AxoGen, Inc. Stock

Good morning, everyone, and welcome to the Axogen BioCircuit Technologies Acquisition Conference Call. On today's call is Michael Dale, Axogen's Chief Executive Officer; and Lindsey Hartley, Axogen's Chief Financial Officer.

This morning, we issued a press release and posted a slide presentation covering the transaction, both of which can be accessed on the Investor Relations section of Axogen's website at www.axogeninc.com. Today's call and presentation are being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com.

Before we begin, I'd like to remind you that during the conference call, management will be making forward-looking statements. Forward-looking statements include statements regarding the anticipated timing and consummation of the BioCircuit acquisition and related closing conditions, the expected benefits of and integration of BioCircuit, the financial guidance and outlook and anticipated performance of both Axogen and BioCircuit including the expected financial impact of the transaction, clinical development and regulatory efforts, commercial growth initiatives, reimbursement and market access efforts, training and education initiatives, research and development activities and overall business strategy and performance.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including, without limitation, the risks and uncertainties reflected in the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update any forward-looking statements, except as required by law. In addition, for reconciliation of non-GAAP measures, please refer to today's press release, presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website.

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

Thank you, operator, and good morning, everyone. Today's call will start with an overview of the transaction we announced this morning. Lindsey will then walk through the financial terms. Following our prepared remarks, we will open the call to questions. Axogen will provide additional details regarding the financial impact of the transaction when we report results post closing of the acquisition, which is expected in the fourth quarter of 2026.

Earlier today, we announced that Axogen and BioCircuit Technologies have entered into a definitive agreement under which Axogen will acquire 100% of BioCircuit's outstanding equity for a total price of $200 million in cash, subject to customary adjustments for cash indebtedness, transaction expenses and net working capital.

The cash portion will be financed with the equity offering that we announced today. This transaction is a strong strategic fit for us with Nerve Tape currently selling in the exact same markets as Axogen and is expected to strengthen our own existing financial profile. It is financially accretive to our revenue growth and adjusted EBITDA margin in 2027, assuming the transaction closes by year-end 2026. In addition, we expect to remain free cash flow positive.

Strategically, we believe BioCircuit is as close to an ideal fit as one could find. It aligns with our mission to make restoration of peripheral nerve function and expected standard of care, and it advances our innovation agenda by adding a differentiated technology that simplifies one of the most challenging aspects of nerve surgery. Nerve Tape is the first FDA-approved device for sutureless nerve repair.

Most of the work we do in nerve care is addressing one problem, reconnecting severed nerve ends. Historically, that's been the exclusive domain of microsurgery. Using sutures under a microscope, surgeons painstakingly align and connect the nerve, either directly or using a connector or a graft. This is a slow and technically demanding procedure, so it has been limited to a small population of microsurgeons trained to perform this work, which we see as one of the barriers to more patients receiving appropriate nerve care.

Nerve Tape has the potential to change that equation for many applications. It is faster and stronger than traditional microsuturing. Because it's so easy to use, surgeons in many applications no longer need the same level of microsurgical training to perform nerve repair. That means we're not just improving how existing nerve surgeons operate, we're also enabling the expansion of the universe of surgeons who can perform nerve repair.

That's why we see Nerve Tape as critical in unlocking the total addressable market of nerve repair. We believe it allows us to address new indications that our current portfolio does not serve and it lowers the barrier to entry on the current indications for our portfolio. We've been following BioCircuit and Nerve Tape for some time as the technology, commercial adoption and clinical evidence have developed.

As clinical data accumulated, the product gained commercial traction and surgeons have gained experience with the product. We've become increasingly confident in the technology's performance and safety profile. That growing confidence in our strategic goal be at the forefront of innovation in nerve repair is what brings us to this transaction today. The company's commercial traction is impressive in its short period of commercialization.

In just over 2 years, over 14,000 Nerve Tape implants have been sold to date, mostly in breast and extremities procedures across more than 400 hospitals and ambulatory surgery centers. BioCircuit has achieved $24 million of run rate revenue based on an annualized second quarter 2026 revenue, which is a considerable growth from its $11 million in 2025 revenue with a gross margin of approximately 80% and positive EBITDA year-to-date on a stand-alone basis.

Our plan is to introduce Nerve Tape into our commercial organization, leveraging our existing direct sales force, surgeon relationships and hospital contracting infrastructure to accelerate adoption. We are acquiring a high-growth product in a market we already serve, calling on surgeons we already know using a sales force that is already in place. We anticipate minimal integration risk and no meaningful commercial disruption.

As with any acquisition, our near-term priority is a smooth transition for BioCircuit's customers, employees and surgeon partners. We're truly excited about what this acquisition means for surgeons and for the patients they treat. This transaction checks the box for us by every metric.

Strategically, it's a great fit. It pushes our innovation frontier and enhances our ability to unlock our underpenetrated total addressable market opportunities. Financially, it is expected to strengthen our existing profile and the integration risk is low. I want to thank the entire BioCircuit team for building Nerve Tape, a truly novel, simpler, faster, more effective alternative to microsuturing in nerve repair. We can't think of a more natural synergistic fit with Axogen, and we look forward to welcoming Nerve Tape and the entire BioCircuit organization to Axogen.

Finally, I want to end my comments by reiterating our confidence in our performance and other strategic priorities, particularly in prostate and breast. As discussed in our last earnings call, our clinical development work remains on plan, and we expect to share more on the next -- in the next phase of our prostate strategy during our third quarter earnings call. This quarter to date, we are pleased with the continued momentum of our business, and we expect this transaction to be additive to our current trajectory.

I'd like to now turn the call over to Lindsey.

Thanks, Mike, and good morning, everyone. Under the terms of the agreement with BioCircuit, Axogen will acquire 100% of BioCircuit's outstanding equity at a total price of $200 million in cash, subject to customary adjustments for cash, indebtedness, transaction expenses and net working capital.

At closing, $1 million of the estimated merger consideration will be withheld pending determination of the post-closing purchase price adjustment. We anticipate funding the purchase price with the proceeds from the public offering of our common stock announced today. BioCircuit transaction is expected to close in the fourth quarter of 2026, subject to customary closing conditions, including completion of the spinout of BioCircuit's electronics business.

As Mike highlighted earlier, this transaction is financially compelling. BioCircuit has achieved $24 million of run rate revenue based on annualized second quarter 2026 revenue, which is considerable growth from its $11 million 2025 revenue with gross margin of approximately 80% and positive EBITDA year-to-date on a stand-alone basis. We are not providing 2026 guidance for the partial year impact at this point. We will provide updated full year 2026 guidance, including the BioCircuit contribution once the transaction closes.

Also, assuming a close of the transaction in 2026, Axogen anticipates the acquisition to be additive to 2027 revenue with accretion to gross margin and adjusted EBITDA margin. We will provide full year 2027 guidance in the first quarter of 2027. The impact of this acquisition is equally exciting to unlocking our underpenetrated TAM as the impact on our financial profile of our business. In summary, we are very excited about the significant opportunity this transaction represents.

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

[Operator Instructions] Our first question today is coming from Larry Biegelsen from Wells Fargo.

This is Simran on for Larry. So Mike, I guess our understanding is Nerve Tape, and I think you addressed this on -- in your prepared remarks as well, but Nerve Tape appears to be used primarily in the breast segment. Is that the case today? Is that correct? And how broadly applicable is it across your other repair segments?

And then maybe can you help us understand what the current attachment rate is of Nerve Tape to Axogen cases? And like what percent of cases is it currently used? And if it's an easier procedure, where does this help accelerate adoption of Avance and Nerve Tape today or in the future?

Sure. So Nerve Tape in terms of its initial usage started primarily in breast applications and oral maxillofacial. And they started in those applications because those are generally long-duration procedures and difficult. And so given what Nerve Tape is about in terms of providing a very simple and extremely fast and rapid but also very effective attachment mechanism, they thought that, that would be the best place to start.

And so that's where the bulk of their experience is. It's still relatively small in terms of the relative usage relative to Axogen's total procedures. But from a value-add standpoint, that's where they -- that's their beachhead, if you will, in terms of where they develop their experience. In terms of application, it is applicable to virtually all nerve procedures that we currently prioritize across our portfolio and further extends the potential usage to markets that we don't generally serve.

So for example, a very simple nerve transaction where you do a direct nerve repair, it does not require Avance usage and generally does not require our other Axoguard portfolio. In this instance, however, because of what Nerve Tape does, it actually extends the potential TAM for usage to that market as well. So in our hands, we will -- for each procedure where physicians are interested, obviously, we'll be extending the use of Nerve Tape very broadly.

Got it. That's helpful. Maybe another way to put it, if we assume that Nerve Tape attaches to about half the procedures that Axogen already touches at roughly the current ASP of Nerve Tape, we get to sort of a revenue line somewhere around $50 million, which is about 4x what you paid. Is that the right order of magnitude to think about? And how much higher does the peak sit because, as you mentioned, Nerve Tape opens up procedures that you are in today or opens up a part of the market that you're not in today?

Forgive me if I'm not completely tracking with your question, Simran. But to reiterate, Nerve Tape can be used in almost every procedure that we presently address across our portfolio, whether it be extremities, breast and oral maxillofacial in head and neck. There is a potential application. There's an additional opportunity for Nerve Tape usage in direct nerve repair.

So maybe I misunderstood, but that's the -- it literally can be used very, very broadly. There are situations where it does not apply, but it fills a void. And just to put a fine point on it, work in nerve repair is about connecting 2 nerves together at the end of the day. So all of our work streams, which we're taking down coverage, reimbursement, societal guidelines, building new evidence.

In the end, this is all about making and enabling the ability to conduct nerve repair. And at the tactical level, that means connecting 2 nerves together. Nerve Tape is exciting to us because it literally represents an entirely new form function, a mechanism by which you do that, that is actually superior to what was previously the existing gold standard, which is microsuturing. It is simpler. It is very fast, and it is a more effective connection in terms of its relative strength and it's also atraumatic.

And so hopefully, I answered your question. As we look to the future, we'll give guidance in the new year as to what we see with this. But the current growth rate is one that we expect to sustain and obviously extend in our hand just by giving the multiplier effect of our very large and experienced sales organization.

Next question is coming from Michael Sarcone from Jefferies.

Just to start, can you give us some background on how the transaction came to fruition? How long have you been chatting with the BioCircuit people? Just any context around the deal.

Certainly. I think it's a great question, and it's an important question. If I would ask people to go back a little more than 2 years ago in our Investor Day, one of the priorities we've always laid out is all about innovation. Fundamentally, commercialization and market development is building upon whatever your value is from a product or therapeutic standpoint as compared to an existing standard of care.

So innovation has been every bit as much a priority for us as our market development activities. And we explicitly -- if you go back and look at those slides, we addressed 3 areas that we would invest in, both internally and externally. Number one was next-generation Avance. How can we more perfect this very important product. Number two is protection. So when you do a repair, you want to ensure it has the best environment for healing. And so we have work ongoing in that work stream.

And then finally, we've always emphasized connection with a major priority for us. Now for proprietary reasons, we didn't did not disclose exactly what we meant by that in great detail. But this is just a natural step in our strategic plan to make the ability to connect 2 nerves together more possible and more effective. So to answer your question, we've been watching this asset and others for a very long time.

And we concluded in our first inspection that the Nerve Tape was unequivocally simple and fast. The question was whether it was benign. And once we got comfortable based upon the clinical evidence and the clinical experience by individual physicians, we felt it was the right asset to add to Axogen so that we continue on our journey.

Got it. That's helpful. And then you mentioned that Nerve Tapes in over 400 hospitals and ASCs I was wondering if you could talk about just the overlap between those 400 customers for BioCircuit and how that compares with Axogen's current customer base?

Sure. Amongst the 400 hospitals that they currently have access to, there's almost a complete overlap with our existing customers. Now they don't have full penetration in those 400 hospitals. It's a small organization, but they have access. What we intend to do is extend that access to our entire universe that we service, which is more than 2,000 accounts.

Got it. Okay. And then last one for me. Is there any potential risk of cannibalization here? Or is Nerve Tape completely complementary?

Yes. But it's a natural evolution in product mix. So it's no different than a Gen 1 product and a Gen 2 product. One will ultimately supplant the other. So certain parts of the portfolio will evolve in favor of nerve tape that's expected and planned for. In the end, in totality, this is accretive on a revenue standpoint as well as EBITDA.

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

Can you just start with talking a little bit about the size of BioCircuit's existing sales force? To what extent you see opportunities for synergies moving forward or any cross-selling opportunities from your existing portfolio?

Sure. So it's principally an engineering and supply chain organization. There's a very small technical support -- the clinical support part of the organization. The majority of their distribution is through independent distributors and agents at present.

So with regards to the team, in general, without disclosing explicitly the details, the vast majority of this organization will come and become part of the Axogen organization. They have a headquarters in Atlanta, and our intention is to continue those operations and welcome them into the team. There is a deep body of engineering and subject matter knowledge in the organization, and we look forward to further building on that.

Awesome. And maybe just one separate one. But Mike, could you talk a little bit more about the rationale here? I mean, another business development deal announced where you're on the buying side. How are you thinking about capital allocation moving forward and whether this deal at all signals any underlying health of your base business?

The signal that I would speak to is that we're doing great, and our goal is to do even greater. And I'm not trying to be flippant. There's nothing -- Axogen, everything that we have reiterated heretofore remains sound. Our goal is to build Nerve Tape -- excuse me, build Axogen as we've described.

So there's tremendous opportunities to add great clinical value to patients and physicians in the world. And ultimately, that's about continuing all the initiatives we previously described, our market development activities, expanding our commercial footprints, but alongside that is continuing to innovate because at the end of the day, you're commercializing innovation. And when your innovation goes stale, your commercialization goes stale. And we will never let that happen. We are currently the leaders today in every element that we practice, and our goal is to remain so. And so Nerve Tape is just part of that natural evolution.

So we're not trying to signal that there's a particular cadence of innovation, but that innovation is core to our future. And so while we don't know if it's going to happen every other year or every year or every quarter, we will continually look and aim towards perfecting. Now in terms of the metrics by which we do that, I would guide people to look at this transaction. This is a fair multiple that is accretive to the organization almost immediately based upon the current plans that we have. And in that sense, it's responsible to shareholders. And that's the kind of discipline that we intend to apply in anything that we do in the future.

Our next question is coming from Jayson Bedford from Raymond James.

Mike, congrats on the deal. I guess my first question is, are you starting to see Nerve Tape used over Axoguard? And how do you position the 2 in the portfolio?

Sure. Why don't I turn that call to Jens and just let him describe some of the clinical applications.

Yes. So as Mike alluded to, Nerve Tape really is what we consider kind of a next-generation connection device. So in cases where the Axoguard connector is used as a direct quotation mechanism, Nerve Tape could be another option that the surgeons use. But it's not completely replaceable of connector use cases. So connectors, Axoguard Connector is also used, for example, where there is a small gap between the nerves, right? And that would not be applicable for Nerve Tape.

So for a direct nerve repair where you have a direct quotation, that's really where we see the fit for Nerve Tape. And that can be a direct quotation of 2 native nerves. And it could also be as a quotation aid with Avance Nerve Graft. So we really see it as a really strong complement to our portfolio that offers surgeons more choice for quotation mechanisms.

Okay. That's helpful. Are the economics to Axogen better with Nerve Tape or Axoguard.

They're very similar actually.

Okay. It looks like there's another product. I don't know if you mentioned it, ConformaWrap. Is that a relevant contributor to the revenue generation of BioCircuit?

It is not. The acquisition was driven by Nerve Tape.

Okay. But you'll continue to sell ConformaWrap or...

We haven't made a final decision, but it's unlikely.

Next question is coming from Ravi Misra from Truist Securities.

Congrats on the deal. So I just 2 for me. First, just on the -- can you help us think about the kind of algorithm in breast between Avance and Nerve Tape, whether it's complementary or what types of procedures there's overlap in, whether it's flap or some other type of repair?

And then secondly, Lindsey, maybe one for you. On the guidance, I appreciate you're not giving the partial year guide given the deal hasn't closed yet, but just want to see how you're still thinking about the current guide heading into 3Q.

Yes. I'll start. I'll answer the first question -- or the question regarding the guidance. So we're basically -- we're not updating our guidance right now. So our current guidance stands. Until we complete the closing of this transaction, then we'll provide updated guidance.

That makes sense, Ravi?

Yes, definitely. And then if you could just help me think about the algorithm in breast?

Yes. So if we think about an implant-based reconstruction and with the resensation technique. And so today, that involves using Avance and then typically 2 Axoguard connectors. So Axoguard connectors are used as the co-optation mechanism at the proximal end and at the distal end. So where basically the Avance Nerve Graft connects to the nerve -- the native nerve stumps. And so Nerve Tape will then be able to be used as those co-optation mechanisms at both the proximal and the distal end.

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

Congrats on the deal. I wanted to start with a question around the expansion in surgeons and care settings. I'm sure it's challenging to quantify, but you referenced a few thousand or greater than a few thousand accounts that Axogen is in today, 400 accounts for BioCircuit. Maybe how many accounts are available given the simplicity factor of Nerve Tape and maybe how many incremental surgeons are now available to you?

Well, there's -- quite literally, every account that we serve is an account that will ultimately have a home and have a need based upon their work for Nerve Tape. So the entire universe. And in terms of surgeons, in totality, Jens, is it 4,800?

Yes, over 4,000.

Yes. More than 4,000 surgeon users -- are potential users of Nerve Tape. Because again, it's really important to emphasize in everything that we do, other than protection, where you're just wrapping or protecting a nerve that's otherwise intact. In every other situation, you're using microsurgery to connect 2 endings. So in that case, almost all of those situations are potential uses for Nerve Tape.

Got it. That's helpful. And then maybe just my second one on gross margins. Obviously, 80% is a great margin already, but at $24 million annualized run rate, I'm sure there's still a scale factor in play that can optimize that gross margin. Maybe any thoughts around long-term gross margin potential of Nerve Tape?

Not yet, simply because until we get into the details of that ourselves with the BioCircuit team looking at what kind of economies of scale might result, we truly don't have any additional insight beyond the current 80%.

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

Thank you, operator. On behalf of the Axogen team, I want to, first of all, thank the collective teams at BioCircuit and Axogen. We are excited about the opportunity to bring our 2 companies together and to extend our leadership position in peripheral nerve care.

Secondly, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders of our business purpose, which, as a reminder, is to restore health and improve quality of life by making restoration of peripheral nerve function and expected standard of care.

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

Good morning, everyone. Joining me on today's call is Michael Dale, Axogen's President and Chief Executive Officer; and Lindsey Hartley, Chief Financial Officer. Michael will discuss second quarter 2026 financial results and corporate highlights. Lindsey will then provide details on financial performance and overall outlook for the year. This will be followed by a question-and-answer session. Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com.

Before we begin, I would like to remind you that during this conference call, management will be making forward-looking statements. Forward-looking statements include statements regarding financial guidance and outlook; clinical development and regulatory efforts; commercial growth initiatives, reimbursement and market access efforts; training and education initiatives; research and development activities; and overall business strategy and performance.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including, without limitation, the risks and uncertainties reflected in the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date they are made and the company undertakes no obligation to update any forward-looking statements except as required by law. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release, presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website.

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

Thank you, operator, and good morning, everyone. Today, I will walk you through our second quarter performance using the same lens we've used all year, which are the 6 priorities that comprise our strategic plan. Once I've concluded my commentary, Lindsey will review our financials in detail. After which, we'll open the call for questions.

As preface to my review of performance for each strategic priority, I want to make clear on behalf of the Axogen team that we are delighted with our customer creation and market development performance. What you will hear today is that consistent with our plans across Extremities, OMF & Head and Neck, and Breast and prostate; we are exceeding our goals for growing adoption of nerve care by existing surgeons, increasing the numbers of new surgeons, expanding the number of new accounts and growing patient awareness overall.

Our 23% year-over-year revenue growth this quarter and increased revenue guidance for the remainder of the year reflects this progress and our confidence in the appropriateness of our strategic priorities. While all markets are enjoying strong year-over-year growth, Breast growth is particularly strong and accelerating, reflecting the impact of our market development programs, increased patient awareness, improved coverage and payment and expanded sales force coverage. As a result, we will be reporting on the Breast business separately in more detail.

Starting with our first priority, revenue growth and financial operating leverage. As reported this morning in our earnings release, second quarter revenue was $69.7 million, up 23.1% versus the second quarter of 2025, reflecting broad-based growth across all 3 target markets. Breast led the way contributing approximately 2/3 of the quarter's growth with first half 2026 revenue up 47% year-over-year. At the same time, Extremities, OMF & Head and Neck and other indications combined delivered solid 15% year-over-year growth through the first half.

Adjusted net income was $7.3 million for the quarter, adjusted EBITDA was $8.4 million and we ended the period with $113.4 million in cash, cash equivalents, restricted cash and investments. Consistent with prior quarters, performance was driven by strong demand for Avance and continued adoption of our broader product algorithm across all target markets. Avance represented 65% of total revenue in the second quarter and 63% year-to-date, up from approximately 60% in 2025. Commercial execution remains strong across the business.

Sales force productivity continued to exceed our expectations and our active surgeon count increased meaningfully during the quarter, an indicator we monitor closely because it reflects broader institutional adoption of nerve care. We are also realizing the benefits of the sales force expansion investments we made throughout 2025 and the first half of 2026 as those representatives progress through their ramp and approach full productivity consistent with our market development model.

Overall, these results reflect the strength of our commercial organization, the growing adoption of nerve care and consistency and execution of our long-term growth strategy. Gross margin for the quarter was 72.7% compared to 74.2% for the second quarter of 2025 and less than our plan. The shortfall was driven primarily by product mix as breast growth accelerated faster than planned and relies more heavily on longer Avance breasts, which carry higher production costs.

Our manufacturing plans anticipated a growing breast business, but not the relative change in revenue mix between our target markets that is now occurring and the resulting impacts on longer graft product mix. We will address these changes in product mix through pricing actions and production efficiency initiatives. However, these measures will take time to implement and as such, are unable to affect the remainder of our 2026 forecasted product mix. As a result, we are updating our 2026 gross margin guidance to be at least 73%. Looking forward, our operating bias remains to support growth in all target markets while continuing to improve operating margin, EBITDA and operating profit.

Moving on to our second priority, market development across Extremities, Oral Maxillofacial & Head and Neck and Breast. Consistent with prior quarters, each of our 3 target markets contributed positively to second quarter results. Extremities and OMF & Head and Neck, both continued the steady progress we've described on prior calls reflecting ongoing incremental surgeon activation and adoption of the Axogen nerve repair algorithm and continued account level engagement, reflecting strong execution of our high potential account development strategy.

As mentioned earlier in my comments, year-to-date Breast grew 47% year-over-year driven by added commercial capacity, training of new surgeons, expansion of coverage and payment and increasing surgeon and patient awareness. We believe we're still early in this market's development even as it becomes a larger part of our overall mix. We now have roughly 215 active breast programs, an increase of over 40 programs year-over-year and roughly 560 active surgeons, an increase of over 150 surgeons year-over-year.

As a reminder of how we think about our markets longer term, each one sits at a different stage of development with different referral patterns, different training requirements and different reimbursement dynamics. We outlined the size and potential of each prioritized market opportunity at our Analyst Day in March 2025 and second quarter and year-to-date results continue to reinforce the validity of this opportunity framework. We remain confident these markets can support double-digit growth for a long time as we continue to build the infrastructure, the evidence and the awareness required to make nerve repair an expected standard of care.

With regards to priority 3, commercial expansion, we ended the second quarter with a total commercial organization of 172 sales representatives, market development managers and regional directors across all markets, consistent with our plan for disciplined, steady expansion of our commercial footprint. Year-to-date we have added 15, including 9 in Extremities and 6 in Breast, bringing those teams to 140 and 29, respectively, along with 3 dedicated market development managers in OMF & Head and Neck.

We are very encouraged by our return on investment in sales force expansion. New representatives, those in their role for less than 9 months, continue to contribute meaningfully to our growth. We believe these results validate one of our core assumptions that expanding sales coverage is one of the most important levers within our control to affect market development and customer creation.

The fourth priority of our strategic plan is commercial excellence, specific to our emphasis on high potential accounts, productivity and education. High potential accounts continue to be a primary engine for our revenue growth representing 60% of total revenue and 51% of growth year-to-date. Consistent with overall Axogen growth, productivity in high potential accounts was 20% year-over-year. The number of active high potential accounts increased to 690, up 11 year-to-date.

Non-high potential accounts continue to grow as well representing 40% of Axogen's total revenue year-to-date and driving 24% year-over-year productivity per account. Growth in these accounts reflects growing awareness and adoption of nerve care in general. Active surgeon growth has increased by more than 210 year-to-date with more than 135 added within high potential accounts year-to-date. We have exceeded our plan for active surgeon growth in 2026. Regarding our professional education programs, year-to-date we have conducted 9 programs across all target markets training 155 surgeons.

Next, I'd like to update everyone on our fifth priority, standard of care, evidence and coverage development. As of today, commercial payer coverage for Avance is approximately 86% of covered lives in the United States. Aetna remains the largest commercial payer not yet covering Avance. Based on historical timing, we expected an update in June. However, Aetna's review is ongoing. If Aetna issues a favorable decision, we will consider that near universal commercial coverage in our existing markets in the United States with approximately 95% of commercial lives with access to Avance.

At that point, only a few regional payers in Humana will remain. Evidence generation remains a core pillar of our strategy to support development of nerve care guidelines and drive broader adoption of nerve repair and protection. This quarter, we advanced this strategy across multiple fronts. The recently published REPOSE study is an important example. REPOSE provides prospective randomized clinical evidence evaluating Axoguard Nerve Cap as an adjunct to standard neurectomy for symptomatic neuroma.

The results reinforce the clinical rationale for protecting the nerve end after resection with favorable signals in pain burden, medication reliance and recovery-related outcomes over follow-up. Importantly, we view REPOSE as more than a study in 1 procedure. It strengthens the evidence foundation for our nerve protection portfolio and supports the broader clinical message that nerve management matters when surgeons are addressing pain, function and quality of life.

We are also advancing RESTORE, our randomized assessor-blinded study comparing Avance to sural nerve autograft in mixed and motor peripheral nerve reconstruction. This is strategically significant because autograft has long been viewed as the historical benchmark in complex nerve reconstructions. In second quarter, we activated our first site in the United States and are screening for patients. We are on track for additional site activations in the second half of 2026.

Another important evidence generation initiative is Embrace, our prospective assessor blinded study evaluating sensory restoration following nipple-sparing mastectomy and implant-based breast reconstruction comparing Avance supported neurotization to reconstruction without neurotization. As we have discussed previously, generating high quality clinical evidence in breast reconstruction remains an important strategic priority for Axogen. The program remains on track for initiation later this year consistent with our strategic operating plan.

Taken together, these initiatives demonstrate execution as planned of our strategic evidence generation plan to make restoration of peripheral nerve function standard of care. And finally, our sixth priority, which is about innovation, research and development and therapeutic reconstruction. Consistent with our strategy to expand Axogen's leadership in peripheral nerve care, we made a strategic investment in Trace Biosciences this quarter acquiring a minority ownership stake, including a limited right of first refusal.

Trace's nerve-specific imaging technology, Nervetrace, is designed to help surgeons visualize nerves in real time, potentially reducing nerve injury and improving the identification of repair opportunities. We view Trace as a highly complementary adjacency to Axogen platform. Trace helps surgeons find and protect nerves while Avance supports repair when a nerve gap is identified, serving the same surgeons, patients and procedural setting.

Trace received FDA clearance of its IND in January 2026 and our investment supports advancement through Phase II and III clinical trials toward an NDA. This structure gives Axogen exposure to a differentiated technology with strategic fit while preserving capital discipline and future flexibility as the program progresses.

Turning to our prostate program. We continue to make progress and our clinical development work remains on plan. We expect to share more on the next phase of our strategy during our third quarter earnings call. What we continue to hear through our surgical experience program is that there is a meaningful unmet need. Erectile dysfunction and incontinence remains significant quality of life challenges for many patients after radical prostatectomy. We believe nerve reconstruction with Avance may have an important role to play and this work is helping us better understand the urology market, build procedural experience and generate early data.

As we look ahead, our decision to move forward will be guided by the market opportunity, the ability to standardize and scale the Avance technique, surgeon feedback on clinical impact and evidence of patient demand that can help shape the care pathway. So far, our assessment is progressing well and we look forward to providing a detailed update in the fourth quarter.

In closing, second quarter performance reflects continued disciplined execution against our strategic plan and commitment to our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We're encouraged by the momentum across the business and are confident in our ability to overcome the inevitable challenges that come with new market development and building an enduring profitable business.

I'll now turn the call over to Lindsey to walk through the financials in more detail and our updated outlook for the remainder of 2026.

Thanks, Mike. I'm pleased to report our second quarter 2026 financial results. For the second quarter, we reported revenue of $69.7 million reflecting growth of 23.1% year-over-year. Revenue growth continues to be driven by strong demand for Avance and adoption of our product algorithm across target markets with unit volume serving as the primary driver then price. For the first time, sales from extremities were less than 50% of total sales as we experienced growth of over 50% year-over-year in our Breast market.

Through the first half of 2026, we continue to have double-digit year-over-year growth in all our markets. Gross profit for the second quarter came in at $50.7 million. This represents a gross margin of 72.7%. Gross margin decreased 150 basis points year-over-year driven by 4.6% higher product costs, partially offset by 2.7% lower write-offs. Sequentially, gross margin declined 250 basis points driven by 1.8% higher product costs and 0.7% write-off.

Gross margin in the second quarter was less than our internal projections primarily due to: one, selling more higher cost biologic Avance starting in April than expected; and two, the demand for certain long length Avance growing faster than the rest of the Avance portfolio. These 2 factors impacted gross margin approximately 1% versus our internal expectations. This demand for long length Avance largely stemming from the growth of our Breast business exceeded our internal expectations by approximately 14% in the quarter.

To better align production with this updated demand profile, we adjusted our production plans beginning in the third quarter, which we expect will increase Avance product cost. As a result, we now expect our full year 2026 gross margin to be at least 73%. As for the cadence of the second half, we expect gross margin to be higher in the third quarter than the fourth quarter. As our non-breast markets continue to grow and demand broadens across a wider range of graft sizes, we expect donor yield efficiency to improve, supporting gross margin expansion over time.

We also have multiple initiatives underway focused on increasing graft yields, including long length Avance grafts. We plan to provide an updated long-term financial framework in the first quarter of 2027. With recent payer coverage wins and BLA approval creating meaningful growth opportunities, we believe additional time is needed to assess their full impact. We have consistently outperformed our long range revenue growth target of 15% to 20% CAGR and believe we remain well positioned to continue doing so.

Operating expenses increased to $52.8 million in the second quarter, up from $40.3 million in the second quarter of 2025 and increased 4.6% as a percentage of revenue. The increase year-over-year was driven primarily by compensation cost and stock-based compensation expense tied to certain PSUs anticipated to achieve above target on revenue growth components. Sequentially, as a percentage of revenue, operating expenses decreased 4 percentage points.

Sales and marketing expenses as a percentage of total revenue increased 2.2 percentage points to 44.2% in the second quarter compared to 42% in the second quarter of 2025. The increase year-over-year reflects investments in our commercial strategy to support our market development initiatives and long-term growth plans. Sequentially, as a percentage of revenue, sales and marketing expenses decreased 2.4 percentage points.

Research and development expenses increased 25.3% to $8.6 million in the second quarter compared to $6.9 million in the second quarter of 2025 and as a percentage of total revenue, increased slightly to 12.3% from 12.1%. Our continued investment in research and development is essential to our mission of making peripheral nerve repair a standard of care through the development of clinical evidence and innovation. Sequentially, as a percentage of revenue, research and development expenses remained relatively flat.

General and administrative expenses increased 38.4% to $13.4 million in the second quarter compared to $9.7 million in the second quarter of 2025 and as a percentage of total revenue, increased 2.2 percentage points to 19.3% from 17.1%. Sequentially, as a percentage of revenue, general and administrative expenses decreased 1.7 percentage points. Net loss for the second quarter was $1.5 million or $0.03 per share compared to net income of $0.6 million or $0.01 per share in the second quarter of 2025. Sequentially, net loss improved $18.1 million.

As a reminder, net loss in the first quarter included a onetime loss of $16.8 million, which was incurred upon the extinguishment of our debt facility in January. Adjusted net income was $7.3 million or $0.12 per share for the second quarter compared to an adjusted net income of $5.7 million or $0.12 per share for the second quarter of 2025. Sequentially, adjusted net income improved $3.1 million. Adjusted EBITDA for the second quarter was $8.4 million compared to an adjusted EBITDA of $9.3 million in the same period last year. And as a percentage of revenue, decreased 4.2 percentage points to 12.1% from 16.3%.

Sequentially, adjusted EBITDA improved $2.7 million. Adjusted net income and adjusted EBITDA are calculated as net income or EBITDA adjusted for stock-based compensation and the loss on the extinguishment of the debt. The improved bottom line performance demonstrates our ability to drive both top line growth and enhanced profitability. As of June 30, 2026, cash, cash equivalents, restricted cash and investments totaled $113.4 million. Through the first half of 2026, we generated $4.1 million of free cash flow.

Based on our year-to-date performance and visibility into the remainder of the year, we are revising our full year 2026 financial guidance. We now expect full year 2026 revenue growth of at least 24% or revenue of at least $279 million. Full year 2026 gross margin is now expected to be at least 73% and we continue to expect to be free cash flow positive for the full year 2026. This guidance reflects continued confidence in commercial execution across all 3 core markets and the ongoing sales force productivity improvement. It does not assume material benefit from payer coverage decisions beyond what is already known.

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

[Operator Instructions] Our first question is from the line of Mike Sarcone with Jefferies.

I guess just to start, I wanted to hone in on 2Q. Nice quarter, but we did see some decel versus the 1Q and I know you saw some pretty nice acceleration in Breast. I was wondering if you could unpack growth in some of the other markets just for the 2Q. I know you gave us kind of an update on the 1H growth, but maybe dig more into 2Q and talk about the moving pieces there, if possible.

Sure, Mike. We're not going to break out the other segments as we are now Breast going forward. However, the other markets are growing consistent with prior comments. So relatively different bases, Extremities being the largest; OMF, Head and Neck being smaller; but all the markets are growing handsomely.

Okay. Great. And then maybe just on the outlook. That's a nice guide raise you baked in there. I was wondering if you could talk about what are the key assumptions as we get into 2H? Any color on the end markets there? And then how we should think about sales cadence through the rest of the year?

Sure. So what we're -- the most significant factor if we had to pull one out that we now have enough time to look back upon is the investments in sales footprint coverage. So for all markets, those individual investments have been very rewarding. So very high double digits. In other words, expand the opportunity to knock on a door and people respond. So we will be working hard to accelerate that activity. Obviously we have a plan for this year. We're going to look at expanding it further and will continue into the future.

The caveat or not caveat, but the constraint in terms of those investments will be that we will not go backwards in profitability, but we will continue to expand as aggressively as we can within that constraint, the sales force footprint. The other element that we see direct evidence taking place is that in the planned procedures such as Breast for example, the patient awareness and the surgeon awareness has grown significantly and is becoming a driver of activity and adoption.

All the other elements are also very positive just in general for the business, coverage and payment. But in terms of picking out 2 elements that are major factors that we're gaining more and more confidence in, it would be sales force footprint expansion and then secondly, patient and surgeon awareness.

Awesome. And if I could just squeeze one more in there. Just you talked about Aetna continuing to review the policy. Any cause for concern that they haven't published an update in kind of the timelines you've seen historically or how are you guys thinking about Aetna coverage timing?

I'll let Rick elaborate. But no, I mean we're disappointed that they haven't made a decision. We thought for sure that there would be one in June. But we know there is activity, but I'll let Rick comment.

Mike, thanks for the question. We know they're looking at it and I would -- I try to view it through the optimistic lens, which is sometimes these medical policies can just get rubber stamped. Hey, this is the annual update, we're just going to pass it through and approve it. And the fact that they're taking time I think means they want to get it right. So we're hopeful.

The next question is from the line of Larry Biegelsen with Wells Fargo.

This is Simran on for Larry. Congrats on the results here. Maybe just to start off on gross margin. Mike, maybe help me understand, I think we generally view Breast as a higher ASP opportunity. So just any additional color that you can provide around what exactly is driving the lower margin profile for Breast? And can you elaborate on those pricing and manufacturing initiatives that you mentioned? When should we begin to see those offsetting the pressure?

Sure. So with respect to the product mix changes, that's an area in our own internal forecast. So we've always known, as I mentioned in my comments, that these businesses would be growing. But the gross margin plan assumed a relative constant in terms of the product mix between these. That's gotten ahead of us. It's driven by good news, i.e., breast adoption is going faster than we originally planned and assumed. But the result is that product mix reflects a higher relative cost and specifically for costing so our cost per millimeter is linear. What is not linear is our actual pricing model. And I've been aware of this for a while and I've held off making a decision. So that's my bad. And so that's one key element, which we will address in the future.

The other one is just general efficiency initiatives in terms of production. And as with any supply chain, there's always something you can do more effectively. Given the nature of the supply chain, we won't go into the actual details, but we have a number of initiatives that we have very high confidence in, we'll address that. Looking ahead, the bottom line is how to model the business. We still believe 75% gross margin is the appropriate conservative number to look at overall.

With regards to this year, however, the things that I've mentioned, there is not a mechanical element or a process that would allow us to implement these such that they would have effect in terms of the product going through and being recognized as sold for the remainder of this year, hence, the guide that we made.

Got it. That's very helpful. And maybe just to bounce off of the prior question around guidance. Appreciate all the color on kind of how your expectations have changed versus the beginning of the year. But the guidance does imply that growth is around the 23%, which is essentially what you delivered here in Q2 for the second half of the year. So how are you thinking about durability of that momentum into the second half? And even just beyond as you continue to grow well above the 15% to 20% LRP, does that reinforce your confidence that you can sustain growth at the high end of that range over that framework?

Yes. So with regards to customer creation initiatives, virtually every initiative is at plan or exceeding plan and this reflects what we've largely assumed of course in terms of the opportunity for Axogen is that nerve care is dramatically undertreated, but there is interest in doing better in these particular areas, whether it be emergent or planned procedures. And so as long as we keep knocking on doors and providing in a competent professional way the service and support to do that, we remain very confident.

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

Congrats on the nice quarter. Maybe just one to start for me. In terms of the guidance, obviously a healthy raise here. You mentioned that it doesn't necessarily reflect any additional procedure growth from commercial wins we haven't seen yet. In terms of what you've started to build in from the ones that we have, can you just talk about the magnitude or help quantify that at all?

If I understand the question, you're asking about how do we quantify coverage and payment. Is that right, Mike?

Yes. Basically just if you've started to build in some additional credit from some of the commercial reimbursement wins that you've seen already for the back half of this year?

We certainly know that there's been effect and the effect is that the sales cycle gets reduced primarily. You no longer have the objections, you no longer have to go through a process to overcome that kind of obstacle. But the magnitude of it is at a point yet where it's still difficult for us to actually put a number to or quantify it. And it goes back to prior comments we made is that we know these events are not light switches. I know people get tired of hearing that, but it really is not one. It's one that takes time to take root and that's what we're in the middle of.

It's all getting better everywhere, but it's not fully in place. It's for the previous reasons that we've described. When these events take place, people need to be -- the approval of the extension of coverage needs to be socialized with both physicians as well as the institution. And then the institution, if they haven't already done so, need to negotiate their payment rates. And so that's why generally -- I'm generalizing here, maybe Rick can add to this. These are typically 6 months minimum cycles at which it takes in order to really enjoy the full benefit of that.

Maybe to add a little color, Mike. We've been tracking this closely. As you can imagine, we get asked this frequently and I want to give my boss a good answer. What we see is a lot of our growth is driven by same-store sales or believers are adopting more thoroughly. And then there's sort of a long-tail distribution of new program starts. And so I know it was in our script and prepared remarks on number of surgeons and number of programs and you see good growth there. I wouldn't say that that's added up to be a significant tailwind yet, but we're hopeful here in the back half and moving forward into '27.

Understood. Yes, I really appreciate the color there. And then maybe just a separate one on strategy. Taking a minority ownership stake in Trace Biosciences, would just love to hear your perspective in terms of why now external business development might have been the right fit for you.

Certainly. Timing is one of those elements of life which you need to be ready for. You can't always plan. And as we learned and we've been looking at this space for a while as core to our long-term strategic plan is that we innovate as defined by genuinely distinguished advantage based on benefit versus risk. And with one of the biggest challenges in nerve care is one, seeing the problem and then secondly, of course doing something about the problem. Both of those are difficult. It's easy to make that statement sounds very simple.

But when you get into complexities and you actually look at these wound beds sometimes people are dealing with, it is remarkable how difficult it is to see what it is you're trying to address and understand. So enabling the ability to see a nerve is huge. And so what we have observed with Trace and have high hopes for is that they will be the technology that will give the first opportunity to genuinely illuminating these wound beds in these situations so that nerve care is simply easier to do and more effective as a result.

The next questions are from the line of Caitlin Roberts with Canaccord.

Congrats on the quarter. Just to start out, thanks for beginning to break out Breast and Avance within your revenue mix. Breast is driving about 2/3 of the growth in the Q2 you noted. What was the growth mix in prior quarters since you pointed out that the mix has really grown more to Breast relative to the other indications recently? And just given the updated guidance, how much of that growth and/or mix do you expect to be from Breast for the full year?

With regards to Breast, Breast has always had very high double-digit growth, but we're now reaching new levels is the best way to put it. And so looking forward while the growth with regards to OMF, Head and Neck and Extremities continues very nicely on this larger base, Breast is driving the most significant acceleration within the product mix.

Got it. And then just any update on the Elevance gap length restriction and conversations to maybe remove those restrictions or maybe how -- any color on how restrictive this has actually been in practice for the policy?

I'll ask Rick to comment.

Caitlin, thanks for the question. What I can tell you is the team at Elevance, we reached out and they were very willing to meet with us. So we educated them with a couple of world-leading surgeons from well-known institutions and we're hopeful this gets resolved sometime in the next 6 to 12 months, probably when they do the annual update next year. What I'll tell you is in practice, we don't hear about a lot of Elevance denials. So that's just a little bit of color. Our sales force is trained if they get a denial to give our team a call and we're not hearing a lot of it.

The next questions are from the line of Anthony Petrone with Mizuho Group.

Congratulations on another strong quarter here. One on Breast and one on prostate for the team here. Maybe on Breast breaking out numbers here, hitting an inflection point. And I know some of the comments just a few moments ago were it's mostly same-store sales, but to a lesser extent, you're seeing traction from new accounts as well. But maybe applying those comments to the breast program here, you have 215 active programs and 560 surgeons. That's 150 new surgeons. So how much of that is same-store for Breast versus new account? And what do you think you can get in terms of total account penetration in Breast by the end of the year? And I'll have a quick follow-up on prostate.

Sure. Maybe I'll ask Jens to comment in terms of the actual breakout and I can give some larger color in terms of the futures here.

Yes. I think when you look at the Breast growth, we see both existing programs accelerating adoption. And within those programs, that's driven by existing surgeons, but we're also successfully activating new surgeons within these existing programs. So we do see a very healthy contribution from new surgeons, also new programs, and then we continue to grow our existing programs as well. So it's really nice growth across the entire customer cohort that we see.

A little background to build upon what Jens just shared, Anthony, is we now see a situation where we have people calling us asking for the opportunity to attend our programs. We also hear from physicians is how often patients now are bringing up resensation as an option for their reconstruction. So it's been a gradual change, but it's definitely a change that's underway. And to say it simply, any program or any physician within a program now feels that they need to know how to do this procedure and need to be able to offer this as an option in order to remain relevant.

That's helpful. And then a quick one on prostate here, just data coming second half of the year. Maybe if we can -- a little bit on some guideposts for what we should be expecting. I know the studies with radical prostatectomies. What should we be expecting in terms of the key endpoints just as some guardrails in terms of success factors? And when we think about prostate when we look ahead, is it specifically for just radical prostatectomy or all prostatectomy surgeries?

The initial data set that we will present on has been done within the constraint of robotic surgical interventions and these are radical prostatectomies that have been conducted. The patients all had prior function before their diagnosis and the intervention. And so we're looking at the ability to restore the function that they enjoyed before their procedure and it's done across a little over 100 centers, a little more than 100 patients. We have about half of those patients have more than 6 months of follow-up now.

We're looking at both safety, reproducibility and the outcomes as measured by erectile function, time to restoration of function, quality of function and then the same with regards to incontinence. So in third quarter what we're still in the process of planning is the actual structure of our report, but we will have physicians involved who are key implanters who we'll invite so that you can speak to them directly. And they will provide their perspective on the relevance of the procedure and the feedback. All we can say at this stage is what we've been saying is that it's looking good, but it's appropriate that we wait for a little more follow-up on these patients so that there's no surprises. But trends at this point in time are positive.

We're doing a lot of go-to-market planning, as you might expect, doing physician -- excuse me, patient preference studies. We completed 2 of those, remarkable feedback. So it's really driven by what Axogen has the opportunity to bring to the world in the way of a benefit versus risk proposition. We introduced essentially no risk. The risk is already incurred. And what we offer is the potential of mitigating the consequences of these interventions or these injuries.

And we have a lot of experience in terms of the ability to provide a clinically meaningful benefit. And so when you think about the fact that you have to undergo one of these procedures, the ability to occur no risk, but to mitigate that and you can probably guess what the patient preference studies are suggesting. So if our data holds up and we'll certainly have that by Q3, I think it will be a very important part of our business in the future.

And just to clarify one point that Mike mentioned was we have over 100 patients across more than 10 sites -- he actually said 100 sites.

The next questions are from the line of Jayson Bedford with Raymond James.

Just 2 quick ones here. First off, I guess across the coverage across the sector in health care where there's been some mixed messaging on ACA dynamics. It doesn't seem, I guess, from your results that you're getting too much here given the strong growth. I'm just curious are you seeing an impact from some of these ACA dynamics? And how would you characterize the procedure environment now? And just thinking ahead in second half, fair to say that procedure demand is strong given the guide?

We have seen no impact of any kind with regards to the ACA dynamics. We're following the news, but it has had no effect on our business to our knowledge.

Okay. That's helpful. And then just a quick one, digging a little deeper on the Trace investment there. Is the idea here that it's kind of broadly applicable across your indications? Is this more for trauma and extremities where the wound bed is a little messier whereas like breast is cleaner given the elective nature? Kind of can you help us think about what this does for you on an indication basis?

Yes. The simple metaphor I would use is the rising tide. So it's going to help every procedure. It's akin to that of imaging and cardiology. In other words, you're just going to be able to see what it is you need to see in the first place today, but you're going to be able to see it more easily and more distinctly. And so this will enable nerve care very, very broadly.

The next question is from the line of Frank Takkinen with Lake Street Capital.

I was going to continue on with some additional questions around the Breast business. What I'm really trying to get at is understanding really what inning we are in. I think back of the envelope math implies that we're maybe in the low to mid-teens percent penetrated into the market opportunity you lay out in Breast. But maybe a few metrics around what do you think the total program opportunity is? How many surgeons are out there that are doing these types of procedures? How many reps might you need to convert this opportunity? And then what are some of the big bottlenecks? And I'll stop at one question given they're multipart in there.

Sure. We're still in very early innings. It's just very important to appreciate. So the total number of sites to service is about 1,200. Now to whether all 1,200 someday will be developed, that's difficult to say. But the long and short of it is that the sites that are currently up represent only a small number of the potential market development opportunity that exists. We just had a surgeon visit just the other day, a very active busy person, and he reminded us that he still has a huge population that comes through and they don't know anything about breast resensation. They don't know about the consequences of their mastectomy and they certainly don't know anything about Axogen. And so I guess that's just why I keep repeating that we believe we have years ahead of us in terms of high growth potential as we develop these opportunities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lindsey?

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

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

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

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

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

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

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

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

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

Thank you very much.

Thank you.

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

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

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

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

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

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

Our next question comes from Larry Biegelsen with Wells Fargo.

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

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

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

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

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

Our next question comes from Mike Kratky with Leerink Partners.

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

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

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

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

Rick, why don't you take that question?

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

Our next question comes from Jayson Bedford with Raymond James.

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

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

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

Our next question comes from Caitlin Roberts with Canaccord Genuity.

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

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

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

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

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

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

Our next question comes from Anthony Petrone with Mizuho Group.

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

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

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

It's breast specifically.

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

Jens, why don't you address that?

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

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

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

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

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

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

Our next question comes from Dave Turkaly with Citizens.

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

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

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

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

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

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

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

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

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

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

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

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

Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Can you hear me?

Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you.

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

Thank you.

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

Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com. Before we begin, I'd like to remind you that during this conference call, management will be making forward-looking statements, which are statements that are not historical facts and are based on current expectations and assumptions regarding future conditions, events and results.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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

Next question is coming from Larry Biegelsen with Wells Fargo.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That's correct. .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And then...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I think we have time for 1 last question.

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

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

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

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

Thank you.

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

Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of AxoGen's website. Following the end of the live call, a replay will be available in the Investors section of the company's website at www.AxoGeninc.com. Before we get started, I'd like to remind you that during the conference call, the company will make projections and forward-looking statements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

From case stock specifically?

Yes, on the gross margin line.

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

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

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

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

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

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

Sure. Jens, are you on the call still?

I am.

Go ahead.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you. This concludes……