Earnings call transcript: AxoGen Q4 2024 earnings beat expectations

AxoGen Inc. (AXGN) reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.07 against a forecast of $0.03. The company’s revenue for the quarter reached $49.4 million, exceeding the anticipated $47.58 million. This positive performance led to a premarket stock price increase of 2.61%, reaching $18.48 per share. According to InvestingPro, the company, currently valued at approximately $792 million, appears to be trading near its Fair Value, with analysts maintaining a strong buy consensus.

Key Takeaways

• AxoGen’s Q4 2024 EPS of $0.07 beat forecasts by over 133%.
• Revenue for Q4 2024 grew by 15.1% year-over-year to $49.4 million.
• Premarket stock price rose by 2.61% following the earnings announcement.
• The company is focusing on expanding its nerve repair algorithm across multiple markets.
• AxoGen projects a 15-17% revenue growth for 2025.

Company Performance

AxoGen reported a robust performance for the fourth quarter of 2024, with revenue increasing by 15.1% compared to the same period in 2023. The company achieved a net income of $400,000, a significant turnaround from a net loss of $3.9 million in the previous year. This performance is attributed to the strategic expansion of its nerve repair algorithm and increased sales efforts in key markets. InvestingPro data shows the company has maintained impressive revenue growth with a 5-year CAGR of 14%, while operating with a healthy current ratio of 3.74, indicating strong liquidity. InvestingPro subscribers have access to 10+ additional key metrics and insights about AXGN’s financial health.

Financial Highlights

• Revenue: $49.4 million in Q4 2024, a 15.1% increase from Q4 2023.
• Earnings per share: $0.07, compared to a forecast of $0.03.
• Gross margin: Improved to 76.1% in Q4 2024 from 74.6% in Q4 2023.
• Cash and equivalents: $39.5 million as of December 31, 2024.

Earnings vs. Forecast

AxoGen’s actual EPS of $0.07 significantly exceeded the forecasted $0.03, marking a surprise percentage of over 133%. This substantial beat reflects the company’s strong operational performance and strategic initiatives. The revenue of $49.4 million also surpassed expectations, indicating effective market penetration and product demand.

Market Reaction

Following the earnings announcement, AxoGen’s stock experienced a 2.61% increase in premarket trading, reaching $18.48. This movement positions the stock close to its 52-week high of $19.19, reflecting positive investor sentiment driven by the earnings beat and optimistic future guidance. InvestingPro analysis reveals the stock has delivered an impressive 73.7% return over the past year, with a YTD gain of 9.3%. The company maintains a "GOOD" overall financial health score, suggesting solid fundamentals supporting its price performance. For detailed analysis of AXGN’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

For 2025, AxoGen anticipates revenue growth of 15-17% and aims to maintain a gross margin between 73-75%. The company expects to be cash flow positive throughout the year and plans to continue investing in innovation and market development. Future projections include a focus on expanding its sales force and exploring new market opportunities, such as prostatectomy nerve repair.

Executive Commentary

Michael Dale, CEO, remarked, "2024 was a solid year of key accomplishments for AxoGen." Jens Kemp, CMO, added, "We believe AxoGen’s nerve repair product portfolio and expertise remain significant advantages." CFO Nir Noor stated, "We expect to be cash flow positive for the entire year and expect to self-fund our new strategic plan."

Risks and Challenges

• Regulatory hurdles: Potential delays in Biologics License Application (BLA) approval could impact timelines.
• Market competition: Increasing competition in the nerve repair space may pressure margins.
• Economic conditions: Macroeconomic factors could affect healthcare spending and demand.
• Supply chain disruptions: Any disruptions could impact product availability and sales.

Q&A

During the Q&A session, analysts inquired about the company’s confidence in the $5 billion Total (EPA:TTEF) Addressable Market (TAM) estimate and the expected timeline for BLA approval. Executives expressed confidence in their market estimates and anticipated BLA approval by September, emphasizing continued focus on data generation and clinical evidence to support their applications.

Full transcript - Axogen Inc (NASDAQ:AXGN) Q4 2024:

Conference Operator: Good morning, everyone. Joining me on today’s call is Michael Dale, AxoGen’s Chief Executive Officer and Director and Nir Noor, Chief Financial Officer and Jens Kemp, Chief Marketing Officer. Michael will discuss fourth quarter twenty twenty four financial results and Jens will provide a high level introduction to AxoGen’s new strategic plan. Nir will then provide an analysis of our financial performance and guidance and discuss our outlook for the year, followed by a question and answer session. Today’s call is being broadcast live via webcast, which is available on the Investors section of 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 the conference call, the company will make projections and forward looking statements. Forward looking statements, which are usually identified by the use of words such as objective, will, believe, expect, estimate, should, guidance, intend, projects or other similar phrases include, but are not limited to, statements relating to financial guidance, including revenue, margins, cash flow, future profitability, expectations for growth, estimated total addressable market opportunities, timing for future product and application launches, marketing opportunities within existing and new markets and the company’s expectations for approval of the biological license application of Advanced Nerve Graft, including the anticipated timing of approval and the assumption that Advanced Nerve Graft will be designated as a reference product for any future biosimilar nerve graft and that such designation will provide marketplace exclusivity. 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 without limitation the risks and uncertainties reflected in the company’s SEC filings, including its Form 10 K and 10 Q.

The forward looking statements are representative only as of the date that they are made and except as required by applicable law, the company assumes no responsibility to publicly update or revise any forward looking statements. In addition, for a reconciliation of non GAAP measures, please refer to today’s press release and the corporate presentation on the Investors section of the company’s website. Now, I’ll turn the call over to Michael.

Michael Dale, Chief Executive Officer and Director, AxoGen: Thank you, operator, and thank you to everyone who is joining us today as we discuss our twenty twenty four fourth quarter and full year financial results. 2024 was a solid year of key accomplishments for Acxogen. We are pleased with our progress as a team. And while we have work ahead of us to realize Acxogen’s full potential, we are entering 2025 with increased confidence across all parts of the business. On my first call as CEO last November, we established three near term priorities for the business.

Number one, successfully complete the submission of our BLA application number two, meet our established revenue guidance for the year and lastly, develop a new strategic plan for the business, engaging all employees and key external stakeholders in the process. These were, in each case, highly relevant commitments we made to all stakeholders and the successful completion of these commitments explain in part our increased confidence as we enter the new year. Regarding future expectations for AxoGen, I’m excited to introduce our new strategic priorities today and look forward to providing details about our new plans during our March 4 Investor Day event. The insights and opportunities identified from our strategic planning exercise address financial results, I would like to provide background for anyone who might be new to our story. Whenever we reference Acugen’s nerve repair algorithm, we are referring to a broad product portfolio designed to address the needs of common nerve injuries, including bridging the gap resulting from transected nerves, nerve protection for non transected but injured nerves and termination of nerves when there is no opportunity for reconnection or reconstruction.

Depending on the clinical situation, one or many permutations of Acutant’s nerve algorithm may be necessary to ensure the best possible patient outcome. Now to our financial results. Our full year 2024 revenue was $187,300,000 a 17.8% increase compared to 2023. In 2024, we saw broad based growth across all of the markets we serve, which comprises extremities, oral, maxill, facial and head and neck and breast. For each market, positive performance was driven by improved commercial execution of our growth strategy focused on driving adoption of our nerve repair algorithm and development of high potential accounts.

EBITDA was similarly positively impacted by our improved sales productivity and resource allocation. Now turning to our fourth quarter results. Revenue increased to $49,400,000 up 15.1% compared to the prior year. Like the year, fourth quarter performance reflected broad based growth driven by adoption of our nerve repair algorithm across all clinical applications. We continue to execute our strategy to focus and deepen our presence in high potential accounts, which are primarily characterized by the following criteria: larger hospitals, including level one trauma centers and or academic affiliated hospitals with a high number of nerve repair procedures and lastly, already trained microsurgeons.

We aim to drive growth in these types of accounts through targeted expansion of nerve repair indications by building on the existing experience in nerve repair in the account. The inherent potential of the account to grow based on size and procedure volume and by expanding adoption of our nerve repair algorithm to other surgical specialties. We believe our focus on these high potential accounts is the reason for our improvement in sales productivity. Next (LON:NXT), I would like to address the status of the Biologics license approval, also referred to as BLA, for Advanced Nerve Graft. As a reminder, a BLA approval will complete the regulatory transition of AVANCE Nerve Graft from a three sixty one tissue product to a three fifty one biological product.

Importantly, we believe AVANCE will be designated as the reference product for potential biosimilars, providing twelve years of market exclusivity. We submitted the BLA in the third quarter of twenty twenty four and continue to engage regularly with the FDA as part of the application review process. Consistent with prior guidance, we expect BLA approval in September. I would now like to turn it over to our Chief Marketing Officer, Jens Kemp, so that he can share and highlight key insights and priorities resulting from our strategic planning exercise. Our investments and market development priorities over the next four years will be guided by this plan, and the AxoGen team is excited about our opportunities.

As mentioned, we will discuss the plan in detail during our Investor Day on March 4.

Jens Kemp, Chief Marketing Officer, AxoGen: Thank you, Mike. To start, we believe AxoGen’s planned peripheral nerve repair market development priorities represents a US5 billion dollars TAM opportunity with significant potential to improve patients’ health and quality of life based on a superior benefit to risk value proposition. We believe AxoGen’s nerve repair product portfolio and expertise remain significant advantages, which we can build upon over the next four years. AxoGen’s international presence is limited today, but we believe the market opportunity for nerve care outside The U. S.

Is just as large and attractive, and we look forward to taking concrete steps towards developing these markets in the coming years. Our objective for the four year planning period will be to achieve a CAGR of 15% to 20% by executing on the following strategic priorities, which include: Number one, we will prioritize investments towards markets with elective and planned procedures, which are characterized by more efficient market development and customer creation process, resulting in more predictable and consistent revenue growth. Number two, we will advance the AxoGen algorithm towards standard of care in extremities. Our extremities business, which consists of traumatic and chronic nerve injuries in the upper and lower extremities, represents more than half of our business today. We have a large customer base, level one clinical evidence and strong KOL and societal relationships.

Growth in this market has been impacted by commercial payer coverage policies, a challenging customer creation process and a complex patient journey. To address these challenges and accelerate growth, we will execute on the following strategies, which include: We will continue to drive advocacy for advanced nerve graft as a standard of care option in extremity nerve reconstruction and work to expand coverage by leveraging the BLA approval, level one clinical evidence and societal support. Next, we’ll optimize the patient journey through education and therapy awareness of the referral base to drive more patients to our nerve surgeon customers. We’ll continue to develop the market for nerve protection and expand our market development efforts to lower extremities. And finally, we’ll continue to drive commercial excellence with higher sales productivity by execution of our high potential account strategy with a dedicated sales organization to drive focus and adoption of the AxoGen nerve repair algorithm.

Number three, we will establish leadership in the breast notation market and drive our resensation technique towards standard of care in breast reconstruction procedures. AxoGen’s resensation surgical technique is designed to address post mastectomy numbness, a significant consequence of breast cancer surgery, by restoring sensation to the breast as part of the reconstructive surgery. Breast Notation represents a significant market opportunity and is AxoGen’s fastest growing business with a consistent, predictable and scalable business model. To accelerate growth, we will focus on the following strategies, including significantly increasing investments in our breast commercial infrastructure to support growth. This includes growing our dedicated sales and marketing organization, as well as expanding our professional education capacity.

We will expand surgeon education and training programs to increase surgeon activation and resensation procedure adoption. We will accelerate patient awareness and activation by increasing the quantity and reach of our campaigns, while growing relationships with advocacy groups and healthcare providers. And finally, we will advance level one clinical evidence generation to expand coverage and drive societal support for standard of care. Number four, our oral maxillofacial and head and neck business represents a large and attractive market opportunity for AxoGen with high procedural concentration in about 900 hospitals with strong overlap with our extremities’ high potential accounts. Isogenic nerve injuries are common in OMS and head and neck surgical procedures, but are often not treated due to lack of surgeon education on available nerve repair options as well as awareness of the quality of life impact for patients.

To accelerate adoption of the AxoGen nerve repair algorithm in OMF and head and neck and drive towards standard of care, we will execute on the following strategies: Expand surgeon education and training programs to grow the number of trained surgeons and care sites that incorporate AxoGen’s nerve repair algorithm in targeted OMF and head and neck procedures. We will increase field based market development support to raise brand awareness and KOL engagement to drive efficacy, best practice and adoption in the head and neck market. We’ll leverage the societal support in OMF and inclusion in the AA OMS ParCare guidelines to drive societal support and standard of care designation for nerve repair in mandible reconstruction with key head and neck societies. And finally, we’ll drive increased patient and surgeon awareness of the quality of life impact from nerve damage in OMF and head and neck surgical procedures. Number five, there are numerous large underdeveloped markets for nerve repair, and addressing these is an important long term growth driver for AxoGen.

We will invest in the development of those with substantial market potential and opportunity to improve patient outcomes. Our initial focus will be for nerve repair and protection during prostatectomy. Prostatectomy represents a large and attractive market opportunity due to a motivated patient population and a well defined clinical problem that can be addressed with the AxoGen nerve repair algorithm. Number six, we will increase our investment in innovation programs that aim to improve the standard of care nerve repair and in Level one clinical evidence generation that meets payer requirements for coverage, advances support for standard of care designation and drives consensus for incorporation of our nerve repair algorithm into clinical guidelines. Number seven, we will drive operational efficiencies in manufacturing by investing in systems and processes to optimize gross margin in the upcoming years.

And finally, we expect to maintain positive cash flows over the planning period sufficient to fund our organic growth initiatives consistent with our strategic plan. We look forward to providing more details on our upcoming Investor Day. Now, I’ll turn the call over to Nir to provide a review of our financial highlights and guidance. Nir?

Nir Noor, Chief Financial Officer, AxoGen: Thank you, Ian. We’re excited about our results for the quarter and the year. We have seen good progress in our commercial execution and resource allocation, both yielding results in terms of top line growth, bottom line stability, as well as cash flow positivity for the year. For this quarter, our revenue reached $49,400,000 representing 15.1% growth from the fourth quarter of twenty twenty three. This growth is attributed to an approximately 11% increase in unit volume and mix and a 4% increase in price.

Our gross profit for the quarter was $37,600,000 an increase from the $32,000,000 recorded in the fourth quarter of twenty twenty three. This represents gross margin of 76.1%, up from 74.6% in the same period last year. Our total operating expenses for the quarter increased to $35,600,000 up slightly from $35,200,000 in Q4 of twenty twenty three. Sales and marketing expenses as a percentage of total revenue decreased to 40.6% from 46.9% in the fourth quarter of twenty twenty three as we saw an increase in our sales solid execution of our strategy focusing on high potential accounts. Research and development expenses decreased by 6.2% to $6,700,000 from $7,200,000 in 2023, driven by the completion of the development of Agassiz Guard of Atlas (NYSE:ATCO) at the end of Q2 of twenty twenty four.

As a percentage of total revenues, total R and D expenses were 13.6%, down from 16.7% in the last quarter of the prior year. General and administrative expenses were $8,800,000 in Q4 of twenty twenty four, up 11.8 from the $7,900,000 in Q4 of twenty twenty three, driven mainly by stock compensation expense reversals in Q4 last year due to the departure of some of our leadership team. The quarter ended with net income of $400,000 or 0.01 per share compared to a net loss of $3,900,000 or $0.09 per share in the fourth quarter of twenty twenty three. Adjusted net income for the quarter was $3,500,000 or $0.07 per share compared to an adjusted net loss of $2,600,000 or $0.06 per share in the fourth quarter of twenty twenty three. Adjusted fourth quarter EBITDA was $6,700,000 compared to an adjusted EBITDA of $600,000 in the prior year.

As of December 31, our balance of cash, cash equivalents and investments was $39,500,000 compared to $30,500,000 at the end of the third quarter. Turning now to our guidance, we expect full year 2025 revenue growth to be in the range of 15% to 17% versus the prior year. We also anticipate full year 2025 gross margin to be in the range of 73% to 75%. This range includes approximately $2,000,000 of one time costs related to the BLA approval, which would impact full year gross margin by approximately one percentage point. The timing of most of those costs would be around the anticipated BLA approval date currently expected to be in September.

Notably, we estimate that two thirds of those costs are non cash and pertain to the vesting of our BLA related stock compensation. From a cash perspective, we expect to be net cash flow positive for the entire year and expect to self fund our new strategic plan. However, we expect similar seasonality of quarterly cash flows as we have seen historically with Q1 expected to be a net cash outflow due to the yearly bonus payment and the national sales meeting, both of which take place during the first quarter, followed by positive cash flow for the remainder of the year. In summary, we’re pleased with our fourth quarter performance. We will continue to execute our strategy to invest in innovation, improve our reach of sub location while maintaining our full year cash flow positivity and striving towards greater bottom line profitability.

And at this time, we’d like to open the line for questions. Maria?

Conference Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from Chris Pascual with Nephron Research LLC. Please proceed with your question.

Chris Pascual, Analyst, Nephron Research LLC: Thanks. Good morning, guys. A lot to ask about with the strategic plan, Eleya. Looking forward to getting more details next week. Just as a starting point, I noticed the $5,000,000,000 US TAM you called out, I believe that’s about 2x how the company had previously thought about their opportunity.

And frankly, even that prior estimate had gotten some pushback at various times from The Street in terms of whether that was real. And so I’m curious kind of what the difference is now as you look at a $5,000,000,000 I’m aware of the questions about the town

Nir Noor, Chief Financial Officer, AxoGen: historically.

Michael Dale, Chief Executive Officer and Director, AxoGen: No, I’m aware of the questions about the town historically. I can share with you that as part of the new planning process, those very basic and critical questions were evaluated. And we’ve looked at all the permutations on incidence presentation, the various problems, whether they be elective or emergent. And we’re very comfortable with the estimates of the overall TAM. In terms of the actual components of what makes up that TAM, we’ll obviously during the Investor Day walk through that discretely in terms of each part of the marketplace.

But there’s pretty comfortable based upon all the coding that’s available to us to look at, the actual eligibility of who could use our products from a graft size standpoint versus simply reconnecting nerves. All of that was evaluated that allowed us to get to that. I think the key question as with almost any market, I don’t care which market you’re speaking to, is not so much even what how big it is, big it’s important because if you’re off a little bit, obviously, you still have a target remaining and that’s why people are interested. But there’s also addressability. And so while the markets are large, we do believe there are differences in addressability.

We’re simply sharing with you the facts as they exist as we’ve been able to deduce.

Chris Pascual, Analyst, Nephron Research LLC: And then just as I think about that list that you laid out, a lot of investment in better market development, in driving adoption in new opportunities. I’m curious whether you can do all those things that you guys laid out while still continuing to improve profitability. The company has come a long way. You’re cash flow positive now, which is a great step relative to a couple of years ago. Is top line going to be the focus going forward or can you balance that with margin expansion?

Michael Dale, Chief Executive Officer and Director, AxoGen: We can absolutely balance it. So that’s what our plan reflects. I mean, last thing we want to do is embarrass ourselves as we go forward here. So the plans that we put in place, we think are very practical. They’re very doable.

The investments that we need to make, we’ve looked at top to bottom, and we’ve tied these to a cause and effect by a clinical application. So, now, obviously, we need to prove it, we need to execute. But the plan is pretty straightforward in terms of that cause and effect relationship. And unless there’s something grossly off, we believe we’ll be able to do what we just described. Yes, Chris, this is growth.

Nir Noor, Chief Financial Officer, AxoGen: The continuance of last year, as we have said, yes, we’re not just focusing obviously on top line growth. It is a balanced growth with optimization of resource allocation. And as we mentioned, yes, with those investments, we expect to be cash flow positive for the year for 2025.

Michael Dale, Chief Executive Officer and Director, AxoGen: Thanks, Nir. The key thing I would share, Chris, with everybody is that, Accrington chronologically is a company that’s for all practical purposes at least fifteen years old. But from an actual market penetration and market development, this is still a very young company. It’s very immature in terms of any individual marketplace. And while we want to believe that we’ve done everything is possible, the The truth of the matter is we still have customers who don’t even know our name.

And so, there’s much opportunity left in terms of improving basic awareness while we continue to also teach nerve care. So, the market opportunity is very large, but we still need to go out and develop that market.

Conference Operator: Our next question comes from Michael Sarcone with Jefferies. Please proceed with your question.

Michael Sarcone, Analyst, Jefferies: I guess just one on some of the strategic plans you laid out. Out. You talked about your objective being a 15% to 20% CAGR for the planning period. I know we’re going to get into more details at the Investor Day, but any color you could provide on what are the assumptions at the low end versus the high end there and how much of that is related to kind of penetrating your existing core markets versus newer markets?

Michael Dale, Chief Executive Officer and Director, AxoGen: Well, we have obviously history in terms of the growth rate to look at. And so very simply, and we’ll go into the detail on Mondays and try to answer those questions more clearly. But fundamentally, we’re expanding parts of our organization. So, for example, breast, we will double that organization in terms of footprint. We have a lot of history in terms of the business model.

So we know or at least we believe we know how extendable that business model is. So long as we execute that expansion on schedule, that should result clearly in new customer creation. We also have a lot of history with regards to training. So for individual surgeons that we bring awareness to of these types of techniques who go through our programs, in some of these areas, we have more than 80% probability that those individuals will go on to do cases and we know how many cases they will do on average. So again, we’ve tied the math out.

You still have to execute, but there’s nothing that’s a hope pass where you’re throwing the ball downfield and saying, gee, I hope someone catches it. So everything has pretty simple math that we’ve tied to. If there’s any errors, it’s some sort of error and assumptions that we didn’t foresee. But we think this plan is imminently executable.

Michael Sarcone, Analyst, Jefferies: Got it. That’s helpful. Thanks, Michael. And maybe one for Nir, maybe just comment around the key assumptions for the 15% to 17% sales guide for the year? And then maybe some color on how you’re thinking about sales cadence

Nir Noor, Chief Financial Officer, AxoGen: through the year? Yes. So the key assumptions are basically counting on the existing organization and the existing momentum. And then we have some investments, some of the investments already start obviously in 2025. That said, they are staggered.

And in addition to that, they will take time until they’re fruits. So for instance, if we’re hiring more sales reps, obviously, there’s some time that it takes to train them and so on and so forth. So the key assumption is that some of those investments that are being carried out in 2025 will bear fruit already this year, leading up to the high end of the guidance. Obviously, we’d be happy to beat it, but this is the range that we feel confident with as of now. And then you asked also about the margin.

Michael Sarcone, Analyst, Jefferies: Michael? No, just about how you’re thinking about seasonality on the top line through the year.

Nir Noor, Chief Financial Officer, AxoGen: Right. So again, we as you know, we have we launched some products last year and we have had an uneven year over year growth last year. So obviously, it’s not going to be all smooth this year. There are all sorts of events, for instance, Easter and others, which fall this year in different times of versus last year. Overall, yes, we do expect to have some sort of upward trend in terms of our growth for this year.

That is led by the investments that will take time to bear fruit more towards the latter half of this year.

Conference Operator: Our next question comes from Caitlin Cronin with Canaccord Genuity. Please proceed with your question. Hi. Congrats on great finish to the year. I guess just starting with long term margins.

I appreciate the longer term growth revenue guidance. Any longer term gross margin guidance given your plan to drive operating efficiencies?

Michael Dale, Chief Executive Officer and Director, AxoGen: Really more general, I think 2025 is all about getting through the BLA process. So, it doesn’t mean that we’re not focused on continuous improvements, but the BLA on the plant approval inspection events, all of these are predicated on an existing quality system and expectation is part of the license approval. And so dramatic changes or improvements in that while we’re working through that process with FDA mean that at some level there’s a governor, if you will, in terms of how quickly we could layer in process improvements. So it’s a long winded way of saying that the margin guidance that Nir shared with you is what we should all rely on this year. Longer term, we expect to incrementally continue to improve as any operations situation would in terms of shortening cycle times, further improving waste yields, all the normal measures that you try to take advantage of.

But in 2025, I think the range that we’ve shared with you is what’s prudent to plan around.

Conference Operator: And then just any concerns or changes to your expectations with the new administration in regards to the BLA application?

Michael Dale, Chief Executive Officer and Director, AxoGen: So far, no. The pace of the information requests that we are receiving from the FDA continue without a break. So, that’s a good sign. Everyone is working very hard on both sides of the FDA in terms of their review and then request for information and then our side in terms of responding. So, there’s a lot there’s literally activity weekly.

So, so far, I can’t point to anything that’s suggested delay.

Conference Operator: Our next question comes from Mike Krategui with Leerink Partners. Please proceed with your question.

Michael Dale, Chief Executive Officer and Director, AxoGen: Awesome. Hi, everyone. Thanks for taking our questions. Maybe first, can you help us understand to what extent you’re going to increase sales and marketing as part of your growth strategy this year? And I think you mentioned doubling the size of your footprint in breast.

So, how large of a sales force expansion are you expecting to implement as part of this? And how should we see that play out in 2025? Sure. So, breast, for example, is 12 people at the moment. And so, we’ll double that to 24.

And in addition, across various parts of the organization, whether or not direct salespeople, there’s about another 10, I think. Is that right, Jens? Yes. And these are market development professional education staff. They’re required to also do the training.

So you have the customer facing headcount, which will increase in breast. And then across both extremities as well as in breast, we’ll have a fairly significant number of teachers and trainers. And these are required to put people through those programs that we mentioned. So they have a significant impact on customer creation. And then finally on the prostate side, they’re not expected to be a lot of revenue this year.

Essentially what we’re doing is we are developing with this small organization, which will involve physicians, professional education and market development managers to develop the business model that we intend to use to scale with a sales organization as we complete that development towards the end of the year. In addition, we need to develop surgical techniques that we’re willing to guide and teach to. And that’s a process that’s underway today where we’re doing different evaluations that we ultimately need to settle on a protocol. Just like we did for breast resensation, we need to do the same thing for prostate. We have a lot of early clinical data that makes us excited.

That’s part of why we’ve chosen this particular marketplace, but we still need to be able to teach it at scale. So, hopefully that answers the question. Great. Yes, that’s very helpful. Thanks.

And then just separately, can you talk about some of the commonalities you’ve seen across the high potential accounts and how you’ve been able to identify some of those in advance? Dan, why don’t you go ahead and speak to that? Yes. We look at

Jens Kemp, Chief Marketing Officer, AxoGen: as Mike mentioned on the call, we look for commonalities in terms of level one trauma centers, a large body of microsurgically trained surgeons in the facility. We look at nerve repair cases, etcetera. So we have a whole algorithm that we use to identify high potential accounts. And that’s really what we use for our targeting. So all these accounts, there’s about 600 of high potential accounts we’re focusing on right now.

And they all share these common characteristics, which we believe have very high potential for expanding our nerve repair algorithm in.

Conference Operator: Our next question comes from Jayson Bedford with Raymond (NSE:RYMD) James. Please proceed with your question.

Jayson Bedford, Analyst, Raymond James: Maybe just a few here. On nerve repair for prostatectomy, you have some data, but do you need additional data like bigger studies here before you go into kind of a full launch? And is there a different regulatory dynamic to think about or does it fit within the BLA?

Michael Dale, Chief Executive Officer and Director, AxoGen: To the latter question, it fits within the BLA. But in each case, there’s virtually no part of our business where we will not have to continue to engage in development of additional data. So prostate in particular, breast, we will continue to develop data. We already have studies in the way we’re going to do more. And the same thing with regards to certain areas of extremities.

So I just want to be very clear about that. So when we as part of our strategic plan, primary assumption is that significant high quality data in addition to quantity of data is going to be required to fully develop the opportunities we’re targeting.

Jayson Bedford, Analyst, Raymond James: That’s helpful. Maybe for NEAR, you did what 76% gross margin in 2024, the 2025 guide captures this kind of the high end if we back out the BLA expense. But I guess the question is, what needs to happen for gross margin to trend higher?

Nir Noor, Chief Financial Officer, AxoGen: Right. So as we mentioned last year, gross margin is impacted by this growing proportion of advanced products sold that were manufactured in the new processing facility at a higher cost. So as time goes by, there’s proportion growth and that’s one of the drivers for which the gross margin went down, absent of those PLA related costs. On the other hand, and as Mike mentioned before, yes, we have been working actually already as of 2024 and that will continue, especially after the bill approval on efficiency improvements. And regardless, we expect to capitalize more on higher capacity utilization.

Those

Michael Dale, Chief Executive Officer and Director, AxoGen: are

Nir Noor, Chief Financial Officer, AxoGen: the things that need to take place for the margin to continue to improve.

Jayson Bedford, Analyst, Raymond James: And then maybe just quick one for Mike. On the last call, you talked about implementing these different business models for different applications and the focus on high potential accounts. Was that evident in the fourth quarter results or are these models and actions being implemented now?

Michael Dale, Chief Executive Officer and Director, AxoGen: Yes, but they’re still being implemented. So maybe to more discretely describe this. So for example, in the small breast team, if you use the bell curve from an overview, it’s extremely tight. In other words, we know exactly what an individual will be able to produce, how many customers they can manage, how many they can create, and it’s a very common distribution. And so, that business model we can characterize and we can do the math on, say, okay, well, let’s do that times two.

With regards to extremity, depending upon which part of extremity is, it’s much more varied. And because of some of the different changes in approach historically, that business model is less clear. And so, the high potential of focus, which is pretty basic when you think about it in terms of the strategy that we’re trying to employ, just to go deep in places that you have a chance for the plants to grow. And to that end, we have about three quarters under our belt where I could say we have consistency and a stable organization. Realistically, I think we need another quarter more on the extremity side to get comfortable enough that we think that this particular strategy is sufficient.

It’s certainly showing progress. I wouldn’t look anyone in the eye, including ourselves when we talk internally to say that we have our arms fully around it on the extremity side. Again, part of the challenges with extremities as we’ve touched upon is that there’s more than 5,000 service providers potentially. And so, there’s lots of activity. But with a relatively small organization like ours, 100 people, you got to be careful not to be everywhere because then essentially you’re not billing enduring recurring revenue based upon standard of care status.

And so, this strategy is at the end of the day pretty simple insofar as we’re trying to develop more concentrated care approaches to nerve care by focusing on a small number of accounts with the people that we have. We’re seeing good results, but we’re not ready to suggest that this is the last thing we need to do on the extremity side based upon our footprint.

Conference Operator: Our next question comes from Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Michael Dale, Chief Executive Officer and Director, AxoGen: Congrats on the progress and thanks for taking our questions. Starting off with the guide for ’twenty five, and apologies if I missed this, but can you parse out volume growth versus price baked into your 2025 revenue guidance?

Nir Noor, Chief Financial Officer, AxoGen: Yes. It’s pretty much in line with past years. So price growth is around the CPI and the rest is volume and mix.

Michael Dale, Chief Executive Officer and Director, AxoGen: Okay, great. And then looking at your breast recon business, what is your comfort level with existing data? And what areas, economic, clinical, etcetera, do you need to generate more data to support incremental adoption? Sure. When we at the Investor Day, we’ll make sure that we highlight that, Brest.

But we’re very comfortable comfortable is the wrong word. We’re very confident that from a benefit risk proposition, our breast resensationing technique is 100% justified. So zero safety risk, very high probability of benefit to the patient. Sadly, I can’t recite off the top of my head all of that data, but we just literally just last couple of weeks have prepared the updated executive summaries of exactly how breast looks. So we’re very comfortable that the data is what it needs to be.

What we need to do, however, in terms of breast is we just need to do more data. When you’re establishing a new therapy and trying to pursue standard of care, there’s a certain data quality type that’s required and we need to do more studies than we presently have. We have one underway that’s almost complete and we have one more that we believe we need to do over the next three to five years.

Conference Operator: Our next question comes from Dave Turkaly with Citizens. Please proceed with your question.

Dave Turkaly, Analyst, Citizens: Hey, good morning guys. I think you had mentioned that your APC has three tons the previous capacity that you had. I was just curious, I don’t think there’s any issue with you, but as you look at your plans ahead, how comfortable are you that you have enough to kind of meet where you’re going? And then maybe any comment even on longer term?

Michael Dale, Chief Executive Officer and Director, AxoGen: Over the planning period, we’re comfortable that we have capacity. Now beyond that, I can’t speak to you definitively, but we would be able to plan for that. That would be obviously obviously an exciting requirement in the near term, but we don’t presently believe during the planning period that we have any kind of capacity constraints.

Dave Turkaly, Analyst, Citizens: Got it. And then maybe a follow-up for Nir. I know you’re profitable in the quarter, so the share count went up a bit. But I was just curious, is that a good level that we should use for ’twenty five? And then any thoughts on timing of any incremental bump ups that we might need to consider?

Michael Dale, Chief Executive Officer and Director, AxoGen: Dave, could you repeat that question? Did you ask about the share count?

Dave Turkaly, Analyst, Citizens: I did. I know you were profitable. Yes, I know you’re profitable, so I think it bumped up a bit. And I was just wondering if that’s the number we should use sort of carrying forward through ’twenty five and if there’s anything else we should consider in terms of any other bump ups as we look through the year.

Michael Dale, Chief Executive Officer and Director, AxoGen: I think that share count is the one that was reported is what you can use for now.

Nir Noor, Chief Financial Officer, AxoGen: Yes. I mean, as we mentioned, we expect to sell funds ourselves. So we don’t expect to do a raise in the near future. Does that answer the question?

Dave Turkaly, Analyst, Citizens: Yes, that’s fine. Thank you.

Michael Dale, Chief Executive Officer and Director, AxoGen: Thanks, David.

Conference Operator: There are no further questions at this time. I would now like to turn the floor back over to Mike Dale for closing comments.

Michael Dale, Chief Executive Officer and Director, AxoGen: Thank you, operator. On behalf of the AxoGen team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration a peripheral nerve function and expected standard of care. We look forward to updating you on our continued progress and our plans for the future at our March Investor Day and our earnings call next quarter. Thank you.

Conference Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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