Q3 2025 Vericel Corp Earnings Call
Speaker #2: Thank you for standing by . You are currently on hold for the Vericel Corporation . Third quarter 2025 Earnings Call . At this time , we are assembling today's audience and plan to be underway shortly .
Speaker #2: We appreciate your patience and ask that you please remain on the line .
Speaker #1: Please stand by the conference will begin shortly .
Speaker #2: Good day , and welcome to the Vericel Corporation . Third quarter 2025 Earnings Call . Today's conference is being recorded . At this time , I would like to turn the conference over to Eric Vericel Corp , vice president of finance and investor relations .
Speaker #2: Please go ahead .
Speaker #3: Thank you . Operator . And good morning , everyone . Joining me on today's call are Vericel Corp President and Chief Executive Officer Nick Colangelo .
Speaker #3: And our chief Financial officer , Joe Marra . Before we begin , let me remind you that on today's call , we will be making forward looking statements covered under the Private Securities Litigation Reform Act of 1995 .
Speaker #3: These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations , and are described more fully in our filings with the SEC .
Speaker #3: 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 .
Speaker #3: Please note that a copy of our third 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 .
Speaker #3: I will now turn the call over to Nick .
Speaker #4: Thank you , Eric , and good morning , everyone . The company delivered outstanding financial and business results in the third quarter with strong top line revenue growth and even higher profit growth .
Speaker #4: A significant inflection in operating cash flow and continued progress across a number of key business initiatives . The company generated record third quarter total revenue , which exceeded our guidance for the quarter .
Speaker #4: Record third quarter Macy revenue , which increased 25% over last year , and the highest quarterly burn care revenue of the year as Epistle had one of its highest revenue quarters to date , and Nexobrid had its highest quarterly revenue since launch .
Speaker #4: The strong revenue performance translated into significant profit growth in cash generation , as the company delivered GAAP net income of more than $5 million and adjusted EBITDA margin of 25% for the quarter , as well as record third quarter operating cash flow of more than $22 million .
Speaker #4: Macy's third quarter 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 as anticipated , the strong Macy biopsy growth in the first half of the year , which outpaced implant growth to that point , drove an acceleration of implant and revenue growth in the third quarter .
Speaker #4: Macy also had another quarter of double digit biopsy growth , with record third quarter highs in both Macy biopsies and the number of surgeons taking biopsies .
Speaker #4: This momentum continued into the fourth quarter , as we had the highest number of Macy biopsies and surgeons taking biopsies in any month since launch in October .
Speaker #4: In addition to the strength of the core , Macy fundamentals , the early launch indicators remain very strong for Macy , Arthro , which clearly is contributing to Macy's overall biopsy and implant growth .
Speaker #4: We now have more than 800 Macy Arthro trained surgeons through the end of October , and the biopsy and implant growth rates continue to increase substantially for trained surgeons and remain significantly higher than the growth rates for surgeons that have not yet been trained in addition , early data indicates that the cohort of surgeons that have completed a macy Arthro case to date have a markedly higher implant growth rate than biopsy growth rate , suggesting a higher overall conversion rate for Macy , Arthro implanting surgeons .
Speaker #4: We believe that this dynamic may be driven by the fact that Macy Arthro is a less invasive procedure , with the potential for improved patient outcomes .
Speaker #4: To that end , we remain focused on generating clinical data to demonstrate these potential patient benefits , including a shorter rehab period with Macy Arthro administration , early data from ongoing investigator case series suggests a significant reduction in post-surgical pain , improved range of motion , and a meaningful acceleration in the timeline to achieving full weight bearing bearing .
Speaker #4: Following Macy arthro treatment . These initial results suggest very positive outcomes , which could also lead to a shorter overall recovery timeline for patients .
Speaker #4: We expect to see these cases presented at industry meetings in early 2026 , as well as in future publications , and we continue to work with additional surgeons as they complete Macy Arthro cases to collect prospective outcomes data in our Macy Clinical Registry .
Speaker #4: Finally , the Macy sales force expansion is on track to be completed in the fourth quarter with the new reps supporting current territories .
Speaker #4: This year and moving into their new territories at the start of next year , which will support our significant fourth quarter volume growth and position .
Speaker #4: Macy , for a continued strong performance for the full year in 2026 . In terms of our longer term Macy growth initiatives , we remain on track to initiate the phase three .
Speaker #4: Macy Ankle clinical study. This quarter represents a substantial growth opportunity for Macy and would enable the company to expand into other orthopedic markets.
Speaker #4: We also remain on track to initiate commercial manufacturing for Macy in our new facility next year , which is designed to meet both US and global manufacturing requirements and will allow the company to potentially commercialize Macy outside the United States .
Speaker #4: To that end , we're initiating a stage approach to our Macy ous expansion with the first phase targeting a planned Macy launch in the UK .
Speaker #4: This is an ideal first step for us expansion , and that the UK has an international mutual recognition procedure that allows for accelerated approval and market access .
Speaker #4: There's a high level of awareness and surgeon advocacy for Macy , given that the product was previously marketed in the UK . There's an established reimbursement pathway for this technology , given a prior positive nice opinion from Macy and there are concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries in the UK , we'd expect to submit a marketing application in the middle of next year and potentially launch Macy in the UK in the first half of 2027 .
Speaker #4: As we seek to expand the long term growth and value creation opportunities for the company . In summary , Macy remains the clear market leader for knee cartilage repair , with a significant competitive moat based on the strength of its underlying business fundamentals .
Speaker #4: We believe that Macy is very well positioned for a strong close to 2025 and continued strong growth in 2026 and beyond , the early launch indicators for Macy Arthro remain very strong and clearly are contributing to the overall biopsy and implant growth .
Speaker #4: For Macy as we move into 2026 , we expect to capitalize on having a full year to engage with the current . Macy Arthro trained surgeons and to continue to meaningfully expand the number of trained surgeons next year .
Speaker #4: In addition to increasing the Macy sales force to drive further growth . We're also supporting the expanded Macy sales team with additional investments across our sales , operations , marketing and medical functions to enhance our operational excellence and commercial execution and create additional opportunities for surgeons to engage with Variceal .
Speaker #4: We believe that all of these initiatives will reinforce Macy's leadership position and drive continued strong revenue and profit growth in 2026 . In the years ahead , I'll now turn the call over to Joe .
Speaker #5: Thanks , Nick , and good morning , everyone . The company delivered very strong financial results in the third quarter with record total revenue of 67.5 million .
Speaker #5: Macy had a strong quarter with revenue growing 25% to 55.7 million , which was above the high end of our guidance range for the quarter .
Speaker #5: Importantly , year to date , Macy revenue growth is over 20% with its growth rate having increased each quarter during the year . Brinker also had a strong third quarter with revenue of 11.8 million , which increased 21% sequentially over the second quarter .
Speaker #5: FSL revenue of 10.4 million was the highest quarter of the year and one of its highest quarters to date . While Nexobrid revenue of 1.5 million represented its highest quarterly revenue since launch , growing 38% versus the prior year and 26% versus the prior quarter .
Speaker #5: The company substantial revenue growth translated into significant margin expansion , with gross profit of nearly 50 million , or 73.5% of revenue . The company also delivered GAAP net income of 5.1 million and adjusted EBITDA increased nearly 70% to 17 million , or 25% of revenue .
Speaker #5: An increase of nearly 800 basis points versus the prior year . As the company's profit growth continues to outpace our strong revenue growth .
Speaker #5: Finally , the company generated record third quarter operating cash flow of 22.1 million , nearly matching the fourth quarter of last year . And with just 2.6 million of CapEx during the quarter .
Speaker #5: The company achieved record free cash flow of nearly 20 million , ending the quarter with 185 million in cash and investments . As the expected inflection of our cash generation following the completion of our new manufacturing facility is now being realized .
Speaker #5: Turning to our financial guidance , we expect full year total revenue of approximately 272 to 276 million . For Macy's . We are maintaining our revenue guidance .
Speaker #5: Expectations of low 20% growth for the full year and expect full year . Macy's revenue of approximately 237.5 to 239.5 million . And fourth quarter revenue of approximately 82 to 84 million .
Speaker #5: Given Macy's strong third quarter results and expectations for its continued strong performance in Q4 , Macy's remains on track for a significant acceleration in revenue growth from 18% in the first half of the year to approximately 23% in the second half of the year .
Speaker #5: For burn care , we expect full year revenue of approximately 34.5 to 36.5 million , with fourth quarter revenue of approximately 6.5 to 8.5 million .
Speaker #5: As FSL trends to date , in the fourth quarter are similar to Q4 of last year . I would also note that we are not assuming any additional Nexobrid revenue related to the Barda RFP process initiated in August , although there is potential for incremental Nexobrid Barda revenue in the fourth quarter from a profitability perspective , we have reaffirmed our full year profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26% for the fourth quarter , we expect gross margin of approximately 77% , approximately 50 million of total of total operating expenses , which includes the investments related to our recent sales force , expansion and adjusted EBITDA margin of approximately 40% overall , 2025 is set up to be another positive year for the company , with strong top line growth as well as significant margin expansion and profit growth .
Speaker #5: As we look ahead to next year and beyond , we believe that the durable growth of our portfolio positions the company to sustain strong top line growth in the years ahead and supports our mid-term profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029 .
Speaker #5: Now concludes our prepared remarks . We'll now open the call to your questions .
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Speaker #2: You may press star one to ask a question . We'll pause for just a moment to allow everyone an opportunity to signal . We'll move to our first question .
Speaker #2: Your line is now open.
Speaker #6: Hi . Good morning . This is Josh Jennings from TD . Is that am I coming through okay ?
Speaker #5: Yes . Good morning Josh we can hear you . Fine .
Speaker #6: I'm sorry I got a operating notice . I didn't hear my name call . Thank you . So maybe just appreciate your comments .
Speaker #6: Congratulations on the strong three . Key results . Your comments . Just a moment ago , Joe , on 2026 . Continued momentum .
Speaker #6: You know , just sorry for the typical question . A little bit too early . Prior to 2026 , maybe just for the franchise .
Speaker #6: Just thinking about ACR through contributions in 2026 . You know , additive versus cannibalistic of standard Macy's and how we should be thinking about the Macy's growth as we as we move into the coming quarters next year .
Speaker #6: I have one follow up .
Speaker #5: Yeah . So good morning , Josh , again , and thanks for the question . So you know , so first off , you know just a reminder .
Speaker #5: You know we haven't given any specific 26 commentary as of yet . But you know happy to give kind of our initial thoughts .
Speaker #5: Of course we'll kind of give more formal guidance as we move into next year . You know , I would say , you know , kind of hit just briefly on both franchises .
Speaker #5: But certainly cover Macy's . So , you know , I would say across the portfolio , our expectations next year are very high .
Speaker #5: We have a number of impactful initiatives that we're very excited about across both franchises , particularly Macy's . You know , but I do think we'll be pretty prudent to start the year from a guidance perspective .
Speaker #5: So , you know , maybe just briefly starting with burn care . You know , I think that one's pretty straightforward . So , you know , we talked about last quarter , this kind of run rate concept , which we think is appropriate .
Speaker #5: We said we would adjust it kind of as needed , you know , on a quarterly basis . But you know , if you look at our run rate over the last several quarters , we've kind of been in that 9 to $10 million range on burn care .
Speaker #5: So , you know , I think as a starting point for next year kind of being in that range , you know , call it in the high 30s on a on a full year basis .
Speaker #5: Next year is a good place to start . You know , we do have expectations that next Nexobrid will continue to increase . You know , certainly there remains a possibility of some potential Barda related revenue that could materialize .
Speaker #5: But , you know , just given epistles variability , we're just going to be prudent on that . And I think that one's pretty straightforward .
Speaker #5: So , you know , from from a Macy's perspective , you know , I would say , you know , as we think about the guidance and kind of what next year looks like , you know , if you kind of look at where analysts are , I mean , most analysts are kind of right around 20% on a full year basis , plus or minus .
Speaker #5: You know , we think that's a good starting point as we think about 26 , you know , if you look at where we were in a full year basis last year , Macy's was 20% .
Speaker #5: It's 20% on a year to date basis . This year . So you know , we're not going to get ahead of ourselves .
Speaker #5: And plan to start the year guiding above the trends with that 20% . So again that's a good place to start . You know , you can also look at kind of the incremental revenue on a year over year basis .
Speaker #5: You know , that points to something kind of similar in that 40 million plus range . Again , we don't want to get ahead of ourselves .
Speaker #5: And I guess kind of the last point I'll make on the Arthro question , you know , I think as we think about 26 and really moving forward , you know , we're not really thinking about this as kind of arthro versus non arthro .
Speaker #5: You know , we're thinking about this , you know , from a macy total level . But you know , if you kind of step back and think about the progression during the year , you know I think , you know we're seeing you know , exactly what we wanted to see as we've kind of marched through the year .
Speaker #5: So first off , you know , great foundation in terms of engagement with surgeons . We're up to 800 trained surgeons . You know , I think the majority of those are either new to Macy or new to smaller defects .
Speaker #5: So that's exactly what you'd want to see . You know , the second point there that we've we've talked , talked about for a few quarters now is , you know , we are seeing higher biopsy and implant growth after surgeons are trained .
Speaker #5: So that's obviously exactly what we want to see . And , you know , we think that could be impactful over time . And then the last point you know early days .
Speaker #5: But you know when we look at our arthro Implanters . So the surgeons that have done arthro implants were actually seeing signals of a higher conversion rate .
Speaker #5: So I mean , if you kind of look at that collectively , that is , you know , a pretty , you know , strong data set and consistent to what we hear externally .
Speaker #5: So , you know , good signals on Arthro for sure . But I would say , you know , certainly we're mindful of that .
Speaker #5: But , you know , we're just not going to get ahead of ourselves in terms of a planning assumption or guidance next year and would rather start the year a bit more prudently , which we think sets us up for success as we move throughout the year .
Speaker #6: Appreciate that . And it's great to see the conversion rate thesis playing out from ACR . Throw . We've anecdotally kind of gotten back from from some surgeons that that patient demand from ACR throw is increasing .
Speaker #6: More patients are are seeking out ortho surgeons that that perform ACR throw or coming in requesting ACR throw . Just wondering if that if what we're picking up is a trend and whether that's helping kind of drive surgeon adoption rates .
Speaker #6: Surgeons hearing from patients . And then they're getting getting more interested or are also driving volumes . But any any you can share on that dynamic would be helpful .
Speaker #6: Thanks for taking the questions .
Speaker #4: Yeah . Hey Josh , it's Nick . Yeah . I mean , as we've talked about repeatedly , we've you know , we've heard and seen , you know , the anecdotal feedback since the early days , days with Macy Arthro , you know , there's a lot of social media activity from top Macy Arthro Implanters , you know , that certainly can be one contributing factor to sort of patients awareness of a macy Arthro option .
Speaker #4: So that makes perfect sense to us . And , you know , as Joe mentioned , you know , besides the anecdotal kind of feedback we've been getting , which has been very positive , you know , everything the parameters that Joe mentioned just sort of line up with everything we expected to happen .
Speaker #4: And it's the progression that we've been talking about for the entire year . So yeah , really kind of pleased with the trends .
Speaker #4: And , you know , I think there's makes a lot of sense that patients would be interested in a less invasive procedure that has potential benefits in terms of faster recovery and potentially overall rehab time lines .
Speaker #4: And then of course , you know , the surgeon interest , you know , we're we're well ahead of where we expected to be on trained surgeons for the year .
Speaker #4: So that awareness and engagement has been really positive as well .
Speaker #6: Thanks , Nick .
Speaker #2: We'll move to our next question from Richard Newitter with Truist Securities .
Speaker #7: Hi . Thanks for taking the questions and congrats on the quarter . I just wanted to to get a better understanding of where your potentially seeing Macy Arthro actually , you know , potentially getting used where , where , where the traditional Macy was not just the cannibalization versus market expansion .
Speaker #7: You know , anything anecdotal that you can you can give us there and then have a follow up . Thank you .
Speaker #4: Yeah . Hey , Richard , it's Nick . So I think it's kind of continuing the trends that we've talked about on the past quarters .
Speaker #4: And again , we don't really , you know , cannibalization is not sort of how we think about this . You know , we look at increasing Macy utilization and whether surgeon implants may see it through a mini arthrotomy or small open incision or arthroscopically , you know that all contributes to this .
Speaker #4: The strong Macy growth that we are seeing . So as we talked about before and as Joe alluded to , when you think about it from a surgeon perspective , you know , the trained surgeons and now the biopsying and implanting surgeons come from , you know , existing .
Speaker #4: Macy users , but also new users who were former open targets or the new Arthro only targets that we added . And , you know , the training kind of breaks down as we talked about before , you know , roughly a third of sort of the former , the Macy users who were primarily condyle users and then a third from those that did both Condyle and femoral condyles and then a third , you know , new users , whether they were open targets or the new targets .
Speaker #4: So good distribution of surgeons , all of whom are taking biopsies and and obviously doing implants . And then from a , you know , defect location or patient perspective , you know , we've talked a lot about that .
Speaker #4: You know , we've seen use not only on the femoral condyles , but also in areas of the knee like the trochlea and tibia , even a few patella cases here and there .
Speaker #4: And you know , that I think will continue , especially as we think about the continued innovation with the Macy Arthro instruments , where we will , you know , work with surgeons , design the next , you know , version 2.0 of Macy instruments that will allow access to different portions of the knee .
Speaker #4: And so on . So I think it's pretty broad based as we've been talking about all year . And , you know , supports the the growth that we've seen , you know , in this , this third quarter .
Speaker #7: Okay , that's really encouraging to hear . I'm just curious , you know , just just given where you are in kind of a new product launch here , as we look to next year and , you know , understanding you might not want to provide official guidance , totally understand that for 26 .
Speaker #7: But anything that we should be aware of on the cadence , on , on , on revenue or on the PNL , just , you know , it's been it's been a little bit counterintuitive for the last two years .
Speaker #7: And just to preempt any surprises , as we all calibrate our models into next year , thanks .
Speaker #5: Yeah . So thanks , Rich , for the question . This is Joe . So , you know , I would say , you know , as we go into any year , I mean , I think from a macy perspective , there's always going to be that seasonality .
Speaker #5: I mean , it can certainly ebb and flow a bit . You know , on a quarterly basis . You know , I would say one thing , you know , as we're thinking about , you know , we're talking about the full year , but , you know , we have tended to see in the last couple of years that , you know , the first quarter has , has tended to be a kind of a lower growth rate , you know , for whatever reason , coming off Q4 .
Speaker #5: So , I mean , that , of course , is a dynamic we've seen that I would , you know , point out that , you know , was present in the last couple of years .
Speaker #5: So that's probably one piece . You know , in general , I would say it typically follows a pattern , as we've seen .
Speaker #5: And again , it can vary a bit by quarters . But you know , halves tend to look pretty similar . So nothing I would call out , you know obviously on the burn care side , which , you know , I don't think you're necessarily getting to , but clearly there can be variability there .
Speaker #5: And again , we're going to kind of stick with that run rate framework . And we'll adjust as needed . You know , as we've done in the fourth quarter here , just based on what we're seeing , because we certainly want to make sure we're not going to get ahead of ourselves in any quarter on burn care .
Speaker #5: So that's more of a framework question . I would say , on the maybe just to hit the profitability for next year and kind of the profitability concept , I mean , nothing , you know , to call out next year , quarterly .
Speaker #5: But I would say , as you're thinking about the year and just going forward , you know , I'd say first off , you know , I think it's pretty notable if you look back at Q3 that , you know , this is , of course , the fourth quarter just based on the Macy's trajectory is always our highest revenue quarter , highest margin quarter , etc.
Speaker #5: . But , you know , to be net income positive at a 5 million level , I think is pretty notable in the third quarter .
Speaker #5: You know , we achieved 25% adjusted EBITDA margin in the third quarter , which is also pretty notable . And then , you know , just on the cash generation , for a moment , I mean , whether you look at free cash flow or operating cash flow , you're kind of around 20 million for the quarter .
Speaker #5: So , you know , we've talked , you know , a few years ago about that PNL inflection that we're starting to , you know , really get on .
Speaker #5: You know , the stronger side of and I think we're just starting that kind of inflection on the cash generation piece . You know , in terms of the fourth quarter , obviously , we would expect a strong quarter there as well .
Speaker #5: As I talked about in the remarks , you know , next year , I would say , you know , as you think about next year , you know , I think we would expect , you know , on the margin side , things to continue to tick up on both the gross margin and the adjusted EBITDA side .
Speaker #5: You know , probably want to just be a little bit prudent there to start the year in the sense that , you know , the last 2 or 3 years have been , you know , really strong and probably a bit ahead of our expectations in terms of how quickly the margin has gotten up the curve .
Speaker #5: But , you know , I certainly think kind of being call it a point in gross margin . You know , maybe a point or two on adjusted EBITDA is a reasonable starting point .
Speaker #5: You know , we will have to you know , there will be investments on the sales sales force and the full year basis on the ankle trial ramping up .
Speaker #5: You know , the cost of goods sold will absorb some of the new building . So that has to be contemplated next year .
Speaker #5: You know , lastly , I would just say , you know , I think from a broader lens , if you kind of look at where the kind of financial trajectory of the company is and our PNL metrics , you know , they are really kind of starting to ramp up pretty significantly .
Speaker #5: So , you know , last year we had 50 million of adjusted EBITDA . This year , our guidance is pointing to 70 million .
Speaker #5: So we're already starting to get into that $100 million zone on adjusted EBITDA level . Now . And so , you know , if you assume even similar revenue growth over the next few years , and , you know , at a high 30% adjusted EBITDA , you know , I think it's certainly reasonable to be kind of getting close to that $200 million EBITDA range .
Speaker #5: You know , by by 2029 , call it . So , you know , I think , you know , we're pretty excited about obviously everything that's going on in the Macy's side and across the business .
Speaker #5: But you know , we're also very focused on that kind of financial trajectory . You know in 26 . But really over the next several years , which could be pretty significant .
Speaker #5: And again, we think it makes us pretty unique for a company of our size and scale.
Speaker #8: Thank you .
Speaker #5: Thanks .
Speaker #2: We'll take our next . We'll take our next question from Ryan Zimmerman with Btig .
Speaker #9: Hey , guys , can you hear me ? Okay .
Speaker #5: Yeah . Good morning . Ryan .
Speaker #9: Morning . Nice quarter . Thank you . Just given the biopsy trends you saw , you know , early in the year , the results this quarter may see the Macy's guidance was tightened .
Speaker #9: And I'm wondering why fourth quarter wouldn't step up . Maybe relative to your prior guidance given what you're seeing in your commentary , you know , about biopsies in the third and into the fourth quarter .
Speaker #5: Yeah . So thanks for the question , Ryan . So I'll take that . I mean , you know , I think , you know , clearly a very strong third quarter , you know , as we referenced , the biopsies , the start of the year , you know , led to that higher implanted revenue growth , which is great to see , you know , to your point , the leading indicators have been strong .
Speaker #5: I'd say , particularly the biopsies , you know , which is of course , you know , the key leading indicator for us .
Speaker #5: You know , I think , you know , in terms of the guidance , I would say another dimension there is with that strong third quarter , it really de-risks where we need to be in the fourth quarter to achieve our full year guidance .
Speaker #5: So , you know , to your point , you know , we're essentially maintaining the full year guide at the same level . You know , kind of points to about 82 to 84 million in the fourth quarter , you know , which is right in line with kind of where estimates and consensus are .
Speaker #5: But , you know , it also say this kind of points to a pretty strong acceleration still from an H1 to H2 perspective .
Speaker #5: You know , depending on where you're on the range , it's , you know , 18% to call it 22 to 23% . So pretty significant step up in the second half , you know , also gives us a , I'd say a pretty achievable step up Q3 to Q4 .
Speaker #5: And I'd just say broadly , you know , we just want to be prudent here on Q4 . You know , we recognize there's remains a wider range , you know , given some of the leading indicators , we've got a great foundation of biopsies in place .
Speaker #5: But Q4 is our largest quarter . December is our highest month . You know , they're always going to be some variability at quarter end , particularly the year end holidays .
Speaker #5: So , you know , we think this is appropriate . You know , it's a you know it's an achievable step up . And I would say just we do not want to get ahead of ourselves as we close out the year .
Speaker #9: Yeah okay . Fair enough . And the other question and you kind of talked about this , Nick , which is , you know , you're seeing adoption in May Arthro , but I guess I'm not clear .
Speaker #9: I mean , what how much ? See , Arthro sales were in the third quarter . And what do you expecting relative to , you know , legacy .
Speaker #9: Macy , if you will , you know , as we convert and move into the both the fourth quarter but then into 2026 .
Speaker #9: I mean , you know , if you were to kind of think about it , you know , with broad strokes , I mean , does it entirely convert over this next , you quarter , do you convert over the course of 2026 ?
Speaker #9: I guess I'm just curious kind of how you think about the rise of Macy Arthro relative to maybe the decline of legacy . Macy .
Speaker #9: Thanks .
Speaker #4: Yeah . So we kind of don't like we said earlier , think about a decline of legacy . Macy . I mean , legacy Macy was principally focused on patella defects and large , you defects .
Speaker #4: You know , anywhere in the knee . And , you know , I'd say that patella defects is one of the strongest , if not the strongest growth drivers for core Macy .
Speaker #4: And that remains the case . So there's not like a decline in the core . Macy . And again , you're never going to have full sort of switchover to Macy Arthro , because Macy arthro instruments are designed for the smaller defects .
Speaker #4: If it's above four square centimeters , you're doing an open procedure . If it's a patella case , you're typically going to do an open procedure .
Speaker #4: And so , you know , the small defects were the smaller part . You know , we had lower penetration there . That's the whole thesis for launching the Macy Arthro instruments .
Speaker #4: And so as we've seen in increase in biopsies or and implants on smaller condyle defects , you know , those are kind of Macy Arthro attributable cases .
Speaker #4: So again we don't think about it as you know , it's got to be blank on the core . And then blank on Arthro .
Speaker #4: You can often , you know , start intending to do an Arthro case and flip to open . If the defect got bigger .
Speaker #4: Since you did a biopsy , I mean , it's almost like a halo effect on the whole brand . And so that's how we approach it .
Speaker #4: But no doubt , as we've talked about that , the trends for trained surgeons and how they're behaving is exactly what you want to see .
Speaker #4: And , and supports the overall growth for the brand .
Speaker #9: Okay . That's very helpful . And if I could sneak one last one in and I'll hop back in queue , you know , if you go back some of the insurance carriers and their policies , you know , don't restrict lesion size .
Speaker #9: Some do . Have you had to work through that ? And is there , you know any impact or any gating factor there in terms of lesion size as you launch Macy Arthro , thanks for taking the question .
Speaker #4: Yep . So the answer short answer is not at all , as you mentioned . You know , there are some plans that don't have any sort of size restrictions or parameters there .
Speaker #4: There's some that require that the defect be one , one and a half or two square centimeters or above , you know , that's again , exactly what the Macy Arthro instruments are designed for .
Speaker #4: You know , there are two , 3 or 4 square centimeter defects . So , you know , really that has not been an issue at all .
Speaker #4: And , you know , as we've talked about often , every major medical plan has a policy , a medical policy for Macy and our prior approval rates are , you know , up in the mid 90% range .
Speaker #4: So for the appropriate patients , Macy gets approved .
Speaker #9: Yeah . All right . Appreciate it .
Speaker #5: Thanks , Ryan .
Speaker #4: Thanks .
Speaker #2: We'll take our next question from Kaitlin Roberts with Canaccord Genuity .
Speaker #10: Hi . Thanks for taking the questions . Congrats on the quarter . Just to start with , Burn Care . Can you just walk us through the puts and takes here ?
Speaker #10: You said you expect similar Q4 dynamics this quarter . This quarter as last year . And then the bar to contract any more color on that and why ?
Speaker #10: There could be some Barda upsides. Nexobrid also has the new Category Three code for Nexobrid, which helped uptake there.
Speaker #4: Yeah . Hey Caitlin , this is Nick . So just on you know , the trends coming into the quarter that Joe referenced .
Speaker #4: I mean , what we said was to start the quarter and again , we're still relative . We're only a third of the way through the quarter that the trends to date , you know , which essentially is sort of the biopsies that we have coming into the quarter .
Speaker #4: And , you know , in the first weeks of the quarter , we're more like Q4 last year . So that's what we're going to guide to is , you know , you know , the we still have a good amount of the quarter to go , you know , the biopsies for patients .
Speaker #4: We're going to treat in December aren't even sort of in house yet . So we just don't have the visibility on that . So we as Joe mentioned , we want to be very prudent in sort of making sure that we don't get ahead of ourselves on guidance , given its variability on the Barda opportunity .
Speaker #4: You know , as you know , the RFP was is public and , you know , was intended to sort of begin on October 1st , obviously , we're all aware there's a government shutdown .
Speaker #4: So things sort of came to a screeching halt . But you know , we are hopeful and expect that , you know , when the government reopens that there's an opportunity to move forward on that .
Speaker #4: Are and and the procurement etc. , and , and advanced development of nexobrid . So more to come on that . But obviously until that happens , we can't really kind of share much more about it .
Speaker #4: And then on the CPT code , you know , I think , you know , we have as we've talked about , had a pretty good number of PA committee approvals for Nexobrid up in the 70 range .
Speaker #4: And , you know , more than 60 ordering centers . So kind of in the CPT world , I think we feel comfortable .
Speaker #4: There's pretty widespread utilization and , you know , we would expect that , you know , next year we'll pursue a permanent code , which would then become effective in 2027 .
Speaker #4: So that would be our plan right now . So more to come on that as we get into next year .
Speaker #10: That's great . And then just maybe touching on the Macy's sales force hiring . Where are you now . And you noted you're on track to be completed in the Q4 .
Speaker #10: Any changes to the amount that you noted last quarter that that you would hire into the year ?
Speaker #4: Yeah . No , we said we were going to be , you know , adding 25 new territories and three new regions . And , you know , that is essentially virtually complete , you know , onesie twosies left to go on that .
Speaker #4: So we are extremely pleased with the quality and caliber of the talent we've brought in . If you're in the sports medicine business , this is a great place to be with Macy's .
Speaker #4: So you know , zero issues and attracting , you know , top talent and couldn't be more excited to kind of have this expanded team as we again to support our Q4 volumes , but also as we move into next year .
Speaker #4: And so really excited about that and that , you know , quite frankly , is just , you know , one piece , as I mentioned , of sort of the overall sort of investments and enthusiasm around Macy's .
Speaker #4: So expanding the sales force , you know , we're really proud to have kind of built this franchise from a $30 million product ten years ago to close to a quarter billion now .
Speaker #4: And we're really focused on the people , the resources , the processes that we have to have in place to take it from a quarter billion to half $1 billion product over the next several years .
Speaker #4: And and that's what we're focused on . The sales force expansion is one piece of it . As I alluded to in my prepared remarks .
Speaker #4: You know , we're also focused on additional marketing , sales ops and other kinds of investments in medical affairs and engagement with our key customers to make sure that we we drive and achieve , what's clearly right in front of us as we move forward over the next several years .
Speaker #10: Great . Thank you so much .
Speaker #4: Okay . Thank you .
Speaker #2: We'll take our next question from Mike Kratky with Leerink Partners .
Speaker #11: Hi , everyone . Thanks for taking my question and congrats on a nice quarter . You've continued to show great progress on some of the leading indicators like biopsies and surgeons taking biopsies .
Speaker #11: And you just clarify how much of your three Q growth for Macy's being driven by implant volume versus pricing . Have you seen some of these really positive leading indicators start to materialize .
Speaker #11: And your may see volume growth . And how is that tracked relative to your expectations ? Thanks .
Speaker #5: Yeah . So good morning Mike . Thanks for the question . So yeah I mean I'd say kind of the acceleration that we're seeing in Q3 in terms of the performance , I mean , that's really volume driven as we've talked about , you know , early in the year , we obviously had some strong biopsy growth .
Speaker #5: The implant growth was not tracking at the same level . And so what we really saw in the third quarter , which is what we anticipated was really the volume from an implant perspective , really ticked up .
Speaker #5: And then again , as you kind of think going forward , you know , obviously the most important indicator as we look forward are one of the most important , of course , is that biopsy growth .
Speaker #5: And that's really something that is , you know , continued to be strong . And Nick referenced October was was really strong as well .
Speaker #5: You know , I think our highest month ever . So you know , that's you know , it's really kind of been driven by that piece both in Q3 .
Speaker #5: And then again , you think about those volumes as we start Q4 . That's what's going to drive us going forward .
Speaker #11: Understood . Thanks very much .
Speaker #8: Thank you .
Speaker #2: We'll take our next question from Mason Carrico with Stephens .
Speaker #12: Hey , guys . Good morning . This is Ben on for Mason . In terms of the Macy Arthro trained surgeons you called out that one third split between surgeon types .
Speaker #12: Could you compare and contrast arthro biopsy growth and maybe arthro procedures across these different groups ?
Speaker #4: Yeah . So just to be clear , you know , we talked about the fact that we had former Macy users , about half of whom were condyle only surgeons or users .
Speaker #4: And then we had , you know , the other half of those prior users that , you know , did both femoral condyle and patella cases .
Speaker #4: And then we have new users . And so , you know , it kind of splits between those two . A third , a third or three and a third .
Speaker #4: And to be honest , you know , we've seen kind of biopsy growth across the board . And I don't think there's any sort of notable sort of , you know , groups that are outperforming the others .
Speaker #4: Obviously , if they were smaller users and they ramp up even a handful , you know , it's a high biopsy growth rate .
Speaker #4: Or if you're a new one , it's a really high biopsy growth rate . So I think the rates across those segments are are relatively similar .
Speaker #4: And you know , it's it's as Joe alluded to , you know , it's pretty exciting for us to say , you know , between the new users , a third of the , you know , surgeons being trained .
Speaker #4: And then , you know , another third coming from patella only , I mean , you know , that's two thirds of these trained surgeons who probably didn't think about using Macy or certainly didn't , you know , in smaller condyle defects .
Speaker #4: And so , you know , that's again , exactly what we would have wanted to see this early in the launch .
Speaker #12: Great . Thanks for that . Then you've historically called out mid to high single digit pricing for Macy . Could you speak to the durability of that pricing ?
Speaker #12: Moving forward , or just the durability of that in light of the current reimbursement environment ? Thank you .
Speaker #4: Yeah . So , you know , again , just so everybody understands , you know , Macy is reimbursed under a medical benefit .
Speaker #4: So it requires prior approval by each clan before a case can move forward . So obviously the pricing is known when you know , plans include Macy in their medical benefits .
Speaker #4: They know the appropriate patients are going to be treated because they have to approve them in advance . And that's what leads to sort of these high sort of mid 90% prior approval rates that we've achieved consistently for the last decade since we launched Macy's .
Speaker #4: So some of the other things , you know , we don't have a big obviously Medicare business at all . And so a lot of the sort of macro stuff that's circulating out there doesn't really apply to to Macy in terms of the sort of mid to high single digit price increases that we've sort of routinely taken .
Speaker #4: I mean , we do a lot of pricing research with plans and , and hospital administrators and , you know , again , this is viewed as a very sort of high tech product where more like a biologic in in the pharma space , where mid to high single digits are pretty routine .
Speaker #4: So , you know , we're pretty comfortable in our in our pricing practices and our approach .
Speaker #12: Great . Thanks for taking the questions okay .
Speaker #4: Thank you .
Speaker #2: We'll move to our next question from Jeffrey Cohen with Ladenburg Thalmann .
Speaker #13: So hey , thanks for taking our questions . Congrats on the quarter two specifically . Firstly , Joe , perhaps you could talk about R&D a bit and anticipation for Q4 full year and general commentary .
Speaker #13: There .
Speaker #5: Yeah , I mean , so we haven't , you know , from a spend perspective broadly , I mean , we don't typically kind of get into the pieces , but I would say , you know , I think we called out , as you're thinking about kind of Q4 , we called out 50 , about 50 million of total opex , which I think kind of gets us back to a similar point on a full year basis that we've been talking about all year .
Speaker #5: And , you know , I think as you think about kind of R&D going forward and really kind of , you know , all the buckets again , I referenced it earlier , but there's sort of two key incremental investments on the operating expense side , which are the sales force expansion .
Speaker #5: And Nick talked about it. We have some related investments around that, which I think will be important and that will be incremental next year.
Speaker #5: And then , you know , the the ankle trial , you know , really next year will become , you know , much more operational where you're going to see , you know , more sites and potentially patients kind of ramping up .
Speaker #5: So I would expect that to increase . You know , particularly next year . But you know , we'll kind of get to , you know , where next year's spend is , you know , as we get into next year probably at , you know , a somewhat similar rate in terms of growth this year , you know , perhaps a bit higher just with some of those investments .
Speaker #5: But again , on Q4 , we did specifically call out 50 million , just to be clear of kind of what was expected .
Speaker #5: There .
Speaker #13: Okay . Got it . And then secondly , I know , Nick , you brought up . Post-surgical pain . Could you talk about that a little more detail as far as anything that has been noted or you've noted as far as the the medical treatment as well as the the weight bearing and some of the times and some of the medications that you've , that you've understood so far .
Speaker #4: Yeah . So , you know , this started way back even in the first quarter when , you know , we were talking about the fact that surgeons had who had done , you know , the initial Macy Arthro cases were posting on social media about sort of , you know , these immediate positive benefits in terms of post-surgical pain or range of motion or sort of back to full weight bearing .
Speaker #4: Those are kind of the key early indicators . And , you know , as expected , both by us and and surgeons , you know , through our market research using the product , when you have a less invasive surgery , you have less arthrofibrosis .
Speaker #4: So the knee is not swollen . You get better range of motion , etc. . And so it just promotes a faster , potentially faster healing process .
Speaker #4: And , you know , we've been really focused . We were fortunate to be able to get Macy Arthro instruments on the market quickly through the human Factor study pathway , which didn't involve clinical a clinical study .
Speaker #4: So obviously we didn't have the clinical data supporting a faster post-surgical recovery . But that's what we've been focused on . And I alluded to in my comments that , you know , through case series and through the Macy Clinical Outcomes Registry , we've been gathering that data .
Speaker #4: And , you know , would expect in early 2026 that that data will be presented at industry conferences ultimately , hopefully make its way into publications .
Speaker #4: And we think , you know , in the progression of Macy , when you go arthro , when you go from high awareness and training , which obviously we've checked that box to sort of surgical technique demonstrations , which you see , for instance , at the International Cartilage Repair Society .
Speaker #4: The meeting that was recently held in Boston featured a very effective presentation. Then, we moved into the clinical benefits for patients.
Speaker #4: That's sort of the progression you would expect to see for Macy Arthro and and so that's kind of exactly what we're seeing and sort of why we made those comments in our prepared remarks .
Speaker #13: Perfect . Thanks for taking our questions .
Speaker #4: Okay . Thanks , Jeff .
Speaker #8: Thanks , Jeff .
Speaker #14: Hey . Good morning , Nick and Joe , you hear me ? Okay .
Speaker #5: Yes . Good morning .
Speaker #14: Hey , this is Oscar on for Aki . So I just had two quick questions on the Macy side . So maybe for the Macy arthro .
Speaker #14: Could you give us more color regarding the the timing from the surgeon ? Finish the training to . They're taking their first biopsy .
Speaker #14: How does that compare to the initial the Macy launch and on the conversion wise , you mentioned there's a high conversion rate in terms of arthro .
Speaker #14: But how about the the average time to for the conversion . How does that compare to the open surgery .
Speaker #4: Yeah . So just starting with the training , you know , it's very much like Macy Core . Macy when we launched where training is never really a barrier .
Speaker #4: You know , you can train online . You can do cadaver labs . We have you know , Macy Arthro synthetic knees . They can practice on and you know , obviously in the first cases that were done , biopsies were already taken .
Speaker #4: And then they trained and did the Macy Arthro procedure . So there's really no sort of gating item around training . Often if there's a surgery that they a surgeon intends to do arthroscopically , they'll just get trained ahead of the the , the training .
Speaker #4: So there's really not a connection between whether you take a biopsy first you get trained first and then take a biopsy , etc. .
Speaker #4: So any of those scenarios , Macy Arthro training , we make a lot of different methodologies available to surgeons , and they just kind of do what they feel most comfortable with in terms of the conversion rate .
Speaker #4: You know , I think we mentioned on our last call that we haven't seen any sort of differences in the Macy Arthro conversion timelines versus regular .
Speaker #4: So , you know , kind of early days on that . But , you know , kind of similar at this point .
Speaker #14: Thanks , Nick . And the the last one , could you discuss the timing and scale of the Macy ankle phase ? How should we think about the data readout there ?
Speaker #4: Well , just in terms of the timing , you know , we said we're set to initiate the study . In the fourth quarter of this year .
Speaker #4: You know , we've kind of built a timeline very much like the pivotal study . The summit pivotal study for the indication in the knee , which was two years to enroll , two year follow up .
Speaker #4: And then , you know , call it 18 months plus on the regulatory pathway . So , you know , we've always said this is kind of a 2030 plus opportunity .
Speaker #4: That's a very important part of our sort of long term strategy . For Macy with , you know , the core business , obviously with a ton of momentum , Macy Arthro , then Macy ous expansion opportunities , and then Macy ankle following that .
Speaker #4: So just kind of this sort of long runway of growth opportunities for Macy particularly , you know , with no like competition on the horizon .
Speaker #4: So .
Speaker #14: Thanks . Thanks , Nick . And taking my question , and congrats on the quarter .
Speaker #8: Okay .
Speaker #4: Thanks . Okay . Well I believe that concludes all of the questions . So I just want to thank everyone for joining us this morning .
Speaker #4: You know obviously we had an outstanding third quarter . And very well positioned for a strong close to the year and to continue to deliver a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead .
Speaker #4: So we look forward to providing further updates on our progress on our next call . And thanks again and have a great day .
Speaker #2: This concludes today's call . Thank you again for your participation . You may now disconnect and have a great day .
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