Vericel Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Veracel's second 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, Veracel'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 Client Officer, Joe Marra. Before we begin, let me remind you on today's call, we will be making full 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 the expectations and are described more fully in our funds of the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our second quarter financial results press release and a short presentation with highlights from today's call are available in the investor relations section of our website. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing the company's financial and business highlights for the second quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of the company's second quarter financial results and guidance for 2024 before opening the call to Q&A. The company had another strong quarter as we generated record second quarter revenue of nearly $53 million. highlighted by continued high growth for Macy and solid progression in demand for Nexabrid. We also delivered another quarter of significant margin expansion and profit growth, with record second quarter gross margin of 70% and adjusted EBITDA growth of 42% compared to last year, as the company's profit growth continues to outpace our high revenue growth. Through the first half of the year, the company generated 20% growth in total revenue Macy revenue and burn care revenue, expanded gross margin by over 400 basis points and more than doubled adjusted EBITDA compared to the first half of last year. Based on the strength of our first half performance, we're reaffirming our revenue guidance of 20 plus percent growth for the full year and raising our profitability guidance for gross margin to 71% and adjusted EBITDA margin to 21% for the full year. Macy had another excellent quarter with record second quarter revenue of more than $44 million, which increased 21% and exceeded our guidance for the quarter. Macy's second quarter performance was once again driven by strong underlying business fundamentals as we continued to expand the Macy surgeon customer base and drive growth in biopsies. We had the second highest number of Macy biopsies and surgeons taking biopsies in any quarter since launch. as well as the highest number of biopsies any month since launch during the quarter. The strength of these key Macy growth drivers, together with another quarter of significant increases in peer-to-peer programs and attendees at those programs, demonstrates that surge in interest in Macy remains high as we continue to build a strong foundation for sustained Macy growth over the long term. As our expanded surgeon-based gains further experience with MACI, we also expect biopsies per surgeon and biopsy conversion rates to become more significant growth drivers. Notably, we saw a significant increase in biopsies per surgeon during the second quarter, which helped drive an acceleration in biopsy growth in the quarter. We also saw an uptick in the conversion rate versus the prior year, as there's a direct correlation between surgeon experience with Macy in higher conversion rates. Typically, once surgeons perform more than a few implants on average per year, their conversion rate tends to increase into the mid-40% range and even higher at higher average implant volumes per year, which is significantly above our overall conversion rate and demonstrates the clear potential for conversion rate to become an important growth driver over time as Macy utilization increases across our surge in customer base. Turning to our Macy lifestyle management initiatives, we're excited about the potential launch of Macy-Arthur later this quarter. Our custom Macy-Arthur instruments have already been registered with the FDA, and plans are in place for the commercial launch of this innovative addition to our portfolio upon FDA approval to expand Macy's label to include arthroscopic delivery. As part of the planned 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 surgeries predominantly through arthroscopic procedures. Given that the 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-Arthur will have a meaningful impact on utilization and provides a significant potential upside growth opportunity for the brand and the company in the years ahead. We also 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 Macy 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, NexaBridge launch momentum continued to build during the second quarter as revenue nearly doubled, and we made further progress with respect to our burn center key performance indicators. Through the end of the second quarter, approximately 70 burn centers had completed P&T committee submissions, more than 40 centers had gained P&T committee approval, and nearly 40 centers had placed an initial product order. There also was a meaningful increase in hospital orders and patients treated in the quarter, as more burn centers incorporate Nexibrid into their regular clinical practices. We also expect FDA approval of a pediatric indication for Nexibrid in the coming weeks, which would provide an important treatment option for pediatric patients with severe thermal burns. There are approximately 20 pediatric burn centers in the U.S. that will be added to our target customer base following approval, which we believe will have a meaningful impact on overall MexiBird uptake over time. Turning to Efecel, while we had a similar number of biopsies in the second quarter as in the first quarter of this year and the second quarter of last year, which resulted in revenue in the $10 million range for both of those quarters, EPICEL revenue in the second quarter of this year was closer to its quarterly run rate entering the year of approximately $8 million. After a strong start to the quarter in April, the number of patients treated with EPICEL was lower in May and June due to a number of factors, including patient health issues and the timing of patient treatments. While there can be variability in EPICEL quarterly results giving the relatively small patient population, and the critical nature of their injuries, demand for EpiCell remains strong. Over the first half of the year, the quarterly run rate for EpiCell has increased as expected to more than $9 million per quarter, with double-digit growth for the first half of the year versus last year. We're also off to a very good start in the third quarter based on the strength in EpiCell biopsies, patients treated, and graft volumes to date in the quarter. Overall, the company delivered another strong quarter in the first half of the year, with sustained high revenue and profitability growth, excellent MESI results, solid progression in maximum demand, and meaningful growth for EpiCell in the first half of the year. Based on the strength of our core portfolio and expected contributions from new product launches, we believe that 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.