AxoGen, Inc. Aktie

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What do you think was most broken or underappreciated when you arrived?

So first of all, the big question, so why did I choose Axogen. And I do my best to convey whenever the question is asked, the criteria that I was trained on many years ago, and I've tried to use as a basic starting point. And first and foremost is what's the purpose of the business? Why does it exist? Is it fundamentally credible? Is it emotive? And so when you start to think about peripheral nerve function, it's very quick -- it's very easy to quickly conclude that, yes, this is a very credible health condition that if you can solve for, makes a difference. Second, is that particular situation that the business is focused upon numerous enough to justify the allocation of people, capital and time. And then finally, and most important of all, do you actually have a distinctive solution that is advantaged relative to other existing standard of care options.

And so if you have those 3 things, everything else is a functional exercise that you can adapt, adjust or build further upon to bring that value proposition forward. And when I was first learned about approach and learned about Axogen, I was able to quickly conclude that the purpose of the business was highly credible. It was a very numerous problem, grossly underserved, complex by virtue of the various care pathways, but nonetheless, clear in terms of the opportunity to treat patients.

And then finally, Avance as a platform as a foundation for the business is one of those unique value propositions that's advantaged. It's a solution that based upon benefit versus risk as compared to existing options is genuinely superior. And so with that, those are the kind of projects that have always attracted me. And I believe that functionally, what we need to do is simply to decide how to make the most of that.

And what we engaged in, there was nothing esoteric, a traditional strategic planning process to take a good look at ourselves, reevaluate and clarify our purpose at the highest level and then within each individual function and then bring that plan to bear. And so that kind of focus and the process itself is one you can only complete properly if you include every single employee and every single stakeholder, which we did.

And so the plan that we have today that we posted publicly is literally the plan. So there's not like 3 plans or 2 plans or 2.5 plans, there's 1 plan. So it's the same thing we discussed at the Board level, same thing we discussed with every employee. Same thing we discussed with our customers that we serve and then obviously, to this community as investors. And we believe this is a business that based upon the important import of peripheral nerve function is one that we will be able to add value for all stakeholders for years to come.

Great. Turning to your business. You recently received some significant reimbursement wins. How do you see that affecting your revenue for the rest of 2026 and beyond?

We are in the process of trying to digest to quantify it because as you might appreciate, it's a question that's on everyone's mind, including ours. And I know this is a trite answer. We know it's all going to be good, but to explicitly describe the cadence and the objectively how that's going to affect the business, we're still trying to figure out. So when these good events transpire, the first thing that happens is socialization of the news with all of the providers of health care. They then need to negotiate their individual contracts with their payers based upon the new coverage decision. And so it starts to pick up momentum, but it rarely is a light switch to use that expression. So it's a nonanswer to your question. We know it's going to be good, but we haven't quantified it yet.

Got it. And then maybe thinking about the remaining payers after Cigna and Elevance, what is the time line for Aetna? And what does near universal commercial coverage mean in practice for the business?

Sure. So Aetna is the last significant payer that has not yet made a decision. Each payer has their own criteria, their own annualized schedule for reviews, known process for whether they even conduct a review. And so we are aware of each of those, and we have formally engaged in those processes by payer. And made our submissions and requests for response and evaluation. So what we've seen recently is obviously Elevance and Cigna respond to that. We are now awaiting to see the same from Aetna. Based upon their schedule, we should -- we would hope to hear something from Aetna by the end of June. There's no guarantee that they have no obligation to respond. But generally speaking, when you satisfy all the requirements, Aetna will make their decision known in that time frame.

Got it. Maybe stepping back a little bit, Elevance has a gap length restriction. Could you maybe walk us through that? How significant is the practical impact? And what is your path to getting the policy corrected?

Sure. We've already engaged with them immediately upon seeing that. As for the impact, we truly don't know. It could be one of -- it could be a complicating factor or it could be a nonevent. So we don't know whether it is a decision that was simply an oversight as part of the review process because they don't reference the other clinical studies. They don't reference the biologics approval status from the FDA. They only referenced the RECON study, which was the Level 1 study done by Avance in extremities. It also requires a pre-approval requirement, which is a practical impossibility given that these are procedures that emergent present, you don't know what the gap link is until you're actually doing the procedure. So we don't know that it's going to be an issue. We have not seen any issues thus far, but it's too early to say.

Got it. That's very helpful. The CMS outpatient reimbursement reclassification that took effect January 1, 2026, produced roughly a 40% rate increase. Why did that not show up in Q1 results? And when should investors expect it to flow through?

Sure. Because nerve procedures were economically unattractive, in those settings, there is not a large activity base already allocated. So now that there is a positive economic situation allowing for such procedures to happen there, it will happen, but it's literally beginning as we speak. So just like with commercial coverage payment, when a positive reimbursement situation transpires, it needs to be socialized.

So in other words, the example is Axogen knows because we got it. But guess what, all the hospitals have no idea that, that happened. So we need to make them aware. And then once they're aware, then the hospital needs to make a decision to then speak to their payers and negotiate the contracts for that site of service. And then they need to logistically decide which physicians are going to allow them to move cases into those settings.

So we know this is going to be a site of service in the future. But just like with commercial, it's going to take a little time for it to take root and for people to make their own decisions as to where they move that. So all positive. Again, it comes back to the issue, can we quantify it by quarter when it's going to happen? The answer is no, not yet. But towards the end of the year, we would expect to have some clarity as to where these procedures are moving in that regard.

Great. So a little uncertainty, but positive outlook. I guess on that note, you reported your Q1 financial results 2 weeks ago, you grew 27% in Q1, but guided to at least 20% for the full year. How should investors think about the second half growth rate? And what explains the implied deceleration?

Sure. So first of all, the plan in terms of what drove the growth is all the elements that we previously publicly described. There's no one single factor. So the business has simply continued to build off its prior historical basis. With regards to the implied deceleration, that's obviously not how we look at it. But it's important to note that Q1 is a natural comparable that's easier as compared to the other quarters. The middle of the year is the largest volume of activity in our world. We expect that to continue to be. So it's a bigger base to build upon. And we're always mindful that we're continuing to expand our platform and activities and trying to be prudent about not getting ahead of ourselves because each quarter we got to prove it.

And so we're confident about the future, but just trying to be prudent in terms of what that growth will be. And that's why we have always stated from the beginning in our strategic plan is that you should look at Axogen as an asset vehicle as a market development exercise over a period of 3 to 5 years that will be able to generate continuous double-digit growth. And we -- there's no change whatsoever in our viewpoint in that regard.

Got it. Recognizing that more clarity will probably be gained over time, what visibility do you have on BLA transition flowing through your gross margin currently? And how should investors model the 74% to 76% guidance range on a quarterly basis?

Lindsey?

Yes. So in Q2, we expect to see an influx of more expensive product that we will be selling as a result of our transition from a tissue product to a BLA in Q4 of last year. With this, we should see our Q2 be kind of our bottom per se. And then we should continue to increase from there in gross margin. Q2 should be at the low end of our guided range for the entire year, and we should see increases from there.

And then in 2027, we expect to see additional improvements as a result of certain initiatives we have going on at our facility. We have a lot of lean initiatives, yield initiatives as well as new system implementations. And this gives us confidence in that our gross margin can improve over time because right now, we know what our costs are as processing as a biologic and all these improvements that we're putting in, doing things faster, more efficient will only improve where we are today on top of our growth and increasing production, so economies of scale.

Great. I guess in the last couple of minutes, looking ahead, you're expecting clinical data in the second half. What are the key clinical endpoints for your prostate nerve repair pilot? And how should investors think about what a positive data readout actually looks like entering Q3? What does success look like to you?

So the data set that we are currently collecting is not a controlled study. It's important to emphasize that. This is work that's being done in partnership with various key opinion leaders, highly experienced robotic prostate surgeons. And the effort is based upon the primary measures of erectile function and incontinence, and we're looking at those very broadly. And so each person is going to have their own data set. We're working with them to do the follow-ups. This will not be a published experience. This is going to be a collection of activity that based upon the numbers will allow us to take a look at this and then compare and contrast that with what we see in our other nerve applications and make -- and draw the conclusion as to whether or not the procedure is teachable.

The basic premise is that biologically is a nerve is a nerve is a nerve. And the prostate nerve is a little shorter. So it doesn't have as long a distance as, for example, some other nerves have to traverse. And then secondly is a larger nerve. So there's more axons, more -- to use the expression, more shots on goal.

So in principle, biologically, this should work very well in the prostate setting. The caveat to that is you still need to do a good surgical procedure to do anastomosis. So this data set is intended to give us a glimpse as to whether or not we can truly teach the procedure as we need to. And if it can be performed well by the end of this year, we're going to have a clinical data set in terms of trajectory, which would allow us to make that judgment. If that judgment suggests that we can teach this procedure well, we will then begin to develop a go-to-market exercise that we'll make public. So that's what's underway with that data set.

Great. I guess in the last couple of minutes, I'll turn it to you for any closing remarks.

First of all, thanks again for the opportunity. People always ask, well, how should I judge you going forward? Same way you've been doing the last several quarters. This is a market development exercise. The clinical pathways that we're working are common only insofar as they involve peripheral nerve, completely different, very heterogeneous in terms of the physicians involved, the care pathways involved. And so we work each of these with distinct business models.

What's common to all of them is underservice. And the other element that's common is our value proposition has one of the most profound benefit versus risk equations that I've seen in my entire career. We offer a great potential for improvement in quality of life and basic health at extremely low cost to almost no cost with regards to risk. And so to that end, that's one of the reasons why we're so bullish that this will be a space that will develop each year in significant ways and someday be a very, very large contribution to health care.

Thank you very much.

Thank you.

[Operator Instructions] Our first question comes from Michael Sarcone with Jefferies.

So just 2 for me on guidance to start. Really nice quarter with the 27% growth, and you're expecting at least 20% for the full year, which implies a decel as we make our way through the year. Just wanted to kind of hear you elaborate on what's driving that, the moving pieces there and how much of the guide continues to reflect prudence.

Thank you, Mike. So to your question, as we look at the comparables on a going-forward basis, there are sequential increases that we're going to be comparing against. And this is a commercial execution story as we've advised continuously. And so our guidance reflects that reality. So very confident about the future, very confident about the guidance we just raised, but mindful of the fact that each quarter is a productivity growth expectation that we need to continue to execute against.

Got it. And then just a follow-up there. I believe Lindsey mentioned the guide is about continued execution here. And I think she also finished with on the reimbursement coverage side, nothing beyond what we already know. I know the prior guide didn't have any of the potential coverage wins baked in. We've seen Anthem and Cigna. We may see an Aetna update soon, I guess. Can you talk about if there's anything in the guide related to progress there even modestly? And then the follow-up to that is, how do you view time lines for seeing more of a contribution from some of the recent commercial coverage wins?

Sure, Mike. We're digesting the realities of that impact in real time. As we often mentioned, these are not events when you enjoy achievement that immediately translate into activity. These need to be socialized within the relative providers across the country. They then need to negotiate their individual contracts as part of that. So we know it's all going to be a net positive in a significant way, but it is not an event that happens immediately.

And so I think really as the next quarter rolls out, we'll start to get some insights into that and speak more to it. But it's just not an instantaneous benefit.

Our next question comes from Larry Biegelsen with Wells Fargo.

Congrats on a really nice quarter here. Mike, growth obviously accelerated here in Q1. Maybe a little bit more color on what drove the acceleration here. And with the new 20% plus guidance here. How are you thinking about the LRP of 15% to 20%?

Sure. With regards to first quarter, really, what we're seeing is cumulative effects of all the things we've been discussing now for quite some time, the ramp of the physical footprint, those individuals coming into play, the continuing benefits of the market development activities in terms of positioning, awareness. Each part of the business is getting just a little bit better each quarter. And so it's no one single thing, no one single part of the business. That's the most comforting thing to the team is that we're not dependent upon any one part of the business. They're all doing well.

And it just reflects the fact that these are real needs from a health standpoint, grossly undertreated, and we're making a little progress each quarter towards that. So that's really what's driving the growth. There's really no magic to it. It's all of the things underlined in our strategic plan descriptions. And so we're benefiting from that. In terms of the LRP, we have not made any adjustments to our long-range plan. We still think that 15% to 20% stands. As this year plays out and as we start to digest more about payment coverage progress, that may change. But for now, we have not adjusted.

That's helpful. Mike, for my follow-up on prostate, what are the early signals you're seeing from the 100-patient cohort ahead of the second half readout? And can you put a finer point, please, on the timing of the readout?

In terms of the timing of the readout in terms of substance where we really began it to make the judgment, that's still on schedule as previously described, which is the end -- really beginning into third quarter. And the reason why we'll have a body of patients that we can draw conclusions from as that happens. At present, what we have in terms of feedback is best described as anecdotal individual experiences. And those are all positive, but I need to emphasize those are those are anecdotes, not data body of significance that you can truly base decisions upon.

Our next question comes from Mike Kratky with Leerink Partners.

Congrats on the really nice quarter and recent progress. Maybe just a follow-up on prostate quickly. So in terms of the specific updates or that clinical activity signal that you're looking for, what are going to be the specific metrics that you're focused on that will influence your commercial outlook there?

Sure. Jens, why don't you address that question?

Yes. I mean we're looking at -- basically, we're following these patients very closely or the sites that we're working with are following patients very closely and we're looking for clinical signs for potency and continence. And the other objective with working with the clinical sites was to see how incorporating nerve grafting into robotic procedures influence the workflow. And what we've seen is it's very easy for these highly trained surgeons to incorporate Advance into robotic procedures. So that's another key that we got so far. So overall, very positive. But as Mike said, we'll report further on kind of the clinical signs in the second half of the...

Understood. Appreciate the color there. And maybe just as a follow-up, it looks like in the latest corporate deck, you mentioned that 14% of commercial lives remain uncovered. So curious not to get ahead of any updates, but if you do see an update from Aetna, how close to full coverage could that get you? And how widespread is the coverage within those different plans today?

Rick, why don't you take that question?

Yes, happy to do it. Good question. It would put us in the mid-90s if Aetna extended coverage. And there are a couple of regional payers out there that we've certainly communicated with in our target markets. We feel really good about that. The term we like to use instead of saying full coverage is near universal, but I wake up every day feeling pretty good if we have Aetna making a coverage decision. And then timing on that, probably curious. We expect something by the end of June, but that's based on historical updates. So trust and I wake up every day and refresh on that web page and try to see what the news is.

Our next question comes from Jayson Bedford with Raymond James.

Congrats on the progress here. I guess just -- are you selling BLA product today? And if not, when will it be launched? And then just as my follow-on, I'll ask it upfront. Is there a different launch strategy, specifically around price area of focus? Any detail there would be great.

We are now selling BLA-produced product. There is no change in the pricing structure. And in terms of general positioning, effectively no change beyond the presentation to customers that the product is now the first biologically approved therapeutic solution for providing physical scaffolds for treating nerve discontinuity.

So we will remind people of the criteria that was required of that process and oftentimes thank particularly the existing customers for their support and confidence in the product over the years. So -- but effectively, it's business as usual for the surgeon doing that kind of work.

Our next question comes from Caitlin Roberts with Canaccord Genuity.

Congrats on great quarter. Just to ask again on the biologic product transition. Does that change really the method or the regulatory procedures by which a new hospital or the VAC committees within the new hospital would approve Avance? Or did that really occur with the BLA approval?

There's no change whatsoever in the activities that you asked about. The transition is effectively invisible to the customer.

Got it. Understood. And then just thinking about the commercial coverage currently, how many, if any, of the current payers have any restrictions on the length and the type of nerve based on the RECON study or what was approved under the BLA and then conditionally approved under the BLA?

Rick, why don't you go ahead and address this question?

Yes. Caitlin, good question. So Elevance, first is good news, right? Elevance removed us from the investigational experimental list. We were surprised that they chose the RECON gap length and put that criteria on there. We've actually already engaged them and have consistent communication. We feel it's inappropriate for a few reasons. First is to preauthorize on gap length is just surgically inappropriate because you don't know the gap length until you get into the operating room. So we educated them on that. And if you go read the medical policy update. There are 3 key emissions.

One of them is there's no mention of the BLA. The second is, there's no mention of the biggest systematic review and meta-analysis on nerve repair, which shows that Avance is as effective as autograft in long gaps. And the third is they don't mention either of the specialty society physician statements that were issued last year. So we submitted this for them. We expect there will be an update sometime hopefully by the end of this year or early next year to correct this. So we think it's just an honest error on their part, but they've been collaborative, and we look forward to addressing it here in the near future.

Our next question comes from Anthony Petrone with Mizuho Group.

Congrats on the quarter here, strong execution. Maybe to go back to breast recensation, Mike, you mentioned 5 programs. You have 75 surgeons in there and each of these end markets are a little bit different. So maybe when you have a program that's ongoing, you train surgeons. What has been the average conversion rate to an active implanter? And how does that stack up to breast? Is it similar in extremities to breast? Or is the conversion curve look a little bit different? And I'll have one follow-up.

Sure. With regards to breast, and I'm generalizing here, but the historical conversion rate has been above 75%.

That's helpful. And maybe -- and is that across all end markets or that's breast specifically?

It's breast specifically.

And then maybe just a recap when we think about pushing into these new markets, breast and prostate, just a recap of the amount of graft per case, what does it look like in breast and potentially prostate if we get there relative to core extremities?

Jens, why don't you address that?

Yes. So in the breast reconstruction procedures, In a breast reconstruction procedures, we typically see bilateral reconstructions, which means two grafts per procedure. In prostate, it depends whether or not it's a unilateral nerve-sparing or non-nervesparing procedure. So it could be one graft if it's just one side or 2 grafts if it's both sides that needs the prostate that needs reconstruction. It depends on the mix.

Our next question comes from Frank Takkinen with Lake Street Capital Markets.

Congrats on the quarter. I was hoping to start on sales reps. Mike, I think I heard you call out 146 reps. Could you parse out between the different units that you have in the past between extremities and breast? And then as a second part to that, I think you've previously guided for 130 extremities and 30 breast reps by year-end. With some of the positive developments and momentum so far in 2026. Could you see yourself potentially hiring ahead of that plan?

The answer to the last question is yes. We're always looking at that. The key element is making sure we can maintain quality control logistically. So yes, constantly monitoring that. The primary expectation is we stay on schedule at a minimum. In terms of the breakouts, we have 26 breast reps now in place, and we have three regional sales directors. Then extremities, we have 120 reps in place and 15 regional sales directors. In OMF Head & Neck, we have four field-based market managers who support that effort. In prostate, we have 3 clinical development managers and one director who manages the program.

Great. That's helpful. And then just as a follow-up on some of the gross margin commentary. Any other details you can provide on cadencing of margins? Should we expect that Q2 impact, given it's the first quarter of BLA products to be more pronounced? Or will it actually be less pronounced as it is transitioning and then through the back of the year, you could see it either go up or down. Any color on that would be helpful.

Yes. Frank, this is Lindsey. For this quarter, Q2 that we're in right now, we expect to be at the lower end of that range is where we should see the most pressure from transitioning to the BLA. And then for each quarter, we should expect to be within that range and here as well.

Our next question comes from Dave Turkaly with Citizens.

I had a follow-up one for Rick. Looking at some of the decisions from the insurance companies and noting that they called out some of the specific indications like breast. Is that common? Do you expect that you might need to go back to some of these payers to get like a broader coverage? Or was that expected for some of these insurers to kind of call out specific target areas like that?

Thanks for the question, Dave. Our label on the BLA is quite broad, and we expect that the coverage criteria that the payers set will continue to be broad, and you can see it in the growth in all of our markets. So I don't think we're going to have to go back to the well too much. But look, we stay pretty well connected with our sales force, with surgeons out there. If we hear denials, we're pretty engaged. And as you can tell, we've got pretty consistent communication with medical policy teams out there.

So we don't expect any big hiccups. If we run into any hurdles, we'll go collaborate with the payers and try to knock those down in due time. But the product has been on the market 17 years. We've got well over 100 publications, and we have society physician statements and BLA approval. So we've got a pretty strong case for coverage and a really good evidence package.

And then maybe, Mike, just it doesn't seem like you need to do anything but invest kind of organically here, but $100 million on the balance sheet now. Just thoughts on the world you're operating in. Are there M&A activity or opportunities specifically in nerve repair that you're looking at?

Sure. With regards to the cash, as we've mentioned in the past, we have significant infrastructure development underway from a capital allocation standpoint in terms of systems. So we'll continue to deploy cash for those purposes. And then if we opportunistically see assets that would further burnish our business purpose, we'll absolutely pay attention to deploying cash for that purpose. But there's -- that's kind of a day-to-day hygiene, you might say, as an expectation from our viewpoint.

Our next question comes from Yi Chen with H.C. Wainwright.

This is Katie on for Yi. I was hoping we could get a little bit more color on maybe percentages or how the breakdown is working out in your percentages of growth. So like new surgeons versus existing account expansion. I know you said you were getting more people on board at existing facilities, but are you getting more locations? And are you seeing more new indications versus those core trauma? Just trying to get a feel for if growth is becoming -- is kind of concentrated or if it's getting more diversified as you go along?

I'll ask Jens to weigh in on this as well, but this is a general statement. So the key driver in terms of overall growth is numbers of surgeons and the relative productivity of individual surgeon practitioners. So both are key elements. The third in that line would be adding the number of accounts, primarily driven by oromaxillofacial and breast.

The number of accounts on the extremities would be -- is also growing, but only incrementally as compared to the others. So that -- from a source standpoint, that's the hierarchy in terms of contribution.

Yes. I think, Mike, you said it well. I think the key takeaway is that it is broad-based growth. We're seeing surgeon activation across all of our markets and the same for new account. So it's really broad-based. We continue to have a strong focus in our high potential accounts. We saw strong growth here as well in this quarter, but it is broad-based growth across all of our markets.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back over to Mr. Dale for any final comments.

Thank you, operator. On behalf of the Axogen team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders of our business purpose, which is to restore health and improve quality of life by making restoration of peripheral nerve function and expected standard of care. We look forward to updating you on our continued progress on our earnings call next quarter. Thank you very much.

Thank you.

That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

We'll get started. Welcome again to the 47th Annual Raymond James Institutional Investors Conference. My name is Jayson Bedford. I cover the med tech sector here. And it's really our privilege to have with us today the senior management team of Axogen, AXGN. It's a name that we've liked for a little bit here, and they've done a good job of executing. So with this, we have the company's CEO, Mike Dale; the company's CFO, Lindsey Hartley.

And so with that, I'll pass it off to Mike, who will give a presentation, and then we'll do some Q&A at the end.

Thank you, Jayson. And thanks for each of you for your time and attention this morning. I look forward to sharing with you a little bit about who is actually, what do we do? Why do we exist? And the best place for me to start with that is this slide and this GIF. If you ask, well, what do we do every day? What's the source of our primary work? The scope and purpose of why we exist is to make the restoration of peripheral nerve function an expected standard of care. And you might assume that, that would be something that already exists today, but in fact, it does not. And so the opportunity for patients as well as for investors is the progress that we can make towards that.

So in this image, what you're looking at and the reason why it was chosen is it really captures the essence of what is peripheral nerve function. So the mother and the child pushing on the bike, the ability to run behind the bike, to hold those handle bars, that's all dependent upon your motor function and your sensory function, feeling that sunlight on your face, the warmth that, that creates, that's a sensory nerve function. So your peripheral nerve function is something we all take for granted every single day until you can no longer do so. And the things that affect peripheral nerve function in terms of a deleterious outcome are typically 2 basic big buckets. One is trauma, you have an injury. And the second is iatrogenic injury secondary to another type of intervention, might be an oncological intervention, might be some general surgery intervention. But as a result of entering the body, you transect a nerve, and you destroy its function.

Nerves do not grow back on their own. They don't regenerate by themselves. They must be physically, organically repaired and reconstructed to give that a possibility. So our world is about making the restoration of peripheral nerve function an expected standard of care. It's not something we have to argue about most anyone that you speak to in the clinical pathways recognize that, of course, peripheral nerve function is important. It's not top of mind because until more recently, there weren't recognized approaches and solutions that made this an adoptable effort to treat patients. But this is what we do.

The market is very large. What's represented in this are the areas of priority that have resulted from a strategic planning process that we entered into to decide where are we going to spend our time to create and keep customers because the proliferation, the presentation of peripheral nerve injury is quite extensive, but quite heterogeneous. And so while there's a lot of it, you have to stand back and say, where can I have the greatest effect in terms of fulfilling my mission purpose in an organized, efficient yet effective way. And so what we've settled on in terms of our priorities for market development are these 4 basic areas. One is extremities. It's the largest, most numerous opportunity in terms of presentation. This is really trauma primarily.

The second is breast reconstruction. So when you do a mastectomy, when you remove that tissue, you're severing all the nerves. And while there's aesthetically a lot that can be done in terms of reconstructing the breast, that tissue is essentially numb. There's no sensation because the nerves have been removed as part of that procedure. And what we offer is a chance to restore that function by the products that we sell. The second -- the third area is oral, maxillofacial, head and neck. This is served by our extremity [ sales ] organization. It's an oncological primarily, not exclusively, but in any event, an elective procedure, a smaller number of practitioners who do this type of work, smaller number of centers who do this type of work and is an area where we have a high opportunity to add value to an individual in terms of restoring them to what God gave them in terms of their functional capacity by including nerve repair as part of that reconstructive process.

And then finally, the marketplace, which we will speak to in more detail towards the end of this year, and that will be the development of prostate care. So right now, we're in the process of understanding whether or not we can teach this procedure so that the outcomes are more uniform and reproducible. On the assumption that we can, we will add this as our fourth area of market development for the company. Today, for the purposes of context, the numbers in our formal strategic plan guidance of 15% to 20% growth over the next 3 to 5 years does not assume any activity with prostate. So the growth is presently driven by the first 3 areas of market focus.

So just to level set for anyone who's new to this, what is nerve injury. Most simply, it's cuts or lacerations or any kind of damage, crushing, stretching that results in damage to the nerve itself. And this is, as I've described, caused by either trauma or iatrogenic injury, typically secondary to some other surgical procedure. All of these result in the elimination or minimization of nerve function capacity.

The products that we use to address these problems are comprised of what you see in this portfolio. To the left is the Avance nerve graft. This is the first ever approved biologic therapeutic solution for the treating of nerve discontinuities. It's got a generalized indication for any situation in the body for this particular application. It's what's distinctive. It's really what the foundation of the Axogen house is built upon. It's a unique product, exclusive only to Axogen. Its advantages based upon benefit versus risk are superior to any other solutions or care that might exist.

The other products are products used to facilitate the best possible surgical procedure utilizing products like this, but not exclusively also to protect and/or enhance the reconstruction of a native nerve if that's possible to do. But this is what comprises the sources of our revenue. About 60% of our revenue is driven on a routine basis by the Avance sales and the algorithm, which complements that represent the remainder.

What are the market development opportunities for us? As I described, our mission purpose is to make the restoration of nerve function a standard of care. The barriers that exist to that are not those that normally come in the introduction of new product where people argue about whether or not it's medically necessary. That's not really the issue. The issue is one, primarily of awareness, the lack of definitive care guidelines has established the expectations of when you should consider and how you should treat nerve care, insufficient payer referral networks across each of these various areas, numbers. People just sometimes don't even know that there's an opportunity to deal with these types of problems. And then finally, while it's becoming less and less of an issue, we still don't have complete coverage and payment. So these are the strategic work streams that we deal with on a regular basis as part of our organizational planning and our investments.

This represents the summation at the highest level of what were the priorities that we set out for ourselves more than 2 years ago when we concluded our strategic planning effort. These, of course, remain unchanged. They're as viable today as when we first concluded on these. And essentially for an investor watching our ability to develop and fulfill our mission purpose is represented by growth between at least 15% to 20% per annum over the course of the strategic planning period, moving more and more to elective procedures as a priority area for development as opposed to emergent procedures, and in particular, developing prostate on the assumption that we can figure out how to teach that procedure properly so that the outcomes are uniform, that would be a major strategic element of development.

Finally, commercial expansion. In all areas that we service, we do not presently have opened all possible accounts nor have we trained anywhere close to the number of surgeons who would need to be trained in order to fully deploy and practice nerve care on a routine basis. And so it's an area of constant work in terms of establishing that footprint, making sure they're ready and then extending that business model accordingly.

To that end, commercial excellence. I know it's a word that gets tossed around, but it's a very important part of playing good football. You need to have pass plays for any type of customer creation process and whoever practice those best usually wins. And it's no different than sales and marketing. We spend a lot of time in figuring out what would be the best way to do that in extremities, oral, maxillofacial and breast, and we'll be developing the same for prostate. And that, that would remain a focus for us throughout the period because while we have certain assumptions on elasticity, the timeliness of managing to that math is critical to ensure that you have predictability and consistency of performance.

Finally, standard of care. A lot of the things that we're doing here are unnecessary once the therapy becomes an expected standard of care. And ultimately, that's how you win the total game is establishing the expectation that when someone presents with a problem like this that is not an option to treat but an expectation to treat. And you do this through accumulation of evidence, the socialization with physician societies and establishing formal expectations and guidelines that say, in this situation, you must also evaluate the nerve and treat that.

And so when I say that, you might say, well, what is he talking about? Well, to give you an example, the simplest example is if I were to present to the emergency room with a trauma, terrible trauma, where I've torn half my shoulder, it's completely flayed open. I've broken my bones and my shoulder and otherwise. I've cut my artery. I'm bleeding to death. What's going to happen is they're going to stabilize me in the OR. They're going to triage me. They're going to call the cardiac surgery and vascular surgeon, they're going to stop my bleeding so that they stabilize me. They're going to call in the orthopedic surgeon, they're going to get those bones fixed. They'll probably also make sure they get the tendons if they remember to do all of those. They may or they may not even think about the nerve.

And so while I might leave the hospital alive, my function is obviously diminished because I don't really have the full use of that limb or my torso because my peripheral nerves were an afterthought, not because people didn't care or the physicians were apathetic. It's just simply not part of the care continuum in all sites of service in the United States or anywhere in the world. And that is the substance of the work of Axogen is changing that paradigm because there are solutions now that can make this doable and solutions that are demonstrably better than what presently exists today, which primarily is no care. And so that's the opportunity. That's what's driving our growth today is the progress we make towards that.

And then finally, investing in the future. And what we're talking about here is making nerve care more adoptable by making it easier to do and then further enhancing the effectiveness of these already good algorithms and products that we presently have. So there's both short-term catalysts that will translate over the strategic planning period as well as longer-term elements. So we're working all the normal fundamentals of good business, and that's what's driving our growth and why we believe and have confidence in the guidance that we have.

Payment is always a big factor. We've made great progress. But we still have about 35% of the gap in commercial lives to cover. This is important because while Medicare provides full coverage for nerve care today, the majority of the age at which you present with a nerve injury is primarily in the commercial coverage spectrum of health care. And so we have 3 significant payers who have not updated their coverage guidelines that we expect to complete in the near term. And then that will be a final barrier that we have resolved.

And as I've mentioned, we're investing in the future. These are the various work streams. We will provide more granular guidance on some of this work towards the end of this year and then into the future. Today, for proprietary reasons, we keep the actual details of this still internal. But in terms of quantity of investment, that's about 14% of our turnover is invested in R&D.

Our guidance for this year is that we will grow at least 18% or $266 million in total revenues. Our gross margin guidance is that we will generate outcomes between 74% to 76% and that we'll be a net free cash flow positive for the year. Big picture, just kind of round it out to tell you what I told you is that these are very large opportunities. There's a significant opportunity to improve and restore health and quality of life for individuals. And as a result of that, making for a great business. This is a big opportunity to do good. And it's one of these health care elements that no one argues about is not truly relevant. Not every problem in health care is worth investing time, capital and people in. Your peripheral nerve function is one of those. And so this is a huge opportunity that we believe will drive growth and support growth for years ahead.

Clinical leadership. We are the experts in this space. If there is such a thing as an expert. And people like to work with us because one of the elements we do have historically as a legacy is that we do good work on the professional education and the basic science side. And as these products become more available and the guidelines get developed, we are the ones who are providing the support to grow that. We have multiple catalysts based upon the opportunities I described in terms of markets. And even not on that slide, there are significant opportunities in the future as the company grows and becomes larger, we have the ability to act upon and become leaders.

Reimbursement-wise, we've made great progress over the last 24 months, added almost 20 million new lives, and we have very, very high confidence that we will continue to make such progress here in the very near term as we close out the strategic plan period. Our infrastructure is scalable. These business models should be elastic for years to come. We still have to manage to them, but we know what we need to manage, and that's a controllable within our ability. And then finally, we reached that inflection point that all companies aspire to, which is we're able to create these customers and do the things that we just described with our own organic cash flows.

So with that, I'll open it up to you, Jayson, for any questions.

Great job, Mike. Thank you. Welcome up, Lindsey. Maybe, Mike, just to start with the BLA. The path, I'd say, has been unconventional, right? You just received FDA approval for a device that you've been selling for 17 years with over 120,000 implants. So I guess what changes in your discussions with physicians, hospital administrators, payers now that you actually have the BLA?

Can you hear me?

Yes.

You are right, Jayson. It's very unconventional. In my career, I have never seen a unique situation like that from a regulatory framework where you operate for more than a decade under discretionary approval while you're moving towards a new status of quantification of your benefit risk. But it is now concluded. And what's changed is that -- let me explain what is not going to happen. Normally, when you reach such a significant milestone as a regulatory group like this, you have a massive commercial event that transpires, but that's because you're not yet commercial. We've already been commercial.

Our product has already been accessible to our customers. So there's not a light switch inflection point. That said, with the receipt of the BLA, we are able to approach our customers, and we are able to validate those who have been users of our products and supported our journey by making clear to them that, hey, thank you. The FDA has just approved our biologic license application and Avance is now the first of its kind biologic therapeutic for the treatment of nerve discontinuities. It's a reference product now for the entire world for products of this kind. So it's a big deal.

For those who might have been sitting on the fence, who are still unsure whether or not the product was what it was purported to be, you can imagine that we revisit with those customers and make manifest the biologic license applications approval and its significance. So it's certainly very supportive of our market development effort in that regard. Perhaps the most active elements is our ability to go back to payers, the remaining payers who don't provide coverage, who do so because they conclude that Avance is an experimental product. Despite the fact they had discretionary approval and despite the fact it's been around for a while, some stakeholders did look at the product as if it was experimental.

So with the approval of the biologic license application, we are now able to reapproach these entities and then formally make clear that it is not experimental. And this is key to moving forward full coverage in the future with regards to that event. The third event is that with -- now that we have an established codified benefit risk profile, we're able to enter into new clinical study work. We don't need to do this for regulatory purposes necessarily, but we do need to build evidence relative to our standard of care aspirations. All new markets are dependent upon the quantity and the quality of evidence, and there's more evidence work that we needed to do, but we couldn't really do that work in terms of controlled studies until such time that the biologic license application was completed and concluded. So that's a big area.

And then finally, and this I've spoken to you about many times publicly, is because we were under a discretionary approval, we were managing our products under a quality system, which has adhered to device regulations for tissue. The biologics quality system is a different quality system with greater touch points, greater redundancies and different measures. And so we had to stand up 2 quality systems at the same time, but we couldn't move conclusively to biologics, we weren't yet approved. And so therefore, it also made it difficult to invest as you would normally do in continuous improvements on the tissue side because you knew you're moving to biologics. So extremely resource-intensive as a result because essentially you're doing 2 things at the same time you would normally never do in a manufacturing process.

With the conclusion of the BLA, we now have one quality system that we can invest in, greater mind share and focus, less resource intensive strategic in the future. And we're now allowed to implement into the manufacturing process, the kinds of things that would normally be associated with good practice, which is electronic batch records, continuous lean improvements. And all of these measures together is what allow you to, over the long term, reduce your costs even further enhancing your gross margin.

Very good answer. Maybe just to piggyback on a few of those. Have you seen an increase in physician interest post BLA?

Yes, but more acknowledgment, again, because it's already been available to them, it's an affirmation of what they were already doing, but not an inflection point, a light switch. So...

Okay. That's fair enough. And just on the commercial coverage, I think you've talked about near universal coverage over the long-range plan. It sounds like there's some near-term milestones. So what should investors expect for knocking down some of these reimbursement hurdles over the next 12 months?

Sure. As we've mentioned many times, we can't predict the timing explicitly, but we can predict levels of confidence over a period of time. And that is that we believe we will gain full coverage by the end of the original strategic planning period, so 2028. Now does that mean something will or won't happen in 2026? We hope and believe it should, but we can't predict that.

Now why do we say this? So a payer has their own requirements for coverage. They're published. They're transparent. You can literally go through their lists. They have a process by which you engage to interact and providing these kinds of proofs. Some people use independent evidence sources. Some people do all the work on their own. Some people have different advocacy requirements where their own physicians and their own networks need to make testament as to their efficacy. All this together goes into the calculus of do they provide coverage or do they not provide coverage.

So where we are today is with each of the remaining payers, we have gone through all of the formal requirements, and we have submitted the information that makes clear that we meet or exceed any of the expectations. And we know objectively that technically, there is no reason why any one of these individual payers should not, at this point in time, now provide at their next annual update approval and full coverage for Avance usage. So what we now are waiting upon is as the first responses to these formal applications.

Very clear. Mike or Lindsey, you just completed a capital raise that allows you to pay off some high coupon debt. Can you just talk us through the opportunity that paying off that debt opens up? And where do you plan on allocating the remainder of the proceeds?

Yes. So we just completed an upsized round of $142 million. The net proceeds from that raise were $133 million. From that, we paid off our existing debt facility. That was about $68 million, and we'll record a loss from the extinguishment of that debt, about $17 million in Q1 here. What that money allows us to do, the excess funds, it's improving our balance sheet, it's also improving our cash flow and our profitability going forward. We're going to keep the cash opportunistically, even though we are going to be free cash flow positive in 2027 to be able to -- if we see a need of additional tuck-in that we want to do or to accelerate our innovation plans or just use it more opportunistically as well as reduce the dilution impact of our employee stock-based compensation plan on our shareholders by approximately 30%.

Okay. Thanks, very clear. Mike, prostate, what are the next steps after you get the initial clinical data in the second half of the year?

Sure. So for those who may have followed, we have a basic thesis, which is actually conditional to our approval of our product that a nerve is a nerve is a nerve. In other words, whether it's in the arm, whether it's a facial nerve, below the knee, that fundamentally, the potential for regeneration exists in a similar fashion. And so prostate is another classic example of iatrogenic injury. So you're doing a procedure that results in damage oftentimes to the nerves when they cannot be preserved wholly or completely. And the result of that is dysfunction. And it becomes a huge barrier to this diagnosis in general, much less interventional care. And when it is involved, it affects quality of life. And we -- at this stage, particularly for someone like me, you all know somebody who's gone through that experience. So big health problem, no matter what -- how hard people work, not been able to correct it.

What we did this year was we identified 10 clinical sites, and we asked them to enroll together 100 patients with different approaches, but one primary approach with regards to the use of allograft. And then what we are doing now is following and working with those individual centers to determine whether or not the procedures that we believe would be appropriate are teachable. And teachable is defined by everybody can technically do the procedure and that the outcomes reflect what we would expect to be appropriate in terms of nerve regeneration.

On the assumption that those outcomes are positive, and it's going to take time for the healing process and enough patients to get through to really make that judgment call. On the assumption that those results are directionally positive, we will stand up commercial efforts accordingly to develop prostate just like we're doing for breast and just like we do for oral, maxillofacial and extremities. And that time period in terms of where we'll have enough patient experience to speak to is going to be in the second half of the year. So towards the end of third quarter and certainly by fourth quarter, we'll have enough data to draw a conclusion.

We've got a minute left, but I did want to ask gross margin. It was topical on the call. Business is generating a nice gross margin. There is a transition over to BLA manufacturing. What do you need to do? And what does it look like in '27 when it snaps back?

Yes. So as Mike kind of mentioned earlier, having that BLA approval is allowing us to be able to make more improvements in our manufacturing processes. So we're implementing a manufacturing execution system, electronic batch records, a lab management system and implementing a lot of lean programs. With that, we believe we'll be able to offset the additional costs that are related to processing as a biologic. We haven't started talking about where we think we can be at the end, where is the top. But we plan on talking about that more towards the end of 2026. But we still view ourselves 75% plus gross margin business in the long term, and we'll have more details to come.

Lindsey, we're bumping up against our time here. So Lindsey, Mike, thank you very much.

Thank you.

The breakout will be downstairs in Amarante 1. Thank you.

Thank you.

Good morning, everyone. Joining me on today's call is Michael Dale, Axogen's Chief Executive Officer and Director; and Lindsey Hartley, Chief Financial Officer. Michael will discuss fourth quarter and full year 2025 financial results and corporate highlights. Lindsey will then provide details on financial performance, guidance 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 Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com. Before we begin, I'd like to remind you that during this conference call, management will be making forward-looking statements, which are statements that are not historical facts and are based on current expectations and assumptions regarding future conditions, events and results.

Forward-looking statements include, among other things, statements regarding our financial guidance and outlook, clinical development activities and regulatory efforts, commercial growth initiatives, reimbursement and market access efforts training and education initiatives, research and development activities and our overall business strategy and operating performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially including, without limitation of risks and uncertainties reflected in our filings with the Securities and Exchange Commission including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made, and we may make -- we undertake no obligation to update any forward-looking statements, except as required by law. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release for a presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website.

Now I'll turn the call over to Michael. Michael, please go ahead.

Thank you, operator, and welcome to everyone joining us this morning. Today, I'll walk through our fourth quarter and full year 2025 performance through the lens of the 6 priority areas of our strategic plan, highlighting how we executed against each in 2025 and and how they frame our objectives for 2026. I'll then turn the call over to Lindsey to review the financials and outlook, after which we'll open the call for questions. .

2025 was a year of significant achievement for Axogen, both financially and strategically and one that positions us well for durable growth in the years ahead. The first strategic plan priority I will speak about is our growth target of 15% to 20% and the related financial operating leverage we expected for the business. We delivered strong top and bottom line performance in 2025, consistent with the upper end of the growth trajectory outlined in our strategic plan.

Our Q4 revenue was $59.9 million, up 21.3% year-over-year with double-digit growth across all 3 target markets. Our full year revenue increased 20.2% to $225.2 million. Our adjusted EBITDA grew 41% to $27.9 million, and we increased our cash position by $6 million while fully funding our strategic initiatives. This performance reflects expanding adoption of Axogen's nerve repair algorithm across traumatic heterogenic and chronic peripheral nerve injuries with Avance Nerve Graft remaining our primary growth driver, often complemented by our broader portfolio of repair, protection, connection and termination solutions.

Importantly, we have now reached a financial inflection point enabling greater concentration of our market development efforts while generating positive cash flow and improving profitability. Regarding capital structure and balance sheet strength, in January, we completed an upsized public offering raising $133.3 million in net proceeds. We used $69.7 million to fully retire our term loan facility, leaving us with a clean capital structure and significantly enhanced financial flexibility. Eliminating the interest and revenue participation obligations improves our earnings quality over time, while the remaining proceeds provide capacity to fund continued execution of our strategic plan. As a result, we entered 2026 well capitalized and positioned to deliver disciplined, profitable growth.

The second strategic plan priority I will speak about is our market development progress for elective and planned procedures in extremities, oral maxillofacial and head and neck, breast and our prostate market development plans. Across our 3 core markets, momentum remains strong, as represented by continued double-digit growth in each market. In Extremities, which continues to be our most mature market and where we are furthest along in achieving standard of care status supported by solid growth in both traumatic and chronic procedures.

For Oral Maxillofacial and Head and Neck, we delivered high double-digit growth, driven by a surge in adoption of the Axogen algorithm and increasing recognition of nerve repairs impact on quality of life. Breast remains one of our fastest-growing opportunities with accelerating adoption of resensation techniques and increased implant-based reconstruction volumes. In Prostate, we made important foundational progress in 2025. More than 100 procedures were completed across 10 clinical sites, and in collaboration with our surgery partners, we established a standardized surgical technique. As we enter the second half of 2026, we expect to begin seeing meaningful clinical signals as nerve recovery data matures, an important step in what we believe is a highly underdeveloped and compelling market opportunity.

The third strategic plan priority I will speak about is our commercial expansion progress in regards to infrastructure and sales force growth. In 2025, we significantly expanded our commercial organization across all markets. In breast, we added 10 sales representatives and 2 regional directors ending the year with 21 sales representatives and 2 regional directors. In Extremities, we added 12 sales representatives in high-potential geographies, ending with 117 reps and 15 regional directors.

In Oral Maxillofacial and Head and Neck, we ended the year with 3 field-based market development managers. And in Prostate development, we added 3 clinical development managers and one director. Early productivity trends are tracking well with our assumptions. Across markets, new hires typically reach independence and breakeven within 6 to 9 months, after which they become accretive. In 2026, we plan to continue this expansion. We will grow the breast team to approximately 30 sales representatives. We will grow extremities to approximately 130 representatives and we will continue to evaluate further commercial investment to support prostate market development in the second half of the year.

The fourth strategic plan priority I will speak about is our commercial excellence performance specific to our high potential accounts, productivity in general and education. Our high potential account strategy remains a cornerstone of our commercial model. In 2025, 61% of total revenue growth came from high potential accounts. Average high potential account productivity increased 21% and active surgeons in high-potential accounts increased by 131. We ended the year with 679 active high-potential accounts at an approximately 780 universe. While slightly below certain internal targets, fundamentals across both high potential and nonhypotential accounts remain strong with double-digit growth and improving productivity across the broader base.

For 2026, our high potential objectives include 60% of revenue growth from high potential accounts and 18% productivity growth in these accounts and activation of at least 100 surgeons. Surgeon education continues to be one of Axogen's core competencies and a critical driver of algorithm adoption. In 2025, we exceeded training targets across all markets. And in 2026, we plan to further expand education programs across breast, extremities and oral maxillofacial, head and neck.

In 2025, Extremities held 9 professional education programs and trained 170 surgeons. In Oral Maxillofacial and Head and Neck, we held 3 programs and train 59 surgeons. In Breast, we held 5 professional education programs and trained 79 surgeon pairs. For 2026, our training objectives include holding and conducting 10 extremities professional education programs and training 200 surgeons. In oral maxillofacial and head and neck, we will conduct 6 professional education programs and trained 100 surgeons. And in breast, we will conduct 5 professional education programs and trained 75 surgeon pairs.

The fifth strategic plan priority I will speak about is progress related to our standard of care objectives as related to evidence coverage in the FDA biological license approval of events. In December, we achieved the most significant milestone in Axogen's history, which was the FDA approval of the biologics license application for events. Avance is now the first and only FDA-approved biologic therapeutic for treating peripheral nerve discontinuities with 12 years of market exclusivity. This establishes Avance as the standard of reference in nerve repair. We are acting on this milestone across 4 fronts: customer engagement to reinforce confidence in advance safety, efficacy and regulatory status; payer engagement to drive near universal U.S. coverage; clinical advancement by enabling prioritized studies under an approved regulatory framework; and lastly, manufacturing investments to support scalability and margin expansion by our ability now to manage our manufacturing operations under one quality system.

In 2025, we also received strong validation of events from leading medical societies, the American Association of Hand Surgery and the American Society for Reconstructive Microsurgery, issued position statements recognizing nerve allograft as a non-experimental medically necessary standard of care for peripheral nerve defects. Building on prior guidelines from the American Association of Oral Maxillofacial surgeons. Together, these endorsements represent an important step toward broader recognition of allograft nerve repair as a standard of care and support our efforts to expand coverage and payment in the future.

On reimbursement, approximately 19.8 million additional lives gained coverage in 2025, bringing commercial coverage above 65%. With Biologics license approval, we believe we are well positioned to address the remaining payer objections. Additionally, CMS implemented a new outpatient payment classification for nerve procedures in January, improving the economic profile for outpatient settings and potentially expanding site of care flexibility over time.

The sixth and last strategic plan priority I will speak about is our innovation progress. Our R&D investments which are focused on improving benefit versus risk profiles for the treatment of nerve care are focused on 3 strategic priorities. Firstly, making nerve coaptation faster and easier and more consistent. Second is advancing solutions for nontransected and chronic nerve injuries through better protection. And thirdly, developing therapeutic reconstruction technologies to improve the fundamental ability for nerve regeneration.

With the Biologics License approval in place, we are moving forward also with prioritized clinical studies, including in breast and mixed and motor nerve indications. We expect to provide more detailed updates on individual programs later this year. In each instance, these programs are progressing well and we plan to provide more detail on each of these programs in the second half of the year.

In summary, 2025 was a year of execution and validation for Axogen. We delivered strong financial results, achieved a historic regulatory milestone and continued building momentum across our markets, all while executing against the 6 priorities of our strategic plan. I am proud of the Axogen team and confident in our ability to deliver disciplined growth consistent with our guidance and long-term strategy.

I'll now turn the call over to Lindsey to review the quarter's financials and our outlook for 2026.

Thanks, Mike. I'm pleased to report our 2025 financial results and provide 2026 guidance. We are excited about our results for the fourth quarter and the full year. Our focus on commercial execution and resource allocation have yielded top line growth and positive cash flow. For the fourth quarter, we reported strong growth with revenue of $59.9 million, reflecting 21.3% growth compared to the fourth quarter of 2024. For the full year, we reported revenue of $225.2 million, reflecting growth of 20.2% compared to 2024.

As mentioned during our last earnings call, we estimated that our revenue was positively impacted by the discontinuation of the case stock sales program for Avance. We believe the pull-forward impact on our full year results to be minimal.

Revenue growth continues to be fueled by strong sales of Avance and adoption of our comprehensive product algorithm across our target market with unit volume and mix serving as the primary driver of our revenue performance in addition to price. Our gross profit for the fourth quarter came in at $44.4 million, up from $37.6 million in the fourth quarter of 2024. This represents a gross margin of 74.1%, down from 76.1% in the same period last year.

Gross profit for the full year came in at $167.4 million, up from $142 million in 2024. This represents a gross margin of 74.3%, 1.5 percentage points less than 75.8% in 2024. Gross profit was negatively impacted by $1.9 million or 3.3% for the fourth quarter and 0.9% for the full year from onetime costs related to the FDA BLA approval of Avance. Two of these costs are $1.3 million were noncash and related to the vesting of certain stock-based compensation awards containing milestones tied to this event. Excluding these onetime costs, the year-over-year decreases of gross margin were primarily driven by approximately 2% higher product cost, offset by a reduction of inventory write-offs and reduced shipping costs on products sold.

Product cost increased as a result of costs related to additional steps and tests required as we transition to and began processing Avance as a biologic. The reduction in inventory write-offs and shipping costs resulted from the discontinuation of the K stock sales program for Avance and process improvements implemented throughout the year.

Operating expenses increased to $54.2 million in the fourth quarter, up from $35.6 million in the fourth quarter of 2024 and increased 18.3% as a percentage of revenue. Full year operating expenses increased to $175.2 million from $145.3 million in 2024 and increased 0.3% as a percentage of revenue.

Included in operating expenses for the fourth quarter and full year was $7.2 million of noncash onetime stock-based compensation expense related to the vesting of equity awards tied to the FDA BLA approval of Avance. This expense is reflected across operating expense categories, including $700,000 in sales and marketing, $4.6 million in research and development and $1.9 million in general and administrative expenses. As a result, operating margin was negatively impacted by approximately 12.1% in the fourth quarter and 3.2% for the full year.

Excluding this onetime cost, operating leverage improved by 3% as a result of top line growth and financial discipline year-over-year. Sales and marketing expenses as a percentage of total revenue increased nearly 5 percentage points to 45.4% in the fourth quarter compared to 40.6% in the fourth quarter of 2024. For the full year, sales and marketing expenses as a percentage of total revenue increased 1.5 percentage points to 43.4% from 41.9% in 2024.

Research and development expenses increased 83.9% to $12.4 million in the fourth quarter compared to $6.7 million in the fourth quarter of 2024. And as a percentage of total revenue increased by approximately 7 percentage points to 20.7% from 13.6%. Full year research and development expenses increased 18.4% to $32.9 million from $27.8 million in 2024 and was flat at approximately 15% as a percentage of revenue.

General and administrative expenses increased 64.6% to $14.6 million in the fourth quarter compared to $8.9 million in the fourth quarter of 2024. And as a percentage of total revenue increased 6.5 percentage points to 24.4% from 17.9%. Full year general and administrative expenses increased 14.2% to $44.6 million from $39 million in 2024 and as a percentage of revenue decreased 1 percentage point.

Net loss for the fourth quarter was $13.2 million or $0.28 per share compared to net income of $500,000 or $0.01 per share in the fourth quarter of 2024. Full year net loss was $15.7 million or $0.34 per share compared to $10 million or $0.23 per share in 2024. Adjusted net income was $3.5 million or $0.07 per share for the fourth quarter of 2025 and 2024. Full year adjusted net income was $14.4 million or $0.29 per share compared to the $5.9 million or $0.13 per share in 2024.

Adjusted EBITDA for the fourth quarter was $6.5 million compared to an adjusted EBITDA of $6.7 million in the same period last year. Fourth quarter adjusted EBITDA margin decreased 270 basis points to 10.9% from 13.6% in the same period last year. Full year adjusted EBITDA was $27.9 million, compared to an adjusted EBITDA of $19.8 million in 2024. Full year adjusted EBITDA margin improved 180 basis points to 12.4% from 10.6% in 2024, driven by revenue growth and increased operating leverage, excluding stock-based compensation expense.

I am pleased to report for the full year, our balance of cash, cash equivalents, restricted cash and investments increased $6 million to $45.5 million from $39.5 million as of December 31, 2024, demonstrating our ability to be cash flow positive for the year.

Now turning to our full year financial guidance for 2026. We expect full year 2026 revenue growth to be at least 18% or total revenue of at least $265.7 million. We anticipate full year 2026 gross margin to be in the range of 74% to 76%. This range is consistent with 2025 and considers anticipated product cost pressure as we begin selling Avance biologic product in the second quarter of 2026. In 2027, we expect to begin seeing improvement to gross margin as a result of implementing continuous improvement programs this year and increasing economies of scale. We expect to be free cash flow positive for the full year 2026. Similar to prior years, we anticipate higher cash burn in the first quarter.

In summary, we are pleased with our fourth quarter and full year performance and entered 2026 with strong momentum. Looking ahead, we will continue to prioritize initiatives that strengthen our financial foundation including targeted investments in innovation and commercial infrastructure. By maintaining a disciplined approach to expense management and leveraging economies of scale, we are confident in our ability to further enhance operating margins and deliver consistent profitability.

With that, I will now open the line for questions. Operator?

[Operator Instructions]

Our first question today is coming from Michael Sarcone from Jefferies.

Just to start on the guidance for the year, at least 18%. You exited 2025 at 21%. And maybe you could argue that even higher when you adjust for the K stock discontinuation. But just wanted to get your take on how conservative or achievable do you view the guidance and maybe talk about some of the key assumptions that you've got in there? .

We would characterize it as prudent. We're building off of a larger base. We believe that our commercial customer creation models are elastic, but they still need to be managed. And so each quarter is a new quarter, each year is a new year. And we feel very confident in the guidance of 18%, obviously, we aspire to growing the business as fast as possible. but hopefully that answers the question. It's a situation that we still believe that we need to prove out quarter-to-quarter because the management of those -- of the customer creation processes is one of diligence, and then we're expanding the footprint, and we still need to be careful about getting out ahead of ourselves. .

Understood. That's helpful. And then maybe just, you touched on the CMS reimbursement, a healthy increase in the outpatient setting. Can you maybe just help us think about how you're thinking about pricing in that context? And any help on -- can you give us a rough sense of the split of the business between inpatient versus outpatient procedures?

Why don't I ask my colleagues, Jens and Rick to weigh in on answering that question.

Mike, thanks for the question. This is Rick. Just to start, we don't break out by care setting in terms of our revenue -- but I do think this is a good derisking event. It's not a light switch. So it's not like all of a sudden, all these procedures are going to move to the outpatient setting. But I think it increases side of care flexibility over time, and it's something we'll continue to take a look at. .

One thing that's important to note is that facilities negotiate procedure payments with the commercial payers and that happens every 1 to 2 years. So CMS makes this decision and facilities will renegotiate their contracts accordingly. And so these things will just flow through the health care system over time, but it gives us a lot of belief in what we're doing. Jens, any color you want to add?

1 Yes. I would say it's definitely positive. The payments have increased, but the really important thing is coverage. And so as coverage expands -- that also will give us more opportunities to expand the footprint into other care settings. But it's really -- there's 2 sides of the coin. You've got the payment, which is great, has been increased, but we're still working hard to expand coverage as well.

Mike, give context of procedures that will likely move in the future where it's advantageous for the provider to do so. are going to be more of the upper extremities, the hands in the arm and then follow-up outpatient procedure opportunities. the other major significant procedures, particularly head and neck and breast, those are unlikely to move into that kind of setting. So it's all good for nerve care in the future, but it will be one that takes time to socialize as each hospital understands their own situation and then decides whether not to deploy more resources to the setting.

Next question is coming from Larry Biegelsen with Wells Fargo.

This is Simon, on for Larry. Maybe just to start out, Mike, since the BLA in December 2025, can you talk about the reaction to it so far from physicians in each segment of the market and payers as well? And then how are you thinking about major coverage wins in 2026 as you move towards full coverage from above 65% today.

Sure. The reception from the physician community is varied. So the product has been commercially available to the community for many years now. So for a lot of individuals, they more or less took for granted that this is the case and where in many instances, only modestly aware of the work going on behind the scenes to move from a device classification to a biologic. So I think that context is important because it's an unusual circumstance.

That said, what we have done is with the approval, it has allowed us to go back to the customers, the people we serve and to affirm with them their trust and confidence in Avance. So that is very positive. It gives us a chance to revisit the basic product characteristics why it's a suitable solution for treating nerve discontinuities. So all very positive in that regard.

And as you might appreciate, for those individuals who are sitting on the fence or who were not adopters, it's given us a new vehicle to go back and revisit the question with those individuals. So in all regards, it's very positive, but it's something that also is important to understand has been a product that's already been available to the community for quite a while.

Now as for payers, it's a vehicle that allows us to go back and revisit any of the payers whereby their one of the primary objections was that the device was experimental and has allowed us to make clear that, that is not the case. As to their response, it's a formal process. You make the submissions, you work through their various work streams that they require in order to even have a conversation. And then periodically, on an annual basis, they review that information that's new and then revisit their decisions.

So there is not a schedule that we can point to that will guarantee us feedback. But other than what we can say is that we hope and expect to see some sort of responses from these entities in 2026, but we have no prediction per se as to which one or exactly when they will respond.

Okay. That's helpful. And maybe as a follow-up -- yes, go ahead.

One thing to add is that while we can't predict the timing, we have predicted the time in the context of the strategic plan. So I do want to be clear about that. It is our expectation between now and 2028, we will overcome the negative coverage decisions that presently exist. .

Sorry, just a follow-up. So maybe just switching gears towards your sales force kind of odds for the year. I think if I'm doing my math right, you added about 22 reps across the business in 2025 and your guiding to at least 12 repetitions in 2026. Maybe help me understand why is that the right number, especially as you're starting to sort of reach critical mass in some of your segments like extremities. And how are you thinking about the productivity ramp of the sales force today versus the historical ramp?

Thanks for the question. I think maybe to start with the one comment you made that reaching critical mass. To put it in context, if you wanted to provide full coverage for extremities, you probably need somewhere between 400 to 600 sales representatives. So there's a very, very large provider universe in extremities. And so in point of fact, while 130 sounds like a lot, it does not provide full coverage of that particular patient presentation stream in terms of trauma and related injuries. So we're a long way from full coverage in extremities.

With regards to breast, the same thing. So we are -- there's about 1,200 sites of service in breast. And to that end, the current organization, while growing rapidly and doing good work is a long way from full coverage. So that's why we have made the strategic decision. We're not going to try to do all of this in a single year, but we're going to grow into it through incremental additions throughout the year and in the succeeding years through 2028.

Your next question is coming from Chris Pasquale from Nephron Research.

Lindsey, I wanted to start with just the cadence of gross margin throughout the year. Could you just level set us on how we should think about it here? Is 2Q the low point and then you improve from there and sort of magnitude of the high and the low for the year would be helpful?

Yes. So as we progress through the year and we began selling a new biologic advanced product, it will carry a heavier cost. Now we will be selling both tissue and biologic products when we start selling biologics. So we expect to see that pressure in Q2 and going into the remaining second half of the year.

Okay. So it sounds like the pressure builds over time as that mix shifts and then we start to see improvement in '27. Is that fair? .

That's correct. .

Okay. Mike, and then you talked about how having the BLA out of the way now frees you up to focus on other clinical priorities, including breast, I would assume, at some point, prostate as well. Can you give us any sense about how you're thinking about what's ultimately going to be required to establish the level of clinical evidence you want in those indications? Are we talking about randomized trials? Or can you get what you need just from documenting sort of single-site registry style study in more detail?

Sure. It will be both. So in every instance, does not need to be randomized, but it needs to fit the bill and what the FDA refers to, and it's really not an FDA requirement, but needs to fit the clinical evidence expectations of what considered adequate and controlled. And so there's a structural definition to the companies. So with regards to mixed and motor, that's going to be randomized clinical trials. With regards to breast, unlikely to be randomized. There's great resistance to that given the current belief, it's unethical to do such. But nonetheless, there's a desire for greater clarity in terms of patient fit and response rates. And so the adequate control studies will run there.

So those 2, for example, are already planned. Those will all initiate this year. And then we will consider doing additional studies. Prostate, as you raised, will be certainly a significant effort but we are not in a position to describe what that study will be until really before the end of this year once we see the clinical signals back from 10 clinical sites that we initiated last year.

So most important thing to understand is while it will evidence as significant in so far as individual single-center studies in terms of randomized studies to put it in context, our Recon is the largest randomized con study ever done in nerve care. And while we're very proud of that, it also speaks to the fact that there does need to be more evidence, and so we look at this as an opportunity. Our customers are actually very excited because we provide for those individuals an opportunity, essentially a vehicle by which to engage in nerve care in a way that's very common, say, for example, cardiovascular or some other health care domains, but not historically the situation in nerve care.

The next question is coming from Jason Bedford from Raymond James.

Congrats on the progress. Just as it relates to the BLA, it doesn't look like it based on the physician training metrics you provided, but are you assuming any step-up in growth directly related to the BLA?

Not explicitly. It was assumed as part of the strategic plan that we would achieve Biologics license approval. And so the growth is implicit in our guidance, it's characterized based upon that assumption.

Okay. And then just you mentioned the active 679 high potential accounts within a universe of, like you said, 780. So my question is, you see scenarios where there's -- the potential universe of high potential accounts grows beyond the 780.

Yes, definitely. As we increase our target indications and target procedures, that high potential algorithm will evolve. And so we do expect in the future that, that universe of high potential accounts will grow. .

Next question today is coming from Caitlin Roberts from Canaccord Genuity.

Just tying off with guidance. If you could provide some more color on the cadence of revenues throughout the year?

From a calendarization standpoint, it should be very similar to what you've seen the last 2 years for Axogen. To generalize, first quarter is typically the most modest quarter for the business. And then the second and third quarter are stronger quarters based upon the dynamics that transpire across nerve care. So summertime is when you see a very significant trauma, people are out and active. And so that's a pronouncement. But it is basically builds throughout the year. And I would look to the last 24 months of history to give you a guide for the calendarization. .

Awesome. And then just for breast, I think you've talked in the past about addressing only a certain part of the market given the technique of the nerve size limitations. Are you working on expanding the technique to address further breast recon procedures?

We are. So we have ongoing R&D and regulatory work to understand what permutations could be offered that includes greater nerve length, greater different morphology representations on the nerve, all things that could make it easier there's nothing expected this year that would be available. But certainly, within the next 24 months, if we decide and determine that we can successfully develop such, we will be bringing those to the marketplace. .

Our next question today is coming from Mike Kratky from Leerink Partners.

So maybe just to jump in on prostate. You highlighted some really exciting milestones over 100 procedures and some of the clinical activity we should be expecting in the latter part of this year. But -- how should we think about the potential revenue contribution in the commercial side ahead of that progression throughout the year? And any color there would be helpful. .

Sure. So we're trying to maintain discipline as we wait for the clinical signals from those 10 clinical sites. So prostate will not be a significant revenue contributor in 2026.

Got it. Understood. And just to clarify there, is there any then contribution in the first half? Or is it really -- that will be kind of the gating factor for your ability to drive more commercial adoption there just as you get more of that clinical signal.

Nothing that we haven't already forecasted implicit in the guidance, which we just shared. So certainly understand and there's things being planned for potential development. But that's all captured in the guidance at present. And it would be very unlikely -- it's very unlikely that we would depart from the current plan. It really boils down to what we've been describing is that we want to see the clinical signals from those 100 patients in the various procedures that we conducted. And again, on the presumption that those are positive, then we'll have a lot more to talk about. .

[Audio Gap] impact there and then any BLA expenses that we should be building in for 2026.

Yes. As I mentioned on the call there was the stock-based compensation expense directly tied to that event. In G&A, it was $1.9 million. Across all of OpEx, it was $7.2 million.

Next question today is coming from Anthony Petrone from Mizuho Group.

Congratulations on the strong end to the year here. Maybe I'll start just on the BLA transition, just something we touched on, Mike, previously, just around inventory or distributor channel shifts as you move from the tissue-based product to Avance BLA in 2Q? And anything we should be aware of over the next couple of months and quick follow-up here would be on hospital outpatient, that new rate plus 40%. How does that play specifically on the breast side? Like how many breast reconstructions have done outpatient, and is that a driver for that segment in 2026. If I can, I have one quick one on just patient economics after as well. .

Sure. With regards to the transition from the tissue to the biologic, it will be invisible to the customer for the most part. There's no inventory obsolescence risk. So all the mechanics and logistics have been factored in and should be seamless at this point. So hopefully, that answers that question. With regards to the outpatient dynamics despite the changes in reimbursement, as we presently understand the market opportunity in breast will not be a factor of any significance with regards to the outpatient setting. Most of those procedures will remain inpatient as we currently understand the situation.

And then...

Yes, question would be just on patient economics. When you think of core extremity oral Maxwell facial, you're bringing in breast now and these 100 cases in prostate in 2027, presumably that will grow. When you think about revenue per patient between core extremity and oral, how does that stack up to breast and prostate? By our math, I think you used quite a bit more Avance graft in the latter 2 surgeries. Just trying to get an idea of how the different patient categories stack up from a revenue capture standpoint.

Sure. In general, from a pure product standpoint, breast because of the longer grafts. These are typically 1 to 2-millimeter diameter grafts, 7 and length and the number of those grafts that are used. Those will -- those procedures will represent the highest average selling price. There are exceptions in extremities based upon the trauma or the situation where it could be similar. But on average, extremities will have a lower ASP point based on the number of grafts and products utilize.

Prostate should be succeed there and move forward, where employed will employ graph that are typically 4 to 5 millimeters in diameter and about 50 mm in length late. And so it will that will also have a relatively higher ASP, but breast will remain into the future, the highest ASP procedure.

Our final question today is coming from Frank Takkinen from Lake Street Capital Markets.

I was curious if I could follow up on breast. I think you outlined 1,200 potential accounts to target in that area. If you think about the 30 rep headcount, how much of that market can you pursue with that site headcount?

Only a portion of it. And so as I've mentioned in the past, we don't have a firm number yet, but I think it should be expected that, that organization could as much as double between now and 2028, and '29 to ensure that we have full coverage based upon the number of accounts or representative to support the care pathway development. So we're still watching that and evolving that. It's still a little too early to put a stake in the ground. But the bottom line is we currently have plans to continue to grow the breast organization for the next several years. .

Got it. That's helpful. And then just as my last one. Curious if you could talk about any long-term gross margin targets once we get to a place where you're consistently manufacturing under the BLA and where that gross margin profile can go over a longer period of time?

Our plan is to address that explicitly in the second half of the year. By then, we will have instituted many of the capital infrastructure investments and have those in place. And that's what's allowing us to guide that we expect improvements in 2027. And I know everyone is anxious to know what are we looking at. But until we really get that work behind us, we think it's appropriate that we hold off in terms of that guide. .

For this year, it's very similar to what we explained last year at 74% to 76% range. People should feel good about it.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Dale for any further closing comments. .

Thank you, operator. On behalf of the Action team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders and our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function and expected standard of care. We look forward to updating you on our continued progress and our plans for the business on our earnings call next quarter. So thank you very much. .

That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Good morning, everyone. Welcome, and thank you for joining us. My name is [indiscernible] I'm an associate in the health care group at JPMorgan. And today, I have the pleasure of introducing the Axogen team. Joining us today is President and CEO, Mike Dale, and we also have CFO, Lindsey Hartley with us. Just a quick reminder on format. This will be a 20-minute presentation followed by 20 minutes of Q&A. Before we start, just be advised that there will be a handheld mic being passed around during Q&A. Thank you, and I'll pass it over to Mike.

Well, thank you. genuinely, thank you to JPMorgan for the opportunity to share Axogen's story. I have the privilege of leading this business now for a little over 1.5 years, and I'll look forward to sharing with each of you what we believe to be the opportunity and the purposes behind Axogen and what that means to all stakeholders.

It's always important, of course, to start with what is the purpose of your business. And with respect to Axogen, not unlike a lot of med tech companies, our work is to try to restore someone's health and improve their quality of life. But specifically in terms of how we do that, our work is focused on restoring peripheral nerve function. This image that you're seeing on the screen right now is a perfect representation of the things that we take for granted every day. This mother and her child riding this bike in the late afternoon, you have the sun, you have wind; all of that is something that they're going to sense by virtue of their peripheral nerve function.

The ability to pedal this bike, the ability to hold on to these handle bars and to push the bike from behind, that's all dependent upon motor function. These are capacities that we all take for granted until through some unfortunate situation, whether it be through trauma or whether it be through some other disease or incident, we lose. And to that end, our work at Axogen is about trying to restore and making peripheral nerve function restoration and expectation for care in the future.

The opportunities that we focus on that are represented as a product of our strategic planning process are these 4 clinical care pathways. They are extremely large and while the company is growing in double digits, still represent a significant under-treatment. And these opportunities are comprised of both emergent procedures as well as elective procedures.

Our largest business is that of extremities. It's part of our original history, focused on treating trauma as it presents. And then the care pathways that you see with respect to breast reconstruction, oral maxillofacial and prostate represent elective procedures secondary to the need to intervene to treat typically cancer or other related diseases in that regard.

The causes of a peripheral nerve injury are represented as following. Typically, through whether it be trauma or some other unintended surgical procedure, you're actually transecting the nerve. You're cutting it in 2 or you're crushing it or you're stretching that as part of an impact or another procedure. And in cases where the nerves are completely transected over time and unable to be repaired, they develop neuroma. These are all the common presentations of peripheral nerve dysfunction.

The solutions for these types of problems that Axogen works on every single day are represented by what we refer to as the Axogen Algorithm. The foundation for our solutions and what makes us distinctive in terms of existing standards of care is out of our advance nerve graft. This is human tissue, that's processed and rendered immunologically benign, but yet still bioactive such that it encourages the regeneration of axons. So the nerve itself serves as a scaffold for that repair process. Our AxoGuard products and our Avive products, these are designed to complement these surgical procedures so that you can ensure that this repair, whatever you might do has the best opportunity to heal so that nerve generation can transpire.

Avance really represents the foundation for our business in terms of what makes us distinctive. Avance is a human allograft. This is donated human tissue. It provides literally size for size whenever there's a situation where you need a scaffold, you can match because we have the -- because this is tissues that literally are provided for the surgeon. This makes these procedures very accessible regardless of the circumstance that might transpire.

And fundamentally, what makes Avance unique is that it retains the human laminin, which is a protein and is very important for signaling as part of the scaffold construct axons for regeneration in Schwann cell infiltration from both the proximal and distal ends of the grafting. Notably, just this last December, we completed a more than decade process to move from a device regulatory status to the first of its kind approved biological license therapeutic solution for treating nerve discontinuities.

This was a work product amongst both the people we collaborate and serve in the clinical community as well as Axogen staff, as I mentioned, for more than a decade. With the completion of this, we now represent the standard of reference for all future technologies in the future.

The question, of course, is what are the opportunities to fully develop and serve our business purpose. And specifically, it really boils down to making the treatment of a peripheral nerve dysfunction and expectation.

Today, in the clinical care guidelines, they're still -- they're just developing to where we're moving towards a situation where a patient presents regardless of whether it's a trauma or it's an iatrogenic injury secondary to some other surgical procedure, where it's expected that you treat the individual's nerve dysfunction. Avance and the Axogen Algorithm really represent the reasons for this.

There are many situations, if you look at the course of the health care industry, whereby there are not markets because there are no solutions. There is now a solution in the way of the Axogen algorithm. And this is the vehicles that we're utilizing to establish entirely new care pathways, raising awareness so that whenever these situations present, we have the opportunity to serve that purpose, mitigate that problem and restore people's health and improve their quality of life.

A little more than 1.5 years ago, as we -- as I joined the business, the entire team, along with clinicians and advisers, we entered into a traditional strategic planning process. The question, of course, was not whether or not there was a need, but there was a very important question of prioritization is what is the most effective way to serve our business purpose in an efficient and timely manner. And the product of that exercise is really represented by the strategic plan that we presented at that time and remains unchanged in terms of our priorities and expectations.

We believe over the period that we're listing here that we'll be able to grow this business 15% to 20% per annum. The markets in terms of prioritization now include also elective procedures as we described and our newest market application that we're developing will be that of prostate. A fundamental prioritization was made to expand the commercial footprint so that we can drive awareness and accomplish the teaching that's required given the novelty of what we provide.

And then finally, commercial excellence. And specifically, what we're focusing on is that each of the care pathways that we serve require their own messaging requirements, they have their own assumptions in terms of capacity, timing, conversion ratios and so on and monitoring those so that we can be as efficient and as effective as possible with regards to that commercial footprint.

And then finally, on more on a strategic basis is maintaining a priority in terms of the investments required to attain true standard of care status such that you are in the guidelines and it is an expectation to address peripheral nerve dysfunction whenever it appears. And then lastly, investing for the future. We have a wonderfully distinctive value proposition based upon benefit versus risk. These nonetheless are imperfect, and there's always a way to improve. So both in the near term as longer term, we have significant investments in R&D that we're presently pursuing in order to further perfect those value propositions.

We really believe that we are truly positioned to continue to lean into the future, we are today, and the reasons why we are looked upon by the customers and the people we served as the leaders is, first and foremost, our technology. It is distinctive. It solves problems in terms of workflow. It's economic relative to the other options. And finally, we had the expertise based upon the work we've done all these years, particularly in pursuit of the biological license application status and we're considered experts, we're considered good partners in terms of these kinds of work.

And finally, we have access by virtue of our presence over time. And as we invest in the future, we're able to drive that awareness and make greater progress towards achieving the standards of care objectives that we've set for ourselves in each individual clinical pathway.

Education, which I've already mentioned, is truly 1 of our core competencies. And in my 40-year career, I look at what Axogen has developed and the trust that they have earned and constantly impressed. We engage in terms of teaching the majority of the fellows in the United States in terms of nerve care, we are sought out for these purposes, we have regional meetings on a regular basis, and we are definitively an educational partner.

Nerve care is emerging. More than 70% of the clinical literature on nerve care has transpired over the last 5 years. So there's constant growing awareness and therefore, interested, okay, how do I do these procedures. And this is obvious, this is a clinical problem that should be addressed and now can be addressed. And so as a result, education is a very, very important part of our market development effort.

Extremities, as I've mentioned, is one of our business platforms. Extremities is the largest business that we have. It's the original focus area for our business. It's emergent, it's basically secondary to trauma. We have a long relationship with key opinion leaders and scientists in this particular area, including the U.S. military. It's the area we're also further along in achieving standard of care status. We've added a number of societal endorsements which have established now that allograft is a suitable solution for treating nerve discontinuities. And we have a large commercial footprint that we're continuing to expand in this area and we continue to believe that this will be a double-digit growth driver for the business long into the future.

Oral maxillofacial and head and neck is one of our newest work streams. This is served by our extremity [ sales ] organization, but these are elective procedures. There are significant procedures through injury and/or cancer that involve interventions. Your upper neck and head, as you might imagine, are very nerve rich. And as such, there's morbidity that's associated oftentimes with these procedures. And now with regards to the work that it actually does, we have the ability to help mitigate some of the sequelae and again, add value to an individual's restorative surgical process.

Breasts. Again, an elective procedure. This is a situation where a woman is obviously being treated for cancer. As part of her recovery process is long established going back to 1998 through the Women's Health Care Cancer Act that a woman has a right with their physician to determine her reconstructive process and choices thereafter. We've gone a long way in terms of providing women the ability to aesthetically reconstruct the breast. The ability to restore sensation to those breasts as part of that process is where Axogen is adding to that opportunity to give back to you what you -- what God originally gave you, that's the whole part of any health care intervention is the constant journey and the effort to try to restore normality, sensation, of course, secondary to peripheral nerve function is key to that. And we are the leaders in this space. It's one of our fastest high double-digit growth businesses, and we're still early in terms of developing and training all the physicians and all the sites to do this work and that will remain a priority.

It's also an area where we've developed a great deal of expertise in direct-to-consumer. This is a unique clinical care pathway in so far as not only does the physician advocate for this treatment, but the patient has a chance to participate in that advocacy as well in terms of the choices that she makes on how she would like to have a reconstruction process transpire.

And then finally, prostate. This is in development. As we indicated last year as part of our objectives, we would enter into a clinical program where we would evaluate the teachability of the procedures. Biologically, the basis is pretty simple, a nerve is a nerve is a nerve. So in principle, we can solve the problems that result from cancer procedures to treat prostate cancer by providing nerve protection and nerve grafting. In this particular area, the only question is, can we indeed teach this. So we enrolled 100 patients that we originally set out to do amongst 10 key sites. And as we approach the end, the second half of 2026, we will have the clinical signals upon which to make that judgment.

We think this is a tremendously important new opportunity to add value consistent with our mission. And we believe, again, for the same reasons we are elsewhere, we are positioned to achieve these objectives and look forward to reporting further on our efforts in this particular new care pathway towards the end of the year.

Coverage and payment is, of course, critical to the adoption of any technology regardless of its efficacy. We're making great progress here. It's incomplete. We still have about 35% of commercial lives, which represents the bulk of the type of patients who present for treatment that are uncovered. But with the achievement of the biologic approval of Avance as a therapeutic, we believe that we will be able to decisively address those remaining objections that exist amongst the remaining payers. We're engaging with them every day. Just this last year, we added almost 20 million covered lives, and we expect in the ensuing years between now and 2028, we will continue to make that progress and ultimately achieve full coverage for nerve care.

Very importantly as well in terms of sites of service. We've made great progress just recently, beginning January 1 this year. CMS has provided an entirely new Level 3 code for nerve procedures in the outpatient setting. Previously the reimbursement in the grouping of nerve care was into a group that resulted in payments, which were very uneconomical for providers of health care in these types of settings. With this newest change in terms of the Level 3 codes specific for nerve care that is no longer the case. And so in the future, we expect that nerve care will take place more often in these particular settings where the physicians or the hospital providing system has the resources in order to do that because the barriers that previously existed have now been completely removed.

Finally, it's about the future. We have work to do in terms of tactical development and awareness, which I've already described. As we look to the future, we're also investing in R&D. These cover various spectrums of development. First, making the procedures easier to adopt through ease-of-use techniques. This includes improving the ability to literally graft the nerve by making that procedure easier and faster to do. We look forward towards the end of this year of bringing in people up to date on the details of this particular project. It's progressing very well. We think very soon we'll be able to enter verification and validation at which point we'll update already as to exactly what it is what they were referring to.

Second, protection, as I mentioned, when you do these procedures, you're in very inflamed tissue beds and the way -- it's very important you protect that grafting procedure that you conduct so that, that nerve heals properly without adhesions. We have some very exciting work going on in this particular area. And then finally, more strategic with respect to therapeutic reconstruction is that of a second-generation events and its capabilities. Avance is truly unique. It's a new standard around the world. We already have line of sight to how we can further incrementally improve the regenerative capabilities of that product. And again, towards the end of this year, we look forward to bringing people a little bit more up to date on exactly what the details are that we're referring to in terms of our work here.

And then finally, new clinical applications. Prostate, as I mentioned, is our #1 priority. There are others that we may well add later in the planning period, but at present, that represents the next care pathway that we will invest in.

Finally, evidence is key. We have tremendous opportunities to further burnish the reasons why peripheral nerve care should be an expectation and the studies that are planned, we are now implementing beginning first with nipple-areolar complex of breast study that will begin this year, followed by the mixed and motor nerve applications. Both of these are important areas of interest. Our physicians, the people we serve are very excited to participate in these studies. We really represent the opportunity to do very large-scale studies that otherwise are not possible given that this is not historically a device-centric area of health care.

And so given the products that we now bring forward, we provide a huge opportunity to do the kind of clinical work that any scientists would like to engage in, and we'll be doing that. Longer term, these will become decisive catalysts that further add and burnish and allow us to bring all these markets to 2 standard of care status.

The team that's doing this work as represented here, I am absolutely delighted with the work that they do, their total commitment to our mission, their engagement in strategic planning process. They're getting it done. Virtually everything that we said we wanted to do, they have done, and we fully expect that to continue in the future.

Financially, as you've described, this is a business that we projected will grow 10% -- 15% to 20% over the strategic planning period. We just had a very successful year this year. We look forward to updating the specific guidance for 2026 at our regular end of quarter call later this quarter. And then very importantly, we've reached the point where we're achieving operational leverage, generating positive cash flow and profitability. And our commitment to all stakeholders is that we will continue to do that while still funding our organic growth initiatives.

Just to reemphasize again, specific to our strategic plan, we maintain the prior guidance that over the course of the period, investors can expect that this business will grow 15% to 20%. We still expect to continue to incrementally improve our gross margins through the initiatives that we previously described in terms of introducing lean augmented work streams, management execution systems, electronic batch records, all good practices, nothing novel in this regard, all of which can build on an already handsome gross margin profile. And then finally, generating positive cash flow continuously from today into the future.

In summary, I believe based upon my experience that this represents one of the most significant undeveloped new market opportunities in health care today, based upon the undertreatment exists and the possibilities to treat it. We believe that from a leadership standpoint, this is critical, and we believe that we will be able to capitalize on this. We are recognized for our work done heretofore. And this is what allows us to build the trust to drive adoption into the future.

We have multiple opportunities to act on our mission. They're common and so far, they represent peripheral nerve dysfunction. They're different in terms of the various clinical pathways. Each of these have their own unique leverage opportunities, all actionable and as such, individual catalysts that we can drive to grow this business.

We have a great momentum in terms of reimbursement. Expect that to continue to ultimately achieve full coverage, therefore removing one of those major barriers to adoption of the technology. Our infrastructure is scalable. We've already demonstrated that. We believe that we'll be able to continue into the future. And we have reached that financial inflection point that allows you to concentrate on your market development but doing so in a profitable way in terms of driving it through organic cash.

So with that, I want to thank you again very much for the opportunity to be here today, and I look forward to answering any questions.

I kick it off here with a couple of questions. I know you guys recently just had your BLA approval, which is great. It's an awesome achievement for the company. Congrats to you and the team. I'd be curious to hear what the practical changes will be in 2026 and how you guys operate compared to 2025 post-BLA?

Important question. So with the conclusion of the biological license application process, there are multiple ways that we will act upon that milestone. And the most simplest immediate tactical way is this has been a long journey, and so we're going to be visiting with all of our customers, even though they already have access to this and affirming for them the original trust and use of the Avance product and reminding them that this is a first of its kind approved biologic therapeutic for the treatment of nerve discontinuities.

So they're already believers, but affirming the faith in that product is a key opportunity. And as you might imagine, for anyone who still has questions, about its applicability, its safety and its efficacy, we will likewise be making manifest to all stakeholders on the clinical community of this particular milestone.

The second element that we'll be acting upon is immediately engaging, and we have already started the process with our payers. They have annual review processes. These are very formal processes and we will be ensuring that these remaining 3 payers understand that Avance is now an approved biologic, it should, therefore, not be considered experimental which, in some cases, is one of the reasons for a denial of coverage, and we'll be working that process to drive ultimate achievement of full coverage.

The third element that we will be able to do is to really move forward more aggressively with our Level 1 clinical studies. These studies needed to be ideally referencing a standardized benefit-risk profile under an approved regulatory status and with the achievement of the biologic status that allows us to do that in a formal way so that we can move forward and gain approval to run those studies.

And then finally, which I've mentioned many times, is Axogen has been challenged over many years now with running manufacturing operation and a quality system under a device construct, while at the same time, standing up a quality system based upon the biologic expectation. And therefore, this really means that you're doubling your people's workloads as well as significantly increasing cost because you have to run in parallel.

And it's quite a challenging situation in so far as it limits the ability to invest into the device construct because you know you're moving to a biologic, but you can't invest in the biologic process because you're not yet approved for that. So you're living and working under a very difficult set of circumstances.

They did this well, maintaining quality and even good margins under that circumstance. But with the conclusion of the biologic, we now, as you might appreciate, be able to focus on 1 quality system and then make the investments we've long planned and from a system standpoint in the manufacturing and execution system, electronic back records and then really implementing work streams to go forward so that we can further improve the gross margin of these types of products.

And I guess on that margin point, Lindsey, this might be a question for you. Like margins have moved around with the BLA transition. How should we think about a normalized margin going forward post BLA?

Yes. Post BLA, we believe we're at 75% plus gross margin business. This next year, we'll have a little bit of noise and that we will continue to enjoy the gross margin that we've seen in the last couple of quarters and then we'll feel some pressure in the back half of the year. But then going forward into '27, we expect to see the fruits from all the initiatives that Mike has just told us about at our plant implementing those new systems. We haven't quite guided to what -- how high it could be, but we do see improvements in our future.

That's great. You guys have clearly made an emphasis on expanding the commercial footprint. I'd be curious to hear how the company thinks about sales rep productivity and when new hires become accretive?

Sure. In general, when we bring someone on board, regardless of whether it's breast or extremities, the expectations that it will take about 6 to 9 months for that representative gains to kind of confidence and knowledge to operate independently. From a financial standpoint, that's also the same period of time at which they ultimately become breakeven and also accretive not untypical for a lot of med-tech situations that applies to us as well.

Awesome. And we've seen a lot of acceleration in the resensation business. I guess, like looking forward, how big do you think breast can be as a percentage of revenue?

We haven't guided as to a percentage, but another way to look at this is that in principle, in the future, the way we see it from a benefit-risk standpoint is that if a woman elects to have reconstructive -- reconstruction as part of her follow-up process post mastectomy, that resensation should be a part of that. So in theory, somewhere between 70% to 90% of that entire marketplace is ultimately addressable.

Great. I guess -- moving on to prostate, that's clearly been a clinical priority. Curious to hear about any milestones and things looking forward?

The most important milestone was completing the 100 patients amongst the 10 clinical sites that we previously described. So that was attained. And we now are in the process of working with these clinicians to ensure that the follow-up is complete. In general, based upon the time for nerve recovery, as we enter the second half of the year, we will start to have the clinical signals where the patients will be reporting on their status with the physicians and we'll be able to draw conclusions as to whether or not we can treat -- teach this procedure so that it's effective.

Got it. Just taking a step back, I know right now, the U.S. market is the focus. But when should we expect the company to start thinking about international expansion? And is there any attractive markets you guys are thinking about?

Yes. We're literally in the process with the conclusion of the BLA to make those decisions now internationally as to where we go. We're not at a point where I want to guide in which countries are the priorities. We do have a presence now internationally, but it's de minimis in terms of our focus and investment. And that's really the question you're asking is, so where are you going to invest in the future? We're literally in the process over the next many months of making that final decision as to which markets we prioritize.

But in principle, it won't be that much different from other med tech markets. You're going to pick those primarily that have a logical regulatory pathway that also leads to reimbursement. Given the novelty of this, this won't fit into any existing reimbursement system. So you'll typically start out with countries that have a process that you can engage in such that you know if you enter into that process, you have a point at which you will be able to qualify for reimbursement.

Great. I guess shifting to the capital allocation strategy. I'd be curious to hear how you guys are thinking about it, especially now that the business is cash flow positive?

Yes. So we currently we're cash flow positive, and we're able to fund our strategic plan through cash from operations. It's a great -- I've been at Axogen for 4 years. It's a great milestone for us. and we will continue to keep that in mind.

Awesome. And Mike, I know you've been here for probably a little over 1.5 years. What do you think is fundamentally different about the business now compared to when you joined?

I think the most important thing for any business is clarity of purpose, and that may sound obvious, but you need to translate that from a general statement into exactly what should be our guide every single day. And what we spent a lot of time as we engage in this strategic planning process was a reminder to all of us that every business has a purpose and every business's purpose is measurable. And in the context of health care, that's how many customers or patients have you treated today versus what were treated yesterday.

If you're furthering your mission, it's about matching patients to therapy where indicated appropriately. And what we've tried to do is remind everybody that they all have a role in that purpose in that process and that we will measure ourselves. Yes, revenue is a number, but that revenue reflects whether or not we're treating patients. And that may sound obvious, but having those kind of conversations with every part of the business, every single employee is critical to creating that commitment to something that's bigger than ourselves.

And I think that's what's going on at Axogen today. People are having fun. It's not easy to -- I mean, it's not hard to convince someone that peripheral nerve function is essential to life. And then if you can make it better where it's been affected in a negative way, you've made a contribution to that person and to society. And so we had the chance to do that uniquely and folks are really rallying around that, and they're having fun. We're conscious that we have work to do, and it's quarter-to-quarter but I think that's probably the most significant thing is improved emphasis and focus on that purpose.

That's great to hear. And just looking forward coming off the back of an awesome achievement for the company with the BLA approval, what are 2 or 3 things in the near term that you guys are really focused on executing?

Literally what we just shared. So there's some big strategic milestones down the road beginning in 2027 thereafter. But last year and then 2026, this is pure unadulterated commercial execution through the commercial footprints that we have in place. So we have sales models, we have messaging. We have education requirements. And our job is to do those on schedule, on time without compromising the quality. We will do that, and we'll continue to grow at the rate that we have been.

At this time, love to open it up to the audience for any questions.

Regarding the long-term plan, our midterm plan 15% to 20%, which is acceleration from the past 5 years, 15%. If you break it down by the end market, which market should be contribute the most, so this can break down by the market growth. And other than the reimbursement improvement, would you see -- how do you see the volume also grows?

Well, the procedures are driving our volumes. So in terms of procedure versus volume versus price mix, it's -- our growth is really primarily driven by volume, treating more patients than we did before. We don't break out the explicitly which markets -- what the market growth rates are, but what we have shared is that all the markets are growing in double digit and that the elective markets of oral maxillofacial and breast grow in high double digits. Sometimes in the future we may provide more explicit guidance but at present, that's the extent that we'll share the growth.

Thank you. Could you kind of provide a breakdown of the portion of cases done inpatient versus outpatient currently and where you think that could go in the future, especially in light of the reimbursement change?

Today, given the historical disincentives to outpatient procedures, they're de minimis. So there are exceptions. I mean there are some work going on there. So the real potential for that mix to break out will be sometime later this year as hospitals start to digest this change by CMS. We'll also be helping with that. We'll go to hospitals. We'll sit down with them and make sure that they're aware of this change.

There are a lot of hospital systems that obviously have significant investments in these facilities, and they will want to know and understand where nerve care now fits. So the answer to your question is, today, there's not a lot of activity because historically, it was very uneconomical to conduct those procedures. But we do expect it to change. We don't really have a forecast yet because it's -- this is all new. But maybe towards midyear, we might be have some more insight.

I think we have time for 1 last question.

You say historically, this procedure is uneconomical. So the increase in the CMS reimbursement will help a lot. But after this reimbursement, how would you see the economic for the either the inpatient or outpatient centers? Would that be enough to incentivize the adoption?

We're at a point now where the nerve care is economical in these settings. That will continue to improve. The reason why we say that is the way that the health care system works is it's designed to compensate cost and so in order to do that, it needs to see activity.

And so as nerve care continues to grow, each hospital system will reflect its own cost, that's typically a 1- to 2-year lag more like 2, but at that point, CMS adjust their payments to reflect that cost. So given the novelty of this therapy as it continues to grow, that reimbursement will likewise. And we're still very early in terms of the market penetration. So we don't expect any change in that cadence. So bottom line is we have now reached a point where nerve care is economical already, and we expect it to further improve.

That concludes our presentation. Thank you for joining us. Thank you, Mike and Lindsey for taking the time. Have a wonderful rest of your day.

Thank you.

Good morning. Joining me on today's call is Michael Dale, AxoGen's Chief Executive Officer and Director; and Lindsey Hartley, Chief Financial Officer. Michael will discuss third quarter 2025 financial results and corporate highlights. Lindsey will then provide details on financial performance, guidance 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 Investors section of AxoGen's website. Following the end of the live call, a replay will be available in the Investors section of the company's website at www.AxoGeninc.com. Before we get started, I'd like to remind you that during the conference call, the company will make projections and forward-looking statements.

Forward-looking statements include, but are not limited to, statements relating to financial guidance, market development priorities, estimated market opportunities, timing for future product and application launches and the company's expectations for approval of the biologics license application for Avance Nerve Graft in December 2025, including the anticipated timing of approval and the assumption that Avance Nerve Graft will be designated as a reference product for any future biosimilar nerve graft and that such designation will provide marketplace exclusivity.

Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the company's SEC filings, including its most recent Form 10-K and 10-Q. The forward-looking statements are representative only as of the date they are made, and except as required by applicable law, the company assumes no responsibility to publicly update or revise any forward-looking statements. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release, short presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website. I'll now turn the call over to Michael.

Thank you, operator, and welcome to everyone joining us this morning as we discuss our 2025 third quarter financial results. I'll begin today's call with a financial and corporate overview, highlighting our progress through the third quarter and year-to-date, implementing our strategic plan, followed by an update on the Biologics License Application, or BLA, for our Avance Nerve Graft. I will then pass the call to Lindsey to review the quarter's financials and outlook for the remainder of 2025, and then we will open the lines for a question-and-answer session.

As remarked in this morning's earnings release, we are delighted with our third quarter performance and progress year-to-date for the business. Our strong revenue growth and notable milestone achievements during the quarter further validate our strategic plan objectives and market development strategies and importantly, AxoGen's ability to operationally execute our plans. Indeed, I am proud of our executive team in each of the respective operating functions at AxoGen for the performance year-to-date that is at or above plan. Looking ahead, we will continue to optimize our business models based on experience and have confidence in our ability to continue delivering growth consistent with the guidance we have provided for our strategic plan in both the near and longer term.

Regarding the quarter, Q3 sales increased to $60.1 million, growing 23.5% compared to the same period last year. This performance reflects double-digit growth across all of our nerve repair target markets, including extremities, oral maxillofacial and head and neck and breast. Consistent with prior quarters, our growth is driven by expanding adoption of nerve care using AxoGen's nerve algorithm for the treatment of all types of peripheral nerve injuries, including traumatic, hyrogenic and chronic nerve injuries. The Avance Nerve Graft is the primary growth driver, often complemented based on the clinical situation by one or more of our nerve repair connection, protection or termination products.

In extremities, we continue to execute our high potential account strategy with solid growth in both traumatic and chronic nerve injury procedures in the quarter. In OMF and head and neck, surgeon adoption of the AxoGen algorithm during the quarter was strong across all products -- all procedures, but particularly in mandible reconstruction procedures. And likewise, in breast, we continue to see strong adoption of our breast resensation techniques, supported by new surgeon activation, increased procedure volume in implant-based reconstruction cases and the expansion of our commercial infrastructure. In summary, we are encouraged by the broad-based adoption of our nerve care portfolio and momentum across each of our 3 target markets.

To assess our progress, we continue to monitor key metrics tied to our plan in 2025 strategic priorities, including high potential accounts, commercial expansion, professional education, new product development, clinical research and prostate market development. I'll begin with an update on our performance and growth in high potential accounts. We continue to focus on expanding our presence in these accounts to drive more consistent customer creation, algorithm adoption and improvements in sales force productivity.

Our goal for 2025 is to generate at least 66% of total revenue growth from high potential accounts and average account productivity of 21% -- through the first 3 quarters, approximately 64% of revenue growth was driven by high potential accounts based on an average account productivity of 19%. These results are slightly below our planned target, but notably the result of the fact that we are also seeing double-digit revenue growth and account productivity growth year-to-date in our non-high potential designated accounts as well. Growth in all account types was amplified in the quarter by the discontinuation of our case stock sales program for Avance Nerve Graft in preparation for the anticipated BLA approval. This sales program previously allowed for Avance Nerve Grafts to be shipped for a case for an unused product to return to AxoGen.

With the discontinuation of the case stock program, previous case stock customers are transitioning to either order by direct sale or consignment. This shift in purchasing behavior contributed to our top line performance and reduced revenue growth from high potential accounts by an estimated 4%. To be clear, high potential account growth was actually quite strong on an absolute basis, while it appears lower than last quarter, it's really just a function of the denominator getting larger because of the benign high potential base is performing better as well. The underlying fundamentals in all account types remains very positive. And after accounting for the case stock impact in the third quarter, we continue to realize that our focus on high potential accounts is enabling broader and more enduring adoption of nerve care and as such, more predictable growth.

During the first 3 quarters of 2025, there were 668 active high potential accounts. of the approximately 780 accounts that meet our high potential criteria, which represents an increase of 8 accounts or 1.2% as compared to the first 3 quarters of 2024. Regarding our 2025 commercial infrastructure expansion goals, as of the end of third quarter, we are now at or ahead of our hiring plan for each target market. In breast, we ended the quarter with 22 breast resensation sales specialists and 2 regional sales directors. We have met our goal to double the breast sales force in 2025 by the end of the year. To support broader adoption in non-breast markets, we ended the quarter with 125 sales professionals, including 15 regional sales directors. In OMF and head and neck, we ended the quarter with 4 field-based market development managers.

Surgeon training remains a core component of our customer creation and nerve repair algorithm adoption. Execution of our 2025 professional education programs are on track, and we fully expect to meet our 2025 surgeon training targets. In breast, we have trained 62 surgeon pairs year-to-date with one program planned in the fourth quarter. We are confident we will meet our 2025 target of 75 surgeon pairs trained. Active breast resensation programs increased 7% from the third quarter of 2024 from 113 to 121. We estimate 281 surgeons performed a breast resensation procedure in the third quarter, which represents a 20% increase versus third quarter of 2024. In Extremities, we have trained 97 surgeons year-to-date, of which 30 were trained in the third quarter with 3 additional programs planned in the fourth quarter. We expect to meet our 2025 target of 105 surgeons trained. In OMF and head and neck, we have trained 57 surgeons year-to-date, up 16 from second quarter 2025, exceeding our 2025 target of 45 surgeons trained.

Next, I will provide an update on our clinical research priorities. We continue to advance our 2025 initiatives and are on track to complete a Level 1 study protocol for implant-based neurotization, a clinical evidence plan for Avance versus autograft and Vic and motor nerves and a clinical evidence plan for oral maxillofacial and head and neck. Regarding research and development, as we have outlined in our strategic plan, innovation remains critical to our long-term growth -- through the 3 quarters of the -- through the first 3 quarters of the year, we continue to progress and advance our innovation platform across 3 pillars. Those include therapeutic reconstruction, ease of coaptation and protection expansion.

Consistent with our clinical research objectives to build evidence in support of nerve care, in the third quarter, we received meaningful external validation of AxoGen's differentiated technologies and leadership in peripheral nerve repair. 10 new peer-reviewed publications cited clinical use for discussion of our products, bringing our total nerve repair related literature body to 339 publications. This growing body of evidence underscores the clinical relevance and impact of our solutions. Notably, there has been a 70% increase in the number of nerve repair publications in the last 5 years, reflecting in part the growing experience and interest in nerve repair. For those interested, all peer-reviewed studies are available on our website.

During the third quarter, we also saw significant validation from medical societies. Both the American Association of Hand Surgery and the American Society for Reconstructive Microsurgery released official position statements recognizing nerve allograft as a nonexperimental and medically necessary standard medical practice option for the treatment of peripheral nerve defects. These position statements add to the previously released clinical practice guidelines from the American Association of Oral and Maxillofacial Surgeons. Together, these endorsements mark a critical step towards establishing peripheral nerve repair with allograft as a recognized standard of care, and we believe this support will be helpful in our efforts to expand coverage.

On the coverage and reimbursement front, we continue to see noncoverage policies removed within the Blue Cross Blue Shield network and within Medicare Advantage for Nerve Care, resulting in an estimated 1.1 million newly covered lives in the third quarter. Year-to-date, we estimate 18.1 million additional lives are now covered for nerve repair for peripheral nerve injuries using synthetic conduits or allografts. This expansion brings coverage amongst commercial payers to more than 64%, reflecting continued momentum and expanding access. And finally, I will provide an update on our prostate clinical and market development plan.

We remain enthusiastic about the opportunity to improve nerve function outcomes in robotic-assisted radical prostatectomy and are actively collaborating with key opinion leaders to advance surgical technique development. During the third quarter, our clinical development team provided field-based support to surgeons and clinical sites incorporating nerve repair into the robotic-assisted prostatectomy cases. We added 4 new clinical sites during the third quarter, bringing our total to 10 active sites meeting our year-end goal. Procedures are ongoing, and we remain on track to complete 100 cases by year-end. Before I hand it over to Lindsey, I would like to address the status of our biologics license application for Avance Nerve Graft.

In August, the FDA extended the PDUFA goal date from September to December 5, 2025. In the communication from the FDA, it stated that a recent submission by AxoGen, a facility and manufacturing information provided in the response to an FDA information request constituted a major amendment to our BLA for the Avance Nerve Graft submission, which resulted in the 3-month extension. Since our last public update, interactions with FDA have expanded to all elements of the BLA application. Based on these interactions, we remain confident we will successfully complete the application process, consistent with the new December 5 PDUFA date.

The BLA approval will secure 12 years of market exclusivity from biosimilar nerve allografts and establish Advance Nerve Graft as the only implantable biologic indicated for the repair of functional deficits in peripheral nerves. With this, I will now turn it over to Lindsey.

Thanks, Mike. I'm pleased to report our third quarter results. We reported strong growth with revenue of $60.1 million, reflecting a 23.5% growth compared to the third quarter of 2024 and a 6% sequential increase over the second quarter of 2025. Revenue growth continues to be fueled by strong sales of Avance Nerve Graft and the adoption of our comprehensive product algorithm across our target markets, with unit volume and mix serving as the primary driver of our performance -- revenue performance.

As Mike noted, during our third quarter, we successfully ended our case stock sales program for Avance Nerve Graft in preparation of the anticipated BLA approval. We estimate our revenue for the third quarter was positively impacted by $1.6 million or 3% as the result of customers transitioning away from purchasing Advance through the case stock program and ordering through direct sales. Our gross profit for the quarter came in at $46 million, up from $36.4 million in the third quarter of 2024 and $42 million in the second quarter of 2025. This represents a gross margin of 76.6%, up from 74.9% in the same period last year and up from 74.2% in the second quarter of 2025.

The year-over-year increase and sequential increase from second quarter were primarily driven by lower inventory write-offs and reduced shipping costs on products sold. These gains were partially offset by modestly higher product costs, which had a minimal impact of less than 0.5 percentage point on gross margin compared to both periods. Gross margin for the first 3 quarters of 2025 was 74.4%, 1.3% less than the first 3 quarters of 2024. The decrease of gross margin for the first 3 quarters of 2025 was driven by a 1.9% increase in year-over-year product costs.

Product cost increased as a result of the transition of processing Avance Nerve Graft to our AxoGen processing center and costs related to additional steps and tests required as we approach the transition to processing as a biologic anticipated in December. We expect the cost of our advanced product to decrease over time as we gain economies of scale at the AxoGen processing center. And once the BLA is approved, we can begin implementing more significant continuous improvement programs.

Our operating expenses increased to $44.1 million, up from $36.8 million in the third quarter of 2024. And as a percentage of revenue decreased 2.2%, highlighting our ability to increase our operating leverage. Sales and marketing expenses as a percentage of total revenue were up nearly 4% to 42.7% from 38.9% in the third quarter of 2024. Research and development expenses increased 8.1% to $7.6 million from $7 million in the third quarter of 2024. As a percentage of total revenue, research and development expenses were down 1.8% to 12.6% from 14.4% in the third quarter of 2024.

General and administrative expenses remained flat quarter-over-quarter at $10.8 million. As a percentage of total revenues, general and administrative expenses were down 4.2% to 18.1% from 22.3% in the third quarter of 2024. Net income for the quarter was $0.7 million or $0.01 per share compared to a net loss of $1.9 million or $0.04 per share in the third quarter of 2024. Adjusted net income for the quarter was $6.1 million or $0.12 per share compared to an adjusted net income of $3.1 million or $0.07 per share in the third quarter of 2024.

Adjusted EBITDA for the quarter was $9.2 million compared to an adjusted EBITDA of $6.5 million in the same period last year. Adjusted EBITDA margin improved 210 basis points to 15.4% from 13.3% in the same period last year, driven by revenue growth and increased operating leverage.

As of September 30, our balance of cash, cash equivalents, restricted cash and investments increased $3.9 million to $39.8 million from $35.9 million at the end of the second quarter of 2025. I am pleased to report that for the first 3 quarters of 2025, our balance of cash, cash equivalents, restricted cash and investments increased $0.3 million from a balance of $39.5 million at December 31, 2024, demonstrating our ability to be free cash flow positive for the year.

Now turning to our full year financial guidance for 2025. We are raising our revenue growth guidance to at least 19% or revenue of at least $222.8 million. We reiterate our gross margin in the range of 73% to 75%, inclusive of onetime costs related to the BLA approval for Avance Nerve Graft, which we are expecting to impact gross margin by approximately 1% or $2 million. As a reminder, these costs will be incurred around the anticipated BLA approval date currently expected in December. Also, we estimate that 2/3 of these costs relate to the vesting of our BLA milestone related stock compensation awards and are noncash. We continue to expect to be net cash flow positive for the year. In summary, we are very pleased with our third quarter performance and the progress we have made. We remain focused on executing our strategy, investing in innovation, optimizing our resource allocation and driving towards profitability. With that, we will now open the line for questions. Operator?

[Operator Instructions] Our first question comes from the line of Chris Pasquale with Nephron Research.

Congrats on the nice quarter. If I look back at the last few years, your fourth quarter revenue tends to be up slightly compared to 3Q. I know guidance is for at least 19% growth. So you're leaving the door open for something better than that. But at 19, it would imply a 4% sequential decline. So I want to make sure we understand how to think about this case stock program transition and whether that $1.6 million was in effect kind of pulled forward from 4Q into 3Q? And then there's anything else about the dynamics this year that we should be keeping in mind as we're updating our models, especially related to the BLA decision date. I would love to sort of flesh that out.

Thanks, Chris. For our fourth quarter, we are expecting our typical seasonality. But in giving our guidance, we have been prudent as because of the case stock program. During the third quarter, we saw an increase of $1.6 million related to these customers transitioning mostly to direct sales. We discontinue that program September 1, so we're just 1 month in. So we're still trying to get a grasp on what that full potential impact could be and if that was a onetime pickup as a result of a shift to direct sales. So in modeling, I would exclude the $1.6 million that we saw from the case stock program in Q3.

Okay. That's helpful. And then looking ahead to consensus is right now embedding about 16% revenue growth. You've actually done better than that now 3 quarters in a row, but that's obviously going to create some tougher comps as well. I know you guys will give formal guidance in February, but just curious if there's any directional comments you'd like to make now about how you're thinking about next year and maybe some of the key puts and takes across the business.

Chris, we're not prepared at this point to give any color on 2026 beyond the general statement that we remain very positive about the business and have full confidence in the strategic plan. I realize you guys are looking for more granularity than that, but not ready to provide that.

Our next question comes from the line of Michael Sarcone with Jefferies.

I guess just to start on the BLA, thanks for all the color, Mike. In the press release you had put out in late August, you mentioned the FDA was targeting November to maybe start talks around the label. Is this still the expectation? And then I guess just a follow-up, I'll throw out there. Just on the labeling front, can you comment on how you're thinking about the label in terms of being broad versus narrow? And you've made some good progress with the medical societies. Does the FDA take that into account when kind of thinking about the label?

Sure. With regards to the last part of your question, we do not know explicitly whether or not the FDA takes that information into account. So I can't comment definitively. With regards to label, as I mentioned in my comments a moment ago, we have expanded already into all parts of the BLA application to include scope of label and hence, why I was able to provide some color that based upon those interactions, we believe that we will continue to serve the full scope of patient indications that we have been serving historically. So no dimidiation of our ability to provide support and service for mixed and motor nerve patients as we have historically.

Our next question comes from the line of Caitlin Cronin with Canaccord.

On an awesome quarter. I guess just to start off in terms of the commercial coverage, I mean, pretty impressive move up from last quarter. I mean, do you see this plateauing at a certain point prior to the BLA? Or can you give any more color in terms of the trajectory going forward?

Well, I think it's -- I'll tell you, I'll let Rick answer that question.

All right. Caitlin, great question. So the increase in our percentage of commercially covered lives primarily reflects the refinement in our data. So we acquired a data set that tracks health plan enrollment by state and metro area. And so that is the main driver of the uplift from 55% coverage to 64% coverage. We're really excited with the progress we've made, and we're a few weeks away from engaging the national payers. There are 3 big national payers that currently list us investigational experimental. And so that work is ongoing. I've been here 7 months, and I would say we're probably 5 or 6 months ahead of the initial plans on when we would engage them. So the society support is helpful. We're not going to speculate on when those payers will flip medical policy to cover us. But we're marching forward in our pursuit of making nerve repair an expected standard of care, and we're happy with the progress.

The way we look at it in our strategic plan over time, Caitlin, is use that phrase I often use, like little engine it could. It's going to become fits and starts, but it's going to keep going up and to the right. simply because factually and objectively, we have the information to justify these asks. What what's happening over the last 12 months and going forward is that we are methodically engaging with the payers with regards to the information they need and the processes they utilize so that we can make these asks. And when you do, when you have a high ground objectively to make the ask, most of the time, you're going to win. And so that's really what's underway and the effort that Rick and his team is leading. And all we can say is so far, so good.

That's awesome. And then just as a follow-up, Lindsey, I don't think I heard the breakdown in revenue growth this quarter between price and volume and mix. Do you have that available?

Yes. We're seeing about the typical increase from price. Our mix is the same as what we see historically.

Our next question comes from the line of Jayson Bedford with Raymond James.

Congrats on the progress. Maybe just a quick financial -- Mike, the case stock program, was there -- I realize it's relatively small, but was there any impact on gross margin either in 3Q or an expected impact in 4Q?

From case stock specifically?

Yes, on the gross margin line.

We're not seeing it yet. In the future, we do anticipate some savings just from the nature of that program. It required a lot of additional resources shipping back and forth. With 1 month in right now, it's hard to say what that total impact is going to be, but we hope to see in the next quarter or 2.

But there will be no negative impact. The only question is to what degree positive. The case stop program was not a very efficient program.

Okay. Okay. Internationally, I think historically, you've talked about addressing the international market. I'm just wondering what the timing is? And is it somewhat dependent on the BLA at all?

Completely connected to the BLA in terms of any formative efforts going forward. So until we actually have that and then can then reengage with competent authorities overseas, we're not going to make any significant investment changes. So bottom line, at some point during the first half of 2026, we'll come to a conclusion as to what we will do and where we will do it, and then we'll be providing updates at that point.

Our next question comes from the line of Mike Kratky with Leerink Partners.

Congrats on the strong quarter. You provided some really helpful color on the dynamics between high productivity accounts and other accounts. So what seems to be driving some of the adoption in the non-high productivity accounts? And then have you seen any signs of utilization growth in those or how you could convert some of those to high productivity accounts over time?

Sure. Jens, are you on the call still?

I am.

Go ahead.

So yes, so our strategy continues to be really focusing the majority of our efforts in the high potential cohort, which is about 800 accounts. The reason for focusing in that segment is because that's where the majority of the nerve repair takes place in the hospital segment. Now we do have, of course, a lot of other accounts. And the progress that we've been making and the support that we're getting from societies and the increased awareness of the AxoGen nerve repair algorithm also basically means that you have more procedures adopting the AxoGen algorithm outside of our high potential focus. So in some ways, the progress that we're making within these academic institutions also has a spillover effect in the other non-high potential accounts.

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald.

So what are the next steps for targeting the prostate market following the completion of your targeted 100 procedures by year-end?

At the conclusion of the initial clinical trials that we're running and development of the procedure guides, we will follow those patients, and we will evaluate those outcomes. And based upon those outcomes, that will determine the velocity that we invest thereafter. So we're assuming it will be positive, but we are watching. And realistically, we won't see the clinical feedback on that initial 100 patients that we are enrolling in this trial until sometime towards the middle part of 2026 at the earliest. In the meantime, what we are doing in terms of work product is we are further characterizing the market, refining the support plans and beginning the process to think through what would be required in terms of a controlled study, Level 1 type studies. So that's what's underway with prostate.

Perfect. And then outside of prostate, would you provide some more color on where you stand on generating Level 1 evidence across your portfolio?

So we have protocols in development with respect to breast. And then we will have the same -- really for each of the segments that we prioritized, we will have one or more studies that we will be looking to kick off formally during 2026. Actual dates and timing of that have not been confirmed. But as soon as we do, we will update everyone publicly.

Our next question comes from the line of Dave Turkaly with Citizens JMP.

Mike, I know the society updates are positive, and I know you've been working on them for a while, but I was curious if you could just comment on sort of the process there and maybe why you think this happened kind of right in front of the BLA? Is there anything to read into that?

Well, fortunately, it's serendipitously coincidental, but this is really a process of socialization of clinical evidence and the society's understanding that for nerve care to go forward, they, as the leaders of their membership need to take an effort formally to provide the guidelines and the expectations because that's part of their duties and roles as a society. And for any novel therapies until societies do that, it's very difficult for these types of new therapies to be adopted to go forward. And furthermore, it directly impacts coverage and payment as coverage and payment is really driven by medical care and clinical guidelines.

And then just as a quick follow-up. Is there any thoughts on sort of your other products, maybe the AxoGuard lines and such in terms of the societies maybe looking at them and maybe having a policy at some point down the line that may include them or incorporate them as well?

There is nothing imminent in that regard. And frankly, it will be really dependent upon evidence in the future for them to take up the mantle or something like that, and that's work that still has to be done. So some of these algorithms that are being adopted are things that people believe in based on their clinical practice and experience. But objectively, we also need to develop the evidence to support them the way you would to create -- to put them into the guidelines. So that's underway, but that won't happen this year and unlikely to actually complete next year either, more like a 2027 event.

Our next question comes from the line of Anthony Petrone with Mizuho Group. Sorry. disconnected. Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

Congrats on a nice quarter. I was hoping to start with some more guideline commentary as well. How should we think about impacts commercially? Can you do anything differently? Would you maybe pull hiring forward even more? It sounds like you've already been hiring a little faster than anticipated. But with some of these positive guideline wins, do you change strategy and get a little bit more aggressive in any of those areas?

No, we won't change strategy. Although I think maybe to provide open clarity on this, what we have decided is with respect to the strategic plan is we will incrementally hire on a quarterly basis across all target markets. So we believe that we do not touch every customer and every opportunity and that the most important thing we can do for our therapies to ensure that we have coverage in order to develop use of nerve care in all locations of service. So to that end, and we'll continue to update everybody, but Act will be incrementally expanding the sales footprint for several years going forward on an incremental basis. But we will also do that within the constraints we previously described in terms of financials. So we'll do this with our operating cash flow, and we'll do this only as we can maintain positive leverage.

Got it. That's helpful. I know there was previously some street perception that the government shutdown could impact the BLA process. Based on your commentary today, that feels like those conversations are going well and potentially ahead of expectations in some areas. I assume it's fair to think that the government shutdown is not having an impact on any of your FDA interactions at this point?

That is fair. So to date, we've maintained productive discussions. And as I've just described, we've already extended our discussions to future labeling and scope and expectations. So these things are not finalized yet. But directionally, we are already receiving...

Our next question comes from the line of Anthony Petrone with Mizuho Group.

Congrats on the quarter. I apologize to just hopping between earnings calls, so I had some phone difficulties. It's actually a follow-up question to the one that was just asked just on timing, just to get that down a little bit more closely. So the label will -- I think the original communication was that label could come before BLA announcement, targeted PDUFA date, December 5. Is that still the thinking? Or will those sort of coincide more in a December time frame? And then I'll have a quick follow-up.

Well, we will I think the way everyone should plan for this is explicit to the guidance previously provided in which the FDA said November would then be labeling and then the final date would be December 5. So could it come earlier? Yes, but there's no discussions to that effect, and we have no insight that, that will occur. All we know is that the work product that supports labeling and all the rest of the BLA application is continuing to pace and some of it a little bit ahead of the official schedule. So I think for the sake of planning and assumptions, everyone should still assume because we are that this will go through December 5.

And then just a higher level one. It was kind of asked a couple of times here, but you did get some medical society positive announcements and also Blue Cross Blue Shield as well as Medicare Advantage extended number of covered lives. And so when you think about what a BLA can do to maybe incremental society announcements and/or coverage expansion, is that just something that we should be expecting in 2026 under a scenario where you do get a positive outcome on the BLA?

Thank you, Andy. So the BLA will no doubt be a positive support for all of our market development efforts and guidelines development. There are still institutions. There are still certain quarters of medical community who based upon the current regulatory status, consider Avance Nerve Graft as experimental. So with the conclusion of the BLA, that question will be resolved. And we will have, as part of our regulatory status a now codified official benefit risk profile that we can all refer to and reference and all of our future data will build off of that. So strategically and tactically, it will have an impact. What I want to caution everybody about, though, is it will not be a light switch effect. So there's -- for many customers, they are barely aware that this process is underway, but there are exceptions. So it will be positive, but I don't want anyone to think that this is going to be like a traditional market approval where you're not on the market and then all of a sudden, the floodgates open. That's not what will transpire.

Our final question this morning comes from the line of Yi Chen with H.C. Wainwright.

This is Eduardo on for Yi. I guess to follow up a little bit on the segment growth. I'm curious about if you're seeing particular profitability. I know you have different fragmentations of each of these markets in breast and extremity and OMF. I'm curious if you see anyone to be more specifically profitable and if that's guiding any of your strategic decisions and investing.

Good question. The simple answer is all the segments are from a profitability standpoint, very positive. The markets that we have established were part of a process to determine what would be the most efficient as well as effective ways to further our business purpose. And so in that sense, we love all of our children to use that expression. So they were selected explicitly because we thought they were addressable in different ways. So I know it's a little bit of a nonanswer, but it's because they're all positive in that we make progress in is accretive to the business.

Got it. And then just following up, if you could -- you mentioned how the BLA would obviously unlock better coverage potentially. I'm curious if you could quantify that. You obviously, again, have pretty good support within the medical groups and societies. And like you mentioned, reimbursement is largely driven by these medical guidelines. I'm curious if you could quantify the impact of the BLA. You mentioned international markets. I'm just kind of focusing -- obviously, that would be a gate to open up international market discussions, but I guess, focusing on more local in the U.S.

This is Rick. I'm happy to chime in and answer that. Sorry. In terms of the BLA unlocking incremental coverage and quantifying the impact, I think the way to think about it is that it helps unlock portions of the TAM that may have not been accessible prior rather than thinking about it in terms of a direct impact to revenue in '26 in the way Mike said it, this isn't a light switch, and so that's how I would think about it.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Dale for any final comments.

Thank you, operator. On behalf of the AxoGen team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function and expected standard of care. We look forward to updating you on our continued progress and plans on our earnings call next quarter. Thank you.

Thank you. This concludes……

[Audio Gap]

Joining me on today's call is Michael Dale, Axogen's Chief Executive Officer and Director; and Lindsey Hartley, Chief Financial Officer. Michael will discuss second quarter 2025 financial results and corporate highlights. Lindsey will then provide details on financial performance, guidance and overall outlook for the year. This will be followed by a question-and-answer session.

Today's call is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available in the Investors section of the company's website at www.axogeninc.com.

Before we get started, I'd like to remind you that during the conference call, the company will make projections and forward-looking statements. Forward-looking statements, which are usually identified by the use of words such as objectives, targets, will, believe, expect, estimate, should, guidance, intend, projects or other similar phrases, include, but are not limited to statements relating to financial guidance, including revenue, margins, cash flow, future profitability, expectations for growth, market development priorities, estimated market opportunities, timing for future product and application launches and the company's expectations for approval of the Biologics License Application for Avance Nerve Graft, including the anticipated timing of approval and the assumption that Avance Nerve Graft will be designated as a reference product for any future biosimilar nerve graft and that such designation will provide marketplace exclusivity.

Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the company's SEC filings, including its Form 10-K and 10-Q.

The forward-looking statements are representative only as of the date that they are made, and except as required by applicable law, the company assumes no responsibility to publicly update or revise any forward-looking statements. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release and the corporate presentation on the Investors section of the company's website.

Now I'll turn the call over to Michael.

Thank you, operator, and welcome to everyone joining us this morning as we discuss our 2025 second quarter financial results. I'll begin today's call with a financial and corporate overview, highlighting our progress through the second quarter and year-to-date implementing our strategic plan, followed by an update on the Biologics License Application, or BLA, for our Avance Nerve Graft. I will then pass the call to Lindsey to review second quarter's financials and outlook for the remainder of 2025, and then we will open the lines for a question-and-answer session.

As remarked in this morning's earnings release, we are delighted with our second quarter performance and progress year-to-date for the business. We believe our strong revenue growth and related business milestone achievements reflects the soundness of both our market development strategies and commercial execution capabilities.

I have mentioned publicly on various occasions that I felt our performance through midyear would be an important measure of our progress optimizing our business model. While there will always be opportunity for further optimization, as a leadership team, we believe based on the measures we use for our customer creation business models, we are managing our market opportunities the way we had planned and have high confidence in our ability to grow the business consistent with the guidance we have previously provided for our strategic plan.

Regarding the quarter, Q2 sales increased to $56.7 million, growing 18.3% compared to the same period last year. This performance reflects double-digit growth across all of our nerve repair target markets, including extremities, oral maxillofacial and head and neck and breast. Consistent with prior quarters, our growth is driven by expanding adoption of nerve care using Axogen's nerve algorithm for the treatment of all types of peripheral nerve injuries, including traumatic, iatrogenic and chronic nerve injuries. The Avance Nerve Graft is the primary growth driver, often complemented based on the clinical situation by one or more of our nerve repair connection, protection or termination products.

In extremities, we continue to execute our high potential account strategy with solid growth in both traumatic and chronic nerve injury procedures in the quarter. In oral maxillofacial and head and neck, surgeon adoption of the Axogen algorithm during the quarter was strong across all procedures, but particularly in mandible reconstruction procedures. And likewise, in breast, we continue to see strong adoption of our breast resensation techniques, supported by new surgeon activation, increased procedure volume and implant-based reconstruction cases and the expansion of our commercial infrastructure.

In summary, we are encouraged by the broad-based adoption of our nerve care portfolio and momentum across each of our 3 target markets. To assess our progress, we continue to monitor key metrics tied to our plan and 2025 strategic priorities, including high potential accounts, commercial expansion, professional education, new product development, clinical research and prostate market development.

I'll begin with an update on our performance and growth in high potential accounts. We continue to focus on expanding our presence in these accounts to drive more consistent customer creation, algorithm adoption and improvements in sales force productivity. Our goal for 2025 is to generate at least 66% of revenue from high potential accounts. Through the first half of the year, we continue to exceed our target with approximately 70% of revenue growth driven by high potential accounts.

Furthermore, through the first half of the year, average high potential account productivity is up 21% year-over-year, tracking in line with our full year target. These results reinforce our belief that our focus on high potential accounts is enabling broader and more enduring adoption of nerve care, and as such, more predictable growth.

During the first half of 2025, there were 641 active high potential accounts, all of the approximately –- of the approximately 780 accounts that meet our high potential criteria, which represents an increase of 19 accounts or 3% as compared to the first half of 2024.

Regarding our 2025 commercial infrastructure expansion goals, as of end of second quarter, we are now at or ahead of our hiring plan for each target market. In breast, we ended the quarter with 19 breast resensation sales specialists and 1 regional sales director. We are on track to double the breast sales force in 2025 by the end of the year, targeting 22 reps and 2 regional sales directors.

To support broader adoption in non-breast markets, we added 5 additional sales representatives in high potential territories in the second quarter, ending with 124 sales professionals, including 12 regional sales directors. In oral maxillofacial and head and neck, consistent with our plan, we added 5 field-based market development managers year-to-date.

Surgeon training remains a core component of our customer creation and nerve repair algorithm adoption. Execution of our 2025 professional education programs are on track and we fully expect to meet our 2025 surgeon training targets. In breast, we have trained 35 surgeon pairs year-to-date, and with 3 programs planned in the second half of the year, we are confident we will meet our 2025 target of 75 surgeon pairs trained.

Active breast resensation programs increased 9% from the second quarter of 2024 from 116 to 126. We estimate 280 surgeons performed a breast resensation procedure in the second quarter, which represents a 17% increase versus the second quarter of 2024.

In extremities, we have trained 67 surgeons year-to-date, up 37 from first quarter 2025, with 6 additional programs planned in the second half of the year. We expect to meet our 2025 target of 105 surgeons trained. In oral maxillofacial and head and neck, we have trained 41 surgeons year-to-date, up 15 from first quarter 2025. We are on track to meet our 2025 target of 45 surgeons trained.

Next, I will provide an update on our clinical research priorities. We continue to advance our 2025 initiatives and are on track to complete a level 1 study protocol for implant-based neurotization, a level 1 clinical evidence plan for Avance versus autograft in mixed and motor nerves and a clinical evidence plan for oral maxillofacial and head and neck.

Regarding research and development, as we have outlined in our strategic plan, innovation is critical to our long-term growth. Through midyear, we continue to progress and advance our innovation platform across 3 core pillars: therapeutic reconstruction, ease of coaptation and protection expansion.

Regarding coverage and payment, during the quarter, multiple noncoverage policies were removed within the Blue Cross Blue Shield network for nerve care, adding an estimated 10 million additional covered lives. Year-to-date, we estimate 17 million additional lives are now covered for nerve repair for peripheral nerve injuries using synthetic conduits or allografts, which brings coverage amongst commercial payers to more than 55%.

Adding to our progress during the second quarter, we enjoyed significant external validation of Axogen's differentiated technologies and leadership in peripheral nerve repair, with 17 new peer-reviewed publications citing clinical use or discussion of our products. For those interested, these peer-reviewed studies are available on our website.

And finally, I will provide an update on our prostate clinical and market development plan. We are excited about the opportunity to improve nerve function outcomes in robotic-assisted radical prostatectomy and continue to work closely with key opinion leaders to advance surgical technique development.

During the second quarter, we completed the hiring of our clinical development team, which will provide field-based support to surgeons and pilot sites incorporating nerve repair into their robotic-assisted prostatectomy cases. We added 3 additional clinical pilot sites and now have 6 active sites. We expect to meet the goal of having 10 pilot sites running by year-end. Procedures are ongoing, and we aim to complete 100 cases by year-end.

Before I hand it over to Lindsey, I would like to address the status of the Biologics License Application, or BLA, for Avance Nerve Graft. The BLA remains on track and continues to progress as planned. During the second quarter, we completed several key regulatory milestones to support our anticipated approval in September of 2025, the late cycle meeting with the FDA, pre-licensing inspection and sponsor inspection under the FDA's Bioresearch Monitoring Program.

These milestones follow the successful clinical trial inspections we spoke about on our last call, further reinforcing our confidence in the strength and completeness of our Biological (sic) [ Biologics ] License Application submission for Avance Nerve Graft. We reiterate prior guidance that we expect BLA approval in September. The BLA approval will secure 12 years of market exclusivity from biosimilar nerve allografts and establish Avance Nerve Graft as the only implantable biologic indicated for the repair of functional deficits in peripheral nerves.

With that, I will turn it over to Lindsey, who is off to a great start as Chief Financial Officer and is adding a great deal of clarity to our operating performance.

Thanks, Mike. I'm pleased to report our second quarter results. We reported revenue of $56.7 million, reflecting an 18.3% growth compared to the second quarter of 2024 and a 16.7% sequential increase over the first quarter of 2025. The year-over-year performance was driven by an increase of approximately 3% in price and 15% in unit, volume and mix.

Our gross profit for the quarter came in at $42 million, up from $35.3 million in the second quarter of 2025 and $34.9 million in the first quarter of 2025. This represents a gross margin of 74.2%, up from 73.8% in the same period last year and up from 71.9% in the first quarter of 2025. The year-over-year increase is primarily due to lower inventory write-offs and shipping costs on products sold, partially offset by slightly higher product costs.

Gross margin for the first half of 2025 was 73.1%, 3% less than the first half of 2024. The decrease of gross margin for the first half of 2025 was driven by a 2.8% increase in year-over-year product cost. Product costs increased as a result of the transition of processing Avance Nerve Graft to our Axogen processing center and costs related to the additional steps and tests required as we approach the transition to processing as a biologic in September.

We expect the cost of our Avance product to decrease over time as we gain economies of scale at the Axogen processing center, and once the BLA is approved, we can begin implementing a continuous improvement program. Our operating expenses increased to $40.3 million, up from $35.8 million in the second quarter of 2024, and as a percentage of revenue, decreased 3.5%, highlighting our ability to increase our operating leverage.

Sales and marketing expenses as a percentage of total revenue were up less than 1 percentage point to 42% from 43.1% in the second quarter of 2024. Research and development expenses increased 2.9% to $6.8 million from $6.7 million in the second quarter of 2024. As a percentage of total revenue, research and development expenses were down 1.8% to 12.1% from 13.9% in the second quarter of 2024.

General and administrative expenses increased 2.9% to $9.7 million from $9.4 million in the second quarter of 2024. As a percentage of total revenues, general and administrative expenses were down 2.6% to 17.1% from 19.7% in the second quarter of 2024. Net income for the quarter was $0.6 million or $0.01 per share compared to a net loss of $1.9 million or $0.04 per share in the second quarter of 2024.

Adjusted net income for the quarter was $5.7 million or $0.12 per share compared to an adjusted net income of $2 million or $0.05 per share in the second quarter of 2024. Adjusted EBITDA for the quarter was $9.3 million compared to an adjusted EBITDA of $5.6 million in the same period last year. As of June 30, our balance of cash, cash equivalents and investments increased $7.8 million to $35.9 million from $28.1 million at the end of the first quarter of 2025.

Now turning to our full year financial guidance for 2025. We are raising our revenue growth guidance to at least 17% or revenue of at least $219 million. We reiterate our gross margin guidance in the range of 73% to 75%, inclusive of onetime costs related to the BLA approval for Avance Nerve Graft, which are expected to impact gross margin by approximately 1%. As a reminder, these costs will be incurred around the anticipated BLA approval date, currently expected in September. Also, we estimate that 2/3 of those costs relate to the vesting of our BLA milestone-related stock compensation awards and are noncash.

We continue to expect to be net cash flow positive for the year, and we also expect to self-fund our strategic plan with growing cash from operations. In summary, we are pleased with our second quarter performance and the progress we have made. We remain focused on executing strategy, investing in innovation, optimizing our resource allocation and driving towards profitability.

With that, we will now open the lines for questions. Operator?

[Operator Instructions] Our first question comes from Chris Pasquale with Nephron Research LLC.

Congrats on nice results. Mike, I wanted to dig in a little bit more on the progress you've seen in the business through the first 6 months of the year. The 18% growth this quarter was similar to what you posted in 1Q, but it came against a much tougher comp. So I think arguably, it shows some acceleration in underlying trends. Would just love to know kind of where you think the changes you've implemented are bearing the most fruit here early on? And then maybe juxtapose that with the full year outlook, which does imply a bit of a deceleration in the back half.

Certainly. There's -- in terms of the reasons for the growth, it's consistent with what we've described from the very beginning. This is sales management in terms of the application of specific strategies that we think are necessary to grow adoption of nerve care within each of these various clinical application areas. And the basic product value proposition, of course, is Avance, and then -- in conjunction with the products that complement, that make up what we call the algorithm. And just the focus on that in the accounts that have specific -- the greatest potential is the result. So there's really no magic. There's nothing new here. It's exactly what we described, going back to our strategic plan in early March, is, how do you create a customer, and what do you need to manage and measure to ensure that you make your progress?

And so we're doing that in each area. There's nothing particularly different from what was previously described. It really boils down to a good solid execution. The bell curve is pretty tight in terms of the performance, and we expect that to continue to come. The opportunity, which we continue to try to manifest to everybody, is that the actual treatment is -- and penetration of nerve care across all various disease and presentation scenarios is very, very low. So as you provide people in front of these physicians who deal with these patients, the opportunities are significant. And what we've simply done is try to organize accordingly.

I would say in terms of which area is maybe a pleasant surprise -- I don't -- surprise maybe the wrong word, but exceeding expectations is that we're growing faster in our extremities business than was even part of our original internal plan. All other parts of the business are growing as expected. So bottom line, all parts of the business are growing. And even outside of high potential accounts, all of our accounts are enjoying significant growth. So the business is moving in the right direction. Our job is obviously to keep it in that direction. But I hope that answers your question.

Yes, that's helpful. And then I know the updated guidance calls for at least 17% growth, but anything you'd call out in terms of back half of the year dynamics versus first half?

Sure. It's part of the BLA process. Until it's final, it's not. And so we're trying to maintain a level of conservatism given that there may be some sort of change in terms of how we employ our logistics in providing our product, and we planned accordingly. But we think it's prudent until that's completely settled and that we understand exactly what the mechanics will be, that we don't get ahead of ourselves.

Our next question comes from Michael Sarcone with Jefferies.

I guess just a follow-up there on Chris'. You have this ramping sales rep productivity factor that's playing out through the year. So when we think about kind of historical seasonality or quarterly cadence, do we expect it to be similar to years past? Or we typically see a slight bump in the third quarter? Could that be exacerbated by productivity improvements as you're growing the rep base?

In general, the prior history would be something that I don't think will change. If we kind of go through our various segments, on the extremities side, we typically see an increase in procedures when weather is good and people are outside and active, which is primarily summer. On the chronic nerve injury side, these are elective procedures and we typically see an increase in those kinds of procedures in the last quarter of the year as patients have maximized their co-pays.

On the oral maxillofacial and head and neck, I mean these are malignant pathologies typically, so we don't see much in the way of seasonality. On the breast, we typically see a slowdown in breast reconstructive procedures during the summer as many women are caretakers for the kids, and when they're off from school in the summer, they generally prioritize time with family. And so you mix it all together. And I think just given the expansion of the business, I would say that we're still looking at our own seasonality. But those are the key elements that I would describe by clinical application area.

Got it. And then just one calling out the commercial coverage wins. It seems like you're making pretty good progress there, and that's prior to the BLA approval. So maybe you could dig in a little and just tell us what's helping to drive that progress now? And then is it fair to assume that, that can -- those coverage expansion wins can accelerate even more post BLA approval?

Yes. To the latter point, I think you can absolutely expect that. But as –- and I'll allow Rick to build on here to my answer. But one of the things that even it took me a while to actually appreciate is that the RECON study, while done some years ago, was only published a little more than 2 years ago. And so the database, the dossiers, the value dossiers that support our products have only recently been updated and then made available to payers and all the third parties who provide opinion and/or clarification on our product status from an evidence standpoint and regulatory standpoint.

And so as this information is digested and as we engage with those payers, you basically are able to make clear to people that this is a therapy that should be covered. And so then it starts to build upon itself. It's kind of like the snowball effect. And so this isn't going to happen overnight. But the long story short, it's why we've basically said that over the period of our strategic plan, we fully expect to get to nearly complete commercial coverage. It won't happen in 1 year, but 5%, 6%, 7%, and it builds on itself. And Rick, do you want to add anything to that?

The thing I'd add to what Mike said is that I've been pleasantly surprised in my first 4 months is the health care climate in the U.S. is sort of changing and I think practitioners acknowledge that they need to stand up and let their voice be heard. So as we've gone out across some of these regional plans and we're developing ways to engage national payers toward the back end of this year and early next year, clinicians are activated. They're willing to sign letters. They're willing to reach out to payers and they're willing to advocate for patient access and coverage.

And so we expect to see the number of patient appeals and surgeon appeals climb over time. And really, when you break down the coverage landscape in the United States, we report at least 55% of commercially covered lives have access. You guys know this, if 3 payers flip, that looks pretty good. So we've got really concrete plans in place, and we look forward to moving the mission forward. We think over time, our benefit to risk value prop is there. This is a really good opportunity for the company. And as patient access improves, it's really going to open up one of the main bottlenecks on our business.

Our next question comes from Caitlin Cronin with Canaccord Genuity.

Congrats on a great quarter. Just to start off, how was the interaction during the late cycle BLA meeting? Any more color on that? And if there were any processes that you've had to implement as you near the expected approval?

Sure. First of all, as it has been throughout the whole process, it's been professional, cooperative, highly interactive, although it does go in waves. So it might be almost every other day, and sometimes you might go a week at a time between interactions. But unlike, for example, in my experience on Class III devices, you don't have these finite gates that you go through. You go through the same processes, but you don't get a-- you don't receive immediate clarity that, okay, this is now done. And so that all comes together towards the end. So I can't say that we know with certainty exactly yet as part of the process exactly what will be required, other than we fully expect there will be modifications to our quality system in the discussions that we've had with the FDA to date.

Got it. Okay. And then as you work through your hiring process for the year, any change to kind of the cadence and level of OpEx spend expected in the back half?

No, not yet, although we are looking at what might be possible in terms of incrementally accelerating our hiring plans. It's not that it's a surprise to us, but it's more and more evident that one of the greatest opportunities we have is simply to scale this footprint. There's lots of need for nerve care. And while we have a good-sized sales force in terms of some comparisons in the context of nerve repair, it still remains a pretty small footprint. And so our ability to scale that within the context of our ability to fund our operations is what we're looking to do. So we're very encouraged by the progress that we have with the commercial footprint. And so that's on the table. But at the moment, there's no change in our guidance.

Our next question comes from Mike Kratky with Leerink Partners.

This is Sam on for Mike. So again, I just wanted to dig in on the BLA process a little bit more. Are there like any specific major milestones to call out remaining in your back and forth with the FDA prior to the expected approval in September? And then I have one follow-up.

Sure. There's no -- as I've already mentioned, there's no explicit milestones beyond what we've already shared, where you basically get a check box, you have an impression. But the final stages are that we'll work with the FDA upon -- as regards to labeling and then final requirements as part of the quality systems. So those conversations will be ongoing for the next 30 days. And it will be a process that, upon complete, obviously, we will update everybody.

Got it. And then just can you provide a little bit more detail on kind of the specific manufacturing improvements that you're planning on implementing following the BLA approval in September? How quickly can you implement these improvements and kind of drive meaningful operating leverage? And whether this is something that we might see a good deal of in 4Q?

Sure. So much of the improvements that we expect to introduce are classic continuous improvement processes by virtue of, if it takes 5 steps and you can do it in 3, you start to do it in 3. And these need to be qualified and verified, but they all basically reduce inefficiencies. And so those are the types of things that we'll be doing. Those will be complemented by electronic systems that we'll be introducing also that, by virtue of those, will reduce a lot of the manual recordkeeping that accompanies the current process. So there's nothing particularly remarkable about what we're going to be doing. It's just that we're going to be doing them once we have one system upon which we can run our day-to-day operations. We continuously refine our processes even as they exist even in the current situation. We enjoy greater yields as a result of that. But there's tremendous opportunity for very basic improvements that we'll ensue upon the completion of the BLA.

Our next question comes from Jayson Bedford with Raymond James.

Congrats on the progress. Just a few. I guess maybe start with gross margin. What was the biggest change in the 2Q gross margin versus 1Q?

The biggest change was really just savings from our product cost year-over-year -- I mean, the quarter-over-quarter and the lack of the write-off reduction.

Okay. Helpful. It looked like there was a fairly big sequential jump in high potential accounts. I think previously you had identified about 780 high potential accounts. I guess, first, is this still the right number? And second, can you reach the 780 by year end?

We don't have a specific goal to do that this year, Jayson. A lot of it -- some of this is footprint related. Probably as we enter into next year, we'll codify more goals specific to how we expand that. So the way it works today is that each individual rep was -- as part of the planning process was required to pick within the survey of high potential accounts which accounts that they believe they had the greatest opportunity. They have also accounts that they manage, which are not high potential accounts. I want to be clear about that. But a good part of compensation and our focus from both a marketing and a sales management standpoint is on those. And so we did not pick all 780 this year, but we will certainly be working towards expanding that target pie as we look into next year, but not this year.

Okay. Okay. And maybe just lastly, I think in respond -- when you were responding to an earlier question from Chris on the second half cadence, you mentioned leaving some variability for -- I forget the exact language, but some sort of change in logistics and mechanics. Can you just elaborate on that comment? I think it was tied to the BLA.

Sure. It primarily involves a trunk stock. So a product that we would have as a component of supply when an unplanned or unscheduled procedure is available. And so as we look forward to post BLA, it's very unlikely that, that will be part of our repertoire. And so this requires us logistically to look at supplying that product differently for some customers. It's not a majority in any way of our business, but it's also not an insignificant element. And so while we have plans in place for that, we're also -- until that's truly codified and finalized with FDA, we're trying to be prudent to make sure we don't have any disruptions.

Our next question comes from Ross Osborn with Cantor Fitzgerald.

Congrats on the quarter. So starting off, I was hoping you could provide some more color on where you're seeing above expectation growth within the extremities business.

Well, basically, it's broad-based. So we have internal growth targets that we had for the business. And what I can speak to is that we're exceeding those and we have been consistently. So we're very pleased with that. And if you ask, well, why? It's a lot of things. So going back for more than a year now, we've one, stabilized the organization. We've slowly and incrementally added to that. So in terms of tenure, that's deepening even over the last year.

And then just the focus of the business, the clarity of purpose that everyone has. They're excited to wake up and go to work. And we have commitments to the future. And so all this together is adding to a more productive, more focused effort on part of the teams. Also, the focus on high potential accounts, I can't overemphasize. There's a lot of opportunity in nerve care. But if you want to create enduring repeatable revenue, you need to build nerve care as part of -- as an expectation of care within an individual institution and within the individual physicians who practice in that institution. And so all those things combined are what's leading to the greater overall productivity.

Got it. That's helpful. And then would you remind us of how we should be thinking about the time from training a new doc to the company to getting to scale?

I'll ask Jens to comment on that.

Yes. So one of the things that we've done this year is really continue to expand our surgeon education and training programs, which is a critical component in activating the surgeons. So once they go through a training -- let's pick a breast training program. It typically takes about 3 quarters for them to get fully productive after they attend a training program. So there is some ramp-up time.

Our next question comes from Dave Turkaly with Citizens.

Congrats on the results and the clinical progress. Mike, I just want to clarify one thing. I know you've gone through a bunch of inspections. And I just wanted to ask like explicitly, were there any issues raised or any observations from the FDA?

No. I mean, one, we don't provide that level of discrete detail. But no. So far so good is the phrase that I utilize. But I think it's important, as I continue to emphasize, is that the BLA process, we believe, is on track, and we'll report out on that once it's concluded. Most of the work involved at this point is revolving around the quality systems, which is fully expected. We're moving from a device regulatory scheme, a quality system to a biologic, and we are the first of its kind.

So where the work mostly comes into play is that we're dealing with human tissue, and that quality system needs to be adapted to literally what an injectable drug would utilize. So as you might imagine, it's not a natural change in process. But that said, we've worked together with the agency and we think we've got our hands around it.

And I just was curious also if you've had any sort of discussions around the labeling. I know -- I think you're expecting a pretty broad label, but have they made any comments about either like injury type or type of nerve or physical location or anything like that, any discussions about anything that might be less broad?

Sorry to interrupt you, Dave. We're just engaging in that process. And so we fully expect that, that will ensue over the next 30 days. So we will not be in a position to provide any kind of guidance until this is completed.

Our next question comes from Frank Takkinen with Lake Street Capital Markets.

Congrats on a good quarter. I was hoping to start with a little bit more color on breast. It sounds like you had a good quarter of hiring. Can you talk about rep ramp up, the quality of the reps you've been able to retain through the hiring process? And then maybe any other underlying trends just in breast in general throughout the quarter would be great to hear.

Sure. In terms of the ramp-up, obviously, we got behind the 8 ball early in the year, but we've fully caught up and expect to maintain that cadence going forward. In terms of quality, obviously, it's in the eyes of the beholder, but we have no problems attracting talent. We have multitudes of candidates who seek the jobs once we post them across the organization, not just in breast. So we're very, very pleased. So it's an exciting space right now, and it's very encouraging in that regard.

In terms of the ramp-up, we have a multistage program that we bring the reps -- representatives -- each representative through for extremities as well as breast. And in total, it's a program that transpires over about 9 months before the rep is finished with their formal training. They are engaged and working before that period is complete, but it is a process that takes time.

Got it. That's helpful. And then just one more...

In terms of trend -- I'm sorry. Go ahead, Frank.

Go ahead. I was just going to ask you the second half of the breast trends question I had.

Yes. Really nothing new in trends other than as more breast resensation is done, more physicians basically look at it really from an ethical standpoint that they believe they have the obligation to provide this as an option to their patients. And so once you are introduced to it, that becomes the desire and the expectation based upon the fact that the data that's available and the experience that's available clearly suggests that you can add value to those patients. And so that's a dynamic. That's not a new dynamic, but it's just one that continues to grow as our footprint grows and as we train more surgeons and establish more sites.

Got it. That's helpful. And then maybe just one last one on gross margin. Lindsey, I appreciate the comments of the step down in write-downs quarter-over-quarter that drove that snapback in gross margins in the quarter. I was just curious how you guys are thinking about that dynamic? Are we kind of through write-downs? Or is there any other future cleanup that you think may occur in future quarters related to write-downs?

Yes. We are going through a process of identifying process improvements, and as we transition through the BLA, identifying things. And if we identify additional write-offs, we'll take them as we deem necessary. At this moment, we don't -- I don't see any, but you never know what will come up. We are thinking that the -- we will be impacted in Q3 by the BLA, PSUs as we've disclosed. And then in Q4, we expect to return back to a little bit normal and then implement those process changes and hopefully get some upside on that as we move forward in '26.

There are no further questions at this time. I would now like to turn the floor back over to Mike Dale, CEO, for closing comments.

Thank you, operator. On behalf of the Axogen team, I want to thank everyone for their time and interest in our work, to fulfill the promise and potential for all stakeholders in our business purpose, to restore health and improve quality of life by making restoration peripheral nerve function and expected standard of care. We look forward to updating you on our continued progress and our plans on our earnings call next quarter. Thank you.

You may disconnect your lines at this time. Thank you for your participation.

All right. Well, thanks to everyone who is here today to learn a little bit about Axogen. Just before I get started, I just want to draw everyone's attention to our forward-looking statements. You're familiar with these, and we will certainly be making forward-looking statements, but we may or may not be updating these on a regular basis.

So a little bit about me. My name is Mike Dale. I've been, as you can tell by my gray hair around for a little while. And I've been more than 40 years in med tech and as a CEO since the early 2000s. And I've always made my decisions based upon whether or not the things I engage in provide a -- and present a credible clinical problem that justifies the time and the energies and all the resources that go into developing a company.

And then secondly, whether or not that technology or in that particular problem, whether or not you have a technology that in a distinctive way, based upon benefit versus risk can solve that problem. When you do, while it sounds very simple, you have the opportunity to build a great business and solve great problems, and as such, provide a good vehicle for all stakeholders.

I joined Axogen a little more than 9 months ago because I believe that in that case, Axogen represented a solution that was both a genuinely credible clinical problem that was in need of solutions. And then finally, that we had products that could solve those problems in a distinctive way. And so what I'd like to do today is spend my time with you explaining to you some of the high-level strategic assumptions underlying our recent strategic plan that we presented publicly. Our progress to that plan and our guidance for the near term with regards to the profile of the business for investors.

So first of all, what is Axogen all about? So our business purpose is focused on making and establishing an expectation to treat nerve defects in every clinical situation. Today, that is not the case. So what are peripheral nerves, what functions do they serve? So peripheral nerve function is something we all take for granted until we can't. But in this particular GIF that you see right here, the mother, her motor function in terms of being able to push the bicycle, the child in terms of pedaling the bicycle, that's all completely dependent upon healthy functional nerve function. Feeling the sun in their faces is only possible because of the peripheral nerves within their face, functioning normally, allowing them to feel changes in temperature. So virtually everything that we do every day from swallowing, from tasting and all elements of motor function are dependent upon healthy peripheral nerve function.

And so this is indeed something from a health standpoint that's important to all of us. And Axogen is unique in that we are literally the leaders in developing an entire focus area on providing the tools and the products that are necessary to ameliorate these problems when they present either through trauma or because of disease. And I'd like to tell you a little bit more about that. So how big is this opportunity? How often do these problems occur. It's very large as a market opportunities go based upon incidence rate and both the trauma as well as presentation of disease.

In the United States alone, we estimate that the market opportunity is more than $5 billion, and it's equally as large outside the United States. Although at present, more than 95% of our entire revenue and activities are domestically focused towards the end of this year and beginning into 2006. And thereafter, we will begin to develop in more earnest an international presence to bring these same products and solutions.

One of the key things here is that these markets, while we've been active in these markets doing work are still very underpenetrated in terms of both awareness and actual clinical activity and therein lies the opportunity going forward, which we'll talk about.

First of all, what are common nerve injuries? As you might guess, trauma, cuts, lacerations. These situations are 1 of the things that we probably think about if you were to think about a potential nerve injury because of the damage that can happen to an extremity or other parts of the body, but there's also iatrogenic injuries. So other surgical procedures, anytime you're cutting through the skin, you're cutting peripheral nerves. And depending upon that situation, you leave that patient with a deficit. And there's also oncological presentations and other peripheral related diseases, such as diabetes, for example. All of these things can ultimately affect nerve function to either direct transection, stretching, contusions, pressures and then also amputation, where a limb is removed. But unless that nerve is capped in a proper way that patient can develop a neuroma, which can lead to chronic continuous pain, which can range in terms of problem from 1 of simply bothersome to absolute debilitation.

So lots of opportunities to do better for patients based upon our products and portfolio, and we'll talk about those. So what are those solutions? In green is Avance. Avance is the foundation that the Axogen home is built around. What is Avance? Avance is what's referred to as an allograft. This is basically donated human tissue that has been processed in such a way that makes it safe for reimplantation without immunological response. However, Avance is unique as allografts go in so far it is still bioactive. So we retain a substance called laminin, which is a protein which reacts as a signal to guide the axonal regeneration.

So the nerve itself is a physical scaffold. It's a human nerve. So the actual structure and containment that you anastomose the allograft to the patient's nerve ending is similar. We're able to match these in terms of size and length. But what makes it particularly special is not that just we have the physical scaffold, but we had the laminin to help guide that axonal regeneration and therein lies the foundation for the home. That's a graft we call Avance.

Complementing that is what we have and refer to as the algorithm. So when you make these connections of an allograft to another nerve or even in the absence of using Avance. Maybe in this transection, we have a simple nerve reconnection, you need to complement that connection so that it is sort of steady. So it can allow for that regrowth and regeneration. So we use things like connectors. Sometimes in procedures, you have a lot going on. There's metal plates that have been put in as part of the traumatic surgical intervention. And the nerves might be laying over these, and you don't want those to be abraded or irritated. And so we use protection wraps to help avoid that.

So there's lots of different things that need to go in to ensure that you get the best chance for nerve regeneration and Axogen leads the way in developing the solutions in both surgical technique as well as the products necessary to support that kind of outcome.

So why us? Why are we positioned here to win to use that common phrase that anyone like myself would stand up, so what's my right to win? We've been at this for a while. And while the market is underpenetrated, we've been working for many years to develop the techniques and the science to underlie our rationale, including the clinical studies. Our RECON study, which is our principal Level 1 evidence study, we just published about 2 years ago. And we have been now organizing the company to go forward and to fully develop these opportunities we've worked so many years on. There's more than 100,000 patients that have been treated with our product.

Our benefit to risk profile, which is what every single solitary health med tech product is ultimately evaluated upon is profoundly positive. We introduced essentially no risk but offer the potential for great benefit. As a salesman, I can tell you, that's something you can't always say to your customer, and we can literally say that. And to that end, we're well positioned to go forward. We have a foundation to build upon, and we are genuinely appreciated as a trusted partner, committed to good science.

So the priorities that we have organized ourselves around with the delivery and presentation publicly in March of our new strategic plan are these 4 clinical application areas. They're all based upon advantage. Trauma, extremities is our first. Why is that still a priority? That's the company was built around. We have our largest commercial footprint and our largest scientific database to build upon and that remains a priority for our business.

The other segments that are listed here are all adjacencies and/or new clinical pathways where the benefit to risk proposition and the logistics associated with identifying the customers and the service providers are favorable to Axogen. And while there are many others, these represent the priorities that we have selected for now to develop going forward.

So let's talk a little bit about those extremities. Why are we here? Very large incidence rate on an annual basis in the United States alone, not to mention around the world. Where trauma is incurred and the opportunity to restore that patient's function along with treating the other elements, broken bones, vascular injuries and so on, create an opportunity for nerve repair. We have the largest body of physicians that are trained. We are partners in training all new fellows coming out of training in all the medical institutions in the United States. And the penetration level still remains very modest. And so as such, it represents a marketplace that we still have opportunity to create -- to add value. The business is presently growing at double digits, and we think this can continue over the course of the strategic plan period.

Oral, maxillofacial and head and neck. This is a very -- a much smaller universe of actual physician practitioners and service providers. These are very -- technically very complex procedures involving head and neck. Head and neck, as you might guess, is proliferated with a huge peripheral nerve network. And so every time these procedures are done, there's damage to peripheral nerves. There is an opportunity for us based upon Avance in particular as well as our other products to help complement these procedures as they treat these patients in these types of situations where we can restore their quality of life and reduce the morbidity associated with these procedures. It's 1 of our fastest-growing new areas of development. We're very excited about the future here. And we have thus made this a priority for development.

Our next area moves into oncological space. This is breast resensation. It's a procedure and a technique that we pioneered and developed. We have been working on this for several years and have now decided to double the current sales group, which is a very small team of 12 to more than 24 and we'll probably continue to be expanding this group all into the -- over the strategic plan period. Why is this a problem? Well, breast cancer is a continually growing presenting incident rate in the United States. While a lot of people don't realize is while aesthetic reconstruction has advanced and come a long way post mastectomy that when you do these procedures and remove this tissue, the woman's chest is essentially numb. There is no feeling here. And so as you can imagine, from a quality of life standpoint, that's a difficult element to grasp and to appreciate.

A lot of women are even unaware that that's 1 of the side effects that come from this. And so as part of the Women's Health Care Reconstruction Act, 1 of the expectations is that the patient and the family and the physician have the right to discuss and to decide what their reconstruction journey should be for them. So given that we provide a nerve allograft that allows for regeneration and construction. What we are doing is we're pioneering the techniques to teach people how to remove the breast tissue by leaving the opportunity to regraft and then we teach people how to do the regrafting. And so we train the surgeon pairs, both on the reconstructive side as well as the oncological side, how to do these procedures. It's a very rewarding marketplace.

The feedback that you get as you might imagine, when you're able to give people some level of sensation restoration is profoundly rewarding and we expect this market to continue to grow in high double digits for years to come. We're very small in terms of penetration levels and sites developed, but therein lies the reason for the investments in this space.

Prostate. Similar situation, why are we here? While prostate -- prostatectomy by robot has come a long way, and it's the primary means by which most of these cancers are intervened with, the dysfunction that accompanies these procedures still remains very high. There's almost universal recognition. The problem has not been solved. And while we try to spare the nerves, we're not oftentimes successful. What's the opportunity? Very simply. A nerve is a nerve, is a nerve is you can regraft once you remove that -- those tissues, the Avance allograft, you have the opportunity for that allograft to regenerate and therefore, mitigating the dysfunction that accompanies these types of procedures.

This is our newest application area that we're working on in terms of developing the protocols that are necessary to train for this, but we have high expectations for this over the next 4 years as we continue that process. So what this represents, therefore, our strategic plan in terms of the areas of basic focus. There's nothing esoteric about this. These are all focused on areas of market development that come along with any novelty.

The reason why we have guided over the course of our strategic plan period, 15% to 20% is based upon the present growth even before we initiate these activities. But as we expand the commercial footprint, as we continue to develop our Level 1 evidence, as we focus on societal associations and development for creating care guidelines. And as we continue to invest in innovation, we believe that these particular opportunities are all imminently developable, and we'll further enhance both the purpose of the business; and then finally, Axogen as an investment vehicle.

So 1 of the elements, given that continuing to invest in new products is 1 of our objectives is that Axogen special because of innovation, that's Avance. But Avance is just 1 opportunity among many that we believe still exists. So we will continue to invest both on the product side, on enhancing regeneration through intrinsic improvements in Avance in the future and/or complementary products and form factor that would further enhance regeneration. Those projects are underway. We're funding them as we speak.

Next, easy coaptation. So we can talk all about this and all what's possible and it's all true. But technically, these are not easy procedures. And so the more we can make these procedures simple, the more -- and the greater adoption that can transpire and so we're working on that.

And then finally, with regards to protection, there's a lot of complementary procedures that are going on. When you do these anastomosis, you want to protect that work that you've just done. And so our wraps and our protection devices are essential for that.

Next is evidence. So claims are great. Evidence to support those claims is even better. And these are projects that typically take 3 to 5 years to complete and get to publication or we are committed strategically just as I have throughout my entire career of making sure that we complement and invest accordingly in developing the evidence in the things that we believe in. And these projects that are underway today are just part of them, but we have a number of level 1 evidence efforts that are planned that will commence as soon as we complete our transition to a biological license approved product which is expected in September.

I'd like to do now is talk a little bit about the finances. Why do we believe some of these things are possible. What's different today than maybe 3 or 4 years ago. And here's part of the reason. So drawing your attention to accelerating growth. This business has continued to enjoy good growth, what's basic reasons. We have a good focus on science, partnership, and these are highly underpenetrated areas. And this is worth talking about. But that investment has also allowed us to reach a classic point of equilibrium and then scale and now leverage such that we are enjoying the benefits of that in terms of now contributing to positive cash flow.

In addition, 1 of the key things that has consumed a great deal of time and cash in recent years has been the development of a new manufacturing facility to support the biological license approval. Those are capital expenditures, huge cash consumers, has been completed. And so those monies are now available for other parts of the business. And as you can see in 2024, we moved to positive cash flow and we predict and expect that will absolutely continue into the future and allow us to fund our entire strategic plan.

So therefore, our guidance will be provided to at 15% to 20% over the next 4 to 5 years. We continue to expect gross margins to incrementally improve over that period of time once we have 1 quality system that we can work upon as opposed to 2, which is our current environment. And then finally, the ability to self-fund all of these activities in-house.

A little bit about the growth. One of the questions we constantly get is, as you might guess, you guys can grow, you sure you can grow. Well, you can see what we've grown in 2022 to 2024. We believe there's no reason this business can't support that for the reasons I've already described dramatic underpenetration. We're expanding the commercial teams. We're completely committed to classic market development exercises and then finally, we're adding new clinical application areas for development, which will further leverage this opportunity.

Our financial guidance for the year was 15% to 17%. We are on track as of Q1. Our gross margin, we've guided based upon the transition to the BLA to be a little bit lower this year and noisy, 73% to 75%. It has certainly started out that way. We did have 1 miss in Q1. These are episodic, and we believe transitory. We still maintain our gross margin guidance for the year and that will ultimately exit the year at around 75%.

In operational cash flow, we consumed $11 million in Q1. This is fully expected and consistent with prior history, why this is national sales meetings and payout of annual bonuses to employees based upon the performance of the company. But going forward, each quarter, we will be net cash flow positive.

Our measures of success, we published secondary strategic plans, so that people can kind of watch and ask questions. As we report quarter-to-quarter, I'm not going to go through all the elements of the slide, but these are available publicly online on the website along with the rest of the strategic plan in detail. The takeaway that I would ask investors to note is that we are on track. The things that we said that we do, we're doing. The business is growing in double digits across the entire portfolio and we expect that to continue. Our high potential accounts were due to the primary target customers that we have decided to develop and concentrate our resources upon, has improved productivity and we have more of them than we have in the past, and we've continued to add to those professional education, which is key.

It's all about training people to do the things that we believe need to be done. Those are on track. We're -- and that's an expansion of our prior year's activities. And then finally, from a market development standpoint, we've had just 8 new publications added to the clinical compendium just this quarter alone. And the takeaway from all of this is that the benefit risk proposition is broad, it's transparent both in the control as well as contemporary publication standpoint and remains very positive. And with that, thank you for your time.

I look forward to those who are interested to continue to watch us if you have any questions. We look forward to answering those in the future. I'd also like to introduce Lindsey Hartley. Lindsey has recently joined the team and taken on the position of Chief Financial Officer for Axogen. So thank you again.

How does this -- what are other treatments for nerve damage, like where does peripheral nerve stimulation or technologies like that fit into the continuum of treatment? Like maybe sort of can you contextualize where nerve repair fits into like kind of the patient journey or the other alternative modalities that we see under development now?

Okay. So in the big picture, and I'll speak very generally at a high level. So peripheral nerve care ranges from the following. One is no recognition that it's a requirement or expectation, which means literally it's there, it's obvious, but there is no treatment. So you cannot find a clinical evidence that I need to do this, except an oral maxillofacial and ironically doesn't get done. So that's the one extreme and that's actually the preponderance of situations.

Why does this happen? Patient comes in for trauma. You are dealing with the triage of the trauma. You've got broken bones, you've got vessels, you've got bleeding. You deal with all of that and people say "Whoa, I saved your life. You are good." Well, I can't feel my fingers anymore and they are just most of the time, just not even aware that there is opportunity or solution and they don't do that kind of work. So they would need to call a hand surgeon or a neurosurgeon, if one exists in the institution and bring him in. So that's the current state of immaturity in terms of nerve care and expectation of care. So that's one extreme.

The other extreme is you have some of the original work that was done 30 years ago, utilizing autografts. What is an autograft? You typically go to the back of the leg. They remove, what's called a sural nerve, which is a flat different kind of nerve, it doesn't necessarily match very well, but it's a place where people have to determine, well, if I have to create a deficit somewhere else, I will create it here. It's not going to destroy your life. You are not going to like it, but it's better than no chance at all and they would take those nerves and use those. It is generally declining as a solution, if it is used at all, but that's the other option, that will be used is occasionally allografts.

But the simple way to say is the biggest challenge or barrier to nerve care is awareness that these things should be treated and can be treated and then developing the techniques to do that. Now what else is going on in nerve care? There's very little going on in terms of developing products similar to Avance. There's a couple of projects I've heard about in Asia, but there's nothing of any consequence, nothing anywhere near term.

There is a lot of interest in trying to figure out how to promote innate nerve regeneration. Stimulation is one of them. A lot of people are very excited about what might be possible using stimulation techniques. I would characterize those as interesting, but very early in terms of establishing fundamental proofs of efficacy.

Most of the stimulation is used on the diagnostic side to identify viable areas of nerve for re-coaptation. And then there's a fair amount of activity on the peripheral and the algorithm side where people trying to figure out easier ways to connect 2 nerves together to include even the allograft. But actual solutions to restore end-to-end anastomosis of nerves like Avance, we're the only game in town and should probably be so for the next decade at the very least.

And how procedure types. You mentioned before the presentation, being connected to microsurgery previously, I think. Those procedures took like 8 hours under a microscope, I think, they are pretty niche applications, they need time, they need training, learning curve, et cetera. What are the procedure time and learning curve here like there?

If you're using an allograft, those procedure times are fortunately not that long. So we're typically talking anywhere from 30 minutes to 1 hour, 1.5 hours would be kind of the outer bounds. The really complex stuff is typically oral maxillofacial and brachial plexus, some of these children procedures, those can be pretty long procedures. But the 8-hour type procedure that's outside the norm. Did I answer all your questions? Any other questions?

I guess I'll ask one more on the sub kind of the backup to, I guess, the kind of the strategic plan. What are some of the key like medical meetings or other venues that you look to present some of this additional data that you're collecting? And like what are any kind of key clinical or product-related milestones over the next 6 to 12 months in the commercial launching?

Sure. The next big meeting is in Finland in a couple of weeks. It's called [ FISH ], but there's 4 major societies on the microsurgical side for extremities. And we attend all of those. The most recent presentation of note that was published and highly regarded was the zone of injury work. And zone of injury was novel because it provided the first insights for a neurosurgeon to understand that just connecting 2 things together, even if you surgically, physically do that well is insufficient. And the reason why those oftentimes fail is you have not identified properly what is still viable. And so it's not always visually obvious and there it's a big clinical problem.

That was basic research done and led by Axogen, ultimately in cooperation with other researchers, and that was published, and that was a really big deal. So it's elucidated for everybody like, okay, it's not just enough, my surgical thing. I need to make sure that my surgical technique is applied to viable nerve area. And so I would say that's probably the most significant recent publications by us. But like I said, we're getting to the point now where there's enough activity where like this last quarter, there were 8 different publications using Axogen products for nerve injury.

The big ones will be 2006, 2007 (sic) [ 2026, 2027 ]. The next big ones and those will be things workaround breast -- recent -- more workaround breast resensation. The kicks off of the pivotal studies against autograft and then finally the pilot clinical work for prostate.

Maybe the one thing, I didn't touch upon, I presume everyone gets, is that we talked about moving to a biological license approval. That is a formative milestone for the company. We have spent millions upon millions on that effort. Essentially what's underway is the FDA has asked many years ago that we move from the classical device quality system approval on regulatory construct to the drug construct. Basically a biological license approval is what it is referred to. This is an effort that has consumed probably $150 million over a decade.

That's off the top of my head, but that's at least close and a tremendous amount of time. Once that's complete, Axogen will be the first of its kind in that category. It will be the precedent and the comparator. This will also be relevant to payers and covered. We have -- we've made great progress, about 64% of covered lives today, but we still have gaps. This will allow us to move forward from a reference standpoint, making it easier to navigate the final barriers there. It will also provide a reference for competent authorities outside the United States, when we go to develop, so that we have a similar regulatory framework, when we go do our work there.

So it's a really big deal for us. Most of our customers actually will be invisible to them, but it won't be invisible to payers and to regulators. And it is also important that all the new clinical work we want to do, will have to build upon this new status, not the device status. So it's also critical that we make that final transition in order to go forward.

Okay, thanks everybody for your time, appreciate it.