Vericel Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Veracel's fourth quarter 2023 conference call. At this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Julie Downs, Veracel's head of corporate communications.

Thank you, operator, and good morning, everyone. Welcome to Veracel's fourth quarter 2023 conference call to discuss our financial results and business highlights. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Security Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the FCC, which are available on our website. 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 fourth quarter financial results press release is available in the investor relations section of our website. We also have a short presentation with highlights from today's call that can be viewed directly on the webcast or accessed on our website. I am joined on this call by Verizell's President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Marra. I will now turn the call over to Nick.

Thank you, Julie, and good morning, everyone. I'll begin today's call by discussing financial and business highlights for the fourth quarter and full year, as well as our expectations for 2024. Joe will then provide a more detailed update on our 2023 financial results and financial guidance for this year before opening the call to Q&A. The company executed exceptionally well in 2023 and delivered outstanding financial and business results in the fourth quarter, generating top-tier revenue growth and even higher profitability growth. Total revenue for the full year increased 20% to over $197 million, which was at the top end of our guidance range with Macy revenue growing 25% to nearly $165 million in burn care revenue of nearly $33 million. The company also reached an inflection point with respect to our profitability profile with bottom line profitability growing at twice the rate of our top line revenue growth as adjusted EBITDA increased 40% to $34 million And we generated over $35 million of operating cash flow, ending the year with approximately $153 million in cash and investments and no debt. The company also had a very strong close to the year as we generated record total revenue of $65 million in the fourth quarter, an increase of 23% over the prior year. Our strong fourth quarter performance was driven by record quarterly MESI revenue of nearly $57 million, which was above the high end of our guidance range and represented more than 50% sequential growth over the third quarter and 22% growth over the fourth quarter of 2022, marking the sixth straight quarter of 20 plus percent growth for MESI. This outstanding MESI revenue performance was driven by strong underlying business fundamentals as we had the highest number of MESI implants, implanting surgeons, surgeons taking biopsies, and biopsies in any quarter since launch. We also generated very strong growth in the burn care franchise as fourth quarter revenue grew 31% over the prior year. Our top line revenue performance drove significant margin expansion and profit growth in the fourth quarter, As we generated gross margin of 75% and adjusted EBITDA margin of 34%, with adjusted EBITDA growing 50% to over $22 million and net income for the quarter more than doubling to $13 million. As we look forward to 2024 and beyond, we expect that continued high revenue growth will drive further expansion of our margins and enhancement of our profitability metrics. From a commercial perspective, Macy's sustained growth has been driven by continued expansion of our surgeon customer base as we had another year of double-digit growth in surgeons taking biopsies in 2023. We're now approaching 50% penetration of our current 5,000 target surgeons. The expansion of our surgeon base and the corresponding growth in biopsies has fueled Macy's success and helped drive sales rep productivity to its highest level ever at $2.2 million per rep in 2023. Our commercial team continues to execute high-quality peer-to-peer programs to help drive surgeon uptake, and we had our highest number of programs to date in the fourth quarter, demonstrating that interest in Macy continues to grow. In addition, Macy's positive long-term clinical outcomes were highlighted in a prospective study published in the American Journal of Sports Medicine last week. The study showed improved clinical scores, high levels of patient satisfaction, and clinical and MRI-based outcomes that were maintained out to 10 years for patients treated with MACI. The study also showed excellent long-term outcomes for MACI patients treated for both patellofemoral and femoral condyle defects, which is the focus of our MACI-ARTHRO program. Based on the strength of MACI's clinical outcomes, top-line revenue performance and its underlying growth drivers, our core Macy business remains very well positioned for continued strong growth in 2024 and the years ahead. Looking beyond this core Macy growth to our lifecycle management and indication expansion initiatives, we announced last month that our Macy arthroscopic delivery submission was accepted for review by the FDA and that we expect to launch Macy-Arthro in the third quarter of this year. As we previously discussed, the Macy-Arthro kit targets 2 to 4 square centimeter femoral condyle defects, which comprise the largest segment of our addressable market, representing approximately 20,000 patients per year, or roughly one-third of the $3 billion addressable market for Macy. In January, the USPTO issued a patent covering the complete set of Macy-Arthro instruments into 2043. underscoring our market research indicating that orthopedic surgeons view Macy-Arthro as a meaningful innovation in the cartilage repair market, and that regardless of their current Macy usage, surgeons expect to shift a meaningful share of their procedures to the Macy-Arthro procedure. Our pre-launch commercial activities are well underway. In addition, in connection with the Macy-Arthro launch, will be expanding our surgeon target base from 5,000 to approximately 7,000 surgeons to include surgeons that perform high volumes of cartilage repair predominantly through arthroscopic procedures. Based on our experience to date, we'd expect to achieve more than 50% penetration of this larger target surgeon base over time, meaning that surgeon adoption and biopsy growth will continue to be important growth drivers for Macy in the years ahead. We're very excited about the anticipated launch of MacyArthro later this year, as we believe it represents another significant growth opportunity for Macy and a key value driver for our business moving forward. We're also advancing our Macy development program for the treatment of cartilage injuries in the ankle and expect to initiate the Macy ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for Macy, We believe that a potential ankle indication with an estimated $1 billion addressable market could be another significant growth driver for Macy in the next decade and beyond. Turning to our burn care franchise, we also saw strength in the underlying business fundamentals for EpiCell in the fourth quarter, as we had the highest number of EpiCell biopsies in the quarter since 2021. And that momentum is carried into 2024 with a strong start to the year. We continue to see positive pull through for EpiCell from our expanded burn care sales team, which further supports our belief that EpiCell will benefit from a larger commercial footprint and higher share of voice in the burn care market. With respect to Nexibrid, our burn care team is executing on the initial phases of our launch plan following commercial availability of the product in the US beginning in the fourth quarter of last year. Our commercial and medical teams remain focused on building a strong foundation for Nexibrid by supporting P&T committee approvals to enable burn care center access to Nexibrid, training burn surgeons and their staffs, and supporting initial cases at burn centers to ensure successful patient outcomes. We're pleased with the progress that we made in the fourth quarter in terms of the early launch phase key performance indicators for onboarding burn centers. As of the end of 2023, more than 50 burn centers had submitted packages to their P&T committees, more than 25 centers had gained P&T committee approval, and nearly 20 centers placed an initial product order. While our performance on these metrics was strong, as we mentioned on our last call, the manufacturing-related delay in 2023 and the resulting uncertainty around the ultimate timing of product availability did cause a number of burn centers to defer or delay NAXABRIC training and P&T committee approval processes, which, in addition to the typical administrative hurdles at hospitals, impacts ordering patterns and the timing of use and uptake at many of these centers. Most importantly, however, the clinical outcomes for the initial patients treated with Nexibrid and the feedback from burn surgeons treating those patients has been very positive, which serves as a great signal for the long-term potential of Nexibrid as we look to change the standard of care for eschar removal for patients with severe burns. In addition to the progress with initial burn center onboarding, We also completed a number of initiatives designed to build a strong foundation for Nexibrid commercial success over time. In the fourth quarter, we submitted a supplemental BLA for a pediatric indication for Nexibrid that was accepted for review by the FDA. In terms of commercial access, CMS granted Nexibrid a permanent J-code and transitional pass-through payment status, which became effective in January. and provides a reimbursement pathway for the outpatient treatment of appropriate Nexibrid patients in our target burn centers, as well as additional hospitals over time. So overall, we're very pleased with the strong surge in interest in Nexibrid, our progress in market access activities and onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients, and the clear impact that our broader burden care portfolio and expanded sales team is having on EpiCell. We believe that all of these factors will enable the company to build a strong foundation for an expert in 2024, meaningfully contribute to our burn care franchise revenue this year, enables the company to have a second high growth franchise in burn care moving forward. Finally, turning to guidance for 2024, We expect continued strong revenue growth of 20 plus percent with full year revenue of 237 to $241 million, driven by the continued strength in our core portfolio, our first full year of Nexabrid revenue, which will contribute to growth this year and even more meaningfully so next year, and the anticipated launch of Macy-Arthur in the third quarter, which is expected to generate some revenue towards the end of the year, and support a sustained high level of growth for Macy and the company in 2025 and beyond. We also expect that our sustained high revenue growth will drive further expansion of our margins and growth in our profitability metrics. I'll now turn the call over to Joe.