a number of labs with already a number of surgeons, and the labs have gone incredibly well and we're really feeling a pull from the surgeon community to get this into their practice. So that's really what our confidence is based on.

And Mike, I'll speak to the other part of your question around the impact in 2024 and we'll get more direction on 2024 on our normal schedule. But as Cheryl said, and I said, we expect double-digit growth to be continuing here in 2024, and Integrity plays a real solid role in that. We're excited that that product remains on track to launch in the first quarter. We were very pleased to be able to get the clearance when we did so that we could get everything set to launch here in the first quarter. We're cognizant it's a new product, and it's going to take a normal ramp that you would expect for a new product. But the team is very excited, as Cheryl said in her comments, we really are seeing the pull from the surgeon community, and we're seeing it from our distributors. And so we're being very thoughtful about how we're going to roll that out, but we do expect it to be a meaningful driver of the double-digit growth next year.

Okay. And then Mike I guess just a last one for me for now. So your commentary on adjusted EBITDA, I think I heard you say 6% to 8% this year and then some number higher than that range next year. Was that what you actually meant to say? Or did I not follow that right?

Yes, Mike, you are correct. I initially mentioned that our expectation was low single-digit growth this year. We have now raised that expectation to a range of 6% to 8% based on our progress so far, and we anticipate that it will increase next year. As we move into next year, we are hopeful to receive feedback from the FDA. We have some initiatives planned to focus on Cingal. Additionally, even with various strategies in place for next year, alongside stabilizing our spending and promoting the growth of our currently launched products, we are confident that we will expand our EBITDA margin next year while also driving revenue growth.

One quick housekeeping, if you have it in front of you. Is there any chance you have the CapEx beyond this $0.7 million like $728,000? Do you by any chance have that exact figure?

The exact figure was $680,000.

$680,000. Perfect. Thanks, guys.

Thanks, Mike.

Thank you. And our next question comes from George Sellers with Stephens Inc. Please go ahead.

Hey, thanks for taking the question. Congrats on a good quarter.

Thanks, George.

Maybe to start with the Joint Preservation and Restoration segment in the quarter. Could you just give some additional details on the contribution from X-Twist? And you noted RevoMotion contributed as well in the quarter. Just curious how material that contribution is? And then as a follow-on to that for the raised guidance, how much of that is related to the launch of RevoMotion? Thank you.

Hi, George, this is Mike. The contribution from X-Twist and RevoMotion was the main driver of our growth this quarter, leading us to achieve double-digit growth. We also experienced strong international revenues in joint preservation during this period. It’s important to note that some of this is due to timing, as parts of our business operate through distributors, which can result in fluctuations in quarterly performance. We had a strong first quarter, followed by a lower second quarter, and now a robust third quarter. While this aspect of our business can be inconsistent, it remains a significant growth area for us over the full year. The primary driver of our growth was the combination of X-Twist and RevoMotion. We launched X-Twist PEEK in the first quarter and are looking forward to introducing X-Twist Biocomposite early next year. RevoMotion entered full market release in September, and we are seeing increasing momentum with that product. Could you remind me of the second part of your question?

Yes. Just curious on the increase in the guidance how much of that is related to the full commercial launch of RevoMotion?

Okay. So we increased the guidance across the business. So the increase in the guidance on OA Pain Management, which we increased over $3 million, was driven by the performance year-to-date and the expectations in the United States led by Monovisc and international led by Monovisc, but mostly by Cingal where we continued to see double-digit growth. So that was the biggest driver of the increase, but we also raised the low end of our range in joint preservation now that those products are like RevoMotion now launched and on the market and we've retired risk associated with those new products. So we're seeing growing momentum for the X-Twist. And again, we just launched the RevoMotion for market release here in September.

Yes. Okay. That's really helpful. Thank you for that color. And then maybe a question on the Integrity patch system. How many of your current surgeon customers are already using a rotator cuff patch system obviously a different one, but how many are already using that device? And I guess I'm really trying to figure out what the cadence of that growth and revenue contribution might be in 2024?

Yes. George, it's a fairly significant number that are currently using some patch. I mean there is one patch that is the market leader, and that's frankly primarily what anybody is using right now. In terms of our ramp, I mean, we are having very good meetings with surgeons right now who are very excited to get this into their practice. It's not uncommon for a product like this for surgeons who want to do a couple, see how their patients do, wait a few months before they fully adopt it, kind of learn, go to some training and education, make sure they're serving their patients well that they're very familiar with the system. So I think we're expecting to see adoption over the next year as we get this launched in Q1. But again, I think there's a real understanding that this product addresses some pretty significant unmet needs they all have and they're very excited to get going with it.

Okay. That's really helpful. And Mike maybe one on OpEx. Clearly some good cost controls going on from your perspective. I'm curious as we look ahead is the third quarter a good sort of run rate going forward on both the SG&A line and also the R&D line? As you sort of maybe switch out some MDR-related costs for some direct sales rep costs?

Well, first I'd say yes we are pleased to be able to drive savings on the OpEx side and we are expecting our OpEx to stabilize here as we look into 2024 and that's what's going to drive the bottom line as we grow the business. In terms of the quarterly phasing, there were a couple of things in the third quarter that were not normal phasing within OpEx. One was we took a charge – there was no cash in the quarter but we took a charge for a software project that we discontinued, and that was – that project had stalled. And we have the opportunity to make other process improvements and system improvements to drive some savings by making that decision. So that was in the quarter that was $4.5 million. And then the other thing in the quarter is we have been making some changes around the business. We had some forfeitures on the stock compensation side of about $400,000 in the quarter. And – so that was reflected in Q3. In terms of the specific quarterly phasing of R&D, that can be lumpy from a quarter-to-quarter basis just depending upon some of the works. We are pleased with how we've been wrapping up the MDR and having real success in getting through that process to date. So, we expect that MDR is going to continue to be less of a part of our story from an investment standpoint because of the successes we've had so far in retiring that. But Integrity is not yet finished and not yet launched; that's going to launch here in the first quarter. And so those kind of wrap-up costs and whatnot will continue through the end of the year and then we'll start to see that coming down next year. So I hope that's helpful directionally.

Yes. That's really helpful. Thank you all for the questions. I’ll hop in the queue.

Thank you. And our next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.

Sorry about that. Can you hear me now?

We can. Hi, Jim.

Okay. Great. So I was just following up on that comment about the software charge. Is that primarily in SG&A?

Yes it is.

And can you just give us a little detail what was the software that you were developing that you stopped?

It was support software for the commercial side. This was a multi-year project that had stalled. We decided, after evaluating our resource allocation across the business, that it didn't make sense to continue investing in it. We realized we could achieve operational process improvements and utilize our existing systems for a more cost-effective solution. Therefore, we decided this quarter to discontinue the software project.

Can the sales team provide some insight into how many new team members you plan to bring on and the timeline for their ramp-up?

Yes, Jim, I'll tell you we've already started hiring. This is very, very focused and targeted. It's really going to be to augment the hybrid sales force. It's going to be focused just on regenerative and sports and just in a few geographies where we're just not seeing the kind of performance that we're seeing everywhere else in the country. So, I think we'll be providing more updates on that as we go forward. But the process has begun and it will continue into next year.

All right. In the quarter, you reported 14% growth for joint preservation, and this figure does not include contributions from the new sales team. Additionally, you are still in the early stages of launching Integrity, RevoMotion, and X-Twist. Would it be accurate to say that while you mentioned expecting double-digit growth, that term is quite broad? Would you find it disappointing if joint preservation growth does not rise above the 14%?

Jim, it's Mike. I'll address that question. We were very pleased, as you mentioned, with the 14% growth given how early we are with these new product launches. The double-digit growth was primarily driven by the new products. Additionally, we saw strong international sales this quarter, which were influenced by the irregular nature of that business. This is reflected in our guidance of 9% to 10% growth for the year in joint preservation. We will provide more details about the full-year guidance next year. However, the main takeaway for us is that it's exciting to have these products available and to receive initial feedback. It is still early, but we are optimistic about their potential for growth and anticipate double-digit growth in joint preservation for 2024.

Okay. All right. Thank you.

Thanks, Jim.

Thank you. And our next question is a follow-up from George Sellers. Please go ahead.

Thanks for the additional question. I'm just curious as we think about 2024 and nearing that breakeven net income point, how much of that margin improvement is related to positive mix associated with some of these new product launches versus just maintaining the cost controls that you mentioned earlier?

That's a great question. If you look at where we're trending right now, we hit breakeven this quarter. So, I think we've demonstrated that we have line of sight to doing that. I think we have a lot of exciting things happening in 2024, and we're expecting that revenue growth to be healthy, as we said. I think it's a good question. The new products are all within that higher gross margin level in line with our multi-year targets. And so as those new products continue to ramp, that is very helpful to us from a mix perspective. I think that managing the cost side also matters too. So, I think it's just we're not that far frankly, from doing that right now. I think it's a combination of the growth. Having finished what we needed to finish in driving these new products, we can now manage the spending. And so I think it's within our control to deliver on those results now that we've done the work that we did here in 2023.

Okay. Great. And thank you again for taking the additional question.

Thanks, George.

Thank you. And our next question is a follow-up from Mike Petusky of Barrington Research. Please go ahead.

Thanks. Just a couple of quick ones. I guess sort of cool Mike, to see the cash balance go up and the free cash generated in the quarter. And I'm just wondering, as you sort of look out with seemingly a bunch of positive things that are converging here. I mean would your hope be that positive free cash is going to be sort of a regular part of the story going forward?

I'm pleased to report that we experienced notable cash growth in the quarter, which reflects the overall health of our business. Regarding our cash guidance, I want to highlight a couple of points. First, we've discussed our improving profitability expected next year, which will positively impact our cash position. This year, we are already in a solid financial situation, and if we exclude the non-recurring charges we faced, we would be in an even better position. We anticipate further progress next year. However, some factors influencing cash next year will depend on Cingal and its timeline, as we may need to invest in supporting its manufacturing. We will see how the timeline develops in our interactions with the FDA. Overall, aside from capital expenditures, the guidance we've provided indicates that cash flows should be on an upward trend next year. At this stage, I feel more comfortable offering qualitative rather than quantitative guidance, but everything is heading in a positive direction.

Great. And then just one more. Obviously, you're getting some questions on Integrity and how quickly that can ramp and I'm sure everybody is sort of curious about what was the actual contribution of RevoMotion, X-Twist, et cetera in the quarter. Have you guys given any thought as you look at 2024, and how you guys are going to sort of report all that out and communicate to in some way trying to quantify or give greater detail on some of these new products since it seems to me are so critical in terms of just the overall thesis here?

Yes, I appreciate the question. I mean, our business is still small enough that we're obviously reporting the way we are just to make sure that we provide valuable information that will trend. As we continue to grow, and as we see a lot of these products making contributions that we think are worthwhile reporting out, then we'll definitely consider that going forward, Mike.

All right. Very good. Thanks, guys.

You’re welcome. Thank you.

Ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.