Aziyo Biologics Inc - Ordinary Shares - Class A Aktie

Thank you for standing by, and welcome to Elutia's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Bernadine Cherniak. Please go ahead.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the first quarter ended March 31, 2026. A copy of the press release is available on the company's website.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2025. and our subsequent periodic reports on Form 10-Q and 10-K accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 14, 2026. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements because of new information, future events or otherwise.

Also during this presentation, we refer to gross margin, excluding intangible assets, amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's financial results released for the first quarter ended March 31, 2026. This is accessible on the SEC's website and posted on the Investors page of the Elutia website at www.elutia.com.

And with that, I will turn over the call to Elutia's CEO, Randy Mills.

Thank you, Bernadine, and thank you, everyone, for joining us today. The first quarter of 2026 was an important quarter for Elutia. We continued to sharpen our strategic focus. We advanced our NXT-41 regulatory program. We brought our automated manufacturing platform online, and we further strengthened our confidence in the commercial opportunity ahead of us in breast reconstruction.

Here's how we'll spend our time today. I'll walk you through the headlines of the quarter and where we're headed. Matt will take you through the financials and close with a few thoughts on what's ahead. Then we'll open the line up for questions.

Today, Elutia is increasingly becoming a pure-play drug-eluting biomatrix company focused on one of the largest and most underserved opportunities in reconstructive surgery. Four things I would like to highlight from the quarter. First, our FDA review of NXT-41 is progressing through productive interactions with the agency, and the dialogue has increased our confidence in the planned NXT-41x submission. We continue to anticipate NXT-41 clearance in the fourth quarter of 2026 and NXT-41x clearance in the first half of 2027.

Second, we brought our automated manufacturing platform online this quarter. That platform supports a target gross margin in excess of 80% at scale, enabling a differentiated value proposition at competitive pricing.

Third, direct surgeon engagement by our commercial team is confirming what we have believed all along, a $1.5 billion U.S. market, postoperative infection rates of 15% to 20% and no meaningful innovation in standard of care.

And fourth, we ended the quarter with a strong balance sheet, $36.5 million in cash and escrow, and we are actively engaged in 2 strategic processes, the SimpliDerm divestiture we previously announced and a newly disclosed inbound acquisition interest in our Cardiovascular product line. It is increasingly clear that within the $1.5 billion breast surgery market, NXT-41x has the potential to be a blockbuster and to meaningfully improve outcomes for women with breast cancer.

For anyone new to the Elutia story, here is the short version of what we do. Our approach is simple but differentiated. We combine a proven biologic matrix platform with sustained local antibiotic delivery designed to prevent bacterial colonization and the cascade of complications like infection that can follow.

Importantly, we have done this before. Our first-generation drug-eluting product, EluPro, was the first FDA-cleared antibiotic-eluting bioenvelope. We developed it, we cleared it, we commercialized it. And last October, we sold that business to Boston Scientific for $88 million. That prior success gives us confidence not only in the technology itself, but also in our ability to develop, make and commercialize differentiated drug-eluting products. NXT-41x takes that same validated platform into a much larger market with a much larger unmet medical need.

We believe the opportunity in front of us is transformational for 3 reasons: One, it's a big market, a $1.5 billion in the U.S. alone. Two, it's a big problem. 15% to 20% of patients develop postoperative infection after mastectomy. And if anything, that number is conservative. And three, we already have a proven solution. The $88 million that Boston Scientific paid for our first-generation product tells you that it works.

Let me put the market into concrete numbers. Approximately 168,000 breast reconstruction procedures last year were performed in the United States. Biologic mesh is utilized in more than 85% of those implant-based reconstructions. Biologics account for roughly 65% of the total procedural spend and human biologic mesh today sells for somewhere between $7,500 and $9,500 per breast. Put that all together, and you have $1.5 billion U.S. market opportunity.

This is not a market we have to create. It already exists. Biologic matrices are already deeply embedded into the standard of care. Surgeons use them in the vast majority of these procedures. Our job is simpler than building a new category. We just have to give them a better version of what they're already using.

In breast reconstruction, the unmet need for this is severe. One in 3 women suffer a serious complication after reconstruction. 15% to 20% develop a postoperative infection, up to 21% experience implant loss and the average hospital cost of a single infection ends up being more than $48,000. But remember why this woman is in the operating room in the first place. She was diagnosed with cancer. Her #1 goal is to beat that cancer. And when infection takes hold, chemotherapy stops, radiation stops, everything stops until the infection is resolved. This is not a minor complication. This is a cancer treatment derailing event and the standard of care today does not solve it.

NXT-41x is not a passive support mechanism. It is an active partner in recovery. It is easy to use. It fits the surgical workflow the surgeon already knows. It's cost neutral to the hospital. It replaces legacy products that they're already buying and it delivers powerful, sustained uniform antibiotic coverage right at the surgical site where systemic antibiotics struggle to reach. Unlike legacy biologic matrix with -- that have little functional differentiation, our goal is to deliver differentiated functionality at a competitive economic profile. We believe that matters.

With that backdrop, let me walk you through the work we did this quarter to advance the program. Let me first start with the FDA review. We continue to have productive interactions with the FDA regarding the NXT-41 submission. As a reminder, NXT-41 is the base biologic matrix, and it serves as the foundation for NXT-41x drug-eluting version that will follow.

While we're not going to comment on every detail of the review process, what I can say is that our dialogue with FDA has increased our confidence in the planned NXT-41x submission strategy. The discussions have helped clarify what FDA views as important from a submission standpoint. We continue to anticipate NXT-41 clearance in the first quarter of 2026 and expect NXT-41x clearance in the first half of 2027. The point I want you to take from this slide is our confidence has increased.

Let me shift to manufacturing. One of the most important accomplishments this quarter was bringing our automated manufacturing platform online. We have now installed and operationalized the core automated production equipment intended to support NXT-41x manufacturing at scale. This is strategically important for several reasons: First, the robotic coating system enables precise and reproducible application of the drug-eluting layer onto the biologic matrix. Second, the integrated in-house approach is designed to support scalability, efficiency and quality control. And third, we believe this process creates a meaningful competitive advantage.

The integrated process supports a targeted gross margin of above 80% at scale and an 80% plus gross margin gives us real pricing room against incumbent products that sell for between $7,500 to over $9,500 per breast while still delivering best-in-class margins. Said differently, NXT-41x is designed to compete both on outcomes and cost. That is a hard combination for an incumbent to respond to.

Now let me turn to commercialization, which I'm particularly excited about. Our commercial readiness work continues to increase our confidence in the market opportunity. Since joining Elutia, our Chief Commercial Officer, Pete Ligotti, has spent a substantial amount of time in the field speaking directly with surgeons and hospital stakeholders and the feedback has been remarkably consistent.

The clinical need is real and it is significant. Surgeons describe postoperative infection in downstream complications as one of the most frustrating challenges they face in breast reconstruction. Second, there remains a clear lack of meaningful innovation anywhere within this category. And third, the commercial opportunity appears to be highly concentrated.

Look at this funnel. As we discussed, the U.S. breast reconstruction market is $1.5 billion, and there are about 168,000 procedures performed last year. About 1,800 U.S. hospitals perform reconstruction, but only 585 of those hospitals account for 3/4 of the entire market and the top 50 centers alone represent over $300 million in spend.

Here's the insight. This is a $1 billion-plus U.S. market, but the real volume is concentrated at a few hundred hospitals, this is not a market that requires thousands of accounts or a massive sales infrastructure to establish meaningful penetration. We believe targeted engagement with high-volume centers can create substantial leverage, and that is exactly the team Pete is putting together.

Before Matt walks you through the financials, let me briefly address our strategic process. As we have previously discussed, we continue to evaluate opportunities to further focus the company around NXT-41x in its platform. With SimpliDerm, interest is strong and the process is going well. SimpliDerm is a high-quality business, $2.1 million in revenue in this quarter at a 57% gross margin. We have strong reimbursement coverage with approximately 100 million covered lives across UnitedHealthcare, Anthem and 9 regional plans, and it has a differentiated patent-protected manufacturing process.

But separately, we have received inbound acquisition interest in our related Cardiovascular product line. For context, that business did $1 million in revenue this quarter at an 85% gross margin, and that's up from $300,000 just a year ago. These are strong products with differentiated clinical profiles and attractive gross margins.

However, as we evaluate the company strategically, our priority is ensuring that capital, resources and management attention are aligned with the largest long-term opportunity for value accretion, which is NXT-41x. So we are going to provide further updates on both processes as appropriate.

Now with that, I'd like to turn the call over to Matt.

Okay. Thanks, Randy. I'll begin with a review of our first quarter financial results from continuing operations, which exclude the divested BioEnvelope business that we sold to Boston Scientific in October of last year.

Total net sales for the first quarter were $3.1 million compared to $3.0 million in the prior year period, growth of approximately 6% year-over-year. SimpliDerm revenue was $2.1 million compared to $2.6 million a year ago. Cardiovascular revenue was $1.0 million compared to $300,000 in the prior year period. The increase in Cardiovascular was primarily driven by a return to direct distribution, but also to improved procedural volume.

Turning to profitability. GAAP gross margin for the quarter was 58% compared to 47% in the prior year period. Adjusted gross margin, which excludes amortization of acquired intangible assets, was 67% compared to 56%. The year-over-year improvement reflects favorable product mix and price improvements.

Total operating expenses were $8.2 million, essentially flat year-over-year. Inside that number, we reallocated meaningfully. Litigation costs declined by approximately $2 million as we work through legacy matters, and we redeployed that capacity to achieve the substantial R&D progress and commercial readiness for NXT-41x.

Net loss for the quarter was $7.5 million compared to a net loss of $3.9 million in the prior year period. Adjusted EBITDA was a loss of $4.4 million compared to a loss of $2.8 million a year ago. Importantly, the increase in net loss was driven primarily by noncash items and other expense, specifically the revaluation of warrant liabilities and not by any deterioration in the underlying operating business.

From a liquidity perspective, we ended the quarter with $28.5 million in cash on hand, plus the $8 million escrow associated with the BioEnvelope divestiture, which we expect to be released in the fourth quarter of this year. Combined, that represents approximately $36.5 million in cash and escrowed receivables. We believe our current capital position provides the resources necessary to support our planned regulatory and operational milestones.

For shares outstanding at quarter end, the company had approximately 44.2 million common shares outstanding and 3.2 million prefunded warrants, representing 47.4 million common equivalents outstanding.

Now let's look ahead at the catalyst calendar. We continue to actively work towards our strategic transactions, the SimpliDerm and Cardiovascular processes that Randy discussed. Each of these would further bolster the balance sheet. We continue to anticipate NXT-41x FDA clearance in the fourth quarter of 2026. And in the first half of 2027, we anticipate FDA clearance of NXT-41x. In the second half of 2027, we anticipate commercialization and a focused NXT-41x soft launch.

Overall, we believe the first quarter reflects continued execution against our strategic priorities. We are maintaining financial discipline while investing in the core capabilities required to support the NXT-41x opportunity.

Now taking a step back, we believe Elutia today represents a unique combination of attributes. We have an established drug-eluting biomatrix platform. We have prior experience successfully commercializing and monetizing products developed on this technology, most notably the sale of EluPro to Boston Scientific for $88 million. We have existing GMP manufacturing infrastructure that is now online. We have growing regulatory clarity from our productive dialogue with FDA, and we are pursuing a large market opportunity, $1.5 billion in the U.S. with a meaningful and well-documented unmet medical need.

All the pieces are coming together. And most importantly, we have a company capable of creating meaningful value for surgeons, for hospitals, for shareholders and most importantly, for patients. We have the platform, we have the market, we have the team, and we have the resources to make it happen.

Operator, we're now ready to open the line for questions.

[Operator Instructions] First question comes from the line of Frank Takkinen of Lake Street Capital Markets.

Congrats on all the progress. I was hoping to start with one on the follow-up. I know you said you wouldn't divulge too much detail on it, but I'd be remiss if I didn't ask. So maybe how I will ask is, if I heard you correctly, you said incrementally more confident. So maybe the way for us to understand it is no surprises with perhaps a more detailed roadmap for 41x. Is that a fair way to think about it? And any other detail you would provide?

Yes. The way I would describe it is, one, any time that you submit something to FDA, you submit to a particular group. And so while it's the same regulatory pathway that we use with EluPro, we went from cardiovascular with EluPro over to plastic and reconstructive surgery. And what we found with the review team in plastic reconstructive surgery, which is unique than the one in cardiovascular is a group that is significantly more collaborative and engaging and very proactive in the review process.

And so given how sort of early on we are in the review, we've had a tremendous amount of dialogue back and forth, substantive communication, direct communication with the agency on this, not just the perfunctory type of letters and initial things that might go back and forth to the state, but real serious meaningful conversations in a productive and collaborative fashion. And that's obviously been helpful in 41 and 41 is moving along the way we anticipated 41 would move along.

But sort of keep in mind, as we do, I would hope, Frank, that our eye is actually on the prize and the price is 41x. And what we're really doing with 41 is making sure that our 41x submission is the highest quality submission we can have it, that it's on time and most importantly, that 41x gets approved when we anticipate. And the interactions we've had so far in the 41 process has given us a lot of confidence in where we're going with 41x. I hope that adds sort of the color and commentary around what's going on.

No, that's perfect. I appreciate that very much. Maybe on the -- some of the new commercial comments, thanks for that color. It was very educational. I was hoping to ask about maybe a question that's a little bit too far out right now to be thinking about, but I'm sure you're starting to sketch it up. How do you think about rep hiring? Obviously, a very concentrated call point. I think in the past, you've used a hybrid of kind of internal as well as 1099s. Maybe talking about that split and when you start to maybe bring on some of that early talent.

Right. So it's certainly a little too early to lay out the full plan. We'll be doing that more now that Pete's on, but I do have a couple of comments on it. So the first, one of the things Pete is doing is Pete is doing a really nice job of going out and assessing the market both qualitatively and quantitatively, Frank. And I mean when you bring a sophisticated guy in-house, right, this is what they do.

Quantitatively, it's great to know, hey, what's the actual infection rate? Where are all the procedures done? How -- what are the kinds of infections and complications are they seeing at different hospitals and centers and things like that.

The qualitative side of it is what do the surgeons think is going on? I mean the -- anyone to spend any time with the surgeon is their perception of the problem can oftentimes be very different than the actual problem. And the gap between those 2 is actually where the real marketing plan and genius and opportunity come about and take shape.

So what we're seeing and what Pete's already uncovered is when you start looking for -- when you start looking at the high concentration in centers, so I think it was 585 accounts for 75% of the market. And then even that ends up being super concentrated, we have $300 million of market opportunity in just 50 accounts. But I mean, let's put that into perspective with what we did with EluPro. We took 12 direct reps with EluPro, pair them up with a handful of 1099s and in 9 months, they activated 193 VAC accounts, right, for submission in 193 accounts. That would be like, I don't know, $0.5 billion of market opportunity in breast reconstruction, right? It's absolutely incredible what's going on here.

And then just to go on, I get really excited about this, as you could tell, Frank. But another thing that Pete uncovered is if you look at the postoperative complications that are happening, we mentioned in the press release that he's confirmed the sort of the market size and this concentration effect that we're seeing, but also the severity, it's really interesting because when you look at the complication rates of these high-volume centers, they are really high. You're looking easily at 30% complication rates at these high-volume centers.

And so it's kind of nice that the earliest places to go to get some big wins are actually also the ones that need the most help. And intuitively, if you sort of think about it, that's not too surprising because these are the big centers where people are getting referred with the more complicated cases that are -- that have the comorbidities that lead to infection that require the more radical mastectomies and all of those factors that lead to postoperative infection. But it's really, really gratifying to see it come together.

So we will have more -- just to go back to your actual question, Frank, we will have more on the launch structure coming up. I think probably by the next conference call, we'll be laying that out a little more clearly with a little more sophistication. But boy, in 60 days, the man has hit the ground running and has confirmed what we know and then has taken it really to the next level with this, and it's super exciting, particularly when you put it in the context of what we were able to accomplish with Little old EluPro. And now you talk about game-changing 41x, and we can't wait.

Very helpful. Maybe just my last one. How do you think about maybe time lines around SimpliDerm and Cardiovascular understanding. It's always challenging to predict, but any wise goalposts you provide?

Well, we started the SimpliDerm process. We announced that on our last call. Interest was very robust. I think we had something like 38 targets engaged in it. I would say we have confidence -- we have pretty good confidence that a transaction is coming together. Frank, I just -- it's like trying to pick the final 4 or enrollment in the clinical trial, like trying to time when a deal like a divestiture is going to happen, just leads to bad promises and expectations. I will say we are very pleased with how the SimpliDerm process is going. We're looking for a high-quality deal, and we think we're on track to get one. But until it's done, it's not done.

And then on the Cardiovascular side, the air was pretty much just a lot of surprise from the upside because we got actually a number of inbound requests on the Cardiovascular side, and there's high-quality interest in that product as well. And as we think about strategic positioning of the company, you could probably tell, right, we are really, really convinced in the 41x opportunity that lies ahead, not just the capital that this would add to our balance sheet and strengthen our balance sheet even further than where it is, but also the strategic focus and the alignment and the management attention and all of those other things.

These are 2 great product lines that are used surgically every day and patients benefit from them every day. But they're just not where we're going as a company. And it will -- I think both of these will have a meaningful impact to our balance sheet and to our strategic focus. So did that help?

Yes. Very helpful.

Thank you. Ladies and gentlemen, that does end our Q&A session and concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to Elutia Fourth Quarter 2025 Financial Results Call. [Operator Instructions]. Please note, this conference is being recorded. Now it's my pleasure to turn the call over to Sonali Fonseca. Please proceed.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the fourth quarter and full year ended December 31, 2025. A copy of the press release is available on the company's website.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. All statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements include material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2024, and in our subsequent periodic reports on Form 10-Q and 10-K, accessible on the SEC website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 11, 2026. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements because of new information, future events or otherwise. Also, during this presentation, we refer to gross margin excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results released on the fourth quarter and full year ended December 31, 2025, which is accessible on the SEC's website and posted on the Investors page of the Elutia's website at www.elutia.com.

And with that, I will turn the call over to Elutia's CEO, Dr. Randy Mills.

Thank you, Sonali. Good evening, and welcome to our fourth quarter 2025 earnings call. We are coming to you live from our Gaithersburg, Maryland facility, and I'm super excited to be here, wherever you are, however, you may be listening welcome. We are super glad to have you. I'm going to try to keep my comments brief tonight. But on that point, you guys know, I may fail. We have so many exciting things going on in Elutia right now, and I am eager to share them with you. So with that let's just jump in. Here's a forward-looking statement slide that basically says what Sonali just said, and then really quickly on our conference call.

So what's on the agenda today, we're going to go over some of the basics. You guys may have heard this, but we also have a lot of new callers on the call today. So be patient as we go over things like our mission and what we're good at. Where we're headed as a company, we made a couple of announcements in that press release that are kind of important. And so we'll be updating we'll be updating some of those things there. Matt is going to then talk about finance topics. And then lastly, we will close the call and take your questions.

So let's start off with our mission. Humanizing medicine, so patients can thrive without compromise, humanizing medicine. Humanizing medicine. Every 98 seconds a woman in this country is diagnosed with an invasive form of breast cancer. That means even if I keep my remarks short today, there will be 18 new cases diagnosed during this call. Three of those are going to die during this call. 10 will have breast reconstruction, and 3 are going to have a serious complication from that surgery. Who are these people? These are our mothers, these are our wives, these are our friends and our daughters. You know them. That is humanizing medicine. I'm looking around this room right now at a group of brilliant overworked, tired professionals and the look on every one of their faces is the same. Randy? Let's go get at this.

So why do we think we can fix this appalling problem, Well, let's look at what we're good at, what we're great at, actually. We are great at combining an optimal biological matrix and we use the biological matrix to hold an implant in place and regenerate into the patient's own healthy tissue. That's an essential part of the surgery. But what we do that no one else does is we combine that with powerful antibiotics for sustained antibiotic release that prevents infection in these other complications that we're talking about. Infection is the #1 complication of surgery period, and we have the ability to significantly reduce it. And this isn't theoretical, right? We've already done this.

EluPro we launched in January of last year. We got it through 194 [indiscernible] in 9 months. We guided up to an $18 million run rate because physicians loved it, and most importantly, it works. And so that's what we're doing with 41x into breast reconstruction. We can't do this without an incredible team, and I am super pleased to announce that we have done a great job adding some serious horsepower to our team this last quarter. I'd like to welcome Guido Neels as our new Board member. He is an operating -- he is an operating partner at S6 Woodlands and the former Chief Operating Officer of [indiscernible] Corporation, he's also importantly, a long-time friend and mentor of mine, and we are blessed to have him join the team.

I'd also like to welcome Pete Ligotti as our new Chief Commercial Officer, Pete joins us with a brilliant 30-year career, including 20 years at Integra, more time at NuVasive, where he ran a successful business. He's going to be coming in here, and he's going to be spearheading our commercial efforts as we move towards the launch and commercialization of 41x. Welcome to both of these gentlemen to the Elutia crew.

Okay. So where are we headed? Where are we going? I want to be really clear about all this, so everybody understands. We are going to solve a really big problem that exists right found in breast reconstruction. And why this is such a transformational opportunity for us really comes at the intersection of three things. One is a really big market. It's a really big market, and that matters. Breast reconstruction is a $1.5 billion market. But it's also a really big market that's facing an enormous problem. As I said, 15% to 20% of our breast reconstruction patients will develop a serious postoperative infections, just unacceptable. We can do better. We have to do better. And the good news is that our technology platform is almost purpose-built for this specific problem.

Our first FDA cleared drug-eluting bio envelope turns out to be a really, really great way of addressing breast reconstruction infection. And so that's what we're going to do. So digging in here a little bit, breast reconstruction is a really big market. There are 162,000 breast reconstructed after mastectomy annually, that means there are a lot of biological matches that are already being used, biological matches already used in 90% of the surgery. So what does that mean? It means we don't have to train a surgeon on some brand-new technology to solve their problem. We just take a technology that they're used to, that they're familiar with using and make it much better so it solves their #1 problem. Human ADMs, human acellular dermal products lead this market, and they're expensive. We're going about $7,500 to $9,500 a breast, that makes them 65% or more of the total implant spend during a breast reconstruction procedure. So this is a really, really big market.

But it's a market that confronts some very unique challenges. When I talk about the postoperative infection rate being 15% to 20% people look at me and think, "Oh, that just couldn't be. That just couldn't be. It is, it definitively is. And I want to explain just a little bit about why? Why we see such high infection. I'm not going to go through all the slides I as some of you may have seen this, I have a longer series on this. But I do want to show you what's really at the root of this. So when a mastectomy, all of the breast tissue has to get removed. If all of the breast tissue isn't removed, woman's mastectomy isn't complete, and they have to go through follow-up and surveillance and mammograms and other types of things and still have a risk for redeveloping breast cancer. So all of this tissue has to be removed.

Well, one of the things that you should sort of know about breast tissue is that the blood supply for the anterior or the front side of the breast, it all goes through this breast tissue that has to get cut out. And so -- when a mastectomy is done and that tissue is removed, the blood vessels, and therefore, the blood supply for the front half of the breast is removed with it. And that closes off that blood supply. And what does that do? Well, that creates a situation where you have an area of the body that your blood flow can't reach where your immune system can't readily reach. And very importantly, where postoperative antibiotics can't reach. You can give somebody oral antibiotics or you can give somebody intravenous antibiotics, but if they don't have a vasculature to a particular area those antibiotics aren't going to flow there. And this is what sets up the very unique problem that we see in breast reconstruction. And that's what leads to these exceedingly high infection rates.

As I said, 1 in 3 women suffer a serious complication, about a 15% to 20% experience an infection. This isn't one paper. This isn't some esoteric citing. This is the registry. This is what all of the data says, in fact, put it into real specific numbers, the registry data says it's 12% to 37%, if you want to put the real numbers about it. So when we say 15% to 20%, we are not exaggerating on that number, if anything, we are being conservative. And this is validated every time we go out and talk particularly with the academic centers where they really, really, really track these numbers very, very closely. That leads to up to a 1 in 5 implant loss. So they've got to go back and this whole thing comes out. It leads to a massive economic burden for the hospital, $48,000 economic burden to the hospital. So the hospital certainly should be highly motivated to address this problem.

But I just want to keep in mind and go through our mission here in humanized medicine. We're also talking about a woman that started this journey because she was diagnosed with cancer. Not an augmentation. She was diagnosed with cancer. And the #1 goal in that woman's mind is curing herself from that cancer, and that involves chemotherapy, it involved surgery. It involves radiation sometimes. And when an infection pops up, all of that stops. None of that can go on until that infection is resolved. And so this is a significant problem on so many different fronts. And it's one that if you can't tell, we are very, very passionate and committed to solving.

So the great thing about this anatomical problem that's set up during the mastectomy is kind of creates a perfect environment for what we do. So what if we flip the script on this infection? And instead of trying to deliver this antibiotic systemically, we delivered it locally. We actually delivered it where the breast implant and the drain are, through the mesh, which is naturally there anyway to hold the implant in place. Well, the exact opposite would happen. Instead of concentrations being very, very low of antibiotic, the concentrations would be very high, and they would stay high, for a long period of time. And then the best part, they wouldn't have any systemic effects. So you can have high therapeutic concentrations of antibiotics right there in the breast side, without any of the systemic side effects that you sometimes get when you deliver systemic antibiotics. And this was the concept that we started out with a very long time ago. This was the premise behind EluPro, and when we started using EluPro in humans, we saw it was completely valid. And then we got more data on this specifically in breast reconstruction. So there's some really great data out there on what happens if you deliver antibiotics locally, into the breast reconstruction space. There two different studies, particularly that I'll reference here.

One of them uses a plaster antibiotic plate. Now, that doesn't sound like a great way to treat a woman who's undergoing breast reconstruction to put a piece of plaster in her breast. But when the risk of post-operating infection is 15% to 20%, desperate times call for some pretty desperate measures. So they gave it the shot. They impregnated this plaster with this antibiotic, and they looked at it in just the general breast reconstruction population. What they saw is a 62% reduction in infection risk. We're talking about going from 12.6% to 4.8%. This was not a small study. We're talking about 593 patients in here. So a significant proof of concept that if you deliver these antibiotics locally, you can do a really, really good job of preventing infection.

Another version of this was tried but in a much, much higher risk setting, here, what they were looking at is instead of using these big plates, they use these little plaster beads. Again, they're just plaster material. And they put those into the breast cavity. But what they were looking at here were women who had very, very poor, in fact, pathologically poor blood flow to the anterior side of the breast I'm going to call, mastectomy skin necrosis. And this is where there's just literally no blood supply to the front part of the breast and that front tissue starts to die. When that happens, it's your risk of infection skyrockets. And so here, they saw an 82% reduction in infection. We're talking about going from 36% down to 6%, again, end of 75% here. You might say, well, again, maybe this problem is solved, not really, even the authors and these are friends and champions of Elutia who are behind these studies will tell you this is a suboptimal solution to a very serious problem. No one wants that plaster put in there. Nobody -- no plastic surgeon wants to make [indiscernible] beads off-label in the back part of their surgical center. They don't stay in place. They drop down into the inferior side into the gutters of the breast. They don't provide uniform coverage and they elute the antibiotic way too quickly.

But it did show that this concept definitively works. And that's why we created NXT-41x. We're combining these powerful antibiotics by [indiscernible]. So these are antibiotics that specifically target the pathogens we know we see in breast infection. And it delivers them in a uniform field for an extended period of time, by 30 days, a lot less this 30 days about. The drains that are placed at the time of surgery stay in for 17 days. And so you want a couple of weeks of extra coverage. That's what that's about. And we combine these powerful sustained antibiotics with an optimal biologic matrix. And that matrix, I'll refer to as 41. It's just the matrix by itself. And we put those two things together when we made something purpose-built for the problem that we're trying to solve, which is postoperative infection in breast cancer surgery.

So let's talk about the road map and how do we get from here to there. Right now, we have a simpler, we're going to talk about that in just a second, but that's our current product that's used in the breast construction space. It gives us a lot of practical on the floor experience in this space. But the real excitement starts with 41 and 41x. So 41 is our base matrix. So when I say NXT-41, I'm talking about just the biological matrix alone, without antibiotic, it is a phenomenal matrix in its own right. If we weren't a drug-eluting biologics company, we would be talking about this incredible NXT-41, but we can't leave good enough alone, primarily because it doesn't solve the biggest problem in breast reconstruction. But what we do is we use 41 from a regulatory standpoint to set the foundation for 41x. We announced today that we have already submitted to FDA, NXT-41. Let me just sort of pause [indiscernible] of this year that we will get clearance for NXT-41, and that will serve as the platform for NXT-41x, which is the base matrix combined with the [indiscernible], and if we put the time lines together, we expect clearance for NXT-41x towards the end of the first half of 2026. So we're looking at a second half launch of that product.

Okay. What's going on. A lot of people ask what are you guys doing inside the company. Well, you can sort of divide it up into three major work streams. The first one is obviously development. No surprise here. That group is focused pretty heavily on the approval of a highly differentiated product that significantly improves outcomes in plastic and reconstructive surgery. That starts with our 41 base matrix and rolls seamlessly into our 41x drug-eluting matrix. I said we're here in our beautiful Gaithersburg facility. Well, that allows me to introduce manufacturing this is our manufacturing facility here where we have enough capacity to make 41x for the foreseeable future. I think we have something like $120 million in revenue generating capacity from 41x with just one ship right now. So we have this great manufacturing facility.

And basically, I could sum up manufacturing jobs right now into two things: One, ensuring adequate supply of perfect quality tissue; and two, driving down cost of goods. So that's what they're working on. And then lastly, we now have Pete [ Legotti ] coming in and heading commercial, building these KOL partnerships, going to tell you, we do not have a problem getting a meeting and building strong relationships with our KOLs. We have and are continuing to build a very robust KOL team of champions, and there's really no secret to it. We're being able to do it not because we have great personalities, but because we're addressing their #1 problem and the #1 problem that their patients are facing, right now.

In addition to that, Pete's working on developing health economic models, obviously, spending a lot of time on reimbursement strategies and generally preparing for launch readiness of 41x. So now let's turn a little bit to SimpliDerm. We're exploring SimpliDerm strategic options. We announced that on the press release today. You might ask, well, why now?

Well, we've gotten to the point where our confidence with the 41x program really dictates that this is now the time for us to focus all of our time, all of our resources, all of our energy on making sure we do a great job with that platform. SimpliDerm is a great product. And whoever gets this asset is going to get a really, really wonderful product, acellular dermal matrix that's used in soft tissue reconstruction. It's got great handling. It's sterile, it's hydrated and ready to use, which is what the plastic surgeons want. Hundred million lives covered. This is a big deal. Some people think they could introduce their own acellular dermal product really quick and just get it on the market. It turns out reimbursement in the acellular dermal matrix market is a really big deal. So we have 100 million lives covered across -- from 2 of the largest payers. Anthem and UnitedHealthcare as well as 9 regional plans. It's patent protected, obviously. It's completely stand-alone. So for us, it's a completely securable business that doesn't cause any disruption. And whoever gets it, it's EBITDA accretive. So no incremental capital investment is required, its really a beautiful plug-and-play technology. So we'll keep you updated on this, and we'll see how that process goes.

Lastly, I wouldn't be able to say any of the great things that I'm saying today, and we wouldn't have been able to make any of the progress that we're making without our incredible Elutia crew. We are proud to be recognized for something we already knew. Elutia is a great place to work. And we were certified by The Great Place to Work certification. The results I thought when I saw them, I was really proud. It proved we are a mission-driven organization. We are also a merit-driven organization. 54% women, 62% of our leadership roles are occupied by women. 50% have advanced degrees. We are a brilliant group, not me, but the team. An entire 1/3 of our organization has a doctorate, and we are a committed group. Our average tenure 6.3 years. The advantage, if you're wondering what's the advantage of this great place to work certification. Well, the certification is kind of nice. I guess you can stick it on the wall.

But what it means is that compared to our noncertified peer competitors. We tend to outperform on financial metrics by fourfold. We are able to attract job seekers because of The Great Place to Work certification with a 15x higher attractiveness. And our or turnover of certified workforces is about half that of the regular U.S. workplace. So I'm going to end my comments there by thanking this tremendous team for frankly making my job such a joy. And with that, I will stop talking and I will turn it over to Matt Ferguson.

Okay. Thank you, Randy. And before I start my remarks, I'd just like to say I so appreciate the passion and the leadership that you've brought to the organization, and I support all of the comments that you just made about our mission and our market opportunity and probably most importantly, our team. And with that, we put out our earnings press release today with quite a bit of detail on it, and we'll put out our 10-K in a couple of days. I [indiscernible] even more detail on it. So I'm just going to hit a few highlights and not take very long here. But moving into a summary of our fourth quarter financial results.

From a revenue perspective, we did $3.3 million in revenue, and that compares to $2.8 million in the year ago quarter. That's up 16%. So we were very pleased with that performance. That was really driven by the return to direct distribution for both our Cardiovascular and our SimpliDerm product lines, as we've talked about. The return to direct distribution has also had a very positive effect on our gross margins. So on an adjusted basis, which is probably the more -- the better indication of how things are really performing from a business perspective, we had a gross margin for the fourth quarter of 66.8%. That was up 12 points from the prior year quarter when it was 56.5%. So really nice results there.

Our net loss from continuing operations, so that's excluding the BioEnvelope business that was divested on October 1. That net loss from continuing operations was $6.5 million versus $7.2 million a year ago. And then probably a more relevant metric in terms of our operating performance, our adjusted EBITDA which is a non-GAAP metric, but excludes certain noncash nonrecurring, noncore operational metrics. That was a loss of $4.2 million in the quarter compared to $3.4 million in the year ago quarter.

On our balance sheet, a lot has changed in the last quarter. As you know, our total cash on hand plus the $8 million that we have in escrow is $44.4 million. So puts us in a really nice position from an overall cash point of view. That is after having paid off all of our debt with SWK, that took place at the beginning of the fourth quarter as well. That was about $28 million that went to pay off that debt. And then just from a share count point of view, we have 42.8 million common shares outstanding as of the end of the year. In addition to that, there are 4.5 million prefunded warrants that are outstanding, so a total of 47.3 million. And all of those common shares outstanding now are Class A common shares. So what that means is that all of our Class B common shares, which were held by one entity were converted during the quarter and sold them to the market. So that is essentially an overhang that is gone now, and we're very pleased to get that behind us.

One of the effects that we've seen is that has gotten behind us is that we recently came back into compliance with all of NASDAQ continued listing requirements. We put out that press release at the beginning of last week, and I'd just like to thank all of our investors out there who put their trust and their capital into Elutia, and help support that return to compliance there. So moving on just to take a step back and at a big picture level, the fourth quarter of 2025 and really all of 2025 represented a real strategic reset for the company. And the biggest event in that really was the $88 million sale of our BioEnvelope business to Boston Scientific, which, again, that allowed us to pay off all of our outstanding senior debt to SWK left us with $44.4 million of cash on the balance sheet and in escrow that will come in later this year. And it really allows us to be completely focused and extremely well resourced for the continued development and the launch of NXT-41x, which we truly believe will be transformational in the market starting next year.

So I guess with that, the last thing I'd like to mention is just that we've tried to be very active in getting the story out, which we truly believe in. We've been active in getting it out to investors, and we're going to continue to do that. We have two conferences coming up in the next couple of months. The first will be just next week, the Sidoti Small Cap Conference, which is an online congress. And then in May, we have the LD Micro Conference, which is a live conference in Los Angeles. So if any of you are attending those events, we'd very much love to meet with you there.

So with that, in summary, before turning it over to questions, I'd just like to reiterate that the three key points of our story, we have a validated technology platform that's been proven by the sale of our EluPro product and our BioEnvelope business last quarter, to Boston Scientific, $88 million. We have a truly blockbuster pipeline underway, which is really starting with NXT-41x and a $1.5 billion market. And then we are in a great position from a resource point of view. We have a fantastic team. We have a great facility that we're sitting in here today. and we have a strong balance sheet, which will take us through that approval and into commercialization. So with that, open it up to questions, and back to you, Carmen, to start that off.

[Operator Instructions] We have a question from the line of Frank Takkinen with Lake Street Capital Markets.

Congrats on the progress. Congrats on the 41 submission to the FDA. I was hoping to start with a few questions around that. I know it's a question along the lines of trying to predict the unpredictable. But as you're working importantly, what kind of questions are you preparing for from the FDA? And kind of how do you think about the challenges you might have to go through to get it to market or if it should be a relatively streamlined process? And then secondly, once you do get 41 across the goal line, how quickly can you shift the filing to 41x and resubmit?

Okay. Just writing making some notes, Frank. So Frank, thanks for the questions. I think everyone should I think everyone should view the review process and respect the review process, I would say, the way we do. The time lines that we've laid out for clearance, have -- they're fairly conservative. And they're fairly conservative because we want to make sure that we do a really professional job. Now I think, first and foremost, we submit a high-quality application with everything in it that we think is necessary for a clearance. We do retain a lot of back up data on -- and supporting data on all the necessary points. But as a matter of sort of regulatory strategy and sort of best practices in regulatory science, you don't over-answer a question with FDA. You just be prepared to sort of explain the rationale for the things that you did answer. And so that's really the strategy that we have going on.

The -- there's no question that biocompatibility for some -- a product like this is a big question in the mind and a big focus right now in the Food and Drug Administration, we know that. we feel pretty good about our product there. We know that when we get into 41x, if we just remember back to the days from from EluPro, that things like in vitro elution was a real big point with them. You probably remember the IVF. Frank or IVE days, and so we're prepared for any and all of it, but we're prepared for it in a a very humble and respectful way. And that's the time lines we've set up, have that in place. And I would just sort of encourage everyone to just kind of keep that in mind. I wouldn't be pulling forward any time lines until we tell you that's probably a good idea.

With regards to how fast we roll into 41x. I would say just to kind of keep in mind the whole purpose of 41 is to improve the efficiency of 41x. We have no intention of commercializing 41. It's not a drug-eluting matrix. And so it doesn't fit with our high-level thesis. So really, the only reason that we're doing it is for regulatory efficiency. And therefore, the team will learn from the 41 submission they'll call any audibles that they need to as a result of what we learned from the 41 submission. But clearly, their plan is to go pretty efficiently from 41x -- or from 41 into 41x.

And if at any point, we think that, that might not -- that 41 might no longer serve that purpose, well, then we might change the plan. We might even pull forward a 41x submission. But right now, we anticipate in the time lines we anticipate we anticipate an approval pretty efficiently after 41.

Got it. Very helpful color. I was hoping to ask a little bit more about commercial. I appreciate some of the comments you made there, but kind of related to SimpliDerm. I think we've talked about just having experience in that space be a SimpliDerm could help kind of the commercial readiness of the organization once 41x is approved. How do you kind of think about balancing that readiness that SimpliDerm could have helped with versus the strategic process. And then at the same time, what are you may be doing from a commercial perspective in light of kind of that transition that is occurring?

Right. So Frank, let's kind of go through this with the three things that really help us get ready for 41x. One is just the base understanding of this market how it works and that includes the reimbursement, right? So we've done that. We do understand how this current market work how reimbursement works here, who the players are, literally, the logistics of a breast reconstruction products. So we think we check that. You will remember, by far, the most important thing in the commercialization of EluPro, was the Value Analysis Committees, like the VACs. And I'll be completely honest here, we learned more about how to do that efficiently with EluPro than probably we learned or are learning from SimpliDerm. 194 VACs in the time that we did that. I mean that was so key to the explosive growth of that product. And we have a team that understands that. We know what to do from a VAC package standpoint. So we feel pretty good about that.

The third piece, though, was KOLs and key opinion leaders, and who are the thought leaders in this space. And here's Frank, where our thought process has really flipped and it really started flipping when we when we were able to go last October to the big plastics and breast reconstruction meeting in New Orleans. And just cold call some of these marquee leaders in the field of plastic and reconstructive surgery and said, "Hey, would you mind having a conversation with us, we're trying to develop a locally delivering biological matrix for breast reconstruction. Deliver antibiotics to try to prevent infection.

Our dance card fill, and it filled with some of the brightest strongest thought leaders in this space, and that continues to this day. We have no problem getting meetings with these KOLs and engaging in very meaningful, very enthusiastic conversations with them on how we can best design, build and deliver a product that is exactly what we need. And so when that last piece sort of started to happen was when we sort of made the decision. We're we're probably pretty good here and can start moving on, particularly with the progress the R&D team is making with the filings.

That's perfectly clear. I got it. One last one I wanted to ask, Randy. Obviously, the data is really impressive with the plate as well as the powder with 60% and 80%-plus reductions. How do you think, and it's a speculative question, but how do you think NXT-41x could compare from an infection reduction perspective in relation to some of these other tech things that are being used today?

We would be thrilled with the 50% reduction. Anyone would be thrilled with something like that. We have some advantages, though, over those techniques that are delivering those results. Those advantages are uniform distribution. So as I said, with the plates and the beads, those things they have [indiscernible] to them, and they notoriously sort of fall down into the breast gutters, and don't provide uniform coverage. The second thing is the teams that were doing that work. They know that antibiotic comes out of that real fast. And therefore, it doesn't provide a particularly long-term coverage.

We targeted this 30 days, and we targeted the 30 days because the drains come out, at day 17. And if the drains are still in particularly with -- there's a piston-ing that can happen with each [indiscernible] from the outside of the inside, you're constantly introducing and have the potential to introduce bacteria back into that surgical field. So we felt pretty strongly that you needed to have antibiotic coverage after that persisted after the drains were filled. So we feel like we've probably built a better solution than the ones -- than what you're seeing these really, really fantastic results. So you can't knock what they're seeing.

But I think I want to caution everyone here again, too, a little bit of humility and perspective. There is a percentage of these cases that have such severe necrosis. This is where the vasculature to the breast is so compromised that it doesn't matter what you would put in there. The tissue just dies. And in that case, those -- we can add antibiotics all day long, but we're not going to prevent what's ultimately going to become something more like a gangrenous infection and the complications for those. And that's really just an unsolvable at least at this time, consequence of the base mastectomy. So does that help?

Thank you so much. And ladies and gentlemen, this concludes our Q&A session and our conference for today. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to Elutia Third Quarter 2025 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded.

Now it's my pleasure to turn the call over to Matt Steinberg, with FIN Partners. Please proceed.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended September 30, 2025. A copy of the press release is available on the company's website.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance, are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2024, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2025. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise.

Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's financial results release for the third quarter ended September 30, 2025, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com.

With that, I will turn the call over to Elutia's CEO, Randy Mills.

Thank you very much, Matt, and welcome one and all to our third quarter 2025 conference call. I'm excited to be here with you today. Matt Ferguson, our Chief Financial Officer, is also with us today on this call. We're going to be going over a couple of things. One is the basics of evolution, a couple of things that I think everyone should know about the company. We're going to talk -- I'm going to spend a lot of time talking about where we're headed and not just where we're headed, but why we're going where we're going. Matt is going to give us an update on finance and litigation status. And then lastly, we'll close and take your questions. So let's get into it with some of the basics.

So Elutia, we are a mission-based company. I think that's an important thing for investors to know. And I think that's a good thing, too, because we have a great mission. Our mission at Elutia is humanizing medicine so that patients can thrive without compromise. And today, we're going to talk a lot about breast reconstruction. And I hope that you can appreciate that our work in this space is so necessary because there's a patient population right now, women experiencing and making their way through their breast cancer journey who really are faced with a lot of compromise in their care and in their treatment, and that's holding them back from thriving. And we are applying our talents, our resources, our efforts and our mission to overcome that. So these women are able to thrive without compromise.

I think it's really important for a company to know what they're good at, what are their strengths. And at Elutia, we are really great at combining biological matrices with powerful antibiotics that create this sustained antibiotic release in implants that's able to prevent infectious complications from happening. We started in this with EluPro, our first antibiotic eluting product that we got on the market and really did a great job in the initial commercialization with. We sold that, as you guys know, to Boston Scientific for $88 million. And now we're taking that technology into NXT-41x, which is our next-generation matrix for breast reconstruction. So if you're new to the story, and I see there are a lot of new callers on the call today, three sort of things that are probably worth keeping in mind. One is this is a validated technology platform. What do I mean by that? Well, we've already done it. We've already developed the first FDA-approved drug-eluting bioenvelope for pacemakers, which we sold to Boston Scientific. Now there, we're talking about a much smaller market, so only a $600 million market with a much smaller unmet medical need. We're talking about infection rates on the order of about 3%. We're taking that same technology platform, and we're moving it into a much bigger market with this blockbuster 41x that we have coming. So it's the same technology platform, but applied to the $1.5 billion breast reconstruction market. And as you're going to see coming up, there, we're talking about an unmet medical need where women are facing postoperative infection rates between 15% to 20%. And then lastly, the company is now fully resourced. We have the right team in place. We have a state-of-the-art GMP manufacturing facility, and we have a commercial platform already in place with our SimpliDerm product that we already have and we're already distributing in this space. And then very importantly, we now have the cash to fund the company, not only through product development and product approval, but all the way through commercialization of this technology as well. So let's get into it and let's talk about where we're headed and more importantly, why we're headed there.

So why breast reconstruction? Why is breast reconstruction such a transformational opportunity for Elutia? Well, it's really the convergence of 3 factors that make this a very special opportunity for us. One, as I've mentioned, breast reconstruction is a large market, $1.5 billion market. But two, it's an unusual opportunity in that it's this large market that still has this really significant unmet medical need, postoperative infectious complications of 15% to 20%. Despite our best efforts in this for the last 30 or 40 years, we just haven't been able to crack this. And then lastly, our technology, our proven technology platform works in this space, and we're going to be able to solve this significant problem for these patients by applying our technology to this area. So let's go through these three different parts, right? Let's start with the large market. And I get out and I talk to a lot of different investors about this. I think this is actually one of the pieces of our story that most investors already appreciate.

The breast reconstruction market is a really big market. It's an addressable market of about $1.5 billion. Why? There's 162,000 breast reconstructions performed in the United States annually. These are brand-new 2024 numbers from ASPS that are out. Biological meshes are already used in 90% of these reconstruction cases. So there's not like there's a market here that has to be retrained on how to use a biological mesh. And in fact, not only are biological mesh is the dominant modality -- treatment modality in these cases, they're also incredibly expensive. So we're talking about per breast on the order of $9,000 a breast for the biological matrix alone. And if you look at that as the percentage of implant spend, right? So you take the permanent breast implant, you take the expander that has to go in there and you take the biological matrix, you put all that together, the biological mesh is 65% of the implant spend. Here's the problem. The outcomes are abysmal. Despite the high cost, the status quo here isn't addressing the problem. Now I want to be really clear. I'm not suggesting the biological matrices causing the problem. I'm not suggesting the implants are causing the problem. I'm certainly not suggesting that the surgeons are causing this problem, but they're not fixing the problem. And what we're left with here is 1 in 3 women that go through breast reconstruction suffer a serious complication after that reconstruction fully, 15% to 20% of that is driven by infectious complications. We're talking about serious postoperative infections coming out of this case. And we are probably understating this problem in this case. Ultimately, we're looking at up to 21% of the implants end up being lost. The procedure ends up being a failure and has to be abandoned. That, as you can imagine, leads to this very significant economic burden that the hospital faces. We're looking at $48,000, the average economic cost to the hospital of an infected breast reconstruction. So here's a real significant problem. So like I said, when I go out and I tell the story, I think people appreciate that the breast reconstruction market is large. I think they even appreciate that -- hey, I believe you guys are going to get this approved. You did a pretty good job with that with EluPro. You got that there. You seem like you know what you're doing. They struggle to believe that this problem could be this bad in this big of a market for so long, and they really want to know sort of why -- how could that be? Why is that? And so I want to explain to you why this is the case. So here we go.

So there are some very unique challenges that are presented by mastectomy. So in mastectomy, all of the breast tissue has to be removed, and this is done by the oncologic breast surgeon that comes in and it does the removal of the breast tissue. Why is this happening? This tissue has to come out because if any of it remains, then there is still a risk for breast cancer redeveloping in that woman. And then there needs to be further monitoring. There needs to be mammograms, right? So the whole purpose of having a mastectomy sort of goes out the window. And so the breast surgeon comes in here, and they're very aggressive with this removal, right? So they need to take out all of this breast tissue all the way to the margins of the skin, all the way down to the chest wall. The problem with that is, as you can see in this diagram here, is that the vasculature for the breast runs through this very tissue that all has to come out.

Again, the vasculature of the breast runs through the tissue that has to come out. And so what happens is when you remove this tissue from the breast, you have to tie off these vessels that get cut, right? And so when you tie off these vessels, then you basically create an area of hypoperfusion, right, where you don't have adequate amounts of blood flow. What's the consequence of that? Well, the consequence of that is, generally speaking, the way we deal with and the way we prevent postoperative infection is by antibiotic therapy. We can give the patient oral antibiotics or we can give the patient IV antibiotics. But the idea is that you give these patients antibiotics and they circulate all through the body. and go to the parts of the body that you're looking to protect and prevent infection. But when you remove the blood supply, you also remove the route in which systemic antibiotic therapy needs to reach the surgical pocket. So no blood supply means no antibiotic therapy can reach where it needs. And there's lots of studies that show this.

The plastic surgeons refer to postoperative antibiotic therapy often as voodoo. It makes everyone feel good that they're taking these antibiotics, but it does not prevent postoperative infection. And the reason why it doesn't prevent it is this very real anatomical challenge that's created. It also, by the way, if antibiotics can't get there because there's no blood, it also makes it for a real challenge for even the patient's own immune system to get there. And our natural cellular components of our immune system have a far more difficult time. So after we've done this procedure, we've done the mastectomy, now a plastic surgeon, this is a different surgeon now, a different surgeon and a different surgical team comes into the operating room to do the reconstruction of this area where they have this really thin skin. You have this pocket of tissue that doesn't have any vasculature. And now in there, they need to put an implant of some sort, either the permanent implant or oftentimes an expander. And then the other thing they'll also put in there is they'll put in surgical drains. And these are drains, if you've never seen them, these are literally plastic tubes that port directly to the outside and they allow excess fluid that normally would accumulate there to drain out of these spaces. And so you're adding this large foreign body and you're adding these drains that communicate with the outside and create a portal for contamination to enter.

Then lastly, there's a mesh, right? And this mesh then goes around this entire construct to hold the implant in place and to create a bit of a barrier between the skin and the implant. And the reason that's done is because the skin here that's left after this radical mastectomy is so thin that you need something. And so that's what -- that's what meshes are used for in these types of procedures. And this is all done in a surgical procedure that's taking somewhere on the order of 4 to 6 to 8 hours in order to do. So if you wanted to create the perfect recipe for postoperative infection, it would be difficult to come up with a better recipe than the one we have here in breast reconstruction. You have long surgical times, 4 to 6 hours, multiple different surgical teams, creating an ischemic area in the body, right, that is hypoperfuse, doesn't have as much blood flow as it would need. On top of that, you put a large foreign body and then just for good measure, you throw a drain in that ports directly to the outside.

So the question isn't how do we end up with postoperative infection rates of 15% to 20%. The question is, how is it not 100%? I mean it's almost miraculous that you could do this procedure and not have more infectious complication. And I think that actually is really a testament to the surgeons and the professionalism of the surgeons and the operating teams in this case because this is just almost the perfect storm for an infectious complication. But we think about this differently. We look at this and we say, what if we flip the script here? What if we turned things over? And instead of having those antibiotics delivered systemically and hoping some trickle into this avascular necrotic space, what if instead we delivered them locally. So what would happen in that case? Well, in that case, you would have local concentrations of antibiotic that were much higher, that were at therapeutic or even super therapeutic levels. And then just to boot, you would have systemic levels of antibiotic that were essentially indetectable.

So you would have antibiotic exactly where you needed it, being very effective at preventing infection and you would completely avoid side effects that can come along with prolonged antibiotic and antimicrobial use. And so this is the fundamental basis behind what we do at Elutia, this idea of drug-eluting biologics and local antibiotic delivery. And this is what we did with EluPro, and it worked very successfully there. And it's what we're doing here with 41x. And the good news is we're not alone here. It's not like we thought of this and like, hey, aren't we brilliant and I wonder and I hope this works. Really resourceful inventive, creative plastic surgeons out there who are doing the best they can for their surgeons have already been looking into this. And they've actually already demonstrated proof of concept. And what they've discovered is that local antibiotic delivery in breast reconstruction works. It effectively, it statistically significantly reduces postoperative infection.

Now the problem with it is they had to borrow techniques from orthopedic surgeons in order to pull this off. And there's just 2 different examples here. This first one on the left, these are PMMA plates, polymethyl methacrylate plates. Said differently, they are a place of cement, like a bone cement, hard, big rigid disks. And basically, what they do with these plates is they're able to mix this stuff up in the operating room. And while they're mixing it up, they'll mix in a powdered antibiotic into the aggregate and make that as part of this bone cement. And they will literally put this bony plate up into the breadth. Now the problem is not permanent, it's not absorbable. -- it deforms the rib cage. It's -- but you know what it does really effectively. It prevents postoperative infection. So decreased infection, this is a study with 360 patients, right? This decreased infection of about 62% from 12.6% to 4.8% p-value less than 0.01, really beautiful statistical data that shows that if you have local delivery of these antibiotics, that they will effectively address this postoperative computation. Another version of the same thing is instead of making a big disc, what happens if you made little ease out of it and sort of sprinkle them in there. And again, the same thing.

Now this was a case -- or this was a study that was -- if you're wondering why the infection rates are so high. This is actually looking at salvage cases where the patients were already being brought back to the operating room for tissue necrosis. Now normally, what would happen is that procedure, the implant procedure would just be considered a failure. Here, they wanted to see if they could salvage these cases. And so they tried with and without this local antibiotic delivery. And again, a 35% postoperative infection rate dropped to 6.3% postoperative infection rate. This is a 75-patient study, p-value 0.017. So highly statistically significant. The point of all of this is if you deliver local antibiotics, it doesn't just conceptually work, it works in practice. And so that is why we created NXT-41x. But we did it in a way that the plastic surgeons are excited about using. And so Dr. Williams and her team has made a beautiful biological matrix. It's one of the things we're really good at doing that's purpose-built for plastic and reconstructive surgery. And then on to that, they've added powerful antibiotics, rifampin and minocycline. And they've done this in a way where they formulated it so they have a greater than 30-day release of these antibiotics that's putting therapeutic levels of antibiotics into the space for greater than 30 days.

Why is this 30-day number so important? Because most drains come out by day 17. And so you want to make sure that once the portal is closed to the outside, that you still have antibiotic delivery going on and they're able to address infections. So this is NXT-41x. And that's the rationale why we came up with this. That's why it was so important for us to get EluPro done and commercialized and then ultimately, in the hands of Boston Scientific, who are going to knock the cover off the ball with that product. So we can move on and bring this product to market to the women who are going through breast cancer, who are battling breast cancer and so desperately need this technology.

Let's talk a little bit about the plan and how we're going to get there. Right now, we have SimpliDerm, which is our biological matrix that doesn't have any antibiotics. This is very analogous to those of you who remember, our CanGaroo product that we had on the market, before we introduced EluPro, just the biological matrix by itself. So that's our SimpliDerm product. And what it enables us to do, just like CanGaroo enabled us to do is build out our commercial infrastructure, our sales team, our contracting team, the teams that work with the value analysis or the VAC committee, build out that whole infrastructure, so it's up and functioning and ready to go when NXT-41 comes to market, right? Second step, and you'll see this in the second half of next year, you'll see the first step is approval of NXT-41. Now what we're doing here, NXT-41 is NXT without the antibiotics. So if you think about the X is Rx prescription, right? So the NXT-41 is just the base matrix. We're doing that for regulatory purposes. We want to get just the matrix cleared through the FDA before we add the combination of the drug to be able to separate a combination device drug review into its component parts. And then the last piece you'll see in the first half of '27 is the approval of NXT-41x.

Then lastly, before I turn the call over to Matt, just a little bit about what's going on inside the company and when we -- when we talk next about this, what I'll be providing updates, there are already three really essential work streams going on. Obviously, the most important one is the development. And we're looking for the development and approval of a highly differentiated product that significantly improves outcomes in plastic and reconstructive surgery, that is NXT-41. But alongside all of that is our manufacturing team that are building out this robust production platform that's able to achieve really, really significantly low cost of goods through our own proprietary in-house manufacturing process. We have this manufacturing facility in Gaithersburg, Maryland. If you're ever in the area, stop by, we'd love to give you a tour about it. But we have this really great facility and this really great team there that's building out this process that will enable us to produce this at a low cost of goods. And then lastly, the commercial team. The commercial team is working on SimpliDerm and doing a great job with SimpliDerm, but also building out the clinical advocacy and the commercial infrastructure that we need to have in place so that when 41x gets approved, we're able to do as good a job, if not a better job commercializing that product as we were able to do with EluPro. So that is what we're doing. That is why we're doing it and our plan in order to get from here to there.

With that, I'll turn the call over to Matt, and he'll tell you about our operations.

Okay. Thanks, Randy. And it's a very exciting time to be at Elutia and the future that Randy just described for everyone is really built on the great work that has been done over the past several years and the work that's been done more recently to build the foundation to make this future possible that we are also excited about. And so with that, I'm going to just take us back briefly to what Randy talked about at the very beginning of the call. And the big event for the third quarter of 2025, was the transaction of the sale of the bioennvelope business within Elutia to Boston Scientific. It was a sale for $88 million in cash, sold to a Tier 1 company that really put us through our paces digging under the covers, not just for the assets that they were acquiring, but really the whole company. And we came through that process very nicely with the technology and the company validated for work that had been going on really for years. So that transaction validates the technology platform that will be transformed in the coming quarters into NXT-41 and 41x and capture this big opportunity. And it also transforms our balance sheet importantly. And so it brings in a significant amount of cash and then it also streamlines our operations.

So going forward, we'll be more nimble and we'll be more efficient and will be more productive. So the assets that were sold were the EluPro and CanGaroo products, along with that, our main operational facility within Roswell, Georgia that also went with the transaction. About half of the people in the company also went with that transaction. So that is going to make a big difference in our operating expense going forward and also should lead to improved bottom lines for the company. The transaction was announced in early September, but it didn't close until Q4, but it actually closed on the first day of Q4. So while the financial results, the balance sheet that we show as of the end of the quarter doesn't yet reflect the infusion of cash and the other associated payoff of debt and that sort of thing that occurred with the transaction, that happened just the day after the end of the quarter, and we'll talk a little bit more about that in a second.

So from a financial point of view, when you look at our financials going forward, the business of the Bioennvelope division, that will now be shown just as a single line in discontinued operations. So starting with Q3 this quarter, we are no longer reporting on the sales and expenses associated with that part of the business, except in that one line, which is below our operating line at this point. So just moving forward, talking a little bit about the results for the quarter of the continuing operations, really breaks down into our 2 other product lines that are commercial right now, that's SimpliDerm and cardiovascular. SimpliDerm, we saw a nice uptick from the prior quarter in revenue. We generated $2.4 million of revenue, which was up about 18% from Q2 of this year. It was down, granted from a year ago, but there are a variety of factors that caused that over time. A lot of it, we believe, had to do with the contributions from the distribution partner that we've had over time. And I can say that we've actually now ended that relationship as of October, and we now have full control over that product line, and it is unencumbered from a strategic point of view. But just as important, we now have full operational control over it.

As we rebuild the commercial footprint associated with that part of the business, it will do a couple of things. One, it will lead to renewed growth of that part of the business, but we'll also very importantly, lay the groundwork, which Randy talked about a little bit for the products, NXT-41, NXT-41x, which are sold into the same customer base and into the same types of procedures that SimpliDerm is sold into. So you can think of it a little bit similar to what we did with EluPro, where we had the CanGaroo product before we had the EluPro drug-eluting version of the product. Having that sales organization and commercial footprint for CanGaroo really allowed us to hit the ground running. And by the time that we were 3 quarters into our launch, we had ramped up to about an $18 million run rate with EluPro, and we think we can likely do even better when we have NXT-41 on the market.

Moving on to cardiovascular. That also had a nice quarter, again, with the theme of us regaining control over the product completely. We returned to full operational control of that product after having a distribution partner there as well in the second quarter. And in May, we started selling that directly ourselves, and we generated in the third quarter, the first full quarter where we had only direct sales, we generated just a little under $1.9 million of sales with that. And that actually compares to both the prior year and the prior quarter quite nicely. It was up 68% from the prior year, up 28% sequentially. So we're doing nicely there. That product also has very high gross margin. So the more we sell there, the more it drops to our bottom line and funds the really strategic opportunities that we have in front of us.

Moving on to a few other financial highlights in our statement of operations. Overall sales were $3.3 million, comprised of those 2 product lines that I just talked through compared to $3.6 million from a year ago quarter. The GAAP gross margin was 55.8% versus about 49% a year ago. So we've seen a nice uptick in our gross margin. There, again, we're actually benefiting from the margin profile of these products that we're now selling compared to the full portfolio that we had previously. And I think we'll see continued gains there.

Our adjusted gross margin, which excludes noncash amortization expense, that was even better at about 64% versus 56% in the year ago quarter. And then also, we saw improvements both from an operating expense point of view and a loss from operations perspective. So we were at $7.1 million in overall operating expense, down from $11 million a year ago, and our loss from operations was $5.2 million versus about $9 million a year ago. All of that nets out to what was probably a more important metric when you back out the noncash items and nonrecurring items, our adjusted EBITDA was $2.7 -- adjusted EBITDA loss for the quarter was $2.7 million, and I think that's a pretty good indication of where we expect to be in the near future.

From a balance sheet perspective, again, as I mentioned, the transaction had not closed yet by the end of the quarter. So we ended the quarter with $4.7 million in cash. But again, 1 day later, we closed the transaction that resulted in $80 million coming in at closing, $8 million in escrow and interest-bearing escrow account that we'll receive in 2026. That $80 million was then deployed to pay off about $28 million of debt. And then after paying off deal expenses and the like, we ended up with about $49 million of actual cash that came into our account in early October. That puts us in a great position as we move forward and think about our development plans going ahead. So we believe that gives us the runway to get us completely through the development and approval of NXT-41 and NXT-41x and the actual commercial launch of those products out in 2026 and 2027.

Then finally, for people who've been watching the company for some time, you know that we have been working very diligently to put behind us some legacy litigation from a part of the company that we sold off a couple of years ago. That's generally referred to as the FiberCel litigation. I can report there that we were able to resolve another 7 of those cases in the quarter. And now when we started with 110 of those cases, we're now down to only 6 remaining. So I can say we are very, very close to putting that completely in the rearview mirror for us. We're very glad to have that almost behind us. And from a financial point of view, it's a relatively small number that those remaining 6 cases account for. The estimated liability of those is less than $1 million at about $700,000.

So with those highlights, just before we take your questions, I would say, if you think about it from a big picture, why as an investor, would you own Elutia? Well, it goes back to the opportunity really that we've been talking about here for the last half hour or so. We like to say that it's a biotech-like upside with the risk profile and time line of med tech. So it's something that is very unique in the marketplace. We have a validated technology platform that physicians will adopt and that strategic will value. We have a derisked path to be first-in-class in a $1.5 billion market with a significant unmet medical need. And we have the team and the capital to get there without dilution.

So with that, we'll take your questions.

[Operator Instructions] It's from Frank Takkinen with Lake Street Capital Markets.

This is Nelson Cox on the line for Frank. Congrats on all the progress. It's exciting to see the story developing. You walked through it during the prepared remarks, but maybe just to go a little deeper, maybe walk through some of the learnings with EluPro from a development to approval to commercial rollout perspective. Just want to give you a chance to maybe dive into that a bit more and any learnings that will translate to NXT.

Yes. Thanks, Nelson. So first, I would say the team is everything. And that goes to development, FDA approval and commercial rollout as well. The team is really everything here. And so with EluPro, we actually had a submission of EluPro that was put in actually before my time coming back into the company. And we got some comments back from the -- we got a lot of comments back from the FDA about that. And that led actually to us getting an NSC on that. But through that nonsubstantial equivalence process, I brought in Michelle Williams, who you guys know I've worked with for 21 years now. And I would say best Chief Scientific Officer in the business for these kinds of things. And she was able to really not just respond to the NSC, but also learn from it and develop our own intellectual property around it on not just delivery methods for local antibiotic delivery, but also around testing methods and how you prove it and how you demonstrate it to the FDA. And in doing so, develop a really good relationship with the agency, giving them not just barely enough information to feel comfortable with the submission and the clearance, but actually making them feel really confident that we've made a real quality product here.

So I would say that is probably the single most important thing from a development standpoint that we learned. Commercially, what we learned was it is really good to have some commercial infrastructure in place. EluPro, by the time we sold EluPro to Boston Scientific, it was running at an $18 million run rate; 9 months in, I mean, that thing shot out of a canon. And that was because we had a commercial team in place. They had a great VAC package that, again, Michelle Williams and her team had helped put together. But we also had the commercial infrastructure and the contracting in place, and we knew how to do that. And so CanGaroo helped EluPro, and we think in the same way, SimpliDerm is going to help 41x when we get out there. So I think those are 2 things that come to mind.

Then maybe just running off of that, SimpliDerm obviously gives you a big commercial presence like you're talking about ahead of NXT. Can you just frame that a bit more for us and how you plan to leverage those already existing relationships.

Yes. So we're talking about -- when we have SimpliDerm, right, we're talking about biological mesh that's used in the same surgical procedures. It's used by exactly the same surgeons in pretty much exactly the same way we expect NXT-41x to get used, right? So we're not talking about requiring the surgeons to do anything different from their current practice. It's one of the reasons that we just -- we really love -- we love this approach. All of it's already in place. They're already doing it. The problem they have is despite their best efforts, they're left with this postoperative complication rate. And so our plans with SimpliDerm is to just keep using that product to have this direct customer interaction that we have. Nobody between us. As Matt said, we now have full control back of our SimpliDerm product line. We go out and meet directly with the plastic and reconstructive surgeons. We talk with them about how SimpliDerm is going and their problems and how we can be helpful and how we can have them get better outcomes. And then obviously, just from a commercial infrastructure standpoint, our contracting teams and our commercial teams from a customer service and distribution, all that stuff is in place and ready to go, and we'll keep building on it, right?

So we think about this coming year, not in any way as an idle year for our commercial team, but it's actually one where they're going to be active as hell going out there and continuing to expand this in just the same ways that we did with CanGaroo before the launch of EluPro. Every seed we planted there ended up being very, very valuable for the launch of that product. And we learned that lesson. And so that's what we're going to do with SimpliDerm.

Maybe just sneak one more in. How are you thinking about kind of clinical evidence and data generation with NXT? Do you envision kind of needing to invest there significantly to drive education and adoption?

So through the combination 510(k) pathway, as you know, we actually don't have a requirement for clinical data for the approval process. Now we are a science-based company. We do really exceptional quality work, and we stand behind it. When we launched EluPro, we had no requirement for clinical data. But very quickly, we were able to put together, as part of our VAC package and as part of our marketing package, a complete story that made the implanting surgeons not just comfortable but enthusiastic about putting EluPro, and that worked really, really well. Well, we're doing the same thing here. And so preclinically, there is a tremendous amount of evidence that the team is building from things like pharmacokinetics, how long the antibiotics are there, the concentrations that they hang around in surgical sites from a preclinical efficacy standpoint. One of the things you can't do with patients is you can't go back into them a month after the product has been implanted and infuse them or inject them with large amounts of pathogenic bacteria. But we can do that in the preclinical setting with animal models and demonstrate like we did with EluPro that we're able to get complete kill even at 4 weeks out. But once the product, Nelson, comes to market, one, we don't think -- we know there's strong demand for this product now from the interactions that we have from the relationships that we have now, just the same way EluPro.

There is a first wave of users that are ready to be done with putting cement into breasts in order to fix this problem and have a professionally built and constructed a product that fits in with their practice and they'll adopt right away. But we're not leaving it there. We're running clinical programs on these so that we generate conclusive data. Our goal here isn't to take significant market share. Our goal here is to flip the entire market so that women have much, much better outcomes than they currently do. The current standard of practice is not okay to leave the way it is. It needs to get better. And we know we'll have to generate clinical data to get all of that done, but that is our goal, all of it.

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

This is Matt Park on for Ross today. So I guess starting off with 41 and 41x. Can you just go back to any manufacturing plans you need to do ahead of time to -- I guess, like are there any validation steps needed to ensure a smooth transition from SimpliDerm to 41 and then to 41x?

Great question, Matt. So to be really clear, where we manufacture 41, 41x is a completely different facility than we manufacture SimpliDerm. SimpliDerm is a human-derived product. It has a host of regulations associated with it because human-derived products can carry human pathogens with them. And so we keep those 2 things completely separate in completely separate facilities. So the facility where we're manufacturing 41 and 41x is a GMP facility. We were really, really lucky here. You might say we were beneficiaries of the GLP-1 boon that occurred in that we were able to get a space, a great GMP space that was already built out and ready to go from a company that was acquired by Novo Nordisk. And because of that, we were able to get it at really great prices. But most importantly, it was this really high-quality facility that was ready to go looking for somebody to manufacture something in it.

So we're really pleased with that facility. There's all kinds of tech transfer and process qualification, equipment qualification that goes on when you bring up a manufacturing process. We have all of -- our teams there have a schedule for all of 2026. They're running through that process right now and are underway. We don't anticipate manufacturing will hold back or be the rate limiting factor in anything that we're doing here. And by the way, facility-wise, this is all done out of our new facility in Gaithersburg, Maryland.

Maybe just one more on the cardiovascular business. Now that you've transitioned it back in-house, I guess, how should we think about the current run rate and the sustainability of growth from here?

Yes, Matt. So we've been really pleased with the bounce back that we've seen now that we've been able to devote some more attention and some direct resources to that part of the business. That is not the future of the company by any means, but it's a great little business that has a pretty significant market out there and great gross margins and some really committed physicians out there that are using the products. And so we're basically back at the $1 million a quarter revenue level. And I think there's some growth that we can achieve from there. But it's not going to be a rocket ship. It's going to be steady growth, but we're also not having to invest money upfront in order to achieve that. We've got really an exclusively contract sales organization that's out there. So it's completely variable expense. And with the high gross margins over 80% that we've been achieving there, it -- a significant amount of the revenue that we generate actually drops to the bottom line. So that's in general, how I would think about the product there -- the product and the future trajectory there.

Got it. Thanks again for taking the questions and congrats on progress.

As I see no further questions in the queue, I will conclude the Q&A session and conference for today. Thank you all for participating. You may now disconnect.

Good afternoon, ladies and gentlemen. Welcome to Elutia's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Matt Steinberg with Finn Partners. Thank you. You may begin.

Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended June 30, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings within the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2024, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC.

The conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 14, 2025. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Also, during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available in the company's financial results release for the second quarter ended June 30, 2025, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com.

And with that, I will turn the call over to Elutia's CEO, Randy Mills.

Thank you, Matt, and welcome one and all to our second quarter 2025 earnings call. Let me start with a rundown of today's topics. And first and foremost, I want to provide some color on the success we continue to have with our EluPro launch and the commercial success we continue to have there. Then I'm going to switch gears and I'm going to talk a little bit about the tremendous work our development teams are doing in the reconstruction pipeline that we have underway. I'm then going to turn it over to Matt, who's going to provide an update, which we have some pretty significant updates on the litigation front. And then lastly, Matt will also do, as he always does, a rundown of our financial progress. Lastly, as I indicated in the press release, on the business development front, we have a number of strategic opportunities that we're sort of in the middle of that we're driving towards conclusion, and we anticipate having more to say on those in the near future here.

But let's just jump right in with a review of EluPro's first year and what a year it was. On the commercial side, 49% sequential growth this quarter over last quarter built on the back of 7 national GPO contracts that the team has secured. As we've said all along, the key to revenue growth has to do with the number of hospital systems we can get into. We're currently at 161 hospital systems actively ordering. And then lastly, a lot of this growth has been facilitated by the tremendous partnership that we've developed with our friends at Boston Scientific. But it's great commercial success that has been built really on a great scientific foundation that we have at Elutia. Our drug-eluting technology, particularly our biologics drug-eluting technology, we think, is the best in the world. In this first year, I think we've done a good job of validating that.

Five peer-reviewed publications in the first year alone, validating not just the product, but the base technology. We won the Edison Award. I got to actually go and receive at what I would call the Nerd Oscars for Innovation in Medical Technology; 2 Medical Device Network Excellence Awards, one for product innovation, which isn't a surprise; another for product launch, really combining what the 2 teams working together are able to accomplish. And then lastly, our Innovator in Chief, Dr. Michelle Williams, won Medical Device Innovator of the Year award, and we think that was certainly well deserved.

Okay. Turning to the scoreboard. Really, the numbers say it all. First half performance. BioEnvelope revenue for the quarter up 33% year-over-year. That puts us at about a $14 million run rate. Now why is that? Well, that's really being driven by EluPro growth, almost exclusively by EluPro growth, up 49% sequentially for the quarter. EluPro now makes up 68% of our BioEnvelope revenue, and it continues to grow. Why is that? Well, that's all driven by our VAC approvals. So we now have over 160 hospitals that we've gotten through the VAC process. When we say through the VAC process, we don't just mean on contract and able to order. We don't actually count these hospitals until they are actively ordering and we are shipping them the product. So that breaks down sort of at a high level what's going on with the product.

Let's get in a little drive a little bit more detail here. So looking at the revenue, it's kind of amazing. We sold the first unit of EluPro last September, and we experienced some very modest revenue recognition in the third quarter of 2024. But since then, this product has been on a tear. You can see the quarterly growth continues. We now expect to end the year at a revenue rate approaching $20 million, and that really is due to the tremendous work the commercial team is doing. Dig in here and see what's really going on, though, it's really driven by our sales per account. So as we said before, if we can get on contract with the hospital, what we're seeing is 130% higher revenue in those accounts for EluPro than we're seeing with CanGaroo, and this is reflecting greater utilization of the product. CanGaroo is a great biologic envelope. It was able to hold the pacemaker in place, keep it stable, prevent erosion from taking place and migration from taking place, and ultimately a fibrotic capsule forming. But if you add the powerful protection of rifampin and minocycline, you really get the full benefit of a drug-eluting biologic. And that's why we're seeing this 130% higher utilization rate with EluPro. than with CanGaroo. We couldn't do this not only without our own direct sales team, which is doing a great job, but also with our 1099 distributor network, which is now making up about 33% of our total sales, enabling us to very efficiently move across the country and gain new territories, but also with our partnership with Boston Scientific. Now Boston actively involved in EluPro sales in 98 distinct hospitals ordering. They are currently facilitating and participating in about 30% of EluPro cases.

So if you just start -- just do the math and you extrapolate this out, we're targeting something along the lines of 1,600 or so hospital centers that would ultimately use EluPro that are active implanters of pacemakers. That, if it just scales the way it's going, makes this $150 million product in just the U.S., in just pacemakers alone, and we think the neuro market is at least as big of an opportunity for us there. So from a revenue standpoint, really strong work so far. Again, we've said all along, if you want to know what our revenue is going to do, look at what our VAC approvals are doing. And here, this just shows the great work of our team continuing to grind out those approvals. 161 institutions, you can see there the monthly progress we're making. We add somewhere between 12 to 15 new institutions a month. We have something along the lines of 90 submissions in progress, and we have about a 95% success rate. So when we submit to a VAC, we have a very, very strong likelihood of gaining approval. Facilitating that great work with the VACs is the work we've done with our GPO contracts. And so, we are on contract now with 7 major GPOs, including Premier, S3P, Advantus, and we have several others in the work and believe we will be reporting on a few more successes there as the year concludes as we get through the second half. So all in all, what an incredible first year for EluPro. And I want to thank the entire Elutia crew. It really was a team effort from science to operations to commercial, everybody working together the way our culture says that we should.

Okay. EluPro is a tremendous amount of fun and it's a great commercial success, but we are just getting started. Our mission is to humanize medicine so that patients can thrive without compromise, and there is no bigger need than in the breast reconstruction space. This year alone, 317,000 women will be told that they have an invasive form of breast cancer. Many of those are going to go on and require mastectomies and need reconstruction and a staggering 1 in 3 women going through breast reconstruction are going to suffer serious complications from that reconstruction procedure. And that is something we can fix, and that is something that we have resolved to change.

Taking a look at the breast reconstruction market. It is a very big market, and it is a very big market that already has a dominance of biologics in it. So biologics represents a $1.5 billion addressable market in the U.S. alone and biologics accounts for 65% of the device-related spend in reconstruction. Breaking down the numbers, there are 151,000 mastectomies annually in the United States. 2/3 of those involve bilateral procedures. That generates somewhere between 200,000 to-225,000 individual breasts that are being reconstructed. Biologics account for 80% of the reconstruction cases at a cost of somewhere between $7,500 and $9,500 per case. Therefore, biologics are about 65% of the implant-related costs, but they do not address the primary cause of implant failure. So this is a market where we see biologics as the standard of care and that standard of care is currently failing.

Despite the high costs, biologics alone don't address the problem. And these numbers don't lie. As I said, 1 in 3 women going through the breast reconstruction procedure suffer a serious complication. Why is this? It's driven almost exclusively by persistent bacterial contamination. So 10% to 14% of women will experience a significant infection. 19% to 29% will suffer capsular contracture, which is most often a direct result of the inflammatory process from colonization of bacteria, and up to 21% of women will actually have an implant loss. And there's significant and very real economic costs associated with these 2. We're looking at almost $50,000 in economic burden to the hospital, which because it's a postoperative infection, the hospital must bear alone. These are not insured costs. So if you think about this, and just about everyone I know knows a woman going through a procedure like this, you've been diagnosed with breast cancer, horrible news; you have the courage to go and face a mastectomy, radiation oftentimes, very frequently, chemotherapy. And instead, what do you face? You face multiple surgeries, delays in your underlying cancer treatment, and the pain and suffering of a failed reconstructive procedure. This is something that the drug-eluting biologic technology that we've developed was made to fix.

You might be wondering, so how bad is it? Well, how is this for bad company? Breast reconstruction ranks among the riskiest procedures in medicine despite being performed over 150,000 times a year. It falls just between major limb amputation and colorectal resection with an ostomy for serious complications. So it's not really surprising that women, when faced with the option for breast reconstruction, 60% of women opt to not have their breast reconstruction. Friends, this is a market that needs a revolution, and that is exactly what Elutia is bringing to the table. We have built on our award-winning technology from EluPro to bring you what's next. NXT-41X is a fully engineered next-generation biological matrix that brings both the handling and the biological remodeling of a biologic matrix. But to that, we've added powerful antibiotics with sustained antibiotic release to prevent infection that is associated with these types of procedures. Our team have been hard at work on this for the past 3 years, and we are in a position now to where it's actually just around the corner.

So we've been hard at work leveraging our proven development experience, both from a technological standpoint as well as a regulatory standpoint, to rapidly gain market access. And so as you guys know, we've submitted and gotten approval for EluPro, but we haven't talked about, we spent a tremendous amount of time during those last 3 years developing and perfecting a great base biological matrix and our development of that matrix is complete. Our animal data supporting the use of that matrix is complete. We have already held presubmission meetings with the Food and Drug Administration, and our teams are now preparing submissions for approval. So we anticipate having the NXT-41 base matrix approved now and launching in the second half of 2026 and the antibiotic matrix in the first half of 27. We will obviously be providing more detail on this in the coming months, but I wanted to give you a good sense of not just where we are in the development program, but more importantly, why the NXT-41 program for breast reconstruction has been so high on the development team's priority list for the last 3 years.

With that, I will conclude my comments and turn the call over to Matt, who will discuss where we are from a litigation standpoint and then do his financial review.

Okay. Thank you, Randy. So first off, the litigation update, which is a new section for our conference calls, but it's not a new situation that we have been working on here. As a little bit of background, this stems from a product recall that we had over 4 years ago, and it was in a part of the company that we actually sold 2 years ago. So it really relates to history of the company as opposed to anything that we're doing right now. But what we have been left with based on that product recall is quite a large number of lawsuits, and many of you are aware of that already. But we had 110 individual lawsuits that stemmed from this event in the long ago. It has been a really a substantial weight on the company both from a value point of view and from a personal point of view. And I'm glad to say that we are now very close to the end of that process. We've made really substantial progress recently, and it has been a real focus for a small number of people in the company for some time.

So what has happened? We've really started making a concerted effort at least a couple of quarters ago to get these cases behind us, to get them all settled. And just in the last quarter, we settled 27 of these cases, and cumulatively now we've settled 97 out of that original 110. And with the remaining 13 cases, they -- on an individual basis, they should actually be easier to settle than much of what we've had to deal with over the last few years and even in the last quarter. No single trial attorney is handling more than 3 of those. So in a lot of ways, that actually makes it a little bit easier for us to deal with them one by one. The implications of this for the company are -- there are 2 big ones: one is that it substantially reduces the expense that we incur going forward; and then the other one is that it really removes an overhang that made it very difficult. And we've been talking to other companies about any kind of strategic transaction. And I think we have really addressed their concerns now. And like I said, I think we're very close to putting this entirely behind us.

So with that, I will move on to the financial update. And there, it really integrates very directly with everything that Randy talked about. I won't go through all of the bullet points on this page, but just hitting a few highlights. Really at the top of the list is the performance of EluPro. We saw 49% growth on a sequential basis for EluPro from Q1 of this year to Q2 of this year. That drove really substantial growth even in the overall BioEnvelope business, even though a fair amount of that business is still CanGaroo. So we saw $3.5 million in sales in the BioEnvelope business versus $2.6 million from a year ago. And as Randy indicated, we expect that growth to continue. We expect more and more accounts to convert over to EluPro and to bring on new accounts based on having this really exciting product in our portfolio right now.

Just touching briefly on our other 2 main product areas in the cardiovascular patch products. We took control back of those products from an exclusive distributor last quarter in Q2. We only had them for a portion of the quarter. But even just in that portion of the quarter, we were able to generate over $700,000 of revenue from those products, and that's more than double what we were able to do through the distributor just the quarter before, and we expect to also see continued growth there. And then for SimpliDerm, which is a product with a lot of opportunity, we didn't do as well last quarter. And we generated $2 million of revenue there versus what we had done previously, which was higher. I do believe that there are multiple ways that we can generate value from that franchise, whether it's by driving additional sales or by partnering with another company in order to bring value to our shareholders. So overall, those 3 things add up to sales of $6.3 million for the quarter, which we expect to see growing going forward. That was essentially comparable to what we did in the year ago quarter.

The other areas I'd like to touch on are gross margin, where we're seeing really nice efficiency in terms of our operations, and we saw a substantial improvement in our adjusted gross margin, reaching 62.4% for Q2, up about 4 full percentage points or more than 4 full percentage points from a year ago. And we're seeing that largely based on the efficiency that we're getting in the BioEnvelope business as we start to scale that up a little bit more. And then also with the really high margins that we generate in cardiovascular, those gross margins are actually over 80% for that business. And that does a nice job of dropping money towards our bottom line. So on a bottom line basis, there are different ways of looking at it, whether it's an operating or net or an EBITDA basis. Really, I think the most instructive metric is adjusted EBITDA here, which takes out the nonrecurring and noncash expenses. There, we had a $3.8 million loss for the quarter. But when I think about that for where the company is, with a really high-growth top line franchise in the form of EluPro, and then also with the product development investments that we've been making, which are going to yield really exciting results in the near future, I'm actually really pleased with the efficiency that we're seeing there and the ability to move this company towards profitability.

And then lastly, I'd just mention that we ended Q2 with $8.5 million of cash. And I think the important thing to mention there is that we do have a number of business development transactions that we are evaluating, and we won't say too much more about that here, but we do expect to be able to say more in the very near future, and we do expect those to have an impact in a very positive way on our cash position.

With that, I will turn it back to Randy.

Thank you, Matt. Okay. So let's just conclude the call here with providing you some guidance and clarity on where it is we are going as a company. It's probably not going to come as a surprise to anyone to find out that a lot of our focus is dedicated exactly where it should be to EluPro. EluPro is now at the stage where it's about scaling. We know exactly how to grow revenue in EluPro. It's simply to get more VACs on contract. So we are going to continue to scale revenue in EluPro by expanding the number of VACs and GPO coverage that we have. We're going to be leveraging both the momentum that we've developed with our own direct sales channel as well as our partners at Boston Scientific to help drive this process. And those 2 things really shouldn't come as a surprise to anyone.

Third, we're going to continue to increase the production capacity and continue to lower COGS. We've already seen a tremendous job being done in our gross margin by our operations team. And as we like to say, that product doesn't make itself. The team in Roswell, Georgia does a phenomenal job growing with this product and continuing to meet product orders, and we're incredibly proud of the work that they do. So you can expect to see more of that going on.

Fourth, you've heard about it now. Our NXT-41 platform is now just about here. It is proven technology, drug-eluting biologics technology through a proven regulatory pathway, going into a much bigger market, with a much bigger unmet medical need. And we are really excited to not just bring that to market from a business standpoint, but also when you're in this business, being able to develop a product like that for people and for an indication where there is such an outstanding medical need, we are not only excited, but we are passionately pursuing that and driving that forward at full speed. And then lastly, as Matt said and as I said at the beginning of my comments, we are working on a number of strategic opportunities and expect to drive one or more of those to conclusion in the relatively near future, and we'll have more on that when developments warrant.

With that, I will conclude my comments and turn the call over to the operator for your questions.

[Operator Instructions] Our first question is from Frank Takkinen with Lake Street Capital Markets.

Congrats on all the exciting progress. I wanted to start first with one on EluPro. Obviously, you've had very strong market receptivity. And just curious, obviously, when a product is launching as quickly and successfully as EluPro has, there's always bottlenecks along the way. So just curious what those bottlenecks are, whether that's still VACs and just the process there and the variability of timing, inventory or anything like that and anything you need to address to continue this growth trajectory.

Yes. Thanks, Frank. So bottlenecks, I would say at first, the commercial team really did give the operations team a run for their money. There were some people sweating being able to keep up with production as we first got that started. But they have done that. They have really mastered that. You're starting to see that efficiency show up in the gross margin. Like any good company, we don't like to build crazy amounts of inventory. But we have the inventory in place there to be able to have 100% service level. That's our goal, deliver exactly what the customer wants, exactly when the customer expects to receive it. And they've done a great job there. I wish it were more exciting than -- and maybe I don't wish it was more exciting than the opportunity that we see. But really, it's about scaling VACs. The ordering is now so predictable. When we turn a hospital on, they order and they're ordering at this really significant rate over what they -- 130% of what they were ordering CanGaroo at a good account for us, will do some -- we expect actually just an average account for us to do about $100,000 a year. So those accounts are just scaling. So as we get through the VAC process, revenues scale. So I don't know if you call it a bottleneck or just the work we have to do, but we have 160 VACs through approval right now. It's kind of interesting, it lines up. We have 1,600 centers that we are targeting in total. It takes us, on average, about 6 months to do that. We always keep a really strong number of those accounts in the pipeline. Like I said, I think right now, we happen to have 90 because actually we had a lot of pull-through, but we add new filings every day, and our partners at Boston Scientific are being tremendously helpful in opening up those new doors. They certainly have accounts that they have high interest and high need. And so it's not really much of a mystery anymore, what drives the revenue with EluPro. It really is if we get through the VAC, we're seeing the ordering just scale.

Great. That's good color. Maybe one on the NXT-41, exciting to hear that advancing along. First, maybe just a little clarification and help us understand the 2-step process. I think we read in the press release that the first one is expected second half of '26 and then the drug-eluting version in the first half of '27. So some additional background there would be interesting to understand. And then just a clarification. Is there any linkage to NXT-41 to SimpliDerm as you think about business development activities?

Sure. So the first centers around regulatory strategy, right? And you know Dr. Williams, she doesn't just deliver great science, she also knows that the product won't help people until it can get through the FDA. And we are taking what you might call a conservative or a derisked approach by uncoupling the regulatory clearances of: first, the matrix by itself; and then the matrix with the antibiotic attached to it. And so the first approval that you'll see is the matrix by itself. This is not a derivative of SimpliDerm. This is a brand new matrix for a lot of different reasons. We went with what we call a fully engineered matrix. And so this is a -- it starts with a porcine extracellular matrix base that we treat with a number of different procedures that chemical and enzymatic that Michelle and her team have developed. We optimized it not just for handling, but we also optimized it for incorporation.

And because this is an engineered matrix, what we were looking to do there, Frank, was one of the [ knocks ] on sort of biologics and particularly human tissue that's used in biologics is the donor-to-donor variability. And we wanted to take that out. We wanted to make a base matrix where the physician would say, I know exactly how this thing is going to perform. And I know this base matrix is engineered in such a way to where it's going to incorporate biologically in an absolutely optimal state. And so that's what we did with that base matrix. And so you'll see that come on the market in the second half of '26 now. And then shortly after that, the antibiotic delivery version attached and that we've been able to develop really, we think, the expertise from the process with EluPro and what the FDA wants to see from a drug-eluting standpoint. We are using the same drugs, different delivery system, but we really actually love rifampin and minocycline in this space. We'll have more to talk about that. But we actually have some really powerful, not just antimicrobial effects, but actually pro-regenerative effects that we've been able to prove out in the lab with that. So we're really excited about that.

And then your second question centered around how this is related to SimpliDerm. This is going into the same markets as SimpliDerm is, obviously using a biologic mesh in breast reconstruction, but we think really with a second-generation sort of technology. And so what we like about having SimpliDerm is we have our key accounts, we have our KOLs established these great surgeon relationships. And SimpliDerm is, as we say, simply a great product. Physicians love SimpliDerm. We think it is the best biologic on the market today. But ultimately where we're going is we think that NXT-41 really gives a more complete solution than any human-derived matrix could give.

Perfect. Helpful. And then maybe just one last one, and I'm guessing you can't say too much on it, but related to the comments of very soon when we should hear some business development commentary, would you characterize very soon as weeks, months, or quarters?

Nothing's done, Frank, until it's done. And so I would expect it to be in weeks, months, or quarters in one of those. It's just one of those things. It's like it reminds me of that Billy Crystal line in Princess Bride, you rush miracles, you get lousy miracles. Well, you rush business development, you get lousy business development. And so we have a number of transactions that we're contemplating right now. We would expect at least one of them to come to fruition, but nothing's done until it's done. So I don't want to really provide any more time frame on that because I don't want to have to negotiate against ourselves with regards to time. And if I set an unrealistic expectation, really, it's only us that would bear the consequence of that.

Our next question is from Ross Osborn with Cantor Fitzgerald.

This is Matt Park on for Ross today. I guess just starting with gross margins, that was a good step up this quarter with cardiovascular coming back in the mix. As we think about the path forward, how should we frame your ability to not just maintain but potentially expand gross margins from here?

Matt, it's Matt Ferguson. Good to talk to you again. I think I got your whole question. I know it's centered around gross margin and opportunities for growth in the future. And I would say, absolutely opportunities across really all segments of our business to improve gross margin going forward. Certainly, in the case of EluPro, we've got a lot of scaling that we're doing, and we will see the benefits of that over time. And I think you'll see them as pretty substantial and significant, and they shouldn't take too long. In the case of cardiovascular, that's a little more straightforward. We're now selling at a higher gross margin. I mentioned that in the prepared remarks that that's over 80%. So the more we can grow that business, and I think there's a lot of opportunity there, that will contribute positively to the overall gross margin. And in the case of SimpliDerm, there are some things that we can do there to improve efficiency as well. So I think there are opportunities there as well. Probably a little less so than the other two, but substantial nonetheless. Did I get your entire question there? Or was there another part?

Yes, that was great. And then I guess just moving on to NXT-41X. This may have been answered already on the call, but can you just walk us through what level of clinical evidence or study design you believe is needed to support FDA approval for both the base matrix as well as the drug-eluting version?

Yes. So we are taking both the base matrix and the antibiotic delivery matrix through the same regulatory platform that we took EluPro through. And so from a regulatory standpoint, we will be able to do that with exactly the same playbook that we used for EluPro, with the exception of there are -- when you get into surgical meshes for different things, there are different specific requirements for those that the team will be following the well-established standards on. From a clinical standpoint, one of the reasons that we're staggering the launch of the base matrix is actually so we can go and generate the clinical data, not from a regulatory standpoint, but actually from a marketing standpoint because we're looking to win this thing not in the short term, but actually in the long term. We think 41X has the opportunity -- we actually think will be by far the first antibiotic-eluting matrix to market. But we care about the matrix that it's on. And so not to overly pick on TYRX, but we're not looking to just rush first with a synthetic or a plastic matrix, but here really a proven biologics matrix, which the surgeons have gotten used to and frankly, expect, and they should expect a great biologics matrix, and then prove that and then add to that the drug-eluting component. But from a regulatory standpoint, it's actually pretty -- I say pretty straightforward, and I know our regulatory team would laugh at me for that, but a pretty straightforward combination development pathway that involves the Center for Devices and Radiological Health, combined with the Center for Drugs. You put all that together and you have the same pathway that we got EluPro through, and we feel pretty confident we'll be able to do that expeditiously with 41X.

There are no further questions at this time. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.