OssDsign AB (publ)

Hello and welcome to OsterSign's Q2 presentation. My name is Elvin Older, I work here at D&B Carnegie and I will be moderating today's presentation. I'm joined here by Mark Vo, the CEO of OsterSign and Anders Svensson, the CFO. I will now leave the word to the OsterSign team for their presentation.

Thank you. Good morning, everyone. This is Mark Waugh, and I'm the CEO of Ost Design. And if you're new to our quarterly calls, I'll mention again that I joined the company January of this year. I also have our CFO, Andrew Svensson, with me today. And we're going to walk you through our second quarter 2026 results. As always, when we do these presentations, the normal disclaimer. Moving into our Q2 2026 highlights. For the quarter, AusDesign sales of SEC 37.8 million, or approximately USD 4 million, were essentially flat versus Q1 sales performance, and that was in line with my prior guidance. On a year-over-year comparables basis, Q2 translated to a 16% decline in constant currency terms, although that was on a very challenging comparable driven by some large bulk orders occurring in the last day of that same 2025 period. Gross margin and EBIT both improved for the quarter versus Q1. I'll let Anders cover the details on those after I finish with these highlights. And the science behind Catalyst and the results we continue to publish remain strong. I've mentioned before that our preclinical and our clinical data were two of the biggest reasons I joined the company. We continue to share that data with our customers during the Southernmost Spine and the International Society for the Advancement of Spine Surgery meetings recently. Additionally, on June 3rd, Ost Design shared the publication of a new scientific article in the Journal of Bone and Mineral Research, or JBMR. This was a preclinical study that evaluated Ostazine Catalyst as a standalone bone graft in trauma versus an earlier generation bone graft. And I'm pleased to tell you that the results showed significantly more bone formation with Ostazine Catalyst at earlier time points, as well as clear evidence that the graft is remodeled over time, or in other words, broken down and replaced by bone growth in the body. This study and others continue to support the outstanding performance of fourth generation nanosynthetic bone grafts like Catalyst. Next, some additional significant organization updates. On June 25th, we announced Adam McAllister as Ost Design's new VP of Sales. Adam is an experienced medical devices sales leader with a great track record of leading teams to achieve above-market performance in his previous roles. He's quickly getting up to speed, working closely with our regional sales teams. And regarding those teams, our new area sales director for the East also started on August 10th. That role had been vacant since May, and we screened and interviewed a number of candidates, and I'm very pleased with who we were able to hire for this important position, and I know she's going to be a great asset for our sales team. Overall, since January, when I joined the company, we've replaced more than 50% of OS Design's commercial team. I've mentioned before that our path to doubling the size of our team, which was a goal set forth by my predecessor, would not be a linear progression and we'd see some turnover alongside the additions we're making. The changes we've made have better positioned us for commercial execution going forward. We'll continue to add members to this team and I don't see an immediate ceiling on that as long as our hiring both supports and delivers on our commitments to growth. I also want to let you know that I'm personally involved in our hiring process for the commercial team members because it's important to me that we're hiring the right people both professionally and from a cultural fit perspective. Finally, regarding organization, I mentioned in our release that since February, our entire team's incentive structures are aligned to growth. That's another important dynamic that ensures our reward structure is tied to our shareholders' expectations. And before I hand things over to Anders, I'll reiterate that I still believe we can achieve the goals put forth last year as part of Ost Design's scale-to-profit strategy. The market is highly competitive, but Ost Design Catalyst is as well. And as you can see, we're making aggressive changes to return our sales trajectory to strong growth. I'm also pleased with the progress we've made on our next product release, MIS Catalyst. I'll have more to communicate next quarter on this launch, but things are moving forward quite nicely since our last release call. I'll now hand you over to Anders, who's going to walk you through the financial results this quarter in more detail. Anders?

Thank you, Mark. As Mark mentioned, in Q2, we saw a decrease in sales compared to the second quarter of 25. In SEC, we reported 37.8 million in sales. That's compared to 46.5 million last year, which translates to an 18.7% decrease. As you can see here in the growth chart, we still experienced some US dollar headwind on sales, but considerably less than we did in previous quarters. So the actual underlying decrease, as Mark mentioned, is 16% for the quarter. You may also remember that our Q225 sales were inflated by some last-day orders, which would explain roughly half of that organic decrease. Still, we acknowledge that there's room for improvement, and we're working hard to achieve that. Now, when we presented our Q1 results, we guided that Q2 sales were expected to come in around the same level as Q1. And as you can see in the growth chart here, we actually grew by 2.4%, quarter over quarter. But as you can also see, the growth was entirely exchange rate driven. So, in fact, Q2 sales did come in at the same level as Q1, as per our guidance. Moving to the LTM chart. You've heard us say so many times now that growth is not going to be linear over time. More likely, take the form of a staircase. And I guess the current LTM slide is case in point, with the decreasing last 12-month run rate presenting as our current sales plateau. The latest 12-month period sales are 7% higher than the 12-month period leading up to Q2 2025. which, of course, is an increase, but much less of an increase than we've seen in previous observations. As stated earlier, our sales reorganization, which is still ongoing, has been quite extensive, and we expect those efforts to start delivering improved commercial momentum later in the year. On the gross margin, 92.1%, was an improvement over the 91.6 in the first quarter, but clearly below the 96.8, very high margin reported in Q2 last year. Now, there are so many factors that impact gross margin. I can't go into detail on all of those, but suffice to say that the main drivers behind our current gross margin development is product and customer mix, as was the case in Q1, but with very different mix effects. There are still some exchange rate-related production cost effects from when the dollar peaked in early 25, but the main current driver is mix. And with that, I'll hand you back to Mark.

Thanks, Anders. Although Catalyst has only been in this space for about four years, we've built a strong body of evidence. I'm pleased to tell you that we now have 19 preclinical and clinical publications and white papers and a world-class registry that contains an always growing number of patients. OstaSign has consistently been reporting both high fusion rates and fast bone formation with Catalyst. This demonstrates rapid progression to fusion. The Bowden model, a highly regarded preclinical model, showed 100% fusion for Catalyst, and our top fusion study also showed 100% fusion again at two years. Speaking of the world-class registry I mentioned, our Propel registry showed Catalyst with an 88.4% fusion in a highly complex real-world patient population. When we see other products marketing their product's fusion rates, those rates are often among patients with multiple exclusion criteria. And in this industry, this is basically filtering out the risky, less likely to fuse patients for a clinical study. Comorbidities such as high BMI, smoking, osteoporosis, or other issues such as failed prior surgeries and more. This means that some of the competing data out there is not showing what the real world performance of a product is. We include all kinds of challenging patients in Ost Design's Catalyst Registry and our reported results. This is why you and our customers will continue to hear us say, real world data, real world results. These ongoing investments in clinical data are a key part of our strategy. And before we wrap things up and take questions, I will quickly reiterate our scale to profit strategy, which Ost Design shared in Q3 of 2025. Again, there's four pillars in this strategy. First, accelerating access and coverage within the U.S. market. We are still working to double our U.S. sales force. We are very close. But as I discussed, we've made some changes in our organization. We are absolutely stepping up on our marketing efforts, especially from an awareness perspective. And I look forward to seeing some of the things we have planned continue to roll out this year. As I mentioned previously, we are starting to see uptake in the foot and ankle segment of the market as well. Second, expanding our product portfolio and indications. I mentioned the MIS solution for Catalyst and our hydrophilic strip product is also progressing. We said this before, but we will be seeking another indication for Catalyst this year. Third, to continue investing in and building a leading repository of clinical evidence. I already covered our Propel registry. Our Level 1 randomized controlled trial is moving forward according to plan, and we will continue to strengthen Ost Design's reputation as a differentiated, top-tier biologics company with very compelling clinical evidence to support Catalyst. And finally, the fourth pillar is to scale production and to add a U.S. production footprint. We are working to implement a more scalable, more cost-efficient production process and to bolster our existing production. The good news is we believe we've identified a way to do this in a very cost-efficient manner. I want to close our call today by reiterating what I said during our Q1 release regarding transparency. I've committed to transparency with this team and to our shareholders, and I'm not in any way communicating to you today with some sort of a mission accomplished attitude or victory lap kind of messaging. However, I am pleased so far with the transformation we're undergoing. We delivered a Q2 sales result that was in line with our guidance, slightly improved our gross margin, and did a large amount of fundamental commercial restructuring while delivering improvements to our adjusted EBIT. We have not usually provided specific guidance, but did so last quarter. As we communicated within our release for this quarter, we do expect some headwinds in Q3 solely based on what we historically experienced given U.S. vacations or holiday seasonality during both July and August. However, I still have confidence that the changes we've made and the foundation we've laid will translate into tangible results later this year, and I still look forward to reporting on that. I want to thank you for joining our call today, and I will now hand it back to the operator who will handle questions.

Perfect. Thank you, Mark and Anders, for the presentation. Remember, if you want to ask a question, you're able to submit it in the box below the stream. We will read it out loud here. But maybe we can begin a little bit on these contract renegotiations. You mentioned in the report that you're seeing progress there on that matter. Can you give us some more kind of indications on how one should think and how far you resolve these matters and if they will continue to affect your business here in H2?

Sure. I think the takeaways on that are Given the size and scale of our company, there were a couple of larger IDN sort of customers that we were in renegotiations with, and I'm pleased to say that one of those has resolved, and we're now on a three-year contract with them going forward. And the other one, unfortunately, has not yet resolved. We're still working through the details on that. We continue to do cases in many of their facilities, but these things often take quite amount of time, and so, you know, hopefully I'll have an update on that on a future call.

Great. You mentioned the MIS option for Catalyst, and you will give an update here in the next quarters, but can you also comment a little bit on the hydrophilic strip? How has the development been going for that release, and what are your internal expectations on what that will be able to unlock versus what you're currently able to offer?

Yeah, thanks. So we view Catalyst's underlying technology as sort of a platform, And so anything we do is within the frame of reference of that being a line extension and sort of taking that technology and putting it into other uses. And that's really what that strip is all about. That project is also progressing quite nicely. We have completed some initial preclinical animal studies. We are in the process right now of basically investigating that data with great rigor and looking at the pros and cons and the outcomes in each of those animal studies. That'll move forward much more quickly once we get past the preclinical phase. But I can't really commit to timing on that until I see what the results of all that is.

But in terms of kind of positioning the company against IDNs and hospitals and surgeons alike, what are your kind of internal expectations on how much more of a market can you kind of unlock with this product? Will it be like a third of a market or what should one's expectations be on what it enables you to do?

Yeah, I think I would temper that just a bit, not because it's not a great product or project in both cases for both the Strip and the MIS, but Catalyst itself has such a huge opportunity ahead of it in the market in the U.S., but I will say this. When it comes to these kinds of line extensions that are not fundamental brand new products, but again leveraging that Catalyst Core technology and people having the expectation that it will deliver on the clinical performance, what it does is allows us to use a U.S. saying to kind of keep the fox out of the henhouse. I don't know if that translates well to things in Sweden, but You know, it's always good to have those kinds of ancillary line extension type products so that if a surgeon does prefer to use a strip in those kinds of cases, they don't have to call on one of our competitors and we're giving them an opportunity to speak to one of our customers. But on the other side of that coin, it does allow us to penetrate accounts where maybe somebody prefers to use a strip for many other cases, but we don't have that technology yet. So, you know, we have the putty right now, but we could go in and say, hey, we have this strip now. Can we have that conversation again? So that's what it really is.

And in terms of sales, hiring activity for the sales force, how far along have you gone now? Do you feel that you've hit a plateau that you're satisfied with for the coming foreseeable future or are you continuously adding more and how much more should we think that you would like to add? to the organization?

I'm not satisfied just yet. We've done a great job transforming the sales team, and as I mentioned in our comments in our release, we've now changed or turned over over 50% of the commercial team as it existed on our org chart as of Jan 1. We have multiple open positions still open right now that we're recruiting for and hiring for. But I do think we'll see some more stability in that team now that we've made the changes in terms of what that org chart looks like right now. And I'm very pleased with how the teams responded to some of the changes we've made. But there's no real ceiling on the hiring. So, yes, we've had this stated goal to sort of double where we were from Jan 1 of 2025, which is still our goal. But I wouldn't be surprised to see us exceed that goal in rapid fashion, too. I mean, as long as we can support the business case for a hire in a new geographic area that helps us to accelerate growth, we're going to explore that.

Perhaps staying a bit on your last comment there, has these hires been mostly filling in these geographical white spots that you've had previously, or has it also been doubling down on existing geographies to help penetrate markets that are perhaps too big for one or two people to target?

I'll answer the second half of that first. I would say that our scale and presence in U.S. markets, we don't have an issue yet where we need to sort of double up in specific markets to enable us to tap additional opportunities. So most of the hires have been in that white space or to replace people who are no longer with the organization.

Perfect. We'll move on to perhaps the US manufacturing footprint. I think that it has been kind of not been discussed as much recently in favor of other topics, but can you perhaps give a more a more detailed kind of explanation on what you're able to do there. I think it will be interesting on how one should think on when you're perhaps able to move more of the footprint towards the U.S., both timeline-wise and what that maybe can unlock in terms of gross margins and inventory levels as well as

Yeah, I think it'll make us more efficient. I don't see it moving the gross margin side of the equation as far as that second source. What it's going to do for us though is take out a lot of geopolitical risk. I mean, I think I commented on this after the Q4 call. There's always some level of risk when you're a sole site, especially when you're a sole site with a production facility elsewhere. I mean, we're in great shape from an inventory perspective at all times, so it's a pretty low risk for us. But it will be good to have that second site. I mean, I don't know if the U.S. will enter any new tariff programs or other things like that that could actually impact gross margins at some point if we don't have that second site. But I mentioned the cost-effective way we've identified to do this. I mean, fortunately for us, from a partner perspective, we believe we've identified a way to add that second production facility without sort of spinning up our own higher level of capex to accomplish it. So I'm very pleased with the progress that our team's making on that right now. I can't give you specific timing on it just yet because it's still too early, but the solution that presented itself only happened within the last quarter or so and we're very, we think not only will we be able to do that faster than anticipated, but at a much lower sort of cost to organizational resources as well.

Great. And then perhaps finally on the randomized control trial, you're mentioning that enrollment can begin perhaps quite soon at least. Is it possible to give some comments more on the study design? How many centers are included in the study? How big is it? And any further kind of additional details on what the kind of readout will be able to tell the market and tell surgeons and so on?

Yeah, I'm gonna paint in broad brushstrokes here because we are, I would categorize it as sort of 99% baked on the protocol design. We had a great meeting with our clinical advisory board approximately four weeks ago, if I recall correctly. Ongoing discussions with our chief clinical lead on this to get the protocol completely signed off, moved forward. My clinical management team member is in the U.S. right now traveling around, meeting with a bunch of the sites that we've been vetting for this. That's going exceptionally well. And so I think what we're going to see as we move into the latter part of Q3 and into Q4 is more of a deliberate tactical contracting with these sites that we've identified. I think timing-wise, it's difficult on these kinds of things in terms of how much time it's going to take. And I'll probably be in a better position in the next quarterly call to actually share specific end numbers based on where we are with the statistical analysis on that as well as a little bit more of a timing. The timing itself is always sort of TBD depending on how fast each site enrolls. But I think the key takeaway on this is I'm very pleased that this was something that was started to sort of be moved into place before I joined, and we've been able to sort of accelerate it and move it to fruition. Because if you really look at the U.S. landscape on products in this space, there's only a handful that have actually taken the strategic tact and actually made the investment to go after getting level one data. I think it's also important to note that Although that is a sort of checkbox or a watermark that some systems want to see on level one data, I'll continue to be bullish on the data that we are mining from Propel and the registry. And I frequently, even on my own, and certainly our team members do even more frequently than I do, have discussions with both clinicians and with value analysis committees and others that show the strength of that Propel registry because we're not filtering out all those patients that have comorbidities and other things. We're not excluding them. You can actually see how this product performs in a real world US population that is frequently full of high BMI, other comorbidities. So as great as I think it is that we're doing a level one study, I equally think it's fantastic that we have Propel and we are one of the few companies that has an ongoing registry like this in the space. And soon we will be joining a very, very small list of companies that actually have either a level one study in progress or the ability to report out on that.

Great, thank you. There are no more questions at this time, so I think we'll conclude the presentation there. Thank you so much to both Mark and Anders for the presentation and Q&A session, and thank you for everyone for listening in. Have a good day. Thank you.

Thank you.