Axogen, Inc.

Good morning, everyone. Joining me on today's call is Michael Dale, Axygen's President and Chief Executive Officer, and Lindsey Hartley, Chief Financial Officer. Michael will discuss second quarter 2026 financial results and corporate highlights. Lindsey will then provide details on financial performance and overall outlook for the year. This will be followed by a question and answer session. Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of the Axygen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com. Before we begin, I would like to remind you that during this conference call, management will be making forward-looking statements. Forward-looking statements include statements regarding financial guidance and outlook, clinical development and regulatory efforts, commercial growth initiatives, reimbursement and market access, These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including without limitation the risks and uncertainties reflected in the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and other filings made with the Securities and Exchange Commission. forward-looking statements speak only as of the day they are made, and the company undertakes no obligation to update any forward-looking statements except as required by law. In addition, for reconciliation of non-GAAP measures, please refer to today's press release, presentation with highlights from today's call, and the corporate presentation on the investors section of the company's website. Now I'll turn the call over to Michael.

Michael, please go ahead. Thank you, operator, and good morning, everyone. Today, I will walk you through our second quarter performance using the same lens we've used all year, which are the six priorities that comprise our strategic plan. Once I've concluded my commentary, Lindsey will review our financials in detail, after which we'll open the call for questions. As preface to my review of performance for each strategic priority, I want to make clear on behalf of the Axiogen team that we are delighted with our customer creation and market development performance. What you will hear today is that consistent with our plans across extremities, OMF and head and neck, breast and prostate, we are exceeding our goals for growing adoption of nerve care by existing surgeons, increasing the numbers of new surgeons, expanding the number of new accounts, and growing patient awareness overall. Our 23% year-over-year revenue growth this quarter and increased revenue guidance for the remainder of the year reflects this progress and our confidence in the appropriateness of our strategic priorities. While all markets are enjoying strong year-over-year growth, breast growth is particularly strong and accelerating, reflecting the impact of our market development programs, increased patient awareness, improved coverage and payment, and expanded Salesforce coverage. As a result, we will be reporting on the breast business separately in more detail. Starting with our first priority, revenue growth and financial operating leverage. As reported this morning in our earnings release, second quarter revenue was $69.7 million, up 23.1% versus the second quarter of 2025. Reflecting broad base growth across all three target markets. REST led the way, contributing approximately two-thirds of the quarter's growth, with first half 2026 revenue up 47% year-over-year. At the same time, extremities, OMF and head and neck, and other indications combined delivered solid 15% year-over-year growth through the first half. Adjusted net income was $7.3 million for the quarter, adjusted EBITDA was $8.4 million, and we ended the period with $113.4 million in cash, cash equivalents, restricted cash, and investments. Consistent with prior quarters, performance was driven by strong demand for Avance and continued adoption of our broader product algorithm across all target markets. Avance represented 65% of total revenue in the second quarter and 63% year-to-date, up from approximately 60% in 2025. Commercial execution remains strong across the business. Salesforce productivity continued to exceed our expectations and our active surgeon count increased meaningfully during the quarter, an indicator we monitor closely because it reflects broader institutional adoption of nerve care. We are also realizing the benefits of the Salesforce expansion investments we made throughout 2025 and the first half of 2026 as those representatives progress through their ramp and approach full productivity consistent with our market development model. Overall, these results reflect the strength of our commercial organization, the growing adoption of nerve care, and consistency in execution of our long-term growth strategy. Gross margin for the quarter was 72.7% compared to 74.2% for the second quarter of 2025 and less than our plan. The shortfall was driven primarily by product mix as breast growth accelerated faster than planned and relies more heavily on longer advanced grafts, which carry higher production costs. Our manufacturing plans anticipated a growing breast business but not the relative change in revenue mix between our target markets that is now occurring and the resulting impacts on longer graph product mix. We will address these changes in product mix through pricing actions and production efficiency initiatives. However, these measures will take time to implement and as such are unable to affect the remainder of our 2026 forecasted product mix. As a result, We are updating our 2026 gross margin guidance to be at least 73%. Looking forward, our operating bias remains to support growth in all target markets while continuing to improve operating margin, EBITDA, and operating profits. Moving on to our second priority, market development across extremities, oral, maxillofacial, and head and neck and breasts. Consistent with prior quarters, each of our three target markets contributed positively to second quarter results. Extremities and OMF and head and neck both continued the steady progress we've described on prior calls, reflecting ongoing incremental surgeon activation and adoption of the accident nerve repair algorithm and continued account level engagement, reflecting strong execution of our high potential account development strategy. As mentioned earlier in my comments, year to date, breast grew 47% year over year, driven by added commercial capacity, training of new surgeons, expansion of coverage and payment, and increasing surgeon and patient awareness. We believe we're still early in this market's development, even as it becomes a larger part of our overall mix. We now have roughly 215 active breast programs, an increase of over 40 programs year over year, and roughly 560 active surgeons, an increase of over 150 surgeons year over year. As a reminder of how we think about our markets longer term, each one sits at a different stage of development with different referral patterns, different training requirements and different reimbursement dynamics. We outline the size and potential of each prioritized market opportunity at our analyst day in March 2025. and second quarter and year-to-date results continue to reinforce the validity of this opportunity framework. We remain confident these markets can support double-digit growth for a long time as we continue to build the infrastructure, the evidence and the awareness required to make nerve repair an expected standard of care. With regards to priority three, commercial expansion, We ended the second quarter with a total commercial organization of 172 sales representatives, market development managers, and regional directors across all markets consistent with our plan for disciplined, steady expansion of our commercial footprint. Year-to-date, we have added 15, including 9 in extremities and 6 in breasts, bringing those teams to 140 and 29, respectively. along with three dedicated market development managers in OMF and head and neck. We are very encouraged by our return on investment in Salesforce expansion. New representatives, those in their role for less than nine months continue to contribute meaningfully to our growth. We believe these results validate one of our core assumptions that expanding sales coverage is one of the most important levers within our control to affect market development and customer creation. The fourth priority of our strategic plan is commercial excellence, specific to our emphasis on high potential accounts, productivity, and education. High potential accounts continue to be a primary engine for our revenue growth, representing 60% of total revenue and 51% of growth year-to-date. Consistent with overall action growth, productivity in high potential accounts was 20% year-over-year. The number of active high potential accounts increased to 690, up 11 year-to-date. Non-high potential accounts continue to grow as well, representing 40% of oxygen's total revenue year-to-date and driving 24% year-over-year productivity per account. Growth in these accounts reflects growing awareness and adoption of nerve care in general. Active surgeon growth has increased by more than 210 year-to-date. with more than 135 added within high potential accounts year-to-date. We have exceeded our plan for active surgeon growth in 2026. Regarding our professional education programs, year-to-date we have conducted nine programs across all target markets, training 155 surgeons. Next, I'd like to update everyone on our fifth priority, standard of care, evidence and coverage development. As of today, commercial payer coverage for advance is approximately 86% of covered lives in the United States. Aetna remains the largest commercial payer not yet covering advance. Based on historical timing, we expected an update in June. However, Aetna's review is ongoing. If Aetna issues a favorable decision, we will consider that near universal commercial coverage in our existing markets in the United States. with approximately 95% of commercial lives with access to events. At that point, only a few regional payers in Humana will remain. Evidence generation remains a core pillar of our strategy to support development of nerve care guidelines and drive broader adoption of nerve repair and protection. This quarter, we advanced this strategy across multiple fronts. The recently published REPOSE study is an important example Repose provides prospective randomized clinical evidence evaluating axigard nerve cap as an adjunct to standard neurectomy for symptomatic neuroma. The results reinforce the clinical rationale for protecting the nerve end after resection with favorable signals in pain burden, medication reliance, and recovery-related outcomes over follow-up. Importantly, we view Repose as more than a study in one procedure. It strengthens the evidence foundation for our nerve protection portfolio and supports the broader clinical message that nerve management matters when surgeons are addressing pain, function, and quality of life. We are also advancing Nerve Restore, our randomized assessor-blinded study comparing advanced to sural nerve autograft and mixed and motor peripheral nerve reconstructions. This is strategically significant because Autograph has long been viewed as the historical benchmark in complex nerve reconstructions. In second quarter, we activated our first site in the United States and are screening for patients. We are on track for additional site activations in the second half of 2026. Another important evidence generation initiative is Embrace. Our prospective assessor-blinded study evaluating sensory restoration following nipple-sparing mastectomy and implant-based breast reconstruction, comparing advanced supported neurotization to reconstruction without neurotization. As we have discussed previously, generating high-quality clinical evidence in breast reconstruction remains an important strategic priority for Axigen. The program remains on track for initiation later this year, consistent with our strategic operating plan. Taken together, these initiatives demonstrate execution as planned of our strategic evidence generation plan to make restoration of peripheral nerve function standard of care. And finally, our sixth priority, which is about innovation, research and development, and therapeutic reconstruction. Consistent with our strategy to expand oxygen's leadership in peripheral nerve care, We made a strategic investment in Trace Biosciences this quarter, acquiring a minority ownership stake, including a limited right of first refusal. Trace's nerve-specific imaging technology, NerveTrace, is designed to help surgeons visualize nerves in real-time, potentially reducing nerve injury and improving identification of repair opportunities. We view Trace as a highly complementary adjacency to oxygen platforms. Trace helps surgeons find and protect nerves, while Avance supports repair when a nerve cap is identified, serving the same surgeons, patients, and procedural setting. Trace received FDA clearance of its IND in January 2026, and our investment supports advancement through Phase II and III clinical trials toward an NDA. This structure gives oxygen exposure to a differentiated technology with strategic fit while preserving capital discipline and future flexibility as the program progresses. Turning to our prostate program, we continue to make progress and our clinical development work remains on plan. We expect to share more on the next phase of our strategy during our third quarter earnings call. What we continue to hear through our surgical experience program is that there is a meaningful unmet need. Erectile dysfunction and incontinence remain significant quality of life challenges for many patients after radical prostatectomy. We believe nerve reconstruction with Vance may have an important role to play and this work is helping us better understand the urology market, build procedural experience and generate early data. As we look ahead, our decision to move forward will be guided by the market opportunity The ability to standardize and scale the advanced technique, surgeon feedback on clinical impact, and evidence of patient demand that can help shape the care pathway. So far, our assessment is progressing well, and we look forward to providing a detailed update in the fourth quarter. In closing, second quarter performance reflects continued disciplined execution against our strategic plan and commitment to our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function We're encouraged by the momentum across the business and are confident in our ability to overcome the inevitable challenges that come with new market development and building an enduring, profitable business. I'll now turn the call over to Lindsey to walk through the financials in more detail and our updated outlook for the remainder of 2026. Thanks, Mike.

I'm pleased to report our second quarter's 2026 financial results. For the Second quarter, we reported revenue of $69.7 million, reflecting growth of 23.1% year-over-year. Revenue growth continues to be driven by strong demand for advance and adoption of our product algorithm across target markets, with unit volume serving as the primary driver, then price. For the first time, sales from extremities were less than 50% of total sales, as we experienced growth of over 50% year over year in our breast market. Through the first half of 2026, we continue to have double digit year over year growth in all our markets. Gross profit for the second quarter came in at 50.7 million. This represents a gross margin of 72.7%. Gross margin decreased 150 basis points year over year driven by 4.6% higher product costs, partially offset by 2.7% lower write-offs. Sequentially, gross margin declined 250 basis points, driven by 1.8% higher product costs and 0.7% write-offs. Gross margin in the second quarter was less than our internal projections, primarily due to, one, selling more higher costs Biologic Advance starting in April than expected, and two, the demand for certain long-length advance growing faster than the rest of the advance portfolio. These two factors impacted gross margin approximately 1% versus our internal expectations. This demand for long-length advance, largely stemming from the growth of our breast business, exceeded our internal expectations by approximately 14% in the quarter. To better align production with this updated demand profile, we adjusted our production plans beginning in the third quarter, which we expect will increase advanced product cost. As a result, we now expect our full year 2026 gross margin to be at least 73%. As for the cadence of the second half, We expect gross margin to be higher in the third quarter than the fourth quarter. As our non-breast markets continue to grow and demand broadens across a wider range of graft sizes, we expect donor yield efficiency to improve, supporting gross margin expansion over time. We also have multiple initiatives underway focused on increasing graft yields, including long-length advanced grafts. We plan to provide an updated long-term financial framework in the first quarter of 2027. With recent payer coverage wins and VLA approval creating meaningful growth opportunities, we believe additional time is needed to assess their full impact. We have consistently outperformed our long-range revenue growth target of 15% to 20% CAGR and believe we remain well positioned to continue doing so. Operating expenses increased to $52.8 million in the second quarter, up from $40.3 million in the second quarter of 2025, and increased 4.6% as a percentage of revenue. The increase year over year was driven primarily by compensation costs and stock-based compensation expense tied to certain PSUs anticipated to achieve above target on revenue growth components. Sequentially, as a percentage of revenue, operating expenses decreased four percentage points. Sales and marketing expenses as a percentage of total revenue increased 2.2 percentage points to 44.2% in the second quarter compared to 42% in the second quarter of 2025. The increase Year-over-year reflects investments in our commercial strategy to support our market development initiatives and long-term growth plan. Sequentially, as a percentage of revenue, sales and marketing expenses decreased 2.4 percentage points. Research and development expenses increased 25.3% to $8.6 million in the second quarter. compared to 6.9 million in the second quarter of 2025. And as a percentage of total revenue, increased slightly to 12.3% from 12.1%. Our continued investment in research and development is essential to our mission of making peripheral nerve repair a standard of care through the development of clinical evidence and innovation. Sequentially, as a percentage of revenue, Research and Development expenses remained relatively flat. General and administrative expenses increased 38.4% to $13.4 million in the second quarter, compared to $9.7 million in the second quarter of 2025, and as a percentage of total revenue, increased 2.2 percentage points to 19.3% from 17.1%. Sequentially as a percentage of revenue, general and administrative expenses decreased 1.7 percentage points. Net loss for the second quarter was 1.5 million or 3 cents per share compared to net income of 0.6 million or 1 cents per share in the second quarter of 2025. Sequentially, net loss improved $18.1 million. As a reminder, net loss in the first quarter included a one-time loss of $16.8 million, which was incurred upon the extinguishment of our debt facility in January. Adjusted net income was $7.3 million, or $0.12 per share, for the second quarter, compared to an adjusted net income of 5.7 million or 12 cents per share for the second quarter of 2025. Sequentially, adjusted net income improved 3.1 million. Adjusted EBITDA for the second quarter was 8.4 million compared to an adjusted EBITDA of 9.3 million in the same period last year. And as a percentage of revenue decreased, 4.2 percentage points to 12.1% from 16.3%. Sequentially, adjusted EBITDA improved $2.7 million. Adjusted net income and adjusted EBITDA are calculated as net income or EBITDA adjusted for stock-based compensation and the loss on the extinguishment of the debt. The improved bottom-line performance demonstrates our ability to drive both top-line growth and enhanced profitability. As of June 30th, 2026, cash, cash equivalents, restricted cash and investments totaled 113.4 million. Through the first half of 2026, we generated 4.1 million of free cash flow. Based on our year-to-date performance and visibility into the remainder of the year, we're revising our full year 2026 financial guidance. We now expect full year 2026 revenue growth of at least 24% or revenue of at least $279 million. Full year 2026 gross margin is now expected to be at least 73% and we continue to expect to be free cash flow positive for the full year 2026. This guidance reflects continued confidence in commercial execution across all three core markets and the ongoing Salesforce productivity improvement. It does not assume material benefit from payer coverage decisions beyond what is already known. With that, we will now open the line for questions. Operator?