Q1 2024 Vericel Corp Earnings Call
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Operator: Ladies and gentlemen, thank you for standing by. Welcome to Vericel's first quarter 2024 conference call. 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 only. I will now turn the conference call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations.
Ladies and gentlemen, thank you for standing by.
I'll come to their thoughts first quarter 'twenty 'twenty four 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 it.
I will now turn the conference call over to Eric Byrnes.
Eric Burns: Salt Vice President of Finance and Investor Relations.
Eric Burns: Thank you operator.
Eric Burns: Good morning, everyone.
Eric Burns: Joining me on today's call are Vericel's president and Chief Executive Officer Nick Colangelo and our Chief Financial Officer Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements, Covenant of the Private Scourge 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 findings at the SEC.
Eric Burns: Joining me on today's call are president.
Eric Burns: And Chief Executive Officer, Michelangelo, and our Chief Financial Officer, Joe Mara.
Eric Burns: In addition, all four 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 and a short presentation with highlights from today's call are available in the investor relations section of our website. I will now turn the call over to Nick. Thank you, Eric.
Speaker Change: Before we begin let me remind you that on today's call, we only making forward looking statements.
Speaker Change: Under the private Securities Litigation Reform Act of 1995.
Speaker Change: And then may involve risks and uncertainties.
Speaker Change: That could cause actual results to differ materially from expectations.
Speaker Change: This guy Mercury Air filings with the SEC.
Speaker Change: In addition, all forward looking statements represent our views only as of today.
Speaker Change: It should not be relied upon.
Speaker Change: As representing our views as of any subsequent date.
Speaker Change: Please note that a copy of our first quarter financial results press release.
Speaker Change: In a short presentation with highlights from today's call are available in the Investor Relations section of our website.
Speaker Change: I will now turn the call over to Nick.
Dominick C. Colangelo: Thank you, Eric, and good morning, everyone. I'll 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 results and guidance for 2024 before opening the call to Q&A. We entered the year with a great deal of momentum after an outstanding close to 2023. And that momentum continued through the first quarter, as we delivered another quarter of top-tier revenue growth, including record first quarter total revenue and significant growth and profitability.
Nick: Thank you, Eric and good morning, everyone.
Nick: I'll 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.
Nick: Joe will then provide a more detailed review of our first quarter financial results and guidance for 2024 before opening the call to Q&A.
Nick: We entered the year with a great deal of momentum after the outstanding close to 2023 and that momentum continued for the first quarter as we delivered another quarter of top tier revenue growth, including record first quarter total revenue is significant growth and profitability.
Dominick C. Colangelo: Total revenue for the quarter increased 25% to more than $51 million, which was above the top end of our guidance, with record first quarter Macy revenue and more than 60% growth in burn share revenue. This strong top line growth translated into significant margin expansion and profit growth as we generated record first quarter gross margin, which increased more than 400 basis points compared to last year, and adjusted EBITDA growth of more than 300% as the company's profit growth continues to outpace our high revenue. Based on this strong start to the year, we're increasing our full year revenue guidance to $238 to $242 million.
Joseph Anthony Mara: Total revenue for the quarter increased 25% to more than $51 million, which was above the top end of our guidance range with record first quarter, Macy revenue and more than 60% growth in burn care revenue.
Joseph Anthony Mara: This strong top line growth translated into significant margin expansion and profit growth as we generated record first quarter gross margin, which increased more than 400 basis points compared to last year and.
Joseph Anthony Mara: And adjusted EBITDA growth of more than 300% as the company's profit growth continues to outpace our high revenue growth.
Joseph Anthony Mara: Based on our strong start to the year, we're increasing our full year revenue guidance to $238 million to $242 million.
Dominick C. Colangelo: Macy had another excellent quarter with revenue growing 18% to more than $40 million, which was above the top end of our guidance range for the quarter. Macy's first quarter performance was driven by strong underlying business fundamentals as we continue to expand the Macy's surge in customer base and drive growth and buyout.
Joseph Anthony Mara: <unk> had another excellent quarter with revenue growing 18% to more than $40 million, which was above the top end of our guidance range for the quarter.
Joseph Anthony Mara: These first quarter performance was driven by strong underlying business fundamentals as we continue to expand the macy surge in customer base and drive growth in biopsies.
Dominick C. Colangelo: While the first quarter typically is the seasonally lowest quarter of the year, we had the second highest number of anti-biopsies and surgeon-taking biopsies in any quarter since launch, behind only the fourth quarter of last year, making the last two quarters the highest quarters ever on both of those metrics, as our sales and marketing teams continue to execute at a very high level in building a strong foundation for continued amazing growth. To that end, surging interest and engagement with Macy remains high, as the number of peer-to-peer programs and training labs for Macy more than doubled, and overall program attendance more than tripled in the first quarter compared to last year.
Joseph Anthony Mara: While the first quarter typically is the seasonally lowest quarter of the year. We had the second highest number of AC biopsies uncertainty biopsies in any quarter since launch.
Joseph Anthony Mara: The fourth quarter of last year.
Joseph Anthony Mara: The last few quarters, the highest quarters ever on both of those metrics as our sales and marketing teams continue to execute at a very high level and building a strong foundation for continued growth.
Joseph Anthony Mara: Surgeon interest and engagement with Maisie remains high.
Joseph Anthony Mara: Number of peer to peer programs, a training labs for <unk> more than doubled and overall program 10 years more than tripled in the first quarter compared with last year.
Dominick C. Colangelo: The high level of surgeon interest is driven by the strength of Macy's long-term clinical outcomes, which were highlighted in a study published in the American Journal of Sports Medicine in the first quarter. This prospective study showed excellent long-term results for Macy patients treated for both patellofemoral defects, where we currently have our highest penetration rates, as well as femoral condyle defects, which is the focus of the Macy ART report. Pre-launch commercial activities for Masey Arthro continue to progress in advance of our anticipated launch in the third quarter of this year.
Joseph Anthony Mara: The high level of surgeon interest is driven by the strength of basis long term clinical outcomes, which were highlighted in a study published in the American Journal of sports Medicine in the first quarter.
Joseph Anthony Mara: This prospective study showed excellent long term results for basic patients treated for both account femoral defects, where we currently have our highest penetration rates as well as federal condyle defects, which is the focus of the ACR drilling program.
Joseph Anthony Mara: Prelaunch commercial activities of our VCR continue to progress in advance of our anticipated launch in the third quarter of this year in connection with the launch we're expanding our target surgeon base of 5000 to 7000 surgeons to include surgeons that perform high volumes of cartilage repair predominantly through arthroscopic procedure.
Dominick C. Colangelo: In connection with the launch, we're expanding our target surgeon base from 5,000 to 7,000 surgeons to include surgeons that perform high volumes of cartilage repair, predominantly through arthroscopic procedures. Based on our experience to date, we expect to achieve more than 50% penetration of this larger target surgeon base over time, meaning that surgeon adoption and biopsy growth will continue to be important growth drivers for MACE in the years ahead. In addition, Macy's arthro instruments target smaller cartilage defects that comprise the largest segment of our addressable market, representing approximately 20,000 patients per year, or one third of the $3 billion addressable market for Macy's.
Joseph Anthony Mara: <unk>.
Joseph Anthony Mara: Based on our experience to date, we would expect to achieve more than 50% penetration of this larger target surgeon base over time.
Joseph Anthony Mara: Net surgeon adoption and biopsy growth will continue to be important growth drivers for BC in the years ahead.
Joseph Anthony Mara: In addition, <unk>.
Joseph Anthony Mara: Arturo instruments target smaller cartilage defects that comprise the largest segment of our addressable market representing approximately 20000 patients per year are one third of that $3 billion.
Joseph Anthony Mara: <unk> market for lasers.
Dominick C. Colangelo: We believe that BCRFO will take a greater share of these procedures and provide a significant upside growth opportunity for the company. We also continue to advance the Macy Development Program to treat cartilage defects in the ankle and remain on track to initiate the Macy Ankle Clinical Study in 2025. Achilles defects in the ankle represent the second largest market opportunity for Macy.
Joseph Anthony Mara: We believe that <unk> will take a greater share of these procedures.
Joseph Anthony Mara: Significant upside growth opportunity for the company.
Joseph Anthony Mara: We also continued to advance the basic development program to treat cartilage defects in the April and remain on track to initiate the anchor clinical study in 2025.
Joseph Anthony Mara: Currently Steve back to the April represent the second largest market opportunity for BC, we believe that a potential equal indication with an estimated $1 billion addressable market could be another significant growth driver for Macy's in the next decade and beyond.
Dominick C. Colangelo: We believe that a potential ankle indication with an estimated $1 billion addressable market could be another significant growth driver for Macy in the next decade and beyond. Turning to our burn care franchise, first quarter revenue increased more than 60% to over $11 million as we delivered another quarter of high revenue, with total burn care revenue above the high end of our guidance. FSL revenue grew 56% to over $10.5 million in the first quarter, representing the second highest quarterly revenue ever for FSL.
Joseph Anthony Mara: Turning to our burn care franchise first quarter revenue increased more than 60% to over $11 million as we delivered another quarter of high revenue growth with total burn care revenue above the high end of our guidance range.
Joseph Anthony Mara: Total revenue grew 56% to over $10 $5 million in the first quarter represented the second highest quarterly revenue ever reconcile.
Dominick C. Colangelo: Epsil continues to benefit from our expanded sales force and a higher share of voice in the bird care market, as there was a meaningful contribution to Epsil revenue in the quarter from new or dormant accounts. NextaBridge launch momentum continued during the quarter as we made significant progress with respect to burn center key performance indicators and growth in underlying NextaBridge demand. Through the end of the first quarter, more than 60 burn centers had completed P&T committee submissions.
Joseph Anthony Mara: <unk> continues to benefit from our expanded sales force and a higher share of voice in the burn care market.
Joseph Anthony Mara: It was a meaningful contribution to upsell revenue in the quarter from new or dormant accounts.
Joseph Anthony Mara: Next a brief launched momentum continued during the quarter as we made significant progress with respect to burn center key performance indicators of growth.
Joseph Anthony Mara: Underlying <unk> demand metrics through.
Joseph Anthony Mara: Through the end of the first quarter 460 burn centers that completely P&C Committee submissions.
Dominick C. Colangelo: Approximately 40 centers had gained P&T committee approval, and more than 30 centers had placed an initial product order. In addition, there was a significant increase in the number of patients treated with Nexibrid in the first quarter and significant growth in the number of burn center orders for Nexibrid and units ordered by hospitals versus the prior quarter.
Joseph Anthony Mara: <unk> 40 centers have gained P&C committee approval in more than 30 centers and placed an initial product order.
Joseph Anthony Mara: In addition, there was a significant increase in the number of patients treated with Nexobrid in the first quarter and significant growth in the number of burn centers orders index.
Joseph Anthony Mara: Units ordered by hospitals versus the prior quarter.
Dominick C. Colangelo: We remain very pleased with the strong surge in interest in Nexavirid, as demonstrated by the high level of attendance and engagement at Nexavirid events at the recent American Burn Association annual meeting, the progress in onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients, and the clear impact that our broader burn care portfolio and expanded sales team is having on epicellular performance. We believe that these factors will enable the company to build a strong foundation for the next great in 2024 and that the company is now very well positioned to deliver sustained growth to the second high growth franchise in place.
Joseph Anthony Mara: We remain very pleased with the strong surgeon interest an extra burden. This is demonstrated by the high level of the attendance and engagement.
Joseph Anthony Mara: Great events at the recent American Burn Association annual meeting the progress in Onboarding burn centers, the excellent clinical outcomes positive feedback from surgeons treating patients in the clear impact that our broader burn care portfolio and expanded sales teams have enough episodes performance.
Joseph Anthony Mara: We believe that these factors will enable the company to build a strong foundation for an exit rate in 2024 and that the company is now very well positioned to deliver sustained growth the second high growth franchise in place.
Dominick C. Colangelo: Overall, the company delivered another strong quarter, and based on the strength of our core portfolio and the expected contributions from our new product launches, we believe the company is very well positioned for continued high revenue and profit growth in 2024 and beyond. I'll now turn the call over to Joe.
Joseph Anthony Mara: Overall, the company delivered another strong quarter and based on the strength of our core portfolio and the expected contributions from our new product launches. We believe the company is very well positioned for continued high revenue and profit growth in 2024 and beyond.
Joseph Anthony Mara: I'll now turn the call over to Joe.
Joseph Anthony Mara: Thanks, Nick, and good morning, everyone. I'm starting with our first quarter results. Total net revenue for the quarter was $51.3 million, representing 25% growth over the prior year, which was above the top end of our guidance range for the quarter. Mayfee revenue increased 18% to $40.2 million, and total burn care revenue increased 63% to $11.1 million, both of which exceeded our guidance for the quarter. FSL revenue was $10.7 million, an increase of 56% versus the prior year, which represented the second highest quarterly revenue for FSL to date.
Joseph Anthony Mara: Thanks, Nick and good morning, everyone.
Joseph Anthony Mara: Next to bid revenue was $0.4 million, which, as anticipated, was similar to revenue in the fourth quarter. While underlying hospital orders and units grew significantly versus the prior quarter, as previously noted, specialty distributor and hospital ordering patterns, as well as inventory dynamics, can impact quarterly revenue results. Gross profit for the quarter was $35.4 million, or 69% of net revenue, an increase of more than 400 basis points versus the prior year and the company's highest first quarter gross margin to date.
Joseph Anthony Mara: <unk> with our first quarter results.
Joseph Anthony Mara: Pull-through of incremental revenue to gross profit also remained very strong in the first quarter at more than 85%. Total operating expenses for the quarter were $40.8 million, compared to $34.7 million for the same period in 2023. The increase in operating expenses was primarily due to development activities for Macy Arthroscopic Institute, increased headcount and related employee expenses, and lease expense associated with the company's new facility that is under construction.
Joseph Anthony Mara: Total net revenue for the quarter was $51 3 million, representing 25% growth over the prior year.
Joseph Anthony Mara: It was above the top end of our guidance range for the quarter.
Joseph Anthony Mara: Macy revenue increased 18% to $40 2 million and total burn care revenue increased 63% to $11 1 million.
Joseph Anthony Mara: Both of which exceeded our guidance for the quarter.
Joseph Anthony Mara: <unk> revenue was $10 7 million, an increase of 56% versus the prior year, which represented the second highest quarterly revenue for <unk> to date.
Joseph Anthony Mara: Net operating revenue was <unk> 4 million, which as anticipated with similar to revenue in the fourth quarter.
Joseph Anthony Mara: While underlying hospital orders and units grew significantly versus the prior quarter as previously noted specialty distributor and hospital ordering patterns as well as inventory dynamics can impact quarterly revenue results.
Joseph Anthony Mara: Gross profit for the quarter was $35 4 million or 69% of net revenue an increase of more than 400 basis points versus the prior year and the company's highest first quarter gross margin to date.
Joseph Anthony Mara: Pull through of incremental revenue to gross profit also remained very strong in the first quarter quarter at more than 85%.
Joseph Anthony Mara: Total operating expenses for the quarter were $40 8 million compared to $34 7 million for the same period in 2023.
Joseph Anthony Mara: The increase in operating expenses was primarily due to development activities for Macy's arthroscopic instruments.
Joseph Anthony Mara: Increased head count and related employee expenses and lease expense associated with the company's new facility that is under construction.
Operator: The net loss for the quarter was $3.9 million, or $0.08 per share, compared to $7.5 million, or $0.16 per share, for the first quarter of 2023. Non-GAAP adjusted EBITDA for the quarter increased 325% to $7.2 million, or 14% of net revenue. [inaudible] This increase in adjusted EBITDA margins of approximately 1,000 basis points, and what typically is our seasonally lowest quarter of the year, clearly demonstrates the strong P&L leverage and the top tier profitability profile for the company.
Joseph Anthony Mara: Net loss for the quarter was $3 9 million or <unk> <unk> per share compared to $7 5 million or <unk> 16 per share for the first quarter of 2023.
Joseph Anthony Mara: non-GAAP adjusted EBITDA for the quarter increased 325% to $7 2 million or 14% of net revenue compared to $1 7 million or 4% of net revenue in 2023 as.
Joseph Anthony Mara: <unk> adjusted EBITDA growth continued to significantly outpace our high revenue growth.
Joseph Anthony Mara: This increase in adjusted EBITDA margin of approximately 1000 basis points in what typically is our seasonally lowest quarter of the year clearly demonstrates the strong P&L leverage in the top tier profitability profile for the company.
Operator: Finally, the company generated $7.2 million of operating cash flow in the quarter and ended the first quarter with $148 million in cash, restricted cash, and investment and no debt. Turning to our financial guide. After a very strong start to the year, we are increasing our full-year total revenue guidance to $238-242 million, or 20-23% total revenue growth. For the quarter, we expect Macy's revenue to be approximately $42.5 million. For burn care, we expect total revenue in the second quarter to be approximately $10 million, with another strong episode quarter above our 2023 quarterly run rate and sequentially higher next-of-it revenue.
Joseph Anthony Mara: Finally, the company generated $7 2 million of operating cash flow in the quarter and ended the first quarter with $148 million in cash restricted cash and investments and no debt.
Speaker Change: Turning to our financial guidance.
Joseph Anthony Mara: After a very strong start to the year, we are increasing our full year total revenue guidance to $238 million to $242 million or 20% to 23% total revenue growth.
Joseph Anthony Mara: For the quarter, we expect maintenance revenue to be approximately $42 5 million.
Joseph Anthony Mara: For burn care, we expect total revenue in the second quarter to be approximately $10 million with another strong episodic quarter above our 2023 quarterly run rate and sequentially higher net spread revenue.
Operator: Based on our second quarter guidance, the tripping 12 month revenue growth rate will be above 20% for Macy, Burncare, and Total Company Revenue as we continue to drive high top line growth across both of our franchises. For the full year, we continue to expect gross margin of approximately 70%, adjusted EBITDA margin of approximately 20%, and operating expenses to be approximately $165 million. For the second quarter, we expect gross and adjusted EBITDA margins to be in a similar range to first quarter margins.
Joseph Anthony Mara: Based on our second quarter guidance that trailing 12 month revenue growth rate will be above 20% for Macy burn care and total company revenue as we continue to drive high top line growth across both of our franchises.
Joseph Anthony Mara: For the full year, we continue to expect gross margin of approximately 70% adjusted EBITDA margin of approximately 20% and operating expenses to be approximately $165 million.
Joseph Anthony Mara: For the second quarter, we expect growth in adjusted EBITDA margins to be in a similar range to first quarter margins.
Operator: The company had a very strong year and a strong start to the year with 25% top line growth in the first quarter and significant profitability growth and margin expansion. In addition, on a trailing 12 month basis, the company has delivered 23% total revenue growth and 74% adjusted EBITDA growth, demonstrating sustained high growth in the top line and the bottom line as we continue to significantly enhance the company's financial profile. Overall, we believe that the company is very well positioned for another strong year in 2024 and has a solid foundation in place for continued strong growth in the years ahead. This now concludes our prepared remarks, and we will open the call to questions. Thank you.
Joseph Anthony Mara: The company at a very strong year strong start to the year with 25% top line growth in the first quarter and significant profitability growth and margin expansion.
Joseph Anthony Mara: In addition, trailing 12 month basis. The company has delivered 23% total revenue growth and 74% adjusted EBITDA growth demonstrating a sustained high growth in the top line and the bottom line as we continue to significantly enhance significantly enhanced the company's financial profile.
Joseph Anthony Mara: Overall, we believe that the company is very well positioned for another strong year in 2024 as a solid foundation in place for continued strong growth in the years ahead.
Speaker Change: This now concludes our prepared remarks, we will open the call to questions.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. The first question comes from Ryan Zimmerman with BTIG. Go ahead, Ryan. Your line is open.
Speaker Change: 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.
Speaker Change: To withdraw your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Joseph Anthony Mara: First question comes from Ryan Zimmerman with BTG go ahead, Ryan Your line is open.
Ryan Benjamin Zimmerman: Thank you and good morning, and congratulations on a strong start here. I want to ask a couple questions in a multi-part manner. First on guidance, I want to understand two things. Do you still expect, I think you had mentioned before that you could do next of bid sales in the range of, and correct me if I'm wrong here, Joe, seven to eight million or eight to nine million. I can't remember exactly what it was.
Ryan Benjamin Zimmerman: Thank you and good morning, and congrats on strong start here.
Ryan Benjamin Zimmerman: I wanted to ask couple of questions.
Ryan Benjamin Zimmerman: Multi part manner first on guidance I want to I want to understand.
Ryan Benjamin Zimmerman: But do you still expect that level of next bid sales this year? And, and the second component of the guidance question is you beat by about two million. You kind of, you know, if you split that between the two franchises, guidance is moving up about a million dollars. So just talk to us about kind of where you think you're, quote unquote, holding back between Macy and Epicel for guidance for the year. And then I have a second question.
Ryan Benjamin Zimmerman: Two things.
Ryan Benjamin Zimmerman: Do you still expect I think you had mentioned before that you could do nexobrid sales in the range of and correct me if I'm wrong here, Joe $7 million to $8 million or eight to 9 million I can't remember exactly what it was but do you still expect that level of Nexobrid sales this year and in the second component of the guidance question as you beat by about $2 million.
Ryan Benjamin Zimmerman: Yeah.
Speaker Change: If you split that between the two franchises guidance is moving up about $1 million.
Ryan Benjamin Zimmerman: So just talk to us about kind of where you think your quote unquote holding back between May stay in episodic.
Ryan Benjamin Zimmerman: For the guidance for the year, and then I have a SEC.
Speaker Change: Good question.
Joseph Anthony Mara: All right, well, I'll start with those. Good morning, Ryan.
Speaker Change: Alright, well ill start with those good morning, Ryan and thanks for the question so.
Speaker Change: I'll, maybe start on the total guidance and then talk a little bit how we're thinking about what kind of a burn care on a full year basis. So.
Speaker Change: In terms of the total guide.
Speaker Change: Very strong start to the year in Q1, we're raising our guidance to $2 38 to $2 42. So if you look at the mid point, there, which is where I'd focus.
Speaker Change: $1 million, so $239 million with a midpoint.
Joseph Anthony Mara: And thanks for the question. So, you know, I may start with the total guidance and then talk a little bit about how we're thinking about kind of burn care on a four-year basis. So, you know, in terms of the total guide, you know, we have a very strong start to the year in Q1. We're raising our guidance from 238 to 242. So if you look at the midpoint there, which is where I'd focus, you know, we're up a million dollars.
Speaker Change: Tier quarter, we've increased that to $2 40.
Speaker Change: In terms of kind of the mix on franchises to start I would assume the $1 million increase is on the Macy's side in that kind of flows through to Macy's Inc.
Joseph Anthony Mara: <unk> made me was roughly $1 million add in Q1 in terms of our expectations and guidance. Our metrics are very strong into Q2, I think relative to the estimate we gave last quarter, which again is multiple scenarios, but the framework. We gave which is starting point for me within the high teens and I had referenced the $194 million I think you can you.
Speaker Change: Can I assume that comes out on our base case, if you will to 195 and arrange ticked up as well our 93 to 197, if you think about kind of high teens range, yes, the remaining $45 million would stay on burn care and that gets you to that 240 million in total a couple of things kind of around your question. So one.
Joseph Anthony Mara: So 239 million was our midpoint coming into the quarter; we've increased that to 240. You know, in terms of kind of the mix on franchises, to start, you know, I would assume, you know, the 1 million increase is on the Macy side, and that kind of flows through to Macy, given Macy was, you know, roughly a million ahead in Q1, in terms of our expectations and guidance, our metrics are very strong into Q2.
Joseph Anthony Mara: You know, I think relative to the estimate we gave last quarter, which, you know, again, there are multiple scenarios, but the framework we gave, which, you know, the starting point for Macy was in the high teens, and I had referenced 194, you know, I think you can assume that comes up, you know, in our base case, if you will, to 195, and the range takes up, you know, as well, call it 19 You know, the remaining $45 million would stay on burn care. And that gets you to the $240 million total. You know, a couple of things kind of around your question.
Joseph Anthony Mara: So one, you know, we don't typically adjust our burn care guidance, particularly after the first quarter. We don't adjust it, rather, after the first quarter of the year. So we had a very similar situation last year where, you know, we had a run rate expectation going into the first quarter. We were ahead of that. We did not adjust.
Joseph Anthony Mara: We don't typically adjust our burn care guidance, particularly after that first quarter adjusted rather after the first quarter of the year, where we had a very similar situation last year, where we.
Joseph Anthony Mara: We had a run rate expectation going into the first quarter. We were ahead of that we did not adjust and then if you just think about kind of our burn care portfolio, where episodically fell very clearly.
Joseph Anthony Mara: And then, you know, if you just think about kind of our burn care portfolio where EpiCell can still vary, although clearly it's doing quite well and benefiting from the higher share of voice, it still can vary on a quarterly basis. And I would say it's still difficult to predict exactly what the shape of the next grid launch uptake curve looks like. You know, it's still early in the year there, so, you know, kind of holding guidance there.
Joseph Anthony Mara: It's doing quite well and benefited from the higher share of voice at silicon vary on a quarterly basis, and I would say, it's still difficult to predict exactly what the shape of the nexobrid launch uptake curve looks like so it's still early in the year, there so kind of holding guidance there.
Joseph Anthony Mara: You know, it is important to recognize that, you know, in the burn care total, this is still kind of well above, at $45 million, well above the company growth, you know, at nearly, nearly 40% on a four-year basis. So, you know, we have very high expectations on the burn care side for both franchises. And, of course, we had a very strong start from a profitability perspective in the first quarter as well.
Joseph Anthony Mara: It is important to recognize that in the burn care total this is still kind of well above at 45 million well above the company growth.
Joseph Anthony Mara: Lee.
Joseph Anthony Mara: Nearly 40% on a full year basis, so we have a very.
Joseph Anthony Mara: My expectations on ovarian care side for both franchises and of course, we had a very strong start from a profitability perspective in the first quarter as well.
Joseph Anthony Mara: You know, in terms of your question, you know, on the mix, if you will, for the balance of the year, I would say, you know, obviously, EpiCell had a great start to the year with its second highest quarter to date and nearly $11 million kind of on its own. And so, you know, as we think about burn care, you know, I think there are a number of scenarios, you know, to your point. What I referenced last quarter were numbers kind of in the $38 million range and $7 million-ish range that got you to $45 million in total on burn care.
Speaker Change: In terms of your question.
Joseph Anthony Mara: The mix if you will for the balance of the year I would say, obviously episodic had a great start to the year with its second highest quarter to date and nearly $11 million and kind of on its own and so as we think about burn care I think theres a number of scenarios to your point, what I referenced last quarter.
Joseph Anthony Mara: Our numbers kind of in the $38 million range and $7 million ish range that got you to $45 million in total in burn care.
Joseph Anthony Mara: You know, if, for example, we maintain the higher run rate in EpiCell that we call for to start the year, you know, throughout the balance of the year, that probably gets us closer to $40 million on EpiCell, and the balance would be, you know, call it $5 million on Nexabrin. You know, again, I think it's still early in the year. I think both products could shift a little bit, but I think there are multiple scenarios to get us to $45 million.
Joseph Anthony Mara: If for example, we maintained a higher run rate in epic Zelle, a recall for to start the year.
Joseph Anthony Mara: Throughout the balance of the year that probably gets us closer to $40 million on <unk> and the balance would be $5 million or <unk>.
Joseph Anthony Mara: Again, I think it's still early in the year I think both products.
Joseph Anthony Mara: <unk> a little bit.
Joseph Anthony Mara: But I think there's multiple scenarios to get to 45 so.
Joseph Anthony Mara: So, you know, I think, at this point, it's still difficult to predict exactly what it looks like, but, you know, we expect both products to contribute. But, you know, Nexabrin is in a build year, and clearly, EpiCell is operating at a higher run rate.
Joseph Anthony Mara: I think at this point, it's still difficult to predict exactly what that looks like but we expect both both products to contribute but <unk> is in a build year and clearly epistyle is operating at a higher run rate.
Dominick C. Colangelo: Yeah, no, that's very helpful, Joe. I appreciate all the color. Yeah, the second question, I should say, and again, not to take anything away from profitability. It was nice to see.
Speaker Change: Yeah, No that's very helpful. Joe.
Speaker Change: All the color.
Dominick C. Colangelo: Yes.
Speaker Change: Second question, I should say and not again not to take anything away from profitability. It was nice to see.
Dominick C. Colangelo: On Macy, I want to ask you about Macy and the launch of MacyArthro a little bit, you know, as you think about the broader segment of doctors that you can target, one, are you thinking about expanding your sales force? I mean, should we think about that from an operating expense standpoint, and then to? You talked about 50% penetration over time. By my estimates, you know, I have you at maybe 2,400 docs today. So, you know, call it 7,000 docs; that's 1,000 more. Why 50%? Why not go higher? Why not 75% or so? I'm just curious, kind of, what's driving that thinking. Yeah, hey, Ryan, this is Nick. So
Speaker Change: On May say I want to ask about Macy and the launch of ACR through a little bit.
Nick: As you think about the broader segment of doctors that you can target.
Nick: Are you thinking about expanding your sales force I mean should we think about that from an operating expense.
Nick: Endpoint and then to <unk>.
Nick: Talked about 50% penetration over time by my estimates.
Nick: Have you maybe 2400 docs today, so call. It 7000 docs with a thousand more why why is 50% why not higher why not 75% or so I'm just curious kind of what's driving that thank you.
Dominick C. Colangelo: Hey, Ryan, this is Nick. So first of all, on sort of Salesforce expansion, I think we discussed it before that, you know, this will not be the launch of VCR throw. Adding a couple thousand targets over 76 territories is something that we think we can absorb without having to realign territories, which is, you know, can be disruptive. What we will do as volumes continue to increase is add some of the territory development managers that we had, for instance, last year in high volume territories, and then arthroscopic specialists who can really help surgeons who are new to VCR throw or Macy in general.
Dominick C. Colangelo: Yeah, Hey, Ryan this is Nick so first of all on sort of sales force expansion I think we discussed it before that.
Dominick C. Colangelo: This will not the launch of ECR through.
Dominick C. Colangelo: Adding a couple of thousand targeted silver 76 territories. You know that's something that we think can give them absorb without having to realign territories, which as you know can be disruptive.
Dominick C. Colangelo: What we will do as volumes continue to increase as Ed.
Dominick C. Colangelo: Some of the territory development managers that we had for instance last year as well as high volume territories, and then arthroscopic specialist who can really help surgeons, who are new to <unk> or may see at Jetblue.
Dominick C. Colangelo: And so, you know, all in all, call it half a dozen to a dozen folks, maybe so kind of, you know, obviously not a very significant expansion, but one that we think will aid with the Macy arthro uptake. The, you know, the 50% reference that we kind of talk about, you know, as you know, historically, we launched Macy with 3000 targets, and we got up to sort of 50% penetration, and it was increasing pretty dramatically at the time.
Dominick C. Colangelo: All in.
Dominick C. Colangelo: Call it half a dozen do a dozen folks lately so kind of.
Dominick C. Colangelo: Obviously, not a very significant expansion, but one that we think will aid.
Dominick C. Colangelo: With an AC.
Dominick C. Colangelo: Our true up uptake.
Dominick C. Colangelo: The 50% reference that we kind of talk about as you know historically, we launched may see with 3000 target.
Dominick C. Colangelo: Got up to sort of 50% penetration and it was increasing pretty dramatically at the time from 2018 to 2019, the number of biopsy surgeons was up 25% to call it roughly <unk> hundred.
Dominick C. Colangelo: From 2018 to 2019, the number of biopsy surgeons was up 25% to roughly 1400 for the year, but higher than that cumulative. And then we increased the sales force, so we never got to sort of a terminal sort of penetration rate with the initial, Unknown Speaker, Unknown Attendee, Unknown Speaker, Unknown Speaker,
Operator: Thank you.
Operator: For the year, but higher than that cumulatively.
Operator: And then we increase the sales force. So we never got to sort of a terminal sort of penetration rate with the initial.
Operator: Size.
Operator: Targeted universe, obviously, you knew that increased 5000, we continued to grow strongly.
Operator: <unk>, 50% penetration and will expand again, so again not have gotten.
Operator: To the ultimate penetration rate, but the point is it will drive in our view continued surgeon adoption and growth and yes. Ultimately there is no reason it can't go above 50% and just sort of never gotten to the point, where again, it's matured enough before we had other opportunities to explore.
Operator: The business.
Speaker Change: Thank you I appreciate the color.
Speaker Change: Thanks Ernie.
Operator: One moment for our next question. The next question comes from Sam.
Speaker Change: One moment for our next question.
Operator: The next question comes from Sam Brodowski with tourists Securities Go ahead, Sam Your line is open.
Samuel E. Brodovsky: Hey, thank you for taking the questions and congrats on the solid start and great profit number. I did want to dig into that profit side of things a little bit. Joe, did I hear you right?
Sam: Hey, Thank you for taking the questions and congrats on the solid start in great profit number.
Sam: Wanted to dig into that profit side of things a little bit Joe did I hear you right. You said <unk> margins you Shouldnt, we should expect them to be similar to <unk>.
Samuel E. Brodovsky: You said two Q margins, we should expect them to be similar to one Q. And then just sort of taking that in mind, you know, keeping the gross margin guide for the year at about 75% when, you know, presumably your lowest, or excuse me, 70%. When presumably the lowest lowest quarter of the year is going to be about 69 and, hopefully, can step off from that just how you're thinking about that and what it could give you.
Samuel E. Brodovsky: And then just sort of.
Samuel E. Brodovsky: Taking that.
Samuel E. Brodovsky: In mind.
Samuel E. Brodovsky: Keeping keeping the gross margin guide for the year at about 75%.
Samuel E. Brodovsky: Presumably your lowest or excuse me 70%.
Glenn: Glenn PMO.
Samuel E. Brodovsky: The lowest quarter of the year is going to be about 69.
Samuel E. Brodovsky: And hopefully can step off from that just how are you thinking about that and will can give you confidence to potentially think about moving that range for gross margin or EBITDA guidance.
Joseph Anthony Mara: Yeah, no, I certainly appreciate the question. I mean, obviously, kind of a great start from a profitability perspective, you know, as we've been talking about quite a bit, in particular, over the last few quarters, you know, our focus is driving the top line growth, but also, you know, kind of margin expansion and our profitability metrics. You know, so I think to your point in Q1, you know, obviously, you know, really strong, kind of both from an adjusted EBITDA margin perspective being the mid-teens gross margin, you know, in the high 60s, you know, that was, you know, a bit ahead of, you know, kind of trends and expectations, if you will, you know, I would say, as we think about the balance of the year, I mean, that can certainly still ebb and flow a little bit, you know, and I think the right baseline is obviously, Q1 is off to a very strong start, you know, you can look at the prior year, you know, kind of in the, you know, kind of mid to high 60s.
Speaker Change: Yes, no I certainly appreciate the question I mean, obviously it kind of a great start from a profitability perspective, as we've been talking about quite a bit in particular over the last few quarters. Our focus is driving the topline growth but also.
Joseph Anthony Mara: What kind of margin expansion in our profitability metrics.
Joseph Anthony Mara: I think to your point in Q1, and obviously really strong both from an adjusted EBITDA margin perspective, being a mid teens gross margin in the high <unk> that was a bit ahead of it.
Joseph Anthony Mara: Kind of trend and expectations. If you will I would say as we think about the balance of the year I mean that can certainly still ebb and flow a little bit.
Joseph Anthony Mara: The right baseline as obviously Q1 is up there were very strong start you can look at the prior year kind of announce.
Joseph Anthony Mara: And, you know, we would expect on a full year basis, you know, gross margin to, you know, expand from, you know, 68 and a half, if you will, last year to that 70% range. So, again, it can ebb and flow a little bit throughout the year, but I think to the kind of key part of your question, which is, you know, I think, you know, based on that strong start, you know, we certainly have the potential, and I think are in a good position to potentially be, you know, higher than our initial guidance, but, you know, given we're just kind of one quarter in, and, you know, these are kind of approximate numbers, you know, we haven't updated them yet, but, you know, they continue to be a focus, and these are kind of both numbers in the bottom line and the gross margin that we want to continue to improve.
Joseph Anthony Mara: Mid to high <unk>, and we would expect on a full year basis.
Joseph Anthony Mara: Most margin expand from six to eight five if you will last year at about 70% range. So again, it can ebb and flow a little bit throughout the year, but I think to the kind of key.
Joseph Anthony Mara: A key part of your question, which is I think based on that strong start we certainly have the potential and I think are in a good position to potentially be higher than our initial guidance, but given we're just kind of one quarter and these are kind of approximate numbers.
Joseph Anthony Mara: Updated in yet, but they continue to be a focus and these are kind of bolt numbers on the bottom line and the gross margin that we want to continue to improve and the other piece on the gross margin side that we look at as kind of a pull through which was very strong in the quarter kind of the incremental revenue pull through well above 80% I think over 85%. So a good start in <unk>.
Joseph Anthony Mara: And the other piece on the gross margin side that we look at is kind of the pull through, which was very strong in the quarter, kind of the incremental revenue pull through, you know, well above 80%, I think over 85%. So, you know, good start and expect, you know, strong quarters throughout the year, and, you know, we'll kind of monitor that, but I think we're in a good position, you know, to be kind of on the higher side, if you will, particularly on the gross margin side.
Joseph Anthony Mara: Spec.
Joseph Anthony Mara: Strong quarters throughout the year.
Joseph Anthony Mara: On a monitor that but I think we're in a good position.
Joseph Anthony Mara: And kind of on the higher side I think I'll take on the gross margins.
Dominick C. Colangelo: Right, that's super helpful. And then, shifting to next, I want to ask a bit of a higher-level question there. We obviously aren't providing guidance, but just as we think about where the company is going to be positioned heading into 2025, you know, you already have almost half of centers in the funnel to an extent, to a certain extent. Should we think about most, if not a good portion of the target centers being fully onboarded and ready to go in 24? And then, you know, how do we think about the sales strategy changing in 2025 Can
Speaker Change: Great that's super helpful.
Dominick C. Colangelo: Shifting to next year.
Dominick C. Colangelo: To ask a bit of a higher level question, there I guess.
Dominick C. Colangelo: Obviously without providing guidance, but just as we think about where the company is going to be positioned heading into 2025, you already have.
Dominick C. Colangelo: Most half of centers.
Dominick C. Colangelo: The funnel to extend certain extent should we think about.
Dominick C. Colangelo: Most if not a good portion of the target centers being fully onboard it and ready to go in 'twenty four and then.
Dominick C. Colangelo: How do we think about the sales strategy changing in 2025 as you can you can you fully shifts to just driving surgeon utilization. Thanks.
Dominick C. Colangelo: Yeah, hey, Sam, this is Nick. I'll take that one. You know, so for Nexabrid, again, I think anyone who's done market checks or, for instance, participated in or attended the American Burn Association meeting gets to see sort of the super-high interest in the product from the burn care community. Obviously, as you alluded to sort of performing well on sort of the burn center KPIs in terms of P&T submissions, approvals, initial orders, and, most importantly, excellent surgeon feedback on patient outcomes for those who have started using the product.
Dominick C. Colangelo: Yes, Sam this is Nicole.
Speaker Change: Take that one.
Dominick C. Colangelo: So for next the bridge again.
Dominick C. Colangelo: I think anyone who's done market checks are for instance participated.
Dominick C. Colangelo: We ended the American Burn Association meeting.
Dominick C. Colangelo: You're going to see sort of the Super high interest in the product.
Dominick C. Colangelo: So we think, you know, as we've been kind of beating the drum on this is a build here as you get through these sort of processes, I think it's pretty well understood in the industry. We think we'll be in a good place by the end of the year where, yes, we would expect the vast majority of PT submissions to have been completed and, you know, hopefully approved or in the process of being approved.
Dominick C. Colangelo: Burn care community.
Dominick C. Colangelo: Obviously as you alluded to sort of performing well uncertainty bird centered kpis in terms of.
Dominick C. Colangelo: PMT.
Dominick C. Colangelo: Submissions approval was initial orders.
Dominick C. Colangelo: And most importantly, excellent surgeon feedback on patient outcomes for those who have started using the product. So we think as we've been kind of beating the drum on this is a build year as you get through these sort of.
Dominick C. Colangelo: Processes, but it's pretty well understood in the industry.
Dominick C. Colangelo: I think we'll be in a good place by the end of the year, where yes, we would expect the vast majority of Pts submissions.
Dominick C. Colangelo: Please.
Dominick C. Colangelo: Hopefully approved or in the process of being.
Dominick C. Colangelo: And, you know, as we alluded to, once you get through the P&T committee process, there are still other procedures and processes that hospitals need to get through to be able to order the product and then start using it. So we're hyper-focused on that, as you might imagine, and, you know, at the level of sort of KPIs and getting centers up and running, we're pretty pleased with that performance. And lastly, I would just say, as you know, changing the standard of care from a surgical excision procedure to a topically applied biologic, surgeons have been doing the same thing for decades. And so I think the adoption, you know, again, moves at different paces in different hospitals, but we certainly have not changed our long-term view for Nexaprint. It's just, you know; you go through the process.
Dominick C. Colangelo: Okay.
Dominick C. Colangelo: We alluded to once you get through the PMT Committee process, there are still other procedures and processes that hospitals need to get.
Dominick C. Colangelo: To be able to order the product and then start utilizing it. So we're hyper focused on that as you might imagine.
Dominick C. Colangelo: Ed.
Dominick C. Colangelo: That level sort of kpis and getting centers up and running we're pretty pleased with that performance to.
Dominick C. Colangelo: Lastly, I would just say as you know changing the standard of care from a surgical excision procedure to a topically applied biologic or insurgents.
Dominick C. Colangelo: Doing the same thing for decades, and so I think the adoption again moves at different paces in different hospitals.
Dominick C. Colangelo: Certainly have not changed our long term view.
Dominick C. Colangelo: Next.
Dominick C. Colangelo: <unk>.
Dominick C. Colangelo: You go through the process.
Operator: Great. Thank you. One moment for our next question. Our next question comes from George Sellers with Stevens Inc. Go ahead, George. Your line is open.
Speaker Change: Okay. Thank you one moment for our next question.
Operator: Our next question comes from George Sellers with Stephens, Inc. Go ahead, George Your line is open.
George Stone Sellers: Good morning. Thanks for taking the question and congrats on the quarter. Maybe on Epicel, I'm just curious if you could give some additional color on what drove the beat in the quarter, maybe how the underlying market performed, what firm sizes looked like, things like that, and also your perspective on the impact, you know, some sort of halo effect potentially from Nexabrit, if that was a significant driver as well.
George Stone Sellers: Good morning, Thanks for taking the question and congrats on the quarter.
George Stone Sellers: Maybe on <unk> I'm, just curious if you could give some additional color on what drove the beat in the quarter, maybe how the underlying market performed what.
George Stone Sellers: Firms sizes looks like things like that and also your perspective on the impact.
George Stone Sellers: Some sort of halo effect potentially from <unk> that was a significant driver as well.
Dominick C. Colangelo: Yeah, hey, George, it's Nick. So, you know, just starting with the burn care market, as we've talked about, we do have access to market data around large 30% plus body surface area burns. And I would say the market was, you know, kind of normal, maybe down a little bit. So that certainly wasn't driving FSL performance. It really was, just as we've talked about before, we do have a larger footprint now, we're in more burn centers than we used to be. As I alluded to in my comments, we certainly saw a significant contribution to FSL revenue from what were formerly dormant or new accounts that were calling on for the next sprint.
Dominick C. Colangelo: Yeah, Hey, George it's Nick.
Dominick C. Colangelo: So just starting with the burn care market as we've talked about we do.
Dominick C. Colangelo: Yes.
Dominick C. Colangelo: Access to market data around large, 30% plus body surface area Burns and I would say the market was cut.
Dominick C. Colangelo: Kind of normal maybe down a little bit.
Dominick C. Colangelo: So that certainly wasn't driving.
Dominick C. Colangelo: Episode performance it really was.
Dominick C. Colangelo: Just as we've talked about before we do have a larger footprint now were inborn burn centers that we used to be as I alluded to in my comments, we certainly saw a significant contribution to <unk> revenue for more dollars, formerly dormant or new accounts that we're calling on for <unk>. So that is.
Dominick C. Colangelo: The Halo effect that we expected additional pull through.
Dominick C. Colangelo: Episodes, I think we're seeing that as we kind of move through the initial launch phase or expert.
Dominick C. Colangelo: Okay, that's
Speaker Change: Okay, that's really helpful.
Speaker Change: And then maybe on next Brad I'm, just curious if you could give us some additional detail.
Dominick C. Colangelo: Some of the inventory and <unk>.
Dominick C. Colangelo: Specialty distributor impacts how we should really think about.
Dominick C. Colangelo: Those 30 centers that are starting to see orders.
Dominick C. Colangelo: How that will flow through the P&L.
Speaker Change: And then maybe the cadence as we think about the rest of this year.
Dominick C. Colangelo: Where inventory levels are now and.
Dominick C. Colangelo: How that compares to what youre seeing in terms of actual utilization.
Joseph Anthony Mara: Yeah, so good morning, George. Joe, I'll take that one.
Dominick C. Colangelo: Yes, so good morning, George and it's Joe I'll take that one so if you kind of think about nexobrid revenue during the quarter and we talked about this on the last call. We expected kind of a similar revenue range. We ended up about 400000 kind of similar to last quarter about 500.
Joseph Anthony Mara: So, you know, if you kind of think about next to great revenue during the quarter, and we talked about this on the last call, you know, we expected kind of a similar revenue range. We ended up with about 400,000, kind of similar last quarter, about 500. You know, I think it's important, as Nick talked about in his prepared remarks, that the strength in the center lever, center level KPIs, continues to be very strong, you know, as part of your question there, you know, I think importantly, we saw increasing increases in the number of ordering centers, a significant increase from hospital orders to our specialty distributors, and also significantly more patients treated in the quarter.
Joseph Anthony Mara: It's important.
Joseph Anthony Mara: Nick talked about on his prepared remarks.
Joseph Anthony Mara: The strength in the center lever center level Kpis continued to be very strong as part of your question. There I think importantly, we saw increasing increases in the number of ordering centers.
Joseph Anthony Mara: <unk> increased from hospital orders to our specialty distributors and also significantly more patients treated in the quarter. So I think.
Joseph Anthony Mara: So, you know, I think, you know, it's kind of in addition to that, as we think about kind of our revenue trend, particularly early on, you know, I think this is, you know, as much kind of an early launch dynamic, if you think back, you know, the first quarter in the market, two, three of last year, we had kind of some SD stocking, the second quarter of the market in Q4, I'd say there was a fair amount of, you know, hospital stocking, if you will, where they were starting to, you know, order products and kind of get it on their shelves, particularly early adopters. And then, you know, just as a reminder, again, We recognize revenue when our specialty distributors order.
Joseph Anthony Mara: In addition to that as we think about kind of our revenue trends, particularly early on I think this is.
Joseph Anthony Mara: As much kind of an early launch dynamic if you think back the first quarter and the market Q3 of last year, we had some as destocking in the second quarter to market in Q4, I would say there was a fair amount of hospital stocking if you will where they were starting with.
Joseph Anthony Mara: Order product and kind of get it on their shelves, particularly the early adopters and then just as a reminder, again.
Joseph Anthony Mara: And this can vary, you know, each quarter, depending on ordering patterns or inventory levels, etc. And really, what happened again during the first quarter was that hospital orders to the SDs went up. But our orders from our specialty distributors to our 3PL, where we recognize our revenue came down, and essentially, what that means is, you know, the specialty distributors managed to a lower inventory level. And you know, as these kind of launches progress, you know, the distributors will kind of get to different inventory levels.
Joseph Anthony Mara: We recognize revenue when our specialty distributors order and this can vary each quarter, depending on ordering patterns, there inventory levels et cetera, and really what happened again during the first quarter as the hospital orders to the <unk> went up.
Joseph Anthony Mara: But our orders from our specialty distributors to our three PL.
Joseph Anthony Mara: We recognize that revenue came down and essentially what that means is yes, especially distributors manage to a lower inventory level than you do often see is kind of launches progressed that distributors will kind of get two different inventory levels.
Joseph Anthony Mara: So, you know, I think, as anticipated, a little bit choppy out of the gates, but I think as we continue to progress throughout the launch, it's really going to be about continuing to add centers, treat additional patients, see those metrics come up, and also really increasing utilization as centers become more comfortable. So there's certainly going to be an element of inventory dynamics as we go through this.
Joseph Anthony Mara: I think as anticipated a little bit choppy out of the gate, but I think as we continue to progress throughout the launch it's really going to be about.
Joseph Anthony Mara: Continuing to add centers treat additional patients see those metrics come up and also really that additional utilization of incentives become more comfortable so there's certainly going to be an element of inventory dynamics as we go through this but generally I think as we move forward, particularly in the back half and into next year, it's really going to be driven by patient utilization in hospitals.
Joseph Anthony Mara: But, you know, generally, I think as we move forward, particularly in the back half and into next year, patient utilization and hospital ordering will really be driven by it, and this should be kind of a lower component, if you will, on the revenue side.
Joseph Anthony Mara: Wondering and this should be kind of a lower component. If you will on the revenue side.
George Stone Sellers: Okay, that's really helpful. Thank you all for your time this morning. Thanks, Julie.
Speaker Change: Okay. That's really helpful. Thank you all for the time this morning.
Speaker Change: Thanks Julia.
Operator: One moment while we prepare our next question. The next question comes from Swayampakula with H.C. Wainwright. Go ahead. Your line is open. Thank you.
Speaker Change: One moment, while we prepare our next question.
Swayampakula: The next question comes from Sam <unk>.
Swayampakula: With HC Wainwright go ahead your line is open.
Swayampakula Ramakanth: Thank you. This is R.K. from H3WindRoid. A couple of quick questions. So, Nick, as your team continues to increase the targeted surgeons, right, from 5,000 to 7,000, and also, you know, in anticipation of the Macy-Arthro, I'm just trying to understand what sort of relative benefit we could start seeing from this increase in the cartilage repair business, as some of the surgeons, or most of the surgeons, work on both types of injuries, the cartilage and the Ar
Swayampakula: Thank you this is RK from H C Wainwright.
R.K.: A couple of quick questions.
Swayampakula Ramakanth: Mick as.
Swayampakula Ramakanth: <unk>.
Swayampakula Ramakanth: <unk> continues to increase.
Swayampakula Ramakanth: Targeted surgeons from 5000 to 7000.
Swayampakula Ramakanth: And also.
Swayampakula Ramakanth: In anticipation of the ACR through.
Swayampakula Ramakanth: I'm, just trying to understand what sort of.
Swayampakula Ramakanth: Relative benefit.
Swayampakula Ramakanth: Could we start seeing from this increase in the cartilage repair business.
Swayampakula Ramakanth: Some of these surgeons how to most of the surgeons work on both stocks of injuries, the cartilage and outflow.
Swayampakula Ramakanth: Yes.
Dominick C. Colangelo: Yeah, Macy Arthro is going to address cartilage defects as Macy, you know, our current product does. But as we've discussed, the instrument set is targeted to smaller defects on the femoral condyle, which makes up the largest part of the addressable market for 20,000 patients a year. So while Macy is certainly a go-to in tele-femoral defects, larger condyle defects, this allows us to have a preferred way to administer the product on those smaller defects on the femoral condyle. So, you know, we think that it will allow us, as I mentioned on the call, to have great success.
Nick: Yes. So let me see are through is going to address cartilage defects is based on our current.
Dominick C. Colangelo: Product does.
Dominick C. Colangelo: As we've discussed the instrument set is targeted to smaller defects on the femoral come dial, which makes up the largest part of the addressable market or 20000 patients a year. So while macy is certainly a go to is patellofemoral defects larger condyle defects.
Dominick C. Colangelo: This allows us to have a preferred way to administer the product on those smaller defects on the femoral condyle. So.
Dominick C. Colangelo: We think obviously that it will allow us as I mentioned on the call to have greater penetration into the largest part of the segment. So the impact is.
Dominick C. Colangelo: Presumably increase.
Dominick C. Colangelo: The procedures, where we have an arthroscopic delivery option.
Dominick C. Colangelo: Perfect. And then just trying to understand the commercialization, I'm not sure that's the right word, process for NexaBread. So once,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, And what's the time lag between I know you're saying that there are some additional procedures that need to get done before they order the product. So I know it's too early to call it a trend, but what are you seeing currently as the timeline between approval and initial order? Yeah, so that, you know, certainly it differs by height.
Speaker Change: Perfect and then just trying to understand.
Dominick C. Colangelo: Commercialization I'm not sure it's the.
Dominick C. Colangelo: Alright toward commercialization process of farmer Mac's umbrella so once.
Dominick C. Colangelo: The.
Dominick C. Colangelo: The centers.
Dominick C. Colangelo: <unk> kept the PMT approval.
Dominick C. Colangelo: What's the time lag between I know you are saying that there are some additional could suggest that we need to get done before they are their product.
Dominick C. Colangelo: So I know, it's too early to quantify the trend, but what are you seeing currently the timeline between approval.
Dominick C. Colangelo: And Michelle Aldo.
Dominick C. Colangelo: Yeah, so that certainly differs by hospital, and there can be some that are on the quicker side. And there can be some that take weeks to months to be able to get on what is called the Epic system, which is what they use in the pharmacy to order all their products essentially, and before a product gets into that system, you know, in certain cases, it can take quite a bit of time.
Dominick C. Colangelo: So that.
Dominick C. Colangelo: Certainly it differs by hospital and there could be some that are of the Quaker side and there are there could be some that take weeks to months to be able to get.
Dominick C. Colangelo: What is called the epic system, which is what they use in the pharmacy to order older products essentially.
Dominick C. Colangelo: Before a product gets.
Dominick C. Colangelo: Into that system and in certain cases, it can take quite a bit of time so.
Dominick C. Colangelo: So, you know, we obviously are focused on helping centers kind of navigate that process if they happen to have an issue, but it really varies. Like I said, from days or weeks to it can be months in certain cases.
Dominick C. Colangelo: We obviously are focused on helping centers kind of navigate that process. If they happen to have that issue, but it really varies like I said it can be days or weeks it could be months in certain cases. So those are just some of the kind of common processes and procedures that do.
Dominick C. Colangelo: So those are just some of the, you know, kind of calls.
Dominick C. Colangelo: Hospitals have to go through before they are really able to start order product into patients.
Swayampakula Ramakanth: So one last question for me. Just within this Burns franchise, as we have historically noticed how Episode, we could, I mean, at least in public comments, you always said that you cannot predict how the episode business will grow from quarter to quarter and year to year for a bit of time. Are we going to see a similar trend with NexaBread? Or do you think NexaBread's growth will be, you know, quite a bit smoother than what we had seen with the episode? Well, I would say that the way we've always done it.
Dominick C. Colangelo: So.
Speaker Change: One last question from me.
Swayampakula Ramakanth: Just within this.
Swayampakula Ramakanth: Barnes franchise.
Swayampakula Ramakanth: As we had.
Swayampakula Ramakanth: Historically.
Swayampakula Ramakanth: Just how.
Swayampakula Ramakanth: At this hour recall.
Swayampakula Ramakanth: Yes.
Swayampakula Ramakanth: I know in public commentary August said that I cannot predict.
Swayampakula Ramakanth: So the business will grow from quarter to quarter of an ear to ear.
Swayampakula Ramakanth: A bit of time are we going to see a similar trend with Mexico, Brent or do you think mix upgrades.
Swayampakula Ramakanth: Growth will be.
Swayampakula Ramakanth: Quite a bit smaller than what we have seen with <unk>.
Dominick C. Colangelo: Well, I would say that the way we've always positioned ourselves at RK is that, you know, with FSL, if you think about the 40,000 hospitalized burn patients each year, there are really only, you know, call it six to 800 surviving patients each year, so very small numbers. And that's what leads to the variability you see in FSL, with Nexibrin, you know, obviously, once you get through these initial, you know, quarters, where you've got centers coming on board at different times, you've got, you know, inventory and bordering pattern dynamics going on. Because
Swayampakula Ramakanth: Well I would say that the way we've always.
Dominick C. Colangelo: <unk> RK is that with SSL. If you think about the 40000 hospitalized burn patients each year Theres really only call. It six to 800 surviving patients each year, so very small numbers and that's what leads to the variability you see an episode all with NASA grid.
Dominick C. Colangelo: Obviously once you get through these initial.
Dominick C. Colangelo: Quarters.
Dominick C. Colangelo: Where you have got again centers coming onboard at different pieces you got.
Dominick C. Colangelo: Inventory at the border and pattern dynamics going on.
Dominick C. Colangelo: In our view three quarters are 30000 patients a year are eligible for <unk> treatment that over time as it ramps up it becomes a work kind of.
Dominick C. Colangelo: Insisted basis, the overall franchise should have less variability.
Joseph Anthony Mara: Yeah, and I would just, Joe, I would just add, I mean, just, you know, kind of, as we're thinking about the year, kind of more in the near term, and just a couple comments, just to add to that, I think, you know, obviously, FSL can vary, but, you know, we have seen certainly some strength now, now over several quarters, we came into the year kind of expecting to grow over last year's run rate, you know, we'd like to think of FSL kind of, you know, the sort of the baseline from a quarterly run rate perspective, you know, we came in with an exit rate, kind of in the low to mid eight, you know, obviously, we were well ahead of that in the first quarter, it's, you know, it's Can't really plan on that. Yeah, I will say that, you know, I think we certainly have an expectation that it can stay at these higher rates, you know, we came in the year and kind of said, you know, nine plus or mid nine. So, you know, whether you're thinking about, you know, the second quarter, you know,
Speaker Change: Yeah, and I would just fit.
Joseph Anthony Mara: Charlie just to add I mean, just kind of as we're thinking about the year kind of more than near term and just a couple of comments just to add to that I think honestly episodic can vary but we have seen certainly some strength now over several quarters, we came into the year kind of expecting to grow over last year's run rate, we'd like to thank epistyle kind of.
Joseph Anthony Mara: The baseline from a quarterly run rate perspective, we came in with an exit rate kind of in the low to mid eight.
Joseph Anthony Mara: Obviously, we're well ahead of that in the first quarter.
Joseph Anthony Mara: You can't really plan on that I will say that I think we certainly have an expectation that it can stay at these higher rates, we can't remember a year and kind of bad.
Joseph Anthony Mara: <unk> cluster or mid nine so what are you thinking about the second quarter. We spent around $10 million I think we would certainly expect kind of <unk> to be in that $9 million plus range.
Joseph Anthony Mara: Within that 10 areas certainly there can be some variability there, but I think thats, a reasonable expectation and similarly, I think for the rest of the year, which is.
Speaker Change: How are you thinking about appetite as well so they can certainly be variability and I would agree with Nick kind of over time, we would expect.
Joseph Anthony Mara: Next to Brennan and continue to build and sequentially grow that sort of the expectation as we close out the year and into next year.
Swayampakula Ramakanth: Thank you. Thank you very much. I appreciate it. Thanks, Arkan.
Speaker Change: Thank you. Thank you very much book I appreciate it.
Speaker Change: Thanks, Doug.
Operator: Thank you. One moment while we bring up our next question. Our next question is from Mike Kratky with Lyrinc Partners. Go ahead, Mike, your line is open.
Speaker Change: Thank you.
Michael Holden Kratky: Moment, while we bring up our next question.
Operator: Our next question is from Mike Kratky with Leerink Partners go ahead, Mike Your line is open.
Michael Holden Kratky: Hey guys, this is Brett on from Mike. Thanks for taking the question and congrats on another great quarter. You guys saw a strong pull through in 1Q23, obviously. But how should we think about the durability of this operating leverage into the second half of 24 and 25? You know, while you drive penetration in both the existing market and the new arthroscopic market once approved, and then obviously you have the angle of improvements or investments in 2025, so how is that going to impact the durability of the operating leverage? Yeah.
Operator: Hey, guys. This is Brad on for Mike. Thanks for taking the question and congrats on another great quarter.
Michael Holden Kratky: You guys saw strong pull through and won't be 'twenty two we're obviously.
Michael Holden Kratky: How should we think about the durability of this operating leverage in the second half of 'twenty four and 'twenty five.
Michael Holden Kratky: While you drive penetration at both existing market and the new arthroscopic market. Once approved and then obviously you have the ankle improvements our investments in 2025, so how is that going to impact of durability of the operating leverage.
Joseph Anthony Mara: Yeah, I think you're referring to 1-224; I think it's 1-223, but yeah, so, as we talked about earlier, obviously, a great first quarter from a kind of P&L perspective across the board, margin expansion, the pull through is very high, etc. You know, I do think on the gross margin side, you know, our sort of our expectation, you know, for quite a while, you know, our kind of, let's call it, midterm expectation was to get to that 70% plus on the gross margin level. And, you know, obviously, our guidance for this year is at 70%.
Michael Holden Kratky: Yes, I think youre, referring to <unk> through 'twenty four 'twenty through 'twenty three.
Speaker Change: Yes, so I think.
Joseph Anthony Mara: So as we talked about earlier, obviously, a great first quarter from a P&L perspective across the board margin expansion in the pull through is very high.
Joseph Anthony Mara: And, you know, I would say, certainly, as I talked about earlier, it could ebb and flow kind of within a year when you look at margins or pull through, but on a full year basis, you know, that is, you know, kind of tracking, you know, in a very good place to kind of get to those targets. And, you know, from a gross margin perspective as well, I mean, there's definitely a lot of effort right now kind of thinking about, you know, in the right ways, where can we find efficiencies within our processes, across our spend, vendors, etc.
Joseph Anthony Mara: Do think on the gross margin side.
Joseph Anthony Mara: Our expectation for quite a while.
Joseph Anthony Mara: Call. It mid term expectation was to get to that 70% plus on a gross margin level and obviously our guidance. This year is at 70%.
Joseph Anthony Mara: I would say.
Joseph Anthony Mara: Certainly as I talked about earlier, it could ebb and flow kind of within a year. When you look at margins our pull through by on a full year basis.
Joseph Anthony Mara: Kind of tracking in a very good place to kind of get to those targets.
Joseph Anthony Mara: And that's going to be pretty important as we move into a new facility in the next couple of years as well. So, you know, I think a lot of work on the gross margin side, and sort of a lot of focus, you know, to kind of make sure we're driving kind of the right savings there. On the kind of operating expense side, you know, as part of your question, I mean, there are some investments that we will need to make. I mean, we referenced Arthur O'Macy, there are some development costs there, but obviously, that's, you know, an important initiative. Similarly, on Ankle, you know, over the next few years, that'll kind of make its way into P&L.
Joseph Anthony Mara: I would say from a gross margin perspective, as well I mean theres definitely.
Joseph Anthony Mara: A lot of efforts right now kind of thinking about in the right ways, where can we find efficiencies within our profit fees across our span vendors et cetera, and that's going to be a pretty important as we move into a new facility in the next couple of years as well. So I think a lot of work on the gross margin side instead of a lot of focus.
Joseph Anthony Mara: To kind of make sure we're driving kind of the right savings there.
Joseph Anthony Mara: On the operating expense side as part of your question I mean, there are some investments that we will need to make I mean, you referenced Arthur emaciated some development cost there, but obviously that's an important initiative.
Joseph Anthony Mara: Really on an ankle over the next few years that will kind of make its way into the P&L, but that doesn't change from a bottom line perspective, our expectation would be trending toward that 30% adjusted EBITDA target that we've talked about for quite a while as well. So I think it really it starts with the top line growth, but there's a lot of focus on kind of making sure.
Joseph Anthony Mara: But, you know, that doesn't change, from a bottom-line perspective, our expectation to be trending toward that 30% adjusted EBITDA target that we've talked about for quite a while as well. So, you know, I think it really starts with the top line growth, but, you know, there's a lot of focus on kind of making sure we're kind of managing the rest of the P&L. But, you know, it also just shows just the operating leverage within the business, particularly as we start to scale.
Joseph Anthony Mara: We're kind of managing the rest of the P&L, but it also just shows just the operating leverage kind of within the business, particularly as we start to scale. So I think Q1, obviously was a great quarter, but I think a good start to the year, but as we think over 24% and 25 and beyond that is going to remain a focus and we think we'll continue to see that leverage.
Joseph Anthony Mara: So, you know, I think Q1, obviously, was a great quarter, but I think a good start to the year. But as we think over, you know, 24, 25 and beyond, I mean, that's going to remain a focus, and we think we'll continue to see that leverage across the P&L.
Joseph Anthony Mara: Ross the P&L.
Michael Holden Kratky: Got it. That's helpful. And then one more. I guess I want to go back to Arthro.
Speaker Change: Got it that's helpful. And then one more I guess I wanted to go back to our throw.
Michael Holden Kratky: You mentioned six to 12 new reps likely. How should we be thinking about the difference in outreach for those reps versus existing Macy when they target those new surgeons, and then obviously, you know, the shape of that penetration curve may be different versus what we've seen with legacy Macy. How should we be thinking about, you know, the steepness of that curve? And if there are any differences to call out, you know, for the next couple of years? Yeah, so as I mentioned,
Michael Holden Kratky: You mentioned six months to 12, new reps likely how should we be thinking about that the difference in outreach for those reps versus existing macy when they target those new surgeons and then obviously the shape of that penetration curve may be different versus what we've seen with legacy Macy how should we be thinking about the steepness of that curve and if theres any differences to call out for the next.
Michael Holden Kratky: Couple of years.
Dominick C. Colangelo: Yeah, so as I mentioned, you know, we will be adding, you know, I guess a couple different profiles. So number one is kind of Territory Development Managers who can kind of be at biopsies, at surgeries, etc. And then there's, you know, arthroscopic specialists who are really kind of training and, you know, kind of spreading best practices for the arthro delivery of Macy's. So they're really in support function, as I alluded to on the call, when you think about an extra couple thousand targets over, Yeah, 76 territories, you're talking, you know, a dozen or two new targets per territory, those can easily be targeted by existing sales reps in, in terms of the, so it doesn't, again, require a realignment or a wholesale increase in [inaudible] When you talk about uptake, I think, you know, you can think about a couple of different Surgeon segments.
Michael Holden Kratky: Yes, so as I mentioned.
Dominick C. Colangelo: We will be adding I guess, a couple of different profiles. So number one is kind of.
Dominick C. Colangelo: Territory development managers, who can kind of be.
Dominick C. Colangelo: At biopsies at surgeries et cetera, and then Theres arthroscopic specialist who are really kind of training.
Dominick C. Colangelo: Okay.
Dominick C. Colangelo: Kind of spreading best practices for the <unk> delivery of basis. So they are really in the support functions.
Dominick C. Colangelo: Alluded to on the call when you think about an extra couple of thousand targets over.
Dominick C. Colangelo: Yes, 76 territories Youre talking.
Dominick C. Colangelo: A dozen or two new targets per territory those could easily be.
Dominick C. Colangelo: Targeted by existing sales reps is in terms of the so it doesn't again required a realignment or a wholesale.
Dominick C. Colangelo: Kris.
Dominick C. Colangelo: The sales force.
Dominick C. Colangelo: When you talked about uptake I think.
Dominick C. Colangelo: You can think about a couple of different <unk>.
Dominick C. Colangelo: So there are current Macy users who might do a lot of their procedures in certain parts of the knee, they can, you know, expand towards if they focus on the patella, now they have an option, a less invasive option for treating femoral condyle defects, you know, that certainly can, is an instance where you take an experienced basic user, and they start using it more broadly. So that can have a very quick uptake, as you might imagine.
Dominick C. Colangelo: <unk> segment, so theres current base of users.
Dominick C. Colangelo: We might do.
Dominick C. Colangelo: A lot of procedures in certain parts of the B they can.
Dominick C. Colangelo: <unk> towards <unk>.
Dominick C. Colangelo: Focus on the <unk> and now they have an option less invasive option for treating femoral condyle defects that certainly can.
Dominick C. Colangelo: Is an instance, where you've taken experience base of user user and they start using it more broadly so that can have very quick uptake as you might imagine.
Dominick C. Colangelo: You also have new surgeons who, because you take a biopsy and then the median time from biopsy implant is, you know, roughly four months. There's always a time lag there. So they'll be kind of having a prospective impact on the business. So it'll differ by segment. But you know, again, you're taking a well-known product with great clinical outcomes and offering insurgents an option where BASIC can be administered less invasively in an area of the need with the largest number of defects. And so you could have a very, you know,
Dominick C. Colangelo: You also have new surgeons, who because you take a biopsy is that the median time for us.
Dominick C. Colangelo: Biopsy to implant is roughly four months there is always a time lag there so there'll be kind of having a prospective impact on the business. There. So it will differ by segment, but that youre, taking a well.
Dominick C. Colangelo: No the product with great clinical outcomes offering surgeons an option order.
Dominick C. Colangelo: Basically can be administered.
Dominick C. Colangelo: Ministers lesson basically.
Dominick C. Colangelo: And an area of disease with the largest number of defects and so you could have very.
Dominick C. Colangelo: Pretty quick uptake from those who are interested in using <unk>.
Speaker Change: Great. Thanks, guys.
Dominick C. Colangelo: Thank you. Thank you. Thank you. This concludes the question and answer session. I would now like to turn it back to Nick Colangelo for closing remarks.
Dominick C. Colangelo: Thank you. Thank you. Thank you.
Dominick C. Colangelo: This concludes the question and answer session I would now like to turn it back to Nick Colangelo for closing remarks.
Dominick C. Colangelo: Okay, well, thanks. And thanks, everyone, for your questions and continued interest in Vericel. Obviously, the company had a great start to the year, and we expect to deliver another full year of strong financial and operating results in 2024. So we look forward to providing further updates on our next call. Have a great day.
Dominick C. Colangelo: Okay, well, thanks, and thanks, everyone for your questions and continued interest in <unk>. So obviously the company and a great start to the year and we expect to deliver another full year of strong financial and operating results in 2020, or so we look forward to providing further updates on our next call.
Dominick C. Colangelo: Have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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