Axogen, Inc.

Good morning, everyone. Joining me on today's call is Michael Dale, Axiogen's President and Chief Executive Officer, and Lindsey Hartley, Chief Financial Officer. Michael will discuss third 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 investor section of Axiogen's website. 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 efforts, training and education initiatives, Research and Development Activities, and overall business strategy and performance, including anticipated benefits and integration activities related to the biocircuit acquisition. These far-looking statements are subject to risks and uncertainties that could cause actual results that differ materially. Including without limitation, the risk 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 date 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 investor 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 third 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. Before reviewing performance against each strategic priority, I would like to make clear how delighted we are with our third quarter and year-to-date results. We are meeting or exceeding our customer creation objectives across the board and remain confident in our ability to execute our strategic plan. Starting with our first priority, which is revenue growth and financial operating leverage. Third quarter revenue was $75.8 million, up 26.2% from third quarter 2025, with growth in all of our markets. Breast grew more than 50% year over year and extremities, OMF, head and neck combined grew 10.7%. Avance made up 64% of revenue in the quarter and year to date versus about 60% for 2025. GAAP net income was $2.3 million. Adjusted net income was $13.1 million and adjusted EBITDA was $13.4 million with adjusted EBITDA margin of 2.3 percentage points from a year ago. We ended the quarter with $350 million in cash, cash equivalents, restricted cash, and investments, including proceeds from our September equity offering. Gross margin was 74.8% up from 72.7% in the second quarter and down from 76.6% a year ago. Moving to our second priority, market development. Consistent with prior quarters, all three target markets contributed positively to third quarter results. We continue to see momentum in breast as nerve reconstruction becomes a larger part of the breast reconstruction conversation. Growth is coming from expansion within existing accounts, new surgeon adoption, and New Account Development, supported by rising patient awareness and interest in breast resensation. Because this market remains early in its development, we see significant long-term growth potential from expanding our commercial footprint, developing new accounts and training new surgeons. In third quarter, we held our final two surgeon training programs planned for 2026. training more than 50 plastic surgeons in the resensation technique. We also continued investing in patient awareness and completed significant market development work to prepare for Breast Cancer Awareness Month in October. We now have roughly 485 active breast accounts, up more than 95 year over year, and roughly 590 active surgeons, up more than 140 year over year. Turning to extremities in OMF and head and neck markets, growth was double-digit in the third quarter, continuing the steady progress described on prior calls, supported by account expansion and increased surging activation as driven by our high potential account strategy. Extremities grew across key indications in both upper and lower extremities. In OMF head and neck, growth was driven by adoption of our algorithm in mandible reconstruction and continued momentum in oncologic procedures such as neck dissections. With regards to priority three, commercial expansion, breast now has 31 representatives and three regional directors, 10 more representatives than at the start of the year. Extremities in OMF and head and neck has 132 representatives and 15 regional directors. 15 more than at the start of the year. We also have three field-based market development managers supporting OMF and head and neck, and three clinical development managers supporting prostate. The fourth priority of our strategic plan is commercial excellence. Our primary strategy over the past several years, focusing on high potential accounts to build enduring nerve care practices, continues to deliver results. In these accounts, our goal is to develop new surgeons drive adoption of best practices and the full treatment algorithm, making the restoration of peripheral neurofunction a standard of care across the hospital. Year-to-date, high potential accounts generated 61% of revenue and 55% of growth, with productivity increasing 22%. Productivity in non-high potential accounts rose 25%, while productivity across all accounts increased 22%. These results point to broader adoption of nerve care as more surgeons practice across multiple sites, supported by expanded coverage. Next, I'd like to update everyone on our fifth priority, standard of care, evidence, and coverage. Today, we have two national payer updates to provide. Let's start with Elevance. In April, Elevance removed Vance from its experimental and investigational list. but included a utilization management criterion based on the nerve gap length from the RECON trial. After a collaborative meeting with Elevance and a few world leading surgeons in the second quarter, Elevance removed the gap length criteria in August. This timing beat our internal expectations. Now Aetna. In early October, Aetna extended coverage to events where short to medium sensory nerve gaps of 30 millimeters or less in the upper extremity. As we've stated before, it is common for medical policy teams to initially adopt strict utilization management criteria for a new coverage position, and we believe that is what drove Edna's decision. Similar to how we've handled the prior L event situation, our health economics and reimbursement team will partner with surgeons to educate Edna and resolve this situation collaboratively. With the updates from L events, and Aetna, the commercial payer coverage for advance is approximately 96% of covered lives in the United States. This satisfies the milestone in our strategic plan for near universal coverage. Since the second quarter of 2025, we have added an estimated 87.6 million commercial and Medicare Advantage lives across Cigna, Elevance, Aetna and the 12 Blue Cross Blue Shield regional plans. Beyond expanding coverage, we continued to invest in the clinical evidence needed to advance nerve repair as an expected standard of care. This quarter, we made progress across that evidence strategy, including new peer-reviewed evidence and advancement of two important clinical studies. Recently, results from our MATCH study were published providing direct comparative evidence for advanced nerve graft and nerve autograft and mixed in motor nerve reconstruction. The study demonstrated that motor recovery with AVANCE was comparable with autograft, further strengthening the body of clinical evidence supporting AVANCE and mixed in motor nerve repair. Nerve Restore, which we described last quarter, builds upon this evidence through a randomized assessor-blinded comparison of AVANCE nerve graft and serial nerve autograft and mixed in motor nerve repair. We are pleased to report that the first patient has now been enrolled marking an important milestone in this study. Additional site activations are planned for the fourth quarter as enrollment continues. We are also advancing EMBRACE, our prospective multicenter study evaluating sensory recovery following breast reconstruction with and without nipple areolar complex nerve reconstruction. The study is designed to generate comparative evidence on restoration of nipple areolar complex sensation including patient reported outcomes. Study startup is underway with the first site initiation planned for the fourth quarter. And finally, our sixth priority, which is about innovation, R&D, and therapeutic reconstruction. On October 1st, we completed our acquisition of BioCircuit, adding NervTape as a sixth product in our nerve repair algorithm. We see significant potential to scale NervTape as a faster, easier coaptation aid. In large gap repairs, nerve tape can be used with advance to connect the proximal and distal nerve ends. Nerve tape also expands our reach into direct repair. An underdeveloped and effectively new opportunity for accident represents approximately 40 to 50% of transected nerve procedures. In these procedures, nerve tape enables surgeons to reconnect a transected native nerve more simply and effectively and with microsuturing, the predominant method used today. BioCircuit historically sold through approximately 50 independent distributed representatives and served roughly 400 accounts. As of today, Axiogen's direct sales organization has assumed all sales and distribution responsibilities. We expect the transaction to contribute to revenue growth and adjusted EBITDA margin in the first year, while Axiogen remains free cash flow positive. Looking ahead, we are confident that leveraging NervTape across Oxygen's direct commercial platform and demonstrating its ability to enable simpler, faster, and more effective repairs will accelerate the adoption of nerve repair and strengthen our overall growth strategy. Turning to prostate. As announced in this morning's earnings release, we will initiate prostate nerve reconstruction market development in 2027. Based on collaboration with global experts in urology and men's sexual health, we validated the clinical need, which is substantial, developed a scalable technique that is efficient and reproducible, and see positive clinical outcome signals from our clinical development sites. To date, over 220 patients have received prostate nerve reconstruction with Avance across 15 clinical development sites. Of these, 117 patients have at least six months of follow-up, 86 grafted on one side unilaterally, and 31 grafted on both sides bilaterally. No graft or grafting procedure-related complications were reported. Historically, men undergoing traditional non-nerve-sparing radical prostatectomy have a high risk of severe erectile dysfunction. with unilateral non-nerve sparing patients reporting recovery of erectile function in only 33 to 56% of men, and those undergoing bilaterally non-nerve sparing procedures having a less than 13% chance of recovering useful erections. When repairing the nerves with Avance, we see that among patients with at least six months of post-operative follow-up, surgeons report that approximately 80% have achieved better than expected recovery of erectile function, defined as a Sexual Health Inventory for Men, or otherwise known as SHIM, score of 15 or higher. On this validated 25-point scale, a score of 15 or higher is generally associated with erections sufficient for sexual activity. For reference, A score of seven or lower indicates severe erectile dysfunction. These early results suggest that meaningful erectile function may return as early as six months after surgery when following postoperative penile rehabilitation protocols as prescribed with or without PDE5 inhibitors. In addition, over 95% of patients achieved pad-free urinary continence at or above expected levels. These results demonstrate an exceptional benefit to risk ratio and have established the foundation to initiate prostate nerve reconstruction market development in 2027. We look forward to sharing a detailed overview of the clinical outcomes and market research underlying our decision to move forward on November 9th. Dr. David Lee, Professor of Urology at the UC Irvine School of Medicine and Director of the University of California, Irvine Health Comprehensive Prostate Cancer Program, and Dr. Ziad Shwen, Assistant Professor of Urologic Surgery at Cleveland Clinic, will join us to provide clinical and patient perspectives. Regarding the financials and logistics of our Prostate Nerve Reconstruction Market Development Plan, we will share details during our March, 2027, Investor Day. We believe nerve reconstruction in prostatectomy can become a meaningful long-term growth driver for action and more importantly, a new standard of care for men facing prostate cancer. Lastly, as a reminder, prostate is not included in our current or long-range guidance. We will provide an update on guidance in the first quarter of 2027. To close, We are delighted with our overall business performance and have high confidence in our ability to continue executing our near and longer-term plans. With that, I will now turn the call over to Lindsey to review our financials.

Thanks, Mike. I'm pleased to report our third quarter 2026 financial results. For the third quarter, we reported revenue of $75.8 million, reflecting growth of 26.2% 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. Our gross profit for the quarter came in at $56.7 million. This represents a gross margin of 74.8%. Gross margin decreased 180 basis points year over year, driven by 3% higher product cost partially offset by 1.2% lower write-off. We continue to expect gross margin to decline in the fourth quarter sequentially and to be slightly less than our second quarter as a result of adjusting our production plans beginning in the third quarter to better align production with the increased demand for long-length advanced largely stemming from the growth of our breast business. Yield improvements and pricing actions are underway, but their impact on gross margin will lag as they move through cost of goods sold. We expect full year 2027 to be more in line with full year 2026 and will provide formal 2027 guidance in the first quarter. Operating expenses increase to $55.8 million in the third quarter, up from $44.1 million in the third quarter of 2025, an increased 0.1% of revenue. The increase year-over-year was driven primarily by compensation costs, stock-based compensation expense tied to certain PSUs anticipated to achieve above target on revenue growth components, and costs related to the acquisition of BioCircuit. Sequentially, as a percentage of revenue, operating expenses decreased 2.3 percentage points. Sales and marketing expenses as a percentage of total revenue decreased 2.7 percentage points to 40% in the third quarter, compared to 42.7% in the third quarter of 2025. Sequentially, as a percentage of revenue, sales and marketing expenses decreased 4.2 percentage points. Research and development expenses increased 18.3% to 9 million in the third quarter compared to 7.6 million in the third quarter of 2025. And as a percentage of total revenue decreased to 11.8% from 12.6%. Sequentially, as a percentage of revenue, research and development expenses decreased 0.5 percentage points. General and administrative expenses increased 51.9% to $16.5 million in the third quarter, compared to $10.8 million in the third quarter of 2025, and as a percentage of total revenue increased 3.6 percentage points to 21.7% from 18.1%. Sequentially, as a percentage of revenue, general and administrative expenses increased 2.4 percentage points. During the quarter, we incurred $2 million of costs related to our acquisition of Biocircuit, contributing to the year-over-year and sequential increases. Net income for the third quarter was $2.3 million or $0.04 per share compared to $700,000 or $0.01 per share in the third quarter of 2025. Sequentially, net income improved $3.9 million. Adjusted net income was $13.1 million or $0.21 per share for the third quarter compared to $6.1 million or $0.12 per share for the third quarter of 2025. Sequentially, adjusted net income improved $5.8 million. Adjusted EBITDA for the third quarter was $13.4 million compared to an adjusted EBITDA of $9.2 million in the same period last year. And as a percentage of revenue increased, 2.3 percentage points to 17.7% from 15.4%. Sequentially, adjusted EBITDA improved $5 million. Adjusted net income and adjusted EBITDA are calculated as net income or EBITDA adjusted for stock-based compensation, the loss on the extinguishment of debt, and the transaction and integration cost incurred in connection with the acquisition of BioCircuit. The improved bottom-line performance demonstrates our continued ability to drive both top-line growth and profitability. As of September 30, 2026, cash equivalents, restricted cash, and investments totaled $350.1 million. Through the first nine months of 2026, we generated $18.9 million of free cash flow. On October 1, We completed the acquisition of BioCircuit and funded the purchase price of $200 million plus transaction expenses. Integration and purchase accounting activities are underway and progressing well. In connection with our purchase accounting for the transaction, we expect to adjust the value of the acquired BioCircuit inventory and recognize goodwill and intangible assets on our balance sheet. Amortization of these intangible assets over their respective lives will significantly increase our amortization expense in general and administration expenses going forward. Our preliminary purchase price allocation and required disclosures, including pro forma historical revenue and earnings related to the biosafety acquisition will be included in our 2026 Form 10-K. Based on our year-to-date performance, Acquisition of BioCircuit and visibility into the remainder of the year, we are revising our full year 2026 financial guidance. We now expect full year 2026 revenue growth of at least 29% or revenue of at least $290 million, including at least $7 million of revenue from BioCircuit. Excluding BioCircuit, we expect organic revenue to be at least 283 million dollars representing organic growth of at least 26 percent. We continue to expect gross margin to be at least 73 percent and positive free cash flow for the full year. This guidance does not assume material benefit from payer coverage decisions beyond what's already known nor from our decision to begin market development activities for prostate. While not expected, our BioCircuit revenue guidance does contemplate some level of integration or disruption risk associated with the acquisition. The expected impact resulting from the overlap of BioCircuit's nerve tape with our AXAguard connector and AXAguard protector products is included in our organic revenue growth guidance of at least 26%. Our gross margin guidance is presented on a GAAP basis, but does not include the potential impact from the purchase accounting adjustment to BioCircuit's inventory value as of the acquisition date, which is currently underway. The resulting step-up in value of the acquired inventory could negatively impact gross margin in the fourth quarter and for the full year relative to our current expectation. To close, I am pleased with the quarter's results and progress we continue to make improving our profitability. With that, we'll now open the line for questions. Operator?