Q1 2025 Organogenesis Holdings Inc Earnings Call

Operator: Welcome, ladies and gentlemen, to the first quarter 2025 earnings conference call for Organogenesis Holdings, Inc. At this time, all participants have been placed in a 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.

Welcome, ladies and gentlemen to the first quarter 2025 earnings Conference call well Organogenesis Holdings, Inc. At this time all participants have been placed in a 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.

Operator: 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 statement, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws.

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 one.

A risk factors of the company's most recent annual report and it 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.

Bateman, whether as a result of new information future events or otherwise, except as required by applicable securities laws.

Operator: This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting or GAAP. We generally refer to those 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.

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 those 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.

Speaker Change: 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 SQL Hany, SR, Organogenesis Holdings, President and Chief Executive Officer, and Chief The Board. Please go ahead.

Operator: I would now like to turn the call over to Mr. Gary F.

Gary Gillheeney: Gillheeney Sr., Organogenesis Holding President, Chief Executive Officer, and Chief of the Board. Please go ahead.

Speaker Change: Okay.

Gary Gillheeney: Thank you, operator and welcome everyone to Organogenesis Holdings first quarter 2025 earnings conference.

Speaker Change: Thank you operator, and welcome everyone to Organogenesis Holdings' first quarter 2025 earnings conference call.

Gary Gillheeney: 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 operating and strategic 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 guidance for 2025, which we reaffirmed in our press release this afternoon.

Speaker Change: I'm joined on the call today by Dave Francisco, Our Chief Financial Officer.

Speaker Change: 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 operating and strategic developments in recent months.

Speaker Change: Dave will then provide you with an in-depth review of our first quarter financial results of balance sheet and financial condition at quarter end, as well as our financial guidance for 2025, which we reaffirmed in our press release this afternoon. Then we'll open it up for questions.

Gary Gillheeney: Then we'll open it up for questions. Beginning with a review of our revenue results in Q1, we delivered sales in line with our guidance range outlined on our fourth quarter call. Our first quarter results reflected the expected disruption in customer demand and ordering patterns given the continued uncertainty related to the effective date of the final LCD for skin substitute grafts and cellular tissue based products for the treatment of DFU and VLUs. Rumors of further delays in the effective date in late March added additional ambiguity and disruption in customer behavior. But we are proud of the team's execution in a challenging environment during the first quarter.

Speaker Change: Beginning with the review of our revenue results in Q1, we delivered sales in line with our guidance range outlined on our fourth quarter call.

Speaker Change: Our first quarter results reflected the expected disruption in customer demand and ordering patterns given the continued uncertainty related to the effective date of the final LCD for skin substitute graphs and cellular tissue based products for the treatment of DFU and VLU.

Speaker Change: Rumors of further delays in the effective date in late March added additional ambiguity and disruption and customer behavior.

Speaker Change: But we are proud of the team's execution and a challenging environment during the first quarter They remain focused on ensuring our customers were both informed and well positioned to continue to treat patients with our full portfolio of our full portfolio.

Gary Gillheeney: They remain focused on ensuring our customers were both informed and well-positioned to continue to treat patients with our full portfolio.

Gary Gillheeney: the efficacious product. This process and this focus proved to be even more valuable in the weeks leading up to CMS's stated effective date of April 13, 2025, and in the weeks following the announcement of the third delay in the implementation of the LCD until January 1, 2026. Organogenesis supports CMS's decision to delay the LCD implementation to review its coverage policy. As mentioned on previous earnings calls, we applaud the CMS and MACS for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute products. And we've been pushing for reform for many years and believe the LCD represented a substantial step forward towards cleaning up the market and providing access to all who need care.

Lee Efficace's product.

Speaker Change: This process and this focus proved to be even more valuable in the weeks leading up to CMS's Skated Effective Day of April 13th, 2025.

Speaker Change: and the weeks following in the announcement of the third delay in the implementation of the LCD until January 1, 2026.

Speaker Change: Organogenesis supports CMS's decision to delay the LCD implementation to review its coverage policies.

Speaker Change: As mentioned on previous earnings calls, we applaud the CMS and MAX for continuing to prioritize coverage with demonstrated clinical efficacy for skin substitute products.

Speaker Change: We've been pushing for reform for many years and believe the LCD represented a substantial step forward towards cleaning up the market and providing access to all who need care.

Gary Gillheeney: Importantly, we continue to believe that patients should have access to products with high-quality evidence of effectiveness that includes real-world evidence. We believe real-world evidence not only demonstrates a product's safety and efficacy, but also outcomes in the actual clinical use. Studies that use real-world evidence are important because they provide affirmative data demonstrating the safety and effectiveness of medical interventions in everyday settings, leading to more informed clinical decision-making. They also allow for larger sample sizes, more sites, as well as the ability to include more patients with a profile similar to the Medicare population as compared to an RCT.

Speaker Change: Importantly, we continue to believe that patients should have access to products with high quality evidence of effectiveness that includes real world evidence.

Speaker Change: We believe real-world evidence not only demonstrates a product safety and efficacy but also outcomes in the actual clinical use.

Speaker Change: Studies that use real-world evidence are important because they provide affirmative data demonstrating the safety and effectiveness of medical interventions in everyday settings, leading to more informed clinical decision making.

Speaker Change: They also allow for larger sample sizes, more sites as well as the ability to include more patients with a profile similar to the Medicare population as compared to an RCT.

Gary Gillheeney: That said, we continue to believe that coverage policy alone are not sufficient to address the rapidly escalating Medicare costs while ensuring cost effective patient care and innovation. To that end, we recommend that CMS implement an integrated coverage and payment policy. And as a leader in this space, we will continue to bring stakeholders together to develop and advocate for such an integrated policy that will ensure patient access to the most appropriate products while achieving significant cost savings to Medicare. While we were prepared to execute our strategy in a post-LCD environment, following the CMS announcement on April 11th, we quickly pivoted to maximize our substantial competitive advantages during the period of extended LCD delay.

Speaker Change: That said, we continue to believe that covered policy alone are not sufficient to address the rapidly escalating Medicare costs while ensuring cost-effective patient care and innovation.

Speaker Change: To that end, we recommend that CMS implement an integrated coverage and payment policy.

Speaker Change: And as a leader in the space, we will continue to bring stakeholders together to develop an advocate for such an integrated policy that will ensure patient access to the most appropriate products while achieving significant cost savings to Medicare.

Speaker Change: Why we would prepare to execute our strategy in a post-LCD environment following the CMS announcement on April 11th, we quickly pivoted to maximize our substantial competitive advantages during the period of extended LCD delay.

Gary Gillheeney: Organogenesis' strong brand equity, diverse portfolio, and deep customer relationships have us well positioned to navigate a challenging market. And we are encouraged by the early progress in our team's broad-based efforts to engage with our customers to ensure a full portfolio of products are available and approved in their healing algorithms and formularies. We have reaffirmed our financial guidance for 2025 and are confident in the team's ability to execute our commercial strategy this year. Importantly, we remain confident in the long-term opportunity for organogenesis as well. We continue to believe the material changes from the MACs in the coverage of skin substitutes to be implemented in 2026 represents an enormous opportunity for organogenesis to serve more patients and, importantly, will be positive for the long-term health of the wound care market.

Speaker Change: Organogenesis Strong Brand Equity, Diverse Portfolio and Deep Customer Relationships have as well positioned to navigate a challenging market.

Speaker Change: We are encouraged by the early progress in our team's broad-based efforts to engage with our customers to ensure a full portfolio of products are available and approved in their healing algorithms and formularies.

Speaker Change: We have reaffirmed our financial guidance for 2025 and are confident in the team's ability to execute our commercial strategy this year.

Speaker Change: Importantly, we remain confident in the long-term opportunity for Organogenesis as well.

Speaker Change: We continue to believe the material changes from the max in the coverage of skin substitutes to be implemented in 2026 represents an enormous opportunity for Organogenesis to serve more patients and importantly will be positive for the long-term health of the womb care market.

Gary Gillheeney: We are aggressively pursuing our strategy to secure and submit additional clinical and real-world evidence to the MACs by the newly established deadline of November 1, 2025, and expect to submit a compelling case to secure coverage for Pure Apply AM when the LCDs are implemented in 2026. We expect to remain 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.

We are aggressively pursuing our strategy to secure

and Submit Additional Clinical and Real World Evidence to the Max.

by the newly established deadline of November 1, 2025.

and I expect to submit a compelling case

Speaker Change: to see pure coverage for pure apply AM when the LCDs are implemented in 2026.

Speaker Change: We expect to remain 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.

Gary Gillheeney: Now, before turning the call over to Dave, I wanted to provide a brief update on a key area of strategic focus for our company. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetrations in the markets where we compete. With respect to our renew program, we remain on plan and continue to expect that all patients will complete the second phase three study by the end of the second quarter. We expect to complete the initial statistical analysis and have top-line data results from the second Phase III study to share publicly in September of this year.

Speaker Change: Now before turning the call over to Dave, I wanted to provide a brief update on a key area of strategic focus for our company.

Speaker Change: We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetrations in the markets where we compete.

Speaker Change: With respect to our Renew program, we remain on-plan and continue to expect that all patients will complete the second phase three study by the end of the second quarter.

Speaker Change: We expect to complete the initial statistical analysis and have top line data results from the second phase three study to share publicly in September of this year.

Gary Gillheeney: Our timeline continues to target completion of the final clinical study report required for the marginal BLA submission in the fourth quarter, which has us on track for a BLA submission by the end of this year. We continue to believe, if approved, introducing Renew to a large and growing pain management market represents a transformational opportunity for Organogenesis. We believe RENEW, if approved, will potentially address an unmet medical need for all patients suffering from symptomatic Neo-A, a degenerative joint disease that affects more than 30 million Americans. And we have a clear roadmap and timeline for our Renew BLA submission.

Speaker Change: Our timeline continues to target completion of the final clinical study report required for the Marjol of BLA submission in the fourth quarter which has us on track for a BLA submission by the end of this year.

Speaker Change: We continue to believe, if approved, introducing renewed to a large and growing pain management market represents a transformational opportunity for organogenesis.

Speaker Change: We believe Renew, if approved, will potentially address an unmet medical need for all patients suffering from symptomatic NEOA, a degenerative joint disease that affects more than 30 million

Speaker Change: We have a clear roadmap and timeline for our Renewed BLA submission, and it's successful. Renew would be the only FDA-approved, biologic, interarticular injection to improve pain symptoms related

Gary Gillheeney: And if successful, Renew would be the only FDA-approved biologic intraarticular injection to improve pain symptoms related to symptomatic Neo-X.

Gary Gillheeney: Respect to our recent progress in expanding our clinical validation of our wound care solutions, our PREPARE study evaluating PurePly AM plus standard of care versus standard of care alone continues to progress. We initiated enrollment of up to 170 patients with chronic DFUs last August and have enrolled more than 60 patients to date. We accelerated investigator site activation during the quarter and expect to complete an interim analysis in the third quarter. Our RCT, Evaluating Affinity for Patients with VLU, completed last patient, last visit for the initial patient cohort in Q1, and we are currently engaged in data monitoring and management activity.

Speaker Change: Respect to our recent progress in expanding our clinical validation of our wound care solutions, our prepare study evaluating pure apply AM plus standard of care versus standard of care alone continues to progress. We initiated enrollment of up to 170 patients.

Speaker Change: with Chronic DFU's last August and have enrolled more than 60 patients to date. We accelerated investigator site activation during the quarter and expect to complete an interim analysis in the third quarter.

Speaker Change: Our RCT evaluating affinity for patients with VLU completed last patient, last visit for the initial patient cohort in Q1 and we are currently engaged in data monitoring and management activities.

Gary Gillheeney: We expect to initiate new RCTs, Evaluating New Shield for Patients with VLU, and Novacore for Patients with Mohs surgical excision wounds in the third quarter of 2025 and the first quarter of 2026, respectively. We continue to invest in generating clinical data for our existing products and pipeline products and believe such data enhances sales efforts with physicians and reimbursement dynamics with payers over time.

Speaker Change: We continue to invest in generating clinical data for our existing products and pipeline products and believe such data enhances sales efforts with physicians and reimbursed my dynamics with payers over time.

Gary Gillheeney: And finally, we're pleased with the significant progress we've made in our efforts to expand our manufacturing capabilities, efficiencies, and capacities. with our newly leased biomanufacturing facility in Smithfield, Rhode Island. Upon completion, this new facility will support the reintroduction of both Dermagraph and Transite. Transite is a bioengineered cellular tissue scaffold that promotes burn healing and has received PMA approval for the treatment of deep second and third degree burns. This new facility will also support the introduction of FortiShield, a biosynthetic transitional wound matrix for second degree burns. Together, we believe these new products and the expansion of our manufacturing capacity overall will enhance our long-term growth and margin profile.

with our newly leased Biomanufacturing Facility in Smithfield, Rhode Island.

Speaker Change: Upon completion, this new facility will support the reintroduction of both Dermagraph and Transite.

Speaker Change: Transite is a bioengineered cellular tissue scaffold that promotes burn healing and has received PMA approval for the treatment of deep second and third-degree burns.

Speaker Change: This new facility will also support the introduction of Forteshield, a biosynthetic transitional wound matrix for second degree burns. Together we believe these new products and the expansion of our manufacturing capacity overall will enhance our long-term growth in margin profile.

David Francisco: With that, let me turn the call over to Dave. Thanks, Gary. I'll begin with a review of our first quarter financial Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net revenue for the first quarter was $86.7 million, down 21%. As Gary mentioned, these results were in line with the expectations we provided on our Q4 call, which called for total revenue in a range of $85 to $95 million. Our advanced wound care net revenue for the first quarter was $79.9 million, down 23%. Net revenue from surgical and sports medicine products for the first quarter was $6.8 million, up $11.3 million.

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

Dave Francisco: Thanks, Gary. I'll begin with a review of our first quarter financial results.

Speaker Change: In less otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis.

Speaker Change: Net revenue for the first quarter was 86.7 million down 21%. As Gary mentioned, these results were in line with the expectations we provided on our Q4 call, which called for total revenue in a range of 85 to 95 million.

Speaker Change: Our advanced wound care net revenue for the first quarter was 79.9 million, down 23%.

Speaker Change: Net revenue from surgical and sports medicine products for the first quarter was 6.8 million up 11%

David Francisco: Roe's profit for the first quarter was $63 million, or $72.6 of net revenue, compared to 73.9% last year. Gross profit was unfavorably impacted in the period due primarily from lower revenue over a fixed cost, as well as the expiration of excess product resulting from the delayed implementation of the LCD and related uncertainties. Operating expenses for the first quarter were $89.7 million, compared to $85.1 million last year, an increase of $4.6 million, or 5%. The year-over-year change in operating expenses was driven by a $6.6 million write-down of cost to adjust certain assets held for sale to their fair market value, offset partially by a $2.2 million reduction in research and development expenses, which declined 17% year-over-year due to the timing of expenses associated with clinical research and trials.

Speaker Change: Rose Profit for the first quarter was $63 million or $72.6 net revenue compared to $73.9% last year.

Speaker Change: Gross profit was unfavorably impacted in the period due primarily from lower revenue over our fixed costs, as well as the exploration of excess product resulting from the delayed implementation of the LCD and related uncertainty.

Speaker Change: Operating expenses for the first quarter were $89.7 million compared to $85.1 million last year an increase of $4.6 million or $5%.

Speaker Change: The year of year change in operating expenses was driven by a 6.6 million right down of cost to adjust certain assets held for sale to their fair market value. Offset partially by a 2.2 million reduction in research and development expenses.

Speaker Change: which declined 17% year-over-year due to the timing of expenses associated with clinical research and trials.

David Francisco: SC&A expenses were essentially flat year-over-year, as continued investments in our key long-term projects were offset by lower commissions and our focus on managing discretionary expenses in the period. Operating loss for the first quarter was $26.7 million compared to an operating loss of $3.9 million last year, an increase of $22.9 million. excluding non-cash amortization expenses in both periods, and the write-down of assets held for sale in the quarter, our non-GAAP operating loss was $19.3 million compared to $3 million last year. Gap net loss for the first quarter was $18.8 million compared to a net loss of $2.1 million last year, an increase of $16.7 million.

Speaker Change: SCNA expenses were essentially flat year-of-year, as continued investments in our key long-term projects were offset by lower commissions and our focus on managing discretionary expenses in the period.

Speaker Change: Operating loss for the first quarter was 26.7 million, compared to an operating loss of 3.9 million last year, an increase of 22.9 million.

Speaker Change: Excluding non-cash amortization expenses in both periods, and the right down of assets held for sale in the quarter, our non-GAAP operating loss was 19.3 million compared to 3 million last year.

Speaker Change: Gap Net Loss for the first quarter is 18.8 million compared to a net loss of 2.1 million last year an increase of 16.7 million.

David Francisco: Net loss to common for the first quarter was $21.6 million, compared to a net loss of $2.1 million last year. Net loss to common includes both the impact of the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted EBITDA loss for the first quarter was $12.5 million compared to adjusted EBITDA of $2.6 million last year. And turning to the balance sheet, as of March 31st, 2025, the company had $110.5 million in cash, cash equivalents, and restricted cash, with no outstanding debt on the balance sheet. And that compared to $136 million in cash, cash equivalents, and restricted cash with no outstanding debt obligations as of December 31, 2024.

Speaker Change: Netlost to Common for the first quarter was 21.6 million compared to a net loss of 2.1 million last year. Netlost to Common includes both the impact of the cumulative dividend and the non-cash accretion through redemption value on our convertible preferred stock.

Speaker Change: Adjusted EBITDA loss for the first quarter was 12.5 million compared to adjusted EBITDA of 2.6 million last year.

Speaker Change: and turning to the balance sheet as of March 31st, 2025, the company had 110.5 million cash, cash equivalence, and restricted cash with no outstanding debt obligations.

Speaker Change: and that compared to 136 million in cash, cash equivalence, and restricted cash with no outstanding debt obligations as of December 31, 2024.

David Francisco: We expect to see improving cash performance over the balance of 2025 and believe we have the requisite capital to execute our growth strategies with $110.5 million in cash, cash equivalents, and restricted cash, and $125 million available for future revolving borrowings under our revolving facility.

David Francisco: Turning to a review of our 2025 Revenue Guidance, which we reaffirmed this afternoon's pressure. For 12 months ending December 31st, 2025, the company continues to expect net revenue of between $480 million and $535 million, representing year-over-year change in the range of roughly flat to an increase of 11 percent. The 2025 Net Revenue Guidance Range continues to assume net revenue from advanced wound care products of between $450 million and $500 million, representing a year-over-year change in the range of a decline of 1% to an increase of 10%. net revenues from surgical and sports medicine products of between $30 million and $35 million, representing a year-over-year increase in the range of 6% to 23%.

Speaker Change: Turning to a review of our 2025 Revenue Guidance, which we reaffirmed this afternoon's press release.

Speaker Change: For 12 months ending December 31, 2025, the company continues to expect net revenue of between 480 million and 535 million, representing year-of-year change in the range of roughly flat to an increase of 11 percent.

Speaker Change: The 2025 Net Revenue Guidance Range continues to assume net revenue from advanced home care products of between 450 million and 500 million, representing a year-over-year change in the range of a decline of 1% to an increase of 10%.

Speaker Change: Net revenue from surgical and sports medicine products of between 30 million and 35 million, representing a year of year increase in the range of 6% to 23%.

David Francisco: With respect to our profitability and EBITDA guidance, the company now expects gap net income in a range of $4.7 million to $34 million, compared to $9.5 million and $38.8 million previously. EBITDA in a range of $20 million to $59.6 million compared to $27 million to $66.6 million previously. non-gap adjusted net income in the range of $15.3 million to $44.6 million, unchanged versus our prior guidance, and adjusted EBITDA in the range of $43.6 million to $83.2 million, again unchanged versus our prior guidance.

Speaker Change: With respect to our profitability in EBITDA guidance, the company now expects gap net income in a range of 4.7 million to 34 million compared to 9.5 million and 38.8 million previously.

Speaker Change: David Daw and a range of 20 million to $59.6 million compared to $27 million to $66.6 million

Speaker Change: non-GAAP Adjusted Net Income in the range of 15.3 million to 44.6 million unchanged versus our prior guidance and adjusted EBITDA in the range of 43.6 million to 83.2 million again unchanged versus our prior guidance.

David Francisco: In addition to our formal financial guidance for 2025, we are providing some considerations for modeling. We continue to expect the environment to be very challenging through the first half of 2025, followed by a significant improvement in our business trends beginning in the third quarter. For modeling purposes, we expect a second quarter revenue in the range of approximately $100 million to $110 million. Our profitability guidance for 2025 now assumes gross margin in the range of approximately 78% to 79% compared to 76% to 78% previously. Gap operating expenses up low single digits year-over-year and excluding non-cash intangible amortization of approximately $3.3 million, the non-recurring FDA payment related to our BLA filing of $4.6 million, and the $6.6 million write-down of assets in Q1.

Speaker Change: In addition to our formal financial guidance for 2025, we are providing some considerations for modeling purposes [inaudible]

Speaker Change: We continue to expect the environment to be very challenging through the first half of 2025, followed by a significant improvement in our business trends beginning in the third quarter.

Speaker Change: From modeling purposes, we expect the second quarter revenue in the range of approximately 100 million to 110 million.

Speaker Change: Our Profitability Guidance for 2025 now assumes gross margin in the range of approximately 78-79% compared to 76-78% previously.

Speaker Change: Gap operating expenses up low single digits year over year, and excluding non-cash, intangible amortization of approximately 3.3 million.

Speaker Change: The non-recurring FDA payment related to our BLA filing of 4.6 million and the 6.6 million write down of assets in Q1. Our total non-GAAP operating expenses will increase approximately 5% to 7% year-of-year.

David Francisco: Our total non-gap operating expenses will increase approximately 5% to 7% year-over-year. There are no material changes to the other modeling assumptions for 2025 we outlined in our fourth quarter call.

Speaker Change: There are no material changes to the other modeling assumptions for 2025 we outlined in our fourth quarter call.

Operator: With that, I'll turn the call over to the operator to open up the call for your questions. Thank you, sir. If you'd like to ask a question, please signal by pressing star 11 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. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing 11, star 11.

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

Thank you, sir.

Speaker Change: If you'd like to ask a question, please signal by pressing star 1-1 on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing 1-1 star 1-1. And our first question.

Aaron: And our first question will come from Brooks O'Neill of Lake Street Capital Markets. Your line is open, Brooks. Good afternoon, guys.

Speaker Change: We'll come from Brooks O'Neill of Lake Street Capital Markets, your line is open Brooks.

Aaron: This is Aaron on the line for Brooks. Thanks for taking our questions. And thanks for all the callers as well. Just curious, maybe about, you know, the cadence as we move throughout the year, you know, understanding the back half being more weighted, but and, you know, so there's some still uncertainty out there, but maybe just more curious about some of the key puts and takes that are embedded within the guidance and maybe what you're most confident with moving forward.

Speaker Change: Thank you for taking our questions and thanks for all the colors as well.

Speaker Change: Just curious, maybe about the cadence that's been moved throughout the year, you know, understanding the back app being more weighted, but, you know, also there's some still uncertainty out there, but maybe just more curious about some of the key puts and takes that are embedded within the guidance and maybe what you're most content with moving forward.

Dave Francisco: Yeah, sure, Aaron.

Dave Francisco: This is Dave. So look, we're very confident in our prior guide. You know, I think what we've illustrated here is we have a lot of optionality in our portfolio, you know, given the uncertainty that we saw in 2024, regarding the reimbursement landscape that we see now. So we're pretty excited about that opportunity. We have all the tools, products and people that we need to execute against that initiative that we've got this year. So I'd say look, from the last time we guided, there was a significant change in the market environment. But nonetheless, we've reaffirmed our guidance on the top line and the bottom line.

Speaker Change: Yeah, sure, Aaron. This is Dave. So look, we're very confident in our prior guide. You know, I think what we've

Speaker Change: Illustrated here is we have a lot of optionality in our portfolio.

Speaker Change: You know given the uncertainty that we saw in 2024 regarding the reimbursement landscape that we see now so we're pretty excited about that opportunity we have all the tools products and people that we need to execute against that initiative that we've got this year so I say look from the last time we guided there was a significant change in the market environment and we're going to be able to do that in the future.

Speaker Change: But nonetheless, we've reaffirmed our guidance on the top line and the bottom line and I think the big piece there is, you know, we've got a situation where curaply is now available across the full healing algorithms.

Dave Francisco: And I think the big piece there is, you know, we've got a situation where PureApply is now available across the full healing algorithms. So all indications inclusive of DFU and VLU. We've got the full portfolio beyond PureApply as well for all indications. And we see in the back half a stabilization of the market and customer buying behavior. The offset to that, to some extent, that gets us to the same level is, you know, obviously, we've got a situation where we've got to get, you know, those products back onto formularies. The competition remains, you know, in a push off of the LCD that's been challenging for us in the past.

Speaker Change: So all indications, inclusive of DFU and VLU, we've got the full portfolio beyond to reply as well for all indications and we see in the back half a stabilization of the market and customer buying behavior.

Speaker Change: The offset to that, to some extent, that gets us to the same level is obviously we've got a situation where we've got to get those products back on to formularies.

Dave Francisco: But obviously, we executed very, very well in 2024. And there is some uncertainty that remains probably in the back half of 2000, the fourth quarter of this year as well. So we're also seeing some high ASP entrants still continue to enter the market as well. So those are the kinds of puts and takes that I see from the overall guidance perspective. Right. Okay, that makes sense. Appreciate that.

Speaker Change: this year as well. So we're also seeing some high ASP entrance still continue to enter the market as well. So those are the kinds of puts and takes that I see from the overall guidance perspective.

Speaker Change: Right. Okay. That makes sense. Appreciate that. Maybe just a little bit more color on the Girl's Mart, you know, appreciate it again.

Dave Francisco: And maybe just a little bit more color on the gross margin. I appreciate again, the, the guidance there at the end of the call. But is there anything we should be thinking about as far as you know, based on your typical historical, you know, margin sort of sequential growth, or just maybe any, any more color there would be a fantastic thing. Yeah, sure. So similar to the revenue, it should be back end loaded. And the issue there is, is that we've got just based on the dynamics of the marketplace, we've got a major mix shift in the product portfolio.

Speaker Change: the guidance there at the end of the call, but is there anything we should be thinking about as far as you know based on your typical historical you know margins or the sequential growth or just maybe any any more color there would be fantastic. Thanks guys.

Speaker Change: Yes, sure. So, similar to the revenue, it should be back and loaded and the issue there is is that we've got just based on the dynamics of the marketplace. We've got a major mix shift in the product portfolio. Thank you very much.

Dave Francisco: And I also mentioned that we had excess inventory in our living technology that expired in the first quarter, some of that will spill into the second quarter as well. We don't expect that to repeat in the in the second half. And that's all related to delays in the LCD, as we really, you know, obviously, the living technologies on the covered list. And therefore, you know, we have a six week lead time for the demand pull for those products. And so obviously, it had some extra expiry that we saw in the first quarter and expect that to continue into the second quarter as well.

Speaker Change: And I also mentioned that we had excess inventory in our living technology that expired in the first quarter. Some of that will spill into the second quarter as well. We don't expect that to repeat in the second half.

Speaker Change: and that's all related to delays in the LCD as we really, you know, obviously the living technology is on the covered list.

and therefore we have a six-week

Speaker Change: Lead time for the demand poll for those products and so obviously it had some extra expiry that we saw in the first quarter and expect that to continue into the second quarter as well. So a big jump up in gross margin overall based on that mixed shift in the lack of expiry going forward.

Aaron: So a big jump up in gross margin overall, based on that mixed shift and the lack of expiry going forward. Awesome. Okay. Appreciate that, Carl. I'll hop back into the queue. Thanks, guys. Thanks very much.

Speaker Change: Awesome. Okay, appreciate that color. I'll hop back in the queue. Thanks, guys.

Sure, thanks very much, thank you.

Operator: and one moment for our next question.

and one moment for our next question.

Ryan Zimmerman: Our next question will be coming from Ryan Zimmerman of BTIG. Your line is open. Good afternoon. Thanks. Thank you for taking the question. Hey, Ross.

Speaker Change: Our next question will be coming from Ryan Zimmerman of BTIG, your line is open.

Good afternoon. Thanks for taking the questions, Scott.

Ryan Zimmerman: You know, in the fourth quarter, you had a really strong performance, and I kind of think about the environment at that time in the market with some of the uncertainty. you know at the time we thought the LCD was coming and so you saw buying patterns that were really strong for you and maybe not so much for those companies that were you know not included in on the cover I guess I'm curious why, you know, that didn't follow a similar pattern this quarter. given kind of going into the first quarter, you know, again, the LCD is now delayed a second time at this point before the third delay.

Speaker Change: You know in the fourth quarter you had a really strong performance and I kind of think about the environment at that time in the market with some of the uncertainty

Russ: You know, at the time we thought the LCD was coming and so you saw buying patterns that were really strong for you and maybe not so much for those companies that were, you know, not included on the cover list.

Speaker Change: I guess I'm curious why, you know, that didn't follow a similar pattern this quarter.

Speaker Change: Given kind of going into the first quarter, you know, again, the LCD is now delayed. A second time at this point

Ryan Zimmerman: And I would have expected kind of a similar dynamic.

Speaker Change: Before the Third Delay. And I would have expected kind of a similar dynamic. So I'm curious, Gary, what you can say about kind of why that didn't follow a similar pattern this quarter.

Gary Gillheeney: So I'm curious, Gary, what you can say about kind of why that didn't follow a similar pattern.

Gary Gillheeney: Yeah, sure Ryan. So when you look at the fourth quarter, we didn't see much of a change until the end of December. And we did start to see some softening at the end of the year with the confusion setting in. So that really did happen at the end of December and then it continued. perpetuate in in January. So, you know, a lot of the Financial Buyers were continuing to buy high ASP products until such time as the LCD drops. There was a lot of caution and a little contraction in the market that we've seen in the first quarter that we hadn't seen in the fourth quarter last year.

Speaker Change: for Petriway in January . So a lot of the...

Speaker Change: Financial buyers will continue to buy high ASP products until such time as the LCD drops.

Speaker Change: There was a lot of caution and a little contraction in the market that we've seen in the first quarter that we hadn't seen in the fourth quarter last year and that contraction which we believe is temporary has a lot to do with the confusion and also the audits that are going on in the field right now, particularly for our customers.

Gary Gillheeney: And that contraction, which we believe is temporary, has a lot to do with the confusion and also all the audits that are going on in the field right now, particularly for our customers.

Gary Gillheeney: The dynamics were a little different, but we've pivoted and with our portfolio, we have the optionality to do extremely well with the LCD or with our optionality without the LCD.

Speaker Change: Yeah, so the diamond dynamics were a little different, but we've pivoted and we're with our portfolio. We have the optionality to do extremely well with the LCD or with our optionality without the LCD.

Gary Gillheeney: I'm sorry, sir, Gary. Collar.

That's a very fair Gary. That's a helpful caller, I guess.

Ryan Zimmerman: I guess, you know, as you think about getting back on the same question.

Gary: You know, as you think about getting back on the same question, the pacing dynamics, I guess I'm curious why the second quarter now...

Gary Gillheeney: I guess I'm curious why the second quarter now would have maybe still a slowdown relative to the back half of the year, and what makes the back half of the year normal? in the face of the LTDs now occurring Jan 1. Well, in the first delay, which was, I guess, 60 days, there really was confusion, confusion, assuming that this thing was going to drop. Now you've got it basically pushed off almost nine months. So we're now getting our customers back and our products back on formulary like PureApply and others for DFU and VLUs. So that takes time.

Gary: would have maybe still a slowdown relative to the back half of the year and what makes the back half of the year normal in the face of the LTVs now occurring Jan 1st, 2026.

and you're in your guys, yeah.

Well, the first delay, which was-

Gary: I guess 60 days, there really was confusion, confusion, assuming that this thing was going to drop. Now you've got it basically pushed off almost nine months.

Gary: So we're now getting our customers back and our products back on formulae we'd like to purify in others for DFU and VLUs so that takes time.

Gary Gillheeney: If you recall, when we had this back in 23, it took us maybe three months to get everybody back on formulary. We're actually seeing a better trend right now. But that trend of getting folks back, we still saw in Q2, excuse me, in Q1.

Gary: If you recall, when we had this issue of this back in 23, it took us...

Gary: Maybe three months to get everybody back on formulary. We're actually seeing a better trend right now, but that trend of getting folks back is we still, you know, saw an in queue.

to, excuse me, and if you want.

Ryan Zimmerman: That's very helpful. And then, you know, stepping back for a second. Just given the effort that has occurred over year in years past. corraling costs in the wound care market. You know, it seems like... Again, we want to, you know, Medicare wants to get this right. But at the same time, being held off till 2026. So what, in your mind, is gonna change, or what are you hearing from CMS? in terms of why they're holding off. and what may change between now and early.

Gary: Okay, that's very helpful. And then, you know, stepping back for a second.

Gary: Again, we want to, you know, Medicare wants to get this right, having, you know, trying to read through the TV here, but at the same time, it's being held off till 2026. So what in your mind is going to change or what are you hearing from CMS?

In terms of why they're holding off .

Gary: and what may change between now and early 2026 if you have any thoughts, Gary?

Gary Gillheeney: Sure, it's a great question. So, you know, we think that CMS is now heavily involved in driving this process, and I think they were pretty clear in their press release that they're reviewing the coverage policies that exist today in the MACs. So, that's encouraging. They're going to look at the data. They are offering time to get more data. They indicated that, you know, where products may have big impacts in the market and could be left off, or there are gaps in the market, that those types of products would be looked at. So, I think it's not just a delay, which, if it was delayed in its current form, that would not be a good thing.

Gary: Sure, that's a great question. So, you know, we think that CMS is now heavily involved in driving this process. And I think they were pretty clear in their press release that they're reviewing the coverage policies that exist today in the MAX.

Gary: So that's encouraging. They're looking to look at the data. They are offering time to get more data

Gary: They've indicated that, you know, where products may have big impacts in the market and could be left off or there are gaps in the market.

Gary: that those types of products would be looked at. So I think it's not just a delay.

Gary: if it was delayed in its current form, that would not be a good thing.

Gary Gillheeney: But the fact that it's delayed to reevaluate the data and look for additional data, as well as giving you more time to provide the data, we think it just expands the number of products. And we think that's extremely positive for our PureApply AM product, for sure, that it has the ability to get. And we do expect, with the additional data that we'll be filing, that PureApply AM will be on the approved list. That's our belief right now, and that's how we view this. So, you know, I think that's one reason for the delay. The second is, as you know, we believe payment is a big part of the solution here, and we think CMS is aggressively looking at payment.

Gary: But the fact that it's delayed to re-evaluate the data and look for additional data as well as you're giving you more time to provide the data, we think it just expands the number of products and we think that's extremely positive for our pure supply AM product for sure.

Gary: that it has the ability to get and we do expect

Gary: with the additional data that we'll be filing that pure apply AM.

Gary: We'll be on the approved list. That's our belief right now, and that's...

Gary: How we view this. So, you know, I think that's one reason for the delay. The second is, as you know, we believe payment is...

Gary: is a big part of the solution here and we think CMS is aggressively looking at payment. We don't know if we'll see anything in July and the proposed rule, but if there is no payment solution.

Gary Gillheeney: We don't know if we'll see anything in July in the proposed rule, but if there is no payment solution, There needs to be something to baffle the cost and slow down spending, and that would be the LCD that's available to them. January 1. So I think, you know, they're expanding the LCD, so it's more, you know, impactful to patients, meaning more products, more accessibility. But at the same time, it's a backstop if payment doesn't happen. And then they have no LCD, then it's basically where we are today, which is not a good place.

Gary: There needs to be something to baffle the cost and slow down spending, and that would be the LCD that's available to them on.

Gary: on January 1. So I think they're expanding the LCD, so it's more impactful to patients meaning more products, more accessibility, but at the same time it's a backstop if payment doesn't happen.

Ryan Zimmerman: So I don't know if that's helpful, Ryan, but that's my view. No, no, that's very appreciative. Sounds like there's a range of options, maybe more so than. What we saw in the original CD is that could come out of this, kind of come early January 22nd. and maybe we are having that discussion around either new payment models or so forth. Yeah, we'll have to see.

Gary: What we saw in the original CD is that could come out of this kind of come early January 2026.

Gary: And maybe we are having that discussion around either new payment models or so forth, but yeah, we'll have to see. So I appreciate the color. Thank you for taking the question.

Ryan Zimmerman: So I appreciate the call. Sure, of course.

Operator: And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, for any questions, please press star 11.

Course.

Speaker Change: And as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Again, for any questions, please press star 1-1.

Ross Osborn: And our next question will be coming from Ross Osborn of Cantor Fitzgerald. Your line is open. Hi, guys. Thank you for taking the questions. But I try to remember the commentary correctly for this year. Brian Institute reiterated today assumed a strong inflection point in the second half of the year due to the LCB coming through.

Speaker Change: And our next question will be coming from Ross Osborn of Cantor Fitzgerald. Your line is open Ross.

Speaker Change: Biden, which he reiterated today, assumed a strong inflection point in the second half of the year due to the LCD coming through.

Ross Osborn: So if we could just go over, I guess, one more time, why you think you can still create real-world color diamonds, given the fact that the LCDs are similar to light. Hey Ross, I'm sorry, but it was very difficult to understand what you said. We can hear you loud and clear, but it's a little garbled. All right, good. All right, just better now. Yeah, that's much better. Okay, great. So I was just asking about guidance, and sorry to hone on this topic, but, you know, based upon your original guidance and your commentary, it assumed a strong inflection in the second half of the year, given that the LCD would go through.

Speaker Change: So I think it's still a good time. Why do you think you can start your pilot pilot? You get in the

Speaker Change: Hey Ross, I'm sorry but it was very difficult to understand what you said. We can hear you loud and clear but it's a little garbled.

All right. Thank you.

Is this better now?

Speaker Change: Yeah, that's much better. Okay, great. So I was just asking about guidance and sorry to hone on this topic, but you know, based upon your original guidance and your commentary, it assumed a strong inflection in the second half of the year.

Speaker Change: given that the LCD would go through. I'm just still a little bit confused why you guys were able to reiterate guidance given that it won't go through. So just curious what the uploads and the revenue is at this point.

Gary Gillheeney: I'm just still a little bit confused why you guys were able to reiterate guidance, given that it won't go through. So just curious what, you know, what the uplift and the revenue is at this point. Yeah, sure. So what I indicated a little bit earlier was the benefits that we've got is Pure Apply is now available for all indications. And obviously, that's a huge win for us. We've got the full portfolio of products as well, which Pure Apply and some of the licensed products are higher margin products. So obviously, that helps gross margin as well, as well as the top line.

Speaker Change: Yeah, sure, so what I indicated a little bit earlier was the benefits that we've got is pure applies now available for all indications and obviously that's a huge win for us.

Speaker Change: We've got the full portfolio of products as well which, you know, purply and some of the licensed products are higher margin products, so obviously that helps gross margin as well, as well as the top line. And so we see continued stabilization of the market and customer buying behaviors in the back half.

Gary Gillheeney: And so we see continued stabilization of the market and customer buying behaviors in back half. And so those all coupled together, we think are really beneficial for us overall. The offset to that, of course, is that, you know, as Gary mentioned, it takes time to bring the products back onto the formularies. The competition dynamics are still the same as they were in 24, which again, we were successful in that year. But remember, we had assumed post LCD, we'd have three commercialized products out of 18 for DFUs and VLUs. That, you know, that doesn't exist anymore.

Speaker Change: and so those all coupled together we think are really beneficial for us overall.

Speaker Change: The offset to that, of course, is that, you know, as Gary mentioned, it takes time to bring the products back onto the formularies.

Speaker Change: The competition dynamics are still the same as they were in 24, which again we were successful in that year. But remember, we had assumed post LCD, we'd have three commercialized products out of 18 for DFUs and VLUs.

Gary Gillheeney: The competition is still there. There's still some uncertainty. And we assume there's some offsets to the benefit in the late part of Q4, just like we saw in Q1. So if you think about it, you know, under the LCD that we had, you know, fewer products on the LCD. So, you know, the forecast is built on volume moving to those products. Now we have the breadth of our portfolio, as Dave said, which is much broader. And we do have higher margin products in our portfolio. So you're replacing, you know, a few products with a lot of volume with a number of products with higher margins.

Speaker Change: That doesn't exist anymore, the competition is still there. There's still some uncertainty, and we assume there's some offsets to the benefit in the late part of Q4, just like we saw in Q1.

Speaker Change: So, you know, the forecast is built on volume moving to those products.

Gary Gillheeney: So that offset, you know, basically is volume versus price.

So, that offset, you know, basically is volume versus price.

Ross Osborn: That's the magic of our portfolio, the optionality that we have and the flexibility we have to be able to pivot and move to different products at different pricings and different sites of care is what allows us to continue to reinforce guidance, and we're confident. Understood. And that's helpful.

Speaker Change: That's the magic of our portfolio, the optionality that we have, and the flexibility we have to be able to pivot and move to different products at different pricings and different sites to care is what allows us to, you know, continue to reinforce guidance and we're confident in the guys.

Gary Gillheene

Speaker Change: Understood, and that's helpful. And then, you know, stabilizations and interesting words, obviously given all the markets I can. Could you explain that a little bit and why you think that will occur?

Gary Gillheeney: And then, you know, stabilizations and interesting word, obviously, given all the market dynamics, could you expand on that a little bit and why you think that will occur? Yeah, I'll start, Dave, you can jump in. So, you know, as, as we're educating our customers, we spent a lot of time engaging with our customers, there was confusion around which products were on the LCD or not, whether or not a non DFU and VLU wounds could still be, you know, utilizing our products. So as that information gets in, we're seeing customers starting to go back to their old buying habits, and their buying patterns, as we get on formulary.

and their buying patterns.

Gary Gillheeney: So we think, you know, that's the stabilization and there's no LCD impact at all for the rest of the year. So we think the combination of our education, and, you know, the fact that the LCD is now pushed into another year, Okay. is what the stabilization is based on. Yeah, I agree, Gary. I think, you know, the last announcement. Yeah. The last announcement was on April 11th, so obviously we have some lingering impact in the second quarter and we expect that to really be stable in the back half as people really understand the reimbursement landscape and get more comfortable in this market.

Speaker Change: as we get on formulary. So we think, you know, that's the stabilization and there's no LCD impact at all for the rest of the year. So we think the combination of our education and, you know, the fact that the LCD is now pushed into another year.

You know, is what the stabilization is based on.

Speaker Change: I agree, Gary. I think there's a lesson out there. Yeah.

Speaker Change: The last announcement was on April 11th, so obviously we have lingering impact in the second quarter and we expect that to really be stable in the back half as people really understand the reimbursement landscape and get more comfortable in this market.

Gary Gillheeney: Understood.

David Francisco: And then last question for me, and I'll jump back in queue. Could you guys parse out volume versus pricing for the second half of this year? You know, meaning, are you planning on introducing higher priced products to make up for potentially lost volume, kind of playing the game of the company's non-LCD. Yeah, so we're not introducing anything new necessarily. I mean, you know, we've obviously got new products periodically. But the reality is, it's just the fact that, as Gary said, and I think I mentioned as well, that we have the full portfolio at our disposal for DFUs and DLUs.

Speaker Change: Understood. And then I got last question from me and I'll turn back into you. Could you guys?

Speaker Change: Park style volume versus pricing for the second half of this year, meaning are you planning on introducing higher price products to make up for potentially the lost.

William, kind of playing the game of the company's own L.C.D.

Speaker Change: Yeah, so we're not introducing anything new necessarily. I mean, you know, we've obviously got new products periodically, but the reality is it's just the fact that, as Gary said, and I think I mentioned as well, that we have the full portfolio at our disposal for DFUs and VLUsed.

David Francisco: So it really just is higher margin products across some of the licensed products, as well as our Pure Apply franchise now is available for that fairly large subset of the market. So we can address, you know, all indications with the entire portfolio. So it's just a mixed shift from only the covered products in that subset to the full portfolio.

Speaker Change: So it really just is higher margin products across some of the license products as well as our pure supply franchise now is available for that fairly large subset of the market. So we can address all indications with the entire portfolio. So it's just a mixed shift from only the covered products in that subset to the full portfolio.

David Francisco: Thank you. Thank you very much. Thanks for watching!

Thank you.

Yeah.

Speaker Change: Thank you. And 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.

Thank you very much.

Speaker Change: Okay.