AxoGen, Inc. Q3 FY2025 earnings call

• Financial and corporate overview: Delighted with Q3 performance and year-to-date progress, validating strategic plan objectives. Q3 sales $60.1M, up 23.5% y-o-y.
• High potential accounts: Focus on expanding presence, goal to generate 66% of total revenue growth from high potential accounts in 2025; 64% of revenue growth driven by high potential accounts through first 3 quarters.
• Commercial infrastructure expansion: At or ahead of hiring plan for target markets; breast sales force doubled, 125 sales professionals in non-breast markets, 4 field-based market development managers in OMF and head and neck.
• Surgeon training: On track to meet 2025 targets; breast trained 62 surgeon pairs YTD, Extremities 97, OMF and head and neck 57.
• Clinical research: Advancing 2025 initiatives, on track to complete Level 1 study protocol for implant-based neurotization, etc.; 10 new peer-reviewed publications in Q3, total nerve repair related literature 339.
• Medical society validation: American Association of Hand Surgery and American Society for Reconstructive Microsurgery recognized nerve allograft as standard practice.
• Coverage and reimbursement: Noncoverage policies removed, estimated 1.1 million newly covered lives in Q3, YTD 18.1 million additional lives covered.
• Prostate market: Actively collaborating, added 4 clinical sites in Q3, on track to complete 100 cases by year-end.
• BLA update: FDA extended PDUFA goal date to Dec 5, 2025; interactions with FDA expanded to all elements of BLA application, confident in successful completion.

Q3 sales increased to $60.1 million, growing 23.5% compared to the same period last year. This performance reflects double-digit growth across all nerve repair target markets including extremities, oral maxillofacial and head and neck, and breast. Avance Nerve Graft is the primary growth driver. Revenue contribution from each segment is tied to expanding adoption of nerve care using AxoGen's nerve algorithm for various peripheral nerve injuries.

• Raised revenue growth guidance to at least 19% or revenue of at least $222.8 million for 2025.
• Reiterates gross margin in the range of 73% to 75%, inclusive of one-time costs related to BLA approval for Avance Nerve Graft, expected to impact gross margin by ~1% or $2 million.
• Expect to be net cash flow positive for the year.

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

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

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

A: From case stock specifically? Jayson Bedford: Yes, on the gross margin line. Lindsey Hartley: We're not seeing it yet. In the future, we do anticipate some savings just from the nature of that program. It required a lot of additional resources shipping back and forth. With 1 month in right now, it's hard to say what that total impact is going to be, but we hope to see in the next quarter or 2. Michael Dale: But there will be no negative impact. The only question is to what degree positive. The case stop program was not a very efficient program.

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

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

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

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