Organogenesis - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue declined 23% year over year to $101.0M amid Advanced Wound Care (AWC) weakness, while Surgical & Sports Medicine (SSM) grew 16%; GAAP diluted EPS was -$0.10, and Adjusted EBITDA was -$3.6M.
• Versus S&P Global consensus, ORGO missed on revenue ($101.0M vs $104.8M*) and Primary EPS (Primary EPS actual -$0.059* vs -$0.045*), and EBITDA (-$6.3M* vs $4.4M*), reflecting competitive pricing and inventory expiry headwinds in the quarter (see Estimates Context).
• FY25 guidance was narrowed/lowered: revenue $480–$510M (from $480–$535M), GAAP net income (loss) $(6.4)–$16.4M (from $4.7–$34.0M), Adjusted EBITDA $31.1–$61.9M (from $43.6–$83.2M), with gross margin outlook cut to 74–76% (from 78–79%)-.
• Management framed 2026 CMS coverage/payment proposals as a “watershed moment” likely to stabilize pricing and expand access to PMA products (Apligraf, Dermagraft), while near‑term (2025) remains pressured by aggressive competitor pricing and formulary resets-.
• Liquidity remains solid ($73.7M cash, no debt), but the Q2 credit amendment suspends new revolver draws pending a covenant reset by 9/30/25—failure constitutes default; ORGO can terminate the facility and believes liquidity is sufficient for 12+ months.

What Went Well and What Went Wrong

What Went Well

• SSM momentum: SSM revenue grew 16% YoY in Q2 (to $8.1M) and 13% for 1H25; management highlighted portfolio transitions and hybrid rep coverage supporting continued strength-.
• Strategic policy setup: “This is a watershed moment for this industry,” with CMS proposals recognizing PMA differentiation and moving toward per‑cm payments—expected to level the field and expand access for PMA products like Apligraf and Dermagraft-.
• Execution/momentum exiting Q2: Despite AWC headwinds, management cited improving account/revenue trends late in Q2 and new product launches aiding 2H25.

What Went Wrong

• Core top‑line/margin pressure: Q2 revenue fell 23% YoY to $101.0M on AWC -25% YoY; gross margin fell from 78% to ~73% (as reported) due to lower volume over fixed costs and product expiry linked to LCD delays.
• Competitive pricing drag: CMS delay to 2026 spurred “even more aggressive pricing strategies” by competitors, intensifying near‑term pressure (especially late 2025).
• Guidance cuts: FY25 revenue (midpoint -$12.5M), profit/margin ranges, and gross margin were lowered; Q3 modeled at $130–$145M but full‑year profitability bands moved down materially.

Transcript

Speaker 3

Please stand by. Welcome, and ladies and gentlemen, to the second part of the 2025 earnings conference call for Organogenesis Holdings Inc. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including the Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports.

You are cautioned not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with the Generally Accepted Accounting Principles, or GAAP. We generally refer to this as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S.

Gillheeney, Sr., Organogenesis Holdings' President, Chief Executive Officer, and Chair of the Board. Please go ahead, sir.

Speaker 2

Thank you, Operator, and welcome everyone to Organogenesis Holdings' second quarter 2025 earnings conference call. I am joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our second quarter revenue results and provide an update on key operating and strategic developments in recent months. Dave will provide you with an in-depth review of our second quarter financial results, our balance sheet, and financial condition at quarter end, as well as our financial guidance for 2025, which we updated in our press release this afternoon. We will open up the calls for questions.

Beginning with the review of our revenue results in Q2, we delivered sales results within the guidance range outlined on our first quarter call, driven by better-than-expected growth in our surgical and sports medicine products and sales of advanced wound care products that came in at the lower end of our expectations. Our second quarter advanced wound care results reflect the expected disruption in customer demand and ordering patterns related to the delay in the effective date of the final LCD for skin substitute grafts and cellular tissue-based products for the treatment of DFUs and VLUs until January 1, 2026. Our team's second quarter execution and focus on engagement, education, and support helped our customers navigate a confusing and challenging environment.

While a delay in the effective date for the final LCD fueled even more aggressive pricing strategies from our competitors, our team remains committed to building upon our deep customer relations and promoting access to existing and recently launched products. Last month, CMS announced the proposed Medicare physician fee schedule and outpatient prospective payment systems for calendar year 2026. This is a watershed moment for this industry and the most impactful development in more than a decade. We applaud the proposed new payment approach for skin substitutes, as we have long advocated for an integrated coverage and payment policy to address rapid escalation of Medicare spending while ensuring patients have access to the products best suited to their care.

Organogenesis has more than 40 years of experience and pioneered the use of cellular and tissue-based products for wound treatment, and we have spent the past several years leading key stakeholders who share our patient-focused values to inform policymakers and advocate for reform that will increase access, improve outcomes, and curb the rampant waste and abuse in the space. We have long supported many of the points included in the proposed rules, notably a per square centimeter payment methodology based on FDA classification for skin substitutes, covering all ASP sites of care as well as the hospital outpatient setting, bringing a much-needed consistent payment approach. Exploitation of the current ASP-based payment system has resulted in excessive and unsustainable spending the past few years. Closing this loophole and shifting away from the ASP model will bring stability to the market and push spending on dehydrated placentals in line with appropriate utilization.

We are pleased that the proposed FDA classification categories ensure patients will have access to appropriate therapies and encourage innovation in the space. As the population ages and more people face the prospect of chronic wounds associated with diabetes and other comorbid conditions, it's imperative that the industry reignite its innovation engine to deliver advanced regenerative technologies that will speed healing and reduce the total cost of care. We believe the proposed rule, if finalized, will support these goals while bringing long-term stabilization to the skin substitute markets. Importantly, we are pleased that CMS has recognized the clinical differentiation of pre-market approval, or PMA, products that outline steps to expand access to these healing technologies. PMA products such as Apligraf and Dermagraft have been proven to reduce life-threatening amputations and costly complications associated with DFUs and VLUs.

The proposed rules will encourage the continued development of PMA products that will greatly benefit both clinicians and patients. As the public comment period opens, we remain committed to engage with CMS and other stakeholders to refine and enhance the proposed rules that will expand access to appropriate therapies for patients while reducing the overall cost of Medicare. With the payment and coverage changes expected to be implemented in 2026, we believe we are better positioned to continue to lead the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. Before turning the call over to Dave Francisco, I want to provide updates on key strategic focuses for our company.

We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. We expect to submit published clinical data supporting PurePly AM for DFU and Affinity for VLU to the max by the established deadline of November 1, 2025. We have been preparing our organization to succeed in a new world that is coming to fruition by investing to optimize our industry-leading portfolio of healing technologies. In May, we marked the expansion of our biomanufacturing capabilities at our new facility in Smithfield, Rhode Island, welcoming the governor and other state and civic leaders to share our plans for the site.

When completed, the Smithfield facility will support the reintroduction of Dermagraft, a PMA-approved product for the treatment of DFUs, and Transcyte, a PMA-approved bioengineered cellular tissue scaffold for the treatment of deep second and third-degree burns, as well as the introduction of Photoshield, a biosynthetic transitional wound matrix for the treatment of second-degree burns and surgical wounds. We believe the added manufacturing capacity and portfolio expansion will further enhance our long-term growth and margin profile, create additional stakeholder value, and positively impact more people's lives. With respect to our Renew program, we remain on plan for submission for Renew by the end of this year, which, if approved, will further enrich our already robust regenerative portfolio. All patients completed the second phase 3 study, and we remain on track to share publicly the top-line data results from the study in September 2025.

Our timeline continues to target completion of the final clinical study report required for the BLA submission in the fourth quarter, which has us on track for a modular BLA submission by the end of 2025. We continue to believe in the potential of Renew to address the need for more than 30 million Americans suffering from symptomatic knee osteoarthritis. This is a defining moment for the industry and an exciting opportunity for Organogenesis to serve more patients. We see our vision for skin substitutes in wound care becoming a reality following years of advocating for health policy reform to ensure patient access to the most appropriate products while achieving significant cost savings to Medicare. We believe we are positioned to win going forward with our comprehensive portfolio, including products from all FDA classifications.

We have a development engine fueling new innovation and the capacity to launch and reintroduce products in a transformational opportunity with Renew. With that, let me turn the call over to Dave. Thanks, Gary. I'll begin with a review of our second quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the second quarter was $100.8 million, down 23%. As Gary mentioned, these results came in within the range of the expectations we provided on our Q1 call, which calls for total revenue in the range of $100 million to $110 million. Our advanced wound care net product revenue for the second quarter was $92.7 million, down 25%.

As Gary mentioned, the commercial team executed well in the period, driving increased momentum towards the end of Q2 despite the delay of the effective date of the LCD, which increased the aggressive competitive pricing tactics in the period. Net product revenue from surgical and sports medicine products for the second quarter was $8.1 million, up 16%. Our total revenue results for the second quarter included $0.2 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period, and we expect grant income to be immaterial in 2025. Gross profit for the second quarter was $73.1 million, or 73% of net product revenue, compared to 78% last year.

Gross profit was unfavorably impacted in the period due primarily to lower revenue over a fixed cost, as well as the expiration of excess product resulting from the delayed implementation of the LCD and related uncertainty. Operating expenses for the second quarter were $113.6 million, compared to $144.1 million last year, a decrease of $30.5 million, or 21%. Excluding cost of goods sold of $27.6 million for the second quarter and $29.2 million last year, our non-GAAP operating expenses for the second quarter were $86 million, compared to $114.9 million last year, a decrease of $29 million, or 25%.

The year-over-year change in operating expenses, excluding cost of goods sold, was driven by a $22.8 million write-down of certain non-recurring costs in the second quarter of 2024, compared to $1.7 million in the second quarter of 2025, as well as lower research and development and SG&A expenses, which declined 33% and 4% year-over-year, respectively. Operating loss for the second quarter was $12.6 million, compared to an operating loss of $13.9 million last year, a decrease of $1.3 million. Including non-cash amortization and the write-down of certain non-recurring costs in both periods, our non-GAAP operating loss was $10 million, compared to $9.7 million of income last year. GAAP net loss for the second quarter was $9.4 million, compared to a net loss of $17 million last year, a decrease of $7.6 million.

Net loss to common for the second quarter was $12.2 million, compared to a net loss of $17 million last year. Net loss to common includes the impact of both the cumulative dividend and the non-cash accretion to redemption value on our convertible preferred stock. Adjusted EBITDA loss for the second quarter was $3.6 million, compared to adjusted EBITDA income of $15.6 million last year. Turning to the balance sheet, as of June 30, 2025, the company had $73.7 million in cash, cash equivalents, and restricted cash, with no outstanding debt obligations. That compared to $136.2 million in cash, cash equivalents, and restricted cash, with no outstanding debt obligations as of December 31, 2024. Now turning to a review of our 2025 revenue guidance, which we updated in this afternoon's press release.

For the 12 months ending December 31, 2025, the company now expects net revenue of between $480 million and $510 million, representing a year-over-year change in the range of flat to an increase of 6%. The 2025 net revenue guidance now assumes net revenue from advanced wound care products between $450 million and $475 million, representing a year-over-year change in the range of a decline of 1% to an increase of 5%. Net revenue from surgical and sports medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 6% to 23%. The expected increase in our revenue over the second half of 2025 will be driven by our recently launched in-license products that are all well positioned in today's market.

We have tightened our total revenue guidance range, reflecting the performance in the first half of 2025 and our more refined expectations for the remaining two quarters. With respect to our profitability and EBITDA guidance, the company now expects GAAP net loss in the range of $6.4 million to net income of $16.4 million, compared to net income of $4.7 million to $34 million previously. EBITDA in the range of $6.2 million to $37 million, compared to $20 million to $59.6 million previously. Non-GAAP adjusted net income in a range of $5.5 million to $28.3 million, compared to $15.3 million to $44.6 million previously. Adjusted EBITDA in the range of $31.1 million to $61.9 million, compared to $43.6 million to $83.2 million previously. In addition to our formal financial guidance for 2025, we are providing some considerations for modeling purposes.

For modeling purposes, we expect the third quarter revenue in the range of approximately $130 million to $145 million. Our profitability guidance for 2025 now assumes gross margins in the range of approximately 74% to 76%, compared to 78% to 79% previously. The updated gross margin range reflects the expected impact related to product mix shift in our in-license brands in the second half of 2025. GAAP operating expenses, excluding cost of goods sold, in the range of flat to up 1% year-over-year, and excluding non-cash intangible amortization of approximately $3.4 million, the non-recurring FDA payment related to our Renew program BLA filing of $4.6 million, and the $8.3 million of write-down of assets in the first half, our total non-GAAP operating expenses will increase 3% to 4% year-over-year compared to a range of 5% to 7% previously.

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

Speaker 3

Thank you, sir. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Our first question will come from the line of Ryan Zimmerman with BTIG. Your line is open.

Speaker 2

Thanks for taking our question. Good afternoon, Gary and Dave.

Speaker 1

Good afternoon.

Speaker 2

Maybe we could start with the CMS proposal for 2026. It is a radical change from what we've seen. I believe the proposal was set at about $125 in change per square centimeter, if I'm not mistaken. Maybe, Gary, you could talk about kind of how you see Orgo fitting within that structure as it starts the year in 2026. What are your expectations for the market from, let's say, today through the back half of 2025? What changes in 2026 with that proposal and how the market may change?

Speaker 1

Sure. I'd be happy to do so. As you know, we've been advocating for this type of payment reform for years, I mean, literally years. It is a transformational event for the industry and a real opportunity for our products and the Organogenesis organization. We agree with the CMS approach of setting tiers, and those tiers are based on clinical differentiation and relative resource cost. They've kind of broken them out based on FDA classification where data and evidence really matter. We feel great about this change and the fact that it's also in HOPD. It's not just in the ASC sites of care. It's now opened up the HOPD market to larger, more complex wounds where we are the leader in that space. That just gives more opportunity for folks to utilize our technologies like Apligraf and soon-to-be released Dermagraft.

Apligraf is reimbursed today at $30 per square centimeter, and the current proposal at $125 would be a significant change. It would eliminate any of the disincentives financially to use the product and put it on a level playing field. What we really appreciate is CMS establishing these tiers, and we expect that we'll be lobbying for different payment rates based on those tiers. Apligraf and Dermagraft and other PMA products will have the appropriate reimbursement based on the evidence and relative resource cost to produce those products. This is very exciting for us, very exciting for the industry as it relates to the market. Today, Apligraf represents about 3% of the units sold. Believe it or not, a PMA product with arguably the best evidence in the space has about 3% of the market. We see that significantly changing in 2026. 510(k) products as well.

Our PurePly product is priced below the $125 per square centimeter today. We would see an enhancement in that product and more utilization going forward. Then a level playing field for all the amnions, so there wouldn't be a significant price advantage going forward, levels the playing field. We see a lot of reasons why 2026 is going to be extremely positive for us. The rest of 2025, I think we've seen in Q2, we've seen some aggressive pricing. We think that's going to continue and get worse at the end of the year. I assume there'll be a lot of discounting and inventory sales. Anybody who's got a lot of inventory at higher prices is going to need to move those products, and we expect to see aggressive pricing. For us, we've seen strong momentum coming out of the second quarter. Dave will talk a little bit about that.

That momentum's continuing both in accounts and in revenue, and we have a couple of new products that we've launched that will compete extremely well in this market as we bridge the 2026.

Speaker 2

Yeah, just to follow up on that, thank you for that answer, Gary. It's appreciated. Your guidance reduction, I think, is around $12.5 million, if I'm not mistaken, if I did my math right, for the year at the midpoint. You know, given the result today, you know, Dave, how do you think you've sufficiently accounted for this kind of aggressive behavior in the back half of the year with the reduction of the AWC segment for the balance of the year?

Speaker 4

Yeah, we do, Ryan. Thanks for the question. Obviously, as Gary mentioned, we did exit Q2. We came in at the low end but exited with a fair amount of momentum. We've recently launched some new products. In this environment, you have to have the right products in the portfolio to succeed. We believe those recently launched products are going to contribute quite a bit in the back half. As Gary mentioned, there could be some challenging periods, call it in the late period of Q4. We think we've accounted for that. We've always anticipated that this would be, remember, it was a relatively wide range when we first issued guidance simply because the market is in such an unusual spot here. From our perspective, at least we just took down the top end, knowing that we've got two quarters behind us, two quarters ahead.

We just thought we'd narrow that range. We think the low end we're confident in given the performance that we saw at the end of the second quarter.

Speaker 2

Okay. Last one from me, and I'll hop back in. Gary, I don't think I heard. You may not want to say the timing of the Dermagraft reintroduction. Can you be more specific or for competitive purposes or are you not saying?

Speaker 4

We can give you, you know, a sense. You know, we think that, you know, by the second half of 2027, that we'll have the opportunity to launch Dermagraft.

Speaker 2

Okay, thank you, guys.

Speaker 4

Sure. Thanks, Ryan.

Speaker 3

Once again, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We are currently showing no remaining questions in the queue. Give a moment. A question has raised from Ross Osborn with Cantor Fitzgerald. Please go ahead.

Hey, guys. This is Matt Park on for Ross today. Thanks for taking the questions. I guess jumping right in on Renew. As you guys move closer to the BLA submission, I guess I was trying to get your thoughts on how you think about Renew's positioning within the broader knee OA treatment landscape and what you guys view as the key differentiators versus existing injectable options.

Speaker 4

I think what's really exciting is the actual data. In both studies, we had a significant number of KL4s in the study. The second study hasn't been completed yet, but in the first study, those KL4s performed similar to KL3s and KL2s. That is unique, and it speaks to the strength of the product and potential labeling, potential labeling improvements in the product over anything else. We're pretty excited that the data is showing that it's a robust product and will compete extremely well against the other competitors, which is primarily hyaluronic acid and steroids.

Got it. That's helpful. Maybe just one more from me on the surgical and sports side of the business. We're just hoping to get some more color on what's driving or on what drove strength in the quarter and how you expect this momentum to continue in the back half of the year.

Yeah, sure. We didn't adjust the guidance there. I think we did see some very strong performance. I think you're seeing some transition into some of the key products that we've got in the portfolio, and we continue to see some nice numbers coming up from there. In addition to that, we've implemented some hybrid rep situations where you're really seeing reps coming, spanning across both wound care and surgical, and that added some value in the quarter as well. We held that guidance, but it's between 6% and 23%. Nice performance in the first half, up 16% in the quarter and 13% for the half. We're excited to see that.

Got it. Thanks for taking the questions.

Thank you.

Speaker 2

Thank you.