AxoGen Q2 2026 Earnings Report

AxoGen EPS Results

• Actual EPS: $0.12
• Consensus EPS: $0.12
• Beat/Miss: Missed by -$0.00
• One Year Ago EPS: N/A

AxoGen Revenue Results

• Actual Revenue: $69.73 million
• Expected Revenue: $67.10 million
• Beat/Miss: Beat by +$2.63 million
• YoY Revenue Growth: N/A

AxoGen Announcement Details

• Quarter: Q2 2026
• Date: 7/29/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 29, 2026
• Conference Call Time: 8:00AM ET

AxoGen (NASDAQ:AXGN) is a Florida-based medical technology company that develops and commercializes surgical solutions for peripheral nerve damage. Founded in 2002 and headquartered in Alachua, Florida, the company focuses on restoring nerve function and improving patient outcomes through innovative biologic and engineered products. AxoGen’s offerings address a range of traumatic and iatrogenic injuries, offering alternatives to traditional nerve autografts.

The company’s core product portfolio includes the Avance® Nerve Graft, a decellularized human nerve allograft designed to bridge nerve gaps without the need for a secondary harvest site, and the Axoguard® Nerve Connector and Protector devices, which facilitate nerve coaptation and protect repaired sites from surrounding scar tissue. These proprietary platforms are supported by a direct sales force in the United States and strategic distributor partnerships in international markets.

AxoGen markets its technologies across North America, Europe, Australia and parts of Latin America, collaborating with surgeons in specialties such as hand, orthopedics, plastic and reconstructive surgery. The company leverages clinical training programs, peer-reviewed research and reimbursement support services to drive adoption of its nerve repair solutions. As it advances its product pipeline, AxoGen continues to seek regulatory clearances and expand its global footprint in the evolving field of peripheral nerve repair.

AxoGen Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue growth accelerated: Second-quarter revenue rose 23.1% year over year to $69.7 million, led by breast revenue growth of more than 50% and broad-based gains across all three target markets.
• Positive Sentiment: Management raised 2026 revenue guidance to at least $279 million, representing growth of at least 24%, while maintaining expectations for positive full-year free cash flow.
• Positive Sentiment: The breast business continues to expand rapidly, reaching approximately 215 active programs and 560 active surgeons; management said patient and surgeon awareness, reimbursement, and sales-force investments are supporting substantial long-term opportunity.
• Negative Sentiment: Gross margin fell to 72.7% from 74.2% a year ago because breast growth increased demand for higher-cost, longer Avance grafts. Full-year 2026 gross-margin guidance was reduced to at least 73%, with pricing and manufacturing initiatives not expected to materially help this year.
• Neutral Sentiment: Commercial coverage for Avance reached approximately 86% of U.S. covered lives, while Aetna’s review remains ongoing; a favorable decision could lift coverage to roughly 95% of commercial lives, but management does not include material incremental benefit from pending payer decisions in its guidance.

Presentation

[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.

[Operator]

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.

[Operator]

Forward-looking statements speak only as of the day 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, President and CEO at Axogen]

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 six 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 and Head and Neck, 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.

[Michael Dale, President and CEO at Axogen]

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 three 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.

[Michael Dale, President and CEO at Axogen]

At the same time, Extremities, OMF, and 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 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 remained 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.

[Michael Dale, President and CEO at Axogen]

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 in 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 grafts which carry higher production costs. Our manufacturing plans anticipated a growing Breast business, not the relative change in revenue mix between our target markets that is now occurring, and the resulting impacts on longer graft product mix.

[Michael Dale, President and CEO at Axogen]

We will address these changes in product mix through pricing actions and production efficiency initiatives. These measures will take time to implement, and as such, are unable to affect the remainder of our 2026 forecasted product mix. 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 profits. Moving on to our second priority, market development across Extremities, Oral and Maxillofacial, and Head and Neck, and Breast. Consistent with prior quarters, each of our three target markets contributed positively to second quarter results.

[Michael Dale, President and CEO at Axogen]

Extremities and OMF and 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.

[Michael Dale, President and CEO at Axogen]

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. 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 three, 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.

[Michael Dale, President and CEO at Axogen]

Year-to-date, we have added 15, including nine in Extremities and six in Breast, bringing those teams to 140 and 29 respectively, along with three dedicated market development managers in OMF and 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 nine 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.

[Michael Dale, President and CEO at Axogen]

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 nine 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.

[Michael Dale, President and CEO at Axogen]

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 and 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.

[Michael Dale, President and CEO at Axogen]

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 one 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 Nerve-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.

[Michael Dale, President and CEO at Axogen]

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. 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.

[Michael Dale, President and CEO at Axogen]

Trace's nerve-specific imaging technology, Nerve Trace, is designed to help surgeons visualize nerves in real time, potentially reducing nerve injury and improving identification of repair opportunities. We view Trace as a highly complementary adjacency to Axogen's platform. Trace helps surgeons find and protect nerves, while Avance supports repair when a nerve cap 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.

[Michael Dale, President and CEO at Axogen]

What we continue to hear through our surgical experience program is that there is a meaningful unmet need. Erectile dysfunction and incontinence remain 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.

[Michael Dale, President and CEO at Axogen]

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, CFO at Axogen]

Thanks, Mike. I'm pleased to report our Q2 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%.

[Lindsey Hartley, CFO at Axogen]

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-offs. 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 two 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.

[Lindsey Hartley, CFO at Axogen]

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 yield, 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%-20% CAGR and believe we remain well positioned to continue doing so.

[Lindsey Hartley, CFO at Axogen]

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 costs 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 plan. Sequentially, as a percentage of revenue, sales and marketing expenses decreased 2.4 percentage points.

[Lindsey Hartley, CFO at Axogen]

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.

[Lindsey Hartley, CFO at Axogen]

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 one-time 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%.

[Lindsey Hartley, CFO at Axogen]

Sequentially, adjusted EBITDA improved to $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 30th, 2026, 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're 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.

[Lindsey Hartley, CFO at Axogen]

This guidance reflects continued confidence in commercial execution across all three core markets and the ongoing sales force productivity improvements. 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]

Thank you. We'll now begin the question and answer session. If you'd like to ask a question at this time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question. Thank you. Our first question is from the line of Mike Sarcone with Jefferies. Please proceed with your questions.

[Mike Sarcone, Analyst at Jefferies]

Hey, good morning, thanks for taking the question. I guess just to start, wanted to hone in on 2Q. Nice quarter, we did see some decel versus the 1Q, 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, maybe dig more into 2Q and talk about the moving pieces there if possible. Thank you.

[Michael Dale, President and CEO at Axogen]

Sure, Mike. We're not going to break out the other segments as we are now Breast going forward. The other markets are growing consistent with prior comments. Relatively different bases, Extremities being largest, OMF, Head and Neck being smaller, all the markets are growing handsomely.

[Mike Sarcone, Analyst at Jefferies]

Okay, great. Thanks, Mike. Maybe just on the outlook, it's a nice guide raise you baked in there. Was wondering if you could talk about what are the key assumptions as we get into 2H, any color on the end markets there, how we should think about sales cadence through the rest of the year. Thanks.

[Michael Dale, President and CEO at Axogen]

Sure. 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. 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. We will be working hard to accelerate that activity. Obviously, we have a plan for this year. We're going to look at extending it further, we'll continue into the future. The caveat, 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.

[Michael Dale, President and CEO at Axogen]

The other element that we see direct evidence of 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. In terms of picking out two elements that are major factors that we're gaining more and more confidence in, it would be sales force footprint expansion, secondly, patient and surgeon awareness.

[Mike Sarcone, Analyst at Jefferies]

Awesome. If I could just squeeze one more in there. You talked about Aetna continuing to review the policy. Any cause for concern that they haven't published an update in the timelines you've seen historically? How are you guys thinking about Aetna coverage timing?

[Michael Dale, President and CEO at Axogen]

I'll let Rick elaborate. No, we're disappointed that they haven't made a decision. We thought for sure there'd be one in June. We know there is activity, but I'll let Rick comment.

[Rick Ditto, VP of Global Health Economics, Reimbursement, and Policy at Axogen]

Hey, Mike. Thanks for the question. We know they're looking at it. 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." The fact that they're taking time, I think, means they want to get it right. We're hopeful.

[Mike Sarcone, Analyst at Jefferies]

Great. Thanks so much.

[Michael Dale, President and CEO at Axogen]

Thanks, Mike.

[Operator]

The next question's from the line of Larry Biegelsen with Wells Fargo. Please proceed with your questions.

[Analyst at Wells Fargo]

Hi, 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. Can you elaborate on those pricing and manufacturing initiatives that you mentioned? When should we begin to see those offsetting the pressure?

[Michael Dale, President and CEO at Axogen]

Sure. With respect to the product mix changes, that's an error in our own internal forecast. 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 growing faster than we originally planned and assumed. The result is that product mix reflects a higher relative cost. Specifically for costing, our cost per millimeter is linear. What is not linear is our actual pricing model. I've been aware of this for a while, and I've held off taking a decision, so that's my bad. That's one key element which we will address in the future. The other one is just general efficiency initiatives in terms of production.

[Michael Dale, President and CEO at Axogen]

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 will 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.

[Analyst at Wells Fargo]

Got it. That's very helpful. Maybe just to bounce off of the prior question around guidance. Appreciate all the color on how your expectations have changed versus the beginning of the year. 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. 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%-20% LRP? Does that reinforce your confidence that you can sustain growth at the high end of that range over that framework?

[Michael Dale, President and CEO at Axogen]

Yes. With regards to customer creation initiatives, virtually every initiative is at plan or exceeding plan. 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. 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.

[Analyst at Wells Fargo]

Great. Thank you.

[Michael Dale, President and CEO at Axogen]

You bet.

[Operator]

The next question is in the line of Mike Kratky with Leerink Partners. Please proceed with your questions.

[Mike Kratky, Analyst at Leerink Partners]

Hey, everyone. Thanks for taking our questions.

[Michael Dale, President and CEO at Axogen]

Mike.

[Mike Kratky, Analyst at Leerink Partners]

Congrats on the nice quarter. Maybe just one to start from 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, President and CEO at Axogen]

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

[Mike Kratky, Analyst at Leerink Partners]

Yeah, 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, President and CEO at Axogen]

We certainly know that there's been effect. 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. 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. It goes back to prior comments we've 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 of those that takes time to take root. 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.

[Michael Dale, President and CEO at Axogen]

When one of these events take place, the approval of the extension of coverage needs to be socialized with both physicians as well as the institution. Then the institution, if they haven't already done so, need to negotiate their payment rates. 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, VP of Global Health Economics, Reimbursement, and Policy at Axogen]

Maybe to add a little color, Mike, we've been tracking this closely because you can imagine we get asked this frequently, 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. Then there's sort of a long tail distribution of new program starts. So, I know it was in our script and prepared remarks on number of surgeons, the number of programs, you see good growth there. I wouldn't say that that's added up to be a significant tailwind yet, but we're hopeful here in the back half and moving forward into 2027.

[Mike Kratky, Analyst at Leerink Partners]

Understood. Yeah, I really appreciate the color there. Then maybe just a separate one on strategy, but taking the 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, President and CEO at Axogen]

Certainly. Timing is one of those elements in life which you need to be ready for. You can't always plan. As we've learned, 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 upon benefit versus risk. One of the biggest challenges in nerve care is, one, seeing the problem, then secondly, of course, doing something about the problem. Both of those are difficult. It's easy to make that statement.

[Michael Dale, President and CEO at Axogen]

It sounds very simple. 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. Enabling the ability to see a nerve is huge. 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, these situations, so that nerve care is simply easier to do and more effective as a result.

[Mike Kratky, Analyst at Leerink Partners]

Got it. Thanks very much for the color.

[Michael Dale, President and CEO at Axogen]

You bet.

[Operator]

The next questions are from the line of Caitlin Roberts with Canaccord Genuity. Please proceed with your questions.

[Caitlin Roberts, Analyst at Canaccord Genuity]

Great. Hi, thanks for taking the questions and 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 two-thirds 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? Just given me the updated guidance, how much of that growth and/or mix do you expect to be from Breast for the full year?

[Michael Dale, President and CEO at Axogen]

With regards to Breast has always had very high double-digit growth, but we're now reaching new levels, is the best way to put it. 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, Analyst at Canaccord Genuity]

Got it. Just any update on the Elevance gap length restriction and conversations to maybe remove those restrictions or maybe any color on how restrictive this has actually been in practice for the policy?

[Michael Dale, President and CEO at Axogen]

Sure. I'll ask Rick to comment.

[Rick Ditto, VP of Global Health Economics, Reimbursement, and Policy at Axogen]

Hey, Caitlin. Thanks for the question. What I could tell you is the team at Elevance, we reached out, and they were very willing to meet with us. 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 six 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. 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.

[Caitlin Roberts, Analyst at Canaccord Genuity]

Awesome. Thank you so much.

[Michael Dale, President and CEO at Axogen]

Thanks, Caitlin.

[Operator]

The next questions are from the line of Anthony Petrone with Mizuho Group. Please proceed with your questions.

[Anthony Petrone, Analyst at Mizuho Group]

Thanks. Congratulations on another strong quarter here. It's one on Breast and one on Prostate for the team here. Maybe on Breast, breaking out numbers here, hitting an inflection point. 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. Maybe applying those comments to the Breast program here. You have 215 active programs and 560 surgeons. That's 150 new surgeons. How much of that is same store for Breast versus new account? Where do you think you can get in terms of total account penetration in Breast by the end of the year? I'll have a quick follow-up on Prostate.

[Michael Dale, President and CEO at Axogen]

Sure. Maybe I'll ask Jens to comment a bit in terms of the actual breakout, and then I can give some larger color in terms of the future here.

[Jens Schroeder Kemp, CMO at Axogen]

Yeah, I think when you look at the Breast growth, we see both existing programs accelerating adoption. Within those programs, that's driven by existing surgeons, but we're also successfully activating new surgeons within these existing programs. We do see a very healthy contribution from new surgeons, also new programs, and then we continue to grow our existing programs as well. It's really nice growth across the entire customer pool that we see.

[Michael Dale, President and CEO at Axogen]

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. It's been a gradual change, but it's definitely a change that's underway. 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, Analyst at Mizuho Group]

That's helpful. The 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? When you think about Prostate, when we look ahead, is it specifically for just radical prostatectomy or all prostatectomy surgeries? Thanks.

[Michael Dale, President and CEO at Axogen]

The initial data set that we will present on has been done within the constraint of robotic surgical interventions. These are radical prostatectomies that have been conducted. The patients all had prior function before their diagnosis and the intervention. We're looking at the ability to restore the function that they enjoyed before their procedure. It's done across a little over 100 centers. We have a little more than 100 patients. We have about half of those patients have more than six months 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 the same with regards to incontinence.

[Michael Dale, President and CEO at Axogen]

On third quarter, what we're still in the process of planning is the actual structure of our report. We will have physicians involved who are key implanters who we'll invite so that you can speak to them directly. 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. It's appropriate that we wait for a little more follow-up on these patients so that there's no surprises. 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've completed two of those. Remarkable feedback. It's really driven by what Axogen has the opportunity to bring to the world in the way of a benefit versus risk proposition.

[Michael Dale, President and CEO at Axogen]

We introduce essentially no risk. The risk is already incurred. What we offer is the potential of mitigating the consequences of these interventions or these injuries. We have a lot of experience in terms of the ability to provide a clinically meaningful benefit. When you think about the fact that you have to undergo one of these procedures, the ability to incur no risk or to mitigate that, you can probably guess what the patient preference studies are suggesting. 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, CFO at Axogen]

Just to clarify one point that Mike mentioned was we have over 100 patients across more than 10 sites. He accidentally said 100 sites.

[Michael Dale, President and CEO at Axogen]

Oh, sorry.

[Lindsey Hartley, CFO at Axogen]

You're good.

[Michael Dale, President and CEO at Axogen]

My bad.

[Anthony Petrone, Analyst at Mizuho Group]

Thank you very much.

[Operator]

The next questions are from the line of Jayson Bedford with Raymond James. Please proceed with your questions.

[Jayson Bedford, Analyst at Raymond James]

Good morning, guys. Thank you for taking the question. Just two quick ones here. First off, I guess across the coverage, across the sector in healthcare, where there's been some mixed messaging on ACA dynamics, it doesn't seem like it from your results that you're getting hit too much here, just 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? Just thinking ahead in the second half, fair to say that procedure demand is strong given the guide?

[Michael Dale, President and CEO at Axogen]

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, Analyst at Raymond James]

Okay. That's helpful. Thank you. 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 Breast is cleaner, given the elective nature? Can you help us think about what this does for you on an indication basis?

[Michael Dale, President and CEO at Axogen]

Yeah. The simple metaphor I would use is the rising tide. It's going to help every procedure. It's akin to that of imaging and cardiology. In other words, you just can't 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. This will enable nerve care very broadly.

[Jayson Bedford, Analyst at Raymond James]

Got it. Thank you.

[Operator]

The next question is in the line of Frank Takkinen with Lake Street Capital. Please proceed with your question.

[Frank Takkinen, Analyst at Lake Street Capital]

Great. Thank you for taking the questions. 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 layout in Breast. 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? What are some of the big bottlenecks? I'll stop at one question given they were multipart there. Thanks.

[Michael Dale, President and CEO at Axogen]

Sure. We're still very early innings. It's just very important to appreciate. The total number of sites of service is about 1,200. As to whether all 1,200 someday will be developed, that's difficult to say. The long and short of it is that the sites that are currently up represent only a small number of the potential market development opportunities exist. We just had a surgeon visit just the other day, very active, busy person. He reminded us that he still has a huge population who 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. 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.

[Frank Takkinen, Analyst at Lake Street Capital]

Okay. Fair enough. Thank you.

[Michael Dale, President and CEO at Axogen]

Thanks, Frank.

[Operator]

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

[Michael Dale, President and CEO at 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 of our business purpose, which is to restore health and improve quality of life by making restoration of 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.

Participants

Executives

• Michael Dale, President and CEO
• Lindsey Hartley, CFO

Analysts

• Mike Sarcone, Analyst at Jefferies
• Rick Ditto, VP of Global Health Economics, Reimbursement, and Policy at Axogen
• Analyst at Wells Fargo
• Mike Kratky, Analyst at Leerink Partners
• Caitlin Roberts, Analyst at Canaccord Genuity
• Anthony Petrone, Analyst at Mizuho Group
• Jens Schroeder Kemp, CMO at Axogen
• Jayson Bedford, Analyst at Raymond James
• Frank Takkinen, Analyst at Lake Street Capital