Vericel Corporation

Thank you for standing by. My name is Rosal and I will be your conference operator today. At this time, I would like to welcome everyone to the Vericell Corporation first quarter 2025 earnings call. All lines have been placed in mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone K-POD. If you would like to withdraw your question, press star one again. I will now turn the conference call over to Eric Burns, Vericell's vice president of finance and investment relations. Please go ahead.

Thank you, operator. Good morning, everyone. Joining me on today's call are Vericell's president and chief executive officer Nick Colangelo and our chief finance officer Joe Mara. 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 and live true to expectations and are described more fully in our findings of the SEC. In addition, all forward-looking statements represent our views only as of today and should 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. The company is off to a solid start to the year with record first quarter Macy and total company revenue as well as continued strength in the Macy growth drivers and key performance indicators for the Macy-Arthur launch. -of-grid revenue also continued to progress and although Epocell revenue in the first quarter was lower than recent trends, biopsies were the highest in any quarter since 2023 and there's been a significant uptake in Epocell performance to start the second quarter with graphs from cases completed or scheduled to date this quarter exceeding total graph volume in the first quarter. Based on the positive trends across the business to start the quarter, we expect strong second quarter performance with total company revenue growth of 22 to 25 percent. Given this momentum and the fact that we expect tariffs to have a negligible impact on the company's business and margins, we're also reaffirming full-year revenue guidance of 20 to 23 percent revenue growth and raising profitability guidance for the year. Macy had a strong quarter with record first quarter revenue of more than $46 million, which was in line with our expectations and represented a similar growth rate as the first quarter of last year. Macy's performance was driven by strong underlying fundamentals as we continue to expand the Macy's surge in customer base and drive growth and biopsies. While the first quarter typically is the seasonally lowest quarter of the year, we had double-digit biopsy surge in growth over last year and the second highest number of biopsies in surgeons taking biopsies in any quarter since launch. We also had the second highest number of biopsies in any month in March, which we then surpassed in April. Based on cases completed and scheduled for this quarter, as well as the momentum in Macy growth drivers, which we believe is attributable in part to the recent launch of Macy Arthro, we expect a very strong second quarter for Macy with revenue growth of 22 to 24 percent for the quarter. While we're still early in the Macy Arthro launch, we continue to see significant strength in several leading performance indicators. We've trained approximately 400 Macy Arthro surgeons through the end of April, which is ahead of the pace of surgeon training when we launched Macy in 2017. And both the biopsy and implant growth rates for Macy Arthro trained surgeons are substantially higher than the growth rates for surgeons that have not yet been trained, with -to-date biopsy growth over 30 percent for trained surgeons. Notably, the surgeons that historically used Macy predominantly for patella cases continue to make up a meaningful portion of the Macy Arthro trained surgeons. This cohort of surgeons has the highest biopsy growth rate among trained surgeons so far this year. Biopsies for patients with femoral condyle defects are driving much of the outsized biopsy growth for this Macy user cohort, suggesting that these surgeons may be considering Macy for a broader patient population that encompasses the largest segment of the addressable market for approximately 20,000 patients per year. We're also encouraged by the fact that a significant percentage of Macy Arthro cases have been for patients with smaller defects outside the femoral condyles, which is the defect location that the Macy Arthro instruments were designed to treat. In particular, Macy Arthro is being used in a meaningful number of cases for patients with trochlea defects, an area of the knee behind the kneecap where Macy historically had low single digit penetration. Surgeon feedback suggests that Macy Arthro could become an attractive cartilage repair option for trochlea defects for many surgeons, similar to Macy's use in the patella, given the enhanced access and procedural advantages provided by Macy Arthro compared to alternative treatments. The trochlea defect segment of Macy's addressable market is similar in size to the patella segment at approximately 10,000 patients per year and has the potential to be a significant source of business and a meaningful driver of upside Macy growth beyond the treatment of femoral condyle defects. We expect that the positive biopsy trends that we've seen to start the year will continue over multiple quarters as we train a significant number of additional surgeons and that Macy Arthro-trained surgeons will drive hundreds of incremental biopsies this year. While it's still too early to see a similar inflection in implant growth given the median time from biopsy to implant, we expect the incremental impact of Macy Arthro on overall Macy implant volumes to accelerate as we move through the year and to provide a strong foundation for continued significant implant growth in 2026, similar to the dynamics we saw with the launch of Macy in 2017. Based on the strong Macy Arthro launch indicators to date and our expectation for Macy implant volume growth this year and over the next few years, we plan to begin our Macy Salesforce expansion in the second half of this year. Turning to burn care, Nexabrid first quarter revenue increased over 200% compared to last year and over 30% sequentially compared to the prior quarter. A key priority for Nexabrid remains driving deeper penetration and more consistent use across our nearly 60 ordering centers. To that end, we generated a higher proportion of our business from consistent ordering centers in the first quarter and that segment also had a higher average of units per order in the quarter. In addition, we continue to see strong surge in interest in Nexabrid as was demonstrated by the high level of engagement and attendance at Nexabrid symposia and other events at the recent American Burn Association annual meeting. For Epicell, despite having the highest number of biopsies in the first quarter since 2023, first quarter revenue was lower than anticipated, primarily due to significantly higher ratio of canceled cases to patient treatments in the quarter as a result of patient health issues. However, we're seeing much stronger Epicell performance to start the second quarter with graphs from cases completed or scheduled so far this quarter exceeding total graph volume in the first quarter. The strong start to the second quarter is being driven by biopsies received in the first quarter, indicating that the first shortfall was also due in part to timing of patient treatments. With Epicell graph volume increasing each month this year, we believe that the BurnCare franchise is positioned for much stronger performance in the second quarter. I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.

Thanks, Nick, and good morning, everyone. Moving to Q1 results, the company achieved record total net revenue for the quarter of $52.6 million with $46.3 million of Macy revenue, $5 million of Epicell revenue, and $1.3 million of Nexabrid revenue. Macy had a strong first quarter with 15% revenue growth versus the prior year, which when adjusted for one fewer selling day in the quarter compared to last year, represents approximately 17% growth. These results are in line with prior year growth and the Macy guidance for the quarter. Nexabrid revenue of $1.3 million represented 207% growth versus the prior year and 31% growth versus the prior quarter as the Nexabrid launch continues to progress. Epicell revenue was below our initial quarterly guidance primarily as a result of a very high percentage of canceled orders related to patient health issues, lower graphs per patient, and the timing of surgeries moving to the second quarter. As we have discussed previously, it remains very difficult to predict the cadence of Epicell quarterly revenue given the nature of the burn care market and the variability in the health of potential Epicell patients, demonstrating once again that Epicell trends can vary significantly on both a monthly and quarterly basis throughout the year, which is why we focus on trends over longer periods of time. Growth profit for the quarter was $36.3 million or 69% of net revenue in line with the prior year growth margin of 69% despite the lower Epicell revenue. Total operating expenses for the quarter were in line with our expectations at $49.1 million compared to $40.8 million for the same period in 2024. The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility including depreciation and Macy tech transfer related activities. Moving forward, we continue to expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter was $11.2 million or 23 cents per share and non-GAAP adjusted EBITDA for the quarter was $3.2 million or 6% of net revenue. As we noted in our last earnings call, we expected to have the lowest margins of the year in the first quarter given that it's typically the lowest Macy revenue quarter of the year and expect as usual to have our highest margins in the fourth quarter, which is by far the highest Macy revenue quarter of the year. I would also note that the company's margins in the first quarter were adversely impacted by the lower Epicell revenue during the quarter and we expect margins to be significantly higher in the second quarter. Finally, the company generated $6.6 million of operating cash flow and ended the quarter with approximately $162 million in cash, restricted cash and investments and no debt. With the investment for the company's new facility nearly complete this quarter, we expect cash generation to inflect moving forward, further enhancing the company's long balance sheet and financial profile. With respect to tariffs, because the company's manufacturing facilities are based in the U.S. with the vast majority of manufacturing costs being labor and overhead and with all revenue derived from domestic sales, we anticipate very minimal impact on our business and operations from these tariffs or future tariffs on pharmaceuticals that we maintain significant safety stock of most materials including Nexabrid finished product and the matrices cell collagen membrane used to manufacture Macy. We expect that the impact of current or future tariffs on cost of goods sold and gross margin in 2025 and 2026 will be negligible and will not impact the company's financial guidance in 2025 or midterm profitability goals of high 70% gross margin and high 30% adjusted even at margin by 2029. Turning to our financial guidance, for the second quarter we are off to a strong start with both franchises and expect total revenue growth in the 22 to 25% range with total revenue expected to be approximately 64 to 66 million in the quarter. For Macy, we expect a strong second quarter with revenue growth of approximately 22 to 24% with Macy revenue expected to be approximately 54 million in the balance of our revenue during the quarter from Burn Care driven by a much stronger EPISO revenue in the second quarter. In terms of our second quarter profitability metrics, we expect a strong financial quarter with gross margin in the low 70% range and adjusted EBITDA margin in the 20% range. For the full year we are maintaining our total revenue guidance with revenue growth expected to be 20 to 23% growth. In terms of profitability guidance based on our financial results and strong brand leading indicators to date as well as the continued discipline in managing expenses, we are raising our gross margin guidance to 75% and raising our adjusted EBITDA margin guidance to 26% for the full year. Note that this updated profitability guidance includes operating expenses in 2025 related to the acceleration of our Macy sales force expansion. I will now turn the call back over to Nick.

Thanks, Joe. In terms of our longer-term growth initiatives, we continue to advance the Macy Ankle Development Program and remain on track to initiate the Phase III mascot clinical study in the second half of this year. A potential Macy Ankle indication represents a substantial longer-term growth driver for Macy with an estimated addressable market of $1 billion and would enable the company to expand into other orthopedic markets. We also remain on track to initiate commercial manufacturing for Macy in our new facility next year. In closing, we are very encouraged by the significant strength in both the underlying Macy business fundamentals and the early Macy Arthro leading indicators which point to potential opportunities for incremental Macy utilization in surgeon and patient segments across the Macy addressable market. We believe that the strong Macy Arthro surgeon training and the incremental biopsies those surgeons have and will generate provide a very strong foundation for Macy implant growth moving forward. In addition, the significantly improved trends for Epicell have positioned the Burn Care franchise for much stronger performance this quarter. We believe the company is well positioned for another strong year of revenue and profit growth in 2025 and continued strong growth in the years ahead.

We will now open the call up to questions.

At

this

time I would like to remind everyone in order to ask a question press star and enter number one in your telephone keypad. We'll pause for just a moment to compile them to a new roster. Your first question comes from the line of Ryan Zibberman with BCIG. Please go ahead.

Hey, good morning. Can you hear me okay?

Yes, good morning, Ryan.

Good morning. I want to start off talking about Macy Arthro a little bit. You know, Nick, you talked about a bunch of metrics and you also talked about the femoral condyle and the trochlear potential of Macy Arthro. I'm curious if we could talk a little bit about kind of how you see the market opportunity for femoral condyle and trochlear specifically. Is that, is any of that additive to the current market sizing that you think about for patella and just help us understand patient interest and willingness to some of these other lesions treated beyond say the patella lesions that you already treat?

Yep, thanks, Ryan. So, you know, as we've talked about in the past, the Macy Arthro instruments were designed to treat two to four square centimeter defects on the femoral condyles. And that makes up about 20,000 of the 60,000 patient TAM on an annual basis. What we found as we sort of alluded to on our last call is that many surgeons are also using the Macy Arthro instruments to treat trochlear defects, which is an area behind the patella or the knee cap that's, you know, pretty difficult to access and, you know, anatomically, you know, different for every patient and so on. And, you know, I think because of the procedural simplicity of Macy Arthro and enhanced access that those instruments provide that we're just seeing that trochlea, as I mentioned, could become another area that opens up an area where we've had, if you think about our corporate presentation, the right hand of that slide where we segment out the patient population, there's the 20,000 patients for femoral condyled defects, and then there's a 20,000 segment for these other smaller defects, which includes the trochlea. So therein lies the opportunity to get deeper penetration into the existing market in an area that, quite frankly, the instruments weren't necessarily designed to address, but the surgeons have found them, again, because of enhanced access with the instruments and the simplicity of the procedure that, you know, these defects are amenable to be treated with the Macy Arthro instruments.

Yeah, that's helpful. And then, you know, there's a follow-up on Macy Arthro. You know, the comps arguably get a little harder through the year. You know, you've already pointed to kind of what you think 2Q numbers could be. I'm curious how you think about seasonality and pacing, particularly in the second half of the year. You know, we've followed kind of a very prescriptive kind of component and pacing dynamic for Macy for many years now, but I'm wondering if we should be thinking about bucking that trend, if you will, because of, you know, the efforts you're making to expand Macy Arthro as a growth driver, because based on your guidance, it would suggest that, you know, there might be a more, you know, step up, a more enhanced level of step up in the second half of the year, given some of these trends are starting to build. Thanks for taking the questions.

Yeah, so good morning, Ryan. So I'll take that one. This is Joe. So, you know, I think as you think about Macy, and I think to your point, it's generally followed a pretty prescriptive pattern. And I would say to kind of look at the guidance, you know, generally, you know, I'd say, just kind of think about the four year guidance, you know, I guess the first kind of piece on Macy is, you know, as Nick said, the leading indicators have been, you know, really strong, just the core leading indicators, we think look at things like surgeons and biopsies and the biopsies in particular. And I would say, you know, when you think about those 400 trained surgeons, I mean, that's a pretty meaningful percentage of our surgeon base that's already trained and to see that cohort driving, you know, biopsies kind of well above our typical average and the national average over 30%. I mean, that's encouraging what we want to see and pretty significant. So I think to your point, I mean, it sets the company up not only for a strong second quarter, but really, for kind of strong quarters the rest of the year, you know, as kind of we think about what the pace of Macy for the remainder of the year, you know, I would say if you kind of look at it, it's still generally follows the kind of mix, you know, kind of first half and second half within the year. You know, I would say, as you think about our full year guidance, given what we've seen kind of on Macy to date, you know, I think last quarter, you know, we talked about kind of, you know, probably being in the high 230 million range on the Macy side. I think given what we've seen on these leading indicators, you know, I think our, you know, we assume at this point, that would be a bit higher. So, you know, the mix within our guidance, if you will, which can always shift a little bit during the year, is probably, you know, I think we feel like Macy will be a bit higher. So, you know, I think Macy is set up for those strong quarters for the remainder of the year. You know, and if you kind of think big picture on Macy, you know, to your point, but if you think on a full year basis, you know, the last couple years, we've been growing at 20% both of the last two years without our growth. So I certainly think it's reasonable, you know, if we get in to call it the low 240s on Macy to be up a couple points on a four year basis. So, you know, you would expect pretty strong growth in the remaining quarters, just kind of given what we're seeing in those positive trends on the indicators. I guess just last one additional point is, you know, what's interesting is not just thinking about 2025, and I think Nick mentioned this in the prepared remarks, but also thinking about kind of the exit rate this year and what that could look like for Macy, you know, in 2026. You know, if all 400 of those trained surgeons to date, for example, just do one additional case, and you're certainly not assuming that in our guidance, but it gives you a sense, you know, that would be north of $20 million and, you know, double digit growth, you know, just right there. So, you know, I think it gives you a sense of the potential opportunity. And, you know, I think we're excited about what we've seen, but also kind of excited as we think about beyond 2025, you know, what this may look like for Macy.

Thank you, Joe. Let me just squeeze one clarification. Was there any contribution in your Macy numbers in the first quarter? I'm just curious how to think about that with the .2% growth. Thanks for taking the question.

You mean specific contribution from Arthro?

Yeah,

thank you. Yeah, exactly.

Yeah.

Hey,

Ryan, this is Nick. So, one thing, you know, again, we, as we mentioned on the last call, it's a little hard to parse out. You know, certainly we believe there are incremental cases that have occurred. It's a little harder to parse out because, as we mentioned, we kind of launched in earnest Macy-Arthro in Q1. So, you know, those biopsies typically take four to six months to convert. So, you know, no doubt there's some incremental impact, but we certainly expect that to inflect in the back half of the year and into 2026. And I, you know, I'll just point you to the dynamics that I referenced in my prepared remarks from 2017. You know, when we launched Macy originally, you saw a very quick uptake in biopsy growth that translated into, you know, market increase in implants in the second half of 2017 where growth, you know, was up in the, you know, call it roughly 20% range. And then in 2018, to Joe's point, you know, that really came through with, you know, 54% Macy growth in 2018 over 2017. So, you know, we're hopeful that the cadence we're seeing here with early biopsy inflection then translates to implant growth and inflection in the back half of the year and into 2026 and beyond.

Okay. Thank you for taking my question. Thanks, Ryan.

Thanks, Ryan. Our next question comes from the line of Richard Neewitter with Lewis Technologies. Please go ahead.

Hi. Thanks for taking the questions. I guess the first thing on your comments, thanks to the color on Macy, it sounds like, you know, you're striving for 240 plus. Do you need Macy Arthro to inflect in order to achieve that? I guess the question is how, you know, how reliant are you for an inflection to hit numbers or is there some cushion there? And then the other, that's the question up front, just on the margin, you know, it's a pretty substantial increase in 22 step up and it sounds like you guys have a high level of visibility. Is that just all the epicell visibility coming back? So, you feel really good about that step up and it's as simple as that or maybe it's expense timing, just maybe any color just to get us to that 20% even by margin. Thanks.

Yeah. So, good morning, Rich. So, on the first question on Macy, you know, I would say in terms of kind of how to think about kind of Arthro and the inflection, you know, again, I think, you know, if you think last quarter, obviously earlier in the year, you know, we want to be kind of mindful of where we are to start the year and kind of how far through we were. I would say, you know, as we sit here today, we're kind of four plus months, you know, into the year. So, you know, I think as we've been talking about, there's a lot more data and a lot, you know, much more, I'd say kind of robust trends, you know, over four plus months on the Arthro side. So, you know, again, if you think about Macy going from, you know, call it 20 to 22%, you know, I would say we are assuming a contribution, you know, clearly from Arthro to help drive that inflection on a year over year basis. But I would also say, you know, it's based on, you know, I'd say essentially the trends we've seen to date. So the surgeon training has been strong, you know, we assume that's going to continue, you know, we're seeing incremental biopsies from these surgeons, we're seeing other areas of the knee where, you know, kind of providing potentially new opportunities, et cetera. So, you know, certainly it's part of our, you know, I certainly think it's part of our guidance assumption, but I wouldn't say we're looking for kind of inflection, if you will, the underlying trends of Macy Arthro. It's more of continuing to do what we're doing. And, you know, as the lead, the most important leading indicator for us is biopsies. So, you know, we believe as we kind of hit, you know, the back half of the year and again into 26, that's going to give us a nice opportunity to, you know, to convert these incremental biopsies. So it's essentially continuing in similar trends of what we've had that, you know, it's a couple million higher, so it's not usually material from a change perspective. And then from a margin perspective, I would say, you know, in the first quarter, you know, when you see that lower epicelle revenue kind of coupled with what is typically our lowest Macy revenue, you know, we did have, you know, I'd say pretty solid gross margin, you know, still at 69%, you know, which is simply the same as last year, you know, if, for example, epicelle was a bit higher in the quarter, then, certainly we could have been in that 70% range. So I think getting to the low 70s in Q2 with, you know, with a base of revenue that we expect to be much higher in the mid 60s is certainly a reasonable expectation. And then for, you know, for the year, you know, we did talk about gross margin, we did increase our guidance a bit to 74% on a full year basis on the gross margin side. So, you know, we have some visibility there as well. And then from an adjusted EBITDA margin, you know, the Q1 results certainly impacted by kind of lower revenue on both products. You know, we kind of just think about where the revenue is and what our current expense base is, you know, that's kind of, we did expect a lower margin in the first quarter. In the second quarter, you know, I think to your point, you know, once kind of the revenue, you know, gets up to a much more substantial number in the mid 60s, you know, generally, as I commented, we probably assume similar operating expenses, across all four quarters. And, you know, again, as we look to accelerate a bit of our Macy Salesforce expansion into this year, you know, we've contemplated that on a four year basis as well. So it really is kind of that revenue level, I would say that sort of drives, you know, what you're seeing on a quarter over quarter basis and why,

and where that change is coming from. Thank you. Thank you.

The next question comes from the line of Mike Kroskey with Lyric Partners. Please go ahead.

Hi, everyone. This is Sam on for Mike. Can you guys hear me all right? Yes. Yes.

Good morning.

Yeah, thanks, guys. So I know it's early days, and you mentioned higher biopsy rates for Macy arthro surgeons in the quarter, but can you kind of provide any color in terms of what you're seeing in respect of conversion rates thus far? Again, I know it's probably just a small number of procedures, but are they higher than traditional Macy implants? And, you know, how could this potentially translate to growth in the back half of the year?

Yeah, this is Nick. So as I mentioned on the call, you know, it's a little early to kind of see the same kind of inflection in implants just because the median conversion time is, you know, call it four to six months. And, you know, obviously, we were referencing biopsies year to date. So in the first, you know, four months of the year, so it's a little early to be able to see kind of what, you know, the impact will be on conversion rates, although for the reasons we've mentioned in the past that it's a much simpler, faster, less invasive surgery, one would think that over time, you know, you would see a higher conversion rate for Macy arthro. So

regardless

of that, just in terms of having, you know, those additional biopsies, we would expect that you would see, as I mentioned earlier, when you have a strong uptick in biopsies, those tend to show up as implants four to six months later or a couple quarters later. So that's the impact, you know, we would expect in the second half of the year. And as Joe mentioned, I think it's important to note that it doesn't really require anything more than sort of maintaining the current trends we've seen year to date to be able to deliver on the guidance that we provided today.

Got it. Thanks. That's very helpful. And then I just had one follow up. So, you know, with your Salesforce like now fully trained on both EpiCell and Nexabrid as of last quarter, can you just provide any color on any cross selling opportunities that you've seen in one queue and in particular, how many EpiCell accounts you're in currently, and maybe how many previously dormant EpiCell accounts you may have unlocked in the quarter and, you know, those kinds of dynamics?

Yeah, so as you noted, we did sort of expand the Salesforce in the middle of last year. And yes, all the reps are cross trained on both products. And that's an important part of the longer term sort of growth opportunity for our burn care franchise. I would say that, you know, each quarter, we do see that we're getting biopsies from dormant accounts. You know, last year, I think we had alluded to the fact that, you know, there were several million dollars worth of EpiCell revenue that was attributable to what were at one time all Nexabrid only accounts, and we expect that to continue. So we certainly get biopsies, whether those translate into graphs and revenue, you know, just depends on those, you know, patient health issues and treating the patients and so on. But there's certainly, you know, the continued opportunity to do that. And that's the goal, to have every account we're in become both EpiCell and Nexabrid users.

Got it. Thanks so much. Thank you.

Next question comes from the line of Josh Jennings with PT Coven. Please go ahead.

Hi, good morning, Nick and Joe. Thanks for taking the question. I wanted to ask one on Macy Arthro, and it's still early in the launch, but any you can share in terms of reporting back from your surgeon customers or from the field just on the acute outcome for Macy Arthro procedures, anything on just recovery time and acute procedural success, etc. It would be great to hear some of those data points.

Yeah, hey, Josh, thanks for the question. You know, I would say from our corporate perspective, as I think I've mentioned previously, we currently have a Macy registry that, you know, is enrolling patients and that is intended for Macy Arthro patients. To basically be able to demonstrate those early post-surgical recovery times and advances. It's a little early to, you know, have data on that. Hopefully, you know, next year or sometime we'll be able to kind of have data on that. But, you know, there's certainly a number, you know, you can do Google searches and see surgeons who have used Macy Arthro in the videos they post about the results they're seeing with patients. And certainly, you know, I think their impression is, as we've expected and they would, which is when you have a less invasive surgery, you do have, you know, better post-operative recovery, better range of motion, back to full weight bearing, potentially sooner. So those things that, you know, you would want to see and would expect to be seen.

And just a quick follow-up on that one. And just on the procedural success rates, I mean, our understanding is that they're strong and that the learning curve is not steep. But I just wanted to check that box as well. And then just have one follow-up.

Yeah. Well, you know, again, it's early for outcomes data. But, you know, as we've talked about previously, you know, these surgeons do the vast majority of their cartilage repair procedures arthroscopically. So you would expect this is kind of right in their wheelhouse. And when we were, you know, working with surgeons, both through the human factor study and the voice of the customer kind of training sessions, you know, we ask about that, you know, is Macy Arthro, how does it compare to Macy Open in terms of time and complexity? And essentially was that parity? And then compared to other cartilage repair procedures that they do, how does it compare? And again, essentially at parity. So that would, you know, sort of support a conclusion that, you know, seems like you've heard that the learning curve is pretty quick.

Great. And then maybe for Joe, sorry if I missed this, but just, you know, the plan to expand Macy Arthro Salesforce, the margin guidance, positive revision, maybe just help us understand maybe high level or detail just the spend associated with expanding Macy Arthro Salesforce and how just to get us comfortable with the back half waiting in the margin route. Clearly we can look prior years and see the strength in the back half in terms of the margin expansion and gross margin expansion, but just wanted to balance that out with this initiative to expand the Macy Arthro Salesforce and the potential spend associated with it.

Yeah. So Josh, maybe I'll just start kind of on the expansion. You know, we talked about this a little bit on our last call in response to a question and, you know, obviously Macy continues to grow very strongly. And, you know, as we finish up our analysis on a Salesforce expansion, the details around it, which aren't all fully concluded yet, but, you know, we have a pretty strong step up in the back of the year as we always do. And we want to make sure that we have kind of the resources to support that expected growth and particularly in the high volume territory. So, you know, as we did last year, you know, we want to be adding that support in a timely way and really setting people up for a hit the ground running early in 2026 as well. So, you know, I don't expect that it will necessarily be sort of a full scale expansion from that perspective, but again, really designed to make sure we can support kind of the growth we're expecting in part as a result of Macy Arthrow.

Yeah. No, I think that just to add to that point, it's really kind of just given the leading indicators we've seen on Macy Arthrow, you know, we want to make sure we're kind of set up for success and, you know, we're investing behind that. So it's really just, you know, it's kind of that's what's driving the decision. And I would say from a P&L perspective, you know, to your point you made in your question, I mean, typically because the back half of the year, really the fourth quarter is, you know, such a high quarter for Macy, we do have, you know, the stronger margins in the fourth quarter in particular. And so that's, you know, that's just generally how the year plays out. You know, I would say from an operating expense perspective, the next point, I mean, we're not kind of instituting the full expansion in this year, but we are focused on those, you know, likely to focus on those higher volume territories and this, you know, clearly be kind of back half of the year, probably, you know, later in the year, realistically, by the time, you know, we're kind of adding to the field. So certainly, as we think about our kind of investments for the year, I mean, this is something that, you know, we want to make sure is a priority. So, you know, there's a bit of prioritization that kind of comes into that, but it doesn't change our view in terms of, you know, how we're thinking about our spend on a

question comes from the line of Casey Cronin with kind of words. Please go ahead.

Hi, thanks for taking the questions. Just to provide more color on the Salesforce expansion that you guys were talking about, you know, you touched on that it wouldn't be necessarily a full expansion this year, just a little more color on, you know, kind of the numbers for this year. And if you would plan to maybe make it more of a full expansion into 2026.

Yeah, thanks, Kate. You know, I guess I would just start by saying again, we haven't finalized the implementation plan. But just as we look out towards the end of this year and into 2026, 2027 and beyond, you know, it's clear based on the growth that we are expecting that we need to add resources. I think we talked about it in response to your question on the last earnings call. I think at that time, you know, I mentioned that wouldn't be surprised if, you know, maybe we had a couple dozen territories. And then the question is, you know, we obviously are, we've done this a lot in the past, not over the past couple years, but you know, we expanded the Salesforce in 2017 through 2020, right, for four or five straight years. And, you know, we always grew through that and increased rep productivity on a revenue per rep basis. And so, you know, I think our team knows how to do this well to make sure that, you know, there's no disruption, especially in the back half of the year. And so all of that goes into sort of thinking about if we want to add resources to make sure we're well positioned for the end of this year, how we might do that. And so it's really more of a making sure we sort of provide the support that's needed without incurring any disruption and then setting ourselves up for 2026. So a little more to come on the exact numbers, but I think it's in the ballpark of the range that, you know, we had talked about previously.

That's great. And then, you know, just on Arthro, how many

surgeons of the 400 that you've trained are, you know, legacy Macy users versus kind of the new Arthro-inclined users you touched on in your broader,

Tam? Well, I'd say, you know, the low hanging fruit, as you would expect, is that, you know, these current Macy users get trained on the Arthro procedure. And, you know, the vast majority come out of the buckets or the cohorts that we talked about previously, which are current Macy users, you know, half of which were really just sort of patella only surgeons or predominantly surgeons and then, you know, surgeons who did both condyles and patella cases. And so that's where most of these surgeons are coming from, as you would expect. You know, if you're a sales rep, you go back to your customers, you train them on Macy Arthro, and then you start moving on over time to sort of prospect new users. So it follows a playbook that I think would be expected. And, you know, there's a lot of advantages for us in that. These are, you know, surgeons that understand the clinical utility of Macy. They are, as we alluded to or discussed on our call, thinking about a broader patient population. That's important as well. So there's a lot of, growth opportunity even within

Macy users.

That's great. And then just a quick one on epicell. You know, the

lower graph per patient, I think was also a dynamic last quarter. Do you see this as more of a, you know, systemic trend and what could potentially be driving that?

No, we actually don't see that as a trend because it just moves each quarter depending on, again, sort of the patient population that you happen to be treating. So, no, there's no real, you know, as we've looked at things, you know, obviously, as you might expect, a number of different ways. There's no changes in the trends on, you know, burnt surface area of patients for biopsies that we're treating, etc. It just happens. And some ways you should think about it as sort of a carryover from Q4. So it was probably a less productive, you know, kind of set of biopsies that impacted Q4, unlike Q1 last year where we had sort of

a

huge number of Q4 2023 biopsies coming into Q1. Just didn't have that this year. And so, you know, it took a little while to sort of, I guess, dig out of that hole. But, you know, there's nothing fundamentally that's changed in terms of the nature of the patients

we're treating or any of the dimensions around that.

Got it. Thank you so much.

Thank you.

Again,

if you would like to ask a question, press star one in your telephone keyboard. Next question comes from the line of Mason Terico with the staff, please go ahead.

Hey, guys. Thanks for the questions. I was wondering how the recent trade war headlines impacted your view on Macy internationally. I know it's a dynamic situation. I was curious to hear how it's impacted your view there, whether it be the timeline or really your market assessment process.

Yeah, well, you know, obviously, it's a very fluid situation, Mason. You know, we believe there's certainly potential for Macy outside of the United States. That is sort of the project we're engaged in evaluating right now. You know, Macy was a very, you know, sort of important product in Europe previously. And so, you know, there's still a lot of surgeons there who, you know, would certainly welcome having Macy as a primary option for cartilage repair now. So we're going to continue to explore it. I think, you know, like everything here, it's a pretty fluid situation. We would take anything related to sort of, you know, tariffs or other sort of trade impacts into account before we made, you know, any sort of final decision on whether expanding outside the US makes sense for us.

Got it. Okay. And you somewhat touched on this in a prior question, but maybe asked another way. How are you prioritizing Arthro training across surgeon groups going forward? I mean, how much time is the sales force spending on driving adoption among those 2000 or so Arthro-focused surgeon groups? And how are you prioritizing adoption among that group in the back half of this year as we move into 2026?

Yeah, I'd say generally, as I mentioned, you know, first of all, a lot of these trainings occur at industry events. And so you kind of, or sort of regional kinds of training sessions and things like that, where, as is typical reps will invite surgeons to participate in these and they can choose etc. So, you know, there's a lot of from a rep time perspective, there's sort of these larger group training sessions, you know, that occur. And there are also individual sessions that occur. And those are a little more time consuming, you know, especially if it's a, you know, an individual cadaver based training where you have to find a lab, you know, get the cadaver knee and coordinate all that stuff, I'd say, you know, those are more time consuming, they certainly are done if that's a surgeon preference, but there's also a lot of streamlined ways to train the surgeons, as I mentioned, number one, they can train online, if they want, you know, sort of lab training, they can do it in a number of ways, either individually or at a larger regional trainings. You know, we also provide what we call these RD synthetic models to our reps that they can train surgeons on, which also cuts down on sort of, you know, the time and effort that's required to train a surgeon. So it's a synthetic model where they can kind of basically practice doing arthroscopic administration of Macy. And, you know, we think that, you know, could become very, a very streamlined way to train and surgeon, and we know that that's how some surgeons who have been trained and done Macy arthro implants have trained. So I'd say finally that, as I alluded to in the prior question, I just think if you, the low hanging fruit always is to go to your existing customers and train them, and then move on to sort of exploring the sort of high volume cartilage repair surgeons that, you know, haven't used Macy yet. And I just think, you know, there's certainly every situation you might imagine, but I would say that's probably the most likely way on an individual rep basis that these

trainings

occur.

Understood. Thanks again. Okay, thanks, Mason.

That ends the Q&A session. I will turn the call over to Nick Colangelo for closing remarks. Please go ahead.

Okay, well, thank you, and thanks everyone for your questions and continued interest in Verisel. I look forward to providing further updates on our progress on our next call, and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.