Welcome to the AxoGen Second Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ed Joyce, AxoGen's Director of Investor Relations. Please begin, Mr. Joyce.

Thank you, Melinda, and good afternoon, everyone. Joining me on today's call is Karen Zaderej, AxoGen's Chairman, Chief Executive Officer and President; and Pete Mariani, Executive Vice President and Chief Financial Officer. Karen will discuss the quarter and our outlook for the year, and Pete will provide an analysis of our financial performance, followed by closing remarks from Karen and a question-and-answer session. Today's call is being broadcast live via webcast, which is available on the Investors section of the AxoGen website.Following the end of the live call, a replay will be available in the Investors section of the company's website at www.axogeninc.com. Before we get started, I'd like to remind you that during this conference call, the company will be making projections and forward-looking statements regarding future events. Forward-looking statements are based on the current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the company's annual and periodic reports. Actual results or events could differ materially from those described in any forward-looking statement as a result of various factors, including, without limitation, the impact of COVID-19 on our business, global supply chain issues, record inflation, hospital staffing issues, product development, product potential, expected clinical enrollment timings and outcomes, regulatory processes and approvals, APC renovation timing and expense, financial performance, sales growth, product adoption, market awareness of our products, data validation, our visibility at and sponsorship of conferences and educational events, global business disruption caused by Russia's invasion of Ukraine and related sanctions and other factors, including legislative, regulatory, political and economic developments, not within our control. The forward-looking statements are representative only as of the date they are made and except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. And with that, I'd like to turn the call over to Karen. Karen?

Thank you, Ed, and good afternoon, everyone. Thank you for joining us today. We're pleased with our second quarter performance as revenue increased 3% over last year to $34.5 million on an as-reported basis. Excluding the impact of revenue from Avive Soft Tissue Membrane from the second quarter of 2021, our revenue this quarter increased 9%. Year-to-date, we're pleased with our execution as procedure volumes improve and hospitals continue to adapt to evolving challenges. Although these issues continue to have a negative impact on the pace of growth in the quarter, we're encouraged by the sequential improvement in procedure volumes. We remain measured in our near-term outlook, given the broader economic challenges, but continue to be pleased with the improving trends in the market and in our execution. As we discussed on last quarter's call, we're extremely pleased with the results of our RECON study, which met its primary endpoints and provides clinical evidence of the performance of Avance Nerve Graft consistent with the results we've seen in our registry data collected over the last decade. The results of this study provide Level 1 clinical evidence, the highest quality possible. And we believe it will provide robust data to support surgeon adoption of Avance as the first biologically active regenerative medicine therapy for Nerve Graft. Over the years, we have built broad capabilities to establish and develop the nerve repair market. These efforts have produced a robust clinical portfolio as well as highly respected surgeon education programs and broad commercial capabilities. As a result, Avance has a well-established track record and solid foundation. We believe the addition of the RECON study will provide compelling evidence for the expansion into the middle adopters, many of whom are in our core accounts. We plan to leverage the strength of this position to…

Thank you, Karen. Revenue this quarter was $34.5 million, a 3% increase over the second quarter of 2021. Excluding the $1.8 million of Avive revenue in the second quarter of '21, revenue growth was 9%, including unit growth of approximately 4% and a combined impact from changes in price and product mix of approximately 5%. Gross profit for the quarter was $28.2 million as compared to $26.5 million for the second quarter of '21. Gross margin increased to 81.8% from 78.9% year-over-year. The prior year margin included a provision for the write-down of Avive inventory of approximately $1.4 million. Total operating expense in the second quarter increased 7% to $36.1 million compared to $33.6 million in the prior year. The increase in total operating expenses was primarily the result of an increased product development and clinical programs as well as total compensation, including noncash stock comp and travel costs. Sales and marketing expense in the second quarter increased 2% to $19.7 million compared to $19.3 million in the prior year. The increase was primarily due to increased sales travel. As a percentage of total revenue, sales and marketing expense was consistent at 57% in the quarter as well as last year. Research and development expenses increased 23% to $7 million compared to $5.7 million in the prior year. Product development expenses represented approximately 51% of total R&D compared to 52% in the prior year and includes spending in a number of specific programs, including the BLA for Avance Nerve Graft and a next-generation Avance product. Clinical expenses represented approximately 49% of total R&D compared to 51% in the prior year and includes spending in support of our various clinical programs. As a percent of total revenues, research and development expenses were 20% in Q2 compared to 17% in the prior…

Thank you [Operator Instructions] And we go to Ross Osborn with Cantor Fitzgerald.

Hi. Thanks for taking my questions and congrats on the quarter.

Thank you, Ross.

Starting off -- can we maybe just walk through the revenue cadence throughout the quarter? And if you would, how July shaped up relative to June?

Well, we've been pleased to see that we've seen a nice ramp in revenue through -- from first quarter through second quarter and continuing into July. We see hospitals are learning to manage the staffing shortages, and that's allowing them to do what's important to them and that's get cases completed. We want that and they want that. And so they're now doing a better job of being able to manage the resources to get those cases completed.

Okay. Great. And then I guess switching to guidance. You had a strong quarter but maintained. So I guess looking at the bottom end where you assume some macro headwinds in the second half of this year. Is that primarily staffing shortages? If not, what are you potentially expecting?

That's right. I think if hospitals are able to continue to improve, then we're going to be towards the top end of the range. But if we see what hospitals experience a broader impact from the inflationary concerns and other issues that are impacting them and their business, then we see a more moderate pace of procedures across the back half of the year. And that's really it.

Okay. Understood. Thanks for taking my question. Congrats again on the quarter.

Thanks.

And we move into Kyle Rose with Canaccord.

Hi, this is Caitlin on for Kyle. Just a quick question on the continued COVID recovery. Can you elaborate on which segments were most affected and continue to be affected? So given that breast recon is largely elective, have you seen any pullback in volumes there? Thanks.

Well, of course, the quarter of our business is trauma. And so we saw a nice continued shift of cases being ramping in trauma. In breast, as I saw through the quarter, we saw breast peaking back out from having the shutdown almost completely in parts of first quarter. Breast, I've said in the past, is a highly resource-intensive procedure. They're a long time in the OR, and they are almost always an in-patient study. And so the combined resource impact can make them -- and they can be delayed. So they are one of the early things that were delayed and deferred. Having said that, while there is a large group of deferred patients that have been built up, there is only so much block time these surgeons are able to get. So while it's ramped up nicely, it's back to more organic levels because the deferred group is going to take us over a year to -- take the surgeons over a year to work off. So we've seen that ramp back up and nicely being done, but not as a kind of being bolus in the quarter.

We return to Karen Zaderej for closing remarks.

Well, I want to thank everyone for joining us on today's call. We're happy with the progress we've made towards our goals during the first half of the year, and we remain focused ensuring our long-term success. I want to thank all of our members of team AxoGen who remain committed to our mission of improving nerve function and quality life for patients with peripheral nerve injuries. And we look forward to meeting with many of you at the Canaccord Genuity Growth Conference in Boston and the Morgan Stanley Healthcare Conference in New York in the coming months.

This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.