Earnings Call Transcript - ANIK Q1 2024

Operator, Operator

Good evening, everyone, and welcome to Anika's First Quarter 2024 Earnings Conference Call. I would like to remind you that this call is being recorded. I will now hand it over to Mark Namaroff, Vice President of Investor Relations, ESG and Corporate Communications. Please go ahead.

Mark Namaroff, Vice President, Investor Relations

Thank you. Good afternoon, everyone. Thank you for joining us for Anika's First Quarter 2024 Conference Call and Webcast. Our Q1 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 the 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 #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 the results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and 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 adjusted non-GAAP financial results to the most comparable GAAP measurements is available at the end of the presentation slide deck and our first quarter 2024 press release. And now I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Cheryl Blanchard, President and CEO

Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please turn to Slide 3. Last quarter, we outlined the actions we're taking to focus our business, optimize performance and drive even stronger results as we accelerate our path to profitability. With continuing strength in our market-leading OA Pain Management platform and expanding, highly differentiated HA-based regenerative solutions pipeline, along with continued cost discipline, we delivered a good start to the year and are on track to achieve our 2024 guidance. We are confident that the core elements of our strategy position us well to maximize value creation in an orderly fashion in 2024 and beyond. In the first quarter, our overall revenue was up 7% compared to Q1 last year, driven by another strong quarter in OA Pain Management. We also completed the cost reduction initiatives that we spoke about last quarter, including significant headcount reductions, putting Anika on the path to realize $10 million in annualized cost savings. These cost savings will enable Anika to deliver 75% growth in adjusted EBITDA in 2024, accelerating our profitability for the year. Let me now review our key achievements from the quarter. First, OA Pain Management had another great quarter with revenue of $24.3 million, representing a 7% increase year-over-year due to growing market demand and some favorable order timing. We are pleased to announce that we've extended the exclusive distribution agreement with our established Canadian commercial partner, Pendopharm, to sell Cingal, Monovisc, and Orthovisc through 2030, continuing to build on our existing market leadership position in Canada. Cingal remains a key driver as the next-generation non-opioid OA pain product of choice in now over 40 countries outside the United States. We continue to see strong growth and are exploring partnership opportunities in select Asian markets, and we remain confident that Cingal will truly be a game changer when it is approved in the U.S. To that end, as we continue to interact with the FDA on a regular basis, we recently received feedback from the agency in response to our proposals that were requested during the Type-C meeting in April of last year. While the FDA feedback provided some clarity, there's additional information Anika needs regarding what FDA will require for nonclinical data. We have reverted back to the FDA with questions. As we've said previously, we will begin the remaining nonclinical testing once we have received additional clarity from the FDA. Moving to Joint Preservation and Restoration, we had revenues of $13.8 million, up 3%. We are seeing good progress following the recent launches of several new innovative solutions. These early results have energized our teams as we work diligently to increase the adoption of our new products, which offset headwinds from some of our more mature products during the quarter. Let me first describe the progress we are making on the regenerative side. We have now completed more than 200 cases with over 40 surgeons using our HA-based Integrity Implant System since its limited market release at the end of last November, which is double the number since our last update. We continue to receive incredibly positive clinical feedback as it becomes increasingly adopted by surgeons not only for rotator cuff repair but also in other tendon repair applications such as in the foot and ankle. The full market release remains on track for the middle of this year and is expected to increase growth in our regenerative business in the back half of 2024. Hyalofast continues to perform very well outside the U.S., now selling in over 35 countries. As a reminder, Hyalofast, our HA single-stage cartilage repair system, was granted Breakthrough Device Designation by the FDA. We expect to begin filing the modular PMA this year with a target product launch by 2026, creating a highly differentiated entrant into the $1 billion plus U.S. cartilage repair market opportunity. With great clinical feedback on Integrity and 15-year data likely publishing this year on Hyalofast, Anika now has two highly differentiated regenerative platforms to leverage as the basis for additional near-term regenerative products. We continue to build out our exciting regenerative pipeline and look forward to providing additional details about it in the future. We also remain encouraged by the performance of our X-Twist Fixation System, which has been a standout product for us. More than 10,000 X-Twist anchors have now been implanted globally since the limited release of the PEEK version early last year, marking a real milestone for us. Between the Biocomposite version now fully launched this month and X-Twist PEEK, we are addressing the entire $600 million U.S. rotator cuff market. Lastly, regarding our RevoMotion Reverse Shoulder System, we regularly engage with our distributors to improve our channel and commercial execution, and we're actively training surgeons on the safe and effective use of the system. The pace of adoption remains slower than anticipated due to a more complex sales cycle, including obtaining facility approvals. However, we are encouraged by the recent CMS decision to reimburse shoulder arthroplasty procedures in the ASC and that surgeons are taking RevoMotion to their surgery centers due to our efficient two-instrument tray system design. I'm proud of the work we've done to build on our momentum and enhance execution across our business. We are laser-focused on maximizing value for our shareholders and remain open to paths that will help us achieve this objective while continuing to invest in our greatest opportunities. On a separate note, we announced earlier today that Mike made a personal decision to step down as CFO effective June 3. On behalf of all of us at Anika, I'd like to thank Mike for his leadership over the past four years. Mike joined Anika in mid-2020 following our two acquisitions. His strategic and operational insights have helped Anika navigate this period of significant change while positioning the company for an exciting future. I appreciate everything Mike has done for Anika, and we all wish him the best. We're excited to welcome Steve Griffin as our new CFO on June 3. Steve comes to Anika with more than 15 years of experience in public company CFO and other senior finance leadership roles, along with a proven track record of value creation at both large and small public companies. We are confident that Steve will help us build on our momentum to achieve meaningful growth and profitability potential across the business. Mike will remain with Anika through the end of the year and work closely with Steve and me to ensure a smooth transition of responsibilities. We're glad to continue benefiting from his expertise during that time, and in the near term, we look forward to introducing you all to Steve.

Michael Levitz, CFO

Thank you very much, Cheryl. While I have decided to leave Anika to spend more time with my family, I am very thankful for the opportunity to have been a part of the Anika team over the last four years. When I joined the company, it was just starting to absorb its acquisitions of Parcus Medical and Arthrosurface in the midst of the first few months of the COVID pandemic, which lasted much longer than expected, and its impacts were more widespread. The company has navigated this challenging period and made meaningful strides, including thoughtful investments, strengthening the core OA business, and advancing a meaningful portfolio and pipeline of products that leverage Anika's HA expertise, while maintaining a healthy balance sheet and making targeted cost reductions to support sustainable and growing cash generation. Anika's foundation is strong, and the company has tremendous opportunity with its established and differentiated products and pipeline to fulfill its mission to customers and their patients and deliver value for our shareholders. These last four years, I have greatly appreciated the opportunity to work closely with Cheryl, my peers and the finance and IT team, the many wonderful, dedicated people across Anika globally, and with such a quality Board of Directors. Cheryl is a smart and resilient leader who exemplifies the Anika core values of doing the right things the right way, focused on driving high-quality products that truly improve lives. Steve is joining a talented team, and I look forward to supporting his transition as Anika's next CFO and following Anika's success for years to come. Now please refer to Slide 4 on the online presentation, where I will walk through the results for the first quarter of 2024. Unless otherwise stated, all comparisons will be against the same period in the prior year. I'm pleased to report total revenue for the first quarter grew to $40.5 million, driven by growing demand as well as favorable order timing. Revenue in our largest product family, OA Pain Management, increased 7% in the first quarter to $24.3 million due to growing demand and favorable ordering patterns from both J&J Mitek in the United States and from our international distributors. Our Joint Preservation and Restoration revenue increased 3% in the first quarter to $13.8 million, driven by our recent product launches in the U.S. led by X-Twist and Integrity. This growth was partially offset by lower sales of some of our more mature products. Lastly, our Non-Orthopedic revenue increased 29% to $2.4 million due to growing demand and year-over-year order timing in high-risk veterinary sales. Moving to gross margin, our gross margin in the first quarter was 61%, up from 60% on lower intangible amortization. Our adjusted gross margin was 62% in the quarter, down from 64% due primarily to the timing impact of production inefficiencies and reserves in the quarter. Moving to operating expenses, our operating expenses in the first quarter totaled $29.7 million. That's down $5.7 million. These lower operating expenses reflect fewer non-recurring costs as well as effective cost control following the launches of key products and addressing the new regulatory requirements in the EU to continue to sell our legacy products there. As a reminder, Anika incurred $5.8 million in non-recurring costs in the first quarter of last year for the Parcus arbitration settlement, shareholder activism and other items. In comparison, operating expenses in the first quarter this year reflected $1.4 million of nonrecurring items, including severance costs for the headcount reductions we took in the first quarter and shareholder activism costs. Our net loss for the quarter was $4.5 million or $0.31 per share compared to a net loss of $10.4 million or $0.71 per share. We generated adjusted net income of $1.2 million in the first quarter or $0.09 per diluted share, up from an adjusted net loss of $2.2 million or $0.14 per share. As we highlighted on our last earnings call, beginning this year, the calculations of adjusted net income and adjusted EPS have been revised to exclude stock-based compensation, net of tax, and this revised calculation is reflected for all periods presented. Anika generated adjusted EBITDA in the quarter of $2.5 million, up from a negative $1.2 million. Our adjusted EBITDA margin in the quarter grew to 6%, up from a negative 3%. The 9-point improvement was primarily due to the combined benefit of both revenue growth and reduced spending. Lastly, regarding our cash flow and capital structure, operating cash flows were just below breakeven in the first quarter, a $3.5 million improvement from cash outflows of $3.6 million, reflecting lower non-recurring costs and reduced spending. Our capital expenditures in the quarter totaled $1.8 million, up $0.4 million, reflecting continued investments in manufacturing capabilities, supporting growth in our OA Pain Management product lines. We ended the quarter with $68.6 million in cash and no debt.

Cheryl Blanchard, President and CEO

Please turn to Slide 5. Now I'd like to review our full year financial outlook for 2024. Based on our progress to date, we are reiterating our guidance for 2024 with total company revenue of $168 million to $173 million, representing growth of 1% to 4%. In OA Pain Management, we continue to expect revenue to grow to $102 million to $104 million, up 0% to 2%. This reflects continued above-market growth in end-user sales, led by growth of Monovisc globally and Cingal outside the U.S. This year, the impact of the continued above-market growth is offset by unfavorable order timing year-over-year. On a quarterly basis, we also expect ordering patterns to remain lumpy as they've been historically, with higher revenue in the second half of 2024 based on projected timing of transfer shipments compared to quarterly timing last year. In Joint Preservation and Restoration, we continue to expect revenues to grow to $58 million to $60.5 million, up 6% to 10% as faster growth in our new products led by X-Twist and Integrity is partially offset by lower sales of certain legacy products. We continue to expect that growth to be weighted more towards the second half of the year due both to normal seasonality and the full market release of Integrity, which remains right on schedule. In Non-Orthopedic, we expect revenues to be $8 million to $8.5 million, a decrease of 14% to 19%. With regard to gross margin, we continue to expect adjusted gross margin for 2024 to be 66% to 66.5%. From a spending perspective, we executed on the planned workforce reduction and other spending reductions in the first quarter, and we are on track to deliver the $10 million of annualized operating expense savings, as previously announced. As we have said, a partial year impact will be realized this year due to the timing of the actions. In 2024, we plan to use a portion of the savings to fund the filing of the first PMA module for Hyalofast in the United States, as well as additional clinical follow-up for our HA-based regenerative products such as Integrity. We continue to expect our adjusted EBITDA in 2024 to be between $25 million and $30 million, representing an increase of over 75% at the midpoint. This translates to an adjusted EBITDA margin improvement of over 6 points, growing to at least 15% for the year. We continue to be positioned to deliver positive adjusted net income this year and generate positive free cash flow even as we invest in higher capital spending this year focused on our OA Pain Management manufacturing operations, in part reflecting timing from last year. In summary, the first quarter was a solid start to 2024, demonstrating the strength of our market-leading core OA franchise and growing momentum from our new products like Integrity. Anika is on track for significant bottom line growth this year.

Michael Levitz, CFO

I will now turn the call back to Cheryl.

Cheryl Blanchard, President and CEO

Thanks, Mike. Please turn to Slide 6. It's clear that Anika's renewed focus is proving effective as we accelerate our path to profitability. It's still early days, and we're continuing to take the necessary steps to optimize performance. We'll remain nimble in our approach, and we are confident that Anika is on the right path. With our product portfolio and exciting pipeline, we will continue to improve the lives of the millions of patients in need of early intervention orthopedic care. We appreciate the support of our Anika colleagues, without whom none of this will be possible. And we appreciate the support of our shareholders as we work to deliver value on their investments. With that, we'll open up the line for questions.

Operator, Operator

Your first question comes from George Sellers from Stephens.

George Sellers, Analyst

Maybe just to start on guidance. Just curious. The OA Pain Management business continues to outperform. It was pretty strong throughout 2023 with a couple of quarters of double-digit growth and another strong quarter here. I'm just curious. How should we think about sort of the cadence through the remainder of the year to get to your guidance? Or those tough comps, what's sort of limiting stronger growth in that guidance? And then also, how should we think about for the Joint Preservation and Restoration piece, some of the new products like the HA-based patch system? How should we think about those contributing more significantly to revenue growth?

Michael Levitz, CFO

Thank you for your questions, George. First, regarding our guidance on OA Pain Management, I want to emphasize that our underlying business is growing faster than the market. Those familiar with our company know we often experience volatile order timing, particularly because we work with large corporations like Johnson & Johnson. This volatility was evident last year, especially in Q2, which was unusually high due to how they manage their inventories. Therefore, as we approach this year's second quarter, we have a challenging comparison to make. Our guidance remains unchanged, set at a growth rate of 0% to 2% for the year, influenced by the timing of transfer shipments. I anticipate that our revenues in the OA Pain Management business will be stronger in the second half of the year compared to the first half due to last year’s larger Q2 and expected larger Q3. We guided for 0% to 2%, but we achieved a 7% growth this quarter. However, I expect next quarter's results to be down year-over-year due to the tough comparisons but this is just a timing issue. In terms of joint preservation, we've reiterated our growth guidance of 6% to 10%. This growth is expected to be more pronounced in the second half of the year as we launch the Integrity product around mid-year. We're on track with its limited market release and are pleased with the early feedback. Looking ahead, we expect joint preservation to strengthen, bolstered by the full market release of Integrity and the continued growth of our new products. We're also thrilled about the launch of the X-Twist Biocomposite, which is performing as we anticipated when we set our guidance. I hope this clarifies things, George.

George Sellers, Analyst

Yes. That's really helpful color. I appreciate that. And then maybe looking potentially beyond this year. I'm just curious. We've seen some announcements of some studies at various other companies. I'm just curious how you all are thinking about the competitive dynamics regarding potentially some competing offerings in the HA injection market or with what Hyalofast is going to bring to the table when that's approved. Has there been any change from your perspective on competition in the market as we look beyond this year?

Cheryl Blanchard, President and CEO

George, this is Cheryl. Can I just ask you to clarify what competition you're referring to, just to make sure I answer your question?

George Sellers, Analyst

Sure. So one specific example would be Organogenesis announcing the Phase III trial results from their ReNu injection. Just curious if you view that as a competing offering to Orthovisc and Monovisc. Also, products like CartiHeal gaining momentum in the market; if that's a competitive concern.

Cheryl Blanchard, President and CEO

Got it. Thank you. I appreciate that. Yes, Organogenesis did just announce a readout on their first Phase III clinical trial. It's difficult for me to comment on that because they didn't provide any data. So I'll be in a better position to have a thought about that from a competitive perspective once I see their data. But they didn't put any data out yet. And then on the cartilage repair side, from a CartiHeal perspective, obviously, CartiHeal will be launching soon into the space where they'll be competing with the MACI product. CartiHeal's play is with the situation with a product that has to remove healthy bone to be implanted. So I think it will be going after a smaller segment of the cartilage repair market, that being the osteochondral defect market. Hyalofast, I'm very excited to bring that to market, and we'll start filing that modular PMA this year. We've got 15 years of data that is likely publishing this year. It is off the shelf, single stage and something that we know how it plays in the market based on our commercial experience internationally and doesn't require you to take healthy bone or undergo a second surgery. We have surgeons waiting for it here in the United States.

Operator, Operator

Your next question comes from the line of Jim Sidoti from Sidoti & Company.

James Sidoti, Analyst

Can you talk a little more about the growth rates for the joint business? It was down from the fourth quarter of '23, and you talked about some of the mature products that aren't growing as quickly. Are you deemphasizing sales of those products? I mean, will you continue to sell those going forward?

Cheryl Blanchard, President and CEO

Jim, thanks for the question. Yes, I would tell you that our new products are doing really well. I mean, we just announced that we're over 10,000 implantations of X-Twist. Integrity is doing very well even in the limited market release, where our goal there was to get feedback in an LMR, and we're seeing a real pull from the market with that product. We are facing headwinds with some of our more mature products. While we have a subset of distributors that are performing very well for us and growing strong double digits, we've talked about the fact that we are not happy with the overall performance currently. So we continue to focus on commercial execution and on really driving those new products that are differentiated and have great clinical results. In that business, we have great products that are doing well, and really the new products are driving the growth even in the face of some of those headwinds.

James Sidoti, Analyst

Okay. So it sounds like you're going to continue to sell those products and maybe step up some of the marketing efforts for those products.

Cheryl Blanchard, President and CEO

Yes, we are continuing to sell those products, and we continue to train and educate on them. We continue to make some investments in them. I will just highlight, again, that our cost reduction initiatives we announced last quarter have really put us in a place where that part of the business is no longer a drag on our adjusted EBITDA. So we've been thoughtful about how we're making our investments there and where we can invest to drive that growth. And we're focusing on the products that we think are more differentiated.

James Sidoti, Analyst

Okay. And then if we switch to Cingal, you talked about working with the FDA to figure out what nonclinical data they require. Once you come to an understanding, how long do you think it will take to get that data to the FDA?

Cheryl Blanchard, President and CEO

Yes, it's a great question. As soon as I have complete clarity on the additional nonclinical testing we will need to do, I will be in a better position to answer that question. It is not the same situation as a few years ago when the company was talking about conducting a significant clinical trial. It is really just the remaining nonclinical testing that the FDA has been discussing with us. As soon as I have that clarity, I will be the first one to communicate it.

James Sidoti, Analyst

Okay. Got it. And then on pain management, your numbers the past few quarters, even with the lumpiness to the distributor, have been growing very nicely. Your competitor reported they are seeing some good growth. So it feels like that market is very healthy right now. Is that more attributable to procedure growth or pricing improvements?

Cheryl Blanchard, President and CEO

Yes. I think there are a couple of things that have happened. First, the companies that were more affected by the ASP changes have anniversaried out of that dynamic, and we are just starting to see that change this quarter. Over time, that complete market in the U.S. actually shrunk a bit because of the ASP dynamic. However, with a couple of those companies having anniversaried out of that dynamic, we are starting to see growth in that market again. Although the market had some dollar shrinkage due to the ASP dynamic, it never stopped growing from a unit perspective. We continue to see low single-digit growth of that market in the United States, and it is a healthy market. It remains a primary treatment option for osteoarthritis before people move on to a total knee replacement.

Michael Levitz, CFO

I would just add, consistent with what I said at year-end, we're seeing really healthy growth in our injection volume. However, the pricing has essentially been fairly consistent over the last couple of years for us, declining low to mid-single digits on a fairly consistent basis. But the volume growth in our Cingal and Monovisc products remains strong.

James Sidoti, Analyst

Okay. And then two quick ones for Mike. The adjusted gross margin for the quarter was 62%, but you're guiding for 66% to 66.5% for the year. Is that due to some one-time events in the first quarter, or do you expect the product mix to improve significantly in the second half of the year?

Michael Levitz, CFO

Jim, both, actually. We expect a favorable mix as we go through the year compared to the first quarter, and we just had a number of one-time events in the quarter. We had production inefficiencies amortized into the period, and we expected that. That was built into our guidance. We also had reserves recorded in the period. Oftentimes, those occur throughout the year. It happened in Q1. That's why we felt comfortable reiterating our guidance for the year, and we expect that to improve for the balance of the year so that we're in line with our full year guidance.

James Sidoti, Analyst

Okay. And the $900,000 of severance costs, is that in the SG&A line?

Michael Levitz, CFO

The severance costs were split in the areas to which they related, and they are recorded in the areas appropriately, between research and development and SG&A.

Operator, Operator

Your next question comes from the line of Mike Petusky from Barrington Research.

Michael Petusky, Analyst

I'm interested in the severance and cost reduction details. When did this take place? Was it around mid-March? I'm wondering how much of this affected Q1 compared to Q2.

Cheryl Blanchard, President and CEO

Yes. Mike, it was at the end of Q1, so it really didn't have an impact yet in Q1. You'll see this year a basic impact on three quarters, but not fully annualized until next year.

Michael Levitz, CFO

And from a cash perspective, the severance was actually paid out in the second quarter.

Michael Petusky, Analyst

Okay. That's helpful. All right. And then, Cheryl, on the FDA feedback, you said some clarity. You talked about nonclinical data. What's your confidence level that you're not going to get surprised and they're going to come back and say, actually, we're going to need a material clinical trial to finish this out? I mean, what's your confidence level that that is not on the table?

Cheryl Blanchard, President and CEO

Yes. I would never want to speculate regarding the FDA, but we have met with our clinical data the endpoints that they set out for the company to meet. We've done so with statistical significance in multiple Phase III clinical trials, and the FDA continues to reiterate that our clinical data will be a review issue. I'm not going to get any additional clarity on that topic until we actually file. However, we do have continued ongoing dialogue with them. They did give us some feedback here recently. We went back to them with some additional clarifying questions, and I look forward to continuing to provide updates as we make progress.

Michael Petusky, Analyst

And shifting over to Integrity. Any learnings from the last 100 or so cases and new surgeons? Any feedback that is worthy of mention?

Cheryl Blanchard, President and CEO

Yes, the feedback has been really quite outstanding. Several surgeons now have patients using our product in various shoulder applications, mainly for rotator cuff repair, as well as in multiple foot and ankle applications, and in some cases for other body parts as per the appropriate on-label use. The overall response has been excellent. The patch implant is strong and manageable during arthroscopy, and the surgical technique is straightforward. The fixation components are impressive, leading to excellent patient outcomes. This positive feedback has provided us with the confidence needed to stay on track for our full market release in the middle of the year. We are also receiving strong support from both surgeons and distributors for this product, so we are very enthusiastic about reaching that full market launch.

Michael Petusky, Analyst

And then just one last question about gross margin. Mike, do you expect that the issues with production manufacturing will affect the gross margin going forward? Should we anticipate gradual improvement, or have the factors that impacted the gross margin in Q1 been fully resolved, allowing for a cleaner number starting in Q2?

Michael Levitz, CFO

Good question. Mike, we don’t provide quarterly guidance in part because of the lumpiness of the business, which can impact things on a quarterly basis. One of the things we did this year, our guidance is essentially consistent with what we guided to last year and what we delivered last year. In Q1 of last year, we had a low gross margin, and it was higher in the remainder of the year. I don’t know that anything unique in the subsequent quarters can be discussed just because it can move. I think it’s fair to say you could take the guidance for the year, and if you wanted to spread it evenly, that’s a pretty reasonable approach in terms of the gross margin percentage. However, keep in mind that in gross profit dollars, the revenue growth we expect to be weighted towards the second half for both OA Pain Management and joint preservation. But from a percentage basis, some may transfer into Q2 from the timing of events, but it’s hard to specify at this point.

Michael Petusky, Analyst

I guess what I was really trying to get at, whatever production inefficiencies you're referring to, has that been rectified? Has that been resolved essentially?

Michael Levitz, CFO

Yes.

Operator, Operator

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.