Organogenesis Holdings Inc.

Welcome ladies and gentlemen to the second quarter 2026 earnings conference call for Organogenesis Holdings Inc. At this time, all participants have been placed in 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 these 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. Gillheeney Sr., Organogenesis Holdings President, Chief Executive Officer, and Chair of the Board. Please go ahead, sir.

Thank you, operator, and welcome everyone to, again, the Genesis Holdings Second Quarter 2026 Earnings Conference Call. I'm joined on the call today by David 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 a brief review of our results and key developments in the second quarter and in recent months. Dave will then provide you with an in-depth review of our second quarter financial results, our balance sheet, and financial condition at quarter end, as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you some closing comments before we open the call for your questions. Let me begin with a review of our results and key developments in Q2. Our revenue results reflect the significant contraction and slow pace of recovery in the skin substitute market as a result of the actions and comments from CMS in late December of 2025. Total revenue declined 58% year over year in the second quarter, driven primarily by a 61% decline in sales of our advanced wound care products. We were pleased to see measured improvement in our business trends in the second quarter, On balance, we were encouraged to see the operating environment improve from what we experienced during the first quarter. Net product revenue increased 18% quarter over quarter in Q2, driven primarily by a 23% sequential increase in sales of our advanced wound care products. As a leader in the industry, we leveraged our most comprehensive portfolio across multiple FDA classifications, including the only biologic PMA-approved product, Applegraph. to enhance our market share position with a 30% increase in wound care unit volume on a quarter-over-quarter basis, outperforming the declines that have been reported across the industry. That said, revenue results for Q2 were below the expectations we outlined in our first quarter call. We attribute the majority of this performance to a slower pace of recovery from the significant contraction in the skin substitute market as a result of the sweeping changes from CMS to reform coverage and payment. The prolonged recovery has also prompted us to make important strategic decisions that are intended not only to reduce our cost structure, but also better position organogenesis for success going forward. While operating and financial results in 2026 have been significantly impacted by the contraction in the skin substitute market this year, I want to make it clear that I remain very optimistic about our future. and others. CMS efforts to overhaul coverage and payment for the skin substitute market have addressed the waste, fraud and abuse from bad actors exploiting the system. With the proposed hospital outpatient prospective payment system and the physician fee schedule announced last month, we believe CMS is now seeking to promote stabilization in the market. They've held payment rates steady. They've reinforced the differentiation of PMA products and the importance of clinical data in determining coverage. and we applaud these actions and look forward to expanding access to patients who need these products. With more than 40 years in regenerative medicine and the most diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with the best evidence-based portfolio on the market. It is from this strong long-term market position that we are making important strategic decisions and prioritizing our investments that will support our company's future growth and continue leadership in this market. We are increasing our focus on clinical evidence with new published studies because science and evidence have been and always will be the core of our foundation. As coverage policies evolve, evidence will be the currency of credibility and we intend to remain in the lead. Importantly, we continue to advance our strategic initiative to expand the company's mission into entirely new markets with the Renew program. Recently, the FDA formally accepted Mnuvix as the proprietary trade name for the biologic product previously known as Renew. And if approved, Mnuvix will establish a new market category for a biologic product representing a transformational opportunity for organogenesis. and the more than 30 million Americans living with symptomatic knee osteoarthritis. Let me share a few updates on our progress in each of these important strategic initiatives in recent months. The compelling clinical results from our RCT evaluating the safety and efficacy of PurePly AM and the management of non-healing diabetic foot ulcers or DFUs was submitted for publication. The results of this 170 patient study showed statistically significant DFU wound closure at 12 weeks. We believe publication of these impactful results will strongly support PurePly AM's inclusion in any future coverage policies, underscoring its critical role in the wound healing algorithm. The RCT is complemented by an additional exciting publication in the Journal of Wound Care showing reduced rates of non-traumatic lower leg amputation among Medicare beneficiaries with DFU treated with PureApply AM versus standard of care. The use of PureApply AM in nearly 11,000 patients was associated with a statistically significant 20% lower overall amputation rate and an even lower 40% rate for amputations above or at the level of the knee. These new studies built on a significant body of evidence of clinical benefit of PureApply AM, adding to the previous publications on comparative effectiveness research and a prospective analysis of a large patient registry. Together, this compelling evidence spans more than 23,000 patients studied, reflecting both the primary and supporting data CMS considers when making coverage determinations. On July 27th, we announced peer-reviewed results published in the Journal of Wound Care demonstrating Affinity's benefit in the most challenging and complex venous leg ulcers, or VLU. The data showed statistically significant improvements in wound closure at 12 and 16 weeks for Affinity plus standard of care across both wound duration group study, offering compelling new evidence and one of the hardest to treat populations in chronic wound care. These results reinforce Affinity's benefit in the hard to heal wounds, the population that drives the greatest clinical burden and cost in VLU treatment. As those costs continue to rise, particularly within Medicare, this is a meaningful step forward for patients, clinicians and payers. complementing our existing diabetic foot ulcer data, these results add to a growing body of RCT and real-world evidence that strengthens the case for expanded coverage across two of the most common costly wound types. With respect to our recent progress in our MNUVIC program, on July 6th, we announced that the FDA accepted our biologic license application for MNUVICs and has set up a due for target action date of April 24th, 2027. We believe this highly differentiated regenerative therapy has the potential to meaningfully change the treatment paradigm by offering a non-surgical biologic option designed to address pain and improve function, particularly in patients with severe disease who lack approved non-surgical options. And we look forward to continued engagement with the FDA as they complete their review. Before turning the call over to Dave, I want to comment on our updated outlook and important strategic decisions we've made subsequent to quarter end. We have updated our expectations for total revenue in 2026 in this afternoon's press release. While we continue to expect improvement in our revenue results on a sequential basis in the third and fourth quarters, our 2026 revenue guidance now reflects the expectation that we see a more measured pace of recovery as compared to what was contemplated in our prior expectation for total revenue in 2026. Given the impact of a prolonged recovery on our revenue expectations, we completed a restructuring in June. The restructuring included a workforce reduction of 138 employees and is expected to result in cost reductions of approximately $18 million on an annualized basis. This is our second restructuring announced in 2026, which together are expected to reduce annual operating expenses by more than $32 million on an annual basis. Importantly, the benefits of these activities are not limited to expense reductions. Rather, we believe our commercial team is now positioned to maximize the opportunity ahead as the skin substitute market expands from the recalibration over the first half of 2026. With that, let me turn the call over to Dave.

Thanks, Gary. I'll begin with a review of our second quarter financial results. Unless otherwise specified, all growth rates referenced in my prepared remarks are for the three-month period ending June 30, 2026 and are on a year-over-year basis. Net product revenue was $42.8 million, down 58% year-over-year. Our advanced wound care net product revenue was $36.1 million, down 61%. Net product revenue from surgical and sports medicine products was $6.7 million, down 18% year-over-year. Our total revenue results included $1 million of income related to the grant issued by the Rhode Island Life Sciences Hub, offsetting our employee-related costs and our Smithfield facility. This compares to $0.2 million in the prior year period. Our second quarter results reflect notable improvement in growth trends on a sequential basis. specifically our total revenue increased 18% quarter over quarter driven by a 23% increase in sales of advanced wound care products. Gross profit was 19.1 million or 45% of net product revenue compared to 73% last year. Cost of goods included 1.8 million of restructuring related charges excluding these adjustments non-GAAP gross profit was 20.9 million or 49% of net product revenue. Operating expenses were $94.7 million compared to $113.6 million last year, a decrease of $18.8 million, or 17%. Excluding cost of goods sold of $23.7 million for the second quarter and $27.6 million last year, our non-GAAP operating expenses were $63 million compared to $83.4 million last year, a decrease of $20.4 million, or 25%. The year-over-year change in operating expenses excluding cost of goods sold was driven by a 19.8 million or 27% decrease in SG&A expenses offset partially by a 7.9 million or 76% increase in research and development expenses. Note the second quarter R&D expenses included 5.6 million of non-recurring termination costs associated with various R&D programs and vendors. Operating expenses excluding cost of goods sold decline 9.3 million or 12% on a sequential basis, driven primarily by the company's March 2026 restructuring. By way of reminder, the March 2026 restructuring is expected to reduce our operating expenses by approximately $13.4 million on an annualized basis. Operating loss was $51 million compared to an operating loss of $12.6 million last year, an increase of $38.4 million. Excluding non-cash amortization and certain non-recurring costs in both periods, our non-GAAP operating loss was $41.1 million compared to $10 million last year, an increase of $31.1 million year-over-year. GAAP net loss was $96.3 million compared to a net loss of $9.4 million last year. Note, GAAP net loss in the period includes approximately $30 million of non-cash tax expense related to the recording of full valuation allowance on the company's deferred tax assets. Net loss to common stockholders was 99.3 million compared to a net loss of 12.2 million last year. Net loss to common stockholders included the impact of the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted net loss was 89 million compared to 7.5 million last year. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss was 34.4 million compared to adjusted EBITDA loss of $3.6 million last year. Turning to the balance sheet, as of June 30th, 2026, the company had $46.8 million in cash, cash equivalents and restricted cash, and no outstanding debt obligations compared to $94.3 million in cash, cash equivalents and restricted cash, and no outstanding debt obligations as of December 31st, 2025. We expected our cash on hand and other components of working capital as of June 30th, 2026, plus net cash flows from product sales will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months. Today, the company entered into an ATM agreement with BTIG and Citizens JMP Securities, pursuant to which the company may offer to sell shares of its common stock, having an aggregate offering price of up to $75 million from time to time through sales agents. Sales under the ATM agreement, if any, will be made pursuant to the company's effective shelf registration statement on form S3 and related prospectus supplement. The company intends to use these net proceeds from any sales under the ATM agreement for working capital, general corporate purposes, research and development activities, and other strategic initiatives. Turning to our 2026 outlook, which we've updated in this afternoon's press release, As Gary outlined earlier, our 2026 total revenue guidance now reflects the softer than expected results in the second quarter and the expectation that we see a more measured recovery in the overall operating environment as we move into the second half of the year. As a result, we now expect total net revenue for the full year of 2026 of $179 million to $215 million, representing a decline in the range of 62% to 68% year-over-year and compared to our prior guidance range, which assumed a decline in the range of 45% to 52% year over year. Note our total revenue range assumes sales of advanced wound care products in the range of 151 million to 183 million, sales of our surgical and sports medicine product in the range of 26 million to 30 million and grant income of 1.9 million. Our updated total revenue guidance continues to reflect the expectation that we see sequential improvement in our revenue trends in the third and fourth quarters. However, at a more measured rate versus what our prior guidance has assumed resulting in a second half revenue decline in the range of approximately 64% to 74% year-over-year. With respect to our profitability expectations, our updated guidance continues to assume improving quarterly adjusted EBITDA performance on a sequential basis, which is expected to result in nearly 60% reduction in adjusted EBITDA loss in the second half of 2026 as compared to the first half of 2026 at the low end of the range, and more than 90% reduction in adjusted EBITDA loss in the second half of 2026 as compared to the first half of 2026, including the expectation of positive adjusted EBITDA generation in the fourth quarter. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold, to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses, excluding cost of goods sold, approximately 32% year over year in 2026, including more than 40% year over year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our March 2026 and June 2026 restructurings of approximately $7 million and $9 million respectively. With that, I'll turn the call back over to Gary for closing remarks.