BioStem Technologies, Inc. (BSEM) Earnings Call Transcript & Summary

Thanks for being with us this afternoon, everybody, and we appreciate you dialing in to our conference call about BioStem's Third Quarter 2026 Financial Results and Corporate Highlights. Jason Matuszewski, who serves as the company's Chair and Chief Executive Officer, will lead today's call, along with Brandon Poe, the company's Chief Financial Officer. Barry Hassett, the company's Chief Commercial Officer, will be with us for the question-and-answer session. Before we get started, I want to remind all of you that forward-looking statements may appear in our remarks, based on what management currently expects. Such statements carry risks and uncertainties, and those are described more fully in the earnings press release we issued today, in our quarterly report on Form 10-Q for the quarter ended September 30, 2026, including under risk factors, and in our filings with the U.S. Securities and Exchange Commission. You can find our SEC filings on our website or on the SEC's website. We caution investors against placing undue reliance on forward-looking statements. Also, this call includes reference to non-GAAP financial measures. You can find a reconciliation to comparable GAAP measures and related information in our earnings press release, which is posted on the Investor Relations section of BioStem's website. With that said, I'd now like to hand the call over to Jason Matuszewski.

Thanks, Trip, and good afternoon to all of you on the call. For BioStem, the third quarter was the second complete quarter of running primarily as a hospital-focused company, and we keep making solid headway on pushing our commercial strategy forward and making our operational infrastructure stronger. In the quarter, we again delivered sequential growth in hospital revenue and finished putting our internal sales and operations management systems in place. That took considerable work inside the company, and we want to thank the whole team for their ongoing commitment. After this stretch of investment that was needed to build the new BioStem in 2026, we are now focused on carrying out a clear plan to speed up our path to break even. Today I want to spotlight four initiatives that set our direction going forward: cutting our operating expenses, lifting our gross margin by moving Neox and Clarix manufacturing in-house, shrinking our adjusted EBITDA loss, and reinforcing our balance sheet to fund that plan. Looking ahead, we stay committed to efficient growth by getting the most out of our commercial footprint and product portfolio while keeping expense management disciplined. That approach lets us put priority on our highest impact growth opportunities while improving profitability and lengthening our cash runway as we build a sustainable business. In August, we began trading on the Nasdaq Capital Market, an accomplishment that has raised the company's visibility and widened our institutional reach and expanded the range of capital alternatives open to the company. Since the uplist, we have taken a number of steps to reinforce our balance sheet, and that remains our top priority. In September, we established a $40 million committed equity facility with Roth Capital Partners. As of today we have not sold any shares under the facility, and we may not until early April of 2027, subject to certain conditions, including a $1 minimum share price. Over the long term, we believe the facility will give us an additional source of capital to reinforce our balance sheet and support our strategic priorities. Also, at quarter end, we closed a private placement with multiple institutional investors, bringing in gross proceeds of approximately $3 million and the potential for up to approximately $5.6 million in additional gross proceeds from exercise of the accompanying warrants. Right after the quarter closed, Andrew Van Vurst, our Chief Operating Officer, and I each exercised options, which together contributed approximately $1 million in cash to the company. This investment shows our conviction in BioStem's technology, our strategy, and our team, and the proceeds are meant to support working capital and keep the inventory needed to serve our customers. We are right now evaluating additional financing alternatives, with a clear preference for non-dilutive structures. More broadly, our goal is to speed up our path to profitability and to lengthen our cash runway through efficient growth and disciplined expense reduction. We’re stepping up real changes to how our costs are structured, and we expect the cost-cutting plan now under review to lower yearly cash operating expenses by roughly $10 million to $12 million. Our approach centers on cutting spending in areas that don’t directly drive revenue, and Brandon will take you through that in a few minutes. As part of these efforts to cut costs and preserve cash, Andrew and I have offered to cut our yearly cash salaries to $250,000 in 2027 and to take the rest of our salaries in BioStem stock, pending board approval. Just like our option exercises, this shows our belief in the company, and it brings down our cash expenses at a moment when that matters most. Going forward, we’re directing our resources toward initiatives that directly affect revenue generation, fuel revenue growth, and speed up the route to profitability. A key part of this effort will be moving Neox and Clarix production into our Pompano Beach facility. We expect products we make to carry a meaningfully higher gross margin, and our goal is clear: get to profitability as fast as possible while keeping revenue growth sustainable. At the same time, we’re working to lower near-term demands on our cash; we’re in active talks with BioTissue to restructure the terms of the clearance payment, which is still outstanding, aiming to reduce our near-term cash obligations. We look forward to sharing more details once those talks are finished; meanwhile, supply of Neox and Clarix continues without interruption. Now, on to the quarterly results. During the quarter, we raised hospital revenue sequentially to $6.8 million. That increase came from strength in July and September, which were our strongest hospital sales months since the acquisition closed. I’ll now give updates on our strategy to prioritize resources so we can drive growth as efficiently as possible. Effective at the start of August, the transition services agreement with BioTissue ended, and responsibility for sales logistics, operational support, invoicing, collections, and inventory management moved fully to BioStem, giving us better control over working capital. With that transition finished, we now fully own the systems and data behind our commercial organization. This was no small task, and I’m proud of our team for integrating several complex systems in such a short time. Our customer relationship management platform is now live and integrated with our enterprise resource planning system; we’ll use the data available to target our highest-value customers more precisely. In particular, we’ll be able to leverage our commercial infrastructure to drive growth and improve productivity without a proportional increase in cost. After a learning curve of just over a month, the organization had fully adapted by September, and we now have dramatically better insight into account activity, inventory, and ordering behavior than we had before the transition. Turning to our commercial progress, adoption of our product portfolio keeps advancing, and that includes the Neox, Clarix, and VENDAJE brands in the hospital market. Within the hospital channel, our commercial strategy still rests on two complementary objectives: getting deeper utilization at facilities where our products already have approval, and growing our footprint by bringing on new accounts. A meaningful share of the growth opportunity sits inside hospitals we already serve. Since the investments needed to secure contract access and build relationships with key customers are already behind us, we are now well-positioned to increase utilization at these facilities at a meaningfully lower incremental cost. In September, the VENDAJE product family joined our existing GPO agreements with two major GPOs, the two largest group purchasing organizations in the U.S; these additions mark the first GPO coverage for the VENDAJE product family and let clinicians across those GPO member facilities procure VENDAJE through established contracting channels. Consequently, deepening penetration within our existing customer base by expanding GPO coverage stands as one of the most efficient avenues for growth available to BioStem; we remain pleased with how our sales organization is progressing as we keep focusing on our most productive territories to gain new accounts; we are seeing that our broad product portfolio and GPO access continue to attract new customers and expand our account base. Equally important, existing customers are expanding their use of our portfolio.

Between the second and third quarters, accounts purchasing two or more of our product lines increased 14%. The count of customers buying three or more lines climbed by over 40%. That depth is important. Customers who purchase across our portfolio, meaning they buy more than one product, represent over half of our revenue. These metrics show our commercial strategy is delivering results and that clinicians are finding value for their patients across many specialties and procedures; we believe these metrics will keep trending positively. Clinical evidence stays fundamental to how we approach wound care. The VLU trial is still progressing according to plan, with headline findings scheduled for presentation at the Innovations in Wound Healing conference in early December. Such clinical data is already supporting uptake among physicians and helping us go deeper within hospitals, and we expect its significance to increase further as reimbursement and product-choice determinations rely more heavily on evidence. Every customer interaction our field team conducts incorporates this evidence, which we see as providing an additional source of advantage for our technology. By focusing our execution on priority use cases, strategic accounts, clinical evidence, and new products being added to our GPO agreements, we think we're in a strong position to expand adoption of our portfolio and back our growth targets in the years ahead. Now I'll give an update on the technology transfer for Neox and Clarix. Relocating manufacturing of Neox and Clarix to our Pompano Beach site continues to be a major value driver for BioStem. Moving production in-house should produce a substantial gain in gross margin and cash generation, and because of our current infrastructure, we can get this done with limited capital spending. We’re still on schedule to finish the technology transfer and start making these products ourselves during the first half of 2027, assuming process validation succeeds and regulatory requirements are met. Until then, BioTissue keeps producing these products for us under our manufacturing and supply agreement. Product availability and customer service haven’t been disrupted at all, and we anticipate supply will stay continuous through the transition. At this point, I’ll hand the call to Brandon, who will cover our financial results.

Appreciate that, Jason. Third-quarter revenue was $7.6 million, compared with $7.9 million in the second quarter of 2026. Our Q3 results were driven by hospital revenue, which climbed to $6.8 million from $6.7 million in the prior quarter — sequential growth of 2%. Physician office revenue came in at $810,000 for the third quarter, lower than $1.1 million in the prior quarter. Gross profit was $4.3 million, equal to a 56% gross margin, versus $4.8 million and 61% in the second quarter. As we mentioned on previous calls, we expected gross margin pressure during the second half of this year. The quarter-over-quarter decline mainly came from higher transfer pricing under the BioTissue supply agreement after the initial discounted pricing expired; we expect margins to stay in the 50s until a successful technology transfer is completed next year. Total operating expenses were $14.1 million, versus $13.2 million in the prior quarter. That sequential rise was driven mainly by higher general and administrative expenses tied to uplisting and financing activity, partially offset by reduced research and development spend. Sales and marketing expenses came in at $5.3 million, unchanged from the prior quarter. The bulk of our new sales hires came onboard during Q2 of this year, meaning Q3 reflected the complete expense associated with those personnel, partially offset by reduced spending on sales training and recruiting. G&A costs totaled $7.5 million, up from $6.5 million during the prior quarter. That rise was primarily driven by increased payroll tax expense stemming from the vesting of certain RSUs, as well as greater legal and accounting fees related to our Nasdaq uplist process, registration statements, and financings — all of which we had expected. R&D expenses came in at approximately $500,000 versus roughly $700,000 in the prior quarter, reflecting our ongoing wind-down of current clinical studies. Other operating expenses came in at roughly $700,000, mainly from amortization of intangibles, which matched the previous quarter. For the quarter, our GAAP net loss stood at $11.4 million, or $0.64 per share, compared with a loss of $9 million, or $0.52 per share, in the second quarter. Included in the Q3 GAAP net loss was a $1 million payment made to BioTissue so the clearance payment deadline could be extended. Our adjusted EBITDA loss was $6.4 million, versus a $4.6 million loss in the prior quarter. That wider adjusted EBITDA loss came from the extra extension payment to BioTissue, a lower gross profit, and higher G&A costs, as I described. As of September 30, 2026, cash and cash equivalents came to $1 million, compared with $7 million as of June 30, 2026. The $3 million private placement that closed on September 30 gave us proceeds that went toward working capital during the quarter. During October, our CEO and COO exercised options, which brought in $1 million, and we've beefed up collections handled in-house so we can fund working capital as well as inventory purchases. Operating activities consumed $8.8 million of cash in the third quarter, versus $5.5 million in the second quarter. As for funding what we have planned ahead, we're addressing our cash needs in three areas. First and foremost, late in Q3 we made initial adjustments to our cost structure, and additional changes are on the way that will cut our cash burn and accelerate the path to profitability. I'll detail those plans more fully in a moment. Next, we're putting our people and resources to work. With invoicing, collections, and inventory management now done internally, working capital is starting to show improvement. In addition, we're considering a credit facility tied to receivables that would grow along with our hospital sales; we're exploring the sale of land we hold, and we expect—though there's no guarantee—a tax refund of about $1 million in the near term. Notably, we started internal planning toward finishing the technology transfer, which should raise gross margins by manufacturing products in-house—something we're aiming for in the first half of 2027, as we've previously stated. Back in September, we set up a committed equity facility together with Roth Capital Partners. As of now, no shares have been sold through it, and unless that limitation is waived, we might not tap into it before early April 2027. When the quarter wrapped up, we finalized a private placement involving a number of institutional investors, generating gross proceeds of roughly $3 million, and there's potential for an additional gross amount of about $5.6 million if all the warrants tied to it get exercised for cash. We continue to review alternative financing avenues, with a preference for structures that aren't dilutive. In our view, these represent helpful measures for bolstering our liquidity, and we'll keep weighing further alternatives and making more moves when necessary. Turning now to our outlook. Within the hospital channel, we continue to anticipate quarter-over-quarter expansion in Q4. That outlook rests on internal systems now running at full capacity, improving output from our dedicated sales team, VENDAJE being obtainable through GPO contracts, and the usual pattern of surgical seasonality. Our focus stays on hospitals, and we foresee only negligible input from the physician office channel. Because our conviction in the hospital segment's direction is strong, we are raising the bottom of our full-year 2026 revenue outlook, with revenue now projected at $28 million to $29 million, up from the prior range of $26 million-$29 million. Looking ahead to 2027, once our cost measures are implemented and production at our own facilities is slated to begin during the first half of that year, we anticipate a significant decrease in operating expenses and a narrowing of our adjusted EBITDA loss as 2027 progresses. Examining the cost-cutting program more closely, we identified initiatives late in the quarter aimed at right-sizing the company, lengthening our cash runway, and speeding up the path to profitability, all while maintaining our emphasis on sustainable growth. To begin with, hiring has been decelerated. Additionally, we terminated select third-party contractor arrangements and renegotiated contracts to bring recurring expenses down. The purpose of these steps is to enhance operating efficiency without affecting our commercial momentum. Our view is that the commercial infrastructure we already have can carry continued growth and wider portfolio adoption with only modest added investment. Aligning our cost structure with the priorities we have today should sharpen operating leverage and safeguard resources for the growth opportunities with the greatest impact. On top of these steps, we are putting in place a wider cost reduction plan, and we expect it to bring annualized cash operating expenses down by roughly $10 million-$12 million relative to our current run rate. Our plan—which we're still finalizing—keeps the focus on directing the sales organization toward the territories and accounts that deliver the most, trimming support functions, and ending a variety of outside services, media, and sponsorships that don't add directly to revenue. We anticipate wrapping up the plan and having these initiatives in place in the coming weeks, with the full benefit of these changes beginning in the first quarter of 2027. Once the details are settled, we'll share more of them. We'll also be preparing to shift Neox and Clarix manufacturing to our Pompano Beach site, which we expect to improve gross margins, and we plan to bring on lab and quality positions in stages through 2027 to back that move. Last, I'd like to mention that Michael Fortunato, our Chief Accounting Officer, has informed the company of his plan to retire from BioStem, effective December 18th of this year. For more than five years, Mike has been enormously valuable to BioStem, and among his contributions was a leading part in getting the company ready for and listed on the Nasdaq exchange. I'll be working closely with Mike and our accounting team to ensure a smooth transition. I'd like to express my own gratitude to Mike for the professionalism he showed and the backing he gave the company, and I wish him the very best in whatever he takes on next. That said, I'll return the call to Jason now for his closing remarks.

Thanks, Brandon. For BioStem, the third quarter represented a genuine period of transition, and we emerged from it with a sturdier base. Our operating infrastructure is now ours, we have widened GPO access with the two largest contractors we work with, and an increasing number of customers purchase products spanning our portfolio. Four key initiatives define the road ahead. First, we aim to cut our cost structure, targeting a $10 million-$12 million decrease in annual cash operating expenses. Second, we intend to lift gross margin by moving Neox and Clarix production in-house beginning in the first half of 2027. Third, we plan to shrink our adjusted EBITDA loss throughout 2027. Fourth, we will reinforce the balance sheet so that plan can be funded. Taken together, we believe BioStem in 2027 will look like a very different company, a focused hospital business in which far more of every new dollar reaches the bottom line, thanks to lower operating expenses and higher expected margins on products made in-house. Beyond that, we anticipate several important milestones soon. Our VLU data arrives in early December, we are making progress on restructuring the BioTissue clearance payment, and in-house production will begin. None of this would happen without our team, who carried us through a demanding transition, nor without the customers and partners who trust our products, and the shareholders who believe in where we're going. Now it's time to build on it. Operator, please open the line for questions.

Good afternoon, Jason and Brandon. R.K. here, calling from H.C. Wainwright. I have a couple of quick questions. In the press release and in your opening statements as well, you mentioned that during the quarter there was sequential growth in customers buying multiple products, yet at the same time revenue growth came in somewhat constrained. What was different in the quarter, and how do you plan to manage this over the coming quarters?

Thanks for the question, R.K. Barry, I'm not sure whether you wanted to speak to some of those sales initiatives.

Sure, Jason, I can take that one. So, R.K., July and September were in fact the strongest two months for the business since we completed the acquisition earlier this year. In August there was a bit of a hiccup as services transitioned from BioTissue over to BioStem, and I believe some of that revenue constraint came from what happened during August. Beyond that, though, as Jason noted on the call, we saw healthy trends when it comes to deepening adoption among existing customers and opening up new accounts. So I think it really was the month of August that accounted for those constraints.

All right. Once Neox and Clarix are integrated in the first half of 2027, how much gross margin improvement do you think we should see compared with the mid-50s level we have today?

Hi, R.K. Brandon here. Yeah, that's a fair question. As we've mentioned previously, we believe we can reach gross margin in the 70s, certainly. Part of that will hinge on how we settle the tech transfer plan and bring products across. They won't all move at the same time; it will happen gradually. What I think you'll see is steady gross margin gains during 2027 as those products come in-house, move through inventory, and reach the P&L. We still feel quite confident that from the mid-50s, we can achieve roughly a 10 to 15 point gross margin improvement over time.

All right. One final question from me before I rejoin the queue. Regarding those savings you mentioned, the $10 million-$12 million, what portion will come from structural cuts as opposed to eliminating certain non-recurring costs?

Yes, I can address that; that plan is being worked on at the moment, R.K., and we are still trying to finalize precisely what the details will look like. I would prefer to defer that question until we've had a chance to truly finalize it, and then we can provide an answer once we know more details.

Thank you. I appreciate your answering all of my questions.