Organogenesis Holdings Inc.

Welcome, ladies and gentlemen, to the first quarter 2025 earnings conference call for Organogenesis Holdings, Inc. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties That could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to those as non-GAAP financial measures, Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gilhaney, Sr., Organogenesis Holding President, Chief Executive Officer, and Chief of the Board. Please go ahead. Thank you.

Thank you, Operator, and welcome everyone to Organogenesis Holdings' first quarter 2025 earnings conference call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our first quarter revenue results and provide an update on key operating and strategic developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial guidance for 2025, which we reaffirmed in our press release this afternoon. Then we'll open it up for questions. Beginning with a review of our revenue results in Q1, we delivered sales in line with our guidance range outlined on our fourth quarter call. Our first quarter results reflected the expected disruption in customer demand and ordering patterns, given the continued uncertainty related to the effective date of the final LCD for skin substitute grafts in cellular tissue-based products for the treatment of DFU and BLU. Rumors of further delays in the effective date in late March added additional ambiguity and disruption in customer behavior. But we are proud of the team's execution in a challenging environment during the first quarter. They remain focused on ensuring our customers were both informed and well-positioned to continue to treat patients with our full portfolio of efficacious products. This process and this focus proved to be even more valuable in the weeks leading up to CMS's stated effective date of April 13th, 2025. In the weeks following the announcement of the third delay in the implementation of the LCD, until January 1st, 2026. Organogenesis supports CMS's decision to delay the LCD implementation to review its coverage policies. As mentioned on previous earnings calls, we applaud the CMS and MACS for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute products. And we've been pushing for reform for many years and believe the LCD represented a substantial step forward towards cleaning up the market and providing access to all who need care. Importantly, we continue to believe that patients should have access to products with high-quality evidence of effectiveness that includes real-world evidence. We believe real-world evidence not only demonstrates a product's safety and efficacy, but also outcomes in the actual clinical use. Studies that use real-world evidence are important because they provide affirmative data demonstrating the safety and effectiveness of medical interventions in everyday settings, leading to more informed clinical decision-making. They also allow for larger sample sizes, more sites, as well as the ability to include more patients with a profile similar to the Medicare population as compared to an RCT. That said, we continue to believe that coverage policy alone are not sufficient to address the rapidly escalating Medicare costs while ensuring cost-effective patient care and innovation. To that end, we recommend that CMS implement an integrated coverage and payment policy. And as a leader in this space, we will continue to bring stakeholders together to develop and advocate for such an integrated policy that will ensure patient access to the most appropriate products while achieving significant cost savings to Medicare. While we were prepared to execute our strategy in a post-LCD environment, following the CMS announcement on April 11th, we quickly pivoted to maximize our substantial competitive advantages during the period of extended LCD delay. Organogenesis' strong brand equity, diverse portfolio, and deep customer relationships have us well positioned to navigate a challenging market. And we are encouraged by the early progress in our team's broad-based efforts to engage with our customers to ensure our full portfolio of products are available and approved in their healing algorithms and formularies. We have reaffirmed our financial guidance for 2025 and are confident in the team's ability to execute our commercial strategy this year. Importantly, we remain confident in the long-term opportunity for organogenesis as well. We continue to believe the material changes from the MACs in the coverage of skin substitutes to be implemented in 2026 represents an enormous opportunity for organogenesis to serve more patients and, importantly, will be positive for the long-term health of the wound care market. We are aggressively pursuing our strategy to secure and submit additional clinical and real-world evidence to the MACs by the newly established deadline of November 1st, 2025, and expect to submit a compelling case to secure coverage for PurePly AM when the LCDs are implemented in 2026. We expect to remain a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. Now, before turning the call over to Dave, I wanted to provide a brief update on a key area of strategic focus for our company. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetrations in the markets where we compete. With respect to our Renew program, we remain on plan and continue to expect that all patients will complete the second Phase III study by the end of the second quarter. We expect to complete the initial statistical analysis and have top line data results from the second phase three study to share publicly in September of this year. Our timeline continues to target completion of the final clinical study report required for the marginal BLA submission in the fourth quarter, which has us on track for a BLA submission by the end of this year. We continue to believe, if approved, introducing Renu to a large and growing pain management market represents a transformational opportunity for organogenesis. We believe Renu, if approved, will potentially address an unmet medical need for all patients suffering from symptomatic knee OA, a degenerative joint disease that affects more than 30 million Americans. And we have a clear roadmap and timeline for our Renu BLA submission, and if successful, Renu would be the only FDA-approved biologic intraarticular injection to improve pain symptoms related to symptomatic NEOA. Respect to our recent progress in expanding our clinical validation of our wound care solutions, our PREPARE study evaluating pure ply AM plus standard of care versus standard of care alone continues to progress. We initiated enrollment of up to 170 patients with chronic DFUs last August, and have enrolled more than 60 patients to date. We accelerated investigator site activation during the quarter and expect to complete an interim analysis in the third quarter. Our RCT evaluating affinity for patients with VLU completed last patient last visit for the initial patient cohort in Q1, and we are currently engaged in data monitoring and management activity. We expect to initiate new RCTs evaluating NuShield for patients with BLU and Novacor for patients with Mohs surgical excision wounds in the third quarter of 2025 and the first quarter of 2026, respectively. We continue to invest in generating clinical data for our existing products and pipeline products and believe such data enhances sales efforts with physicians and reimbursement dynamics with payers over time. And finally, we're pleased with the significant progress we've made in our efforts to expand our manufacturing capabilities, efficiencies, and capacity with our newly leased biomanufacturing facility in Smithfield, Rhode Island. Upon completion, this new facility will support the reintroduction of both Dermagraph and Transite. Transite is a bioengineered cellular tissue scaffold that promotes burn healing and has received PMA approval for the treatment of deep second and third-degree burns. This new facility will also support the introduction of FortiShield, a biosynthetic transitional wound matrix for second-degree burns. Together, we believe these new products and the expansion of our manufacturing capacity overall will enhance our long-term growth and margin profile. With that, let me turn the call over to Dave.

Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the first quarter was 86.7 million, down 21%. As Gary mentioned, these results were in line with the expectations we provided on our Q4 call, which called for total revenue in a range of 85 to 95 million. Our advanced wound care net revenue for the first quarter was 79.9 million, down 23%. Net revenue from surgical and sports medicine products for the first quarter was was $6.8 million, up 11%. Gross profit for the first quarter was $63 million, or $72.6 of net revenue, compared to 73.9% last year. Gross profit was unfavorably impacted in the period due primarily from lower revenue over a fixed cost, as well as the expiration of excess product resulting from the delayed implementation of the LCD and related uncertainty. Operating expenses for the first quarter were $89.7 million, compared to $85.1 million last year, an increase of $4.6 million, or 5%. The year-over-year change in operating expenses was driven by a $6.6 million write-down of cost to adjust certain assets held for sale to their fair market value, offset partially by a $2.2 million reduction in research and development expenses, which declined 17% year-over-year due to the timing of expenses associated with clinical research and trials. SCNA expenses were essentially flat year over year, as continued investments in our key long-term projects were offset by lower commissions and our focus on managing discretionary expenses in the period. Operating loss for the first quarter was $26.7 million compared to an operating loss of $3.9 million last year, an increase of $22.9 million. Excluding non-cash amortization expenses in both periods and the write-down of assets held for sale in the quarter, our non-GAAP operating loss was $19.3 million compared to $3 million last year. GAAP net loss for the first quarter was $18.8 million compared to a net loss of $2.1 million last year, an increase of $16.7 million. Net loss to common for the first quarter was $21.6 million compared to a net loss of $2.1 million last year. Net loss to common includes both the impact of the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted EBITDA loss for the first quarter was $12.5 million compared to adjusted EBITDA of $2.6 million last year. And turning to the balance sheet, as of March 31st, 2025, the company had $110.5 million in cash, cash equivalents, and restricted cash with no outstanding debt obligations. And that compared to $136 million in cash, cash equivalents, and restricted cash with no outstanding debt obligations as of December 31st, 2024. We expect to see improving cash performance over the balance of 2025 and believe we have the requisite capital to execute our growth strategies with $110.5 million in cash, cash equivalents, and restricted cash, and $125 million available for future revolving borrowings under our revolving facility. Turning to a review of our 2025 revenue guidance, which we reaffirmed this afternoon's press release. For 12 months ending December 31, 2025, the company continues to expect net revenue of between $480 million and $535 million, representing year-over-year change in the range of roughly flat to an increase of 11%. The 2025 net revenue guidance range continues to assume net revenue from advanced wound care products of between $450 million and $500 million, representing a year-over-year change in the range of a decline of 1%, to an increase of 10%. Net revenues from surgical and sports medicine products of between 30 million and 35 million, representing a year-over-year increase in the range of 6% to 23%. With respect to our profitability and EBITDA guidance, the company now expects GAAP net income in a range of 4.7 million to 34 million, compared to 9.5 million and 38.8 million previously, EBITDA in a range of 20 million to 59.6 million, compared to $27 million to $66.6 million previously. Non-GAAP adjusted net income in the range of $15.3 million to $44.6 million, unchanged versus our prior guidance, and adjusted EBITDA in the range of $43.6 million to $83.2 million, again, unchanged versus our prior guidance. In addition to our formal financial guidance for 2025, we are providing some considerations for modeling purposes. We continue to expect the environment to be very challenging through the first half of 2025, followed by a significant improvement in our business trends beginning in the third quarter. For modeling purposes, we expect the second quarter revenue in the range of approximately $100 million to $110 million. Our profitability guidance for 2025 now assumes gross margin in the range of approximately 78% to 79% compared to 76% to 78% previously, gap operating expenses up low single digits year over year, and excluding non-cash intangible amortization of approximately $3.3 million, the non-recurring FDA payment related to our BLA filing of $4.6 million, and the $6.6 million write-down of assets in Q1. Our total non-gap operating expenses will increase approximately 5% to 7% year over year. There are no material changes to the other modeling assumptions for 2025 we outlined in our fourth quarter call. With that, I'll turn the call over to the operator to open up the call for your questions.