아니카(ANIK) 2026년 3분기 실적 발표 콘퍼런스콜: 매출 10% 증가, 2026년 전망 상향

핵심 요약

• 2026년 3분기 매출은 커머셜 및 OEM 채널의 동반 성장에 힘입어 전년 동기 대비 10% 증가한 3,060만 달러를 기록했다.
• 커머셜 채널 매출은 17% 증가한 1,400만 달러로 사상 최고치를 달성했으며, OEM 채널 매출은 5% 증가한 1,660만 달러를 기록했다.
• 매출총이익률은 전년 동기 56%에서 62%로 개선됐다. 조정 EBITDA는 90만 달러에서 510만 달러로 증가했다.
• 아니카는 2026년 연간 매출 성장률 전망치 하단을 6%~10%로 상향 조정하고, 조정 EBITDA 마진 가이던스를 15%~17%로 높였다.
• 인테그리티 매출은 전년 동기 대비 30% 이상 성장했으며, 글로벌 골관절염 통증 관리 매출은 싱갈과 모노비스크의 지속적인 수요에 힘입어 19% 증가했다.
• 미국 식품의약국(FDA)은 주로 제출된 임상 데이터를 근거로 하이알로패스트의 시판 전 허가(PMA) 신청에 대해 승인 불가 판정을 내렸다. 아니카는 잠재적인 규제 경로와 추가 증거 요건을 검토 중이다.

주요 재무 실적

올해 첫 9개월간 영업활동 현금흐름은 전년 동기 660만 달러에서 감소한 280만 달러를 기록했다. 경영진은 재고 투자, 생산량 증대 및 생산능력 확장을 이러한 감소의 원인으로 설명했다.

사업 및 운영 실적

글로벌 골관절염 통증 관리 매출은 싱갈과 모노비스크에 대한 지속적인 수요에 힘입어 19% 증가했다. 경영진은 비용 중립적 방식으로 글로벌 일선 영업 인력을 추가 배치하고 있다고 밝혔다.

재생 솔루션 매출은 12% 증가했다. 인테그리티 매출은 전년 동기 대비 30% 이상, 올해 첫 9개월간 37% 증가했다. 해당 제품은 최근 12개월 동안 750만 달러의 매출을 올렸다. 대형 임플란트 규격 도입으로 족부·발목 및 무릎 수술로 사용 범위가 확대되었으며, 9월에 출시된 2세대 수술 기구는 대안적인 삽입 및 배치 옵션을 제공한다.

경영진은 여름철 미국 내 비응급 선택적 수술 건수가 다소 부진했다고 언급했다. 4분기 초에 인테그리티 활동이 개선되었으나, 4분기 성장이 3분기의 부진을 완전히 상쇄하지는 못할 것으로 회사는 전망하고 있다.

OEM 매출은 J&J 및 비정형외과 제품 관련 계약의 지속적인 이행에 힘입어 호조를 보였다. 아니카는 이번 분기 동안 신규 OEM 유통업체에 히알로매트릭스의 첫 상업용 물량을 출하하기도 했다.

회사는 베링거인겔하임과 10년 만기의 신규 동물용 히알루론산(HA) 유통 계약을 체결했다. 이번 계약에는 이전가격 인상, 최종 시장 판매에 따른 로열티, 계약상 최소 구매량 상향, 선급금 및 마일스톤 800만 달러가 포함된다. 2027년 1분기에 400만 달러의 선급금이 지급될 예정이며, 나머지 400만 달러는 상업적 판매량과 연동된다. 선급금은 GAAP 기준에 따라 10년에 걸쳐 분할 상각된다.

제조 부문 추진 사항으로는 신규 무균 공정에 대한 FDA 승인과 두 번째 가교 필러 검증 등이 포함됐다. 가교 라인의 단위 생산량은 현재 2022년 수준을 50% 이상 웃돌고 있다. 경영진은 수요를 뒷받침하기 위해 생산량을 늘리고 안전 재고를 비축하고 있다.

싱갈의 경우 생물학적 동등성 시험 환자 등록이 당초 연말 목표보다 앞선 9월에 완료됐다. 임상 결과 보고서는 2027년 1분기에 나올 예정이다. 또한 아니카는 히알루론산을 의약품으로 허가 신청하는 데 필요한 제조품질관리(CMC) 작업을 마무리하고 있으며, 2027년 말 이전에 싱갈의 신약허가신청(NDA)을 제출할 계획이다.

경영진 가이던스

아니카는 2026년 연간 총매출 성장률 가이던스 하단을 종전 5%~10%에서 6%~10%로 상향 조정했다.

커머셜 성장률 전망치 하향 조정은 미국 내 비응급 선택적 수술 활동 둔화와 인테그리티의 기여도가 예상보다 낮았던 점을 반영한 것이다. 다만 OEM 부문의 견조한 실적이 이러한 부담을 일부 상쇄하고 있다.

2027년에 대해 경영진은 전사 매출 성장률 전망치를 전년 대비 보합에서 5% 수준으로 재확인했다. 커머셜 채널 매출은 5%~15% 성장할 것으로 예상되는 반면, OEM 매출은 미국 골관절염 통증 관리 제품의 판가 하락 전망에 따라 보합 내지 소폭 감소할 것으로 예상된다. 해당 전망치에는 미국 내 하이알로패스트 매출은 제외되어 있다.

경영진은 자본적 지출 투자를 지속하는 한편 2026년 4분기 영업활동 현금흐름이 플러스를 기록할 것으로 예상하고 있다. 회사는 현재 재생 솔루션 투자가 연간 조정 EBITDA를 약 800만 달러 감소시킬 것으로 보고 있으며, 이는 기존 추정치인 1,000만 달러 감소에서 개선된 수치다.

리스크 및 주요 점검 사항

• FDA는 주로 제출 서류의 임상 데이터를 이유로 하이알로패스트의 PMA 신청이 승인 불가 상태라고 아니카에 통보했다. 향후 승인을 받으려면 추가적인 임상 증거가 필요할 수 있다.
• 2027년 미국 골관절염 통증 관리 제품의 가격이 하락할 것으로 예상된다. 경영진은 가격이 언제 안정화될 수 있을지 평가하기 위해 J&J와 협력하고 있다.
• OEM 고객사의 주문 패턴에 따라 분기별 매출 및 조정 EBITDA 변동성이 발생할 수 있다.
• 관련 로열티 수익성이 형성되기 전에 히알로매트릭스를 재출시한 것을 포함한 제품 믹스 요인으로 인해 매출총이익률이 전분기 대비 하락했다.
• 수요를 충족하기 위해 생산능력을 지속적으로 확충해야 한다. 재고 및 자본 투자가 단기 현금흐름에 영향을 미칠 수 있다.
• 싱갈의 신약허가신청(NDA) 제출 시점은 여전히 생물학적 동등성 보고서 및 CMC 작업의 완료 여부에 달려 있다.

애널리스트 Q&A 주요 내용

경영진은 단기적으로 60%대 초반의 매출총이익률이 합리적인 수준이라고 밝혔다. 향후 2~3년에 걸쳐 제조 생산성 향상이 미국 골관절염 통증 관리 시장에서의 가격 압박을 상쇄할 수 있을 것으로 내다봤다. 회사는 아직 공식적인 장기 매출총이익률 목표치를 수립하지 않았다.

인테그리티와 관련해 경영진은 주요 외과의들의 반복적 사용, 임플란트 규격 다양화, 신규 수술 기구를 도입 확대의 주요 동인으로 꼽았다. 어깨 수술을 넘어 족부·발목 및 무릎 분야로의 적용 확대는 여전히 중요한 성장 기회로 남아 있다.

자본 배분은 제조 관련 자본적 지출을 최우선으로 하고, 그 다음으로 미국 영업 조직에 대한 투자를 진행할 방침이다. 자사주 매입, 기타 주주 환원, M&A 가능성도 열려 있으나, 경영진은 현재로서는 내부 투자가 가장 확실한 단기 수익 기회를 제공한다고 밝혔다.

실적 발표 콘퍼런스콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, ladies and gentlemen, and welcome to Anika's Third Quarter Earnings Conference Call. This call is being recorded on Friday, November 6, 2026.

I will now turn the call over to Matt Hall, Executive Director, Corporate Development and Investor Relations. Please proceed.

Matthew Hall

Good morning, and thank you for joining us for Anika's Third Quarter 2026 Earnings Call. 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 as are supplementary PowerPoint slides that will be used for the discussion today.

With me on the call are Steve Griffin, President and Chief Executive Officer; and Ian McLeod, Senior Vice President, Chief Accounting Officer and Treasurer. They will present our third quarter 2026 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 and adjusted net income from continuing operations and adjusted earnings share from continuing operations, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A 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 third quarter 2026 press release.

With that, I'll turn the call over to Steve to discuss the quarter and our progress. Steve?

Stephen Griffin

Good morning, everyone, and thank you for joining us. Our third quarter performance marked another positive step in building a stronger, more profitable Anika. Revenue grew 10% with growth in both our commercial and OEM channels. We improved gross margin year-over-year, expanded adoption of integrity, completed key manufacturing and pipeline milestones and strengthen the long-term partnership that will contribute to future growth. These results also reinforce the strategic focus we have built around our core hyluronic acid platform and the opportunities it creates across our business.

At the start of this year, we established revenue growth as our most important goal for 2026. Through the first 9 months, commercial channel revenue is up 15% and OEM channel revenue is up 11%. That progress reflects the increased focus on our core HA portfolio and execution against the 3 priorities we laid out in February, accelerating sustainable revenue growth, driving operational excellence across the organization, and advancing our hyaluronic acid-based innovation pipeline.

I'll provide updates on each of those priorities, including where we are making progress and where our future work is focused. Our first priority remains accelerating sustainable revenue growth. Commercial channel revenue increased 17% to $14 million in the third quarter, another record. We continue to see demand across our international OA pain management business and our regenerative portfolio with CINGAL, MONOVISC and Integrity contributing to that performance.

International OA pain management revenue grew 19% in the quarter, supported by sustained demand for CINGAL and MONOVISC. These are established products with an important role in our portfolio. Last quarter, I talked about the benefits of bringing greater focus to the international business and aligning our organization and distributors around our core HA products. The third quarter results give us further reason to continue that focus.

We are investing more and where we see opportunities to grow international sales, including adding new frontline commercial team members in a cost-neutral way. Within regenerative solutions, total revenue increased 12%. Integrity revenue grew more than 30% year-over-year and increased sequentially, bringing year-to-date growth to 37%. Integrity has generated $7.5 million in revenue over the trailing 12 months as we enter the fourth quarter, traditionally the strongest seasonal quarter for elective surgery.

The larger implant sizes introduced in the fourth quarter of 2025 and the first quarter of this year have been an important part of that growth. They have expanded use of integrity into other tendon applications, including foot and ankle and knee. That matters because the opportunity for the platform extends beyond a single anatomy. Surgeons need the sizes and the instrumentation to use the implant across a broader range of tendon repair procedures.

In September, we launched second-generation integrity instrumentation that provides an alternative insertion and deployment option to address differences in surgeon preference. This is a practical enhancement to the platform, giving surgeons another way to work with the implant as adoption expands. We remain encouraged by Integrity's sequential and year-over-year revenue growth.

Market-wide seasonality was more pronounced than usual in the summer months. As has been reported by hospital operators and other orthopedic companies, elective surgical procedures in the U.S. were slower during the third quarter. Our updated commercial channel outlook continues to reflect growth in the fourth quarter, but it is not expected to make up for the softness seen over the summer months.

Ian will walk through the updated ranges in his prepared remarks. Turning to the OEM channel. Revenue increased 5% in the quarter and 11% through the first 9 months, supported by continued execution with J&J and our nonorthopedic products. Our U.S. ORTHOVISC and MONOVISC relationship remain an important part of the business.

As we discussed last quarter, customer ordering patterns can create variability from 1 quarter to the next. So we look at performance over a longer period as well as the individual quarter. Last quarter, I also highlighted the opportunity to improve growth and profitability across our broader OEM portfolio. We have several long-standing relationships and long-standing products that can contribute meaningfully to revenue and cash flow. This quarter's update includes tangible progress on that work.

This month, we entered into a new 10-year distribution agreement with our existing high best partner, Boehringer Ingelheim. The agreement provides higher transfer pricing, a royalty on end market sales higher contractual minimum purchases and upfront and milestone payments. In total, we expect to receive $8 million in payments with a $4 million upfront payment expected in the first quarter of 2027 and the remaining $4 million tied to commercial volumes.

Boehringer has been a trusted partner for more than 20 years, and we expect to continue that relationship through the coming decade under our new agreement. Together with our other long-term U.S. agreements, these partnerships solidify important streams and illustrate the growing demand for our products. Hyalomatrix, our Hip wound product is now included within the OEM channel, and we shipped the first commercial units to a new OEM distributor during the third quarter. Reintroducing Hyalomatrix gives us another way to put our existing technology and manufacturing capabilities to work.

Our second priority is strengthening operational discipline and execution. Gross margin was 62% in the third quarter compared with 56% a year ago. That improvement reflects the work underway to make our manufacturing operations more productive and better able to support demand. We have made progress, but we continue to see opportunities to increase output and improve the way that we run the business.

Last quarter, I discussed the capacity expansion on our Monovisc and CINGAL line and upgrades to our ORTHOVISC and nonorthopedic line. Those projects address constraints in our operation. We have continued that work with stronger production planning, process improvements and greater sourcing flexibility. Recent progress includes FDA approval of a new aseptic manufacturing process and validation of a second Crosslink filler. These are specific improvements that expand our capacity to meet growing demand.

Unit volumes on our CrossLink line are now more than 50% higher than 2022 levels as we meet demand above our forecast. We see further opportunity to expand output. As demand continues to grow, we are increasing production and building safety stock to support the business. The objective is to meet customer needs while improving productivity and gross margin over time.

Our lean transformation is about improving how we do the work every day. Simplifying processes, reducing waste and addressing constraints where they occur. As I said last quarter, the team's closest to the work have an important role in identifying and solving those problems. This approach remains central to how we improve manufacturing execution and continue building a more efficient organization.

The quarter also illustrates why margin improvement will not necessarily be a straight line. Gross margin was lower than the 65% we reported in the second quarter, primarily because of the mix impact of products, including the reintroduction of Hyalomatrix, which does not yet include future royalty revenue from product sales. We expect the products margin contribution to improve as those benefits develop.

Turning to our third priority, advancing our HA-based innovation pipeline, our approach remains focused on applications where our experience with hyaluronic acid and HIF can address unmet needs in OA pain management and regenerative solutions. We're investing in the clinical, manufacturing and quality work needed to move these programs forward.

Starting with CINGAL, there are 2 important deliverables to be completed before we file the NDA. The first is the bioequivalent study. We completed enrollment in September, which was earlier than our previously communicated year-end target and are now awaiting completion of the study report expected in the first quarter of 2027. The second priority is the ongoing CMC work required to support filing HA as a drug. Based on the progress we've made, we expect to submit the CINGAL NDA before year-end 2027.

Turning to HYALOFAST. I want to address the U.S. regulatory status separately from our commercial performance and outlook. In October, we received formal notification from the FDA that our HYALOFAST PMA is not approvable based primarily on the clinical data included in the submission. We continue to believe strongly in HYALOFAST potential in the U.S. market and are assessing the available regulatory pathways and next steps including discussions with the FDA regarding the additional clinical evidence that may be required to support a future approval. Our revenue guidance continues to exclude U.S. HYALOFAST sales under the approach we adopted last quarter, to include only products with regulatory approval or clearance in the relevant market. That keeps our revenue outlook separate from an assumed U.S. regulatory outcome.

Beyond the later-stage programs, we continue to advance preclinical studies of Hyaff fiber for regenerative suture and tape. We remain encouraged by the data we have seen, which we believe will support future approval and launch in a large established market. This is 1 example of the broader opportunity to apply our biomaterials expertise where it can offer additional regenerative solutions for soft tissue repair.

We will continue to share updates on our R&D pipeline as milestones are achieved and offer further perspective on potential launch timing as visibility improves.

With that, I'll turn it over to Ian for the financial results and outlook.

Ian McLeod

Thanks, Steve. Please refer to Slide 5 of the presentation. Unless otherwise noted, my comments relate to continuing operations and comparisons are with the same period last year. I'll start with the quarter, then discuss our cash position and the updated outlook. During the quarter, total revenue was $30.6 million, up 10% from $27.8 million. Commercial channel revenue increased 17% to $14 million, which represents the highest commercial channel revenue in history.

That growth reflects continued demand across international OA pain management and regenerative solutions rather than a contribution from a single product or market. International OA pain management revenue grew 19%, led by single haul MONOVISC and total regenerative solutions revenue increased 12%. Integrity grew more than 30% year-over-year and an increase sequentially. OEM channel revenue increased 5% to $16.6 million, supported by continued execution with J&J and our nonorthopedic products.

We also reintroduced hi Matrix a high app wound product in the U.S. with first units shipped to a new OEM distributor partner during the third quarter. We are increasing our full year OEM outlook to reflect the greater contribution from this channel while continuing to recognize the quarterly variability associated with customer ordering patterns. Gross margin was 62% compared with 56% last year and 65% in the second quarter. The year-over-year improvement reflects continued progress in manufacturing execution. The sequential decline primarily reflected the mix of products, including Hyalomatrix.

We continue to see opportunities for our productivity gains from stronger planning, process improvements and higher output. Total operating expenses were $19.5 million, up 4%. Research and development expense was $7.9 million compared with $6.9 million while selling, general and administrative expense declined to $11.7 million. Total G&A, excluding the impact of stock-based compensation is down 19% compared to the last year.

We continue to fund the development and manufacturing work required for our priority programs while managing the broader expense base. For CINGAL, that includes the bioequivalence study report and CMC activities needed to support the NDA submission. Our GAAP operating loss narrowed to $0.7 million from $3.2 million. GAAP loss from continuing operations was $0.3 million or $0.02 per share compared with a loss of $3.2 million or $0.22 per diluted share.

Adjusted net income from continuing operations was $3.9 million or $0.29 per diluted share. The reconciliations in our earnings materials explain the adjustments from the GAAP results. Adjusted EBITDA was $5.1 million compared with $0.9 million last year and $7.1 million in the second quarter. The year-over-year improvement reflects the progress in revenue and gross margin and the sequential change and primarily related to the timing of OEM shipments as discussed on our prior earnings call.

Our full year 2026 profitability includes the impact of our investment in our Regenerative Solutions business. Previously, we expected a $10 million impact to adjusted EBITDA. We we now expect it to be closer to $8 million as a result of disciplined expense management and aligning our talent in the regions driving the highest growth. These incremental benefits are incorporated in our adjusted EBITDA forecast for 2026.

We generated $8.4 million of operating cash in the quarter and invested $1.7 million in capital expenditures. We expect to continue investing in CapEx through the fourth quarter and next year. We ended September with $45 million in cash and cash equivalents compared with $38.4 million at the end of June. That cash position provides flexibility as we invest in manufacturing and our development priorities.

For the first 9 months, operating cash flow was $2.8 million compared with $6.6 million last year as a result of investments in inventory to support our growing demand, increased unit output and capacity expansion. We follow a disciplined capital allocation framework, which determines where to invest next. First, we are investing in CapEx to expand our manufacturing capacity to meet increased demand and improve our operational efficiency. Second, we are investing in our regenerative solutions team supporting our recent growth and regularly evaluate to ensure we're tracking towards returns commensurate with the years of product development in our regenerative portfolio.

We also continue to work with J&J on pricing stability in the U.S., OA pain management market, while that stability is achieved, we will provide an update on our capital allocation framework. Turning to our outlook. We are raising the lower end of the full year 2026 total company revenue growth guidance to 6% to 10% from 5% to 10% previously, while updating the expected contribution from each channel. We now expect OEM channel revenue growth of 5% to 9% compared with 0% to 5% previously.

Commercial channel growth is now expected to be 9% to 13% compared with 12% to 18% previously. The change reflects a greater OEM contribution and updated commercial channel growth, including the recent market dynamics related to U.S. elective surgery. We are also raising our adjusted EBITDA margin outlook to 15% to 17% from 13% to 17%.

For 2027, we are reaffirming total company revenue growth of flat to 5%. We expect commercial channel revenue growth of 5% to 10% with OEM revenue flat to modestly lower. As we previously shared, our forward guidance does not include any U.S. [indiscernible].

With that, I'll turn the call back over to Steve.

Stephen Griffin

Thanks, Ian. Through the first 9 months, we've made meaningful progress against our priorities for the year. We delivered double-digit revenue growth in both channels, strengthened a long-term partnership increased manufacturing output, expanded integrity adoption and completed enrollment in the CINGAL bioequivalent study. Our goal is clear. Translate commercial growth, manufacturing efficiency and better economics into profitability and cash generation.

As I've outlined, we will do that by continuing to invest in both our commercial and OEM channels and by advancing our existing and future portfolio. To deliver these improvements, our lean transformation puts the people closest to the work at the center of identifying problems, improving processes and embracing a culture of condos improvement. To the many employees listening in on our call today, thank you for your commitment and dedication to our continuous improvement initiatives.

I also want to thank our distributor and commercial partners who help bring our products to patients around the world, and the patients who place their trust in our therapies.

With that, operator, let's now open the line for questions.

Operator

[Operator Instructions] the first question comes from Michael Petusky with Barrington Research.

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Michael Petusky

Lots of really good and interesting disclosure to discuss, hey, so Steve, I guess the first question I have, in terms of gross margin, it looks like maybe mix could be possibly slightly moving against you, but you continue to sort of work on your manufacturing processes and trying to get more efficient. I'm just curious, as you sort of look out over the next 1, 2, 3 years? I mean, do you expect gross margin to sort of stabilize sort of be in the low 60s?

Do you think there's still some room there. Can you just talk about your longer-term outlook? Not looking for like a particular quarter, but just as you sort of think about the puts and takes around gross margin.

Stephen Griffin

Yes, I appreciate the question, Mike. From a gross margin perspective, I think in the near term, that low 60s makes sense. As I noted in the prepared remarks, the mix does shift a little bit with the reintroduction of some products that as they ramp, they could contribute more profitably. As the royalties are received, I think that lower 60s market is an appropriate one. As you look out over the longer term, as you noted, sort of, let's say, 2 or 3 years, what we're balancing is the desire to want to drive improvement in productivity from a manufacturing perspective, which should improve the gross margin slightly up against sort of the pricing dynamic here in the United States OA pain market.

And I think as those 2 things play out, you could see them offset each other. At a minimum, what I'd like to see is trying to drive productivity such that we offset any detrimental pricing impact that is normal in this market. If we're able to really achieve breakthroughs from a manufacturing perspective, you could see gross margin improve. But that's not something we've communicated in as a longer-term goal quite yet. But internally, those are the types of projects we put in place.

Michael Petusky

Yes. So I guess pivoting off of that comment in your earlier comments around pricing stability or lack thereof in always paying in the U.S. I mean, can you just sort of give any insight to sort of on a go forward, what you guys think you're looking at in '27 headwinds around pricing in the U.S.

Stephen Griffin

Sure. I would say -- let me start with '26 and then I'll move to '27. So I'd say '26 has gone according to plan in terms of the pricing in the OA pain market here in the U.S. we haven't really changed our guidance at all. If anything, we've raised our guidance over the course of this year on revenue, but that's primarily as a result of increases in volume. I'd say price was within our expectations. We do expect to see pricing declines next year, and that's embedded in our guidance. You'll note that our OEM guidance is flat to modestly lower next year as a result.

And I really think that we're working closely with J&J to understand sort of where pricing stability win will occur. It's a dynamic market. As you know, in the last 2 years, it's been more dynamic than usual, but it's something we track closely, and I think it's embedded in our guide for next year.

Ian McLeod

One of the things, Mike, on the 2027, I misspoke on our 2027. I said 5% to 10%, it should be 5% to 15% formal -- on the commercial aim next year. Okay. Just for your and aligns with what we had in the earnings release.

Michael Petusky

Okay. Great. A couple more, and then I'll let other folks get on here. Steve, I guess, could you talk about the CMC piece of CINGAL. It sounds like that may be a little bit more extensive than I understood. Can you just talk about what needs to be done there and particularly any of the heavy lifting that needs to be done as you sort of prepare for the NDA by the end of next year.

Stephen Griffin

Sure. So for starters, the CMC work is really to prepare filing HA as a drug. And as you know, we manufacture this product that's really MONOVISC that we manufacture that's going to be filed alongside as part of the CINGAL but we manufacture today as a medical device. And what we really need to make improvements around is in the in-process controls associated with how we manufacture, which is the expectation for a drug type product. Those initiatives are underway with our teams working internally around what those in-process controls may need to look like.

And when they're completed, we'll be in a position where we're able to file A couple of notes on the CINGAL NDA submission. This is the first time we're giving a public sort of comment around when we expect to file, which we said would be before the end of the year next year. And we're pleased to say that we completed the enrollment on the bioequivalence study earlier than initially expected. So earlier in our comments over the course of this year, you probably remember that we said that we would expect enrollment to be completed before December '26, and that was completed in September. And I kind of noted that we'd expect the CMC to kind of lag behind that work. So I expect the clinical study report on equivalence to be done in the first quarter, and then we'll wrap up our CMC activities to then get to the submission on the...

Michael Petusky

Okay. All right. Great. And then just last 1 for me, and I'll get back in the queue possibly. The 10-year agreement on High Vis because that's sort of interesting. And I guess I'm just curious, the $4 million upfront payment, is that in Q1, is that a part of sort of the flat guidance on OEM for next year? Or is that excluded from that guide.

Stephen Griffin

That's implied in the guidance for right now. And if you really think about it, that's going to be amortized from a GAAP perspective, that will be amortized over 10 years. So it becomes less impactful when you really think about it that way. I want to just take a moment though and speak about the high disk agreement. So Boehringer has been an excellent partner for us for the last 20 years in distributing 1 of our HA products in the veterinary space. And we're pleased to be in a position where we're going to extend that agreement for another 10 years. And more so pleased that around the board, it really is an increase in economics that I think represents the value of our portfolio today, even on our legacy assets.

And the $4 million upfront is an important contribution to what we use to make -- continue to make investments in capital expenditures. And on top of that, we'll see increases in transfer pricing, royalties and higher contractual minimums. So we're excited about that agreement, and we think it's a good demonstration of the work that we put in to trying to optimize the HA portfolio that we have in front of us. Lastly Mike, to your comment. When we get further into the beginning of 2027, we'll prepare further guidance around what we expect to see throughout the course of the year. And this is just our preliminary outlook, and it remains the same as to what we shared previously.

Operator

Your next question comes from Madison Wynne El-Saadi with B. Riley.

Unknown Analyst

This is Lee on for Madison. So I think a lot of good color from prepared remarks and also the previous Q&A. Would you follow a on the revenue guidance side. So the impact for Q3 seems like a wide range. Maybe more color on what we are looking at. And also 2027, I know you just mentioned it, but maybe like what are the trend or assumptions we are looking at now here.

Stephen Griffin

Sure. So let's start with the revenue guidance question as it relates to the fourth quarter. We have updated our revenue guidance expectations, both on the OEM and on the commercial side to reflect where we expect to see the fourth quarter play out. Overall, the OEM channel is stronger than we initially expected and the change to the commercial guidance is really just an update associated with integrity, which we expect to be a little bit lighter than what we had initially expected.

When we look at sort of the seasonality, I expect that the fourth quarter, we've got a very strong start to the year. So let me start that. And I think the timing of our order shipments to our distributors has played a factor in that. such that the second and the third quarter were quite strong, whereas historically, we've seen the fourth quarter be the strongest quarter for us. So when we look at the comps on the fourth quarter, I expect to see more moderated growth as we look at what this fourth quarter will be versus what was a very strong fourth quarter last year.

And I'd expect to see probably more moderation on the OEM channel and continued growth on the commercial channel. So that's how things play out for us in '26.

And then to your question around 27, what's implied in our guidance, really what's implied there is continued execution, which we've seen for now over 7 or 8 years of our international 08 pain sales I noted in our prepared remarks that, that team continues to execute really well, and we've made investments on our frontline commercial team in a cost-neutral way to help accelerate that growth. I think the real element for us is making sure that we can catch up from a manufacturing perspective with the increased demand that they placed on the business.

It's a great problem to have, and it's 1 that we're chasing after. That's the foremost element of our total revenue increases as we think about next year as well as continued growth in the Integrity business.

Operator

Your follow-up question comes from Michael, please go ahead.

Michael Petusky

Okay. Great. So just a couple more quick ones. On integrity, Steve, in terms of sort of what you're seeing on utilization reorders and then sort of expanding the doc user footprint. I mean what can you say you're happy with, not happy with in terms of the momentum, both around sort of utilization reorders and getting new guys familiar with the product.

Stephen Griffin

Yes. It's a good question. I'd say across the board, we're pleased with the performance. So 30% growth year-over-year. We're continuing to grow that business at 37% on a year-to-date basis. And when we look at surgeons, we're seeing a lot of good reuse in terms of key surgeons that have been strong in performance and represent, I think, a real demonstration of their belief in the integrity system.

In terms of the incremental work that we're doing to try and drive new adoption, I noted in my prepared remarks that we launched a new set of integrity instrumentation, which offers a different set of deployment tools and that's really because I say surgeons have different deployment preferences and we want to be able to meet them with where they're at. So that's the first element around how we're driving incremental surgeon adoption. And then the other element of where we've been able to drive further adoption has been in regards to different shapes and sizes of integrity.

So earlier this year and late last year, we launched new shapes and sizes. And that expansion has really opened it up to the foot and ankle and knee space, which is a really good growth market for us, in addition to the shoulder space. So it continues to track really well. I noted in the remarks, though, that there was a little bit of a slower seasonal summer time, which I know some other folks have commented on as well. That certainly had an effect on us because we're not large enough to be able to overcome but we've seen a good rebound through the beginning of the fourth quarter.

Michael Petusky

Okay. Great. And then last question. Obviously, a really good quarter in terms of cash generation. I guess as you sort of think about Q4 and then sort of into next year, I mean, how Obviously, you've got a very comfortable balance sheet, no leverage, obviously, a meaningful amount of cash.

But in terms of free cash, I mean how much of a priority is generating cash relative to maybe different internal investments you guys want to make? And can you just, I guess, any guidance around Q4 because the first 3 quarters have certainly been meaningfully different in terms of free cash generation. And then just sort of, I guess, philosophical comments around and going forward, would really be appreciated.

Stephen Griffin

Absolutely. Let me start with expectations for the fourth quarter. I'd expect to see positive operating cash flow, and then we expect to make investments from a CapEx perspective. And that is probably also how I would frame the start of like what we'd expect to see over the course '27. So we are very focused on driving the incremental profitability and letting it flow through from an operating cash flow perspective. And we were very intentional about our remarks today that Ian made in regards to our capital allocation framework.

Our first use of cash goes into capital expenditures to improve our manufacturing operations. I noted in the comments that we're 50% higher in terms of unit shipments than where we were just 4 years ago. That is a great achievement. But at some point, we have to be able to make investments to allow for continued expansion of our manufacturing operations as evidenced by the new agreements and the extensions and everything else. We want to make sure that we're able to get to an appropriate level of manufacturing capacity. So our use of capital will go towards CapEx first.

I think as it relates to longer-term guidance in terms of free cash flow conversion or operating cash flow, I wouldn't say we're quite there yet in terms of giving a metric. But in terms of philosophically, I look to drive operating cash flow improvement and then stronger overall capacity expansion through the CapEx investments that we make. It drives quarter-by-quarter variability. As you saw, first quarter for us always tends to be a little bit higher of cash usage and then improvement towards the latter half of the year. And I think that's, to some extent, what we saw throughout the course of this year.

Michael Petusky

So actually, let me ask a part B to that question. So in terms, Steve, obviously, of the healthy cash and equivalents you have on the balance sheet, I mean thoughts on M&A. Obviously, the stock has acted terrifically since you gotten the CEO chair, but possible share repurchase, like can you just talk about in terms of your balance sheet strength other than internal investment, I don't suspect you have of internal investment to make. But can you just talk about how you might consider using some of the balance sheet strength over the next couple of years.

Stephen Griffin

Yes. I think it's an appropriate question, and we tried to get ahead of it a little bit in terms of the capital allocation framework. So I'll just restate it. So first and foremost is CapEx. The second is the investment we're making in our U.S. sales force, which we are very cognizant of that level of investment we're making. Further down the capital allocation framework as any company would evaluate, we do evaluate what those options could look like. We have done share repurchases in the past, as you've noted.

And then I look at other ways of returning capital to shareholders, that's obviously something we consider. And then M&A is a potential for the business, but I would obviously caution that with the level of improvement that we're looking to drive with our core operations and where we think we can drive the nearest return on invested capital, I think it's going to come from internal investment, just given what we know about our products and our opportunities to improve our margin rates today.

That's not to say that over time, those things would be ruled out. Certainly, we remain open to it. And to some extent, it is going to be garnered by sort of the U.S. OA pain market. So that pricing stability is a very important element of our capital allocation framework. And as we get better visibility into that level of stabilization, it will help inform that capital allocation framework.

Lastly, Mike, you probably know this, but I've done a fair amount of M&A in my past and it can be accretive from a business perspective and it can create a lot of growth opportunities but it also has to be balanced against where the business is at. And obviously, we went through 2 divestitures recently and really focused our attention on improving operations. I couldn't be more pleased with the way that our teams have responded through the first 9 months of this year. And I think the performance through the start of the year has been really outstanding, and I think it demonstrates what can happen when we make those types of organic investments in the near term, that's where our focus remains.

Operator

There are no further questions at this time. I will turn it back to Steve for some concluding remarks.

Stephen Griffin

Great. Thank you, everybody, for joining our conference call today, and we look forward to speaking with you soon.

Operator

Ladies and gentlemen, this concludes your conference call for today. We sinaticipating and ask that you please disconnect your lines. Have a great day.