Q2 2025 Vericel Corp Earnings Call
You are currently on hold for today's verisol Corporation, second quarter, earnings call or admitting today's per we are admitting participants and plan to be underway shortly. We have appreciate your patience, please. Remain on the line.
Please stand by your conference is about to begin.
Good day and welcome to the veracel corporation second quarter 2025 earnings call.
Operator: At this time, I'd like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead.
Today's conference is being recorded.
At this time, I'd like to turn the conference over to Eric Byrnes Visels, Vice President of Finance and Investor Relations. Please go ahead.
Eric Burns: Thank you, operator, and 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. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covering the Private Security Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to defer to truth and expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. 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.
Thank you, operator. And good morning, everyone.
Joining me on today's call, are visel president and Chief Executive Officer, Nick Colangelo.
And our Chief Financial Officer, Joe Mara.
before we begin, let me remind you that on today's call we will be making 4 looking statements, Covenant of the private Securities, litigation Reform Act in 1995
These statements may involve risks and uncertainties that could cause actual results to differ between expectations and our described more fully and our thoughts with the SEC.
In addition, All 4 looking statements are represent our views only as of today,
And should not be relied upon as representing our views as of any subsequent date.
Please note that a copy of our second quarter Financial results, press release.
Eric Burns: I will now turn the call over to Nick.
In a short presentation with Hashem today is call are available in the investor relations section of our website.
I will now turn the call over to Nick.
Nick Colangelo: Thank you, Eric, and good morning, everyone. The company delivered solid financial and business results in the second quarter, with significant revenue growth and margin expansion and substantially higher profitability growth. Total revenue increased 20% in the quarter, while gross margin expanded more than 400 basis points to 74%, and adjusted EBITDA increased 112% versus the prior year to over $13 million. We also saw continued strength in the Macy growth drivers and key performance indicators for the Macy Arthros launch and significantly better performance for the Burn Care franchise. Importantly, we've had a very good start to the third quarter for Macy and the Burn Care products, and the company remains well-positioned for a strong second half of the year. Macy generated record second quarter revenue of nearly $54 million, representing 21% growth versus the prior year and 15% sequential growth versus the prior quarter.
Thank you, Eric and good morning everyone.
The company delivered solid financial and business results in the second quarter, with significant revenue growth, margin expansion, and substantially higher profitability growth.
Total revenue increased 20% in the quarter. While gross margin expanded more than 400 basis points to 74% and adjusted ibida increased 112% versus the prior year to over 13 million dollars.
We also saw a continued strength in the Macy growth drivers and key performance indicators for the Mac, Arthur launch and significantly better performance for the burn care franchise.
importantly, we've had a very good start to the third quarter for Macy and the burn care products, and the company remains, well, positioned for a strong second half of the year,
Nick Colangelo: Macy's performance was driven by strong underlying business fundamentals as we continue to expand the Macy surgeon base and drive growth in biopsies with the launch of Macy Arthros. In the second quarter, we generated the second highest number of Macy biopsies in a quarter since launch, essentially matching our highest biopsy quarter to date in the seasonally high fourth quarter of last year. Macy Arthros surgeon training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original Macy launch as we've now trained approximately 600 surgeons through the end of July. Both the biopsy and implant growth rates for Macy Arthros trained surgeons continue to be significantly higher than the growth rates for surgeons that have not yet been trained.
Macy generated record, second quarter, revenue of nearly 54 million representing, 21% growth versus the prior year in 15th versus the prior quarter.
Macy's performance was driven.
By strong underlying business fundamentals, as we continue to expand the Macy's, surgeon base and drive growth in biopsies, with the launch of Macy arthro.
In the second quarter, we generated the second highest number of Macy's biopsies in a quarter since launch, essentially matching our highest biopsy quarter to date in the seasonally high fourth quarter of last year.
Macy, Arthur surgeon training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original Macy launch. As we've now trained, approximately 600 surgeons through the end of July.
Nick Colangelo: Given the substantial increase in the number of Macy Arthros trained surgeons, overall Macy biopsy growth outpaced implant growth through the first half of the year. Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and beyond, which we believe will sustain strong Macy revenue growth in the quarters ahead. To that end, Macy is off to a strong start to the third quarter with both biopsy and implant volume growth in July accelerating versus the first half of the year. While the treatment of patella defects remains the key driver for overall Macy growth, the treatment of small femoral condyle defects, which are the defects that Macy Arthros instruments are designed to treat, increased 40% in the second quarter over the prior year.
Both the biopsy and implant growth rates for Macy, arthro, trained, surgeons, continue to be significantly higher than the growth rates for surgeons that have not yet been trained.
Given the substantial increase in the number of MacArthur trained surgeons overall Macy. Biopsy growth outpaced implant growth through the first half of the year.
Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and Beyond, which we believe will sustain strong Macy, Revenue growth in the quarters ahead.
To that end, Macy is off to a strong. Start to the third quarter with both biopsy and implant, volume growth in July accelerating versus the first half of the year.
Nick Colangelo: This is a strong indicator that this segment, which represents approximately a third of the over $3 billion addressable market for Macy, has the potential to become Macy's highest volume growth segment over time with the Macy Arthros delivery option. In addition, as we discussed on our last call, Macy Arthros is being used to treat a meaningful number of patients with trochlea defects, and this segment has now accounted for nearly 20% of Macy Arthros implants to date. The trochlea defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside Macy growth beyond the treatment of condyle defects.
While the treatment of patella defects Remains the key driver for overall Macy growth, the treatment of small ephemeral Conde defects which are the defects that Macy. Arthro instruments are designed to treat increased 40% in the second quarter over the prior year.
Option.
In addition, as we discussed on our last call, MacArthur is being used to treat a meaningful number of patients with Troya defects. This segment has now accounted for nearly 20% of MacArthur implants to date.
Nick Colangelo: Finally, we've generated over 100 biopsies from our new arthroscopic-only surgeon segment, another positive indicator that an arthroscopic delivery option for Macy can drive additional utilization from surgeons that previously did not use the product. Based on the strong Macy Arthros launch indicators to date and our expectation for significant Macy implant volume growth in the second half of this year and into 2026, we're implementing our full Macy sales force expansion this year. We'll be increasing our Macy sales force from 76 territories to approximately 100 territories, with our new sales reps supporting current territories during our seasonally highest fourth quarter this year and then moving into their new territories at the start of next year.
The Troya defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside Masonic growth beyond the treatment of conducts.
Finally we've generated over 100 biopsies from our new arthroscopic. Only surgeon segment, another positive indicator that not arthroscopic. Delivery option, for Macy, can drive additional utilization from surgeons that previously did not use the product.
Based on the strong MacArthur launch indicators to date. And our expectation for significant Macy implant volume growth in the second half of this year and into 2026.
We're implementing our full Macy, sales, force expansion, this year.
We'll be increasing, our Macy. Sales force from 76 territories to approximately 100 territories.
Nick Colangelo: We believe that having the entire expanded sales force in place this year will help support our significant fourth quarter volume and position Macy for continued strong performance for the full year in 2026 and then beyond. Turning to Burn Care, as expected, Epsil performance rebounded in the second quarter with a substantial increase in biopsies, graphs, and revenue, which was more in line with its run rate coming into the year. Biopsies in the second quarter were the highest in any quarter since 2023, with an increase of nearly 40% over last year, and we ended the quarter with the highest monthly biopsies on record in June. Given the strength of second quarter biopsies, Epsil is also off to a strong start in the third quarter, with July graph volume higher than any other month to date this year, positioning Epsil for another solid quarter.
With our new sales reps supporting current territories. During our seasonally, highest fourth quarter this year and then moving into their new territories, at the start of next year.
we believe that having the entire expanded sales force in place, this year will help support our significant fourth quarter volume, and position may see for continued, strong performance for the full year in 2026, and then beyond
Turning to burn care is expected. Episode performance rebounded in the second quarter with a substantial increase in biopsies graphs and revenue, which was more in line with its run rate coming into the year.
Biopsies in the second quarter were the highest in any quarter, since 2023 with an increase of nearly 40% over last year and we ended the quarter with the highest monthly biopsies on record in June.
Nick Colangelo: Nexabrit also had a strong close to the quarter with the highest number of ordering centers and hospital units ordered in any month since launch. This momentum has carried into the third quarter as July hospital orders exceeded the record number of units ordered in June. Of note, the category three temporary CPT code for Nexabrit also went into effect as of July 1st, which we believe can help drive increased utilization and further enhance Nexabrit uptake over the long term. Overall, the company delivered significantly stronger revenue and profitability results in the second quarter, and we have started the third quarter with a great deal of momentum for both Macy and the Burn Care products.
Given the strength of second quarter biopsies episode is also off to a strong. Start in the third quarter with July graph, volume higher than any other month to date this year. Positioning episode, for another solid quarter.
Next also had a strong close to the quarter with the highest number of ordering centers, and Hospital units ordered in any month since launch.
this momentum has carried into the third quarter as July Hospital orders, exceeded the record number of units ordered in June
Of note that category, 3, temporary CPT code for next. Numbered also went into effect as of July 1st, which we believe can help Drive increased utilization, and further enhance next. Super uptake over the long term.
Nick Colangelo: In terms of our longer-term growth initiatives, we received FDA clearance of the IND for the phase three Macy ankle clinical study in the second quarter and remain on track to initiate the study in the second half of this year. A potential Macy ankle indication represents a substantial longer-term growth driver for Macy and would enable the company to potentially expand into other orthopedic markets. Finally, we also remain on track to initiate commercial manufacturing for Macy in our new facility next year. I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.
Overall, the company delivered significantly stronger revenue and profitability results in the second quarter. We have started the third quarter with a great deal of momentum for both Macy and the burn care products.
In terms of our longer term growth initiatives, we received FDA clearance of the IND for the phase 3 Macy, ankle, clinical study in the second quarter and remain on track to initiate the study in the second half of this year.
A potential Macy. Ankle indication represents a substantial longer term growth driver for Macy and would enable the company to potentially expand into other Orthopedic markets.
And finally, we also remain on track to initiate commercial manufacturing from AC in our new facility next year.
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. Starting with our Q2 results, as Nick noted, we had a very strong revenue and profitability growth in the second quarter. The company achieved record total net revenue for the quarter of $63.2 million, with $53.5 million of Macy revenue, $8.6 million of Epsil revenue, and $1.2 million of Nexabrit revenue. Macy had a strong second quarter with 21% revenue growth over the prior year and 15% sequential growth versus the first quarter as growth accelerated in the second quarter. Macy also had another quarter of strong double-digit biopsy growth, which outpaced implant growth. And as Nick mentioned, implant and biopsy growth accelerated in July, and we expect that implant growth will converge with biopsy growth over the coming quarters.
Thanks Nick and good morning everyone.
Starting with our Q2 results as Nick noted, we had a very strong revenue and profitability growth in the second quarter.
The company achieved a record total net revenue for the quarter of $63.2 million, with $53.5 million of Macy revenue.
8.6 million of episode revenue and 1.2 million of necks Revenue.
Me had a strong second quarter with 21%, Revenue growth over the prior year and 15% sequential growth versus the first quarter as growth accelerated in the second quarter.
Macy also had another quarter of strong, double-digit biopsy growth, which outpaced implant growth.
And as Nick mentioned implant and biopsy growth accelerated in July and we expect that implant growth will converge with biopsy growth over the coming quarters.
Joe Mara: Burn Care also had a much stronger second quarter with revenue of $9.8 million, relatively in line with the lower end of our guidance range for the quarter. Epsil, in particular, had a much stronger second quarter with $8.6 million of revenue, representing 11% growth versus the prior year. The underlying metrics on Epsil were also very strong, with Q2 biopsy growth of nearly 40% versus the prior year. This also included our highest Epsil biopsy month to date in June. Although Epsil revenue increased significantly during the second quarter, we continued to see a somewhat higher ratio of canceled cases due to patient health-related issues, which impacted our revenue for the quarter. Nexabrit revenue of $1.2 million represented 52% growth versus the prior year, with solid growth in both hospital unit orders and ordering centers.
Burn care. Also at a much stronger second quarter with revenue of 9.8 million relatively in line, with the lower end of our guidance range for the quarter.
Longer second quarter with 8.6 million of Revenue, representing 11% growth versus the prior year.
The underlying metrics on episode were also very strong with Q2 biopsy growth of nearly 40% versus the prior year.
Also included our highest epic sell biopsy month to date in June.
Although episode Revenue increased significantly during the second quarter, we can't, we continue to see a somewhat higher ratio of canceled cases due to Patient health related issues, which impacted our revenue for the quarter.
Joe Mara: Although the underlying Nexabrit fundamentals continued to progress in Q2, orders placed by specialty distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter. As Nick mentioned, we ended Q2 in June with our highest month to date for Nexabrit hospital orders and then surpassed these June orders in July. The company's substantial revenue growth translated into significant margin expansion, with gross profit of $46.6 million, or 74% of revenue, an increase of more than 400 basis points compared to 2024. This also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Total operating expenses for the quarter were $48.6 million, compared to $42.6 million for the same period in 2024.
Next revenue of 1.2 million represented 52% growth versus the prior year with solid growth in both Hospital unit orders and ordering centers.
Although the underlying necks fundamentals, continued progress in Q2 orders placed by specialty Distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter.
As Nick mentioned, we ended Q2 in June with our highest month to date for next, Brit Hospital orders. And then surpassed these June orders in July,
the company substantial Revenue growth translated into significant margin expansion with gross profit of 46.6 million or 74% of Revenue, and increase of more than 400 basis points compared to 2024
Also represents a record, quarterly gross margin outside of our seasonally, highest fourth quarter.
Joe Mara: The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility, including depreciation and Macy tech transfer-related activities. Moving forward, we expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter narrowed to $0.6 million, or $0.01 per share, compared to $4.7 million, or $0.10 per share in the prior year, which was an improvement of more than $4 million versus 2024. Adjusted EBITDA more than doubled during the quarter with an increase of 112% to $13.4 million, or 21% of revenue, an increase of more than 900 basis points versus the prior year as we continue to drive very strong bottom-line growth. Finally, the company generated $8.2 million of operating cash flow and ended the second quarter with approximately $164 million in cash and investments and no debt.
Total operating expenses for the quarter were 48.6 million compared to 42.6 million for the same period in 2024.
The increase in operating expenses was primarily due to increased headcount and related employee expenses, as well as additional costs related to the company's new facility, including depreciation and Macy, tech transfer, and related activities.
Moving forward. We expect relatively similar quarterly operating expenses for the balance of the year.
Net loss for the quarter narrowed to $0.6 million, or $0.01 per share, compared to $4.7 million, or $0.10 per share, in the prior year. This represents an improvement of more than $4 million versus 2024.
adjusted Eva more than doubled during the quarter with an increase of 112% to 13.4 million or 21% of Revenue, and increased to more than 900 basis points versus the prior year, as we continue to drive very strong bottom line growth,
Joe Mara: With the investment for the company's new facility completed in the second quarter, we expect cash generation to inflect moving forward, further enhancing the company's strong balance sheet and financial profile. Turning to our financial guidance, we are maintaining our Macy revenue guidance and expect Macy full-year revenue growth in the low 20% range, with third quarter revenue growth in the low 20% range as well, or approximately $54 to $55 million for the quarter. For Burn Care, while we are very encouraged by Epsil's improved performance in the second quarter and the meaningful increase in biopsies in the first half of the year, we are updating our second half quarterly Burn Care revenue guidance to be more in line with recent run rates of approximately $10 million per quarter, consistent with our second quarter revenue and our average quarterly run rate in 2024.
Finally, The company generated 8.2 million of operating cash flow and ended. The second quarter with approximately 164 million in cash and Investments and no debt.
With the investment for the company's new facility. Completed and the second quarter, we expect cash generation to inflect moving forward. Further enhancing the company's strong, balance sheet and financial profile.
Turning to our financial guidance.
We are maintaining our Macy. Revenue guidance and expect Macy full year, Revenue growth in the low, 20% range.
With third quarter Revenue growth in the low 20% range as well or approximately 54 to 55 million for the quarter.
For burn care while we are very encouraged by episode's. Improved performance. In the second quarter in the meaningful, increase in biopsies, in the first half of the year we are updating our second half quarterly burn care Revenue guidance to be more in line with recent run rates of approximately 10 million per quarter,
consistent with our second quarter revenue, and our average quarterly run rate in 2024
Joe Mara: Importantly, our internal expectations for Burn Care performance remain higher, and we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for Burn Care revenue in the second half is appropriate at this point in the year, given the difficulty in accurately predicting Epsil quarterly revenue, recognizing that if our team continues to execute well and maintains the current momentum, there remains an opportunity to significantly outperform this updated guidance. I would also note at this point we are not assuming any additional Nexabrit revenue related to the BARDA RFP process that was recently initiated, although there is potential for incremental Nexabrit BARDA revenue in the fourth quarter of this year.
Importantly, our internal expectations for burn. Care performance, remain higher. And we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for burn care revenue. And the second half is appropriate at this point in the year, given the difficulty in accurately predicting episode, quarterly Revenue recognizing that if our team continues to execute well in maintains, the current momentum, The Remains an opportunity to significantly, outperform this updated guidance.
I would also note at this point, we are not assuming any additional necks Revenue related to the Barta RFP process. That was recently initiated
although there is potential for incremental necks barter Revenue in the fourth quarter of this year.
Joe Mara: In terms of profitability metrics, we expect another quarter of strong financial results in the third quarter, with both gross margin and adjusted EBITDA margin in a similar range as the second quarter. For the full year, we have reaffirmed profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our Macy sales force expansion. I will now turn the call back over to Nick.
In terms of profitability metrics, we expect another quarter of strong financial results to the third quarter. With both gross margin and adjusted, even at margin in a similar range as the second quarter.
Reaffirm profitability, guidance of gross margin of 74% and adjust it even on margin of 26%.
Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our Macy sales force expansion.
I will now turn the call back over to Nick.
Nick Colangelo: Thanks, Joe. We're very pleased with the pace of Macy Arthros surgeon training and the resulting strength in both the Macy Arthros leading indicators as well as the overall Macy business fundamentals, which provides a strong foundation for Macy implant growth moving forward. The significantly improved trends for Epsil and Nexabrit position the Burn Care franchise for stronger performance as well. So we believe that the company is well-positioned to continue to deliver a unique combination of sustained high revenue and profitability growth in the second half of this year and the years ahead. With that, we'll open the question or the conference call for questions.
Thanks, Joe. We're very pleased with the pace of Macy and Arthur surgeon training and the resulting strength in both the Macy and Arthur leading indicators, as well as the overall Macy business fundamentals, which provide a strong foundation for MAC implant growth moving forward.
The significantly improved trends for Epsilon and nexar positioned in the burn care franchise for stronger performance as well.
So we believe that the company is well positioned to continue to deliver a unique combination of sustained, High revenue, and profitability growth in the second half of this year in the years ahead.
With that. We'll open the question or the conference call for questions.
Operator: Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question, and we'll pause just briefly to assemble our queue. And we'll take our first question from Ryan Zimmerman with BPIG. Please go ahead.
Thank you, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad, if you're using a speaker-phone, please make sure your mute function is turned off to allow your signal to return our equipment. Once again, that is star 1 to signal for a question. And we'll pause just briefly to assemble our Q.
Ryan Zimmerman: Good morning. Thanks for taking our questions, Nick and Joe. I want to start with Macy. You know, I appreciate many of the metrics that you provided that point to an uptick in the second half, but you know if we can unpack the second quarter a little bit, I mean, if I think about the guidance, Joe, 53.8 to 54.6, that you know, that didn't happen. So what do you think is happening here that's impacting that growth, at least right now? And again, I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter especially and the conversion ratio that you're expecting to allow you to you know either beat or meet that guidance from Macy.
And we'll take our first question from Ryan Zimmerman with btig. Please go ahead.
Uh, good morning. Thanks for taking our questions. Nick and Joe. Um,
Want to want to start with Macy. Um, you know, I appreciate many of the metrics that you provided that that point to an uptick in the second half. But, you know, if we could unpack the second quarter a little bit, I mean, if I think about the guidance, Joe 538 546 that, you know, that didn't happen. So, so what do you think's happening here? That's impacting that growth at least right now.
And and again I I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter, especially and the conversion ratio that you're expecting to allow you to, you know, either b or uh, meet that uh, guidance information.
Joe Mara: Yeah. So good morning, Ryan, and thanks for the question. So you know in terms of Macy, maybe just talk a little bit about the second quarter and the cadence you know as part of your question. So you know in terms of the second quarter, I mean, I'd say you know we're relatively in line. You know at 53.5 million, you know was, I'd say, slightly below kind of that range and call it approximately 54 million. But you know first off, I would say, you know as we talked about on the call and Nick talked about, the underlying indicators remain strong. You know the biopsy growth was strong in the second quarter, and we are starting to see an acceleration of both biopsy growth and implant growth you know as we get into you know of late and into July. So that's certainly encouraging.
Yep. So good morning Ryan and thanks for the question. So, you know, in terms of Macy, maybe just talk a little bit about the second quarter and the Cadence, you know, as part of your questions. So, you know, in terms of the second quarter, I mean, I'd say, you know, we're relatively in line, you know, at 53 and a half million, you know, was I'd say slightly below kind of that range and call it approximately 54 million.
Joe Mara: You know I would say probably on the margins, there was probably some degree of you know there were probably a few implants from a timing perspective, if you will, where you know if we looked at what we predicted in the second quarter, you know perhaps some of the kind of where June ended up, some of those implants you know probably moved into July relative to our you know assumptions to start the quarter. You know I wouldn't say that was all that material, and certainly but it is certainly one thing to point out as you think about Q2. So I think Q2 generally was you know in line with our expectations. It was a significant step up from the first quarter and you know solid year-over-year growth.
Joe Mara: And so then you know as you kind of think about the rest of the year, you know first off, I would say, you know as we said in the last call, you know we're still kind of in that $240 million range that I referenced in the last quarter. And so if you think about the cadence for the second half, you know the first thing I would point to is before really even getting into Arthros, it's a pretty similar mix when you kind of look at that revenue level from H1 to H2. So that's not all that different. You know Q3 and Q4, you know there certainly could be some variability there, you know which is why we're providing a range.
But, you know, first off, I would say, you know, as we talked about on the call and and Nick talked about the underlying indicators, remain strong, you know, the biopsy growth was strong in the second quarter and we are starting to see an acceleration of both biopsy growth and and implant growth, you know, as we get into, you know, of late and, and into July. So that's certainly encouraging, you know. I would say probably on the margins, there was probably some degree of, you know, there probably a few implants from a timing perspective. If you will, where, you know, if we looked at what we predicted in the second quarter, um, you know, perhaps some of the kind of where June ended up some of those implants, you know, probably moved into July relative to our, um, you know, assumptions to start the quarter. You know, I wouldn't say that was all that material and, and certainly, but it is certainly 1 thing to point out is you think about Q2. So I think Q2 generally was, you know, in line with our expectations, it was a significant step up from the first quarter and you know, solid year-over-year growth. And so then
you know, as you kind of think about the rest of the year, you know, first off I would say, you know, as we said in the last call, you know, we're still kind of in that um 240 million dollar range that I referenced in the last quarter and so if you think about the Cadence for the second half, you know, the first thing I would point to is before we really even getting into our throw it's pretty. It's a pretty similar mix when you kind of look at that Revenue level from H1 to H2. So that's not all that different. Um you know, Q3 and Q4 you know there there certainly could be some
Joe Mara: You know sometimes kind of August and September are difficult months to forecast just given you know kind of out of office and vacations, particularly as you move kind of farther from the COVID dynamics. You know but generally, again, I think what we're seeing is a lot of strong metrics. The trained surgeons continue to tick up. We're seeing very strong you know metrics from that group in particular. So you know I would say nothing has really changed as we move from you know where we were last quarter and we kind of continue to progress throughout the year.
Ryan Zimmerman: Yeah.
Joe Mara: As you think about you know Macy on a full-year basis.
Continue to progress throughout the year.
Ryan Zimmerman: And just to be clear, Joe, or Nick, if you want to answer this, and then I have a follow-up on Epsil, but the 100 Arthros biopsies that you did this so far year to date, can you comment and you know obviously you know give us specifics if you're comfortable, how much of those have converted to Macy at this point?
yeah, as you think about, you know, making a full year basis,
And and just to be clear Joe or Nick if you want to answer this and and then I have a follow-up on episode but the 100th row biopsies that you did this so far year to date, can you comment? And, you know, obviously, you know, give us specifics. If, if you're comfortable, how much of those have converted to Macy at this point?
Nick Colangelo: Yeah. So you know we don't talk about sort of how those biopsies have converted. I mean, we haven't seen any difference in sort of how the Arthros segments and just the segments generally have converted versus normal rates. So you know it's really just a timing issue of when those biopsies convert. And so you know I would just say kind of as we discussed, whether you're talking about you know Macy Arthros opening up different surgeon segments or kind of different locations in the knee, all of those trends are in line with kind of what we had hoped for or expected. And the dynamic that Joe was referring to that we saw when Macy was originally launched, that biopsies increased first. You know over time, implants tend to catch up with those biopsies.
yeah, so you know, we don't
Nick Colangelo: You know it's kind of all unfolding as we had expected and as we discussed on our last conference call.
Joe Mara: Yeah. And Ryan, just one thing to add too, so the 100 biopsies, that was just one data point from our kind of new Arthros-only segment. It wasn't meant to represent all of Arthros, just to make sure that was clear in our prepared remarks.
Talk about sort of how those biopsies have converted. I mean, there's we haven't seen any difference in sort of how the, you know, arthro segments, and just the segments generally have converted versus normal rates. So, you know, it's really just a timing issue of when those biopsies convert. Um, and so, you know, I would just say kind of as we discussed, whether you're talking about, you know, Macy arthro opening up different surgeon segments, um, or kind of different locations in the knee. All of those Trends are in line with kind of what we had hoped for or expected. And the dynamic that Joe was referring to that. We saw when Macy was originally launched, that biopsy is increased first, you know, over time implants tend to catch up with those biopsies, you know. It's it's kind of all unfolding as we had expected and as we discussed on our last
Call.
Ryan Zimmerman: No, that I appreciate the clarification there, Joe. And then just you know turning to Epsil, so you know the biopsies were, I think, up 38% in the first half. You do have a price benefit as well. So you know you alluded to this a little bit, Joe, that you know the patients are experiencing health issues, whether that's expiration or some point. But you know trying to reconcile the lower guidance on the burn business overall with that biopsy dynamic, you know this seems to be kind of sustaining despite it what you know what would have been maybe a blip, right, with some of these health issues. So just what's the new reality there that you're factoring in the guidance in terms of you know patient expiration for these severely burned patients in the back half of the year? Thanks for taking my question.
Yeah, and Ryan just 1 thing to add um to 100 biopsies. That was just 1 data point from our kind of knew Arthur only segment. It wasn't that it wasn't meant to represent all of our throat just to make sure that was clear. Yeah in in our prepared remarks
No, that that's I appreciate the clarification there Joe and then just, you know, turning the episode. So you know the biopsies were I think up 38% in the first half.
You, you do have a price benefit as well. So,
You know, you alluded to this a little bit Joe that you know, the patients are experiencing health issues, whether that's expiration or some point, but, you know, trying to reconcile the lower guidance on the burn business overall with that biopsy dynamic.
You know, this seems to be kind of sustaining despite what, you know, what would have been maybe a blip, right, with some of these health issues. So just what's the new reality there that you're factoring in the guidance? In terms of, you know, patient expiration for these severely burned patients?
Nick Colangelo: Yeah. Yeah, Ryan, I'm going to start and then Joe can take that. So what we said on the call was that biopsies were up 38% in the second quarter. But you know for the first half of the year, biopsies were actually up 20% over last year. So you know one would expect that you know you might see some volume growth on graphs as well, you know even with kind of the regular patient health issues that we face. So that, I think, you know based on the analytics we've had over time, would have suggested you know kind of the the uptick that we had sort of started guiding to earlier in the year. You know obviously, as we said, June was the strongest month we've ever had for Epsil biopsies.
In, in the back half of the year, thanks for taking my questions.
Yeah.
Nick Colangelo: So while they didn't convert into revenue in full in the second quarter, you know obviously, that's what supports our third quarter commentary that we're off to a strong start with Epsil. So you know there's a bit of that, you know the patient health issues we referred to where we didn't see quite. And again, part of this started from Q4 last year into Q1, where again, it was a sort of unproductive cohort of biopsies that impacted Q1. So you know we don't we expect these things to normalize over time. There's nothing you know different in the underlying dynamics. We do track you know all of the metrics you might expect, you know the TBSA of biopsies we received, the TBSA of patients that are treated. And there's really no change in any of those underlying patient demographics or otherwise.
Yeah, Ryan, I can get to start and then Joe can take that. So so what we said on the call was that biopsies were up 38% in the second quarter. But you know, for the first half of the Year biopsies were actually up 20% over last year. So, you know, 1 would expect that um you know you might see some volume growth on graphs as well. You know, even with kind of the regular um patient health issues that we face. So that I think you know, based on the analytics we've had over time would have would have suggested, you know, kind of the the uptick that we had sort of started guiding to earlier in the year. Um, you know, obviously as we said June was the strongest month we've ever had uh, for episode biopsies. So while they didn't convert into Revenue in full, uh, in the second quarter, you know, obviously that's what supports our third.
Quarter commentary that we're off to a strong start with episode. So, you know, there's a bit of that, um,
You know, the the patient health issues, we refer to, where we didn't see quite um and again, part of this started from Q4 last year into q1 where again it was a sort of unproductive.
Nick Colangelo: So it really, you know we think there's no reason it won't normalize as usually happens.
Joe Mara: Yeah. And just to maybe talk a little bit about the Epsil and sort of the Burn Care kind of change in our approach, Ryan, I think which I think is important. And we had some of this in the prepared remarks. But you know again, I think what we're saying on the Burn Care side, as Nick said, you know we had a stronger second quarter you know of around 10 million. Obviously, Epsil's biopsies were very strong. You know strong start, you know really strong start for both brands to start the third quarter. So you know at this point, our metrics are pointing to a higher Q3. But I think what we are what we're talking about or what we're doing here is we're essentially making a change to our approach for the second half of the year.
Uh, cohort of biopsies that impacted q1. So, you know, we don't, we expect these things normalize over time, there's nothing, you know, different in the underlying Dynamics, we do track, you know, all of the metrics. You might expect, you know, the tbsa of biopsies. We received the tbsa of patients that are treated and there's really no change in any of those underlying patient demographics or otherwise. So it really, you know, we we think there's no reason it won't normalize as usually happens.
Joe Mara: And so you know as we've often talked about, you know precisely forecasting Epsil is very difficult because of these unpredictable patient health dynamics. And you know just the reality is over the last two to three quarters in particular, our underlying trends you know to go into the quarter, our forecast you know has supported higher volumes. And so for whatever reason, which you know we've seen a higher ratio of canceled patients and whatnot, you know we've either been on the low end or below, you know a little bit below our Epsil forecasted range. And just to be clear, this is not where we want our guidance to be. And so as Nick said, you know the first half of the year, we've actually generated strong biopsies. It hasn't correlated to the revenue we expected yet.
You know, we've had a we had a stronger second quarter, you know of around 10 million uh obviously episodes biopsies are very strong, you know. Strong start you know really strong start for both Brands to start the third quarter so you know at this point our metrics are pointing to a higher Q3. But I think what we are what we're talking about or what we're we're doing here is we're essentially making a change to our approach for the second half of the year. And so you know, as as we've often talked about
Joe Mara: And so from a guidance perspective, to better account for this, we're essentially shifting to more of a run rate concept versus kind of thinking about our forecast and how we start the quarter. So you know as we talked about, the average you know quarterly revenue last year was 10 million. That's what Q2 was. That's you know going to be our guidance for Q3 and Q4 right now. You know I would also say you know to some of your question around the stronger start in Q3, you know importantly, this is not our forecast for Burn Care. And our metrics today are pointing to something higher. Our expectations are higher. Our team's commercial goals are higher than this. So you know certainly, you know we think it's an opportunity to outperform this guidance, and that's what we're focused on.
You know, precisely forecasting episodes is very difficult because of these unpredictable patient Health Dynamics. And, you know, just the reality is over the last 2 to 3 quarters in particular are underlying Trends, you know, to go into the the quarter, our forecast, you know, has supported higher volumes and so, for whatever reason, which, you know, we've seen a higher ratio of canceled patients and whatnot. You know, we've either been on the low end or below, you know, a little bit below. Our epic sell forecasted range and just to be clear. This is not where we want our guidance to be. And so, as Nick said, you know, the the first half of the year we've actually generated strong, buy apps biopsies that hasn't correlated to the revenue expected yet. And so from a guidance perspective,
To better account for this. We're essentially shifting to uh more of a run rate concept versus kind of thinking about our forecasts and how we start to the quarter. So, you know, as we talked about the average, you know, quarterly Revenue last year was 10 million. That's what Q2 was that's, you know, going to be our guidance for Q3 and Q4 right now.
Joe Mara: But you know again, where you know just a couple of patients could be the difference between $1 million dollars and a quarter, you know we think just being a bit more conservative with the guidance is appropriate as we close out the year on the Epsil and the Burn Care side.
Ryan Zimmerman: Yeah. Thanks, guys.
You know, I would also say, you know, to to some of your question around the stronger, start in Q3, you know, importantly, this is not our forecast for burn care and our metrics to data, you know, are pointing to something higher. Um, our expectations are higher. Our teams commercial goals are higher than this, so, you know, certainly, you know, we think as an opportunity to outperform this guidance and that's what we're focused on. But you know, again, we're, you know, just a couple of patients could be the difference between a million dollars and a quarter. You know, we think just being a bit more conservative with the guidance is appropriate as we close out the year uh on the episode and the burn care side.
Yeah, thanks guys.
Joe Mara: Thank you.
Operator: We'll go next to Richard Neuwetter with Truist Securities. Please go ahead.
Thank you.
We'll go next to Richard, newer with Truist Securities. Please go ahead.
Richard Newitter: Hi. Can you hear me okay?
Hi. Uh, can you hear me? Okay.
Joe Mara: Yes. Yes. Good morning. Morning, Rich.
Richard Newitter: Okay. Thank you. A couple of questions here. So I was jumping around from calls, so I apologize. But it sounds like the effectively reiterating Macy, even though Q2 wasn't you know quite at the guide, but just under. And it's really just maybe a slight call down from Epsil for the full year, and you hope to exceed that, but just to be prudent. Is that the summary?
Yes. Yes, yes. Good morning. Morning Rich. Okay.
Uh, thank you. Um, uh, a couple of questions here. Um, so it's, it's, I was jumping around some calls, so I apologize. But it sounds like the, um, effectively reiterating, uh, Macy. Uh, even though 2022 wasn't, you know, quite, uh, at the guide. But just under, uh, and, and it's really just maybe a slight call down from, uh, Epic sell, uh, for the full year. And you hope to exceed that, but just to be prudent. That’s a summary.
Joe Mara: Yeah, I think that's fair. Exactly.
Richard Newitter: Okay. So so two two two two quick follow-ups on that. One, on Macy, with respect to you know the the range of outcomes of when your conversion rates could hit, do you feel confident that that's just a matter of timing within a six-month timeframe, a three-month timeframe, or it could extend beyond because Macy Arthros is a bit of new territory for you? So while the the biopsy trends are are are improving and good, is there anything that's different versus Macy traditional and Macy Arthros in the conversion rate or or the timeline to conversion that you know maybe just won't work the same as it has in the past? That one follow-up.
Yeah, I think that's fair.
Exactly. Okay. So so to to to, to quick follow-ups on that 1 on Macy.
With respect to, you know the the range of outcomes of when your conversion rates could hit, do you feel confident that that just a matter of timing within a 6 month time frame, uh, a 3-month time frame or it could extend beyond because maybe Arthur is a bit of new territory for you. So, while the, the biopsy Trends are are, are improving and, and good, is there anything? That's different versus, maybe traditional and maybe arthro in the conversion rate or or the timeline to conversion, um, that, you know, maybe just won't work, uh, uh, uh, the the same as it has in the past that it won't follow up.
Nick Colangelo: Yeah, Rich. So this is Nick. No, we have not seen, as I mentioned previously, any difference in conversion rates for Macy Arthros cases versus you know Macy open cases. So you know as we talked about previously with the launch of Macy in 2017, you saw a very steep increase in biopsies and then you know an increase in implant growth, but that kind of played out over the back half of 2017. And then as we talked about on the last call, you know, you went from 40-plus percent biopsy growth in the back half of 2017 to 54% implant growth in 2018. So you know it definitely doesn't play out over a quarter. It plays out over multiple quarters. And anytime we've seen a sort of biopsy growth outpacing implant growth, it tends to catch up over time.
Yeah, Rich. So this is Nick. Um, no. We have not seen as I mentioned. Um, previously any difference in conversion rates for Macy, arthro cases, versus you know, Macy open cases. So, you know, as we talked about previously, with the launch of Macy in 2017, you saw a very steep increase in biopsies. Um, and then, you know, an increase in implant growth, but that kind of played out over the back half of 2017. And then as we talked about on the last call,
Nick Colangelo: And there's no reason to think that that won't happen here. And on our prepared remarks, we mentioned that you know the Macy both, and this is really encouraging, you know obviously, biopsies outpaced implants in the first half of the year, but even biopsy growth is now accelerating, and implant growth is accelerating. And I think we've kind of laid the foundation for this kind of dynamic earlier this year, and those are the trends that we're seeing play out now.
Prepared remarks, we mentioned that, you know, the Macy both and this is really encouraging, you know obviously biopsies outpaced implants in the first half of the year but even biopsy growth is now accelerating and implant growth is accelerating and I think we kind of laid the foundation for this kind of dynamic uh earlier this year and those are the trends that we're seeing play out now.
Richard Newitter: Okay. Thank you.
Okay, thank you.
Nick Colangelo: Thanks, Rich.
Operator: If you if you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll move next to Mike Kratky with Levering Partners.
Thanks rich. Thank you.
You find that your question has been answered. You may remove yourself from the queue by pressing star 2. We'll movement next to Mike Katy with Ling partners.
Joe Mara: Hi, everyone. This is Sam on for Mike. Thanks for taking our question. You know, you mentioned biopsy growth outpaced implant growth in the first half of the year. You know, are you just seeing a deceleration in biopsy conversion rates around this time of year, and you know what's ultimately the underlying cause of this? And then you know kind of appreciate that you saw an acceleration in July, but you know what really gives you confidence that these you know biopsy and implant rates can converge in the second half of the year? And then I have a follow-up. Yeah. I mean. So you know I think, again, as Nick talked about, we've seen this dynamic before you know in the Macy launch, which I think is very important context, which is you know there's times when biopsy growth can be kind of growing faster than implants.
Hi everyone. This is Sam on for Mike, thanks for taking our question. Um, you know you mentioned biopsy growth outpaced implant growth in the first half of the year you know, are you just seeing a deceleration in biopsy conversion rates around this time of year and and you know what's ultimately the underlying cause of this and then you know kind of appreciate that you saw on acceleration um in July but you know what really gives you confidence that these you know biopsy and implant rates can converge in the second half of the year.
And then I have a follow-up.
Joe Mara: And I would just say broadly, you know when we think about kind of conversion, you know biopsy growth and implants, you know they tend to kind of move together when the conversion is stable, which is what has been going on you know for the last few years. You know that said, there can certainly be points in time or kind of points during a year where one might be kind of moving slightly different than the other. So you know I don't think this is it's not atypical that they're not moving. You know they're not exactly sort of in sync at any point in time. But you know I think at this point, you know what's what's encouraging is we've seen that strong biopsy growth in the first half of the year.
Joe Mara: And you know I think that we think that puts us in a very good position as we think about both the second half of '25 but also into next year as we talked about as well. So you know again, this is not atypical to see that move in a slightly different pace, and you know it's what we you know would have expected with with the Arthros launch. Got it. That's helpful. And then as the second question, you know can you just kind of comment on you know to what degree Macy Arthros surgeons that have been trained to date are surgeons from you know your existing Macy customer base, or have you kind of begun to get more meaningful penetration in the incremental 2,000 arthroscopic surgeons that you flagged as being part of your TAM expansion?
Yeah, I mean so you know I think again as Nick talked about we've seen this Dynamic before, you know, in the Macy launch which I think is very important context which is, you know, there there's times when biopsy growth can be kind of growing faster than implants and I would just say broadly, you know, when we think about kind of conversion, you know, biopsy growth and implants, you know, they tend to kind of move together when the conversion is stable which is what has been going on. You know for the last few years you know that said there are certainly be points in time or kind of points during a year where 1 might be kind of moving slightly different than the other. So you know I don't think this is it's not a typical that they're not moving, you know, they're not exactly sort of in sync at at any point in time. Um but you know I think at this point you know what's what's encouraging is we've seen that strong biopsy growth in the first half of the year and, you know, I think that we think that puts us in a very good position as we think about both the second half of 252 as well. So,
You know, again this is not a typical to see that move in a slightly different pace and you know, it's what we, you know, would have expected with with the Arts will launch.
Got it, that's helpful. Um, and then as the second question, you know, can you just kind of comment on, you know, to what degree may see arthro surgeons that have been trained to date are surgeons from, you know, your existing Macy, customer base or have you kind of begun to get more meaningful penetration in the incremental 2000, um, arthroscopic surgeons that you flagged as being part of your Tam expansion.
Nick Colangelo: Yeah, that's a great question. You know obviously, as we mentioned, we're really pleased to kind of be at 600 trained surgeons through the end of the end of July. And as we talked about sort of the surgeon segments on the last call, you had you know about 2,500 existing Macy users prior to launch, and those were broken out into surgeons who had typically done patella-only implants previously, and then the other half of those users would do patella and typically smaller or larger, I'm sorry, condyle defects. So we'd say about a third of our 600 trained surgeons come out of each of those two buckets, the existing Macy users, and then the other third comes out of either the former Macy open targets who had not engaged yet or the new Arthros-only surgeons that we added when we launched Macy.
Yeah, that's a, a great question, you know, obviously, as we mentioned, we're really pleased to kind of be at 600 trained surgeons through the end of the June end of July. And as we talked about sort of the surgeon segments on the last call, you had, you know, about 25,500 existing Macy users, uh, prior to launch, uh, and those were broken out into surgeons, who would typically done patella only, um, implants previously? And then the other half of those users, um, would do patella and typically smaller, uh, or larger. I'm sorry, uh, Conde defects. So we'd say about a third of, uh, our 600 trained surgeons come out of each of those 2 buckets, the existing Macy users. Um, and then the other third comes out of either, the former Macy open targets who had not engaged yet or the new, um,
Nick Colangelo: So really encouraged to see you know the trained surgeons, the third coming out of those prior non-users. And as we mentioned on the call, you know we've now had 100 biopsies, more than 100 biopsies out of the kind of Arthros-only segment as well. So exactly what we would want to see for the prior users who were patella-only. They are obviously now increasing both biopsy and implants in terms of their growth rates and expanding into condyle defects. And then what you see out of the prior kind of combo patella and larger femoral condyle defect users, they're migrating down into the smaller Macy Arthros defects. So it's exactly the dynamic that you would want to see in these early launch indicators.
New mate. Arthur only surgeons that we added when we launched Macy. So really encouraged to see, you know, the trained surgeons. Uh, the third coming out of those, uh, prior non-users. And as we mentioned on the call, you know, we've now had a 100 biopsies or more than 100 biopsies out of the, um, kind of arthro only segment as well. So exactly what we would want to see for the prior users, uh, who were patella only, uh, they are obviously not, uh, increasing both biopsy, uh, and implants in terms of their growth rates, um, and expanding into Conde defects and then what you see out of the prior kind of combo patella and larger, ephemeral Conde defect users. They're migrating down into the smaller. Uh, Macy arthro defects. So it's exactly the dynamic, that you would want to see, uh, in these early launch indicators.
Joe Mara: Understood. Thanks.
Understood. Thanks.
Nick Colangelo: Hey, thank you.
Hey, thank you.
Operator: We go next to the line of Joshua Jennings with TD Cowan. Please go ahead.
To the line of Joshua Jennings with TD Cowen. Please go ahead
Eric Burns (on behalf of Josh Jennings): Hi. This is Eric on for Josh. Thank you guys for taking the question. On Macy ankle, congrats on receiving the IND there. It sounds like the clinical study is going to be kicking off in the back half of the year. Are you able to share any detail on what the trial design looks like there? Any thought on patient enrollment and what the timing could be for completing enrollment? Thank you.
Hi. This is Eric on for Josh. Thank you guys for taking the question. Uh, on Macy angle. Uh, congrats on receiving the IND. There, it sounds like the clinical study is going to be kicking off, uh, in the back half of the year.
Are you able to share any detail on what the trial design? Looks like there? Any any thought on patient enrollment uh and what the the timing uh could be for a complete enrollment, thank you.
Nick Colangelo: Yeah. So obviously, very pleased that we received FDA IND clearance for the Macy ankle study. As I mentioned on the call, you know it's about a billion-dollar addressable market for us. So we think it could be a substantial longer-term growth driver for the business over time. You know it's just not to get into too much detail as it's listed on clinTrials.gov, but it is you know a prospective open-label randomized controlled phase three study, two-year endpoint, just like the summit study for Macy in the knee. It will be approximately 300 patients that you know 2:1 ratio between Macy and bone marrow stimulation or microfracture, which is the active comparator. And then you know it will focus on patients with lesions that are greater than 1.2 square centimeters. So pretty pretty straightforward.
Yeah. So obviously uh very pleased that we received FDA uh IND clearance for the Macy. Ankle study, as I mentioned on the call, you know, it's about a billion dollar uh addressable market for us. So we think it could be a substantial longer term growth driver for uh, the business over time. Um, you know, it's a just not to get into too much detail as it's listed on. Uh, Clint trials.gov but it is, you know, a prospective open label randomized. Um, controlled
Uh, phase 3 study 2 year endpoint, just like the summit study, uh, for Macy in the knee will be approximately, uh, 300 patients that, you know, 2, 2 to 1 ratio between Macy and bone marrow stimulation or micro fracture, uh, which is the active, uh, comparator. And then, you know, it will focus on patients with lesions that are greater than
Nick Colangelo: And then the endpoints are much like the endpoints were in the summit study where you're looking at pain and functions improvements at two years.
1.2 square centimeters, so pretty, pretty straightforward. And then the end points are much. Like the end points were in The Summit study where you're looking at pain and functions improvements. Um, at 2 years,
Eric Burns (on behalf of Josh Jennings): Great. Thank you for reviewing that. And then just curious to check in on some of the midterm profitability targets that you guys have in play for gross margin and adjust EBITDA margin by 2029. Are those high 70% and high 30% margin targets respectively still in play here? Thank you for the questions.
Great. Thank you for reviewing that and then just curious to check in on some of the midterm profitability targets that you guys haven't played for gross margin and just ibido. Margin by 2029 are those High 70% and high 30% uh margin targets. Respectively, still in play here. Thank you for the questions.
Joe Mara: Yeah. So you know we had a, you know from a profitability perspective, you know the company had a pretty strong second quarter. You know our gross margin in the second quarter was kind of in that mid-70% range, you know consistent with where our full-year guidance is that we you know reaffirmed as well from a profitability perspective. You know adjusted EBITDA was strong as well, kind of into the low 20s into the second quarter, which is which is strong for a middle-of-the-year quarter for us. And we reaffirmed our full year there.
Joe Mara: So yeah, you know as we think about kind of end of the decade, you know kind of getting from the mid-70s to the high 70s on the gross margin side, certainly still seeing you know that we would really, you know nothing's changed, I would say, in our view on either gross margin or adjusted EBITDA. So again, we're not too far on the gross margin side. You know we need to keep kind of driving strong revenue growth and kind of manage our spend. But you know certainly from the adjusted EBITDA perspective, you know we very much remain on track there as well. So you know no change in terms of our kind of midterm targets, I would say, on the profitability side.
Yeah. So you know, we we had a, you know, from a profitability perspective, you know, the company had a a pretty strong second quarter. You know, our gross margin in the second quarter was kind of in that mid 70% range. You know consistent with where our full year guidance is that we, you know, re reaffirmed as well, from a profitability perspective, you know, adjusted e e but I was strong as well, kind of into the low 20s uh and in the second quarter which is which is strong for a middle of the Year quarter for us um and we reaffirmed our full year there. So yeah I know as we think about kind of end of the decade you know kind of getting from the mid 70s um to the high 70s and the gross margin side. Certainly still seemed you know that we would really you know, nothing's changed and I would say in our view on either gross margin or adjusted debit out. So again we're not too far in the gross margin side. You know, we need to keep um kind of driving strong Revenue growth and and kind of manage our spend. But you know, certainly from an adjusted ebit app perspective.
Of, you know, we very much remain on track there as well. So you know, no change in terms of our kind of long, midterm targets, I would say on the profitability side,
Eric Burns (on behalf of Josh Jennings): Okay. That's great to hear. Thank you again.
Okay, that's great to hear. Thank you again.
Joe Mara: Thank you.
Operator: Once again, if you'd like to signal for a question, please press star one on your telephone keypad at this time, and we'll move next to Caitlin Cronin with Canaccord Genuity.
Thank you.
Once again, if you'd like to signal for a question, please. Press star 1 on your telephone keypad at this time and we'll move next to Caitlyn Cronin with canaccord. Genuity
Caitlin Cronin: Hi. Thanks so much for taking the questions. I guess just to start off with the Arthros biopsies, you mentioned 100 Arthros naive surgeons with the biopsies. I mean, how many total biopsies to date are you seeing across all the surgeon cohorts? And then you know how many of those have converted already into implants?
Hi, thanks so much for taking the questions, I guess. Just to start off with the, uh, the Arthur biopsy. You mentioned 100 or through, um, naive, uh, surgeons with the biopsies. I mean, how many total biopsies to date? Are you seeing across all the surgeon cohorts? And then, you know, how many of those have have converted already into implants?
Nick Colangelo: Yeah. So you know it's not really possible. I suppose you could you know look at the size and location of defect and say this may be a defect that's intended to be treated arthroscopically. But even there, you know it really depends precisely on the location and so on. So you know I guess we would just say this. Biopsies generally, as we said, increased at a double-digit rate in the first half of the year. And that's accelerating as we move into the second half of the year, you know as we would have expected, because you know we're now up to 600 Macy Arthros trained surgeons. Both their implant and biopsy growth rates are significantly higher than the overall averages.
Yeah. So um
you know, the
Really possible. I suppose you could you know look at the size and location of defect and say this may be a a defect that's intended to be treated arthroscopically. But even there, you know, it really depends precisely on the location and, uh, and so on. So, you know, I guess we would just say this biopsy is generally a, as we said increased.
At a double digit rate in the first half of the year and that's accelerating as we move into the second half of the year, you know, as we would have expected because, you know, we're now up to 600 Macy, Arthur trained surgeons.
Nick Colangelo: So as we continue to train more surgeons and they take more and more biopsies, that's the dynamic that ends up leading towards you know this accelerating biopsy growth. And we did mention on the call as well that the small femoral condyle defects increased 40% in the second quarter of this year over last year. So you know good indicator there about the impact that that Macy Arthros can have. And as you know we've talked about with you before, it's the largest part of our addressable market. So when that growth rate is kind of ripping like that, you know it can have a pretty big impact on our business over time.
Both their implant and biopsy. Growth rates are significantly higher than the overall averages. So as we continue to train more surgeons and they take more and more biopsies, that's the dynamic. Um,
Mentioned on the call as well that the small ephemeral Conde defects increased 40% in the second quarter of this year over last year. So, you know, good indicator there about the impact. That that Macy arthro can have and is, you know, we've talked about with you before. It's the largest part of our addressable market. So when that growth rate is kind of ripping like that, you know, it can have a pretty big impact on our business over time.
Caitlin Cronin: That is okay. And then just any more color on the Macy Salesforce expansion and you know how many have been hired already? And then just the timeline to just add the further members this year.
Got it, okay? And then just any more color on the Macy, sales, force expansion. And you know, how many have been hired already and then just the the timeline to just add the further members this year.
Nick Colangelo: Yeah. So you know these positions were posted last night. So we haven't hired anyone yet, but I you know expect it will be done in pretty short order. And the whole rationale there, as we mentioned on the call, is that you know we have some we're going to have some very significant volumes in the fourth quarter. And you know we're already kind of right at the beginning of August. And so you know you'll have reps who will be hired kind of towards the end of August into September. So we expect you know a decent number, meaningful number of reps will be in the field supporting our current reps in their existing territories you know probably by early October. And so give them a good chance to, again, support a very high volume quarter.
Yeah. So, you know, these positions were posted last night. So we haven't hired anyone yet. Uh, but I, you know, expect it will be done in pretty short order and the whole rationale. There is we mentioned on the call, is that
you know, we have some
We're going to have some very significant volumes in the fourth quarter and, you know, we're already kind of right at the beginning of August. And so, you know, you'll have reps who will be hired kind of towards the end of August into September. So we expect, you know, a decent number Meaningful, number of reps will be in the, the field supporting our current reps in their existing territories. You know, probably by early October, um, and so give them a
Nick Colangelo: And then realign the territories and all the representatives will be in their new territory starting on January 1st. And we believe that is very important. You know as Joe mentioned on our last call, you know things don't change when the calendar flips to January 1st. And the momentum that we're seeing and expecting the back half of the year, we want to capitalize on that day one in 2026. And that is what led to accelerating the growth based on the leading indicators we're seeing from Macy Arthros and sort of our expectations for implant growth in the back half of the year.
Good chance to again, support a very high volume quarter and then realign the territories and, and all the uh, Representatives will be uh, in their new territory starting on January 1st, and we believe that is very important. You know, as Joe mentioned on our last call, you know, things don't change when the calendar flips to January 1st in the momentum that we're seeing and expecting the back half of the year, we want to capitalize on that day 1 in 2026. Uh, and that is what led to uh accelerating the, the growth based on the leading indicators we're seeing from ACR throw and sort of our expectations uh, for Implant growth in in the back, half of the year.
Caitlin Cronin: That's great. And then just one more quick one. Any update on if you're continuing to see this kind of dynamic of dormant Epsil accounts becoming active given the Nexabrit engagement in those accounts?
That's great. And then just 1 more quick 1, any update on
me, this kind of dynamic of dormant epic fella accounts becoming
active given the next Super engagement in those accounts.
Nick Colangelo: Yeah. We've definitely you know continued this year where you know I'll just roughly say a handful of centers that hadn't used Epsil recently you know are sending in biopsies. And so you know we think as we continue to have a greater presence in a larger number of burn centers, you know that that dynamic will continue.
Yeah, we definitely, you know, continue this year where, you know,
I'll just roughly say a handful of centers that had used episode recently um, you know, are sending in in biopsies um
And so you know we think as we continue to um have a greater presence in a larger number of burn centers. You know that that that Dynamic will continue.
Caitlin Cronin: Great. Thanks so much.
Great. Thanks so much.
Nick Colangelo: Thanks, Caitlin.
Thanks Caitlin.
Operator: We go next to the line of Mason Caracole with Stevens. Please go ahead.
We go next to the line of Mason caracal with Stevens. Please go ahead.
Mason Carrico: Hey, guys. Thanks for the questions here. I'll ask my two up front if that's all right. You've called out Macy ASP increasing mid to high single digits annually. I think approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum moving forward without triggering some form of access pushback? And then second, could you just update us on the international expansion opportunity? What are your latest thoughts there on the timeline, specific geographies you may plan on targeting?
Hey guys, thanks for the questions here. Um I'll ask my 2 up front if that's all right. Uh.
You've called out me ASP? Increasing mid to high single digits, annually. I think
Approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum? Moving forward, without triggering some form of access push back. And then second could you just update us on the international expansion opportunity? What are your latest thoughts there on?
A timeline specific geographies. You may plan on targeting.
Nick Colangelo: Yeah. So on pricing, you know Mason, as we've talked about before, we do an extensive amount of Macy and really for all our products pricing research to make sure that you know we can optimize pricing on our on what are considered by payers, surgeons, patients alike, you know highly innovative products. And so you know we have always you know been thoughtful about how we implement price increases. You know as we've said, Macy is a biologic product. Payers and hospital administrators expect that you'll be taking sort of you know mid to high single-digit prices on an annual basis. And you know we've done that. And as you know, as you mentioned, you know our prior approval rate for Macy cases is in the mid-90% range. And so we haven't seen any change in that over the years as we've you know continued to take price.
Yeah, so on pricing, you know, Mason is we've talked about before we do an extensive amount of, uh, Macy. And really, for all our products pricing research, to make sure that you know we can optimize uh pricing on our on what our considered by payers surgeons patients alike, you know, highly Innovative products and so you know, we've always, you know, been thoughtful
About how we Implement price increases. You know, as we've said, Macy is a biologic product, uh, payers and Hospital, administrators expect that you'll be taking sort of, you know, mid to high single-digit prices on an annual basis. And and you know, we've done that and as you know, as you mentioned uh you know, our prior approval rate.
Nick Colangelo: And so that's an important part of the equation for us. And you know it's a pretty unique position to be in you know in the med tech space. On the OUS side, you know we continue to progress with our evaluation with our outside sort of global consulting group. And you know we had planned and expect to have a roadmap for the OUS opportunity by the end of the year. So it's progressing well. You know I think we have a clear intent to be able to expand into certain OUS geographies sort of in the next few years. You know we prioritized Europe and entry into that region first. And there are some interesting pathways that you know kind of along the mutual recognition front that would allow us to do that in a relatively you know at a relatively fast pace.
You know, in the Medtech space on the US side, you know, we continue to progress with our evaluation, uh, with our outside sort of global Consulting Group and, you know, we had planned and expect to have a roadmap, uh, for the OU opportunity, um, by the end of the year, so it's progressing. Well, you know, I think we have a clear intent um, to be able to expand in to a certain ous geographies sort of in the next few years. Um, you know, we prioritized Europe and entry into, um, that region first. And there are some interesting Pathways that, you know, kind of along the mutual recognition front, that would allow us to to do that in a relatively, you know.
Nick Colangelo: And so you know that timeframe of potentially launching in you know certain countries or in the 2027-28 timeframe is still our current thinking.
At a relatively fast pace. And so, you know, that time frame of potentially launching in, you know, certain countries or, uh, in the 2027-2028 time frame, uh, is still our current. Thank you.
Mason Carrico: Got it. Thank you.
Got it. Thank you.
Nick Colangelo: Thank you.
Operator: We turn next to Jay Cullen with Leidenberg Thalman. Please go ahead.
Thank you.
We turn next to J. Colin with ladenburg Bowman, please go ahead.
Jay Cullen: Go ahead, Nick and Joe. Thanks for taking our questions. Could you talk, Joe, I guess could you tease out a little bit the back half SG&A guide and talk about sales expansion and perhaps talk about geographies as well? Thank you.
Go ahead Lincoln Joe, thanks for taking our questions. Um, could you talk
Joe I guess could you tease out a little bit? The back half sgna guide and talk about um sales expansion and perhaps talk about geographies as well. Thank you
Joe Mara: Yeah. So good morning. And so yeah, I would say from you know from an operating expense perspective, you know we've been kind of around 49 million in total in the last couple of quarters. You know there may be a little bit of a mix shift as we kind of close out the year as we start hiring kind of on the sales side. But you know I think I said in the prepared remarks, you know obviously reaffirming our overall guidance from a profitability perspective for both gross margin and adjusted EBITDA. And I think you know we're assuming essentially kind of flat quarters or around that same number from an OpEx perspective over the next couple of quarters. So you know as we talked about, the hiring will probably sort of you know by the time kind of everyone's hired, it'll take some time for that.
Joe Mara: And so there'll be you know some impact in the fourth quarter. But really, it's more of an annualized you know if you think about you know roughly 25 additional sales reps, it's kind of more of a 2026 impact, I would say, from the Salesforce expansion perspective.
Jay Cullen: Okay. Got it. That's helpful. And then secondly, for us, could you talk about the BARDA RFP as far as the timeframe or duration and size of the RFP that's out there?
Yeah, so good morning. Um, and so, yeah, I would say from, you know, from an operating expense perspective, you know, we've been kind of around 49 million in total in the last couple quarters. You know, there may be a little bit of a mixed shift as we kind of close out the year as we start hiring kind of on on the sales side. But you know I think I said in the prepared remarks, you know, obviously reaffirming our our overall guidance from profitability perspective, we're both gross margin and adjusted ibida. And I think, you know, we're we're assuming essentially kind of flat quarters or around that same number from an Opex perspective or the next couple quarters. So, you know, as as we talked about, the hiring will probably sort of, um, you know, by the time kind of everyone's hired, it'll take some time for that. And so, they'll be, you know, some impact in the fourth quarter. But really, it's more of an annualized. You know, if you think about, you know, roughly 25 additional, um, sales reps. It's kind of, more of a, a 2026 impact. I would say, from the sales force expansion.
Okay, got it. That's home phone. And um, secondly for us could you talk about the bar to RFP as far as the um, the time frame or duration and size of the uh, RFP that's out there?
Nick Colangelo: Yeah. So you know the RFP is in the public domain. And so you know anybody who's interested can take sort of a deeper look at it. But you know proposals or responses are due in sort of late August. And you know presumably, a decision will be made shortly thereafter. You know what the RFP covers would be procurement of a basically a stockpile for preparedness. And the details of that you know are clearly stated that you know the initial procurement would be for you know 2,750 units. There would be a management funding for that. There's a second ramp-up procurement that is you know listed. So the first one is between October of this year and end of September next year, the ramp-up procurements for the year after that.
Yes, so, you know, the r rfps in the public domain. Um, and so, you know, anybody who's interested can take sort of a deeper look at it. Uh, but, you know, proposals are responses are due in sort of late, August. Uh, and, you know, presumably a decision will be made shortly thereafter. Um, you know what the RFP covers, uh, would be procurement, um, of a basically of a stockpile for preparedness, um, and the details of that, you know, are, are clearly stated that, you know, the initial procurement would be for, you know, 2750 units. Um, there would be a management funding for that. There's a, there's a second. Um, ramp up procurement. That is
Nick Colangelo: And then there's just a number of other items around managing what's essentially a BMI inventory for BARDA, other development projects for room temperature formulations, different indications, and so on. So there's a pretty long list of about a dozen funding opportunities under that RFP. Obviously, at this point, you know the timing, the negotiations around that have not occurred. So there's, you know we can't really speak to, you know A, you know whether we would assume that BARDA typically, when they fund a program and then they look to stockpile a program, that it would be you know Nexabrit will have a very strong opportunity. But in terms of the exact timing and funding amounts, you know that's left to negotiation after being selected.
Uh, you know, listed. So the first 1 is between October of this year and and end of September next year. The ramp up procurements for the year after that. And then there's just a number of other items around managing, what's essentially a VMI inventory for Barta. Um, other development projects for room temperature.
Formulations different indications and so on. So there's a
pretty long list of about a dozen funding opportunities under that RFP
obviously, at this point, you know the um,
The timing, the negotiations around that have not occurred. Um, so there's, you know, we can't really speak to, you know.
Ah, you know whether we would assume that Barta typically when they fund a program and then they look to stockpile a program that it would be, you know, next to bid will have a very strong opportunity. Um but in terms of the exact timing and funding amounts, you know, that's left to negotiation after being selected
Jay Cullen: Got it. That's helpful. Thanks for taking our questions.And
For taking your questions.
Thank you.
Operator: we go to our next question from Sawyam Pakula Ramakanth with HC Wainwright. Please go ahead.
And we go to our next question from Siam, pakula ramakant with HC Wayne Wright. Please go ahead.
Eric Burns: Thank you. Good morning, Nick and Jill. A couple of quick questions. So in your prepared remarks, Jill, you were talking about there's a potential for the Burns franchise to outperform your 10 million per quarter guidance. So what are the pushes and pulls for that to happen?
Thank you, good morning. Um, Nick and Joe, a couple of quick questions. Um, so in your prepared, remarks zero, you're talking about, uh, there's a potential for the burn franchise to outperform, um, your 10 million per quarter guidance. So what are the pushes and pulls for that to happen?
Nick Colangelo: Yeah, I mean, so I mean, again, I try to lay out, I think it was Ryan's initial question. I just wanted to make sure people understood, you know, from an external guidance perspective, we want to be very clear, which is our external guidance is 10 million a quarter. It's more of a run rate concept. So that's our approach. You know, I would say internally, as we talked about, you know, I'd say the first piece is we've had a pretty strong start to July on both products. So that's always kind of what you want. And so, again, our guidance is not meant to be our forecast, but you know, essentially, if Next to Bridge can continue on a stronger run rate that we've seen in June and July, for example, you know, that could kind of help it continue to tick up.
Nick Colangelo: And it's really, at this point, you know, obviously more about Episel, given the scale of the two products. And really, it's about, you know, what happens from a conversion of those strong biopsies in the second quarter. You know, it's been a strong start in July, but we need to see how that plays out in August and September. Again, our metrics point to, you know, this is a strong start. So it points to it. It should be, you know, a stronger quarter. But again, we just don't want to get ahead of ourselves not knowing exactly what, you know, the rest of August looks like, you know, let alone September at this point with Episel, because you can always have cancellations and whatnot. But, you know, again, strong start.
Yeah, I mean so I mean again I try to lay out. I think it was Ryan's initial question. I just wanted to make sure people understood, you know, from an external guidance perspective, we want to be very clear which is our external guidance is 10 million a quarter. It's more of a run rate concept. So that's our that's our approach, you know, I would say internally as we talked about, you know, the I'd say the first piece is we've had a pretty strong start to July on on both products. Um, so that's always kind of what you want and so again, our guidance is, is not meant to be our forecasts. But, you know, essentially, if you know, next to brand can continue on a stronger run rate that we've seen in June and July, for example, you know, that could kind of help it continue to tick up and it's really at this point. You know, obviously more about epic sell given the scale that your products. And really, it's about, you know, what happens from a conversion of those strong biopsies in the second quarter, you know, it's, it's
Nick Colangelo: So it would be continuing to drive kind of a high, you know, higher conversion rate or I call it a more average conversion rate, and then, you know, not getting those cancellations through the patient health. That's probably what's most variable as we think about the quarter. But again, a strong start.
Joe Mara: And I would just add that, you know, as Jill mentioned in his prepared group, at this point, we're not including any potential barter revenue that could come in the fourth quarter in our guide. So there's a commercial piece that could allow us to outperform. And then there's some potential barter revenue as well. Again, timing and amount can't determine at this point. But there's multiple paths to kind of exceed the guidance that Joe provided.
Been a strong start in July, but we need to see how that plays out into August and September again, our metrics point to, you know, this is a strong start, so it points to it, it should be, you know, a stronger quarter. But again, we just don't want to get ahead of ourselves. Not knowing exactly what, you know, the rest of August looks like, you know, let alone September at this point with that Basel because you can always have cancellations and whatnot but you know, again, strong start so it would be continuing to drive kind of a high you know higher conversion rate or a more average conversion rate and then you know not getting those cancellations through the patient Health that's probably what's most variables we think about the quarter but again a strong start and I would just add that you know as Joe mentioned in his prepared
At this point, we're not. Um,
Including any potential barter revenue that could come in the fourth quarter in our guide. So, there's a commercial piece that could allow us to outperform, and then there's some potential barter revenue as well. Again, timing and amount can't be determined at this point, but there are multiple paths.
To kind of.
Exceed, uh, the guidance that Joe provided.
Eric Burns: Nick, you kind of stole my question, but on that barter revenue from the fourth quarter, you know, potential, in general, is there a range you folks are thinking about, you know, on the dollar amount if it happens?
Joe Mara: No, that's what I said earlier. I mean, the RFP clearly states forth or sets forth the sort of procurements that BARTA is interested in. So the 2,750 units, you know, from October of this year through September of next, and then, you know, up to 5,000, you know, in the following year. Obviously, without knowing sort of the pricing on that, you can't really estimate the revenue. And then, of course, there's management contracts to manage that VMI inventory and other things. So that are stated there. I think they'd like to have access to some commercial inventory, and there's funding for that that would be involved. So, you know, there's a lot of pieces, and it's just impossible at this point to kind of quantify from a revenue perspective what that would be or the timing thereof.
Uh Nick, you kind of stole my question, but uh um, on that border Revenue um, from the fourth quarter, you know, potential in general. Is there a, is there a range? You folks are thinking about, you know, on on on on the, on the dollar amount if it happens.
Joe Mara: But, you know, one would expect that if BARTA is interested in having an available stockpile through a VMI kind of procedure that, you know, they'd want to have it sooner than later. So anyway, more to come on that.
No, that's what I that's what I said earlier. I mean, the RFP, clearly states forth or sets forth, the sort of procurements, um, that Barta is interested in. So the 2750 units, you know, from October of this year through September of next and then, you know, up to 5,000, you know, in the following year, obviously, if without knowing sort of the pricing on that you can't really estimate the revenue and then of course there's management, uh, contracts to manage that, VMI inventory, and and other things, so that are stated there. Uh, I think they'd like to have access to some commercial inventory and there's funding for that, that that would be involved. So you know, there's a lot of pieces and it it's just impossible at this point, to kind of um, quantify from a revenue perspective, what that would be or the timing thereof. But you know, 1 would
expect that if Bart is interested in having an available stockpile through a BMI, uh,
Um kind of procedure that, you know, they'd want to have it sooner than later. So anyway, more to come on that.
Eric Burns: And then on the actual product, you know, you stated that there are 600 trains at this point. In general, you know, once a surgeon gets trained, you know, how long does it take for them to kind of become comfortable enough to start taking biopsies and, you know, start sending them over to you folks?
And then on the, um, octo product, you know, you stated that there are 600 trains at this point. Um,
In general. Um, you know, once once the surgeon gets trained, you know, uh, how long does it take for them to kind of become comfortable enough to start taking biopsies and, you know, start sending them over to you folks?
Joe Mara: Yeah, I'd say actually, you know, it often happens in reverse where surgeons will take biopsies and then get trained when they're ready to move forward with the procedure. So no time at all to get comfortable taking a biopsy. They do arthroscopic chondroplasties all the time, and that's when they end up taking a biopsy. So that's not, you know, no impact there at all.
Yeah, I'd say actually, you know, it often happens in Reverse where surgeons will take biopsies and then get trained when they're ready to move forward with the procedure. So,
Eric Burns: Okay. Perfect.
To get comfortable taking a biopsy. They do arthroscopic chondroplasty and that's when, when they end up taking a biopsy. So that's not, you know, no impact there at all.
Joe Mara: All right. Well.
Eric Burns: Thank you very much. Thanks.
Joe Mara: Okay. Thank you.
Nick Colangelo: Thanks, okay.
Perfect. All right. Well, thank you very much, thanks. Okay. Thank you.
Thanks. Okay.
Ryan Zimmerman: There are no further questions. I'd like to turn the floor back to Nick Colangelo for any additional or closing remarks.
There are no further questions.
To Nick call Angelo for any additional or closing remarks.
Joe Mara: Okay. Well, we just wanted to say thank you to everyone for your questions and continued interest in Vericel, and we look forward to providing further updates on our progress on our next call. So thanks again and have a great day.
Okay, well we just wanted to say thank you to everyone for your questions and continue interesting. And we look forward to providing further updates on our progress on our next call. So thanks again and have a great day.
Ryan Zimmerman: This concludes today's conference. We thank you for your participation. You may disconnect at this time.
Includes today.
You may disconnect at this time.