Q1 2023 Vericel Corporation Earnings Call
One.
Ladies and gentlemen, thank you for standing by welcome to the Berry sells first quarter 2023 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 would now like to turn the conference call over to Eric Byrnes, Theirselves, Vice President of Finance and Investor Relations.
Thank you operator, and good morning, everyone.
Welcome to Bury yourself first quarter 2023 conference call to discuss our financial results and business highlights.
Before we begin let me remind you on today's call we will make.
These forward looking statements covenant of 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 are described more fully in our filings with the SEC.
Which are available on our website.
In addition, all forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
Please note that a copy of our first quarter financial results press release is available in the Investor Relations section of our website.
We also have a short presentation with highlights from today's call that can be go directly on the webcast or accessed on our website.
I'm joined on this call there ourselves President and Chief Executive Officer, Nick Colangelo.
And our Chief Financial Officer, Joe Mara.
I'll now turn the call over to Nick.
Thank you, Eric and good morning, everyone.
Begin today's call by discussing our financial and business highlights for the first quarter as well as our expectations for the remainder of the year.
Joe will then provide a more detailed review of our first quarter financial performance and our updated guidance for 2023 before opening the call to Q&A.
We entered 2023 with a great deal of momentum as we generated strong <unk> growth in the second half of last year and achieved significant regulatory milestones, including an accelerated regulatory pathway for the arthroscopic Macy program.
And the FDA approval of Nexobrid.
That momentum continued through the first quarter as we had a very strong start to the year from both a financial and overall business perspective, delivering record BC and total revenue for the first quarter and making significant progress on our Missy lifecycle management programs and Nexobrid commercial launch activities.
From a financial perspective, we generated total revenue of $41 million for the quarter, we both Macy's and episodes ahead of our first quarter guidance.
We also continued to generate strong profitability as we delivered our 11th straight quarter of positive adjusted EBITDA and operating cash flow.
In the quarter with nearly $140 million in cash and investments and no debt.
Based on our positive first quarter results in underlying business fundamentals were increasing our 2023 full year revenue guidance to $184 million to $192 million.
Our financial results for the quarter were driven by record first quarter Macy revenue of $34 $2 million representing growth of 32% compared to the prior year.
This strong revenue growth was driven by continued significant increases in surgeon engagement and utilization of Macy's.
In addition to generating record first quarter revenue in implants, we had the highest number of surgeons, taking biopsies in any quarter since we've launched Macy and a record number of first quarter biopsies.
Last two quarters, where our highest biopsy quarters ever with first quarter biopsy nearly matching the record number of basi biopsies taken in the fourth quarter of last year.
This is a noteworthy performance in that we typically see a seasonal step down in biopsy surgeons and biopsies in the first quarter.
It's also a reflection of the fact that our sales and marketing teams continue to execute at a high level.
The operating environment continues to improve.
Basic clearly has resumed its high growth profile as we've had year over year growth of 30, 24, and 32% over the last three quarters, representing a trailing nine months growth rate of 28%.
Based on the continued momentum that we've seen to start this quarter. We also expect strong rates of growth in the second quarter, and we're increasing our full year Macy revenue guidance to 156% to $160 million.
This updated guidance implies 20% full year may see growth at the midpoint and reflects strong sales rep productivity that surpasses our historical high of $2 million per rep achieved prior to our last sales force expansion.
With respect to our Macy lifecycle management initiatives. The BC arthroscopic delivery program remains on track as we continue to progress with our plans to conduct a human factors validation study this year with an anticipated potential launch in 2024.
We believe that the arthroscopic deliberate macy will be a very attractive potential option for many patients and surgeons.
And importantly, the BC arthroscopic instrument kit is designed to treat the most common defects in the Macy addressable market, which are two to four square centimeter defects on the femoral Condyles segment, which represents approximately one third of the overall lease the addressable market or 20000 patients per year.
If approved it would be the only arthroscopic restorative cartilage repair product on the market to treat these defects.
We believe that this would allow me to take a greater share of these procedures to provide a significant upside growth opportunity for <unk> in the company in the years ahead.
We also continue to advance the basic clinical development program for the treatment of cartilage defects in the ankle and recently conducted an initial pre IND meeting with the FDA we.
We believe that a potential ankle indication with an estimated 1 billion dollar addressable market could be a significant growth driver for <unk> over the long term.
Turning to our burn care franchise, we reported first quarter episode revenue of approximately $7 million, which was an increase over the prior quarter and ahead of our guidance for the first quarter.
<unk> <unk> as compared to the fourth quarter, we saw a higher proportion of biopsy patients moving on to treatment with <unk> as well as an increase towards previous levels and the average number of grafts per patient.
With respect to <unk>, our commercial launch activities remain on track and interest from burn surgeons and healthcare providers remains very high.
From an access perspective, PMT committee packages have been submitted at about one third of the 90 centers, where you are targeting this year and we're tracking ahead of our initial goals for both PMT Committee submissions and approvals.
Strong surgeon interest is also reflected by the fact that Nexobrid was selected for inclusion in the pre conference healthcare professional education sessions at the upcoming American Burn Association annual meeting next week with hands on lab demonstrations by leading burn surgeons.
In terms of Nexobrid product availability, our initial expectation was that we would receive commercial product from bedroom and generate some initial stocking revenue towards the end of the second quarter based on projected timelines to complete the additional manufacturing updates required by the FDA in connection with the Nexobrid BLA approval.
We now believe that assuming timely successful completion of these manufacturing updates commercial product availability is more likely to occur early in the third quarter, which did not impact our full year burn care revenue guidance of 28% to $32 million for the year.
I'll now turn the call over to Joe to discuss our first quarter financial results.
Thank you Nick and good morning, everyone Star.
Starting with the income statement total net revenue for the quarter was $41 million driven by strong maintenance revenue of $34 2 million and $6 8 million of epics out revenue.
Gross profit for the quarter was $26 5 million or 65% of net revenue consistent with the prior year.
Total operating expenses for the quarter were $34 7 million compared to $30 7 million for the same period in 2022.
The increase in operating expenses was primarily due to higher employee related expenses variable expenses due to higher Macy's sales volumes, an increase in personnel and conference related activity compared to last year.
Net loss for the quarter was $7 5 million or <unk> 16 per share compared to $7 1 million or <unk> 15 per share for the first quarter of 2022.
non-GAAP adjusted EBITDA for the quarter was $1 7 million and importantly, this is now the 11th consecutive quarter and we generated positive adjusted EBITDA.
Finally, we generated approximately $8 million of operating cash flow in the quarter and we ended Q1 with approximately $139 million in cash and investments and no debt.
Note that during the quarter, we paid <unk> seven 5 million Nexobrid approval milestone after the approval of <unk> and net of this payment our cash and investments increased by approximately $6 5 million during the quarter.
Turning to our financial guidance.
We are increasing our full year revenue guidance for 2023.
We now expect total revenue of $184 million to $192 million compared to our prior revenue guidance of $180 million to $188 million.
We are maintaining our profitability guidance and expect gross margin to be in the high 60% range and adjusted EBITDA in the mid teens percentage range.
For Macy's, we now expect full year revenue of $156 million to $160 million, an increase versus our prior guidance of $152 million to $156 million with growth expected to be approximately 20% for the full year.
As Nick highlighted earlier, our Macy momentum has continued into the second quarter and we expect may see growth in the quarter to remains strong in the low 20% range with revenue of approximately $34 5 million in Q2.
For our burn care franchise, we are maintaining our full year revenue guidance of $28 million to $32 million.
Second quarter based on a continuation of the improved trend we saw for epic fell in Q1, we expect another quarter of approximately $7 million of episodic revenue in Q2.
And for Nexobrid, our guidance assumes product availability and the first commercial sales of <unk> in the third quarter.
Overall for the company and we are very pleased that made a strong first quarter performance and outlook for the year, coupled with our burn care revenue growing off of our Q4 quarterly run rate has brought the company back to our high growth profile in 2023.
And importantly, as we move into 2024, we would also anticipate continued acceleration of our total company revenue growth with a full year of an expert in the market and the anticipated launch of arthroscopic Lacey.
This now concludes our prepared remarks, we will open the call to your questions.
Thank you.
To ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.
And our first question will come from the line of Ryan Zimmerman with <unk>. Your line is open.
Hey, guys congrats on the corner and thanks for taking my questions.
Just wanted to touch on some of the guidance commentary.
Today, so it sounds like.
I appreciate the commentary on second quarter, Joe from AC.
Biopsy is hitting these record levels the last two quarters.
How should we think about macy growth, particularly in the second half of the year relative to maybe historical seasonality.
And just.
We know fourth quarters can be strong but it.
It now seems like third quarter can be prime also have maybe.
Typical seasonal dynamic.
Yes, so good morning, Ryan and thanks for the question. So I'll probably touch on that just briefly on three pieces kind of hit on Q1 as you talked about talk about some of the key Q2 dynamics, particularly from a comparison perspective, and then close out with the full year. So I think to your to your point and as we talked about in the prepared remarks Q1.
With a really strong quarter for us so obviously, great execution by the team.
Really just kind of strengthening across the board in our underlying metrics. So as we talked about we had the highest number of surgeons. We've had in any quarter during biopsy kind of record biopsy from Q1, nearly matched Q4 and really continued the trend of the last couple of quarters in the back half of last year with the high growth.
I'd also say importantly in the first quarter that our conversion rate, which stabilized in H two of last year improved in the first quarter. So that is certainly an encouraging sign and I think on a related note.
Headwinds in the market dynamics, we think are behind us based on the metrics and everything we're seeing and hearing from the field and also our.
External data.
As we look to Q2 to kind of your question I would say, we certainly expect kind of a continuation and we've had a strong bias is that that will continue to drive a very strong Q2. So.
As you think about the second quarter, a couple of things to point out there as well which is.
As we guided to kind of that low 20% range, but if you look at last year in Q2, we actually had.
Benefits from our pricing kind of payer dynamic that impacted Q2 of last year. So when you look at kind of that low 20% growth. It actually ends up being kind of more like the high Twenty's. When you make that adjustment on a year over year comparison and I actually think that's important to your question as well if you think about the cadence of this year. So when you look at Q1.
Q2, and kind of answer your question into Q3, yes, youll, probably see kind of in that single digit growth range across the quarters and that's actually similar to what you saw last year, particularly when you adjust for that payer dynamic in Q2, and then I think to your question in terms of kind of the full year.
We are assuming we have increased the guidance and we are higher than we started the year in the last couple of years and we are at 20% for the full year.
But as we kind of think about what kind of the growth in the back half. We think we have the foundation and certainly add up for a really strong back half of the year in Q3, and Q4, but I'd also say from kind of a guidance framework at this point, we're not going to assume that our conversion rate that was strong in Q1 continues throughout the back half of the year and kind of our framework hasn't changed.
In terms of assuming that those surgeons in those biopsies continue to drive strong results. So I think we want to wait a little bit longer than that and not get ahead of ourselves, but if you kind of look at the quarters and really the back half. It is driven by the strong biopsies and surgeon.
Okay, Alright, very helpful. Joe and then just on the margins.
And I might've missed this in your prepared remarks Joe.
But given where gross margins came in relative to last year, and where the op and the adjusted EBITDA margins are coming in and kind of what do you expect from an investment perspective as you prepare for Nexobrid launch and also.
Sure.
Yes.
Arthroscopic Macy's thanks for taking the questions.
Yes, so I'd say from a margin perspective gross margins came in line with last year and adjusted EBITDA margins.
Margins looked a little bit different but from a quarterly perspective, that's probably hard to look at I think when you look on a full year basis. We still think we can be in that high 60% range on a full year basis, our gross margin.
I think we can be in that mid <unk>.
<unk> range and likely improve on a year over year basis, when we think about the adjusted EBITDA on a full year basis.
So I think certainly as we kind of think about the year and there are investments that are kind of part of our P&L, whether that's lifecycle management in arthroscopic, Macy et cetera, or put an extra bed launched but we think we still think we're kind of in that margin range that we initially laid out.
Okay. Thanks.
Thanks, guys.
Thank you.
One moment for our next question.
That will come from the line of Sam Brodowski with <unk> Securities. Your line is open.
Hey, guys. Thanks for thanks for taking the question and congrats on a good start to the year.
Yes.
One two on next overhead.
One just to start off with the with the supply can you give us any color on what needs to get accomplished there to get that available on <unk> and how confident you are in not being available on updated timeframe.
Yeah, Hey, Sam this is mix so I think as we mentioned.
Post approval in.
In earlier calls there were just inspections meta wound and the CBC facility in Taiwan occurred sort of late last year. There were some updates that were ongoing and needed to be made and that sort of drove the timeline for the initial product availability.
As we mentioned, we always expected that maybe we'd have a little stocking revenue product was made available towards the end of the second quarter.
I think thats, just a dynamic of straddling a quarter and then we're just more comfortable saying that.
We think it's more likely Q3.
So all the work that's been going on continues.
And that's kind of what's driving our.
Our updated guidance just more prudent to assume it starts in Q3, if it happens in Q2.
Great.
Okay, and then as it relates to the broader burn guidance should we think about any.
Different complexion of how much of that is episodes of our Suezmax on brand this year.
Tom Carter Pate dynamic.
Sorry, I didn't hear the last part that I can just repeat the last part of your question.
How much.
Danny.
And the burn guidance should we think about any different complexion, there between <unk> and nexon, Brad given the supply assurance and strong.
Stronger <unk> for up sell.
Yes, I mean, I think as we think about kind of the burn care number.
It kind of starts in the first quarter, obviously, we were able to improve our Q4 and kind of grow off that number as we talked about are higher than that run rate of $6 million a quarter by double digits in the first quarter and I think to your point on the guidance for the second quarter is around that $7 million number. So again ahead of kind of our initial expectations. So.
I think as you kind of put the first two quarters together the results from Q1 and our guidance for Q2 you are at.
$14 million for the first half so yes, certainly I think a strong first half.
<unk>, we kind of think about the guidance of 28 to 32 in terms of the components, it's probably similar to kind of what we talked about last quarter, which is there's still a number of scenarios to kind of get to that full year guidance.
Episodic depending on kind of what <unk> does and again, our kind of goal coming in here with $6 million, but if youre kind of at that run rate that the balances.
<unk> can kind of get you there.
That guidance or obviously episodic kind of trending on its own on a higher rate right. Now so broadly speaking I would say kind of no change in terms of kind of the mix of kind of how to get there.
Just on kind of the stocking dynamic I mean, thats really just a timing element it doesn't change kind of our updated forecast and patient forecast that shifts right now where just from a guidance perspective, assuming that that takes place in Q3 versus Q2, So really no change other than probably got that started the year on epic is probably a little bit stronger than anticipated.
Great. Thanks for taking my questions.
Thank you one moment our next question.
And that will come from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hey, good morning, and thank you particular questions.
Congrats on a strong quarter for you from Erinn I guess firstly.
Could you talk about.
The commercial organization relative to next year I know that.
Previously you were talking about breaking out.
Sales force to go after.
Non burn focused on or is there any update there from your end.
Yeah, Hey, Jeff it's Nick So our plan for the commercial sales force expansion remains the same.
With respect to the Nexobrid launch so.
Obviously, we have a field force out there know of.
Sales reps and clinical support specialists to support.
Episode.
And as we had mentioned with the launch of Nexobrid, we're adding.
Six additional Mexico, Britta only reps to start.
And that has sort of remained the same and so the majority of those reps have already been hired and are the field.
So we're kind of excited obviously to have bigger footprint.
Reach more centers as we move forward throughout the rest of the year.
Okay, Great and then could.
Could you talk about may see a little bit as far as geographies or centers utility number of docs surgeons that had been trained out there are any.
Any kind of a big picture snapshots worth calling out.
Yes, I think building on sort of.
Our metrics from last year, where we said we had about 2000 biopsy surgeons.
Out of our 5000 targets, obviously, we had a lot of strength in the first quarter, where we had the highest ever biopsies surgeons and again thats pretty meaningful in the first quarter, where historically you had seen a bit of a step down from the fourth quarter into the first quarter. So we're really.
Frankly encouraged.
Quite excited about sort of the continued increase in surgeon engagement in terms of of surgeon, so and in terms of geographies.
Our sales force, we expanded to 76 reps back in 2020.
We feel at this point those are obviously much more manageable territories for the reps.
As we look forward, we don't think we need to sort of realigning territories to add additional resources yet.
But we're certainly open to doing different things like piloting.
Support reps and some of the higher volume territories and so on to make sure that we have adequate coverage of cases and so on.
Okay got it nevertheless for us.
Any commentary about.
The FDA and what perhaps in a trial relative to the ankle may look like as far as.
Number of patients and any endpoints how are you thinking about running the trial or how might you.
If you're thinking about running a trial.
Yes, well as I mentioned we.
Did have an initial pre IND meeting with the FDA on our planned program and Theres, a little preclinical work element to it and then there is a clinical study and I think it's safe to say, we're kind of generally aligned.
At this point on that.
And we've always said that like Macy arthroscopic, where we're very pleased to sort of have gained alignment with the FDA.
A human factor study as opposed to a clinical study for.
Basically in the April it would be more like the summit study for <unk> in the knee where it was in that case about a 150 patients probably maybe closer to 200.
For the ankle program and that would be our operating assumption at this point.
And we will continue to update investors on it as we continue to refine timelines and program details.
Super Thanks for taking our questions and congrats on the quarter.
Thanks, Jeff Thank you.
Thank you one moment for our next question.
And that will come from the line of George Sellers with Stephens. Your line is open hey.
Hey, good morning, Thanks for taking the question congrats on a great quarter.
Maybe to dig in a little bit more on that first quarter biopsy number what are some of the dynamics that are driving that is it primarily market staying strong here in the first quarter or are you seeing physicians.
Getting more comfortable with the procedure or something.
Positive reimbursement change whats kind of driving that elevated biopsy number here in the first quarter.
Well I would say that as Joe alluded to that we definitely have seen sort of improvement in the market.
And obviously that.
Think of it as sort of eliminating headwinds and just higher patient flow things like that so that's obviously as theres more traffic in the surgeon's offices that obviously as a contributor as well I'd say, there's also just a continued expansion in surgeon engagement around the brand is.
As more certainty.
Their practices normalize in and sort of more surgeons become aware of may see.
We just have stronger engagement and thats what.
It resulted in the highest number of biopsies resurgence in any quarter in the first quarter. So we're very encouraged that.
As those headwinds abate and our reps are out in force that will just kind of continue to make good strong progress on surgeon engagement no reimbursement sort of changes of note.
Continued strong approval rates as we've talked about in the past.
Obviously, that's helpful as well.
Okay. That's helpful and then.
Maybe to revisit the comments around sales reps it sounds like.
Third continuing to drive productivity, there and you mentioned you don't.
Plan to need to add any realigned territory, yet, but just curious the timing on that as you think about continued productivity.
Improvements and then the arthroscopic option coming in 2020 for whats sort of the timeline for potentially adding additional reps.
Yes.
We added reps back in 2020, we said.
Felt like we were sizing the sales force properly for the next two to three years or more and that we would revisit a couple of years out obviously, we had all the disruption of Covid so that.
That kind of.
Influenced we did take another look and felt like we're comfortable at this point.
I think as we look ahead to arthroscopic Macy edge.
I mentioned earlier, when we increased our targets from three to 5000 surgeons, we made a corresponding increase in the sales force size.
We will go through that exercise again, as we get closer to next year and the potential launch in and depending on the number of targets we would add.
From the predominant arthroscopic only surgeon pool that will dictate sort of whether we need to add reps or not.
I don't think it would be anywhere near the same size or percentage expansion that we did in the past but.
It's something we will determine.
As we move throughout the year.
Okay very helpful. Thank you and congrats again on a great quarter.
Thanks George.
Thank you one moment for our next question.
Yes.
And that will come from the line of Sean Lee with H C. Wainwright. Your line is open.
Good morning, everyone. Congrats on a great quarter and thanks for taking my questions.
My first question was I was wondering if we could provide a bit more color into the surgeon metrics may see in terms of what are your net surgery growth.
Number of biopsy growth and as well as the conversion rates.
Yes. So good morning. This is Josh thanks for the question I think.
I guess the way I would kind of frame. It is probably more similar to what we talked about on our call in some of the questions which is.
Earlier in the year, it's probably hard to look at kind of absolute percentage growth and whatnot, particularly on the surgeon.
But I think that kind of point that we are at the highest number of surgeons biopsy in any quarter is kind of sort of speaks for itself. So clearly that is.
A significant number and then in terms of the biopsy growth again, we're a quarter into the year, but I think what's important and what's really been driving particularly the first quarter results on the revenue side, which were quite strong as I would say kind of an acceleration of that biopsy growth. Yes. It started towards the end of last year and it certainly has continued into Q1.
So I think we're encouraged by the engagement and the number of surgeons being kind of at its highest point in a quarter, but also I would say accelerating growth on the biopsies, which we think certainly drive the first quarter, but also positions us well for the remainder of the year.
Great Thanks for that.
My last question is on the manufacturing side I was wondering whether the new manufacturing facility is still on track for 2025 I believe is OLED your last guidance called for.
Yes, so the new facility in Burlington is on track with our prior timelines.
We would expect that.
The office space will be done earlier.
Obviously manufacturing space needs to go through the FDA approval process. So.
It could very well be a staged.
Where the office.
A portion of the company kind of moves up there maybe late next year.
And then commercial manufacturing, we would expect to begin in Q1 2026, so everything moving forward as planned.
Great. That's all I have and thanks again for taking my questions.
Okay. Thank you very much.
Im showing no further questions in the queue at this time I would now like to turn the call back over to Mr. Nick Colangelo for any closing remarks.
Okay, well, thank you operator, and thanks to everyone for your questions and your continued interest in <unk>.
Obviously, the company executed well in the first quarter and had a great start to the year, we expect to deliver another year of strong financial and operating results in 2023, and we look forward to providing further updates on our next call. So thanks again and have a great day.
Thank you all for participating. This concludes today's program you may now disconnect.
Okay.
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