OssDsign AB (publ) ($OSSD)

Hello, and welcome to OssDsign's Q1 presentation. My name is Elvin Rolder. I work here at DNB Carnegie, and I will be moderating the presentation and questions-and-answer session. I'm joined here by Mark Waugh, the CEO of OssDsign; and Anders Svensson, the CFO, who will give the presentation now.

Thank you. Welcome, everyone. Again, my name is Mark Waugh, and I'm the CEO of OssDsign. And if you're new to our quarterly calls, I'll just mention briefly that I joined the company in January this year. As Elvin mentioned, I have our CFO, Anders Svensson, with me. And today, we want to walk you through our first quarter 2026 results. As usual, when we do these presentations, the normal disclaimer. Before I go into the details, I do want to make one comment about our Q4 results call, and then I'm going to give you my view of the highlights in the quarter. It's important for me to communicate that we had a significant technical challenge during the Q4 call. And unfortunately, when the call began, Anders and I could hear multiple other earnings calls on the conference line. So imagine trying to deliver our company results while being interrupted continuously. Thankfully, we don't believe those listening to that call could hear the same cross talk. I will say that our conference operator also informed us that there were no questions, but we learned later that there were indeed a queue of individuals who wish to ask a question. And I just want to apologize for that technical issue. It was so unacceptable to us that we actually switched our call hosting provider going forward. So I have confidence that today's call will be delivered much more smoothly. Now on to the highlights. I believe I said this during our Q4 release, but I just want to reiterate that I joined OssDsign because I was drawn really into Catalyst strong clinical performance, the robust underlying science that the company has generated and a significant market opportunity in the U.S. Those reasons remain very valid, and I'm confident that the factors contributing to our first quarter sales challenges are identifiable and addressable. I want to say that this was really not the start of the year that I would have wished for, and I don't believe it's acceptable. As communicated, revenue for the period, January through March 2026, totaled approximately USD 4 million or SEK 36.9 million, a decrease of 3.6% in U.S. dollar terms compared to the same quarter of 2025. That significant difference that you note between the USD and SEK results, a 3.6% decline in U.S. dollar terms versus a 17.1% decline in SEK terms is due entirely to the depreciation of the dollar against the SEK during the comparable periods. Adjusted EBIT for the quarter was minus SEK 13.4 million, with marginal exchange rate impact due to the nature of the cost base. This sales outcome really fell short of our expectations. And as I communicated prior to this report, is also below market expectations. Since joining as the CEO, I have continued to get up to speed in our history. And I now understand that due to the volatile capital market in Q1 2025, OssDsign's proposed share issue was delayed until June of last year. The result of that delay was some of the activities were executed in the plan a bit more slowly or even paused. Second, we had a slowdown in recruitment and hiring within the sales team during the latter part of 2025 that weighed on sales growth into the fourth quarter of last year and its effects carried into Q1 2026. I've stated previously that my goal is to build a high-performing commercial organization, and that's a very deliberate activity. When the hiring slows, the impact to our forward revenue growth is definitely impacted in the following period, and that really materialized this quarter as well. I also spent some time in the recent released annual report talking about shifting our culture. As we made some deliberate changes, some less highly performing sales employees did lead the company. We also experienced temporary slowdowns in certain accounts due to extended contract renegotiations. And none of what I just covered were isolated events. They really converged in the same quarter, which amplified the pressure on the top line. I want to stress, however, that the recent sales results should not reflect badly on the product, the core science or its market potential. In my opinion, OssDsign Catalyst should be the #1 synthetic bone graft option in the spinal fusion market. Our real-world clinical data and results continue to be collected in complex patient groups, and that reinforces our truly great performance. As I mentioned in our formal release comments, Catalyst strengths are naturally attracting attention from our competitors. And I expected this when I took the role. I am confident we're making the right investments in clinical, marketing and sales to ensure that OssDsign is a fierce and respected competitor in this market. And I'm pleased to tell you that we had strong surgeon to surgeon clinical presentations at the [ Selby Spine, ISASS and NASS ] Evidence and Technology Spine Summit meetings during Q1. I think I'm most pleased today to tell you that we have implemented concrete measures to energize and focus our hiring process and consistently expand our sales team with more high-quality driven individuals. As a CEO, we now have leadership base in the U.S., and that allows us to accelerate and address issues promptly. In addition to managing and working with our leadership team to develop and expand the U.S. organization, I'm able to more directly support our sales endeavors by interacting in person with our key opinion leaders, our distributors and hospital systems. In other words, there are benefits to being in market with the commercial team, especially when it's a market I've worked in for many years. Now regarding that commercial expansion. We continue to strengthen our sales foundation. And over the past 90 days, there's been excellent progress in identifying and hiring new commercial team members. I would say that the groundwork has been laid this quarter, and I'm excited to see early progress among some of our new hired team members. Additionally, discussions have been ongoing with several key accounts that faced slowdowns due to contract renegotiations, and I anticipate that purchasing patterns will return to normal once the agreements are finalized. I've committed to transparency with the organization as our shareholders, and we're working to transform into a more open, bold and dynamic culture. I mentioned this during our last call. When I joined, I really believed in the product, and I still do. I believe there are very tremendously huge opportunities ahead of the company, and I'm confident in our potential to deliver increased sales, and I also remain confident in our potential to create value for shareholders. The other part of working to lead OssDsign is I get to be part of this great team that supports surgeons by providing a product that benefits their patients. The market we participate in for spinal fusion is large, growing and very receptive to products that actually show differentiated evidence-based results and unique properties, which is what Catalyst offers. I believe we're building the right team. We're investing in additional clinical data, and the existing clinical data continues to speak for itself. We have the right product to win in our market, and I remain confident of hitting our SEK 400 million revenue target as set out in the ScaleToProfit strategy we communicated in 2025. I think the first step in delivering improved commercial momentum is in the second half of 2026, and I look forward to reporting on that in the coming quarters. I'll now hand it over to Anders to walk you through the financial results for the quarter in more detail. Anders?

Yes. Thank you, Mark. So as Mark mentioned, in Q1, we saw a decrease in sales compared to the first quarter of 25%. Now in SEK, we did SEK 36.9 million, as you can see in this chart, compared to SEK 44.5 million last year, which translates to a 17.1% decrease. Although a decrease is obviously neither good nor anything we're happy with, the underlying development is not quite as severe as the second numbers suggest due to the U.S. dollar headwind. As you can see in the growth chart to the right, the bulk of the SEK decrease is actually not organic, but rather exchange rate related, with an actual underlying decrease in U.S. dollars of 3.6%. Now as we've also said many times before, growth for us is not likely to be linear over time, rather more likely to take the form of a staircase with higher and lower quarterly increases and even some where the staircase step is flat. Now granted, we did not expect any step to be negative, but that is unfortunately what happened in the first quarter for a number of reasons, as outlined earlier by Mark. This is also evident from the LTM chart for the latest 12-month period, as you can see in this slide. But what is also evident here is that the latest 12-month period, sales are about 28% higher than they were in the 12-month period leading up to Q1 2025. Be that as it may, as stated earlier, we've had to make a few changes in terms of corrective measures, and we expect those measures to deliver improved commercial momentum in the second half of '26. Moving over to the gross margin. Now as you can see, the gross margin followed suit on the lower sales in the quarter. Those 2 are quite interconnected. And so it came in at 91.6% versus the 96.4% in the comparison quarter. Now in addition to the sales related or sales level related effect, we also experienced some negative mix effects, both on product and customer mix in the quarter. And of course, on top of that, we also have the U.S. dollar headwind, which continue to weigh on COGS. And that's especially on raw materials because as I'm sure you know, we've talked about before, the products that we set in the quarter were produced quite some time ago, more expensively at a much higher U.S. dollar-SEK exchange rate. So all in all, a lot of negative effects converging in a single quarter, which makes it all the better to note that all those effects that we've now mentioned are variable and therefore, temporary. And I will now hand you back to Mark.

Thanks, Anders. I just want to cover this briefly. We covered it on the Q4 call. But although OssDsign has only been active in the market for 4 years, we built a very solid body of evidence with 17 preclinical and clinical publications and white papers. And I think -- I know many of you have seen this slide before, too, if you've been following the call for some time, but this is a summary of clinical studies OssDsign has published. The big takeaway on this is that Catalyst has consistently been reporting both high fusion rates and fast bone formation. This means rapid progression to fusion. Our bone model, a well-established preclinical model showed 100% fusion, and we saw 100% fusion at 2 years within our TOP FUSION study. Most importantly, OssDsign has reported 88.4% fusion in a highly complex real-world population within our ongoing registry. I mentioned before that the 88.4% result is probably the most impressive. When competitors often showcase their products fusion rates, those rates are many at times, among patients that have been selectively filtered out. In the industry, this is known as exclusion criteria for a clinical study. So for example, comorbidities like high BMI, smoking or other issues such as failed prior fusion surgeries, et cetera. As such, in the most challenging patients, you often don't see what the real-world performance of a product is. OssDsign does not exclude those challenging patients within our registry, and these results are real-world scenarios. Catalyst continues to show this real-world performance for a synthetic bone graft rarely seen in the market before, and we've communicated ongoing investments in this clinical data being a part of our strategy. Before we conclude and take questions, I do want to reiterate that ScaleToProfit strategy, which we originally communicated in Q3 of 2025. Again, the strategy consists of 4 pillars: First, accelerating access and coverage within the U.S. market. We are doubling our U.S. sales force, increasing our marketing efforts. And I want to be clear again that this doubling is not a ceiling. We will go beyond that as we continue to scale our presence in new geographic areas in the U.S. And additionally, we've begun to enter adjacent market segments, as I mentioned last quarter with foot and ankle. Second, expanding our product portfolio and indications. We are currently working to launch 2 new products, an MIS solution for Catalyst and then a hydrophilic strip product as well as obtaining a new indication for Catalyst. Third, to continue building a complete repository of clinical evidence. I covered this on the prior slide, but we continue to build and publish data from our PROPEL registry. We're making great progress on initiating a large Level 1 randomized controlled trial. And we plan to further strengthen our reputation as a differentiated top-tier orthobiologics company with compelling clinical evidence supporting Catalyst. And finally, fourth, to scale production and to add a U.S. production footprint. We will implement a more scalable, more cost-efficient production process and to bolster our existing production as we expand and grow. Before we get to Q&A, I just want to make a quick 2 comments. I want to close out today by reiterating that I've committed to transparency with this organization and our shareholders. We're really working hard to transform into a more open, bold and dynamic culture, and I mentioned the shift within our annual report. Again, I joined the company because I believe in the product and the large opportunities ahead of the company, and I'm confident in the company's potential to deliver increased sales. I also remain confident in OssDsign's potential to create value for shareholders. The other part of working to lead OssDsign is I get to be part of a team that supports surgeons by providing a product that benefits their patients, which I've said before. The orthobiologics market for spine fusion is large, it's growing. It's increasingly receptive to products that actually show differentiated evidence-based results and the unique properties, which is what Catalyst offers. We are building the right team. We are investing in additional clinical data, and the existing clinical data continues to speak for itself. We have the right product to win our market. We remain confident of hitting the SEK 400 million revenue target set out in the ScaleToProfit strategy communicated in 2025. The first step is delivering improved commercial momentum in the second half of '26, and I look forward to reporting that in the coming quarters. I want to thank everybody for joining the call today. And now I'm going to hand it back to Elvin, who will handle the Q&A.

Great. Thank you so much, Mark and Anders. Let's begin with the first question here. Last year, the company talked about putting new products on the markets, a bone graft strip, for example. Is that still your plans? Can you give us an update on that?

Yes, the 2 new products, which I covered in the comments today, are an MIS product for Catalyst, which is still on track, and we hope to get that out by the end of the year, if not the beginning of 2027. And we are making good progress on the hydrophilic strip product. We are in preclinical right now with a variety of solutions, and that continues to move forward with great progress.

Great. And how many sales managers do you have today? And how many distributors are they managing?

So we started 2025 when the goal was announced, I think, mid-'25 to double the sales force. If you go back and look at what that number was predicated on, I believe, at the beginning of '25, we had 10 direct people in the commercial organization. We will achieve that doubling within Q2. We've had some losses. We've had quite a bit of gains. I'm very impressed by our pace of hiring over the last 90 days. And as far as distributors, I'm not going to comment on exactly how many we manage or how many each person manages just because of the competitive nature of that information.

Great. And regarding the randomized controlled trial, can you give us an update on that? Is it going to start this year? Have you come to any finalization on how you want to set up the trial?

Yes. We haven't finalized the protocols yet, but we made good progress. We just had an excellent meeting with our Clinical Advisory Board approximately 1 week, 1.5 weeks ago, where we walked through some of the final sort of decision points around patient selection, the type of comparison that we're going to do, the number of sites, the sort of in that would be needed to generate sort of statistical results that would show equivalency. So I feel really good about where we are. In terms of an actual start date, I'm not quite ready to communicate that yet, but I feel like the progress has been accelerating, and I hope to have more material updates on subsequent calls relative to what that timing looks like for patient 1 enrollment.

Yes. Thank you. Continuing here. You mentioned that some activities were slowed or paused because of a later-than-planned capital injection last year. Can you comment on what those activities were?

Sure. I mean I've commented previously that we did see some hiring slowdown as we got into the back half of the year. And I think the results on the pace of hiring in the back half of the year stemmed from some of those slowdowns associated with the funding. And then we did see some delays in executing on some of the related marketing activities as well as clinical related activities. I mean we've continued to enroll patients in our registry. And despite some of the slowdowns that I mentioned, we've managed to continue producing a great repository of clinical evidence. But my comment there is really indicative of being able to do even more, had some things not paused or been slowed down.

Perfect. Regarding the contract negotiations, why are they coming into a negotiation stage? And what do you see as a likely outcome?

Yes. So I think it's important to comment that within the med tech space in the U.S., this is not atypical or irregular or one-off type of event that's targeted at us. It's rather just a natural process that happens among both small and large systems, IDNs and GPOs. They regularly go through RFP processes or seek to streamline formularies or to come up with how clinicians are going to operate within their systems. And so the 2 that we commented on for our Q1 results were just part of that process. Those are long drawn-out processes. One individual system that we're dealing with right now, I believe, started their process mid-last year, expected to finish it in early Q1, but they're still involved and this covers their entire spine service line. So it's not just OssDsign Catalyst that's dealing with this particular RFP. It's every single vendor within that system far and wide. I couldn't even guess at how many individual vendors they are currently dealing with that are going through that process. But I will say that the conscious decision that Morten and the Board made last year to move to a U.S.-based CEO has been very beneficial in those discussions. I've been able to directly participate, probably much more easily than somebody in a different time zone. And I view those discussions as favorable and things that will resolve sooner rather than later.

Perfect. What has been the reason for the difficulties in the hiring process? And are you confident that this has been addressed now?

I don't think there's been difficulties per se. I just think that we did not accelerate the way we needed to the back half of last year. And since that time, we've had some turnover. We did take some deliberate steps early in the year to sort of realign our incentive comp structure for sellers to more closely align with growth. And we've had some people choose to depart. At the same time, we've been aggressively hiring new talent. And I would also say that within that process, we've deliberately identified sort of the behavioral traits within our top sellers, and we have some tools now that we employ in recruiting where we try to model those behaviors as we screen candidates. And I've personally injected myself into every single commercial interview, which I think is important for our culture going forward.

Reasonable to expect that some of the gross margin decline will last the coming quarters or years? Or will these customers reach the prior levels again.

Anders, do you want to cover that?

Yes. We have no reason to believe it's going to stay at the level it was in Q1. This -- the customer mix, especially then it swings every quarter. It was just unfortunate that there was a big swing in Q1 and it was a swing of both customer mix and product mix in the same direction. [indiscernible] negative. That will change.

Very clear. Can you describe what the sales process looks like? How much of it is recurring? And how much of the sales requires a salesperson to kind of actively work and engage the customer?

Yes. So I think -- to answer the question technically, a lot of the sales themselves are recurring, but the process itself involves a couple of different things. Our direct sales managers are responsible for engaging with independent representatives that are around the country, and supporting those representatives as well as selling directly to surgeons and basically explaining the value proposition that Catalyst provides for their own practice as well as dealing with decision-makers within those facilities that make buying decisions. I think on a recurring basis, it's important to note within that process that our direct sellers do stay engaged with both the independent representatives and the surgeons, making sure that they're pleased with service levels, with performance of the product, with any other issues that arise. But I'm not sure what the caller was interested in, in terms of what mix of it was new versus recurring. Obviously, more of the sales themselves are recurring, but we stay engaged throughout the process through the lifetime of a customer.

Great. And considering the strong study results, what is the biggest objection to choosing Catalyst and continuing with the product that they are using today?

That's a great question. I mean I believe in the product so fully, and I wouldn't have joined without that belief. So I think I mentioned this that we've drawn attention from competitors, and there's I think, an effort on our side to be a little bit more aggressive and pointed in doing more comparative types of selling and marketing within the space. So I really -- I don't think I can comment on like objections so much as it's a competitive space, and we're trying to carve out the fact that we do have real-world results based on real-world data. And when we do comparative types of pieces, which I think some of the people that are in the investment community that e-mail me regularly, I mean, I've seen some favorable responses on some of the competitive pieces we've done on LinkedIn recently, which really were in response to what we witnessed our competitor is doing to us, and we had to have a sit down as a team and say, "Let's not just take that on the chin. Let's go head-to-head and be a little more pointed and aggressive in our marketing and our sales tactics," and I'm pleased to see that happening now.

When is the likely timing on further data with more patients on fusion rates from PROPEL? And what is the time line on other clinical milestones ahead?

Yes. So we're always actively mining additional clinical data, and there are some studies that we're kicking off and teeing up both preclinical and clinical right now, but I won't comment on, but I hope to have additional comments for you probably Q1 of next year just given the timing to complete those things. As far as PROPEL registry data, the mining of that data for the next sort of cohort is already underway. I'll probably have a better answer timing for everybody when we do the next quarter call and when that press release will come out and what that data looks like. But we've been working on that. It's a pretty big statistical process that our clinical manager is dealing with right now as far as juggling that and juggling a lot of other things. But the data is there. It's just the mining at all and kind of doing the statistical analysis and making sure that we have something we can release that is as clear as what we released the last time when we did the first patient cohort.

Great. And would it be an option to license out the sales of catalyst in Europe as well as in Asia?

Yes. I mean right now, we're 100% focused on the U.S., but I wouldn't rule out other markets. We have -- and I know the company has discussed in the past, going after a CE mark and looking at various partnerships in other countries. But I would say in the short term, our focus is 100% U.S. just because of the growth opportunity there and our share position right now. But I would not rule out us considering to expand in the future.

Great. Thank you. That actually concludes the questions-and-answer session. I will leave the word back to you guys for any closing remarks.

Great. I've made my closing remarks. I just want to thank everybody again for joining on the call today, and I look forward to reporting out our results again next quarter. Thank you.

Thanks.

Thank you.