I will now hand the conference over to Trip Taylor, Investor Relations. Trip, please go ahead.
Good afternoon, everyone, and thank you for joining our conference call to discuss BioStem's Third Quarter 2026 Financial Results and Corporate Highlights. Leading the call today will be Jason Matuszewski, the company's Chair and Chief Executive Officer, and Brandon Poe, the company's Chief Financial Officer. Barry Hassett, the company's Chief Commercial Officer, will join for the question-and-answer session. Before we begin, I'd like to remind everyone that our remarks may contain forward-looking statements based on management's current expectations. These statements are subject to risks and uncertainties that are more fully described in our earnings press release issued today, our quarterly report on Form 10-Q for the quarter ended September 30, 2026, including under risk factors, and our filings with the U.S. Securities and Exchange Commission. Our SEC filings can be found on our website or the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements.
Finally, this call also includes reference to non-GAAP financial measures. A reconciliation to comparable GAAP measures and related information can be found in our earnings press release posted on the Investor Relations section of BioStem's website. With that, I'd now like to turn the call over to Jason Matuszewski.
Thank you, Trip, and good afternoon to everyone joining us. The third quarter marked BioStem's second full quarter operating as a predominantly hospital-focused business, and we continue to make meaningful progress in advancing our commercial strategy and strengthening our operational infrastructure. During the quarter, we once again drove sequential growth in hospital revenue while completing the implementation of our internal sales and operations management systems. This was a significant effort internally, and we want to thank our entire team for their continued dedication. Following this period of investment that has been required to build the new BioStem in 2026, our focus now is on executing a clear plan to accelerate our path to break even.
Today, I want to highlight four initiatives that define our direction moving forward: reducing our operating expenses, raising our gross margin by bringing Neox and Clarix manufacturing in-house, narrowing our adjusted EBITDA loss, and strengthening our balance sheet to fund that plan. As we look ahead, we remain committed to driving efficient growth by maximizing the potential of our commercial footprint and product portfolio while exercising disciplined expense management. This approach allows us to prioritize our highest impact growth opportunities while improving profitability and extending our cash runway as we build a sustainable business. In August, we commenced trading on the Nasdaq Capital Market, an achievement that has increased visibility of the company and broadened our institutional reach and expanded the range of capital alternatives available to the company. Following the uplist, we have taken several steps to strengthen our balance sheet, and that remains our top priority.
In September, we put in place a $40 million committed equity facility with Roth Capital Partners. We have not sold any shares under the facility to date and 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 provide an additional source of capital to strengthen our balance sheet and support our strategic priorities. Additionally, at the end of the quarter, we closed a private placement with multiple institutional investors, generating gross proceeds of approximately $3 million and the potential for up to approximately $5.6 million in additional gross proceeds from the exercise of accompanying warrants. Just after the quarter ended, Andrew Van Vurst, our Chief Operating Officer, and I each exercised options, which in total contributed approximately $1 million in cash to the company.
This investment reflects our conviction in BioStem's technology, our strategy, and our team, and the proceeds are intended to support working capital and maintain the inventory required to serve our customers. We are currently in the process of evaluating additional financing alternatives with a clear preference for non-dilutive structures. More broadly, our objective is to accelerate our path to profitability and to extend our cash runway through efficient growth and disciplined expense reduction. We are accelerating real changes to our cost structure and expect the cost reduction plan we are evaluating to reduce our annual cash operating expenses by approximately $10 million-$12 million. Our strategy is focused on removing spending from areas that are not directly contributing to revenue generation, which Brandon will walk through in a few minutes.
As part of these cost reduction and cash preservation efforts, Andrew and I have offered to reduce our annual cash salaries to $250,000 in 2027 and to receive the balance of our salaries in BioStem stock, subject to board approval. Like our option exercises, this reflects our conviction in the company, and it lowers our cash expenses at a time when it matters most. Moving forward, we are focusing our resources on initiatives that have a direct impact on revenue generation, driving revenue growth, and expediting the path to profitability. Critical to this effort will be to transition Neox and Clarix production into our Pompano Beach facility. We expect products we manufacture to carry a meaningful higher gross margin, and our goal is clear: move toward profitability as quickly as possible while maintaining sustainable revenue growth. We are simultaneously working to reduce the near-term demands on our cash.
We are in active discussions with BioTissue to restructure the terms of the clearance payment, which remains outstanding, with the goal of lowering our near-term cash obligations. We look forward to sharing more details once those discussions are complete. In the meantime, supply of Neox and Clarix continues without interruption. Now, turning to the quarterly results. During the quarter, we increased hospital revenue sequentially to $6.8 million. This increase was driven by strength in July and September, which represented our strongest hospital sales months since the close of the acquisition. I will now provide updates on our strategy to prioritize resources to drive growth in the most efficient way possible. Effective at the beginning of August, the transition services agreement with BioTissue concluded, and responsibility for sales logistics, operational support, invoicing, collections, and inventory management fully transferred to BioStem, giving us better control over working capital.
With the transition now complete, we have full ownership of the systems and data that underpin our commercial organization. This was not a small task, and I'm proud of our team for integrating several complex systems in such a short period of time. Our customer relationship management platform is now live and integrated with our enterprise resource planning system. We will use this available data to more precisely target our highest value customers. Specifically, we will be able to leverage our commercial infrastructure to drive growth and improve productivity without 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 improved insight into account activity, inventory, and ordering behavior than we had before the transition.
Looking at our commercial progress, we continue to drive adoption of our product portfolio, including the Neox, Clarix, and VENDAJE brands in the hospital market. Our commercial strategy in the hospital channel remains centered on two complementary objectives: deepening utilization within facilities where our products are already approved and expanding our footprint with the addition of new accounts. A significant portion of our growth opportunity lies within the hospitals we already serve. Having already made the investments required to establish contract access and relationships with key customers, we are now well-positioned to expand utilization within these facilities at a meaningfully lower incremental cost. In September, the VENDAJE product family was added to our existing GPO agreements with two major GPOs, the two largest group purchasing organizations in the U.S.
These additions represent the first GPO coverage for the VENDAJE product family and allow clinicians across those GPO member facilities to procure VENDAJE through established contracting channels. As a result, deepening penetration within our existing customer base through GPO coverage expansion represents one of the most efficient avenues for growth available to BioStem. We remain pleased with the progress of our sales organization as we continue to focus on our most productive territories to gain new accounts. We are seeing that our broad product portfolio and GPO access continues to attract new customers and expand our account base. Just as important, existing customers are expanding their use of our portfolio. From the second quarter to the third, the number of accounts buying two or more of our product lines grew by 14%. Customers buying three or more lines rose by more than 40%. That depth matters.
Customers who buy across our portfolio, meaning buy more than one product, account for more than half of our revenue. These metrics demonstrate that our commercial strategy is working and that clinicians are seeing value for their patients across a variety of specialties and procedures. We believe these metrics will continue to trend in a positive direction. Clinical evidence remains foundational to our approach in wound care. Our VLU study is on track, and we are scheduled to report top-line results at the Innovations in Wound Healing meeting in early December. This clinical evidence is helping to drive physician adoption and deepen hospital penetration, and we believe its importance will only increase as coverage and product selection decisions become more evidence-driven. Our field organization integrates this evidence into every customer engagement, and we believe that it adds another point of leverage for our technology.
With the combination of targeted execution around key use cases, strategic accounts, clinical evidence, new products coming onto our GPO agreements, we believe we are well-positioned to broaden adoption of our portfolio and support our growth expectations over the coming years. Now, an update on the technology transfer of Neox and Clarix. The transfer of Neox and Clarix manufacturing to our Pompano Beach facility remains a significant value driver for BioStem. Bringing production in-house is expected to deliver significant improvement in gross margin and cash generation, and our existing infrastructure allows us to accomplish this with modest capital investment. We remain on track to complete the tech transfer and begin in-house production in the first half of 2027, subject to process validation and applicable regulatory requirements. In the interim, BioTissue continues to manufacture these products on our behalf under our manufacturing and supply agreement.
We have experienced no interruption in product availability or customer service, and we expect continuity of supply to be maintained throughout the transition. I will now turn the call over to Brandon to discuss our financial results.
Thank you, Jason. For the third quarter, revenue totaled $7.6 million compared with $7.9 million in the second quarter of 2026. Our Q3 performance was led by hospital revenue, which increased to $6.8 million from $6.7 million in the prior quarter, representing 2% sequential growth. Physician office revenue was $810,000 for the third quarter compared to $1.1 million in the prior quarter. Gross profit was $4.3 million, representing gross margin of 56%, compared with $4.8 million and 61% in the second quarter. As we noted on prior calls, we expected gross margin pressure during the second half of this year. The sequential decrease primarily reflected higher transfer pricing under the BioTissue supply agreement following the expiration of the initial discounted pricing. We expect margins to remain in the 50s until we execute a successful technology transfer next year.
Total operating expenses were $14.1 million compared with $13.2 million in the prior quarter. The sequential increase was driven primarily by higher general and administrative expenses related to uplisting and financing activity, partly offset by lower research and development spend. Sales and marketing expenses were $5.3 million, flat when compared with the prior quarter. The majority of our new sales reps were hired in Q2 of this year, so we saw the full cost of those adds in Q3, offset by lower sales training and recruiting costs. General and administrative expenses were $7.5 million compared with $6.5 million in the prior quarter. The increase was largely driven by higher payroll tax expense due to the vesting of certain RSUs and higher legal and accounting fees related to our Nasdaq uplist process, registration statements, and financings, which we anticipated.
Research and development expenses were approximately $500,000 compared with approximately $700,000 in the prior quarter as we continue to wind down our current clinical studies. Other operating expenses, primarily from intangibles amortization, were approximately $700,000 in line with the prior quarter. GAAP net loss for the quarter was $11.4 million, or $0.64 per share, compared with a $9 million or $0.52 per share loss in the second quarter. The GAAP net loss for Q3 included a $1 million payment to BioTissue to extend the clearance payment deadline. The adjusted EBITDA loss was $6.4 million compared with a $4.6 million loss in the prior quarter. The increase in the adjusted EBITDA loss reflected the additional extension payment to BioTissue, lower gross profit, and additional G&A costs, as I described.
Cash and cash equivalents totaled $1 million as of September 30, 2026, compared with $7 million as of June 30, 2026. Proceeds from the $3 million private placement that closed on September 30 were used for working capital in the quarter. In October, we received $1 million from option exercises by our CEO and COO, and we have improved in-house collections efforts to fund working capital and inventory purchases. Cash used in operating activities was $8.8 million in the third quarter compared with $5.5 million in the second quarter. To fund our plans going forward, we are addressing our cash needs on three fronts. First and foremost, toward the end of Q3, we made initial changes to our cost structure, and we will be implementing additional changes to lower our cash burn and accelerate our path to profitability.
I will describe these plans a bit more in detail shortly. Second, we are leveraging our team and our assets. With invoicing, collections, and inventory management now in-house, we are starting to see improvements in working capital. At the same time, we are evaluating options for a receivables-based credit facility that grows with our hospital sales. We are exploring a sale of land that we own, and we expect, but cannot assure, a tax refund of approximately $1 million in the near term. Importantly, we initiated internal planning to complete the technology transfer, which should drive increased gross margins through in-house product manufacturing, which we are targeting for the first half of 2027, as previously discussed.
In September, we put in place our committed equity facility with Roth Capital Partners, under which we have not sold any shares to date, and we may not use until early April 2027, unless that restriction is waived. At the end of the quarter, we closed a private placement with multiple institutional investors, generating gross proceeds of approximately $3 million, with the potential for up to approximately $5.6 million in additional gross proceeds if the accompanying warrants are exercised in full for cash. We continue to assess other financing alternatives with a preference for non-dilutive structures. We believe that these will be positive steps toward improving our liquidity position, and we will continue to evaluate additional options and take further actions as needed. Turning to our outlook.
Within the hospital channel, we continue to expect sequential growth in the fourth quarter, supported by fully operational internal systems, increasing productivity from our focused sales organization, VENDAJE availability under GPO contracts, and general surgical seasonality. We continue to focus our resources in the hospital, and we expect minimal contributions from the physician office channel. Reflecting our confidence in the trajectory of the hospital business, we are raising the low end of our full year 2026 revenue guidance and now anticipate revenue to be in the range of $28 million-$29 million, compared with our previous range of $26 million-$29 million. In 2027, with our cost actions in place and in-house manufacturing targeted to begin in the first half of 2027, we expect our operating expenses to decline substantially and our adjusted EBITDA loss to narrow across 2027.
Looking closer at our cost reduction plan, late in the quarter, we identified cost reduction initiatives intended to rightsize the business, extend our cash runway, and accelerate our path to profitability while remaining focused on sustainable growth. To start, we have moderated hiring. In addition, we discontinued certain third-party contractor engagements and renegotiated agreements to reduce ongoing costs. These initiatives are designed to improve operating efficiency without impacting our commercial momentum. We believe our existing commercial infrastructure can support continued growth and broader portfolio adoption with limited incremental investment. By aligning our cost structure with our current priorities, we expect to improve operating leverage and preserve resources for our highest impact growth opportunities. Building on these steps, we are implementing a broader cost reduction plan that we expect to lower annualized cash operating expenses by approximately $10 million-$12 million compared with our current run rate.
The plan, which is being finalized, still includes focusing our sales organization around our most productive territories and accounts, streamlining our support functions, and ending a range of outside services, media, and sponsorships that do not directly contribute to revenue. We expect to finalize the plan and implement these initiatives over the coming weeks, with the full benefit from these changes beginning in the first quarter of 2027. We will share more details as they are finalized. At the same time, we will be preparing to transfer the Neox and Clarix production into our Pompano Beach facility, which we believe will improve gross margins, and we will look to add lab and quality roles in phases through 2027 to support this transition.
Lastly, I wanted to mention that our Chief Accounting Officer, Michael Fortunato, has advised the company that he will be retiring from BioStem as of December 18th of this year. Mike has been an incredible asset to BioStem over the past 5+ years, including playing a major role in preparing and moving the company onto the Nasdaq exchange. I will work closely with Mike and our accounting team to ensure a smooth transition. I want to personally thank Mike for his professionalism and support for the company, and I wish him all the best in his next adventure. With that, I will turn the call back to Jason for closing remarks.
Thanks, Brandon. The third quarter was a period of real transition for BioStem, and we came through it with a stronger foundation. We now own our operating infrastructure, we've expanded our GPO access with our two largest contractors, and more of our customers are buying products across our portfolio. Our path forward focuses on four key initiatives. First, targeting a reduction in our cost structure with a $10 million-$12 million reduction in annual cash operating expenses. Second, raising our gross margin by bringing Neox and Clarix production in-house starting in the first half of 2027. Third, narrowing our adjusted EBITDA loss across 2027. Fourth, strengthening our balance sheet to fund that plan.
Putting those things together, and we believe that BioStem in 2027 will be a very different company, a focused hospital business where far more of each new dollar reaches the bottom line due to the lower operating expenses and higher expected margins on products we manufacture in-house. Additionally, we look forward to several key milestones in the near future. Our VLU data in early December, progress on restructuring the BioTissue clearance payment, and the start of in-house production. None of this happens without our team, who carried us through a demanding transition, or 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.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Swayampakula Ramakanth from H.C. Wainwright. Your line is now open. Please go ahead.
Good afternoon, Jason and Brandon. This is R.K. from H.C. Wainwright . Couple of quick questions. In your press release and also in your opening statements, you were saying that there has been a sequential growth in customers who are purchasing multiple products during the quarter, but at the same time, the revenue growth was a little bit constrained. What changed during the quarter, and what are you planning to manage in the coming quarters?
Thanks, R.K., for the question. Barry, I don't know if you wanted to address some of the sales initiatives there.
Yeah, I can address that, Jason. So, R.K., July and September were actually the best two months that we've had in the business since the acquisition earlier this year. August was a bit of a hiccup with the transition of services over from BioTissue to BioStem, and I think some of that constraint in revenue was due to what occurred in August. But other than that, as Jason mentioned in the call, we had healthy trends in terms of deepening adoption within the existing customers and opening up new accounts. So, I think it's really the month of August that addressed those constraints.
Okay. As you bring Neox and Clarix on board during the first half of 2027, what sort of gross margin improvements should we expect from the current mid-50s, what we see right now?
Hey, R.K. This is Brandon. Yeah, good question. We've said before, we feel like we can get into the, certainly into the 70s with gross margin. Some of that's going to be depends on as we sort of determine the tech transfer plan, we will bring products over. Not everything will come over at once. It will come over time. I think what you're going to see is gradual improvement in the gross margin through 2027 as those products come in-house, as they go through inventory and go to the P&L. I still think we feel very confident, we're in the mid-50s, that we can get, I think, somewhere in the 10- 15 point improvement in gross margin over time.
Okay. My last question before I get back into the queue. In terms of the savings that you're talking about, the $10 million-$12 million, how much of that is going to be structural reductions versus removal of some non-recurring costs?
Yeah, I can take that. We're working on that plan right now, R.K., and we're still working to finalize exactly what the details will be. I'd like to hold that question until we have a chance to really finalize that, and we can give you an answer when we know more details.
Thank you. Thanks for taking all my questions.
You bet.
Your next question is from the line of Alex Hantman with Sidoti. Your line is now open. Please go ahead.
Thank you for taking questions. Would love to start with an update on Catalyze. I know the 510(k) clearance has been in hand since June, so curious how you're thinking about launch timing and what a cleared product would let your reps say in a hospital that they can't say today.
You want me to take that one, Jason?
Yeah, go ahead, Barry.
Yeah. We are still actively preparing to launch Catalyze, and with the 510(k) clearance, that would give us the ability to make claims for specific indications. Right now, we are constrained by the marketing claims that are allowed under the HCT/P 361 category, which basically only allow us to claim use as a barrier or covering. So, the ability to talk more specifically about some of the indications that are in the clearance should give us a louder voice in front of customers. With regard to Catalyze itself, as we mentioned, we are in the process of, or in discussions with BioTissue around restructuring the payment for that.
Great. Thanks for the context. Building on multiple indications, it was great to see multiple product customers are now about half of revenue. I am curious, when an account goes from one line to more, what does that typically look like in terms of which products are leading first, and how long does the expansion typically take?
That can vary by the account. Typically when that happens, that is because we have the opportunity to expand from one specialty to another. So from a sales implementation perspective, our motto is land and expand. We typically enter an account through one of three foundational applications, foot and ankle surgery, urology, or wound care. And once the product is available on the shelf, that gives us the opportunity to sell across specialties. And depending on the specialty that we are selling into, that often determines which product is actually adopted.
Understood. Thanks. Last one from us. I know you mentioned systems transfer, so I am just curious, given that the new CRM and ERP are live and you own a lot more of the data, what has surprised you the most and how does that sort of point you forward in sales and marketing in the business?
I don't know that there have been any tremendous surprises there. Again, data is king. So the insight that we now have into the usage within the accounts, the usage patterns within the accounts is really allowing us to give better direction and better insight to our sales team as to how to approach the management of an account or expansion within an account.
I think I would add to that too, Barry. Sorry. I would add to that too. I think we all on the team have had experience with companies where you have got access to data, you have got a lot of customers where you get to the data that is really interesting. BioStem, up until this year, we had one customer. We really didn't have access to a lot of this data. I think for us, we are just excited to have this information and this data to be able to use it and to really be able to construct a plan that we think can really make a difference. So we are excited to have the data moving forward. It is just a little bit of different animal for this company.
Glad to hear it. Thank you.
There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.