Q1 2022 Vericel Corp Earnings Call
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Ladies and gentlemen, thank you for standing by.
Welcome to the ourselves first quarter 2022 conference call at this time, all participants are in a listen only mode.
I would also like to remind you that this call is being recorded for replay.
I'll now turn the conference call over to Eric Berne Marathons head of financial planning and analysis.
Doctor relation.
Thank you operator, and good morning, everyone and welcome to the aerosols first quarter 2022 conference call to discuss our financial results and business highlights.
Before we begin let me remind you on today's call, we'll be making forward looking statements covered under the private Securities Litigation Reform Act of 1995.
These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and described more fully in our filings.
Filings with the SEC.
In addition, all forward looking statements represent our views only as of today.
Not be relied upon as representing our views as of any subsequent date.
Please note that a copy of our financial results press release, and a short presentation with highlights from today's call are available on our website.
I'm joined on this call by Arizona, President and Chief Executive Officer, Nick Coe Angela.
And our Chief Financial Officer, Joe Mara.
I'll now turn the call over to Nick.
Thank you Eric and good morning, everyone I'll begin today's call by discussing financial and business highlights for the first quarter and our expectations for the rest of the year and then turn the call over to Joe for a more detailed review of our first quarter financial performance and guidance for 2022 before opening the call to Q&A.
Hey.
Overall, we're very pleased with our financial and operational performance to start the year across both our sports medicine and burn care franchises. Despite the continued impact of COVID-19, particularly in the first half of the quarter.
Company remains on track to deliver another year of significant revenue growth margin expansion and operating cash flow and as such we are reaffirming our full year financial guidance.
We also continue to make significant progress on key regulatory and clinical programs for both franchises.
And importantly, we remain on track for the planned midyear resubmission of the Nexobrid BLA.
From a financial perspective, we generated total net revenue of approximately $36 million for the first quarter, which represents 7% total product revenue growth for me see an episode compared to the first quarter of 2021.
We also maintained our strong profitability profile as we generated positive adjusted EBITDA and operating cash flow for the seventh consecutive quarter.
From a commercial perspective, Macy revenue of $26 million came in above our first quarter guidance increased 9% compared to the first quarter of 2021.
Importantly, <unk> significantly outperformed the overall cartilage repair procedure market, which we estimate based on market data declined by double digits over the same period.
In addition, we generated double digit growth in surgeons, taking macy biopsies compared to the first quarter of 2021 and generated the second highest monthly biopsy volume in March since the launch of Macy.
We expect that as the overall health care environment and May see patient behavior trends continue to normalize over the remainder of the year. The strong leasing fundamentals will lead to a significant acceleration growth during the second half of the year and as such we're reaffirming the revenue guidance for the full year.
Episode revenue of approximately $10 million was in line with our recent higher run rate and represents the sixth consecutive quarter of revenue greater than $9 $5 million.
The growth drivers for episodes also remained very strong as we had over 20% growth in burn centers treating patients and taking episode biopsies compared to last year and a record monthly high for episodes biopsies in March.
From an operational perspective, as we announced this morning, we expanded our commercial leadership team with the appointment of Mike Gilligan as our vice President of Macy's National sales.
Mike who report to roll in Deangelis, our head of commercial operations joins <unk> with more than 15 years of commercial experience in the med Tech and pharmaceutical industries.
Prior to joining very yourself, Mike served as U S. Vice president of sales for biologics and commercial initiatives at Smith <unk> nephew.
Prior to Smith, <unk> nephew, Mike held sales leadership and marketing roles at Stryker after beginning his career at Pfizer.
He brings extensive sales experience in the sports medicine field outstanding leadership skills, and strong business acumen to our high performing basic team as we continue to focus on our key growth drivers of adding new surgeons, achieving deeper practice penetration and increasing biopsy conversion rates.
Excited to have Mike joined the <unk> team and I'm confident that will play an integral role in bringing the benefits of Macy's to even more surgeons and patients as we continue to drive strong growth for me see in the years ahead.
Turning to our pipeline we have several exciting milestones ahead for the balance of the year.
We remain on track for a midyear resubmission of the Nexobrid, BLA, which would position the product for a potential commercial launch in the first half of 2023.
Based on this strong leadership and track record.
Of execution by our commercial and medical burn care teams, we are well positioned for a successful launch of this important product, which we believe upon approval has the potential to change the standard of care for eschar removal for patients with severe thermal burns.
We also continued to advance important lifecycle management initiatives for Macy and remain on track for planned discussions with the FDA later this year to review, both our Macy arthroscopic and equal indication development programs initiatives that we believe will support continued strong growth in the years ahead.
Finally, we're pleased to have in Mt planes during the first quarter for a new state of the art advanced cell therapy manufacturing and corporate headquarters facility, the new facility, which broke ground last month and is expected to begin commercial manufacturing in 2025 will significantly increase our manufacturing capacity and.
<unk> our confidence in the continued growth trajectory of Macy's episodes in the years ahead.
In summary, the company had a strong start to the year our expectations for another year of significant growth for both Macy's episode remain on track and we continue to make progress on our important regulatory and clinical programs for both of our franchises.
I'll now turn the call over to Joe to discuss our first quarter financial results.
Thanks, Nick and good morning, everyone.
Starting with the income statement.
Total net revenue for the quarter was $36 1 million and was comprised of $26 million of Macy revenue and $9 $9 million of Epistyle revenue and zero point $2 million of revenue related to the procurement of Nexobrid by BARDA for emergency response preparedness.
We expect a similar amount of BARDA related revenue in the second quarter, which would represent the final order for BARDA as initial procurement.
Gross profit for the quarter was $23 5 million or 65% of net revenue.
Similar to the gross margin of 66% for the first quarter of 2021.
Total operating expenses for the quarter was $30 7 million compared to $26 3 million for the same period in 2021.
The increase in operating expenses was primarily due to higher noncash stock compensation expense.
Net loss for the quarter was $7 1 million or <unk> 15 per share compared to a net loss of $3 3 million or <unk> seven per share for the first quarter of 2021.
non-GAAP adjusted EBITDA for the quarter was $3 2 million or 9% of net revenue and.
And importantly, this is now the seventh consecutive quarter that we have generated positive adjusted EBITDA.
Finally, we generated approximately $3 $5 million of operating cash flow in the quarter and we ended Q1 with approximately $130 million in cash restricted cash and investments and no debt.
Turning to our financial guidance, we are maintaining our full year financial guidance for 2022 for revenue gross margin operating expenses and adjusted EBITDA margin.
We expect total revenue of $178 million to $189 million gross margin of approximately 70%.
Full year operating expenses to be in the range of $134 million to $137 million.
We expect non-GAAP adjusted EBITDA margin for the full year to be approximately 21%, which would represent approximately $40 million and adjusted EBITDA in 2022.
For Macy's, we continue to anticipate full year revenue of $132 million to $141 million.
In terms of Macy's quarterly trends and the seasonality of our revenue.
We expect approximately 20% of Macy's full year revenue in the second quarter, which would imply a sequential growth from Q1 to Q2. This year and continued year over year growth. Despite a more difficult comparison versus Q2 2021 as our volumes increase significantly.
Last year in Q2 coming out coming out of the winter Covid related search and for <unk>. We anticipate that Q2 revenues will remain in line with recent run rates of approximately $10 million per quarter.
This now concludes our prepared remarks, we will open the call to your questions.
Again as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the parent.
These standby, while we compile the Q&A.
Our first question comes from Brian Zimmerman with P. P I G.
Good morning, Thanks for taking the questions.
Couple for me.
Wanted to talk about you entered this year.
Nick and Joe with I think about $10 million of backlog and I'm wondering if you could comment on kind of what you estimate you recaptured in the first quarter, how much of that impacted results.
And how much you think is remaining for the balance of the year.
Yes, good morning, Ryan Thanks for the question this is Joe.
So I would say on the backlog I would say just as a reminder.
During the year, we certainly had continued COVID-19 impacts we started the year really the first half of the quarter in particular with the omicron variant et cetera. So I would say kind of from our perspective, the backlog hasn't meaningfully changed in the first quarter.
We did come in a bit ahead of expectations in Q1, but I wouldn't really point to the backlog.
And again from a full year perspective, and H, one H, two et cetera kind of remains on track.
Okay.
And if I'm doing the math right and I think about the guidance for macys.
For the year and that comment on 20% roughly.
Correct me, if I'm wrong, Joe, but it implies about $27 million in change pharmacia in the second quarter.
And so help me understand kind of by $2 million or so.
Corner on Macy guidance is unchanged and you're implying.
Thanks, a couple of million below where consensus is for second quarter on Macy's.
So help us understand kind of what youre seeing.
Youre thinking about guidance for the rest of the year.
Particularly in the back half of the year.
As we move into the back half.
Yes, I'll start and Nick can chime in as well.
So first off I think you're right. So what we're saying and really at the midpoint. It is about $27 million for the second quarter.
Just to think a little bit about the quarters in each half of the year and may see which kind of plays into the guidance question again back to your first question Q1 was strong and it was a bit of ahead of where we anticipated a little bit over $1 million and change.
Over the mid point of our guidance, so that did come in a bit higher than anticipated, but I would start by saying.
Our view of the full year and our view of the first half has not changed.
We add that kind of 19% that we ended up at in Q1 as a percentage of our revenue and that 20% you get to just under 40% for the first half of the year about 39%.
Based on that 20% comment.
And again for Q2, just to reiterate as you think about Q2.
Q1 came in a bit ahead of expectations and last year. We did have some strong pull through particularly coming out of our winter surge in the early part of Q2, which impacts the year over year comparison.
So if you kind of look at <unk>. If you look at kind of the balance of the year similar to what we talked about last quarter, where we expect kind of a majority of the macy revenue in the second half you will certainly see an acceleration.
On a kind of year over year basis, but some of that is just due to the comps as we continue to be impacted by COVID-19 as.
Youre looking at quarters or even hazard a year.
I think it actually is helpful. Even though it's a couple of years back if you look at really the H one growth.
Our guidance versus H, two over 2019, which really still remains kind of a cleanest comp without all the noise from kind of colgate quarter to quarter or half by half and when you see there is in the first half if you kind of do the math, but roughly 45% added 2019, whereas in the second half it's more like 55%.
So it is a bit of a step up when.
When you look at 2019, but we are assuming there are some improvements in the market kind of procedure is kind of the health care system et cetera. So.
I think at this point in the year, we're certainly pleased with where Q1 is but I would say from a guidance perspective. It is still relatively early in the year, we have seen some COVID-19 impacts.
We also want to keep an eye on kind of what's happening in the broader health care system in the cloud market.
That's very helpful. Thank you for taking the questions.
Our next question is from Daniele in policy with the security.
Good morning, everyone. Thanks for taking the question and congrats on a good quarter. Despite the ongoing headwinds here.
Just a follow up on that.
On Ryan's question I guess as we look at Q2 are you still seeing are you still assuming some COVID-19 impact I get the year over year comparable but I guess with the backlog that you guys have.
Why wouldn't Q2 be even incrementally stronger and it feels like momentum built in in March and April maybe you can comment a little bit on trends that you saw or is it is it more about the refill of the referral funnel I guess, what's the gating factor as we look into Q2, where.
We don't have actually another another meaningful COVID-19 Terry.
Yeah, Hey, Danielle this is Nick I'll start and then Joe can add comments as well, but certainly through the first quarter everybody is aware that the first half was impacted by all micron and we did see some seed.
Sequential improvement, whether it was biopsies or implant throughout the quarter.
And obviously, we mentioned that we had second highest biopsies since launch of Macy's in March. So clearly we saw improvements as we move through the quarter.
As we move into the second quarter, we expect those improvements to continue.
But at the end of the day I think everything you read is that we see is as we commented on the market was still double digits below where it was the prior year. So we're still outperforming the market.
And we expect that to continue through throughout the not just the second quarter, but for the remainder of the year.
To your point and as Joe alluded to trying to do quarterly comparisons year over year. When you have the kind of disruption that you see throughout COVID-19.
You can look back to our Q3 earnings presentation, where we showed there was this very strong recovery of the sort of 2020.
Winter wave that occurred into Q2. So you know I think revenues were up from AC.
76% last second quarter so.
You just have those dynamics were quarter over quarter comparisons arent necessarily the way to look at it I think as Joe alluded to we're right on track with what we've said historically around sort of 40% or so revenue in the first half of the year, 60% in the second half so it's tracking where we expected it to.
Okay. That's that's helpful and.
I guess as we as we look at.
At Macy's and how to think about the rest of the year just anything from the referral funnel on what youre seeing from a conversion rate.
Great perspective, you know that's been one of the things that's been suppressed during COVID-19.
That trending.
As we look ahead to Q2 and into the back half of the year. Thanks, So much.
Yes, so as you mentioned and we've highlighted really is when you look at last year, we had 30% biopsy growth and revenues were up 18%. The difference there is.
How the biopsies are converting and so thats one of the things that we expect to.
Continue to see improvement on throughout the year I would say as Joe mentioned, you don't Youre coming out of our first quarter, where there was a fair amount of disruption. So you wouldn't expect necessarily to see that improve but thats something we have in the first quarter, but we expect as we move through the year that that will normalize as we've talked about before.
Yeah.
Our next question is going to be from Chris Cooley with Stephens.
Good morning, and thanks for taking the questions and congratulations on a solid start to the new year.
Maybe just one more for me on now you see it and we can maybe change gears to the burn franchise, but just wanted to make sure that I'm level.
Correctly here.
When you originally established guidance you talked about.
To get to the high end of the range for this year to basically assume modest disruption from Covid.
And the one in Q I, just wanted to make sure that kind of the underlying assumptions there to get to both the high and the low end of the range are essentially the same or if they've changed any manner.
What's your thinking is now as we are.
A little bit farther into the year and we've clearly seen some some new variability and other things.
Resolve themselves. So just wanted to make sure I understood the underlying assumptions for the high and the low end of that range that I've got a quick follow up.
Yeah, I mean, I would say kind of broadly speaking I don't think really anything has changed.
Obviously, we came in a bit ahead on the Q1 side relative to expectations, but as we talked about kind of mix of the year as well as the full year nothing has really fundamentally changed as we kind of think about that range of scenarios on amazing.
Perfect and then if I could switch gears to episode was really impressed with the growth there.
Kris and biopsies could you just maybe speak to not only.
What's helping you drive into these additional accounts aren't that many.
Level, one burn centers here in the U S. So I'm just kind of curious what's helping accelerate.
Broader adoption and what looks.
The envelope math here at first path, which looks like greater utilization within those existing accounts, maybe it's more graphs per patient I'm, just trying to get a better understanding of what's supporting that $10 million run rate. Thank you.
Yes, Thanks, Chris it's Nick.
Just taking a step back in at a higher level on episode as you mentioned there was about 140 <unk> burn centers accredited burn centers in the U S and as we kind of consistently talked about in any particular kind.
Kind of two or three year period, we may be getting biopsies are grafting for probably half of those centers 70, or 80 and that's because.
Not all centers are the same and it really critical patients are often at those centers in any particular year, it's probably more like.
40% to 50 burn centers treating patients so.
So thats just kind of the.
Sort of the market background.
We had a very strong year last year, right, where we kind of head to head a new level of performance, which continued into the first quarter and very much aligned with the commentary Joe gave on the last call that we would expect kind of similar run rates.
The first couple of quarters, and then a step up as the growth driver shortage continues to take hold in the growth drivers. We've talked about was especially last year. We saw a significant increase in the average number of grafts per patient, but we think thats kind of stepped up to sort of where we would expect it to continue in that going forward into this.
Year, the growth drivers were really going to be around sort of increasing the number of centers, which we've seen and then in the first quarter and then increasing the number of biopsies, which again will give you a deeper penetration into those centers. So those are the exact growth drivers that we pointed to in the back half of last year.
And that's what we're seeing.
The year end.
And that goes back to the other factor that we mentioned around the sales leadership and the execution on the commercial sales.
Sales and medical teams and that sort of.
Responsible for increasing the number of centers that are using episodes compared to historical.
Understood. Thank you so much.
Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.
Oh, Hi, Nick and Joe how are you.
Good morning.
Doing well thanks, Jeff.
Thanks for taking the questions. So so two I know that I guess Brooks Brendan yes kind.
Just wanted to get a sense of conversion rich and what you found throughout first quarter and maybe any commentary for April .
April as well and how theyre holding and how they look versus your.
Your expectations.
Yes, I guess I'll, just sort of repeat what I said earlier, right where conversion rates.
These patients were biopsies have been taken as you know sort of cartilage injuries don't heal themselves. So we expect at some point these patients will seek treatment.
And you know in.
In the first quarter, which again was disrupted by the <unk> Barry.
Wouldn't expect to see any improvement or substantial improvement in those conversion rates, but as we progress through the year.
And the health care systems sort of improves and moves towards normalization, we'd expect those conversion rates to.
To kind of move back in the direction of the historical norms.
Okay got it and then.
Secondly for US could you talk a little bit about.
Do arthroscopic delivery and also.
Okay ankle franchise as well with the FDA as far as well.
What you would expect to discuss what kind of timing could we should be.
Four.
Element in the commercial side.
So it remains very much in line with what we talked about it at the end of last year.
Obviously, the first step is to meet with the FDA and share our perspective on clinical development programs for both.
Programs and Thats, what we would expect to do in in the second half of this year Theres always prep work to request meetings and get prepared to go meet with the FDA and so.
Our teams here are continuing to make great progress on that front and so we remain on the schedule that we articulated earlier that.
Plan to meet with the FDA in the second half of the year and then provide an update to investors and analysts based on the outcome of those discussions from a commercial perspective, we characterized the arthroscopic delivery of Macy's.
As sort of a mid.
To early second half of the decade 2025.
Plus so that hasn't changed at this point.
And that the Macy's ankle program would require more of a b C knee summit study kind of study.
Clinical study and therefore, you'd be looking at sort of the back half of the decade for potential Macy ankle indications, so everything sort of on track in line with what we have discussed previously.
Okay, Perfect and then two quick ones for Joe for me.
Jerry through 134 to 137, which added on Opex guide on our range for 2022.
Yes, correct, that's consistent where we started the year so that has not changed.
Okay, and then secondly.
Any commentary on.
The cadence of margins throughout the year barring 'twenty 'twenty. It looks like you are typically always fairly sequential.
That's a good assumption yes.
Yes, I mean, I think broadly speaking I mean, we talk more kind of on a full year basis, but you do tend to see.
Later in the year, particularly with the higher making quarter kind of higher margins at that point in the year. So I think in general I think that that kind of holds up.
Okay perfect that's good for us.
Questions.
Thanks, Jeff.
Our next question is from Samuel per dose.
It's true.
Alright, thanks for taking the question.
First one for us.
When we think thinking about the cartilage repair market more broadly and in what.
One kind of how did that progress through the quarter, maybe any better in April nurses versus what we saw in <unk> and then you know what what needs to happen to.
We see that market and get to a more normalized level.
Yes, Sam Thanks for the question so when we make commentaries.
Comment on sort of the market dynamics as we've talked about before we're able to purchase lexisnexis market view data and we can kind of look at procedural codes that.
Formed the basis of our addressable market, so osteochondrosis allographs Microfracture Chondroblast deep AC.
And that's kind of the market basket and.
Obviously, it was significantly impacted.
In January and February no.
Data lags right. So the March data probably comes in this week. So we estimate based on the trends in January and February and a presumed improvement in March but we don't have April data, yet and we won't for a while to comment on sort of where the market is right now so I do think that's a very important backdrop.
To repeat what I said on the last call you know <unk> outperformed the market pre COVID-19 during Covid and we expect it will post COVID-19.
And what you need to see to kind of for the market broadly to get back is just sort of normalization of patient flow with activity and we saw that as COVID-19 waves.
Abated last year Q2 from a market perspective.
We're starting to approach pre COVID-19 levels, and then you had the delta and Omicron variance and you saw significant declines in market activity again, so I think almost it's probably not really any different than other markets that you see in the.
Industry, where patient volumes are not quite back to pre COVID-19 levels, yet probably.
You know double digit 10% down maybe starting to close that gap and I just think as the healthcare environment starts to normalize youll see that market activity return.
Got it that's helpful. And then just another one more on the market.
Any any updates in terms of the competitive activity in cartilage repair and anything youre seeing there whether it's <unk>.
Interest from Boston and other products or are they eating more difficulty in terms of keeping reps.
Yes no.
The obviously agilis C was approved.
Recently in biomass.
Exercise their option to acquire the company and kind of as laid out its plans for launching as agility.
Sort of soft launch this year and then a more full some launch next year. According to their commentary so thats a product that we've talked to you and others about for a number of years.
From our perspective.
Kind of a different segment of the cartilage repair market rate typically.
And I think the company has commented on this for instance that J P. Morgan.
Presentation that typically sort of.
Intended for older patients osteoarthritis really as a bridge to partial or full knee replacement. So that's very much in line with.
Our kols have thought about that product not as a VC competitor, but kind of addressing a part of the market where there really are no other alternatives for those patients so nothing different from our perspective on that product.
And.
In terms of the competitive marketplace for reps.
And so on.
Think you know we continue to attract and retain really top talent across our commercial organization I think that's evidenced by.
Our announcement this morning of like Gilligan, joining as our National sales director from Smith, <unk> nephew, I think everybody's pretty aware of them.
<unk>.
Macy's place in the market and the enthusiasm around the product and that allows us to retain and attract great talent.
Okay. Thanks.
Our next question comes from Arthur He with H C Wainwright.
Yeah.
Hey, good morning, and they can build these ascertains joaquin thanks for taking my question.
Most of my questions have been answered I just wanted to follow up regarding them then may see biopsy dynamics.
Could you guys give us more color on the.
Average numbers biopsy for surgeon taking.
During the quarter and getting to the second quarter.
<unk>.
Yes.
Probably the best way to address that is to take a step back and say you know coming into the year, we expected to see double digit growth in biopsy surgeons and we commented we saw that in the first quarter.
Little hard given the disruption obviously procedures were down across the board in the first quarter.
In January and February I should say and then obviously we speak.
Strong recovery in March so biopsy has continued to grow in the quarter.
Just not at the rate we would have expected, but again, we saw a big bounce back in March we expect that to continue in Q2, and then throughout the rest of the year.
Thank you. Thank you for taking my question and congratulations on the strong quarter.
Okay. Thank you. Thank you.
I'm showing no further questions at this time I would now like to turn the conference back to Nicholas Angela.
Okay, well, thank you operator, and thanks to all of you for your questions.
In summary, overall the company executed well in the first quarter and remains on track to deliver another year of strong financial and operational results.
Given the significant market opportunities for our products and strong growth profile. We believe the company is very well positioned for sustained long term growth in the years ahead.
So thanks, again and have a great day.
This concludes today's conference call. Thank you for participating you may disconnect.
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