Organogenesis Holdings Stock

Thank you. Welcome ladies and gentlemen to the second quarter 2026 earnings conference call for Organogenesis Holdings Inc. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's with the Securities and Exchange Commission, including item 1A, Risk Factors, of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.

We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gilheny, Sr., Organogenesis Holdings President, Chief Executive Officer, and Chair of the Board.

Please go ahead, sir. Thank you, operator, and welcome everyone to OrganiGenesis Holdings' second quarter 2026 earnings conference call. I'm joined on the call today by David Francisco, our chief financial officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with a brief review of our results and key developments in the second quarter and in recent months. We will then provide you with an in-depth review of our second quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you some closing comments before we open the call for your questions. Let me begin with a review of our results and key developments in Q2.

Our revenue results reflect the significant contraction and slow pace of recovery in the skin substitute market as a result of the actions and comments from CMS in late December of 2025. Total revenue decline 58% year-over-year in the second quarter, driven primarily by a 61% decline in sales of our advanced wound care products. We were pleased to see measured improvement in our business trends in the second quarter. On balance, we were encouraged to see the operating environment improve from what we experienced during the first quarter. Net product revenue increased 18% quarter over quarter in Q2, driven primarily by a 23% sequential increase in sales of our advanced wound care products. As a leader in the industry, we leveraged our most comprehensive portfolio across multiple FDA classifications, including the only biologic PMA-approved product, Applegraph, to enhance our market share position with a 30 percent increase in wound care unit volume on a quarter-over-quarter basis, outperforming the declines that have been reported across the board. the industry. That said, revenue results for Q2 were below the expectations we outlined in our first quarter call.

We attribute the majority of this performance to a slower pace of recovery from the significant contraction in the skin substitute market as a result of the sweeping changes from CMS to reform coverage and payment. The prolonged recovery has also prompted us to make important strategic decisions that are intended not only to reduce our cost structure, but also better position organogenesis for success going forward. While operating and financial results in 2026 have been significantly impacted by the contraction in the skin substitute market this year, I want to make it clear that I remain very optimistic about our future. CMS efforts to overhaul coverage and payment for the skin substitute market have addressed the waste, fraud, and abuse from bad actors exploiting the system. With the proposed hospital outpatient prospective payment system and the physician fee schedule announced last month, we believe CMS is now seeking to promote stabilization in the market. They've held payment rates steady. They've reinforced the differentiation of PMA products and the importance of clinical data in determining coverage. And we applaud these actions and look forward to expanding access to patients who need these products.

With more than 40 years in regenerative medicine and the most diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with the best evidence-based portfolio on the market. It is from this strong long-term market position that we are making important strategic decisions and prioritizing our investments that will support our company's future growth and continue leadership in this market. We are increasing our focus on clinical evidence with new published studies because science and evidence have been and always will be the core of our foundation. As coverage policies evolve, evidence will be the currency of credibility, and we intend to remain in the lead. Importantly, we continue to advance our strategic initiative to expand the company's mission into entirely new markets with the Renew program. Recently, the FDA formally accepted MNUVIX as the proprietary trade name for the biologic product previously known as Renu. And if approved, MNUVIX will establish a new market category for a biologic product representing a transformational opportunity for organogenesis in the more than 30 million Americans living with symptomatic knee osteoarthritis.

Let me share a few updates on our progress in each of these important strategic initiatives in recent months. The compelling clinical results from our RCT evaluating the safety and efficacy of PurePly AM and the management of non-healing diabetic foot ulcers, or DFUs, was submitted for publication. The results of this 170-patient study showed statistically significant DFU wound closure at 12 weeks. We believe publication of these impactful results will strongly support PurePly AM's inclusion in any future coverage policies, underscoring its critical role in the wound healing algorithm. The RCT is complemented by an additional exciting publication in the Journal of Wound Care showing reduced rates of non-traumatic lower leg amputation among Medicare beneficiaries with DFU treated with PureApply AM versus standard of care. The use of PureApply AM in nearly 11,000 patients was associated with a statistically significant 20% lower overall amputation rate and an even lower 40% rate for amputations above or at the level of the knee. These new studies built on a significant body of evidence of clinical benefit of PureApply AM, adding to the previous publications on comparative effectiveness research and a prospective analysis of a large patient registry. this compelling evidence spans more than 23,000 patients studied reflecting both the primary and supporting data CMS considers when making coverage determinations.

On July 27th, we announced peer-reviewed results published in the Journal of Wound Care demonstrating Affinity's benefit in the most challenging and complex venous leg ulcers, or VLU. The data showed statistically significant improvements in wound closure at 12 and 16 weeks for Affinity. plus standard of care across both wound duration group study, offering compelling new evidence in one of the hardest to treat populations in chronic wound care. These results reinforce Affinity's benefit in the hard-to-heal wounds, the population that drives the greatest clinical burden, and cost in VLU treatment. As those costs continue to rise, particularly within Medicare, this is a meaningful step forward for patients, clinicians, and payers. Complementing our existing diabetic foot ulcer data, these results add to a growing body of RCT and real-world evidence that strengthens the case for expanded coverage across two of the most common costly wound types. With respect to our recent progress in our MNUVIC program, on July 6th, we announced that the FDA accepted our biologic license application for MNUVICs and has set a PDUFA target action date of April 24th, 2027. We believe this highly differentiated regenerative therapy has the potential to meaningfully change the treatment paradigm by offering a non-surgical, biologic option designed to address pain and improve function, particularly in patients with severe disease who lack approved non-surgical options. and we look forward to continued engagement with the FDA as they complete their review.

Before turning the call over to Dave, I want to comment on our updated outlook in important strategic decisions we've made subsequent to quarter end. We have updated our expectations for total revenue in 2026 in this afternoon's press release. While we continue to expect improvement in our revenue results on a sequential basis in the third and fourth quarters, our 2026 revenue guidance now reflects the expectation that we see a more measured pace of recovery as compared to what was contemplated in our prior expectation for total revenue in 2026. Given the impact of a prolonged recovery on our revenue expectations, we completed a restructuring in June. The restructuring included a workforce reduction of 138 employees and and is expected to result in cost reductions of approximately $18 million on an annualized basis. This is our second restructuring announced in 2026, which together are expected to reduce annual operating expenses by more than $32 million on an annual basis. Importantly, the benefits of these activities are not limited to expense reductions.

Rather, we believe our commercial team is now positioned to maximize the opportunity ahead as the skin substitute market expands from the recalibration over the first half of 2026. With that, let me turn the call over to Dave.

Thanks, Gary. I'll begin with a review of our second quarter financial results. Unless otherwise specified, all growth rates referenced in my prepared remarks are for for the three-month period ending June 30th, 2026, and are on a year-over-year basis. Net product revenue was $42.8 million, down 58% year-over-year. Our advanced wound care net product revenue was $36.1 million, down 61%. Ad product revenue from surgical and sports medicine products was $6.7 million, down 18% year-over-year. Our total revenue results included $1 million of income related to the grant issued by the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to $0.2 million in the prior year period.

Our second quarter results reflect notable improvement in growth trends on a sequential basis. Specifically, our total revenue increased 18% quarter over quarter, driven by a 23% increase in sales of advanced wound care products. Gross profit was $19.1 million, or 45% of net product revenue, compared to 73% last year. of goods included $1.8 million of restructuring related charges. Excluding these adjustments, non-GAAP gross profit was $20.9 million or 49% of net product revenue. Operating expenses were 94.7 million compared to 113.6 million last year, a decrease of 18.8 million or 17%. Excluding cost of goods sold of $23.7 million for the second quarter and $27.6 million last year, our non-GAAP operating expenses were $63 million compared to $83.4 million last year, a decrease of $20.4 million, or 25%. The year-over-year change in operating expenses excluding cost of goods sold was driven by a $19.8 million, or 27%, decrease in SG&A expenses. offset partially by a $7.9 million or 76% increase in research and development expenses.

Note the second quarter R&D expenses included $5.6 million of non-recurring termination costs associated with various R&D programs and vendors. Operating expenses excluding cost of goods sold decline 9.3 million or 12% on a sequential basis. driven primarily by the company's March 2026 restructuring. By way of reminder, the March 2026 restructuring is expected to reduce our operating expenses by approximately 13.4 million on an annualized basis. Operating loss was $51 million compared to an operating loss of $12.6 million last year, an increase of $38.4 million. Excluding non-cash amortization and certain non-recurring costs in both periods, our non-GAAP operating loss was $41.1 million compared to $10 million last year, an increase of $31.1 million year-over-year. Gap net loss was $96.3 million compared to a net loss of $9.4 million last year. Note, gap net loss in the period includes approximately $30 million of non-cash tax expense related to the recording of full valuation allowance on the company's deferred tax assets.

Net loss to common stockholders was 99.3 million compared to a net loss of 12.2 million last year. Net loss to common stockholders includes the impact of the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted net loss was $89 million compared to $7.5 million last year. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss is $34.4 million compared to adjusted EBITDA loss of $3.6 million last year. Turning to the balance sheet, as of June 30th, 2026, the company had $46.8 million in cash, cash equivalents and restricted cash, and no outstanding debt obligations, compared to $94.3 million in cash, cash equivalents and restricted cash, and no outstanding debt obligations as of December 31st, 2025. We expect that our cash on hand and other components of working capital as of June 30, 2026, plus net cash flows from product sales, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

Today, the company entered into an ATM agreement with BTIG and Citizens JMP Securities, pursuant to which the company may offer to sell shares of its common stock, having an aggregate offering price of up to $75 million from time to time through sales agents. Sales under the ATM agreement, if any, will be made pursuant to the company's effective shelf registration statement on form S3 and related prospective supplement. The company intends to use these net proceeds from any sales under the ATM agreement for working capital, general corporate purposes, research and development activities, and other strategic initiatives. Turning to our 2026 outlook, which we've updated in this afternoon's press release, as Gary outlined earlier, our 2026 total revenue guidance now reflects the softer than expected results in the second quarter and the expectation that we see a more measured recovery in the overall operating environment as we move into the second half of the year. As a result, we now expect total net revenue for the full year of 2026 of $179 million to $215 million, representing a decline in the range of 62% to 68% year-over-year, and compared to our prior guidance range, which assumed a decline in the range of 45% to 52% year-over-year. Note our total revenue range assumes sales of advanced wound care products in the range of $151 million to $183 million. sales of our surgical and sports medicine product in the range of $26 million to $30 million, and grant income of $1.9 million. Our updated total revenue guidance continues to reflect the expectation that we see sequential improvement in our revenue trends in the third and fourth quarters, however, at a more measured rate versus what our prior guidance has assumed, resulting in a second half revenue decline in the range of approximately 64% to 74% year-over-year.

With respect to our profitability expectations, our updated guidance continues to assume improving quarterly adjusted EBITDA performance on a sequential basis, which is expected to result in nearly 60% reduction in adjusted EBITDA loss in the second half of 2026 as compared to the first half of 2026. at the low end of the range, and more than 90% reduction in adjusted EBITDA loss in the second half of 2026 as compared to the first half of 2026, including the expectation of positive adjusted EBITDA generation in the fourth quarter. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold, to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses excluding cost of goods sold approximately 32% year over year in 2026, including more than 40% year-over-year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our March 2026 and June 2026 restructurings of approximately $7 million and $9 million, respectively. With that, I'll turn the call back over to Gary for closing remarks. Thanks, David.

With more than 40 years in regenerative medicine in the most diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with the best evidence-based portfolio in the market. The competitive landscape has changed dramatically in just a few months since CMS announced sweeping changes to coverage and payment policy. Distributed-driven competitors, high-priced amniotic players, and companies engaged in fraudulent practices have been substantially reduced. Many of the remaining players are diversifying away from Moonkir or exiting the category altogether. Organogenesis is doubling down on wound care. We are leaders because our business is built on efficacy and outcomes, and that is driving our expanding share as the market resets. Customer trust matters now in this new market more than ever before, and simply put, we believe we have the best evidence based skin substitute products in wound care, bar none.

We expect to enhance our leadership position by leveraging our portfolio to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care. With that, I'll turn the call over to the operator for questions.

Thank you, sir. If you'd like to ask a question, please signal by pressing star 1-1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Our first question comes from Ryan Zimmerman from US Bank Corp. Please go ahead.

Hi, Gary and Dave, this is Izzy on for Ryan. Thanks for taking the question. I just want to start to get kind of your higher level thoughts on the broader market dynamics and what is going to give you confidence that Medicare is working to stabilize the market beyond just what we've seen in the proposal.

So this is Gary. Hi, Izzy. So what we're seeing is month over month, we're seeing continued growth in the space. We're seeing more clinicians getting more comfortable with the current coverage and payment structure that's in place now. We still have a ways to go. And CMS reinstated the 127 definition. $127.14 reimbursement rate. I think they did that with the intention of stabilizing the market and bringing consistency to the market. They also continue to identify the tiers where They recognize PMA products and 510K products and the 361.

So maintaining that tier structure is also bringing stability and signaling evidence is still an important function here and will carry weight going forward. So we think the stability, recognizing PMA products and we're starting to see more clinicians starting to use at least our product as we continue to take a fairly significant share.

in both the first and second quarters. That's helpful, thank you. And as we start to think about the back half of the year, I was hoping you could speak a little bit more about the pacing that's been.

into guidance for third quarter and fourth quarter? Yes, sure. This is Dave. Hi, Izzy. How are you? Yes. Yes, so we were, as Gary mentioned, we were pleased with the strong sequential growth that we saw between Q1 and Q2. Obviously, as we talked about, you know, up fairly significantly in advanced wound care units, up 30%. So that's coming off the Q1 trough. So our expectation is that, you know, the movement from here would be continued share gains, more modest and obviously the growth on a sequential basis would be much more modest than what we'd anticipated or what we experienced in the first to the second quarter. So we see some modest growth into the third quarter with a little bit more strength in the fourth.

speak to what products are actually being paid for versus what might be held up in the market, whether it's synthetics, amniotics, anything you can provide there? Thanks for taking the questions.

We don't really see any particular product being held up. The concern is post-application upon audit, would there be a potential clawback on those products? And what we're seeing in the market is products without RCTs are at significant risk risk. Sometimes, many times, they're considered investigational. So, clinicians are getting, you know, very concerned about products without RCTs. There's a flight to quality, which is why we're seeing the 30% growth that we're seeing in the market share gains, because our products have significant evidence. So, we think it's more post-application. that clinicians are concerned about the clawbacks and the potential paybacks for products that just don't have evidence in the space.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our next question comes from Ravi Misra from Truist. Please go ahead.

Hi, thanks for taking the questions. So, just want to kind of return to the guidance and the outlook that you provided on the call. Can you help us understand kind of what gives you comfort to get, you know, what are the kind of the puts and takes that get us to the low end or the high end of the guide? And then how should we think about that, you know, given your commentary just now on surging concerns, the 30% kind of sequential volume growth, you know, how should we think of that on a 3Q versus 4Q basis and then, you know, returning maybe back to market in 27 or is that kind of an elongated thing as well?.

Well, I'll start. I think, you know, as you look at our low guidance, as Dave indicated, you know, what we've guided to, it's not what we've seen. Our second quarter growth has been fairly significant at 30%, but what we're guiding to is lower growth and lower share gains. on the conservative side. So, we're kind of guiding to where we are, but slightly less than the experience, the growth experience we had in Q2. That's why we have more confidence in the low end of the range. Now the high end of the range, and I'll let Dave jump in, is basically reflecting the growth that we are seeing right now. our business with some small what I call a market expansion at the end of the of the third quarter and fourth quarter so you know We're guiding to less than the growth that we're seeing right now. and on the low end and on the high end, we're guiding to exactly what we're growing at right now with the small market expansion. So that's kind of the range. Dave, you can jump in. No, absolutely.

It's just probably a little bit more biased towards Q4 than it is Q3 just because of the evolution of the business.

the market. Great, thanks. And then maybe a follow-up. Just on Dermagraph, still on your cue that you're kind of shelving that for now. Can we talk about the opportunity there that you're maybe stepping away from or the thinking around when that does come back to market and the.

now for why? Well, it was slowing down the manufacturing build out of Dermagraph to preserve cash. So Dermagraph is still a product that we expect to launch. We didn't have significant revenue built in 27 in our thinking or 28. but it we it will delay it probably a year of its intended launch which was somewhere in the middle of 27 so probably launch in the middle of 28 but it's a you know it's a focus on preserving cash and going slower with that build out we think that's prudent right now I'll get back in queue. Thank you.

Thank you. Thank you. Please stand by. Thank you. Do we have another question from Ravi?.

No, well, if there's time, yes, I guess I'll ask one more. And Nuvex, just help us think about maybe how you see this slotting into the competitive landscape if and when approved. Thanks.

Sure. So, you know, M. Nubix, if approved, will be the first biologic in this space. So we think it will have a unique place in this space. We don't see anything else coming to market before MNUVICS. So that's a very positive place to be. Obviously, the clinical data is strong, the safety data, the safety profile of the product is extremely strong. of strong tailwinds driving this product. We expect with the Bidoof date of April 27, if approved, we would launch the product with a temporary code until we get a permanent code, which we would expect at the end of 27, the beginning of 2028. and we would expect the product to have a fairly significant ramp as we ramp our infrastructure. So the product is unique. There is no other biologic in this space. and we're pretty excited about.

Thank you.

I'm showing no further questions at this time. That does conclude our conference call for today. Thank you for your participation.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

Our first question comes from Ryan Zimmerman with BTIG.

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

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

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

Dave, anything to add?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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