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DATE

Wednesday, July 29, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Michael Dale
• Chief Financial Officer - Lindsey Hartley

TAKEAWAYS

• Revenue -- Axogen, Inc. (AXGN +4.69%) reported revenue of $69.7 million, up 23.1% year over year driven by broad-based growth across all three target markets.
• Breast Segment Revenue -- Grew more than 50% year over year in the second quarter, contributing approximately two-thirds of the total quarterly growth.
• Extremities and OMF Segment Revenue -- Increased 15% combined through the first half of 2026, reflecting steady surgeon activation and adoption of the nerve repair algorithm.
• Avance Revenue Contribution -- Represented 65% of total second quarter revenue, an increase from approximately 60% in 2025 due to strong demand and adoption across target markets.
• Gross Margin -- 72.7% for the quarter, a decrease from 74.2% last year caused by a shift in product mix toward longer Avance grafts used in breast procedures.
• Adjusted Net Income -- $7.3 million or $0.12 per share, compared to $5.7 million or $0.12 per share in the prior year period.
• Adjusted EBITDA -- $8.4 million, representing a 12.1% margin, down from 16.3% last year due to increased compensation and investment in commercial expansion.
• Cash and Investments -- $113.4 million as of June 30, 2026, an increase of $9.8 million from the previous quarter reflecting the impact of recent common stock issuance.
• Active Breast Programs -- 215 programs, an increase of more than 40 programs year over year reflecting focused market development efforts.
• Active Breast Surgeons -- 560 surgeons, an increase of more than 150 surgeons year over year due to training initiatives and increasing patient awareness.
• Commercial Sales Force -- 172 representatives and managers at quarter end, including 15 additions year-to-date to expand market coverage.
• High Potential Accounts -- 690 active accounts, contributing 60% of total revenue and 51% of year-to-date growth through the second quarter.
• Account Productivity -- 20% year-over-year growth in high potential accounts and 24% growth in accounts not classified as high potential.
• Active Surgeon Growth -- More than 210 surgeons added year-to-date, exceeding the company's internal 2026 strategic targets.
• Professional Education -- Trained 155 surgeons across nine programs year-to-date to drive broader clinical adoption of the nerve repair algorithm.
• Payer Coverage -- 86% of covered lives in the United States now have access to Avance, with Aetna currently reviewing its coverage policy.
• Full Year Revenue Guidance -- At least 24% growth or $279 million, raised from previous expectations based on commercial execution momentum and sales force productivity.
• Full Year Gross Margin Guidance -- At least 73%, updated from previous plans due to the impact of the current breast product mix on manufacturing costs.
• Free Cash Flow -- $4.1 million generated in the first half of 2026, with the company maintaining expectations to remain free cash flow positive for the full year.
• Research and Development Expense -- $8.6 million or 12.3% of revenue, supporting ongoing clinical studies and the recent minority stake investment in imaging technology.

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RISKS

• Dale stated, "The shortfall was driven primarily by product mix as breast growth accelerated faster than planned and relies more heavily on longer Avance breasts, which carry higher production costs," noting these measures are unable to affect the remainder of the 2026 forecasted mix.
• Hartley stated, "To better align production with this updated demand profile, we adjusted our production plans beginning in the third quarter, which we expect will increase Avance product cost."

SUMMARY

Management reported that revenue growth was driven by accelerated adoption in the Breast market and steady expansion in Extremities and Oral Maxillofacial segments. The company increased its full-year revenue outlook while revising gross margin guidance to account for higher production costs associated with longer nerve grafts. Strategic investments included a minority stake in Trace Biosciences to develop nerve-specific imaging technology. Management indicated that commercial execution remains focused on high-potential accounts and expanding sales force coverage to drive long-term market development.

• CEO Dale noted that the Breast segment is "particularly strong and accelerating," now contributing two-thirds of the company's total growth.
• The company acquired a minority ownership stake in Trace Biosciences to support development of "Nervetrace," a technology designed to help surgeons visualize nerves in real time during surgical procedures.
• CFO Hartley reported that demand for long-length Avance grafts in the breast business "exceeded our internal expectations by approximately 14% in the quarter," leading to higher manufacturing costs.
• Management confirmed that Extremities sales fell below 50% of total revenue for the first time as the Breast segment gained a larger share of the total revenue mix.
• Regarding the prostate program, Dale stated, "Erectile dysfunction and incontinence remain significant quality of life challenges," and noted that clinical development remains on plan with a detailed update expected in the fourth quarter.
• Aetna remains the largest commercial payer not yet covering Avance, with management expecting near universal coverage of approximately 95% of commercial lives if a favorable decision is reached.

INDUSTRY GLOSSARY

• Avance Nerve Graft: A biologically active human nerve allograft used to bridge gaps in severed nerves without requiring a second surgical site for tissue donation.
• Axoguard Nerve Cap: A product designed to isolate a nerve end to help mitigate the formation of painful neuromas and protect the nerve after surgical procedures.
• BLA: Biologics License Application, a request for permission to introduce, or deliver for introduction, a biologic product into interstate commerce.
• OMF: Oral Maxillofacial, a surgical specialty focusing on the face, jaw, and mouth.
• REPOSE: A prospective, randomized clinical study evaluating the effectiveness of the Axoguard Nerve Cap for symptomatic neuroma management.
• RESTORE: A clinical study comparing the performance of Avance Nerve Graft to sural nerve autograft, the historical benchmark for nerve reconstruction.
• Nervetrace: A nerve-specific imaging technology developed by Trace Biosciences to help surgeons visualize nerves in real time during procedures.
• Neurotization: A surgical procedure to provide nerve supply to a denervated part, such as restoring sensation to the breast after a mastectomy.

Full Conference Call Transcript

Operator: Good morning, everyone. Joining me on today's call is Michael Dale, Axogen's President and Chief Executive Officer; and Lindsey Hartley, Chief Financial Officer. Michael will discuss second quarter 2026 financial results and corporate highlights. Lindsey will then provide details on financial performance and overall outlook for the year. This will be followed by a question-and-answer session. Today's call and presentation 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 on the Investors section of the company's website at www.axogeninc.com. Before we begin, I would like to remind you that during this conference call, management will be making forward-looking statements.

Forward-looking statements include statements regarding financial guidance and outlook; clinical development and regulatory efforts; commercial growth initiatives, reimbursement and market access efforts; training and education initiatives; research and development activities; and overall business strategy and performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including, without limitation, the risks and uncertainties reflected in the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date they are made and the company undertakes no obligation to update any forward-looking statements except as required by law. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release, presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website. Now I'll turn the call over to Michael. Michael, please go ahead.

Michael Dale: Thank you, operator, and good morning, everyone. Today, I will walk you through our second quarter performance using the same lens we've used all year, which are the 6 priorities that comprise our strategic plan. Once I've concluded my commentary, Lindsey will review our financials in detail. After which, we'll open the call for questions. As preface to my review of performance for each strategic priority, I want to make clear on behalf of the Axogen team that we are delighted with our customer creation and market development performance.

What you will hear today is that consistent with our plans across Extremities, OMF & Head and Neck, and Breast and prostate; we are exceeding our goals for growing adoption of nerve care by existing surgeons, increasing the numbers of new surgeons, expanding the number of new accounts and growing patient awareness overall. Our 23% year-over-year revenue growth this quarter and increased revenue guidance for the remainder of the year reflects this progress and our confidence in the appropriateness of our strategic priorities. While all markets are enjoying strong year-over-year growth, Breast growth is particularly strong and accelerating, reflecting the impact of our market development programs, increased patient awareness, improved coverage and payment and expanded sales force coverage.

As a result, we will be reporting on the Breast business separately in more detail. Starting with our first priority, revenue growth and financial operating leverage. As reported this morning in our earnings release, second quarter revenue was $69.7 million, up 23.1% versus the second quarter of 2025, reflecting broad-based growth across all 3 target markets. Breast led the way contributing approximately 2/3 of the quarter's growth with first half 2026 revenue up 47% year-over-year. At the same time, Extremities, OMF & Head and Neck and other indications combined delivered solid 15% year-over-year growth through the first half.

Adjusted net income was $7.3 million for the quarter, adjusted EBITDA was $8.4 million and we ended the period with $113.4 million in cash, cash equivalents, restricted cash and investments. Consistent with prior quarters, performance was driven by strong demand for Avance and continued adoption of our broader product algorithm across all target markets. Avance represented 65% of total revenue in the second quarter and 63% year-to-date, up from approximately 60% in 2025. Commercial execution remains strong across the business. Sales force productivity continued to exceed our expectations and our active surgeon count increased meaningfully during the quarter, an indicator we monitor closely because it reflects broader institutional adoption of nerve care.

We are also realizing the benefits of the sales force expansion investments we made throughout 2025 and the first half of 2026 as those representatives progress through their ramp and approach full productivity consistent with our market development model. Overall, these results reflect the strength of our commercial organization, the growing adoption of nerve care and consistency and execution of our long-term growth strategy. Gross margin for the quarter was 72.7% compared to 74.2% for the second quarter of 2025 and less than our plan. The shortfall was driven primarily by product mix as breast growth accelerated faster than planned and relies more heavily on longer Avance breasts, which carry higher production costs.

Our manufacturing plans anticipated a growing breast business, but not the relative change in revenue mix between our target markets that is now occurring and the resulting impacts on longer graft product mix. We will address these changes in product mix through pricing actions and production efficiency initiatives. However, these measures will take time to implement and as such, are unable to affect the remainder of our 2026 forecasted product mix. As a result, we are updating our 2026 gross margin guidance to be at least 73%. Looking forward, our operating bias remains to support growth in all target markets while continuing to improve operating margin, EBITDA and operating profit.

Moving on to our second priority, market development across Extremities, Oral Maxillofacial & Head and Neck and Breast. Consistent with prior quarters, each of our 3 target markets contributed positively to second quarter results. Extremities and OMF & Head and Neck, both continued the steady progress we've described on prior calls reflecting ongoing incremental surgeon activation and adoption of the Axogen nerve repair algorithm and continued account level engagement, reflecting strong execution of our high potential account development strategy. As mentioned earlier in my comments, year-to-date Breast grew 47% year-over-year driven by added commercial capacity, training of new surgeons, expansion of coverage and payment and increasing surgeon and patient awareness.

We believe we're still early in this market's development even as it becomes a larger part of our overall mix. We now have roughly 215 active breast programs, an increase of over 40 programs year-over-year and roughly 560 active surgeons, an increase of over 150 surgeons year-over-year. As a reminder of how we think about our markets longer term, each one sits at a different stage of development with different referral patterns, different training requirements and different reimbursement dynamics. We outlined the size and potential of each prioritized market opportunity at our Analyst Day in March 2025 and second quarter and year-to-date results continue to reinforce the validity of this opportunity framework.

We remain confident these markets can support double-digit growth for a long time as we continue to build the infrastructure, the evidence and the awareness required to make nerve repair an expected standard of care. With regards to priority 3, commercial expansion, we ended the second quarter with a total commercial organization of 172 sales representatives, market development managers and regional directors across all markets, consistent with our plan for disciplined, steady expansion of our commercial footprint. Year-to-date we have added 15, including 9 in Extremities and 6 in Breast, bringing those teams to 140 and 29, respectively, along with 3 dedicated market development managers in OMF & Head and Neck.

We are very encouraged by our return on investment in sales force expansion. New representatives, those in their role for less than 9 months, continue to contribute meaningfully to our growth. We believe these results validate one of our core assumptions that expanding sales coverage is one of the most important levers within our control to affect market development and customer creation. The fourth priority of our strategic plan is commercial excellence, specific to our emphasis on high potential accounts, productivity and education. High potential accounts continue to be a primary engine for our revenue growth representing 60% of total revenue and 51% of growth year-to-date. Consistent with overall Axogen growth, productivity in high potential accounts was 20% year-over-year.

The number of active high potential accounts increased to 690, up 11 year-to-date. Non-high potential accounts continue to grow as well representing 40% of Axogen's total revenue year-to-date and driving 24% year-over-year productivity per account. Growth in these accounts reflects growing awareness and adoption of nerve care in general. Active surgeon growth has increased by more than 210 year-to-date with more than 135 added within high potential accounts year-to-date. We have exceeded our plan for active surgeon growth in 2026. Regarding our professional education programs, year-to-date we have conducted 9 programs across all target markets training 155 surgeons. Next, I'd like to update everyone on our fifth priority, standard of care, evidence and coverage development.

As of today, commercial payer coverage for Avance is approximately 86% of covered lives in the United States. Aetna remains the largest commercial payer not yet covering Avance. Based on historical timing, we expected an update in June. However, Aetna's review is ongoing. If Aetna issues a favorable decision, we will consider that near universal commercial coverage in our existing markets in the United States with approximately 95% of commercial lives with access to Avance. At that point, only a few regional payers in Humana will remain. Evidence generation remains a core pillar of our strategy to support development of nerve care guidelines and drive broader adoption of nerve repair and protection.

This quarter, we advanced this strategy across multiple fronts. The recently published REPOSE study is an important example. REPOSE provides prospective randomized clinical evidence evaluating Axoguard Nerve Cap as an adjunct to standard neurectomy for symptomatic neuroma. The results reinforce the clinical rationale for protecting the nerve end after resection with favorable signals in pain burden, medication reliance and recovery-related outcomes over follow-up. Importantly, we view REPOSE as more than a study in 1 procedure. It strengthens the evidence foundation for our nerve protection portfolio and supports the broader clinical message that nerve management matters when surgeons are addressing pain, function and quality of life.

We are also advancing RESTORE, our randomized assessor-blinded study comparing Avance to sural nerve autograft in mixed and motor peripheral nerve reconstruction. This is strategically significant because autograft has long been viewed as the historical benchmark in complex nerve reconstructions. In second quarter, we activated our first site in the United States and are screening for patients. We are on track for additional site activations in the second half of 2026. Another important evidence generation initiative is Embrace, our prospective assessor blinded study evaluating sensory restoration following nipple-sparing mastectomy and implant-based breast reconstruction comparing Avance supported neurotization to reconstruction without neurotization.

As we have discussed previously, generating high quality clinical evidence in breast reconstruction remains an important strategic priority for Axogen. The program remains on track for initiation later this year consistent with our strategic operating plan. Taken together, these initiatives demonstrate execution as planned of our strategic evidence generation plan to make restoration of peripheral nerve function standard of care. And finally, our sixth priority, which is about innovation, research and development and therapeutic reconstruction. Consistent with our strategy to expand Axogen's leadership in peripheral nerve care, we made a strategic investment in Trace Biosciences this quarter acquiring a minority ownership stake, including a limited right of first refusal.

Trace's nerve-specific imaging technology, Nervetrace, is designed to help surgeons visualize nerves in real time, potentially reducing nerve injury and improving the identification of repair opportunities. We view Trace as a highly complementary adjacency to Axogen platform. Trace helps surgeons find and protect nerves while Avance supports repair when a nerve gap is identified, serving the same surgeons, patients and procedural setting. Trace received FDA clearance of its IND in January 2026 and our investment supports advancement through Phase II and III clinical trials toward an NDA. This structure gives Axogen exposure to a differentiated technology with strategic fit while preserving capital discipline and future flexibility as the program progresses. Turning to our prostate program.

We continue to make progress and our clinical development work remains on plan. We expect to share more on the next phase of our strategy during our third quarter earnings call. What we continue to hear through our surgical experience program is that there is a meaningful unmet need. Erectile dysfunction and incontinence remains significant quality of life challenges for many patients after radical prostatectomy. We believe nerve reconstruction with Avance may have an important role to play and this work is helping us better understand the urology market, build procedural experience and generate early data.

As we look ahead, our decision to move forward will be guided by the market opportunity, the ability to standardize and scale the Avance technique, surgeon feedback on clinical impact and evidence of patient demand that can help shape the care pathway. So far, our assessment is progressing well and we look forward to providing a detailed update in the fourth quarter. In closing, second quarter performance reflects continued disciplined execution against our strategic plan and commitment to our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care.

We're encouraged by the momentum across the business and are confident in our ability to overcome the inevitable challenges that come with new market development and building an enduring profitable business. I'll now turn the call over to Lindsey to walk through the financials in more detail and our updated outlook for the remainder of 2026.

Lindsey Hartley: Thanks, Mike. I'm pleased to report our second quarter 2026 financial results. For the second quarter, we reported revenue of $69.7 million reflecting growth of 23.1% year-over-year. Revenue growth continues to be driven by strong demand for Avance and adoption of our product algorithm across target markets with unit volume serving as the primary driver then price. For the first time, sales from extremities were less than 50% of total sales as we experienced growth of over 50% year-over-year in our Breast market. Through the first half of 2026, we continue to have double-digit year-over-year growth in all our markets. Gross profit for the second quarter came in at $50.7 million. This represents a gross margin of 72.7%.

Gross margin decreased 150 basis points year-over-year driven by 4.6% higher product costs, partially offset by 2.7% lower write-offs. Sequentially, gross margin declined 250 basis points driven by 1.8% higher product costs and 0.7% write-off. Gross margin in the second quarter was less than our internal projections primarily due to: one, selling more higher cost biologic Avance starting in April than expected; and two, the demand for certain long length Avance growing faster than the rest of the Avance portfolio. These 2 factors impacted gross margin approximately 1% versus our internal expectations. This demand for long length Avance largely stemming from the growth of our Breast business exceeded our internal expectations by approximately 14% in the quarter.

To better align production with this updated demand profile, we adjusted our production plans beginning in the third quarter, which we expect will increase Avance product cost. As a result, we now expect our full year 2026 gross margin to be at least 73%. As for the cadence of the second half, we expect gross margin to be higher in the third quarter than the fourth quarter. As our non-breast markets continue to grow and demand broadens across a wider range of graft sizes, we expect donor yield efficiency to improve, supporting gross margin expansion over time. We also have multiple initiatives underway focused on increasing graft yields, including long length Avance grafts.

We plan to provide an updated long-term financial framework in the first quarter of 2027. With recent payer coverage wins and BLA approval creating meaningful growth opportunities, we believe additional time is needed to assess their full impact. We have consistently outperformed our long range revenue growth target of 15% to 20% CAGR and believe we remain well positioned to continue doing so. Operating expenses increased to $52.8 million in the second quarter, up from $40.3 million in the second quarter of 2025 and increased 4.6% as a percentage of revenue. The increase year-over-year was driven primarily by compensation cost and stock-based compensation expense tied to certain PSUs anticipated to achieve above target on revenue growth components.

Sequentially, as a percentage of revenue, operating expenses decreased 4 percentage points. Sales and marketing expenses as a percentage of total revenue increased 2.2 percentage points to 44.2% in the second quarter compared to 42% in the second quarter of 2025. The increase year-over-year reflects investments in our commercial strategy to support our market development initiatives and long-term growth plans. Sequentially, as a percentage of revenue, sales and marketing expenses decreased 2.4 percentage points. Research and development expenses increased 25.3% to $8.6 million in the second quarter compared to $6.9 million in the second quarter of 2025 and as a percentage of total revenue, increased slightly to 12.3% from 12.1%.

Our continued investment in research and development is essential to our mission of making peripheral nerve repair a standard of care through the development of clinical evidence and innovation. Sequentially, as a percentage of revenue, research and development expenses remained relatively flat. General and administrative expenses increased 38.4% to $13.4 million in the second quarter compared to $9.7 million in the second quarter of 2025 and as a percentage of total revenue, increased 2.2 percentage points to 19.3% from 17.1%. Sequentially, as a percentage of revenue, general and administrative expenses decreased 1.7 percentage points.

Net loss for the second quarter was $1.5 million or $0.03 per share compared to net income of $0.6 million or $0.01 per share in the second quarter of 2025. Sequentially, net loss improved $18.1 million. As a reminder, net loss in the first quarter included a onetime loss of $16.8 million, which was incurred upon the extinguishment of our debt facility in January. Adjusted net income was $7.3 million or $0.12 per share for the second quarter compared to an adjusted net income of $5.7 million or $0.12 per share for the second quarter of 2025. Sequentially, adjusted net income improved $3.1 million.

Adjusted EBITDA for the second quarter was $8.4 million compared to an adjusted EBITDA of $9.3 million in the same period last year. And as a percentage of revenue, decreased 4.2 percentage points to 12.1% from 16.3%. Sequentially, adjusted EBITDA improved $2.7 million. Adjusted net income and adjusted EBITDA are calculated as net income or EBITDA adjusted for stock-based compensation and the loss on the extinguishment of the debt. The improved bottom line performance demonstrates our ability to drive both top line growth and enhanced profitability. As of June 30, 2026, cash, cash equivalents, restricted cash and investments totaled $113.4 million. Through the first half of 2026, we generated $4.1 million of free cash flow.

Based on our year-to-date performance and visibility into the remainder of the year, we are revising our full year 2026 financial guidance. We now expect full year 2026 revenue growth of at least 24% or revenue of at least $279 million. Full year 2026 gross margin is now expected to be at least 73% and we continue to expect to be free cash flow positive for the full year 2026. This guidance reflects continued confidence in commercial execution across all 3 core markets and the ongoing sales force productivity improvement. It does not assume material benefit from payer coverage decisions beyond what is already known. With that, we will now open the line for questions. Operator?

Operator: Our first question is from the line of Mike Sarcone with Jefferies.

Michael Sarcone: I guess just to start, I wanted to hone in on 2Q. Nice quarter, but we did see some decel versus the 1Q and I know you saw some pretty nice acceleration in Breast. I was wondering if you could unpack growth in some of the other markets just for the 2Q. I know you gave us kind of an update on the 1H growth, but maybe dig more into 2Q and talk about the moving pieces there, if possible.

Michael Dale: Sure, Mike. We're not going to break out the other segments as we are now Breast going forward. However, the other markets are growing consistent with prior comments. So relatively different bases, Extremities being the largest; OMF, Head and Neck being smaller; but all the markets are growing handsomely.

Michael Sarcone: Okay. Great. And then maybe just on the outlook. That's a nice guide raise you baked in there. I was wondering if you could talk about what are the key assumptions as we get into 2H? Any color on the end markets there? And then how we should think about sales cadence through the rest of the year?

Michael Dale: Sure. So what we're -- the most significant factor if we had to pull one out that we now have enough time to look back upon is the investments in sales footprint coverage. So for all markets, those individual investments have been very rewarding. So very high double digits. In other words, expand the opportunity to knock on a door and people respond. So we will be working hard to accelerate that activity. Obviously we have a plan for this year. We're going to look at expanding it further and will continue into the future.

The caveat or not caveat, but the constraint in terms of those investments will be that we will not go backwards in profitability, but we will continue to expand as aggressively as we can within that constraint, the sales force footprint. The other element that we see direct evidence taking place is that in the planned procedures such as Breast for example, the patient awareness and the surgeon awareness has grown significantly and is becoming a driver of activity and adoption. All the other elements are also very positive just in general for the business, coverage and payment.

But in terms of picking out 2 elements that are major factors that we're gaining more and more confidence in, it would be sales force footprint expansion and then secondly, patient and surgeon awareness.

Michael Sarcone: Awesome. And if I could just squeeze one more in there. Just you talked about Aetna continuing to review the policy. Any cause for concern that they haven't published an update in kind of the timelines you've seen historically or how are you guys thinking about Aetna coverage timing?

Michael Dale: I'll let Rick elaborate. But no, I mean we're disappointed that they haven't made a decision. We thought for sure that there would be one in June. But we know there is activity, but I'll let Rick comment.

Rick Ditto: Mike, thanks for the question. We know they're looking at it and I would -- I try to view it through the optimistic lens, which is sometimes these medical policies can just get rubber stamped. Hey, this is the annual update, we're just going to pass it through and approve it. And the fact that they're taking time I think means they want to get it right. So we're hopeful.

Operator: The next question is from the line of Larry Biegelsen with Wells Fargo.

Gursimran Kaur: This is Simran on for Larry. Congrats on the results here. Maybe just to start off on gross margin. Mike, maybe help me understand, I think we generally view Breast as a higher ASP opportunity. So just any additional color that you can provide around what exactly is driving the lower margin profile for Breast? And can you elaborate on those pricing and manufacturing initiatives that you mentioned? When should we begin to see those offsetting the pressure?

Michael Dale: Sure. So with respect to the product mix changes, that's an area in our own internal forecast. So we've always known, as I mentioned in my comments, that these businesses would be growing. But the gross margin plan assumed a relative constant in terms of the product mix between these. That's gotten ahead of us. It's driven by good news, i.e., breast adoption is going faster than we originally planned and assumed. But the result is that product mix reflects a higher relative cost and specifically for costing so our cost per millimeter is linear. What is not linear is our actual pricing model. And I've been aware of this for a while and I've held off making a decision.

So that's my bad. And so that's one key element, which we will address in the future. The other one is just general efficiency initiatives in terms of production. And as with any supply chain, there's always something you can do more effectively. Given the nature of the supply chain, we won't go into the actual details, but we have a number of initiatives that we have very high confidence in, we'll address that. Looking ahead, the bottom line is how to model the business. We still believe 75% gross margin is the appropriate conservative number to look at overall.

With regards to this year, however, the things that I've mentioned, there is not a mechanical element or a process that would allow us to implement these such that they would have effect in terms of the product going through and being recognized as sold for the remainder of this year, hence, the guide that we made.

Gursimran Kaur: Got it. That's very helpful. And maybe just to bounce off of the prior question around guidance. Appreciate all the color on kind of how your expectations have changed versus the beginning of the year. But the guidance does imply that growth is around the 23%, which is essentially what you delivered here in Q2 for the second half of the year. So how are you thinking about durability of that momentum into the second half? And even just beyond as you continue to grow well above the 15% to 20% LRP, does that reinforce your confidence that you can sustain growth at the high end of that range over that framework?

Michael Dale: Yes. So with regards to customer creation initiatives, virtually every initiative is at plan or exceeding plan and this reflects what we've largely assumed of course in terms of the opportunity for Axogen is that nerve care is dramatically undertreated, but there is interest in doing better in these particular areas, whether it be emergent or planned procedures. And so as long as we keep knocking on doors and providing in a competent professional way the service and support to do that, we remain very confident.

Operator: Our next question is from the line of Mike Kratky with Leerink Partners.

Michael Kratky: Congrats on the nice quarter. Maybe just one to start for me. In terms of the guidance, obviously a healthy raise here. You mentioned that it doesn't necessarily reflect any additional procedure growth from commercial wins we haven't seen yet. In terms of what you've started to build in from the ones that we have, can you just talk about the magnitude or help quantify that at all?

Michael Dale: If I understand the question, you're asking about how do we quantify coverage and payment. Is that right, Mike?

Michael Kratky: Yes. Basically just if you've started to build in some additional credit from some of the commercial reimbursement wins that you've seen already for the back half of this year?

Michael Dale: We certainly know that there's been effect and the effect is that the sales cycle gets reduced primarily. You no longer have the objections, you no longer have to go through a process to overcome that kind of obstacle. But the magnitude of it is at a point yet where it's still difficult for us to actually put a number to or quantify it. And it goes back to prior comments we made is that we know these events are not light switches. I know people get tired of hearing that, but it really is not one. It's one that takes time to take root and that's what we're in the middle of.

It's all getting better everywhere, but it's not fully in place. It's for the previous reasons that we've described. When these events take place, people need to be -- the approval of the extension of coverage needs to be socialized with both physicians as well as the institution. And then the institution, if they haven't already done so, need to negotiate their payment rates. And so that's why generally -- I'm generalizing here, maybe Rick can add to this. These are typically 6 months minimum cycles at which it takes in order to really enjoy the full benefit of that.

Rick Ditto: Maybe to add a little color, Mike. We've been tracking this closely. As you can imagine, we get asked this frequently and I want to give my boss a good answer. What we see is a lot of our growth is driven by same-store sales or believers are adopting more thoroughly. And then there's sort of a long-tail distribution of new program starts. And so I know it was in our script and prepared remarks on number of surgeons and number of programs and you see good growth there. I wouldn't say that's added up to be a significant tailwind yet, but we're hopeful here in the back half and moving forward into '27.

Michael Kratky: Understood. Yes, I really appreciate the color there. And then maybe a separate one on strategy. Taking a minority ownership stake in Trace Biosciences, would just love to hear your perspective in terms of why now external business development might have been the right fit for you.

Michael Dale: Certainly. Timing is one of those elements of life which you need to be ready for. You can't always plan. And as we learned and we've been looking at this space for a while as core to our long-term strategic plan is that we innovate as defined by genuinely distinguished advantage based on benefit versus risk. And with one of the biggest challenges in nerve care is one, seeing the problem and then secondly, of course doing something about the problem. Both of those are difficult. It's easy to make that statement sounds very simple.

But when you get into complexities and you actually look at these wound beds sometimes people are dealing with, it is remarkable how difficult it is to see what it is you're trying to address and understand. So enabling the ability to see a nerve is huge. And so what we have observed with Trace and have high hopes for is that they will be the technology that will give the first opportunity to genuinely illuminating these wound beds in these situations so that nerve care is simply easier to do and more effective as a result.

Operator: The next questions are from the line of Caitlin Roberts with Canaccord.

Caitlin Roberts: Congrats on the quarter. Just to start out, thanks for beginning to break out Breast and Avance within your revenue mix. Breast is driving about 2/3 of the growth in the Q2 you noted. What was the growth mix in prior quarters since you pointed out that the mix has really grown more to Breast relative to the other indications recently? And just given the updated guidance, how much of that growth and/or mix do you expect to be from Breast for the full year?

Michael Dale: With regards to Breast, Breast has always had very high double-digit growth, but we're now reaching new levels is the best way to put it. And so looking forward while the growth with regards to OMF, Head and Neck and Extremities continues very nicely on this larger base, Breast is driving the most significant acceleration within the product mix.

Caitlin Roberts: Got it. And then just any update on the Elevance gap length restriction and conversations to maybe remove those restrictions or maybe how -- any color on how restrictive this has actually been in practice for the policy?

Michael Dale: I'll ask Rick to comment.

Rick Ditto: Caitlin, thanks for the question. What I can tell you is the team at Elevance, we reached out and they were very willing to meet with us. So we educated them with a couple of world-leading surgeons from well-known institutions and we're hopeful this gets resolved sometime in the next 6 to 12 months, probably when they do the annual update next year. What I'll tell you is in practice, we don't hear about a lot of Elevance denials. So that's just a little bit of color. Our sales force is trained if they get a denial to give our team a call and we're not hearing a lot of it.

Operator: The next questions are from the line of Anthony Petrone with Mizuho Group.

Anthony Petrone: Congratulations on another strong quarter here. One on Breast and one on prostate for the team here. Maybe on Breast breaking out numbers here, hitting an inflection point. And I know some of the comments just a few moments ago were it's mostly same-store sales, but to a lesser extent, you're seeing traction from new accounts as well. But maybe applying those comments to the breast program here, you have 215 active programs and 560 surgeons. That's 150 new surgeons. So how much of that is same-store for Breast versus new account? And what do you think you can get in terms of total account penetration in Breast by the end of the year?

And I'll have a quick follow-up on prostate.

Michael Dale: Sure. Maybe I'll ask Jens to comment in terms of the actual breakout and I can give some larger color in terms of the futures here.

Jens Schroeder Kemp: Yes. I think when you look at the Breast growth, we see both existing programs accelerating adoption. And within those programs, that's driven by existing surgeons, but we're also successfully activating new surgeons within these existing programs. So we do see a very healthy contribution from new surgeons, also new programs, and then we continue to grow our existing programs as well. So it's really nice growth across the entire customer cohort that we see.

Michael Dale: A little background to build upon what Jens just shared, Anthony, is we now see a situation where we have people calling us asking for the opportunity to attend our programs. We also hear from physicians is how often patients now are bringing up resensation as an option for their reconstruction. So it's been a gradual change, but it's definitely a change that's underway. And to say it simply, any program or any physician within a program now feels that they need to know how to do this procedure and need to be able to offer this as an option in order to remain relevant.

Anthony Petrone: That's helpful. And then a quick one on prostate here, just data coming second half of the year. Maybe if we can -- a little bit on some guideposts for what we should be expecting. I know the studies with radical prostatectomies. What should we be expecting in terms of the key endpoints just as some guardrails in terms of success factors? And when we think about prostate when we look ahead, is it specifically for just radical prostatectomy or all prostatectomy surgeries?

Michael Dale: The initial data set that we will present on has been done within the constraint of robotic surgical interventions and these are radical prostatectomies that have been conducted. The patients all had prior function before their diagnosis and the intervention. And so we're looking at the ability to restore the function that they enjoyed before their procedure and it's done across a little over 100 centers, a little more than 100 patients. We have about half of those patients have more than 6 months of follow-up now. We're looking at both safety, reproducibility and the outcomes as measured by erectile function, time to restoration of function, quality of function and then the same with regards to incontinence.

So in third quarter what we're still in the process of planning is the actual structure of our report, but we will have physicians involved who are key implanters who we'll invite so that you can speak to them directly. And they will provide their perspective on the relevance of the procedure and the feedback. All we can say at this stage is what we've been saying is that it's looking good, but it's appropriate that we wait for a little more follow-up on these patients so that there's no surprises. But trends at this point in time are positive. We're doing a lot of go-to-market planning, as you might expect, doing physician -- excuse me, patient preference studies.

We completed 2 of those, remarkable feedback. So it's really driven by what Axogen has the opportunity to bring to the world in the way of a benefit versus risk proposition. We introduced essentially no risk. The risk is already incurred. And what we offer is the potential of mitigating the consequences of these interventions or these injuries. And we have a lot of experience in terms of the ability to provide a clinically meaningful benefit. And so when you think about the fact that you have to undergo one of these procedures, the ability to occur no risk, but to mitigate that and you can probably guess what the patient preference studies are suggesting.

So if our data holds up and we'll certainly have that by Q3, I think it will be a very important part of our business in the future.

Lindsey Hartley: And just to clarify one point that Mike mentioned was we have over 100 patients across more than 10 sites -- he actually said 100 sites.

Operator: The next questions are from the line of Jayson Bedford with Raymond James.

Jayson Bedford: Just 2 quick ones here. First off, I guess across the coverage across the sector in health care where there's been some mixed messaging on ACA dynamics. It doesn't seem, I guess, from your results that you're getting too much here given the strong growth. I'm just curious are you seeing an impact from some of these ACA dynamics? And how would you characterize the procedure environment now? And just thinking ahead in second half, fair to say that procedure demand is strong given the guide?

Michael Dale: We have seen no impact of any kind with regards to the ACA dynamics. We're following the news, but it has had no effect on our business to our knowledge.

Jayson Bedford: Okay. That's helpful. And then just a quick one, digging a little deeper on the Trace investment there. Is the idea here that it's kind of broadly applicable across your indications? Is this more for trauma and extremities where the wound bed is a little messier whereas like breast is cleaner given the elective nature? Kind of can you help us think about what this does for you on an indication basis?

Michael Dale: Yes. The simple metaphor I would use is the rising tide. So it's going to help every procedure. It's akin to that of imaging and cardiology. In other words, you're just going to be able to see what it is you need to see in the first place today, but you're going to be able to see it more easily and more distinctly. And so this will enable nerve care very, very broadly.

Operator: The next question is from the line of Frank Takkinen with Lake Street Capital.

Frank Takkinen: I was going to continue on with some additional questions around the Breast business. What I'm really trying to get at is understanding really what inning we are in. I think back of the envelope math implies that we're maybe in the low to mid-teens percent penetrated into the market opportunity you lay out in Breast. But maybe a few metrics around what do you think the total program opportunity is? How many surgeons are out there that are doing these types of procedures? How many reps might you need to convert this opportunity? And then what are some of the big bottlenecks? And I'll stop at one question given they're multipart in there.

Michael Dale: Sure. We're still in very early innings. It's just very important to appreciate. So the total number of sites to service is about 1,200. Now to whether all 1,200 someday will be developed, that's difficult to say. But the long and short of it is that the sites that are currently up represent only a small number of the potential market development opportunity that exists. We just had a surgeon visit just the other day, a very active busy person, and he reminded us that he still has a huge population that comes through and they don't know anything about breast resensation. They don't know about the consequences of their mastectomy and they certainly don't know anything about Axogen.

And so I guess that's just why I keep repeating that we believe we have years ahead of us in terms of high growth potential as we develop these opportunities.

Operator: Ladies and gentlemen, that concludes the question-and-answer session. I'll turn the floor back to Mr. Dale for any final comments.

Michael Dale: 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 of our business purpose, which is to restore health and improve quality of life by making restoration and peripheral nerve function an expected standard of care. We look forward to updating you on our continued progress on our earnings call next quarter. Thank you very much.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.