Organogenesis Holdings Inc.

Reconciliations of these 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. Gilheny, Sr., Organogenesis Holdings President, Chief Executive Officer, and Chair of the Board.

Please go ahead, sir.

Thank you, Operator, and welcome everyone to Organogenesis Holdings' third 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 third 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 third quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial guidance for 2025, which we updated in our press release this afternoon. Then we'll open up the call for questions. Let me begin with a review of our revenue results for Q3. We delivered sales results which exceeded the high end of our guidance range outlined in our second quarter call. driven primarily by better than expected growth in sales of our advanced wound care products, which increased 31% year over year. Sales of our surgical and sports medicine products also performed well, increasing 25% year over year in the third quarter. The record revenue performance we delivered in the third quarter reflects our team's strong execution and commitment to our strategy to build upon our deep customer relationships and promoting access to existing and recently launched products despite continued aggressive pricing strategies from our competitors. On October 31st, CMS announced the final Medicare physician fee schedule for the calendar year 2026. As mentioned in our last Boarders Earnings Call, this is a watershed moment for the industry in the most impactful development in more than a decade. And we congratulate CMS on taking this significant step in payment reform and are pleased CMS finalized skin substitute classifications based on FDA regulatory status and a per square centimeter payment methodology in both the physician office and hospital outpatient settings. We are pleased that CMS has recognized the clinical differentiation of PMA products and has taken steps toward higher payment and expanded access for PMA products. We remain committed to working with CMS and other stakeholders to further expand access to these lifesaving technologies, as well as incentivize investment and innovation in the space and achieve long-term market stability. We believe this new policy will address abuse under the current system and the resulting rapid escalation in Medicare spending, while ensuring a much-needed consistent payment approach across sites of care. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market for 2026 and beyond and will continue to be 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. Before turning the call over to David, I wanted to provide some updates on key clinical and regulatory developments in recent months. Beginning with an update on our RENEW program. On September 25th, we announced that the second phase three trial of RENEW did not achieve statistical significance for its primary endpoint, despite demonstrating a numerical improvement in baseline pain reduction that exceeded the results of the first phase three trial. Baseline pain reduction at six months for Renu was negative 6.9 for the second Phase III study compared to negative 6.0 in the first Phase III study. Additionally, Renu results from the second Phase III study continued to demonstrate a favorable safety profile. Given the first Phase III trial achieved statistically significant reduction in pain compared to saline, and the second Phase III trial demonstrated a numerical improvement in baseline pain reduction that exceeded the results of the first Phase III trial. We believe these combined results support the potential approval of RENEW for pain symptoms associated with knee osteoarthritis, included in those patients classified as the most severe. RENEW has been studied in three large RCTs of more than 1,300 patients combined. Organogenesis believes the totality of this data is compelling evidence for the FDA to review in a biologic license application. Additionally, FDA granted Renu Regenerative Medicine Advanced Therapy, or RMAT, designation based on Renu demonstrating the potential to treat an unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We have a meeting scheduled for December 12th with the FDA to discuss our submission, including using the combined efficacy analysis from both Phase III studies to support a BLA approval. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. While we did not meet the November 1st submission deadline for new data for LCD coverage consideration in 2026 for PurePly AM for DFU and Affinity for VLU, these studies and analyses continue, and we intend to submit for coverage once they're published. We remain confident in our strong competitive position in the skin substitute market heading into next year. We have substantial advantages, including strong brand equity, deep customer relationships, and importantly, three highly innovative, highly efficacious commercialized products on the covered list, if the LCDs take effect as scheduled on January 1st, 2026. Specifically, our Applegraph product for DFU and VLU, and our Affinity and Nuccio products for DFU. We have strongly advocated for CMS to implement an integrated coverage and payment policy for the skin substitute market. We believe they have taken the right steps to address rapidly escalating Medicare costs while ensuring patient access to the most appropriate clinically effective technologies. We believe these changes present an enormous opportunity for organogenesis to serve more patients and, importantly, will be positive for the long-term health of the wound care market. Beyond 2026, we expect to advance our competitive position as we leverage our development engine fueling new innovation, capacity to launch and reintroduce products, including our Dermagraph product, which is already covered for DFU and VLU under the LCDs. Strategic investments in expanding the body of clinical evidence supporting our technologies and a transformational opportunity with Renew. With that, I'd like to turn the call over to Dave.

Thanks, Gary.

I'll begin with a review of our third quarter financial results. And unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the third quarter was $150.5 million, up 31% year-over-year and up 49% sequentially. As Gary mentioned, these results came in above the high end of our expectations we provided on our Q2 call, which called for total revenue in the range of $130 million to $145 million. Our advanced wound care net product revenue for the third quarter was $141.5 million, up 31%. As Gary mentioned, the commercial team executed well in the period, building upon the momentum that we experienced towards the end of Q2 that we discussed on our last earnings call. Net product revenue from surgical and sports medicine products for the third quarter was $9 million, up 25%, primarily due to an increase across the PurePly family of products. Our total revenue results for the third quarter included $0.4 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period, and we continue to expect grant income to be immaterial in 2025. Gross profit for the third quarter was $114.2 million, or 76% of net product revenue, compared to 77% last year. The change in gross profit was due primarily to a shift in product mix. Operating expenses for the third quarter were $130.1 million compared to $108.9 million last year, an increase of $21.2 million or 19%. Excluding cost of goods sold of $36.3 million for the third quarter and $26.8 million last year, our non-GAAP operating expenses for the third quarter were $93.9 million compared to $82.1 million last year, an increase of 11.7 million, or 14%. The year-over-year change in operating expenses, excluding cost of goods sold, was driven by a 7.9 million, or 11% increase in SG&A expenses, a 2.9 million, or 28% increase in research and development expenses, and a $0.9 million write-down of certain non-recurring expenses. Operating income for the third quarter was 20.7 million compared to an operating income of 6.2 million last year, an increase of $14.5 million. Excluding non-cash amortization and certain non-recurrent costs in both periods, our non-GAAP operating income was $23 million compared to $7.1 million of income last year. GAAP net income for the third quarter was $21.6 million compared to a net income of $12.3 million last year, an increase of $9.2 million. Net income to common for the third quarter was $14.5 million compared to a net income of $12.3 million last year. As a reminder, net income to common includes the impacts of the cumulative dividend, the non-cash decrease into redemption value on our convertible preferred stock, and undistributed earnings allocated to participating redeemable convertible preferred stock. Adjusted EBITDA for the third quarter was $30.1 million compared to adjusted EBITDA of $13.4 million last year. Now turning to the balance sheet, as of September 30, 2025, the company had $64.4 million in cash, cash equivalents, and restricted cash with no outstanding debt obligations, compared to $136.2 million in cash, cash equivalents, and restricted cash with no outstanding debt obligations as of December 31, 2024. On October 31, 2025, we amended our credit agreement to better align with the underlying fundamentals of our business. The amended credit agreement now provides access to up to $75 million of future borrowings, We believe we are well capitalized with our cash on hand and other components of working capital as of September 30th, 2025, and available under our revolving credit facility and net cash flows from product sales. And turning to a review of our 2025 revenue guidance, which we updated this afternoon's press release, for the 12 months ended December 31st, 2025, the company now expects net revenue of between $500 million and $525 million representing a year-over-year increase in the range of 4% to 9%. The 2025 net revenue guidance range now assumes net revenue from advanced wound care products of between $470 million and $490 million, representing a year-over-year increase in the range of 4% to 8%. Net revenue from surgical and sports medicine products 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 the range of 8.6 million to net income of 25.4 million compared to a range of a net loss of 6.4 million to net income of 16.4 million previously. EBITDA in the range of 19.1 million to 41.9 million compared to 6.2 million to 37 million previously. Non-GAAP adjusted net income in the range of 21.5 million to 38.4 million compared to 5.5 million to 28.3 million previously, and adjusted EBITDA in the range of 45.5 million to 68.3 million, compared to 31.1 million to 61.9 million previously. In addition to our formal financial guidance for 2025, we're providing some considerations for our modeling purposes. Our profitability guidance for 2025 now assumes gross margins in the range of approximately 74% to 76%, GAAP operating expenses excluding cost of goods sold up 1% to 2% year over year, and excluding non-cash intangible amortization of approximately $3.4 million, the non-recurring FDA payment related to our renewed BLA filing of $4.6 million, and the $9.8 million write-down of assets and restructuring activities in the first nine months of 2025, our total non-GAAP operating expenses will increase in the range of 3% to 5% year over year.

With that, I'll turn the call over to the operator to open up the call for your questions.

Thank you. If you'd like to ask a question, please press star and the number one on your telephone keypad. If you'd like to withdraw a question or your question has been answered, simply press star one again. Thank you. We will take our first question from Ross Osborne from Canada Fitzgerald. Please go ahead.

Hey, guys. Congrats on the strong quarter, and thanks for taking our questions tonight. So starting off, we'd be curious to hear how your conversations are going with the clinical community in terms of when you're expecting physician behavior to change following the PFS. Is that, you know, December this year, earlier? Any thoughts there?

Yeah. So this is Gary Ross. We're starting to see some of that behavior change now. where clinicians are moving to products that are on the approved LCD list. We're seeing some contracts starting to get processed to get those products on and apparently get the other products off. So we're starting to see some of the administrative behaviors starting now. I don't think we've seen any sales behavior at this point in time, but we're certainly seeing the pieces changing. being put in place where there'll be a change in utilization going forward based on the position fee schedule.

Okay, got it. And then looking to next year, what can you do from a company standpoint to help generate awareness regarding your products as incremental volume opens up as, you know, many players that were selling higher ASP products won't be able to operate in the market?

Well, fortunately, we have strong brand equity for our products, and we focus on the clinical efficacy of what our portfolio contains. We will continue to message that. I think that plays extremely well into next year's world. We think with Wiser as well, getting products that are appropriate for use and will get reimbursed, I think will carry a lot of weight, the clinical evidence of those products. We'll support utilizing those products and we'll carry a lot of weight. And those are the messages that, you know, we'll continue to beat and to make sure the market is aware of what we have, the clinical evidence, the likelihood of reimbursement as a result of being on the LCD and being, you know, appropriate with appropriate data if challenged.

Thanks for taking our questions. Congrats again. Thank you. Thank you.

Again, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Our next question comes from the line of Ryan Zimmerman from DTIG. Please go ahead.

Hi, everyone. This is Izzy on for Ryan. Thank you for taking the questions. So I wanted to start or continue, I guess, on the physician fee schedules for 2026. And I was curious how you think the new rates might impact margins as we start to think about our models for next year.

Yeah, sure. So, I mean, obviously, it's a little bit earlier to be talking about 2026, but we'll maybe connect on a couple of things around the revenue profile and the margin one as well. Again, we're not providing financial guidance today, but I'm glad you asked the question because I think there are several key changes in the marketplace for 2026 that I think people should be cognizant of. First off, with the LCD going into place, there's well over 200 products that will no longer be covered for DFUs and VLUs under that LCD that's scheduled right now to be enacted on 1-1-26th. As Gary mentioned in his prepared remarks, we have three commercialized products that are covered by the LCD, with an additional one in Dermagraph coming back online in the back half of 2027. And those products are NuShield, which is a dehydrated amnion that's covered for DFUs, Affinity, which is a living amnion, which is covered for DFUs, and then our Applegraph product, which is a bioengineered cellular product, and it's the only PMA-approved product for both DFUs and VLUs. So we're excited about having those on the covered list. In addition to that, the financial incentives will be dramatically reduced in the marketplace, leveling the playing field, which is what we've been advocating for for quite some time. And overall, as Gary mentioned, too, we have the brand equity, efficacy, and service, which puts us in a very nice position, which is the attributes that we'll be competing against in 2026 once the field is leveled, as I mentioned. And then, of course, we've got a broad portfolio across many different FDA classifications. that are addressing multiple indications. And then the last piece I'd say is that the commercial team has done a nice job of pivoting in a dynamic market environment. And I think that's indicated over the last couple of years and certainly in this last quarter. So all those things coming together, I think there's obviously no implication to the surgical business next year. So that's one element that you think about. And I think the other components around wound care would be is that our dominant position in the hospital outpatient setting can drive incremental growth, given that the reimbursement there has been unbundled. In addition to that, I think, you know, obviously there's been several new entrants into the market over the last couple of years, and we expect that share that's been lost over the last couple of years to be regained, and so we expect to, you know, participate in that. The offset to that is, of course, the market has expanded to some extent, and we expect that to contract based on overuse. And then the last piece I'd say is, overall, on the market standpoint, you know, ASPs across the entire market will decline. So from that perspective, ours will as well, but there's a couple of other components there. You know, obviously with Applegraph on the market, and again, the only PMA-approved product for both DFUs and VLUs, very, very strong product, particularly in HOPD, will now be reimbursed at a much higher rate than it has been in years past. So from our perspective, we see a lot of growth drivers next year, and we also see, you know, improvements in margin and cash flow as well.

That's very helpful. Thank you. And to your point about ASPs coming down, I was curious if you were surprised at all by the final rate ending up in that 127 range, or is that kind of where you were expecting?

Yeah, I think we were public and thought that it was going to come out finalized at the rate that it was proposed in the proposed rule. We didn't think that at this point in time CMS was going to change that rate. though they have indicated that they recognize PMAs have a clinical differentiation and resource costs associated with them and value and expect that that reimbursement will be higher over time than the 510Ks and the 361s. So I think over time, we're going to see a change. And I think one of those will be the PMAs will be separated. And perhaps once the market absorbs this change, CMS will take a look and see if that rate of 127 for the 361s and 510Ks is appropriate or not, or has it really in some way entailed care in any way, shape, or form. But I think they want to see if that's what's going to happen. So that's why we think they left everything at what's 127. Now the proposed rule was 125. That's why we felt it would come out at the 125 or something close to it.

Got it. That's helpful. And then just shifting focus over to Renew. I know you're meeting with the FDA in December, but I was curious if the initial approval timelines that you had called out before, I believe it was late 2026 or early 2027, are still on the table given the recent data readout. Thanks for taking the questions.

Sure. So we still think there is an opportunity to still file and we'll be filing in a modular form. In December, we have a successful meeting with the FDA, but I would guide to a two-month delay. It's probably safe. It's possible we could stay on our current timeline, but two months, I think, is reasonable based on where we are today in preparing for that December 12th meeting.

Thank you. Again, if you'd like to ask a question, please press star and the number one on your telephone keypad.

We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation. You may now disconnect.