Q2 2024 Vericel Corp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Veracel's second quarter 2024 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.
Operator: 2020-4 Conference call. At this time, all participants are in a listen-only mode.
Operator: 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.
Operator: I would also like to remind you that this call is being recorded for replay.
Eric Burns: I will now turn the conference call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations.
I will now turn the conference call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations.
Eric Burns: Thank you, operator.
Nick Colangelo: Good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Mara.
Unknown Executive: Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo. Let me remind you on today's call, we will be looking forward to your statement and are described more fully in our findings of the FTC. I will now turn the call over to the next speaker.
Speaker Change: Thank you, Operator.
Speaker Change: Good morning, everyone.
Speaker Change: Join me on today's call are Vericel's President and Chief Executive Officer Nick Colangelo and our Chief Financial Officer Joe Mara.
Nick Colangelo: Before we begin, let me remind you, on today's call, we will be making full-looking statements covering the Private Securities Litigation Reform Act of 1995. These statements may involve risk and uncertainties that could cause actual results to the firm of children's expectations and are described more fully in our funds of the SEC. In addition, all four-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
Speaker Change: Before we begin, let me remind you on today's call, we will be making four looking statements covered under the Private Security Litigation Reform Act of 1995.
Speaker Change: 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.
Nick Colangelo: Please note that a copy of our second 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.
Nick Colangelo: I will now turn the call over to Nick.
Nick Colangelo: Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing the company's financial and business highlights for the second quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of the company's second quarter financial results and guidance for 2024, before opening the call to Q&A. The company had another strong quarter as we generated record second quarter revenue of nearly $53 million, highlighted by a continued high growth for Macy and solid progression in demand for Nexibrate. We also delivered another quarter of significant margin expansion and profit growth, with record second quarter gross margin of 70% and adjusted EBITDA growth of 42% compared to last year.
Dominick C. Colangelo: Thank you, Eric. And good morning, everyone.
Dominick C. Colangelo: I'll begin today's call by discussing the company's financial and business highlights for the second quarter, as well as our expectations for the remainder of the year. We also delivered another quarter of significant margin expansion and profit growth, with a record second quarter gross margin of 70% and adjusted EBITDA growth of 42% compared to last year. As the company's profit growth continues to outpace our high revenue, Through the first half of the year, the company generated 20% growth in total revenue, Macy revenue, and burn care revenue, and expanded gross margin by over 400 basis points. Based on the strength of our first half performance, we're reaffirming our revenue guidance of 20 plus percent growth for the full year and raising our profitability guidance for gross margin to 71 and adjusted EBITDA margin to Macy's second quarter performance was once again driven by strong underlying business fundamentals as we continue to expand the Macy's surge in customer base and drive growth and buyout.
Speaker Change: Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing the company's financial and business highlights for the second quarter, as well as our expectations for the remainder of the year.
Speaker Change: The company had another strong quarter as we generated record second quarter revenue of nearly $53 million, highlighted by continued high growth for Macy and solid progression in demand for Nexabrit.
Speaker Change: We also delivered another quarter of significant margin expansion and profit growth, with record second quarter gross margin of 70% and adjusted EBITDA growth of 42% compared to last year, as the company's profit growth continues to outpace our high revenue growth.
Nick Colangelo: As the company's profit growth continues to outpace our high revenue growth. Through the first half of the year, the company generated 20% growth in total revenue, Macy revenue, and burn care revenue, expanded gross margin by over 400 basis points, and more than double adjusted EBITDA compared to the first half of last year. Based on the strength of our first half performance, we're reaffirming our revenue guidance of 20 plus percent growth for the full year, and raising our profitability guidance for gross margin to 71% and adjusted EBITDA margin to 21% for the full year. Macy had another excellent quarter with record second quarter revenue of more than $44 million, which increased 21% and exceeded our guidance for the quarter.
Speaker Change: Based on the strength of our first half performance, we're reaffirming our revenue guidance of 20 plus percent growth for the full year and raising our profitability guidance for gross margin to 71 percent and adjusted EBITDA margin to 21 percent for the full year.
Speaker Change: Macy had another excellent quarter with record second quarter revenue of more than $44 million, which increased 21% and exceeded our guidance for the quarter.
Nick Colangelo: Macy's second quarter performance was once again driven by strong underlying business fundamentals as we continue to expand the Macy surging customer base and drive growth and biopsies. We had the second highest number of Macy biopsies and surging taking biopsies in any quarter. Launch, as well as the highest number of biopsies of any months since launch during the quarter. The strength of these key Macy Grove drivers, together with another quarter of significant increases in peer-to-peer programs and attendees at those programs, demonstrates that surgeon interest in Macy remains high as we continue to build a strong foundation for sustained Macy Grove over the long term.
Speaker Change: Macy's second quarter performance was once again driven by strong underlying business fundamentals as we continue to expand the Macy's Surgeon customer base and drive growth and biopsies.
Dominick C. Colangelo: We had the second highest number of Macy biopsies and surgeons taking biopsies in any quarter, together with another quarter of significant increases in peer-to-peer programs and attendees at those programs, demonstrates that the surge in interest in Macy remains high as we continue to build a strong foundation for sustained Macy growth over the long term, while our surgeon base gains further experience with MACI. We also expect biopsies per surgeon and biopsy conversion rates to become more significant growth drivers.
Speaker Change: As well as the highest number of biopsies in any month since launch during the quarter.
Speaker Change: The strength of these key Macy's growth drivers
Nick Colangelo: As our expanded surgeon-based gains further experience with Macy, we also expect biopsies per surgeon and biopsy conversion rates to become more significant Grove drivers. Notably, we saw a significant increase in biopsies per surgeon during the second quarter, which helped drive an acceleration in biopsy growth in the quarter. We also saw an uptick in the conversion rate versus the prior year, as there's a direct correlation between surgeon experience with Macy in higher conversion rates. Typically, once surgeons perform more than a few implants on average per year, their conversion rate tends to increase into the mid-40% range and even higher at higher average implant volumes per year, which is significantly above our overall conversion rate, and demonstrates the clear conversion rate to become an important Grove driver over time, as Macy utilization increases across our surgeon customer base.
Dominick C. Colangelo: Notably, we saw a significant increase in biopsies per surgeon during the second quarter. Typically, once surgeons perform more than a few implants on average per year, their conversion rate tends to increase into the mid 40% range, and even higher at higher average implant plant volumes per year, which is significantly above our overall conversion rate and demonstrates the clear potential for conversion rate to become an important growth driver over time, as we may see utilization increases across our surgeon customer base. Turning to our Macy's lifestyle management initiatives.
Speaker Change: We also saw an uptick in the conversion rate versus the prior year, as there is a direct correlation between surgeon experience with MACI and higher conversion rates.
Speaker Change: Which is significantly above our overall conversion rate, and demonstrates the clear potential for conversion rate to become an important growth driver over time, as may see utilization increases across our surging customer base.
Nick Colangelo: Turning to our Macy Lifestyle Management initiatives, we're excited about the potential launch of Macy Arthur related to this quarter. Our custom Macy Arthur instruments have already been registered with the FDA, and plans are in place for the commercial launch of this innovation-innovated addition to our portfolio, upon FDA approval to expand Macy's label to include arthroscopic delivery. As part of the plan 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 surgeries predominantly through arthroscopic procedures. Given that the Macy Arthur instrument targets 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 per Macy, we believe that Macy Arthur will have a meaningful impact on utilization and provides a significant potential upside growth opportunity for the brand and the company in the years ahead.
Macy: Turning to our Macy Lifestyle Management Initiatives.
Dominick C. Colangelo: Our custom Macy Arthro instruments have already been registered with the FDA, and plans are in place for the commercial launch of this innovative addition to our portfolio upon FDA approval to expand Macy's label to include arthroscopic delivery. As part of the planned launch, we're expanding our target surgeon base from 5000 to 7000 surgeons to include surgeons that perform high volumes of cartilage repair surgeries predominantly through arthroscopic procedures. Given that the Macy 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, we believe that Macy Arthro will have a meaningful impact on utilization and provides a significant potential upside growth opportunity for the brand and the company in the years ahead.
Speaker Change: We're excited about the potential launch of Macy Arthur later this quarter.
Nick Colangelo: We also remain on track to initiate the Macy ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for Macy. We believe that a potential Macy ankle indication with an estimated $1 billion addressable market could be another significant growth driver for Macy in the next decade and beyond.
Dominick C. Colangelo: We also remain on track to initiate the Macy-Engel clinical study in 2025, which will be another significant growth driver for Macy in the next decade and beyond. Turning to our burn care franchise, Nexabridge launch momentum continued to build during the second quarter as revenue nearly doubled, and we made further progress with respect to our burn center key performance indicators. Through the end of the second quarter, approximately 70 burn centers had completed P&T committee submissions.
Nick Colangelo: Turning to our burden care franchise, next-of-breed launch momentum continued to build during the second quarter as revenue nearly doubled, and we made further progress with respect to our burn center key performance indicators. Through the end of the second quarter, approximately 70 burning centers had completed P&T Committee submission. Williams, more than 40 centers had gained P&T Committee approval in nearly 40 centers that placed an initial product order. There also was a meaningful increase in hospital orders and patients treated in the quarter. Is more burn centers and corporate next to green into their regular clinical practices. We also expect FDA approval of a pediatric indication of a Nexibert in the coming weeks, which would provide an important treatment option for pediatric patients with severe thermal burns.
Dominick C. Colangelo: More than 40 centers have gained P&T committee approval, and nearly 40 centers have placed an initial product order. We also expect FDA approval of a pediatric indication for the next bird in the coming weeks, which would provide an important treatment option for pediatric patients with severe thermal burns. There are approximately 20 pediatric burn centers in the U.S. that will be added to our target customer base following approval, which we believe will have a meaningful impact on overall Mexicon uptake over time.
Nick Colangelo: There are approximately 20 pediatric burn centers in the U.S. that will be added to our target customer based following approval, which we believe will have a meaningful impact on overall nexibert that uptake over time. Turning to episode, while we had a similar number of biopsies in the second quarter as in the first quarter of this year and the second quarter of last year, which resulted in revenue in the $10 million range for both of those quarters, episode revenue in the second quarter of this year was closer to its quarterly run rate entering the year of approximately $8 million.
Dominick C. Colangelo: While we had a similar number of biopsies in the second quarter as in the first quarter of this year and the second quarter of last year, which resulted in revenue in the ten million dollar range for both of those quarters, FSO revenue in the second quarter of this year was closer to its quarterly run rate entering the year of approximately eight million dollars. While there can be variability in EpiCel quarterly results, given the relatively small patient population and the critical nature of their injuries, demand for EpiCel remains strong.
Nick Colangelo: After a strong start to the quarter in April, the number of patients treated with episode was lower in May and June due to a number of factors, including patient health issues and the timing of patient treatments. While there can be variability in episode quarterly results, giving the relatively small patient population and the critical nature of their injuries, demand for episode remains strong. Over the first half of the year, the quarterly run rate for episode has increased, as expected, to more than $9 million per quarter, with double-digit growth for the first half of the year versus last year.
Dominick C. Colangelo: Over the first half of the year, the quarterly run rate for EpiCel has increased as expected to more than $9 million per quarter, with double-digit growth for the first half of the year versus last year. We're also off to a very good start in the third quarter based on the strength in Epicell biopsies, patients treated, and graft volumes to date in the quarter. Overall, the company delivered another strong quarter in the first half of the year, with sustained high revenue and profitability growth, excellent leasing results, solid progression in maximum demand, and meaningful growth for EPSIL in the first half of the year.
Nick Colangelo: We're also off to a very good start in the third quarter based on the strength in episode biopsies, patients treated, and graph volumes to date in the quarter.
Nick Colangelo: Overall, the company delivered another strong quarter in the first half of the year with sustained high revenue and profitability growth. Excellent needs to result in solid progression and maximum demand and meaningful growth for episode on the first half of the year, based on the strength of our core portfolio and expected contributions from new product launches. We believe that the company is very well positioned for continued high revenue, the profit growth in 2024 and beyond.
Dominick C. Colangelo: Based on the strength of our core portfolio and expected contributions from new product launches, we believe that 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.
Joe Mara: I'll now turn the call over to Joe.
Joe: Thanks, Nick, and good morning, everyone. I'm starting with our second quarter results. Total net revenue for the quarter was $52.7 million, with Macy revenue of $44.1 million and total burn fare revenue of $8.5 million. Gross profit for the quarter was 36.6 million, or 70% of net revenue, an increase of 430 basis points versus the prior year, which is the company's highest second quarter gross margin to date. Total operating expenses for the quarter were $42.6 million compared to $35.9 million for the same period in 2023.
Joe Mara: Thanks, Nick.
Joe Mara: Good morning, everyone. Starting with our second quarter result, total net revenue for the quarter was $52.7 million, with making revenue of $44.1 million, and total burn fair revenue of $8.5 million, which was made up of episode revenue of $7.8 million. And next, a bit revenue of 0.8 million. In the second quarter, maybe revenue grew 21% versus the prior year and 10% versus the prior quarter, while net to bring increased 76% versus the prior quarter. In addition, through the first half of the year, both of our franchises delivered 20% revenue growth versus the prior year. Road profit for the quarter was $36.6 million or 70% of net revenue, an increase of 430 basis points versus the prior year, which was the company's highest second quarter gross margin to date.
Joe: Net loss for the quarter was $4.7 million, or $0.10 per share, compared to $5 million, or $0.11 per share for the second quarter of 2023, and adjusted EBITDA margin increased approximately 600 basis points. Finally, the company generated $18.5 million of operating cash flow in the quarter and ended the second quarter with $154 million in cash, restricted cash, and investment, and no debt. In addition, based on the company's strong overall financial performance, we are increasing gross margin guidance to 71% and adjusted EBITDA margin guidance to 21% for the full year, compared to the previous guidance of 70% and 20%, respectively, representing growth of more than 20% versus the prior year. For Macy's, we expect another strong quarter with year-over-year growth in a similar range as the first two quarters of the year and revenue of approximately
Joe Mara: Total operating expenses for the quarter were $42.6 million compared to $35.9 million for the same period in 2023. The increase in operating expenses was primarily due to development and pre-launch activities for MAPR Throne, increased headcount and related employee expense, and lease expense associated with the company's new facility that is under construction. Net loss for the quarter was $4.7 million, or $0.10 per share, compared to $5 million, or $0.11 per share, for the second quarter of 2023. In addition, the company has now generated positive gap net incomes on a rolling 12-month basis as we continue to enhance our strong profitability profile.
Joe Mara: Non-GAF adjusted EBITOP for the quarter increased 42% to $6.3 million or 12% of net revenue compared to $4.4 million or 10% of net revenue in 2023, as adjusted EBITOP growth continued to significantly outpace our high revenue growth. For the first half of the year, adjusted EBITOP more than doubled to $13.5 million, and adjusted EBITOP margin increased approximately 600 basis points, demonstrating continued strong leverage across our P&L. Finally, the company generated $18.5 million of operating cash flow in the quarter and ended the second quarter with $154 million in cash, restricted cash, and investment, and no debt.
Speaker Change: $6 3 million or 12% of net revenue compared to $4 4 million or 10% of net revenue in 2023 and.
Speaker Change: Adjusted EBITDA growth continued to significantly outpace our high revenue growth.
Speaker Change: For the first half of the year adjusted EBITDA more than doubled to $13 5 million and adjusted EBITDA margin increased approximately 600 basis points.
Speaker Change: Demonstrating demonstrating continued strong leverage across our P&L.
Finally, the company generated $18 5 million of operating cash flow in the quarter and ended the second quarter with $154 million in cash restricted cash and investments and no debt.
Joe Mara: Turning to our financial guide. For the full year, after a very strong first half of the year, we are reaffirming our total company revenue guidance of $238 million to $242 million, or 20 to 23% total revenue growth. Within our guidance framework, based on a strong first half result, Formacy, and the continued strength and its key leading indicators, we have increased our expectations for Macy for the full year. We now expect Macy revenue growth of approximately 20% for the full year and increase versus our prior expectation of high teams growth to start the year, with the balance of revenue coming from our burn care franchise.
Speaker Change: Turning to our financial guidance.
Joe Mara: In addition, based on the company's strong overall financial performance, we are increasing growth margin guidance to 71% and adjusted EBITOP margin guidance to 21% for the full year compared to the previous guidance of 70% and 20%, respectively. Importantly, we also expected a gap profitable in 2024 on a four-year basis. For the third quarter, we expect sequential growth in both Macy and burn care revenue, with total company revenue of approximately $55 million, representing growth of more than 20% versus the prior year. From Macy, we expect another strong quarter with year-over-year growth in a similar range as the first two quarters of a year in revenue of approximately $44.5 million.
Joe Mara: For burn care, we also expect a strong third quarter with total burn care revenue of approximately $10.5 million. Finally, we expect gross and adjusted even our margins in the third quarter to be similar to second quarter margins.
Unknown Executive: This concludes our prepared remarks. We will now open up the call; your questions.
Unknown Executive: Thank you.
Operator: 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.
Ryan Zimmerman: Our first question comes from Ryan Zimmerman from BTIG. Your line is now open.
Ryan Zimmerman: Hey, good morning. Thanks for taking our questions. I want to start first on Macy, and then I have a burn care question, but two per question on Macy. Appreciate the guidance, Joe, both for the year and quarterly.
Unknown Attendee: I want to start first on Macy, and then I have a burn care question, but a two-part question on Macy. So, you know, appreciate the guidance, Joe, both for the year and quarterly. I just want to make sure people are clear about the pacing expectations and kind of the Step-up implied in the fourth quarter coupled with the Arthro launch that may be happening over the back half of the year.
Ryan Zimmerman: I just want to make sure people are clear about the pacing expectations and the step-up implied in fourth quarter coupled with the Arthro launch that may be happening over the back half of the year. And then the second part of the question is a little different, but it's around your comments, Nick, on conversion, which is, you know, you're seeing more tenure in the user base of conversion, which, as you noted, is going to increase conversion ratios. But at the same time, as you move to smaller cartilage defects, which in absolute value will increase, I would imagine that has some downward pressure on the conversion ratio just given that there may be less acute injuries.
Unknown Attendee: And then the second part of the question, a little different, but it's around your comments, Nick, on conversion, which is, you know, you're seeing more tenure in the user base of conversion, which, you know, as you've noted, is going to increase conversion ratios, which in absolute value will increase. I would imagine that has some downward pressure on the conversion ratio, just given that there may be less acute injuries. And so maybe there's less likelihood of conversion from biopsy to procedure there.
Ryan Zimmerman: And so maybe there's less likelihood to convert from biopsy to procedure there. And so how would you have us think about conversion and, you know, against those two factors over time, just given the nature of the injuries treated in the Arthro launch.
Unknown Attendee: And so how would you have us think about conversion and against those two factors over time, just given the nature of the injuries treated in the arthro launch? And then I have one follow-up question on burn care. Thanks.
Ryan Zimmerman: And then I have one follow-up on burn care.
Nick Colangelo: Thanks. Yeah, so good morning, Ryan. Thanks for questions.
Joe Mara: I'll start on maybe the may be cadence, and then we'll address kind of your conversion question in a second. So, you know, from the may be perspective, you know, if the two strong quarters start the year, you know, as Nick said, you know, extremely strong leading indicators. So we do have, you know, higher expectations on a four year basis. You know, we started in kind of a couple mid to high teens, now around that 20% range. So certainly, you know, increasing expectations on basic, you know, as it continues to perform well, you know, in terms of the cadence for the rest of the year.
Joe Mara: So, you know, we did call out to your point, you know, a Q3 estimate of, you know, around 44 and a half million on basic. And that's pretty similar growth that we've seen over the first couple of four, is probably about an average of the two.
Joe Mara: And then, as you think about kind of the seasonality and the step up for Q four, you know, I would generally say, you know, it follows our typical seasonal pattern. So whether we look at kind of the H one to H two growth, you kind of look at the step up to Q four, you know, which is in that 50% range. You look at this kind of call it H one H two mix, which is, you know, around our 43 to 57% if you look at that guidance. And so I'd say it's very similar, you know, the what we've seen in the past, you know, in terms of, you know, expectations and sort of assumptions around how to make the art row.
Speaker Change: 33% to 57% if you look at that guidance. So I'd say, it's very similar to what we've seen in the past you know in terms of expectations and sort of assumptions around kind of ACR throw I think we've consistently said our expectation is that's more of a 2025 driver.
Joe Mara: You know, I think we've consistently said, you know, our expectation is that that's more of a 2025 driver. You know, it's really kind of the core performance of Macy, you know, that's continued to perform. And, you know, again, the seasonality and mix is very much in line with the guidance to what we've seen last year and what we typically see.
Speaker Change: Really kind of the core performance of Macys, that's continued to perform and again, that's the seasonality and mix is very much in line within the guidance to what we've seen last year and what we typically see.
Nick Colangelo: Yeah, thanks.
Nick Colangelo: And so Ryan, to your conversion rate, yeah, you know, as we've talked about for years now, as surgeons gain more experience in our, you know, higher volume surgeons clearly have higher conversion rates. A lot of the dynamics that we point to are that we're adding a lot of new surgeons, and we continue to do so, and that's what sort of balances out sort of those higher conversion rates because obviously, as they're getting up speed to have lower conversion rates.
Speaker Change: And so Ryan to your conversion rate.
Speaker Change: As we've talked about for years now as surgeons gained more experience and our higher volume surgeons clearly have higher conversion rates a lot of the dynamics that we point to our that we're adding a lot of new surgeons and we continue to do so and thats, what sort of balances out sort of those higher conversion rates because.
Nick Colangelo: So it's, it's remained relatively stable. In terms of the size of the defect, you know, I'll just tell you that, you know, a two to four square centimeter defect on the surface of your knee; that's a pretty big injury. And, you know, when we look at, for instance, we're targeting Macy Arthro on for those two to four square centimeter femoral condyle defects. And we can see sort of how those defects are treated in the patella, which obviously Macy is a go-to product there. And it's a pretty significant piece of our business now. To the best of my knowledge, it's at least that, you know, the average conversion rate, if not higher for patella cases.
Nick Colangelo: So, you know, I don't anticipate any impact on conversion rate from, you know, that size and location of the defect they're getting treated somehow. And we just think Macy will be able to have a greater penetration into those defects on the femoral condyle. With the Macy Arthro instrument kit.
Unknown Executive: Okay, very, very helpful.
Ryan Zimmerman: Nick and Joe, and then just fun burn care.
Unknown Attendee: You know, the nature of the business is volatile. I've covered you guys long enough to know that. I just want to make sure that there's no structural change in the burn market. You know, from what you saw, it sounds like, you guided early May, and then, you know, you saw some volatility in the patient population around Epicel in later May and June. But again, I just want to be clear that you're not seeing any structural change there with this episode.
Ryan Zimmerman: You know, the nature of the business is volatile. I covered you guys long enough to know that I just want to make sure that there's no structural change in the burn market, you know, from what you saw. It sounds like, you guided early May. And then, you saw some volatility in the patient population. Around epicell and later May and June, but again, just want to be clear that you're not seeing structural change there with the epicell.
Speaker Change: Some volatility in the patient population around episodes in later May and June but.
Speaker Change: Again, just want to be clear that youre not seeing any structural change there with the episode.
Nick Colangelo: No, and yeah, thanks, Ryan. Appreciate the question. And it's a fair one, but you know, my point of, you know, we had similar biopsies, right? That's the top of the funnel. And if you saw some, you know, sort of structural change in the burn market, you would expect that that's the place you see it. You know, we also mentioned that we had a very strong start in April. And then, you know, we just had sort of that variability that you can see in certain months based on patient health issues. And again, the critical nature of their injuries.
Speaker Change: Yes, Thanks, Ryan I appreciate the question and it's a fair one but are my point of we had similar biopsies right Thats the top of the funnel and if you saw some.
Speaker Change: Sort of structural training change in the burn market you would expect that that's the place you see it.
Speaker Change: We also mentioned that we had a very strong start in April.
Speaker Change: And then we just had sort of that the variability that you can see in certain months based on patient health issues and again, the critical nature of their injuries and write back to a strong start in July highest biopsies of the year in the month of July.
Nick Colangelo: And right back to a strong start in July, highest biopsies of the year in the month of July. So, you know, we feel pretty good about, you know, Epicell in the continued growth, first half of the year, up 12%. So, you know, I think we're again feeling pretty good about that.
Nick Colangelo: We also have implemented kind of ourselves for us optimization plan where we've added, you know, a few additional territories for the burn care cells for us to work to 17. As of the third quarter, you know, all reps will not be promoting both Epicell and Nexobrid. And, you know, we've seen a pretty strong pull through four Epicell from the formerly dormant accounts that were being called on for Nexobrid. So, you know, we think we're set up nicely for strong burn care growth. And, you know, based on the guidance we've given, you know, it's in the 30% range for the year.
Nick Colangelo: So pretty robust growth. And, you know, based on the guidance we've given, you know, based on the guidance we've given, you know, based on the guidance we've given, you know, based on the guidance we've given, you know.
Ryan Zimmerman: All right. Thanks for taking the questions, guys. Thanks, Ryan.
Operator: Thank you. Please stand by.
Mike Kratky: Our next question comes from Mike Kratky from Learing Partners. Your line is now open.
Operator: Our next question comes from Mike Kratky from Lyrinc Partners. Your line is now open.
Mike Kratky: Hi, everyone. Thanks for taking our questions. So it looks like Macy sales came in a bit higher than the street during the quarter, and you also started seeing the highest number of biopsies in any month since launch. So can you just confirm what month of the quarter that record number of biopsies came in? And to what extent is that tied to some of your ongoing pre-arthroscopic launch activities that you mentioned? Well, yeah, I mean, just it was in May for what that's worth. You know, I think the more important part is we're continuing to see very strong engagement with surgeons in terms of the number of surgeons taking biopsies, you know, continuing to be at sort of very high levels.
Nick Colangelo: Obviously, that translates to more biopsies, particularly when you see an uptick in biopsies per surgeon, which is great. You know, that's really independent of the arthroscopic prep. Obviously, you know, the arthroscopic delivery is not approved yet. So it's really independent. It's just kind of the strength of the core Macy business that we've really been seeing for quite some time now.
Speaker Change: Very high levels, obviously that translates to more biopsies, particularly when you see an uptick in biopsies per surgeon, which is great.
Speaker Change: That's really independent of the arthroscopic prep obviously.
Speaker Change: Arthroscopic delivery.
Speaker Change: Is not approved yet so it's really independent it's just kind of the strength of the core basic business that we've really been seeing for quite some time now.
Nick Colangelo: Understood, and maybe just as a follow-up, you know, can you give us a sense of, you know, A, regarding the 2000 new target surgeons that you cited basically just have quickly. You can start targeting those surgeons; you know, reaching out to them. And at what point do you really expect the Salesforce efficiency to start taking up? Well, you know, there's really, I mean, obviously we have the target list set and ready to go. So, you know, immediately upon FDA approval, you know, sales reps can start calling on those surgeons. So there's really no limitation on that.
Speaker Change: Understood and maybe just as a follow up.
Speaker Change: Can you give us a sense of.
Speaker Change: Regarding the 2000, new target surgeons that you cited.
Unknown Attendee: Basically, just how quickly you can start targeting those surgeons, reaching out to them, and at what point do you really expect Salesforce efficiency to start taking off?
Speaker Change: Basically just how quickly you can start targeting those surgeons, reaching out to them and at what point you would really expect the sales force efficiency to start taking up.
Nick Colangelo: So excited to have that. You know, I'd say we probably feel like, you know, we'll see more immediate uptake potentially from Macy surgeons. Who are obviously familiar with the product? They also do a lot of arthroscopic procedures as we always remind folks, you know, anytime you're doing contrasties, micro fractures, OATS, and, you know, the vast majority of cartilage repair procedures are done arthroscopically. So they're used to treating cartilage injuries that way. So I think it's a pretty easy transition for patients with appropriate defects or experienced surgeons to, to kind of flip to Macy arthroscopic delivery.
Mike Kratky: Similarly, though, as you know, we're those 2000 surgeons will be adding who really do their cartilage high volumes of cartilage repair predominantly through arthroscopic procedures. They too are used to treating cartilage injuries with, you know, arthroscopic instruments and, you know, doing things like micro fracture augmentation, where they're also doing implants as part of that. So we think it's a pretty, pretty seamless transition that will continue, you know, it'll occur over time and give us a pretty long runway we think for Macy growth as we move forward in the years ahead. Understead, thanks very much.
Unknown Attendee: I understand. Thanks very much.
Mike Kratky: Okay, thanks, Mike. Thank you.
Josh Jennings: Our next question comes from Josh Jennings from PD Cohen. Your line is now open.
Operator: Our next question comes from Josh Jennings from TD Cohen. Your line is now open.
Josh Jennings: Good morning. Thanks for taking the questions. It's nice to see that Macy momentum here. I wanted to just follow up on the last question, just around, but then a different angle. Just thinking about the success you've had in terms of getting more surgeons in peer-to-peer events, getting trained, I just wanted to hear from you just, what's driving that? I mean, clearly it's your experiencing momentum, but you do have 10-year data out there early in the year. You have Arthur on tap, and I guess with the question just trying to figure out that leading indicator, and he just high-level comments on the first half, the drivers of that, and whether this Macy Arthur approval is just driving some of that increased interest this year.
Speaker Change: Momentum here.
Speaker Change: Wanted to just follow up on the last question just around but but then a different angle.
Speaker Change: Just thinking about the.
Speaker Change: Success, you've had in terms of.
Speaker Change: Getting more surgeons and peer to peer events getting trained is just wanted to hear from me just what's driving that I mean, it's clearly.
Speaker Change: It's you're experiencing momentum, but you do have 10 year data out there early in the year, you have or throw on tap and I guess really the gist of the question just trying to figure out.
Speaker Change: That leading indicator.
Speaker Change: High level comments on the first half the drivers of that and whether this may see or throw approval is driving some of that increased interest this year.
Nick Colangelo: No, I'd say, you know, back to the prior response that, you know, we've just seen a lot of momentum in the core Macy business, sort of as we, you know, exited sort of those COVID impacted years. And since that time, I mean, we've seen Macy just in total rebound to its, you know, prior high growth profile, you know, as it becomes more and more the standard of care for cartilage repair based on, as you mentioned, not only sort of the two-year data in the pivotal study, the five-year data in the extension study, 10-year data that was published earlier this year. I just think you kind of see this broadening of the customer base that, you know, has just continued for a number of years now.
Unknown Attendee: you know, exited sort of those, those COVID impacted years. And since that time, I mean, we've seen, we may see just in total rebound to its, you know, prior high growth profile, you know, as it becomes more and more the standard of care for cartilage repair based on, as you mentioned, not only sort of the two year data in the pivotal study, the five year data in the extension study, 10 year data that was published earlier this year, I just think you kind of see this broadening of the customer base that, you know, has just continued for a number of years now.
Unknown Attendee: And then as we launch Macy Arthro, you know, those new targets, again, they're doing high volumes of cartilage repair already; Macy will be a new option for them. But I'm pretty sure they're aware of sort of Macy and its profile from a clinical and efficacy perspective.
Nick Colangelo: And then as we launch Macy Arthro, you know, those new targets again, they're doing high volumes of cartilage repair already. Macy will be a new option for them, but I'm pretty sure they're aware of sort of Macy and its profile from the political and advocacy perspective. Understood. Thanks for that.
Nick Colangelo: And I also wanted to just get an update on business development and issues. And I think your team is out there on the hunt, you know, the profitability profile, inflecting. You know, how would you have investors think about those efforts and M&A opportunities out there to bring even more portfolios into the, under the Verisaur roof. Thanks.
Nick Colangelo: Yeah, our corporate development strategy has been quite consistent over the number of years. And, you know, obviously, we have a lot ahead of us with new product launches and continued high growth with our core business. But, as you said, we have dedicated effort on the business development front, always looking at opportunities in the sports medicine space that would be synergistic with Macy for our customer base in the burn care space. And then you know, probably relatively less so, but also given our expertise and advanced self therapy, development, manufacturing, commercialization, you know, a lot of folks come to us with different opportunities as well.
Speaker Change: Quite consistent over the number of a number of years and obviously, we have a lot ahead of us with new product launches and continued high growth with our core business, but as you said we have dedicated effort.
Speaker Change: On the business development front always looking at opportunities in the sports medicine space.
Speaker Change: That would be synergistic with Macy's for our customer base in the burn care space, and then probably relatively less so but also given our expertise in advanced cell therapy development manufacturing commercialization and a lot of folks come to us.
Speaker Change: With different opportunities as well I'd say for us the hurdles are relatively high.
Nick Colangelo: I'd say, you know, for us, the hurdles are relatively high. You know, you all know and have seen sort of BD deals sort of go awry, even in our space. And so we're very focused on maintaining the innovation profile of our portfolio. I think we're in a relatively unique position where, you know, our products are the only approved products of their kind in our space. And so that's where it all starts. And then, you know, we also have a unique financial profile. And so we're very focused on making sure we maintain our high revenue growth rate, our profitability, and so on.
Speaker Change: You all know Hep seems sort of BD deals sort of go awry.
Nick Colangelo: So, you know, I always say that if something trains actually should be pretty comfortable, we probably looked at it, but we have a pretty high bar. and you know, we'll add products and portfolios as it makes sense for us. But you're right, we're certainly on the financial sort of firepower to be able to do that, and it's all about just making sure it's a great fit for us.
Unknown Attendee: I appreciate that. Thank you.
Operator: Our next question comes from Jeffrey Cohen from Ladenburg Salmon & Company. Your line is now open.
Unknown Executive: So I'm going to continue the moment, taking questions from Alan.
Jeffrey Cohen: So firstly, could we talk about extra bread and pediatric indication of how that might go on as far as we are trying to do in some of the services and addition to the code. So I'm going to be, you know, hearing the same seven Skin commercial folks as well, focus on that area. Yeah, I think you had a little bit of a hard time hearing you, Jeff, but I think I have the gist of the question. So yeah, upon approval, you know, obviously we have the 17 territories that I mentioned as we've implemented kind of ourselves force optimization, so the burn pair franchise.
Speaker Change: 17, commercial folks as well focus on that area.
Unknown Executive: Yeah, I think I had a little bit of a hard time hearing you, Jeff, but I think I understand the gist of the question. So yeah, upon approval, you know, obviously, we have the 17 territories that I mentioned, as we've implemented kind of our Salesforce optimization for the burn care franchise. So, on average, it's about one center per territory.
Speaker Change: Yeah, I think it had a little bit of a hard time hearing you, Jeff, but I think I have it.
Jeff: Just to the question. So yeah. Upon approval, obviously, we have to <unk> 17 territories that I mentioned as we've implemented our salesforce optimizations of the burn care franchise. So on average it's about one center per territory.
Nick Colangelo: So, you know, on average, it's about one center per territory. And so it's certainly there already in the target base for these reps. But until the approval comes, they're obviously not sort of in there promoting the use of Mexico. We certainly have seen a few centers using it; these pediatric burn centers, they're free to do that. We just can't promote it.
Speaker Change: And so it's certainly there are already in the target base for these.
Unknown Executive: And so certainly they're already in the target base for these reps. But until the approval comes, they're obviously not sort of in there promoting the use of Nexibrid. We certainly have seen, you know, a few centers using it; these pediatric burn centers are free to do that; we just can't promote it. But, you know, on day one, we have a playbook for the reps to go out and sort of promote Nexibrid.
Speaker Change: Reps, but until the approval comes they are obviously not sort of in there promoting the use of Mexico, we certainly have seen it.
Speaker Change: <unk> centers using it these pediatric burn centers they are free to do that we just can't promote it but.
Nick Colangelo: But, you know, on day one, we've got a playbook for the reps to go out and sort of promote Next to Grid. And, you know, it'll have to go through the same process, right, PNT committee approval and establishing ordering protocols and patient protocols, etc. But we do think there'll be a pretty meaningful impact over time. You know, roughly 25 to 30% of hospitalized burn patients are pediatric patients. And so, you know, as I mentioned on the call, we think this will certainly be eight in next week to uptake over time.
Speaker Change: On day, one we've got a playbook for the reps to go out.
Unknown Executive: And you know, we'll have to go through the same process, right, P&T committee approval and Establishing Ordering Protocols and Patient Protocols, etc. But we do think there'll be a pretty meaningful impact over time. You know, roughly 25 to 30% of hospitalized burn patients are pediatric patients. And so, you know, as I mentioned on the call, we think this will certainly
Speaker Change: And sort of promote nexobrid and it will be.
Jeffrey Cohen: Perfect.
Jeffrey Cohen: And the last week of the show, we'll give you a call at the point in trying to shoot through on your, under guard, depending on the condition, proposition or some flavor. We need that on much of good courses. So please.
Joe Mara: Sorry, Jeff, we're having a hard time morning. Are you asking about kind of Q3 revenue composition within the guidance? We did.
Joe Mara: Thank you. Yeah, so, you know, I'd say you kind of look at bird care and you kind of think about the framework there. You know, Nick talked about this a bit, but, you know, in the first half of the year, you know, we saw that. But, you know, pretty encouraging that it was kind of over the nine million mark, you know, grew in the double digits from a run rate perspective, also from your perspective on total revenue for So as we think about the back half and, you know, I think you three is certainly part of that equation.
Joe Mara: You know, we expect that the cell to kind of be at that higher run rate, calling in that nine to ten million dollar range. You know, don't know exactly what it's going to look like across quarters, but I think that the reasonable assumption. And then in terms of next the bridge, you know, I say as we talked about in the prepare remarks, you know, some strong progressions from Q1 to Q2. You know, as we think about the second half of the year and think about the third quarter, you know, that should certainly continue, you know, that progression kind of throughout the year.
Joe Mara: So, you know, it's difficult to say exactly what the mix will be, but, you know, we certainly expect at the cell to kind of remain at these higher run rates and have a strong second half of the year. We're seeing, you know, strong indicators there, and you know, an extra bridge moving in the right direction as well. So I say both of those are part of it, and that's how we're thinking about Q3 and the back half.
Joe Mara: We're seeing, you know, we're seeing, you know, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing, you're seeing Perfect.
Unknown Attendee: Perfect. Thanks for taking our questions.
Jeffrey Cohen: Thanks for your questions.
Jeffrey Cohen: Thanks, Jeff.
Swayampakula Ramakanth: Thank you.
Swayampakula Ramakanth: Our next question comes from Swayampakula Ramakanth from HCW.
Operator: Our next question comes from Swayampakula Ramakanth from HCW. Your line is now open.
Swayampakula Ramakanth: Your line is now open. Thank you.
Nick Colangelo: Good morning. If I heard everything correctly, when you're talking next about conversion, you were saying something about the epithel biopsy and conversion there. Did some of that spill over into the third quarter, because you're also talking about timing and just trying to have an idea if any of the ideas that you had expected in the second quarter spread it over into the third. Yeah, thanks, Arke. So, yeah, as I mentioned, just kind of the top of the funnel, again, was pretty consistent with prior quarters. And yeah, I did mention that there's always going to be patient health variables that impact the timing of treatments.
Speaker Change: Yeah.
Speaker Change: If I if I heard everything correctly, when you were talking a neck.
Speaker Change: On the motion.
Speaker Change: Saying something.
Speaker Change:
Speaker Change: [laughter] episodes.
Speaker Change: T M.
Speaker Change: Promotion there.
Speaker Change: Some of that.
Speaker Change: We're into the third quarter, because you were also talking about something.
Speaker Change: Timing and.
Speaker Change: I'm just trying to.
Unknown Attendee: May I have an idea if any of the revenue that you would have expected in the second quarter has spilled over into the third quarter?
Speaker Change: Yeah.
Speaker Change: An idea.
Speaker Change: If any of the revenue that you're in.
Speaker Change: Fix it in the second quarter spend until we're into that.
Joe: Yeah, thanks, Arkay. So yeah, as I mentioned, just kind of the top of the funnel, again, was pretty consistent with prior quarters. And yeah, I did mention that there are always going to be patient health variables that impact the timing of treatments. And we certainly did see, particularly late in the quarter, cases that were pushed into or rescheduled into Q3. And again, that happens because, you know, these patients have a lot of other injuries or infections that prevent surgeries from taking place. So the short answer is yes. But that, you know, is relatively small.
Speaker Change: Yes.
RK: Yeah. Thanks RK.
Speaker Change: So yeah as I mentioned, just kind of at the top of the funnel again was.
Speaker Change: Pretty consistent with prior quarters.
Speaker Change: Yes, I did mention that.
Nick Colangelo: And we certainly did see, particularly late in the quarter, cases that were pushed into or rescheduled into Q3. Again, that happens because these patients have a lot of other injuries or infections that prevent surgeries from taking place. So, the short answer is yes, but that is relatively common. Okay.
Swayampakula Ramakanth: And then a quick question on the pediatric indication of the next spread. You said you have 70 centers, burn centers already, kind of PT and approval. If you get the pediatric indication on board, how many of these centers also do pediatric, and also would you add centers outside of the 70, which are just clinical pediatric?
Unknown Attendee: How many of these centers also do pediatrics, and also would you add?
Nick Colangelo: I'm not really going to put up the bond market. So, yeah, so let me just kind of give a quick call with you. So, as you know, in the launch, there's about 140 burn centers in the US that are accredited by the ABA. We target, you know, we break them up into three tiers, and we really focused on the 90 tier one and tier two centers with our initial launch. And that's kind of what we've been reporting on in terms of the 70 submissions, the 40 approvals, etc. There's about 20 pediatric burn centers that will now, you know, we will actively promote to.
Nick Colangelo: So certainly, in some of our existing centers, pediatric patients can be treated. They don't all get treated at the pediatric centers, but again, we can't be in there promoting. So, you'll have some pediatric centers that used the product a few, but many of them were sort of waiting for the pediatric indication. And so, you know, we think, as I mentioned on the call, that, you know, we have a meaningful impact on next-to-bird uptake as we get out there and get these centers through the process, and they start treating this pediatric burn pocket.
Speaker Change: So certainly in some of our existing centers pediatric patients can be treated they don't all get.
Speaker Change: Treated at the pediatric centers, but again, we can't be in there.
RK: Promoting so youll have some debt pediatric centers that use the product a few.
Speaker Change: But many of them were sort of waiting for the pediatric indication and so we think as I mentioned on the call.
RK: That will be have a meaningful impact on nexobrid uptake as we get out there and get these centers through that process and they start treating this pediatric burn population.
Swayampakula Ramakanth: Thank you. Moving forward to the exciting segment of this new information. Okay, thanks. Okay.
RK: Thank you again.
Speaker Change: Fair enough.
Speaker Change: Okay. Thanks, Okay.
Unknown Executive: Thank you. I'm showing no further questions at this time.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Nick Colangelo for closing remarks.
Nick Colangelo: I would now like to turn it back to Mick Colangelo for closing remarks. Okay. Well, thank you, everyone, for your questions and continued interest in Vericel. As we mentioned, the company had a very strong first half of the year. We expect to continue delivered to deliver sustained high revenue and profit growth for the remainder of the year. And beyond that, we look forward to providing further updates on our progress on our next call.
Nick Colangelo: So thanks again, and have a great day.
Operator: Thank you for your participation and today's conference. This does conclude the program.
Operator: You may now disconnect. Thank you.