Axogen, Inc. Common Stock 2026 Q3 Earnings Call

Michael, please go ahead. Thank you, operator, and good morning, everyone.

Today, I will walk you through our third quarter performance using the same lens we've used all year, which are the six 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. Before reviewing performance against each strategic priority, I would like to make clear how delighted we are with our third quarter and year-to-date results. We are meeting or exceeding our customer creation objectives across the board and remain confident in our ability to execute our strategic plan. Starting with our first priority, which is revenue growth and financial operating leverage. Third quarter revenue was $75.8 million, up 26.2% from third quarter 2025, with growth in all of our markets.

Breast grew more than 50% year-over-year, and extremities, OMF, head and neck combined grew 10.7%. Avance made up 64% of revenue in the quarter and year to date, versus about 60% for 2025. GAAP net income was $2.3 million, adjusted net income was $13.1 million, and adjusted EBITDA was $13.4 million, with adjusted EBITDA margin up 2.3 percentage points from a year ago. We ended the quarter with $350 million in cash equivalents, restricted cash, and investments, including proceeds from our September equity offering. Gross margin was 74.8%, up from 72.7% in the second quarter and down from 76.6% a year ago. Moving to our second priority, market development. Consistent with prior quarters, all three target markets contributed positively to third quarter results. We continue to see momentum in breast as nerve reconstruction becomes a larger part of the breast reconstruction conversation.

Growth is coming from expansion within existing accounts, new surgeon adoption, and new account development, supported by rising patient awareness and interest in breast Resensation. Because this market remains early in its development, we see significant long-term growth potential from expanding our commercial footprint, developing new accounts, and training new surgeons. In third quarter, we held our final two surgeon training programs planned for 2026, training more than 50 plastic surgeons in the Resensation technique. We also continued investing in patient awareness and completed significant market development work to prepare for Breast Cancer Awareness Month in October. We now have roughly 485 active breast accounts, up more than 95 year-over-year, and roughly 590 active surgeons, up more than 140 year-over-year.

Turning to extremities and OMF and head and neck markets, growth was double digit in the third quarter, continuing the steady progress described on prior calls, supported by account expansion and increased surgeon activation as driven by our high potential account strategy. Extremities grew across key indications in both upper and lower extremities. In OMF head and neck, growth was driven by adoption of our algorithm in mandible reconstruction and continued momentum in oncologic procedures such as neck dissections. With regards to priority three, commercial expansion, breast now has 31 representatives and three regional directors, 10 more representatives than at the start of the year. Extremities and OMF and Head and Neck has 132 representatives and 15 regional directors, 15 more than at the start of the year. We also have three field-based market development managers supporting OMF and Head and Neck and three clinical development managers supporting prostate.

The fourth priority of our strategic plan is commercial excellence. Our primary strategy over the past several years, focusing on high potential accounts to build enduring nerve care practices, continues to deliver results. In these accounts, our goal is to develop new surgeons and drive adoption of best practices and the full treatment algorithm, making the restoration of peripheral nerve function a standard of care across the hospital. Year to date, high potential accounts generated 61% of revenue and 55% of growth, with productivity increasing 22%. Productivity in non-high potential accounts rose 25%, while productivity across all accounts increased 22%. These results point to broader adoption of nerve care as more surgeons practice across multiple sites supported by expanded coverage. Next, I'd like to update everyone on our fifth priority, standard of care, evidence, and coverage. Today, we have two national payer updates to provide. Let's start with Elevance. In April, Elevance removed Avance from its experimental and investigational list, but included a utilization management criterion based on the nerve gap length from the RECON trial.

After a collaborative meeting with Elevance and a few world-leading surgeons in the second quarter, Elevance removed the gap length criteria in August. This timing beat our internal expectations. Now Aetna. In early October, Aetna extended coverage to Avance for short to medium sensory nerve gaps of 30 millimeters or less in the upper extremity. As we've stated before, it is common for medical policy teams to initially adopt strict utilization management criteria for a new coverage position, and we believe that is what drove Aetna's decision. Similar to how we've handled the prior Elevance situation, our health economics and reimbursement team will partner with surgeons to educate Aetna and resolve this situation collaboratively.

With the updates from Elevance and Aetna, the commercial payer coverage for Avance is approximately 96% of covered lives in the United States. This satisfies the milestone in our strategic plan for near universal coverage. Since the second quarter of 2025, we have added an estimated 87.6 million commercial and Medicare Advantage lives across Cigna, Elevance, Aetna, and the 12 Blue Cross Blue Shield regional plans. Beyond expanding coverage, we continue to invest in the clinical evidence needed to advance nerve repair as an expected standard of care. This quarter, we made progress across that evidence strategy, including new peer-reviewed evidence and advancement of two important clinical studies. Recently, results from our MATCH study were published, providing direct comparative evidence for Avance Nerve Graft and nerve autograft in mixed in motor nerve reconstruction.

The study demonstrated that motor recovery with Avance was comparable with autograft, further strengthening the body of clinical evidence supporting Avance in mixed in motor nerve repair. Nerve-RESTORE, which we described last quarter, builds upon this evidence through a randomized assessor blinded comparison of Avance Nerve Graft and sural nerve autograft in mixed in motor nerve repair. We are pleased to report that the first patient has now been enrolled, marking an an important milestone in this study. Additional site activations are planned for the fourth quarter as enrollment continues. We are also advancing EMBRACE, our prospective multicenter study evaluating sensory recovery following breast reconstruction with and without nipple areolar complex nerve reconstruction. The study is designed to generate comparative evidence on restoration of nipple areolar complex sensation, including patient-reported outcomes. Study startup is underway with the first site initiation planned for the fourth quarter.

Finally, our sixth priority, which is about innovation, R&D, and therapeutic reconstruction. On October 1st, we completed our acquisition of BioCircuit, adding NerveTape as a sixth product in our nerve repair algorithm. We see significant potential to scale NerveTape as a faster, easier coaptation aid. In large gap repairs, NerveTape can be used with Avance to connect the proximal and distal nerve ends. NerveTape also expands our reach into direct repair, an underdeveloped and effectively new opportunity for AxoGen that represents approximately 40%-50% of transected nerve procedures. In these procedures, NerveTape enables surgeons to reconnect a transected native nerve more simply and effectively than with microsuture, the predominant method used today. BioCircuit historically sold through approximately 50 independent distributor representatives and served roughly 400 accounts. As of today, AxoGen's direct sales organization has assumed all sales and distribution responsibilities.

We expect the transaction to contribute to revenue growth and adjusted EBITDA margin in the first year, while AxoGen remains free cash flow positive. Looking ahead, we are confident that leveraging NerveTape across AxoGen's direct commercial platform and demonstrating its ability to enable simpler, faster, and more effective repairs will accelerate the adoption of nerve repair and strengthen our overall growth strategy. Turning to prostate. As announced in this morning's earnings release, we will initiate prostate nerve reconstruction market development in 2027. Based on collaboration with global experts in urology and men's sexual health, we validated the clinical need, which is substantial, developed a scalable technique that is efficient and reproducible, and see positive clinical outcome signals from our clinical development sites. To date, over 220 patients have received prostate nerve reconstruction with Avance across 15 clinical development sites.