Q3 2022 Vericel Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Ladies and gentlemen, thank you for standing by welcome to various health third quarter 2022 conference call. At this time all participants are in a listen only mode.
We'd also like to remind you that this call is being recorded for replay.
Now I'll turn the conference call over to Eric Burns, There are self head of financial planning and analysis and Investor Relations.
Thank you operator, and good morning, everyone and welcome to Verso third quarter 2020 conference call to discuss our financial results and business highlights.
Before we begin I'm reminded on today's call.
Forward looking statements 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 are described more fully in our filings with the SEC.
In addition, all forward looking statements represent our views only as of today will not be relied upon as representing our views as of any subsequent date.
Please note that a copy of our financial results press release presentation and today's call are available on the Investor Relations section of our website.
I'm joined on this call by <unk>, President and Chief Executive Officer, Nick Colangelo.
Our Chief Financial Officer, Joe Mark.
I'll now turn the call over to Nick.
Thank you Eric and good morning, everyone I'll begin today's call with a discussion of our third quarter financial and business highlights and our expectations for the remainder of the year.
I'll, then turn the call over to Joe for more detailed review of our financial performance and fourth quarter financial guidance before opening the call to Q&A.
The company delivered another solid quarter from a financial and operational perspective, as we generated strong macy revenue growth record third quarter total revenue continued profitability and operating cash flow and made meaningful regulatory process progress with respect to <unk> and our Macy's lifecycle initiatives, which.
We believe we've positioned the company for further growth in the years ahead.
Third quarter total revenue was $38 $6 million with product revenue growth of 14% compared to the third quarter of 2021.
The company generated more than $3 million of adjusted EBITDA and $4 $1 million of operating cash flow, which was our ninth consecutive quarter of positive <unk>.
Adjusted earnings and operating cash flow.
Macy had another strong quarter with revenue of $31 million as we generated the highest quarterly revenue outside of the seasonally high fourth quarter since the launch of Macy's.
<unk> revenue grew 30% compared to the third quarter of 2021.
Sequential revenue growth was 8% over the second quarter, which is noteworthy given that third quarter revenue typically is flat to down compared to the second quarter due to summer seasonality.
Macy's, 30% growth also was the highest year over year quarterly growth rate since 2019, excluding the comparison to the second quarter of 2020, which was impacted by the widespread shutdowns due to COVID-19.
Importantly, we continued to see significant growth in surgeon adoption and remain on track to generate double digit growth in surgery, taking mix may see biopsies this year.
The majority of surgeons, taking biopsies for the first time in 2022, we're engaged through our digital and in person marketing and training initiatives prior to taking their first biopsy as we continue to focus on high value commercial investments to expand the <unk> customer base.
Overall, the <unk> sales and marketing team executed extremely well in the third quarter. The underlying basic business fundamentals remained strong and we expect that consistent surgeon growth will continue to drive further clinical utilization of Macy's.
Finally, as we've mentioned on previous calls the biopsy conversion rate from <unk> has been impacted by the disruption to patient flow dynamics and ongoing health care system challenges as a result of the COVID-19 pandemic.
Those market dynamics are also reflected in a decline in the overall cartilage repair procedure market, which has stabilized but remains down more than 10% compared to last year, while macy continues to significantly outperform the overall market and the biopsy conversion rate has stabilized we have not seen a sustained improvement towards.
Pre COVID-19 levels, so far this year, which will impact full year revenue from AC as Joe will cover in our guidance update.
Despite these market dynamics may see remains on track for a strong finish to the year as it resumes its high growth profile and we expect <unk> growth in the mid 20% range for the second half of the year compared to 2021.
Moving forward, we believe that continued execution by our <unk> sales team and the gradual improvement of the overall cartilage repair market and basic conversion rate will support further growth and expanded utilization of Macy's in the quarters and years ahead.
With respect to <unk> lifecycle management, our plans for the BC arthroscopic delivery NBC ankle development programs remain on track with.
We're scheduled to have a type C meeting with the FDA in December to discuss the ACR through Scott delivery development plan, which we believe represents a meaningful clinical enhancement for patients and physicians.
In addition, based on initial interactions with the FDA, we expect to have a pre IND meeting with the agency in the first quarter of next year regarding the <unk> ankle development program.
We believe that these programs positioning the company for significant additional growth opportunities for <unk> in the years ahead.
Turning to our burn care franchise, we reported episode revenue of $7 3 million for the third quarter, which was below our recent quarterly run rate in 2021 levels.
As discussed on our last call external market data shows that the incidents of large burns greater than 30% of total body surface area has declined this year compared to 2021 in which there was a significant increase in the incidence of larger burns.
These lower patient volumes. This year have had a significant impact on results at our highest volume centers and have impacted the growth drivers for episodes of continuing to expand the number of burn centers, using <unk> and driving greater patient volumes at those centers.
Based on these dynamics and episode revenue performance year to date, we're revising our episodic revenue guidance for the year as Joe will describe in more detail.
It's worth, noting however that while the incidents of larger burns and patient volumes are more in line with pre 2021 levels year to date revenue for episode and all of the underlying business fundamentals, including burn centers, taking biopsies in treating patients as well as overall biopsies and graph volumes are significantly higher than the same.
Year to date periods prior to 2021.
Turning to <unk> as we announced on our last call. The Nexobrid BLA Resubmission was accepted for review by the FDA with a <unk> date of January one 2000 2023.
The Fda's review of the BLA is progressing manufacturing facility inspections in Taiwan in Israel are underway and we continue to actively plan for a potential Mexico launch in the first half of 2023.
I'll now turn the call over to Joe to provide additional details regarding our third quarter funding.
Results and financial guidance.
Thanks, Nick and good morning, everyone.
Starting with our Q3 results.
Total net revenue for the quarter was $38 6 million and was comprised of $31 million of maintenance revenue.
And then $3 million of episodic revenue and zero point $2 million of revenue related to the procurement of Nexobrid by BARDA for emergency response preparedness.
<unk> had another strong quarter with 30% revenue growth versus the prior year and also increased sequentially with 8% growth versus the second quarter. After a strong quarterly sequential growth in the second quarter as well.
Gross profit for the quarter was $25 2 million or 65% of net revenue an increase compared to gross margin of 64% in Q3 last year.
Total operating expenses for the quarter were $32 million compared to $27 1 million for the same period in 2021.
The increase in operating expenses was driven by an increase in employee expenses continued investment and commercialization initiatives and additional stock based compensation expense.
Net loss for the quarter was $6 6 million or <unk> 14 per share compared to a net loss of $4 9 million or <unk> 11 per share for the third quarter of 2021.
non-GAAP adjusted EBITDA for the quarter was $3 3 million and we generated $4 1 million of operating cash flow, representing our ninth consecutive quarter with positive adjusted EBITDA and operating cash flow.
We ended Q3 with approximately $133 million in cash and investments and no debt.
Turning to our financial guidance.
For <unk>, our guidance had assumed that growth will be driven by adding new burn centers and driving additional biopsies within existing centers.
Although these key metrics remain above 2021 level, the lower incidence of Burns this year.
<unk> made it more difficult to drive growth over 2021, which has impacted our results.
Eight on this market dynamic and episode revenue performance over the past two quarters, we now expect Epistyle revenue and the $8 million range for the fourth quarter and total burn care revenue, including <unk> for the full year of approximately $34 million.
For Macy's as we discussed in prior earnings calls our initial full year guidance assumed that patient flow and conversion rates will begin to normalize in the back half of the year.
Although we have seen stabilization in the overall market and in our conversion rate, we have not yet seen sustained improvement in those metrics, which will impact our overall revenue for the year.
We still anticipate strong macys second half growth in the mid 20% range versus the second half of 2021 with full year revenue.
Approximately $130 million to $132 million.
In total we expect revenue of approximately $164 million to $166 million for the full year.
<unk> changed our revenue expectations, we now expect gross margin to be in the mid 60% range and adjusted EBITDA margin to be in the mid teens percentage range for the full year with another year of significant positive adjusted EBITDA contribution and operating cash flow.
This now concludes our prepared remarks, we will open the call to your questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Please standby, while we compile the Q&A roster.
Yes.
Our first question comes from the line of Ryan Zimmerman of BTG. Your line is now open.
Good morning.
Hey, guys. Thanks for taking the questions Nick and Joe.
I guess to start on guidance I want to talk about first may see and then I have to sell and we think back to the second quarter I think.
We're up maybe double digits I think both biopsies of new surgeons.
And correct me, if I'm wrong on that but.
The implied growth was in the mid to high <unk> in the fourth quarter coming into the third quarter. So help me understand kind of.
What dynamics R. R.
Specifically impact now because it would seem that the conversion rate is Florida.
The biopsy to procedure.
Period is a long gating relative to what we've seen historically.
Thanks, Ryan So I'll start up on Macy's here so.
First off I would say, we had a really strong Q3 and as we talked about in our prepared remarks, we think the second half and still grow in that mid 20% range. Despite and importantly, the continued decline.
Double digit decline in year over year basis in the cartilage repair market. So I think it's important we're up 30% for the quarter after being kind of as you talked about and then high single digit growth range over the last three or four quarters.
<unk> has certainly performed well in Q3.
I think on your question around kind of Q4 and the full year. So at this point, we expect kind of a range of 130 to 132, which is just outside of our initial range of $1 32 to $1 41, and I think importantly to your question. Our initial range assumes some improvement in both the market.
And patient flow, which we have not seen happened and then a corresponding increase in conversion rates, which again has stabilized but hasnt improved.
I think.
If you take a step back and kind of think about where we are.
<unk> kind of near that initial guidance. Despite the challenges in the market and our other metrics generally kind of track as we've talked about our lease surgeon adds youre kind of in that double digit range biopsies have continued but that conversion rate, particularly in Q4, which is our largest quarter.
See the year play out will have an impact on second half of the year.
Just a pushback Joe just to be clear with the new docs.
Are you seeing lower conversions with these newer docs.
Or is that specifically lower patient volumes in the door I'm just trying to understand because it seems like somewhat of a change from maybe historical precedent.
Yeah, Hey, Ryan this is Nick so I.
I don't think we've seen any difference in sort of the uptake for for biopsies surgeons. As we said we were on track for double digit growth for the year and just.
You said correct me if I'm wrong, we had that said the biopsies were double up double digits. We just said they were tracking more in line with sort of implant volume. So there's really two.
To your point, it's really all about patient pool, that's the point when we give you market data that's.
Thats basically sort of patient flow data ratings and as Joe mentioned.
Lower end of our guidance for the year assumes some improvement over 2021, the higher end of the guidance range assumed more gradual normalization that we haven't seen either of those the market is down double digits versus last year overall kind of in line with what youre hearing about procedures generally or physician visits.
Specialty visits and so despite those.
Right.
Issues around patient flow.
We're continuing to point to the lower end of the guidance, which again.
It assumes some improvement and we think that's just good execution by the team.
<unk>, obviously the product attributes remained strong and as Joe said a lot of momentum in the second half of the year and especially as we look forward into 2023 and beyond as that patient flow should normalize market should normalize et cetera, So right.
Okay, and then turning to episodes for a minute.
You did guide <unk> similar to the second quarter kind of midway through the third quarter. So kind of a similar question here I mean at what point did you see a change in Bern.
That for us.
Such a drastic change to kind of your expectations on <unk>, both on the third quarter and then as we looked at.
Okay.
Yeah, So Ryan as we mentioned on our last call we've recently.
Alright ahead of our last call been able to access some similar market data which showed.
Relatively strong first quarter.
<unk> did you see a decline in the second quarter in terms of these large 30% plus total body surface area Burns.
Obviously in July on our earnings call.
Our early August one month into the third quarter of this data lags. So you don't really kind of get it until quarter.
Quarter end.
So as we had always talked about we never call a trend on episode on an upside because the burns were down for one quarter and we weren't where we expected to be in the second quarter. It was a little early to to say this is what we're going to see going forward. So clearly weeks.
We saw a continued decline in these larger burns in Q3 and that sort of lines up with the anecdotal feedback we're getting consistently across the sales force that the burn center admissions for these larger burns are just down.
And so that's kind of why we just sort of maintained similar to Q2 level expectations in Q3 until we kind of saw how it played out a little so that obviously played out in the third quarter.
I would say as we mentioned on the call that despite these lower patient volumes, which are sort of more in line with the lower pre 2021 levels, we did see a big.
Increase in 2021, once we were able to get the data overall in these larger burns.
We continue to have a much broader presence in terms of the burn centers and all the metrics are up versus <unk> 2021 levels.
And even in the third quarter, we did have despite these challenges essentially the same number of biopsies as we did even in 2021.
The issue is once once you have that and that reflects the fact that we have a broader customer base.
The sales forces continue to expand the episode for the centers using episode.
Once that happens, though then you are kind of subject to the variability of episode. So you can have the same biopsies in the quarter like we did but depending on the timing depending when the patients are stabilized and ready for treatment.
Can't really call exactly when those treatments are going to occur that.
<unk> had an impact in the third quarter for us.
Okay.
The fourth quarter episode guidance at a level that sufficiently accounts for the variability at this point in your view.
Yes.
Thanks for taking the questions.
Hey, Thanks, right I think.
Please standby for our next question.
Our next question comes from the line of Sam <unk> of Choice Securities. Your line is now open.
Hi, good morning, and thank you for taking the question.
First one just thinking about it.
We may see into next year can you just.
What gives you confidence that that's a part.
Can can reaccelerate to 20% growth in then.
When we think about the mix of drivers, whether it's surgeons are biopsies or the conversion rate.
How should we how should we think about that mix driving growth next year.
Sort of through the market expansion items with bank line.
Thanks, Glenn arthroscopic delivery.
Yes ill start.
With that Sam.
So I'd say in terms of reaccelerate into 20% plus growth. Obviously, we just posted a 30% growth quarter in 20% mid 20% for the second half of the year and I think if you kind of do the math it'll be sort of in the high teens.
For this year overall.
In light of a declining market rates so I.
I would say as we think about next year and beyond for the reasons I mentioned earlier, we certainly expect patient.
Patient flow to normalize continued surge in growth and so on and that's what will be the driver for next year. So.
Continued surge in growth primarily.
And if the market doesn't change we would certainly expect to be able to grow in the same range, but as things strengthen it normalize.
We would expect growth to reaccelerate.
And when you say the same rate you are talking about second half of 'twenty two.
About just for the year.
For the year right, if the market doesn't change.
We would expect we'd be able to sort of grow at a similar rate to this year.
But that market improvement that we expect in the coming quarters and years will be more of a tailwind for 2023 and beyond.
Got it that's helpful. Thank you and then.
Our next overhead.
Any any items there that would lead you to believe there may be any delays to any of the.
What they do for data and then how should we be thinking about the timing of.
Full launch into the market next year. Thank you.
Yes, so obviously, we can't comment on the interactions, but I would say.
Sit now less than 60 days out from the <unk> date, the manufacturing inspections are ongoing which is great.
And we continue to actively plan for launch in the first half of 2023, so with the January one producer date as we've talked about before we do have to go through the P&C Committee approval process for the burn centers and so.
We've called it kind of more of a Q2 launch.
The product will be available and you make your way through that process. So maybe.
A little bit of revenue in Q2, but really the back half of the year second half of the year is when we'd expect to sort of be fully ramping on that so.
With all that said, we don't control the FTE decisions, but.
At this point, we remain on track.
Got it just one just one back on.
One more on when you think about it.
Central for market improvement do you think you can see that as early as the first half of 'twenty, three or is that likely more going to be in the second half weighted.
Well, we cant really I cant really opine on that right I mean I think.
It's hard to call exactly when patient flow world.
Start approaching pre COVID-19 levels like we saw for instance in the second quarter of 2021, certainly feels like we're set up for for that but it's a little hard to say what the exact timing is.
Great. Thanks for taking questions.
Hey, Thanks, Jeff.
Please standby for our next question.
Our next question comes from the line of Jeffrey Cohen of Ladenburg Thalmann. Your line is now open.
Hard to control how are you.
Good Jeff.
I guess, firstly I wanted to chevron's from.
One of Ryan's questions and talk a little bit about Barack Susan penetrations on the minute you start.
Just assume ROIC.
But there is a more pronounced drop off period after.
Sort of amount of months or quarters.
After a biopsy or perhaps could some of that be.
Correlated to the general economy.
No I don't think there's been a pronounced sort of delay I mean.
I think it's just really sort of patients again, we use the debt market data is sort of a proxy for <unk>.
Patients going into the office, whether it's for initial visits or after a biopsy is taken house I assume they go in after that at this point, there's not really anything.
Any things that we hear about sort of economics around.
<unk>.
Obviously employment is strong.
<unk>.
For employees.
Should remain pretty strong so we haven't really that hasnt been an issue at this point.
Okay.
Could you give us any color on.
Historic Q4 biopsy levels, what have you found in the past few years, and where would you anticipate on the box side.
Fourth quarter, it's not something we necessarily want to break out or discounts.
Well, yes, I mean, we don't give out quarterly biopsies, but I would just say generally the fourth quarter is the strongest quarter Cross med Tech and obviously with Macy's as well kind of across the board in terms of biopsies and plans et cetera. So we.
We would expect a strong biopsy quarter dislike every fourth quarter.
Got it and then.
Is there any update on your mind.
Appropriate previously boundary.
The facility moving facility, adding manufacture expenditures or any update there from the quarter.
Well.
Nothing in particular other than construction is underway.
And so we remain on track as we've talked about before for.
Expecting commercial production once you go through the FDA approval of a new facility in early 2026.
Got it and then lastly for US just a quick one for Joe as far as modeling purposes.
Or would you anticipate we should be.
Factoring in for Florida for sure.
Q4 in the first half of 'twenty three.
Would there be anything that we should be modeling.
No I think at this point, we're kind of through our initial.
Agreement and we recognized that through the third quarter. This year. So at this point, we're not anticipating any more in Q4.
And yes, certainly at this point I wouldn't say in 2023, either be more potential commercial launch of extra brand side.
Got it.
It's a little for the front half of 'twenty three.
Followed by our <unk>.
Commercial launch in the back half.
Yes exactly.
Okay perfect. That's it for us thanks for taking the questions.
Thanks, Jeff.
Please standby for our next question.
Our next question comes from the line of George Sellers of Stephens, Inc. Your line is now open.
Thanks for taking the question.
Thinking about macy growth into next year.
How should we think about the sort of puts and takes I guess with.
The drivers there how much of that is due to.
Expectations for greater physician adoption and.
Versus.
Your ability to sort of drive higher biopsy conversions.
Yes so.
<unk>.
Consistently spoken about kind of the three growth drivers the first of which is.
Adding biopsy surgeons and as we said we're on track for double digit growth in biopsy surgeons this year and we certainly expect.
In biopsy surgeons for next year, so that will be a significant driver.
Patient flow impacts the biopsies.
First surgeon right, so as patient flow increases you expected.
Typically we will grow in a given year, so that would be a contributor as well and then the conversion rate. We're always focused on that right whether it's the sales force.
Having the list of biopsies in patients to talk about with the surgeons or marketing efforts.
Medical affairs efforts around lesion progression so address the.
The cartilage defects more quickly so we'll continue to take efforts too.
Drive that conversion rate.
First job is to try to get it back to pre COVID-19 levels, which we would expect over overtime.
Okay I'll leave it there. Thank you for your time.
Yeah.
And our next question.
Our next question comes from the line of Arthur <unk> of H C. Wainwright. Your line is now open.
Hey, good morning, and again, Joe the author.
Good.
Alright.
Hey, good morning, I had a follow up on the Macy's.
Growth.
Adding the patient flow into the surgery office, so beyond view these as more.
Impacted by their surgeon capacity side, or it's more impacted by the patients intention or.
Our willingness to getting to the office.
Yes, no I don't think we've had.
Any discussions with our commercial team around sort of surge in capacity. Obviously, we continue to add surgeons are very enthusiastic about above the product. This has always been consistently stating just sort of a difference in the patient flow dynamics when they go back for surgeries et cetera.
So that's been consistent throughout the past couple of years.
Alright, thanks for that and.
So my second question is regarding the lifecycle management for that.
Macy's part.
So could you give us more color on the type C meeting with the FDA for.
And it just got delivered.
So whats the next step and how soon we can see coming to the market.
Yes, so the issue there will be sort of presenting to the FDA, our proposed development plan and gaining agreement there.
That's really will dictate the timing depending on whether the FDA requires clinical.
Political development or we can do something more like a human factor study that just demonstrates that surgeons are able to use the instruments deliver the product et cetera.
So that once we kind of.
Have that discussion with the FDA, we will have much more clarity on the <unk>.
Timeline, we've talked about sort of mid decade opportunity for beef may see arthroscopic could be a little earlier.
The human factor study could be a little later.
More of a clinical safety development program.
So that's the nature of the discussion with the FDA.
Alright. Thank you. Thank you for taking my question.
At this time I'm showing no further questions I would now like to turn it back to Nick Colangelo CEO for closing remarks.
Okay, well thanks, everyone for your questions and your continued interest in the company.
Obviously, the <unk> team here is continue to focus on delivering strong financial and operational results for the final quarter of 2022 and preparing for a potential <unk> launch in the first half of 2023, and we look forward to updating you on our progress on our next call. So thanks, again and have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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