Q4 2024 Vericel Corp Earnings Call
Joining me on today's call are <unk>, President and Chief Executive Officer, Nick Colangelo.
Joe Mara: And our Chief Financial Officer, Joe Mara.
Before we begin let.
Joe Mara: We remind you that on today's call, we will be making forward looking statements covered under the private Securities Litigation Reform Act of 1095.
Joe Mara: These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations.
Joe Mara: And are described more fully in our filings with the SEC.
Joe Mara: 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.
Joe Mara: Please note that a copy of our fourth 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: I'll now turn the call over to Nick.
Nick: Thank you Eric and good morning, everyone as highlighted in our preliminary results released last month, the company delivered outstanding financial and business results in 2024, generating top tier revenue growth and even higher profitability growth along with significant operating cash flow.
Nick: The company also achieved several key business objectives for the year, including FDA approval and commercial launch of ACR through approved.
Nick: Approval of a pediatric indication for Nexobrid and completing construction of our new corporate headquarters and manufacturing facility, which will support the company's continued growth in the years ahead.
Nick: From a financial perspective total revenue was more than $237 million as the company delivered another year of 20% total revenue growth as well as growth of 20% or more for both the macy in burn care franchises.
Nick: The company also delivered significant profit growth and operating cash flow as adjusted EBITDA increased over to over $50 million. The company achieved GAAP profitability for the year and operating cash flow increased to nearly $60 million.
Nick: For the fourth quarter, the company delivered record quarterly revenue of over $75 million.
Nick: As well as record profitability highlighted by gross margin of 78% adjusted EBITDA margin of 40%.
Nick: Net income of nearly $20 million.
Nick: <unk> had a very strong close to the year with record fourth quarter revenue of more than $68 million, representing 21% growth versus the prior year and 53% sequential growth versus the third quarter.
Macy's fourth quarter performance was driven by strong underlying fundamentals as we had the highest number of Macy implants, implanting surgeons surgeons, taking biopsies and biopsies in any quarter since launch for.
Nick: For the full year Macy's results were driven by strength in its key growth drivers, including growth in biopsy surgeons and biopsies per surgeon as well as a slight uptick in the overall biopsy conversion rate.
Nick: Based on these results <unk> sales rep productivity increased significantly to $2 $6 million per rep. In 2024 is our commercial team continues to execute at a very high level.
The strength of these key growth drivers together with another quarter of significant increases in the number of peer to peer programs and attendance at those programs, which are at the highest level at any time since launch demonstrates that surgeon interest in Macy remains extremely high in.
Nick: In addition, as I'll cover following Joe's comments several key performance indicators for the ACR through launch have been very strong to date, providing significant momentum from ACR through to begin the year.
We also developed burn care into a second high growth franchise in 2024 with full year revenue, increasing 22% to approximately $40 million in.
Nick: In the fourth quarter, although we had more episodes biopsies compared to the third quarter episode revenue was below recent run rates due to a lower number of patient treatments as a result of patient health issues and fewer grafts per patient.
Nick: While episode quarterly results can be variable given the relatively small patient population and the critical nature of their injuries overall demand for episodes was strong in 2024 as Apple sell revenue grew 16% for the year and we generated business and several of dormant accounts as a result of our expanded burn care.
Nick: <unk> spores.
Nick: <unk> ended the year with strengthening underlying demand as hospital orders in the fourth quarter increased 42% versus the third quarter, a strong leading indicator of continued adoption of nexobrid.
Nick: Overall, the company executed very well in 2024, and we expect continued high revenue and profitability growth as well as an inflection in cash generation as we move into 2025 and beyond.
Nick: I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.
Joe Mara: Thanks, Nick and good morning, everyone as.
Speaker Change: As Nick referenced various cell had an outstanding year in 2024 and closed out the year with very strong financial performance across the P&L.
Speaker Change: The company's substantial revenue growth translated into significant margin expansion with both gross margin and adjusted EBITDA margin ahead of our guidance for the quarter and the full year.
Speaker Change: Revenue was in line with our pre announced financial results and gross margin net income and adjusted EBITDA results were even stronger all coming in ahead of our preliminary financial results.
Speaker Change: Total net revenue for the year increased 20% to $237 2 million driven by high growth for both of our franchises with record fourth quarter revenue of $75 4 million.
Speaker Change: Macy revenue increased 20% to $197 3 million for the year and fourth quarter revenue was $68 3 million growing 21% versus the prior year and 53% sequentially over the third quarter.
Speaker Change: Representing the highest fourth quarter sequential step up in the last three years.
Speaker Change: <unk> revenue for the year was $39 9 million, representing 22% growth and consisted of $36 $6 million of episodic revenue and $3 $3 million of Nexobrid revenue.
Speaker Change: In the fourth quarter burn care revenue was $7 million was $6 million of episodic revenue and $1 million in aggregate revenue.
Speaker Change: Gross profit for the year was $172 1 million or 73% of net revenue an increase of approximately 400 basis points compared to 2023.
Speaker Change: Full year gross margin was ahead of our prior guidance and 300 basis points higher than our initial guidance of 70% to start the year.
Speaker Change: For the quarter gross profit was $58 5 million or 78% of net revenue, which increased approximately 300 basis points versus the prior year and represents the highest gross margin for the company in any quarter to date.
Speaker Change: Total operating expenses for the year were $167 6 million compared to $142 million in 2023.
Speaker Change: For the quarter operating expenses were $40 million compared to $35 8 million for the same period in 2023.
Speaker Change: The increase in operating expenses in 2024 was primarily due to development and commercial launch activities from ACR throw increased head count and related employee expenses as well as additional marketing initiatives that helped drive a significant increase in physician engagement across both franchises.
Speaker Change: From a profitability expense from a profitability perspective, the company achieved GAAP profitability for the full year, our key goal coming into the year with net income of $10 4 million or <unk> 20 per share compared to a net loss of $3 2 million or <unk> <unk> per share in 2023, representing.
Improvement of over $13 million versus the prior year.
Speaker Change: In addition, net income for the fourth quarter grew 52% to $19 8 million or <unk> 38 per share compared to $13 million or 26 per share for the fourth quarter of 2023 and net income was also significantly ahead of our preliminary results announced last month.
Speaker Change: non-GAAP adjusted EBITDA for the year grew 58% to $53 4 million or 23% of net revenue compared to $33 9 million or 17% of net revenue in 2023.
Speaker Change: Representing an increase of approximately $20 million versus the prior year.
Speaker Change: Similar to gross margin adjusted EBITDA margin for the year was ahead of our most recent guidance of 22% and 300 basis points ahead of the initial 20% guidance to start the year.
Speaker Change: For the quarter adjusted EBITDA grew 34% to $29 9 million or 40% net revenue an increase of over 500 basis points versus the prior year, representing the highest adjusted EBITDA margin for the company in any quarter to date.
Speaker Change: Importantly, adjusted EBITDA growth of 58% for the full year was more than double the company's topline revenue growth of 20% as our results continue to demonstrate very strong P&L leverage and a top tier profitability profile.
Speaker Change: The company generated operating cash flow of $58 2 million in 2024, ending the year with approximately $167 million in cash restricted cash and investments and no debt up from approximately $153 million to start the year as our cash balance increased for the year.
Speaker Change: Quite significant capex investments in the new facility.
Speaker Change: Turning to financial guidance for 2025.
Speaker Change: Maintaining the full year guidance announced at the start of the year with revenue expected to grow 20% to 23%.
Speaker Change: Gross margin of 73% to 74% and adjusted margin adjusted EBITDA margin of 25% to 26%.
Speaker Change: In terms of our revenue guidance, we are using a similar framework as was used in 2023 and 2024 for both franchises.
Speaker Change: For <unk>, we expect another strong year of revenue growth and as a starting point expect revenue growth similar to 2024 in the low 20% range with biopsy surge in growth biopsy growth and price continuing to serve as the primary macy growth drivers.
Speaker Change: While Macy Arthral cases will contribute to meet the revenue our initial guidance to start the year does not build in a significant change in Macy's current strong growth trends.
Speaker Change: For the burn care franchise, we expect continued progression of Nexobrid revenue throughout the year with full year revenue in the high single digit million range.
Speaker Change: As a starting point for episode, we expect full year growth in the high single digit percentage range.
Speaker Change: Driven primarily by an increase in price.
Speaker Change: After a very strong close to the year in Q4, we expect maintenance revenue in the first quarter to be approximately $45 million to $47 million with a similar quarterly mix of full year revenue as in prior years.
Speaker Change: Prepare for burn care, although <unk> biopsies in the first quarter. Currently are ahead of recent quarterly trend patient treatments and Grasberg patient continue to be at the lower end of our typical range, mainly due to patient health issues.
Speaker Change: As a starting point for the first quarter, we expect burn care revenue will be in the $7 million to $8 million range.
Speaker Change: Moving down the P&L, we expect another year of very strong margin expansion and profitability growth in terms of the quarterly progression on margins as is typical we expect to have the lowest margins of the year in the first quarter and expect to have the highest margins in the fourth quarter, which is our highest revenue quarter of the year.
Speaker Change: Full year operating expenses are expected to be approximately $195 million.
Speaker Change: It is important to note that following the completion of construction of our new facility operating expenses will now include approximately $10 million of incremental depreciation and other building related expenses starting in 2025.
Speaker Change: Excluding these incremental building related expenses core operating expenses are expected to increase in the low double digit percentage range in 2025.
Speaker Change: Finally, with the vast majority of the spend for the new facility complete we anticipate a significant decrease in capital expenditures in 2025.
Speaker Change: We expect approximately $15 million to $20 million of Capex in the first half of the year primarily related to the final equipment purchases for our new facility after which Capex is expected to return to significantly lower annual run rates in the mid single digit millions with a corresponding corresponding inflection.
Speaker Change: And cash generation.
Speaker Change: In total this guidance points to continued high revenue growth and further enhancement of the company's top tier profitability profile in 2025, which supports the increased midterm profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30.
Nate: Percent range by 2029, I will now turn the call back over to Nate.
Nate: Thanks, Joe The company had a strong year in 2024, and we expect continued strong performance in 2025 in the years ahead.
Nate: While we're still early in the ACR through launch, we're seeing significant interest and engagement with both previous macy targets as well as the incremental 2000 high volume arthroscopy surgeons that are now part of our 7000.
Nate: Target surgeon base surgeon feedback has been very positive and clearly supports the potential patient benefits noted by surgeons in our market research as the Macy Arturo procedure offers a less invasive treatment option, requiring smaller incisions, which may result in less postoperative pain.
Nate: And faster post operative recovery for patients.
Nate: In terms of some of the early key performance indicators for the <unk> launch we have trained approximately 250 <unk> surgeons to date have had macy implants scheduled or completed from each of our surgeons segments of previous Macy and non <unk> users have received a meaningful number of biopsies.
Nate: From our new <unk> only targets.
Nate: And have had several cases treating smaller defects outside of the femoral condyles.
Speaker Change: Looking more closely at our trained surgeons to biopsy grocery for Macy Arthur train surgeons to start the year is substantially higher than surgeons that have not been trained which would be expected to drive a potential increase in their macy implant activity over time.
Speaker Change: And importantly, a significant percentage of the train surgeons are those that historically used macy primarily for patella defects, suggesting that these surgeons may be considering BDC for a broader patient population that encompasses the largest segment of the MISO your addressable market.
Speaker Change: So overall, we're very pleased with the initial launch progress and continue to believe that <unk> will have a meaningful impact on overall <unk> utilization and potentially bolster its current high growth trajectory.
Speaker Change: We're also encouraged by the recent positive trends for <unk> with the strong sequential growth in hospital orders in the fourth quarter carrying over into this year as more centers regularly order and use <unk> and.
Speaker Change: Importantly, the efficacy and value proposition for <unk> remains strong and we have a number of key initiatives. This year designed to continue to drive uptake and utilization of <unk> in 2025 as more centers become consistent users and we have our larger sales force, which is now cross trained on both products in place.
Speaker Change: For the entire year.
Speaker Change: Similar to the dynamic we saw in 2024, we also expect that our larger burn care footprint with <unk> will continue to drive episodes usage from new and dormant accounts in 2025.
Speaker Change: We also continue to advance the <unk> development program and remain on track to submit an IND in the first half of this year and expect to initiate the phase III clinical study in the second half of the year.
Speaker Change: With an estimated addressable market of $1 billion potential <unk> ankle indication represents a substantial longer term growth driver for Macy and would enable the company to expand into other orthopedic markets.
Speaker Change: Finally, with construction of our new commercial manufacturing facility complete we've initiated the tech transfer process and remain on track to begin commercial manufacturing for <unk> and the new facility next year.
Speaker Change: This facility is designed to meet both U S and global manufacturing requirements, which provides strategic flexibility for the company to potentially commercialize me see outside the United States.
Speaker Change: We've recently initiated an evaluation of the market opportunities and regulatory requirements in several U S geographies as we continue to expand the long term growth and value creation opportunities for the company.
Speaker Change: Overall, we believe we're very well positioned to deliver a unique combination of sustained higher revenue and profitability growth in 2025 in the years ahead based on the strength of our core portfolio.
Speaker Change: The launch of <unk> and the continued progress on other long term growth initiatives.
Speaker Change: This concludes our prepared remarks, we'll now open the call to your questions.
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 one on your telephone and wait for your name to be announced.
Speaker Change: Withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Ryan Zimmerman with <unk>. Your line is now open.
Ryan Zimmerman: Good morning, and thanks for taking my questions. Congrats on all the progress.
Speaker Change: I want to start with Macy and guidance for the year, if I could and talk about it in the context of both the training and the contributions from ACR Astro when we think about the growth for Macy's this year.
Ryan Zimmerman: Okay.
Ryan Zimmerman: Yeah.
Ryan Zimmerman: I could be wrong, but it doesn't appear that you are.
Ryan Zimmerman: Assuming a meaningful contribution from ACR throw in the guidance.
Ryan Zimmerman: But when you reconcile that with the training with the expectations for adoption on a broader customer base I guess why wouldn't that come through potentially both in the first quarter, which is by my math, 15% growth, but for the broader year.
Ryan Zimmerman: Yes, so good morning Ryan.
Ryan Zimmerman: This is Joe so I'll start on this one so I appreciate the question. So I would say from a framework perspective, obviously, we reaffirmed the company guidance.
Ryan Zimmerman: And I think we've had a solid framework. The last couple of years and I think to your point as we think about <unk> on a full year basis, our starting point for the year is essentially a very similar year as 2024. So same core growth drivers think about strong biopsies continuing to expand our surgeons in price.
Ryan Zimmerman: So it's really the core the core growth drivers of Macy's that gets you to call it kind of a low 20% range something in the high <unk> call. It $2, 39% is probably a good starting point, that's about 21% growth and I think from.
Ryan Zimmerman: From your question just.
Speaker Change: Just a comment on that as Nick mentioned, we are seeing a number of very encouraging indicators in ACR throw including that 250 trained surgeons to date, but I would say to start the year and importantly to answer. Your question. We are not building in at this point a significant change in the macy trends into the guidance to start the year.
Speaker Change: Having said that clearly the indicators remain strong and we think there is an opportunity to potentially outperform my macy due to ACR throw but again, it's early in the year and we're not going to assume that kind of out of the gates.
Speaker Change: And then from a Q1 perspective Glazer. Please Joe yes, yes, so just on from Macy and Q1 on a question there so yes.
Speaker Change: Yes, so from a guidance perspective, I think a couple of important pieces to think about as you think about the first quarter. So first off we're essentially using the same guidance framework. We used a year ago. In Q1, we were also coming off a very strong fourth quarter, which was around 22%. We guided last year in the mid teens, we ended up a little bit higher than that.
Speaker Change: On a year over year growth basis, this year kind of a similar <unk>.
Speaker Change: <unk> dynamics, we're coming off a strong fourth quarter, 21% our guidance is.
Speaker Change: Very similar range, it's actually a little bit higher than the midpoint around that 15%. So first off we just want to make sure we are consistent in.
Speaker Change: A similar approach from a year over year perspective.
Speaker Change: The other piece that will have an impact as we do have one fewer selling day in one fewer day from AC cases in the quarter. So for US that's around 150 basis points. So if you adjust adjust for that you're kind of more in that call. It 16% range, which is which is similar to last year. So that's kind of how we're thinking about Q1.
Speaker Change: We still think we're set up for a strong first half and we think they may see the guidance in general is the right starting point for the year, including the way we are thinking about ACI pro.
Speaker Change: Alright.
Speaker Change: Very helpful very clear.
Speaker Change: Let me turn to the next so Brad.
Speaker Change: For a minute here I mean.
Speaker Change: You've historically talked about kind of the number of.
Speaker Change: Ordering sites the number of sites on PMT Committee Center, we didn't hear that this quarter.
Speaker Change: What do you think it's going to take to accelerate Nexobrid adoption I'm also trying to reconcile the 42% order growth with the fact that nexobrid sales.
Speaker Change: Stepped down a hair from Q3 to Q4.
Speaker Change: And kind of what your expectations are for that franchise and 25.
Speaker Change: Yeah. Thanks, Ryan So the Q4 dynamic as we've talked about sort of been kind of the early ish launch phase is that hospital orders, obviously were up 42%.
Speaker Change: As we've talked about before we recognize revenue based on our <unk>.
Speaker Change: Specialty distributor.
Speaker Change: Purchases from our three PL Cardinal and so you can definitely have Mitch mismatches as they're managing different inventory levels.
Speaker Change: To end the year and Thats really what ended up happening. So we're really focused on the underlying hospital demand as we mentioned in our prepared remarks. It was a pretty big progression in Q4, we've seen continued.
Speaker Change: Mentum.
Speaker Change: As we come into the year.
Speaker Change: As hospitals begin to become more consistent users and we expect that to continue I think Joe kind of mentioned high single digit.
Speaker Change: Revenue.
Speaker Change: <unk> for the year, and that's a pretty pretty meaningful.
Speaker Change: Uptick versus where we.
Speaker Change: We were last year.
Speaker Change: Okay I'll hop back in queue. Thanks for taking my questions.
Joe Mara: Thanks, Brian.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mike Zaremski.
Speaker Change: With Leerink partners. Your line is now open.
Mike Zaremski: Hi, everyone. Thanks for taking our questions.
Mike Zaremski: One thing that stood out you talked a little bit about the conversion rate. So what factors would you call out that could be responsible for that uptick in the conversion rate do you expect to see that continue this year and beyond and then lastly is a potential increase in your conversion rate factored into your 2025 guidance net capacity.
Mike Zaremski: So yes, so we saw a small uptick for the year as I mentioned on the conversion rate.
Speaker Change: I think we've always said that as our.
Speaker Change: Customer base sort of matured, which was the case before we expanded our customer base for.
Speaker Change: <unk> from $5 to 7000 surgeons that you would likely see a little drift. So I think that was primarily the reason for it as we go forward.
Speaker Change: Again, we're adding a lot more surgeons that were.
Speaker Change: It will be in this.
Speaker Change: Our customer base with the launch of <unk> through so as Joe mentioned, we really haven't sort of factored a big movement in the conversion rate in our guidance for the year again those are the kinds of things that potentially provide upside.
Speaker Change: Certainly believe that the hurdle for patients moving forward with surgery surgery within arthroscopic option potential.
Speaker Change: Potentially could be less so we're hopeful to see conversion.
Speaker Change: Over time, as we've always talked about increase but thats not baked into our guidance for the year.
Speaker Change: Understood. That's helpful. Thanks, and then maybe just one follow up you had some helpful commentary on the 250 trained surgeons from ACR throat.
Speaker Change: Curious if there's any color you can provide on the utilization that youre seeing from some of the new surgeon.
Speaker Change: Not previously trained are using Macy's and how we should think about.
Speaker Change: Yes, the pace at which they could start to get onboard.
Speaker Change: Yes, so as we've talked about to finish last year.
Speaker Change: Q4, obviously is kind of a monster quarter for us and a lot of the activity is really bringing home the cases for Q4.
Speaker Change: Very successful with that and so.
Speaker Change: From our perspective, the <unk> launch is really kicking into full gear to start this year.
Speaker Change: No we're kind of giving you some commentary right now around biopsies, because thats sort of a leading indicator for us right and we did mention that we've seen either cases scheduled or completed from all four of the BC user and non user previous segments. So that's obviously very encouraging.
Speaker Change: When you have the trained surgeon biopsy growth outperforming sorted.
Speaker Change: The total that's encouraging and so I think all of these indicators give us a lot of optimism about the potential impact of ACR through who we are as you know given the sort of timelines from biopsies to implants were kind of in the early innings here, but just wanted to share some commentary on sort of the early.
Speaker Change: Leading indicators.
Speaker Change: What we've seen with <unk>.
Speaker Change: Got it thanks very much.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Our next question comes from Richard <unk> with <unk> Securities. Your line is now open.
Speaker Change: Hi, this is <unk> on for rich.
Speaker Change: You guys are making real progress on physicians being trained I think it was $2 50 in 2020 for looking out to 2025 can you just give us some color on on any incremental positions being added and expectations for <unk>.
Speaker Change: <unk> revenue like incremental revenue growth contributions for 2025. Thank you.
Speaker Change: Yes, so just to be clear we ended the year with 150 trained surgeons as we talked about it at the Jpmorgan Conference and then as of.
Speaker Change: Now we're up to around 250 surgeons so good.
Speaker Change: Progression to start the year in 2025, obviously, our commercial team has a goal that they would like to get to.
Speaker Change: We would expect over the course of this year, obviously that will continue to training a meaningful number of surgeons and as Joe alluded to we haven't baked in obviously, we're already doing <unk> cases, as we've talked about during Q4.
Speaker Change: <unk>, obviously is continuing into Q1, we have not yet I mean, the reality is the guidance for the year is already above.
Speaker Change: <unk> growth for last year, so obviously.
Speaker Change: Maintaining and expecting some increase in the growth rate.
Speaker Change: But there's obviously some upside to that if we see <unk> progresses as we hope it will.
Speaker Change: Great.
Speaker Change: Just on the high single digit growth guide for episodic performance.
Speaker Change: There's been a little bit lumpy. So if you could help us understand the cadence of growth for sell through 25 that would be helpful. Thank you.
Yes, so from an <unk> perspective, if you think about the framework I think a couple of important points. So last year. Obviously, there was some quarterly variability, but from a full year perspective that performance was very strong we grew 16% on a full year basis.
Speaker Change: We had a higher share of voice in the market with <unk>. We had we had an expanded sales force for part of the year. So a lot of good signs on <unk> in 2024.
Speaker Change: To start the year, we're probably going to be a little bit more.
Speaker Change: Conservative perhaps are a little bit more of a traditional guide on <unk>, which is in that high single digit range.
Speaker Change: So that probably gets you to kind of around $40 million plus or minus.
Speaker Change: Thank you as you think about the framework one important point I think we had in the prepared remarks as well is.
Speaker Change: Essentially that very.
Speaker Change: Very little volume growth.
Speaker Change: On a year over year basis, because we do we do get some growth from price on episode that is part of the guidance framework.
Speaker Change: Essentially if we can kind of have flat cost.
Speaker Change: <unk> volume on a year over year basis that kind of gets us into that high single digit range.
Speaker Change: From a quarterly perspective, I think we can certainly I think we will certainly still see some variability we saw that last year, but I think from a framework perspective, as we think about episodic, particularly coming off a very strong year. That's I think an appropriate starting point for the year this year.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Our next question comes from Josh Jennings with TD Cowen. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: They can Joe I wanted to just ask about the LLP kind of margin targets you put out some gross margin adjusted EBITDA margin.
Speaker Change: Our expectations.
Speaker Change: Suggest an attractive expansion trajectory so hopefully just.
Speaker Change: Get a better understanding of why was now the right time I think Q4 gave the team a lot of confidence.
Speaker Change: Even more confidence in the margin expansion.
Speaker Change: Performance over the next couple of years, but also just maybe help us think in 2026.
Speaker Change: Start manufacturing the new facility, if theres any any turbulence, there and kind of the ramp up to the high Seventy's gross margins in the high <unk> adjusted EBITDA margins you guys put on the team.
Speaker Change: Yes, so good morning, Josh Thanks for the question. So I would say a couple of things on on kind of increasing our mid term targets. So.
Speaker Change: If you think about 2024, we started the year with a guidance on gross margin of 70% and we said from a midterm perspective mid to long term, we can kind of get to that 70% plus range that was.
Kind of thinking in the midterm assumption a year ago. So obviously as we progress throughout the year, we significantly kind of over performed and outperformed our initial expectations got up all the way to 73% on a full year basis. So.
Speaker Change: We're kind of close to that kind of mid 70% range exiting last year, and we think we can improve a little bit on it. This year. So I think that is certainly part of kind of the reasoning in terms of why we wanted to update that to start the year. This year that felt like the right time thinking about from a gross margin perspective. So if you think about that high 70.
Speaker Change: To your point, we were 78% in the fourth quarter, which is an important data point as we kind of think about where this can be in a few years at scale.
Speaker Change: Essentially around a point a year from a gross margin perspective, I think I don't really want to get too far into 'twenty, six et cetera, right now because the targets are by the end of the decade, but there will be.
Speaker Change: We will have to kind of incorporate this building into the gross margin et cetera in the next couple of years. So.
We had quite a bit of expansion last year, we assume it's going to go out this year, what exactly that shape looks like now to 29, it could vary a little bit as we include the building in 2006 for example, but we think.
Speaker Change: Kind of at one point a year, particularly given if we can maintain that strong top line is the right assumption on the gross margin side and then just briefly it's kind of a similar story on the adjusted EBITDA side, but we kind of started at 20% last year. We ended at 23% on a full year basis and again, if you look at the fourth quarter.
Speaker Change: It's a great marker, where we got the 40% adjusted EBITDA margin. So as we think about that margin by the end of the decade, as we think about kind of the revenue growth and the opportunity thinking about ACR throw et cetera, we think it's reasonable to assume call. It around three points a year of expansion over the next few years. So that's kind of how we're thinking about in the midterm.
Speaker Change: <unk> targets and why do we want to make the update to start the year.
Speaker Change: Got you thank you and wanted to.
Speaker Change: Ask a follow up on the <unk>.
Speaker Change: Biopsy from AC and.
Speaker Change: Just thinking about some of the.
Speaker Change: Let's turn will continental lesions that are in that biopsy bank and how thats been sized up is that a potential.
Speaker Change: Small driver at least of volume growth in 2025.
Speaker Change: It's also benefiting maybe the commercial effort to to go back to the macys surgeon base and get them trained up.
Speaker Change: They're seeing that they have some patients with somewhat continental lesions that are now potentially not candidates from ACR through thanks, Thanks for taking the questions.
Speaker Change: Yeah, I think Josh as you'd expect our commercial team did a really nice job in advance of launch to kind of take a look back and say hey.
Speaker Change: <unk> biopsies that haven't converted to date.
Speaker Change: Which of these patients might be candidates for.
Speaker Change: Arthroscopic administration provide that list to each of the reps. So that they could go have discussions with their surgeon. So of course, all of that happened and I would say.
Speaker Change: Theres certainly would've been some examples of that even in those early days of the fourth quarter of launch where.
Speaker Change: Those cases were done obviously the first case was done a couple of days after approval and that was an existing femoral condyle case that had planned to be done open and then was shifted over to ACR through so that actually has happened.
Speaker Change: And you know.
Speaker Change: Certainly we'll have contributed to some of those early cases as I mentioned and may contribute to cases in 2025 as well.
Speaker Change: Alright, Thanks, a lot.
Speaker Change: Thank you.
Speaker Change: One moment. Our next question comes from the line of Caitlin Cronin from Canaccord Genuity. Your line is now open.
Caitlin Cronin: Good morning, Thanks for taking my questions.
Speaker Change: Just to touch on the niche commercial Org I mean, you just touched on the focus in the early days John existing biopsies from the team you know what's the sales team.
Caitlin Cronin: <unk> four.
Caitlin Cronin: This year as Arthur ramps and then just any more color on if you will conduct a sales force sizing exercise for them to meet the team this year.
Caitlin Cronin: Yes, so as I mentioned to close out Q4, I mean, it's all hands on deck to bring the quarter home and the team did a really nice job doing that obviously with record <unk> revenue and sort of all time highs on all the underlying metrics of biopsies and implants to surgeons et cetera. So.
Caitlin Cronin: That was obviously a big focus in Q4.
Caitlin Cronin: National sales meeting in January was all about the ACR through launch and so that's a high priority activity for.
Caitlin Cronin: The sales force for this year, so I'd say kind of that is in line with what we had kind of expressed earlier that we just expected.
Caitlin Cronin: Their efforts to kick off in earnest to start the year and I think theres a high level of enthusiasm around the VCR through opportunity. It really doesn't take a lot to significantly move the needle when you think about.
Caitlin Cronin: Hundreds of trained surgeons and if each surgeon does even one more implant throughout the year.
Caitlin Cronin: At our price point it can it can really have a big effect. So I think everybody in our organization understands that in terms of kind of the sales force sizing.
Caitlin Cronin: We last did.
Caitlin Cronin: A meaningful expansion from 49% to 76 territories back in 2020, I think we've said previously that we will be refreshing that analysis, along the way and some of the higher volume more geographically dispersed territories, we have added some junior.
Caitlin Cronin: Territory managers to help with the workload, but we will be refreshing that analysis this year.
Caitlin Cronin: Similar to the playbook that we ran when we expanded essentially every year from 2017 through 2020, we'll do that analysis to have a rep or will have wrapped up by the middle of the year and depending what the outcome is of that if it's more junior support reps then that's something you.
Caitlin Cronin: Could implement sort of during the year.
Caitlin Cronin: It's.
Caitlin Cronin: Or more.
Caitlin Cronin: Meaningful somewhat territory realignment, we would probably do that into 2026 like we did each of the prior.
Caitlin Cronin: Expansions, because we obviously don't want to disrupt anything.
Caitlin Cronin: The second half of the year, which is the bigger part of the year for us.
Speaker Change: Got it makes sense and then just on the Macy's or U S opportunity, you've noted that might materialize.
Speaker Change: <unk> as you move to the new facility and you began assessing the opportunities there what do you currently expect the cadence of that expansion.
Speaker Change: Yes, I would say.
Speaker Change: We've kicked off the evaluation this year.
Speaker Change: The timing would be we would.
Speaker Change: We'd hope to be commercially producing and expect to be BC. This facility in 2026.
Speaker Change: I think we've talked previously that we would expect there's obviously a regulatory component to it once you decide there might be attractive countries to go into and so that will take some time and this would probably be more of a 2027 2028 sort of opportunity but.
On a country by country basis, and those can move it.
Speaker Change: At different times in different timeframe. So it will not be a 2026 launch I would expect but probably 27% 28 as I mentioned.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from Nathan <unk> with Stephens, Inc. Your line is now open.
Speaker Change: Hey, thanks for taking the questions guys.
Nathan: We saw a post on your starter surgeon training on the or throw technique program. How many of these programs are you guys offering around the country. This year.
Speaker Change: Kind of adoption and utilization trends are you seeing after surgeons attend one of these programs and how soon after do you.
Speaker Change: Begin to see them, taking biopsies or even scheduling or throw procedures. Following one of these events.
Speaker Change: Okay.
Yes, so we have.
Speaker Change: Number I think I've mentioned this before a number of different training events and opportunities.
Speaker Change: To take a step back for a minute just like VC open there.
Speaker Change: There are different ways surgeons can be trained as part of our submission we had to submit and sort of the online training materials surgeons can simply go online and trained on <unk>.
Speaker Change: ACR through if they choose to do that they can attend some of these kind of start programs. As you mentioned, which are sort of bigger programs would you know call. It a dozen or two surgeons at a time.
Speaker Change: They can.
<unk> had individual cadaver.
Speaker Change: Lab.
Speaker Change: Training or we have synthetic models that can be used as well. So there is a number of different ways surgeons can train.
Speaker Change: The Star program and as you mentioned is just one of them, where we tend to bring surgeons together on the weekends will do several of those during the course of the year, but there'll be a lot of regional and individual training as well so.
Speaker Change: I think I've mentioned earlier that we certainly think we're off to a good start with 200.
Speaker Change: 50 ish.
Speaker Change: Train surgeons already it's pretty early in the year, we'd certainly expect that to increase meaningfully throughout the year and so we're trying to make sure.
Speaker Change: It goes without saying that you get the surgeons trained.
Speaker Change: Sure.
Speaker Change: They can be taking biopsies, even before the retraining right. You can expect that some will take biopsies having attended to peer to peer programming and then maybe get trained later or havent seen videos and get trained right before the surgery, we see that all the time, so there's a bunch of different sort of ways. This happens.
Speaker Change: And I think what <unk> seen as I mentioned earlier is that theres been a we've seen already it's very early in the year, we're only through.
Speaker Change: Through February now, but the biopsy is coming from the training surgeons the growth rate is significantly greater than those who have not been trained so I think that gives you some sense of the idea on how quickly they start taking biopsies and then of course, it's a patient dynamic of when exactly surgeries.
Speaker Change: Got it okay.
Speaker Change: On the potential international expansion could you just give us your thoughts on maybe what initial markets you would be targeting there.
Speaker Change: And what the required commercial infrastructure would look like support and O U S.
Speaker Change: Macey business.
Speaker Change: Yeah. So just to kind of remind you. The macy was approved in Europe. When we bought this business 10 years ago.
Speaker Change: For various reasons.
Speaker Change: A lot had to do with the fact that the clinical trial. The pivotal study was conducted in Europe that product for this study was made here in the U S and then shipped over.
Speaker Change: There would have been some manufacturing facility changes that would have been required to to reintroduce may see into the market.
Speaker Change: So we weren't going to interrupt our U S manufacturing for that but we did build this facility.
Speaker Change: Global manufacturing requirements in mind. So there are a number of European countries that we believe will be attractive markets.
Speaker Change: We do not expect to have to run a clinical study the pivotal study with for the.
Speaker Change: The summit study was already conducted in Europe. So our expectation is that it will be more of a regulatory process and again, we will go on a country by country basis and look at both the regulatory requirements.
Speaker Change: Reimbursement market opportunity et cetera.
Speaker Change: As another reminder, we did have a nice opinion.
Speaker Change: The U K that was positive for the product. So there's some good starting foundation points for us to kind of potentially go back into certain countries in Europe.
Speaker Change: We will also look at certain countries.
Speaker Change: In South America, as well as in Asia Pacific So it will be a country by country basis.
Speaker Change: That's kind of the way it will be approaching the commercial infrastructure I think we will.
Speaker Change: Very on a again a country by country basis, there are certain countries in Europe, where patients with each kinds of cartilage injuries are treated more at a small number of centers of excellence. That's something we could think about doing it on our own there may be countries, where we might want to use it.
Speaker Change: <unk> distributor, so that will be part of the.
Speaker Change: The assessment as well.
Speaker Change: Got it thanks.
Speaker Change: Thank you.
Jeffrey Cohen: Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann <unk> Co Inc. Your line is now open.
Speaker Change: Alright folks took all of our questions and congrats on the Q4 were rebuilt so couple of questions.
Jeffrey Cohen: I guess, firstly could you talk about.
Jeffrey Cohen: The R&D for most of our Oracle backfill for the shareholders.
Jeffrey Cohen: Perhaps the size of the patient population as well as the.
Jeffrey Cohen: The sites or locations.
Speaker Change: Yes, so just for the study itself. There's obviously always some preclinical work that needs to be done we've been working with the FDA over the past year plus.
Speaker Change: Our plan for the <unk> development program.
Speaker Change: Work is essentially complete and will be compiled and submitted as part of the IMD for the study, which again, we expect in the first half of the year.
Speaker Change: That done we would then expect to initiate this study in the second half of the year.
In terms of that.
Speaker Change: The patient numbers.
Speaker Change: Sure.
Speaker Change: Couple of hundred patients ish in that in the summit study you would expect something along those lines, probably a little bit more just because these are smaller defects you wanted to make sure you powered the study appropriately to demonstrate.
The <unk> results, so, but it won't be.
Speaker Change: It'll be within those kinds of parameters that we would be conducting this study when we look at the summit study took a couple of years to enroll there is a two year follow up call. It roughly 18 months to two years to kind of go through the regulatory process. So we consider this kind of a 2030 plus.
Speaker Change: Opportunity for the company, but again in the context of really strong core BC growth currently VCR through on top of that.
Speaker Change: In earnest this year and going forward potential O U S opportunities in the back half of this decade, and then BC ankle in 2030 and beyond.
Speaker Change: We think bases really well set up for the next decade.
Speaker Change: Got it.
Speaker Change: Second question could you talk about.
Speaker Change: The expanded.
Speaker Change: Label and extra Bruce Congrats on <unk>.
Speaker Change: Maybe with FERC.
Speaker Change: The size or scope of the commercial organization regarding a call points from areas that may open up.
Speaker Change: Well, yes, if youll recall, we went.
Speaker Change: Basically.
Speaker Change: We expanded to 17 territories.
Speaker Change: In the middle of last year with all reps kind of selling both products. So that was kind of the ultimate plan that we had in place.
Speaker Change: So that has already occurred the pediatric indication.
Speaker Change: We mentioned at that time, there were about 90 tier one and tier two targets the.
Speaker Change: Pediatric indication, there's about 20 pediatric burn centers around the country. So those are obviously on the list now.
Speaker Change: There definitely are a handful of centers that are already using the product.
Speaker Change: There was a pediatric study that included <unk>.
Speaker Change: In the U S as well so familiarity with the product even before.
Speaker Change: The approvals.
Speaker Change: Super Thanks for taking my questions.
Speaker Change: Thank you thanks, Jeff.
Speaker Change: Our next question comes from the line of <unk> <unk> with H C. W. Your line is now open.
Speaker Change: Good morning, and thank them Joe.
Speaker Change: Couple of quick questions for me.
Speaker Change: <unk>.
Speaker Change: On the ocular product itself.
Does does that product requires suffering BMT meetings in the hospitals that are already using.
Speaker Change: Nancy.
Speaker Change: Is that another hurdle to cross.
Speaker Change: And on the commercial cycle.
Speaker Change: Yes, so just to be clear.
Speaker Change: The drug product in the drug substance is the same for Macy's, which has its own J code. So billed separately unless the hospital wants to buy and Bill. So PMT Committee approvals have never been part of the equation for <unk>.
Speaker Change: <unk> open procedures.
Speaker Change: There are some institutions that require a vac committee approval for the instruments that we're now selling.
Speaker Change: <unk>.
Speaker Change: These are not particularly expensive bits of revenue new generator for us.
Speaker Change: So there are cases, where you have to go through that process, but it really has not been it's not something that is kind of.
Speaker Change: A hurdle to being able to move forward with <unk> of our cases.
Speaker Change: Okay.
Speaker Change: On the Encore program.
Speaker Change: <unk>.
Speaker Change: We're planning to initiate an IND.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Some of it.
Speaker Change: So in terms of that clinical study.
Speaker Change: The.
Speaker Change: B the same centers that are already using macy and would that part in.
Speaker Change: They're using the timeline for enrollment and also running the study assets.
Speaker Change: Yes, certainly there are surgeons in the U S who are already doing <unk> cases, I mean, there are a number of publications out there. It was a pretty big part of the business in Europe.
Speaker Change: Back in the day and surgeons, who do we can't promote obviously angle cases at this point, but there certainly are cases that are done either patient self pay or or.
Speaker Change: Insurance.
Speaker Change: Payers that will cover those cases so.
Speaker Change: Yes, there are some surgeons that do both ankle and the procedure. So those are obvious go twos as potential sites in the clinical study.
Speaker Change: Okay. The last question is on the gross margin.
Speaker Change: On the growth of the expansion on the gross margin.
Speaker Change: Over the coming years, so with the new manufacturing facility coming onboard.
Speaker Change: Would there be.
Speaker Change: Would there be a dip in the gross margin initially before before that and translate it completely.
Speaker Change: Stocks contributing or that is already.
Speaker Change: It should not matter too much.
Speaker Change: Yes, so for this year, we've obviously given the guidance we now expect.
Speaker Change: Kind of in that 73% to 74% range I think the facility.
Speaker Change: As it works through the P&L initially a lot of those costs. This year on the Opex side that will kind of mixing as we're manufacturing starting in 2006.
Speaker Change: Generally I would say.
Speaker Change: We obviously feel like we can get to the high seventy's by the end of the decade.
Speaker Change: Again as I said earlier it may not be exactly linear we probably expect it to be probably similar I would say.
Speaker Change: We're taking that.
Speaker Change: That facility kind of works its way through the P&L.
Speaker Change: But we don't think that'll be hugely material over the next couple of years, but it's certainly a consideration as we kind of move from call. It 25% to 29, but we're obviously thinking about that into next year.
Speaker Change: Longer term 'twenty nine perspective, we feel.
Speaker Change: Feel like the high high <unk> is definitely the right number from a gross margin perspective with the new facility.
Speaker Change: Okay and then last question from me is on the bond franchise itself.
Speaker Change: Yes.
Speaker Change: In terms of.
Speaker Change: The factors that are helping to grow the franchise.
Speaker Change: What generally are the ones, which are doing that and then.
Speaker Change: How many of them.
Speaker Change: What sort of factors do you think.
Speaker Change: <unk> will be sustainable not only for this year, but beyond.
Joe Mara: Well I think if you look at the burn care franchise performance, obviously as Joe mentioned, while episode was was a variable last year quarter to quarter. It still had a pretty good year in terms of being up 16% on a revenue basis.
Joe Mara: Expect episode will continue as Joe mentioned.
Joe Mara: <unk>.
Joe Mara: To contribute to growth for the company starting the year kind of in the in the high single digit range. The same times we.
Joe Mara: Obviously had strong underlying demand for <unk> in the fourth quarter in terms of hospital orders that we said is carried through into Q1 and so we expect continued progression for nexobrid throughout this year and revenue growing from a little over $3 million last year due to high single digits as a starting point this year. So.
Joe Mara: Both products, we expect to continue.
Joe Mara: To contribute to that growth and having the larger burn care sales force team.
Joe Mara: For the full year versus only part of the year last year, we think will contribute as well as that team continues to.
Joe Mara: Enhanced its execution as we move throughout the year.
Joe Mara: Okay Fantastic. Thank you Bob Thanks for taking all my questions. Thanks, Mike.
Speaker Change: Thanks, Sir thank you.
Speaker Change: I am showing no further questions at this time I would now like to turn it back to Nick for closing remarks.
Nick: Okay, well just want to thank everyone for your questions and continued interest in <unk>. So obviously the company had a really great year last year, and we expect continued strong growth and momentum in 2025. So we look forward to providing further updates on our progress on our next call.
Speaker Change: And have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Yeah.