ANIK - NASDAQ

Good morning, ladies and gentlemen, and welcome to Anika's Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to turn the call over to Matt Hall, Executive Director, Corporate Development and Investor Relations. Please proceed.

Good morning, and thank you for joining us for Anika's Fourth Quarter and Year-end 2025 Conference Call and Webcast. I'm Matt Hall, Anika's Executive Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website located at www.anika.com as are the supplementary PowerPoint slides that will be used to the discussion today. With me on the call today are Steve Griffin, President and Chief Executive Officer; and Ian McLeod, Senior Vice President, Chief Accounting Officer and Treasurer. They will present our fourth quarter and year-end 2025 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted gross margin, adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations which are used in addition to results presented in accordance with GAAP financial measures. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. Reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our fourth quarter and full year 2025 press release. And now I'd like to turn the call over to our President and CEO, Steve Griffin. Steve?

Good morning, everyone, and thank you for joining us. Before turning to the results, I want to express how grateful I am for the opportunity to lead Anika and for the continued trust and support of our Board as I step into the CEO role. I also want to recognize Cheryl Blanchard for her leadership in repositioning the company and for the partnership she has provided through this transition. Under her tenure, Anika took important steps to sharpen its focus, including portfolio actions and progress across Integrity, Hyalofast and Cingal, which put us in a stronger position to execute going forward. I'm especially appreciative that in her new role as Executive Chair, we will continue to benefit from Cheryl's experience, perspective and relationships as we execute on our priorities particularly as we work to advance key regulatory, commercial and pipeline initiatives. As we begin today's call, I want to clearly outline the 3 strategic priorities that guide how we run the business, allocate capital and measure success. These priorities build directly on the foundation established under Cheryl's leadership and sharpen our execution as we move forward. First, revenue growth driven by the commercial channel. Our top priority is accelerating sustainable revenue growth with the commercial channel as the primary driver. This includes continued expansion of our international OA pain portfolio and scaling Integrity as a differentiated regenerative platform. These businesses generate attractive, stable margins, give us greater control over pricing and reduce our reliance on our OEM channel partners while meaningfully improving revenue diversification over time. The second priority is advancing our HA-based innovation pipeline, centered on Integrity, Hyalofast, Cingal and longer-term development opportunities. These programs address large underserved markets and will further Anika's leadership position in hyaluronic acid. We've made meaningful progress in recent years and remain focused on advancing these programs toward regulatory approvals in the markets where they are not yet approved. Third, improving operational execution. The third priority in an increased area of focus is strengthening operational execution. This includes improving manufacturing productivity, yield and capacity, which directly supports growth in both our commercial business and our OEM partnership with J&J MedTech, which continues to drive double-digit growth in Monovisc unit shipments. At the same time, we are establishing a more streamlined organizational design to improve profitability and cash generation. This is not a change in direction, but a sharpening of execution to ensure strategy translates into improved financial performance. With that framework in mind, I want to walk through our 2025 performance through the lens of these 3 priorities. First, revenue growth. In 2025, revenue growth was led by strong performance in our commercial channel, driven by international OA pain management and continued adoption of Integrity. With these two contributors together delivering commercial channel revenue growth of 22% in the fourth quarter and 15% for the full year, in line with our guidance. Internationally, our OA pain management portfolio, which includes Monovisc, Orthovisc and Cingal, delivered another year of strong growth and share gains. International OA pain revenue increased 28% in the fourth quarter and 12% for the full year, reflecting outstanding execution by our global teams and the durability of these products across multiple regions. Hyalofast also continued to gain traction outside the U.S., benefiting from its ease of use and differentiation. Importantly, our international business has driven strong double-digit growth with a lean cost structure. Integrity also had an exceptional year. In 2025, Integrity procedures and revenue more than doubled to approximately $6 million, marking its seventh consecutive quarter of sequential growth. Since launch, more than 2,500 surgeries have been performed with over 300 surgeons using the product and a majority scheduling additional cases. During the fourth quarter alone, approximately 600 surgeries were performed, up 20% sequentially, supported by continued surgeon adoption, new size introductions and expanding tendon applications. In 2025, our commercial growth was offset by our OEM channel as a result of a more challenging U.S. OA pain management pricing environment. OEM revenue declined 12% in the fourth quarter and 17% for the full year, consistent with expectations. Importantly, J&J MedTech, which sells Orthovisc and Monovisc maintained their market-leading position. As we focus on growing total company revenue, driven by outperformance in our commercial channel, we continue to work with our OEM partners to drive stability and predictability. Second, advancing the innovation pipeline. Through 2025, we continue to advance our HA-based innovation pipeline with meaningful progress across Hyalofast, Cingal and building on the Integrity platform. For HYALOFAST, we submitted the third and final module of the PMA to the FDA in the fourth quarter of 2025, including results from the FastTRACK Phase III study. As we previously reported, while the study did not achieve its prespecified co-primary endpoints, it did demonstrate statistically significant improvements across key measures of pain and function used to approve other cartilage repair products. As expected, we received a deficiency letter from the FDA in the first quarter of 2026 related to CMC and clinical data. While we can never make an assurance of FDA approval, we are actively engaging with the FDA, and we remain confident in the evidence supporting Hyalofast's clinical value. Cingal also made important progress during the year. Cingal has now surpassed 1 million injections across more than 40 international markets and continues to demonstrate strong clinician adoption. In the U.S. The FDA identified two remaining filing requirements for Cingal. The first was a set of required toxicity studies, which we initiated and successfully completed in 2025. The second requirement, the bioequivalence study was initiated in December 2025 and is now underway. Together, these steps keep us on track toward NDA submission and position Cingal as a differentiated solution and a large next-generation OA pain management market. Finally, Integrity continues to mature, not only commercially but clinically. We are now past the halfway point in our post-market clinical study and remain on track to complete enrollment this year. As a reminder, the post-market clinical study data will be used to support NDR filing, which will enable continued Integrity growth outside the U.S. and accelerate commercial growth in the U.S. In addition, a peer-reviewed MRI-based manuscript, led by Dr. Chris Baker, has been accepted for publication, demonstrating early clinical outcomes that align with our preclinical data and support Integrity's differentiated profile. Our third strategic priority, operational execution was a significant contributor to improved financial performance in the second half of 2025. Through improved manufacturing productivity, higher yields and increased throughput, we delivered expanded gross margins, positive operating income for the fourth quarter and meaningful free cash flow. These improvements not only strengthen profitability, but also enhanced our ability to support increased volumes for both our commercial products and our OEM partner. Fourth quarter revenue performance, which included the recovery of late shipments, demonstrated how increased volume and disciplined execution can drive improved throughput and productivity. While we do not expect these margins at this level every quarter, the quarter provides a clear illustration of the operating leverage that we can achieve as volumes grow, and we continue to deploy our teams efficiently. Operational execution goes beyond manufacturing and includes our ability to deliver growth with a lean, efficient back office organization that supports improved profitability. In line with this, we recently implemented a new organizational structure designed to streamline leadership layers, reduce expenses and better align resources with our highest priority growth initiatives. These changes include a combination of senior leadership role eliminations and releveling to better match the current scale of our operations. As we implement these changes, we will work through role transitions over the coming months, supported by the strong team we have here at place at Anika. As part of this evolution, we mutually agreed with David Colleran that he would transition from his role as Executive Vice President, General Counsel and Corporate Secretary, effective May 2026. I want to thank David for his leadership and many contributions over the past 6 years. All of the announced changes impact our G&A functions. Together with the recent leadership transitions, these actions are expected to drive approximately $2.5 million in annualized head count savings in addition to more than $3 million in stock-based compensation savings. As responsibilities are transitioned internally and the work is realigned, we expect to see improved profitability in the coming quarters. As part of this new organizational structure and as I step into the CEO role, Ian McLeod, our current Chief Accounting Officer since 2021 has assumed broader responsibilities across our finance and legal organizations. With these changes, we will not backfill the CFO, COO or General Counsel roles. Responsibilities are being absorbed by experienced senior leaders, creating a more efficient structure that supports sustained profitability and improved cash generation. With these priorities, accelerating growth, advancing innovation and strengthening operational execution firmly in place, we enter 2026 with clarity, momentum and confidence in our ability to deliver improved performance and long-term value. With that, I'll turn it over to Ian to walk through the financial results.

Thanks, Steve. Before I walk through the financials, I want to take a moment to briefly introduce myself. I've had the privilege of serving as Anika's Chief Accounting Officer since 2021 and I'm excited to step into this expanded role supporting both our finance and legal organizations. I look forward to continuing to work closely with Steve and the broader leadership team as we execute our strategy. With that, let me turn to the results. Please refer to Slide 5 of the presentation as I provide updates on the fourth quarter of 2025. In the fourth quarter, Anika generated $30.6 million in total revenue which was flat year-over-year, consistent with our revised full year expectations. Commercial channel revenue grew 22%, reaching $13.3 million driven by strong international execution and continued momentum in Integrity, which is exceeding our commercial expectations. Our international OA pain management business remains a key contributor delivered 28% growth in the quarter, led by sustained market share gains for Monovisc and Cingal across several regions. In the OEM channel, revenue was $17.3 million for the fourth quarter down 12% year-over-year, in line with our revised full year expectations. Pricing for Monovisc and Orthovisc sold through J&J MedTech was lower year-over-year as previously communicated. Despite these pricing headwinds, both products continue to hold strong market leadership positions and contribute meaningfully to Anika's overall profitability. Non-orthopedic revenue also declined quarter, reflecting lower demand for legacy products. In the fourth quarter, gross GAAP gross margin increased to 63% from 56% in the prior year reflecting higher revenue from international OA pain sales and higher volumes of U.S. OA pain, both of which improved throughput and productivity within our manufacturing operations. The margin improvement underscores the structural benefits of our revolving revenue mix and positions us well for improvements in profitability as we move into 2026. We're pleased with the improvements in the second half gross margin and will continue to drive improvements in manufacturing operations into 2026 to increase throughput. In the fourth quarter, operating expenses were $18.5 million, up from $17.8 million in the same year last year. Selling, general and administrative expenses increased to $12.1 million compared to $11.3 million a year ago, driven by higher sales and marketing expenses, primarily with the growth of Integrity. Research and development expense was $6.5 million, flat versus prior year as we continue to invest in key regulatory and clinical programs, including ongoing work on Hyalofast and Cingal. We continue to monitor our total operating expenses closely to focus on disciplined spending, while advancing the program's most critical to long-term growth. Total adjusted EBITDA from continuing operations was $4.5 million in the quarter, higher than our revised guidance, reflecting strong commercial channel performance and expanding gross margin. Discontinued operations include the Arthrosurface and Parcus results, which were divested in late 2024 and early 2025, with all material transition work completed, we do not anticipate discontinued operations activity going forward. Now turn to Slide 6, where I will discuss full year results. For the full year 2025, Anika generated total revenue of $112.8 million, a decline of 6% compared to the prior year and consistent with our revised guidance for the year. Commercial channel revenue was $48.4 million, up 15% compared to the prior year and continues to be a key growth driver in increasing adoption across all our international HA-based OA pain management portfolio and continued Integrity growth. International OA pain management remained a bright spot, reflecting the strong execution of our international commercial team and distributor network and Integrity continues to outperform, driven by increased U.S. adoption and more than doubling revenue to $6 million in 2025. Revenue in our OEM channel totaled $64.4 million, down 17% year-over-year, in line with adjusted expectations. The decline was primarily driven by pricing and market dynamics of Monovisc and Orthovisc in the U.S. market. GAAP gross margin for the full year was 57% compared to 63% in 2024, reflecting product mix, higher manufacturing costs driven by the manufacturing disruptions from earlier in the year and legacy program costs. Looking at operating expenses for the full year. We continue to strengthen our discipline across the organization while ensuring we invested in the programs most critical to our long-term growth. Total operating expenses for 2025 were $74.9 million, down from $81.1 million in the prior year, reflecting the meaningful cost actions we executed throughout the year and our continued focus on efficiency. R&D expenses were $25.8 million, essentially flat with the prior year as we continue to invest in the regulatory and clinical work activity supporting Hyalofast and Cingal as well as the ongoing expansion of the Integrity platform. In total, we invested approximately [ $5.2 million ] in 2025 to support Hyalofast and Cingal-related regulatory and clinical activities, representing focused investments that will generate meaningful future benefit across both our OA pain management and regenerative solutions portfolios. SG&A expenses were $49.1 million, a reduction from $55.6 million in 2024 driven by lower G&A head count and expense discipline. For 2025, adjusted EBITDA was $5.3 million or approximately 5% of revenue which represents an outperformance versus our revised full year outlook of minus 3% to plus 3%. Our results reflect the positive impact of revenue, slightly ahead of expectations improved manufacturing yields and disciplined cost management. For the full year 2025, we generated $11.2 million in operating cash flow, an improvement over the $5.4 million we generated in 2024 driven by efficient working capital management and lower expenses. Capital expenditures for the year were $6.8 million, reflecting our continued investment in our manufacturing facility to support higher expected output of OA management and regenerative solutions products. We ended the year with $57.5 million in cash with no debt providing us with a strong liquidity decision and the flexibility to continue investing in our growth priorities while executing our share repurchase program. As previously communicated, we initiated a $15 million 10b5-1 stock repurchase plan in November 2025. In the fourth quarter, we purchased 5.5 million common stock. To date, the company has purchased $10.7 million in stock, and the program is expected to be complete in the second quarter of 2026. Now please turn to Slide 7, as I turn the call back over to Steve to review our financial outlook for 2026.

Thanks, Ian. For 2026, Anika is maintaining its previously communicated revenue guidance ranges by channel and introducing a total company revenue outlook. At the total company level, we expect full year revenue between $114 million and $122.5 million, representing a 1% to 9% year-over-year growth. This outlook reflects continued momentum in our commercial channel and the market dynamics in our OEM business. Within the commercial channel, we are maintaining our outlook of 10% to 20% growth year-over-year or $53 million to $58 million. Growth is expected to be driven by ongoing expansion of Integrity in the U.S. market, sustained Hyalofast performance outside the U.S. and increasing adoption of our international OA pain management portfolio. For the OEM channel, we are maintaining our revenue expectation of flat to down 5% year-over-year or $61 million to $64.5 million. This reflects anticipated Monovisc unit volume growth partially offset by lower pricing, while Orthovisc is remaining modestly flat for the year. Turning to profitability. As we expect adjusted EBITDA of 5% to 10% of revenue, at the midpoint of this range, this improvement reflects higher expected revenue led by the commercial channel growth, the benefit of our recently initiated G&A cost reduction actions, including leadership changes, as well as productivity and manufacturing gains supporting increased OA pain production, partially offset by modestly lower U.S. OEM pricing dynamics. To close, we entered 2026 with clarity, momentum and a strong foundation for sustained performance. Our commercial channel is delivering. Our innovation pipeline is advancing with purpose, and our operational execution is driving meaningful improvements in profitability and cash generation. We have the right strategy, the right organization and the right team in place to execute. I'm confident in our ability to build on this progress and create long-term value for our shareholders. Thank you for your continued support, and we look forward to updating you on our progress throughout the year. With that, we'll open the line for questions.

[Operator Instructions] Your first question comes from Mike Petusky from Barrington Research.

Steve, so real quick on the guidance slide, you guys have U.S. Hyalofast in 2027. And I'm just curious, is a meaningful contribution from Hyalofast in the U.S. aiming the '27, 10% to 20% guide?

I appreciate the question. We had previously shared that we had included about $3 million of anticipated revenue for Hyalofast in '27. We haven't changed that outlook, so it remains the same. Obviously, it's contingent upon approval in the U.S. So that's kind of the big open item that we'll work our way through, but that's the dollar amount associated with it.

Okay. All right. Okay then. Then sort of moving on. In terms of the gross margin, obviously, was really strong this quarter. I'm just wondering as we sort of reset for '26, I mean, should we be thinking more like high 50s for sort of a normalized gross margin? I'm assuming that what you just delivered is not likely, at least sustainable in the near term, although you may get there over time.

Yes, Mike, I think you framed it very well. I think that's exactly what we're planning for. As you noted, I think it illustrates the capability that we have to deliver within our existing business and manufacturing capabilities. To your point, it's not always going to be at that level, but it gives our team something that we're shooting for over the longer term. The high 50s that you just noted though, is appropriate.

Okay. Two more real quick. Obviously, a nice positive free cash for the year and evidently for the quarter. In terms of what you see going forward? And I know it's not an official part of your guidance, but I'm just curious, do you expect free cash to grow off of '25 levels? And if so, I mean, will it be slight or will be somewhat material?

Yes, sure. I would say '26 cash -- I expect it to be probably somewhat in line with '25 just given some of the puts and takes and dynamics that we just referred to. Obviously, we've got to work through some of the restructuring-related elements of the things that I just noted earlier about some of the operating expenses for the business. At this point, though I'd say modestly in line with the '25 results.

Okay. And then just one more, and I'll let other people have a shot here. Obviously, international OA pain outperformed, had a really good year. I'm just curious, in terms of the dynamics internationally, I mean, are there countries where you're there, you're approved, but you're really sort of under optimizing? And then are there also new countries that you don't really have a foothold in, but you could actually commercially launch products?

Sure. Our international OA pain franchise is led by James Chase, who's done an excellent job, as you can tell, in creating a really sustained momentum. And I think it is a multitude of contributors. So first and foremost is market share gains in the places where we play today as well as growth in new markets. There's no one single market that stands out to kind of drive this top line growth. And I'd say he's got a long-term pipeline for each product in each country targeted with each distributor that we work with to find the right opportunities, and it goes out many years. So we're very pleased with the results that he's been able to generate consistently over the last 5 to 6 years, and we look forward to continuing to do that in this year's plan as well.

Your next question comes from Anderson Schock from B.Riley Securities.

Congrats on the strong quarter. So first, on the OEM channel, so you posted some strong sequential improvement, about 9% from the third quarter despite the continued pricing headwinds. Could you unpack what drove that improvement? And as you look at early 2026 order patterns in your conversations with J&J, what gives you the confidence that OEM lands flat to modestly lower for the full year?

Sure. Anderson, thanks for the questions. It's nice Like to talk to you again. We did see a bit of an increase, and I think it's tied primarily to volume and user demand. I noted earlier that we still see very strong end-user demand from a unit perspective on Monovisc, which is the largest contributing factor to the sequential improvement that you're noting. When we look to 2026, we've had many conversations with J&J as they look at the future of this market. We expect to see continued market share gains and volume growth, offset modestly by price. A little too early probably to tell exactly how it will play out. I mean, this is one of those businesses where it could be a little lumpy, and there is some fourth quarter dynamics in the United States to some extent. But we'll see it play out over the course of this year, but suffice to say that we believe that this is the appropriate guide for the year.

Okay. Got it. And then with both the toxicity studies for Cingal now completed, the bioequivalent study initiated in December. Could you provide a more specific time line for the study's completion and expected NDA filing?

Sure. I appreciate the question. So the timing of the NDA filing is going to be paced by the enrollment of the bioequivalent study, which is the final clinical requirement for the submission, and we noted we began enrollment for that in December. The enrollment is ongoing, and the study remains on track. And in parallel to that, our teams are actively preparing other components associated with the NDA, so that we're positioned to move forward efficiently. Once the study is complete, I haven't been able to necessarily give you a timetable, but as we progress further down enrollment of bioequivalence study, we expect to provide that time frame.

Okay. Got it. And then Integrity had $6 million of revenue for '25, more than doubling as guided. And as we think about '26 commercial channel guidance, can you help us frame how much of that growth is from Integrity versus international OA pain? And are there any revenue or procedure volume targets for Integrity in '26?

Internally, absolutely. In terms of what we will share externally, what I would say is we do expect another strong year in the commercial channel on the international OA pain side kind of in that double-digit range that we've seen. And I think when we look at Integrity, it had a very good year, obviously, from a variance percentage basis, it was up almost 100%. I don't think it's going to be up near that same range, but we're still talking about strong double-digit growth, and we're very pleased with the performance in the United States on that growth on Integrity. I'll give further updates as we go throughout the year in terms of the performance.

Okay. Got it. And then finally, so you launched the larger shapes and sizes for Integrity. I guess, how is the early uptake trending? And is this opening up meaningful new call points beyond your existing shoulder focused surgeon base?

We did. We launched two new shapes and sizes last year, and it's gone well. We've seen strong uptick on those products. I'd say this market is still majority rotator cuff. So when we look at the overall market procedures, the rotator cuff represents still the largest portion of it, the largest portion of our overall revenue. But I think the new shapes and sizes help increase surgeon adoption and get further expansion into some of those smaller adjacent markets. We're pleased with how well it's gone so far and look forward to continue to drive adoption into 2026.

Your next question comes from Mike Petusky from Barrington Research.

All right. Excellent. I have a couple more, I appreciate the follow-up. Steve, in terms of the bioequivalence study, what is the targeted enrollment?

It's just under 60 patients.

I mean is that -- I have no idea, is it fairly easy to enroll patients for this kind of study? Or is it a slog?

I wouldn't call it a slog. I mean it does have specific enrollment criteria designed to meet the FDA requirements. We're executing well, but enrollment can take slightly longer than maybe a typical bioequivalent study. So far, it's on track to what we would have expected.

Okay. All right. And then would you be willing to share sort of the revenue run rate that Integrity ended the year with in Q4? I mean is it -- I mean, is it run-rating that $7 million, $8 million. Any help there?

We haven't necessarily broken it out by quarter, but we did $6 million over the course of the full year, and I think we noted that it grew 20% sequentially from 3Q to 4Q. So it's at a pretty decent run rate as we exit the year. I will also note, though, that, that tends to be the case. There's some fourth quarter seasonality just in the United States associated with procedural volumes. So as we look to the start this year, we do expect that seasonality effect to kind of continue, but we're very pleased with its growth.

Okay. Great. And then just one last question. I guess around capital allocation. Obviously, you guys said what you said on finishing up the share repurchase commitment. But as you sort of look at the fact that you guys have been -- if presumably generate some free cash this year, you've got $55-plus million net cash on the balance sheet. I mean outside of the share repurchase, I mean, what are the priorities? I mean, is it potentially some small sort of tuck-in M&A? Or is that just not a thing you can focus on giving given where you are right now?

I appreciate the question, Mike. I would say our capital allocation priorities start first and foremost with being able to deliver for our patients and customers. So we obviously are spending CapEx to improve our manufacturing operations here in Bedford. We will continue to do that. So we'll make investments into our manufacturing capability, and that is the first and foremost. The second thing that we talk about is capital allocation is the investments we're making into our U.S. sales channel, those are still investments that we are making, and we very consciously evaluate those. And while we operate with a level of expense discipline, it is still an investment nonetheless, I think longer term, there are certainly opportunities for us to evaluate what else we may do. But at this point, it's not something that we're looking to share. We've got a lot on our plate in the very near term, some of the restructuring activities that we mentioned earlier, plus the activities for Integrity, Hyalofast and Cingal, knows a lot on our plate, a lot of shareholder value that can be generated by executing well. And I think the 3 strategic priorities we laid out at the very beginning: first, commercial revenue growth; second, advancing our R&D pipeline; and third, executing with operational discipline. Those are the priorities for us in the near future.

And there are no further questions at this time. I will turn the call back over to Steve Griffin for closing remarks.

Great. Thank you all for joining us today. We hope you have a great week.