Vericel Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Verasol's first quarter 2024 conference call. At this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Verasol's Vice President of Finance and Investor Relations.

Thank you, Operator. And good morning, everyone. Joining me on today's call are Verasol's President and Chief Executive Officer, Nick Colangelo, and our Chief Science 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 Security Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to defer materially from expectations and are described more fully in our findings 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 first 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. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing our financial and business highlights for the first quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of our first quarter financial results and guidance for 2024 before opening the call to Q&A. We entered the year with a great deal of momentum after an outstanding close in 2023, and that momentum continued through the first quarter as we delivered another quarter of top-tier revenue growth, including record first quarter total revenue and significant growth in profitability. Total revenue for the quarter increased 25% to more than $51 million, which was above the top ends of our guidance range, with record first quarter MESI revenue and more than 60% growth in burn care revenue. This strong top-line growth translated into significant margin generated record first quarter gross margin, which increased more than 400 basis points compared to last year, and adjusted EBITDA growth of more than 300% as the company's profit growth continues to outpace our high revenue growth. Based on the strong start to the year, we're increasing our full-year revenue guidance to $238 to $242 million. Macy had another excellent quarter, with revenue growing 18% to more which was above the top end of our guidance range for the quarter. Macy's first quarter performance was driven by strong underlying business fundamentals as we continue to expand the Macy Surgeon customer base and drive growth in biopsies. While the first quarter typically is the seasonally lowest quarter of the year, we had the second highest number of Macy biopsies and surgeon-taking biopsies in any quarter since launch, behind only the fourth quarter of last year. making the last two quarters the highest quarters ever on both of those metrics, as our sales and marketing teams continue to execute at a very high level in building a strong foundation for continued Macy growth. To that end, surge in interest and engagement with Macy remains high, as the number of peer-to-peer programs and training labs for Macy more than doubled, and overall program attendance more than tripled in the first quarter compared to last year. The high level of surgeon interest is driven by the strength of Macy's long-term clinical outcomes, which were highlighted in a study published in the American Journal of Sports Medicine in the first quarter. This prospective study showed excellent long-term results for Macy patients treated for both patellofemoral defects, where we currently have our highest penetration rates, as well as femoral condyle defects, which is the focus of the Macy Arthro program. Pre-launch commercial activities for Macy Arthro continue to progress in advance of our anticipated launch in the third quarter of this year. In connection with the launch, we're expanding our target surgeon base from 5,000 to 7,000 surgeons to include surgeons that perform high volumes of cartilage repair 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. In addition, Macy Arthro instruments target smaller cartilage defects that comprise the largest segment of our addressable market, representing approximately 20,000 patients per year, or one third of the $3 billion addressable market for Macy. We believe that Macy Arthro will take a greater share of these procedures provide a significant upside growth opportunity for the company. We also continue to advance the Macy development program to treat cartilage defects in the ankle and remain on track to initiate the Macy ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for Macy. We believe that a potential ankle indication with an estimated $1 billion address in the market could be another significant Turning to our burn care franchise, first quarter revenue increased more than 60% to over $11 million as we delivered another quarter of high revenue growth with total burn care revenue above the high end of our guidance range. FSL revenue grew 56% to over $10.5 million in the first quarter, representing the second highest quarterly revenue ever for FSL. Epsil continues to benefit from our expanded sales force and a higher share of voice in the bird care market, as there was a meaningful contribution to Epsil revenue in the quarter from new or dormant accounts. NexaBridge launch momentum continued during the quarter as we made significant progress with respect to bird-centered key performance indicators and growth in underlying NexaBridge demand metrics. Through the end of the first quarter, more than 60 bird centers In addition, there was a significant increase in the number of patients treated with Nexibrin in the first quarter and significant growth in the number of burn center orders and Nexibrin units ordered by hospitals versus the prior quarter. We remain very pleased with the strong surge in interest in Nexibrin as was demonstrated by the high level of attendance and engagement at Nexibrin events at the recent American Burn Association annual meeting. the progress in onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients, and the clear impact that our broader burn care portfolio and expanded sales team is having on epicellar performance. We believe that these factors will enable the company to build a strong foundation for NextAverage in 2024, and that the company is now very well positioned to deliver sustained growth to the second high-growth franchise in place. Overall, the company delivered another strong quarter, and based on the strength of our core portfolio and the expected contributions from our new product launches, we believe the company is very well positioned for continued high revenue and profit growth in 2024 and beyond.

I'll now turn the call over to Joe.

Thanks, Nick, and good morning, everyone. Starting with our first quarter results, total net revenue for the quarter was $51.3 million, representing 25% growth over the prior year, which was above the top end of our guidance range for the quarter. Macy revenue increased 18% to 40.2 million, and total burn care revenue increased 63% to 11.1 million, both of which exceeded our guidance for the quarter. EpiCell revenue was 10.7 million, an increase of 56% versus the prior year which represented the second highest quarterly revenue for Epsil to date. Next-grade revenue was $0.4 million, which, as anticipated, was similar to revenue in the fourth quarter. While underlying hospital orders and units grew significantly versus the prior quarter, as previously noted, specialty distributor and hospital ordering patterns, as well as inventory dynamics, can impact quarterly revenue results. Gross profit for the quarter was $35.4 million, or 69% of net revenue, an increase of more than 400 basis points versus the prior year and the company's highest first quarter gross margin to date. Pull-through of incremental revenue to gross profit also remained very strong in the first quarter at more than 85%. Total operating expenses for the quarter were $40.8 million, compared to $34.7 million for the same period in 2023. The increase in operating expenses was primarily due to development activities for Macy arthroscopic instruments, increased headcount and related employee expenses, and lease expense associated with the company's new facility that is under construction. Net loss for the quarter was $3.9 million, or 8 cents per share, compared to $7.5 million or $0.16 per share for the first quarter of 2023. Non-GAAP adjusted EBITDA for the quarter increased 325% to $7.2 million or 14% of net revenue, compared to $1.7 million or 4% of net revenue in 2023, as adjusted EBITDA growth continued to significantly outpace our high revenue growth. This increase in adjusted EBITDA margin of approximately 1,000 basis points, in what typically is our seasonally lowest quarter of the year, clearly demonstrates the strong P&L leverage and the top-tier profitability profile for the company. Finally, the company generated $7.2 million of operating cash flow in the quarter and ended the first quarter with $148 million in cash, restricted cash, investments, and no debt. Turning to our financial guidance, after a very strong start to the year, we are increasing our full year total revenue guidance to 238 to 242 million, or 20 to 23% total revenue growth. For the quarter, we expect Macy revenue to be approximately 42.5 million. For Burn Care, we expect total revenue in the second quarter to be approximately 10 million, with another strong FSL quarter above our 2023 quarterly run rate and sequentially higher next-to-bid revenue. Based on our second quarter guidance, the trilling 12-month revenue growth rate will be above 20% for Macy's, Burn Care, and Total Company Revenue as we continue to drive high top-line growth across both of our franchises. For the full year, we continue to expect gross margin of approximately 70% adjusted EBITDA margin of approximately 20% and operating expenses to be approximately 165 million. For the second quarter, we expect gross and adjusted EBITDA margins to be in a similar range to first quarter margins. The company had a very strong start to the year with 25% top line growth in the first quarter and significant profitability growth and margin expansion. In addition, on a trailing 12-month basis, The company has delivered 23% total revenue growth and 74% adjusted EBITDA growth, demonstrating sustained high growth in the top line and the bottom line as we continue to significantly enhance the company's financial profile. Overall, we believe that the company is very well positioned for another strong year in 2024 and has a solid foundation in place for continued strong growth in the years ahead. This now concludes our prepared remarks, and we will open the call to questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

First question comes from Ryan Zimmerman with BTIG.

Go ahead, Ryan. Your line is open.

Thank you, and good morning, and congrats on a strong start here. I want to ask a couple questions in a multi-part manner. First on guidance, I want to understand two things. Do you still expect, I think you had mentioned before, that you could do next-of-bred sales in the range of And correct me if I'm wrong here, Joe, $7 million to $8 million or $8 million to $9 million. I can't remember exactly what it was. But do you still expect that level of next-of-birth sales this year? And the second component of the guidance question is you beat by about $2 million. You kind of, you know, if you split that between the two franchises, guidance is moving up about $1 million. So just talk to us about kind of where you think you're, quote-unquote, holding back between Macy and FSL for the guidance for the year. And then I have a second question.

All right, well, I'll start with those. Good morning, Ryan, and thanks for the question. So, you know, I may start on the total guidance and then talk a little bit how we're thinking about kind of the burn care on a four-year basis. So, you know, in terms of the total guide, you know, we have a very strong start to the year in Q1. We're raising our guidance to 238 to 242. So if you look at the midpoint there, which is where I'd focus, you know, we're up a million dollars. So $239 million was our midpoint. coming into the quarter, we've increased that to 240. You know, in terms of kind of the mix on franchises to start, you know, I would assume, you know, the 1 million increase is on the Macy side, and that kind of flows through to Macy. You know, given Macy was, you know, roughly a million ahead in Q1 in terms of our expectations and guidance, our metrics are very strong into Q2. You know, I think relative to the estimate we gave last quarter, which, you know, again, there's multiple scenarios, but The framework we gave, which, you know, the starting point for Macy was in the high teens, and I had referenced 194 million. You know, I think you can assume that comes up, you know, in our base case, if you will, to 195. And the range picks up, you know, as well, you know, call it 193 to 197 if you think about a kind of high teens range. You know, the remaining 45 million would stay on burn care, and that gets you to the 240 million total. You know, a couple things kind of around your question. You know, we don't typically adjust our burn care guidance, you know, particularly after the first quarter. We don't adjust it, rather, after the first quarter of the year. We had a very similar situation last year where, you know, we had a run rate expectation, you know, going into the first quarter. We were ahead of that. We did not adjust. And then, you know, if you just think about kind of our burn care portfolio where epi cells can still vary, although clearly it's, you know, doing quite well and benefiting from the higher share of voice, it still can vary on a quarterly basis. And I would say it's still difficult to predict, you know, exactly what the shape of the next grid launch uptake curve looks like, you know, so it's still early in the year there. So, you know, kind of holding guidance there. You know, it is important to recognize that, you know, in the burn care total, you know, this is still kind of well above at 45 million, well above the company growth, you know, at nearly, you know, nearly 40% on a four-year basis. So, you know, we have a very still have high expectations on the burn care side for both franchises. And of course, we had a very strong start from a profitability perspective in the first quarter as well. You know, in terms of your question, you know, on the on the mix, if you will, for the balance of the year, you know, I would say, you know, obviously episode had a great start to the year with its second highest quarter to date and nearly 11 million kind of on its own. And so, you know, as we think about burn care, you know, I think there's a number of scenarios, you know, to your point, what I referenced last quarter, You know, we're numbers kind of in the call 38 million range and 7 million-ish range that got you to 45 million in total on burn care. You know, if, for example, we maintain the higher run rate in EpiCell that we call for to start the year, you know, throughout the balance of the year, that probably gets us closer to 40 million on EpiCell. And the balance would be, you know, call it 5 million on Nexibrin. You know, again, I think it's still early in the year. I think both products could shift a little bit. But I think there's multiple scenarios to get us to 45. So, you know, I think, you know, at this point, it's still difficult to predict exactly what it looks like. But, you know, we expect both products to contribute. But, you know, Nexabrid is in a build year, and clearly EpiCell is operating at a higher run rate.

Yeah. No, that's very helpful, Joe. I appreciate all the color. Second question, I should say, and, again, not to take anything away from profitability. It was nice to see. On Macy, I want to ask about Macy and the launch of Macy Arthro a little bit. As you think about the broader segment of doctors that you can target, one, are you thinking about expanding your sales force? I mean, should we think about that from an operating expense standpoint? And then two, you talk about 50% penetration over time. By my estimates, I have you at maybe 2,400 docs today. So, you know, call it 7,000 docs, that's 1,000 more. Why 50%? Why not higher? Why not 75% or so? I'm just curious kind of what's driving that thinking.

Yeah, hey, Ryan, this is Nick. So, first of all, on sort of Salesforce expansion, I think we discussed it before that. know this will not the launch of acr throw um you know adding a couple thousand targets over 76 territories you know that's something that we think we can absorb without having to realign territories which as you know can be disruptive what we will do is volumes continue to increase is add some of the territory development managers that we had for instance last year as well in high volume territories and then arthroscopic specialists who can really help or Macy in general and so you know all in you know call it half a dozen do a dozen folks maybe so kind of you know obviously not a very significant expansion but one that we think will aid uh with the Macy uh uptake the you know the 50 reference that we kind of talk about you know as And it was increasing pretty dramatically at the time. From 2018 to 2019, the number of biopsy surgeons was up 25% to call it roughly 1,400 for the year, but higher than that cumulatively. And then we increased the sales force. So we never got to sort of a terminal sort of penetration rate with the initial increase. size target universe. Obviously, we then increased to 5,000. We continue to grow strongly, you know, approaching 50% penetration, and we'll expand again. So, again, we will not have gotten to an ultimate penetration rate, but the point is it will drive, in our view, continued surges

Thank you. Appreciate the call.

Thank you. One moment for our next question. The next question comes from Sam Brodowski with Truist Securities.

Go ahead, Sam. Your line is open.

Hey, thank you for taking the questions, and congrats on the solid start and great profit number. I did want to dig into that profit side of things a little bit. Joe, did I hear you right? you said two Q margins, we should expect them to be similar to one Q. And then just sort of taking that in mind, you know, keeping the gross margin guide for the year at about 75% when, you know, presumably your lowest, or excuse me, 70%, when presumably the lowest quarter of the year is going to be about 69. And hopefully you can step off from that. Just how are you thinking about that? And What can give you confidence to potentially think about moving that range up for gross margin or EBITDA?

Yeah, no, I certainly appreciate the question. I mean, obviously kind of a great start from a profitability perspective, you know, as we've been talking about quite a bit in particular over the last few quarters, you know, our focus is driving the top line growth, but also, you know, kind of margin expansion and our profitability metrics. You know, so I think to your point, Q1, you know, obviously, you know, really strong kind of both from an adjusted EBITDA margin perspective, being in the mid-teens, gross margin, you know, in the high 60s, you know, that was, you know, a bit ahead of, you know, kind of trends and expectations, if you will. You know, I would say as we think about the balance of the year, I mean, that can certainly still ebb and flow a little bit, you know, and I think the right baseline is obviously Q1 is off to a very strong start. You know, you can look at the prior year, you know, kind of in the, you know, Patrick Barnard, M.D.: : kind of mid to high 60s and you know we would expect on a full year basis, you know gross margin to you know expand from you know 68 and a half, if you will, last year to that 70% range. Patrick Barnard, M.D.: : So again, it can happen flow a little bit throughout the year, but I think to the kind of key part of your question, which is. Patrick Barnard, M.D.: : You know I think you know, based on that strong start, you know we certainly have the potential and I think are in a good position to potentially be you know higher their initial guidance but. you know, given we're just kind of one quarter in and, you know, these are kind of approximate numbers, you know, we haven't updated them yet, but, you know, they continue to be a focus. And these are kind of both numbers in the bottom line and the gross margin that we want to continue to improve. And the other piece on the gross margin side that we look at is kind of the pull through, which was very strong in the quarter, kind of the incremental revenue pull through, you know, well above 80%, I think over 85%. So, you know, good start and expect you know, strong quarters throughout the year. And, you know, we'll kind of monitor that. But I think we're in a good position, you know, to be kind of on the higher side, if you will, particularly on the gross margin side.

Great. That's super helpful. And then shifting to next, I wanted to ask a bit of a higher level question there, just obviously without providing guidance, but just as we think about where the company is going to be positioned heading into 2025, you know, you already have almost half of centers in the funnel to a certain extent. Should we think about most, if not a good portion of the target centers being fully onboarded and ready to go in 24? And then how do we think about the sales strategy changing in 2025? Can you fully shift to just driving surge in utilization? Thanks.

Yeah. Hey, Sam. This is Nick. take that one. So for Nexabrid, again, I think anyone who's done market checks or, for instance, participated or attended the American Burn Association meeting, you get to see sort of this super high interest in the product from the burn care community. Obviously, as you alluded to, sort of performing well on sort of the burn-centered KPIs in terms of P&T submissions, approvals, initial orders, and most importantly, excellent surgeon feedback on patient outcomes for those who have started using the product. So we think, you know, as we've been kind of beating the drum on this is a build year, as you get through process, there are still other procedures and processes that hospitals need to get through to be able to order the product and then start utilizing it. So we're hyper-focused on that, as you might imagine, and, you know, at the level of sort of KPIs and getting the centers up and running, you know, pretty pleased with that performance. And lastly, I would just say, as you know, changing the standard of care from doing the same thing for decades. And so I think the adoption, you know, again, moves at different paces in different hospitals, but we certainly have not changed our long-term view for NexaBridge.

It's just, you know, you go through the process.

Great. Thank you. One moment for our next question. Our next question comes from George Sellers with Stevens, Inc.

Go ahead, George. Your line is open.

Good morning. Thanks for taking the question and congrats on the quarter. Maybe on EpiCell, I'm just curious if you could give some additional color on what drove the beat in the quarter, maybe how the underlying market performed, what firm sizes looks like, things like that, and also your perspective on to impact, you know, some sort of halo effect potentially from Nexabrid if that was a significant driver as well.

Yeah. Hey, George. It's Nick. So, you know, just starting with the burn care market, you know, as we've talked about, we do have access to market data around large 30% plus body surface area burn you know, kind of normal, maybe down a little bit. So that certainly wasn't driving FSL performance. It really was, just as we talked about before, we do have a larger footprint now. We're in more burn centers than we used to be. As I alluded to in my comments, we certainly saw a significant contribution to FSL revenue from what were formerly dormant or new accounts that were calling on for Nexabrid.

Okay, that's really helpful. And then maybe on next bread, I'm just curious if you could give us some additional detail on some of the inventory and specialty distributor impacts, how we should really think about those 30 centers that are starting to see orders, how that'll flow through the P&L, and then maybe the cadence as we think about the rest of this year. where inventory levels are now and how that compares to what you're seeing in terms of actual utilization.

Yeah, so good morning, George. Joe, I'll take that one. So, you know, if you kind of think about next grid revenue during the quarter, and we talked about this on the last call, you know, we expected kind of a similar revenue range. You know, we ended up about $400,000, kind of similar last quarter, about $500,000. You know, I think it's important, as kind of Nick talked about, his prepared remarks, you know, that the strength in the center level KPIs continues to be very strong, you know, as part of your question there. You know, I think importantly, we saw increases in the number of ordering centers, you know, a significant increase from hospital orders to our specialty distributors, and also significantly more patients treated in the quarter. So, you know, I think, you know, as Kind of in addition to that, as we think about kind of our revenue trends, particularly early on, you know, I think this is, you know, is much kind of an early launch dynamic. If you think back, you know, the first quarter in the market, Q3 of last year, we had kind of some SD stocking. The second quarter of the market in Q4, I'd say there was a fair amount of, you know, hospital stocking, if you will, where they were starting to, you know, order products and kind of get it on their shelves, particularly early adopters. And then, you know, just as a reminder, again, we recognize revenue when our specialty distributors order and this can vary you know each quarter depending on ordering patterns or inventory levels etc and really what happened again during the first quarter is you know the hospital orders to the sds went up um but our orders from our specialty distributors to our 3pl where we we recognized our revenue came down and essentially what that means is you know the specialty distributors uh manage to a lower inventory level and you you know you do often see as kind of launches progress, you know, the distributors will kind of get to different inventory levels. So, you know, I think as anticipated, you know, a little bit choppy out of the gates, but I think as we continue to progress throughout the launch, it's really going to be about, you know, continuing to add centers, treat additional patients, see those metrics come up, and also really that additional utilization as centers become more comfortable. So there's certainly going to be an element of inventory dynamics as we go through this, but you know, generally, I think as we move forward, particularly in the back half and into next year, it's really going to be driven by patient utilization and hospital ordering, and this should be kind of a lower component, if you will, on the revenue side.

Okay, that's really helpful. Thank you all for the time this morning.

Thank you.

One moment while we prepare our next question. The next question comes from Swayam Akula with HC Wainwright.

Go ahead. Your line is open.

Thank you. This is RK from HC Wainwright. A couple of quick questions. So, Nick, as your team continues to increase the targeted surgence rate from 5,000 to 7,000, and also, you know, in anticipation of the Macy R throw, I'm just trying to understand what sort of relative benefit could we start seeing from this increase in the cartilage repair business as some of the surgeons or most of the surgeons work on both sorts of injuries, the cartilage and the arthro?

Yeah, so macing arthro is going to address cartilage. product does. As we've discussed, the instrument set is targeted to smaller defects on the femoral condyle, which makes up the largest part of the addressable market for 20,000 patients a year. So while MACEI is certainly a go-to in patella femoral defects, larger condyle defects, this allows us to have a preferred way to You know, we think obviously that it will allow us, as I mentioned on the call, to have greater penetration into the largest part of the segment. So the impact is presumably increased basic procedures when you have an arthroscopic delivery option.

Perfect.

And then just trying to understand the commercialization, I'm not sure it's the right word, commercialization process for NexaBread. So once the centers get the P&T approval, and what's the time lag between, I know you were saying that there are some additional procedures that need to get done before they order product. So I know it's too early to call it a trend, but what are you seeing currently as the timeline between approval and initial order?

Yeah so that you know certainly it differs by hospital and there could be some that are on the quicker side and there are there could be some that take weeks to months to be able to get you know what is called the epic system which is what they use in the pharmacy to order all their products essentially and before a product gets into that system are focused on helping centers kind of navigate that process if they happen to have an issue. But it really varies, like I said, from it can be days or weeks to it can be months in certain cases. So those are just some of the, you know, kind of common processes and procedures that different hospitals have to go through before they're really able to start ordering product and treatment patients.

So one last question for me. Just within this Burns franchise, as we had, you know, historically noticed how EpiCell, we could, I mean, at least I know in public comments, you always said that I cannot predict how EpiCell business will grow from quarter to quarter and year to year for a bit of time. Are we going to see a similar trend with NexaBread or do you think NexaBreads growth will be, you know, quite a bit smoother than what we have seen with FSL.

Well, I would say that the way we've always positioned it, RK, is that, you know, with FSL, if you think about the 40,000 hospitalized burn patients each year, there's really only, you know, call it 600 to 800 surviving patients each year, so very small numbers, and that's what leads to where you've got, again, centers coming on board at different paces. You've got, you know, inventory and ordering pattern dynamics going on. Because, in our view, three-quarters or 30,000 patients a year are eligible for Nexibrid treatment, that over time, as it ramps up, it becomes a more kind of consistent basis. The overall franchise should have, you know, less variability.

Yeah, and I would just, Joe, just to add, I mean, just, you know, kind of as we're thinking about the year, kind of more in the near term, and just a couple comments just to add to that. I think, you know, obviously FSL can vary, but, you know, we have seen certainly some strength now over several quarters. We came into the year kind of expecting to grow over last year's run rate. You know, we like to think of FSL kind of, you know, sort of a baseline from a quarterly run rate perspective. You know, we came in with an exit rate kind of in the low to mid-eighths. Patrick O' You know, obviously we were well ahead of that in the first quarter. It's, you know, it's Patrick O' You can't really plan on that. You know, I will say that, you know, I think we certainly have an expectation that it can stay at the higher rates, you know, we came in the year and kind of said Patrick O' You know, nine plus or mid nine. So, you know, when you're thinking about, you know, the second quarter, you know, we've been around 10 million I think we would certainly expect kind of epithelial to be in that 9 million plus range, you know, within that 10. There certainly could be some variability there, but, you know, I think that's a reasonable expectation. And similarly, I think, you know, for the rest of the year, which is, you know, kind of how we're thinking about EpiCell as well. So, there could certainly be variability, and I would agree with Nick. Kind of over time, we would expect, you know, NexaBridge to continue to build and sequentially grow. That's sort of the expectation as we close out the year and into next year.

Thank you. Thank you very much, both. I appreciate it. Thanks, our guys.

Thank you. One moment while we bring up our next question.

Our next question is from Mike Kretke with Learing Partners. Go ahead, Mike. Your line is open.

Hey, guys. This is Brett on from Mike. Thanks for taking the question, and congrats on another great quarter. You guys saw a strong pull through in 1Q23, obviously. You know, how should we think about the durability of this operating leverage into the second half at 24 and 25? You know, while you drive penetration to both the existing market and the new arthroscopic market once approved. And then obviously you have the angle improvements or investments in 2025. So how is that going to, you know, impact the durability of the operating leverage?

Yeah, and I think you're referring to 1Q24, I think it's 1Q23, but... Correct. Yeah, yeah. So I think, you know, so, you know, as we talked about earlier, obviously a great first quarter from a kind of P&L perspective across the board, margin expansion, the pull through is very high, et cetera. You know, I do think on the gross margin side, you know, our sort of our expectation, you know, for quite a while, you know, our kind of call it midterm expectation was to get to that 70% plus on a gross margin level. And, you know, obviously our guidance this year is at 70%. And, you know, I would say, you know, certainly as I talked about earlier, you know, it could ebb and flow kind of within a year where you look at margins or pull through, but on a full year basis, you know, that is, you know, kind of tracking, you know, in a very good place to kind of get to those targets. And, you know, I would say from, you know, gross margin perspective as well, I mean, there's definitely a lot of efforts right now, kind of thinking about, you know, in the right ways, you know, where can we find efficiencies within our processes, cross our spend vendors, et cetera. And that's going to be pretty important as we move into a new facility in the next couple years as well. So, you know, I think a lot of work on the gross margin side, you know, and sort of a lot of focus, you know, to kind of make sure we're, you know, driving kind of the right savings there. On the kind of operating expense side, you know, as part of your question, I mean, there are some investments that we will need to make. I mean, we referenced Arthromacy, there's some development costs there, but obviously that's, you know, an important initiative. Similarly on ankle, you know, over the next few years, that'll kind of make its way in the P&L. But, you know, that doesn't change from a bottom line perspective, you know, our expectation to be trending, you know, toward that 30% adjusted EBITDA target that we've talked about for quite a while as well. So, you know, I think it really starts with the top line growth, but, you know, there's a lot of focus on kind of making sure, kind of managing the rest of the P&L, but, you know, it also just shows just the operating leverage kind of within the business, particularly as we start to scale. So, You know, I think Q1 obviously was a great quarter, but I think a good start to the year. But as we think over, you know, 24 and 25 and beyond, I mean, that's going to remain a focus. And we think we'll continue to see that leverage across the P&L.

Got it. That's helpful. And then one more. I guess I want to go back to Arthro. You mentioned 6 to 12 new reps likely. How should we be thinking about the difference in outreach for those reps versus existing Macy's? when they target those new surgeons. And then obviously, you know, the shape of that penetration curve may be different versus what we've seen with Legacy Macy. How should we be thinking about, you know, the steepness of that curve and if there's any differences to call out, you know, for the next couple of years?

Yeah. So as I mentioned, you know, we will be adding, you know, I guess a couple of different profiles. So number one is kind of territory development managers who can kind of be at biopsies and kind of spreading best practices for the arthro delivery of Macy's. So they're really in support functions. As I alluded to on the call, when you think about an extra couple thousand targets over 76 territories, you're talking a dozen or two new targets per territory. Those can easily be targeted by existing sales reps in Macy's. In terms of the, so it doesn't, again, require a realignment or a wholesale increase in the sales force. When you talk about uptake, I think, you know, you can think about a couple different surgeon segments. So there's current Macy users who might do patella with lacy and now they have an option less invasive option for treating primal condyle defects you know that certainly can is an instance where you take an experienced basic user user and they start using it more broadly so that can have very quick uptake as you might imagine you also have new surgeons who because you take a biopsy and then the median time from biopsy to implant is, you know, roughly four months, there's always a time lag there. So they'll be kind of having a prospective impact on the business there. So it'll differ by segment, but, you know, again, you're taking a well-known product with great clinical outcomes and offering surgeons an option where basically can be administered administered less invasively in an area of the need with the largest number of defects.

And so you could have very, you know, pretty quick uptake for those who are interested in using Macy Argo. Great. Thanks, guys.

Thank you.

Thank you. Thank you.

This concludes the question and answer session. I would now like to turn it back to Nick Colangelo for closing remarks.

Okay, well, thanks, and thanks, everyone, for your questions and continued interest in Veriso. Obviously, the company had a great start to the year, and we expect to deliver another full year of strong financial and operating results in 2024. So we look forward to providing further updates on our next call, and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.