Organogenesis Holdings Aktie

Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Organogenesis Holdings First Quarter 2026 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our first quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you with some closing comments before we open the call up for questions.

Beginning with a review of our revenue results for Q1, our revenue results reflect the significant challenges in the operating environment outlined on our fourth quarter call in February. Net revenue declined 58% year-over-year, driven by a 63% decline in sales of our Advanced Wound Care products. Sales of our Surgical & Sports Medicine products were flat year-over-year. And as expected, the withdrawal of the LCD coverage policies for skin substitutes announced on December 24 and comments regarding discarded products on December 30, resulted in clinicians' confusion and material disruption in the market during the first quarter.

Our team performed well during this period of unprecedented disruption in the skin substitute market. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. Despite the significant decline in our product revenue in the first quarter, we believe we enhanced our market share position as our unit volume outperformed the declines that have been reported across the industry. This is encouraging in isolation, but it's even more impressive when viewed in light of the significant impact on utilization of our PMA-approved product over the first 4 months of 2026 as a result of CMS' commentary on December 30.

As discussed on our fourth quarter call, we believe the comments on December 30 regarding product wastage were intended to proactively address activity from certain competitors in the market that were attempting to exploit the new payment policies by focusing on larger sized skin substitute products, specifically amniotic products. The initial market response to these comments was significant clinician confusion and uncertainty. Unfortunately, these market headwinds have not abated. Rather, in some cases, it has resulted in clinicians moving away from skin substitutes entirely. While CMS' December 30 commentary represents what we believe to be a material but transient impact on 2026 revenue trends, the harm to patients is both more severe and enduring. The impact on utilization of our clinically superior PMA-approved skin substitutes doesn't just delay healing, it exposes our most vulnerable patients to preventable complications, infections, amputations and potentially fatal outcomes. This market disruption requires urgent correction.

We believe the significant clinician confusion impacting utilization of our PMA-approved products as a result of the agency's comment on December 30 will be less of a headwind as we progress through 2026. We continue to believe CMS' efforts to overhaul coverage and payment for our market represents meaningful steps towards reform. We believe that CMS should clarify the comments on discarded products to stem the unintended impact on patient access to clinically validated skin substitute products, particularly PMA products like Apligraf. While we will continue to engage with CMS on this issue, our level of uncertainty as to the timing of a resolution has unfortunately increased since the fourth quarter earnings call in February. Accordingly, we have updated our expectations for total revenue in 2026 in this afternoon's press release.

Our 2026 total revenue guidance now reflects the expectation that we see more measured improvement in clinician confusion and the overall operating environment as we move through the year. While we continue to expect improvement in our revenue results on a sequential basis over the balance of the year, our overall revenue outlook reflects a more measured recovery this year. The prolonged recovery is now expected to impact our financial results over the first 9 months of 2026 with a return to more normalized profitability now expected in the fourth quarter. Given the impact on our revenue expectations as a result of the prolonged recovery, we completed a restructuring in March. The restructuring included a workforce reduction of 88 employees and the closing of operations in our St. Petersburg, Florida facility and is expected to result in cost reductions of approximately $14 million on an annualized basis.

While our 2026 is off to a difficult start, I want to make it clear that I am very optimistic about our future. We continue to expect to drive significant market share gains in the second half of 2026, and we remain confident in the long-term opportunity for Organogenesis. Our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership.

Before I turn the call over to David, I wanted to provide updates on some key regulatory and clinical developments in recent months, beginning with an update of our ReNu program. On April 28, we announced the completion of our BLA submission to the FDA. This represents a significant milestone in our effort to bring a new regenerative therapy intended to treat a large and growing unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We believe ReNu has the potential to meaningfully change the treatment paradigm by offering a nonsurgical biologic option designed to address pain and improve functionality, particularly for patients with severe disease who lack an approved nonsurgical option.

We initiated a rolling BLA submission in December of 2025 with nonclinical modules and have now completed the application with the submission of the clinical and chemistry manufacturing and control modules. We are confident in the progress of our regulatory engagement, and we look forward to continuing our productive discussions with the FDA during the review process. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. Science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain a leader in these markets.

On April 6, we announced the completion of a randomized controlled trial evaluating the safety and efficacy of PuraPly AM plus standard of care versus standard of care alone in the management of non-healing diabetic foot ulcers. This was a prospective multicenter randomized controlled trial of 170 patients. The trial achieved its primary endpoint, demonstrating statistically significant wound closure at 12 weeks compared to standard of care alone with a p-value of less than 0.0477. This strong performance is an important study, which underscores the clinical efficacy of PuraPly AM in the management of non-healing DFUs. These wounds pose a significant burden to patients and are extremely costly to our health care system. We believe publication of these impactful results will strongly support PuraPly AM's inclusion in future coverage policies, underscoring its critical role in the wound healing algorithm.

Further demonstrating the clinical effectiveness of our PuraPly antimicrobial technology and advancing ReNu represents further validation of our long-term strategy to invest in expanding the body of clinical evidence supporting our technology and developing regenerative medicine solutions that address significant unmet medical needs as we expand our mission to include transformative new markets for Organogenesis. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio of technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations.

With that, let me turn the call over to David.

Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the first quarter was $36.3 million, down 58% year-over-year. As Gary mentioned, these results came in below the expectations we provided on our Q4 call, which called for total revenue decline of approximately 50% year-over-year. Our Advanced Wound Care net product revenue for the first quarter was $29.5 million, down 63%. Net product revenue from Surgical & Sports Medicine products for the first quarter was $6.8 million, flat year-over-year. Our total revenue results for the first quarter include $1 million of income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting the employee-related costs in our Smithfield facility. This compares to no impact in the prior year period.

Gross profit for the first quarter was $10.5 million or 29% of net product revenue compared to 73% last year. First quarter cost of goods included $4.3 million of inventory write-down adjustments for excess and obsolete inventory resulting from a facility closure and LTD regulatory changes of $1 million and $3.3 million, respectively. Excluding inventory write-down adjustments, non-GAAP gross profit was $14.8 million or 41% of net product revenue.

Operating expenses for the first quarter were $106.1 million compared to $113.4 million last year, a decrease of $7.3 million or 6%. Excluding cost of goods sold of $25.8 million for the first quarter and $23.7 million last year, our non-GAAP operating expenses were $80.3 million compared to $89.7 million last year, a decrease of $9.4 million or 10%. The year-over-year change in operating expenses, excluding cost of goods sold was driven by a $7.3 million or 10% decrease in SG&A expenses and a $6.6 million write-down of certain nonrecurring expenses, which impacted the first quarter of 2025, offset partially by a $4.5 million or 42% increase in research and development expenses.

Operating loss for the first quarter was $68.9 million compared to an operating loss of $26.7 million last year, an increase of $42.1 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating loss was $56 million compared to $19.3 million last year, an increase of $36.7 million year-over-year. GAAP net loss for the first quarter was $53.2 million compared to a net loss of $18.8 million last year, an increase in net loss of $34.3 million. Net loss to common stockholders for the first quarter was $56.2 million compared to a net loss of $21.6 million last year. Net loss to common stockholders includes the impact of the cumulative dividend and the noncash accretion to redemption value of our convertible preferred stock.

Adjusted net loss for the first quarter was $43.7 million compared to $13.4 million last year. Adjusted net loss excludes after-tax impacts of intangible amortization, write-down of assets held for sale, employee severance and benefits as well as other exit costs associated with the company's restructuring activities and nonrecurring inventory write-down adjustments for excess and obsolete inventory. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss for the first quarter was $48.2 million compared to adjusted EBITDA loss of $12.5 million last year.

Turning to the balance sheet. As of March 31, 2026, the company had $92.1 million in cash, cash equivalents and restricted cash and no outstanding debt obligations compared to $94.3 million in cash, cash equivalents and restricted cash and no outstanding debt obligations as of December 31, 2025. We believe we are well capitalized with our cash on hand and other components of working capital, availability under our revolving facility of up to $75 million and net cash flows from product sales.

Turning to our 2026 outlook, which we updated this afternoon's press release. As Gary outlined earlier, our 2026 total revenue guidance now reflects the expectation that we see a more measured improvement in clinician confusion and overall operating environment as we move through the year. As a result, we now expect total revenue -- net revenue for the full year 2026 of $270 million to $310 million, representing a decline in the range of 45% to 52% year-over-year and compared to our prior guidance range, which assumed a decline in the range of 25% to 38% year-over-year. Note the change in our total revenue expectations is a result of revised assumptions regarding sales of our advanced wound care products.

Our updated total revenue guidance continues to reflect the expectations we see sequential improvement in our revenue trends in the second quarter, however, at a more measured rate versus what our prior guidance assumed, resulting in first half revenue decline in the range of approximately 52% to 49% year-over-year. We continue to expect strong sequential revenue growth in both the third and fourth quarters of 2026. However, the low end of our guidance range now assumes a more prolonged recovery in market-related headwinds, resulting in a second half revenue decline similar to the first half of 2026.

With respect to our profitability expectations, our updated guidance continues to assume improved quarterly adjusted EBITDA performance on a sequential basis and positive adjusted EBITDA generation in the second half of 2026. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses, excluding cost of goods sold, approximately 25% year-over-year in 2026, including more than 30% year-over-year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our recently announced restructuring of approximately $7 million.

With that, I'll turn the call back over to Gary for closing remarks.

Thanks, Dave. In closing, the first quarter was a challenging start to the year as expected. I want to thank our team for their performance and resilience during a period of unprecedented market disruption. But despite the headwinds, we believe we've enhanced our market share position, met a significant milestone by completing our renewed BLA submission and generated strong clinical evidence supporting PuraPly AM, further validating our long-term strategy. We expect the operating environment will remain difficult through the first 9 months of 2026 with sequential revenue improvement over the balance of the year and a return to more normalized profitability in the fourth quarter. We remain confident in our position as a leader in regenerative medicine with a diverse and evidence-based portfolio and more than 40 years of innovation in service of our mission to advance healing and recovery for the patients who depend on us most.

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

[Operator Instructions]

Our first question comes from Ryan Zimmerman with BTIG.

This is Iseult on for Ryan. I was hoping to start with spending some time on the first quarter performance. Could you unpack a little bit what you guys saw throughout the quarter and particularly what changed between the fourth quarter call in February and today in terms of volumes? I mean what was better or worse than expected?

Sure. I'll start. Well, we've certainly seen a lot of disruption as we expected you normally would see with a change in reimbursement. But the level of complexity of that change was more than we've seen in the past. So you had 2 sites of care with complete changes in the reimbursement model in addition to changing the actual reimbursement for each product. We also had the issue in the first quarter around WISeR. So WISeR really did have an impact in the first quarter. We didn't expect some of the challenges that they've had technology-wise in the states in which pre-authorization is required. There was also an issue with a large MAC that was struggling to process claims the entire first quarter. In fact, we just recently started to process claims for March. And unfortunately, customers have to rebuild for claims in January and February. So all of that disruption on top of what you normally see when there's a reimbursement change.

So we've typically guided to a 3-month impact of a reimbursement change. But with the additional complexity that we're seeing now and the issue of wastage, which came out in December 30, has created enormous confusion in the market, which is why this prolonged delay in market recovery. So what we've seen is a contraction of the market by about 63%. That's an enormous contraction in the market. We're certainly down less than that. We believe we've taken share. In fact, our core brands, excluding our Apligraf brand are down about 22%. So we're definitely seeing some share gain from our perspective, but just contraction in the market, the issues around wastage and the technology challenges with the MAC and WISeR are things that we didn't see when we had our call in February.

Dave, anything to add?

No, no, that's absolutely right. Let them all.

I appreciate that. And what, if anything -- or do you have any line of sight as to when we might get an update from CMS clarifying some of their comments around these wastage policies?

We don't have any direct clarity on when they would do that. We're still engaged with them. Our objective is to either get them to exempt PMAs because of all of the confusion around the handling and the billing and usage of a biologic like our product Apligraf or to come out with an indication for use. There's been no instructions or clarity on exactly what their wastage policy is. So we don't have clarity on when they will change or when they'll bring clarity, but we're certainly bringing clarity to our customers, and we're seeing more and more comfort in utilizing the product Apligraf appropriately for patients that need it.

Got it. And then last one for me, kind of dovetails into guidance for the year. I was just curious what gives you confidence in that back half recovery? I understand this updated range accounts for more moderation through the remainder of the year. But have you seen anything through April and May that gives you more confidence?

Yes. We did see improvement month-over-month in the first quarter, and that's continued into April. So that's one part of it. And what we've always expected here, as Gary mentioned, we're going to continue to gain share. But there's 2 things. One is the customer confusion should abate as we move through the year. And then in addition to that, we think the competition dynamics will be quite a bit different at that point as well. So that's how we've built up our forecast with sequential growth quarter-over-quarter as we move through the year.

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

Welcome, ladies and gentlemen, to the Fourth Quarter and Full Year 2025 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A Risk Factors of the company's most recent annual report and its subsequently filed quarterly report.

You are cautioned not to place undue reliance upon any forward-looking statements. which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, further events or otherwise, except as required by applicable securities laws.

This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the company's earnings release on the Investor Relations portion of our website.

I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr. Organogenesis Holdings' President, Chief Executive Officer and Chair of the Board. Please go ahead.

Thank you, operator, and welcome, everyone, to Organogenesis Holdings Fourth Quarter 2025 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer.

Let me start with a brief agenda of what we're going to cover during our prepared remarks. I will begin with an overview of our fourth quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our fourth quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we introduced in our press release this afternoon. And I'll provide some closing comments before we open up the call for questions.

Let's begin with a review of our revenue results in Q4. We delivered record sales results, which exceeded the high end of the guidance range outlined on our third quarter conference call, driven primarily by better-than-expected growth in sales of our Advanced Wound Care products, which increased 83% year-over-year. Sales of our Surgical & Sports Medicine products declined 2% year-over-year, which was within the range of our guidance assumptions.

The record revenue performance we delivered in the fourth quarter reflects our team's strong execution and commitment to our strategy to build upon our deep customer relationships and promoting access to existing and recently launched products. I want to acknowledge and thank our team for continuing to show up every day for our patients amidst the very challenging environment in 2025.

2025 was a significant year for the industry with CMS enacting the most meaningful health policy changes in decades. We continue to believe these changes are favorable to our portfolio and to our mission. CMS shifted reimbursement to support high-quality evidence-backed PMA products while reducing payment for non-PMA products that have not undergone the most rigorous type of review so that more patients have access to products that go beyond simple wound coverings.

CMS has cited the clinical differentiation of PMA products and supports higher payment for the category to encourage innovation in the space. Their comments indicate that PMA products were never part of the problem and understand the higher development and manufacturing costs require sufficient reimbursement, not only to sustain the market availability of Apligraf and other high-value PMA products, but also to introduce new PMA products in the future.

As discussed on our earnings calls last year, Organogenesis has actively participated bringing about these changes, and we remain committed to working with CMS and other stakeholders to further expand access to life-saving technologies as well as incentivize investment in innovation in the space and achieve long-term stability in the market.

Unfortunately, withdrawal of LCD coverage policies for skin substitutes announced on December 24 and comment regarding discarded product on December 30 have resulted in clinical confusion and material disruption in the market. We do not believe these actions by CMS signal any step back from the original goals outlined to reform coverage and payment of skin substitutes.

We believe the comments on December 30 regarding discarded products were intended to proactively address activity from certain competitors in the market that are attempting to exploit the new payment policies by focusing on larger-sized skin substitute products, specifically amniotic products. Unfortunately, these comments have resulted in significant clinical confusion impacting utilization of our PMA-approved product in the first 2 months of 2026.

We do not believe the agency's commentary on discarded products should apply to PMA products. CMS' commentary and actions in recent years have indicated that PMA products were never part of the fraud and abuse. Further, CMS expressly stated in the final Medicare physician fee schedule for calendar year 2026 announced on October 31, 2025, that PMA products are clinically differentiated and deserve payment at a higher rate.

We believe the significant clinician confusion, which is impacting utilization of our PMA-approved product is a result of the agency's comments on December 30 and will be resolved in a way that's consistent with the policy CMS set by grouping products based on their FDA classification. As discussed on our earnings call last year, this was a key focus of our feedback and policy recommendations to the agency. CMS has consistently indicated one of their goals in policy reform was to increase access to PMA products.

While 2026 is off to a difficult start, I want to make it clear that I'm very optimistic about our future. We believe CMS' efforts to overhaul coverage and payment for our market represent a watershed moment for the industry and the final Medicare physician fee schedule for calendar year 2026 announced on October 31, 2025, represents the most meaningful step forward towards payment reform in more than a decade. I believe our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership in the space.

Our new manufacturing and R&D center in Smithfield, Rhode Island is advancing well. This state-of-the-art facility, once completed, will allow us to scale manufacturing of Apligraf and PuraPly AM. We commercialized Dermagraft, strengthening our portfolio with another clinically proven PMA product and gives us the capacity to expand our product portfolio to treat burns with FortiShield and TransCyte, which is another PMA product.

We are increasing our focus on clinical evidence by investing in trials and published studies because science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain in the lead.

Looking beyond wound care, we are closer than ever to expanding our mission into entirely new markets with our ReNu program. Late last year, we initiated our rolling BLA submission, which we expect to complete in the first half of 2026. And if approved by the FDA, ReNu represents a transformational opportunity, not just for Organogenesis, but for the millions of Americans living with knee osteoarthritis pain, particularly those whose only alternative today is a total knee replacement. We can change the treatment paradigm and improve the lives of these patients as part of our vision to be a force for meaningful change and set a higher expectation in healing and recovery.

With more than 40 years in regenerative medicine and a diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations.

With that, I'll turn it over to Dave.

Thanks, Gary. I'll begin with a review of our fourth quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis.

Net product revenue for the fourth quarter was $225.1 million, up 78% year-over-year and up 50% sequentially. As Gary mentioned, these results came in above the high end of expectations we provided on our Q3 call, which called for total revenue range of $162 million to $187 million.

Our Advanced Wound Care net product revenue for the fourth quarter was $217.2 million, up 83%. Net revenue from Surgical & Sports Medicine products for the fourth quarter was $7.9 million, down 2% year-over-year. Surgical & Sports Medicine product sales were up 12% for the full year 2025 period, fueled by continued strong growth in sales of our PuraPly family of products.

Our total revenue results for the fourth quarter included $0.5 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period.

Gross profit for the fourth quarter was $175.2 million or 78% of net product revenue compared to 75% last year. The change in gross profit was primarily due to a shift in product mix. Operating expenses for the fourth quarter were $162.3 million compared to $116.4 million last year, an increase of $45.9 million or 39%. Excluding cost of goods sold of $49.9 million for the fourth quarter and $31.1 million last year, our non-GAAP operating expenses for the fourth quarter were $112.4 million compared to $85.4 million last year, an increase of $27 million or 32%.

The year-over-year change in operating expenses, excluding cost of goods sold, was driven by $26.3 million or 36% increase in SG&A expenses and a $1.9 million write-down of certain nonrecurring expenses, offset partially by a $1.2 million or 11% decrease in research and development expenses.

Operating income for the fourth quarter was $63.3 million compared to operating income of $10.2 million last year, an increase of $53.1 million or 519%. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating income was $75.9 million compared to $11.7 million last year, an increase of $64.2 million or 549% year-over-year.

GAAP net income for the fourth quarter was $43.7 million compared to a net income of $7.7 million last year, an increase of $36 million. Net income to common for the fourth quarter was $31.5 million compared to a net income of $5.1 million last year. Net income to common includes the impact of the cumulative dividend, the noncash accretion to redemption value of our convertible preferred stock and undistributed earnings allocated to participating redeemable convertible preferred stock.

Adjusted net income for the fourth quarter was $52.9 million compared to $8.8 million last year. Adjusted net income excludes after-tax impacts of intangible amortization, write-down of assets held for sale, disposal of construction in progress, FDA BLA fees for ReNu, PFS regulation-related charges, specifically nonrecurring inventory write-down adjustments for excess and obsolete inventory and upfront licensing costs resulting from the shift in product lines and additional inventory write-downs related to onetime loss of a key distributor in a certain international location. We have included a detailed reconciliation of GAAP to non-GAAP adjusted income in our press release this afternoon.

Adjusted EBITDA for the fourth quarter was $84.2 million or 37% of total revenue compared to adjusted EBITDA of $18.2 million or 14% of total revenue last year.

Turning to the balance sheet. As of December 31, 2025, the company had $94.3 million in cash, cash equivalents and restricted cash with no outstanding debt obligations compared to $136.2 million in cash, cash equivalents and restricted cash with no outstanding debt obligations as of December 31, 2024. We believe that we are well capitalized with our cash on hand and other components of working capital, availability under our revolving credit facility of up to $75 million and net cash flows from product sales.

Turning to our 2026 outlook, which we introduced in this afternoon's press release. As Gary mentioned earlier, last year, CMS announced the most meaningful health policy changes in decades, and we continue to believe these changes are advantageous to our portfolio and mission. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. However, we are experiencing near-term challenges as we enter 2026 and the operating environment remains highly uncertain given clinician confusion surrounding CMS' comments on December 30.

As a result, we expect total net revenue to decline in the range of 25% to 38% year-over-year for the full year 2026 period. We expect these challenges to impact our financial results in the first half of 2026 with meaningful improvement in clinician confusion and the overall operating environment, together with the strength and breadth of our portfolio to result in substantial market share gains over the second half of 2026.

Specifically, our current expectations assume first quarter revenue declines of approximately 50% year-over-year, driven primarily by the significant clinician confusion and related impact on utilization of our PMA-approved product as a result of CMS' commentary on December 30. We expect to drive strong sequential growth in the second quarter, resulting in first half revenue declines of approximately 30% to 35%. We expect to deliver strong sequential revenue growth in both the third and fourth quarter of 2026, which we expect will result in positive adjusted EBITDA, particularly in the fourth quarter, where we expect to drive high teens adjusted EBITDA margins.

With that, I'll turn the call back over to Gary for closing remarks.

Thank you, Dave. '25 was a challenging year, but we are proud of the team's commitment to our long-term growth strategies. Our team's strong execution resulted in total revenue and profitability for fiscal year 2025 that exceeded the high end of our initial financial guidance ranges we introduced in our fourth quarter call last year. We also advanced our strategic priorities, most notably with our ReNu program and securing our new manufacturing facility in Rhode Island to support future growth. We expect continued strong execution and operational progress as we work through the challenging year this year.

While we expect the first half of '26 to be impacted as the skin substitute market adapts to sweeping changes from CMS to reform coverage and payment for skin substitutes, we expect to drive significant market share gains in the second half of 2026 and remain confident in the long-term opportunity for Organogenesis. After a period of transition in the market in 2026, we expect to return to normalized annual growth in 2025.

We continue to believe we are well positioned to win in the future. We expect to remain a leader in the space with highly innovative, highly efficacious products that deliver on our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care.

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

[Operator Instructions] And our first question is coming from the line of Ryan Zimmerman of BTIG.

Gary, Dave, this is Izzy on for Ryan. So just to start out, I wanted to focus on your fourth quarter results for Advanced Wound Care. That 83% was definitely really strong and much stronger than you were anticipating. So I was curious how much of that growth you believe is due to customers maybe pulling forward some of the inventory ahead of the January 1 reimbursement changes?

Yes, there's really not a tremendous amount of opportunity for that because obviously, the products are going on to patients. So we don't think there was a tremendous amount of that. What we didn't see at the back end of that was an increase in aggressive pricing tactics, which we assumed was going to happen. But as you said, I mean, we beat our midpoint of our guidance by about $50 million. So it was an amazing quarter for us. We were quite pleased.

Got it. That's helpful. And as we start to think about 2026, can you help us kind of bridge the gap between what we saw in fourth quarter and the decline that you're forecasting for the rest of the year? I mean how much is that purely mathematical with the reduced price of $127? Or is that more of lower unit volumes due to the confusion that you're seeing in the market?

No, we expect to gain share in 2026. So we're quite pleased with that. We think there's a couple of things that will happen is that we'll continue to see the competitive dynamics improve as we move through the year. And then in addition to that, obviously, we'd indicated that Q1 will be quite challenging based on the customer confusion based on all of the elements that happened late in 2025. Obviously, the $127 is an element there. We had planned for that. We expected that. So we felt that we could perform quite well with that.

Also with the LCD being pulled late last year, we figured that, that would be something that we could overcome without any question. And then the last piece was the comments that were made on December 30, which really put some pressure on clinicians overall and really just has pulled back quite considerably. So it's really that major factor that's happening there from that standpoint.

Got it. That's helpful. And then last one for me. I know we are about 2 months into the quarter as of right now. So I was curious if you're starting to see anything that's giving you confidence in those share gains as we move throughout the year. Are you seeing any of the smaller competitors maybe exiting the market, supply issues? If you can provide us any color there, that would be really helpful.

Yes, sure. Well, as I mentioned, we are seeing some aggressive pricing pressure in the quarter, which I think means that exactly what we anticipated might happen in the fourth quarter, people trying to clear out their inventory and that type of thing. So we are seeing some early signs of that potential change in the customer -- excuse me, competitive dynamics as we move forward.

And just to follow up with Dave's comment that these issues that we see are transitory. We don't -- we do think that the flood of low-cost products will not sustain throughout the year, which is one of the reasons the back half, we believe, will be better. We think the clinician confusion as it relates to the comments on December 30, we're working our customers through that process and how to use our products with that issue.

And we also think that there's just kind of a freeze in the market that folks are just generally confused by the health policy changes, and they were sweeping. They basically have reduced the reimbursement for non-PMA products and shifted them to PMA products and folks are trying to follow the reimbursement process and what does that mean for pricing and overall reimbursement. So there's just a lot of information. And those types of issues are transitory that we can work through. As Dave mentioned, $127 is something we contemplated and have no issues with, feel we can grow nicely at $127. It's more of the confusion that we have to work ourselves through.

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

Welcome, ladies and gentlemen, to the Third Quarter 2025 Earnings Conference Call of Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports.

You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Senior, Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Organogenesis Holdings Third Quarter 2025 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our third quarter revenue results and provide an update on key operating and strategic developments in recent months. Dave will then provide you with an in-depth review of our third quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial guidance for 2025, which we updated in our press release this afternoon. Then we'll open up the call for questions.

Let me begin with a review of our revenue results for Q3. We delivered sales results, which exceeded the high end of our guidance range outlined in our second quarter call, driven primarily by better-than-expected growth in sales of our Advanced Wound Care products, which increased 31% year-over-year. Sales of our Surgical & Sports Medicine products also performed well, increasing 25% year-over-year in the third quarter. The record revenue performance we delivered in the third quarter reflects our team's strong execution and commitment to our strategy to build upon our deep customer relationships and promoting access to existing and recently launched products despite continued aggressive pricing strategies from our competitors.

On October 31, CMS announced the final Medicare physician fee schedule for the calendar year 2026. As mentioned in our last quarter's earnings call, this is a watershed moment for the industry and the most impactful development in more than a decade. And we congratulate CMS on taking this significant step in payment reform and are pleased CMS finalized skin substitute classifications based on FDA regulatory status and a per square centimeter payment methodology in both the physician office and hospital outpatient settings. We are pleased that CMS has recognized the clinical differentiation of PMA products and has taken steps toward higher payment and expanded access for PMA products.

We remain committed to working with CMS and other stakeholders to further expand access to these life-saving technologies as well as incentivize investment and innovation in the space and achieve long-term market stability. We believe this new policy will address abuse under the current system and the resulting rapid escalation in Medicare spending while ensuring a much-needed consistent payment approach across sites of care. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market for 2026 and beyond, and we'll continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectation.

Before turning the call over to David, I wanted to provide some updates on key clinical and regulatory developments in recent months. Beginning with an update on our ReNu program. On September 25, we announced that the second Phase III trial of ReNu did not achieve statistical significance for its primary endpoint despite demonstrating a numerical improvement in baseline pain reduction that exceeded the results of the first Phase III trial. Baseline pain reduction at 6 months for ReNu was negative 6.9 for the second Phase III study compared to negative 6.0 in the first Phase III study. Additionally, ReNu results from the second Phase III study continue to demonstrate a favorable safety profile.

Given the first Phase III trial achieved statistically significant reduction in pain compared to saline and the second Phase III trial demonstrated a numerical improvement in baseline pain reduction that exceeded the results of the first Phase III trial. We believe these combined results support the potential approval of ReNu for pain symptoms associated with knee osteoarthritis included in those patients classified as the most severe. ReNu has been studied in 3 large RCTs of more than 1,300 patients combined. Organogenesis believes the totality of this data is compelling evidence for the FDA to review in a biologic license application.

Additionally, FDA granted ReNu Regenerative Medicine Advanced Therapy, or RMAT designation based on ReNu demonstrating the potential to treat an unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We have a meeting scheduled for December 12 with the FDA to discuss our submission, including using the combined efficacy analysis from both Phase III studies to support a BLA approval. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete.

While we did not meet the November 1 submission deadline for new data for LCD coverage consideration in 2026 for PuraPly AM, for DFU and Affinity or VLU, these studies and analyses continue, and we intend to submit for coverage once they're published. We remain confident in our strong competitive position in the skin substitute market heading into next year. We have substantial advantages, including strong brand equity, deep customer relationships and importantly, 3 highly innovative, highly efficacious commercialized products on the covered list if the LCDs take effect as scheduled on January 1, 2026, specifically our Apligraf product for DFU and VLU and our Affinity and NuShield products for DFU.

We have strongly advocated for CMS to implement an integrated coverage and payment policy for the skin substitute market. We believe they have taken the right steps to address rapidly escalating Medicare costs while ensuring patient access to the most appropriate clinically effective technologies. We believe these changes present an enormous opportunity for Organogenesis to serve more patients and importantly, will be positive for the long-term health of the wound care market. Beyond 2026, we expect to advance our competitive position as we leverage our development engine fueling new innovation, capacity to launch and reintroduce products, including our Dermagraft product, which is already covered for DFU and VLU under the LCDs. Strategic investments in expanding the body of clinical evidence supporting our technologies and a transformational opportunity with ReNu. With that, I'd like to turn the call over to Dave.

Thanks, Gary. I'll begin with a review of our third quarter financial results. And unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the third quarter was $150.5 million, up 31% year-over-year and up 49% sequentially. As Gary mentioned, these results came in above the high end of our expectations we provided on our Q2 call, which called for total revenue in the range of $130 million to $145 million.

Our Advanced Wound Care net product revenue for the third quarter was $141.5 million, up 31%. As Gary mentioned, the commercial team executed well in the period, building upon the momentum that we experienced towards the end of Q2 that we discussed on our last earnings call. Net product revenue from Surgical & Sports Medicine products for the third quarter was $9 million, up 25%, primarily due to an increase across the PuraPly family of products. Our total revenue results for the third quarter included $0.4 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility.

This compares to no impact in the prior year period, and we continue to expect grant income to be immaterial in 2025. Gross profit for the third quarter was $114.2 million or 76% of net product revenue, compared to 77% last year. The change in gross profit was due primarily to a shift in product mix. Operating expenses for the third quarter were $130.1 million compared to $108.9 million last year, an increase of $21.2 million or 19%. Excluding cost of goods sold of $36.3 million for the third quarter and $26.8 million last year, our non-GAAP operating expenses for the third quarter were $93.9 million compared to $82.1 million last year, an increase of $11.7 million or 14%.

The year-over-year change in operating expenses, excluding cost of goods sold, was driven by a $7.9 million or 11% increase in SG&A expenses, a $2.9 million or 28% increase in research and development expenses and a $0.9 million write-down of certain nonrecurring expenses. Operating income for the third quarter was $20.7 million compared to an operating income of $6.2 million last year, an increase of $14.5 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating income was $23 million compared to $7.1 million income last year. GAAP net income for the third quarter was $21.6 million compared to a net income of $12.3 million last year, an increase of $9.2 million.

Net income to common for the third quarter was $14.5 million compared to a net income of $12.3 million last year. As a reminder, net income to common includes the impacts of the cumulative dividend, the noncash accretion to redemption value on our convertible preferred stock and undistributed earnings allocated to participating redeemable convertible preferred stock. Adjusted EBITDA for the third quarter was $30.1 million compared to adjusted EBITDA of $13.4 million last year.

Now turning to the balance sheet. As of September 30, 2025, the company had $64.4 million in cash, cash equivalents and restricted cash with no outstanding debt obligations, compared to $136.2 million in cash, cash equivalents and restricted cash with no outstanding debt obligations as of December 31, 2024. On October 31, 2025, we amended our credit agreement to better align with the underlying fundamentals of our business. The amended credit agreement now provides access to up to $75 million of future borrowings. We believe we are well capitalized with our cash on hand and other components of working capital as of September 30, 2025, and available under our revolving credit facility and net cash flows from product sales.

Now turning to a review of our 2025 revenue guidance, which we updated in this afternoon's press release. For the 12 months ended December 31, 2025, the company now expects net revenue of between $500 million and $525 million, representing a year-over-year increase in the range of 4% to 9%. The 2025 net revenue guidance range now assumes net revenue from Advanced Wound Care products of between $470 million and $490 million, representing a year-over-year increase in the range of 4% to 8%. Net revenue from Surgical & Sports Medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 6% to 23%. With respect to our profitability and EBITDA guidance, the company now expects GAAP net income in the range of $8.6 million to net income of $25.4 million compared to a range of a net loss of $6.4 million to net income of $16.4 million previously.

EBITDA in the range of $19.1 million to $41.9 million compared to $6.2 million to $37 million previously. Non-GAAP adjusted net income in the range of $21.5 million to $38.4 million compared to $5.5 million to $28.3 million previously, and adjusted EBITDA in the range of $45.5 million to $68.3 million compared to $31.1 million to $61.9 million previously. In addition to our formal financial guidance for 2025, we are providing some considerations for our modeling purposes.

Our profitability guidance for 2025 now assumes gross margins in the range of approximately 74% to 76%. GAAP operating expenses, excluding cost of goods sold, up 1% to 2% year-over-year. and excluding noncash intangible amortization of approximately $3.4 million, the nonrecurring FDA payment related to our renewed BLA filing of $4.6 million and the $9.8 million write-down of assets and restructuring activities in the first 9 months of 2025, our total non-GAAP operating expenses will increase in the range of 3% to 5% year-over-year. With that, I'll turn the call over to the operator to open up the call for your questions.

[Operator Instructions] We will take our first question from Ross Osborn from Cantor Fitzgerald.

Congrats on the strong quarter. So starting off, I would be curious to hear how your conversations are going with the clinical community in terms of when you're expecting physician behavior to change following the PFS. Is that December this year, earlier? Any thoughts there?

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

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

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

[Operator Instructions] Our next question comes from the line of Ryan Zimmerman from BTIG.

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

Yes, sure. So I mean, obviously, it's a little bit early to be talking about 2026, but we'll maybe connect on a couple of things around the revenue profile and the margin one as well. Again, we're not providing financial guidance today, but I'm glad you asked the question because I think there are several key changes in the marketplace for 2026 that I think people should be cognizant of.

First off, with the LCD going into place, there's over -- well over 200 products that will no longer be covered for DFUs and VLUs under that LCD that's scheduled right now to go and be enacted on 1/1/26. As Gary mentioned in his prepared remarks, we have 3 commercialized products that are covered by the LCD with an additional one in Dermagraft coming back online in the back half of 2027. And those products are NuShield, which is a dehydrated amnion that's covered for DFUs, Affinity, which is a living amnion, which is covered for DFUs and then our Apligraf product, which is a bioengineered cellular product -- and it's the only PMA-approved product for both DFUs and VLUs. So we're excited about having those on the covered list.

In addition to that, the financial incentives will be dramatically reduced in the marketplace, leveling the playing field, which is what we've been advocating for, for quite some time. And overall, as Gary mentioned, too, we have the brand equity, efficacy and service, which puts us in a very nice position, which is the attributes that we'll be competing against in 2026 once the field is leveled, as I mentioned.

And then, of course, we've got a broad portfolio across many different FDA classifications that are addressing multiple indications. And then the last piece I'd say is that the commercial team has done a nice job of pivoting in a dynamic market environment. And I think that's indicated over the last couple of years and certainly in this last quarter. So all those things coming together, I think there's obviously no implication to the surgical business next year. So that's one element that you should think about. And I think the other components around wound care would be is that our dominant position in the hospital outpatient setting can drive incremental growth given that the reimbursement there has been unbundled.

In addition to that, I think, obviously, there's been several new entrants into the market over the last couple of years, and we expect that share that's been lost over the last couple of years to be regained. And so we expect to participate in that. The offset to that is, of course, the market has expanded to some extent, and we expect that to contract based on overuse. And then the last piece I'd say is overall on the market standpoint, ASPs across the entire market will decline. So from that perspective, ours will as well, but there's a couple of other components there. Obviously, with Apligraf on the market and again, the only PMA-approved product for both DFUs and VLUs, very, very strong product, particularly in HOPD, will now be reimbursed at a much higher rate than it has been in years past. So from our perspective, we see a lot of growth drivers next year, and we also see improvements in margin and cash flow as well.

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

Yes. We -- I think we were public and thought that it was going to come out, finalized at the rate that it was proposed in the proposed rule. We didn't think that at this point in time, CMS was going to change that rate, though they have indicated that they recognize PMAs, have a clinical differentiation and resource costs associated with them in value and expect that, that reimbursement will be higher over time than the 510(k)s and the 361.

So I think over time, we're going to see a change. And I think one of those will be the PMAs will be separated. And perhaps once the market absorbs this change, CMS will take a look and see if that rate of 127 for the 361s and 510(k)s is appropriate or not? Or has it really, in some way, curtailed care in any way, shape or form. But I think they want to see if that's what's going to happen. So that's why we think they left everything at what's 127. Now the proposed rule was 125 -- that's why we felt it would come out at the 125 or something close to it.

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

Sure. So we still think there is an opportunity to still file and we'll be filing in a modular form in December if we have a successful meeting with the FDA. But I would guide to a 2-month delay is probably safe. It's possible we could stay on our current time line, but 2 months, I think, is reasonable based on where we are today in preparing for that December 12 meeting.

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

Welcome, ladies and gentlemen, to the Second Quarter 2025 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risk and uncertainties described in the company's filings with the Securities and Exchange Commission, including the Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made.

Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to this as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr ., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir.

Thank you, operator and welcome, everyone, to Organogenesis Holdings Second Quarter 2025 Earnings Conference Call. I am joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we will cover during our prepared remarks.

I'll begin with an overview of our second quarter revenue results and provide an update on key operating and strategic developments in recent months and then Dave will provide you with an in-depth review of our second quarter financial results, our balance sheet and financial condition at quarter end as well as our financial guidance for 2025, which we updated in our press release this afternoon. Then we will open up the calls for questions. Beginning with a review of our revenue results in Q2, we delivered sales results within the guidance range outlined on our first quarter call, driven by better-than-expected growth in our Surgical & Sports Medicine products and sales of Advanced Wound Care products that came in at the lower end of our expectations.

Our second quarter Advanced Wound Care results reflect the expected disruption in customer demand and ordering patterns related to the delay in the effective date of the final LCD for skin substitute grafts and cellular tissue-based products for the treatment of DFUs and VLUs until January 1, 2026. Our team's second quarter execution and focus on engagement, education and support helped our customers navigate a confusing and challenging environment. While the delay in the effective date for the final LCD fueled even more aggressive pricing strategies from our competitors, our team remains committed to building upon our deep customer relations and promoting access to existing and recently launched products.

Last month, CMS announced the proposed Medicare physician fee schedule and outpatient prospective payment systems for calendar year 2026. This is a watershed moment for this industry and the most impactful development in more than a decade. We applaud the proposed new payment approach for skin substitutes as we have long advocated for an integrated coverage and payment policy to address rapid escalation of Medicare spending while ensuring patients have access to the products best suited to their care. Organogenesis has more than 40 years of experience and pioneered the use of cellular and tissue-based products for wound treatment and we have spent the past several years leading key stakeholders who share our patient-focused values to inform policymakers and advocate for reform that will increase access, improve outcomes and curb the rampant waste and abuse in the space.

We have long supported many of the points included in the proposed rules, notably a per square centimeter payment methodology based on FDA classification for skin substitutes covering all ASP sites of care as well as the hospital outpatient setting, bringing a much needed consistent payment approach. Exploitation of the current ASP-based payment system has resulted in excessive and unsustainable spending these past few years. Closing this loophole and shifting away from the ASP model will bring stability to the market and push spending on dehydrated placentals in line with appropriate utilization. And we are pleased that the proposed FDA classification categories ensures patients will have access to appropriate therapies and encourage innovation in the space.

As the population ages and more people face the prospect of chronic wounds associated with diabetes and other comorbid conditions, it's imperative that the industry reignite its innovation engine to deliver advanced regenerative technologies that will speed healing and reduce the total cost of care. We believe the proposed rule, if finalized, will support these goals, while bringing long-term stabilization to the skin substitute markets. Importantly, we are pleased that CMS has recognized the clinical differentiation of Premarket Approval or PMA products that outline steps to expand access to these healing technologies. PMA products such as Apligraf and Dermagraft have been proven to reduce life-threatening amputations and costly complications associated with DFUs and VLUs. The proposed rules will encourage the continued development of PMA products that will greatly benefit both clinicians and patients.

As the public comment period opens, we remain committed to engage with CMS and other stakeholders to refine and enhance the proposed rules that will expand access to appropriate therapies for patients, while reducing the overall cost to Medicare. With the payment and coverage changes expected to be implemented in 2026, we believe we are better positioned to continue to lead the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations.

Before turning the call over to David, I want to provide updates on key strategic focuses for our company. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. We expect to submit published clinical data supporting PuraPly AM for DFU and Affinity for VLU to the MACs by the established deadline of November 1, 2025. We have been preparing our organization to succeed in a new world that is coming to fruition by investing to optimize our industry-leading portfolio of healing technologies.

In May, we marked the expansion of our biomanufacturing capabilities at our new facility in Smithfield, Rhode Island, welcoming the governor and other state and civic leaders to share our plans for the site. When completed, the Smithfield facility will support the reintroduction of Dermagraft, a PMA-approved product for the treatment of DFUs and TransCyte, a PMA-approved bioengineered cellular tissue scaffold for the treatment of deep second- and third-degree burns as well as the introduction of FortiShield, a biosynthetic transitional wound matrix for the treatment of second-degree burns and surgical wounds.

We believe the added manufacturing capacity and portfolio expansion will further enhance our long-term growth and margin profile, create additional stakeholder value and positively impacting more people's lives. With respect to our ReNu program, we remain on plan for submission for ReNu by the end of this year, which, if approved, will further enrich our already robust regenerative portfolio. All patients completed the second Phase III study and we remain on track to share publicly the top line data results from the study in September of 2025. Our time line continues to target completion of the final clinical study report required for the BLA submission in the fourth quarter, which has us on track for a modular BLA submission by the end of 2025.

We continue to believe in the potential of ReNu to address the need for more than 30 million Americans suffering from symptomatic knee osteoarthritis. This is a defining moment for the industry and an exciting opportunity for Organogenesis to serve more patients. We see our vision for skin substitutes in wound care becoming a reality following years of advocating for health policy reform to ensure patient access to the most appropriate products while achieving significant cost savings to Medicare. We believe we are positioned to win going forward with our comprehensive portfolio, including products from all FDA classifications. We have a development engine fueling new innovation and the capacity to launch and reintroduce products and a transformational opportunity with ReNu.

With that, let me turn the call over to Dave.

Thanks, Gary. I'll begin with a review of our second quarter financial results. Unless otherwise specified, all growth rates referenced during our prepared remarks are on a year-over-year basis. Net product revenue for the second quarter was $100.8 million, down 23%. As Gary mentioned, these results came in within the range of the expectations we provided on our Q1 call, which called for total revenue in the range of $100 million to $110 million. Our Advanced Wound Care net product revenue for the second quarter was $92.7 million, down 25%. As Gary mentioned, the commercial team executed well in the period, driving increased momentum towards the end of Q2 despite the delay of the effective date of the LCD, which increased the aggressive competitive pricing tactics in the period.

Net product revenue from Surgical & Sports Medicine products for the second quarter was up -- was $8.1 million, up 16%. Our total revenue results for the second quarter included $0.2 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period and we expect grant income to be immaterial in 2025. Gross profit for the second quarter was $73.1 million or 73% of net product revenue compared to 78% last year.

Gross profit was unfavorably impacted in the period due primarily to lower revenue over our fixed costs as well as the expiration of excess product resulting from the delayed implementation of the LCD and related uncertainty. Operating expenses for the second quarter were $113.6 million compared to $144.1 million last year, a decrease of $30.5 million or 21%. Excluding cost of goods sold of $27.6 million for the second quarter and $29.2 million last year, our non-GAAP operating expenses for the second quarter were $86 million compared to $114.9 million last year, a decrease of $29 million or 25%.

The year-over-year change in operating expenses, excluding cost of goods sold, was driven by a $22.8 million write-down of certain nonrecurring costs in the second quarter of 2024 compared to $1.7 million in the second quarter of 2025 as well as lower research and development and SG&A expenses, which declined 33% and 4% year-over-year, respectively. Operating loss for the second quarter was $12.6 million compared to an operating loss of $13.9 million last year, a decrease of $1.3 million.

Excluding noncash amortization and the write-down of certain nonrecurring costs in both periods, our non-GAAP operating loss was $10 million compared to $9.7 million of income last year. GAAP net loss for the second quarter was $9.4 million compared to a net loss of $17 million last year, a decrease of $76 million -- $7.6 million. Net loss to common for the second quarter was $12.2 million compared to a net loss of $17 million last year. Net loss to common includes the impact of both the cumulative dividend and the noncash accretion to redemption value on our convertible preferred stock. Adjusted EBITDA loss for the second quarter was $3.6 million compared to adjusted EBITDA income of $15.6 million last year.

Turning to the balance sheet. As of June 30, 2025, the company had $73.7 million in cash, cash equivalents and restricted cash with no outstanding debt obligations. That compared to $136.2 million in cash, cash equivalents and restricted cash with no outstanding debt obligations as of December 31, 2024. Now turning to a review of our 2025 revenue guidance, which we updated in this afternoon's press release. For the 12 months ending December 31, 2025, the company now expects net revenue of between $480 million and $510 million, representing a year-over-year change in the range of flat to an increase of 6%. The 2025 net revenue guidance now assumes net revenue from Advanced Wound Care products between $450 million and $475 million, representing a year-over-year change in the range of a decline of 1% to an increase of 5%. Net revenue from Surgical & Sports Medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 6% to 23%.

The expected increase in our revenue over the second half of 2025 will be driven by our recently launched in-licensed products that are all well positioned in today's market. We have tightened our total revenue guidance range, reflecting the performance in the first half of 2025 and our more refined expectations for the remaining 2 quarters. With respect to our profitability and EBITDA guidance, the company now expects GAAP net loss in the range of $6.4 million to net income of $16.4 million compared to net income of $4.7 million to $34 million previously. EBITDA in the range of $6.2 million to $37 million compared to $20 million to $59.6 million previously. Non-GAAP adjusted net income in a range of $5.5 million to $28.3 million compared to $15.3 million and $44.6 million previously. Adjusted EBITDA in the range of $31.1 million to $61.9 million compared to $43.6 million to $83.2 million previously.

In addition to our formal financial guidance for 2025, we are providing some considerations for modeling purposes. For modeling purposes, we expect the third quarter revenue in the range of approximately $130 million to $145 million. Our profitability guidance for 2025 now assumes gross margins in the range of approximately 74% to 76% compared to 78% to 79% previously. The updated gross margin range reflects the expected impact related to product mix shift in our in-licensed brands in the second half of 2025. GAAP operating expenses, excluding cost of goods sold in the range of flat to up 1% year-over-year and excluding noncash intangible amortization of approximately $3.4 million, the nonrecurring FDA payment related to our ReNu BLA filing of $4.6 million and the $8.3 million of write-down of assets in the first half, our total non-GAAP operating expenses will increase 3% to 4% year-over-year compared to a range of 5% to 7% previously.

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

[Operator Instructions] And our first question will come from the line of Ryan Zimmerman with BTIG.

Maybe we could start with the CMS proposal for 2026. It is a radical change from what we've seen. And I believe the proposal was set at about $125 and change per square centimeter, if I'm not mistaken. Maybe, Gary, you could talk about kind of how you see ORGO fitting within that structure as it starts the year in 2026. And what are your expectations for the market from, let's say, today through the back half of '25? And then what changes in '26 with that proposal and how the market may change?

Sure. I'd be happy to. So as you know, we've been advocating for this type of payment reform for years, literally years. So it is a transformational event for the industry and a real opportunity for our products and the Organogenesis organization. We agree with the CMS approach of setting tiers and those tiers based on clinical differentiation, relative resource cost. They've kind of broken them out based on FDA classifications where data and evidence really matters. So we feel great about this change. And the fact that it's also in HOPD, it's not just in the ASP sites of care. It's now opened up the HOPD market to larger, more complex wounds where we are the leader in that space, that just gives more opportunity for folks to utilize our technologies like Apligraf and soon to be released Dermagraft.

So Apligraf is reimbursed today at $30 per square centimeter and the current proposal at $125 would be a significant change. It would eliminate any of the disincentives financially to use the product and put it on a level playing field. But what we really appreciate is CMS establishing these tiers and we expect that we'll be lobbying for different payment rates based on those tiers. So Apligraf and Dermagraft and other PMA products will have the appropriate reimbursement based on the evidence and relative resource cost to produce those products. So this is very exciting for us, very exciting for the industry.

As it relates to the market, today, Apligraf represents about 3% of the units sold, believe it or not, a PMA product with arguably the best evidence in the space has about 3% of the market. And we see that significantly changing in 2026. 510(k) products as well. Our PuraPly product is priced below the $125 per square centimeter today. So we would see an enhancement in that product and more utilization going forward. And then a level playing field for all the amnions. So there wouldn't be a significant price advantage going forward, levels the playing field.

So we see a lot of reasons why '26 is going to be extremely positive for us. The rest of '25, I think we've seen in Q2, we've seen some aggressive pricing. We think that's going to continue and get worse at the end of the year. I assume there'll be a lot of discounting and inventory sales. Anybody who's got a lot of inventory at higher prices are going to need to move those products and we expect to see aggressive pricing. But for us, we've seen strong momentum coming out of the second quarter. Dave will talk a little bit about that. That momentum is continuing, both in accounts and in revenue. And we have a couple of new products that we've launched that will compete extremely well in this market as we bridge to 2026.

Yes. Just -- well, just to follow up on that. Your guidance reduction, I think, is around $12.5 million, if I'm not mistake -- if I did my math right, for the year at the midpoint. Given the results today, Dave, how do you -- do you think you've sufficiently accounted for this kind of aggressive behavior in the back half of the year with the reduction of the AWC segment for the balance of the year?

Yes, we do, Ryan. Thanks for the question. I mean, obviously, as Gary mentioned, we did exit Q2. We came in at the low end but exited with a fair amount of momentum. And we've recently launched some new products. And in this environment, you have to have the right products in the portfolio to succeed. And so we believe those recently launched products are going to contribute quite a bit in the back half. As Gary mentioned, there could be some challenging periods, call it, in the late period of Q4 but we think we've accounted for that. We've always anticipated that this would be -- remember, it was a relatively wide range when we first issued guidance simply because the market is in such an unusual spot here. So from our perspective, at least we just took down the top end, knowing that we've got 2 quarters behind us, 2 quarters ahead. So we just thought we'd narrow that range. But we think at the low end, we're confident and given the performance that we saw at the end of the second quarter.

Okay. Last one for me, and I'll hop back in queue. Gary, I don't think I heard, you may not want to say the timing of the Dermagraft reintroduction, can you be more specific? Or for competitive purposes, are you not saying?

Well, we can give you a sense. We think that by the second half of '27 that we'll have the opportunity to launch Dermagraft.

[Operator Instructions] We are currently showing no remaining questions in the queue. A question is raised from Ross Osborn with Cantor Fitzgerald.

This is Matt Park on for Ross today. I guess something right n ReNu. As you guys move closer to BLA submission, I guess I was trying to get your thoughts on how you think about ReNu's positioning within the broader knee OA treatment landscape? And I guess, what you guys view as the key differentiators versus existing injectable options?

I think what's really exciting is the actual data. So in the -- in both studies, we had a significant number of KL4s in the study. So the second study hasn't been completed yet but in the first study, those KL4s performed similar to KL3s and KL2s. So that is unique and it speaks to the strength of the product and potential labeling improvements in the product over anything else. So we're pretty excited that the data is showing that it's a robust product and will compete extremely well against the other competitors, which is primarily hyaluronic acid and steroids.

Got it. That's helpful. And then maybe just one more for me on the Surgical & Sports side of the business. I was just hoping to get some more color on what's driving -- or on what drove strength in the quarter and how you expect this momentum to continue in the back half of the year?

Yes, sure. We didn't adjust the guidance there. I think we did see some very strong performance. I think you're seeing some transition into some of the key products that we've got in the portfolio. And so we continue to see some nice numbers coming up from there. In addition to that, we've kind of implemented some hybrid rep situations where you're really seeing reps spanning across both Wound Care and Surgical and that added some value in the quarter as well. So we held that guidance but it's between 6% and 23%. So nice performance in the first half, up 12 -- excuse me, 16% in the quarter and 13% for the half. So we're excited to see that.

[Operator Instructions] We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.