Greetings. Welcome to the AxoGen Reports Third Quarter 2023 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Adanna Alexander, Investor Relations Consultant. Adanna, you may now begin.

Thanks Rob. Good morning, everyone. Joining me on today's call is Karen Zaderej, AxoGen's Chairman, Chief Executive Officer and President; and Pete Mariani, Executive Vice President and Chief Financial Officer. Karen will discuss the quarter and our outlook for the year, and Pete will provide an analysis of our financial performance and guidance, followed by a question-and-answer session. Today's call is being broadcast live via webcast, which is available on the Investors section of the AxoGen's website. Following the end of the live call, a replay will be available in the Investors section of the company's website at www.axogeninc.com. Before we get started, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements including our expectations regarding our ability to expand our footprint and expand core accounts, anticipated growth for revenue categories, penetration of core accounts, marketing opportunities with nerve applications associated with emergent trauma, breast, OMF, and surgical treatment of pain and new products. Our expectations regarding the timing of a launch for Avive Plus, our expectations regarding our ability to make a rolling biologics license application submission for advanced nerve grafts, and the timing of the BLA submission for approval. Our belief that our balance sheet will continue to be sufficient to bridge through to cash flow breakeven and longer-term profitability. Our expectation is that we will continue trending towards cash flow breakeven, and our belief that trends towards operating leverage will allow us to maintain a strong balance sheet position and provide ample support as we work towards profitability. Our 2023 financial guidance, including revenue range and gross margin, optimism associated with the adoption of our new products, key strategic pillars, and our balance sheet. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, not without limitation, the risks and uncertainties reflected in the company's annual and periodic reports, such as hospital staffing issues, regulatory process and approvals, surgeon and product adoption, and market awareness of our products. The forward-looking statements are representative only as of the date they are made and accept as required by applicable law. We assume no responsibility to publicly update or revive any forward-looking statements. In addition, for a reconciliation of non-GAAP measures, please reference today's press release and our corporate presentation on the Investor section of the company's website. Now, I would like to turn the call over to Karen. Karen?

Thank you, Adanna. And thank you all for joining us today as we discuss our third quarter 2023 financial results. We're pleased with the quarter led by revenue of $41.3 million, representing 12% growth year-over-year. Our performance reflects improvement in emergent trauma, as well as continued strength in scheduled procedures. This improvement was the result of stabilization in the hospital operating environment and improved commercial execution. As you may recall, last quarter we began reporting estimated revenue and growth across two primary procedure categories, emergent trauma and scheduled procedures. These estimates are based on available data received from hospitals and sales reps and assumptions regarding specific surgeon practice and account information, and as such, are subject to the limitations of the data received and our assumptions. During the quarter, we estimate that emergent trauma procedures represented approximately 50% of revenue and grew in the mid-single-digit percent range versus the prior year. As a reminder, emergent trauma generally results from injuries that initially present in an ER. These procedures are typically referred to and are completed by a specialist, either immediately or within a few days following the initial injury. During the quarter, we began to see stabilization of staffing and procedure scheduling in hospital compared to the first half of 2023. Although we continue to see growth of certain routine procedures in lower cost settings, such as ASCs, access to these procedures within hospitals also improved in the third quarter compared to the first half of the year. Scheduled procedures also represent approximately half of total revenue. During the quarter, we estimate that this category grew approximately 20% versus the prior year. As a reminder, scheduled procedures are generally characterized as procedures where a patient is seeking relief of a nerve condition caused by a nerve defect or surgical procedure.…

Thank you, Karen. Revenue for the quarter was $41.3 million, representing a 12% increase, compared to the third quarter of 2022. Growth was primarily driven by an increase in unit volume of 8% and a 3.5% increase in price. The estimate or we estimate the revenue from emergent trauma represented about half our total revenue and grew in the mid-single-digit range versus last year. While scheduled procedures also represented about half of total revenue and grew approximately 20% year-over-year. Gross profit for the quarter, was approximately $33.2 million, compared to gross profit of approximately $30.8 million for the third quarter of 2022. Gross margin for the quarter was 80.5% down from 83.3% year-over-year, reflecting the initiation of tissue processing in our newly opened AxoGen processing center in the quarter. Total operating expenses for the quarter increased 5% to $37.3 million, compared to $35.6 million in Q3 of 2022. The net increase was primarily the result of increased marketing programs, compensation, and professional services. Sales and marketing expenses in the third quarter increased to 8% to $21.4 million, compared to $19.8 million in the prior year. The increase was primarily due to compensation, marketing programs, and travel. As a percentage of total revenue, sales and marketing expense decreased to 52%, compared to 54% in the third quarter of 2022. Research and development expenses, the $7 million, remained flat year-over-year. Product development expenses represented approximately 62% of total R&D, compared to 50% in the prior year and included costs, for a number of specific development programs along with the non-clinical spend on the BLA for Avance Nerve Graft. Clinical expenses represented approximately 38% of total R&D, compared to 50% in the prior year. And as a percentage of total revenues, research and development expense decreased to 17%, compared to 19% in the…

Thank you. [Operator Instructions] And our first question is from the line of Mike Sarcone with Jefferies. Pleased proceed with your questions.

Good morning, Karen and Pete. Thanks for taking the questions.

Good morning.

Good morning.

So just the first one, you know, on the guidance, if I look what's implied for 4Q, that's kind of $38 million to $43 million, which is, 5% to 19% year-over-year growth at the low and high ends of the range. I was wondering if you could just talk about, you know, what are your assumptions that are baked in to both ends of the range and just any more color there would be great to start?

Yes, Mike, I think for our guidance, we're trending in the middle of the range. We just didn't feel like in this current environment trying to mess with the range at the end of the year would be appropriate. We're comfortable with the range that this is implying and I think that this makes sense for the company.

Okay, got it. And then do you think you can just give us some more color on the ASC dynamic and hospitals, moving some of those simple procedures to the ASC in 2Q, you called out an economic impact. We just love to get some more granularity on how that situation is playing out?

Sure. Yes, we saw actually two things happen. We started to see good execution in ASCs as we see some simple procedures transitioning to ASCs. But we also saw stabilization in the hospital environment where hospitals were able in some cases to re-stabilize their staffing and allow procedures to be there. And in other cases, they've made their changes, the procedures have moved ASCs, but as I said, we're starting to be able to move into those. So all the way around, we saw an increase in what we would call simple trauma. So these are lacerations that can be repaired with a connector or could be repaired with a short Avance. And we saw those stabilize and start to grow again.

Okay. Thank you.

The next question comes from the line of [Mike Kratzke with Learing Partners]. Please proceed with your questions.

Hi, everyone. Thanks for taking my questions. I guess just in the first of the upcoming BLA approval, I mean, is your expectation that that is going to help drive meaningfully higher utilization from surgeons? What have you heard from your industry contacts? And then just as a follow-up, has that pre-BLA meeting been scheduled for 1Q already, or is there any other kind of gating factors ahead of that that you'd need to provide?

Yes, so first on the schedule, no, we don't have a date yet for the pre-BLA meeting. It's not scheduled, but we're on track to have it scheduled to be in the early part of Q1. And in terms of gating factors, yes, there's certain documents that you provide to the FDA. They go through some logistics internally, to then come up with a schedule. So those initiatives have to happen yet, but again, we're on schedule to do what we expect to get it scheduled in the early part of Q1. In terms of the impact of the BLA, we think the BLA will be helpful for middle adopters to be comfortable in the data that Avance Nerve Graft has that shows that it is certainly a superior option to conduits. And that, combined with the meta-analysis, is going to provide a better opportunity for their patients without the morbidity of an autograft. And as I mentioned in the script, it's also faster for those hospitals that are trying to get their ORs turned over more quickly. And so, we think that we've got a good opportunity to continue to build this business as we transition into a BLA with the stamp of being a biological product.

Super helpful. Thanks very much.

Thank you. Our next question is from the line of Caitlin Cronin with Canaccord Genuity. Please proceed with your questions.

Hi, everyone. Good morning and congrats on a great quarter. Just maybe to start touching on core accounts, it became a larger portion of your business this quarter. Historically, it's only been 60%, now 65%. Do you really expect this to keep growing and has this really been the result of middle adopter growth or more penetration of different types of surgeons within an account? Thank you.

Yes. Thank you. We're very excited that we're seeing faster growth in both emergent and scheduled procedures in our core accounts. And that's been our strategy is we think there's a significant opportunity to grow that business in those core accounts. That's where we've got a lot of upside potential, and it is all of those. Now, the majority of our - the vast majority of our core accounts have both some business in trauma and some business in scheduled cases. But we see opportunity to continue to expand both of those and continue to drive that deeper adoption. And that deeper adoption really by definition means we're moving into those middle adopters and becoming the standard of care in those accounts. That's what our goal is. And then continue to grow the number of core accounts where we become the standard of care. So we think that strategy has been effective and we're happy to see that percentage increase.

Awesome. And then just a quick one on breast. You noted a higher number of surgeons you expect to train this year. Are you starting to see revenue contribution from this new opening of procedures in that segment?

Yes, it's been exciting to see the expansion into the implant-based procedures. This is the opportunity for sensationists, we're ending breast cancer awareness month has been a meaningful topic of conversation among women who have breast cancer. And I think the realization that this is an important outcome for women has continued to disperse significant interest in the procedure. We've had standing room only interest in our training programs for the implant-based procedures, and we think this will continue to be an impactful part of our overall growth in the scheduled procedures.

Thank you.

[Operator Instructions] Our next question comes from the line of Dave Turkaly with JMP Securities. Please proceed with your questions.

Hi. Good morning. Karen, maybe on the Avive Plus, the resorbable - does anybody else have a resorbable product I'm just curious, were surgeons asking for this, I - kind of wondering exactly where it will be used specifically.

Yes, actually, if you remember, we had an absorbable product prior that was very well received by the market, and we voluntarily withdrew that as some FDA changes in classification of products. I didn't tell you that I regularly receive phone calls from surgeons who were saying that they would like a replacement back for that product, that it was an important part of the overall treatment algorithm. It's not going to be used, it's a very niche product. It's not going to be used in all procedures, but in those procedures where there is a trauma that can cause damage to the surrounding tissue of it can be important to have a temporary or a resorbable soft tissue matrix that provides protection during the critical healing phase. And surgeons are very interested in having this as a part of their algorithm, in addition to the offerings we have with AxoGen. And so we are looking forward to getting this launched in the first quarter.

Great. And maybe one follow-up for Pete. Can you give us from a modeling standpoint, what you think interest expense is going to look like, maybe just on a quarterly basis moving ahead, given that capitalization is now rolling off?

Yes. I think with the structure of our debt, you'll see anywhere from a 1.7 million to maybe a 1.9 million a quarter. Actually, yes, but that's interest expense. And then we'll see interest income as well off the cash that we have of a few hundred thousand.

Thank you.

Thanks, Dave.

Thanks, Dave.

Thank you. At this time, we've reached the end of our question-and-answer session, and I'll turn the call over to Karen Zaderej for closing remarks.

Thank you, Rob. I'd like to thank the AxoGen team who remain committed to our mission of improving nerve function and quality of life for patients with peripheral nerve injuries. We're happy with our current progress, and we remain focused on ensuring our long-term success. I want to thank everyone for joining us this morning, and have a great day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.